<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): NOVEMBER 15, 2000
ALLEGIANT BANCORP, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 0-26350 43-1519382
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
2122 KRATKY ROAD
ST. LOUIS, MISSOURI 63114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 692-8200
========================================================================
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 15, 2000, Allegiant Bancorp, Inc. (the "Registrant")
acquired Equality Bancorp, Inc. ("Equality Bancorp") and its wholly-
owned subsidiary, Equality Savings Bank, through the merger of Allegiant
Acquisition Corporation, a wholly owned subisidary of the Registrant
("Acquisition Corporation"), with and into Equality Bancorp. Pursuant
to the Agreement and Plan of Merger, dated July 26, 2000, by and between
the Registrant, Acquisition Corporation and Equality Bancorp (the
"Merger Agreement"), Acquisition Corporation was merged (the "Merger")
with and into Equality Bancorp and each outstanding share of common
stock, $0.01 par value, of Equality Bancorp ("Equality Common Stock")
was converted into the right to receive 1.118 shares of common stock,
$0.01 par value, of the Registrant ("Allegiant Common Stock"). In
addition, outstanding options to acquire shares of Equality Common Stock
were converted into options to acquire shares of Allegiant Common Stock.
In connection with the Merger, the Registrant issued approximately
2,664,000 shares of Allegiant Common Stock. In addition, options to
acquire 94,457 shares of Equality Common Stock were converted into
options to acquire 105,602 shares of Allegiant Common Stock. A copy of
the press release issued by the Registrant announcing the closing of the
Merger is attached hereto as Exhibit 99.1.
------------
The Registrant's Registration Statement on Form S-4 (File No.
333-44758) (the "Registration Statement"), which was declared effective by
the Securities and Exchange Commission on September 15, 2000, sets forth
certain information regarding the Merger, the Registrant and Equality
Bancorp, including, without limitation, the effective time and the
manner of the Merger, a description of the assets involved, the nature
and amount of consideration paid by the Registrant therefor, the method
used for determining the amount of such consideration, the nature of any
material relationships between the Registrant and Equality Bancorp or
any of its affiliates, any officer or director of the Registrant, or any
associate of any such officer of director, the nature of Equality
Bancorp's business and the Registrant's intended use of the assets
acquired in the Merger. The Registrant will report the Merger using the
purchase method of accounting.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
-------------------------------------------
The following financial statements of Equality Bancorp and its
subsidiaries are included herein:
Independent Auditors' Report
Consolidated Balance Sheets - March 31, 2000 and 1999
Consolidated Statements of Income - Three Years Ended
March 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity -
Three Years Ended March 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - Three Years
Ended March 31, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income (Loss)
- Three Years Ended March 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Consolidated Balance Sheet - September 30, 2000
(Unaudited)
Consolidated Statements of Operations - Three and Six
Months Ended September 30, 2000 and 1999 (Unaudited)
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<PAGE>
Consolidated Statement of Stockholders' Equity - Six
Months Ended September 30, 2000 (Unaudited)
Consolidated Statements of Cash Flows - Six Months
Ended September 30, 2000 and 1999 (Unaudited)
Consolidated Statements of Comprehensive Income (Loss)
- Six Months Ended September 30, 2000 and 1999
(Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
(b) Pro forma financial information.
-------------------------------
The following unaudited pro forma combined consolidated balance
sheet gives effect to the acquisition of Equality Bancorp as if the
acquisition was consummated on September 30, 2000. The following pro
forma combined consolidated income statements for the nine months ended
September 30, 2000 and for the year ended December 31, 1999 set forth
the results of operations of the Registrant combined with the results of
operations of Equality Bancorp as if the acquisition of Equality Bancorp
had occurred as of the first day of each period presented.
The unaudited pro forma combined consolidated financial statements
should be read in conjunction with the accompanying notes to the pro
forma combined consolidated financial statements and with the historical
financial statements of the Registrant and Equality Bancorp, which were
filed in the Registrant's Registration Statement on Form S-4 (File 333-
44758). The unaudited pro forma combined consolidated financial
information may not necessarily be indicative of the results of
operations that actually would have occurred if the acquisition of
Equality Bancorp had been consummated on the dates assumed above or of
the results of operations that may be achieved in the future.
(c) Exhibits. See Exhibit Index.
--------
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Equality Bancorp, Inc.
St. Louis, Missouri:
We have audited the accompanying consolidated balance sheets of Equality
Bancorp, Inc. and subsidiaries (Equality Bancorp) as of March 31, 2000
and 1999, and the related consolidated statements of income,
stockholders' equity, cash flows and comprehensive income (loss) for
each of the years in the three-year period ended March 31, 2000. These
consolidated financial statements are the responsibility of Equality
Bancorp's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We did not
audit the financial statements of Equality Mortgage Corporation (a
consolidated subsidiary), which statements reflect total assets
constituting 2% and 3% in 2000 and 1999, respectively, and total
interest income and noninterest income constituting 13%, 20% and 19%, in
2000, 1999 and 1998, respectively, of the related consolidated totals.
Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for Equality Mortgage Corporation, is based solely on the
report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits, and the
report of the other auditors, provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Equality Bancorp, Inc. and subsidiaries as of March 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the
years in the three-year period ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
St. Louis, Missouri
June 26, 2000
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<PAGE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Cash, primarily interest-bearing demand accounts.................. $ 9,080,509 6,449,613
Interest-bearing deposits......................................... 198,000 1,085,000
Investment securities:
Available for sale, at fair value........................... 120,575,542 81,635,339
Held to maturity, at amortized cost (fair value of $548,000
at March 31, 2000 and $531,000 at March 31, 1999)........ 600,000 600,000
Mortgage-backed securities available for sale, at fair value...... 64,137,674 90,810,783
Loans receivable, net............................................. 105,315,729 90,230,677
Investment in real estate......................................... 58,054 58,054
Stock in Federal Home Loan Bank................................... 7,987,100 6,911,100
Mortgage servicing rights......................................... 1,273,768 1,479,631
Office properties and equipment, net.............................. 6,935,115 6,451,357
Deferred tax asset................................................ 2,775,937 --
Accrued interest receivable and other assets...................... 4,397,879 2,725,620
------------ -----------
$323,335,307 288,437,174
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits.................................................. $140,885,244 128,953,826
Accrued interest payable on savings deposits...................... 147,711 200,280
Borrowed money.................................................... 161,435,160 132,010,050
Advance payments by borrowers for taxes and insurance............. 35,800 69,634
Income taxes payable.............................................. 276,568 203,588
Deferred income taxes............................................. -- 873,343
Accrued expenses and other liabilities............................ 629,822 518,723
------------ -----------
Total liabilities........................................ 303,410,305 262,829,444
------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value per share; 1,000,000
shares authorized; none issued and outstanding........... -- --
Common stock, $.01 par value per share;
4,000,000 shares authorized; 2,544,094 shares
and 2,519,793 shares issued at March 31, 2000
and 1999, respectively................................... 25,441 25,198
Additional paid-in capital.................................. 16,192,342 16,108,269
Retained earnings........................................... 11,849,449 11,255,324
Accumulated other comprehensive income (loss)............... (5,447,058) 139,464
Treasury stock, at cost; 158,055 shares and 18,500 shares
at March 31, 2000 and 1999, respectively................. (1,233,799) (166,431)
Unearned Employee Stock Ownership Plan shares............... (989,864) (1,134,769)
Unamortized restricted stock awards......................... (471,509) (619,325)
------------ -----------
Total stockholders' equity............................... 19,925,002 25,607,730
------------ -----------
$323,335,307 288,437,174
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------
2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable.................................... $ 7,753,559 7,703,347 8,103,429
Investment securities and interest-bearing
deposits......................................... 8,214,465 4,121,848 5,163,526
Mortgage-backed securities.......................... 4,570,590 5,321,365 1,153,512
Other............................................... 504,838 411,861 259,843
----------- ---------- ----------
Total interest income............................ 21,043,452 17,558,421 14,680,310
----------- ---------- ----------
INTEREST EXPENSE
Savings deposits.................................... 5,596,459 5,458,146 5,633,692
Advances from Federal Home Loan Bank................ 8,694,309 6,821,775 4,031,314
Other borrowed money................................ 70,382 71,507 60,376
----------- ---------- ----------
Total interest expense........................ 14,361,150 12,351,428 9,725,382
----------- ---------- ----------
Net interest income........................... 6,682,302 5,206,993 4,954,928
Provision for losses on loans....................... -- -- 115,513
----------- ---------- ----------
Net interest income after provision
for losses on loans........................ 6,682,302 5,206,993 4,839,415
----------- ---------- ----------
NONINTEREST INCOME
Gain on sales of mortgage loans..................... 771,172 1,994,800 1,349,712
Loan servicing fees and late charges................ 1,253,125 1,289,571 919,884
Gain on sale of mortgage servicing rights........... 451,298 -- --
Gain (loss) on sale of investment and mortgage-
backed securities available for sale, net........ (43,016) 166,388 41,044
Equity in loss of joint venture..................... -- (54,430) (44,109)
Rental income....................................... 189,470 142,802 126,811
Gain on sale of real estate......................... -- 148,391 1,154
Other............................................... 684,616 549,710 486,988
----------- ---------- ----------
Total noninterest income...................... 3,306,665 4,237,232 2,881,484
----------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits...................... 4,502,096 4,531,202 3,399,859
Occupancy........................................... 851,325 598,632 533,378
Data processing..................................... 441,995 332,438 261,397
Advertising......................................... 359,607 282,103 123,707
Federal insurance premiums.......................... 70,150 72,422 81,428
Other............................................... 1,873,340 1,790,501 1,304,296
----------- ---------- ----------
Total noninterest expense..................... 8,098,513 7,607,298 5,704,065
----------- ---------- ----------
Income before income tax expense.............. 1,890,454 1,836,927 2,016,834
Income tax expense.................................. 738,544 707,647 777,668
----------- ---------- ----------
Net income.................................... $ 1,151,910 1,129,280 1,239,166
=========== ========== ==========
EARNINGS PER SHARE
Basic............................................... $ 0.50 0.48 0.51
Diluted............................................. 0.49 0.47 0.51
=========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<CAPTION>
UNEARNED
ACCUMULATED EMPLOYEE
OTHER COM- STOCK UNAMORTIZED TOTAL
COMMON STOCK ADDITIONAL PREHENSIVE OWNERSHIP RESTRICTED STOCK-
--------------------- PAID-IN RETAINED INCOME TREASURY PLAN STOCK HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) STOCK SHARES AWARDS EQUITY
--------- --------- ---------- ---------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997 836,400 $ 836,400 2,768,548 9,674,676 (509,523) -- (135,840) -- 12,634,261
Net income............. -- -- -- 1,239,166 -- -- -- -- 1,239,166
Net proceeds from sale
of common stock of
Equality Bancorp,
Inc. ................ 1,322,500 13,225 12,297,206 -- -- -- (1,198,060) -- 11,112,371
Cancellation of
Equality Bancorp
Savings and Loan
Association, F.A.
Common stock owned
by First Missouri
Financial, M.H.C. ... (445,000) (445,000) 445,000 -- -- -- -- -- --
Cancellation of
Equality Bancorp
Savings and Loan
Association, F.A.
common stock owned
by minority
stockholders......... (391,400) (391,400) 391,400 -- -- -- -- -- --
Issuance of common
stock of Equality
Bancorp, Inc.
to minority
stockholders of
Equality Bancorp
Savings and Loan
Association, F.A. ... 1,163,402 11,634 (11,634) -- -- -- -- -- --
Capital contribution
from First Missouri
Financial, M.H.C. ... -- -- -- 50,000 -- -- -- -- 50,000
Exercise of
stock options........ 19,953 200 68,716 -- -- -- -- -- 68,916
Tax benefit of stock
options exercised.... -- -- 10,328 -- -- -- -- -- 10,328
Amortization of
Employee Stock
Ownership
Plan awards.......... -- -- 27,677 -- -- -- 56,796 -- 84,473
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<PAGE>
<PAGE>
<CAPTION>
UNEARNED
ACCUMULATED EMPLOYEE
OTHER COM- STOCK UNAMORTIZED TOTAL
COMMON STOCK ADDITIONAL PREHENSIVE OWNERSHIP RESTRICTED STOCK-
--------------------- PAID-IN RETAINED INCOME TREASURY PLAN STOCK HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) STOCK SHARES AWARDS EQUITY
--------- --------- ---------- ---------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend declared on
nonmutual holding
company owned
common stock at
$.34 per share...... -- -- -- (128,322) -- -- -- -- (128,322)
Dividend declared on
common stock of
Equality Bancorp,
Inc. at $.06 per
share............... -- -- -- (141,120) -- -- -- -- (141,120)
Other comprehensive
Income (loss),
net of tax.......... -- -- -- -- 907,742 -- -- -- 907,742
--------- --------- ---------- ---------- ---------- ---------- ---------- -------- ----------
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............ -- -- -- 1,129,280 -- -- -- -- 1,129,280
Exercise of
stock options....... 13,938 139 60,594 -- -- -- -- -- 60,733
Tax benefit of stock
options exercised... -- -- 4,247 -- -- -- -- -- 4,247
Purchase of stock
for restricted
stock awards........ -- -- -- -- -- -- -- (739,456) (739,456)
Purchase of treasury
stock............... -- -- -- -- -- (166,431) -- -- (166,431)
Amortization of stock
awards.............. -- -- -- -- -- -- -- 120,131 120,131
Amortization of
Employee Stock
Ownership Plan
awards.............. -- -- 46,187 -- -- -- 142,335 -- 188,522
Dividend declared on
common stock of
Equality Bancorp,
Inc. at $.24 per
share............... -- -- -- (568,356) -- -- -- -- (568,356)
Other comprehensive
income (loss), net
of tax.............. -- -- -- -- (258,755) -- -- -- (258,755)
--------- --------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Balance, March 31,
1999................ 2,519,793 25,198 16,108,269 11,255,324 139,464 (166,431) (1,134,769) (619,325) 25,607,730
Net income............ -- -- -- 1,151,910 -- -- -- -- 1,151,910
Exercise of stock
options............. 24,301 243 81,818 -- -- -- -- -- 82,061
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<PAGE>
<CAPTION>
UNEARNED
ACCUMULATED EMPLOYEE
OTHER COM- STOCK UNAMORTIZED TOTAL
COMMON STOCK ADDITIONAL PREHENSIVE OWNERSHIP RESTRICTED STOCK-
--------------------- PAID-IN RETAINED INCOME TREASURY PLAN STOCK HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) STOCK SHARES AWARDS EQUITY
--------- --------- ---------- ---------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends paid on
Unvested stock
awards............... -- -- 14,184 -- -- -- -- -- 14,184
Purchase of treasury
stock................ -- -- -- -- -- (1,067,368) -- -- (1,067,368)
Amortization of
stock awards......... -- -- -- -- -- -- -- 147,816 147,816
Amortization of
Employee Stock
Ownership Plan
awards............... -- -- (11,929) -- -- -- 144,905 -- 132,976
Dividend declared on
common stock of
Equality Bancorp,
Inc. at $.24 per
share................ -- -- -- (557,785) -- -- -- -- (557,785)
Other comprehensive
income (loss), net
of tax............... -- -- -- -- (5,586,522) -- -- -- (5,586,522)
--------- --------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Balance, March 31,
2000................. 2,544,094 $ 25,441 16,192,342 11,849,449 (5,447,058) (1,233,799) (989,864) (471,509) 19,925,002
========= ========= ========== ========== ========== ========== ========== ======== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 1,151,910 1,129,280 1,239,166
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization:
Office properties and equipment........... 441,029 237,834 272,470
Real estate investments................... -- 7,508 11,261
Premiums and discounts, net............... (1,266,977) (366,626) 26,339
Mortgage servicing rights................. 632,055 680,338 383,812
Stock awards.............................. 147,816 120,131 --
(Increase) decrease in accrued interest
receivable................................ (726,157) (291,773) 52,687
Provision for losses on loans................ -- -- 115,513
Gain on sale of mortgage loans............... (771,172) (2,673,260) (1,722,985)
Increase (decrease) in valuation reserve on
loans held for sale....................... -- (10,517) 53,652
Gain on sale of mortgage servicing rights.... (451,298) -- --
Gain on sale of real estate.................. -- (148,391) (1,154)
Gain (loss) on the sale of investment and
mortgage-backed securities available
for sale, net............................. 43,016 (166,388) (41,044)
(Decrease) increase in accrued interest
payable on savings deposits............... (52,569) 66,077 (396)
Change in income taxes payable............... 72,980 (492,604) 596,329
Equity in loss of joint venture.............. -- 54,430 44,109
Other, net................................... (815,950) (2,429,385) 2,735,473
Origination and purchases of loans held for sale... (87,659,092) (177,318,757) (115,459,407)
Proceeds from sales of loans held for sale......... 92,810,614 187,521,731 107,056,970
------------ ------------ ------------
Net cash provided by (used in)
operating activities................... 3,556,205 5,919,628 (4,637,205)
------------ ------------ ------------
Cash flows from investing activities:
Net (increase) decrease in loans receivable........ (19,418,651) 10,711,331 (2,546,296)
Decrease in interest-bearing deposits.............. 887,000 293,000 2,441,744
Principal repayments on investment securities
available for sale.............................. 13,742 40,641 --
Principal repayments on mortgage-backed securities
available for sale.............................. 18,301,427 33,071,367 3,134,164
Proceeds from maturities of investment securities
available for sale.............................. 21,190,000 67,770,704 66,524,057
Proceeds from the sale of investment securities
available for sale.............................. 27,014,541 41,459,748 50,716,621
Proceeds from the sale of mortgage-backed
securities available for sale................... 10,517,271 26,459,805 10,035,942
Proceeds from maturities of investment securities
held to maturity................................ -- 2,000,000 2,250,000
Purchase of investment securities available for
sale............................................ (91,934,130) (120,808,643) (114,672,471)
Purchase of mortgage-backed securities available
for sale........................................ (5,300,430) (92,917,447) (56,569,108)
Net increase in mortgage servicing rights.......... (181,181) (1,322,372) (708,134)
Proceeds from the sale of mortgage servicing rights 206,287 -- --
Proceeds from the sale of real estate acquired
through foreclosure............................. -- -- 83,995
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<PAGE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Proceeds from the sale of real estate held
for investment.............................. -- 344,290 --
Decrease in joint venture borrowings........... -- 649,047 13,865
Purchase of stock in Federal Home Loan
Bank System................................. (1,076,000) (1,711,100) (1,850,000)
Purchase of office properties and equipment,
net......................................... (924,787) (1,114,904) (2,913,166)
------------ ------------ ------------
Net cash used in investing activities. (40,704,911) (35,074,533) (44,058,787)
------------ ------------ ------------
Cash flows from financing activities:
Net increase (decrease) in savings deposits.... 11,931,418 9,652,450 (3,681,578)
Proceeds from Federal Home Loan Bank
System advances............................. 30,000,000 36,500,000 106,500,000
Repayment of Federal Home Loan Bank
System advances............................. (443,641) (10,315,733) (65,500,000)
Proceeds from other borrowed money............. -- 147,089 565,730
Repayment of other borrowed money.............. (131,249) -- (135,840)
(Decrease) increase in advance payments by
borrowers for taxes and insurance........... (33,834) (36,316) 19,174
Cash dividends paid............................ (557,785) (568,356) (269,442)
Proceeds from sale of common stock............. -- -- 11,112,371
Capital contribution from First Missouri
Financial, M.H.C. .......................... -- -- 50,000
Proceeds from exercise of stock options........ 82,061 60,733 68,916
Purchase of stock for restricted stock awards.. -- (739,456) --
Purchase of treasury stock..................... (1,067,368) (166,431) --
------------ ------------ ------------
Net cash provided by financing
activities.......................... 39,779,602 34,533,980 48,729,331
------------ ------------ ------------
Net increase in cash and cash
equivalents......................... 2,630,896 5,379,075 33,339
Cash and cash equivalents, beginning of year......... 6,449,613 1,070,538 1,037,199
------------ ------------ ------------
Cash and cash equivalents, end of year............... $ 9,080,509 6,449,613 1,070,538
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid.................................. $ 14,329,859 12,285,351 9,725,778
Income taxes paid.............................. 680,660 1,030,012 75,958
Noncash transfers of loans to real estate
acquired through foreclosure................ -- -- 19,674
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<PAGE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------
2000 1999 1998
----------- --------- ---------
<S> <C> <C> <C>
Net income.................................................. $ 1,151,910 1,129,280 1,239,166
Other comprehensive income (loss):
Net unrealized gain (loss) on investment and
mortgage-backed securities available for
sale, net of tax................................... (5,612,762) (157,258) 932,779
Less adjustment for loss (gain) on sale of
Investment and mortgage-backed securities
available for sale realized in net income, net
of tax (credit) of $(16,776), $64,891, and $16,007
in 2000, 1999, and 1998, respectively.............. 26,240 (101,497) (25,037)
----------- --------- ---------
Total other comprehensive income (loss)......... (5,586,522) (258,755) 907,742
----------- --------- ---------
Comprehensive income (loss)................................. $(4,434,612) 870,525 2,146,908
=========== ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Following are the significant accounting policies which
Equality Bancorp, Inc. and subsidiaries (Equality Bancorp) follow
in preparing and presenting their consolidated financial
statements:
REORGANIZATION TO A STOCK CORPORATION. On December 1, 1997,
First Missouri Financial, M.H.C., a federally chartered mutual
holding company whose primary asset was 445,000 shares, or 53.2%,
of the total issued and outstanding shares of Equality Bancorp
Savings and Loan Association, F.A. (the Association), completed
its conversion (the Conversion) from a mutual holding company to a
Delaware stock corporation (Equality Bancorp, Inc.) with Equality
Bancorp Savings and Loan Association, F.A., changing its name to
Equality Savings Bank (Equality Savings Bank). At the date of the
Conversion, Equality Bancorp completed the sale of 1,322,500
shares of common stock, $.01 par value, at a price of $10.00 per
share to the Association's depositors, Employee Stock Ownership
Plan, and minority stockholders in a subscription offering. Net
proceeds from the sale of common stock were $11,112,371, after
deducting $914,569 of offering expenses and $1,198,060 related to
the sale of 119,806 shares to the Employee Stock Ownership Plan.
In conjunction with the subscription offering, an additional
1,163,402 shares of common stock were issued by Equality Bancorp
to convert 391,400 shares of the Association's common stock held
by minority stockholders into common stock of Equality Bancorp.
Each share of common stock in the above transaction was converted
into the right to receive 2.9724 shares of Equality Bancorp's
common stock. All prior year per share data has been restated to
give effect to this exchange of common stock.
On December 28, 1999, the Bank converted from a federally
chartered savings and loan association, regulated by the Office of
Thrift Supervision, to a state chartered savings bank, regulated
by the Missouri Division of Finance and the Federal Deposit
Insurance Corporation. Equality Bancorp, a unitary thrift holding
company, remains regulated by the Office of Thrift Supervision.
BUSINESS. Equality Bancorp provides a full range of banking
services to individual and corporate customers from its home
office and five branch locations in the St. Louis area. In
addition, Equality Bancorp provides mortgage lending services from
two additional locations. Equality Bancorp is subject to
competition from other financial institutions, is subject to the
regulations of certain regulatory agencies, and undergoes periodic
examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION. The consolidated
financial statements have been prepared in conformity with
generally accepted accounting principles. In the normal course of
business, Equality Bancorp encounters two significant types of
risk: economic and regulatory. Economic risk is comprised of
interest rate risk, credit risk and market risk. Equality Bancorp
is subject to interest rate risk to the degree that its interest-
bearing liabilities reprice on a different basis than its
interest-earning assets. Credit risk is the risk of default on
Equality Bancorp's loan and investment portfolios that results
from the borrowers' inability or unwillingness to make
contractually required payments. Market risk reflects changes in
the value of collateral underlying loans receivable, the value of
Equality Bancorp's investment in real estate, and the value of
Equality Bancorp's investment securities.
Management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare the
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates. The determination of the allowance for loan
losses is based on estimates that are particularly susceptible to
changes in the economic environment and market conditions. This
balance may be adjusted in the future based on such changes, or
based on the results of regulatory examinations.
PRINCIPLES OF CONSOLIDATION. The consolidated financial
statements include the accounts of Equality Bancorp, Inc. and its
wholly-owned subsidiary, Equality Savings Bank. Equality Savings
Bank has two wholly-owned subsidiaries, Equality Commodity
Corporation and Equality Mortgage Corporation. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
- 13 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
Equality Commodity Corporation operates under the name of
Equality Insurance Agency and Flood Information Specialists and is
a wholly-owned subsidiary of Equality Savings Bank. Equality
Commodity Corporation's services and activities include sales of
multiple lines of insurance to the general public and the issuance
of flood plain certificates. Equality Mortgage Corporation
operates as a mortgage banker and is a wholly-owned subsidiary of
Equality Savings Bank.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. At the time of
purchase, investment and mortgage-backed securities are classified
as available for sale or held to maturity. Held to maturity
securities are those securities which Equality Bancorp has the
ability and intent to hold until maturity. All equity securities,
and debt securities not classified as held to maturity, are
classified as available for sale.
Available for sale securities are recorded at fair value.
Held to maturity securities are recorded at amortized cost,
adjusted for the amortization of premiums or discounts.
Unrealized gains and losses, net of the related tax effect, on
available for sale securities are excluded from earnings and
reported as a separate component of stockholders' equity until
realized. Gains and losses on the sale of available for sale
securities are determined using the specific identification
method.
A decline in the fair value of any available for sale or
held to maturity security below cost that is deemed to be other
than temporary is charged to earnings and results in the
establishment of a new cost basis for the security.
LOANS RECEIVABLE AND RELATED FEES. Loans receivable, other
than loans held for sale, are carried at cost because Equality
Bancorp has both the intent and the ability to hold them for the
foreseeable future. Mortgage loans held for sale are valued at
the lower of cost or market, on an aggregate loan basis. Interest
is credited to income as earned; however, interest receivable is
accrued only if deemed collectible. Loans are placed on
nonaccrual status when management believes that the borrower's
financial condition, after consideration of economic conditions
and collection efforts, is such that collection of interest is
doubtful. A loan remains on nonaccrual status until the loan is
current as to payment of both principal and interest and/or the
borrower demonstrates the ability to pay and remain current.
Equality Mortgage Corporation derives income primarily from
the origination and subsequent sale of mortgage loans and from the
servicing of mortgage loans. Equality Mortgage Corporation
recognizes the fees charged as income upon receipt of proceeds
from the sale of the mortgage from the investor. Mortgages are
sold at such times as management deems appropriate. Equality
Mortgage Corporation's activities are performed primarily in the
St. Louis metropolitan area.
Equality Mortgage Corporation capitalizes the cost of
originated mortgage servicing rights retained as assets. The cost
of the mortgage servicing rights is being amortized over periods
ranging up to eight years using the straight-line method. A
valuation allowance is established when the carrying value of the
mortgage servicing rights exceeds the fair value.
The allowance for loan losses is increased by provisions
charged to expense and is reduced by loan charge-offs, net of
recoveries. Management utilizes a systematic, documented approach
in determining the appropriate level of the allowance for loan
losses. Management's approach, which provides for general and
specific valuation allowances, considers numerous factors
including general economic conditions, loan portfolio composition,
prior loss experience, independent appraisals and such other
factors which, in management's judgment, deserve current
recognition in estimating loan losses. Management believes the
allowance for loan losses is adequate to absorb probable losses in
the loan portfolio. While management uses available information
to recognize loan losses, future additions to the allowance may be
necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan
losses. Such agencies may require Equality Bancorp to increase
the allowance for loan losses based on their judgment about
information available to them at the time of their examination.
- 14 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
PREMIUMS AND DISCOUNTS. Premiums and discounts on
investment securities, mortgage-backed securities and purchased
loans and unearned discounts on property improvement loans are
amortized using the interest method over the period to maturity,
adjusted for anticipated prepayments.
FUNDS HELD FOR INVESTORS. Equality Mortgage Corporation
holds funds belonging to investors in separate bank accounts which
are offset by liabilities for escrow and other fiduciary funds.
These funds and the related liabilities are not included in the
consolidated balance sheets. These amounts totaled $3,004,227 and
$2,931,756 at March 31, 2000 and 1999, respectively.
At March 31, 2000 and 1999, escrow funds related to loans
serviced by Equality Mortgage Corporation for Equality Savings
Bank totaled $565,420 and $537,434, respectively, and are included
in savings deposits in the consolidated balance sheets.
INVESTMENT IN REAL ESTATE. Investment in real estate
includes real estate held for investment and real estate acquired
through foreclosure.
Real estate held for investment is recorded at the lower of
cost, net of accumulated depreciation, or net realizable value.
Depreciation is charged to expense using the straight-line method
over an estimated useful life of 30 years.
Real estate acquired through foreclosure is initially
recorded at fair value. If the fair value of the real estate
declines subsequent to foreclosure, the difference is recorded as
a valuation allowance through a charge to expense. Subsequent
increases in fair value are recorded through a reversal of the
valuation allowance. Expenses incurred in maintaining the
properties are charged to expense.
Profit on sales of real estate is recognized when title has
passed, minimum down payment requirements have been met, the terms
of any notes received are such to satisfy initial and continuing
payment requirements, and Equality Bancorp is relieved of any
requirement for continued involvement in the real estate.
STOCK IN FEDERAL HOME LOAN BANK. Equality Bancorp, as a
member of the Federal Home Loan Bank System administered by the
Federal Housing Finance Board, is required to maintain an
investment in the capital stock of the Federal Home Loan Bank of
Des Moines (Federal Home Loan Bank System) in an amount equal to
the greater of 1% of Equality Bancorp's total mortgage-related
assets at the beginning of each year, 0.3% of Equality Bancorp's
total assets at the beginning of each year or 5% of advances from
the Federal Home Loan Bank System to Equality Bancorp. The stock
is recorded at cost which represents redemption value.
OFFICE PROPERTIES AND EQUIPMENT. Land is carried at cost.
Office buildings and improvements, furniture and equipment and
automobiles are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization are charged to
expense using the straight-line method over the estimated useful
lives of the related assets. Useful lives are 10 to 50 years for
office buildings and improvements, 7 to 10 years for furniture and
equipment and 5 years for automobiles.
INCOME TAXES. Equality Bancorp files a consolidated federal
income tax return. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
RECLASSIFICATIONS. Certain reclassifications of 1999 and
1998 information have been made to conform with the 2000
presentation. Such reclassifications have no effect on previously
reported net income.
- 15 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
EARNINGS PER SHARE. Basic earnings per share was computed
based upon weighted average common shares outstanding of
2,328,762, 2,371,240, and 2,414,131 for 2000, 1999, and 1998,
respectively. Diluted earnings per share was computed based upon
weighted average common shares and dilutive potential common
shares outstanding of 2,349,442, 2,404,607, and 2,443,395 for
2000, 1999, and 1998, respectively. Stock options are the only
dilutive potential common shares.
Earnings per share information for 1998 has also been
adjusted to reflect the Conversion and the exchange of each share
of common stock of Equality Bancorp Savings and Loan Association,
F.A. for 2.9724 shares of Equality Bancorp's common stock. Only
Employee Stock Ownership Plan shares committed to be released are
considered outstanding for purposes of computing earnings per
share. Employee Stock Ownership Plan shares totaling 78,499,
61,621, and 45,014 are considered outstanding for earnings per
share calculation purposes at March 31, 2000, 1999, and 1998,
respectively.
TREASURY STOCK. The purchase of Equality Bancorp's common
stock is recorded at cost. Any subsequent reissuance is recorded
at the average cost basis of such common stock.
SEGMENT INFORMATION. In 1999, Equality Bancorp adopted
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information, which
established standards for the way that public enterprises report
information about operating segments in annual financial
statements. The services provided by Equality Bancorp are
classified into two industry segments - retail banking and
mortgage banking.
The retail banking operations of Equality Bancorp are
executed by Equality Savings Bank, while the mortgage banking
operations are carried out by Equality Mortgage Corporation.
Separate financial statements are maintained for each segment,
which identifies each segment's assets and net income. Revenue
from the retail banking segment is derived primarily from net
interest revenue, which includes both interest income and expense.
Revenue from the mortgage banking segment is derived primarily
from the fee income generated from gain on sale of mortgage loans
and loan servicing fees and late charges.
NOTE 2. REGULATORY CAPITAL:
As a result of Equality Savings Bank's charter change on
December 28, 1999 from a federally-chartered thrift to a state-
chartered savings bank, Equality Savings Bank is required to
maintain specific amounts of regulatory capital under federal
regulations. 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 8.0% 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.
Equality Savings Bank is also subject to the regulatory
framework for prompt corrective action as established by the
Federal Deposit Insurance Corporation Improvement Act. To be
categorized as well-capitalized, an institution must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the table below. At March 31, 2000,
Equality Savings Bank is considered well capitalized.
- 16 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
The actual and required capital amounts and ratios for
Equality Savings Bank as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
2000
---------------------------------------------------------------------------------
TO BE WELL
CAPITALIZED UNDER
CAPITAL PROMPT CORRECTIVE
ACTUAL REQUIREMENTS ACTION PROVISION
--------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets).......... $24,508 15.17% $12,928 8.00% $16,160 10.00%
Tier 1 capital
(to risk-weighted assets).......... 24,144 14.94 6,464 4.00 9,696 6.00
Tier 1 capital
(to adjusted average assets)....... 24,144 7.27 13,292 4.00 16,615 5.00
======= ===== ======= ===== ======= =====
</TABLE>
Management believes that under current regulations, Equality
Savings Bank will continue to meet its minimum capital requirements in
the foreseeable future. Events beyond the control of Equality Savings
Bank could adversely affect future earnings and as a result, the ability
of Equality Savings Bank to meet its future minimum capital
requirements.
As a result of the FDIC's first regular examination following
Equality Savings Bank's conversion from a federally-chartered savings
and loan association to a state-chartered savings bank on December 28,
1999, Equality Savings Bank entered into a Memorandum of Understanding
with the FDIC and the Missouri Division of Finance on June 26, 2000. By
signing the Memorandum of Understanding, Equality Savings Bank has
agreed to take certain actions in response to concerns raised by the
FDIC. The Memorandum of Understanding addresses: (1) the Board of
Directors of Equality Savings Bank to assess Equality Savings Bank's
management and staffing needs to ensure proper supervision of Equality
Savings Bank's affairs; (2) Equality Savings 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 Equality Savings Bank's earnings; (3) Equality Savings Bank to
implement a suitable method for measuring and monitoring Equality
Savings Bank's interest rate risk, establish interest rate risk
parameters and provide for independent review of the validity of the
assumptions, data and results of the method used; (4) Equality Savings
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 Equality Savings Bank's interest rate risk profile; (5)
Equality Savings Bank to maintain a Tier 1 Leverage Ratio of not less
than 7% while the Memorandum of Understanding is in effect; (6) Equality
Savings Bank to refrain from declaring or paying any dividends and/or
management fees to Equality Bancorp without prior written regulatory
approval; (7) Equality Savings Bank to present to the FDIC and the
Missouri Division of Finance periodic updates concerning Equality
Savings Bank's asset growth objectives, particularly in light of capital
and liquidity needs; (8) Equality Savings Bank to provide a revised
investment policy, modify certain investment practices and ensure the
policy is implemented and followed; (9) Equality Savings Bank to develop
an internal audit program and appoint an internal auditor who shall
report to the Board of Directors; (10) Equality Savings Bank to take
steps to correct and/or eliminate regulatory violations cited by the
FDIC and the Missouri Division of Finance; (11) Equality Savings Bank to
implement procedures to address regulatory concerns regarding the retail
sale of nondeposit investment products by Equality Savings Bank; and
(12) Equality Savings Bank to submit periodic progress reports to the
FDIC and the Missouri Division of Finance regarding Equality Savings
Bank's compliance with the Memorandum of Understanding.
- 17 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
The Memorandum of Understanding is not a formal supervisory action
by the FDIC, but is an enforceable action. Failure to comply with the
Memorandum of Understanding can lead to enforcement action. Equality Savings
Bank believes that it can comply with the Memorandum of Understanding and is
currently taking the necessary steps to do so. Compliance with the
Memorandum of Understanding is not expected to have a materially adverse
impact on the operations or the financial condition of Equality Savings Bank
or Equality Bancorp. The Memorandum of Understanding will remain in effect
until terminated by the Kansas City Regional Director of the FDIC.
At March 31, 1999, Equality Savings Bank was subject to the capital
regulations of the Office of Thrift Supervision which, as a result of the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989,
require savings institutions to have minimum tangible capital equal to 1.5%
of total adjusted assets, a minimum 3% leverage (core capital) ratio, and an
8% risk-based capital ratio. 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. As of March 31, 1999, Equality Savings
Bank met all Office of Thrift Supervision capital requirements.
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------
MINIMUM FOR TO BE WELL
OTS CAPITAL CAPITALIZED FOR
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------------- ---------------------- -----------------------
RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT
----- ------ ----- ------ ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity ratio
to total assets.............. 8.51% $ 24,290
Unrealized gain on
investment and
mortgage-backed
securities available
for sale, net of tax......... (139)
----- --------
Tangible capital, and ratio
to adjusted total assets..... 8.39 24,151 1.50% $ 4,319
Tier 1 (core) capital, and
ratio to adjusted assets..... 8.39 24,151 3.00 8,637 5.00% $ 14,395
Tier 1 capital, and ratio to
risk-weighted assets......... 24.77 24,151 6.00 5,849
Allowance for loan losses
(general valuation
allowance.................... 366
----- --------
25.15% $ 24,517 8.00 7,799 10.00 9,748
===== ========
Total assets............... $288,129
Adjusted total assets............ 287,900
Risk-weighted assets............. 97,483
</TABLE>
- 18 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 3. INVESTMENT SECURITIES:
The amortized cost and fair value of investment securities
classified as available for sale at March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Government and agency
obligations..................... $ 68,716,508 33,780 3,944,668 64,805,620
Corporate obligations............... 58,012,955 -- 2,330,763 55,682,192
-------------- ------------ ------------ --------------
Total debt securities........ 126,729,463 33,780 6,275,431 120,487,812
Marketable equity securities........ 87,730 -- -- 87,730
-------------- ------------ ------------ --------------
$ 126,817,193 33,780 6,275,431 120,575,542
============== ============ ============ ==============
</TABLE>
Included in corporate obligations at March 31, 2000 is a $2,000,000
corporate security, with a fair value of $1,060,000 at March 31, 2000 and a
maturity date of March 15, 2003, which was investment grade when originally
purchased but has been subsequently downgraded below investment grade due to
restructurings of the debt issuer and an accumulation of debt in the
aggressive acquisition of businesses; however, the security continues to
meet its interest payment obligations. Management believes the decline in
fair value of this security is temporary. Equality Bancorp has the ability
and it is management's intent to hold this security until maturity.
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Government and agency
obligations..................... $ 59,922,329 663,274 85,362 60,500,241
Corporate obligations............... 21,068,452 4,558 25,642 21,047,368
-------------- ------------ ------------ --------------
Total debt securities........ 80,990,781 667,832 111,004 81,547,609
Marketable equity securities........ 87,730 -- -- 87,730
-------------- ------------ ------------ --------------
$ 81,078,511 667,832 111,004 81,635,339
============== ============ ============ ==============
</TABLE>
The amortized cost and fair value of debt securities classified as
available for sale at March 31, 2000, by contractual maturity, are as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less................................... $ 4,213,761 4,181,558
Due after one year through five years..................... 56,419,506 54,184,533
Due after five years through ten years.................... 40,434,621 38,889,389
Due after ten years....................................... 25,661,575 23,232,332
-------------- --------------
$ 126,729,463 120,487,812
============== ==============
</TABLE>
- 19 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
Proceeds from sales of investment securities during 2000, 1999, and
1998 were approximately $27.0 million, $41.5 million, and $50.7 million,
respectively. During 2000, 1999, and 1998, gross gains of $38,662, $179,282,
and $391,171, respectively, and gross losses of $85,108, $0, and $266,974,
respectively, were recognized on these sales.
The amortized cost and fair value of investment securities
classified as held to maturity at March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Government and agency
obligations
2000............................ $ 600,000 -- 52,000 548,000
1999............................ 600,000 -- 69,000 531,000
============== ============ ============ ==============
</TABLE>
The investment security classified as held to maturity at March 31,
2000 matures on July 30, 2003.
NOTE 4. MORTGAGE-BACKED SECURITIES:
The amortized cost and fair value of mortgage-backed securities
classified as available for sale at March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Federal National
Mortgage Association............ $ 37,872,779 -- 1,532,626 36,340,153
Federal Home Loan
Mortgage Corporation............ 12,108,350 -- 422,130 11,686,220
Government National
Mortgage Association............ 16,844,498 -- 733,197 16,111,301
-------------- ------------ ------------ --------------
$ 66,825,627 -- 2,687,953 64,137,674
============== ============ ============ ==============
</TABLE>
Weighted average interest rate at March 31 6.68%
====
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Federal National
Mortgage Association............ $ 49,511,993 84,140 231,294 49,364,839
Federal Home Loan
Mortgage Corporation............ 17,203,265 8,191 91,914 17,119,542
Government National
Mortgage Association............ 24,423,724 51,481 148,803 24,326,402
-------------- ------------ ------------ --------------
$ 91,138,982 143,812 472,011 90,810,783
============== ============ ============ ==============
</TABLE>
Weighted average interest rate at March 31 6.28%
====
- 20 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
The amortized cost and fair value of mortgage-backed securities
classified as available for sale at March 31, 2000, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
due to scheduled repayments and because borrowers have the right to prepay
obligations with or without prepayment penalties. The following table does
not take into consideration the effects of scheduled repayments or the
effects of possible prepayments.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less................................... $ 29,253 28,933
Due after one year through five years..................... 3,930,427 3,764,578
Due after five years through ten years.................... 5,644,233 5,439,493
Due after ten years....................................... 57,221,714 54,904,670
-------------- --------------
$ 66,825,627 64,137,674
============== ==============
</TABLE>
Proceeds from the sale of mortgage-backed securities during 2000,
1999, and 1998 were approximately $10.5 million, $26.5 million, and $10.0
million, respectively. During 2000, 1999, and 1998, gross gains of $40,012,
$32,802, and $5,880, respectively, and gross losses of $36,600, $45,696, and
$89,033, respectively, were recognized on these sales.
NOTE 5. LOANS RECEIVABLE
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Loans secured by real estate:
Residential:
One- to four-family:
Conventional.................................... $ 68,183,215 54,525,316
Federal Housing Administration and
Veterans Administration.................. 10,758,016 10,629,163
Multi-family....................................... 1,342,797 1,429,600
Commercial:........................................... 4,096,761 4,381,981
Loans held for sale................................... 2,640,972 7,021,322
-------------- --------------
Total loans secured by real estate....... $ 87,021,761 77,987,382
Commercial business................................... 14,475,913 9,642,046
Loans secured by savings deposits..................... 256,856 254,014
Property improvement.................................. 1,633,263 1,481,520
Automobiles........................................... 1,762,952 1,042,031
Other................................................. 562,905 267,739
-------------- --------------
Total loans.............................. 105,713,650 90,674,732
Less:
Deferred loan fees, net............................ 20,809 25,086
Unearned discounts................................. 13,065 4,999
Allowance for loan losses.......................... 364,047 366,032
Valuation reserve on loans held for sale........... -- 47,938
-------------- --------------
$ 105,315,729 90,230,677
============== ==============
Weighted average interest rate at March 31................ 7.77% 7.63%
============== ==============
</TABLE>
Adjustable rate mortgages at March 31, 2000 and 1999 totaled
approximately $44.3 million and $39.0 million, respectively.
- 21 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
At March 31, 2000 and 1999, loans secured by real estate
contractually delinquent 90 days or more totaled $626,484 and $700,889,
respectively. Of these amounts, $387,879 and $485,574, respectively, were
insured by the Federal Housing Administration or guaranteed by the Veterans
Administration. No loans were deemed by management to be impaired at March
31, 2000, 1999 or 1998.
Equality Mortgage Corporation had no commitments to sell loans at
March 31, 2000 and $9.0 million in commitments to sell loans at March 31,
1999.
Loans serviced by Equality Mortgage Corporation at March 31, 2000,
1999, and 1998 were $334,391,036, $369,247,163 and $340,054,031,
respectively. Of these amounts, $249,382,195, $297,751,904 and $254,415,299
were serviced for unaffiliated institutions at March 31, 2000, 1999 and
1998, respectively.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year........................... $ 366,032 374,200 283,000
Provision charged to expense......................... -- -- 115,513
Charge-offs.......................................... (3,206) (8,168) (24,313)
Recoveries........................................... 1,221 -- --
----------- ----------- -----------
Balance, end of year................................. $ 364,047 366,032 374,200
=========== =========== ===========
</TABLE>
Following is a summary of activity for 2000 of loans made to
executive officers and directors or to entities in which such individuals
had beneficial interest. Such loans were made in the normal course of
business on substantially the same terms, including interest and collateral
requirements, as those prevailing at the same time for comparable
transactions with other persons and did not involve more than the normal
risk of collectibility or present unfavorable features.
<TABLE>
<S> <C>
Balance at March 31, 1999.......................... $ 1,429,747
New loans and advances............................. 296,650
Payments received.................................. (159,504)
-------------
Balance at March 31, 2000.......................... $ 1,566,893
=============
</TABLE>
- 22 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 6. MORTGAGE SERVICING RIGHTS:
The activity in mortgage servicing rights is summarized as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Mortgage servicing rights:
Balance at beginning of year................. $ 1,689,595 977,433 592,444
Purchases.................................... 466,253 -- --
Originated................................... 290,858 1,392,501 768,801
Amortization................................. (632,055) (680,339) (383,812)
Sales........................................ (540,883) -- --
------------ ------------ ------------
Balance at end of year, before allowance..... 1,273,768 1,689,595 977,433
------------ ------------ ------------
Allowance for impairment of mortgage servicing
rights:
Balance at beginning of year................. (209,964) (139,836) (66,022)
Reductions (additions)....................... 209,964 (70,128) (73,814)
------------ ------------ ------------
Balance at end of year....................... -- (209,964) (139,836)
------------ ------------ ------------
Mortgage servicing rights, net............... $ 1,273,768 1,479,631 837,597
============ ============ ============
Fair value of mortgage servicing rights...... $ 2,654,000 2,597,000 1,513,000
============ ============ ============
</TABLE>
The fair value was estimated based on quoted market prices for
mortgage servicing rights of a similar nature. Note rate and loan type are
the predominant characteristics used to evaluate the carrying and fair value
of the capitalized mortgage servicing rights.
NOTE 7. OFFICE PROPERTIES AND EQUIPMENT:
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Land...................................................... $ 1,885,358 1,583,358
Office buildings and improvements......................... 5,070,900 4,427,565
Furniture and equipment................................... 2,820,069 2,449,769
Automobiles............................................... 63,365 63,365
Property held for future expansion........................ 742,726 1,133,574
-------------- --------------
10,582,418 9,657,631
Less accumulated depreciation and amortization............ 3,647,303 3,206,274
-------------- --------------
$ 6,935,115 6,451,357
============== ==============
</TABLE>
Depreciation and amortization expense for 2000, 1999, and 1998 was
$441,029, $237,834, and $272,470, respectively.
Equality Savings Bank is obligated under a certain noncancellable
lease on a property which expires on April 8, 2009. The future minimum lease
payments under this lease total $90,000 per year for the next 9 years.
- 23 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 8. ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS:
Accrued interest receivable and other assets are summarized as
follows:
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Accrued interest receivable:
Loans receivable...................................... $ 611,426 461,779
Interest-bearing deposits............................. -- 4,008
Investment securities................................. 1,605,505 927,600
Mortgage-backed securities............................ 497,096 594,483
------------ -----------
Total accrued interest receivable.................. 2,714,027 1,987,870
Accounts receivable....................................... 1,090,011 296,977
Prepaid expenses.......................................... 233,022 164,946
Other ................................................... 360,819 275,827
------------ -----------
$ 4,397,879 2,725,620
============ ===========
</TABLE>
NOTE 9. SAVINGS DEPOSITS:
Savings deposits are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------- ------------------------------------
WEIGHTED WEIGHTED
AVERAGE PERCENT AVERAGE PERCENT
INTEREST OF TOTAL INTEREST OF TOTAL
AMOUNT RATE SAVINGS AMOUNT RATE SAVINGS
------ ---- ------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Checking............... $ 19,054,570 1.23% 13.6% $ 16,082,858 1.13% 12.5%
Passbook savings....... 20,073,849 2.51 14.2 20,766,651 2.51 16.1
Money market........... 12,459,248 4.34 8.8 8,236,660 4.31 6.4
------------ ------- ------ ------------ ----- ------
Total demand deposits...... 51,587,667 2.44 36.6 45,086,169 2.34 35.0
------------ ------- ------ ------------ ----- ------
Certificates of deposit:
Negotiated rate
($100,000 or more).. 1,598,807 5.84 1.1 2,111,581 5.79 1.6
Other.................. 87,698,770 5.51 62.3 81,756,076 5.45 63.4
------------ ------- ------ ------------ ----- ------
Total certificates of
deposit................ 89,297,577 5.52 63.4 83,867,657 5.46 65.0
------------ ------- ------ ------------ ----- ------
$140,885,244 4.39% 100.0% $128,953,826 4.37% 100.0%
============ ======= ====== ============ ===== ======
</TABLE>
- 24 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
Certificates of deposit by interest rate ranges are as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------- -------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
-------------- -------- ------------ --------
<S> <C> <C> <C> <C>
3.00% to 3.99%...................... $ 16,680 3.00% $ 16,307 3.00%
4.00% to 4.99%...................... 24,331,202 4.62 17,288,243 4.59
5.00% to 5.99%...................... 35,357,419 5.48 49,392,324 5.40
6.00% to 6.99%...................... 28,850,239 6.23 13,634,306 6.26
7.00% to 7.99%...................... 164,269 7.00 2,981,837 7.00
8.00% and greater................... 577,768 9.74 554,640 9.75
-------------- ------ ------------ -----
$ 89,297,577 5.52% $ 83,867,657 5.46%
============== ====== ============ =====
</TABLE>
Certificates of deposit at March 31, 2000 and 1999 are scheduled to
mature as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------- -------------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
-------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Within one year..................... $ 34,466,576 38.6% $ 46,478,826 55.4%
Second year......................... 25,803,920 28.9 12,329,265 14.7
Third year.......................... 14,419,530 16.1 4,943,112 5.9
Fourth year......................... 7,312,317 8.2 13,108,564 15.6
Thereafter.......................... 7,295,234 8.2 7,007,890 8.4
-------------- ----- -------------- -----
$ 89,297,577 100.0% $ 83,867,657 100.0%
============== ===== ============== =====
</TABLE>
Interest expense on savings deposits by type is summarized as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Checking and money market demand................. $ 648,195 431,004 342,468
Passbook savings................................. 522,725 506,352 663,498
Certificates of deposit.......................... 4,425,539 4,520,790 4,627,726
------------ --------- ---------
$ 5,596,459 5,458,146 5,633,692
============ ========= =========
</TABLE>
- 25 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 10. BORROWED MONEY:
Borrowed money at March 31, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------- -------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Note payable to bank................ $ 1,694,534 2.25% $ 1,825,783 2.25%
Advances from the Federal Home
Loan Bank System:
Due in 2000......................... 76,000,000 6.08 -- --
Due in 2001......................... 25,000,000 6.88 -- --
Due in 2003, repaid................. -- -- 71,000,000 5.35
Due in 2008......................... 49,500,000 5.28 23,000,000 5.22
Due in 2009, repaid................. -- -- 26,500,000 5.22
Due in 2013......................... 9,240,626 6.00 9,684,267 6.00
-------------- ---- -------------- ----
$ 161,435,160 5.91% $ 132,010,050 5.35%
============== ==== ============== ====
</TABLE>
At March 31, 2000, callable advances at the Federal Home Loan Bank
System, all of which are due in 2008, are as follows:
Presently callable $ --
2001 26,500,000
2002 --
2003 23,000,000
--------------
$ 49,500,000
==============
The note payable to bank, which is tied to average collected funds
of Equality Mortgage Corporation on deposit at such bank, is due April 24,
2000. Investment securities with an amortized cost of $4,682,018 and a fair
value of $4,048,447 secure the note payable to bank at March 31, 2000.
Federal Home Loan Bank System advances are secured under a blanket
agreement which assigns all Federal Home Loan Bank System stock, certain
investment securities equal to 105% of the outstanding advances balance and
mortgage loans equal to 130% of the outstanding advances balance. Investment
securities with an amortized cost of $127,132,254 and a fair value of
$119,544,754 are pledged to secure advances from the Federal Home Loan Bank
System at March 31, 2000. Equality Savings Bank maintains a line of credit
of approximately $12,332,000 available from the Federal Home Loan Bank
System of Des Moines at March 31, 2000.
NOTE 11. INCOME TAXES:
Prior to 1997, if certain conditions were met, savings and loan
associations and savings banks were allowed special bad debt deductions in
determining taxable income based on either specified experience formulas or
on a percentage of taxable income before such deduction. Bad debt deductions
in excess of actual losses were tax-preference items, and were subject to a
minimum tax.
The special bad debt deduction accorded thrift institutions is
covered under Section 593 of the Internal Revenue Code (IRC). On August 20,
1996, the Small Business Job Protection Act of 1996 (the Act) was signed
into law. The Act included the repeal of certain portions of Section 593
effective for tax years beginning after December 31, 1995. As a result,
Equality Savings Bank is no longer allowed a percentage method bad debt
deduction. The repeal of the thrift reserve method generally requires thrift
institutions to recapture into income the portion of tax bad debt reserves
accumulated since 1987 (base year reserve). The recapture at Equality
Savings
- 26 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
Bank began in the tax year ended March 31, 1999 and will continue ratably
through the tax year ending March 31, 2004. At March 31, 2000, Equality
Savings Bank had bad debts deducted for tax purposes in excess of the base
year reserve of approximately $163,000. Equality Savings Bank has recognized
a deferred income tax liability on this amount.
Certain events covered by IRC Section 593(e), which was not
repealed, will trigger a recapture of the base year reserve. The base year
reserve of thrift institutions would be recaptured if a thrift ceases to
qualify as a "bank" for federal income tax purposes. The base year reserves
of thrift institutions also remain subject to income tax penalty provisions
which, in general, require recapture upon certain stock redemptions of, and
excess distributions to, stockholders. At March 31, 2000, retained earnings
included approximately $2.6 million of base year reserves for which no
deferred federal income tax liability has been recognized.
The composition of income tax expense for 2000, 1999, and 1998 is
as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 737,870 499,690 613,427
State............................................ 78,244 45,397 69,277
------------ ------------ ------------
Total current.................................... 816,114 545,087 682,704
Deferred......................................... (77,570) 162,560 94,964
------------ ------------ ------------
Total income tax expense......................... $ 738,544 707,647 777,668
============ ============ ============
</TABLE>
Applicable income taxes for financial reporting purposes differ
from the amount computed by applying the statutory federal income tax rate
of 34% for the reasons noted in the table below:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory federal income tax rate......... $ 642,754 624,555 685,724
State income tax, net of federal tax benefit..... 51,641 29,962 45,723
Other, net....................................... 44,149 53,130 46,221
------------ ------------ ------------
$ 738,544 707,647 777,668
============ ============ ============
</TABLE>
The components of deferred tax assets and deferred tax liabilities
at March 31, 2000 and 1999 were as follows:
- 27 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Deferred tax assets:
Available for sale securities........................ $ 3,482,546 --
General loan loss allowance.......................... 135,134 135,871
Deferred compensation................................ 86,329 72,871
Excess servicing gains............................... 8,747 11,605
Other................................................ 890 1,553
------------ -----------
Total deferred tax assets............................ 3,713,646 221,900
------------ -----------
Deferred tax liabilities:
Tax depreciation in excess of that recorded for
book purposes...................................... 237,309 221,266
Federal Home Loan Bank System stock dividends........ 154,162 154,162
Allowance for loan losses in excess
of base-year reserve............................... 55,437 69,296
Mortgage servicing rights............................ 469,337 545,057
Available for sale securities........................ -- 89,165
Other................................................ 21,464 16,297
------------ -----------
Total deferred tax liabilities....................... 937,709 1,095,243
------------ -----------
Net deferred tax asset (liability)................... $ 2,775,937 (873,343)
============ ===========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and
tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes
it is more likely than not that Equality Bancorp will realize the benefits
of these temporary differences at March 31, 2000 and, therefore, has not
established a valuation reserve.
NOTE 12. EMPLOYEE STOCK OWNERSHIP PLAN, STOCK OPTION AND INCENTIVE PLAN,
MANAGEMENT RECOGNITION PLAN, OFFICERS RETIREMENT PLAN AND 401(k) PLAN:
During 1993, Equality Bancorp established an employee stock
ownership plan for the exclusive benefit of participating employees.
Employees age 21 or older who have completed one year of service are
eligible to participate. The Employee Stock Ownership Plan is to be funded
by contributions made in cash or common stock.
In connection with the mutual holding company conversion, the
Employee Stock Ownership Plan purchased 26,600 shares (3.2% of total shares
issued) of the Association's common stock at a subscription price of $10.00
per share using funds loaned by a third party. As a result of the
Conversion, these Employee Stock Ownership Plan shares were converted into
79,065 shares based on the Exchange Ratio. In connection with the
Conversion, the Employee Stock Ownership Plan purchased an additional
119,806 shares of common stock at a subscription price of $10.00 per share
using funds loaned by Equality Bancorp. During 1998, the third party loan
was repaid and added to the Equality Bancorp loan which is being repaid with
level principal payments over 10 years. All shares are held in a suspense
account for allocation among the participants as the loan is repaid. Shares
released from the suspense account are allocated among the participants
based upon their pro rata annual compensation. The purchases of the shares
by the Employee Stock Ownership Plan were recorded by Equality Bancorp as
unearned Employee Stock Ownership Plan shares in a contra equity account. As
Employee Stock Ownership Plan shares are committed to be released to
compensate employees, the contra equity account is reduced and Equality
Bancorp recognizes compensation expense equal to the fair market value of
the shares committed to be released. Dividends on allocated Employee Stock
Ownership Plan shares are recorded as a reduction of retained earnings;
dividends on unallocated Employee Stock Ownership Plan shares are recorded
as a reduction of debt.
- 28 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
Compensation expense related to the Employee Stock Ownership Plan totaled
$119,368, $187,784, and $67,142 for 2000, 1999, and 1998, respectively.
The Employee Stock Ownership Plan shares as of March 31, 2000 are
as follows:
Allocated shares 78,499
Unreleased shares 120,372
-----------
Total Employee Stock
Ownership Plan shares 198,871
-----------
Fair value of unreleased shares $ 782,418
===========
In connection with the mutual holding company conversion, Equality
Bancorp adopted the 1993 Stock Option and Incentive Plan which provided for
the granting of options for a maximum of 38,000 shares of common stock at
$10.00 per share to directors and key officers. As a result of the
Conversion, the stock options and the price per share were converted based
on the Exchange Ratio.
Equality Bancorp accounts for stock-based compensation under the
stock option plan in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and, accordingly, recognizes
no compensation expense as the exercise price of employee stock options
equals the market price of the underlying stock on the date of grant.
Information on Equality Bancorp's stock options is summarized as
follows:
<TABLE>
<CAPTION>
AVERAGE PER SHARE
PRICE OPTION
SHARES PER SHARE PRICE RANGE
------ --------- -----------
<S> <C> <C> <C>
Outstanding and exercisable at
March 31, 1997................................... 112,951 $ 3.73 3.36-4.37
Exercised............................................ 19,953 3.45 3.36-4.37
Outstanding and exercisable at
March 31, 1998................................... 92,998 3.79 3.36-4.37
Exercised............................................ 13,938 3.61 3.36-4.37
Outstanding and exercisable at
March 31, 1999................................... 79,060 3.82 3.36-4.37
Exercised............................................ 24,301 3.43 3.36-4.37
Forfeitures.......................................... (551) 3.91 3.36-4.37
Options granted...................................... 26,850 13.02 8.00-13.90
-------- -------- ----------
Outstanding and exercisable at
March 31, 2000................................... 81,058 $ 7.00 3.36-13.90
======== ======== ==========
</TABLE>
The number of options granted that are not exercisable as of March
31, 2000 were 111,400.
In conjunction with the conversion, Equality Bancorp established a
management recognition plan (the Management Recognition Plan) which acquired
65,550 shares of common stock during 1999 at an average price of $11.28 per
share. The Management Recognition Plan provides that such common stock can
be issued to employees in key management positions to encourage such
employees to remain with Equality Bancorp. Interest in the Management
Recognition Plan for each participant vests over a five year period.
Compensation expense related to vesting in the Management Recognition Plan
totaled $147,816 for 2000 and $120,131 for 1999.
- 29 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
Equality Bancorp maintains a retirement plan for certain officers.
Upon retirement at age 65, each participating officer will receive $50,000
on an annual basis for a period of 10 years following retirement. Benefits
to be paid for future service will be accrued over the remaining period of
service of each officer. The plan has been funded through the purchase of
life insurance contracts on each officer. The cash surrender value of the
life insurance contracts totaled $211,783 and $121,636 at March 31, 2000 and
1999, respectively, and is included in other assets in the consolidated
balance sheet. The related accrued liability totaled $136,386 and $87,600 at
March 31, 2000 and 1999, respectively. Compensation expense related to the
plan totaled $39,271 for 2000, 1999 and 1998.
Equality Bancorp sponsors a defined contribution plan qualifying
under Section 401(k) of the Internal Revenue Code. Participants may
designate up to 15% of their annual compensation as their contribution to
the plan, which is partially matched by Equality Bancorp. Compensation
expense related to the plan totaled $26,442, $24,459, and $27,064 for 2000,
1999, and 1998, respectively.
NOTE 13. DISCLOSURES ABOUT FINANCIAL INSTRUMENTS:
Equality Bancorp is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments, which are
solely made up of commitments to extend credit, may involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
consolidated balance sheets. The contractual amounts of these instruments
reflect the extent of involvement Equality Bancorp has in this particular
class of financial instruments.
Equality Bancorp's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual amount of
these instruments. Equality Bancorp uses the same credit policies in making
commitments as they do for financial instruments recorded in the
consolidated balance sheets.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. At March 31, 2000 and
1999, Equality Bancorp had outstanding commitments to extend credit of $5.5
million and $4.8 million, respectively. Since certain of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Equality Bancorp
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by Equality Bancorp upon
extension of credit, is based on management's credit evaluation of the
counterparty.
A summary of the carrying amounts and fair values of Equality
Bancorp's financial instruments at March 31, 2000 and 1999 is as follows:
- 30 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
<CAPTION>
2000 1999
------------------------------- ------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
ASSETS
Cash, primarily interest-
bearing demand deposits......... $ 9,080,509 9,080,509 6,449,613 6,449,613
Interest-bearing deposits........... 198,000 197,427 1,085,000 1,105,697
Investment securities............... 121,175,542 121,123,542 82,235,339 82,166,339
Mortgage-backed securities.......... 64,137,674 64,137,674 90,810,783 90,810,783
Loans receivable.................... 105,315,729 103,618,960 90,230,677 90,929,267
Stock in Federal Home Loan
Bank............................ 7,987,100 7,987,100 6,911,100 6,911,100
Accrued interest receivable......... 2,714,027 2,714,027 1,987,870 1,987,870
-------------- ----------- ----------- -----------
$ 310,608,581 308,859,239 279,710,382 280,360,669
============== =========== =========== ===========
LIABILITIES
Savings deposits.................... $ 140,885,244 140,885,244 128,953,826 131,196,066
Accrued interest payable
on savings deposits............. 147,711 147,711 200,280 200,280
Borrowed money...................... 161,435,160 160,145,915 132,010,050 133,302,453
Advance payments by
borrowers for taxes
and insurance................... 35,800 35,800 69,634 69,634
-------------- ----------- ----------- -----------
$ 302,503,915 301,214,670 261,233,790 264,768,433
============== =========== =========== ===========
</TABLE>
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate such value:
CASH, PRIMARILY INTEREST-BEARING DEMAND DEPOSITS. For cash,
primarily interest-bearing demand deposits, the carrying amount is a
reasonable estimate of fair value, as such instruments reprice in a short
time period.
INTEREST-BEARING DEPOSITS. The fair value of interest-bearing
deposits is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits of
similar remaining maturity.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Fair values are based on
quoted market prices or dealer quotes.
LOANS RECEIVABLE. Fair values are estimated for portfolios of loans
receivable with similar financial characteristics. Loans are segregated by
type such as residential, commercial and consumer. Each loan receivable
category is further segmented into fixed and adjustable rate interest terms.
The fair value of loans receivable is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount
rates equal to rates at which loans, similar in type, would be originated at
March 31, 2000 and 1999. Estimated maturities are based upon the average
remaining contractual lives for each loan receivable classification.
STOCK IN FEDERAL HOME LOAN BANK. Fair value is equal to cost,
which represents redemption value.
- 31 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
ACCRUED INTEREST RECEIVABLE, ACCRUED INTEREST PAYABLE ON SAVINGS
DEPOSITS, AND ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE. For
accrued interest receivable, accrued interest payable on savings deposits
and advance payments by borrowers for taxes and insurance, the carrying
amount is a reasonable estimate of fair value because of the short maturity
for these financial instruments.
SAVINGS DEPOSITS. The fair value of savings deposits with no stated
maturity is equal to the amount payable on demand. The fair value of time
deposits is based on the discounted value of contractual cash flows, but
will not be less than carrying value. The discount rate is estimated using
the rates currently offered for savings deposits of similar remaining
maturities.
BORROWED MONEY. The fair value of borrowed money is based on the
discounted value of contractual cash flows. The discount rate is estimated
using rates on borrowed money with similar remaining maturities.
The fair value estimates provided are made at a point in time based
on market information and information about the financial instruments.
Because no market exists for a portion of Equality Bancorp's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics
of various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the fair value estimates.
NOTE 14. INDUSTRY SEGMENT INFORMATION:
The business segment results which follow are consistent with
Equality Bancorp's internal reporting system which is consistent, in all
material respects, with generally accepted accounting principles.
<TABLE>
<CAPTION>
2000
--------------------------------------------------------------------------
EQUALITY EQUALITY
SAVINGS MORTGAGE CORPORATE
BANK CORPORATION AND OTHERS TOTAL
--------------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Balance sheet information:
Investment and mortgage-
backed securities.......... $ 185,225,486 -- 87,730 185,313,216
Loans receivable, net........ 103,756,961 2,627,907 (1,069,139) 105,315,729
Total assets................. 320,923,750 5,420,707 (3,009,150) 323,335,307
Savings deposits............. 141,725,442 -- (840,198) 140,885,244
Stockholders' equity......... 18,857,512 2,374,382 (1,306,892) 19,925,002
=============== =========== =========== ===========
- 32 -
<PAGE>
<PAGE>
<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<S> <C> <C> <C> <C>
Statement of income
information:
Total interest income...... $ 20,603,889 532,011 (92,448) 21,043,452
Total interest expense..... 14,404,790 352,869 (396,509) 14,361,150
--------------- ----------- ----------- -----------
Net interest income........ 6,199,099 179,142 304,061 6,682,302
Provision for losses on loans -- -- -- --
Noninterest income........... 367,152 2,672,139 267,374 3,306,665
Noninterest expense.......... 4,718,057 2,673,927 706,529 8,098,513
Income tax expense........... 685,245 69,168 (15,869) 738,544
--------------- ----------- ----------- -----------
Net income (loss).......... $ 1,162,949 108,186 (119,225) 1,151,910
=============== =========== =========== ===========
Capital expenditures......... $ 908,206 9,355 7,226 924,787
=============== =========== =========== ===========
<CAPTION>
1999
---------------------------------------------------------------------------
EQUALITY EQUALITY
SAVINGS MORTGAGE CORPORATE
BANK CORPORATION AND OTHERS TOTAL
--------------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Balance sheet information:
Investment and mortgage-
backed securities.......... $ 172,985,392 -- 87,730 173,046,122
Loans receivable, net........ 87,676,452 6,968,384 (4,414,159) 90,230,677
Total assets................. 285,539,615 9,243,476 (6,345,917) 288,437,174
Savings deposits............. 130,028,064 -- (1,074,238) 128,953,826
Stockholders' equity......... 24,290,744 2,272,196 (955,210) 25,607,730
=============== =========== =========== ===========
Statement of income
information:
Total interest income...... $ 17,012,620 924,685 (378,884) 17,558,421
Total interest expense..... 12,417,420 635,835 (701,827) 12,351,428
--------------- ----------- ----------- -----------
Net interest income........ 4,595,200 288,850 322,943 5,206,993
Provision for losses on loans -- -- -- --
Noninterest income........... 863,796 3,477,136 (103,700) 4,237,232
Noninterest expense.......... 3,949,862 3,066,286 591,150 7,607,298
Income tax expense........... 406,449 272,823 28,375 707,647
--------------- ----------- ----------- -----------
Net income (loss).......... $ 1,102,685 426,877 (400,282) 1,129,280
=============== =========== =========== ===========
Capital expenditures......... $ 1,010,704 104,200 -- 1,114,904
=============== =========== =========== ===========
- 33 -
<PAGE>
<PAGE>
<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
1998
-----------------------------------------------------------------------------
EQUALITY EQUALITY
SAVINGS MORTGAGE CORPORATE
BANK CORPORATION AND OTHERS TOTAL
--------------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Statement of income
Information
Total interest income...... $ 14,345,013 810,591 (475,294) 14,680,310
Total interest expense..... 9,707,997 530,656 (513,271) 9,725,382
--------------- ------------ ----------- -------------
Net interest income........ 4,637,016 279,935 37,977 4,954,928
Provision for losses on loans 115,513 -- -- 115,513
Noninterest income........... 554,469 2,489,439 (162,424) 2,881,484
Noninterest expense.......... 3,209,980 2,407,612 86,473 5,704,065
Income tax expense........... 635,257 141,087 1,324 777,668
Net income (loss).......... $ 1,230,735 220,675 (212,244) 1,239,166
=============== ============ =========== =============
Capital expenditures......... $ 2,790,356 122,810 -- 2,913,166
=============== ============ =========== =============
</TABLE>
NOTE 15. CONTINGENCIES:
Equality Bancorp is involved in various litigation arising in the
ordinary course of business. In the opinion of management, at the present
time, disposition of the suits and claims will not have a material effect on
the financial position of the Company.
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data for 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 2000
----------- ------------------ ------------------ -------------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total interest income......... $ 4,814 5,247 5,486 5,497
Total interest expense........ 3,206 3,500 3,673 3,982
----------- -------- --------- --------
Net interest income...... 1,608 1,747 1,813 1,515
Provision for losses on loans. -- -- -- --
Noninterest income............ 851 758 665 1,033
Noninterest expense........... 2,044 2,068 2,038 1,949
----------- -------- --------- --------
Income before income tax
expense................ 415 437 440 599
Income tax expense............ 170 167 175 227
----------- -------- --------- --------
Net income............... $ 245 270 265 372
=========== ======== ========= ========
Earnings per share:
Basic...................... $ 0.10 0.12 0.11 0.17
Diluted.................... 0.10 0.11 0.11 0.17
=========== ======== ========= ========
- 34 -
<PAGE>
<PAGE>
<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
QUARTER ENDED
------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1999
----------- ------------------ ------------------ -------------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total interest income......... $ 4,361 4,343 4,426 4,428
Total interest expense........ 2,881 3,087 3,221 3,162
----------- -------- ----------- ----------
Net interest income........ 1,480 1,256 1,205 1,266
Provision for losses on loans. -- -- -- --
Noninterest income............ 836 970 1,273 1,158
Noninterest expense........... 1,736 1,909 2,009 1,953
----------- -------- ----------- ----------
Income before income tax
expense............... 580 317 469 471
Income tax expense............ 229 120 180 179
----------- -------- ----------- ----------
Net income............ $ 351 197 289 292
=========== ======== =========== ==========
Earnings per share:
Basic...................... $ 0.15 0.08 0.12 0.13
Diluted.................... 0.15 0.08 0.12 0.12
=========== ======== =========== ==========
</TABLE>
NOTE 17. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY:
The condensed balance sheet as of March 31, 2000 and 1999 and the
related condensed statements of income and cash flows for the years ended
March 31, 2000 and 1999 and from the date of inception through March 31,
1998 of Equality Bancorp are as follows:
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Cash............................................... $ 763,939 995,648
Investment in subsidiary........................... 18,857,512 24,290,744
Other assets....................................... 429,763 497,290
---------------- -----------
Total assets.............................. $ 20,051,214 25,783,682
================ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities.................................. $ 126,212 175,952
Stockholders' equity............................... 19,925,002 25,607,730
---------------- -----------
Total liabilities and stockholders' equity $ 20,051,214 25,783,682
================ ===========
</TABLE>
- 35 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED MARCH 31, FOUR MONTHS
-------------------- ENDED
MARCH 31,
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE
Interest income.................................. $ 112,480 134,243 34,007
Rental income.................................... 70,750 46,800 --
Dividends from subsidiary........................ 1,000,000 1,000,000 --
Other............................................ 7,767 817 --
------------- ------------- ------------
1,190,997 1,181,860 34,007
------------- ------------- ------------
EXPENSES
Legal............................................ 57,277 81,193 12,183
Other............................................ 135,101 74,072 13,393
------------- ------------- ------------
192,378 155,265 25,576
------------- ------------- ------------
Income before equity in
undistributed income of subsidiary... 998,619 1,026,595 8,431
Equity in undistributed income of subsidiary..... 153,291 102,685 486,138
------------- ------------- ------------
Net income.............................. $ 1,151,910 1,129,280 494,569
============= ============= ============
</TABLE>
- 36 -
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 1,151,910 1,129,280 494,569
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in undistributed income
of subsidiary........................... (153,291) (102,685) (486,138)
Depreciation expense........................ 22,367 22,367 --
Amortization of Employee Stock
Ownership Plan awards................... 144,905 188,522 84,473
Amortization of stock awards................ 147,816 120,131 --
(Decrease) increase in
income taxes payable.................... (58,160) 162,184 --
Other, net.................................. 55,836 (72,785) (170,927)
----------- ----------- ------------
Net cash provided by (used in)
operating activities.................. 1,311,383 1,447,014 (78,023)
----------- ----------- ------------
Cash flows from investing activities -
investment in subsidiary.......................... -- -- (10,000,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock offering...................... -- -- 11,112,371
Proceeds from exercise of stock options........... 82,061 60,733 68,916
Purchase of treasury stock........................ (1,067,368) (166,431) --
Purchase of stock for restricted stock awards..... -- (739,456) --
Cash dividends paid............................... (557,785) (568,356) (141,120)
----------- ----------- ------------
Net cash (used in) provided by financing
activities.................................. (1,543,092) (1,413,510) 11,040,167
----------- ----------- ------------
Net (decrease) increase in cash................ (231,709) 33,504 962,144
Cash at beginning of year.............................. 995,648 962,144 --
----------- ----------- ------------
Cash at end of year.................................... $ 763,939 995,648 962,144
=========== =========== ============
</TABLE>
- 37 -
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
SEPTEMBER 30,
2000
---------------
<S> <C>
ASSETS
Cash, primarily interest-bearing demand accounts......................... $ 24,286,095
Interest-bearing deposits................................................ 99,000
Investment securities:
Available for sale, at fair value.................................... 22,927,755
Held to maturity, at amortized cost.................................. 600,000
Mortgage-backed securities available
for sale, at fair value.............................................. 58,914,090
Loans receivable, net.................................................... 173,342,296
Investment in real estate................................................ 58,054
Stock in Federal Home Loan Bank.......................................... 4,527,400
Mortgage servicing rights................................................ --
Office properties and equipment, net..................................... 6,937,840
Deferred tax asset....................................................... 998,075
Accrued interest receivable and other assets............................. 5,046,087
---------------
Total assets...................................................... $ 297,736,692
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits......................................................... $ 183,636,320
Accrued interest payable on savings deposits............................. 113,291
Federal Home Loan Bank advances.......................................... 90,508,648
Other borrowed money..................................................... 1,157,799
Advance payments by borrowers for taxes and
insurance............................................................ 51,375
Income tax payable....................................................... --
Accrued expenses and other liabilities................................... 658,809
---------------
Total liabilities................................................. 276,126,242
---------------
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
shares issued..................................................... 25,464
Additional paid-in capital........................................... 16,202,266
Retained earnings.................................................... 10,612,294
Accumulated other comprehensive loss................................. (2,666,300)
Treasury stock, at cost, 160,105 shares.............................. (1,246,136)
Unamortized restricted stock awards.................................. (400,451)
Unearned ESOP shares................................................. (916,687)
---------------
Total stockholders' equity........................................ 21,610,450
---------------
Total liabilities and stockholders' equity........................ $ 297,736,692
===============
See accompanying note to consolidated financial statements.
</TABLE>
- 38 -
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 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.................. 631,000 -- 631,000 --
------------- -------------- ------------- --------------
Net interest income after provision
for losses on loans.............. 883,656 1,747,194 2,563,892 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
Gain (loss) on sale of investment and
mortgage-backed securities available
for sale................................ (2,716,878) (21,807) (2,716,704) 8,896
Rental income.............................. 41,877 45,490 84,103 81,816
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
Federal 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)............................... (1,545,840) 437,072 (1,168,279) 851,838
Income tax expense (benefit)............... (346,348) 166,865 (202,867) 336,305
------------- -------------- ------------- --------------
Net income (loss).................... (1,199,492) 270,207 (965,412) 515,533
============= ============== ============= ==============
Basic earnings (loss) per share................ $ (.53) $ .12 $ (.42) $ .22
============= ============== ============= ==============
Diluted earnings (loss) per share.............. $ (.52) $ .11 $ (.42) $ .22
============= ============== ============= ==============
See accompanying note to consolidated financial statements.
</TABLE>
- 39 -
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
---------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Balance, March 31, 2000 ..... 2,544,094 $25,441 $ 16,192,342 $ 11,849,449
Net loss .................... -- -- -- (965,412)
Dividend paid on invested
stock options ........... -- -- 6,318 --
Exercise of stock options ... 2,317 23 8,377 --
Purchase of treasury stock,
at cost ................. -- -- -- --
Amortization of restricted
stock awards ............ -- -- -- --
Amortization of ESOP awards . -- -- (4,771) --
Dividend declared
on common stock
at $.12 per share ....... -- -- -- (271,743)
Other comprehensive
income (loss), net
of tax .................. -- -- -- --
--------- ------- ------------ ------------
Balance September 30, 2000 .. 2,546,411 $25,464 $ 16,202,266 $ 10,612,294
========= ======= ============ ============
<CAPTION>
ACCUMULATED
OTHER COM- UNAMORTIZED TOTAL
PREHENSIVE RESTRICTED UNEARNED STOCK-
INCOME TREASURY STOCK ESOP HOLDERS'
(LOSS) STOCK AWARDS SHARES EQUITY
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 2000 ..... $(5,447,058) $(1,233,799) $ (471,509) $ (989,864) $ 19,925,002
Net loss .................... -- -- -- -- (965,412)
Dividend paid on invested
stock options ........... -- -- -- -- 6,318
Exercise of stock options ... -- -- -- -- 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 . -- -- -- 73,177 68,406
Dividend declared
on common stock
at $.12 per share ....... -- -- -- -- (271,743)
Other comprehensive
income (loss), net
of tax .................. 2,780,758 -- -- -- 2,780,758
----------- ------------ ------------ ----------- ------------
Balance September 30, 2000 .. $(2,666,300) $ (1,246,136) $ (400,451) $ (916,687) $ 21,610,450
=========== ============ ============ =========== ============
</TABLE>
- 40 -
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (965,412) 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)
Provision for losses on loans...................... 631,000 --
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............ 40,298,106 58,589,886
------------- -------------
Net cash provided by (used in) operating
activities............................... 724,594 (250,223)
------------- -------------
CASH FLOWS 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)
------------- -------------
- 41 -
<PAGE>
<PAGE>
<CAPTION>
(CONTINUED) SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS 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 note to consolidated financial statements.
</TABLE>
- 42 -
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
2000 1999
---------------------- --------------------
<S> <C> <C>
Net income (loss).................................. $ (965,412) 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 (loss) 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)........................ $ 1,815,346 (1,007,873)
=============== ===============
See accompanying note to consolidated financial statements.
</TABLE>
- 43 -
<PAGE>
<PAGE>
EQUALITY BANCORP, INC.
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED SEPTEMBER 30, 2000
NOTE A. BASIS OF PRESENTATION:
The unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included.
- 44 -
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC. AND EQUALITY BANCORP, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(IN THOUSANDS)
<CAPTION>
PRO FORMA
ALLEGIANT EQUALITY PRO FORMA COMBINED
BANCORP, INC. BANCORP, INC. ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks....................... $ 17,422 $ 24,286 $ (2,547)(a) $ 39,161
Money market investments...................... 15,632 99 15,731
Investment securities
Available-for-sale......................... 58,365 86,369 144,734
Held-to-maturity........................... 5,410 600 6,010
----------- ----------- ----------- ------------
Total securities........................... 63,775 86,969 150,744
Loans
Commercial loans........................... 133,387 71,748 (51,800)(b) 153,335
Real estate loans.......................... 579,647 96,888 (1,500)(c) 675,035
Retail loans............................... 27,636 5,698 33,334
----------- ----------- ----------- ------------
Total loans.............................. 740,670 174,334 (53,300) 861,704
Allowance for loan losses.............. 10,013 992 11,005
----------- ----------- ----------- ------------
Net loans................................ 730,657 173,342 (53,300) 850,699
Premises and equipment........................ 9,827 6,938 1,400 (c) 18,165
Intangible assets............................. 11,012 -- 11,012
Other assets.................................. 27,923 6,103 34,026
----------- ----------- ----------- ------------
Total assets............................. $ 876,248 $ 297,737 $ (54,447) $ 1,119,538
=========== =========== =========== ============
LIABILITIES
Deposits
Non-interest-bearing deposits.............. $ 68,918 $ 10,400 $ $ 79,318
Interest-bearing deposits.................. 588,790 173,236 300 (c) 762,326
----------- ----------- ----------- ------------
Total deposits........................... 657,708 183,636 300 841,644
Short-term borrowings......................... 112,529 33,643 (51,800)(b) 94,372
Long-term debt................................ 30,859 58,023 (1,400)(c) 87,482
Guaranteed preferred beneficial interests
in subordinated debentures................. 17,250 -- 17,250
Other liabilities............................. 5,502 825 (1,174)(d) 5,153
----------- ----------- ----------- ------------
Total liabilities........................ 823,848 276,127 (54,074) 1,045,901
----------- ----------- ----------- ------------
SHAREHOLDERS' EQUITY
Common stock.................................. 67 25 2 (e) 94
Surplus....................................... 43,686 16,202 (607)(f) 59,281
Retained earnings............................. 14,427 10,612 (10,612)(g) 14,427
ESOP and MRP.................................. -- (1,317) 1,317 (h) --
Treasury stock, at cost....................... (5,615) (1,246) 6,861 (i) --
Accumulated other comprehensive income (loss). (165) (2,666) 2,666 (j) (165)
----------- ----------- ----------- ------------
Total shareholders' equity............... 52,400 21,610 (373) 73,637
----------- ----------- ----------- ------------
Total liabilities and shareholders'
equity.............................. $ 876,248 $ 297,737 $ (54,447) $ 1,119,538
=========== =========== =========== ============
The accompanying notes are an integral part of the unaudited pro forma
combined consolidated financial information.
</TABLE>
- 45 -
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC. AND EQUALITY BANCORP, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<CAPTION>
PRO FORMA
ALLEGIANT EQUALITY PRO FORMA COMBINED
BANCORP, INC. BANCORP, INC. ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................... $ 47,948 $ 4,590 $ 375 (k) $ 52,913
Interest on investment securities............ 2,881 6,530 9,411
Interest on money market investments......... 73 130 203
----------- ----------- --------- ------------
Total interest income..................... 50,902 11,250 375 62,527
INTEREST EXPENSE
Interest on deposits......................... 21,803 3,819 (75)(k) 25,547
Interest on borrowings....................... 6,626 4,236 350 (k) 11,212
----------- ----------- --------- ------------
Total interest expense.................... 28,429 8,055 275 36,759
----------- ----------- --------- ------------
Net interest income..................... 22,473 3,195 100 25,768
Provision for loan losses.................... 2,300 631 2,931
----------- ----------- --------- ------------
Net interest income after provision
for loan losses....................... 20,173 2,564 100 22,837
NON-INTEREST INCOME
Mortgage banking income...................... 255 2,605 2,860
Service charges on deposits.................. 920 132 1,052
All other income............................. 3,066 375 3,441
Investment securities gains/(losses)--net..... 205 (2,717) (2,512)
----------- ----------- --------- ------------
Total non-interest income................. 4,446 395 4,841
NON-INTEREST EXPENSE
Salaries and other employee benefits......... 8,075 2,250 10,325
Occupancy and equipment expense.............. 2,429 416 35 (k) 2,880
All other expense............................ 5,796 1,461 7,257
----------- ----------- --------- ------------
Total non-interest expense................ 16,300 4,127 35 20,462
----------- ----------- --------- ------------
Income before tax............................ 8,319 (1,168) 65 7,216
Income tax................................... 3,394 (203) 26 (l) 3,217
----------- ----------- --------- ------------
NET INCOME................................... $ 4,925 $ (965) $ 39 $ 3,999
=========== =========== ========= ============
PER SHARE
Basic earnings per common share.............. $ 0.81 $ (0.42) $ 0.46
Diluted earnings per common share............ 0.80 (0.42) 0.46
Average common shares-basic.................. 6,105,821 2,285,705 8,661,239
Average common shares-diluted................ 6,133,655 2,370,419 8,783,783
The accompanying notes are an integral part of the unaudited pro forma
combined consolidated financial information.
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC. AND EQUALITY BANCORP, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<CAPTION>
PRO FORMA
ALLEGIANT EQUALITY PRO FORMA COMBINED
BANCORP, INC. BANCORP, INC. ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................... $ 48,604 $ 7,754 $ 500 (k) $ 56,858
Interest on investment securities............ 3,361 12,785 16,146
Interest on money market investments......... 147 504 651
----------- ----------- ----------- ------------
Total interest income..................... 52,112 21,043 500 73,655
INTEREST EXPENSE
Interest on deposits......................... 20,595 5,596 (100)(k) 26,091
Interest on short-term borrowings............ 6,006 8,765 467 (k) 15,238
----------- ----------- ----------- ------------
Total interest expense.................... 26,601 14,361 367 41,329
----------- ----------- ----------- ------------
Net interest income..................... 25,511 6,682 133 32,326
Provision for loan losses.................... 2,546 -- 2,546
----------- ----------- ----------- ------------
Net interest income after provision
for loan losses....................... 22,965 6,682 133 29,780
NON-INTEREST INCOME
Mortgage banking income...................... 944 2,476 3,420
Service charges on deposits.................. 1,888 37 1,925
All other income............................. 2,011 837 2,848
Investment securities gains/(losses)--net..... -- (43) (43)
----------- ----------- ----------- ------------
Total non-interest income................. 4,843 3,307 8,150
NON-INTEREST EXPENSE
Salaries and other employee benefits......... 9,717 4,502 14,219
Occupancy and equipment...................... 2,994 851 47 (k) 3,892
All other expense............................ 6,051 2,746 8,797
----------- ----------- ----------- ------------
Total non-interest expense................ 18,762 8,099 47 26,908
Income before tax............................ 9,046 1,890 86 11,022
Income tax................................... 3,644 738 34 (l) 4,416
----------- ----------- ----------- ------------
NET INCOME................................... $ 5,402 $ 1,152 $ 52 $ 6,606
=========== =========== =========== ============
PER SHARE
Basic earnings per common share.............. $ 0.84 $ 0.50 $ 0.73
Diluted earnings per common share............ 0.83 0.49 0.72
Average common shares-basic.................. 6,450,639 2,328,762 9,054,195
Average common shares-diluted................ 6,510,045 2,349,442 9,136,721
The accompanying notes are an integral part of the unaudited pro forma
combined consolidated financial information.
</TABLE>
- 47 -
<PAGE>
<PAGE>
ALLEGIANT BANCORP, INC. AND EQUALITY BANCORP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
On November 15, 2000, Allegiant Bancorp acquired Equality Bancorp
through the merger of Allegiant Acquisition Corporation, a wholly-owned
subsidiary of Allegiant Bancorp, with and into Equality Bancorp.
The acquisition of Equality Bancorp will be accounted for as a
purchase transaction. The unaudited pro forma combined consolidated
financial information is based on the historical consolidated financial
statements of the two companies. Allegiant Bancorp has not completed a
review of Equality Bancorp's accounting policies. As a result of this
review, it might be necessary to restate certain amounts in the financial
statements of the combined company to conform to Allegiant Bancorp's
accounting policies. Allegiant Bancorp does not expect to make any material
restatements.
NOTE 2--SHAREHOLDERS' EQUITY
Under the terms of the merger agreement among Allegiant Bancorp,
Equality Bancorp and Allegiant Acquisition Corporation, holders of Equality
Bancorp common stock received 1.118 shares of Allegiant Bancorp common stock
for each share of Equality Bancorp common stock owned. Equality Bancorp had
2,382,845 shares of its common stock outstanding at November 15, 2000, which
shares were exchanged for approximately 2,664,000 shares of Allegiant
Bancorp common stock. The combined company has approximately 8,887,900
shares outstanding. The common stock in the unaudited pro forma combined
consolidated balance sheet has been adjusted to reflect the par value amount
of shares of the combined company.
NOTE 3--FISCAL YEAR END
Equality Bancorp's fiscal year end is March 31, 2000. For purposes
of the unaudited pro forma combined consolidated statement of income for the
nine months ended September 30, 2000, Equality Bancorp information for such
period includes financial information for the six months ended September 30,
2000 combined with financial information for the last quarter of the year
ended March 31, 2000. For purposes of the unaudited pro forma combined
consolidated statement of income for the year ended December 31, 1999,
Equality Bancorp information for the year ended March 31, 2000 is reported
as December 31, 1999 information.
NOTE 4--PRO FORMA ADJUSTMENTS (DOLLARS IN THOUSANDS)
(a) To record net cash as follows:
<TABLE>
<S> <C>
Cash received from Equality Bancorp ESOP to repay note $ 953
Cash paid for merger related compensation costs (1,500)
Cash paid for estimated transaction costs (2,000)
-------
$(2,547)
=======
</TABLE>
(b) To eliminate $51,800 of loans and borrowings related to loans
purchased by Equality Bancorp from Allegiant Bancorp.
(c) To record purchase accounting mark-to-market adjustments.
(d) To record the income tax effect of the merger compensation
expense and all other merger expenses of $1,574 and to record
current and deferred taxes payable of $400 as a result of the
purchase accounting mark-to-market adjustments.
(e) To eliminate Equality Bancorp common stock of $25 and record
issuance of $27 of Allegiant Bancorp common stock.
(f) To eliminate Equality Bancorp surplus of $16,202 and record
surplus of $15,933 as a part of the common stock issued by
Allegiant Bancorp, record $38 of merger adjustments and the
effect of merger transaction costs, net of taxes, on Allegiant
Bancorp of $300.
(g) To record elimination of Equality Bancorp retained earnings of
$10,612.
(h) To record effect of payoff of ESOP note receivable and
distribution of unallocated shares and record termination of
MRP.
- 48 -
<PAGE>
<PAGE>
(i) To record elimination of Equality Bancorp treasury stock of
$1,246 and reissuance of Allegiant Bancorp treasury stock of
$5,615 as a result of the merger.
(j) To eliminate Equality Bancorp's accumulated other
comprehensive income (loss) account as a result of the merger.
(k) To record accretion and/or amortization of purchase accounting
adjustments.
(l) To reflect impact of taxes at a 40% rate.
- 49 -
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Allegiant Bancorp, Inc. has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: November 20, 2000
ALLEGIANT BANCORP, INC.
By /s/ Shaun R. Hayes
-----------------------------------
Shaun R. Hayes, President and Chief
Executive Officer
- 50 -
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger among Allegiant Bancorp, Inc.,
Allegiant Acquisition Corporation and Equality Bancorp, Inc.,
dated July 26, 2000, filed as Exhibit 1.1 to Allegiant
Bancorp, Inc.'s Registration Statement on Form S-4 (Reg. No.
333-44748) is incorporated herein by this reference.
23.1 Consent of KPMG LLP
99.1 Press Release dated November 15, 2000.
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