<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, 2000.
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 14, 2000
----------------------------- ---------------------------------------
Common Stock, Par Value $0.01 2,550,920
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 7
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 23
SIGNATURES 24
</TABLE>
<PAGE> 3
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2000 and March 31, 2000
(Unaudited)
<CAPTION>
Sept. 30, March 31,
Assets 2000 2000
------ ------------ -----------
<S> <C> <C>
Cash, primarily interest-bearing demand accounts $ 24,286,095 9,080,509
Interest-bearing deposits 99,000 198,000
Investment securities:
Available for sale, at fair value 22,927,755 120,575,542
Held to maturity, at amortized cost 600,000 600,000
Mortgage-backed securities available
for sale, at fair value 58,914,090 64,137,674
Loans receivable, net 173,973,296 105,315,729
Investment in real estate 58,054 58,054
Stock in Federal Home Loan Bank 4,527,400 7,987,100
Mortgage servicing rights -- 1,273,768
Office properties and equipment, net 6,937,840 6,935,115
Deferred tax asset 998,075 2,775,937
Accrued interest receivable and other assets 5,046,087 4,397,879
------------ -----------
298,367,692 323,335,307
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Savings deposits 183,636,320 140,885,244
Accrued interest payable on savings deposits 113,291 147,711
Federal Home Loan Bank advances 90,508,648 159,740,626
Borrowed money 1,157,799 1,694,534
Advance payments by borrowers for taxes and insurance 51,375 35,800
Income tax payable -- 276,568
Accrued expenses and other liabilities 658,809 629,822
------------ -----------
Total liabilities 276,126,242 303,410,305
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; 2,546,411 and 2,544,094
shares issued and outstanding at September 30,
2000 and March 31, 2000, respectively 25,464 25,441
Additional paid-in capital 16,202,266 16,192,342
Retained earnings - substantially restricted 11,243,294 11,849,449
Accumulated other comprehensive loss (2,666,300) (5,447,058)
Treasury stock, at cost, 160,105 and 158,055
shares at September 30, 2000 and
March 31, 2000, respectively (1,246,136) (1,233,799)
Unamortized restricted stock awards (400,451) (471,509)
Unearned ESOP shares (916,687) (989,864)
------------ -----------
Total stockholders' equity 22,241,450 19,925,002
------------ -----------
$298,367,692 323,335,307
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE> 4
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three and Six months ended September 30, 2000 and 1999
(Unaudited)
<CAPTION>
Three months Six months
ended September 30 ended September 30
2000 1999 2000 1999
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $2,407,879 1,913,816 4,589,682 3,738,333
Investment securities 1,937,901 2,027,868 4,172,480 3,642,154
Mortgage-backed securities 1,013,363 1,159,389 2,109,872 2,415,132
Interest-bearing deposits 95,116 22,112 130,695 32,032
Other 117,793 123,826 247,555 233,459
---------- --------- ---------- ----------
Total interest income 5,572,052 5,247,011 11,250,284 10,061,110
---------- --------- ---------- ----------
Interest expense:
Savings deposits 2,105,297 1,364,772 3,818,995 2,738,455
Advances from the Federal Home Loan Bank 1,937,941 2,117,622 4,210,997 3,938,599
Other borrowed money 14,158 17,423 25,400 29,225
---------- --------- ---------- ----------
Total interest expense 4,057,396 3,499,817 8,055,392 6,706,279
---------- --------- ---------- ----------
Net interest income 1,514,656 1,747,194 3,194,892 3,354,831
Provision for losses on loans -- -- -- --
---------- --------- ---------- ----------
Net interest income after pro-
vision for losses on loans 1,514,656 1,747,194 3,194,892 3,354,831
---------- --------- ---------- ----------
Noninterest income:
Gain on sale of mortgage loans 1,921,536 264,088 2,165,880 595,221
Loan servicing fees and late charges 190,152 303,735 439,304 614,858
Rental income 41,877 45,490 84,103 81,816
Gain (loss) on sale of investment
and mortgage backed securities
available for sale (2,716,878) (21,807) (2,716,704) 8,896
Other 192,531 166,258 422,213 307,864
---------- --------- ---------- ----------
Total noninterest income (expense) (370,782) 757,764 394,796 1,608,655
Noninterest expense:
Salaries and employee benefits 1,124,067 1,162,692 2,249,816 2,322,558
Occupancy 220,248 237,034 416,428 420,646
Data processing 120,824 120,817 220,430 211,948
Advertising 37,720 76,835 169,700 156,371
Deposit insurance premiums 8,038 18,783 15,245 37,295
Other 547,817 451,725 1,055,348 962,830
---------- --------- ---------- ----------
Total noninterest expense 2,058,714 2,067,886 4,126,967 4,111,648
---------- --------- ---------- ----------
Income (loss) before income
tax expense (benefit) (914,840) 437,072 (537,279) 851,838
Income tax expense (benefit) (346,348) 166,865 (202,867) 336,305
---------- --------- ---------- ----------
Net income (loss) $ (568,492) 270,207 (334,412) 515,533
========== ========= ========== ==========
Basic earnings (loss) per share $ (.25) .12 (.15) .22
========== ========= ========== ==========
Diluted earnings (loss) per share $ (.25) .11 (.15) .22
========== ========= ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE> 5
<TABLE>
Consolidated Statement of Stockholders' Equity
Six months ended September 30, 2000
(Unaudited)
<CAPTION>
Accum-
ulated
other Unamor-
Addi- compre- tized Total
Common Stock tional hensive restricted Unearned stock-
------------ paid-in Retained income Treasury stock ESOP holders'
Shares Amount capital earnings (loss) stock awards shares equity
--------- ------- ---------- ---------- --------- --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
March 31,
2000 2,544,094 $25,441 16,192,342 11,849,449 (5,447,058) (1,233,799) (471,509) (989,864) $19,925,002
Net loss (334,412) (334,412)
Dividend paid
on unvested
stock options 6,318 6,318
Exercise of
stock options 2,317 23 8,377 8,400
Purchase of
treasury
stock,
at cost (12,337) (12,337)
Amortization
of restricted
stock awards 71,058 71,058
Amortization
of ESOP
awards (4,771) 73,177 68,406
Dividend
declared
on common
stock at
$.12 per share (271,743) (271,743)
Other
comprehensive
income
(loss), net
of tax 2,780,758 2,780,758
--------- ------- ---------- ---------- ---------- ---------- -------- -------- -----------
Balance,
Sept. 30,
2000 2,546,411 $25,464 16,202,266 11,243,294 (2,666,300) (1,246,136) (400,451) (916,687) $22,241,450
========= ======= ========== ========== ========== ========== ======== ======== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE> 6
<TABLE>
EQUALITY BANCORP, INC.
Consolidated Statements of Cash Flows
Six months ended September 30, 2000 and 1999
(Unaudited)
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (334,412) 515,533
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization:
Office properties and equipment 202,691 209,815
Premiums and discounts, net (691,924) (589,215)
Mortgage servicing rights 197,461 322,508
Restricted stock awards 71,058 76,373
Decrease (increase) in accrued interest receivable 1,117,913 (737,632)
Loss (gain) on sale of investment and mortgage-backed
securities available for sale 2,716,704 (8,896)
Decrease in accrued interest payable on savings deposits (34,420) (41,981)
Change in income tax payable (276,568) (37,634)
Other, net (1,686,068) (63,825)
Origination and purchase of loans held for sale (40,855,946) (58,485,155)
Proceeds from sales of loans held for sale 40,298,105 58,589,886
----------- -----------
Net cash provided by (used in) operating activities 724,594 (250,223)
----------- -----------
Cash flow from investing activities:
Net change in loans receivable (67,015,268) (8,506,253)
Decrease in interest-bearing deposits 99,000 590,000
Principal repayments on investment securities, AFS 1,609 9,114
Principal repayments on mortgage-backed securities, AFS 4,639,744 12,582,326
Proceeds from the sale of investment securities, AFS 99,494,298 5,013,280
Proceeds from the maturity of investment securities, AFS 3,650,000 20,190,000
Proceeds from the sale of mortgage-backed securities, AFS 1,510,847 5,650,348
Purchase of investment securities, AFS (3,875,780) (60,884,425)
Purchase of mortgage-backed securities, AFS -- (5,300,430)
Sale (purchase) of stock in Federal Home Loan Bank 3,459,700 (1,089,100)
Purchase of office properties and equipment, net (205,416) (748,254)
----------- -----------
Net cash provided by (used in) investing activities 41,758,734 (32,493,394)
----------- -----------
Cash flow from financing activities:
Net increase in savings deposits 42,751,076 1,374,328
Proceeds from Federal Home Loan Bank advances -- 30,000,000
Repayment of Federal Home Loan Bank advances (69,231,978) (218,502)
Proceeds from (repayment of) other borrowed money (536,735) 1,555,115
Increase in advance payments by borrowers
for taxes and insurance 15,575 16,253
Cash dividends paid (271,743) (280,318)
Purchase of treasury stock (12,337) (423,935)
Proceeds from exercise of stock options 8,400 3,300
----------- -----------
Net cash provided by (used in) financing activities (27,277,742) 32,026,241
----------- -----------
Net increase (decrease) in cash and cash equivalents 15,205,586 (717,376)
Cash and cash equivalents, beginning of period 9,080,509 6,449,613
----------- -----------
Cash and cash equivalents, end of period $24,286,095 5,732,237
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 8,173,672 6,726,010
Income taxes paid, net 518,606 360,660
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE> 7
<TABLE>
EQUALITY BANCORP, INC.
Consolidated Statements of Comprehensive Income
Six months ended September 30, 2000 and 1999
(Unaudited)
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net Income (loss) $ (334,412) 515,533
Other comprehensive income (loss):
Net unrealized gain (loss) on investment and mortgage-
backed securities available for sale, net of tax 1,123,569 (1,517,979)
Less adjustment for gain on sale of investment and
mortgage-backed securities available for sale
realized in net income, net of tax credit of $1,059,515
and tax of $3,469 for the six months ended
September 30, 2000 and 1999, respectively 1,657,189 (5,427)
---------- ----------
Total other comprehensive income (loss) 2,780,758 (1,523,406)
---------- ----------
Comprehensive income (loss) $2,446,346 (1,007,873)
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE> 8
EQUALITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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, 2000 and 1999.
Operating results for the six months ended September 30, 2000 are
not necessarily indicative of the results that may be expected for
the year ending March 31, 2001.
(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
------------------
Basic earnings per share for the six month periods ended September 30,
2000 and 1999 were computed based upon net income for the period
using weighted average common shares outstanding of 2,270,008 and
2,343,930, respectively. For the three month periods ended September
30, 2000 and 1999, basic earnings per share were computed upon net
income for the period using weighted average common shares
outstanding of 2,272,629 and 2,337,322, respectively.
Diluted earnings per share for the six month periods ended September 30,
2000 and 1999 were computed based upon net income for the period
using weighted average common shares and dilutive potential common
shares outstanding of 2,285,705 and 2,370,419, respectively. Stock
options are the only dilutive potential common shares. For the three
month periods ended September 30, 2000 and 1999, diluted earnings per
share were computed using average common shares outstanding of
2,290,678 shares and 2,362,966 shares, respectively.
6
<PAGE> 9
EQUALITY BANCORP, INC.
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, 2000 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 decreased $25.0 million, or 7.7%, to $298.4
million at September 30, 2000 from $323.3 million at March 31, 2000. This
decrease in asset size primarily relates to a decrease in investment
securities, mortgage-backed securities, and stock in the Federal Home Loan
Bank of Des Moines (FHLB) which were used to repay FHLB advances, fund
increased loans receivable, and maintain cash reserves for future
investment.
Cash, primarily interest bearing demand accounts, increased $15.2 million,
or 167.5%, to $24.3 million at September 30, 2000 from $9.1 million at
March 31, 2000. This increase is primarily the result of decreased
investment securities, mortgage-backed securities, and stock in the FHLB,
and increased savings deposits offset by increased loans receivable and
decreased FHLB advances.
Interest bearing deposits decreased $99,000, or 50.0%, to $99,000 at
September 30, 2000 from $198,000 at March 31, 2000. The decrease is due to
the maturity of one certificate of deposit at another financial
institution. The Company is consciously reducing its investment in this
area as certificates of deposit mature.
Investment securities available for sale decreased $97.7 million, or 81.0%,
to $22.9 million at September 30, 2000 from $120.6 million at March 31,
2000. The decrease is due primarily to the Company's conscious liquidation
of a significant portion of its investment portfolio in late September,
2000, to purchase a number of commercial loans totaling $51.8 million from
Allegiant Bank, a local commercial bank and the proposed acquiring company
in the recently announced merger, as well as repayment of maturing FHLB
advances totaling $69.2 million. This sale resulted in approximate losses
of $2.7 million. Although no assurances can be made, management believes
that the restructuring will result in a significant reduction of the
Company's current interest rate risk exposure as well as future improvement
in interest income. Included in the remaining investment securities is a
$2.0 million corporate obligation, with a fair value of $1.3 million at
September 30, 2000 which was downgraded below investment grade; however,
the security continues to meet its interest paying obligations.
Management believes the decline in the fair value of this security is
temporary. Equality has the ability and it is managements intention to
hold this security until maturity.
Investment securities held to maturity totaled $600,000 at September 30, 2000
and March 31, 2000, respectively.
Mortgage-backed securities available for sale decreased $5.2 million, or
8.1%, to $58.9 million at September 30, 2000 from $64.1 million at March
31, 2000. This decrease is the result of principal repayments of $4.6
million and sales proceeds of $1.5 million, offset
7
<PAGE> 10
EQUALITY BANCORP, INC.
by a mark to market adjustment of $1.1 million to reflect improvement in
the unrealized loss on mortgage-backed securities at September 30, 2000.
Loans receivable, net, increased $68.7 million, or 65.2%, to $174.0 million
at September 30, 2000, from $105.3 million at March 31, 2000. Loans held
for investment increased $67.0 million, or 65.3%, to $169.7 million at
September 30, 2000 from $102.7 million at March 31, 2000. In late
September, 2000 the Bank purchased $51.8 million of commercial loans from
Allegiant Bank. This purchase was designed to contribute to improved
future interest income and to assist in the reduction of the Bank's current
interest rate risk profile. In addition, the increase represents
Equality's efforts to prudently increase its loan portfolio while
developing an expanded retail banking presence in its market area. Loans
held for sale increased $1.6 million, or 61.9%, to $4.3 million at
September 30, 2000 from $2.6 million at March 31, 2000. This increase is
the result of EMC mortgage loan originations totaling $40.9 million offset
by mortgage loan sales of $40.3 million at September 30, 2000.
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, 2000 MARCH 31, 2000
------------------ --------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Loans secured by real estate:
Residential:
One to four family:
Conventional $ 76,515 43.9% $ 68,183 64.5%
FHA/VA 11,748 6.7 10,758 10.2
Loans held for sale 4,275 2.5 2,641 2.5
Multifamily 1,207 0.7 1,343 1.3
Commercial 3,143 1.8 4,097 3.9
-------- ----- -------- -----
Total Real Estate Loans 96,888 55.6 87,022 82.4
Commercial Business Loans 71,748 41.1 14,476 13.7
-------- ----- -------- -----
Consumer Loans:
Loans secured by savings deposits 285 0.2 257 0.2
Property improvement loans 1,947 1.1 1,633 1.5
Automobile loans 3,128 1.8 1,763 1.7
Other consumer loans 381 0.2 563 0.5
-------- ----- -------- -----
Total Consumer Loans 5,741 3.3 4,216 3.9
-------- ----- -------- -----
Total Loans 174,377 100.0% 105,714 100.0%
LESS:
Deferred loan fees 9 21
Unearned discounts 34 13
Allowance for loan losses 361 364
-------- --------
Total loans receivable, net $173,973 $105,316
======== ========
</TABLE>
8
<PAGE> 11
EQUALITY BANCORP, INC.
Office properties and equipment totaled $6.9 million at September 30, 2000
and March 31, 2000, respectively.
Savings deposits increased $42.8 million, or 30.3%, to $183.6 million at
September 30, 2000 from $140.9 million at March 31, 2000 as a result of
continued general marketing efforts in addition to increased customer
recognition and increased usage of the recently established branch
facilities.
FHLB advances decreased $69.2 million, or 43.3%, to $90.5 million at
September 30, 2000 from $159.7 million at March 31, 2000. Proceeds from
the sale of investment securities, increased savings deposits, principal
repayments on mortgage-backed securities, and proceeds from the redemption
of FHLB stock were used to repay these maturing borrowings.
Other borrowed money decreased $537,000, or 31.7%, to $1.2 million at
September 30, 2000 from $1.7 million at March 31, 2000. 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 $2.3 million, or 11.6%, to $22.2 million
at September 30, 2000 from $19.9 million at March 31, 2000. The increase
was primarily attributable to improvement in the mark to market adjustment
on securities available for sale of $2.8 million, amortization of unearned
ESOP shares of $68,000, and a reduction of unamortized restricted stock
awards of $71,000, offset by net losses of $334,000 and payment of
dividends on common stock totaling $271,000.
9
<PAGE> 12
<TABLE>
EQUALITY BANCORP, INC.
UNAUDITED CONSOLIDATED AVERAGE BALANCE SHEET,
INTEREST AND DIVIDENDS EARNED OR PAID,
AND RELATED INTEREST YIELDS AND RATES
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------------
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> $137,662 $2,408 7.00% $ 99,314 $1,914 7.71%
Investment securities 87,635 1,938 8.85 110,573 2,028 7.34
Mortgage-backed securities 61,885 1,013 6.55 78,905 1,159 5.88
Interest-bearing deposits 12,809 95 2.97 3,811 22 2.31
Investment in FHLB 5,947 118 7.94 7,803 124 6.36
-------- ------ -------- ------
Total interest-earning
assets 305,938 5,572 7.29 300,406 5,247 6.99
------ ------
Other assets 6,358 13,120
-------- --------
Total assets 312,296 313,526
======== ========
Interest bearing liabilities:
Regular savings 18,758 21,375
NOW accounts 19,794 17,984
Money market accounts 12,396 9,571
Certificates of deposit 125,001 81,103
-------- --------
Total savings deposits 175,949 2,105 4.79 130,033 1,365 4.20
FHLB advances 113,881 1,938 6.81 154,003 2,118 5.50
Other interest-bearing
liabilities 2,030 14 2.76 3,228 17 2.11
-------- ------ -------- ------
Total interest bearing
liabilities 291,860 4,057 5.56 287,264 3,500 4.87
------ ------
Other liabilities (607) 1,978
-------- --------
Total liabilities 291,253 289,242
Stockholders' equity 21,043 24,284
-------- --------
Total liabilities and
stockholders' equity $312,296 $313,526
======== ========
Net interest income $1,515 $1,747
====== ======
Interest rate spread 1.73% 2.12%
====== ======
Net interest margin<F4> 1.98% 2.33%
====== ======
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 1.05X 1.05X
==== ====
<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>
10
<PAGE> 13
EQUALITY BANCORP, INC.
THREE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
NET INCOME
Net income decreased $839,000, or 310.4%, to a loss of $568,000 for the three
months ended September 30, 2000 from net income of $270,000 for the three
months ended September 30, 1999. The decrease was primarily the result
of the loss on the sale of investment securities of $2.7 million, and
decreased net interest income of $233,000, or 13.3%, offset by increased
gain on the sale of loans of $1.7 million and decreased income taxes of
$513,000, or 307.6%, for the three months ended September 30, 2000.
INTEREST INCOME
Interest income increased $325,000, or 6.2%, to $5.6 million for the three
months ended September 30, 2000 from $5.2 million for the three months
ended September 30, 1999. The increase is primarily due to increased
average loans receivable of $38.4 million to $137.7 million for the three
months ended September 30, 2000 from $99.3 million for the three months
September 30, 1999 offset by decreased average investment securities of
$22.9 million to $87.6 million for the three months ended September 30,
2000 from $110.6 million for the three months ended September 30, 1999
and decreased average mortgage-backed securities of $17.0 million to
$61.9 million for the three months ended September 30, 2000 from $78.9
million for the three months ended September 30, 1999. The weighted
average yield on total interest-earning assets increased to 7.29% for the
three months ended September 30, 2000 from 6.99% for the three months
ended September 30, 1999 due to the reinvestment of investment securities
sales proceeds into higher yielding commercial loans.
INTEREST EXPENSE
Interest expense increased $558,000, or 15.9%, to $4.1 million for the three
months ended September 30, 2000 from $3.5 million for the three months
ended September 30, 1999. The increase is primarily due to increased
average savings deposits of $45.2 million to $175.9 million for the
three months ended September 30, 2000 from $130.7 million for the three
months ended September 30, 1999 offset by decreased average FHLB advances
of $40.1 million to $113.9 million for the three months ended September
30, 2000 from $154.0 million for the three months ended September 30,
1999. This overall increase is due primarily to the increased recognition
and use of recently opened branch facilities and increased general
marketing efforts. Weighted average cost of funds increased to 5.56% for
the three months ended September 30, 2000 from 4.86% for the three months
ended September 30, 1999 reflecting generally higher interest rates and
the Bank's competitive environment for new deposits.
PROVISION FOR LOSSES ON LOANS
The Company had no provision for losses on loans for the three month periods
ended September 30, 2000 or September 30, 1999. The provision for loan
losses is determined by management as the amount to be added to the
allowance for loan losses after net charge-offs 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 $361,000 at September 30, 2000 and $364,000 at March 31,
2000. 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 considers 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.
11
<PAGE> 14
EQUALITY BANCORP, INC.
NONINTEREST INCOME
Noninterest income decreased $1.1 million, or 148.9%, to a loss of $371,000
for the three months ended September 30, 2000 from income of $758,000 for
the three months ended September 30, 1999. This decrease was due
primarily to the loss on the sale of investment securities of $2.7
million for the three months ended September 30, 2000 compared to a loss
on sale of $22,000 for the three months ended September 30, 1999, and
decreased loan servicing fees and late charges of $114,000, or 37.4%, to
$190,000 for the three months ended September 30, 2000 from $304,000 for
the three months ended September 30, 1999 offset by increased gain on
sale of loans of $1.7 million, or 627.6%, to $1.9 million for the three
months ended September 30, 2000 from $264,000 for the three months ended
September 30, 1999. For the three months ended September 30, 2000, the
Company, through EMC, sold approximately $236 million of various
government agency servicing into the secondary market and recorded a gain
on that sale of $1.7 million. In addition, EMC sold $17.8 million in
mortgage loans as compared to sales of $30.3 million for the three months
ended September 30, 1999. The decreased volume of sales resulted in
decreased gain on sale for the comparable periods. The Company's sale of
servicing resulted in a reduction in the average loan servicing portfolio
of $130.6 million, or 34.2%, to $251.5 million for the three months ended
September 30, 2000 from $382.1 million for the three months ended
September 30, 1999.
NONINTEREST EXPENSE
Noninterest expense decreased $9,000, or 0.4%, remaining at $2.1 million
for the three months ended September 30, 2000 and September 30, 1999,
respectively. The decrease was due to decreased salary and employee
benefits of $39,000, or 3.3%, to $1.1 million for the three months ended
September 30, 2000 from $1.2 million for the three months ended September
30, 1999, decreased occupancy expense of $17,000, or 7.1%, to $220,000
for the three months ended September 30, 2000 from $237,000 for the three
months ended September 30, 1999, and decreased advertising expenses of
$39,000, or 50.9%, to $38,000 for the three months ended September 30,
2000 from $77,000 for the three months ended September 30, 1999 offset by
increased other expense of $96,000, or 21.3%, to $548,000 for the three
months ended September 30, 2000 from $452,000 for the three months ended
September 30, 1999. Salary and employee benefits, as well as occupancy
and advertising expenses, decreased due to a decrease in the number of
EMC personnel and as a result of the Company's efforts in areas of
expense reduction. The increase in other expenses is primarily due to
legal and professional expenses associated with the merger of the Company
with and into Allegiant Bancorp.
INCOME TAXES
Income tax expense decreased $513,000, or 307.6%, to a benefit of $346,000
for the three months ended September 30, 2000 from expense of $167,000
for the three months ended September 30, 1999. This decrease was
primarily due to a decrease in income before income tax of $1.4 million,
or 309.3%, to a loss before income tax of $915,000 for the period ended
September 30, 2000 as compared to income before income tax of $437,000
for the similar period in 1999.
12
<PAGE> 15
<TABLE>
EQUALITY BANCORP, INC.
UNAUDITED CONSOLIDATED AVERAGE BALANCE SHEET,
INTEREST AND DIVIDENDS EARNED OR PAID,
AND RELATED INTEREST YIELDS AND RATES
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------------
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> $124,608 $ 4,590 7.37% $ 98,300 $3,738 7.61%
Investment securities 107,536 4,172 7.76 102,138 3,642 7.13
Mortgage-backed securities 63,605 2,110 6.63 81,662 2,415 5.91
Interest-bearing deposits 10,604 130 2.45 3,338 32 1.92
Investment in FHLB 6,733 248 7.37 7,443 234 6.29
-------- ------- -------- ------
Total interest-earning
assets 313,086 11,250 7.19 292,881 10,061 6.87
------- ------
Other assets 5,858 12,776
-------- --------
Total assets 318,944 305,657
======== ========
Interest bearing liabilities:
Regular savings 19,104 21,209
NOW accounts 19,744 17,103
Money market accounts 12,551 8,998
Certificates of deposit 113,871 81,852
-------- --------
Total savings deposits 165,270 3,819 4.62 129,162 2,738 4.24
FHLB advances 131,773 4,211 6.39 146,641 3,939 5.37
Other interest-bearing
liabilities 2,134 25 2.34 2,826 29 2.05
-------- ------- -------- ------
Total interest-bearing
liabilities 299,177 8,055 5.38 278,629 6,706 4.81
------- ------
Other liabilities (827) 2,265
-------- --------
Total liabilities 298,350 280,894
Stockholders' equity 20,594 24,763
-------- --------
Total liabilities and
stockholders' equity $318,944 $305,657
======== ========
Net interest income $ 3,195 $3,355
======= ======
Interest rate spread 1.81% 2.06%
======= ======
Net interest margin<F4> 2.04% 2.29%
======= ======
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 1.05X 1.05X
==== ====
<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>
13
<PAGE> 16
EQUALITY BANCORP, INC.
SIX MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
NET INCOME
Net income decreased $850,000, or 164.9%, to a net loss of $334,000 for
the six months ended September 30, 2000 from income of $516,000 for the
six months ended September 30, 1999. The decrease was primarily the
result of the loss on the sale of investment securities of $2.7 million,
and decreased net interest income of $160,000, or 4.8%, offset by
increased gain on the sale of loans of $1.6 million, or 263.9%, and
decreased income taxes of $539,000, or 160.3%, for the three months ended
September 30, 2000.
INTEREST INCOME
Interest income increased $1.2 million, or 11.8%, to $11.3 million for
the six months ended September 30, 2000 from $10.1 million for the six
months ended September 30, 1999. Interest on loans receivable increased
$851,000, or 22.8% to $4.6 million for the six months ended September 30,
2000. This increase was the result of an increase in the average balance
of loans outstanding of $26.3 million to $124.6 million for the six
months ended September 30, 1999 from $98.3 million for the six months
ended September 30, 1999, offset by a decrease in the yield on loans from
7.61% for the six months ended September 30, 1999 to 7.37% for the six
months ended September 30, 2000. The higher average balance of loans
outstanding for the six months ended September 30, 2000 reflects the
purchase of $51.8 million in commercial loans from Allegiant Bank in late
September, 2000 as well as increased portfolio lending by the Bank.
Interest on investment securities increased $530,000, or 14.6%, to $4.2
million for the six months ended September 30, 2000 from $3.6 million for
the six months ended September 30, 1999, due to an increase in the
average balance of investment securities of $5.4 million to $107.5
million for the six months ended September 30, 2000 from $102.1 million
for the six months ended September 30, 1999. During the same period the
yield on investment securities increased from 7.13% for the six months
ended September 30, 1999 to 7.76% for the six months ended September 30,
2000. Interest income on mortgage-backed securities decreased $305,000,
or 12.6% to $2.1 million for the six months ended September 30, 2000 from
$2.4 million for the six months ended September 30, 1999 due to a
decrease in the average balance of $18.1 million to $63.6 million for the
six months ended September 30, 2000 from $81.7 million for the six months
ended September 30, 1999, offset by an increase in the yield on
mortgage-backed securities from 5.91% for the six months ended September
30, 1999 to 6.63% for the six months ended September 30, 2000.
INTEREST EXPENSE
Interest expense increased $1.3 million, or 20.1%, to $8.1 million for the
six months ended September 30, 2000 from $6.7 million for the six months
ended September 30, 1999. The increase resulted primarily from increased
average savings deposits offset by decreased average FHLB advances.
Average deposit balances increased $36.1 million to $165.3 million for
the six months ended September 30, 2000 from $129.2 million for the six
months ended September 30, 1999. During the same six month periods, the
weighted average cost of deposits increased from 4.24% for the six months
ended September 30, 1999 to 4.62% for the six months ended September 30,
2000. The increase in average savings deposits is primarily due to the
Bank's continued strong marketing efforts and the impact of recently
opened branch facilities.
Average advances from the FHLB decreased $14.9 million to $131.8 million
for the six months ended September 30, 2000 from $146.6 million for the
six months ended September 30, 1999. The decrease is primarily the
result of the repayment of borrowings using increased savings deposits as
well as proceeds of the sale of investment securities.
14
<PAGE> 17
EQUALITY BANCORP, INC.
The weighted average cost of advances increased from 5.37% for the six
months ended September 30, 1999 to 6.39% for the six months ended
September 30, 2000.
PROVISION FOR LOSSES ON LOANS
The Company had no provision for losses on loans for the six months ended
September 30, 2000 or September 30, 1999. 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 $361,000 at September 30, 2000 and $364,000 at March 31, 2000.
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 decreased $1.2 million, or 75.5%, to $395,000 for the
six months ended September 30, 2000 from $1.6 million for the six months
ended September 30, 1999. The decrease is due primarily to the loss on
the sale of investment securities of $2.7 million for the six months
ended September 30, 2000, and decreased loan servicing fees and late
charges of $176,000, or 28.6%, to $439,000 for the six months ended
September 30, 2000 from $615,000 for the six months ended September 30,
1999, offset by increased gain on sale of mortgage loans of $1.6 million,
or 263.9%, to $2.2 million for the six months ended September 30, 2000
from $595,000 for the six months ended September 30, 1999. In September,
2000, the Bank made the conscious decision to reduce its current interest
rate risk profile as well as augment its future earnings stream. This
was accomplished through the sale of approximately $97.7 million of
investment securities and reallocation of the proceeds toward the
purchase of $51.8 million of adjustable, prime-based commercial loans as
well as repayment of maturing FHLB advances. In addition, for the six
months ended September 30, 2000, the Bank, through EMC, sold
approximately $236 million of various government agency servicing into
the secondary market and recorded a gain of $1.7 million. EMC also sold
$40.3 million of mortgage loans as compared to $58.6 million in the
comparable period in 1999. The deceased sales volume of $18.3 million
resulted in decreased gain on sale of mortgage loans. Loan servicing
fees and late charges decreased due primarily to a decrease in the
average servicing portfolio of EMC as a result of the sale. Average loan
servicing by EMC decreased $45.4 million, or 13.1%, to $302.4 million for
the six months ended September 30, 2000 from $347.8 million for the six
months ended September 30, 1999. The remaining servicing portfolio was
approximately $94.7 million at September 30, 2000.
NONINTEREST EXPENSE
Noninterest expense increased $15,000, or 0.4%, remaining at $4.1 million
for the six months ended September 30, 2000 and September 30, 1999,
respectively. The increase was due to primarily to decreased salaries and
employee benefits of $73,000, or 3.1%, to $2.2 million for the six months
ended September 1999 from $2.3 million for the six months ended September
30, 1999 offset by increased other expenses of $93,000 or 9.6%, to $1.1
million for the six months ended September 30, 2000 from $963,000 for the
six months ended September 30, 1999. Salary and employee benefits
decreased primarily due to a decrease in the number of EMC personnel. The
increase in other expenses is the result of legal and professional fees
associated with the merger of the Company with and into Allegiant
Bancorp.
15
<PAGE> 18
EQUALITY BANCORP, INC.
INCOME TAXES
Income tax expense decreased $539,000, or 160.3%, to a benefit of $203,000
for the six months ended September 30, 2000 compared to expense of
$336,000 for the six months ended September 30, 1999. The decrease was
the result of the decrease in income before income tax expense of $1.4
million to a loss before income tax of $537,000 for the six months ended
September 30, 2000 as compared to income before income tax of $852,000
for the same period ending September 30, 1999.
NONPERFORMING ASSETS
At September 30, 2000, nonperforming assets were approximately $562,000,
which represents a decrease of $157,000, or 21.8%, as compared to March
31, 2000. A summary of nonperforming assets by category is summarized as
follows:
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------- ---------
(in thousands)
<S> <C> <C>
Nonaccruing loans:
One to four family<F1> $308 471
Commercial business 225 233
Consumer and other 29 13
---- ---
Total nonaccruing loans 562 717
Repossessed assets -- 2
---- ---
Total nonperforming assets $562 719
==== ===
Nonaccruing loans as a percent of
net loans .32% .68%
==== ===
Nonaccruing loans as a percent of
total assets .19% .22%
==== ===
Nonperforming assets as a percent of
total assets .19% .22%
==== ===
<FN>
<F1> Includes $232,000 and $388,000 of FHA/VA loans, the principal and
interest payments of which are either issued by FHA or guaranteed
by the VA at September 30, 2000 and March 31, 2000, 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.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, advances from the FHLB,
repayments, prepayments and maturities of outstanding loans, maturities
of investment securities and other short term instruments, and funds
provided from operations. While scheduled loan repayments and maturing
investment securities and short-term investments are relatively
predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by the movement of interest rates in general, economic
conditions and competition. The Bank manages the pricing of its deposits
to maintain a deposit
16
<PAGE> 19
EQUALITY BANCORP, INC.
balance deemed appropriate and desirable. In addition, the Bank invests
in short-term investment securities and interest-earning assets which
provide liquidity to meet lending requirements. Although the Bank's
deposits have historically represented the majority of its total
liabilities, the Bank also utilizes other borrowing sources, primarily
advances from the FHLB which totaled $90.5 million at September 30, 2000.
At September 30, 2000, the Bank had approximately $196,000 in outstanding
commitments to originate mortgage loans, all of which were adjustable
rate. The majority of these loans will be delivered to the Bank's
mortgage loan portfolio.
Liquidity management is both a daily and long-term function. Excess
liquidity is generally invested in short-term investments such as cash
and cash equivalents, and U.S. Government agency securities. On a longer
basis, the Bank invests in various loans, mortgage-backed securities, and
investment securities. The Bank uses its sources of funds primarily to
meet ongoing commitments to pay maturing savings certificates and savings
withdrawals, fund loan commitments and maintain an investment securities
portfolio. Management of the Bank believes that the Bank has adequate
resources including principal prepayments and repayments of loans and
maturing investments, to fund all of its commitments to the extent
required. Based upon its historical run-off experience, management
believes that a significant portion of maturing deposits will remain with
the Bank.
REGULATORY CAPITAL
Under federal regulations, the Bank is required to maintain specific amounts
of regulatory capital. The capital regulations require institutions to
have Tier 1 leverage capital equal to 4.0% of adjusted total assets (as
defined by regulation), a minimum Tier 1 risk-based capital ratio of 4.0%
of risk-based total assets, and a total 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.
The following table sets forth certain information concerning the Bank's
regulatory capital:
<TABLE>
<CAPTION>
Regulatory Capital
---------------------------------------------
Tier 1 Tier 1 Total
Leverage Risk-Based Risk-Based
Capital Capital Capital
---------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Stockholders' equity $ 23,833 23,833 23,833
Additional capital item -
general loan loss reserves -- -- 361
-------- ------- -------
Total regulatory capital 23,833 23,833 24,194
Minimum capital requirement 9,618 6,320 12,641
-------- ------- -------
Excess regulatory capital $ 14,215 17,513 11,553
======== ======= =======
Adjusted total assets $240,450 158,011 158,011
======== ======= =======
Regulatory capital ratio 9.91% 15.08% 15.31%
======== ======= =======
</TABLE>
17
<PAGE> 20
EQUALITY BANCORP, INC.
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.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In December, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards 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. In September, 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, Accounting for
--------------
Derivative Instruments and Hedging Activities - Deferral of the Effective
-------------------------------------------------------------------------
Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133,
----------------------------------------------------------------------
which defers the effective date of SFAS 133 from fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000.
Earlier application of SFAS 133, as amended, 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,
as amended.
YEAR 2000 COMPLIANCE
Equality's operations are heavily dependent on the use of computer systems.
The Year 2000 issue centers around the inability of some computer systems
to properly read and interpret dates because many existing computers and
computer programs have been developed to use two digits rather than four
to refer to a year. The risk of system failure and data processing
errors may be the result of this issue.
18
<PAGE> 21
EQUALITY BANCORP, INC.
Equality initially estimated costs of approximately $148,000 to prepare for
the century date change. As of September 30, 2000, direct and indirect
expenditures have been approximately $92,500. This includes internal and
external costs that were expensed as well as capital expenditures that
were capitalized. Costs include, but are not limited to, salary
expenses, outside service fees (i.e., legal, audit, consulting), and
hardware and software expenditures. Funding for Year 2000 costs has been
derived from normal operating cash flow.
Equality focused its efforts on addressing those systems it deemed to be
critical to ongoing operations. The company wide project for addressing
Year 2000 issues was segmented into five phases, as recommended by
regulators. With regard to internal, mission critical systems, the
present state of each phase is 100% complete at September 30, 2000.
In addition to addressing the readiness of internal systems, Equality
addressed the readiness of its major vendors, suppliers, customers and
business partners. Though such efforts have been diligent, there can be
no guarantee that the systems these outside parties supply will continue
to be fully functional in the Year 2000. Such failures could have a
material adverse affect on Equality.
Equality developed business resumption contingency plans for the purpose of
assuring that core business processes will continue to operate throughout
the Year 2000. The plan addressed failures, such as payment system
failures, data processing system failures, increased cash withdrawals,
telecommunication failures, disruption in services provided by outside
parties and customer failures. The contingency plan provides for
reasonable alternatives to potential failures and the establishment of an
implementation strategy, including timeliness and responsibility
assignments.
To date, Equality has not experienced any significant disruptions to its
financial operating activities caused by failure of computerized systems
resulting from Year 2000 issues. Management does not expect Year 2000
issues to have a material adverse effect on Equality's operations or
financial results in 2000.
19
<PAGE> 22
EQUALITY BANCORP, INC.
INDUSTRY SEGMENT INFORMATION
The business segment results which follow are consistent with Equality's
internal reporting system which is consistent, in all material respects,
with generally accepted accounting principles.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------------
EQUALITY EQUALITY CORPORATE
SAVINGS MORTGAGE AND
BANK CORPORATION OTHER TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance sheet information:
Investment and mortgage-
backed securities 82,389,207 -- 52,638 82,441,845
Loans receivable, net 171,387,933 4,275,117 (1,689,754) 173,973,296
Total assets 295,934,697 7,088,690 (4,655,695) 298,367,692
Savings deposits 184,449,390 -- (813,070) 183,636,320
Stockholders' equity 21,320,931 3,385,549 (2,465,030) 22,241,450
=========== ========= ========== ===========
Statement of income information:
Total interest income 11,017,325 195,980 36,979 11,250,284
Total interest expense 8,095,114 96,295 (136,017) 8,055,392
Net interest income 2,922,211 99,685 172,996 3,194,892
Provision for losses on loans -- -- -- --
Noninterest income (1,540,016) 2,782,681 (847,869) 394,796
Noninterest expense 2,549,312 1,224,690 352,965 4,126,967
Income tax expense (849,778) 646,506 405 (202,867)
Net income (loss) (317,339) 1,011,170 (1,028,243) (334,412)
=========== ========= ========== ===========
Capital expenditures 205,416 0 0 205,416
=========== ========= ========== ===========
</TABLE>
20
<PAGE> 23
EQUALITY BANCORP, INC.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------
EQUALITY EQUALITY CORPORATE
SAVINGS MORTGAGE AND
BANK CORPORATION OTHER TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance sheet information:
Investment and mortgage-
backed securities 194,040,517 -- 87,730 194,128,247
Loans receivable, net 94,818,438 5,947,260 (3,071,999) 97,693,699
Total assets 314,775,513 9,047,267 (4,910,031) 318,912,749
Savings deposits 130,835,811 -- (507,657) 130,328,154
Stockholders' equity 23,292,088 2,272,703 (1,507,367) 24,057,424
=========== ========= ========== ===========
Statement of income information:
Total interest income 9,840,519 354,542 (133,951) 10,061,110
Total interest expense 6,737,260 253,229 (284,210) 6,706,279
Net interest income 3,103,259 101,313 150,259 3,354,831
Provision for losses on loans -- -- -- --
Noninterest income 125,079 1,301,835 181,741 1,608,655
Noninterest expense 2,355,901 1,402,323 353,424 4,111,648
Income tax expense 347,687 318 (11,700) 336,305
Net income (loss) 524,750 507 (9,724) 515,533
=========== ========= ========== ===========
Capital expenditures 728,076 12,952 7,226 748,254
=========== ========= ========== ===========
</TABLE>
21
<PAGE> 24
EQUALITY BANCORP, INC.
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 11, 2000, Equality Bancorp, Inc. held its Annual Shareholder's
Meeting for the purpose of the election of three directors.
For election of directors:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Berenice J. Mahacek 1,643,937 103,838
Charles J. Wolter 1,618,102 129,673
Michael A. Deelo 1,670,049 77,726
</TABLE>
On October 19, 2000, Equality Bancorp, Inc. held a Special Meeting of
Stockholders the purpose of approval and adoption of the Agreement and
Plan of Merger with and into Allegiant Bancorp.
For approval and adoption of the agreement and plan of merger:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------ -------
<S> <C> <C>
1,771,653 21,196 2,935
</TABLE>
The proposal to approve and adopt the Agreement and Plan of Merger
having received the appropriate affirmative vote of shareholders was
declared approved.
Item 5. Other information
-----------------
Regulatory Agreement
--------------------
As a result of the FDIC's first regular examination following the Bank's
conversion from a federally-chartered savings and loan association to a
state-chartered savings bank on December 28, 1999, the Bank entered into
a Memorandum of Understanding (MOU) with the FDIC and the Division on
June 26, 2000. By signing the MOU, the Bank has agreed to take certain
actions in response to concerns raised by the FDIC. The MOU addressed:
(A) the Board of Directors of the Bank to assess its management and
staffing needs to ensure proper supervision of the Bank's affairs; (B)
the Bank to review its earnings performance, to develop a written plan
to improve earnings performance and to prepare a revised 2001 budget
reflecting remedial actions to improve the Bank's earnings; (C) the Bank
to implement a suitable method for measuring and monitoring its interest
rate risk (IRR), establish IRR parameters and provide for independent
review
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EQUALITY BANCORP, INC.
of the validity of the assumptions, data, and results of the method
used; (D) the Bank to develop a written funds management policy overseen
by an Asset/Liability Committee, the membership of which shall include
non-officer director representation and which shall report to the Board
of Directors, and to establish goals and strategies for managing or
improving the Bank's IRR profile; (E) the Bank to maintain a Tier I
Leverage Ratio of not less than 7% while the MOU is in effect; (F) the
Bank to refrain from declaring or paying any dividends and/or management
fees to Equality without prior written regulatory approval; (G) the Bank
to present to the FDIC and the Division periodic updates regarding its
asset growth objectives, particularly in light of capital and liquidity
needs; (H) the Bank to provide a revised investment policy, modify
certain investment practices, and ensure the policy is implemented and
followed; (I) the Bank to develop an internal audit program and appoint
an internal auditor who shall report to the Board of Directors; (J) the
Bank to take steps to correct and/or eliminate violations cited by the
FDIC and the Division; (K) the Bank to implement procedures to address
regulatory concerns regarding the retail sale of nondeposit investment
products by the Bank; and (L) the Bank to submit periodic progress
reports to the FDIC and Division regarding the Bank's compliance with
the MOU.
On August 30, 2000, the Bank forwarded its initial progress report to
the FDIC which addressed each of the issues stated above. On October
3, 2000, the FDIC responded to the Bank's initial progress report,
requesting additional information on items (A), (B), (C), (G), (I), and
(J). Items (D), (E), (F), (H), (K), and (L) were responded to as
sufficient or suitable by the FDIC subject to review at subsequent
examinations.
The MOU is not a formal supervisory action by the FDIC but is an
enforceable action. Failure to comply with the MOU can lead to a formal
enforcement action. The Bank believes that it will comply with the MOU
and is currently taking the additional necessary steps to do so.
Compliance with the MOU is not expected to have a materially adverse
impact on the operations and financial condition of the Bank. The MOU
will remain in effect until terminated by the Kansas City Regional
Director of the FDIC.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Definitive Agreement
--------------------
On July 26, 2000, Equality signed a definitive agreement with Allegiant
Bancorp, Inc. ("Allegiant") for the acquisition of Equality by
Allegiant. Notification by Form 8-K was made on August 14, 2000 in
report format.
Allegiant and Equality are both headquartered in St. Louis, Missouri.
The acquisition, which was subject to shareholder and regulatory
approval, is expected to close in November, 2000. Under the terms of
the agreement, Allegiant will exchange approximately 2.7 million shares
of its common stock for all of the outstanding common stock of Equality.
Each share of Equality is to be exchanged for 1.118 shares of Allegiant.
When closed, the transaction is expected to be accretive to both
Allegiant's book value and earnings per share.
23
<PAGE> 26
EQUALITY BANCORP, INC.
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 13, 2000
----------------------- -----------------------------------
Richard C. Fellhauer, President,
Chief Executive Officer and
Chairman of the Board
Date: November 13, 2000
----------------------- -----------------------------------
Michael A. Deelo,
Chief Financial Officer
24
