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Rule 424(b)(3) Prospectus (Reg. No. 333-44758)
[Letterhead of Allegiant Bancorp, Inc.]
September 15, 2000
Dear Fellow Shareholder:
The board of directors cordially invites you to attend a Special
Meeting of Shareholders of Allegiant Bancorp, Inc. to be held at 3:00 p.m.,
local time, on Thursday, October 19, 2000, at our headquarters, 2122 Kratky
Road, St. Louis, Missouri. At the special meeting, you will be asked to
consider and vote to approve the issuance of shares of common stock of
Allegiant Bancorp in connection with our acquisition of Equality Bancorp,
Inc., a savings and loan holding company headquartered in St. Louis,
Missouri. Under the Agreement and Plan of Merger, dated as of July 26, 2000,
we will acquire Equality Bancorp through the merger of Allegiant Acquisition
Corporation, a wholly-owned subsidiary of our company, into Equality Bancorp.
In connection with the merger, each outstanding share of common stock of
Equality Bancorp will be converted into 1.118 shares of our common
stock, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus.
We expect to issue up to 2,874,877 shares of our common stock in
connection with the acquisition. We have attached a copy of the merger
agreement as Annex A to the Joint Proxy Statement/Prospectus. We have
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included the following items with this letter:
1. Joint Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope to UMB Bank N.A. for the
proxy card.
The Joint Proxy Statement/Prospectus and related proxy materials
set forth, or incorporate by reference, financial data and other
important information relating to us and Equality Bancorp and describe
the terms and conditions of the merger. Our board of directors requests
that you carefully review these materials before completing the enclosed
proxy card or attending the special meeting.
OUR BOARD OF DIRECTORS CAREFULLY CONSIDERED AND APPROVED THE TERMS
OF THE MERGER AGREEMENT BETWEEN US AND EQUALITY BANCORP AS BEING IN THE
BEST INTERESTS OF ALLEGIANT BANCORP AND OUR SHAREHOLDERS. OUR BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS OF ALLEGIANT BANCORP VOTE "FOR"
APPROVAL OF THE ISSUANCE OF SHARES OF OUR COMMON STOCK UNDER THE MERGER
AGREEMENT.
The investment banking firm of Howe Barnes Investments, Inc. issued
its written opinion, dated today's date, to your board of directors.
Howe Barnes Investment, Inc.'s opinion relates to the fairness, from a
financial point of view, to our shareholders of the consideration to be
paid to the shareholders of Equality Bancorp under the merger agreement.
We have attached a copy of the opinion as Annex B to the Joint Proxy
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Statement/Prospectus.
ALLEGIANT BANCORP'S SHAREHOLDERS MUST APPROVE THE ISSUANCE OF THE
SHARES OF OUR COMMON STOCK IN CONNECTION WITH THE MERGER IN ORDER FOR THE
MERGER TO BE COMPLETED. Accordingly, it is important that your shares be
represented at the special meeting, whether or not you plan to attend the
special meeting in person. Please complete, date and sign the enclosed
proxy card and return it to UMB Bank N.A. in the enclosed pre-addressed
envelope, which requires no postage if mailed within the United States.
If you later decide to attend the special meeting and vote in person, or
if you wish to revoke your proxy for any reason before the vote at the
special meeting, you may do so and your proxy will have no further effect.
You may revoke your proxy by delivering to our corporate secretary a
written notice of revocation or another proxy relating to the same shares
bearing a later date than the proxy being revoked or by attending the
special meeting and voting in person. Attendance at the special meeting
will not, in itself, revoke an earlier dated proxy.
If you need assistance in completing your proxy card or if you
have any questions about the Joint Proxy Statement/Prospectus, please
call (314) 692-8200 and ask for Investor Relations.
Sincerely,
/s/ Marvin S. Wool
Marvin S. Wool
Chairman of the Board
PLEDGED TO A BETTER WAY OF BANKING.
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[Allegiant Bancorp Logo]
ALLEGIANT BANCORP, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 19, 2000
To the Shareholders of
Allegiant Bancorp, Inc.:
We will hold a special meeting of shareholders of Allegiant
Bancorp, Inc., a Missouri corporation, on Thursday, October 19,
2000, at 3:00 p.m., local time, at our headquarters, 2122 Kratky
Road, St. Louis, Missouri, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance
of shares of common stock, $0.01 par value, of Allegiant
Bancorp, Inc. in connection with the consummation of the
transactions contemplated by the Agreement and Plan of
Merger, dated as of July 26, 2000, by and among Allegiant
Bancorp, Inc., Allegiant Acquisition Corporation and Equality
Bancorp, Inc. The merger agreement provides that (a) Allegiant
Bancorp will acquire Equality Bancorp through the merger of
Allegiant Acquisition Corporation with and into Equality
Bancorp, (b) in connection with the merger, each issued and
outstanding share of common stock of Equality Bancorp will
be converted into and become the right to receive 1.118
shares of our common stock and (c) each outstanding option
to acquire shares of common stock of Equality Bancorp will
be converted into an option to acquire shares of our common
stock, upon the terms and subject to the conditions set
forth in the merger agreement and as more fully described in
the enclosed Joint Proxy Statement/Prospectus.
2. To transact any other business as may properly be brought
before the special meeting or any adjournments or
postponements of the special meeting.
We have fixed the close of business on September 1, 2000 as the
record date for determining those shareholders entitled to vote at the
special meeting and any adjournments or postponements of the special
meeting. Accordingly, only shareholders of record on that date are
entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements of the special meeting.
/s/ Kevin R. Farrell
Kevin R. Farrell
Secretary
September 15, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON,
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE. THE ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN
PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY
CARD. IF YOU PLAN TO ATTEND THE MEETING YOU SHOULD SUBMIT YOUR PROXY
INDICATING YOUR INTENT TO ATTEND PROMPTLY.
THE BOARD OF DIRECTORS OF ALLEGIANT BANCORP UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" APPROVAL OF THE ISSUANCE OF SHARES OF OUR COMMON
STOCK UNDER THE MERGER AGREEMENT.
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[Letterhead of Equality Bancorp, Inc.]
September 15, 2000
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of Equality Bancorp, Inc. to be held on Thursday,
October 19, 2000 at 10:00 a.m., local time, at 558 Gravois Road,
Fenton, Missouri.
At the special meeting, you will be asked to approve and adopt the
Agreement and Plan of Merger, dated July 26, 2000, by and among
Allegiant Bancorp, Inc., Allegiant Acquisition Corporation and Equality
Bancorp, and each of the related transactions, under which Allegiant
Bancorp will acquire Equality Bancorp through the merger of Allegiant
Acquisition Corporation with and into Equality Bancorp. A copy of the
merger agreement is attached to the Joint Proxy Statement/Prospectus
as Annex A.
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Under the terms of the merger agreement and upon consummation of
the merger, (1) Allegiant Acquisition Corporation will merge with and
into Equality Bancorp, with Equality Bancorp being the surviving
corporation in the merger and (2) each share of our outstanding common
stock will be canceled and converted into the right to receive 1.118
shares of common stock of Allegiant Bancorp, all as more fully described
in the accompanying Joint Proxy Statement/Prospectus. Your board of
directors has received a written fairness opinion from its financial
advisor, RP Financial, LC., dated the date of the attached Joint Proxy
Statement/Prospectus, that, as of such date, and based upon matters
considered as set forth in such opinion, the consideration to be
received under the merger agreement is fair, from a financial point of
view, to our stockholders. A copy of the opinion is attached as
Annex C to the Joint Proxy Statement/Prospectus.
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The merger agreement and related transactions are described in greater
detail in the accompanying Notice and Joint Proxy Statement/Prospectus and
its various attachments. Please read these materials carefully.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AS BEING IN
THE BEST INTERESTS OF EQUALITY BANCORP AND OUR STOCKHOLDERS AND RECOMMENDS
THAT STOCKHOLDERS OF EQUALITY BANCORP VOTE "FOR" THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT AND THE RELATED TRANSACTIONS. IN MAKING
THIS RECOMMENDATION, YOUR BOARD OF DIRECTORS HAS CONSIDERED NUMEROUS
FACTORS, WHICH ARE DISCUSSED IN THE ATTACHED JOINT PROXY STATEMENT/
PROSPECTUS.
Whether or not you plan to attend the special meeting, you are
asked to please fill out, sign and date the enclosed proxy card, and
return it promptly in the accompanying envelope which requires no
postage if mailed in the United States. If you later find that you may
be present at the special meeting or for any other reason desire to
revoke your proxy, you may do so at any time before it is voted.
Sincerely,
/s/ Richard C. Fellhauer
Richard C. Fellhauer
Chairman of the Board, President and
Chief Executive Officer
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<PAGE>
EQUALITY BANCORP, INC.
4131 SOUTH GRAND BLVD.
ST. LOUIS, MISSOURI 63118
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 19, 2000
YOU ARE HEREBY NOTIFIED of and invited to attend a special meeting
of stockholders of Equality Bancorp, Inc., a Delaware corporation, to be
held at 558 Gravois Road, Fenton, Missouri, on Thursday, October 19, 2000,
10:00 a.m., local time, for the purpose of considering and voting upon the
following:
1. A proposal to approve and adopt the Agreement and Plan of
Merger, dated as of July 26, 2000, by and among Allegiant
Bancorp, Inc., a Missouri corporation, Allegiant Acquisition
Corporation, a Delaware corporation and wholly-owned
subsidiary of Allegiant Bancorp, and Equality Bancorp, Inc.
The merger agreement provides that (a) Allegiant Acquisition
Corporation will be merged with and into Equality Bancorp,
Inc., with Equality Bancorp being the surviving corporation
in the merger, and (b) each outstanding share of our common
stock, $0.01 par value, will be canceled and converted into
the right to receive 1.118 shares of common stock, $0.01 par
value, of Allegiant Bancorp, upon the terms and subject to
the conditions set forth in the merger agreement, as more
fully described in the enclosed Joint Proxy
Statement/Prospectus.
2. To transact any other business that may properly be brought
before the special meeting or any adjournments or
postponements of the special meeting.
Our board of directors has determined that the terms of the merger
are fair to and in the best interests of Equality Bancorp and our
stockholders, has approved and adopted the merger agreement and the
related transactions, and unanimously recommends that our stockholders
vote "FOR" the approval and adoption of the merger agreement and the
related transactions.
Our board of directors has fixed the close of business on September 6,
2000 as the record date for determination of our stockholders entitled to
receive notice of and to vote at the special meeting. The special meeting
may be adjourned or postponed from time to time upon approval of our
stockholders without any notice other than by announcement at the special
meeting of any adjournment or postponement thereof, and any and all
business for which notice is hereby given may be transacted at such
adjourned or postponed special meeting.
The affirmative vote of the holders of a majority of the outstanding
shares of our common stock on the record date is required to approve and
adopt the merger agreement and the related transactions. Please complete,
date, sign and promptly return the enclosed proxy card, which is solicited
by your board of directors, in the enclosed envelope, whether or not you
expect to attend the special meeting. You may revoke the proxy at any time
before its exercise by delivering to us a written notice of revocation,
delivering to us a duly executed proxy card bearing a later date or by
voting in person at the special meeting. Failure to return a properly
executed proxy card, or to vote at the special meeting, will have the
same effect as a vote against the merger agreement.
By Order of the Board of Directors
/s/ Richard C. Fellhauer
Richard C. Fellhauer
Chairman of the Board, President and
Chief Executive Officer
September 15, 2000
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME.
IF THE MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING
THE SURRENDER OF YOUR STOCK CERTIFICATES.
<PAGE>
<PAGE>
ALLEGIANT BANCORP, INC. PROXY STATEMENT/PROSPECTUS
_______________
EQUALITY BANCORP, INC. PROXY STATEMENT
SPECIAL MEETINGS OF
SHAREHOLDERS OF ALLEGIANT BANCORP, INC. AND
STOCKHOLDERS OF EQUALITY BANCORP, INC.
TO BE HELD ON OCTOBER 19, 2000
This Prospectus of Allegiant Bancorp, Inc., a Missouri
corporation, relates to up to 2,874,877 shares of common stock, $0.01
par value, of Allegiant Bancorp, to be issued to the stockholders of
Equality Bancorp, Inc., a Delaware corporation, upon completion of the
proposed merger of Allegiant Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Allegiant Bancorp, with and
into Equality Bancorp. Upon receipt of the requisite shareholder and
regulatory approvals, and the satisfaction or waiver of certain
conditions precedent, the merger will be completed according to the
terms of the Agreement and Plan of Merger, dated as of July 26, 2000,
by and among Allegiant Bancorp, Allegiant Acquisition Corporation and
Equality Bancorp. We have attached a copy of the merger agreement as
Annex A to this Joint Proxy Statement/Prospectus. This Prospectus also
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serves as the Proxy Statement of (1) Allegiant Bancorp for use in
connection with the Special Meeting of Shareholders of Allegiant Bancorp,
which will be held on October 19, 2000, at the time and place and for
the purposes stated in the Allegiant Bancorp Notice of Special Meeting
of Shareholders accompanying this Joint Proxy Statement/Prospectus and
(2) Equality Bancorp for use in connection with the Special Meeting of
Stockholders of Equality Bancorp, which will be held on October 19,
2000, at the time and place and for the purposes stated in the Equality
Bancorp Notice of Special Meeting of Stockholders accompanying this Joint
Proxy Statement/Prospectus.
Under the merger agreement, Allegiant Bancorp will issue up
to an aggregate of 2,874,877 shares of Allegiant Bancorp common stock.
Upon completion of the merger, Equality Bancorp will become a wholly-
owned subsidiary of Allegiant Bancorp and each outstanding share of
common stock, $0.01 par value, of Equality Bancorp will be converted
into the right to receive 1.118 shares of Allegiant Bancorp common
stock, subject to certain anti-dilution adjustments as set forth in the
merger agreement. However, the exchange ratio is not adjustable based
upon the operating results, financial condition or other factors
affecting either Allegiant Bancorp or Equality Bancorp prior to the
completion of the merger. The fair market value of Allegiant Bancorp
common stock to be received under the merger may fluctuate and at
the consummation of the merger may be more or less than the current fair
market value of such shares. See "The Merger--General Description of the
Merger." No fractional shares of Allegiant Bancorp common stock will be
issued in the merger, but cash will be paid in lieu of such fractional
shares. See "The Merger--Fractional Shares."
The merger is intended to qualify as a reorganization under the
Internal Revenue Code of 1986, as amended. The merger generally is
intended to achieve certain federal income tax deferral benefits for
Equality Bancorp stockholders with respect to shares of Allegiant
Bancorp common stock received in the merger. See "Summary Information--
Material Federal Income Tax Consequences" and "Certain Federal Income
Tax Consequences of the Merger."
Allegiant Bancorp common stock is traded on the Nasdaq National Market
under the symbol "ALLE" and Equality Bancorp common stock is traded on
the American Stock Exchange under the symbol "EBI." On September 12, 2000,
the closing sale price for Allegiant Bancorp common stock as reported on
the Nasdaq National Market was $9.50 per share and the closing sale
price for Equality Bancorp common stock as reported on the American Stock
Exchange was $9.75 per share.
This Joint Proxy Statement/Prospectus, the Notices of Special
Meetings and the forms of proxy were first mailed to the shareholders of
Allegiant Bancorp and stockholders of Equality Bancorp on or about
September 15, 2000.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF
CERTAIN FACTORS THAT EQUALITY BANCORP STOCKHOLDERS SHOULD CONSIDER IN
CONNECTION WITH VOTING TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
RELATED TRANSACTIONS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF ALLEGIANT BANCORP COMMON STOCK BEING OFFERED THROUGH
THIS DOCUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK OR NON-BANK SUBSIDIARY OF ALLEGIANT BANCORP AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL OR STATE
GOVERNMENTAL AGENCY.
All information contained in this Joint Proxy Statement/Prospectus
with respect to Allegiant Bancorp has been supplied by Allegiant Bancorp
and all information with respect to Equality Bancorp has been supplied
by Equality Bancorp.
The date of this Joint Proxy Statement/Prospectus is September 15, 2000.
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TABLE OF CONTENTS
Page
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FINDING IMPORTANT INFORMATION iv
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS v
SUMMARY 1
COMPARATIVE UNAUDITED PER SHARE DATA 6
SUMMARY FINANCIAL DATA 7
RISK FACTORS 10
ALLEGIANT SPECIAL MEETING 14
Matters to Be Considered 14
Proxies 14
Solicitation of Proxies 14
Record Date and Voting Rights 14
Recommendation of Allegiant Bancorp Board of Directors 15
EQUALITY SPECIAL MEETING 16
Matters to Be Considered 16
Proxies 16
Solicitation of Proxies 16
Record Date and Voting Rights 17
Recommendation of Equality Bancorp Board of Directors 17
THE MERGER 18
General Description of the Merger 18
Other Agreements 19
Interests of Certain Persons in the Merger 20
Background of the Merger; Board Recommendations and Reasons for
the Merger 22
Opinion of Allegiant Bancorp's Financial Advisor 25
Opinion of Equality Bancorp's Financial Advisor 29
Conditions of the Merger 33
Representations and Warranties 35
Termination, Waiver and Amendment of the Merger Agreement 35
Indemnification 37
Closing Date 37
Surrender of Equality Bancorp Stock Certificates and Receipt
of Allegiant Bancorp Common Stock 37
Fractional Shares 37
Regulatory Approvals 38
Conduct of Business Pending the Merger 38
Accounting Treatment 40
Management and Operations after the Merger 40
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 41
PRO FORMA FINANCIAL INFORMATION 43
Comparative Unaudited Per Share Data 43
Pro Forma Unaudited Combined Consolidated Financial Statements 44
Notes to Unaudited Pro Forma Combined Consolidated Financial
Statements 48
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL
STATEMENTS 50
INFORMATION ABOUT ALLEGIANT BANCORP 50
General 51
Operations 51
Competition 51
Employees 51
Properties 51
Legal Proceedings 51
Management's Discussion and Analysis of Financial Condition
and Results of Operations 51
Results of Operations 52
Liquidity Management and Capital Resources 89
INFORMATION ABOUT EQUALITY BANCORP 91
General 91
Subsidiary Activities and Joint Ventures 92
Competition 92
Employees 93
Description of Properties 93
Legal Proceedings 94
Executive Compensation 94
Voting Securities and Principal Holders Thereof 95
Operations 96
Management's Discussion and Analysis of Financial Condition
and Results of Operations 116
Liquidity and Capital Resources 128
Regulatory Agreement 130
INFORMATION REGARDING ALLEGIANT BANCORP COMMON STOCK 131
Description of Allegiant Bancorp Common Stock 131
Restrictions on Resales by Affiliates 132
COMPARATIVE RIGHTS OF SHAREHOLDERS 133
SUPERVISION AND REGULATION 144
General 144
Liability for Bank Subsidiaries 144
Capital Requirements 144
Dividend Restrictions 146
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Page
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Deposit Insurance Assessments 146
Supervisory Assessments 146
Depositor Preference Statute 146
Brokered Deposits 146
Interstate Banking and Branching 147
Control Acquisitions 147
Gramm-Leach-Bliley 147
Future Legislation 148
FDIC and Equality Savings Bank Memorandum of Understanding 148
LEGAL MATTERS 149
EXPERTS 149
INDEPENDENT PUBLIC ACCOUNTANTS 149
Allegiant Bancorp 149
Equality Bancorp 149
SHAREHOLDER PROPOSALS 150
Allegiant Bancorp 150
Equality Bancorp 151
OTHER MATTERS 152
WHERE YOU CAN FIND MORE INFORMATION 152
ALLEGIANT BANCORP AND EQUALITY BANCORP CONSOLIDATED
FINANCIAL STATEMENTS 154
Annex A -- Agreement and Plan of Merger, dated as of July 26, 2000, by and
among Allegiant Bancorp, Inc., Allegiant Acquisition Corporation
and Equality Bancorp, Inc.
Annex B -- Opinion of Howe Barnes Investments, Inc. to the Board of Directors
of Allegiant Bancorp, Inc.
Annex C -- Opinion of RP Financial, LC. to the Board of Directors of Equality
Bancorp, Inc.
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<PAGE>
FINDING IMPORTANT INFORMATION
This Joint Proxy Statement/Prospectus contains important
information about our companies and the merger that you should read and
consider carefully before you vote your shares. The principal sections
of this document are located at the pages referenced in the Table of
Contents. Business and financial information about Allegiant Bancorp
and Equality Bancorp also may be found in documents filed with the
Securities and Exchange Commission. You may read and copy these
documents at the SEC's public reference facilities. Please call the SEC
at 1-800-SEC-0330 for information about these facilities. This
information also is available at the Internet site the SEC maintains at
http:\\www.sec.gov. Reports and other information relating to Allegiant
Bancorp also are available at the offices of the Nasdaq National Market
and Equality Bancorp at the offices of the American Stock Exchange. See
"Where You Can Find More Information" on page 152.
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<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE MERGER AND THE SPECIAL MEETINGS
Q: WHY ARE THE TWO COMPANIES PROPOSING TO COMBINE?
A: We believe the proposed combination is in the best interests of
both the companies and their respective shareholders. Allegiant
Bancorp's board of directors believes that combining with Equality
Bancorp will serve to bring together two complementary institutions
to create a strategically, operationally and financially strong
company that is positioned for further growth. Equality Bancorp's
board of directors believes that combining with Allegiant Bancorp
provides significant value to Equality Bancorp stockholders and
enables them to participate in the opportunities for growth offered
by Allegiant Bancorp.
You should review the reasons for the merger described in greater
detail at pages 22 through 25.
Q: WHEN AND WHERE ARE THE SPECIAL MEETINGS?
A: The Allegiant Bancorp special meeting is scheduled to take place
on Thursday, October 19, 2000, at 3:00 p.m., local time, at Allegiant
Bancorp's headquarters, 2122 Kratky Road, St. Louis, Missouri. The
Equality Bancorp special meeting is scheduled to take place on Thursday,
October 19, 2000, at 10:00 a.m., local time, at 558 Gravois Road, Fenton,
Missouri.
Q: WHAT DO I NEED TO DO NOW?
A: You should carefully read and consider the information contained
in this document. Then, please fill out, sign and mail your proxy
card in the enclosed return envelope as soon as possible so that
your shares may be represented at the special meeting. If a card
does not specify a choice, the Allegiant Bancorp proxy will be
voted "FOR" the approval of the issuance of shares of Allegiant
Bancorp common stock and the Equality Bancorp proxy will be voted
"FOR" the merger and the related transactions, as the case may be.
Q: WHAT IF I DON'T VOTE OR I ABSTAIN FROM VOTING?
A: If you abstain from voting and you are an Allegiant Bancorp
shareholder, your abstention will count as a "NO" vote on the
issuance of shares of common stock of Allegiant Bancorp. If you
do not vote or you abstain from voting and you are an Equality
stockholder, your abstention will count as a "NO" vote on the
merger and the related transactions.
Q: IF MY SHARES ARE HELD BY MY BROKER IN "STREET NAME," WILL MY
BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions
on how to vote. You should follow the directions provided by your
broker to vote your shares. If you do not provide your broker
with instructions on how to vote your shares held in "street
name," your broker will not be permitted to vote your shares,
which will have the effect of a "NO" vote on the issuance of
shares of common stock of Allegiant Bancorp if you are an
Allegiant Bancorp shareholder, or if you are an Equality Bancorp
stockholder, it will have the effect of a "NO" vote on the merger
and the related transactions.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote at any time before your proxy is
voted at the special meeting. You can do this in one of three
ways. First, you can send a written notice stating that you would
like to revoke your proxy. Second, you can complete and submit a
new proxy card. If you choose either of these two methods you
must submit your notice of revocation or your new proxy card to
your company before the respective special meeting. If you are an
Allegiant Bancorp shareholder, submit your notice of revocation or
new proxy card to Allegiant Bancorp, Inc., 2122 Kratky Road, St.
Louis, Missouri 63114, Attention: Corporate Secretary. If you are
an Equality Bancorp stockholder, submit your notice of revocation
or new proxy card to Equality Bancorp, Inc., 4131 South Grand
Blvd., St. Louis, Missouri 63118, Attention: Richard C.
Fellhauer, President. Third, you may attend the special meeting
and vote in person. Simply attending the meeting, however, will
not revoke your proxy; you must request a ballot and vote the
ballot at the meeting. If you have instructed a broker to vote
your shares, you must follow directions received from your broker
to change your vote.
<PAGE>
Q: SHOULD I SEND IN MY STOCK CERTIFICATE NOW?
A: No. After the merger is completed, Equality stockholders will
receive written instructions for exchanging their stock
certificates for certificates of Allegiant Bancorp common stock
and for cash consideration in the case of fractional shares.
Allegiant Bancorp shareholders need not do anything with their
stock certificates as their shares will remain issued and
outstanding after the merger.
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<PAGE>
SUMMARY
This brief summary highlights selected information from this
document. It does not contain all of the information that is important
to you. We urge you to carefully read the entire document and the other
documents to which this document refers to fully understand the merger.
See "Where You Can Find More Information." Each item in this summary
includes a page reference directing you to a more complete description
of that item.
THE MERGER (PAGE 18)
We have attached the merger agreement to this document as Annex A.
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Please read the merger agreement. It is the legal document that governs
the merger.
We propose a combination in which Allegiant Acquisition
Corporation, a wholly-owned subsidiary of Allegiant Bancorp, will merge
into Equality Bancorp, Inc., with Equality Bancorp as the surviving
corporation. The merger will result in each outstanding share of
Equality Bancorp common stock being converted into the right to receive
1.118 shares of Allegiant Bancorp common stock, in accordance with the
terms and conditions set forth in the merger agreement, and Equality
Bancorp will become a wholly-owned subsidiary of Allegiant Bancorp. We
expect to complete the merger in the fourth quarter of 2000.
OUR REASONS FOR THE MERGER (PAGE 23)
We are proposing the merger because we believe that:
* the combined company will have an opportunity to grow and
compete successfully in a consolidating financial services
industry and will be able to achieve financial performance
beyond what our two companies could achieve separately;
* we expect to combine our two operations successfully and
manage them in an efficient manner after the merger; and
* the combination will permit us to enhance further our
presence in our market and in our core businesses, including
those that generate fee income.
EXCHANGE OF SHARES (PAGE 37)
Equality Bancorp stockholders. Each of your shares of Equality
Bancorp common stock will automatically be converted into 1.118 shares
of common stock of Allegiant Bancorp. The total number of Allegiant
Bancorp shares of common stock you will be entitled to receive will,
therefore, be equal to the number of shares of Equality Bancorp common
stock you own multiplied by 1.118, and cash consideration in the case of
fractional shares.
You must surrender your Equality Bancorp common stock certificates
to receive new certificates representing Allegiant Bancorp common stock.
This will not be necessary until you receive further written
instructions after we complete the merger.
Allegiant Bancorp shareholders. Each of your shares of Allegiant
Bancorp common stock will remain issued and outstanding as one share of
common stock of Allegiant Bancorp. You will not need to surrender your
Allegiant Bancorp stock certificates or exchange them for new ones.
OUR RECOMMENDATIONS (PAGE 23)
Allegiant Bancorp shareholders. The Allegiant Bancorp board of
directors believes that the merger is fair to the Allegiant Bancorp
shareholders and in their best interests. Allegiant Bancorp's board
unanimously recommends that Allegiant Bancorp shareholders vote "FOR"
the proposal to issue additional shares of Allegiant Bancorp common
stock.
Equality Bancorp stockholders. The Equality Bancorp board of
directors believes that the merger is fair to Equality Bancorp
stockholders and in their best interests. Equality Bancorp's board
unanimously recommends that Equality Bancorp stockholders vote "FOR"
the proposal to approve and adopt the merger agreement.
OPINIONS OF FINANCIAL ADVISORS (PAGE 25)
Allegiant Bancorp shareholders. Howe Barnes Investments, Inc.
delivered a written opinion to the Allegiant Bancorp board of directors
that, as of the date of this Joint Proxy Statement/Prospectus, the
exchange ratio is fair to Allegiant Bancorp shareholders, from a
financial point of view. We attached this opinion to this document as
Annex B. You should read it completely to understand the assumptions
-------
made, matters considered and limitations of the review undertaken by
Howe Barnes Investments in providing its opinion.
Equality Bancorp stockholders. RP Financial, LC. delivered a
written opinion to the Equality Bancorp board of directors that, as of
the date of this Joint Proxy Statement/Prospectus, the exchange ratio
is fair to the Equality Bancorp stockholders, from a financial point
of view. We attached this opinion to this document as Annex C. You
-------
should read this opinion completely to understand the assumptions made,
matters considered and limitations of the review undertaken by RP
Financial in providing its opinion.
- 1 -
<PAGE>
<PAGE>
APPRAISAL RIGHTS NOT AVAILABLE (PAGE 141)
Equality Bancorp stockholders. Under Delaware law, you cannot
dissent from the merger and receive the fair value of your Equality
Bancorp common stock appraised by a court and paid in cash by the
combined company.
ACCOUNTING TREATMENT (PAGE 40)
It is intended that we will account for the merger under the
purchase method of accounting. See "The Merger--Accounting
Treatment."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 41)
You generally will not recognize any gain or loss for U.S. federal
income tax purposes as a result of your exchange of Equality Bancorp
common stock for shares of Allegiant Bancorp common stock. You will,
however, have to recognize income or gain in connection with your
receipt of cash in lieu of any fractional shares of Allegiant Bancorp
common stock which you receive in the merger. This tax treatment may
not apply to all Equality Bancorp stockholders. You should consult
your own tax advisor for a full understanding of the merger's tax
consequences that are particular to you. You will not be obligated
to exchange your shares of Equality Bancorp common stock unless we
receive a legal opinion that the merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code. This opinion, however, will not
bind the Internal Revenue Service, which could take a different view.
See "Certain Federal Income Tax Consequences of the Merger."
THE COMPANIES (PAGES 50 AND 91)
Allegiant Bancorp, Inc.
2122 Kratky Road
St. Louis, Missouri 63114
(314) 692-8200
(314) 692-8500 (fax)
Allegiant Bancorp is a bank holding company organized under the
laws of Missouri and registered under the federal Bank Holding Company
Act. Through its bank subsidiary, Allegiant Bank, it offers full
service community banking and personal trust services to individuals,
businesses and municipalities in the St. Louis metropolitan area.
Allegiant Bancorp's services include commercial, real estate and
installment loans, checking, savings and time deposit accounts, trust
and other personal fiduciary services and various other financial
services such as securities brokerage, insurance and safe deposit boxes.
As of June 30, 2000, Allegiant Bancorp reported, on a consolidated
basis, total assets of $827.2 million, net loans of $694.2 million,
deposits of $639.4 million and shareholders' equity of $49.1 million.
Allegiant Bancorp is currently the second largest publicly-owned
St. Louis-based bank holding company.
Equality Bancorp, Inc.
4131 South Grand Blvd.
St. Louis, Missouri 63118
(314) 352-7768
(314) 352-3333 (fax)
Equality Bancorp is a savings and loan holding company organized
under the laws of Delaware and registered under the Home Owners' Loan
Act. Through its savings bank subsidiary, Equality Savings Bank,
Equality Bancorp gathers deposits from the local community and uses
these funds to invest primarily in residential one- to four-family
mortgage loans, U.S. Government and agency securities, mortgage-backed
securities and corporate obligations and, to a lesser extent, multi-
family and commercial real estate, consumer and business loans.
As of June 30, 2000, Equality Bancorp reported, on a consolidated
basis, total assets of $329.1 million, net loans of $114.0 million,
deposits of $159.7 million and stockholders' equity of $20.4 million.
THE SPECIAL MEETINGS (PAGES 14 AND 16)
Allegiant Bancorp shareholders. The Allegiant Bancorp special
meeting will be held on October 19, 2000 at 3:00 p.m., local time,
at Allegiant Bancorp's headquarters, 2122 Kratky Road, St. Louis,
Missouri. At the Allegiant Bancorp special meeting, you will be
asked:
* to approve the issuance of shares of Allegiant Bancorp
common stock in connection with the merger; and
* to act on other matters that may properly be submitted to a
vote at the Allegiant Bancorp special meeting.
Equality Bancorp stockholders. The Equality Bancorp special
meeting will be held on October 19, 2000 at 10:00 a.m., local time,
at 558 Gravois Road, Fenton, Missouri. At the Equality Bancorp
special meeting, you will be asked:
* to approve the merger agreement and the related transactions,
including the merger of Allegiant Acquisition Corporation into
Equality Bancorp, with Equality Bancorp being the surviving
corporation and becoming, as a result of the merger, a wholly-
owned subsidiary of Allegiant Bancorp; and
* to act on other matters that may properly be submitted to a
vote at the Equality Bancorp special meeting.
- 2 -
<PAGE>
<PAGE>
RECORD DATES; VOTES REQUIRED (PAGES 14 AND 17)
Allegiant Bancorp shareholders. You can vote at the Allegiant
Bancorp special meeting if you owned Allegiant Bancorp common stock at
the close of business on September 1, 2000. On that date, there were
6,205,127 shares of Allegiant Bancorp common stock outstanding and
entitled to vote. You can cast one vote for each share of Allegiant
Bancorp common stock that you owned on that date. The issuance of
shares of common stock of Allegiant Bancorp requires the approval of
the holders of a majority of the shares present at the special meeting.
As of September 1, 2000, Allegiant Bancorp directors and executive
officers held approximately 40.4% of the outstanding shares of Allegiant
Bancorp common stock entitled to vote at the Allegiant Bancorp special
meeting. We expect the Allegiant Bancorp directors and officers will vote
their shares for approval of the issuance of shares of Allegiant Bancorp
common stock in the merger.
Equality Bancorp stockholders. You can vote at the Equality
Bancorp special meeting if you owned Equality Bancorp common stock at
the close of business on September 6, 2000. On that date, Equality
Bancorp had 2,381,389 shares of common stock outstanding and entitled
to vote. You can cast one vote for each share of Equality Bancorp common
stock you owned on that date. In order to approve the merger agreement,
the holders of a majority of Equality Bancorp's outstanding shares must
vote in favor of the merger agreement. We expect that any Equality
Bancorp officer who has not otherwise agreed to vote for the merger
agreement, will, in any event, vote for the merger agreement.
As of September 6, 2000, Equality Bancorp's directors and executive
officers held approximately 15.7% of the outstanding shares of Equality
Bancorp common stock entitled to vote at the Equality Bancorp special
meeting. The Equality Bancorp directors have agreed to vote the shares
of Equality Bancorp common stock they own for approval of the merger
agreement.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 33)
Our obligations to complete the merger depend on a number of
conditions being met. These include:
* Allegiant Bancorp shareholders' approval of the issuance
of Allegiant Bancorp common stock under the merger
agreement;
* Equality Bancorp stockholders' approval and adoption of
the merger agreement and the related transactions;
* approval of Allegiant Bancorp's application to list the
shares of Allegiant Bancorp common stock to be issued in the
merger on the Nasdaq National Market;
* approval of the merger by the necessary federal and state
regulatory authorities;
* the absence of any order, injunction, decree, law or
regulation that would prohibit the merger or make it
illegal; and
* receipt by Equality Bancorp of an opinion that, for United
States federal income tax purposes, Equality Bancorp
stockholders who exchange all of their shares solely for
shares of Allegiant Bancorp common stock will not recognize
any gain or loss as a result of the merger, except in
connection with the payment of cash instead of fractional
shares. This opinion will be subject to various
limitations. We recommend that you read the more detailed
description of the merger's tax consequences beginning on
page 41.
Where the law permits, either of us could choose to waive a
condition to our obligation to complete the merger although that
condition has not been satisfied. We cannot be certain when, or if, the
conditions to the merger will be satisfied or waived, or that the merger
will be completed.
REGULATORY APPROVALS (PAGE 38)
We cannot complete the merger unless it is approved by the Board
of Governors of the Federal Reserve System and the Office of Thrift
Supervision. Once the Federal Reserve Board approves the merger, we
have to wait from 15 to 30 days before we can complete it. During that
time, the Department of Justice may challenge the merger.
As of the date of this document, we have not yet received the
required approvals. While we do not know of any reason why we would not
be able to obtain the necessary approvals in a timely manner, we cannot
be certain when or if we will receive them. See "The Merger--Regulatory
Approvals."
TERMINATION OF THE MERGER AGREEMENT; EXPENSES (PAGE 35)
Allegiant Bancorp and Equality Bancorp can mutually agree at any
time to terminate the merger agreement without completing the merger,
even if our respective shareholders have approved it. Also, either of
us can decide, without the consent of the other, to terminate the
merger agreement in a number of other situations, including:
* the final denial of a required regulatory approval;
- 3 -
<PAGE>
<PAGE>
* failure of a party to obtain the required shareholder vote;
* an unremedied breach of the merger agreement by the other
party, so long as the party that is seeking to terminate the
merger agreement has not itself breached the agreement; and
* the failure to complete the merger by March 31, 2001.
Equality Bancorp can terminate the merger agreement if, as a
result of a tender offer by a party other than Allegiant Bancorp, or
any written offer with respect to a merger, share exchange, sale of a
material portion of its assets or other business combination, Equality
Bancorp's board of directors determines that it has a fiduciary
obligation to its stockholders to accept such proposal.
If the merger agreement is terminated due to a breach by a party
of any representations or warranties, or due to a party's failure to
perform and comply with any agreement contained in the merger agreement,
the party entitled to terminate the merger agreement will be entitled to
recover from the non-terminating party all out-of-pocket expenses and
fees, not to exceed $250,000.
WAIVER AND AMENDMENT (PAGE 35)
We may jointly amend the merger agreement, and each of us may
waive our right to require the other party to adhere to the terms and
conditions of the merger agreement. However, we may not do so after our
shareholders approve the necessary transactions if the amendment or
waiver reduces or changes the consideration that will be received by
Equality Bancorp stockholders, unless they approve the amendment or
waiver.
OPTION AGREEMENT (PAGE 19)
As an inducement to Allegiant Bancorp to enter into the merger
agreement, Equality Bancorp has entered into an option agreement
granting to Allegiant Bancorp an option to purchase from Equality
Bancorp shares of common stock under the circumstances described in the
option agreement. Allegiant Bancorp may purchase up to 474,000 shares
of Equality Bancorp common stock (approximately 19.9% of the outstanding
shares) at a purchase price of $9.50 per share. Allegiant Bancorp may
choose to give up its option to Equality Bancorp and, instead, receive
payment from Equality Bancorp of a termination fee, which is based on a
formula described in the option agreement designed to equate the value
of the option.
Allegiant Bancorp can only exercise the option if particular
events described in the option agreement occur. These events generally
are agreements by Equality Bancorp to engage in business combinations or
acquisition transactions with third parties and related events, other
than the merger proposed in this document, such as a merger or the sale
of a substantial amount of assets or stock. We do not know of any event
that has occurred as of the date of this document that would allow
Allegiant Bancorp to exercise the option or receive payment of the
termination fees under the option agreement.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT DIFFER FROM YOUR
INTERESTS (PAGE 20)
Some of the directors and officers of Equality Bancorp have
interests in the merger that differ from, or are in addition to, their
interests as stockholders of Equality Bancorp. These interests exist
because of employment or severance agreements that the officers entered
into with Equality Bancorp, and rights that Equality Bancorp officers
and directors have under Equality Bancorp's benefit plans. These
employment and severance agreements provide the officers with severance
benefits if their employment is terminated following the merger, and the
merger agreement provides for the accelerated vesting of certain benefits
under the plans. See "The Merger--Interests of Certain Persons in the
Merger."
The members of each of Allegiant Bancorp's board of directors and
Equality's board of directors knew about these additional interests and
considered them when they approved the merger agreement and the merger.
EQUALITY BANCORP STOCK OPTIONS (PAGE 21)
Under the merger agreement, each stock option to buy Equality
Bancorp common stock granted under Equality Bancorp's stock option plans
that is outstanding and not yet exercised immediately before completing
the merger will become an option to buy Allegiant Bancorp common stock.
The number of shares of Allegiant Bancorp common stock subject to each
new stock option, as well as the exercise price of that stock option,
will be adjusted to reflect the exchange ratio.
MATERIAL DIFFERENCES IN THE RIGHTS OF ALLEGIANT BANCORP SHAREHOLDERS AND
EQUALITY BANCORP STOCKHOLDERS (PAGE 133)
The rights of Allegiant Bancorp shareholders are governed by
Missouri law and by Allegiant Bancorp's articles of incorporation and
by-laws. The rights of Equality Bancorp stockholders are governed by
Delaware law and by Equality Bancorp's certificate of incorporation and
by-laws. Upon our completing the merger, Equality Bancorp's
stockholders will become shareholders of Allegiant Bancorp, and their
rights will be governed by Missouri law, Allegiant Bancorp's articles of
incorporation and Allegiant Bancorp's by-laws.
- 4 -
<PAGE>
<PAGE>
MARKETS AND MARKET PRICES
Allegiant Bancorp common stock is traded on the Nasdaq National
Market under the symbol "ALLE." The closing per share sale price
reported for Allegiant Bancorp common stock on July 26, 2000, the last
trading date preceding the public announcement of the merger, was $9.00.
Equality Bancorp common stock is traded on the American Stock Exchange
under the symbol "EBI." The closing per share sale price reported for
Equality Bancorp common stock on July 26, 2000, the last date on which
Equality Bancorp common stock traded preceding the public announcement
of the merger, was $8.875.
The following table sets forth for the periods indicated the high
and low prices per share of Allegiant Bancorp common stock as reported
on the Nasdaq National Market and of Equality Bancorp common stock as
reported on the American Stock Exchange along with the quarterly cash
dividends per share declared. The per share prices do not include
adjustments for markups, markdowns or commissions.
<TABLE>
<CAPTION>
ALLEGIANT BANCORP EQUALITY BANCORP
-------------------------------------- ---------------------------------------
SALES PRICE <F1> CASH SALES PRICE <F1> CASH
----------------------- DIVIDEND ---------------------- DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1998
----
First Quarter $21.042 $11.000 $0.025 $16.000 $13.500 $0.06
Second Quarter 19.167 13.333 0.025 15.938 13.250 0.06
Third Quarter 15.000 10.417 0.033 15.125 12.188 0.06
Fourth Quarter 10.833 9.167 0.042 12.875 9.125 0.06
1999
----
First Quarter $12.875 $ 8.958 $0.050 $10.625 $ 8.500 $0.06
Second Quarter 12.000 8.500 0.050 9.875 7.750 0.06
Third Quarter 11.500 9.000 0.050 8.625 7.625 0.06
Fourth Quarter 10.000 8.500 0.050 8.625 6.125 0.06
2000
----
First Quarter $12.000 $ 6.750 $0.050 $ 6.813 $ 5.500 $0.06
Second Quarter 9.938 8.250 0.055 8.875 5.938 0.06
Third Quarter (through
September 8, 2000) 10.500 8.625 0.055 9.928 7.500 0.06
<FN>
----------------
<F1> For recent sale prices of Allegiant Bancorp common stock and
Equality Bancorp common stock, see the cover of this Joint Proxy
Statement/Prospectus.
</TABLE>
The market value of the aggregate consideration that Equality
Bancorp stockholders will receive in the merger is approximately $24.0
million based on Allegiant Bancorp's closing stock price on July 26,
2000, the date preceding public announcement of the transaction. The
closing prices of Allegiant Bancorp and Equality Bancorp common stock
on July 26, 2000 and September 8, 2000, and the implied value to be
received in the merger by Equality Bancorp stockholders for each share
of Equality Bancorp common stock on these dates, were as follows:
<TABLE>
<CAPTION>
VALUE OF MERGER
CONSIDERATION PER SHARE
ALLEGIANT BANCORP EQUALITY BANCORP OF EQUALITY BANCORP
COMMON STOCK COMMON STOCK COMMON STOCK
------------ ------------ -----------------------
<S> <C> <C> <C>
July 26, 2000 $9.00 $8.88 $10.06
September 8, 2000 9.31 9.25 10.41
</TABLE>
Of course, the market price of Allegiant Bancorp common stock will
fluctuate prior to the merger, while the exchange ratio is fixed. You
should obtain current stock price quotations for Allegiant Bancorp
common stock and Equality Bancorp common stock.
- 5 -
<PAGE>
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of Allegiant Bancorp and Equality Bancorp and
the corresponding pro forma and pro forma equivalent per share amounts
giving effect to the proposed merger. You are strongly urged to read
this section in conjunction with the historical and pro forma financial
statements and notes thereto of both companies. See "Pro Forma
Financial Information--Notes to Unaudited Pro Forma Combined Consolidated
Financial Statements." This data is not necessarily indicative of the
results of the future operations of the combined organization or the
actual results that would have occurred if the proposed merger had been
consummated prior to the periods indicated.
<TABLE>
<CAPTION>
ALLEGIANT BANCORP/
EQUALITY EQUALITY
ALLEGIANT BANCORP EQUALITY PRO FORMA PRO FORMA
REPORTED REPORTED <F1> COMBINED <F2> EQUIVALENT <F3>
-------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE
June 30, 2000 $8.08 $8.57 $8.34 $9.32
December 31, 1999 7.73 8.35 7.60 8.50
CASH DIVIDENDS DECLARED PER SHARE
Six months ended June 30, 2000 $0.11 $0.12 $0.11 $0.12
Year ended December 31, 1999 0.20 0.24 0.20 0.22
BASIC EARNINGS PER SHARE
Six months ended June 30, 2000 $0.53 $0.26 $0.42 $0.47
Year ended December 31, 1999 0.84 0.50 0.68 0.76
DILUTED EARNINGS PER SHARE
Six months ended June 30, 2000 $0.52 $0.26 $0.42 $0.47
Year ended December 31, 1999 0.83 0.49 0.68 0.76
<FN>
-------------
<F1> Equality Bancorp has a March 31 fiscal year-end. For purposes of
this table, Equality Bancorp information at March 31, 2000 is
reported as December 31, 1999 data. Equality Bancorp information
for the six months ended June 30, 2000 includes information from
the last three months of its fiscal year ended March 31, 2000
combined with information for the quarter ended June 30, 2000.
<F2> Includes the effect of pro forma adjustments for Equality Bancorp,
as appropriate. See "Pro Forma Financial Information--Notes to
Unaudited Pro Forma Combined Consolidated Financial Statements."
<F3> Based on the pro forma combined per share amounts multiplied by
1.118, the exchange ratio applicable to one share of Equality
Bancorp common stock. The notes to pro forma combined consolidated
financial statements contain further explanation of the assumptions
used in the preparation of the pro forma combined consolidated
financial statements. See "Pro Forma Financial Information--Notes to
Unaudited Pro Forma Combined Consolidated Financial Statements."
</TABLE>
- 6 -
<PAGE>
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth certain summary historical
consolidated financial information for Allegiant Bancorp and Equality
Bancorp. The balance sheet data and income statement data of each of
Allegiant Bancorp and Equality Bancorp as of and for the five years in
the period ended December 31, 1999 and March 31, 2000, respectively,
are taken from the audited consolidated financial statements of
Allegiant Bancorp and Equality Bancorp. The balance sheet data and
income statement data of Allegiant Bancorp as of and for the six months
ended June 30, 2000 and 1999 are taken from the unaudited consolidated
financial statements of Allegiant Bancorp as of and for the six months
ended June 30, 2000 and 1999. The balance sheet data and income
statement data of Equality Bancorp as of and for the three months ended
June 30, 2000 and 1999 are taken from the unaudited consolidated
financial statements of Equality Bancorp as of and for the three months
ended June 30, 2000 and 1999. These data include all adjustments which
are, in the opinion of the respective managements of Allegiant Bancorp
and Equality Bancorp, necessary to present a fair statement of these
periods and are of a normal recurring nature. Results for either the
six months ended June 30, 2000 or the three months ended June 30, 2000
do not necessarily indicate results for the entire year. The following
information should be read in conjunction with the audited consolidated
financial statements of each of Allegiant Bancorp and Equality Bancorp,
and the related notes, included in this Joint Proxy Statement/Prospectus,
in documents incorporated by reference, and in conjunction with the
unaudited pro forma combined consolidated financial information,
including the notes, appearing elsewhere in this document. See "Pro
Forma Financial Information."
- 7 -
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC.
SUMMARY FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE SIX AS OF OR FOR THE
MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Basic earnings per share <F1> $ 0.53 $ 0.36 $ 0.84 $ 0.72 $ 0.54 $ 0.55 $ 0.42
Diluted earnings per share <F1> 0.52 0.35 0.83 0.68 0.49 0.48 0.42
Dividends declared 0.11 0.10 0.20 0.12 0.08 0.06 0.04
Book value at period end 8.08 7.56 7.73 7.36 6.88 4.80 4.25
EARNINGS (THOUSANDS)
Interest income $ 32,598 $ 24,233 $ 52,112 $ 49,218 $ 37,765 $ 25,056 $ 19,252
Interest expense 17,945 12,238 26,601 27,267 21,466 14,999 11,206
-------- -------- -------- -------- -------- -------- --------
Net interest income 14,653 11,995 25,511 21,951 16,299 10,057 8,046
Provision for possible loan losses 1,565 1,012 2,546 2,420 2,397 1,448 977
Other income 2,860 2,442 4,843 9,324 3,298 1,393 654
Other expense 10,506 9,512 18,762 21,295 13,069 7,019 5,625
Income taxes 2,221 1,566 3,644 3,026 1,716 1,175 823
-------- -------- -------- -------- -------- -------- --------
Net income $ 3,221 $ 2,347 $ 5,402 $ 4,534 $ 2,415 $ 1,808 $ 1,275
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET (THOUSANDS)
Total assets $827,182 $638,166 $728,492 $596,274 $608,237 $377,564 $280,386
Earning assets 755,473 593,120 677,600 547,437 558,138 360,161 266,825
Investment securities 60,968 56,574 60,797 54,780 76,869 60,559 73,211
Loans, net of unearned income 703,765 543,627 615,191 495,668 484,863 291,926 181,544
Deposits 639,406 489,816 548,466 450,766 484,641 308,670 231,309
Long-term debt 30,860 37,275 35,860 40,275 23,275 14,663 19,719
Shareholders' equity 49,092 49,951 47,991 48,104 42,071 16,386 13,938
Allowance for loan losses 9,580 7,085 8,315 6,442 5,193 3,100 2,130
SELECTED RATIOS
Return on average assets 0.83%<F2> 0.77%<F2> 0.83% 0.73% 0.52% 0.59% 0.56%
Return on average equity 13.30 <F2> 9.66 <F2> 10.60 10.14 9.55 12.17 10.86
Net interest rate margin 4.05 <F2> 4.21 <F2> 4.17 3.82 3.71 3.39 3.71
Equity to assets 5.93 7.83 7.55 7.22 5.46 4.81 5.14
Allowance for loan losses to:
Outstanding loans 1.36 1.30 1.35 1.30 1.07 1.06 1.17
Non-performing loans 1,156.04 850.54 1,324.20 362.32 377.12 447.98 691.56
Dividend payout ratio 20.02 14.10 18.10 20.22 13.77 10.34 8.86
<FN>
------------
<F1> Based on weighted-average common shares outstanding.
<F2> On an annualized basis.
</TABLE>
- 8 -
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC.
SUMMARY FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
QUARTER ENDED JUNE 30, YEAR ENDED MARCH 31,
--------------------- --------------------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Basic earnings per share <F1> $ 0.10 $ 0.10 $ 0.50 $ 0.48 $ 0.51 $ 0.21 $ 0.27
Diluted earnings per share <F1> 0.10 0.10 0.49 0.47 0.51 0.21 0.27
Dividends declared 0.06 0.06 0.24 0.24 0.40 0.62 0.60
Book value at period end 8.57 9.99 8.35 10.24 10.31 15.11 15.29
EARNINGS (THOUSANDS)
Interest income $ 5,678 $ 4,814 $ 21,043 $ 17,558 $ 14,680 $ 13,610 $ 12,275
Interest expense 3,998 3,206 14,361 12,351 9,725 9,112 8,540
-------- -------- -------- -------- -------- -------- --------
Net interest income 1,680 1,608 6,682 5,207 4,955 4,498 3,735
Provision for loan losses -- -- -- -- 116 50 31
Other income 766 851 3,307 4,237 2,882 2,384 2,658
Other expense 2068 2,044 8,099 7,607 5,704 6,024 5,291
Income taxes 144 170 738 708 778 303 418
-------- -------- -------- -------- -------- -------- --------
Net income $ 234 $ 245 $ 1,152 $ 1,129 $ 1,239 $ 505 $ 653
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET (THOUSANDS)
Total assets $329,135 $305,924 $323,335 $288,437 $255,550 $200,764 $195,768
Earning assets 300,806 292,232 299,908 270,812 240,873 190,710 184,958
Investments and interest bearing
deposits 193,252 184,451 194,592 180,581 132,458 94,782 87,960
Loans and leases 114,020 102,200 105,316 90,231 108,415 95,928 96,998
Deposits 159,740 128,675 140,885 128,954 119,301 122,983 124,515
Borrowings 147,993 150,962 161,435 132,010 105,679 64,249 57,305
Shareholders' equity 20,429 24,724 19,925 25,608 25,838 12,634 12,789
Allowance for loan losses 363 366 364 366 374 283 233
SELECTED RATIOS
Return on average assets 0.29%<F2> 0.33%<F2> 0.36% 0.40% 0.55% 0.25% 0.35%
Return on average equity 4.65 <F2> 3.89 <F2> 4.83 4.33 7.07 3.98 5.18
Net interest rate margin 2.10 <F2> 2.26 <F2> 2.20 1.94 2.30 2.31 2.09
Equity to assets 6.21 8.08 6.16 8.88 10.11 6.29 6.53
Allowance for loan losses to:
Outstanding loans 0.32 0.36 0.34 0.40 0.34 0.29 0.24
Non-performing loans 81.21 58.65 51.20 50.76 43.04 40.26 30.54
Dividend payout ratio 58.01 57.28 48.42 50.33 21.74 46.16 34.16
<FN>
---------------
<F1> Based on weighted average common shares outstanding.
<F2> On an annualized basis.
</TABLE>
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RISK FACTORS
Equality stockholders should carefully consider the following risk
factors concerning Allegiant Bancorp in determining whether to vote to
approve the merger and the related transactions. This Joint Proxy
Statement/Prospectus contains forward-looking statements that involve
risks and uncertainties. You can identify these forward-looking
statements because they may include terms such as "believes,"
"anticipates," "intends," "expects," or similar expressions and may
include discussions of future strategy. Each of Allegiant Bancorp and
Equality Bancorp caution you not to rely unduly on any forward-looking
statements in this Joint Proxy Statement/Prospectus. Allegiant
Bancorp's actual results could differ materially from the forward-
looking statements. The risk factors described below could cause or
contribute to these differences and apply to all forward-looking
statements wherever they appear in this Joint Proxy Statement/
Prospectus. However, there could be other factors not listed below
that may affect Allegiant Bancorp. We may not update these risk
factors or publicly announce revisions to forward-looking statements
contained in this Joint Proxy Statement/Prospectus.
ALLEGIANT BANCORP SHARES OF COMMON STOCK ARE NOT FDIC INSURED.
Neither the Federal Deposit Insurance Corporation nor any other
governmental agency insures the shares of Allegiant Bancorp common
stock.
ALLEGIANT BANCORP MAY EXPERIENCE DIFFICULTIES IN MANAGING ITS GROWTH.
As part of Allegiant Bancorp's overall growth strategy, Allegiant
Bancorp may acquire banks and related businesses which Allegiant
Bancorp's board of directors believes provide a strategic fit with its
business. To the extent that Allegiant Bancorp does grow, Allegiant
Bancorp may not be able to adequately and profitably manage its growth.
In addition, Allegiant Bancorp may not obtain regulatory approval for
future acquisitions proposed to be undertaken in the future. Acquiring
other banks and businesses will involve risks commonly associated with
acquisitions, including:
* potential exposure to liabilities of any acquired banks or
other businesses;
* difficulty and expense of integrating the operations and
personnel of any acquired banks or other businesses;
* potential disruption to Allegiant Bancorp's business;
* potential diversion of Allegiant Bancorp's management's time
and attention; and
* impairment of relationships with and the possible loss of
key employees and customers of any acquired banks or other
businesses.
IT MAY BE DIFFICULT FOR ALLEGIANT BANCORP TO MAINTAIN ITS HISTORICAL
GROWTH RATE.
Allegiant Bancorp completed various acquisitions and opened
additional branches in the past few years that significantly enhanced
its rate of growth. Allegiant Bancorp may not continue to sustain this
rate of growth or grow at all. Competition for suitable acquisition
candidates is intense. Allegiant Bancorp may target acquisition candidates
that a variety of larger financial institutions with substantially greater
resources than it also may be interested in acquiring, which may make it
more difficult and/or expensive for Allegiant Bancorp to acquire any
candidate.
RISKS OF ACQUISITION
Although Allegiant Bancorp has acquired or organized other
financial services businesses in the past, including two mortgage
companies, it has not completed an acquisition as large as Equality
Bancorp. The success of the acquisition will depend on a number of
factors, including (but not limited to), Allegiant Bancorp's ability to:
(1) integrate Equality Bancorp's operations into its current operations;
(2) maintain existing relationships with
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depositors in Equality Savings Bank to minimize withdrawals of deposits
subsequent to the acquisition; (3) maintain and enhance existing
relationships with borrowers to limit unanticipated losses from loans of
Equality Savings Bank; (4) control the incremental non-interest expense
from Equality Savings Bank to maintain overall operating efficiencies;
(5) retain and attract qualified personnel; and (6) compete effectively
in the communities served by Equality Savings Bank and in nearby
communities. Allegiant Bancorp may not be able to manage effectively
its growth resulting from the acquisition.
THE LOSS OF CERTAIN KEY PERSONNEL COULD ADVERSELY AFFECT ALLEGIANT
BANCORP'S OPERATIONS.
Allegiant Bancorp's success depends in large part on the retention
of a limited number of key personnel, including Shaun R. Hayes,
Allegiant Bancorp's President and Chief Executive Officer, Marvin S.
Wool, its Chairman, and certain other executive officers.
Allegiant Bancorp will likely undergo a difficult transition
period if it loses the services of any of these individuals. In
recognition of this risk, Allegiant Bancorp owns and is the beneficiary
of an insurance policy on the life of Mr. Hayes providing death benefits
of $2.0 million.
Allegiant Bancorp's success also depends on the experience of its
banking facilities' managers and on their relationships with the
communities they serve. The loss of these key persons could negatively
impact the affected banking operations. Allegiant Bancorp may not be
able to retain its current key personnel or attract additional qualified
key persons as needed.
CHANGES IN THE LOCAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT
ALLEGIANT BANK'S LOAN PORTFOLIO.
Allegiant Bancorp's success depends to a great extent upon the
general economic conditions of the St. Louis metropolitan area. Unlike
larger banks that are more geographically diversified, Allegiant Bank
provides banking and financial services to customers primarily in the
St. Louis metropolitan area. Allegiant Bank's commercial, real estate
and construction loans, the ability of the borrowers to repay these
loans and the value of the collateral securing these loans are impacted
by our local economic conditions. Favorable economic conditions may not
exist in Allegiant Bancorp's market.
ALLEGIANT BANCORP'S ALLOWANCE FOR LOAN LOSSES MAY NOT BE ADEQUATE TO
COVER ACTUAL LOAN LOSSES.
Allegiant Bank's loan customers may not repay their loans
according to their terms and the customers collateral securing the
payment of their loans may be insufficient to assure repayment. Credit
losses are inherent in the lending business and could have a material
adverse effect on Allegiant Bancorp's operating results. Allegiant
Bancorp's credit risk with respect to its real estate and construction
loan portfolio relates principally to the general creditworthiness of
individuals and the value of real estate serving as security for the
repayment of loans. Allegiant Bancorp's credit risk with respect to its
commercial and consumer installment loan portfolio relates principally
to the general creditworthiness of businesses and individuals within the
local market.
While management believes the allowance is sufficient, Allegiant
Bancorp makes various assumptions and judgments about the collectibility
of Allegiant Bancorp's loan portfolio and provides an allowance for
potential losses based on a number of factors. If its assumptions are
wrong, the allowance for loan losses may not be sufficient to cover
Allegiant Bancorp's loan losses. Allegiant Bancorp may have to increase
the allowance in the future. Additions to Allegiant Bancorp's allowance
for loan losses would decrease its net income.
ALLEGIANT BANCORP MAY BE UNABLE TO MANAGE INTEREST RATE RISKS THAT COULD
REDUCE ITS NET INTEREST INCOME.
Like other financial institutions, net interest income affects
Allegiant Bancorp's results of operations. Net interest income is the
difference between interest earned on loans and investments and interest
expense paid on deposits and other borrowings. We cannot predict or
control changes in interest rates. Regional and local economic
conditions and the policies of regulatory authorities, including
monetary policies of the Board of Governors of the Federal Reserve
System, affect interest income and interest expense. While Allegiant
Bancorp continually takes measures intended to manage the risks from
changes in market interest rates, changes in interest rates can still
have a material adverse effect on its profitability.
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In addition, certain assets and liabilities may react in different
degrees to changes in market interest rates. For example, interest
rates on some types of assets and liabilities may fluctuate prior to
changes in broader market interest rates, while rates on other types may
lag behind. Further, some of Allegiant Bancorp's assets, such as
adjustable rate mortgages, have features, including rate caps, which
restrict changes in such assets' interest rates.
Factors such as inflation, recession, unemployment, money supply,
international disorders, instability in domestic and foreign financial
markets, and other factors beyond Allegiant Bancorp's control may affect
interest rates. Changes in market interest rates also will affect the
level of voluntary prepayments on Allegiant Bancorp's loans and the
receipt of payments on its mortgage-backed securities resulting in the
receipt of proceeds that may be reinvested at a lower rate than the loan
or mortgage-backed security being prepaid. Although Allegiant Bancorp
pursues an asset-liability management strategy designed to control its
risk from changes in market interest rates, changes in interest rates
can still have a material adverse effect on Allegiant Bancorp's
profitability.
INSIDERS MAY CONTROL ALLEGIANT BANCORP'S FUTURE OPERATIONS AS A RESULT
OF THE CONCENTRATION OF CONTROL OF ITS COMMON STOCK.
Allegiant Bancorp's executive officers and directors beneficially
currently own approximately 40.4% of its outstanding common stock and,
upon completion of the merger, will own approximately 28.3% of its
outstanding common stock. As a result, these insiders may be able to
control the election of Allegiant Bancorp's board of directors and thus
its direction and future operations, and Allegiant Bancorp's
shareholders may lack an effective vote with respect to such matters.
WE CANNOT PREDICT HOW CHANGES IN TECHNOLOGY WILL IMPACT ALLEGIANT
BANCORP'S BUSINESS.
The financial services industry, including the banking sector, is
increasingly affected by advances in technology, including developments
in:
* telecommunications;
* data processing;
* automation;
* Internet banking;
* telebanking; and
* debit cards and so-called "smart cards."
Allegiant Bancorp's ability to compete successfully in the future
will depend on whether it can anticipate and respond to technological
changes. To develop these and other new technologies, Allegiant Bancorp
will likely make additional capital investments. Although Allegiant
Bancorp continually invests in new technology, we cannot assure you that
Allegiant Bancorp will have sufficient resources or access to the
necessary technology to remain competitive in the future.
THE BANKING BUSINESS IS HIGHLY COMPETITIVE.
Allegiant Bancorp operates in a competitive environment. In the
St. Louis metropolitan area, other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking firms and other financial
intermediaries offer similar services. Many of these competitors have
substantially greater resources and lending limits and may offer certain
services Allegiant Bancorp does not currently provide. In addition, the
extensive regulations that govern Allegiant Bancorp and Allegiant Bank
may not apply to some of our non-bank competitors. Allegiant Bancorp's
profitability depends upon the ability of the bank to compete in its
market area.
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ALLEGIANT BANCORP IS SUBJECT TO EXTENSIVE AND CONSTANTLY CHANGING
REGULATION.
The banking industry is heavily regulated under both federal
and state law. These regulations are primarily intended to protect
depositors and the Federal Deposit Insurance Corporation, not our
creditors or shareholders. Allegiant Bancorp, and each of our non-
bank subsidiaries, is subject to the supervision of the Federal
Reserve Board, in addition to other regulatory organizations.
Regulations affecting banks and financial services companies undergo
continuous change, and the ultimate effect of such changes cannot be
predicted. Federal and state governments may modify regulations and
laws at any time, and may enact new legislation that affects us,
Allegiant Bank or our subsidiaries. New laws or changes to existing
laws may adversely affect us, Allegiant Bank or our other subsidiaries.
See "Supervision and Regulation."
FIXED EXCHANGE RATIO MAY ADVERSELY AFFECT THE VALUE OF YOUR SHARES.
If the merger is completed, you will receive a number of shares of
Allegiant Bancorp common stock based on a fixed exchange ratio of 1.118
shares of Allegiant Bancorp common stock for each share of Equality
common stock you own. Because the market value of the Allegiant Bancorp
common stock may fluctuate, the value of the consideration you receive
for your Equality Bancorp shares also may fluctuate. The market value of
Allegiant Bancorp common stock could fluctuate depending upon any number
of reasons, including those specific to Allegiant Bancorp and those that
influence the trading prices of financial institutions or equity securities
generally.
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ALLEGIANT SPECIAL MEETING
This section contains information from Allegiant Bancorp to its
shareholders about the shareholder meeting that has been called to
consider and approve the issuance of shares of Allegiant Bancorp common
stock in the merger.
We are mailing this Joint Proxy Statement/Prospectus to you, as an
Allegiant Bancorp shareholder, on or about September 15, 2000. Together
with this document, we also are sending to you a notice of the Allegiant
Bancorp special meeting and a form of proxy that our board is soliciting
for use at the special meeting. The special meeting will be held on
Thursday, October 19, 2000, at 3:00 p.m., local time.
MATTERS TO BE CONSIDERED
The purpose of the special meeting is to vote on the approval of
the issuance of the shares of Allegiant Bancorp common stock in the
merger. At the special meeting, Allegiant Bancorp shareholders also may
vote on any other matters that may properly be submitted to a vote at
the special meeting. You also may be asked to vote on a proposal to
adjourn or postpone the special meeting.
PROXIES
The accompanying form of proxy is for use at the special meeting
if you are unable or do not desire to, attend in person. You can revoke
the proxy at any time before the vote is taken at the special meeting by
submitting to our corporate secretary written notice of revocation or a
properly executed proxy of a later date, or by attending the special
meeting and electing to vote in person. Written notices of revocation
and other communications with respect to the revocation of Allegiant
Bancorp proxies should be addressed to:
Allegiant Bancorp, Inc.
2122 Kratky Road
St. Louis, Missouri 63114
Attention: Corporate Secretary
All shares represented by valid proxies we receive through this
solicitation, and not revoked before they are exercised, will be voted
in the manner specified in this paragraph. If you make no specification
on your proxy card, your proxy will be voted "FOR" the approval of the
issuance of shares in the merger. Our board does not presently know of
any other matters that may be presented for action at the special meeting.
If other matters do properly come before the special meeting, however, we
intend that shares represented by proxies in the form accompanying this
document will be voted by and at the discretion of the persons named in
the proxies. However, proxies that indicate a vote against approval of
the issuance of shares in the merger will not be voted in favor of any
adjournment or postponement of the special meeting to solicit additional
proxies.
SOLICITATION OF PROXIES
We will bear the entire cost of soliciting proxies from you. In
addition to the soliciting of proxies by mail, we will request banks,
brokers and other record holders to send proxies and proxy material to
the beneficial owners of Allegiant Bancorp common stock and secure their
voting instructions, if necessary. We will reimburse those record
holders for their reasonable expenses in taking those actions. If
necessary, we also may use several of our regular employees or directors,
who will not be specially compensated, to solicit proxies from our
shareholders, either personally or by telephone, telegram, fax, letter
or special delivery letter.
RECORD DATE AND VOTING RIGHTS
In accordance with Missouri law, Allegiant Bancorp's articles of
incorporation and by-laws and Nasdaq National Market rules, we fixed
September 1, 2000 as the record date for determining the Allegiant
Bancorp shareholders entitled to notice of and to vote at the special
meeting. Accordingly, you are only entitled to notice of, and to vote
at, the special meeting if you were a record holder of shares of
Allegiant Bancorp common stock at the close of business on the record
date. At that time, there were 6,205,127 shares of Allegiant Bancorp
common stock
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<PAGE>
held by approximately 743 holders of record. To have a quorum that
permits us to conduct business at the special meeting, we require
the presence, whether in person or through return of a proxy card, of
holders of Allegiant Bancorp common stock representing a majority of
the shares outstanding and entitled to vote on the record date. You
are entitled to one vote for each outstanding share of Allegiant Bancorp
common stock you held as of the close of business on the record date.
Holders of shares of Allegiant Bancorp common stock present in
person at the special meeting but not voting, and shares of Allegiant
Bancorp common stock for which we have received proxies indicating that
their holders have abstained, will be counted as present at the special
meeting for purposes of determining whether we have a quorum for
transacting business. Shares held in street name that have been
designated by brokers on proxy cards as not voted will not be counted as
votes cast for or against any proposal. These broker non-votes will,
however, be counted for purposes of determining whether a quorum exists.
Under the rules of the Nasdaq National Market, approval of Allegiant
Bancorp's issuance of shares in the merger requires the affirmative vote
of the holders of a majority of the outstanding shares of Allegiant Bancorp
common stock present at the special meeting.
BECAUSE APPROVAL OF THE ISSUANCE OF SHARES IN THE MERGER REQUIRES THE
AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
ALLEGIANT BANCORP COMMON STOCK PRESENT AT THE SPECIAL MEETING, ABSTENTIONS
AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES AGAINST APPROVAL OF
THE ISSUANCE OF THE SHARES. ACCORDINGLY, THE ALLEGIANT BANCORP BOARD URGES
YOU TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
As of record date our directors and executive officers
beneficially owned approximately 2,507,647 shares of Allegiant Bancorp
common stock, entitling them to exercise approximately 40.4% of the
voting power of the Allegiant Bancorp common stock entitled to vote at
the special meeting. We currently expect that each of our directors and
executive officers will vote the shares of Allegiant Bancorp common
stock he or she beneficially owns "FOR" approval of the issuance of
shares in the merger.
RECOMMENDATION OF ALLEGIANT BANCORP BOARD OF DIRECTORS
The Allegiant Bancorp board of directors has unanimously approved
the merger agreement and the related transactions, including the merger
and the issuance of shares of Allegiant Bancorp common stock in the merger.
The Allegiant Bancorp Board believes that the merger agreement and the
transactions it contemplates are fair to, and are in the best interests
of, Allegiant Bancorp and Allegiant Bancorp shareholders and recommends
that Allegiant Bancorp shareholders vote "FOR" approval of the issuance
of additional shares.
See "The Merger--Background of the Merger; Board Recommendations and
Reasons for the Merger" for a more detailed discussion of Allegiant Bancorp's
board's recommendation.
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EQUALITY SPECIAL MEETING
This section contains information from Equality Bancorp to
Equality Bancorp stockholders about the stockholder meeting that has
been called to approve and adopt the merger agreement and the related
transactions.
We are mailing this document to you, as a Equality Bancorp
stockholder, on or about September 15, 2000. Together with this
document, we also are sending to you a notice of the Equality Bancorp
special meeting and a form of proxy that our board is soliciting for use
at the special meeting. The special meeting will be held on Thursday,
October 19, 2000, at 10:00 a.m., local time.
MATTERS TO BE CONSIDERED
The purpose of the special meeting is to vote on a proposal to
approve and adopt the merger agreement, dated as of July 26, 2000, by
and among Allegiant Bancorp, Allegiant Acquisition Corporation and
Equality Bancorp, Inc., and the transactions contemplated in that
agreement. These include the merger of Allegiant Acquisition
Corporation with and into Equality Bancorp, and any other matters that
may properly be submitted to a vote at the special meeting. You also
may be asked to vote upon a proposal to adjourn or postpone the special
meeting. We could use any adjournment or postponement for the purpose,
among others, of allowing more time to solicit votes to approve and
adopt the merger agreement and the related transactions.
PROXIES
The accompanying form of proxy is for use at the special meeting
if you are unable or do not desire to attend in person. You can revoke
your proxy at any time before the vote is taken at the special meeting
by submitting to our corporate secretary written notice of revocation or
a properly executed proxy of a later date, or by attending the special
meeting and electing to vote in person. Written notices of revocation
and other communications about revoking your proxy should be addressed
to:
Equality Bancorp, Inc.
4131 South Grand Blvd.
St. Louis, Missouri 63118
Attention: Richard C. Fellhauer
All shares represented by valid proxies we receive through this
solicitation, and not revoked before they are exercised, will be voted
in the manner specified in this paragraph. If you make no specification
on your returned proxy card, your proxy will be voted "FOR" the proposal
to approve and adopt the merger agreement. Our board is presently
unaware of any other matters that may be presented for action at the
special meeting. If other matters do properly come before the special
meeting, however, we intend that shares represented by properly
submitted proxies will be voted by and at the discretion of the persons
named in the proxies. However, proxies that indicate a vote against
approval of the merger agreement will not be voted in favor of any
adjournment or postponement of the special meeting for the purpose of
soliciting additional proxies to approve the merger agreement.
SOLICITATION OF PROXIES
We will bear the entire cost of soliciting proxies from you,
except that Allegiant Bancorp has agreed to pay all costs and expenses
of printing and mailing this document and all filing and other fees
relating to the merger paid to the SEC. In addition to solicitation of
proxies by mail, we will request banks, brokers and other record holders
to send proxies and proxy material to the beneficial owners of the stock
and secure their voting instructions, if necessary. We will reimburse
those record holders for their reasonable expenses in taking those
actions. If necessary, we also may use several of our regular
employees, who will not be specially compensated, to solicit proxies
from our stockholders, either personally or by telephone, the Internet,
telegram, fax, letter or special delivery letter.
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RECORD DATE AND VOTING RIGHTS
In accordance with Delaware law, Equality Bancorp's certificate of
incorporation and by-laws and the rules of the American Stock Exchange,
we have fixed September 6, 2000 as the record date for determining the
Equality Bancorp stockholders entitled to notice of and to vote at the
special meeting. Accordingly, you are only entitled to notice of, and
to vote at, the special meeting if you were a record holder of Equality
Bancorp common stock at the close of business on the record date. At
that time, 2,381,389 shares of Equality Bancorp common stock were
outstanding, held by 1,038 holders of record. To have a quorum
that permits us to conduct business at the special meeting, we require
the presence, whether in person or through the prior submission of a
proxy, of the holders of Equality Bancorp common stock representing a
majority of the shares outstanding and entitled to vote on the record
date. You are entitled to one vote for each outstanding share of
Equality Bancorp common stock you held as of the close of business on
the record date.
Shares of Equality Bancorp common stock present in person at the
special meeting but not voting, and shares of Equality Bancorp common
stock for which we have received proxies indicating that their holders
have abstained, will be counted as present at the special meeting for
purposes of determining whether we have a quorum for transacting
business. Shares held in street name that have been designated by
brokers on proxy cards as not voted will not be counted as votes cast
for or against any proposal. These broker non-votes will, however, be
counted for purposes of determining whether a quorum exists.
Under Delaware law, approval of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares
of Equality Bancorp common stock entitled to vote at the special
meeting.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE
VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF EQUALITY
BANCORP COMMON STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING,
ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES
AGAINST APPROVAL OF THE MERGER AGREEMENT AND THE RELATED TRANSACTIONS.
ACCORDINGLY, EQUALITY BANCORP'S BOARD OF DIRECTORS URGES YOU TO COMPLETE,
DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE.
As of the record date, directors and executive officers of
Equality Bancorp beneficially owned approximately 372,952 shares of
Equality Bancorp common stock, entitling them to exercise approximately
15.7% of the voting power of the Equality common stock entitled to vote
at the special meeting. We currently expect that each of our directors
and executive officers will vote the shares of Equality common stock he
or she beneficially owns "FOR" approval of the merger agreement. In
addition, each director of Equality Bancorp executed a separate voting
agreement containing an agreement to vote each share of Equality Bancorp
common stock that he or she owns "FOR" approval and adoption of the merger
agreement. Such directors currently hold 347,785 shares of Equality
Bancorp common stock, or approximately 14.6% of the outstanding common
stock of Equality Bancorp as of the record date.
You can find additional information about beneficial ownership of
Equality Bancorp common stock by persons and entities owning more than
5% of the stock, and more detailed information about beneficial
ownership of Equality Bancorp common stock by our directors and
executive officers, in the section entitled "Information about Equality
Bancorp--Voting Securities and Principal Holders Thereof" in this Joint
Proxy Statement/Prospectus.
RECOMMENDATION OF EQUALITY BANCORP BOARD OF DIRECTORS
The Equality Bancorp board has approved the merger agreement and
the transactions it contemplates, including the merger. The Equality
Bancorp board believes that the merger agreement and the transactions it
contemplates, including the merger, are fair to, and are in the best
interests of, Equality Bancorp and its stockholders and recommends that
Equality Bancorp stockholders vote "FOR" approval of the merger
agreement.
See "The Merger--Background of the Merger; Board Recommendations and
Reasons for the Merger" for a more detailed discussion of Equality Bancorp's
board's recommendation.
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THE MERGER
This summary of the material terms and provisions of the merger
agreement, the stock option agreement and the voting agreements is
qualified in its entirety by reference to such documents. The merger
agreement is attached as Annex A to this Joint Proxy Statement/
-------
Prospectus, and the stock option agreement and voting agreements have
been filed by Allegiant Bancorp with the SEC. We incorporate each of
these documents into this summary by reference.
GENERAL DESCRIPTION OF THE MERGER
Under the merger agreement, subject to satisfaction or
waiver of certain conditions precedent, including receipt of all
applicable regulatory approvals, Allegiant Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Allegiant Bancorp,
will be merged on the closing date of the merger with and into Equality
Bancorp. Upon completion of the merger, Allegiant Acquisition
Corporation's corporate existence will terminate and Equality Bancorp
will continue as the surviving entity. At the effective time of the
merger, each share of Equality Bancorp common stock will be converted
into the right to receive 1.118 shares of Allegiant Bancorp common
stock. Such consideration is subject to certain anti-dilution
protections but is not adjustable based upon the operating results,
financial condition or other factors affecting either Allegiant Bancorp
or Equality Bancorp before the merger. The fair market value of
Allegiant Bancorp common stock received in the merger may fluctuate
and at the time of the merger may be more or less than the current
fair market value of such shares.
The amount and nature of the consideration was established through
arm's-length negotiations between Allegiant Bancorp and Equality Bancorp
and their respective advisors, and reflects the balancing of a number of
countervailing factors. The total amount of the consideration reflects
a price both parties concluded was appropriate. See "--Background of
the Merger; Board Recommendations and Reasons for the Merger." The
parties have structured the merger, in part, to have the favorable tax
attributes of a "reorganization" for federal income tax purposes. See
"Certain Federal Income Tax Consequences of the Merger."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF
ALLEGIANT BANCORP COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET
VALUE OF ALLEGIANT BANCORP COMMON STOCK ON THE DATE SUCH STOCK IS
RECEIVED BY AN EQUALITY STOCKHOLDER OR AT ANY OTHER TIME. THE FAIR
MARKET VALUE OF ALLEGIANT BANCORP COMMON STOCK RECEIVED BY AN EQUALITY
BANCORP STOCKHOLDER MAY BE GREATER THAN OR LESS THAN THE CURRENT FAIR
MARKET VALUE OF ALLEGIANT BANCORP COMMON STOCK DUE TO NUMEROUS MARKET
FACTORS.
Following the closing date of the merger, each stockholder of
Equality Bancorp will be required to surrender their Equality Bancorp
shares and to submit certain documents to UMB, N.A., the exchange agent
for Allegiant Bancorp common stock, in order to receive shares of
Allegiant Bancorp common stock. See "Surrender of Equality Bancorp
Stock Certificates and Receipt of Allegiant Bancorp Common Stock."
The exchange agent will mail to each Equality Bancorp stockholder the
documents required (i.e., letter of transmittal), together with
instructions and a return envelope to facilitate the exchange for
Allegiant Bancorp common stock. No dividends or other distributions
will be paid to a former Equality Bancorp stockholder with respect to
shares of Allegiant Bancorp common stock issuable in the merger until
such stockholder's letter of transmittal and Equality Bancorp stock
certificate(s) are delivered to the exchange agent. For a discussion of
the differences between the rights of the holders of Allegiant Bancorp
common stock and the holders of Equality Bancorp common stock, see
"Comparative Rights of Shareholders" on page 133. No fractional shares
of Allegiant Bancorp common stock will be issued in the merger, but cash
will be paid in lieu of such fractional shares. The shares of Allegiant
Bancorp common stock to be issued in the merger will be freely transferable
except by certain stockholders of Equality Bancorp who are deemed to be
"affiliates" of Equality Bancorp. The shares of Allegiant Bancorp common
stock issued to such affiliates will be restricted in their transferability
in accordance with the rules and regulations promulgated by the SEC. See
"Information Regarding Allegiant Bancorp Stock--Restrictions on Resales by
Affiliates."
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OTHER AGREEMENTS
In addition to and in connection with the execution of the merger
agreement, Allegiant Bancorp and Equality Bancorp executed an option
agreement and Allegiant Bancorp and each of the directors of Equality
Bancorp executed separate voting agreements. The following is a summary
of the material terms of the option agreement and the voting agreements:
OPTION AGREEMENT. In the option agreement, Equality Bancorp granted
Allegiant Bancorp an option to purchase up to 474,000 shares of Equality
Bancorp common stock at an exercise price of $9.50 per share. Equality
Bancorp granted the option as a condition of and in consideration for
Allegiant Bancorp's entering into the merger agreement. The option
is intended to increase the likelihood that the merger will be completed
in accordance with the terms of the merger agreement. Any purchase of
shares upon the exercise of the option is subject to compliance with
applicable law.
The occurrence of certain events described below could cause
Allegiant Bancorp's option to become exercisable, which could
significantly increase the cost to a potential acquirer, other than
Allegiant Bancorp, of acquiring Equality Bancorp or a significant
portion of its assets or business compared to the cost had Equality
Bancorp not granted Allegiant Bancorp the option. Consequently, the
option may have the effect of discouraging persons who might now or
prior to the completion of the merger be interested in acquiring
Equality Bancorp (or a significant interest in Equality Bancorp)
from considering or proposing such an acquisition, even if such
persons were prepared to pay a higher price per share for Equality
Bancorp common stock than the price per share as provided by the
merger agreement, or may result in a potential acquirer's proposing
to pay a lower per share price than it might otherwise have proposed
to pay.
Allegiant Bancorp may exercise the option, in whole or in part, at
any time or from time to time until the occurrence of an "Exercise
Termination Event" (described below), but only if both a "Triggering
Event" and an "Exercise Event" shall have occurred before Allegiant
Bancorp's exercise of the option. Each of the following shall be an
"Exercise Termination Event": (1) the effective time of the merger; (2)
the termination of the merger agreement (a) by mutual agreement of the
parties, (b) as a result of the issuance of a final non-appealable
denial of a required regulatory approval or the issuance of a final non-
appealable order enjoining the transactions contemplated by the merger
agreement, (c) if the merger is not completed on or before March 31,
2001 or (d) if there is a material breach or failure to perform by
Allegiant Bancorp which is not remedied within 30 days of notification
of such breach or failure to perform; (3) the termination of the merger
agreement in accordance with the provisions thereof if such termination
occurs before the occurrence of a Triggering Event; or (4) the passage
of nine months after termination of the merger agreement (other than
a termination of the merger agreement pursuant to (2) above) if the
termination follows the occurrence of a Triggering Event.
The term "Triggering Event" means any of the following events or
transactions: (1) Equality Bancorp or Equality Savings Bank, without
having received Allegiant Bancorp's prior written consent, shall have
entered into an agreement to engage in an acquisition transaction (as
defined below) with any person other than Allegiant Bancorp or any of
its affiliates, the board of directors of Equality shall have
recommended that the Equality Bancorp stockholders approve or accept any
acquisition transaction other than as contemplated by the merger
agreement, Equality Bancorp's board of directors shall have withdrawn
its recommendation or failed to recommend that the Equality Bancorp
stockholders vote for the merger agreement and the merger or Equality
shall have acted inconsistently with the terms of the merger agreement;
(2) any person other than Allegiant Bancorp or an affiliate of Allegiant
Bancorp shall have acquired beneficial ownership or the right to acquire
beneficial ownership of, or commenced a tender offer or exchange offer
for, 25% or more of the outstanding shares of Equality Bancorp common
stock; (3) any person other than Allegiant Bancorp or an affiliate of
Allegiant Bancorp shall have made a bona fide proposal to Equality
Bancorp or Equality Savings Bank by public announcement or written
communication that is or becomes the subject of public disclosure to
engage in an Acquisition Transaction; or (4) any person other than
Allegiant Bancorp or an affiliate of Allegiant Bancorp, other than in
connection with a transaction to which Allegiant Bancorp has given its
prior written consent, shall have filed an application or notice with
the Office of Thrift Supervision or other federal or state bank
regulatory authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction. The
term "acquisition transaction" means (a) a merger, consolidation, share
exchange or similar business combination transaction involving Equality
Bancorp or Equality Savings Bank, (b) a purchase, lease or other
acquisition of 25% or more of
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the assets of Equality Bancorp or Equality Savings Bank or (c) a
purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
25% or more of the voting power of Equality Bancorp or Equality Savings
Bank.
The term "Exercise Event" means either of the following events or
transactions: (1) the acquisition by any person of beneficial ownership
of 25% or more of the then outstanding Equality Bancorp common stock
without giving effect to any shares subject to or issued under the
option; or (2) the execution by Equality Bancorp or Equality Savings
Bank of an agreement for an Acquisition Transaction with any person
other than Allegiant Bancorp or any of its affiliates.
As of September 6, 2000 the maximum number of shares issuable under
the option represented approximately 19.9% of the issued and outstanding
shares of Equality Bancorp common stock. The option agreement also
provides for adjustment provisions in the case of any recapitalization
of Equality Bancorp common stock. If Allegiant Bancorp acquires shares
of Equality Bancorp under the option, Allegiant Bancorp could vote such
shares in the election of Equality Bancorp board of directors and other
matters requiring a stockholder vote, thereby potentially having a material
impact on the outcome of such matters.
VOTING AGREEMENTS. In connection with the execution of the merger
agreement, each of the directors of Equality Bancorp, in his or her
capacity as a stockholder of Equality Bancorp, entered into a separate
voting agreement, dated July 26, 2000. Each voting agreement provides,
among other things, that the director will vote all of the shares of
Equality Bancorp common stock over which the director has voting power in
favor of the merger agreement and the related transactions. The voting
agreements relate to an aggregate of 365,682 shares of Equality Bancorp
common stock. In addition, until the earliest to occur of the effective
time, the termination of the voting agreements or the abandonment of the
merger, each such director further agreed that he or she will not vote any
such shares in favor of the approval of any other competing acquisition
proposal involving Equality Bancorp and a third party. Each such director
also agreed that he or she will not transfer shares of Equality Bancorp
common stock unless, prior to such transfer, the transferee executes an
agreement in substantially the same form as the voting agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some of Equality Bancorp's executive officers and directors may be
deemed to have certain interests in the merger in addition to their
interests as stockholders of Equality Bancorp. The board of directors
of Equality Bancorp was aware of these interests and considered them,
among other matters, in approving the merger agreement.
EMPLOYMENT AGREEMENTS. Under the merger agreement, Allegiant
Bancorp agreed to assume and honor all of Equality Bancorp's (and/or
Equality Savings Bank's) obligations under employment agreements with
certain officers. These officers include Richard C. Fellhauer,
President and Chief Executive Officer of Equality Bancorp and Equality
Savings Bank, Michael A. Deelo, Senior Executive Vice President and
Chief Financial Officer of Equality Bancorp and Equality Savings Bank,
Leonard O. Wolter, Vice President of Equality Bancorp and Equality
Savings Bank and President of Equality Mortgage Corporation, and
John L. Tacke, Senior Vice President of Commercial Lending of Equality
Savings Bank. Each employment agreement provides for an annual base
salary that may be increased (but not reduced) by Equality Bancorp's
board. Each employment agreement also provides for participation in
incentive compensation plans and arrangements and employee benefit plans
(including, but not limited to, retirement, medical, health, life and
other insurance coverage) that may be made available to other executives.
The annual base salary for 2000 for Messrs. Fellhauer, Deelo, Wolter and
Tacke is $157,400, $100,000, $68,520 and $68,520, respectively.
Each employment agreement also provides that if within 12
months following a "change in control" of Equality Bancorp the
executive's employment is terminated for other than "cause" or the
executive terminates his employment for "good reason", then Equality
Bancorp will pay the executive a lump sum equal to 2.99 times his "base
amount" as that term is defined in Section 280(G)(b)(3) of the Internal
Revenue Code. In addition, Equality Bancorp will continue to provide
benefit plan coverage (or payments in lieu thereof if coverage is not
permitted under the terms of any plan) to the executive for the
remainder of the term of the employment agreement, provided
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that if such payments and benefits constitute an "excess parachute
payment" under Section 280G of the Code, then such payments and benefits
will be reduced to one dollar less than the executive's "base amount."
For purposes of each employment agreement; (i) a "change in
control" is defined to include, among other things, the acquisition of
beneficial ownership of 20% of more of the voting power of Equality
Bancorp's capital stock; (ii) "cause" means personal dishonesty,
incompetence, willful misconduct or breach of fiduciary duty involving
personal profit which in each case is not cured within ten days of
notice of such conduct from Equality Bancorp, willful violation of any
law, rule or regulation (other than traffic violations or similar
offenses), final cease-and-desist order or a material breach of any
provision of the employment agreement; and (iii) "good reason" includes,
among other things, a reduction in the executive's job titles, status or
responsibilities without his consent, the relocation of the executive
outside the St. Louis metropolitan area without his consent, the
assignment of duties that are materially inconsistent with those of the
executive's current position, a change in the scope or nature of the
executive's authority, the failure to provide the executive with
substantially equivalent incentive compensation benefits, or the
reduction in the executive's current salary and other benefits.
SEVERANCE PROGRAM. Equality Bancorp's severance plan provides
that regular and part-time Equality Bancorp employees shall be eligible
for severance benefits in the event that (1) Allegiant Bancorp
terminates such employee's employment without cause or (2) Allegiant
Bancorp fails to continue such employee's employment with a similar
compensation package received from Equality Bancorp. Equality Bancorp
employees whose employment terminates for certain reasons will not
receive severance benefits. Those reasons include: (1) involuntary
termination for cause, (2) voluntary termination other than for failure
of Allegiant Bancorp to continue employee's employment with a similar
compensation package to the one such employee received from Equality
Bancorp on or after the effective time of the merger, or (3) death or
disability of the employee.
Equality Bancorp employees who are eligible for severance benefits
will receive one week of salary for each year of service to Equality
Bancorp up to a maximum of 12 weeks. However, each employee eligible
for severance benefits will receive at least two weeks' salary. Upon
Equality Bancorp employee's termination from service, except for COBRA
benefits, all of Equality Bancorp's obligations cease with respect to
such employee.
STAY BONUS PROGRAM. In addition to the severance program, under
Equality Bancorp's stay bonus program Equality Bancorp's President may
choose, in his sole discretion, to give certain employees monetary
awards, not to exceed $75,000 in the aggregate. The amount of such stay
bonus awarded to certain employees is payable in one lump sum after the
earlier of (1) the effective time of the merger or (2) the employee's
termination of employment other than for cause.
EQUALITY BANCORP OPTIONS. Under the merger agreement, as of the
closing date of the merger, certain outstanding and unexercised options
granted under the Equality 1993 Stock Option and Incentive Plan and the
Equality 1997 Stock Option and Incentive Plan will be converted into
options to purchase shares of Allegiant Bancorp common stock. The
number of Allegiant Bancorp shares subject to the converted options will
be equal to the original number of shares of Equality Bancorp common
stock subject to the original Equality Bancorp options multiplied by
1.118. The holders of the Equality Bancorp options converted into
Allegiant Bancorp common stock will be able to exercise their options
following the effective time of the merger whether or not such options
were exercisable prior to the effective time.
Each director of Equality Bancorp has entered into an agreement
with Allegiant Bancorp providing for the cancellation of his or her
outstanding Equality Bancorp options that as of the closing date of the
merger have an exercise price greater than an amount equal to 1.118
times the average closing price of Allegiant Bancorp's common stock on
the Nasdaq National Market for the 20 trading days ending on the fifth
trading day before the closing date. Assuming a closing date of September 6,
2000, directors of Equality Bancorp would hold options for an aggregate of
56,583 shares of Equality Bancorp common stock, excluding those options canceled
under the agreements described above.
The exercise price of the converted options which are not canceled
will be equal to the exercise price per share of Equality Bancorp common
stock under the original option divided by 1.118 (rounded up to the
nearest cent).
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Allegiant Bancorp also will have the option to merge the Equality
Bancorp stock option plans with its own stock option plans or to
continue the Equality Bancorp stock option plans after the effective
time of the merger. If Allegiant Bancorp elects to merge each
companies' options plans, then the holder of the Equality Bancorp merged
options will receive the more favorable rights, benefits and features as
between the two companies' stock option plans.
MANAGEMENT RECOGNITION PLAN. Under Equality Bancorp's management
recognition plan, executive officers and directors have been awarded the
right to earn shares of Equality Bancorp common stock over a five-year
period. As of the record date, 34,310 such shares remained unearned.
Under the merger agreement, at the effective time of the merger, all the
unearned shares will be deemed earned, and the holders will receive 1.118
shares of Allegiant Bancorp common stock for each unearned share.
INDEMNIFICATION RIGHTS. Under the merger agreement, Allegiant
Bancorp has agreed to provide certain continuing indemnification and
insurance benefits for officers, directors and employees of Equality
Bancorp. See "--Indemnification" below.
EQUALITY DIRECTOR. The merger agreement provides that before the
closing date of the merger, the directors of Allegiant Bancorp will
elect Richard C. Fellhauer to the board of directors of Allegiant
Bancorp, to be effective at the effective time of the merger.
BACKGROUND OF THE MERGER; BOARD RECOMMENDATIONS AND REASONS FOR THE
MERGER
BACKGROUND TO THE MERGER. In connection with its normal strategic
planning process, Equality Bancorp continuously reviewed its strategic
business alternatives, devoting particular attention to the continuing
consolidation and increasing competition in the banking and financial
services industries in the Midwest U.S. regional market. The Midwest
U.S. regional market is home to several large, aggressive regional
commercial banking entities, and the banking market in Missouri in
particular has been subject to significant consolidation in recent
years. As a result, competition in the local banking and financial
services industries has intensified, especially for smaller institutions
like Equality Bancorp.
In early calendar 2000, Equality Bancorp engaged in informal
discussions with a local institution (hereinafter, "Institution #1")
seeking to explore the possibility of pursuing a negotiated merger with
Equality Bancorp. In the Spring of 2000, in order to evaluate the merit
of considering such a transaction, Equality Bancorp's board of directors
retained RP Financial to provide strategic planning assistance. On
April 13, 2000, RP Financial presented to Equality Bancorp's board the
results of its analysis, including an overview of the market for bank
and thrift mergers, an assessment of Equality Bancorp's then current
strategic business plan, identification of alternative strategies, an
assessment of the range of potential value were Equality Bancorp to
pursue a strategic merger, and a preliminary analysis of the merits of
pursuing a negotiated merger with Institution #1. At that meeting,
Equality Bancorp's board authorized management to engage in preliminary
discussions with Institution #1. During May 2000, management of
Equality Bancorp and Institution #1 and their representatives engaged in
preliminary discussions regarding the potential terms and conditions of a
negotiated merger. In late May 2000, Equality Bancorp's board
determined that the preliminary terms suggested by Institution #1 were
not sufficiently attractive to warrant proceeding to more formal
discussions without first conducting a survey of other potential merger
partners to ascertain their level of interest.
During late May and early June 2000, with the authorization of
Equality Bancorp's board, RP Financial contacted eight institutions who
were considered to be viable potential strategic merger partners,
including Allegiant Bancorp. After executing confidentiality
agreements, each of the eight potential merger partners received a
binder of financial and other information concerning Equality Bancorp
and was asked to provide a non-binding expression of interest. Five of
the potential merger partners, including Allegiant Bancorp, submitted
expressions of interest. On June 14, 2000, RP Financial met with
Equality Bancorp's board to review the expressions of interest including
the terms originally indicated to senior management of Equality Bancorp
by Institution #1. Based on that meeting, Equality Bancorp's board
elected to suspend discussions with Institution #1, reject two potential
merger partners and instructed RP Financial to go back to the remaining
three potential merger partners to request a best and final expression.
The two rejected bids were cash offers valued at between $8.00 and $8.90
per share, where all or a portion of the purchase price was subject to a
financing contingency.
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The three remaining potential merger partners (hereinafter,
"Institution #2", "Institution #3" and Allegiant Bancorp), submitted
their best and final expressions of interest near the end of June 2000.
Institution #2 indicated an estimated purchase price of approximately
$10 per share in either common stock or cash. Institution #3 indicated
an estimated purchase price valued at approximately $9.50 to $10.00 per
share in common stock. Allegiant Bancorp indicated an estimated
purchase price of approximately $10.00 to $10.25 per share in common
stock. Equality Bancorp's board met in early July, 2000 to review the
best and final expressions of interest. Among the factors considered in
evaluating each offer were the form and amount of consideration, the
potential for price appreciation of the common stocks of the potential
merger partners, the amount of dividends, the pro forma return on equity
and return on assets of the potential merger partners after merging with
Equality Bancorp, and the anticipated aftermarket liquidity of the
shares. After consulting with representatives of RP Financial and
counsel, Equality Bancorp's board elected to suspend discussions with
Institution #2 and Institution #3.
During July 2000, senior management and the financial advisors of
each of Equality Bancorp and Allegiant Bancorp continued to discuss the
financial and other terms of the proposed merger, including the form and
amount of consideration to be offered, the exchange ratio, the treatment
of Equality Bancorp stock options, the termination provisions, and
issues relating to the management and operations of Equality Bancorp
following the merger. During this period, Equality Bancorp, Allegiant
Bancorp and their respective legal counsel and financial advisors
conducted reciprocal due diligence analyses and negotiated the merger
agreement and related agreements. During this period, the form and
amount of consideration and the exchange ratio was determined on the
basis of arms-length-negotiation among Equality Bancorp representatives,
Allegiant Bancorp representatives and the financial advisors.
On July 18, 2000, Equality Bancorp issued a press release that it
was in the process of reviewing strategic alternatives available to
maximize stockholder value, which alternatives included a possible sale
or merger of the company.
On July 20, 2000, at a special meeting of Allegiant Bancorp's
board of directors, management of Allegiant Bancorp, along with the
company's legal counsel, reviewed the results of management's due
diligence and plans for integrating the operations of the two companies,
the terms of the proposed transaction and the principal provisions of the
draft merger agreement, the option agreement and the voting agreement. In
addition, Howe Barnes Investments submitted its proposed opinion and analysis
that the exchange ratio was fair, from a financial point of view, to the
shareholders of Allegiant Bancorp. At such meeting, Allegiant Bancorp's
board approved the merger agreement, the option agreement and the related
transactions, subject to such revisions as management of Allegiant Bancorp
may have negotiated upon consultation with the company's financial advisor
and legal counsel.
On July 26, 2000, at a meeting of Equality Bancorp's board of
directors, Mr. Fellhauer reviewed with Equality Bancorp's board the
reasons for, and the potential benefits of the merger; Equality
Bancorp's legal counsel reviewed the terms of the merger agreement,
related agreements and the related transactions; and RP Financial
made a presentation regarding the financial terms of the merger
agreement and the fairness, from a financial point of view, of the
exchange ratio to holders of Equality Bancorp common stock. After a
thorough discussion and consideration of the factors discussed below
under "--Equality Bancorp Board Recommendation and Reasons for the
Merger," the Equality Bancorp directors present at the meeting
unanimously approved the merger agreement and the related transactions,
and authorized the execution of the merger agreement. The merger
agreement was executed by the parties on July 26, 2000.
ALLEGIANT BANCORP BOARD RECOMMENDATION AND REASONS FOR THE MERGER.
Allegiant Bancorp's board believes that the merger is fair to, and in
the best interests of, Allegiant Bancorp and Allegiant Bancorp
shareholders. Accordingly, Allegiant Bancorp's board of directors
unanimously approved the merger agreement and unanimously recommends
that the Allegiant Bancorp shareholders vote "FOR" the issuance of
shares of Allegiant Bancorp common stock under the merger agreement.
Allegiant Bancorp's board of directors believes that the merger
presents a unique opportunity to combine two financial institutions to
create a banking and financial services company with the capability to
offer a full range of financial products and services through a powerful
distribution network in the greater St. Louis area.
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In reaching its decision to approve the merger agreement and the
option agreement, the board consulted with Allegiant Bancorp management,
as well as with our company's financial and legal advisors, and
considered a variety of factors, including the following:
* Our knowledge of our company's business, operations,
financial condition, earnings and prospects.
* The business, operations, financial condition, earnings and
prospects of Equality Bancorp. In making its determination,
we took into account the results of our company's due
diligence review of Equality Bancorp.
* The consistency of the merger with our business strategy.
* Our expectation that the combined company would benefit from
greater economics of scale than either Allegiant Bancorp or
Equality Bancorp separately in its consumer banking,
commercial banking, asset management and other businesses.
* Our view that the combination of Allegiant Bancorp and
Equality Bancorp presents manageable execution risk in view
of the similar markets and customer demographics served by
Allegiant Bancorp and Equality Bancorp, the geographic area
to be served by the combined company, the similar business
lines and business cultures of the two companies and our
management's prior experience in integrating acquisitions.
* The complementary nature of the business of Allegiant
Bancorp and Equality Bancorp.
* Our belief and that both Allegiant Bancorp's and Equality
Bancorp's senior management share a common vision about the
importance of delivering financial performance and
shareholder value and that the managements and employees of
Allegiant Bancorp and Equality Bancorp possess complementary
skills and expertise.
* The structure of the merger and the terms of the merger
agreement and the option agreement.
* The opinion of Howe Barnes Investments, Inc. that the
exchange ratio set forth in the merger agreement was fair,
from a financial point of view, to Allegiant Bancorp
shareholders. See "--Opinion of Allegiant Bancorp's
Financial Advisor."
* The perceived likelihood that the merger will be approved by
the appropriate regulatory authorities. See "--Regulatory
Approvals."
This discussion of the information and factors considered by
Allegiant Bancorp's board of directors is not intended to be exhaustive
but includes all material factors the board considered. In reaching the
determination to approve and recommend the merger, Allegiant Bancorp's
board of directors did not assign any relative or specific weights to
the foregoing factors, and individual directors may have given differing
weights to different factors. Allegiant Bancorp's board of directors is
unanimous in its recommendation that Allegiant Bancorp shareholders vote
"FOR" the issuance of shares of Allegiant common stock under the merger
agreement.
EQUALITY BANCORP BOARD RECOMMENDATION AND REASONS FOR THE MERGER.
In reaching the decision to approve the merger agreement and the related
agreements, Equality Bancorp's board of directors consulted with
Equality Bancorp management, as well as its financial and legal
advisors, and considered many factors, including the following:
* The formation of a Missouri financial institution with more
than $1.154 billion in total assets;
* The increased economic value for Equality Bancorp
stockholders, because the merger terms provide a premium
over the Equality Bancorp market price existing immediately
before the announcement of the transaction;
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* The opportunity for Equality Bancorp stockholders to
continue their investment in a regional bank holding company
through a tax-free exchange;
* The advice from RP Financial, Equality Bancorp's financial
advisor, that the merger terms are fair from a financial
point of view as discussed under "--Opinion of Equality
Bancorp's Financial Advisor";
* Increasingly competitive conditions in the marketplace for
financial institutions;
* The regulatory environment in which Equality Bancorp
operates and the effects of operating under the limitations
imposed by the Memorandum of Understanding entered into with
the FDIC and the Missouri Division of Finance on June 26,
2000 (see "Information About Equality Bancorp--Regulatory
Agreement");
* The ability to combine Equality Bancorp's operations with an
attractive bank holding company which shares many of
Equality Bancorp's goals of providing exemplary regional
banking services, but which also offers a larger market area
and larger asset base to allow for enhanced service in the
future;
* The enhanced financial and management resources of the
merged institution could be utilized to address the interest
rate risk inherent in Equality Bancorp's current residential
lending strategy;
* Availability for employees and customers of opportunities
for employment with and service from a larger bank holding
company; and
* The terms of the merger agreement and related agreements.
The board of directors of Equality Bancorp also reviewed various
issues in connection with its approval of the merger agreement. In
particular, Equality Bancorp's board discussed the potential effects of
the stock option agreement, including a possible deterrent effect that
it might have on subsequent, better offers. Equality Bancorp's board of
directors took into account this potential disadvantage when considering
the merger. Equality Bancorp's board concluded that any such
disadvantages were outweighed by the factors described above, and the
opinion that the merger agreement with Allegiant Bancorp was fair from a
financial point of view for the stockholders of Equality Bancorp.
This discussion of the various factors considered by the board of
directors of Equality Bancorp is not, and is not intended to be,
exhaustive. It is not necessarily in the order of importance to the
board of directors or any particular director. Equality Bancorp's board
of directors did not find it practicable to, and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination due to the variety of factors considered. In
addition, each director may have given different weights to different
factors.
Equality Bancorp's board of directors believes that the merger is
fair to, and in the best interests of, Equality Bancorp and its
stockholders. Accordingly, Equality Bancorp's board of directors has
approved the merger agreement and the related transactions and unanimously
recommends that Equality Bancorp stockholders vote "FOR" the proposal to
approve and adopt the merger agreement.
OPINION OF ALLEGIANT BANCORP'S FINANCIAL ADVISOR
In connection with the meeting of the board of directors of Allegiant
Bancorp on July 20, 2000, at which the terms of the proposed merger were
discussed and considered, Howe Barnes Investments, Inc., Allegiant Bancorp's
financial advisor, submitted a proposed opinion to Allegiant Bancorp's
board of directors that, based upon the matters set forth in such opinion,
that the consideration to be paid by Allegiant Bancorp in the merger was
fair, from a financial point of view, to the holders of Allegiant Bancorp
common stock. Howe Barnes Investments has confirmed its opinion by delivery
of an updated written opinion to Allegiant Bancorp's board of directors dated
the date of this Joint Proxy Statement/Prospectus.
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<PAGE>
<PAGE>
THE FULL TEXT OF HOWE BARNES INVESTMENTS' OPINION DATED THE DATE
OF THIS DOCUMENT, WHICH SETS FORTH ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED, AND LIMITS ON THE REVIEW UNDERTAKEN BY HOWE BARNES
INVESTMENTS, IS ATTACHED AS ANNEX B AND IS INCORPORATED HEREIN BY
-------
REFERENCE. THE DESCRIPTION OF THE HOWE BARNES INVESTMENTS OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. ALLEGIANT
BANCORP SHAREHOLDERS ARE URGED TO READ THE HOWE BARNES INVESTMENTS
OPINION IN ITS ENTIRETY.
Howe Barnes Investments' opinion is limited to the fairness, from
a financial point of view, of the merger agreement's exchange ratio to
the holders of Allegiant Bancorp common stock and does not address
Allegiant Bancorp's underlying business decision to proceed with the
merger, nor does it express an opinion as to the prices at which shares
of Allegiant Bancorp common stock issued in the merger may trade if and
when they are issued or at any future time. The opinion is directed
only to the exchange ratio in the merger and does not constitute a
recommendation to any holder of Allegiant Bancorp common stock as to how
such holder should vote with respect to the proposal to approve the
issuance of shares of Allegiant Bancorp common stock in the merger.
Howe Barnes Investments, as part of its investment banking
business, regularly engages in the valuation of banks and bank
holding companies, thrifts and thrift holding companies, and various
other financial services companies, in connection with mergers and
acquisitions, initial and secondary offerings of securities, and
valuations for other purposes. The Allegiant Bancorp board of directors
selected Howe Barnes Investments on the basis of its familiarity with
the financial services industry, its qualifications, ability, previous
experience, and its reputation with respect to such matters.
For purposes of its opinion dated September 15, 2000 in connection
with its review of the proposed transaction with Equality Bancorp, Howe
Barnes Investments, among other things:
(1) participated in discussions with representatives of
Allegiant Bancorp concerning Allegiant Bancorp's and
Equality Bancorp's financial condition, businesses, assets,
earnings, prospects, and such senior management's views as
to its future financial performance;
(2) reviewed the merger agreement and the specific terms of the
merger;
(3) reviewed certain publicly available financial statements,
both audited (where available) and unaudited, and related
financial information of Allegiant Bancorp and Equality
Bancorp, including those included in their respective Annual
Reports on Form 10-K and Form 10-KSB for the past two years
and the respective Quarterly Reports on Form 10-Q and
Form 10-QSB for the periods ended March 31, 2000 and
June 30, 2000, as the case may be, as well as other
internally generated reports relating to asset/liability
management, asset quality, and so forth;
(4) reviewed certain financial forecasts and projections of
Allegiant Bancorp and Equality Bancorp prepared by its
management and reviewed publicly available information for
Allegiant Bancorp and Equality Bancorp;
(5) discussed and reviewed certain aspects of the past and
current business operations, financial condition, and future
prospects of Allegiant Bancorp and Equality Bancorp with
certain members of management;
(6) reviewed reported market prices and historical trading
activity of Allegiant Bancorp and Equality Bancorp common
stock;
(7) reviewed certain aspects of the financial performance of
Allegiant Bancorp and Equality Bancorp and compared such
financial performance of Allegiant Bancorp and Equality
Bancorp, together with stock market data relating to
Allegiant Bancorp and Equality Bancorp common stock, with
similar data available for certain other financial
institutions and certain of their publicly traded
securities; and
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<PAGE>
(8) reviewed certain of the financial terms, to the extent
publicly available, of certain recent business combinations
involving other financial institutions.
In conducting its review and rendering its opinion, Howe Barnes
Investments assumed and relied, without independent verification, upon
the accuracy and completeness of all of the financial and other
information provided by Allegiant Bancorp, Equality Bancorp and their
respective representatives, and of the publicly available information
that was reviewed by Howe Barnes Investments. Howe Barnes Investments
is not an expert in the evaluation of allowances for loan losses and
has not independently verified such allowances. Howe Barnes Investments
relied on and assumed that the aggregate allowances for loan losses set
forth in the balance sheets of each of Allegiant Bancorp and Equality
Bancorp at June 30, 2000 were adequate to cover such losses and complied
fully with applicable law, regulatory policy, and sound banking practice
as of the date of such financial statements. Howe Barnes Investments was
not retained for and did not (1) conduct a physical inspection of any of
the properties or facilities of Allegiant Bancorp or Equality Bancorp, (2)
make any independent evaluation or appraisal of the assets, liabilities
or prospects of Allegiant Bancorp or Equality Bancorp or review any such
evaluation or appraisal, and (3) review any individual credit files. Howe
Barnes Investments' opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to
them as of, the date hereof.
The following is a brief summary of the analyses presented by Howe
Barnes Investments to Allegiant Bancorp's board of directors in
connection with Howe Barnes Investments' written opinion.
COMPARABLE TRANSACTION ANALYSIS. As part of its analyses, Howe
Barnes Investments reviewed 12 completed or pending comparable mergers
and acquisitions of savings institutions headquartered throughout the
United States announced from July 8, 1999 to July 21, 2000 in which
total assets of the acquired company were in the approximate range of
$250 million to $500 million. These comparable mergers and acquisitions
included the following transactions:
(1) the acquisition of Home Port Bancorp Inc. by Seacoast
Financial Services Corp.;
(2) the acquisition of Home Bancorp by Old Kent Financial
Corporation;
(3) the acquisition of Catskill Financial Corporation by Troy
Financial Corporation;
(4) the acquisition of Harbor Federal Bancorp Inc. by Provident
Bankshares Corporation;
(5) the acquisition of South Jersey Financial Corp. by Richmond
County Financial Corp.;
(6) the acquisition of Heritage Bancorp Inc. by SouthBanc Shares
Inc.;
(7) the acquisition of Milton Federal Financial Corporation by
BancFirst Ohio Corp.;
(8) the acquisition of CNY Financial Corp. by Niagara Bancorp
Inc.;
(9) the acquisition of First Savings Bancorp Inc. by First
Bancorp;
(10) the acquisition of OHSL Financial Corp. by Provident
Financial Group Inc.;
(11) the acquisition of SGV Bancorp Inc. by IndyMac Mortgage
Holdings Inc.; and
(12) the acquisition of Community Federal Bancorp Inc. by First
M & F Corp.
For each transaction for which data was available, Howe Barnes
Investments calculated the multiple of the offer value to the acquired
company's: (a) earnings per share for the twelve months preceding
("LTM"); (b) premium to core deposits; (c) book value per share;
(d) tangible book value per share; and (e) assets. Howe Barnes
Investments compared these multiples with the corresponding multiples
for the merger, valuing the merger consideration at $24.0 million, or
$10.05 per share using a $9.00 per share price for Allegiant Bancorp.
In
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<PAGE>
calculating the multiples for the merger, Howe Barnes Investments used
Equality Bancorp's earnings per share for the year ended March 31, 2000,
and book value per share, tangible book value per share, core deposits
and assets as of March 31, 2000.
<TABLE>
<CAPTION>
PRICE/ CORE PRICE/ PRICE/
LTM EPS DEPOSIT BOOK TANGIBLE BOOK PRICE/
RATIO PREMIUM VALUE VALUE ASSETS
(%) (%) (%) (%) (%)
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
High: 76.81 22.69 241.99 241.99 29.67
Low: 12.96 0.50 104.11 104.11 9.67
Mean: 26.65 9.69 144.27 144.41 20.11
Median: 23.07 6.97 131.64 131.64 20.92
MERGER CONSIDERATION
FOR EQUALITY BANCORP: 20.82 2.91 120.38 120.38 7.42
</TABLE>
No company or transaction used in the above analyses as a
comparison is identical to Allegiant Bancorp, Equality Bancorp or the
merger. Accordingly, an analysis of the results of the foregoing is
not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial operating
characteristics, including, among other things, differences in revenue
composition and earnings performance among the companies, and other
facts that could affect the public trading value of the comparison
companies.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow
analysis, Howe Barnes Investments estimated the future dividend streams
that Equality Bancorp could produce over the period from April 1, 2001
through March 31, 2005, assuming annual asset growth rates and further
assumed Equality Bancorp performed in accordance with recent historical
trends and the future outlook of Equality Bancorp management. Howe
Barnes Investments calculated terminal values as a perpetuity with an
asset growth rate of 3.0%. Howe Barnes Investments discounted the
dividend streams and terminal value to present values as of March 31,
2000, using discount rates which reflect different assumptions
regarding the required rates of return to holders and prospective
buyers of Equality Bancorp common stock. Howe Barnes Investments
estimated a range of terminal values by applying multiples to estimated
fiscal year-end 2005 net income. The range of terminal multiples was
chosen based on past and current trading multiples of institutions
similar to Equality Bancorp and past and current multiples of
comparable merger and acquisition transactions. The range of present
values of Equality Bancorp resulting from this analysis was then
compared with the $24.0 million estimated merger consideration.
<TABLE>
<CAPTION>
LONG-TERM TERMINAL CALCULATED
GROWTH RATE DISCOUNT RATE GROWTH RATE MULTIPLES VALUES
----------- ------------- ----------- --------- ------
<S> <C> <C> <C> <C> <C>
High: 5.00% 12.00% 3.00% 15x $30.3 million
Low: 3.00 10.00 3.00 12x 23.0 million
</TABLE>
CONTRIBUTION ANALYSIS. Howe Barnes Investments utilized publicly
available historical financial data regarding Allegiant Bancorp and
Equality Bancorp and estimates for future financial performance of
Allegiant Bancorp and Equality Bancorp to calculate the relative
contributions of Allegiant Bancorp and Equality Bancorp to the pro
forma combined company with respect to total assets, deposits, equity
and earnings for the twelve months ended March 31, 2000 and estimated
earnings adjusted for projected cost savings. Howe Barnes Investments
compared such contributions to the pro forma ownership of the combined
company by Allegiant Bancorp and Equality Bancorp shareholders.
<TABLE>
<CAPTION>
LTM COST ADJUSTED
3/31/00 ESTIMATED
TOTAL ASSETS DEPOSITS EQUITY EARNINGS EARNINGS
------------ -------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Allegiant Bancorp 70.80% 81.10% 70.57% 83.97% 68.69%
Equality Bancorp 29.20 18.90 29.43 16.03 31.31
</TABLE>
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<PAGE>
The pro forma ownership based on the exchange ratio, shares
outstanding for Allegiant Bancorp at March 31, 2000 and fully diluted
shares outstanding for Equality Bancorp is 69.5% for Allegiant Bancorp
and 30.5% for Equality Bancorp.
PRO FORMA MERGER ANALYSIS. Howe Barnes Investments noted that,
based upon estimates of Allegiant Bancorp's and Equality Bancorp's
management and after giving effect to Allegiant Bancorp management's net
pretax cost savings estimates resulting from synergies created from the
merger, internal asset and deposit growth estimates and certain
assumptions, as to, among other things, the number of pro forma shares
outstanding, the proposed merger could be accretive to Allegiant
Bancorp's estimated 2000 earnings per share on a fully diluted basis by
approximately 2.0% and accretive to tangible book value by approximately
2.7%. In this analysis, Howe Barnes Investments assumed that both
Allegiant Bancorp and Equality Bancorp would perform substantially in
accordance with earnings forecasts provided to Howe Barnes Investments
by Allegiant Bancorp's and Equality Bancorp's management. The actual
results achieved by the combined company may vary from projected results
and the variations may be material. This analysis is based on the
assumption that the merger would be accounted for as a purchase
transaction and excludes merger-related expenses.
The foregoing is a summary of the material financial analyses
performed by Howe Barnes Investments and presented to the Allegiant
Bancorp board of directors, but does not purport to be a complete
description of the analyses performed by Howe Barnes Investments. The
preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Furthermore, in arriving at its opinion, Howe Barnes Investments did not
attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and
relevance of each analysis and factor. Selecting portions of the
analyses or of the summary set forth above, without considering the
analyses as a whole, could create an incomplete view of the processes
underlying Howe Barnes Investments' opinion. The ranges of valuations
resulting from any particular analysis described above should not be
taken to be Howe Barnes Investments' view of the actual value of
Equality Bancorp, or the current or future trading price for Allegiant
Bancorp common stock.
In performing its analyses, Howe Barnes Investments made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond the control of
Allegiant Bancorp and Equality Bancorp. The analyses performed by Howe
Barnes Investments do not necessarily indicate actual values of future
results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part
of Howe Barnes Investments' analysis of the fairness of the merger
consideration, from a financial point of view, to the holders of
Allegiant Bancorp common stock. The analyses do not purport to be
appraisals or to reflect the prices at which a company or its securities
may actually be bought or sold.
Under a letter agreement dated July 13, 2000, Allegiant Bancorp agreed
to pay Howe Barnes Investments for its services in connection with the
merger, including the rendering of its opinion. The agreement provides
for Allegiant Bancorp to pay Howe Barnes Investments a cash fee of $62,500
upon execution of the merger agreement and rendering of the fairness opinion
and a cash fee of $62,500 on the closing date of the merger, for advisory
services rendered in connection with reaching the merger agreement. In
addition, Allegiant Bancorp agreed to indemnify Howe Barnes Investments
against certain liabilities arising out of its engagement, including
liabilities under the federal securities laws.
OPINION OF EQUALITY BANCORP'S FINANCIAL ADVISOR
Equality Bancorp's board of directors retained RP Financial, LC.
in June 2000 to provide certain financial advisory and investment
banking services to Equality Bancorp in conjunction with the merger,
including the rendering of an opinion with respect to the fairness of
the exchange ratio, from a financial point of view, to holders of
Equality Bancorp common stock. In requesting RP Financial's advice and
opinion, Equality Bancorp's board of directors did not give any special
instructions to, or impose any limitations upon the scope of the
investigation which RP Financial might wish to conduct to enable it to
give its opinion. Equality Bancorp selected RP Financial to act as its
financial advisor because of RP Financial's expertise in the valuation
of businesses and their securities for a variety of purposes including
its expertise in connection with mergers and acquisitions of savings and
loans, savings banks, and savings and loan holding companies.
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<PAGE>
<PAGE>
On July 26, 2000, at the meeting in which Equality Bancorp's board
approved and adopted the merger agreement and the related transactions,
RP Financial rendered its opinion to Equality Bancorp's board that, as
of such date, the exchange ratio was fair to holders of Equality Bancorp
common stock from a financial point of view. That opinion was updated as
of the date of this Joint Proxy Statement/Prospectus. In connection with
its opinion dated the date of this Joint Proxy Statement/Prospectus, RP
Financial also confirmed the appropriateness of its reliance on the
analysis used to render its July 26, 2000 opinion by performing procedures
to confirm the appropriateness of such analyses and by reviewing the
assumptions on which such analyses were based and the factors considered
in connection therewith.
THE FULL TEXT OF THE OPINION OF RP FINANCIAL, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS JOINT PROXY STATEMENT/
-------
PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. EQUALITY
BANCORP'S BOARD OF DIRECTORS URGES THE HOLDERS OF EQUALITY BANCORP
COMMON STOCK TO READ THE ENTIRE OPINION.
The opinion of RP Financial is directed to Equality Bancorp's
board in its consideration of the exchange ratio as described in the
merger agreement, and does not constitute a recommendation to any
stockholder of Equality Bancorp as to any action that such stockholder
should take in connection with the merger agreement, or otherwise. It
is further understood that the opinion of RP Financial is based on
market conditions and other circumstances existing on the date hereof.
The opinion states that RP Financial reviewed the following
material: (1) the merger agreement; (2) the Joint Proxy Statement/
Prospectus and related Annexes contained in Allegiant Bancorp's
Registration Statement on Form S-4 with respect to the merger;
(3) financial and other information for Equality Bancorp, all with
regard to balance sheet and off-balance sheet composition, profitability,
interest rates, volumes, maturities, trends, credit risk, interest rate
risk, liquidity risk and operations including: (a) audited financial
statements for the fiscal years ended March 31, 1998 through 2000,
(b) stockholder, regulatory and internal financial and other reports
through June 30, 2000, (c) the two most recent proxy statements for
Equality Bancorp, (d) internal budgets, financial projections and earnings
per share forecasts prepared by management, and (e) Equality Bancorp's
management comments regarding past and current business, operations,
financial condition and future prospects; and (4) financial and other
information for Allegiant Bancorp including: (a) audited financial
statements for the fiscal years ended December 31, 1997 through 1999,
incorporated in Annual Reports to Shareholders, (b) Form 10-K as of
December 31, 1999, Form 10-Q as of March 31, 2000 and June 30, 2000, and
interim results and developments through June 30, 2000 released in press
release form, (c) regulatory and internal financial and other reports
through June 30, 2000, (d) internal budgets and financial projections
prepared by management of Allegiant Bancorp and third parties, and
(e) Allegiant Bancorp's management comments regarding past and
current business, operations, financial condition and future prospects.
In addition, RP Financial stated that it reviewed financial,
operational, market area and stock price and trading characteristics for
Equality Bancorp and Allegiant Bancorp relative to publicly-traded
savings institutions and commercial banking with comparable resources,
financial condition, earnings, operations and markets. RP Financial
also considered the economic and demographic characteristics in the
local market area, and the potential impact of the regulatory,
legislative and economic environments on operations for Equality Bancorp
and Allegiant Bancorp and the public perception of the thrift industry.
In rendering its opinion, RP Financial stated that it relied, without
independent verification, on the accuracy and completeness of the
information concerning Equality Bancorp and Allegiant Bancorp furnished
by the respective institutions to RP Financial for review, as well as
publicly-available information regarding other financial institutions
and economic and demographic data. RP Financial stated that Equality
Bancorp and Allegiant Bancorp did not restrict RP Financial as to the
material it was permitted to review. The opinion further states that RP
Financial did not perform or obtain any independent appraisals or
evaluations of the assets and liabilities and potential and/or
contingent liabilities of Equality Bancorp or Allegiant Bancorp. RP
Financial further indicated that the managements of Equality Bancorp and
Allegiant Bancorp prepared the financial forecasts and budgets reviewed
by RP Financial. Neither Equality Bancorp nor Allegiant Bancorp
publicly discloses internal management forecasts or budgets of the type
provided to RP Financial in connection with the review of the merger and
neither company prepared such financial forecasts with a view towards
public disclosure. Allegiant Bancorp and Equality Bancorp based the
financial forecasts and budgets upon numerous variables and assumptions
which are inherently uncertain, including, without limitation, factors
related to general
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<PAGE>
economic and competitive conditions, as well as trends in asset quality.
Accordingly, RP Financial cautioned that actual results could vary
significantly from those set forth in such financial forecasts.
In connection with rendering its opinion dated July 26, 2000 and
updated as of the date of this Joint Proxy Statement/Prospectus, RP
Financial performed a variety of analyses, which are summarized below.
The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial
analyses or summary description. RP Financial stated that its analyses
must be considered as a whole and that selecting portions of such
analyses and of the factors considered by RP Financial without
considering all such analyses and factors could create an incomplete
view of the process underlying RP Financial's opinion. In its analyses,
RP Financial made numerous assumptions with respect to industry
performance, business and economic conditions, applicable laws and
regulations, and other matters, many of which are beyond the control of
Equality Bancorp. Any estimates contained in RP Financial's analyses do
not necessarily indicate future results or values, which may be
significantly more or less favorable than such estimates. No company or
transaction utilized in RP Financial's analyses was identical to
Equality Bancorp, Allegiant Bancorp or the merger. None of the analyses
performed by RP Financial was assigned a greater significance by RP
Financial than any other.
The following is a summary of the material financial analyses
performed by RP Financial in connection with providing its opinion of
July 26, 2000.
TRANSACTION SUMMARY. RP Financial summarized the terms of the
merger, including the conversion of each share of Equality Bancorp
common stock into the right to receive Allegiant Bancorp common stock
according to the exchange ratio. RP Financial also summarized the
methodology for calculating the exchange ratio, the treatment of the
outstanding options to acquire Equality common stock, the termination
provisions incorporated in the merger agreement, and the pricing ratios
indicated by the exchange ratio relative to the book value, earnings,
assets, deposits and market value of Equality Bancorp.
COMPARABLE TRANSACTIONS ANALYSIS. In this analysis, RP Financial
conducted an evaluation of the financial terms, financial and operating
condition and market area of recent business combinations among
comparable thrift institutions both pending and completed. In
conjunction with its analysis, RP Financial considered the multiples of
book value, earnings and assets implied by the terms in such completed
and pending transactions involving selling companies whose financial
characteristics were comparable to those of Equality Bancorp. These
comparable transactions included companies in the Midwest, Mid-Atlantic
and Southeast regions of the U.S. with total assets between $200 million
and $500 million, operating profitably, and where the transactions were
announced during calendar year 2000, representing a total of nine
transactions. The average and median price-to-earnings multiples
indicated by these comparable transactions were 19.6 times and 18.8
times, respectively, based on trailing twelve month earnings, versus a
price-to-earnings multiple of approximately 20.3 times indicated by the
exchange ratio relative to Equality Bancorp's March 31, 2000 trailing
twelve-month fully diluted earnings. The average and median price-to-
book value ratios indicated by the comparable transactions were 127% and
131%, respectively, versus a price-to-book value ratio of approximately
121% indicated by the exchange ratio based on March 31, 2000 financial
data. The comparable transactions indicated an average and median
price-to-assets ratios of 17.6% and 18.2%, respectively, versus a price-
to-assets ratio of approximately 7.5% indicated by the exchange ratio.
RP Financial also considered qualitative factors including differences
between Equality Bancorp and the comparable transactions in financial
condition, operating results and the existence of the regulatory
agreement between Equality Bancorp and the FDIC. The pricing ratios
based on earnings and book value indicated by the exchange ratio were
generally comparable to or exceeded the average and median pricing
ratios indicated by the comparable group which, in conjunction with the
qualitative factors, RP Financial cited in support of its fairness
conclusions. The pricing ratio based on assets indicated by the
exchange ratio was lower than the average and median ratios indicated by
the comparable group, which RP Financial discounted in its fairness
conclusions based on the general lack of emphasis by public investors in
price-to-assets based valuation approaches.
DISCOUNTED CASH FLOW ANALYSIS. RP Financial prepared several
discounted cash flow analyses, all of which incorporated a five-year
financial projection and cash flow analysis to stockholders. The
discounted cash flow analyses incorporated several specific factors
reflecting the operating environment of Equality Bancorp on a stand-
alone basis, including growth prospects in the local market, the level
of competition from other financial institutions, and future earnings
estimates for Equality Bancorp under a stand-alone business plan without
the benefits of the merger. The projections of future cash flows to
stockholders included the continued payment of cash
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<PAGE>
dividends during interim years and the receipt of consideration at the end
of five years, assuming a terminal value for Equality Bancorp common stock
equal to an assumed merger value. The merger value reflected an estimate
of the price that could be received for Equality Bancorp common stock assuming
Equality Bancorp's board sought to pursue a merger transaction at the end of
five years, including an orderly marketing of Equality Bancorp to potential
merger partners and receipt of a control premium by the holders of Equality
Bancorp common stock. In the "base case" operating scenario, the projections
of future cash flows assumed continued payment of cash dividends, the sale of
loan servicing rights in fiscal year 2001, asset growth of 10.0% annually, a
return on average assets of approximately 0.40% of average assets, the
repurchase of 5% of outstanding shares annually, and realization of a
terminal value at the end of five years of operations equal to 120% of
book value per share (assumed to be the "current market merger value"
based on comparable group transaction data). The cash flow represented
by the dividends and terminal value was discounted to present value
using a range of discount rates between 12% and 16%. The "base case"
discounted cash flow analysis indicated a present value to stockholders
ranging between $8.32 and $9.67 per share (assuming a year 5 merger
value of 120% of book value). In addition to the "base case" operating
scenario, RP Financial prepared discounted cash flow analyses assuming
different year 5 merger values. Under the conservative year 5 merger
value scenario, in which the terminal value was projected at 100% of
book value, the discounted cash flow analysis indicated a present value
to stockholders ranging between $7.09 and $8.22 per share. Under the
optimistic year 5 merger value scenario, in which the terminal value was
projected at 140% of book value, the discounted cash flow analysis
indicated a present value to stockholders ranging between $9.56 and
$11.11 per share. RP Financial concluded that since the per share value
implied by the exchange ratio exceeded the present value of future cash
flows accruing to holders of Equality Bancorp common stock under the
base case and conservative scenarios, and was within the per share value
range under the optimistic scenario, the discounted cash flow analyses
supported its fairness conclusions.
IMPACT ANALYSIS. RP Financial evaluated the projected financial
impact of the merger on the balance sheet, income statement and per
share financial measures of Equality Bancorp. RP Financial's analysis
considered the financial condition and operations of Equality Bancorp
and Allegiant Bancorp at March 31, 2000 (with stockholders' equity and
goodwill projected through September 30, 2000) and the pro forma impact
of the merger. Based on the exchange ratio, RP Financial estimated that
holders of Equality Bancorp common stock would realize accretion in
market value of approximately 21%, which represents the difference
between the per share price indicated by the exchange ratio and the most
recent trading price for Equality Bancorp common stock prior to
execution of the merger agreement. RP Financial estimated that holders
of Equality Bancorp common stock would incur dilution of approximately
3% in tangible book value per share, would realize accretion of 137% in
projected current year earnings per share, and would realize accretion
of 2% in dividends per share. Moreover, the holders of Equality Bancorp
common stock would enjoy a stronger return on assets (ROA) and return on
equity (ROE) on a pro forma basis relative to stand-alone operations.
RP Financial considered both the impact of the merger on the overall
financial measures of Equality Bancorp as well as the impact of the
merger on the per share financial measures of Equality Bancorp in
support of the fairness conclusion.
In addition to these financial analyses, RP Financial considered
several other considerations in its fairness conclusions. Such other
financial considerations included the greater market capitalization of
the merged company relative to Equality Bancorp on a stand-alone basis;
the greater liquidity in the shares relative to the shares of Equality
Bancorp common stock without the merger; the likelihood of greater
potential stock price appreciation in the Allegiant Bancorp shares
relative to the shares of Equality Bancorp common stock without the
merger; and that the potential negative effects on Equality Bancorp
without the merger of the regulatory agreement between Equality Bancorp
and the FDIC are anticipated to be mitigated as a result of the merger.
RP Financial also considered the potential purchase prices and other
financial terms indicated by other parties that expressed an interest in
pursuing a merger with Equality Bancorp.
On the basis of these analyses and other considerations, RP
Financial concluded that the exchange ratio, as described in the merger
agreement, is fair to the stockholders of Equality Bancorp from a
financial point of view. As described above, RP Financial's opinion and
presentation to Equality Bancorp's Board was one of many factors taken
into consideration by Equality Bancorp's Board in making its
determination to approve the merger agreement. Although the foregoing
summary describes the material components of the analyses presented by
RP Financial to Equality Bancorp's board, it does not purport to be a
complete description of all the analyses performed by RP Financial and
is qualified by reference to the written opinion of RP Financial set
forth as Annex C hereto, which the Equality Bancorp stockholders are
-------
urged to read in its entirety.
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Under a letter dated June 16, 2000, RP Financial estimates
that it will receive from Equality Bancorp total fees of $125,000, of
which $25,000 has been paid to date, plus reimbursement of certain out-
of-pocket expenses, for its services in connection with the merger. In
addition, Equality Bancorp has agreed to indemnify RP Financial against
certain liabilities, including liabilities under the federal securities laws.
CONDITIONS OF THE MERGER
The respective obligations of Allegiant Bancorp and Equality
Bancorp to consummate the merger are subject to the satisfaction of
certain mutual conditions, including the following:
(1) The Federal Reserve Board's, any other required
federal and/or state regulatory agency's, approval of the merger
agreement and the transactions contemplated therein, and all
waiting periods after such approvals required by law or regulation
shall have expired.
(2) The Registration Statement (of which this Joint Proxy
Statement/Prospectus is a part) registering shares of Allegiant
Bancorp common stock to be issued in the merger, shall have been
declared effective and not be subject to a stop order or any
threatened stop order.
(3) Neither Allegiant Bancorp nor Equality Bancorp shall
be subject to any order, decree, litigation or injunction of a
court or agency of competent jurisdiction that enjoins or
prohibits the consummation of the merger.
In addition to the mutual covenants described above, the
obligation of Allegiant Bancorp to consummate the merger is subject to
the satisfaction, unless waived, of certain other conditions, including
the following:
(1) Equality Bancorp stockholders' approval of the merger
agreement at the Equality Bancorp special meeting and Allegiant
Bancorp shareholders' approval of the issuance of the shares of
Allegiant Bancorp common stock in the merger.
(2) The representations and warranties of Equality Bancorp
made in the merger agreement and all related documents,
certificates, schedules or exhibits delivered by Equality Bancorp
shall be true and correct in all material respects as of the
closing date of the merger except where the facts that caused the
failure of any representation or warranty to be so true and
correct would not have, individually or in the aggregate, a
material adverse effect on Equality Bancorp, and all obligations
required to be performed by Equality Bancorp prior to the closing
date of the merger shall have been performed, and Allegiant
Bancorp shall have received a certificate of the chief executive
officer of Equality Bancorp to that effect.
(3) Equality Bancorp shall have obtained any and all
material permits, authorizations, consents, waivers and approvals
required of Equality Bancorp for the lawful consummation of the
merger.
(4) Howe Barnes Investments, Inc.'s delivery of fairness
opinion to Allegiant Bancorp dated the date of mailing of the
Joint Proxy Statement/Prospectus stating that the consideration
paid by Allegiant Bancorp in the merger is fair, from a financial
point of view, to Allegiant Bancorp's shareholders.
(5) Schiff Hardin & Waite, counsel to Equality Bancorp,
shall have delivered to Allegiant Bancorp of an opinion regarding
certain legal matters dated as of the closing date or a mutually
agreeable earlier date.
(6) Since July 26, 2000, the business, properties,
financial condition, loan portfolio, operations or prospects of
Equality Bancorp and its subsidiaries, taken as a whole, shall
have experienced no material adverse changes.
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Equality Bancorp's obligation to complete the merger is subject
to the satisfaction, unless waived, of certain other conditions,
including the following:
(1) Allegiant Bancorp shareholders' approval of the
issuance of the shares of Allegiant Bancorp common stock in
the merger and the approval of its own stockholders of the
merger agreement and the related transactions.
(2) The representations and warranties of Allegiant
Bancorp made in the merger agreement and all related documents,
certificates, schedules or exhibits delivered by Allegiant Bancorp
shall be true and correct, in all material respects, as of the
closing date of the merger except where the facts that caused the
failure of any representation or warranty to be so true and
correct would not have, individually or in the aggregate, a
material adverse effect on Allegiant Bancorp, and all obligations
required to be performed by Allegiant Bancorp prior to the closing
date of the merger shall have been performed, and Equality Bancorp
shall have received a certificate from the chief executive officer
of Allegiant Bancorp to that effect.
(3) RP Financial, LC. shall deliver to Equality Bancorp a
fairness opinion dated the date of mailing of the Joint Proxy
Statement/Prospectus that the consideration to be received by
stockholders of Equality Bancorp in the merger is fair, from a
financial point of view, to the stockholders of Equality Bancorp.
(4) Allegiant Bancorp shall have obtained any and all
material permits, authorizations, consents, waivers and approvals
required of Allegiant Bancorp for the lawful consummation of the
merger.
(5) Since July 26, 2000, the business, properties, financial
condition, loan portfolio, operations and prospects of Allegiant
Bancorp and its subsidiaries, taken as a whole, shall have
experienced no material adverse changes.
(6) Thompson Coburn LLP, counsel to Allegiant Bancorp,
shall have delivered to Equality Bancorp an opinion dated as of
the closing date of the merger or a mutually agreeable earlier
date regarding certain legal matters.
(7) Thompson Coburn LLP shall have delivered to Equality
Bancorp an opinion, dated as of the closing date of the merger,
that the merger will constitute a tax-free reorganization within
the meaning of the Internal Revenue Code.
(8) The shares of Allegiant Bancorp common stock to be
issued in connection with the merger shall have been approved for
listing on the Nasdaq National Market, subject to official notice
of issuance.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains extensive representations and
warranties by Allegiant Bancorp and Equality Bancorp. These include,
among other things, representations and warranties by Allegiant Bancorp
and Equality Bancorp to each other as to:
* the organization and good standing of each company and its
subsidiaries;
* each company's capital structure;
* each company's authority relative to the execution and delivery of,
and performance of its obligations under, the merger agreement;
* the absence of material adverse changes since March 31, 2000;
* agreements with regulatory agencies;
* the absence of undisclosed liabilities;
* the accuracy of the information supplied by each company for
inclusion in this Joint Proxy Statement/Prospectus and related
documents;
* the absence of registration obligations with respect to each
company's common stock;
* the absence of actions that would jeopardize the qualification of the
transactions contemplated by the merger agreement as a tax-deferred
transaction or jeopardize the receipt of certain regulatory
approvals;
* consents and approvals required;
* the documents, including financial statements and other reports,
filed by each company with the applicable regulatory authorities
including the OTS, FDIC, state regulatory agencies, self-regulatory
organizations and the SEC;
* SEC documents filed;
* all interests held by each company;
* loans, commitments and contracts;
* the absence of material conflicts between each company's obligations
under the merger agreement and its charter documents and material
contracts to which it is a party or by which it is bound;
* litigation;
* title to and condition of assets, including investment securities;
* real property;
* taxes;
* directors' and officers' insurance;
* property insurance;
* compliance with laws;
* labor;
* the existence of certain material interests of certain persons;
* allowance for loan and lease losses and non-performing assets;
* employee benefit plans and related matters;
* regulatory approval delays;
* obligations to brokers and finders;
* the absence of interest rate management instruments;
* the accuracy of the statements contained in the merger agreement and
related documents; and
* environmental liability.
Equality Bancorp made additional representations and warranties as
to Equality Bancorp's stockholder vote required for stockholder approval
of the merger and the conduct of Equality Bancorp and its subsidiaries
since March 31, 2000. Allegiant Bancorp made additional representations
and warranties as to its shareholder vote required for approval of the
issuance of shares of its common stock and conduct of Allegiant Bancorp
and its subsidiaries since December 31, 1999.
TERMINATION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the
date the certificate of merger is filed with the Delaware Secretary of
State and becomes effective, whether before or after approval by
Equality Bancorp's stockholders, by the shareholders of Allegiant
Bancorp and by mutual consent of Allegiant Bancorp's and Equality
Bancorp's board of directors. In addition, Allegiant Bancorp's or
Equality Bancorp's board of directors may unilaterally terminate the
merger agreement:
(1) if the other party does not fulfill its obligations
which are a condition to closing;
(2) at any time after March 31, 2001, if the merger has
not been consummated by such date (provided that the terminating
party has not breached any covenant in the merger agreement);
(3) if (a) any governmental authority whose approval is
required for consummation of the merger shall have issued a final
non-appealable denial of such approval or (b) any governmental
entity of
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competent jurisdiction shall have issued a final non-appealable
order permanently enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the merger
agreement;
(4) if the stockholders of Equality Bancorp voted against
approving the merger agreement or the shareholders of Allegiant
Bancorp voted against the issuance of shares of Allegiant Bancorp
common stock in the merger;
(5) in the event of a material breach (not waived or cured
within 30 days after written notice) of any representation,
warranty or agreement contained in the merger agreement by the
non-breaching party;
(6) by Equality Bancorp upon at least two days' prior
written notice to Allegiant Bancorp as a result of a tender given
by a party other than Allegiant Bancorp or its affiliates, if
Equality Bancorp's board determines in good faith that its
fiduciary obligation under the applicable law requires that such
offer be accepted. However, Equality Bancorp must (a) obtain
written legal opinion that acceptance of the tender offer is a
proper exercise of the board's fiduciary duties, (b) allow its
legal and financial advisors negotiate with Allegiant Bancorp for
at least five days, and (c) not have breached any covenants under
the merger agreement, or
(7) by Allegiant Bancorp if Equality Bancorp's board of
directors (or any committee thereof) resolves to or takes any of
the following actions: (a) withdraws or modifies, in any manner
adverse to Allegiant Bancorp, its approval or recommendation of
the merger, (b) fails to reaffirm its approval or recommendation
upon Allegiant Bancorp's request, or (c) approves or recommends
any different form of business combination with Equality by or
involving a party other than Allegiant Bancorp or its affiliates.
If the merger agreement is terminated, it shall become void and there
shall be no liability on the part of any party or their respective officers
and directors, except that (1) confidentiality and indemnification
obligations shall survive termination, (2) Allegiant Bancorp shall pay all
printing, mailing and filing expenses with respect to the Registration
Statement and this Joint Proxy Statement/Prospectus and (3) in the case of
termination due to continued material volitional breach after notice and
opportunity to cure, the breaching party shall not be relieved of liability
to the non-breaching party arising from the intentional, deliberate or
willful breach of any representation, warranty, covenant or agreement
contained in the merger agreement.
If the merger agreement is terminated because of a material
breach, then the breaching party must pay all documented out-of-pocket
expenses and fees incurred by the non-breaching party (including all
legal, accounting, financial, public relations and other professional
advisors fees related to the merger) not in excess of $250,000. If one
party willfully breaches the merger agreement, then the non-breaching
party may pursue any available legal and equitable remedies in addition
to an unlimited amount of all documented out-of-pocket expenses and fees.
AMENDMENT. Subject to compliance with applicable law, the merger
agreement may be amended by action taken or authorized by each company's
board of directors, at any time before or after approval of the
stockholders of Equality Bancorp. However, after any approval of the
merger by Equality Bancorp's stockholders, any amendment of the merger
agreement that changes the amount or the form of the consideration to be
delivered to the holders of Equality Bancorp common stock requires the
further approval of such stockholders. Any amendment to the merger
agreement requires the written consent of both Allegiant Bancorp and
Equality Bancorp.
EXTENSION; WAIVER. At any time before the effective time of the
merger, Allegiant Bancorp and Equality Bancorp, by action taken or
authorized by their respective board of directors, may (1) extend the
time for the performance of any of the obligations or other acts of the
other parties, (2) waive any inaccuracies in the representations and
warranties contained in the merger agreement or in any document
delivered pursuant thereto, and (3) waive compliance with any of the
agreements or conditions contained in the merger agreement. However,
any extension or waiver of the merger agreement or any portion thereof
which reduces the amount or changes the form of the consideration to be
delivered to the holders of Equality Bancorp common stock requires the
further approval of such stockholders. Any extension or waiver requires
the written consent of both Allegiant Bancorp and Equality Bancorp and
shall not excuse subsequent breaches of the merger agreement.
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INDEMNIFICATION
Allegiant Bancorp has agreed to use reasonable efforts to obtain
insurance for all directors and officers of Equality Bancorp after the
merger. Allegiant Bancorp also agreed to indemnify any director or
officer or employee of Equality Bancorp or its subsidiaries who is made
a party to a claim, action, suit, proceeding or investigation (1) as a
director, officer or employee of Equality Bancorp or its subsidiaries or
any of their respective predecessors, or (2) because of the merger
agreement asserted or arising before or after the effective time of the
merger. Allegiant Bancorp shall have the right to assume the defense of
any Equality Bancorp director, officer or employee and upon such
assumption Allegiant Bancorp shall not be liable to any such individual
for any legal expenses of other counsel or any other expenses
subsequently incurred by that individual. The merger agreement does not
obligate Allegiant Bancorp to indemnify a Equality Bancorp director,
officer or director if (a) a court determines that such indemnification
is prohibited by law or (b) Allegiant Bancorp did not give prior written
consent to a settlement. Under the merger agreement, Allegiant Bancorp
also is required to pay for certain director and officer liability
insurance.
CLOSING DATE
The merger will be consummated and become effective upon the
issuance of a certificate of merger by the Delaware Secretary of State.
Under the merger agreement, unless otherwise agreed to by the parties,
the closing date of the merger shall occur on such date as Allegiant
Bancorp shall notify Equality Bancorp in writing but: (1) not earlier
than the satisfaction or waiver of all of the conditions to the merger
agreement and (2) not later than the first business day of the first
month following the month on which all conditions to the merger
agreement have been satisfied or waived or have become capable of being
satisfied.
SURRENDER OF EQUALITY BANCORP STOCK CERTIFICATES AND RECEIPT OF
ALLEGIANT BANCORP COMMON STOCK
At the effective time of the merger, each outstanding share of
Equality Bancorp common stock will be converted into the right to
receive 1.118 shares of Allegiant Bancorp common stock. Each holder of
Equality Bancorp common stock, upon submission to Allegiant Bancorp's
exchange agent of a properly executed letter of transmittal and
surrender to the exchange agent of the stock certificate(s) formerly
representing shares of Equality Bancorp common stock, will be entitled
to receive a stock certificate(s) evidencing the shares of Allegiant
Bancorp common stock to which such shareholder is entitled.
As soon as practicable following the effective time of the merger,
the exchange agent will mail to each Equality Bancorp stockholder of
record as of the effective time notification of the effectiveness of the
merger. The exchange agent also will provide a letter of transmittal
and instructions as to the procedure for the surrender of the stock
certificates evidencing the Equality Bancorp common stock and the
receipt of shares of Allegiant Bancorp common stock and any cash in lieu
of fractional shares of Allegiant Bancorp common stock. It will be the
responsibility of each holder of Equality Bancorp shares to submit all
certificates formerly evidencing such holder's shares of Equality
Bancorp common stock to the exchange agent. No dividends or other
distributions will be paid to a former Equality Bancorp stockholder with
respect to shares of Allegiant Bancorp common stock until such
stockholder's properly completed letter of transmittal and stock
certificates formerly representing Equality Bancorp common stock, or, in
lieu thereof, such evidence of a lost, stolen or destroyed certificate
and/or such insurance bond as the exchange agent may reasonably require,
are delivered to the exchange agent. All dividends or other
distributions on the Allegiant Bancorp common stock declared between the
closing date of the merger and the date of the surrender of a Equality
Bancorp stock certificate will be held for the benefit of the
shareholder and will be paid to the shareholder, without interest
thereon, upon the surrender of such stock certificate(s) or
documentation and/or insurance bond in lieu thereof.
FRACTIONAL SHARES
No fractional shares of Allegiant Bancorp common stock will be
issued to the former stockholders of Equality Bancorp in connection with
the merger. Each holder of Equality Bancorp common stock who otherwise
would have been entitled to receive a fraction of a share of Allegiant
Bancorp common stock shall receive in lieu thereof cash, without
interest, in an amount equal to the holder's fractional share interest
multiplied by the average closing stock price of Allegiant Bancorp
common stock on the Nasdaq National Market for the 20 consecutive
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trading days immediately preceding the fifth trading day prior to the
closing date of the merger. Cash received by Equality Bancorp
stockholders in lieu of fractional shares may give rise to taxable
income. See "Certain Federal Income Tax Consequences of the Merger."
REGULATORY APPROVALS
In addition to Equality Bancorp stockholders, the Federal Reserve
Board and the Office of Thrift Supervision must approve the merger. As
a bank holding company, Allegiant Bancorp is subject to regulation under
the Bank Holding Company Act of 1956. Allegiant Bancorp will file all
required applications seeking approval of the merger with the regulatory
authorities.
Under the Bank Holding Company Act, the Federal Reserve Board can
withhold approval of the merger if, among other things, it determines
that the effect of the merger would be to substantially lessen
competition in the relevant market. In addition, the Federal Reserve
Board is required to consider whether the combined organization meets
the requirements of the Community Reinvestment Act of 1977, as amended,
by assessing the involved entities' respective records of meeting the
credit needs of the local communities in which they are chartered,
consistent with the safe and sound operation of such institutions. In
its review, the Federal Reserve Board also is required to examine the
financial and managerial resources and future prospects of the combined
organization and analyze the capital structure and soundness of the
resulting entity. The Federal Reserve Board has the authority to deny
an application if it concludes that the combined organization would have
inadequate capital.
Under the Home Owners' Loan Act, the Office of Thrift Supervision
may withhold approval of the merger if it determines that the merger
would (1) frustrate the purposes of the Home Owners' Loan Act, (2) be
manipulative or deceptive, (3) subvert the fairness of the conversion of
Equality Bancorp to a stock holding company, (4) be likely to result in
injury to Equality Bancorp, (5) not be consistent with economical home
financing, (6) otherwise be violative of law or regulation, or (7) would
not contribute to the prudent deployment of Equality Bancorp's
conversion proceeds.
The merger cannot be consummated prior to receipt of all required
approvals. There can be no assurance that required regulatory approvals
for the merger will be obtained, and, if the merger is approved, as to
the date of such approvals or whether the approvals will contain any
unacceptable conditions. There can likewise be no assurance that the
United States Department of Justice will not challenge the merger during
the waiting period set aside for such challenges after receipt of
approval from the Federal Reserve Board. See "Supervision and
Regulation."
Allegiant Bancorp and Equality Bancorp are not aware of any
governmental approvals or actions that may be required for consummation
of the merger other than as described above. Should any other approval
or action be required, it is presently contemplated that such approval
or action would be sought. There can be no assurance that any necessary
regulatory approvals or actions will be timely received or taken, that
no action will be brought challenging such approval or action or, if
such a challenge is brought, as to the result thereof, or that any such
approval or action will not be conditioned in a manner that would cause
the parties to abandon the merger. See "Supervision and Regulation."
CONDUCT OF BUSINESS PENDING THE MERGER
Under the merger agreement, Allegiant Bancorp and Equality Bancorp
agreed, except for any potential business combination transactions or
similar acquisitions to be entered into by Allegiant Bancorp and except
for any Allegiant Bancorp capital formation transaction, until the
closing date of the merger to conduct their respective businesses and to
cause their subsidiaries to conduct their businesses in the usual and
ordinary course consistent in all material respects with past and
current practices and prudent banking practices. In addition, each
company agreed to use their best efforts to maintain and preserve their
respective business organizations and advantageous business
relationships.
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Equality Bancorp also agreed to not take certain actions until the
merger became effective, without the written consent of Allegiant
Bancorp. Equality Bancorp agreed not to (and agreed not to permit its
subsidiaries to):
* except upon the exercise of options under the Equality
Bancorp option plans, make any changes in the number of
their issued and outstanding shares or in their respective
charters or bylaws;
* increase the compensation of their directors, officers or
key employees. Equality Bancorp may, however, increase the
compensation of officers and key employees of Equality
Bancorp and its subsidiaries in a manner consistent with its
prior practices, not to exceed an aggregate amount of
$20,000 for all increases;
* make (1) any loan for $300,000 or more, except for loans
currently committed to be made according to written
commitment letters, and (2) no other loans, or renewals or
restructuring of loans regardless of amount except in the
ordinary course of business and consistent in all material
respects with prudent banking practices and applicable rules
and regulations of regulatory authorities with respect to
amount, terms, security and quality of the borrower's
credit;
* declare, set aside or pay any stock dividend, cash dividend
or other distribution of the merger. Equality Bancorp may
continue to declare and pay its regular quarterly cash
dividend to its stockholders in the amount of $.06 per share
of Equality Bancorp Common Stock until the closing date.
However, Equality Bancorp must coordinate with Allegiant
Bancorp to avoid receipt by stockholders of Equality Bancorp
of a cash dividend from both Equality Bancorp and Allegiant
Bancorp in the same quarterly period;
* except for Equality Bancorp's proposed sale of its current
mortgage servicing rights, make any significant changes,
outside the ordinary course of business, in the general
nature of the business conducted by Equality Bancorp, its
subsidiaries, including, but not limited to, the investment
or use of their assets, the liabilities they incur, or the
facilities they operate;
* enter into any employment, consulting or other similar
agreements that are not terminable on 30 days' notice or
less without penalty or obligation (beyond the notice period
of 30 days or less), amend any existing employment,
severance, or similar agreement or arrangement with any
director, officer or employee or modify any of the Equality
Bancorp benefit plans or increase any employee benefit
(including incentive or bonus payments or severance
amounts);
* take any action that would result in a termination, partial
termination, curtailment, discontinuance or merger into
another plan or trust of any Equality Bancorp benefit plan;
* except as already reflected in Equality Bancorp's
consolidated financial statements, make any expenditure for
fixed assets in excess of $10,000 for any single item, or
$50,000 in the aggregate, or enter into any lease of fixed
assets, if the monthly rental payment under such lease
exceeds $1,000;
* except for Equality Bancorp's proposed sale of its current
mortgage servicing rights and except for dispositions of
other real estate owned, incur any liabilities or
obligations, make any commitments or disbursements, acquire
or dispose of any property or asset, make any contract or
agreement, or engage in any transaction, except in the
ordinary course consistent in all material respects with
past practices and prudent banking practices;
* do or fail to do anything that will cause a breach of, or
default under, any contract, agreement, commitment,
obligations, appointment, plan, trust or other arrangement
to which Equality Bancorp or its subsidiaries is a party or
by which either Equality Bancorp or its subsidiaries is
otherwise bound where such breach would have a material
adverse effect on Equality Bancorp;
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* make any change of a material nature in their accounting
procedures, methods, policies or practices or the manner in
which they conduct their businesses and maintain their
records;
* accept or renew any brokered deposits; or
* agree, in writing or otherwise, to take any of the foregoing
actions.
ACCOUNTING TREATMENT
It is expected that the purchase method of accounting will be used
to reflect the merger upon consummation. As required by generally
accepted accounting principles, under purchase accounting, the assets
and liabilities of Equality Bancorp as of the closing date will be
recorded at their respective estimated fair market values and added to
those of Allegiant Bancorp. Financial statements of Allegiant Bancorp
issued after the consummation of the merger would reflect such values as
well as the results of operations of the combined entity beginning after
the closing date of the merger. Financial statements of Allegiant
Bancorp issued before consummation of the merger would not be restated
to reflect Equality Bancorp's historical financial position or results
of operations. The unaudited pro forma combined consolidated financial
statements contained in this Joint Proxy Statement/Prospectus have been
prepared using the purchase method of accounting to account for the
merger.
Shares of Allegiant Bancorp common stock to be issued in the merger may
include treasury shares as well as authorized but unissued shares. The issuance
of treasury shares in connection with the merger may enable Allegiant Bancorp
to account for subsequent acquisitions on the pooling-of-interests basis which
would not have been available absent such issuance.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
BOARD OF DIRECTORS. Once the merger is consummated, Richard C.
Fellhauer, the current President and Chief Executive Officer of Equality
Bancorp, will become a member of the board of directors of Allegiant
Bancorp. In connection with the merger, Allegiant Bancorp's board of
directors is electing Richard C. Fellhauer to fill a newly created
vacancy on such board. Allegiant Bancorp has agreed that at its 2001
annual meeting, Richard C. Fellhauer will be nominated as a director
to serve a term of three years on Allegiant Bancorp's board of directors.
MANAGEMENT. It is anticipated that there will be no changes in
the current management of Allegiant Bancorp. However, Richard C.
Fellhauer, the current President and Chief Executive Officer of Equality
Bancorp, will become a Senior Vice President of Allegiant Bank.
Shaun R. Hayes will continue to serve as President and Chief Executive
Officer of Allegiant Bancorp, Marvin S. Wool will continue to serve as
its Chairman of the Board and Thomas A. Daiber will continue to serve as
a Senior Vice President and its Chief Financial Officer.
BANK MERGER. Allegiant Bancorp anticipates that following the
merger, when Equality Savings Bank is a wholly-owned subsidiary of
Allegiant Bancorp, Allegiant Bancorp will merge Equality Savings Bank
with and into Allegiant Bank. This bank merger will only occur if the
merger is completed. Equality Bancorp will assist Allegiant Bancorp
before the merger in connection with obtaining any necessary regulatory
approvals for this bank merger. However, Allegiant Bancorp is not
required to obtain such approvals before it acquires Equality Bancorp.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In the opinion of Thompson Coburn LLP, tax counsel to Allegiant
Bancorp, subject to the qualifications set forth below, the following
summary sets forth the material United States federal income tax
consequences to the holders of Equality Bancorp common stock who
exchange such stock for Allegiant Bancorp common stock in the merger.
The following summary addresses only such stockholders who hold their
Equality Bancorp common stock as a capital asset, and does not address
all of the United States federal income tax consequences that may
be relevant to particular stockholders in light of their individual
circumstances or to stockholders that are subject to special rules
(including, without limitation, financial institutions, tax-exempt
organizations, insurance companies, dealers in securities or foreign
currencies, foreign holders, persons that hold such shares as a hedge
against currency risk or a constructive sale or conversion transaction
or holders who acquired their shares pursuant to the exercise of
employee stock options or otherwise as compensation). Such opinion is
not binding on the Internal Revenue Service. The following summary is
based upon the Internal Revenue Code of 1986, as amended, laws,
regulations, rulings and decisions in effect as of the date hereof, all
of which are subject to change possibly with retroactive effect. Tax
consequences under state, local and other foreign laws are not addressed
herein.
No ruling has been (or will be) sought from the Internal Revenue
Service as to the United States federal income tax consequences of the
merger. It is a condition to the consummation of the merger that
Equality Bancorp receive an opinion from Thompson Coburn LLP to the
effect that, based upon certain facts, representations and assumptions,
the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. The issuance of such
opinion is conditioned on, among other things, such tax counsel's
receipt of representation letters from each of Equality Bancorp,
Allegiant Bancorp and Allegiant Acquisition Corporation, in each case,
in form and substance reasonably satisfactory to such counsel. The
following discussion assumes that the merger qualifies as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code.
Based on the above assumptions and qualifications, holders of
Equality Bancorp common stock who exchange their Equality Bancorp
common stock for Allegiant Bancorp common stock in the merger will
not recognize income, gain or loss for United States federal income
tax purposes, except with respect to cash, if any, they receive in
lieu of fractional shares of Allegiant Bancorp common stock.
Holders of Equality Bancorp common stock who receive cash in lieu
of fractional shares of Allegiant Bancorp common stock in the merger
generally will be treated as if the fractional shares of Allegiant
Bancorp common stock had been distributed to them as part of the merger
and then redeemed by Allegiant Bancorp in exchange for the cash actually
distributed in lieu of the fractional shares, with such redemption
qualifying as an exchange under Section 302 of the Internal Revenue
Code. Consequently, such holders generally will recognize capital gain
or loss with respect to cash payments they receive in lieu of fractional
shares. The tax rate applicable to capital gains of a non-corporate
holder varies depending on the holder's holding period for the shares.
In the case of a non-corporate holder, any such capital gain will be
subject to a maximum federal income tax rate of 20% if such holder held
the Equality Bancorp common stock for more than 12 months at the time of
the closing of the merger. The deductibility of capital losses is
subject to limitations for both corporate and non-corporate holders.
Each Equality Bancorp stockholder's aggregate tax basis in the
Allegiant Bancorp common stock received in the merger will be the same
as such stockholder's aggregate tax basis in the Equality Bancorp common
stock exchanged therefor, decreased by the amount of any tax basis
allocable to any fractional share interest for which cash is received.
The holding period of the Allegiant Bancorp common stock received by an
Equality Bancorp stockholder in the merger will include the holding period
of the Equality Bancorp common stock surrendered in exchange therefor.
Equality Bancorp stockholders, other than certain exempt recipients,
may be subject to backup withholding at a rate of 31% with respect to any
cash payment received in the merger. However, backup withholding will not
apply to an Equality Bancorp stockholder who either (1) furnishes a correct
taxpayer identification number and certifies that such holder is not subject
to backup withholding by completing the substitute Form W-9 that will be
included as part of the transmittal letter, or (2) otherwise proves to
Allegiant Bancorp and its exchange agent that such holder is exempt from
backup withholding.
- 41 -
<PAGE>
<PAGE>
Equality Bancorp stockholders will also be required to file
certain information with their federal income tax returns and to retain
certain records with regard to the merger.
THE DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND DOES NOT PURPORT TO
BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS THAT MAY
APPLY TO A HOLDER OF EQUALITY BANCORP COMMON STOCK. STOCKHOLDERS OF
EQUALITY BANCORP ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
- 42 -
<PAGE>
<PAGE>
PRO FORMA FINANCIAL INFORMATION
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of Allegiant Bancorp and Equality Bancorp and
the corresponding pro forma and pro forma equivalent per share amounts
giving effect to the proposed merger. The data presented is based upon
the consolidated financial statements and related notes of each of
Allegiant Bancorp included with and Equality Bancorp included in this
Joint Proxy Statement/Prospectus or in documents incorporated by
reference, and the pro forma combined consolidated balance sheet and
income statements, including the notes, appearing elsewhere in this
document. This information should be read in conjunction with such
historical and pro forma financial statements and related notes. The
assumptions used in the preparation of this table appear in the notes to
the pro forma financial information appearing elsewhere in this
document. See "-- Notes to Unaudited Pro Forma Combined Consolidated
Financial Statements." This data is not necessarily indicative of the
results of the future operations of the combined organization or the
actual results that would have occurred if the proposed merger had been
consummated prior to the periods indicated.
<TABLE>
<CAPTION>
ALLEGIANT BANCORP/
EQUALITY EQUALITY
ALLEGIANT BANCORP EQUALITY PRO FORMA PRO FORMA
REPORTED REPORTED <F1> COMBINED <F2> EQUIVALENT <F3>
-------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE
June 30, 2000 $8.08 $8.57 $8.34 $9.32
December 31, 1999 7.73 8.35 7.60 8.50
CASH DIVIDENDS DECLARED PER SHARE
Six months ended June 30, 2000 $0.11 $0.12 $0.11 $0.12
Year ended December 31, 1999 0.20 0.24 0.20 0.22
BASIC EARNINGS PER SHARE
Six months ended June 30, 2000 $0.53 $0.26 $0.42 $0.47
Year ended December 31, 1999 0.84 0.50 0.68 0.76
DILUTED EARNINGS PER SHARE
Six months ended June 30, 2000 $0.52 $0.26 $0.42 $0.47
Year ended December 31, 1999 0.83 0.49 0.68 0.76
<FN>
---------------
<F1> Equality Bancorp has a March 31 fiscal year end. For purposes of
this table, Equality Bancorp information at March 31, 2000 is
reported as December 31, 1999 data. Equality Bancorp information
for the six months ended June 30, 2000 includes information from
the last three months of its fiscal year ended March 31, 2000
combined with information for the quarter ended June 30, 2000.
<F2> Includes the effect of pro forma adjustments for Equality Bancorp,
as appropriate. See "--Notes to Unaudited Pro Forma Combined
Consolidated Financial Statements."
<F3> Based on the pro forma combined per share amounts multiplied by
1.118, the exchange ratio applicable to one share of Equality
Bancorp common stock. The notes to pro forma combined consolidated
financial statements contain further explanation of the assumptions
used in the preparation of the pro forma combined consolidated
financial statements. See "--Notes to Unaudited Pro Forma Combined
Consolidated Financial Statements."
</TABLE>
- 43 -
<PAGE>
<PAGE>
PRO FORMA UNAUDITED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined consolidated balance
sheet gives effect to the proposed merger as if it were consummated on
June 30, 2000.
The following unaudited pro forma combined consolidated income
statements for the six months ended June 30, 2000 and the year ended
December 31, 1999 set forth the results of operations of Allegiant
Bancorp combined with the results of operations of Equality Bancorp
as if the proposed merger 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 Unaudited
Pro Forma Combined Consolidated Financial Statements and with the historical
financial statements of Allegiant Bancorp and Equality Bancorp. These
unaudited pro forma combined consolidated financial statements may not
be indicative of the results of operations that actually would have
occurred if the proposed merger had been consummated on the dates assumed
above or of the results of operations that may be achieved in the
future.
- 44 -
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC. AND EQUALITY BANCORP, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(IN THOUSANDS)
<CAPTION>
PRO FORMA
ALLEGIANT BANCORP EQUALITY PRO FORMA COMBINED
BANCORP, INC. BANCORP, INC. ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 22,042 $ 13,750 $ (2,547)<Fa> $ 33,245
Money market investments 320 198 -- 518
Investment securities
Available for sale 54,394 185,989 -- 240,383
Held-to-maturity 6,574 600 -- 7,174
-------- -------- -------- ----------
Total securities 60,968 186,589 -- 247,557
Loans
Commercial loans 154,699 14,584 -- 169,283
Real estate loans 520,526 90,458 (1,500)<Fb> 609,484
Retail loans 28,540 5,026 -- 33,566
-------- -------- -------- ----------
Total loans 703,765 110,068 (1,500) 812,333
Allowance for loan losses 9,580 363 -- 9,943
-------- -------- -------- ----------
Net loans 694,185 109,705 (1,500) 802,390
Loans held for sale -- 4,315 -- 4,315
Premises and equipment 9,809 7,066 1,400 <Fb> 18,275
Intangible assets 11,249 -- 1,400 <Fc> 12,649
Other assets 28,609 7,512 2,354 <Fb> 38,475
-------- -------- -------- ----------
Total assets $827,182 $329,135 $ 1,107 $1,157,424
======== ======== ======== ==========
LIABILITIES
Deposits
Non-interest-bearing deposits $ 65,925 $ 6,807 $ -- $ 72,732
Interest-bearing deposits 573,481 152,933 300 <Fb> 726,714
-------- -------- -------- ----------
Total deposits 639,406 159,740 300 799,446
Short-term borrowings 86,490 62,000 -- 148,490
Long-term debt 30,860 85,993 (1,546)<Fb> 115,307
Guaranteed preferred beneficial interests
in subordinated debentures 17,250 -- -- 17,250
Other liabilities 4,084 973 (174)<Fd> 4,883
-------- -------- -------- ----------
Total liabilities 778,090 308,706 (1,420) 1,085,376
-------- -------- -------- ----------
SHAREHOLDERS' EQUITY
Common stock 66 25 2 <Fe> 93
Surplus 42,373 16,189 1,125 <Ff> 59,687
Retained earnings 13,058 11,948 (11,948)<Fg> 13,058
ESOP and MRP -- (1,389) 1,389 <Fh> --
Treasury stock, at cost (5,615) (1,246) 6,861 <Fi> --
Accumulated other comprehensive income (loss) (790) (5,098) 5,098 <Fj> (790)
-------- -------- -------- ----------
Total shareholders' equity 49,092 20,429 2,527 72,048
-------- -------- -------- ----------
Total liabilities and shareholders' equity $827,182 $329,135 $ 1,107 $1,157,424
======== ======== ======== ==========
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 SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<CAPTION>
PRO FORMA
ALLEGIANT BANCORP EQUALITY PRO FORMA COMBINED
BANCORP, INC. BANCORP, INC. ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 30,683 $ 4,223 $ 250 <Fk> $ 35,156
Interest on investment securities 1,874 6,683 -- 8,557
Interest on money market investments 41 269 -- 310
---------- ---------- ----- ----------
Total interest income 32,598 11,175 250 44,023
INTEREST EXPENSE
Interest on deposits 13,677 3,158 (50)<Fk> 16,785
Interest on borrowings 4,268 4,822 257 <Fk> 9,347
---------- ---------- ----- ----------
Total interest expense 17,945 7,980 207 26,132
---------- ---------- ----- ----------
Net interest income 14,653 3,195 43 17,891
Provision for loan losses 1,565 -- -- 1,565
---------- ---------- ----- ----------
Net interest income after provision
for loan losses 13,088 3,195 43 16,326
NON-INTEREST INCOME
Mortgage banking income 119 1,358 (235)<Fk> 1,242
Service charges on deposits 564 83 -- 647
All other income 2,004 435 -- 2,439
Investment securities gains/(losses)--net 173 (78) -- 95
---------- ---------- ----- ----------
Total non-interest income 2,860 1,798 (235) 4,423
NON-INTEREST EXPENSE
Salaries and other employee benefits 5,379 2,236 -- 7,615
Occupancy and equipment expense 1,604 403 24 <Fk> 2,031
All other expense 3,523 1,378 47 <Fc> 4,948
---------- ---------- ----- ----------
Total non-interest expense 10,506 4,017 71 14,594
---------- ---------- ----- ----------
Income before tax 5,442 976 (263) 6,155
Income tax 2,221 370 (86)<Fl> 2,505
---------- ---------- ----- ----------
NET INCOME $ 3,221 $ 606 $(177) $ 3,650
========== ========== ===== ==========
PER SHARE
Basic earnings per common share $ 0.53 $ 0.26 $ 0.42
Diluted earnings per common share 0.52 0.26 0.42
Average common shares-basic 6,106,169 2,287,350 8,663,426
Average common shares-diluted 6,138,101 2,302,911 8,712,756
The accompanying notes are an integral part of the unaudited pro forma combined consolidated financial information.
</TABLE>
- 46 -
<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 BANCORP 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 <Fk> $ 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)<Fk> 26,091
Interest on short-term borrowings 6,006 8,765 515 <Fk> 15,286
---------- ---------- ----- ----------
Total interest expense 26,601 14,361 415 41,377
---------- ---------- ----- ----------
Net interest income 25,511 6,682 85 32,278
Provision for loan losses 2,546 -- -- 2,546
---------- ---------- ----- ----------
Net interest income after provision
for loan losses 22,965 6,682 85 29,732
NON-INTEREST INCOME
Mortgage banking income 944 2,476 (471)<Fk> 2,949
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 (471) 7,679
NON-INTEREST EXPENSE
Salaries and other employee benefits 9,717 4,502 -- 14,219
Occupancy and equipment 2,994 851 47 <Fk> 3,892
All other expense 6,051 2,746 93 <Fc> 8,890
---------- ---------- ----- ----------
Total non-interest expense 18,762 8,099 140 27,001
Income before tax 9,046 1,890 (526) 10,410
Income tax 3,644 738 (173)<Fl> 4,209
---------- ---------- ----- ----------
NET INCOME $ 5,402 $ 1,152 $(353) $ 6,201
========== ========== ===== ==========
PER SHARE
Basic earnings per common share $ 0.84 $ 0.50 $0.68
Diluted earnings per common share 0.83 0.49 0.68
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>
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<PAGE>
<PAGE>
ALLEGIANT BANCORP, INC. AND EQUALITY BANCORP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
On July 26, 2000, Allegiant Bancorp announced that it signed a
definitive agreement to acquire Equality Bancorp through the merger of
Allegiant Acquisition Corporation, a wholly-owned subsidiary of
Allegiant Bancorp, with and into Equality Bancorp.
The unaudited pro forma combined consolidated financial
information assumes that the merger will be accounted for under the
purchase accounting method and 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, holders of Equality Bancorp
common stock will receive 1.118 shares of Allegiant Bancorp common stock
for each share of Equality Bancorp common stock owned. Equality Bancorp
had 2,383,989 shares of its common stock outstanding at June 30, 2000,
which shares will be exchanged for approximately 2,665,300 shares of
Allegiant Bancorp common stock. The combined company will have
approximately 8,737,887 shares outstanding after the merger. 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 six months ended June 30, 2000, Equality Bancorp
information for such period includes financial information for the
quarter ended June 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)
[FN]
<Fa> 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>
[FN]
<Fb> To record purchase accounting mark-to-market adjustments.
<Fc> To record estimated goodwill of $1,400 and reflect goodwill
amortization over a 15-year period.
<Fd> 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 $1,400 as a result
of the purchase accounting mark-to-market adjustments.
<Fe> To eliminate Equality Bancorp common stock of $25 and record
issuance of $27 of Allegiant Bancorp common stock.
<Ff> To eliminate Equality Bancorp surplus of $16,189 and record
surplus of $17,576 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.
<Fg> To record elimination of Equality Bancorp adjusted retained
earnings of $11,948.
<Fh> To record effect of payoff of ESOP note receivable and
distribution of unallocated shares and record termination of
MRP.
<Fi> 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.
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<PAGE>
<PAGE>
<Fj> To eliminate Equality Bancorp's accumulated other comprehensive
income (loss) account as a result of the merger.
<Fk> To record accretion and/or amortization of purchase accounting
adjustments.
<Fl> To reflect impact of taxes at a 40% rate.
NOTE 5--SUBSEQUENT EVENTS
Management of Equality Bancorp currently is pursuing the sale of its
mortgage servicing rights on its FNMA servicing portfolio of approximately
$235.0 million. In connection with such sale, Equality Bancorp expects to
realize a gain before income taxes of approximately $2.1 million. This amount
is reflected in the unaudited pro forma combined consolidated balance sheet
as of June 30, 2000 as a pro forma adjustment to "Other assets."
In order to improve its interest rate position, management of Equality
Bancorp is considering a sale of a minimum of $60.0 million of available for
sale investment securities. In connection with such a sale, Equality Bancorp
would likely record an approximately $2.0 million loss before income taxes
(which loss has been reflected in other comprehensive income, net of tax).
Equality Bancorp may use the proceeds from the sale of the investment
securities to purchase commercial real estate loan participations from
Allegiant Bank.
- 49 -
<PAGE>
<PAGE>
INFORMATION ABOUT ALLEGIANT BANCORP
GENERAL
Allegiant Bancorp is a bank holding company headquartered in St.
Louis, Missouri. Its bank subsidiary, Allegiant Bank, offers full-
service banking and personal trust services to individuals, commercial
business and municipalities in the St. Louis metropolitan area.
Allegiant Bancorp's services include commercial, real estate and
installment loans, checking, savings and time deposit accounts, personal
trust and other fiduciary services and various other financial services
such as securities brokerage, insurance and safe deposit boxes. As of
June 30, 2000, Allegiant Bancorp reported, on a consolidated basis,
total assets of $827.2 million, loans of $694.2 million, deposits of
$639.4 million and shareholders' equity of $49.1 million.
Since its inception in 1989, Allegiant Bancorp has committed to
building a strong, customer-friendly community bank. As a community
bank, Allegiant Bancorp is able to respond quickly to its customers
through local decision-making and to tailor products and services to
meet their needs. Allegiant Bancorp believes this customer-friendly
approach provides us with a competitive advantage over many of the
larger financial institutions in the St. Louis metropolitan area. In
addition, Allegiant Bancorp believes that it benefited from recent
acquisitions of locally headquartered financial institutions by larger
regional or national out-of-town financial institutions. Recent
acquisitions of financial institutions in Allegiant Bancorp's market
area include: Bank America Corporation's acquisition of Boatmen's
Bancshares, Inc., Union Planters' Corporation's acquisition of Magna
Group, Inc., and Firstar Corporation's acquisition of Mercantile
Bancorporation Inc.
Currently, Allegiant Bancorp is the second largest publicly traded
bank holding company headquartered in St. Louis. Allegiant Bancorp
expanded rapidly through internal growth and acquisitions. Allegiant
Bancorp believes that market coverage is necessary, and its goal is to
have a banking facility within a 20-minute drive from all principal
sectors of the St. Louis metropolitan area.
In 1989, Allegiant Bancorp acquired Allegiant State Bank located
in Northeastern Missouri. Allegiant Bancorp acquired Allegiant Bank in
St. Louis, Missouri in 1990. In November 1994, Allegiant Bancorp
acquired Allegiant Mortgage Company. In January 1995, Allegiant State
Bank merged into Allegiant Bank. Allegiant Bancorp acquired Reliance
Savings and Loan Association of St. Louis County in August 1997 and
later merged it with Allegiant Bank.
In September 1997, Allegiant Bank acquired two branches in Union
and Warrenton, Missouri from Roosevelt Bank. In that transaction,
Allegiant Bank assumed approximately $96.1 million of deposit
liabilities, acquired real property and related automated teller
machines, furniture, fixtures, equipment and other operating assets with
an aggregate value of $0.5 million, and approximately $3.0 million of
consumer loans. Allegiant Bank recorded goodwill of $8.8 million in
connection with this branch acquisition. In January 1999, Allegiant
Bank acquired all the assets and liabilities of Allegiant Mortgage
Company which then was dissolved.
In addition to Allegiant Bancorp's acquisitions, it opened several
new branches in Missouri with a view toward covering all sectors of the
St. Louis metropolitan area. Branch openings in the past three years
include Mehlville in 1996, and St. Peters, Affton and Crestwood in 1997.
Allegiant Bancorp also opened a branch in Town & Country in 1998, a
downtown St. Louis branch in March 1999, a branch in Ballwin in August
1999 and a branch in Chesterfield in May 2000. Allegiant Bancorp opened
its 17th location in downtown St. Louis City in August 2000.
Since the beginning of 1998, Allegiant Bancorp focused primarily
on improving the profitability of its banking operations. As a result,
Allegiant Bancorp reduced the amount of one- to four-family mortgages
that it holds in its loan portfolio and increased the amount of higher
yielding commercial loans. Allegiant Bancorp also hired several banking
professionals with experience in the St. Louis metropolitan area to help
it grow its commercial loans and deposits. Allegiant Bancorp refined
its market focus to concentrate exclusively on opportunities in the
higher growth St. Louis metropolitan area and, accordingly, Allegiant
Bancorp sold three retail banking offices outside the St. Louis
metropolitan area in December 1998. Allegiant Bancorp also implemented
company-wide, cost-control efforts to enhance efficiencies throughout
its entire operation.
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<PAGE>
<PAGE>
The St. Louis metropolitan area is the 17th largest metropolitan
area in the United States with a population of approximately 2.45
million. The St. Louis metropolitan area is home to 18 Fortune 1000
companies, such as Anheuser-Busch Companies, Inc., Ralston Purina
Company and Trans World Airlines, Inc. Also the St. Louis metropolitan
area ranks fifth in the United States as a headquarters location for
Fortune 500 companies. In 1998, the St. Louis area ranked second in
Entrepreneur Magazine's listing of the top places in the United States
for small business, marking four straight years on that publication's
top ten list, and Inc. magazine placed St. Louis among its top ten areas
for growing firms.
OPERATIONS
Allegiant Bank offers complete banking and trust services to
individuals, businesses and municipalities in the St. Louis metropolitan
area. Services include commercial, real estate, mortgage, and
installment loans, checking, savings and time deposit accounts, trust
and other fiduciary services and various other customer services such as
brokerage, insurance and safe deposit boxes.
COMPETITION
Allegiant Bancorp operates in a competitive environment. In the
St. Louis metropolitan area, other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking firms and other financial
intermediaries offer similar services. Many of these competitors have
substantially greater resources and lending limits and may offer certain
services Allegiant Bancorp does not currently provide. In addition,
some of Allegiant Bancorp's nonbank competitors are not subject to the
same extensive regulations that govern Allegiant Bancorp, Allegiant Bank
and Allegiant Bancorp's subsidiaries. Allegiant Bancorp's profitability
depends upon the ability of Allegiant Bank to compete in Allegiant
Bancorp's market area.
EMPLOYEES
As of June 30, 2000, Allegiant Bancorp had approximately 219 full-
time equivalent employees. None of Allegiant Bancorp's employees are
subject to a collective bargaining agreement. Allegiant Bancorp
considers its relationship with its employees and those of Allegiant
Bank to be good.
PROPERTIES
Allegiant Bancorp's principal executive, administrative and
operational offices are located at 2122 Kratky Road in St. Louis,
Missouri. As of June 30, 2000, Allegiant Bank conducted its business
and operations out of 16 locations in the greater St. Louis Metropolitan
area. Allegiant Bancorp's physical properties, which are either owned
or leased, are in satisfactory condition, adequately insured and
suitable and adequate for present operations.
LEGAL PROCEEDINGS
Various claims and lawsuits, incidental to Allegiant Bancorp's
ordinary course of business, are pending against Allegiant Bancorp or
Allegiant Bank. In the opinion of management, after consultation with
legal counsel, resolution of these matters is not expected to have a
material effect on Allegiant Bancorp's consolidated financial condition
or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
This Joint Proxy Statement/Prospectus contains certain forward-
looking statements with respect to the financial condition, results of
operations and business of Allegiant Bancorp and its subsidiaries.
These forward-looking statements involve certain risks and
uncertainties. For example, by accepting fixed rate deposits at
different times and for different terms, and lending funds at fixed
rates for fixed periods, a bank accepts the risk that the cost of funds
may rise and the use of funds may be at a fixed rate. Similarly, the
cost of funds may fall, but a bank may have committed by virtue of the
term of a deposit to pay what becomes an above-market rate. Investments
may decline in value in a rising interest rate environment. Loans, and
the reserve for loan losses, have the risk that the borrower will not
repay all funds in a timely manner as well as the risk of total loss.
Collateral may or may not have
- 51 -
<PAGE>
<PAGE>
the value attributed to it. The loan loss reserve, while believed
adequate, may prove inadequate if one or more large borrowers, or
numerous mid-size borrowers, or a combination of both experience
financial difficulty for individual, national or international reasons.
Because the business of banking is highly regulated, decisions of
governmental authorities, such as the rate of deposit insurance, can
have a major effect on operating results. All these uncertainties, as
well as others, are present in a banking operation and shareholders are
cautioned that Allegiant Bancorp management's view of the future may
prove to be other than anticipated. Allegiant Bancorp undertakes no
obligation to release revisions to these forward-looking statements or
reflect events or circumstances after the date of this report. The data
presented in the following pages should be read in conjunction with
Allegiant Bancorp's audited consolidated financial statements included
in this Joint Proxy Statement/Prospectus.
OVERVIEW. The profitability of Allegiant Bancorp's operations
depends on its net interest income, provision for loan losses, other
income and other expense. Net interest income is the difference between
the income Allegiant Bancorp receives on its loan and investment
portfolios and its cost of funds, which consists of interest paid on
deposits and borrowings. The provision for loan losses reflects the
cost of credit risk in Allegiant Bancorp's loan portfolio. Other income
consists primarily of service charges on deposit accounts and fees for
ancillary banking services and, to a lesser extent, revenues generated
from Allegiant Bancorp's mortgage banking, securities brokerage,
insurance brokerage and trust operations. Other expense includes
salaries and employee benefits as well as occupancy, data processing,
marketing, professional fees, insurance and other expenses.
Net interest income is dependent on the amounts and yields of
interest earning assets compared to the amounts and rates on interest
bearing liabilities. Net interest income is sensitive to changes in
market rates of interest and Allegiant Bancorp's asset/liability
management procedures are intended to manage the risk presented by
changes in market interest rates. The provision for loan losses is
dependent on changes in the loan portfolio, management's assessment of
the collectibility of the loan portfolio and loss experience, as well as
economic and market factors.
Since the beginning of 1998, Allegiant Bancorp focused primarily
on improving the profitability of its banking operations. As a result,
Allegiant Bancorp reduced the amount of one- to four-family mortgages
that it holds in its loan portfolio and increased the amount of higher
yielding commercial loans. Allegiant Bancorp also hired several banking
professionals with experience in the St. Louis metropolitan area.
Allegiant Bancorp refined its market focus to concentrate exclusively on
opportunities in the higher-growth St. Louis metropolitan area and,
accordingly, Allegiant Bancorp sold three retail banking offices outside
the St. Louis metropolitan area in December 1998. Allegiant Bancorp
also implemented company-wide cost control efforts to enhance
efficiencies throughout its entire operation.
Allegiant Bancorp's primary financial strategies are to continue
to grow its loan portfolio while maintaining high asset quality, expand
its core deposit base to provide cost-effective and stable source of
funding for its loan portfolio and increase other income while
maintaining strong expense controls. Allegiant Bancorp believes that it
has maintained high asset quality while managing growth both internally
and by acquisition. Allegiant Bancorp also believes its history of
strong credit quality results from sound credit practices.
RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE PERIODS ENDED JUNE 30,
2000 AND 1999. Allegiant Bancorp's net income for the three months
ended June 30, 2000 was $1.6 million, an 18% increase over the
$1.3 million earned for the second quarter of 1999. Basic and diluted
earnings per share increased 30% to $0.26 for the second quarter of 2000
compared to $0.20 for the second quarter of 1999. The annualized return
on average assets for the second quarter of 2000 was 0.79% compared to
0.86% reported for the second quarter of 1999. The return on average
equity on an annualized basis was 13% for the second quarter of 2000
compared to 11 % for the second quarter of 1999.
Net income for the six-month period ended June 30, 2000 was $3.2
million, a 37% increase over the $2.3 million earned for the six-month
period ended June 30, 1999. Basic earnings per share increased 47% to
$0.53 from $0.36, and diluted earnings per share increased 49% to $0.52
from $0.35 in the respective six-month periods. The annualized return
on average assets was 0.83% and the annualized return on average equity
was 13% for the six
- 52 -
<PAGE>
<PAGE>
months ended June 30, 2000. This compares to, on an annualized basis, a
return on average assets of 0.77% and a return on average equity of 10%
for the corresponding period in 1999.
Allegiant Bancorp utilized the purchase method of accounting to
reflect its business combinations. The purchase method results in the
recording of goodwill that is amortized as a non-cash charge included in
operating expenses. Goodwill amortization included as an operating
expense totaled $237,000 and $475,000, respectively, for the three and
six months ended June 30, 2000 and $250,000 and $501,000, respectively,
for the three and six months ended June 30, 1999. Cash net income,
which adjusts earnings to exclude goodwill amortization, was $1.8
million and $3.7 million, respectively, for the three and six months
ended June 30, 2000 and $1.6 million and $2.8 million, respectively, for
the three and six months ended June 30, 1999, respectively. Diluted
cash earnings per share increased 25% to $0.30 in the second quarter of
2000 compared to $0.24 in the second quarter of 1999. Diluted cash
earnings per share increased 40% to $0.60 for the six months ended June
30, 2000 compared to $0.43 in the 1999 period.
Total assets at June 30, 2000 increased to $827.2 million from
$728.5 million at December 31, 1999. Asset growth during the period was
primarily in loans which, before the allowance for loan losses,
increased $88.6 million, or 14%. Deposit balances increased $90.9
million, or 17%, during the first six months of 2000. Certificates of
deposit increased $90.7 million representing the majority of the net
deposit growth during the period. This growth was a result of
certificate of deposit promotions during the first six months of 2000.
Non-interest bearing deposits also increased $14.1 million during the
first six months of 2000, while NOW accounts decreased $6.6 million and
money market accounts decreased $7.4 million during the period.
Net Interest Income. Allegiant Bancorp's net interest income
-------------------
for the three months ended June 30, 2000 was $7.5 million, a 22%
increase compared to $6.2 million reported for the second quarter of
1999. This $1.3 million increase was attributable to an increase of
$163.7 million in average earning assets and a 71 basis point increase
in the yield on earning assets. The $4.7 million increase in interest
income was partially offset by a $3.4 million increase in interest
expense. The increase in interest expense was the result of a $167.6
million increase in average interest bearing liabilities and an increase
of 84 basis points in the average interest rate paid between the
periods.
Net interest margin for the second quarter of 2000 decreased 20
basis points compared to the second quarter of 1999. The earning assets
yield increased 71 basis points while the overall interest rate paid on
interest bearing deposits increased 84 basis points. The net interest
spread decreased 12 basis points in the second quarter of 2000 compared
to the second quarter of 1999.
Interest expense on deposits increased $2.3 million due to a
$115.0 million increase in average interest bearing deposits and due to
an increase in the rate paid on deposits from 4.57% in the second
quarter of 1999 to 5.30% for the comparable period in 2000. The
increase in interest expense on deposits consisted primarily of a
$2.1 million increase in interest expense on certificates of deposit and
a $207,000 increase in interest expense on money market and NOW
accounts. The average balance of certificates of deposit increased by
$118.0 million from the second quarter of 2000 compared to the second
quarter of 1999 and average money market and NOW accounts decreased $1.2
million. Allegiant Bancorp continued to build its deposit base while
maintaining its focus on personal service. The growth in certificates
of deposit was the result of special promotions of these products during
the first half of 2000.
Interest expense on other interest bearing liabilities increased
$1.1 million in the second quarter of 2000 compared to the same quarter
of 1999. Allegiant Bancorp issued $17.2 million of trust preferred
securities in August 1999 and the interest expense in the second quarter
of 2000 on these securities totaled $442,000. Average short- and long-
term borrowings also increased $35 million in the second quarter of 2000
compared to the second quarter of the prior year. The average rate on
short-term borrowings increased 93 basis points, while the rate paid on
long-term borrowings in the second quarter of 2000 compared to the
second quarter of 1999 increased 34 basis points.
Net interest income for the six months ended June 30, 2000 was
$17.9 million, a 47% increase compared to the $12.2 million reported for
the corresponding period in 1999. This $5.7 million increase was
attributable to an increase of $151.1 million in average earning assets
and a 54 basis point increase in the yield on earning assets. The
- 53 -
<PAGE>
<PAGE>
$8.4 million increase in interest income was partially offset by a $5.7
million increase in interest expense. The increase in interest expense
was the result of a $149.8 million increase in average interest bearing
liabilities and an increase of 64 basis points in the average interest
rate paid.
Net interest margin for the first six months of 2000 decreased 14
basis points compared to the corresponding period in 1999. The earning
assets yield increased 54 basis points while the overall interest rate
paid on interest bearing deposits increased 54 basis points. The net
interest spread decreased 10 basis points comparing the first six months
of 2000 to the first six months of 1999.
- 54 -
<PAGE>
<PAGE>
The following tables set forth Allegiant Bancorp's condensed
average balance sheets for the periods reported. Also shown is the
average yield on each category of interest earning assets and the
average rate paid on interest bearing liabilities for each of the
periods reported.
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND
SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
2000 1999
-------------------------------- ---------------------------------
AVERAGE INT.EARNED/ YIELD/ AVERAGE INT.EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- ----------- ------ ------- ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Loans<F1> $691,452 $16,085 9.36% $529,146 $11,471 8.70%
Taxable investment securities 55,250 882 6.42 54,588 793 5.81
Non-taxable investment securities<F2> 3,940 56 5.72 1,750 21 4.80
Federal funds sold and overnight investments 350 6 6.89 1,851 23 4.98
-------- ------- -------- -------
Total interest earning assets 750,992 17,029 9.12 587,335 12,308 8.41
-------- ------- -------- -------
Non-interest earning assets
Cash and due from banks 15,751 11,365
Premises and equipment 9,878 10,867
Other assets 39,722 20,834
Allowance for loan losses (9,230) (6,874)
-------- --------
Total assets $807,113 $623,527
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
Money market and NOW accounts $178,399 $ 2,015 4.54% $179,635 $ 1,808 4.04%
Savings deposits 13,219 69 2.10 14,942 80 2.15
Certificates of deposit 277,543 4,036 5.85 190,086 2,431 5.13
Certificates of deposit over $100,000 55,338 738 5.36 29,525 347 4.71
IRA certificates 24,305 375 6.21 19,567 272 5.58
-------- ------- -------- -------
Total interest bearing deposits 548,804 7,233 5.30 433,755 4,938 4.57
-------- ------- -------- -------
Federal funds purchased, repurchase agreements and
other short-term borrowings 99,068 1,462 5.94 51,760 647 5.01
Other borrowings 25,915 407 6.32 37,879 565 5.98
Guaranteed preferred beneficial
interest in subordinated debentures 17,250 442 10.31 -- -- --
-------- ------- -------- -------
Total interest bearing liabilities 691,037 9,544 5.55 523,394 6,150 4.71
-------- ------- -------- -------
NON-INTEREST BEARING LIABILITIES AND EQUITY
Demand deposits 62,629 49,786
Other liabilities 4,568 654
Shareholders' equity 48,879 49,693
-------- --------
Total liabilities and shareholders' equity $807,113 $623,527
======== ========
Net interest income $ 7,485 $ 6,158
======= =======
Net interest spread 3.57% 3.69%
Net interest margin 4.01 4.21
<FN>
------------
<F1> Average balances include non-accrual loans.
<F2> Presented at actual yield rather than tax-equivalent yield.
</TABLE>
- 55 -
<PAGE>
<PAGE>
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND
SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
2000 1999
-------------------------------- ---------------------------------
AVERAGE INT.EARNED/ YIELD/ AVERAGE INT.EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- ----------- ------ ------- ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Loans<F1> $666,929 $30,683 9.25% $518,547 $22,547 8.77%
Taxable investment securities 56,953 1,790 6.32 52,912 1,548 5.85
Non-taxable investment securities<F2> 3,115 84 5.42 1,583 38 4.80
Federal funds sold and overnight investments 1,415 41 5.83 4,316 102 4.77
-------- ------- -------- -------
Total interest earning assets 728,412 32,598 9.00 577,358 24,233 8.46
-------- ------- -------- -------
Non-interest earning assets
Cash and due from banks 14,877 13,409
Premises and equipment 9,859 10,917
Other assets 33,543 22,243
Allowance for loan losses (8,883) (6,601)
-------- --------
Total assets $777,808 $617,326
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
Money market and NOW account $176,456 $ 3,911 4.46% $167,413 $ 3,339 4.02%
Savings deposits 13,150 137 2.10 14,910 159 2.15
Certificates of deposit 262,396 7,473 5.73 191,368 5,005 5.27
Certificates of deposit over $100,000 55,424 1,465 5.32 31,488 746 4.78
IRA certificates 22,841 691 6.08 19,121 545 5.75
-------- ------- -------- -------
Total interest bearing deposits 530,267 13,677 5.19 424,300 9,794 4.65
-------- ------- -------- -------
Federal funds purchased, repurchase agreements
and other short-term borrowings 89,886 2,526 5.65 51,847 1,286 5.00
Other borrowings 27,591 857 6.25 39,070 1,158 5.98
Guaranteed preferred beneficial
interest in subordinated debentures 17,250 885 10.32 -- -- --
-------- ------- -------- -------
Total interest bearing liabilities 664,994 17,945 5.43 515,217 12,238 4.79
-------- ------- -------- -------
NON-INTEREST BEARING LIABILITIES AND EQUITY
Demand deposits 60,009 50,786
Other liabilities 4,380 2,316
Shareholders' equity 48,425 49,007
-------- --------
Total liabilities and shareholders' equity $777,808 $617,326
======== ========
Net interest income $14,653 $11,995
======= =======
Net interest spread 3.57% 3.67%
Net interest margin 4.05 4.19
<FN>
--------
<F1> Average balances include non-accrual loans.
<F2> Presented at actual yield rather than tax-equivalent yield.
</TABLE>
- 56 -
<PAGE>
<PAGE>
The following table sets forth for the periods indicated Allegiant
Bancorp's changes in interest income and interest expense which were
attributable to changes in average volume and changes in average rates.
Volume variances are computed using the change in volume multiplied by
the previous year's rate. Rate variances are computed using the changes
in rate multiplied by the previous year's volume. The change in
interest due to both rate and volume has been allocated between the
factors in proportion to the relationship of the absolute dollar amounts
of the change in each.
<TABLE>
RATE/VOLUME ANALYSIS
<CAPTION>
QUARTER ENDED JUNE 30, 2000 SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO THE COMPARED TO THE
QUARTER ENDED JUNE 30, 1999 SIX MONTHS ENDED JUNE 30, 1999
------------------------------ ------------------------------
NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ---- ------ ------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans $3,700 $ 914 $4,614 $6,832 $1,360 $8,138
Taxable investment securities 9 80 89 118 124 242
Non-taxable securities 31 4 35 42 4 46
Federal funds sold and
other investments (22) 5 (17) (80) 19 (61)
------ ------ ------ ------ ------ ------
Total interest income 3,718 1,003 4,721 6,912 1,453 8,365
------ ------ ------ ------ ------ ------
INTEREST PAID ON:
Money market and NOW accounts (14) 221 207 189 383 572
Savings deposits (9) (2) (11) (18) (4) (22)
Certificates of deposit 1,230 375 1,605 1,994 474 2,468
Certificates of deposit over $100,000 339 52 391 626 93 719
IRA certificates 70 33 103 113 33 146
Federal funds purchased and
other short-term borrowings 678 137 815 1,054 186 1,240
Long-term borrowings (188) 30 (158) (351) 50 (301)
Guaranteed preferred beneficial
interests in subordinated debentures 442 -- 442 885 -- 885
------ ------ ------ ------ ------ ------
Total interest expense 2,548 846 3,394 4,492 1,215 5,707
------ ------ ------ ------ ------ ------
Net interest income $1,170 $ 157 $1,327 $2,420 $ 238 $2,658
====== ====== ====== ====== ====== ======
<FN>
Note: The change in interest due to the combined rate-volume
variance has been allocated to rate and volume changes in
proportion to the absolute dollar amount of the changes
in each.
</TABLE>
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<PAGE>
<PAGE>
Other Income. Other income increased $423,000, or 36%, to $1.6
------------
million for the three months ended June 30, 2000 compared to the second
quarter of 1999. Service charge income for the three-month period ended
June 30, 2000 increased $175,000, or 109%, compared to the second
quarter of 1999. Overdraft fee income for the three-month period ended
June 30, 2000 increased $134,000, or 57%, compared to the second quarter
of 1999. The increases in these two categories were attributable to an
increased deposit base and Allegiant Bancorp's focus on revenue
enhancement programs. In March 2000, Allegiant Bancorp made an
investment in bank-owned life insurance that resulted in $213,000 of
income for the second quarter of 2000. For the quarter ended June 30,
2000, mortgage banking revenue was $57,000 compared to $278,000 for the
quarter ended June 30, 1999. The change was the result of a general
slow-down in mortgage refinancings.
Other income increased by $418,000, or 17%, from $2.4 million to
$2.9 million for the six months ended June 30, 1999 and 2000,
respectively. The reasons underlying the variations in other income
categories discussed above for the three-month periods also were
applicable to the year-to-date amounts.
Other Expenses. For the three months ended June 30, 2000
--------------
compared to the second quarter of 1999, other expenses increased
$922,000, or 20%, to $5.6 million from $4.7 million. The increase in
other expenses includes increased salaries and benefit expense and the
costs associated with opening of new branches in Ballwin and
Chesterfield, Missouri.
Salaries and employee benefits increased 19% to $2.9 million for
the three months ended June 30, 2000 compared to $2.4 million for the
three months ended June 30, 1999. Allegiant Bancorp had 219 full-time
equivalent employees at June 30, 2000 compared to 223 full-time
equivalent employees at June 30, 1999. Total annualized cost per full-
time equivalent employee was $52,384 for the three months ended June 30,
2000 compared to $43,186 for the corresponding period of 1999.
Expenses associated with premises and equipment also increased for
the quarter ended June 30, 2000 compared to the second quarter of 1999,
with occupancy expense increasing $44,000, or 13%, and furniture and
equipment increasing $12,000, or 3%. The increases in these expense
categories were directly related to additional costs associated with
Allegiant Bancorp's Ballwin and Chesterfield branches. Advertising and
business development expenses increased by $172,000 for the second
quarter of 2000 compared to the second quarter of 1999 as Allegiant
Bancorp increased its efforts to attract new business.
Allegiant Bancorp's efficiency ratio was 61% for the quarter ended
June 30, 2000 compared to 63% for the second quarter of 1999. This
improvement reflected Allegiant Bancorp's commitment to improving its
overall efficiency by continuing to emphasize revenue growth, while
maintaining control over its operating costs as Allegiant Bancorp
continues to expand its banking franchise.
For the six months ended June 30, 2000, other expenses increased
$1.0 million, or 11%, to $10.5 million from $9.5 million for the
corresponding period in 1999. The variance in expense categories
discussed above for the six-month periods also were applicable to the
year-to-date amounts. Allegiant Bancorp's efficiency ratio was 60% for
the first six months of 2000 compared to 66% for the six months ended
June 30, 1999.
Securities Portfolio. Allegiant Bancorp's securities portfolio
--------------------
consists of securities classified as held-to-maturity and available for
sale. Allegiant Bancorp designates these securities upon purchase into
one of these two categories. At June 30, 2000, held-to-maturity
securities amounted to $6.6 million, representing those securities
Allegiant Bancorp intended to hold to maturity. Securities designated
as available for sale totaled $54.4 million, representing securities
which Allegiant Bancorp may sell to meet liquidity needs or in response
to significant changes in interest rates or prepayment patterns.
For purposes of this discussion, held-to-maturity and available
for sale securities are described as the securities portfolio. At June
30, 2000, the securities portfolio totaled $61.0 million, an increase of
$171,000 from December 31, 1999. Allegiant Bancorp maintains a
conventional short-term laddered portfolio investment strategy to afford
adequate liquidity while minimizing interest rate risk.
- 58 -
<PAGE>
<PAGE>
The carrying values of Allegiant Bancorp's securities portfolio at
the dates indicated were as follows:
<TABLE>
INVESTMENT SECURITIES PORTFOLIO
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1999
-------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. government and agency securities $38,001 $39,024 $40,392
State and municipal securities 8,338 4,794 2,224
Mortgage-backed securities 9,257 9,397 9,889
Federal Home Loan Bank stock 4,936 7,124 3,574
Other securities 436 458 494
------- ------- -------
Total investment securities $60,968 $60,797 $56,573
======= ======= =======
</TABLE>
Loans. Loans historically have been Allegiant Bancorp's primary
-----
component of earning assets. At June 30, 2000, loans totaled $703.8
million, an increase of 14% from year-end 1999. Substantially all of
these loans were originated in Allegiant Bancorp's market area. At June
30, 2000, Allegiant Bancorp had no foreign loans and only a minimal
amount of participations purchased.
Multi-family and commercial real estate mortgage loans increased
$31.1 million, or 13%, during the first six months of 2000. The
increase in these loans reflects our continued efforts to grow Allegiant
Bancorp's commercial loan portfolio, including loans originated by
Allegiant Bancorp's expanded commercial lending staff. The second
largest increase in loans involved real estate construction loans, which
increased $26.8 million, or 41% at June 30, 2000 as compared to December
31, 1999. The increase was primarily due to loans made to home
builders. As a result of this emphasis, real estate construction loans
comprised 13% of the loan portfolio at June 30, 2000, compared to 11% at
December 31, 1999. Multi-family and commercial real estate mortgage
loans comprised 38% of the portfolio at both June 30, 2000 and year-end
1999.
The following table summarizes the composition of Allegiant
Bancorp's loan portfolio at the dates indicated:
<TABLE>
LENDING AND CREDIT MANAGEMENT
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1999
--------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural, municipal and
industrial development $154,699 21.98% $150,259 24.42% $138,802 25.53%
Real estate -- construction 92,070 13.08 65,310 10.62 50,508 9.29
Real estate -- mortgage
One- to four-family residential 163,107 23.18 141,264 22.96 117,604 21.63
Multi-family and commercial 266,219 37.83 235,158 38.22 216,984 39.92
Consumer and other 28,540 4.06 24,152 3.93 20,460 3.76
Less unearned income (870) (0.12) (952) (0.15) 731 (0.13)
-------- ------ -------- ------ -------- ------
Total loans<F1> $703,765 100.00% $615,191 100.00% $543,627 100.00%
======== ====== ======== ====== ======== ======
<FN>
----------
<F1> Allegiant Bancorp had no outstanding foreign loans at the dates reported.
</TABLE>
Asset Quality. Non-performing assets consist of the following:
-------------
non-accrual loans on which the ultimate collectibility of the full
amount of interest is uncertain; loans which have been renegotiated to
provide for a reduction or deferral of interest or principal because of
a deterioration in the financial condition of the borrower; and loans
past due 90 days or more as to principal or interest and other real
estate owned. Non-performing assets increased to $1.2 million at June
30, 2000 compared to $1.0 million at December 31, 1999. At June 30,
2000, non-
- 59 -
<PAGE>
<PAGE>
performing assets represented 0.15% of total assets compared to 0.14% at
December 31, 1999. Non-accrual loans totaled $744,000 at June 30, 2000
compared to $606,000 at December 31, 1999.
Allegiant Bancorp continually analyzes its loan portfolio to
identify potential risk elements. The loan portfolio is reviewed by
lending management and the bank's internal loan review staff. As an
integral part of their examination process, the various regulatory
agencies periodically review its allowance for loan losses.
The following table summarizes, at the date presented, Allegiant
Bancorp's non-performing assets by category:
<TABLE>
RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1999
--------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
COMMERCIAL, FINANCIAL, AGRICULTURAL,
MUNICIPAL AND INDUSTRIAL DEVELOPMENT
Past due 90 days or more $ -- $ -- $ 116
Non-accrual 399 379 483
Restructured terms -- -- --
REAL ESTATE - CONSTRUCTION
Past due 90 days or more -- -- --
Non-accrual -- -- --
Restructured terms -- -- --
REAL ESTATE -- MORTGAGE
One- to four-family residential
Past due 90 days or more 81 22 51
Non-accrual 113 178 146
Restructured terms -- -- --
Multi-family and commercial
Past due 90 days or more -- -- --
Non-accrual -- -- 18
Restructured terms -- -- --
CONSUMER AND OTHER, NET OF UNEARNED INCOME
Past due 90 days or more 4 -- --
Non-accrual 232 49 19
Restructured terms -- -- --
--------- --------- -------
Total non-performing loans 829 628 833
Other real estate 392 402 40
--------- --------- -------
Total non-performing assets $ 1,221 $ 1,030 $ 873
========= ========= =======
RATIOS
Non-performing loans to total loans outstanding 0.12% 0.10% 0.15%
Non-performing assets to total assets 0.15 0.14 0.14
Non-performing loans to shareholders' equity 1.69 1.31 1.60
Allowance for loan losses to total loans 1.36 1.35 1.30
Allowance for loan losses to non-performing loans 1,155.61 1,324.20 850.54
</TABLE>
Allowance for Loan Losses. Allegiant Bancorp set aside $1.6
-------------------------
million for loan losses during the first six months of 2000 compared to
$1.0 million for the first six months of 1999. Net charge-offs were
$300,000 for the six months ended June 30, 2000 compared to $369,000 for
the first six months of 1999. Net charge-offs for the first six months
of 2000 represented 0.05% of average loans, compared to 0.07% of average
loans for the first six months of 1999.
- 60 -
<PAGE>
<PAGE>
Allegiant Bancorp's allowance for loan losses increased to $9.6
million at June 30, 2000 compared to $7.1 million at June 30, 1999. As
a percentage of loans outstanding, the allowance represented 1.36% of
loans at June 30, 2000, 1.35% at December 31, 1999 and 1.30% at June 30,
1999.
The higher expense provision and the higher allowance percentage
were the result of the continuing change in the composition of the loan
portfolio and the shift in Allegiant Bancorp's lending focus to higher
yielding commercial relationships. This shift, while providing higher
earnings potential, does entail greater risk than traditional
residential mortgage loans. Additional weight has been given to the
increased risks associated with the commercial real estate portfolio.
Specific allowances have been increased on certain commercial real
estate loans based on individual reviews of these loans and an estimate
of the borrower's ability to repay the loan given the availability of
collateral, other sources of cash flow and collection options available
to Allegiant Bancorp. The specific review of these commercial real
estate loans resulted in the increase in the percentage of allowances
allocated to this loan category.
The allowance for loan losses is provided at a level considered
adequate to provide for potential losses and, among other things, is
based on management's evaluation of the anticipated impact on the loan
portfolio of current economic conditions, changes in the character and
size of the loan portfolio and the evaluation of potential problem loans
identified based on existing circumstances known to management.
Allegiant Bancorp continually monitors the quality of the loan portfolio
to ensure the timely charge-off of problem loans and to determine the
adequacy of the level of the allowance for loan losses. Allegiant
Bancorp presently believes that its asset quality, as measured by the
statistics in the following table, continues to be very high and that
its allowance was adequate to absorb potential losses inherent in the
portfolio at June 30, 2000.
- 61 -
<PAGE>
<PAGE>
The following table summarizes, for the periods indicated,
activity in the allowance for Allegiant Bancorp's loan losses, including
amounts of loans charged off, amounts of recoveries and additions to the
allowance charged to operating expense.
<TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Allowance for loan losses (beginning of period) $ 8,315 $ 6,442
LOANS CHARGED OFF
Commercial, financial, agricultural,
municipal and industrial development (189) (243)
Real estate -- construction -- --
Real estate -- mortgage
One- to four-family residential (27) (112)
Multi-family and commercial -- --
Consumer and other (116) (71)
-------- --------
Total loans charged off (332) (426)
-------- --------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial, financial, agricultural,
municipal and industrial development 7 7
Real estate -- construction -- --
Real estate -- mortgage
One- to four-family residential 12 42
Multi-family and commercial -- --
Consumer and other 13 8
-------- --------
Total recoveries 32 57
-------- --------
Net loans charged off (300) (369)
-------- --------
Provision for loan losses 1,565 1,012
-------- --------
Allowance for loan losses (end of period) $ 9,580 $ 7,085
======== ========
Loans outstanding
Average $666,929 $518,547
End of period 703,765 543,628
RATIOS
Net charge-offs to average loans outstanding 0.05% 0.07%
Net charge-offs to provision for loans losses 19.23 36.36
Provision for loan losses to average loans outstanding 0.23 0.20
Allowance for loan loss to total loans outstanding 1.36 1.30
</TABLE>
Deposits. Allegiant Bancorp's total deposits increased $90.9
--------
million, or 17%, during the first six months of 2000. The increase in
deposits consisted primarily of a $90.7 million increase in certificates
of deposit. Much of this growth was the result of certificate of
deposit promotions during the first six months of 2000. Non-interest
bearing deposits increased by $14.1 million, or 27%, to $66 million at
June 30, 2000 while Allegiant Bancorp's NOW and money market accounts
decreased by $14.0 million, or 8%, during the first six months of 2000.
Allegiant Bancorp successfully expanded its deposit base while
maintaining its focus on personal service. Allegiant Bancorp's lending
officers have increased commercial deposits while its retail banking
staff continues efforts to increase its core deposits.
- 62 -
<PAGE>
<PAGE>
The following table summarizes Allegiant Bancorp's deposits as of
the dates indicated:
<TABLE>
DEPOSIT LIABILITY COMPOSITION
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 1999
----------------------- ----------------------- -----------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 65,925 10.31% $ 51,845 9.45% $ 49,997 10.21%
NOW accounts 17,831 2.79 24,492 4.47 20,614 4.21
Money market accounts 153,292 23.97 160,701 29.30 171,535 35.02
Savings deposits 13,264 2.07 13,052 2.38 14,706 3.00
Certificates of deposit 302,273 47.28 229,700 41.88 178,379 36.42
Certificates of deposit
over $100,000 62,523 9.78 47,550 8.67 33,232 6.78
IRA certificates 24,298 3.80 21,126 3.85 21,353 4.36
-------- ------ -------- ------ -------- ------
Total deposits $639,406 100.00% $548,466 100.00% $489,816 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31,
1999 AND 1998. Allegiant Bancorp reported record earnings of $5.4
million for 1999, marking the eighth consecutive year of earnings
growth. Consolidated net income increased 19.1% over the 1998 level of
$4.5 million. Basic earnings per share were $0.84 compared to $0.72 in
1998, an increase of 16.7%. Diluted earnings per share in 1999 were
$0.83 increasing 22.1% compared to the $0.68 reported for 1998.
Allegiant Bancorp utilized the purchase method of accounting to
reflect its business combinations. The purchase method results in the
recording of goodwill that is amortized as a noncash charge to operating
expenses. Goodwill amortization included as an operating expense
totaled $1.0 million in 1999 and $0.9 million in 1998. Cash net income
(net income adjusted to exclude the goodwill amortization) was $6.4
million and $5.4 million for the years ended December 31, 1999 and 1998,
respectively. Diluted cash earnings per share were $0.98 in 1999
compared to $0.81 in 1998.
Return on average assets for 1999 was 0.83%, an improvement from
0.73% recorded for 1998 and 0.52% for 1997. The increase in return on
average assets was primarily the result of improved net interest income
and an improved mix of earning assets. Return on average shareholders'
equity was 10.6% in 1999, compared to 10.1% in 1998 and 9.6% in 1997.
Allegiant Bancorp achieved the increase in 1999 as a result of the
growth in net income while shareholders' equity remained constant
compared with 1998 due to its purchase of treasury stock under Allegiant
Bancorp's share repurchase program which offset the increase in retained
earnings.
Net interest income in 1999 increased 15.9% to $25.5 million from
$22.0 million in 1998. The net interest margin improved by 35 basis
points to 4.17% for 1999 compared to 3.82% for 1998. This improvement
in net interest margin, together with strong earning asset growth,
resulted in the increase in net interest income.
The provision for loan losses totaled $2.5 million in 1999
representing a slight increase compared to the $2.4 million provided in
both 1998 and 1997. The level of the allowance for loan losses was
increased with the allowance representing 1.35% of total loans
outstanding at December 31, 1999, compared to 1.30% and 1.07% of total
loans at December 31, 1998 and 1997, respectively. The allowance has
been increased to reflect the change in the mix of the loan portfolio
toward a greater percentage of commercial loans. This change is
discussed in greater depth under the section entitled "Balance Sheet
Analysis--Allowance for Loan Losses."
Non-interest income decreased by 48.0% in 1999 compared to 1998
primarily as a result of gains in 1998 from the sale of mortgage loans
and the sale of three branches in Northeast Missouri. Leasing income
also decreased in 1999 as Allegiant Bancorp originated no new lease
financing. Mortgage banking revenue decreased as a result of the sale
of Allegiant Bancorp's subsidiary, Edge Mortgage Services, Inc., in
March 1999 and a decline in mortgage refinancings as a result of higher
market interest rates in 1999. Income from service charges on deposit
accounts and overdraft fees increased in 1999 from 1998. See "--Other
Income."
- 63 -
<PAGE>
<PAGE>
Non-interest expense declined $2.5 million in 1999, to $18.8
million, a decrease of 11.7%. This compared to 1998 non-interest
expense of $21.3 million and $13.1 million in 1997. Salaries and
benefits totaled $9.7 million in 1999 and 1998, while other operating
expenses decreased from $11.6 million in 1998 to $9.0 million in 1999.
See "--Other Expense."
Net Interest Income. Net interest income totaled $25.5 million,
-------------------
an increase of $3.6 million or 16.2% in 1999 compared to net interest
income of $22.0 million in 1998. Net interest income totaled $16.3
million in 1997. The net interest spread and the net interest margin
each increased by 35 basis points from 1998 following an 11 basis point
increase in net interest margin from 1997 and a 13 basis point increase
in net interest spread from 1997. The increase in net interest income
reflected the greater percentage of higher yielding loans to earning
assets and overall growth in average earning assets and interest bearing
liabilities. The 1999 increase in net interest spread was due to the
yields on earning assets declining only 4 basis points from 1998 and a
decline of 50 basis points on interest bearing liabilities. In 1998,
the spread increased 13 basis points as a result of similar changes on
both sides of the balance sheet, the yield on earning assets decreased 2
basis points and cost of interest bearing liabilities decreased 15 basis
points.
The yield on loans declined by 18 basis points in 1999 and 16
basis points in 1998 as market interest rates declined in late 1998 and
early 1999. The declines in loan yields were offset by an increase in
the ratio of loans to total earning assets growing to 90.2% in 1999 from
86.0% in 1998 and 83.2% in 1997. Allegiant Bancorp received lower rates
on all categories of interest bearing deposits in 1999 compared to 1998
and rates were generally flat or lower in 1998 compared to 1997. Total
cost of deposits declined 50 basis points in 1999 and 11 basis points in
1998 due to a reduction of rates paid on money market/NOW accounts,
savings deposits and retail certificates of deposit. Average borrowings
increased $11.5 million in 1999 from 1998 and included $17.2 million of
trust preferred securities issued in August 1999. The effects of
changes in rates and average volumes can been seen in the table titled
"Rate/Volume Analysis" below.
Average earning assets increased $34.0 million or 5.9% during 1999
compared to an increase of $134.6 million or 30.6% in 1998. Average
loans increased 11.1% or $54.5 million compared to growth of $128.0
million or 35.0% in 1998. The growth in average loans was effected by
the bulk sale of mortgage loans that occurred during the second and
third quarters of 1998. These sales, which amounted to $78.4 million,
decreased average loans outstanding for 1998 by approximately $34.3
million compared to 1997. The average of Allegiant Bancorp's securities
portfolio (held-to-maturity and available for sale) decreased $14.6
million or 20.4% during 1999 compared to an increase of 9.3% in 1998.
Average investment securities represented 9.3% of earning assets during
1999 compared to 12.5% during 1998. This decline in the actual and
relative amounts of investment securities was directly related to the
increase in the percentage of loans to earning assets discussed above.
In essence, strong loan growth necessitated the reduction in the
securities portfolio. Earning assets as a percentage of total assets
increased in 1999 to 94.0% from 92.8% in 1998 following a decline from
94.9% in 1997. The 1998 increase in non-earning assets was the result
of opening additional branch locations as well as 1997 acquisitions,
which increased the number of branches and intangible assets. This
increase was somewhat offset by the sale of branches located outside the
St. Louis metropolitan area which occurred in December 1998.
Average interest bearing liabilities increased $27.9 million or
5.4% in 1999 compared to an increase of $122.0 million or 30.6% in 1998.
Average deposits increased $16.4 million or 3.8% in 1999 compared to an
increase in 1998 of $99.1 million or 30.1%. During 1999, average money
market and NOW accounts increased $52.7 million or 41.6% while
certificates of deposit under $100,000 decreased $48.6 million or 21.6%.
This shift in deposit mix was the result of Allegiant Bancorp
management's decision to replace these rate-sensitive certificates of
deposit with lower cost money market deposits. The decline in
certificates also was partially offset by an increase in average
brokered deposits of $21.1 million in 1999. The change in deposit mix
contributed to a 50 basis point decrease in the average cost of deposits
in 1999 compared to 1998. During 1998, certificates of deposit over
$100,000 declined as a percentage of total deposits while retail
certificates of deposit increased. Non-interest bearing deposits as a
percentage of total deposits declined only 10 basis points to 10.00%
from 10.10%. The substantial growth in average deposits and the
relatively stable mix allowed for the average cost of interest bearing
deposits to decline by 11 basis points.
- 64 -
<PAGE>
<PAGE>
Average short-term borrowings increased $6.0 million in 1999
averaging $58.9 million during 1999 compared to $52.9 million during
1998 after remaining flat in 1998 compared to 1997. See "--Liquidity
Management."
Average long-term debt in 1999 decreased by $1.6 million or 4.1%
following an increase of $22.5 million or 136.5% in 1998. The majority
of the 1998 increase was due to long-term borrowings from the Federal
Home Loan Bank of $26.6 million at year-end 1998, a $17.0 million change
from year-end 1997. Allegiant Bancorp still continues to utilize the
Federal Home Loan Bank as a cost-effective source of funding loans.
Additionally, during November 1998, Allegiant Bancorp refinanced a
portion of its long-term debt and its entire issue of subordinated
debentures with a $13.7 million, 7.00% fixed rate, three-year note.
The following table presents Allegiant Bancorp's net interest
income, net interest margin and net interest spread for the years 1999
through 1997. The table compares interest income and average interest-
earning assets with interest expense and average interest bearing
liabilities.
- 65 -
<PAGE>
<PAGE>
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND
SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------------------------
AVERAGE INT. EARNED/ AVERAGE AVERAGE INT. EARNED/ AVERAGE
BALANCE PAID YIELD BALANCE PAID YIELD
--------------------------------------- ---------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Loans<F1> $551,189 $48,604 8.82% $493,619 $44,412 9.00%
Taxable investment securities 54,984 3,263 5.93 70,079 4,223 6.03
Non-taxable investment securities<F2> 2,026 98 4.83 1,494 72 4.89
Federal funds sold and other investments 3,028 147 4.86 9,036 511 5.66
-------- ------- -------- -------
Total interest earning assets 611,227 52,112 8.53 574,228 49,218 8.57
Non-interest earning assets
Cash and due from banks 12,073 12,230
Premises and equipment 10,537 10,994
Other assets 23,771 27,238
Allowance for loan losses (7,057) (5,674)
-------- --------
Total assets $650,551 $619,016
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
Money market/NOW accounts $179,484 7,165 3.99 $126,829 5,221 4.12
Savings deposits 14,448 308 2.13 16,524 425 2.57
Certificates of deposit 176,106 9,202 5.23 224,661 12,878 5.73
Certificates of deposit over $100,000 33,105 1,587 4.79 39,581 2,198 5.55
IRA certificates 20,291 1,154 5.69 20,584 1,227 5.96
Brokered deposits 21,135 1,179 5.58 -- -- --
-------- ------- -------- -------
Total interest bearing deposits 444,569 20,595 4.63 428,179 21,949 5.13
Federal funds purchased, repurchase
agreements and other short-term
borrowings 58,877 3,002 5.10 52,855 2,624 4.96
Other borrowings 37,797 2,271 6.01 39,403 2,694 6.84
Guaranteed preferred beneficial interest in
subordinated debentures 7,079 733 10.35 -- -- --
-------- ------- -------- -------
Total interest bearing liabilities 548,322 26,601 4.85 520,437 27,267 5.24
-------- ------- -------- -------
Non-interest bearing liabilities and equity:
Demand deposits 49,886 47,560
Other liabilities 3,244 6,298
Shareholders' equity 49,099 44,721
-------- --------
Total liabilities and
shareholders' equity $650,551 $619,016
======== ========
Net interest income $25,511 $21,951
======= =======
Net interest spread 3.68% 3.33%
Net interest margin 4.17% 3.82%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997
---------------------------------------
AVG. INT. EARNED/ AVG.
BALANCE PAID YIELD
---------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest earning assets
Loans<F1> $365,615 $33,473 9.16%
Taxable investment securities 64,384 3,910 6.07
Non-taxable investment securities<F2> 1,130 56 4.96
Federal funds sold and other investments 8,492 326 3.84
-------- -------
Total interest earning assets 439,621 37,765 8.59
Non-interest earning assets
Cash and due from banks 9,341
Premises and equipment 6,869
Other assets 11,065
Allowance for loan losses (3,867)
--------
Total assets $463,029
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
Money market/NOW accounts $ 95,431 4,092 4.29
Savings deposits 9,665 279 2.89
Certificates of deposit 162,870 9,436 5.79
Certificates of deposit over $100,000 48,358 2,686 5.55
IRA certificates 12,780 760 5.95
Brokered deposits -- -- --
-------- -------
Total interest bearing deposits 329,104 17,253 5.24
Federal funds purchased, repurchase
agreements and other short-term
borrowings 52,702 2,895 5.49
Other borrowings 16,658 1,318 7.91
Guaranteed preferred beneficial interest in
subordinated debentures -- -- --
-------- -------
Total interest bearing liabilities 398,464 21,466 5.39
-------- -------
Non-interest bearing liabilities and equity:
Demand deposits 36,966
Other liabilities 2,307
Shareholders' equity 25,292
--------
Total liabilities and
shareholders' equity $463,029
========
Net interest income $16,299
=======
Net interest spread 3.20%
Net interest margin 3.71%
<FN>
-----------------
<F1> Average balances include non-accrual loans.
<F2> Presented at actual yield rather than tax-equivalent yield.
</TABLE>
- 66 -
<PAGE>
<PAGE>
The following table sets forth for the periods indicated, Allegiant
Bancorp's changes in interest income and interest expense which were
attributable to changes in average volume and changes in average rates:
<TABLE>
RATE/VOLUME ANALYSIS
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1999 TWELVE MONTHS ENDED DECEMBER 31, 1998
COMPARED TO THE COMPARED TO THE
TWELVE MONTHS ENDED DECEMBER 31, 1998 TWELVE MONTHS ENDED DECEMBER 31, 1997
------------------------------------- -------------------------------------
VOLUME RATE NET CHANGE VOLUME RATE NET CHANGE
------ ---- ---------- ------ ---- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on
Loans $ 5,096 $ (904) $ 4,192 $11,534 $(595) $10,939
Taxable investment securities (891) (69) (960) 340 (27) 313
Non-taxable investment securities 26 -- 26 16 -- 16
Federal funds sold and
other investments (300) (64) (364) 24 161 185
------- ------- ------- ------- ----- -------
Total interest income 3,931 (1,037) 2,894 11,914 (461) 11,453
------- ------- ------- ------- ----- -------
Interest paid on
Money market/NOW accounts 2,114 (169) 1,945 1,297 (169) 1,128
Savings deposits (50) (67) (117) 180 (34) 146
Certificates of deposit (2,618) (1,058) (3,676) 3,539 (97) 3,442
Certificates of deposit
over $100,000 (333) (278) (611) (488) -- (488)
IRA certificates (18) (55) (73) 465 2 467
Brokered deposits 1,179 -- 1,179 -- -- --
Federal funds purchased,
repurchase agreements and
other short-term borrowings 307 70 377 8 (278) (270)
Other borrowings (106) (317) (423) 1,577 (201) 1,376
Guaranteed preferred beneficial interest
in subordinated debentures 733 -- 733 -- -- --
------- ------- ------- ------- ----- -------
Total interest expense 1,208 (1,874) (666) 6,578 (777) 5,801
------- ------- ------- ------- ----- -------
Net interest income $ 2,723 $ 837 $ 3,560 $ 5,336 $ 316 $ 5,652
======= ======= ======= ======= ===== =======
</TABLE>
Other Income. Other income totaled $4.8 million in 1999 compared
------------
to $9.3 million in 1998 and $3.3 million in 1997. Included in other
income in 1998 were $3.6 million of non-recurring gains, specifically:
$2.4 million from the sale of branch offices; $1.1 million from the sale
of mortgage loans; and $0.1 million from securities transactions.
Eliminating all one-time or discretionary gains, 1998 other income was
$5.8 million. The decrease in other income also included a $1.4 million
or 58.9% decrease in mortgage banking revenue from $2.3 million in 1998
to $0.9 million in 1999. The change included the results of a general
slow-down in mortgage refinancings due to higher mortgage rates in the
latter half of 1999 and the March 1999 sale of Edge Mortgage, a former
subsidiary of Allegiant Bancorp. The sale of Edge Mortgage was
consistent with Allegiant Bancorp's strategic focus to concentrate its
resources on increasing its commercial loan portfolio. Leasing revenues
decreased by $0.5 million in 1999 from 1998 as Allegiant Bancorp
terminated production of operating leases in the latter half of 1998.
Service charge income increased $0.5 million or 36.1% from 1998 to 1999
as enhanced service charge programs were implemented.
In December 1998, Allegiant Bancorp sold its branches located
outside the greater metropolitan St. Louis area in order to focus on and
expand its market share in its principal trade area. This sale
generated a reduction in loans of $13.5 million, a reduction in deposits
of $40.0 million and a pre-tax gain of $2.4 million.
Also during 1998, Allegiant Bancorp completed two significant
sales of a large portion of its one- to four-family adjustable rate
mortgage loans. These sales generated a pre-tax gain of $1.1 million.
While Allegiant Bancorp sold some of its mortgage loans in previous
years, the 1998 bulk sales reflected a shift in its strategy from
originating and holding mortgage loans to increasing its lending
emphasis on more profitable commercial loan relationships.
- 67 -
<PAGE>
<PAGE>
Mortgage banking revenues decreased 58.9% in 1999 to $0.9 million.
This compares to $2.3 million in 1998 which represented an increase of
76.9% compared to 1997. The decrease in 1999 reflected a general slow-
down in mortgage refinancings and Allegiant Bancorp's March 1999 sale of
Edge Mortgage. The increase in 1998 was attributable to a favorable
economic environment of low unemployment and stable, low long-term
interest rates.
Leasing revenues totaled $1.1 million in 1999, a decrease of 29.5%
compared to $1.5 million in 1998 and $0.4 million in 1997. Allegiant
Bancorp entered the retail leasing business during 1997 and the 1998
results reflected a full year of business operation compared to a
partial year in 1997. During the latter part of 1998, Allegiant Bancorp
decided to curtail this line of business because of declining profit
margins.
Service charges on deposit accounts increased to $1.9 million in
1999 compared to $1.4 million in 1998 and $913,000 in 1997. The
increases were due to additional branch locations generating a larger
base of transaction deposits as well as the benefit of Allegiant Bank's
revised fee structure.
Brokerage revenues remained flat at $0.3 million in 1999 and 1998,
representing an increase of 50.0% compared to $0.2 million in 1997.
Other Expenses. Total operating expenses decreased $2.5 million
--------------
or 11.7% during 1999, totaling $18.8 million compared to $21.3 million
in 1998. Allegiant Bancorp's efficiency ratio for 1999 was 61.8%, an
improvement from 68.1% in 1998 and 66.7% in 1997. The improvement
reflected Allegiant Bancorp's commitment to improving its overall
efficiency by continuing to emphasize revenue growth while decreasing
its current level of operating expense.
Salaries and employee benefits remained unchanged at $9.7 million
in 1999 and 1998 following an increase from $6.2 million in 1997. The
increase from 1997 was due to additional staffing resulting from
acquisitions and new locations. Average full-time equivalent employees
for 1999 was 224 compared to 237 in 1998 and 146 in 1997. At December
31, 1999, Allegiant Bancorp had 225 full-time equivalent employees
compared to 215 at year-end 1998 and 209 at year-end 1997.
Furniture and equipment expenses decreased $105,000 to $1.7
million in 1999. This followed an increase of $809,000 in 1998. The
increase in 1998 was the result of acquisitions in 1997 and branch
openings in 1998 and 1997.
Occupancy expenses totaled $1.3 million, a decrease of $179,000 or
11.8% during 1999 following an increase of 106.4% in 1998. The 1998
increase in occupancy expenses to $1.5 million from $738,000 in 1997 was
attributable to acquisitions and branch openings, as discussed above.
Depreciation of the assets held for operating leases decreased
$479,000 in 1999 compared to 1998. As discussed under "--Other Income,"
the retail leasing business was started in late 1997 so that 1998
reflected a full year of operations. During the latter part of 1998,
this line of business was curtailed resulting in lower depreciation
expense in 1999.
Expense for the amortization of goodwill totaled $980,000 in 1999
and $910,000 in 1998 compared to $552,000 in 1997. This increase was
the result of acquisitions and deposit purchases during 1997 and
reflected a full year of amortization during 1998 and 1999.
In 1999, operating losses totaled $80,000 compared to $450,000 in
1998 and $870,000 in 1997. Of the amount in 1997, $752,000 was
considered systemic and non-recurring due to integration of two branch
acquisitions and difficulties associated with upgrading Allegiant
Bancorp's computer systems to an entirely new operating system.
Excluding non-recurring items in 1998, the increase in operating losses
in 1998 was $332,000. The 1998 operating losses were related to
inconsistent operating procedures as a result of the expansion of the
number of branches and number of employees. Throughout 1998 and 1999,
Allegiant Bancorp reengineered several operational processes in an
effort to improve quality and control. As a result of training and
improved operating procedures, Allegiant Bancorp reduced other operating
losses to $80,000 in 1999.
- 68 -
<PAGE>
<PAGE>
Allegiant Bancorp's other non-interest expense decreased $1.1
million or 22.0% in 1999 compared to 1998. Other non-interest expense
increased $1.8 million in 1998 from 1997. The growth in 1998 expenses
was associated with an increase in employees, an increase in the number
of deposit and loan accounts, and an increase in physical locations
compared to prior years. The decrease in 1999 was the result of tighter
expense control and implementation of operating efficiencies following
the sale of Allegiant Bancorp's three Northeast Missouri branches in
December 1998. Specific cost savings realized in 1999 compared to 1998
included a decrease in supplies expense of $215,000 as a result of the
implementation of a centralized purchasing function. Telephone expense
decreased $118,000 as telephone contracts were reviewed and
renegotiated. Legal, accounting and professional fee expense decreased
$432,000 in 1999 compared to 1998 as expenses in 1998 included costs
associated with establishing a real estate investment trust and the
costs associated with changing independent accounting firms.
The following table sets forth Allegiant Bancorp's summary of
other income and expenses for the years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OTHER INCOME
Service charges on deposits $ 1,888 $ 1,387 $ 913
Leasing revenues 1,077 1,527 433
Mortgage banking revenues 944 2,299 1,300
Brokerage division revenues 306 312 169
Gain on sale of branches -- 2,370 --
Gain on sale of mortgage loans -- 1,112 27
Gain on the sale of securities -- 68 2
Other non-interest income 628 249 454
------- ------- -------
Total other income $ 4,843 $ 9,324 $ 3,298
======= ======= =======
OTHER EXPENSES
Salaries and employee benefits $ 9,717 $ 9,663 $ 6,192
Furniture and equipment 1,650 1,752 943
Occupancy 1,344 1,523 738
Goodwill amortization 980 910 358
Depreciation of operating leases 861 1,340 394
Supplies 274 489 428
Operating losses - other 80 450 870
Operating losses - overdrawn customer accounts 35 272 68
Other non-interest expense 3,821 4,896 3,078
------- ------- -------
Total other expenses $18,762 $21,295 $13,069
======= ======= =======
</TABLE>
BALANCE SHEET ANALYSIS
Securities Portfolio. Allegiant Bancorp's securities portfolio
--------------------
consists of securities classified as held-to-maturity and available for
sale. Allegiant Bancorp designates these securities upon purchase into
one of these two categories. At December 31, 1999 held-to-maturity
securities amounted to $11.7 million representing those securities
Allegiant Bancorp intends to hold to maturity. Securities designated as
available for sale totaled $49.1 million representing securities which
Allegiant Bancorp may sell to meet liquidity needs or in response to
significant changes in interest rates or prepayment patterns.
For purposes of this discussion, held-to-maturity and available
for sale securities are referred to as the securities portfolio. At
December 31, 1999 the securities portfolio totaled $60.8 million, an
increase of 11.0% from the preceding year. While year-end balances for
1999 were higher than 1998, the percentage of securities to earning
assets declined to 9.0% in 1999 compared to 12.5% in 1998. This decline
reflected management's decision to allow the proceeds of maturing
securities to be reinvested in higher yielding commercial loans.
- 69 -
<PAGE>
<PAGE>
The carrying value and approximate fair value of investment
securities at December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1999
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and
agency securities $34,553 $ 3 $(1,032) $33,524
State and municipal securities 598 -- (14) 584
Mortgage-backed securities 7,558 13 (132) 7,439
Federal Home Loan Bank
stock 7,124 -- -- 7,124
Other securities 458 -- -- 458
------- --- ------- -------
Total $50,291 $16 $(1,178) $49,129
======= === ======= =======
<CAPTION>
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1999
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and
agency securities $ 5,500 $ 1 $ (15) $ 5,486
State and municipal securities 4,210 4 (418) 3,796
Mortgage-backed securities 1,958 44 -- 2,002
Federal Home Loan Bank
stock -- -- -- --
Other securities -- -- -- --
------- --- ----- -------
Total $11,668 $49 $(433) $11,284
======= === ===== =======
<CAPTION>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1998
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and
agency securities $29,269 $217 $ (51) $29,435
State and municipal securities 598 9 -- 607
Mortgage-backed securities 8,360 38 (65) 8,333
Federal Home Loan Bank
stock 3,574 -- -- 3,574
Other securities 791 -- -- 791
------- ---- ----- -------
Total $42,592 $264 $(116) $42,740
======= ==== ===== =======
<CAPTION>
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1998
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and
agency securities $ 7,585 $ 30 $(21) $ 7,594
State and municipal securities 858 28 -- 886
Mortgage-backed securities 3,597 55 -- 3,652
Federal Home Loan Bank
stock -- -- -- --
Other securities -- -- -- --
------- ---- ---- -------
Total $12,040 $113 $(21) $12,132
======= ==== ==== =======
<PAGE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and
agency securities $26,545 $106 $ (9) $26,642
State and municipal securities 597 -- -- 597
Mortgage-backed securities 9,243 33 (1) 9,275
Federal Home Loan Bank
stock 7,033 -- -- 7,033
Other securities 1,371 -- -- 1,371
------- ---- ---- -------
Total $44,789 $139 $(10) $41,918
======= ==== ==== =======
<CAPTION>
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and
agency securities $21,712 $ 50 $(131) $21,631
State and municipal securities 966 24 -- 990
Mortgage-backed securities 9,273 253 (1) 9,525
Federal Home Loan Bank
stock -- -- -- --
Other securities -- -- -- --
------- ---- ----- -------
Total $31,951 $327 $(132) $32,146
======= ==== ===== =======
</TABLE>
- 70 -
<PAGE>
<PAGE>
Maturities and yield information of Allegiant Bancorp's investment
securities portfolio as of December 31, 1999 were as follows:
<TABLE>
SECURITIES PORTFOLIO--MATURITIES AND YIELDS<F1>
<CAPTION>
WEIGHTED OVER ONE WEIGHTED OVER FIVE WEIGHTED WEIGHTED
ONE YEAR AVERAGE THROUGH AVERAGE THROUGH AVERAGE OVER TEN AVERAGE
OR LESS YIELD FIVE YEARS YIELD TEN YEARS YIELD YEARS YIELD
-------- -------- ---------- -------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Governmental securities $ 1,500 6.26% $ -- --% $ -- --% $ -- --%
U.S. agency securities 9,992 5.76 20,543 5.62 6,989 6.17 -- --
Municipal securities 85 3.41 161 2.06 1,128 4.29 3,419 6.20
Mortgage-backed securities 4,328 6.85 4,603 5.94 380 7.60 87 7.60
Federal Home Loan Bank stock -- -- -- -- 7,124 6.35 -- --
Other securities 458 6.00 -- -- -- -- -- --
------- ------- ------- -------
Total securities $16,363 6.09 $25,307 5.65 $15,621 6.15 $ 3,506 6.23
======= ======= ======= =======
Total securities portfolio $60,797 5.93
=======
<FN>
---------------
<F1> Maturities are shown in this table by expected maturity.
Expected maturities differ from contractual maturities
due to the right to call or prepay obligations.
</TABLE>
Loans. Loans historically have been the primary component of
-----
Allegiant Bancorp's earning assets. At December 31, 1999 loans totaled
$615.2 million, an increase of 24.1% from year-end 1998. Average loans
increased 11.1% during 1999 compared to a 35.0% increase in 1998.
Substantially all of these loans were originated in Allegiant Bancorp's
primary market areas. Allegiant Bancorp has no foreign loans and a
minor amount of participations purchased.
An increase in commercial loans comprised the majority of
Allegiant Bancorp's loan growth in 1999 and 1998. Commercial real
estate loans increased $38.6 million or 19.6% to $235.2 million at year-
end 1999 compared to $196.5 million at year-end 1998. Construction
loans increased $28.7 million or 78.5% in 1999, totaling $65.3 million
at year-end 1999 compared to $36.6 million at year-end 1998. The
increase in construction loans in 1999 was primarily due to an increase
in loans to St. Louis area home builders. Traditional commercial loans
increased $24.0 million or 19.0% in 1999 to $150.3 million at December
31, 1999. Growth in these commercial categories reflected management's
decision to focus on the more profitable commercial relationships and
reduce the amount of one- to four-family mortgage loans carried on
Allegiant Bancorp's balance sheet. The growth in the commercial sectors
was accomplished by hiring additional commercial lending personnel and
directing existing staff toward commercial relationship procurement. As
a result of this emphasis, commercial real estate loans comprised 38.2%
of the loan portfolio in 1999 and 39.7% in 1998 compared to 27.9% in
1997. Traditional commercial loans comprised 24.4% of the portfolio in
1999 and 25.5% in 1998 compared to 22.7% in 1997.
The decline in one- to four-family residential loans since 1997
partially offset the commercial loan growth. Residential loans declined
from $196.0 million at December 31, 1997 to $116.3 million at year-end
1998. This decline was primarily the result of the 1998 bulk sale of
$78.4 million in loans. One- to four-family residential loans increased
21.5% to $141.3 million at December 31, 1999, as Allegiant Bancorp
retained a larger percentage of the adjustable rate mortgages. One- to
four-family residential loans represented 23.0% of total loans at year-
end 1999 and 23.5% at year-end 1998 compared to 40.4% of total loans at
year-end 1997.
Consumer loans increased $3.2 million dollars or 10.5% during
1999, reaching $24.2 million at December 31, 1999 compared to $20.9
million and $16.8 million at December 31, 1998 and 1997, respectively.
Consumer loans do not comprise a large percentage of its loan portfolio
(3.9% at December 31, 1999), but are an important product which allows
Allegiant Bancorp to meet the lending needs of individuals within the
St. Louis community.
- 71 -
<PAGE>
<PAGE>
The following table summarizes the composition of Allegiant
Bancorp's loan portfolio at the dates indicated:
<TABLE>
LOAN PORTFOLIO--TYPES OF LOANS
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural,
municipal and industrial
development $150,259 $126,239 $109,937 $ 75,129 $ 40,518
Real estate--construction 65,310 36,590 27,181 8,763 8,777
Real estate--mortgage
One- to four-family residential 141,264 116,291 195,964 121,386 71,260
Multi-family and commercial 235,158 196,545 135,452 74,721 52,795
Consumer and other 24,152 20,908 16,821 12,084 8,379
Less unearned income (952) (904) (493) (157) (185)
-------- -------- -------- -------- --------
Total loans<F1> $615,191 $495,669 $484,862 $291,926 $181,544
======== ======== ======== ======== ========
<FN>
---------------
<F1> Allegiant Bancorp had no outstanding foreign loans at the dates
reported.
</TABLE>
<TABLE>
LOAN PORTFOLIO - MATURITIES AND SENSITIVITIES OF LOANS
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------------------------
MATURING AFTER ONE YEAR MATURING AFTER
MATURING IN THROUGH FIVE YEARS FIVE YEARS
ONE YEAR ------------------------ ------------------------
OR LESS FIXED-RATE VARIABLE FIXED-RATE VARIABLE TOTAL
----------- ---------- -------- ---------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, agricultural,
municipal and industrial
development $ 94,322 $ 34,479 $14,991 $ 1,557 $ 4,910 $150,259
Real estate--construction 43,432 13,192 7,653 700 333 65,310
Real estate--mortgage
One- to four-family residential 61,978 30,337 15,719 5,216 28,014 141,264
Multi-family and commercial 88,756 105,222 25,095 5,705 10,380 235,158
Consumer and other 8,381 11,923 3,296 552 -- 24,152
Less unearned income (952) -- -- -- -- (952)
-------- -------- ------- ------- ------- --------
Total loans $295,917 $195,153 $66,754 $13,730 $43,637 $615,191
======== ======== ======= ======= ======= ========
</TABLE>
Asset Quality. Non-performing assets, consisting of loans past
-------------
due 90 days or greater, non-accrual loans, restructured loans and other
real estate owned decreased to $1.0 million at December 31, 1999
compared to $1.8 million at December 31, 1998 and $1.7 million at
December 31, 1997. At December 31, 1999 non-performing assets
represented 0.14% of total assets compared to 0.30% of total assets at
December 31, 1998 and 0.28% of total assets at December 31, 1997. Non-
accrual loans were $0.6 million at December 31, 1999 compared to $1.5
million at December 31, 1998 and $0.6 million at December 31, 1997.
Loans delinquent 90 days or more decreased from $818,000 at year-end
1997 to $69,000 and $73,000 at December 31, 1998 and 1999, respectively.
Other real estate owned at December 31, 1999 totaled $402,000 and
consisted primarily of assets repossessed through a loan foreclosure in
December 1999. Other real estate was $0 and $330,000 at December 31,
1998 and 1997, respectively.
Allegiant Bancorp has two loan relationships, not included in the
past-due, restructured or non-accrual categories, where known
information about credit problems causes management to be uncertain as
to the ability of the borrowers to comply with the present loan
repayment terms over the next six months. These two loan relationships
totaled $8.7 million at December 31, 1999. Principal and interest
payments on such loans were current at December 31, 1999.
- 72 -
<PAGE>
<PAGE>
Allegiant Bancorp continually analyzes its loan portfolio to
identify potential risk elements. The loan portfolio is reviewed by
lending management and its internal loan review staff. As an integral
part of their examination process, the various regulatory agencies
periodically review Allegiant Bancorp's reserve for loan losses.
Allegiant Bancorp believes that its allowance for loan losses at
December 31, 1999 was adequate to absorb potential losses inherent in
the loan portfolio.
The following table summarizes, for the periods presented,
Allegiant Bancorp's non-performing assets by category:
<TABLE>
RISK ELEMENTS--NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMMERCIAL, FINANCIAL, AGRICULTURAL, MUNICIPAL
AND INDUSTRIAL DEVELOPMENT
Past due 90 days or more $ -- $ -- $ 341 $ 5 $ 113
Non-accrual 379 962 360 207 109
Restructured terms -- -- -- -- --
REAL ESTATE--CONSTRUCTION
Past due 90 days or more -- -- -- 264 36
Non-accrual -- -- 108 84 20
Restructured terms -- -- -- -- 3
REAL ESTATE--MORTGAGE
One- to four-family residential
Past due 90 days or more 22 69 456 -- --
Non-accrual 178 378 70 -- --
Restructured terms -- -- -- -- --
Multi-family and commercial
Past due 90 days or more -- -- -- -- --
Non-accrual -- 307 -- -- --
Restructured terms -- -- -- -- --
CONSUMER AND OTHER, NET OF UNEARNED INCOME
Past due 90 days or more -- -- 21 23 12
Non-accrual 49 62 21 109 15
Restructured terms -- -- -- -- --
--------- -------- -------- -------- --------
Total non-performing loans 628 1,778 1,377 692 308
--------- -------- -------- -------- --------
Other real estate 402 -- 330 -- 10
--------- -------- -------- -------- --------
Total non-performing assets $ 1,030 $ 1,778 $ 1,707 $ 692 $ 318
========= ======== ======== ======== ========
BALANCE SHEET INFORMATION (AT YEAR-END)
Total assets $ 728,492 $596,274 $608,237 $377,564 $280,386
Loans outstanding 615,191 495,669 484,862 291,926 181,544
Shareholders' equity 47,991 48,104 42,071 16,386 13,938
Allowance for loan losses 8,315 6,442 5,193 3,100 2,130
RATIOS
Non-performing loans to total loans 0.10% 0.36% 0.28% 0.24% 0.17%
Non-performing assets to total assets 0.14 0.30 0.28 0.18 0.11
Non-performing loans to shareholders' equity 1.31 3.70 3.27 4.22 2.21
Allowance for loan losses to total loans 1.35 1.30 1.07 1.06 1.17
Allowance for loan losses to non-performing loans 1,324.20 362.32 377.12 447.98 691.56
</TABLE>
- 73 -
<PAGE>
<PAGE>
Allowance for Loan Losses. Allegiant Bancorp's allowance for loan
-------------------------
losses increased 29.1% from $6.4 million at December 31, 1998 to $8.3
million on December 31, 1999. This followed an increase of 24.1% in
1998 compared to 1997. The provision charged to expense was $2.5
million in 1999, similar to the $2.4 million expensed in 1998. The 1999
provision allowed the level of the allowance to increase to 1.35% of
total loans at December 31, 1999 compared to 1.30% at December 31, 1998.
As previously discussed, Allegiant Bancorp shifted its lending focus to
higher yielding commercial relationships. This shift, while providing
higher earnings potential, does entail greater risk than traditional
residential mortgage loans. Because of this shift, Allegiant Bancorp
increased the overall level of the allowance for loan losses. Further,
Allegiant Bancorp gave additional weight to the increased risks
associated with the commercial real estate portfolio. Allegiant Bancorp
increased specific allowances on certain commercial real estate loans
based on individual reviews of these loans and an estimate of the
borrower's ability to repay the loan given the availability of
collateral, other sources of cash flow and collection options available
to Allegiant Bancorp. The specific review of these commercial real
estate loans resulted in the increase in the percentage of allowance
allocated to this loan category. Net charge-offs for 1999 were 12 basis
points of average loans outstanding compared to 25 basis points in 1998
and 19 basis points in 1997. At year-end 1999, Allegiant Bancorp's
allowance represented 1,324.2% of non-performing loans compared to
362.3% at year-end 1998 and 377.1% at year-end 1997.
The allowance for loan losses is provided at a level considered
adequate to provide for potential loan losses and, among other things,
is based on Allegiant Bancorp management's evaluation of the anticipated
impact on the loan portfolio of current economic conditions, changes in
the character and size of the loan portfolio, evaluation of potential
problem loans identified based on existing circumstances known to
management and recent loan loss experience. Allegiant Bancorp
continually monitors the quality of its loan portfolio to ensure timely
charge-off of problem loans and to determine the adequacy of the level
of the allowance for loan losses. Allegiant Bancorp presently believes
that its asset quality, as measured by the statistics in the following
table, continues to be very high and that its allowance was adequate to
absorb potential losses inherent in the portfolio at December 31, 1999.
The following table summarizes Allegiant Bancorp's allocation of
the allowance for loan losses by major category and identifies the
percentage of each loan category to the total loan portfolio balance:
<TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
PERCENT PERCENT PERCENT
ALLOCATED OF ALLOCATED OF ALLOCATED OF
RESERVES TOTAL RESERVES TOTAL RESERVES TOTAL
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, agricultural,
municipal and industrial
development $2,082 25.04% $1,327 20.60% $1,352 26.04%
Real estate - construction 649 7.80 347 5.39 303 5.83
Real estate - mortgage
One- to four-family residential 1,712 20.59 1,222 18.97 636 12.25
Multi-family and commercial 3,208 38.58 2,883 44.75 1,572 30.27
Consumer and other 239 2.88 162 2.51 179 3.45
Unallocated 425 5.11 501 7.78 1,151 22.16
------ ------ ------ ------ ------ ------
Total $8,315 100.00% $6,442 100.00% $5,193 100.00%
====== ====== ====== ====== ====== ======
<PAGE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1995
-------------------- --------------------
PERCENT PERCENT
ALLOCATED OF ALLOCATED OF
RESERVES TOTAL RESERVES TOTAL
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial, agricultural,
municipal and industrial
development $ 833 26.87% $ 467 21.92%
Real estate - construction 124 4.00 281 13.19
Real estate - mortgage
One- to four-family residential 439 14.16 305 14.32
Multi-family and commercial 714 23.03 513 24.09
Consumer and other 142 4.58 90 4.23
Unallocated 848 27.36 474 22.25
------ ------ ------ ------
Total $3,100 100.00% $2,130 100.00%
====== ====== ====== ======
</TABLE>
- 74 -
<PAGE>
<PAGE>
The following table summarizes, for the periods indicated,
activity in Allegiant Bancorp's allowance for loan losses, including
amounts of loans charged off, amounts of recoveries and additions to the
allowance charged to operating expenses:
<TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses (beginning of year) $ 6,442 $ 5,193 $ 3,100 $ 2,130 $ 1,455
LOANS CHARGED OFF
Commercial, financial, agricultural,
municipal and industrial development (504) (632) (536) (113) (183)
Real estate--construction -- (7) (22) (250) (82)
Real estate--mortgage
One- to four-family residential (160) (307) (88) (37) --
Multi-family and commercial (23) (133) -- (75) --
Consumer and other (173) (147) (113) (68) (58)
-------- -------- -------- -------- --------
Total loans charged off (860) (1,226) (759) (545) (323)
-------- -------- -------- -------- --------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial, financial, agricultural,
municipal and industrial development 67 4 12 54 11
Real estate--construction -- 6 -- -- --
Real estate--mortgage
One- to four-family residential 95 14 10 3 --
Multi-family and commercial 10 20 20 -- --
Consumer and other 16 11 30 10 10
-------- -------- -------- -------- --------
Total recoveries 188 55 52 67 21
-------- -------- -------- -------- --------
Net loans charged off (672) (1,171) (707) (478) (302)
-------- -------- -------- -------- --------
Acquired subsidiary balance -- -- 403 -- --
Provision for loan losses 2,545 2,420 2,397 1,448 977
-------- -------- -------- -------- --------
Allowance for loan losses (end of year) $ 8,315 $ 6,442 $ 5,193 $ 3,100 $ 2,130
======== ======== ======== ======== ========
LOANS OUTSTANDING
Average $548,165 $493,619 $365,615 $232,314 $158,503
End of year 615,191 495,669 484,862 291,926 181,544
RATIOS
Net charge-offs to average loans 0.12% 0.25% 0.19% 0.21% 0.19%
Net charge-offs to provision for loan losses 26.39 48.39 29.50 33.01 30.91
Provision for loan losses to average loans 0.46 0.49 0.66 0.62 0.62
Allowance for loan losses to total loans 1.35 1.30 1.07 1.06 1.17
</TABLE>
Deposits. As shown below, Allegiant Bancorp's total deposits
--------
increased $97.7 million or 21.7% in 1999 compared to 1998. The increase
in deposits included $48.0 million in brokered certificates of deposit
which were utilized as a cost-effective method of funding a portion of
its loan growth in 1999. Money market accounts increased $36.9 million
or 29.8% to $160.7 million at December 31, 1999. Allegiant Bancorp
continues to attract money market deposits with competitive interest
rates and have increased these core deposits to 29.3% of total deposits
from 27.5% at December 31, 1998.
Average deposits for 1999 were $494.5 million compared to $475.7
million in 1998. The increase in average deposits included a $52.7
million increase in money market accounts and a decrease in certificates
of deposit of $34.2 million. Changes in the mix of average deposits
were the result of a reduction in emphasis on certificates of deposit
under $100,000 along with management's decision to replace these
deposits with more cost effective deposits.
- 75 -
<PAGE>
<PAGE>
<TABLE>
DEPOSIT LIABILITY COMPOSITIONS
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
PERCENT AVG. PERCENT AVG.
AMOUNT OF TOTAL RATE AMOUNT OF TOTAL RATE
------ -------- ---- ------ -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 51,845 9.45% --% $ 55,417 12.29% --%
Money market and
NOW accounts 185,193 33.77 3.99 142,902 31.70 4.12
Savings deposits 13,052 2.38 2.13 14,917 3.31 2.57
Certificates of deposit 181,700 33.13 5.23 187,886 41.68 5.73
Certificates of deposit
over $100,000 47,550 8.67 4.79 31,173 6.92 5.55
IRA Certificates 21,126 3.85 5.69 18,471 4.10 5.96
Brokered deposits over $100,000 48,000 8.75 5.58 -- -- --
-------- ------ -------- ------
Total Deposits $548,466 100.00% 4.63 $450,766 100.00% 5.13
======== ====== ======== ======
</TABLE>
<TABLE>
AMOUNTS AND MATURITIES OF BROKERED DEPOSITS
AND TIME DEPOSITS OF $100,000 OR MORE
<CAPTION>
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
Three months or less $36,220
Over three months through six months 33,724
Over six months through twelve months 16,167
Over twelve months 9,439
-------
Total $95,550
=======
</TABLE>
Interest Rate Sensitivity. Allegiant Bancorp's asset/liability
-------------------------
strategy is to minimize the sensitivity of earnings to changes in
interest rates while maintaining an acceptable net interest margin.
Allegiant Bank's asset/liability committee monitors the interest rate
sensitivity of the balance sheet on a monthly basis. The committee
reviews asset and liability repricing in the context of current and
future interest rate scenarios affecting the economic climate in
Allegiant Bancorp's market areas.
Allegiant Bancorp's pricing policy is that all earning assets and
interest bearing liabilities be either based on floating rates or have a
fixed rate not exceeding five years. Real estate mortgage loans held by
Allegiant Bancorp, while having long final maturities, are comprised of
one-, two- or three-year adjustable rate loans. The adjustable basis of
these loans significantly reduces interest rate risk.
- 76 -
<PAGE>
<PAGE>
The following table illustrates Allegiant Bancorp's estimated
interest rate sensitivity and periodic and cumulative gap positions
calculated as of December 31, 1999:
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
--------------------------------------------------------------------
0 TO 3 4 TO 12 1 TO 5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS (RSA)
Loans $312,621 $ 90,225 $210,509 $ 1,836 $615,191
Investment securities 7,036 9,285 25,306 19,170 60,797
Federal funds sold 9,927 -- -- -- 9,927
-------- -------- -------- -------- --------
Total RSA $329,584 $ 99,510 $235,815 $ 21,006 $685,915
======== ======== ======== ======== ========
RATE SENSITIVE LIABILITIES (RSL)
Money market accounts $160,701 $ -- $ -- $ -- $160,701
NOW accounts 24,492 -- -- -- 24,492
Savings 13,052 -- -- -- 13,052
Time deposits 36,838 100,022 65,688 457 203,006
Time deposits over $100,000 13,064 24,895 9,261 330 47,550
Brokered deposits 23,000 25,000 -- -- 48,000
Repurchase agreements 17,787 93 480 -- 18,361
Short-term borrowings--other -- 500 -- -- 500
Short-term FHLB borrowings 32,500 24,500 -- -- 57,000
Long-term FHLB borrowings 6 20 22,249 935 23,210
Long-term borrowings--other -- -- 11,798 17,922 29,720
-------- -------- -------- -------- --------
Total RSL $321,441 $175,031 $109,476 $ 19,644 $625,592
======== ======== ======== ======== ========
PERIODIC INFORMATION
GAP (RSA-RSL) $ 8,143 $(75,520) $126,339 $ 1,362
RSA/RSL 102.53% 56.85% 215.40% 106.94
RSA/total assets 45.24 13.66 32.37 2.88
RSL/total assets 44.12 24.03 15.03 2.70
GAP/total assets 1.12 (10.37) 17.34 0.19
GAP/RSA 2.47 (75.89) 53.58 6.48
CUMULATIVE INFORMATION
Cumulative RSA $329,584 $429,094 $664,909 $685,915
Cumulative RSL 321,441 496,472 605,948 625,592
GAP (RSA-RSL) 8,143 (67,378) 58,961 60,323
RSA/RSL 102.53% 86.43% 109.73% 109.64%
RSA/total assets 45.24 58.90 91.27 94.16
RSL/total assets 44.12 68.15 83.18 85.87
GAP/total assets 1.12 (9.25) 8.09 8.28
GAP/RSA 2.47 (15.70) 8.87 8.79
</TABLE>
Allegiant Bancorp measures the impact of interest rate changes on
its income statement through the use of gap analysis. The gap
represents the net position of assets and liabilities subject to
repricing in specified time periods. During any given time period, if
the amount of rate-sensitive liabilities exceeds the amount of rate-
sensitive assets, a company would generally be considered negatively
gapped and would benefit from falling rates over that period of time.
Conversely, a positively gapped company would generally benefit from
rising rates.
Allegiant Bancorp structured its assets and liabilities to
mitigate the risk of either a rising or falling interest rate
environment. Depending upon Allegiant Bancorp's assessment of economic
factors such as the magnitude and direction of projected interest rates
over the short and long term, Allegiant Bancorp generally operates
within guidelines set by its asset/liability policy and attempt to
maximize its returns within an acceptable degree of risk. Allegiant
Bancorp's intention is to maintain a gap position at the one-year
horizon of between 0.75% and 1.25%. Allegiant Bancorp's position at
December 31, 1999 was 0.86%. Allegiant Bancorp manages its gap position
at the one-year horizon as well as monitor the cumulative gap position
for succeeding time frames.
- 77 -
<PAGE>
<PAGE>
Interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously. There are other factors that are
difficult to measure and predict that would influence the effect of
interest rate fluctuations on Allegiant Bancorp's income statement. For
example, a rapid drop in interest rates might cause Allegiant Bancorp's
borrowers to repay their loans at a more rapid pace and certain
mortgage-related investments to be prepaid more quickly than projected.
This could mitigate some of the benefits of falling rates as are
expected when negatively gapped. Conversely, a rapid rise in rates
could give Allegiant Bancorp an opportunity to increase its margins and
stifle the rate of repayment on its mortgage-related loans which would
increase its returns.
The following table shows the "rate shock" results of a simulation
model that attempts to measure the effect of rising and falling interest
rates over a two-year horizon in a rapidly changing rate environment.
<TABLE>
<CAPTION>
+200 BASIS -200 BASIS
POINTS POINTS
---------- ----------
<S> <C> <C>
Percentage change in net income due to an
immediate 200 basis point change in interest rates
over a two-year time horizon +17.5% -21.0%
</TABLE>
Allegiant Bancorp uses a sensitivity model that simulated these
interest rate changes on its earning assets and interest-bearing
liabilities. This process allows Allegiant Bancorp to explore the
complex relationships among the financial instruments in various
interest rate environments.
The preceding sensitivity analysis is based on numerous
assumptions including: the nature and timing of interest rate levels
including the shape of the yield curve; prepayments on loans and
securities; changes in deposit levels; pricing decisions on loans and
deposits; reinvestment/replacement of asset and liability cash flows;
and others. While assumptions are developed based upon current economic
and local market conditions, Allegiant Bancorp makes no assurances as to
the predictive nature of these assumptions including how client
preferences or competitor influences might change.
Interest rate exposure is measured by the potential impact on
Allegiant Bancorp's income statement of changes in interest rates.
Allegiant Bancorp uses information from its gap analysis and rate shock
calculations as input to help manage its exposure to changing interest
rates.
Allegiant Bancorp uses its rate shock information to analyze how
much exposure Allegiant Bancorp has to rapidly changing rates. Based on
historical information and Allegiant Bancorp's assessment of future
interest rate trends, Allegiant Bancorp does not believe that rapidly
rising rates would have a significant positive impact on its results of
operations. Conversely, Allegiant Bancorp also believes there is
minimal likelihood that rapidly falling rates would have a significant
negative impact on its results of operations.
Allegiant Bancorp believes that more likely scenarios include
gradual changes in interest rate levels. Allegiant Bancorp continues to
monitor its gap and rate shock analyses to detect changes to its
exposure to fluctuating rates. Allegiant Bancorp has the ability to
shorten or lengthen maturities on newly acquired assets, sell investment
securities, or seek funding sources with different maturities in order
to change its asset and liability structure for the purpose of
mitigating the effect of interest rate risk.
- 78 -
<PAGE>
<PAGE>
The following table provides additional information about
Allegiant Bancorp's financial instruments at December 31, 1999. For
loans, securities and liabilities with contractual maturities, the table
presents principal cash flow and related weighted-average interest rates
by contractual maturities. Core deposits that have no contractual
maturity are subject to immediate withdrawal or repricing.
<TABLE>
<CAPTION>
YEAR OF CONTRACTUAL MATURITY
-----------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL
-------- ------- -------- ------- ------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS
Fixed rate loans $ 77,997 $46,728 $101,747 $24,180 $22,497 $13,730 $286,880
Average interest rate 8.57% 8.35% 8.27% 8.34% 8.03% 8.29% 8.35%
Variable rate loans $217,921 $21,557 $ 26,837 $ 7,470 $10,889 $43,637 $328,312
Average interest rate 9.04% 8.92% 8.47% 8.79% 8.52% 7.78% 8.79%
Fixed rate securities $ 5,881 $ 7,065 $ 5,484 $ 7,854 $ 4,630 $16,340 $ 47,254
Average interest rate 6.17% 6.65% 6.76% 6.82% 7.17% 6.88% 6.76%
Variable rate securities $ 4,000 -- -- -- -- -- $ 4,000
Average interest rate 4.86% -- -- -- -- -- 4.86%
Federal funds sold and other
overnight investments $ 9,927 -- -- -- -- -- $ 9,927
Average interest rate 6.17% -- -- -- -- -- 6.17%
RATE-SENSITIVE LIABILITIES
Non interest-bearing
deposits $ 51,845 -- -- -- -- -- $ 51,845
Savings and interest-
bearing checking 358,946 -- -- -- -- -- $358,946
Average interest rate 3.96% -- -- -- -- -- 3.96%
Time deposits $228,382 $56,378 $ 10,390 $ 5,610 $ 2,871 $ 787 $304,419
Average interest rate 5.29% 5.52% 5.68% 5.64% 5.40% 6.51% 5.35%
Fixed interest rate
borrowings $ 55,861 $12,650 $ 625 $ 1,500 -- $41,085 $111,721
Average interest rate 5.20% 7.00% 5.87% 5.62% -- 5.27% 5.44%
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER
31, 1998 AND 1997. Allegiant Bancorp reported record earnings for 1998.
Consolidated net income was $4.53 million, an increase of 87.74% over
the 1997 level of $2.42 million. The 1998 results represented Allegiant
Bancorp's seventh consecutive year of record earnings. Net income has
increased at a compound rate of 78.24% over the past five years. Basic
earnings per share were $0.72 compared to $0.54 in 1997, an increase of
33.33%. A similar increase was achieved in diluted earnings per share
with 1998 results of $0.68 increasing 38.78% compared to the $0.49
recorded for 1997. Diluted earnings per share have grown at a compound
rate of 33.56% during the last five years.
Return on average assets for 1998 was 0.73%, an improvement from
0.52% recorded for 1997. The improvement in return on assets was the
result of lower asset growth, improved net interest income, improved mix
of earning assets and a considerable increase in shareholders' equity.
Return on average shareholders' equity was 10.14% in 1998 compared to
9.55% in 1997. The improvement in 1998 was achieved despite a 76.82%
increase in average equity between 1998 and 1997.
Net Interest Income. Net interest income totaled $21.95 million,
-------------------
an increase of $5.65 million in 1998 compared to an increase of $6.24
million in 1997. The net interest spread increased by 13 basis points
and the net interest margin increased by 11 basis points from the prior
year. All of these increases were the result of a relatively stable
rate environment, the shifting of earning assets into higher yielding
loans and overall growth in average earning assets and interest bearing
liabilities. Partially offsetting these positive factors were the
declines in the prime lending rate which affected Allegiant Bancorp's
floating rate loans, the decline in the ratio of earning assets to total
assets and a decline in non-interest bearing demand deposits to total
deposits. Net interest margin and net interest spread were fairly
stable throughout the year, with only minor quarterly fluctuations. The
increase in net interest spread was due to the yields on earning assets
declining only 2 basis points year-to-year compared to a decline of 15
basis points on interest bearing liabilities. In 1997, the spread
increased 28 basis points as a result of similar changes on both sides
of the balance sheet, earning assets increasing 14 basis points and
interest bearing liabilities decreasing 14 basis points. In 1998, the
yield on loans declined by 16 basis points. However, this decline was
offset by an increase in the ratio of loans to total earning assets
improving to 85.96% in 1998 compared to 83.17% in 1997. Generally flat
or lower rates were paid on all categories of interest bearing
liabilities. Total cost of
- 79 -
<PAGE>
<PAGE>
deposits declined 11 basis points due to a reduction of rates paid on
money market and NOW accounts, savings deposits and retail certificates
of deposit. Further reduction in the costs of short-term and long-term
borrowings also helped lower the overall costs of funds, despite the
substantial increase in long-term debt.
Average earning assets increased $134.61 million, or 30.62%,
during 1998 compared to an increase of $143.23 million, or 48.33%, in
1997. Average loans increased 35.01%, or $128.00 million, compared to
growth of 57.35%, or $133.30 million, in 1997. The growth in average
loans includes the bulk sale of mortgage loans that occurred during the
second and third quarters of 1998. These sales, which aggregated $77.04
million, decreased average loans outstanding for the year by
approximately $34.32 million. Allegiant Bancorp's securities portfolio
(held-to-maturity and available-for sale) increased 9.25% during 1998
compared to an increase of 7.41% in 1997. Average investment securities
represented 12.46% of earning assets during 1998 compared to 14.91%
during 1997. This decline in the relative amount of investment
securities was directly correlated to the increase in the percentage of
loans to earning assets mentioned above. In essence, strong loan growth
necessitated the reduction in the growth of the securities portfolio.
Earning assets as a percentage of total assets declined again in 1998 to
92.76% from 94.94% in 1997. The increase in non-earning assets was the
result of opening additional branch locations as well as acquisitions,
which increased the number of branches and intangible assets. This
growth was somewhat mitigated by the sale of three branch offices of the
bank located outside the St. Louis metropolitan area, which occurred in
December of 1998. The impact of this change to average balances was
minimal due to the timing of the consummation of Allegiant Bancorp's
branch sales.
Average interest bearing liabilities increased 30.61%, or $121.97
million, for 1998 compared to an increase of $127.23 million, or 46.91%,
in 1997. Average deposits increased 29.96% to $475.74 million compared
to $366.07 million in 1997. As was the case in 1997, only moderate
changes occurred in the mix of deposits. During 1998, certificates of
deposit over $100,000 declined as a percent of total deposits while
retail certificates of deposit increased. Non-interest bearing deposits
as a percentage of total deposits declined only 10 basis points to
10.00% from 10.10%. The substantial growth in average deposits and the
relatively stable mix allowed for the average cost of interest bearing
deposits to decline by 11 basis points.
Average short-term borrowings were flat during the year averaging
$52.86 million during 1998 compared to $52.70 million during 1997. The
level of short-term borrowings during 1998 was consistent throughout the
year with only minor fluctuations between quarters.
Average long-term debt for 1998 increased 136.54%, or $22.75
million. The majority of this increase was due to long-term borrowings
from the Federal Home Loan Bank of $26.63 million at December 31, 1998,
a $17.00 million change from December 31, 1997. Allegiant Bancorp uses
the Federal Home Loan Bank as a cost-effective source of funding loans.
Additionally, during November 1998, Allegiant Bancorp refinanced a
portion of its long-term debt and its entire issue of subordinated
debentures with a $13.65 million, 7.00% fixed rate, three-year note.
- 80 -
<PAGE>
<PAGE>
The following table sets forth Allegiant Bancorp's condensed
average balance sheets for the periods reported and the percentage of
each principal category of assets, liabilities and shareholders' equity
to total assets. Also shown is the average yield on each category of
interest earning assets and the average rate paid on interest-bearing
liabilities for each of the periods reported.
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1998 1997
-------------------------------------- -------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE
-------- ----------- ---------- -------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Loans<F1> $493,619 $44,412 9.00% $365,615 $33,473 9.16%
Taxable investment securities 70,079 4,223 6.03 64,384 3,910 6.07
Non-taxable investment securities<F2> 1,494 72 4.89 1,130 56 4.96
Federal funds sold and other
investments 9,036 511 5.66 8,492 326 3.84
-------- ------- -------- -------
Total interest earning assets 574,228 49,218 8.57 439,621 37,765 8.59
Non-interest earning assets
Cash and due from banks 12,230 9,341
Bank premises and equipment 10,994 6,869
Other assets 27,238 11,065
Allowance for loan losses (5,674) (3,867)
-------- --------
Total assets $619,016 $463,029
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
Money market and NOW accounts $126,829 5,221 4.12% $ 95,431 4,092 4.29%
Savings deposits 16,524 425 2.57 9,665 279 2.89
Certificates of deposit 224,661 12,878 5.73 162,870 9,436 5.79
Certificates of deposit over $100,000 39,581 2,198 5.55 48,358 2,686 5.55
IRA certificates 20,584 1,227 5.96 12,780 760 5.95
-------- ------- -------- -------
Total interest bearing deposits 428,179 21,949 5.13 329,104 17,253 5.24
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements and other short-term
borrowings 52,855 2,624 4.96 52,702 2,895 5.49
Other borrowings 39,403 2,694 6.84 16,658 1,318 7.91
-------- ------- -------- -------
Total interest bearing liabilities 520,437 27,267 5.24 398,464 21,466 5.39
-------- ------- -------- -------
Non-interest bearing liabilities and equity
Demand deposits 47,560 36,966
Other liabilities 6,298 2,307
Shareholders' equity 44,721 25,292
-------- --------
Total liabilities and shareholders'
equity $619,016 $463,029
======== ========
Net interest income $21,951 $16,299
======= =======
Net interest spread 3.33% 3.20%
Net interest margin 3.82% 3.71%
<FN>
__________________
<F1> Average balances include non-accrual loans.
<F2> Presented at actual yield rather than tax-equivalent yield.
</TABLE>
- 81 -
<PAGE>
<PAGE>
The following table sets forth for the periods indicated,
Allegiant Bancorp's changes in interest income and interest expense
which were attributable to changes in average volume and changes in
average rates. Volume variances are computed using the change in volume
multiplied by the previous year's rate. Rate variances are computed
using the changes in rate multiplied by the previous year's volume. The
change in interest due to both rate and volume has been allocated
between the factors in proportion to the relationship of the absolute
dollar amounts of the change in each.
<TABLE>
RATE/VOLUME ANALYSIS
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE
YEAR ENDED DECEMBER 31, 1997
--------------------------------------
VOLUME RATE NET CHANGE
------ ---- ----------
INTEREST EARNED ON (IN THOUSANDS)
<S> <C> <C> <C>
Loans $11,534 $(595) $10,939
Taxable investment securities 340 (27) 313
Non-taxable investment securities 16 -- 16
Federal funds sold and other investments 24 161 185
------- ----- -------
Total interest income 11,914 (461) 11,453
------- ----- -------
INTEREST PAID ON
Money market and NOW accounts 1,297 (168) 1,129
Savings deposits 180 (34) 146
Certificates of deposit 3,539 (97) 3,442
Certificates of deposit over $100,000 (488) -- (488)
IRA certificates 465 2 467
Federal funds purchased, repurchase agreements
and other short-term borrowings 8 (279) (271)
Other borrowings 1,577 (201) 1,376
------- ----- -------
Total interest expense 6,578 (777) 5,801
------- ----- -------
Net interest income $ 5,336 $ 316 $ 5,652
======= ===== =======
</TABLE>
Other Income. Other income increased 182.72% totaling $9.32 million
------------
in 1998 compared to $3.30 million in 1997. Included in other income in
1998 were $3.55 million of non-recurring gains, specifically: $2.37
million from the sale of branches; $1.11 million from the sale of
mortgage loans; and $0.07 million from securities transactions.
Eliminating all one-time or discretionary gains, 1998 other income was
$5.77 million compared to $3.27 million in 1997. The increase in 1998
was due to substantial growth in mortgage banking revenues, leasing
revenues, deposit service charges and brokerage revenues. Other income,
excluding non-recurring gains, has increased at a compound growth rate
of 82.93% over the last five years.
In December 1998, Allegiant Bancorp completed the sale of three
branch offices of Allegiant Bancorp located outside the St. Louis
metropolitan area in order to focus on, and expand its market share in,
its market area. This sale generated a reduction in loans of $13.52
million, a reduction in deposits of $39.99 million and a pre-tax gain of
$2.37 million.
Also during the year, Allegiant Bancorp completed two significant
sales of a large portion of its one- to four-family adjustable rate
mortgage loans. These sales generated a pre-tax gain of $1.11 million.
While Allegiant Bancorp previously had sold some of its mortgage loans,
the 1998 bulk sales reflect a shift in its strategy from originating and
holding mortgage loans to increasing Allegiant Bancorp's lending
emphasis on more profitable commercial loan relationships. During 1998,
Allegiant Bancorp also hired several experienced commercial loan
officers in order to implement its strategy.
Mortgage banking revenues increased 76.85% in 1998 to $2.30 million.
This compares to $1.30 million in 1997. The increase was attributable
to a continued favorable economic environment of low unemployment and
stable, low long-term interest rates. Allegiant Bancorp benefited from
these macro economic trends as well as a larger customer base.
- 82 -
<PAGE>
<PAGE>
Leasing revenues totaled $1.53 million, an increase of 252.66%
compared to 1997's level of $0.44 million. Allegiant Bancorp entered
the retail leasing business during 1997 and the 1998 results reflect a
full year of business operation compared to a partial year in 1997.
During the latter part of 1998, a decision was made to curtail this line
of business because of declining profit margins.
Service charges on deposit accounts increased 51.92% to $1.39 million
in 1998 compared to $0.91 million in 1997. The increase in 1998 was due
to a larger customer base generating an increased number of transaction
deposits as well as the benefit of a full year of the bank's revised fee
structure.
Brokerage revenues increased 84.62% to $0.31 million compared to
$0.17 million in 1997. Part of this increase reflects a full year of
operation in 1998 compared to nine months of operation in 1997 and
higher transaction volumes.
Other Expenses. Total other expenses increased 62.94%, or $8.23
--------------
million, during 1998, totaling $21.30 million compared to $13.07 million
in 1997. Operating expenses have increased at a 52.93% five year annual
compound growth rate. Allegiant Bancorp's efficiency ratio for 1998 was
68.09%, up slightly from 66.69% in 1997. The increase in this ratio was
the result of acquisitions, deposit purchases, start-up costs associated
with new lines of business and costs resulting from additional banking
locations.
Salaries and employee benefits showed the largest dollar increase
year to year, increasing $3.47 million to $9.66 million compared to
$6.19 million in 1997. The percentage increase for 1998 was 56.06%.
The increase in 1998 was due to additional staffing resulting from
acquisitions and new locations. Also included in this caption was a
payout related to a phantom stock plan for Allegiant Bancorp's
president. Amounts expensed under this plan, which has expired, were
$0.05 million in 1998 and $0.23 million in 1997. Average full-time
equivalent employees for 1998 were 237 compared to 146 in 1997, a 62.33%
increase. At December 31, 1998 Allegiant Bancorp had 215 full-time
equivalent employees compared to 209 at year-end 1997.
Furniture and equipment expenses increased $0.81 million to $1.75
million in 1998. The increase in 1998 was the result of acquisitions in
1997 and branch openings in 1998 and 1997. Additionally, investments in
computer resources in both years also contributed to the large increase.
Occupancy expenses totaled $1.52 million, an increase of $0.79 million,
or 106.37%, during 1998. The increase was attributable to acquisitions
and branch openings, as mentioned above. Depreciation of the assets
held for operating leases increased $0.95 million in 1998 compared to
1997. As previously discussed, the retail leasing business was started
in late 1997 so that 1998 reflects a full year of operations.
Expense for the amortization of goodwill increased 154.19% during
1998 or $0.55 million, totaling $0.91 million compared to $0.39 million
in 1997. This increase was the result of acquisitions and deposit
purchases undertaken during 1997 and reflected a full year of
amortization during 1998.
In 1998, operating losses totaled $0.72 million, as compared to $0.94
million in 1997. Of the amount in 1997, $0.75 million was considered
systemic and non-recurring due to integration of two branch acquisitions
and difficulties associated with upgrading Allegiant Bancorp's computer
systems to an entirely new operating system. Excluding non-recurring
items in 1997, the increase in operating losses in 1998 was
$0.53 million. The 1998 operating losses relate to inconsistent
operating procedures as a result of expanding the number of branches and
number of employees. Throughout 1998, Allegiant Bancorp reengineered
several operational processes in an effort to improve quality and
control.
Other non-interest expense increased $1.82 million in 1998 compared
to 1997. This growth in expenses was associated with increases in the
number of employees, deposit and loan accounts and physical locations as
compared to prior years.
- 83 -
<PAGE>
<PAGE>
The following table sets forth a summary of Allegiant Bancorp's other
income and expense for the years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OTHER INCOME
Gain on sale of branches $ 2,370 $ --
Mortgage banking revenues 2,299 1,300
Leasing revenues 1,527 433
Service charges on deposits 1,387 913
Gain on sale of mortgage loans 1,112 27
Brokerage division revenues 312 169
Gain on the sale of securities 68 2
Other non-interest income 249 454
------- -------
Total other income $ 9,324 $ 3,298
======= =======
OTHER EXPENSES
Salaries and employee benefits $ 9,663 $ 6,192
Furniture and equipment 1,752 943
Occupancy 1,523 738
Depreciation of operating leases 1,340 394
Goodwill amortization 910 358
Operating losses 722 938
Supplies 489 428
Other non-interest expense 4,896 3,078
------- -------
Total other expenses $21,295 $13,069
======= =======
</TABLE>
Securities Portfolio. Allegiant Bancorp's securities portfolio
--------------------
consists of securities classified as held-to-maturity and available for
sale. Allegiant Bancorp designates these securities upon purchase into
one of these two categories. At December 31, 1998, held-to-maturity
securities amounted to $12.04 million representing those securities
Allegiant Bancorp intended to hold to maturity. Securities designated
as available for sale totaled $42.74 million representing securities
which Allegiant Bancorp may sell to meet liquidity needs or in response
to significant changes in interest rates or prepayment patterns.
For purposes of this discussion, held-to-maturity and available
for sale securities are described as the securities portfolio. At
December 31, 1998, the securities portfolio totaled $54.78 million, a
decline of 28.74% from the preceding year. The decline in the
securities portfolio occurred in the fourth quarter of 1998, as
maturities were not rolled over in order to fund the previously
mentioned branch sales. While average balances for 1998 were higher
than 1997, the relative percentage of securities to earning assets
declined to 12.46% in 1998 compared to 14.91% in 1997. This decline
reflected management's decision to allow maturing securities to be
reinvested in higher yielding commercial loans. Allegiant Bancorp
maintains a traditional short-term laddered portfolio investment
strategy to insure adequate liquidity while minimizing interest rate
risk.
The carrying values of Allegiant Bancorp's securities portfolio at
the dates indicated were as follows:
<TABLE>
SECURITIES PORTFOLIO
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
U.S. governmental and agency securities $37,021 $48,354
Mortgage-backed securities 11,930 18,548
Federal Home Loan Bank stock 3,574 7,033
State and municipal securities 1,464 1,563
Other securities 791 1,371
------- -------
Total securities $54,780 $76,869
======= =======
</TABLE>
- 84 -
<PAGE>
<PAGE>
Maturities and yield information of Allegiant Bancorp's securities
portfolio as of December 31, 1998 were as follows:
<TABLE>
SECURITIES--MATURITIES AND YIELDS<F1>
<CAPTION>
WEIGHTED OVER ONE WEIGHTED OVER FIVE WEIGHTED WEIGHTED
ONE YEAR AVERAGE THROUGH AVERAGE THROUGH AVERAGE OVER TEN AVERAGE
OR LESS YIELD FIVE YEARS YIELD TEN YEARS YIELD YEARS YIELD
-------- -------- ---------- -------- --------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. governmental and agency
securities $24,549 5.89% $12,472 5.94% $ -- --% $ -- --%
Mortgage-backed securities 6,579 6.42 5,294 5.86 57 9.68
Federal Home Loan Bank stock 3,574 6.55 -- -- -- -- -- --
States and municipal securities 324 4.87 281 5.08 859 4.87 -- --
Other securities -- -- 791 6.21 -- -- -- --
------- ------- ---- -------
Total securities $35,026 6.05% $18,838 5.91% $916 5.17% $ -- --
======= ======= ==== =======
Total securities portfolio $54,780 5.99%
=======
<FN>
____________________
<F1> Maturities are shown in this table by expected maturity. Expected
maturities differ from contractual maturities due to the right to
call or prepay obligations. Yields on tax-exempt obligations have
been presented on an actual basis rather than a tax-equivalent
basis.
</TABLE>
Loans. Loans have historically been the primary component of
-----
earning assets. At December 31, 1998 loans totaled $495.67 million, an
increase of 2.23% from year-end 1997. This small increase included the
sale of $78.4 million of mortgage loans. Without this sale, year-end
1998 loans would have increased 18.31% compared to year-end 1997.
Average loans increased 35.01% during 1998 compared to a 57.38% increase
in 1997. Loans have increased at a 48.01% compound average growth rate
over the last five years. Substantially all of these loans were
originated in Allegiant Bancorp's primary market areas. At December 31,
1998, Allegiant Bancorp had no foreign loans and only a minimal amount
of participations purchased.
The largest increase in loans involved commercial real estate
loans, which increased $61.09 million, or 45.10%, in 1998. Traditional
commercial loans showed the second largest increase of $16.30 million,
or 14.83%. Growth in both of these categories reflected Allegiant
Bancorp management's decision to focus on the more profitable commercial
relationships instead of emphasizing one- to four-family mortgage loans.
Allegiant Bancorp accomplished the growth in the commercial sectors by
hiring several additional commercial lending personnel and directing
existing staff toward developing commercial banking relationships. As a
result of this emphasis, commercial real estate loans comprised 39.65%
of the loan portfolio at December 31, 1998 compared to 27.94% at
December 31, 1997. Traditional commercial loans comprised 25.47% of the
portfolio at December 31, 1998 versus 22.67% in 1997. Additionally,
construction loans, which can be viewed as commercially oriented,
increased 34.62%, totaling $36.59 million at year-end 1998 compared to
$27.18 million at year-end 1997. Finally, consumer loans increased
$4.09 million, or 24.30%, during 1998, reaching $20.91 million at
December 31, 1998 compared to $16.82 million at December 31, 1997.
The decline in one- to four-family residential loans offsets the
substantial loan growth mentioned above. This category of loans
declined $79.67 million during 1998. This decline was accomplished by
the bulk sale of loans mentioned before as well as normal pay-offs and
amortization. This category represented 23.46% of total loans at year-
end 1998 compared to 40.42% of total loans at year-end 1997.
- 85 -
<PAGE>
<PAGE>
The following table summarizes the composition of Allegiant
Bancorp's loan portfolio at the dates indicated:
<TABLE>
LOAN PORTFOLIO--TYPES OF LOANS
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------- ------------------- --------------------- --------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ------- ------ ------- ------ ------- ------ ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural,
municipal and
industrial
development $126,239 25.47% $109,937 22.67% $ 75,129 25.74% $ 40,518 22.32% $ 28,212 23.24%
Real estate --
construction 36,590 7.38 27,181 5.61 8,763 3.00 8,777 4.83 5,504 4.53
Real estate --
mortgage
One- to four-family
residential 116,291 23.46 195,964 40.42 121,386 41.58 71,260 39.25 47,109 38.81
Multi-family and
commercial 196,545 39.65 135,452 27.94 74,721 25.60 52,795 29.08 31,813 26.21
Consumer and other,
net of unearned
income 20,004 4.04 16,328 3.36 11,927 4.08 8,194 4.52 8,755 7.21
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans $495,669 100.00% $484,862 100.00% $291,926 100.00% $181,544 100.00% $121,393 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
LOAN PORTFOLIO - MATURITIES AND SENSITIVITIES OF LOANS
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------------
MATURING AFTER ONE YEAR MATURING AFTER
MATURING IN THROUGH FIVE YEARS FIVE YEARS
ONE YEAR ------------------------- -------------------------
OR LESS FIXED-RATE VARIABLE FIXED-RATE VARIABLE TOTAL
----------- ---------- -------- ---------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, agricultural,
Municipal and industrial
development $ 99,942 $ 24,180 $ 500 $ 1,617 $ -- $126,239
Real estate-construction 33,661 2,222 -- 707 36,590
Real estate-mortgage
One- to four-family residential 81,815 29,313 28 5,135 -- 116,291
Multi-family and commercial 92,411 98,141 1,556 4,437 -- 196,545
Consumer and other, net of
unearned income 10,966 8,870 -- 168 -- 20,004
-------- -------- ------ ------- ------ --------
Total loans $318,795 $162,726 $2,084 $12,064 $ -- $495,669
======== ======== ====== ======= ====== ========
</TABLE>
Asset Quality. Non-performing assets consist of the following:
-------------
nonaccrual loans on which the ultimate collectibility of the full amount
of interest is uncertain; loans which have been renegotiated to provide
for a reduction or deferral of interest or principal because of a
deterioration in the financial condition of the borrower; and loans past
due 90 days or more as to principal or interest and other real estate
owned. Non-performing assets increased slightly to $1.78 million at
December 31, 1998 compared to $1.71 million at December 31, 1997. At
December 31, 1998 non-performing assets represented 0.30% of total
assets compared to 0.28% of total assets at December 31, 1997. Non-
accrual loans were $1.50 million at December 31, 1998 compared to
$0.56 million at December 31, 1997. This increase was offset by
declines in loans delinquent 90 days or more, reflecting migration to
non-accrual status, and by the elimination of other real estate owned.
At December 31, 1998, Allegiant Bank had one loan relationship,
not included in the past-due, restructured or non-accrual categories,
where known information about possible credit problems caused management
to be uncertain as to the ability of the borrower to comply with the
present loan repayment terms over the next six months. This loan
relationship totaled $2.51 million at December 31, 1998. Principal and
interest payments were current at December 31, 1998.
Allegiant Bancorp continually analyzes its loan portfolio to
identify potential risk elements. The loan portfolio is reviewed by
Allegiant Bancorp's lending management and Allegiant Bank's internal
loan review staff. As an integral part of their examination process,
the various regulatory agencies periodically review Allegiant
- 86 -
<PAGE>
<PAGE>
Bancorp's allowance for loan losses. Allegiant Bancorp believes that
its allowance for loan losses at December 31, 1998 was consistent with
applicable regulatory requirements.
The following table summarizes, at the dates presented, Allegiant
Bancorp's non-performing assets by category:
<TABLE>
RISK ELEMENTS--NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMMERCIAL, FINANCIAL, AGRICULTURAL, MUNICIPAL
AND INDUSTRIAL DEVELOPMENT
Past due 90 days or more $ -- $ 341 $ 5 $ 113 $ --
Non-accrual 962 360 207 109 40
Restructured terms -- -- -- -- --
REAL ESTATE--CONSTRUCTION
Past due 90 days or more -- -- 264 36 90
Non-accrual -- 108 84 20 35
Restructured terms -- -- -- 3 --
REAL ESTATE--MORTGAGE
One- to four-family residential
Past due 90 days or more 69 456 -- -- --
Non-accrual 378 70 -- -- --
Restructured terms -- -- -- --
Multi-family and commercial
Past due 90 days or more -- -- -- -- --
Non-accrual 307 -- -- -- --
Restructured terms -- -- -- -- --
CONSUMER AND OTHER, NET OF UNEARNED INCOME
Past due 90 days or more -- 21 23 12 8
Non-accrual 62 21 109 15 --
Restructured terms -- -- -- -- --
------- ------- ------- ------- -------
Total non-performing loans 1,778 1,377 692 308 173
------- ------- ------- ------- -------
Other real estate -- 330 -- 10 25
------- ------- ------- ------- -------
Total non-performing assets $ 1,778 1,707 $ 692 $ 318 $ 198
======= ======= ======= ======= =======
RATIOS
Non-performing loans to total loans 0.36% 0.28% 0.24% 0.17% 0.14%
Non-performing assets to total assets 0.30 0.28 0.18 0.11 0.12
Non-performing loans to shareholders' equity 3.70 3.27 4.22 2.21 2.05
Allowance for loan losses to total loans 1.30 1.07 1.06 1.17 1.20
Allowance for loan losses to non-performing loans 362.32 377.12 447.98 691.56 841.04
</TABLE>
Interest income that would have been recorded during the year
ended December 31, 1998 had all non-accrual, past due and restructured
loans been current in accordance with their original terms was
immaterial.
Allowance for Loan Losses. Allegiant Bancorp's allowance for loan
-------------------------
losses increased 24.05% from $5.19 million on December 31, 1997 to $6.44
million on December 31, 1998. The provision charged to expense was
$2.42 million in 1998. This level, coupled with the bulk sale of loans
previously mentioned, allowed the level of the allowance to increase to
1.30% of total loans at December 31, 1998 compared to 1.07% at December
31, 1997. As mentioned above in the loan discussion, Allegiant Bancorp
shifted its lending focus in 1998 to higher yielding commercial
relationships. This shift, while providing higher earnings potential,
does entail greater risk than
- 87 -
<PAGE>
<PAGE>
traditional residential mortgage loans. Because of this shift,
Allegiant Bancorp increased the overall level of the allowance for loan
losses. Additionally, as can be seen from the allocation of the
allowance, additional weight was given to the increased risks associated
with the commercial real estate portfolio that was reflected in the real
estate -- mortgage category. Net charge-offs for 1998 were 24 basis
points of average loans outstanding. Although up from 1997's level of
19 basis points, net charge-offs in 1998 were low and consistent with
Allegiant Bancorp's historically low charge-off ratio. At year-end
1998, Allegiant Bancorp's allowance represented 362.32% of non-
performing loans compared to 377.12% at year-end 1997.
Allegiant Bancorp provides the allowance for loan losses at a
level considered adequate to provide for potential loan losses and,
among other things, is based on its management's evaluation of the
anticipated impact on the loan portfolio of current economic conditions,
changes in the character and size of the loan portfolio, evaluation of
potential problem loans identified based on existing circumstances known
to management, potential future loan losses on loans to specific
customers or industries and recent loan loss experience. Allegiant
Bancorp continually monitors the quality of its loan portfolio to ensure
the timely charge-off of problem loans and to determine the adequacy of
the level of the allowance for loan losses. Allegiant Bancorp believed
that its asset quality, as measured by the statistics in the following
table, continued to be very high and that the allowance was adequate to
absorb potential losses in the portfolio at December 31, 1998. See the
tables entitled "--Allocation of the Allowance for Loan Losses" and
"Summary of Loan Loss Experience and Related Information" in the
"--Allowance for Loan Losses" section above for further detail.
The following table summarizes Allegiant Bancorp's allocation of
the allowance for loan losses by major category and identifies the
percentage of each loan category to the total loan portfolio balance:
<TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------- -------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
ALLOCATED OF ALLOCATED OF ALLOCATED OF ALLOCATED OF ALLOCATED OF
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural,
municipal and
industrial
development $1,327 25.47% $1,352 22.67% $ 833 25.74% $ 467 22.32% $ 315 23.24%
Real estate --
construction 347 7.38 303 5.61 124 3.00 281 4.83 74 4.53
Real estate --
mortgage
One- to four-family
residential 1,222 23.46 636 40.42 439 41.58 305 39.25 128 38.81
Multi-family and
commercial 2,883 39.65 1,572 27.94 714 25.60 513 29.08 343 26.21
Consumer and others 162 4.04 179 3.36 142 4.08 90 4.52 93 7.21
Unallocated 501 -- 1,151 -- 848 -- 474 -- 502 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $6,442 100.00% $5,193 100.00% $3,100 100.00% $2,130 100.00% $1,455 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Deposits. Allegiant Bancorp's total deposits declined $33.88
--------
million, or 6.99%, in 1998 compared to 1997. As previously mentioned,
this decline in year-end numbers was the result of the sale of three
branch offices of Allegiant Bank. This sale reduced total deposits at
December 31, 1998 by $39.99 million. The majority of deposits sold were
in the certificate of deposit category, hence the decline in
certificates of deposit as a percent of total deposits to 41.55% at
December 31, 1998 from 47.79% at December 31, 1997. Absent the sale,
deposits would have increased slightly during 1998.
Average deposits for 1998 were $475.74 million compared to $366.07
million in 1997. The increase in average deposits was the result of
acquisitions and deposit purchases that occurred during the third
quarter of 1997. The effect of these 1997 acquisitions increased
averages for the full year of 1998. Changes in the mix of average
deposits were concentrated in both categories of certificates of
deposit. On average, retail certificates of deposit increased as a
percentage of total deposits to 47.22% in 1998 from 44.49% in 1997.
Certificates of deposit over $100,000 declined to 8.32% of total
deposits in 1998 from 13.21% of total deposits in 1997. The reduction
in large certificates of deposit was the result of management's efforts
to replace these rate sensitive funds with core deposits.
- 88 -
<PAGE>
<PAGE>
The following tables summarize Allegiant Bancorp's deposits as of
the dates indicated:
<TABLE>
DEPOSIT LIABILITY COMPOSITION
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------
1998 1997
--------------------------------------- ---------------------------------------
PERCENT AVG. PERCENT AVG.
AMOUNT OF TOTAL RATE AMOUNT OF TOTAL RATE
------ -------- ---- ------ -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 55,417 12.29% --% $ 50,060 10.33% --%
Money market and NOW accounts 142,902 31.70 4.12 115,856 23.91 4.29
Savings deposits 14,917 3.31 2.57 16,157 3.33 2.89
Certificates of deposit 187,886 41.68 5.73 231,601 47.79 5.79
Certificates of deposit over $100,000 31,173 6.92 5.55 52,211 10.77 5.55
IRA certificates 18,471 4.10 5.96 18,756 3.87 5.95
-------- ------ -------- ------
Total deposits $450,766 100.00% 5.13 $484,641 100.00% 5.24
======== ====== ======== ======
</TABLE>
<TABLE>
AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Three months or less $14,387
Over three months through six months 5,658
Over six through twelve months 5,905
Over twelve months 5,223
-------
Total $31,173
=======
</TABLE>
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES
LIQUIDITY MANAGEMENT. Long-term liquidity is a function of the
core deposit base and an adequate capital base. Allegiant Bancorp is
committed to growth of its core deposit base and maintenance of its
capital base. The growth of the deposit base is internally generated
through product pricing and product development. During the first six
months of 2000 and the year ended December 31, 1999, both of these
elements contributed to developing and maintaining long-term liquidity.
Allegiant Bancorp's capital position has been maintained through
earnings retention and raising of capital. See "-- Capital Resources."
Short-term liquidity needs arise from continuous fluctuations in
the flow of funds on both sides of the balance sheet resulting from
growth and seasonal and cyclical customer demands. The securities
portfolio provides stable long-term earnings, as well as being a primary
source of liquidity. The designation of securities as available for
sale and held-to-maturity does not impact the portfolio as a source of
liquidity due to the ability to enter into repurchase agreements using
those securities.
Allegiant Bancorp anticipates continued loan demand in its market
areas as banking industry consolidation continues. Allegiant Bancorp
has utilized, and expects to continue to utilize, Federal Home Loan Bank
borrowings to fund a portion of future loan growth. Allegiant Bancorp
has a $99.0 million secured credit facility with the Federal Home Loan
Bank, of which $89.2 million and $80.4 million were outstanding at June
30, 2000 and December 31, 1999, respectively.
Average short-term borrowings increased $38.0 million during the
first six months of 2000 while average long term borrowings decreased
$11.5 million. The net increase in borrowings reflected Allegiant
Bancorp's strategy of utilizing Federal Home Loan Bank borrowings to
fund loan growth while continuing to systematically build its deposit
base. Allegiant Bancorp anticipates similar use of the Federal Home
Loan Bank facility in the foreseeable future.
- 89 -
<PAGE>
<PAGE>
Allegiant Bancorp experienced net growth in assets of 14% during
the first six months of 2000, while deposits increased 17% during the
same period. Allegiant Bancorp continues to emphasize growth in stable
core deposits and utilized the Federal Home Loan Bank, federal funds
purchased and brokered certificates of deposit as necessary to balance
liquidity and cost-effectiveness. Allegiant Bancorp closely monitors
its level of liquidity to meet expected future needs.
CAPITAL RESOURCES. Allegiant Bancorp's total shareholders' equity
was $49.1 million at June 30, 2000, compared to $48.0 million at year-
end 1999. The increase in total equity was the result of earnings
retention, partially offset by treasury stock purchased and dividends
paid.
By March 31, 2000, Allegiant Bancorp completed its previously
announced share repurchase program and repurchased a total of 554,715
shares of its common stock at a cost of $5.6 million. The shares
repurchased included 235,715 shares in a privately negotiated
transaction and all of the 319,000 shares approved in September 1999
under the repurchase program.
Allegiant Bancorp finances its capital requirements historically
through offerings of debt and equity securities, retained earnings and
borrowings from a commercial bank. Allegiant Bank also utilizes its
borrowing capacity with the Federal Home Loan Bank. The principal
amount of Allegiant Bancorp's term loan was $13.2 million as of June 30,
2000, and matures in November 2001.
During 1999 Allegiant Bancorp purchased brokered certificates of
deposit in order to fund loan growth and meet other liquidity needs. At
June 30, 2000, Allegiant Bancorp had $54.0 million outstanding which
matures on various dates through December 1, 2000. Allegiant Bancorp
may use brokered deposits in the future as a source of liquidity.
In August 1999, Allegiant Bancorp and its wholly-owned subsidiary,
Allegiant Capital Trust I, a Delaware statutory business trust, issued
$17.2 million of trust preferred securities. Allegiant Capital Trust
invested all the proceeds from the sale of the trust preferred
securities in Allegiant Bancorp's junior subordinated debentures.
Allegiant Bancorp used a portion of the net proceeds of $16.2 million
from the sale of the junior subordinated debentures to infuse $8.0
million of capital into Allegiant Bank, to repay approximately $2.5
million of corporate indebtedness consisting of $2.0 million under a
revolving line of credit and a $0.5 million principal repayment on term
debt. Allegiant Bancorp is also using the proceeds for general
corporate purposes, and may use them in the future to repurchase shares
of its common stock.
Allegiant Bancorp also analyzes its capital and the capital
position of its bank in terms of regulatory risked-based capital
guidelines. This analysis of capital is dependent upon a number of
factors, including asset quality, earnings strength, liquidity, economic
conditions and combinations thereof. The Federal Reserve Board has
issued standards for measuring capital adequacy for bank holding
companies. These standards are designed to provide risk-responsive
capital guidelines and to incorporate a consistent framework for use by
financial institutions. Allegiant Bancorp's management believes that,
as of June 30, 2000, Allegiant Bancorp and its subsidiaries met all
capital adequacy requirements. Allegiant Bancorp will seek to maintain
a strong equity base while executing its controlled expansion plans.
As of June 30, 2000, December 31, 1999 and June 30, 1999,
Allegiant Bancorp's and Allegiant Bank's capital ratios were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 1999
----------------------- ----------------------- -----------------------
ALLEGIANT ALLEGIANT ALLEGIANT ALLEGIANT ALLEGIANT ALLEGIANT
BANCORP BANK BANCORP BANK BANCORP BANK
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) 9.47% 11.00% 10.23% 11.52% 8.37% 10.50%
Tier 1 capital
(to risk-weighted assets) 8.12 9.74 8.80 10.27 7.12 9.25
Tier 1 capital
(to average assets) 6.93 8.33 7.47 8.89 6.26 8.11
</TABLE>
- 90 -
<PAGE>
<PAGE>
INFORMATION ABOUT EQUALITY BANCORP
GENERAL
Equality Bancorp, Inc. is a Delaware corporation which was formed
on May 14, 1997. Equality Bancorp is the holding company for Equality
Savings Bank. Equality Bancorp holds, as its only material asset, all
of the capital stock of Equality Savings Bank, its sole subsidiary.
Equality Bancorp is engaged in the business of managing its investments
and directing, planning and coordinating the business activities of
Equality Savings Bank. At June 30, 2000, Equality Bancorp reported, on
a consolidated basis, total assets of $329.1 million, deposit accounts
of $159.7 million and total stockholders' equity of $20.4 million.
Equality Savings Bank is a Missouri state-chartered savings bank
regulated by the Missouri Division of Finance and by the Federal Deposit
Insurance Corporation (FDIC) and its deposits are insured by the FDIC
through the Savings Association Insurance Fund. Equality Savings Bank
was originally chartered in 1884. Equality Savings Bank conducts its
business through six full-service branch offices and two additional
limited-service loan-production offices. Equality Savings Bank's main
office is located at 4131 South Grand Boulevard, St. Louis, Missouri
63118-3464, and its telephone number is (314) 352-3333.
On October 22, 1993, Equality Bancorp Savings and Loan Association
(the Association and the predecessor of Equality Savings Bank) (1)
reorganized into a mutual holding company and changed its name to First
Missouri Financial, M.H.C. (the Mutual Holding Company) and (2)
transferred substantially all of its assets and all of its liabilities
to the Association, which sold a minority interest in its common stock
to depositors of the Association and various stock compensation plans
(the Mutual Holding Company Reorganization). A total of 380,000 shares
of newly issued common stock were sold at $10.00 per share. An
additional 11,400 authorized but unissued shares were later sold to the
Association's 1993 Management Recognition Plan at $10.00 per share. The
Association received net proceeds of approximately $3.2 million from the
sale of its common stock. On June 13, 1995, the Association converted
from a Missouri state-chartered stock savings-and-loan association to a
federally-chartered stock savings-and-loan association. On December 28,
1999, Equality Savings Bank converted from a federally-chartered stock-
based savings association to a Missouri state-chartered savings bank.
On December 1, 1997, Equality Bancorp completed the sale of
1,322,500 shares of common stock at a price of $10.00 per share in a
subscription offering. 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 shareholders into common stock of the Company.
Equality Bancorp's business strategy includes (1) maintaining a
strong capital level, (2) maintaining a high level of asset quality, (3)
managing Equality Savings Bank's exposure to fluctuations in interest
rates, (4) emphasizing local originations of one- to four-family fixed-
rate mortgage loans and adjustable rate mortgage loans and (5)
continuing to emphasize high quality customer service with a competitive
service fee structure.
Equality Savings Bank's business is similar in many respects to
other savings banks in that it gathers deposits from its local community
and uses these funds, along with Federal Home Loan Bank System advances,
to invest primarily in residential one- to four-family mortgage loans,
U.S. Government and agency securities, mortgage-backed securities and
corporate obligations and, to a lesser extent, multi-family and
commercial real estate, consumer and commercial business loans.
Notwithstanding these traditional thrift attributes, Equality Savings
Bank's operations are distinct in one respect in that it conducts its
residential mortgage lending business primarily through a wholly-owned
mortgage-banking subsidiary, Equality Mortgage Corporation.
Operating through Equality Savings Bank's eight full and limited
service offices, Equality Mortgage Corporation acts as a conduit for the
origination, purchase and sale of residential mortgage loans for the
benefit of Equality Savings Bank. It funds its mortgage-banking
activities through lines of credit from Equality Savings Bank and an
unrelated commercial bank. Equality Mortgage Corporation provides
several benefits to Equality Savings Bank, including, among other
things, originating a variety of mortgage loan products for Equality
Savings Bank's portfolio and generating non-interest income for Equality
Savings Bank through its activities in the secondary mortgage market.
Equality Savings Bank's President and Chief Executive Officer, Richard
C. Fellhauer, also is Chairman of Equality Mortgage Corporation.
Leonard O. Wolter, Senior Vice President of Equality Savings Bank,
- 91 -
<PAGE>
<PAGE>
is Equality Mortgage Corporation's President. Mr. Wolter, in
consultation with Mr. Fellhauer and Michael A. Deelo, Equality Savings
Bank's Chief Financial Officer, manages the day-to-day operations of
Equality Mortgage Corporation. These individuals have over 50 years of
combined experience in the mortgage-banking business. The following
description includes detailed information regarding the business of
Equality Savings Bank and Equality Mortgage Corporation.
SUBSIDIARY ACTIVITIES AND JOINT VENTURES
Equality Savings Bank has two wholly owned subsidiaries, Equality
Mortgage Corporation and Equality Commodity Corporation. Equality
Commodity Corporation operates a full-service insurance agency under the
name Equality Insurance Agency. Equality Insurance Agency provides a
full array of insurance products, including property and casualty,
automobile, health and life insurance, and, to a much lesser degree,
commercial fire and casualty insurance. Equality Insurance Agency also
offers annuities and operates Flood Information Specialists, which
issues flood plain certificates. These certificates are required by all
mortgage loan lenders and is a requirement for selling a loan in the
secondary market.
COMPETITION
Equality Bancorp has been, and intends to continue to be, a
community-oriented financial intermediary offering a wide variety of
financial services to meet the needs of the communities it serves.
Equality Bancorp is headquartered in St. Louis, Missouri. It currently
operates through Equality Savings Bank and Equality Mortgage Corporation
using eight full- and limited-service offices in the St. Louis area.
Equality Savings Bank faces intense competition both in making
loans and in attracting deposits. The St. Louis area has a large number
of financial institutions, many of which have greater financial
resources, name recognition and market presence than Equality Savings
Bank, and all of which are competitors of Equality Savings Bank to
varying degrees. Particularly intense competition exists for deposits
and in all of the lending activities engaged in by Equality Savings Bank
and Equality Mortgage Corporation.
Equality Mortgage Corporation's competition for loans comes
principally from national, regional and local mortgage-banking
companies, commercial banks, other savings and loan associations,
savings banks, insurance companies, finance companies and credit unions.
Thus, no assurances can be made that Equality Mortgage Corporation will
be able to maintain its current level of such loans. Equality Savings
Bank competes for mortgage loans principally through Equality Mortgage
Corporation. Competition is based on a combination of interest rates
and loan fees charged in addition to the availability of special issues
such as the Affordable Housing Program. The efficiency and quality of
the service provided also plays a significant role in Equality Mortgage
Corporation's competitive position.
Equality Savings Bank's most direct competition for deposits
historically has come from other savings banks, savings and loan
associations, commercial banks, savings banks and credit unions. In
addition, Equality Savings Bank faces increasing competition for
deposits from non-bank institutions such as brokerage firms and
insurance companies in such areas as money market funds, other mutual
funds (such as corporate and government securities funds) and annuities.
Equality Savings Bank competes for deposits by offering customers a
variety of savings accounts, checking accounts, certificates of deposit
and a responsive, customer-oriented staff, as well as convenient access
to Equality Savings Bank by 24-hour automatic teller machines or
personal appointment.
Trends toward the consolidation of the banking industry and the
lifting of interstate banking and branching restrictions may make it
more difficult for smaller institutions, such as Equality Savings Bank,
to compete effectively with large, national and regional banking
institutions.
Smaller institutions such as Equality Savings Bank will be forced
to either compete with larger institutions on pricing of products and
services, or to identify and operate in a niche that will permit
operating margins to be maintained at profitable levels. As a locally-
based financial institution, Equality Savings Bank's strategy has been
to position itself as a community-oriented financial institution that
provides high quality products and services to meet the retail banking
needs of its local customer base. This strategy is designed to identify
a niche in Equality Savings Bank's market where it can effectively
compete against much larger institutions.
- 92 -
<PAGE>
<PAGE>
EMPLOYEES
As of June 30, 2000, Equality Savings Bank, including subsidiaries,
had 111 full-time equivalent employees. The employees are not represented
by a union or collective bargaining unit. Equality Savings Bank believes
its relationship with its employees is good.
DESCRIPTION OF PROPERTIES
Equality Savings Bank conducts its business through six full-
service offices. Equality Savings Bank's main office is located at 4131
South Grand Boulevard, St. Louis, Missouri. Equality Savings Bank owns
all of its offices, which are not leaseholds, in fee and they are
unencumbered.
<TABLE>
<CAPTION>
NET LEASE
YEAR OWNED OR TOTAL BOOK EXPIRATION SQUARE
LOCATION OPENED LEASED INVESTMENT VALUE DATE FOOTAGE
-------- ------ ------ ---------- ----- ---- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MAIN OFFICE
4131 South Grand Boulevard 1944 Owned $3,209<F1> 1,543 -- 21,740
St. Louis, Missouri 63118
BRANCHES
Marborough Branch 1998 Owned 1,224 1,020 -- 2,912
7809 Watson Road
St. Louis, Missouri 63119
South County Branch 1987 Owned 2,022 1,319 -- 4,545
5400 South Lindbergh Boulevard
St. Louis, Missouri 63123
Washington Branch 1998 Owned 1,437 1,371 -- 1,859
801 Franklin Street
Washington, MO 63090
St. Peters Branch 1999 Leased 187 163 2009 4,500
583 Mid Rivers Mall Drive
St. Peters, Missouri 63376
Arnold Branch 1999 Owned 1,049 1,020 -- 2,500
1532 Jeffco Boulevard
Arnold, MO 63010
LOAN OFFICES
Florissant Loan Office 1992 Leased 20 9 2001 1,306
2620 North Lindbergh
Florissant, Missouri 63033
West County Loan Office 1993 Leased 3 2 2000 1,200
14334 South Outer Forty
Chesterfield, Missouri 63017
<FN>
----------
<F1> Includes investment in future branches of $743,000.
</TABLE>
In December 1997, Equality Savings Bank purchased a building in
Fenton, Missouri, for the purpose of branch expansion. The Fenton
branch office is currently subject to use restriction, and is expected
to be operational in the third quarter of 2000. This facility will be
used as a training facility in the interim. With the exception of the
foregoing, Equality Savings Bank believes that its current facilities
are adequate to meet the present and foreseeable needs of Equality
Savings Bank and Equality Bancorp.
- 93 -
<PAGE>
<PAGE>
The net book value of Equality Savings Bank's investment in office
properties and equipment totaled $6.9 million at March 31, 2000.
Equality Savings Bank uses an outside data processing firm to
process customer records and monetary transactions, post deposit and
general ledger entries and record activity in installment lending.
Equality Mortgage Corporation uses a second outside data processing firm
to process loan servicing and loan originations.
LEGAL PROCEEDINGS
Equality Bancorp is, from time to time, a party to legal
proceedings arising in the ordinary course of its business, including
legal proceedings to enforce its rights. Equality Bancorp is not
currently a party to any legal proceedings which could reasonably be
expected to have a material adverse effect on the consolidated financial
condition or results of operations of Equality Bancorp.
EXECUTIVE COMPENSATION
The following tables summarize compensation information for the
fiscal years ended March 31, 2000, 1999, and 1998 with respect to
Equality Bancorp's President and Chief Executive Officer.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
--------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION<F1> AWARDS OPTIONS COMPENSATION<F2>
------------------ ---- ------ ----- ---------------- ------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard C. Fellhauer 2000 $157,400 -- $ 8,500 $ -- 2,500 $7,299
President and Chief 1999 159,415 -- 8,400 199,688<F3> 25,000<F4> 9,978
Executive Officer 1998 138,000 -- 10,200 -- -- 3,300
<FN>
--------
<F1> Consists solely of directors' fees.
<F2> Represents the dollar value of matching and discretionary profit
sharing contributions under Equality Savings Bank's tax-qualified
thrift plan and the Employee Stock Ownership Plan (the Employee
Stock Ownership Plan) contributions (based on the value of
Equality Bancorp common stock on the date such common stock was
allocated) made by Equality Savings Bank for the fiscal years
ended March 31, 1998, 1999 and 2000.
<F3> Represents award of 15,000 shares of Equality Bancorp common stock
to Mr. Fellhauer under the Management Recognition Plan based upon
the value of such stock of $13.3125 per share as of the date of
such award. As of March 31, 2000, the value of restricted stock
(15,000 shares) was $6.50 per share, or $97,500 in the aggregate.
Such stock award becomes nonforfeitable at the rate of 20% of
total shares per year commencing on August 14, 1999. Dividends
are paid for all shares awarded.
<F4> Represents award of options exercisable at the rate of 20% per
year commencing on August 14, 1999. The exercise price equals the
average market value of common stock on the date of grant of
$13.90 for 1999 options and $8.00 for 2000 options. As of the
closing date of the merger certain options for Equality Bancorp
common stock shall become immediately exercisable. These include
options which have an exercise price lower than 1.118 times the
average closing price per share of Allegiant Bancorp common stock
for 20 trading days ending on the fifth day before the merger
becomes effective. The options with exercise prices higher than
1.118 times the average closing price of Allegiant Bancorp common
stock within such time frame, shall be surrendered.
</TABLE>
The following tables set forth information concerning options
granted to the named executive officer in the last fiscal year and
fiscal year end values of unexercised options.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATE OF
NUMBER OF OPTIONS EXERCISE STOCK PRICE APPRECIATION
SECURITIES UNDER- GRANTED TO OR BASE FOR OPTION TERM
LYING OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ----------- ----------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Richard C. Fellhauer 2,500 12.50% 8.00 August 14, 2008 $12,578 $31,875
- 94 -
<PAGE>
<PAGE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEYOPTIONS
VALUE OPTIONS AT FISCAL YEAR END (#) AT FISCAL YEAR END<F2>
SHARES ACQUIRED REALIZED ------------------------------- ----------------------------
NAME ON EXERCISE ($)<F1> EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Fellhauer 12,115 $35,715 22,832 22,500 $140,908 --
<FN>
------------
<F1> Market value of the underlying securities at the date of exercise
minus the exercise price, multiplied by the number of underlying
securities.
<F2> Market value of the underlying securities at year end minus the
exercise price, multiplied by the number of underlying securities.
Based upon the closing price of Equality Bancorp common stock as
of March 31, 2000 of $6.50 per share.
</TABLE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only holders of record of Equality Bancorp common stock at the close of
business on September 6, 2000 will be entitled to notice of, and to vote
at, the special meeting of Equality Bancorp stockholders. On September 6,
2000 there were 1,038 holders of record.
The following table sets forth, as of September 6, 2000, the
amount of Equality Bancorp common stock beneficially owned by each
director, executive officer and all directors and executive officers as
a group of Equality Bancorp.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP<F1> STOCK OUTSTANDING
------------------------ ------------------------ -----------------
<S> <C> <C>
Daniel C. Aubuchon<F2> 16,758 <F*>
Stacey W. Braswell<F2>,<F3> 24,216 <F*>
Michael A. Deelo<F2>,<F4> 99,538 4.15%
Richard C. Fellhauer<F2>,<F5> 135,663 5.63
Kenneth J. Hrdlicka<F2>,<F6> 19,759 <F*>
Berenice J. Mahacek<F2>,<F7> 51,951 2.18
Michael J. Walsh<F2>,<F8> 46,395 1.95
Charles J. Wolter<F2>,<F9> 15,471 <F*>
All directors and executive officers
as a group (10 persons)<F10> 444,235 18.11
<FN>
--------
<F*> Less than 1%.
<F1> Unless otherwise indicated, the nature of beneficial ownership for
shares shown in this column is sole voting and investment power.
<F2> Includes shares issuable under stock options currently
exercisable or exercisable within 60 days of September 6, 2000;
Mr. Aubuchon 2,300 shares, Mr. Braswell 2,300 shares, Mr. Deelo
16,717 shares, Mr. Fellhauer 28,834 shares, Mr. Hrdlicka 3,429
shares, Ms. Mahacek 2,300 shares, Mr. Walsh 3,786 shares, and
Mr. Wolter 2,300 shares.
<F3> Of the 24,216 shares reported as beneficially owned by Mr. Braswell,
1,594 are held for his minor children.
<F4> Mr. Deelo also is an executive officer. Of the 99,538 shares
reported as beneficially owned by Mr. Deelo, 10,400 are held by
his spouse.
<F5> Mr. Fellhauer also is an executive officer. Of the 135,663 shares
beneficially owned by Mr. Fellhauer, 3,275 are held by his spouse
and 1,586 are held for his minor children.
<F6> Of the 19,759 shares reported as beneficially owned by Mr. Hrdlicka,
1,218 are held by his spouse.
<F7> Of the 51,951 shares reported as beneficially owned by Ms. Mahacek,
5,326 are held by her spouse.
<F8> Of the 46,395 shares reported as beneficially owned by Mr. Walsh,
5,101 are held by his spouse.
<F9> Of the 15,471 shares reported as beneficially owned by Mr. Wolter,
3,000 are held by his spouse.
<F10> Includes 71,283 shares issuable under stock options granted to
executive officers and directors that are currently exercisable or
exercisable within 60 days of September 6, 2000.
</TABLE>
- 95 -
<PAGE>
<PAGE>
OPERATIONS
Equality Savings Bank concentrates its business in residential
mortgage finance, which involves the origination, purchase and sale of
residential real estate loans secured by one- to four-family, owner-
occupied residential properties. In the past, and to a much lesser
degree, Equality Savings Bank has originated conventional loans secured
by multi-family residential dwellings and commercial real estate
projects. Equality Savings Bank also originates short-term consumer
loans, primarily loans secured by savings deposits, home equity and
second mortgage loans, direct automobile loans and student loans, and,
since early 1997, commercial business loans.
LOANS
Loan Originations. During the first several years of its
-----------------
existence, Equality Mortgage Corporation originated primarily
government mortgage loans (Federal Housing Administration and Veterans
Administration loans) on behalf of Equality Savings Bank, while Equality
Savings Bank originated conventional loans. But in 1989, Equality
Savings Bank shifted its mortgage loan origination function to Equality
Mortgage Corporation. However, Equality Savings Bank will still on
occasion originate a mortgage loan directly and it continues to
originate an increasing amount of commercial, consumer and other non-
mortgage loans.
Today, Equality Mortgage Corporation, using its 44 employees
(including 13 commissioned loan originators), underwrites residential
mortgage loans, which are secured by properties located primarily in the
St. Louis metropolitan area. In addition, through Equality Savings
Bank's Affordable Housing Program, Equality Mortgage Corporation
provides mortgage financing to low- and moderate-income families, which
provides Equality Savings Bank with an effective way to attract
customers in its local market area. During fiscal 2000, Equality
Mortgage Corporation originated mortgage loans totaling $86.9 million,
all of which were one- to four-family loans.
Loan Sales. Central to Equality Mortgage Corporation's loan
----------
origination activity is the sale of fixed-rate mortgage loans to the
secondary mortgage market. All loans originated by Equality Mortgage
Corporation satisfy the guidelines of the Federal Housing
Administration, the Veterans Administration, the Federal National
Mortgage Association, the Government National Mortgage Association, the
Federal Home Loan Mortgage Corporation or various private investors so
that the loans can be sold in the secondary mortgage market. Equality
Mortgage Corporation has been approved under the Federal Housing
Administration Direct Endorsement Program and, consequently, Equality
Mortgage Corporation's Federal Housing Administration-approved direct
endorsement underwriters are authorized to approve or reject Federal
Housing Administration insured loans up to maximum amounts established
by the Federal Housing Administration. Equality Mortgage Corporation
also has been approved as a Veterans Administration "automatic approved
lender," which enables designated qualified Equality Mortgage
Corporation personnel to approve or reject loans on behalf of Equality
Savings Bank.
In most cases, Equality Mortgage Corporation sells in the
secondary mortgage market the majority of the fixed-rate loans it
originates, while the majority of its adjustable rate mortgage loan
originations are sold to Equality Savings Bank and retained by Equality
Savings Bank in its portfolio. The current strategy of selling fixed-
rate loans and retaining adjustable rate mortgage loans assists Equality
Savings Bank in management of the interest-rate sensitivity of its
assets. Moreover, the loans retained by Equality Savings Bank
contribute to Equality Savings Bank's net interest margin.
Equality Mortgage Corporation's loan-origination and sale
activities create interest rate risk for Equality Savings Bank in that
if interest rates decline after the loan commitment date below the
interest rate on the loan, and Equality Savings Bank has not hedged its
interest rate risk using a forward commitment, Equality Savings Bank may
incur a loss when the loan is sold. Equality Savings Bank manages this
risk by using a computerized tracking system that allows Equality
Mortgage Corporation's management to closely monitor the interest rates
for all loans being processed by Equality Mortgage Corporation,
reviewing the future prospects for movements in interest rates and
entering into forward commitment contracts with Federal National
Mortgage Association, Government National Mortgage Association and
Federal Home Loan Mortgage Corporation for the sale of fixed-rate loans
that limit the potential loss on loan sales, but which also limit the
potential gain. Equality Mortgage Corporation's success in managing the
interest-rate risk associated with the origination-and-sale and
purchase-and-resale of fixed-rate mortgage loans depends primarily on
the abilities of its managers.
- 96 -
<PAGE>
<PAGE>
Loan Purchases and Resales. In addition to originating
--------------------------
residential mortgage loans for sale in the secondary market, Equality
Mortgage Corporation also purchases loans from other financial
institutions for packaging (or securitization) and resale in the
secondary mortgage market as either whole loans or as loan pools to
Federal National Mortgage Association, Government National Mortgage
Association, Federal Home Loan Mortgage Corporation or other investors.
Other financial institutions may sell loans to Equality Mortgage
Corporation because they lack the capability or expertise to package and
sell their own loans in the secondary market. Equality Mortgage
Corporation performs strict underwriting on each loan purchased based on
guidelines of the federal secondary mortgage market agencies and private
investors and standards otherwise applicable to loans originated by
Equality Savings Bank. Immediately following the purchase of a loan or
loan package, Equality Mortgage Corporation simultaneously sells the
mortgage or group of mortgages for future delivery. Accordingly,
Equality Savings Bank does not assume so-called pipeline risk because
the loans are not held in inventory. Pipeline risk is the hazard that
market interest rates will increase before the loan is sold, thereby
reducing the price at which the loan may be sold. During fiscal 2000,
Equality Mortgage Corporation purchased mortgage loans totaling
$773,000.
Equality Mortgage Corporation's Contributions to the Business of
----------------------------------------------------------------
Equality Bancorp. Equality Mortgage Corporation contributes
----------------
significantly to Equality Bancorp's operations by providing an
additional income stream and by providing a conduit to offer lending
services to the local community. Equality Mortgage Corporation's
mortgage-banking activities produce primarily two types of income -- gain
on sale of mortgage loans, and loan servicing fees and late charges.
Each of these two types of income accounted for 25.4% and 40.4%,
respectively, of Equality Mortgage Corporation's total noninterest
income for the fiscal year ended March 31, 2000. Equality Mortgage
Corporation contributed approximately 13.2% to Equality Bancorp's total
interest income and other income for the year ended March 31, 2000.
Loan sales are intended to generate one-time gains, while loan
originations (whether the loans are sold or retained by Equality Savings
Bank in portfolio) produce loan origination fees that generally
approximate 1% of the loan amount. Federal Housing Administration and
Veterans Administration loans are generally sold with servicing
released, for which Equality Mortgage Corporation generally receives an
additional servicing fee of approximately 1.5% of the aggregate loan
amount. Equality Mortgage Corporation sells conventional mortgage loans
(non-Federal Housing Administration and Veterans Administration) and
retains the servicing.
At March 31, 2000, Equality Mortgage Corporation serviced $334.4
million in residential mortgage loans (of which $85.0 million was for
Equality Savings Bank). Loan servicing fees and late charges totaled
$1.3 million, $1.3 million, and $1.0 million for fiscal years 2000, 1999
and 1998, respectively. The proportionate contribution made by gains on
loan sales, loan origination fees and loan servicing fees to Equality
Bancorp's net income varies each year depending on interest rates,
which, in turn, affect Equality Mortgage Corporation's business focus
from year to year.
As a result of the high level of residential mortgage loan
originations, Equality Mortgage Corporation had focused its efforts
toward increasing its loan servicing portfolio and increasing the
associated income stream through increased servicing retention.
Equality Mortgage Corporation's focus on servicing retention and
fluctuating interest rates have contributed to instability in recent
years in Equality Mortgage Corporation's gains on loan sales. In 2000,
Equality Mortgage Corporation sold approximately $65.0 million of
Government National Mortgage Association servicing in a bulk sale and
recorded a gain on sale of approximately $451,000. In addition,
Equality Mortgage Corporation has begun focusing on selling loans with
servicing to pass on rather than retain the servicing.
Loan Portfolio. The following table sets forth the composition of
--------------
Equality Bancorp's loan portfolio by type of loan as of the dates
indicated:
- 97 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31,
----------------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LOANS SECURED BY REAL ESTATE
Residential
One- to four-family:
Conventional<F1> $ 68,183 64.5% $54,525 60.1% $ 67,543 62.0%
Federal Housing Administration/
Veterans Administration 10,758 10.2 10,629 11.7 11,718 10.8
Loans held for sale 2,641 2.5 7,021 7.8 14,523 13.3
Multi-family 1,343 1.3 1,430 1.6 1,382 1.3
Commercial 4,097 3.9 4,382 4.8 2,684 2.5
-------- ----- ------- ----- -------- -----
Total loans secured by real estate 87,022 82.4 77,987 86.0 97,850 89.9
-------- ----- ------- ----- -------- -----
CONSUMER LOANS
Loans secured by savings deposits $ 257 0.2 $ 254 0.3 $ 391 0.4
Property improvement 1,633 1.5 1,482 1.6 1,728 1.6
Automobiles 1,763 1.7 1,042 1.1 617 0.6
Other consumer loans 563 0.5 268 0.4 157 0.1
-------- ----- ------- ----- -------- -----
Total consumer loans 4,216 3.9 3,046 3.4 2,893 2.7
-------- ----- ------- ----- -------- -----
Commercial business loans 14,476 13.7 9,642 10.6 8,153 7.4
-------- ----- ------- ----- -------- -----
Total loans $105,714 100.0% $90,675 100.0% $108,896 100.0%
-------- ----- ------- ----- -------- -----
LESS
Loans in process $ -- $ -- $ 3
Deferred loan fees, net 13 25 37
Unearned discounts 21 5 8
Allowance for loan losses 364 366 374
Valuation reserve on loans held for sale -- 48 59
-------- ------- --------
Total loans receivable, net $105,316 $90,231 $108,415
======== ======= ========
<PAGE>
<CAPTION>
AT MARCH 31,
---------------------------------------------
1997 1996
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LOANS SECURED BY REAL ESTATE
Residential
One- to four-family:
Conventional<F1> $69,810 72.5% $64,873 66.6%
Federal Housing Administration/
Veterans Administration 14,233 14.8 13,656 14.0
Loans held for sale 4,398 4.6 13,507 13.9
Multi-family 1,637 1.7 783 0.8
Commercial 2,662 2.8 2,622 2.7
------- ----- ------- -----
Total loans secured by real estate 92,740 96.4 95,441 98.0
------- ----- ------- -----
CONSUMER LOANS
Loans secured by savings deposits $ 366 0.4 $ 453 0.5
Property improvement 1,596 1.7 1,300 1.3
Automobiles 122 0.1 97 0.1
Other consumer loans 162 0.1 96 0.1
------- ----- ------- -----
Total consumer loans 2,246 2.3 1,946 2.0
------- ----- ------- -----
Commercial business loans 1,280 1.3 -- --
------- ----- ------- -----
Total loans $96,266 100.0% $97,387 100.0%
------- ----- ------- -----
LESS
Loans in process $ -- $ --
Deferred loan fees, net 46 59
Unearned discounts 4 12
Allowance for loan losses 283 233
Valuation reserve on loans held for sale 5 85
------- -------
Total loans receivable, net $95,928 $96,998
======= =======
<FN>
-------
<F1> Includes construction loans converted to permanent loans.
</TABLE>
- 98 -
<PAGE>
<PAGE>
Residential One- to Four-Family Loans. The primary lending
-------------------------------------
activity of Equality Savings Bank has been the making of mortgage loans
to enable borrowers to purchase existing homes or to construct new
single-family homes. The mortgage loans are primarily originated by
Equality Mortgage Corporation and are sold to Equality Savings Bank at
par. Management believes that this policy of focusing on single-family
residential mortgage loans has been successful in contributing to
interest income while keeping delinquencies and losses to a minimum. At
March 31, 2000, approximately $81.6 million, or 77.2% of the total loan
portfolio, consisted of loans secured by one- to four-family residential
real estate. In recent years, Equality Savings Bank's one- to four-
family mortgage lending has been concentrated in St. Louis City and
St. Louis County.
Equality Mortgage Corporation presently originates both fixed-rate
mortgage loans and adjustable rate mortgage loans secured by one- to
four-family properties with loan terms of 10 to 30 years. The
adjustable rate mortgage loans have interest rates that adjust at
regular intervals ranging between one to five years generally based upon
changes in the One-, Three- and Five-Year Treasury Index. At March 31,
2000, Equality Savings Bank's adjustable rate mortgage loan portfolio
totaled approximately $44.3 million. The majority of these loans
provide that the amount of any increase or decrease in the interest rate
is limited to one or two percentage points (upward or downward) per
adjustment period and are generally limited to an increase or decrease
of five to eight percentage points over the life of the loan. Borrower
demand for adjustable rate mortgage loans versus fixed-rate mortgage
loans is a function of the level of interest rates, the expectation of
changes in the level of interest rates and the difference between the
interest rates and loan fees offered for fixed-rate mortgage loans and
the first year "teaser rates" and loan fees for adjustable rate mortgage
loans. The relative amount of fixed-rate mortgage loans and adjustable
rate mortgage loans that can be originated at any time is largely
determined by the demand for each in a competitive mortgage finance
environment. During 2000, total one- to four-family mortgage loan
originations were $88.5 million of which $17.6 million, or 19.9%, were
subject to periodic interest rate adjustments and $70.9 million, or
80.1%, were long-term, fixed-rate mortgage loans.
Adjustable rate mortgage loans generally involve credit risks
different from those inherent in fixed-rate mortgage loans, primarily
because if interest rates rise, the underlying payments of the borrower
rise, thereby increasing the potential for default. Equality Savings
Bank underwrites adjustable rate mortgage loans based on the borrower's
ability to repay the loan assuming the fully indexed accrual rate on the
adjustable rate mortgage loan remains constant during the loan term. As
a result, the potential for a substantial increase in delinquencies and
defaults is lessened.
The retention of adjustable rate mortgage loans helps reduce
Equality Savings Bank's exposure to interest rate risk. In an
environment of rapidly increasing interest rates, however, it is
possible for the interest rate increases to exceed the maximum allowable
adjustment on adjustable rate mortgage loans, which would negatively
affect Equality Savings Bank's interest rate spread. In addition,
because the interest earned on adjustable rate mortgage loans, which are
refinanced on a one- to three-year cycle, varies with prevailing
interest rates, such loans do not offer Equality Savings Bank as
predictable a cash flow as do longer-term, fixed-rate loans.
Equality Mortgage Corporation originates long-term, fixed-rate
loans under guidelines established by Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation, which
facilitates the sale of such loans to Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation in the secondary
market. Long-term, fixed-rate mortgage loans are originated with terms
of between 10 and 30 years, amortized on a monthly basis with principal
and interest due each month. At March 31, 2000, Equality Savings Bank
had approximately $43.5 million of long-term, fixed-rate mortgage loans
in its portfolio. A determination is made at the time of origination
whether the loan is held for sale. Currently, Equality Mortgage
Corporation is originating fixed-rate loans primarily for sale in the
secondary market. At March 31, 2000, Equality Bancorp had approximately
$2.6 million of loans held for sale of which $1.7 million were
adjustable-rate loans and $927,000 were fixed-rate loans.
Equality Savings Bank's lending policies generally limit the
maximum loan-to-value ratio on fixed-rate and adjustable-rate
residential mortgage loans to 80% of the lesser of the appraised value
or purchase price of the underlying residential property unless private
mortgage insurance to cover the excess over 80% is obtained, in which
case the mortgage is limited to 95% of the lesser of appraised value or
purchase price. The loan-to-value ratio, maturity and other provisions
of the loans made by Equality Savings Bank are generally reflected in
the policy of making less than the maximum loan permissible under
federal regulations, in accordance with established lending practices,
market conditions and underwriting standards maintained by Equality
Savings Bank. Equality Savings
- 99 -
<PAGE>
<PAGE>
Bank requires title, fire and extended insurance coverage on all
mortgage loans originated. All of Equality Savings Bank's real estate
loans contain due-on-sale clauses and Equality Savings Bank obtains
appraisals on all its real estate loans from outside appraisers.
Equality Savings Bank also originates construction loans on
residential properties against commitments for permanent financing at
the completion of construction. Construction loans are generally for a
term of six to 11 months, and bear an interest rate tied to Equality
Savings Bank's cost of funds which varies on the term and amount of the
loan. At March 31, 2000, Equality Savings Bank had no construction
loans outstanding.
Construction lending is generally considered to involve a higher
degree of credit risk than residential mortgage lending. Equality
Savings Bank's risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at
completion of construction and the estimated cost (including interest)
of construction. If the estimate of construction cost proves to be
inaccurate, Equality Savings Bank may be required to advance funds
beyond the amount originally committed to permit completion of the
dwelling. If the estimate of value proves to be inaccurate, Equality
Savings Bank may be confronted with, at or before the maturity of the
loan, loan security with a value which is insufficient to assure full
repayment. In addition, construction lending entails the risk that the
project may not be completed due to cost overruns or changes in market
conditions.
Multi-family and Commercial Real Estate Loans. In addition to
---------------------------------------------
originating one- to four-family residential real estate loans, Equality
Savings Bank originates loans secured by multi-family dwelling units
(more than four units). At March 31, 2000, Equality Savings Bank had
$1.3 million, or 1.3% of the total loan portfolio, secured by multi-
family dwelling units, located primarily in Equality Savings Bank's
primary market area. At March 31, 2000, Equality Savings Bank's largest
multi-family residential loan was a $898,000 loan secured by a 26-unit
apartment complex. Multi-family real estate loans are generally
originated at 75% of the appraised value of the property or selling
price, whichever is less, and are generally originated for 10- to 30-
year terms with the principal amortized over 30 years. Loans secured by
multi-family residential real estate are generally larger and involve a
greater degree of risk than one- to four-family residential mortgage
loans, similar to the risks associated with commercial real estate
lending. At March 31, 2000, Equality Savings Bank had no multi-family
loans accounted for on a nonaccrual basis.
Equality Savings Bank's permanent commercial real estate loans are
secured by improved properties such as office buildings, restaurants and
various retail operations located in Equality Savings Bank's primary
market area. At March 31, 2000, commercial real estate loans totaled
approximately $4.1 million, or 3.9% of Equality Savings Bank's total
loan portfolio. Equality Savings Bank originates permanent loans on
commercial real estate at up to 80% of the appraised value.
Currently, it is Equality Savings Bank's policy to originate
commercial real estate loans only to selected borrowers known to
Equality Savings Bank and on properties in its primary market area.
These loans generally have repayment schedules based upon a 10- to
25-year constant payment amortization, but may have a 10-year final
maturity (balloon payment) and are currently originated with an interest
rate that floats over the prime rate. At March 31, 2000, Equality
Savings Bank had no commercial real estate loans accounted for on a
nonaccrual basis.
The largest commercial real estate loan in the portfolio at
March 31, 2000 totaled $1.4 million, which was secured by a real estate
mortgage on a shopping center located in the St. Louis metropolitan
area. This loan is a seasoned loan, having been originated in 1994.
Equality Savings Bank's legal lending limit is approximately $3.0
million. Of primary concern in commercial real estate lending is the
borrower's creditworthiness, and the feasibility and cash flow potential
of the project. Loans secured by income properties are generally larger
and involve greater risks than residential mortgage loans because
payments on loans secured by income properties are often dependent on
the successful operation or management of the properties. As a result,
repayment of such loans may be subject to a greater extent than
residential real estate loans to adverse conditions in the real estate
market or the economy. Equality Savings Bank does not presently intend
to emphasize or expand this type of lending in the future.
Consumer Loans. Equality Savings Bank originates a wide variety
--------------
of consumer loans, which are made primarily on a secured basis to
existing customers. Such loans include loans secured by savings
deposits, home equity and second mortgage loans, direct automobile loans
and student loans. These loans are made at both fixed
- 100 -
<PAGE>
<PAGE>
and variable rates of interest, which adjust annually, and vary in terms
depending on the type of loan. In addition, Equality Savings Bank
offers unsecured consumer loans. Consumer loans totaled approximately
$4.2 million at March 31, 2000, or 3.9% of Equality Savings Bank's total
loan portfolio.
Equality Savings Bank applies strict underwriting standards for
consumer loans. These procedures include an assessment of the
applicant's payment history on other debts and ability to meet existing
obligations and payments on the proposed loans. Although the
applicant's creditworthiness is a primary consideration, the
underwriting process also includes a comparison of the value of the
security, if any, to the proposed loan amount. Equality Savings Bank
underwrites and originates all of its consumer loans internally, which
management believes limits exposure to credit risks relating to loans
underwritten or purchased from brokers or other outside sources.
Equality Savings Bank views consumer lending as a component of its
business operations because consumer loans generally have shorter terms
and higher yields, thus reducing exposure to changes in interest rates.
In addition, Equality Savings Bank believes that offering consumer loans
helps to expand and create stronger ties to its customer base. Equality
Savings Bank does not presently intend to emphasize this type of lending
in the future.
Equality Savings Bank's consumer loan portfolio had three
automobile loans with a total outstanding principal balance of
approximately $13,000, which were 90 days or more delinquent at
March 31, 2000. Consumer loans may entail greater risk than do
residential mortgage loans, particularly in the case of consumer loans
which are unsecured or secured by assets that depreciate rapidly, such
as automobiles. In the latter case, repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment
for the outstanding loan and the remaining deficiency often does not
warrant further substantial collection efforts against the borrower. In
addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit
the amount that can be recovered on such loans. Such loans may also
give rise to claims and defenses by the borrower against Equality
Savings Bank as the holder of the loan, and a borrower may be able to
assert claims and defenses that it has against the seller of the
underlying collateral.
Commercial Business Loans. In early 1997, in connection with its
-------------------------
hiring of a new commercial lending officer, Equality Savings Bank began
originating a limited number of commercial business loans based on
community needs. Management of Equality Savings Bank expects this type
of lending to increase gradually over the next several years. Such
loans include, but are not limited to, automobile dealer floor planning,
commercial use vehicles and general working capital loans. These loans
are made at both fixed and variable rates of interest and vary in terms
depending on the type of loan and collateral.
At March 31, 2000, approximately $14.4 million, or 13.7% of
Equality Savings Bank's loan portfolio, consisted of commercial business
loans, which are primarily secured by automobile floor planning
collateral. At March 31, 2000, the largest commercial loan in the
portfolio, which was secured by floor planned vehicles, had a principal
balance of approximately $1.4 million. Unlike residential mortgage
loans, which generally are made on the basis of the borrower's ability
to make repayment based on the borrower's salary and other income and
which are secured by real property, the value of which tends to be more
easily ascertainable, commercial business loans typically are made on
the basis of the borrower's ability to make repayment from the cash flow
of the borrower's business. As a result, the availability of funds for
the repayment of commercial business loans may be substantially
dependent on the success of the business itself (which, in turn, is
likely to be dependent, in part, upon the general economic environment).
Equality Savings Bank's commercial business loans are usually secured by
business assets, which may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the
business.
Equality Savings Bank's underwriting standards for commercial
business loans include credit file documentation and analysis of the
borrower's character, capacity to repay the loan, the adequacy of the
borrower's capital and collateral as well as an evaluation of conditions
affecting the borrower. Analysis of the borrower's past, present and
future cash flows is also an important aspect of Equality Savings Bank's
current credit analysis. Nonetheless, such loans are believed to carry
higher credit risk than residential mortgage loans. Equality Savings
Bank generally requires personal guarantees from corporate borrowers.
At March 31, 2000, Equality Savings Bank had two commercial loans with
an outstanding principal balance of approximately $233,000 which were 90
days or more delinquent. These loans are secured by commercial real
estate and floor plan automobiles.
- 101 -
<PAGE>
<PAGE>
Loan Maturity and Repricing. The following table sets forth
---------------------------
certain information at March 31, 2000 regarding the dollar amount of
loans maturing in Equality Savings Bank's portfolio based on their
contractual terms to maturity, but does not include scheduled payments
or potential prepayments. Overdrafts are reported as due in one year or
less. Loan balances do not include undisbursed loan proceeds, unearned
discounts, unearned income and allowance for loan losses.
<TABLE>
<CAPTION>
DUE AFTER DUE AFTER DUE AFTER
DUE DURING THE 3 THROUGH 5 THROUGH 10 THROUGH DUE OVER
YEAR ENDED 5 YEARS 10 YEARS 15 YEARS 15 YEARS
MARCH 31, AFTER AFTER AFTER AFTER
---------------------------- MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2001 2002 2003 2000 2000 2000 2000 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real estate
Residential<F1><F2> $ 3,656 $1,152 $1,234 $1,713 $15,870 $11,127 $48,173 $ 82,925
Commercial 142 -- 591 1,367 427 483 1,087 4,097
Loans secured by savings
deposits 243 -- 14 -- -- -- -- 257
Property improvement 23 70 139 552 742 107 -- 1,633
Automobiles 117 432 203 993 18 -- -- 1,763
Other consumer loans 41 49 364 42 -- 67 -- 563
Commercial business loans 11,186 752 1,118 1,101 196 123 -- 14,476
------- ------ ------ ------ ------- ------- ------- --------
Total loans $15,408 $2,455 $3,663 $5,768 $17,253 $11,907 $49,260 $105,714
======= ====== ====== ====== ======= ======= ======= ========
<FN>
------------
<F1> Includes $2.6 million of loans held for sale, reported as due in
one year or less.
<F2> Includes multi-family loans totaling $1.3 million.
</TABLE>
The following table sets forth the dollar amount of all loans due
after March 31, 2001 which have fixed interest rates and adjustable
interest rates.
<TABLE>
<CAPTION>
FIXED ADJUSTABLE
RATES RATES
----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate
Residential $38,171 $41,098
Commercial 2,453 1,502
Loans secured by savings
deposits 14 --
Property improvement 1,610 --
Automobiles 1,646 --
Other consumer loans 522 --
Commercial business loans -- 3,290
------- -------
Total loans $44,416 $45,890
======= =======
</TABLE>
- 102 -
<PAGE>
<PAGE>
The following table sets forth total loans originated, purchased,
sold and repaid during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------------------
2000 1999 1998
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total loans at beginning of period $ 90,675 $ 108,896 $ 96,266
LOANS ORIGINATED
Residential one- to four-family 88,460 172,345 113,982
Commercial business loans 5,990 4,626 8,298
Consumer (property improvement
and automobiles) 2,809 1,893 1,415
Other loans 82 165 189
-------- --------- --------
Total loans originated 97,341 179,029 123,884
Loans purchased - residential one- to
four-family 773 7,374 6,059
Participation purchased - residential
one- to four-family -- 817 --
LOANS SOLD
Whole loans:
Servicing retained (30,131) (110,079) (56,302)
Servicing released (35,030) (31,713) (21,759)
-------- --------- --------
Total loans sold (65,161) (141,792) (78,061)
Loan principal repayments (17,914) (20,593) (11,879)
Loans converted to mortgage-backed
securities and sold -- (43,056) (27,373)
-------- --------- --------
Total loans at end of period $105,714 $ 90,675 $108,896
======== ========= ========
</TABLE>
Loan Soliciting and Processing. Loan originations are derived
------------------------------
primarily through Equality Mortgage Corporation loan officers'
solicitation and personal visits to the local real estate offices in the
metropolitan St. Louis area as well as current and walk-in customers.
These loan officers have developed a clientele over the years that refer
potential customers to Equality Mortgage Corporation for loans. By use
of the Equality Mortgage Corporation loan officers and client contacts,
Equality Savings Bank has been able to cover a broad market area and
offer mortgage services to an extended number of potential customers.
The eight-member Executive Loan Committee, chaired by
Mr. Fellhauer, is authorized to approve residential mortgage loans up to
$500,000. Residential mortgage loans in excess of $500,000 require full
Board of Directors approval. All residential mortgage loans are
subsequently approved by the full Board of Directors.
Loans-to-One Borrower Limitations. Equality Savings Bank's loans
---------------------------------
and extensions of credit to a person outstanding at one time and not
fully secured may not exceed 15% of the unimpaired capital and surplus
of Equality Savings Bank. This limitation calls for a loan-to-one
borrower limitation for Equality Savings Bank of $3.0 million at
March 31, 2000. Loans and extensions of credit fully secured by readily
marketable collateral may comprise an additional 10% of unimpaired
capital and surplus. At March 31, 2000, the largest aggregate amount of
loans by Equality Savings Bank to any borrower was approximately $2.0
million, which was secured by automobile floor planning and personal
assets.
Loan Commitments. Equality Savings Bank issues commitments for
----------------
fixed- and adjustable-rate single-family residential mortgage loans
conditioned upon the occurrence of certain events. Such commitments are
made in writing on specified terms and conditions and are generally
honored for up to 60 days from application, depending on the type of
transaction. Equality Savings Bank had outstanding loan commitments of
approximately $1.4 million at March 31, 2000. In addition, Equality
Savings Bank offers its commercial customers lines of credit. Any
unfunded line of credit represents a commitment to fund. All lines of
credit are prime rate based and fluctuate with changes in the prime
rate. Equality Savings Bank had outstanding lines of credit of
approximately $4.1 million at March 31, 2000.
- 103 -
<PAGE>
<PAGE>
Loan Origination and Other Fees. Equality Savings Bank, in most
-------------------------------
instances, receives loan origination fees and discount "points." Loan
fees and points are a percentage of the principal amount of the mortgage
loan that are charged to the borrower for funding the loan. Equality
Savings Bank usually charges origination fees of 1% on all real estate
loans. Fees received for originating loans are deferred and amortized
into interest income over the contractual life of the loan. Deferred
fees associated with loans that are sold are included in the gain/loss
computation at the time of sale. Equality Savings Bank had
approximately $13,000 of net deferred loan fees at March 31, 2000.
Equality Savings Bank offsets all loan origination fees and
certain related direct loan origination costs against all fees and costs
associated with loan origination. The resulting net amount is deferred
and amortized over the contractual life of the related loans as an
adjustment to the yield on such loans, unless prepayments of a large
group of similar loans are probable and the timing and amount of
prepayments can be reasonably estimated. Equality Savings Bank offsets
commitment fees against related direct costs and the resulting net
amount is recognized over the contractual life of the related loans as
an adjustment of yield if the commitment is exercised. If the
commitment expires unexercised, the fees collected are recognized as
noninterest income upon expiration of the commitment.
Delinquencies. Equality Savings Bank's collection procedures
-------------
provide that when a loan is 30 days overdue and again after an
additional 15 days, the borrower will be contacted by mail and payment
requested. After a delinquency of 15 days, a late charge is assessed.
If the delinquency continues, subsequent efforts will be made to contact
the delinquent borrower. In certain instances, Equality Savings Bank
may modify the loan or grant a limited moratorium on loan payments to
enable reorganization of the borrower's financial affairs. If the loan
continues in a delinquent status for 90 days or more, Equality Savings
Bank generally will initiate foreclosure proceedings.
Nonperforming Assets and Their Classification. The following
---------------------------------------------
table sets forth information with respect to Equality Savings Bank's
nonperforming assets for the periods indicated. During the periods
shown, Equality Savings Bank had no restructured loans within the
meaning of Statement of Financial Accounting Standards No. 15,
Accounting by Debtors and Creditors for Troubled Debt Restructurings:
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------
2000 1999 1998
----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LOANS WHICH ARE CONTRACTUALLY PAST DUE
90 DAYS OR MORE<F1>
Residential one- to four-family<F2> $ 471 $ 650 $ 853
Commercial real estate -- 51 --
Commercial business 233 -- --
Consumer 13 15 8
----- ----- -----
Total 717 716 861
Personal property owned 2 4 --
Real estate owned -- -- --
----- ----- -----
Total nonperforming assets $ 719 $ 720 $ 861
===== ===== =====
Nonperforming loans to gross loans 0.68% 0.79% 0.79%
Total nonperforming assets to total assets 0.22 0.25 0.34
<FN>
--------
<F1> All loans contractually past due 90 days or more are accounted for
on a nonaccrual basis by Equality Savings Bank.
<F2> Includes $388,000, $486,000, and $833,000 of Federal Housing
Administration/Veterans Administration loans, the principal and
interest payments of which are insured by the Federal Housing
Administration or guaranteed by the Veterans Administration, at
March 31, 2000, 1999 and 1998, respectively.
</TABLE>
Equality Savings Bank had $717,000 in loans 90 days or more
delinquent at March 31, 2000 which consisted of 16 one- to four-family
residential mortgage loans, each with an outstanding principal balance
of less than $98,000, three consumer automobile loans, each with an
outstanding principal balance of less than $8,000 and two commercial
business loans with an outstanding principal balance of less than
$156,000.
- 104 -
<PAGE>
<PAGE>
For fiscal 2000, 1999 and 1998, gross interest income which would
have been recorded had the nonaccruing loans been current in accordance
with their original terms amounted to $70,000, $62,000 and $69,000,
respectively, of which $50,000, $31,000 and $49,000, respectively, was
included in interest income.
Asset Classification. The FDIC asset classification system
--------------------
conforms with commercial banking practices and puts the establishment of
loan loss allowances on a basis consistent with the requirements of
generally accepted accounting principles. The regulations require that
each insured institution review and classify its assets on a regular
basis. In addition, in connection with examinations of insured
institutions, FDIC examiners have authority to identify problem assets
and, if appropriate, require them to be classified. There are three
classifications for problem assets: substandard, doubtful and loss.
"Substandard" assets must have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. "Doubtful"
assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset
classified "loss" is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted.
Assets classified as substandard or doubtful generally require the
institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, the insured institution
must either establish specific allowances for loan losses in the amount
of 100% of the portion of the asset classified loss or charge-off such
amount. A portion of general loss allowances established to cover
possible losses related to assets classified substandard or doubtful may
be included in determining an institution's regulatory capital, while
specific valuation allowances for loan losses generally do not qualify
as regulatory capital.
Equality Savings Bank's classified assets, general and specific
loss allowances and charge-offs were as follows:
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED MARCH 31
------------------------------------
2000 1999 1998
------ ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Substandard and doubtful assets<F1><F2> $2,313 $234 $ 28
General loss allowances 364 366 374
Specific loss allowances -- -- --
Net charge-offs 2 8 25
<FN>
---------
<F1> Includes a $2.0 million corporate obligation, with a fair value of
$1.06 million at March 31, 2000 and a maturity date of March 15,
2003, which was investment grade when originally purchased but has
subsequently downgraded below investment grade requiring
classification of $1.0 million as substandard and $940,000 as
doubtful. 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. There were no other doubtful assets at March 31, 2000.
<F2> Includes "doubtful" assets of $4,000 at March 31, 1999.
Real Estate Owned. Real estate acquired by Equality Savings Bank
-----------------
as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned until sold. When property is acquired,
it is recorded at fair value. Equality Savings Bank had no real estate
owned at March 31, 2000.
Allowance for Loan Losses. Equality Savings Bank's management
-------------------------
evaluates the need to establish reserves against losses on loans based
on estimated losses on specific loans. Such evaluation includes a
review of all loans for which full collectibility may not be reasonably
assured and considers, among other matters, the estimated market value
of the underlying collateral of problem loans, prior loss experience,
economic conditions and overall portfolio quality. These provisions for
losses are charged against earnings in the year they are established.
Equality Savings Bank established provisions for losses on loans for
fiscal 2000, 1999 and 1998 of approximately $0, $0 and $116,000,
respectively. At March 31, 2000, Equality Savings Bank had an allowance
for loan losses of $364,000, which represented .34% of total loans. Based
on past experience and future expectations, management believes that the
allowance for loan losses is adequate.
- 105 -
<PAGE>
<PAGE>
The following table sets forth an analysis of Equality Savings
Bank's allowance for loan losses as of the dates and for the periods
indicated:
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED MARCH 31
------------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 366 $ 374 $ 283 $ 233 $ 217
Provision charged to expense -- -- 116 50 31
Net charge-offs:
Residential one- to four-family -- -- (25) -- (15)
Automobiles (2) (8) -- -- --
------ ------ ------ ------ ------
Balance at end of period $ 364 $ 366 $ 374 $ 283 $ 233
====== ====== ====== ====== ======
Ratio of allowance to total loans outstanding
at the end of the period 0.34% 0.40% 0.34% 0.29% 0.24%
Ratio of net charge-offs to average loans
outstanding during the period -- .01 .02 -- .02
Allowance for loan losses to total
nonperforming assets 50.60 50.80 43.40 39.90 30.40
Allowance for loan losses to total
nonperforming loans 50.80 51.10 43.40 44.00 34.80
</TABLE>
The following table sets forth the breakdown of the allowance for
loan losses by loan category at the dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31
-----------------------------------------------------------------------------------
2000 1999
-------------------------------------- -------------------------------------
AMOUNT OF LOAN PERCENT AMOUNT OF LOAN PERCENT
ALLOWANCE AMOUNTS OF ALLOWANCE AMOUNTS OF
FOR LOAN BY TOTAL FOR LOAN BY TOTAL
LOSSES CATEGORY LOANS LOSSES CATEGORY LOANS
--------- -------- ------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LOANS SECURED BY REAL ESTATE
Residential one- to
four-family<F1> $200 $ 81,582 77.2% $235 $72,175 79.6%
Multi-family and
commercial 20 5,440 5.1 28 5,812 6.4
Property improvement 7 1,633 1.5 7 1,482 1.6
Automobiles 7 1,763 1.7 5 1,042 1.1
Other -- 820 0.8 2 522 0.7
Commercial business loans 130 14,476 13.7 89 9,642 10.6
---- -------- ----- ---- ------- -----
Total allowance for loan losses $364 $105,714 100.0% $366 $90,675 100.0%
==== ======== ===== ==== ======= =====
<FN>
--------
<F1> Includes loans held for sale.
</TABLE>
- 106 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31
-------------------------------------------------------------------------------
1998 1997
------------------------------------- -------------------------------------
AMOUNT OF LOAN PERCENT AMOUNT OF LOAN PERCENT
ALLOWANCE AMOUNT OF ALLOWANCE AMOUNT OF
FOR LOAN BY TOTAL FOR LOAN BY TOTAL
LOSSES CATEGORY LOANS LOSSES CATEGORY LOANS
--------- -------- ------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LOANS SECURED BY REAL ESTATE
Residential one- to
four-family<F1> $234 $ 93,784 86.1% $174 $88,441 91.9%
Multi-family and
commercial 19 4,066 3.8 49 4,299 4.5
Property improvement 7 1,728 1.6 20 1,596 1.7
Automobiles 3 617 0.6 2 122 0.1
Other -- 548 0.5 -- 528 0.5
Commercial business
loans 111 8,153 7.4 38 1,280 1.3
---- -------- ----- ---- ------- -----
Total allowance for
loan losses $374 $108,896 100.0% $283 $96,266 100.0%
==== ======== ===== ==== ======= =====
<CAPTION>
1996
------------------------------------
AMOUNT OF LOAN PERCENT
ALLOWANCE AMOUNT OF
FOR LOAN BY TOTAL
LOSSES CATEGORY LOSSES
--------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LOANS SECURED BY REAL ESTATE
Residential one- to
four-family<F1> $174 $92,036 94.5%
Multi-family and
commercial 41 3,405 2.7
Property improvement 16 1,300 1.3
Automobiles 2 97 0.1
Other -- 549 1.4
Commercial business
loans -- -- --
---- ------- -----
Total allowance for
loan losses $233 $97,387 100.0%
==== ======= =====
<FN>
--------
<F1> Includes loans held for sale.
</TABLE>
INVESTMENT ACTIVITIES
Equality Savings Bank classifies its investment securities and
mortgage-backed securities for financial accounting purposes into one of
three categories:
- Held to Maturity: includes investments in debt securities
which Equality Savings Bank has the positive intent and ability
to hold until maturity.
- Trading: includes investments in debt and equity securities
purchased and held principally for the purpose of selling them
in the near term.
- Available for Sale: includes investments in debt and equity
securities not classified as held to maturity or trading (i.e.,
investments that Equality Savings Bank has no present plans to
sell in the near term but may be sold in the future under
different circumstances).
<PAGE>
Investment and mortgage-backed securities classified as held to
maturity are measured at amortized cost, in which the amortization of
premiums and accretion of discounts, which are recognized as adjustments
to interest income, are recorded using methods approximating the
interest method. Unrealized gains and losses for trading securities
(for which no securities were so designated at March 31, 2000 or 1999)
are included in earnings, while such gains and losses for available for
sale securities are excluded from earnings and reported as a net amount
as accumulated other comprehensive income, a separate component of
stockholders' equity, net of income taxes, until realized. Unrealized
gains and losses for held to maturity securities are excluded from
earnings and stockholders' equity. Gains or losses for available for
sale securities are realized and included in other noninterest income
upon sale, based on the amortized cost of the individual security sold.
All previous fair value adjustments included in accumulated other
comprehensive income are reversed upon sale. Mortgage-backed securities
represent a significant portion of the debt security portfolio.
Amortization of premiums and accretion of discounts on mortgage-backed
securities are analyzed in relation to the corresponding prepayment
rates, both historical and estimated, using a method that approximates
the interest method.
It has been Equality Savings Bank's practice to maintain assets in
investment securities at levels higher than required by federal
regulations. Equality Savings Bank's investment securities portfolio at
March 31, 2000 consisted of $600,000 in U.S. Government and agency
obligations classified as held to maturity, with a fair value of
$548,000, $68.7 million in U.S. Government and agency obligations
classified as available for sale carried at their estimated market value
of $64.8 million, and $58.0 million in corporate bonds classified as
available for sale carried at their estimated fair value of $55.7
million. One corporate bond, with a carrying value of $2.0 million and
a fair
- 107 -
<PAGE>
<PAGE>
value of $1.06 million at March 31, 2000, which was investment grade when
purchased, has been downgraded below investment grade as discussed below.
The overall objective of Equality Savings Bank's investment
portfolio is to provide a sufficient and consistent spread over Equality
Savings Bank's marginal cost of funds by investing funds that are not
currently required for lending purposes and to provide a liquidity
reserve in excess of regulatory requirements. Equality Savings Bank has
traditionally maintained an investment portfolio in the range of 15% to
20% of total assets. As of March 31, 2000, investment securities
represented 37% of total assets. Equality Savings Bank's regulatory
liquidity ratio at March 31, 2000 was 24.0%. The portfolio is also
intended to assist in managing Equality Savings Bank's asset and
liability interest rate sensitivity.
Equality Savings Bank's chief financial officer is responsible for
daily management of Equality Savings Bank's investment activities and is
authorized to perform any Board of Directors-approved transaction
necessary to achieve the objectives established by the Board of
Directors and that falls within parameters established by the Board of
Directors.
In an effort to increase earnings, Equality Savings Bank deployed
a strategy in late 1997 in order to better leverage its balance sheet.
The funds received from Federal Home Loan Bank System advances have been
invested in mortgage-backed securities and investment securities.
Federal Home Loan Bank System advances obtained by Equality Savings Bank
were generally longer-term borrowings which contained call features. In
general, the investments purchased by Equality Savings Bank with these
advances were medium- to long-term investments, many of which have call
or prepayment features. As interest rates have risen, Federal Home Loan
Bank System advances have been called and replaced with shorter-term,
but higher-cost borrowings; however, the investments have not been
called. As a result of Equality Savings Bank's strategy, the increase
in interest rates, Federal Home Loan Bank System advances exceeding core
deposits, and a $2.0 million corporate bond that has been downgraded
below investment grade, Equality Savings Bank now has considerable
interest rate risk and cannot liquidate its portfolio without a
significant impact on earnings. Management is considering reducing
Equality Bancorp's interest rate risk by selling a minimum of $60.0
million of available for sale investment securities. See "Pro Forma
Financial Information--Notes to Pro Forma Combined Consolidated
Financial Statements--Subsequent Events."
The following table sets forth Equality Savings Bank's investment
securities at the dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31
------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
PERCENT PERCENT PERCENT
CARRYING OF FAIR CARRYING OF FAIR CARRYING OF FAIR
VALUE PORTFOLIO VALUE VALUE PORTFOLIO VALUE VALUE PORTFOLIO VALUE
-------- --------- -------- -------- --------- ------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
Available for sale $ 64,806 53.5% $ 64,806 $60,500 73.6% $60,500 $68,897 96.4% $68,897
Held to maturity 600 0.5 548 600 0.7 531 2,600 3.6 2,527
CORPORATE OBLIGATIONS -
Available for sale 55,682 45.9 55,682 21,047 25.6 21,047 -- -- --
MARKETABLE EQUITY SECURITIES -
available for sale $ 88 0.1% $ 88 $ 88 0.1% $ 88 -- -- --
-------- ----- -------- ------- ----- ------- ------- ----- -------
Total $121,176 100.0% $121,124 $82,235 100.0% $82,166 $71,497 100.0% $71,424
======== ===== ======== ======= ===== ======= ======= ===== =======
</TABLE>
- 108 -
<PAGE>
<PAGE>
The following table sets forth the maturities and weighted average
yields of Equality Savings Bank's debt securities at March 31, 2000:
<TABLE>
<CAPTION>
LESS THAN ONE YEAR ONE TO FIVE YEARS FIVE TO TEN YEARS
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
Available for sale $ -- --% $ 6,736 6.87% $34,838 6.82%
Held to maturity -- -- 600 4.18 -- --
CORPORATE OBLIGATIONS
Available for sale 4,182 6.18 47,448 6.76 4,052 7.21
------ ------- -------
Total $4,182 6.18 $54,784 6.75 $38,890 6.87
====== ======= =======
<CAPTION>
OVER TEN YEARS TOTAL
------------------------ -----------------------------------------------------
AVERAGE
WEIGHTED REMAINING WEIGHTED
CARRYING AVERAGE YEARS TO CARRYING FAIR AVERAGE
VALUE YIELD MATURITY VALUE VALUE YIELD
-------- -------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
Available for sale $23,232 7.71% 9.4% $ 64,806 $ 64,806 7.15%
Held to maturity -- -- 3.3 600 548 4.18
CORPORATE OBLIGATIONS
Available for sale -- -- 2.9 55,682 55,682 6.75
------- -------- --------
Total $23,232 7.71 6.4 $121,088 $121,036 6.93
======= ======== ========
</TABLE>
MORTGAGE-BACKED SECURITIES. In order to supplement residential
loan demand in its primary market area and maintain geographic diversity
in its loan portfolio, Equality Savings Bank has a substantial portfolio
of mortgage-backed securities that are classified as available for sale
and, accordingly, are carried at fair value. All of Equality Savings
Bank's mortgage-backed securities are federal agency securities.
Mortgage-backed securities represent a participation interest in a
pool of single-family or multi-family mortgages, the principal and
interest payments of which are passed from the mortgage originators
through intermediaries that pool and repackage the participation
interest in the form of securities to investors such as Equality Savings
Bank. Such intermediaries may include quasi-governmental agencies such
as Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association and Government National Mortgage Association that guarantee
or insure the payment of principal and interest to investors. Mortgage-
backed securities generally increase the quality of Equality Savings
Bank's assets by virtue of the guarantees that back them, are more
liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of Equality Savings Bank.
Mortgage-backed securities typically are issued with stated
principal amounts and the securities are backed by pools of mortgages
that have loans with interest rates that are within an identified range
and have similar maturities. The underlying pool of mortgages can be
composed of either fixed rate mortgages, adjustable rate mortgage loans,
or balloon loans. Mortgage-backed securities generally are referred to
as mortgage participation certificates or pass-through certificates. As
a result, the interest rate risk characteristics of the underlying pool
of mortgages, i.e., fixed rate or adjustable rate, as well as prepayment
risk, are passed on to the certificate holder. The life of a mortgage-
backed pass-through security is equal to the life of the underlying
mortgages.
The actual maturity of a mortgage-backed security varies,
depending on when the mortgagors prepay or repay the underlying
mortgages. Prepayments of the underlying mortgages may shorten the life
of the investment, thereby adversely affecting its yield to maturity and
the related market value of the mortgage-backed security. The
- 109 -
<PAGE>
<PAGE>
yield is based upon the interest income and the amortization of the
premium or discount related to the mortgage-backed security. Premiums
and discounts on mortgage-backed securities are amortized over the
estimated term of the securities using a level yield method. The
prepayment assumptions used to determine the amortization period for
premiums and discounts can significantly affect the yield of the
mortgage-backed security and these assumptions are reviewed periodically
to reflect the actual prepayment. The actual prepayments of the
underlying mortgages depend on many factors, including the type of
mortgages, the coupon rate, the age of mortgages, the geographical
location of the underlying real estate collateralizing the mortgages and
general levels of market interest rates. The difference between the
interest rates on the underlying mortgages and the prevailing mortgage
interest rates is an important determinant in the rate of prepayments.
If the coupon rate of the underlying mortgages significantly exceeds the
prevailing market interest rates offered for mortgage loans, refinancing
generally increases and accelerates the prepayment of the underlying
mortgages. Prepayment experience is more difficult to estimate for
adjustable rate mortgage-backed securities.
Certain of Equality Savings Bank's mortgage-backed securities
yield above-market rates of interest and are subject to substantial risk
of prepayment. In a declining interest rate environment, Equality
Savings Bank may experience significant prepayments of both fixed and
adjustable rate mortgage-backed and related securities. In such
instances, Equality Savings Bank may be unable to reinvest the cash flow
from these securities into comparable yielding investments, and would
expect this reinvestment risk to continue so long as interest rates
remained relatively low. The majority of Equality Savings Bank's
mortgage-backed securities are yielding below-market rates of interest
due to the increase in interest rates. In a rising rate environment,
Equality Savings Bank may experience a slow down in prepayments and a
lengthening in the expected maturity of the mortgage-backed securities.
Equality Savings Bank's mortgage-backed securities are a blend of
fixed-rate balloon securities and adjustable-rate securities maturing in
between one and 29 years. Equality Savings Bank's holdings of mortgage-
backed securities have decreased in the past year as a result of
increased portfolio lending. Because federal agency mortgage-backed
securities generally carry a yield of approximately 50 to 100 basis
points below that of the corresponding type of residential loan (due to
the implied federal agency guarantee fee and the retention of a
servicing spread by the loan servicer), Equality Savings Bank's asset
yields have been somewhat adversely affected. Due to the existence of
the federal agency guarantee on Equality Savings Bank's mortgage-backed
securities and the availability of adjustable-rate mortgage-backed
securities, however, Equality Savings Bank's credit risk has not
increased. Equality Savings Bank will continue to evaluate mortgage-
backed securities purchases based on its asset/liability objectives,
market conditions and its alternate investment opportunities.
The following table sets forth certain information regarding
carrying and fair values and percentage of total carrying values of
Equality Savings Bank's mortgage-backed securities portfolio.
<TABLE>
<CAPTION>
AT MARCH 31
-----------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------
PERCENT PERCENT
CARRYING OF FAIR CARRYING OF FAIR
VALUE TOTAL VALUE VALUE TOTAL VALUE
-------- ------- ------- -------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal National
Mortgage Association $36,340 56.7% $36,340 $49,365 54.4% $49,365
Federal Home Loan
Mortgage Corporation 11,686 18.2 11,686 17,120 18.9 17,120
Government National
Mortgage Association 16,112 25.1 16,112 24,326 26.7 24,326
------- ----- ------- ------- ----- -------
Total mortgage-
backed securities $64,138 100.0% $64,138 $90,811 100.0% $90,811
======= ===== ======= ======= ===== =======
<PAGE>
<CAPTION>
AT MARCH 31
--------------------------------------
1998
--------------------------------------
PERCENT
CARRYING OF FAIR
VALUE TOTAL VALUE
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal National
Mortgage Association $28,570 48.8% $28,570
Federal Home Loan
Mortgage Corporation 2,580 4.4 2,580
Government National
Mortgage Association 27,362 46.8 27,362
Total mortgage-
------- ----- -------
backed securities $58,512 100.0% $58,512
======= ===== =======
</TABLE>
- 110 -
<PAGE>
<PAGE>
The following table sets forth the activity in Equality Savings
Bank's mortgage-backed securities during the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES
At beginning of period $ 90,811 $ 58,512 $ 14,954
Purchases 5,300 92,917 56,569
Sales (10,514) (26,460) (10,036)
Repayments (18,301) (33,071) (3,134)
Premium/discount amortization, net (798) (648) (204)
Fair value adjustment (2,360) (439) 363
-------- -------- --------
End of period $ 64,138 $ 90,811 $ 58,512
======== ======== ========
</TABLE>
The composition and maturities of Equality Savings Bank's mortgage-
backed securities portfolio at March 31, 2000 are indicated in the
following table:
<TABLE>
<CAPTION>
LESS THAN ONE YEAR ONE TO FIVE YEARS FIVE TO TEN YEARS
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal National Mortgage Association $29 8.14% $ 306 6.25% $4,731 6.15%
Federal Home Loan Mortgage Corporation -- -- 3,459 6.01 708 6.10
Government National Mortgage Association -- -- -- -- -- --
--- ---- ------ ---- ------ ----
Total mortgage-
backed securities $29 8.14% $3,765 6.03% $5,439 6.14%
=== ==== ====== ==== ====== ====
<CAPTION>
OVER TEN YEARS TOTAL
------------------------ -----------------------------------------------------
AVERAGE
WEIGHTED REMAINING WEIGHTED
CARRYING AVERAGE YEARS TO CARRYING FAIR AVERAGE
VALUE YIELD MATURITY VALUE VALUE YIELD
-------- -------- --------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal National Mortgage Association $31,274 7.01% 16.5 $36,340 $36,340 6.89%
Federal Home Loan Mortgage Corporation 7,519 6.16 21.3 11,686 11,686 6.11
Government National Mortgage Association 16,112 6.60 26.2 16,112 16,112 6.60
------- ------- -------
Total mortgage-
backed securities $54,905 6.77 21.7 $64,138 $64,138 6.68
======= ======= =======
</TABLE>
At March 31, 2000, Equality Savings Bank did not hold any security
of an issuer (other than U.S. Government and agency securities) which had
an aggregate fair value in excess of 10% of Equality Savings Bank's
stockholders' equity at the dates indicated.
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
General. Deposits and advances from the Federal Home Loan Bank
-------
System of Des Moines are the primary source of Equality Savings Bank's
funds for lending and other investment purposes. In addition, Equality
Savings Bank derives funds from loan principal repayments. Loan
repayments are a relatively stable source of funds while deposit inflows
and outflows may be significantly influenced by the general level of
interest rates and money market conditions.
Deposit Accounts. Local deposits are and traditionally have been
----------------
the primary source of Equality Savings Bank's funds for use in lending
and other general business purposes. Deposits are attracted from within
Equality Savings Bank's primary market area (metropolitan St. Louis)
through an offering of a variety of financial accounts
- 111 -
<PAGE>
<PAGE>
including savings, checking, money market, certificates of deposit,
retirement plan accounts and commercial checking. The account terms vary
by type of account according to minimum balance requirements, interest
rate and the length of time the account must remain open without
incurring a penalty for withdrawal of the funds as well as other factors.
Equality Savings Bank relies on the location of its offices, customer
satisfaction and other references as its primary sources of deposit
solicitation. To a lesser degree, local media advertising is used in the
seeking of deposit funds.
In determining the individual characteristics of its deposit
accounts, Equality Savings Bank considers the products and rates offered
by the competition, the attractiveness of the product to its customer
base, the profitability of the product to Equality Savings Bank and the
effect the account will have on the asset liability mix of the
institution. Equality Savings Bank believes that it competes favorably
on the basis of attractive, convenient locations and quality service.
Equality Savings Bank does not use brokered deposits.
- 112 -
<PAGE>
<PAGE>
The following table sets forth information concerning Equality
Savings Bank's savings deposits at the dates indicated.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ------------------------------- -------------------------------
PERCENT PERCENT PERCENT
OF TOTAL NOMINAL OF TOTAL NOMINAL OF TOTAL NOMINAL
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NOW accounts $ 10,348 7.34% 1.23% $ 8,123 6.30% 2.25% $ 8,370 7.02% 1.86%
Passbook 20,074 14.26 2.51 20,767 16.10 2.51 19,762 16.57 2.51
Money market demand 12,459 8.85 4.34 8,237 6.39 4.31 5,517 4.62 3.07
Noninterest checking 8,707 6.18 -- 7,959 6.17 -- 6,920 5.80 --
CERTIFICATES OF DEPOSIT
28-91 days - Fixed term,
fixed-rate 17 0.01 3.00 16 0.01 3.00 30 0.02 2.95
6 months - Fixed-term,
fixed-rate 2,570 1.82 4.38 2,106 1.63 4.04 2,271 1.90 4.00
9 months - Fixed-term,
fixed-rate 5,458 3.87 4.69 11,738 9.10 5.00 8,054 6.75 5.26
12 months - Fixed-term,
fixed-rate 12,832 9.11 5.15 9,646 7.48 4.86 8,036 6.74 5.14
18 months - Fixed-term,
fixed-rate 12,506 8.88 6.28 -- -- -- -- -- --
24 months - Fixed-term,
fixed-rate 8,749 6.21 5.34 8,441 6.55 5.36 7,467 6.26 5.50
36 months - Fixed-term,
fixed-rate 3,938 2.80 5.67 3,229 2.51 5.51 3,029 2.54 5.57
48 months - Fixed-term,
fixed-rate 11,710 8.31 5.57 15,759 12.22 5.87 12,955 10.86 6.36
60 months - Fixed-term,
fixed-rate 7,242 5.14 5.54 7,611 5.90 5.67 12,869 10.79 5.61
24 months - Fixed-term,
variable-rate 705 0.50 4.80 980 0.76 4.80 639 0.54 5.50
5 - 20 years - Fixed-term,
fixed-rate
(Guaranteed Account) 142 0.10 8.92 132 0.10 8.92 122 0.10 8.92
1 - 60 months -
Negotiated rate 1,599 1.13 5.84 2,112 1.64 5.79 2,214 1.86 6.12
RETIREMENT ACCOUNTS (IRAS)
12 months - Fixed-term,
fixed-rate 1,015 0.72 4.86 1,123 0.87 4.85 883 0.74 5.00
18 months - Fixed-term,
fixed-rate 3,388 2.40 6.04 -- -- -- -- -- --
24 months - Fixed-term,
fixed-rate 1,524 1.08 5.38 957 0.74 5.30 1,004 0.84 5.39
36 months - Fixed-term,
fixed-rate 1,004 0.71 5.79 711 0.55 5.48 734 0.62 5.53
48 months - Fixed-term,
fixed-rate 5,338 3.79 5.37 9,518 7.38 5.87 10,848 9.09 6.53
60 months - Fixed-term,
fixed-rate 8,891 6.31 5.55 9,065 7.03 5.64 6,944 5.82 5.86
120 months - Fixed-term,
fixed-rate 436 0.31 10.11 422 0.33 10.00 395 0.33 10.00
24 months - Fixed-term,
variable-rate 233 0.17 4.80 302 0.24 4.80 238 0.19 5.50
-------- ------ ----- -------- ------ ----- -------- ------ -----
$140,885 100.00% 4.39% $128,954 100.00% 4.37% $119,301 100.00% 4.49%
======== ====== ===== ======== ====== ===== ======== ====== =====
</TABLE>
- 113 -
<PAGE>
<PAGE>
The following table indicates the amount of Equality Savings Bank's
jumbo certificates of deposit by time remaining until maturity as of
March 31, 2000. Jumbo certificates of deposit require minimum deposits
of $100,000 and have negotiable rates.
<TABLE>
<CAPTION>
CERTIFICATES
MATURITY PERIOD OF DEPOSIT
--------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less $ 369
Three through six months --
Six through twelve months 430
Over twelve months 800
------
$1,599
======
</TABLE>
DEPOSIT FLOW
The following table sets forth the balances of savings deposit in
the various types of savings accounts offered by Equality Savings Bank at
March 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- -------------------------------- ------------------------------
PERCENT PERCENT PERCENT
OF INCREASE OF INCREASE OF INCREASE
AMOUNT TOTAL (DECREASE) AMOUNT TOTAL (DECREASE) AMOUNT TOTAL (DECREASE)
------ ------- ---------- ------ ------- ---------- ------ ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing checking $ 8,707 6.18% $ 748 $ 7,959 6.17% $1,039 $ 6,920 5.80% $ 1,927
NOW accounts 10,348 7.34 2,225 8,123 6.30 (247) 8,370 7.02 1,200
Passbook accounts 20,074 14.25 (693) 20,767 16.10 1,005 19,762 16.57 (1,815)
Money market demand 12,459 8.84 4,222 8,237 6.39 2,720 5,517 4.62 (618)
Fixed-rate certificates 88,359 62.72 5,772 82,587 64.05 4,732 77,855 65.26 (4,370)
Variable-rate certificates 938 0.67 (343) 1,281 0.99 404 877 0.73 (6)
-------- ------ ------- -------- ------ ------ -------- ------ -------
Total $140,885 100.00% $11,931 $128,954 100.00% $9,653 $119,301 100.00% $(3,682)
======== ====== ======= ======== ====== ====== ======== ====== =======
</TABLE>
CERTIFICATES OF DEPOSIT BY RATES
The following table sets forth the certificates of deposits
classified by rates at March 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------
2000 1999 1998
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Less than 3.00% $ -- $ -- $ 3
3.00% to 3.99% 17 16 26
4.00% to 4.99% 24,331 17,288 3,214
5.00% to 5.99% 35,357 49,393 48,216
6.00% to 6.99% 28,850 13,634 15,122
7.00% to 7.99% 164 2,982 11,634
8.00% and greater 579 555 517
------- ------- -------
Total $89,298 $83,868 $78,732
======= ======= =======
</TABLE>
- 114 -
<PAGE>
<PAGE>
Certificate of deposit accounts at March 31, 2000, 1999 and 1998
are scheduled to mature as indicated in the following table:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------- ---------------------- ----------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Within one year $34,467 38.6% $46,479 55.4% $42,430 53.9%
Second year 25,804 28.9 12,329 14.7 21,282 27.0
Third year 14,420 16.1 4,943 5.9 6,832 8.7
Fourth year 7,312 8.2 13,109 15.6 4,563 5.8
Thereafter 7,295 8.2 7,008 8.4 3,625 4.6
------- ----- ------- ----- ------- -----
Total $89,298 100.0% $83,868 100.0% $78,732 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
The following table sets forth the savings activities of Equality
Savings Bank for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance $128,954 $119,301 $122,983
Net increase (decrease) before
interest credited 7,398 5,354 (8,121)
Interest credited 4,533 4,299 4,439
-------- -------- --------
$140,885 $128,954 $119,301
======== ======== ========
</TABLE>
BORROWINGS. Deposits and advances from the Federal Home Loan Bank
System of Des Moines are the primary source of funds for Equality
Savings Bank. At March 31, 2000, Equality Savings Bank had $159.7
million in Federal Home Loan Bank System of Des Moines advances
outstanding and maintained a line of credit of approximately $12.3
million available from the Federal Home Loan Bank System of Des Moines.
During fiscal year 2000, Equality Savings Bank utilized Federal Home
Loan Bank System advances to provide for increased investment in loans
receivable and investment securities. As previously mentioned, Equality
Savings Bank deployed a strategy in late 1997 in order to better
leverage its balance sheet. The funds received from Federal Home Loan
Bank System advances have been invested in mortgage-backed securities
and investment securities. Federal Home Loan Bank System advances
obtained by Equality Savings Bank were generally longer-term borrowings
which contained call features. In general, the investments purchased by
Equality Savings Bank with these advances were medium to long-term
investments, many of which have call or prepayment features. As
interest rates have risen, Federal Home Loan Bank System advances have
been called and replaced with shorter-term, but higher-cost borrowings,
however, the investments have not been called. As a result of Equality
Savings Bank's strategy, the increase in interest rates, Federal Home
Loan Bank System advances exceeding core deposits, and a $2.0 million
corporate bond that has been downgraded below investment grade, Equality
Savings Bank now has considerable interest rate risk and cannot
liquidate its portfolio without a significant impact on earnings.
Management is considering reducing Equality Bancorp's interest rate risk
by selling a minimum of $60.0 million of available for sale investment
securities. See "Pro Forma Financial Information--Notes to Pro
Forma Combined Consolidated Financial Statements--Subsequent Events."
Equality Mortgage Corporation maintains a custodial borrowing
relationship at an unaffiliated bank secured by investment securities
with an amortized cost of approximately $4.7 million and a fair value of
approximately $4.0 million at March 31, 2000. At March 31, 2000, there
was $1.7 million outstanding on this note payable.
- 115 -
<PAGE>
<PAGE>
The following table sets forth certain information regarding
borrowings by Equality Savings Bank at the end of and during the periods
indicated.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED MARCH 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average rate at March 31:
Federal Home Loan Bank System of Des Moines borrowings 5.95% 5.37% 5.32%
Note payable to bank 2.25 2.25 2.25
Employee Stock Ownership Plan debt<F1> -- -- --
Maximum amount of borrowings outstanding
at any month-end:
Federal Home Loan Bank System of Des Moines borrowings $171,779 $130,396 $104,000
Note payable to bank 4,000 4,000 4,000
Employee Stock Ownership Plan debt<F1> -- -- 136
Weighted average amount of borrowings outstanding:
Federal Home Loan Bank System of Des Moines borrowings $156,654 $125,994 $76,208
Note payable to bank 2,964 3,108 3,085
Employee Stock Ownership Plan debt<F1> -- -- 68
Approximate weighted average rate paid on:
Federal Home Loan Bank System of Des Moines borrowings 5.55% 5.41% 5.29%
Note payable to bank 2.36 2.28 1.90
Employee Stock Ownership Plan debt<F1> -- -- 8.50
<FN>
--------
<F1> Employee Stock Ownership Plan debt was assumed by Equality Bancorp
in connection with its conversion in December 1997.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL. Equality Bancorp, Inc. is the holding company for
Equality Savings Bank. Equality Bancorp is principally engaged in the
business of attracting deposits from the general public and uses these
deposits, together with other funding sources, to originate or invest in
residential and other mortgage loans and nonmortgage loans, investments
and other assets. Because Equality Bancorp is primarily dependent on
net interest margin (interest income from loans and investments minus
interest expense on deposit accounts and borrowed money) for earnings,
the focus of the Company's planning has been to devise and employ
strategies that provide a stable, positive spread between the yield on
interest-earning assets and the cost of interest-bearing liabilities in
order to maximize the dollar amount of net interest income.
A substantial portion of Equality Bancorp's operations and income
are derived from the operations of Equality Mortgage Corporation, a
wholly-owned subsidiary of Equality Savings Bank. Equality Mortgage
Corporation provides several benefits to Equality Bancorp, including,
among other things, originating a variety of mortgage loan products for
Equality Bancorp's portfolio and generating fee income for Equality
Bancorp through its activities in the secondary mortgage market.
Equality Mortgage Corporation's mortgage banking activities produce
primarily two types of income - gain on sale of mortgage loans and loan
servicing fees and late charges. Equality Mortgage Corporation's
mortgage banking activities consist of the origination, purchase and
sale of residential mortgage loans.
ASSET AND LIABILITY MANAGEMENT. Equality Bancorp's principal
objective is to achieve long-term profitability while reducing its
exposure to fluctuating market interest rates and has employed various
strategies intended to minimize the adverse effect of interest rate risk
on future operations. Progress has been made toward restructuring the
composition of the loan portfolio, and liquidity has been accumulated in
investments in investment-grade corporate obligations and in U.S.
Government and agency notes and bonds.
- 116 -
<PAGE>
<PAGE>
Adjustable-rate mortgages, shorter-term consumer loans and
commercial business loans are among the products currently utilized by
Equality Bancorp to restructure the loan portfolio. The proper pricing
of deposit accounts is also significant. During periods of low or
declining rates, the long-term deposits extend attractive rates while in
periods of high rates, the short-term deposit accounts are competitively
priced. This position allows Equality Bancorp to benefit from the
ability to reprice as necessary based on market conditions. Equality
Bancorp also relies on Federal Home Loan Bank advances as a primary
source of funds in its asset and liability management program.
Through Equality Mortgage Corporation, Equality Bancorp has
focused on the origination of adjustable-rate mortgages that reprice
based on fluctuations in interest rates. Fixed-rate mortgage loan
originations are generally sold in the secondary market. In addition,
Equality Mortgage Corporation's loan servicing operations have been a
source of noninterest income to Equality Bancorp.
YIELDS EARNED AND RATES PAID. The earnings of Equality Bancorp
depend largely on the spread between the yield on interest-earning
assets (primarily loans and investments) and the cost of interest-
bearing liabilities (primarily deposit accounts and borrowed money), as
well as the relative size of Equality Bancorp's interest-earning assets
and interest-bearing liability portfolios.
The following table sets forth, for the periods indicated,
information regarding average balances of interest-earning assets and
interest-bearing liabilities as well as the total dollar amounts of
interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities, resultant yields,
interest rate spread, net interest margin, and ratio of average
interest-earning assets to average interest-bearing liabilities.
Average balances for a period have been calculated using the average of
month-end balances during such period.
- 117 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------- --------------------------------- ----------------------------------
INTEREST INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE<F1> DIVIDENDS COST BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST
----------- --------- ----- ------- --------- ----- ------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Mortgage loans<F2> $ 84,854 6,202 7.31% $ 86,630 6,519 7.53% $ 99,335 7,341 7.39%
Consumer loans<F2> 3,434 327 9.52 3,001 295 9.83 2,677 232 8.67
Commercial business
loans<F2> 12,652 1,225 9.68 9,164 889 9.70 5,249 530 10.10
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total loans
receivable 100,940 7,754 7.68 98,795 7,703 7.80 107,261 8,103 7.55
Investment securities 115,373 8,145 7.06 63,001 3,722 5.91 77,443 4,748 6.13
Interest-bearing
deposits 3,804 69 1.81 10,686 400 3.74 10,474 416 3.97
Mortgage-backed
securities 76,216 4,570 6.00 89,298 5,321 5.96 16,805 1,153 6.86
Federal Home Loan Bank
System stock 7,894 505 6.40 6,337 412 6.50 3,894 260 6.68
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-
earning Assets $304,227 21,043 6.92 $268,117 17,558 6.55 $215,877 14,680 6.80
======== ======= ====== ======== ======= ====== ======== ======= ======
INTEREST-BEARING
LIABILITIES
Passbook savings $ 20,809 523 2.51% $ 20,244 506 2.50% $ 27,229 663 2.43%
Checking 17,379 246 1.42 15,460 195 1.26 13,487 193 1.43
Money market accounts 10,038 396 3.95 7,047 236 3.35 5,401 150 2.78
Certificates of deposit 83,516 4,431 5.31 80,587 4,521 5.61 80,529 4,628 5.75
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total savings
deposits 131,742 5,596 4.25 123,338 5,458 4.43 126,646 5,634 4.45
Federal Home Loan Bank
System advances 156,654 8,695 5.55 125,994 6,822 5.41 76,208 4,031 5.29
Other interest-bearing
liabilities 2,964 70 2.36 3,108 71 2.28 3,153 60 1.90
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-
bearing liabilities $291,360 14,361 4.93% $252,440 12,351 4.89% $206,007 9,725 4.72%
======== ======= ====== ======== ======= ====== ======== ======= ======
Net interest income $ 6,682 $ 5,207 $ 4,955
======= ======= =======
Interest rate spread 1.99% 1.66% 2.08%
====== ====== ======
Net interest
margin<F3> 2.20% 1.94% 2.30%
====== ====== ======
RATIO OF AVERAGE
Interest-earning assets
to average interest-
bearing liabilities 104.42% 106.21% 104.79%
====== ====== ======
<FN>
--------------
<F1> Average balances are computed on a monthly basis (month-end
balances).
<F2> Average balances include loans 90 days or more past due; however,
interest is not accrued on these loans as they are accounted for
on a nonaccrual basis.
<F3> Net interest income divided by average interest-earning assets.
</TABLE>
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<PAGE>
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME DUE TO CHANGES IN
VOLUME AND CHANGES IN RATES. The following table sets forth the effects
of changing rates and volumes on net interest income of Equality
Bancorp. Information is provided with respect to: (1) effects on
interest income attributable to changes in rate (changes in rate
multiplied by prior volume); (2) effects on interest income attributable
to changes in volume (changes in volume multiplied by prior rate); and
(3) changes in rate/volume.
- 119 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
2000 COMPARED TO 1999 1999 COMPARED TO 1998
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------------------- -----------------------------------------
RATE/ RATE/
RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
---- ------ ------ --- ---- ------ ------ ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Mortgage loans<F1> $(187) $ (134) $ 4 $ (317) $ 139 $ (939) $ (22) $ (822)
Consumer loans<F1> (9) 42 (1) 32 31 28 4 63
Commercial business loans<F1> (2) 339 (1) 336 (21) 395 (15) 359
----- ------ ---- ------ ----- ------ ----- -------
Total loans receivable (198) 247 2 51 149 (516) (33) (400)
Investment securities 726 3,094 603 4,423 (170) (885) 29 (1,026)
Interest-bearing deposits (206) (258) 133 (331) (24) 98 (90) (16)
Mortgage-backed securities 33 (779) (5) (751) (152) 4,974 (654) 4,168
Federal Home Loan Bank System stock (7) 102 (2) 93 (7) 163 (4) 152
----- ------ ---- ------ ----- ------ ----- -------
Total net change in income on
interest-earning assets 348 2,406 731 3,485 (204) 3,834 (752) 2,878
----- ------ ---- ------ ----- ------ ----- -------
INTEREST-BEARING LIABILITIES
Passbook savings 3 14 -- 17 18 (170) (5) (157)
Checking 24 24 3 51 (23) 28 (3) 2
Money market accounts 42 100 18 160 31 46 9 86
Certificates of deposit (245) 164 (9) (90) (113) 3 3 (107)
----- ------ ---- ------ ----- ------ ----- -------
Total savings deposits (176) 302 12 138 (87) (93) 4 (176)
Federal Home Loan Bank
System advances 171 1,660 42 1,873 91 2,634 66 2,791
Other interest-bearing liabilities 2 (3) -- (1) 12 (1) -- 11
----- ------ ---- ------ ----- ------ ----- -------
Total net change in expense on
interest-bearing liabilities (3) 1,959 54 2,010 16 2,540 70 2,626
----- ------ ---- ------ ----- ------ ----- -------
Net change in interest income $ 351 $ 447 $677 $1,475 $(220) $1,294 $(822) $ 252
===== ====== ==== ====== ===== ====== ===== =======
<FN>
------------
<F1> Does not include interest on loans 90 days or more past due as
interest has not been accrued. All loans contractually past due
90 days or more are accounted for on a nonaccrual basis.
</TABLE>
- 120 -
<PAGE>
<PAGE>
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO MARCH 31, 1999
Net Income. Net income increased $23,000, or 2.0%, to $1.2 in
----------
2000 from $1.1 million in 1999. The increase was primarily the result
of increased net interest income of $1.5 million, or 28.3%, offset by
decreased noninterest income of $931,000, or 22.0%, increased
noninterest expense of $491,000, or 6.5%, and increased income taxes of
$31,000, or 4.4%.
Net Interest Income. Interest income increased $3.4 million, or
-------------------
19.3%, to $21.0 million in 2000 from $17.6 million in 1999. Interest on
loans receivable increased by $50,000, or 0.7% to $7.8 million in 2000.
This increase was the result of an increase in the average balance of
loans outstanding of $2.1 million from $98.8 million in 1999 to $100.9
million in 2000, offset by a decrease in the yield on loans from 7.80%
in 1999 to 7.68% in 2000. The higher average balance of loans
outstanding reflects an increase in secured commercial lending offset by
a decrease in the mortgage lending portfolio. Interest on investment
securities increased $4.4 million, or 118.9%, from $3.7 million in 1999
to $8.1 million in 2000, due to an increase in the average balance of
investment securities of $52.4 million from $63.0 million in 1999 to
$115.4 million in 2000. As previously discussed, the increase in
investment securities is a result of Equality Bancorp's leverage
strategy and also a result of shifting funds from the sale or maturity
of mortgage-backed securities. The yield on investment securities
increased from 5.91% in 1999 to 7.06% in 2000. Interest income on
mortgage-backed securities decreased $751,000, or 14.1%, from $5.3
million in 1999 to $4.6 million in 2000 due to a decrease in the average
balances of $13.1 million from $89.3 million in 1999 to $76.2 million in
2000, and an increase in the yield on mortgage-backed securities from
5.96% in 1999 to 6.00% in 2000.
Interest expense increased $2.0 million, or 16.1%, from $12.4
million in 1999 to $14.4 million in 2000. The increase resulted
primarily from increased average deposits and Federal Home Loan Bank
System advances. Average deposit balances increased $8.4 million from
$123.3 million in 1999 to $131.7 million in 2000. The weighted average
cost of deposits decreased from 4.43% in 1999 to 4.25% in 2000. The
increase in average savings deposits is primarily due to Equality
Savings Bank's opening of three new branch facilities and deposit
marketing efforts.
Average advances from the Federal Home Loan Bank System increased
$30.7 million from $126.0 million in 1999 to $156.7 million in 2000.
The increase is primarily the result of borrowings used to fund
increased investment securities and loans receivable. The weighted
average cost of advances increased from 5.41% in 1999 to 5.55% in 2000.
The weighted average rate for Federal Home Loan Bank System advances was
5.95% at March 31, 2000.
Net interest margin was 2.20% for the year ended March 31, 2000
and 1.94% for the year ended March 31, 1999. While Equality Bancorp's
leverage strategy has increased net margin and net interest income, it
has caused Equality Bancorp to have considerable interest rate risk.
Although interest rates have increased, the increase in net interest
margin has been offset by lower yields on loans as a result of lending
competition and adjustable rate mortgages and a result of higher yields
on Federal Home Loan Bank System advances as lower cost borrowings have
been called or have matured. The retention of adjustable rate mortgages
helps reduce Equality Savings Bank's exposure to interest rate risk. In
an environment of rapidly increasing interest rates, however, it is
possible for the interest rate increases to exceed the maximum allowable
adjustment on adjustable rate mortgages, which would negatively affect
Equality Savings Bank's interest rate spread. In addition, because the
interest earned on adjustable rate mortgages, which are refinanced on a
one- to three-year cycle, varies with prevailing interest rates, such
loans do not offer Equality Savings Bank as predictable a cash flow as
do longer-term, fixed-rate loans.
Management's efforts to reduce interest rate risk through less
reliance on Federal Home Loan Bank System advances and using maturities
of investment securities and mortgage-backed securities to fund the
repayment of advances could result in a reduction of net interest income
and net interest margin in the future. In addition, if management is
forced to sell investment securities to meet liquidity needs, market
losses could result.
Provision for Losses on Loans. Equality Bancorp had no provision
-----------------------------
for losses on loans in 2000 or 1999. The provision for loan losses is
determined by management as the amount to be added to the allowance for
loan losses after net chargeoffs have been deducted to bring the
allowance to a level which is considered adequate to absorb losses
inherent in the loan portfolio. Equality Savings Bank's allowance for
loan losses totaled $364,000 at March 31, 2000 and $366,000 at March 31,
1999. The allowance for loan losses is established through a provision
for loan losses charged to expense. While Equality Savings Bank
maintains its allowance for losses at a level which it considered to be
adequate, there can be no assurances that further additions will not be
made to the allowance or that such losses will not exceed the estimated
amounts.
- 121 -
<PAGE>
<PAGE>
Noninterest Income. Noninterest income decreased $931,000, or
------------------
22.0%, from $4.2 million in 1999 to $3.3 million in 2000. The decrease
is due primarily to gain on sales of mortgage loans which decreased $1.2
million from $2.0 million in 1999 to $771,000 in 2000, decreased gain on
sale of investment securities which decreased $209,000 from $166,000 in
1999 to a loss of $43,000 in 2000, and decreased loan servicing fees and
late charges of $36,000 offset by a gain on sale of mortgage servicing
rights of $451,000, no equity in loss of joint ventures which decreased
$54,000 as a result of Equality Bancorp's sale of its joint venture
interest in 1998, and increased other noninterest income of $135,000.
In 2000, Equality Savings Bank, through Equality Mortgage Corporation,
sold $87.7 million of mortgage loans as compared to $177.3 million in
the comparable period in 1999. The decreased sales volume of $89.6
million resulted in decreased gain on sale of mortgage loans and a
corresponding decrease in fees related to reduced originations. Gain on
sale of mortgage servicing rights was $451,000 in 2000, as a result of
the sale of $65.0 million of Government National Mortgage Association
servicing, with no comparable sale in 1999. As a result, the loan
servicing portfolio of Equality Mortgage Corporation decreased $34.9
million, or 9.5%, from $369.3 million, of which $297.8 million was
serviced for unaffiliated institutions at March 31, 1999 to $334.4
million at March 31, 2000, of which $249.4 million was serviced for
unaffiliated institutions.
While management does not believe Equality Savings Bank will be
required to sell investment securities to meet liquidity needs, market
losses could be incurred if Equality Savings Bank would be required to
do so.
Noninterest Expense. Noninterest expense increased $491,000, or
-------------------
6.5%, from $7.6 million in 1999 to $8.1 million in 2000 due primarily to
increased occupancy expenses of $253,000, or 42.2%, from $599,000 in
1999 to $851,000 in 2000, increased data processing expenses of
$110,000, or 33.0%, from $332,000 in 1999 to $442,000 in 2000, increased
advertising expense of $78,000, or 27.5%, from $282,000 in 1999 to
$360,000 in 2000, and increased other expenses of $83,000, or 4.6%, from
$1.8 million in 1999 to $1.9 in 2000 offset by decreased salary and
employee benefits of $29,000, or 0.6%, which decreased primarily due to
reduced commissions paid of $250,000, or 44.0%, for comparable periods,
as a result of reduced loan originations, partially offset by an
increase of Equality Savings Bank personnel to staff two newly opened
branch facilities in St. Peters, Missouri, and Arnold, Missouri, as well
as additional employment needs in Equality Savings Bank's subsidiaries.
The increase in occupancy, data processing and other expenses in 2000
compared to 1999 is also reflective of the new branches which have been
opened.
Income Taxes. Income tax expense increased $31,000, or 4.4%, from
------------
$708,000 in 1999 to $739,000 in 2000. The increase was the result of
the increase in income before income tax expense of $54,000 in 2000.
The effective tax rate was approximately 38.5% and 39.1% in 1999 and
2000, respectively.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO MARCH 31, 1998
Net Income. Net income decreased $110,000, or 8.9%, to $1.1
----------
million in 1999 from $1.2 million in 1998. The decrease was primarily
the result of increased noninterest expense of $1.9 million, or 33.4%,
offset by increased net interest income of $252,000, or 5.1%, increased
noninterest income of $1.4 million, or 47.1%, decreased provision for
losses on loans of $116,000, or 100.0%, and decreased income taxes of
$70,000, or 9.0%.
Net Interest Income. Interest income increased $2.9 million, or
-------------------
19.6%, to $17.6 million in 1999 from $14.7 million in 1998. Interest on
loans receivable decreased by $400,000, or 4.9%, to $7.7 million in 1999
as compared to $8.1 million in 1998. This decrease was the result of a
decrease in the average balance of loans outstanding of $8.5 million
from $107.3 million in 1998 to $98.8 million in 1999, offset by an
increase in the average yield on loans from 7.55% in 1998 to 7.80% in
1999. The lower average balance of loans outstanding for 1999 reflects
a decrease in mortgage loan portfolio lending and increased repayments
due to low interest rates, offset by increased secured commercial
lending. Interest on investment securities decreased $1.0 million, or
20.2%, from $4.7 million in 1998 to $3.7 million in 1999, due to a
decrease in the average balance of investment securities of $14.4
million from $77.4 million in 1998 to $63.0 million in 1999. During the
same period the yield on investment securities decreased from 6.13% in
1998 to 5.91% in 1999. Interest income on mortgage-backed securities
increased $4.2 million, or 361.3%, from $1.2 million in 1998 to $5.3
million in 1999 due to an increase in the average balances of mortgage-
backed securities of $72.5 million from $16.8 million in 1998 to $89.3
million in 1999, offset by a decrease in the yield on mortgage-backed
securities from 6.86% in 1998 to 5.96% in 1999.
Interest expense increased $2.6 million, or 27.0%, to $12.4
million in 1999 from $9.7 million in 1998. The increase resulted
primarily from increased Federal Home Loan Bank System advances.
Average advances from the Federal Home Loan Bank System increased $49.8
million from $76.2 million in 1998 to $126.0 million in 1999.
- 122 -
<PAGE>
<PAGE>
The increase was primarily the result of borrowings used to fund
increased investments in mortgage-backed securities. The weighted
average cost of Federal Home Loan Bank System advances increased from
5.29% in 1998 to 5.41% in 1999. Average deposit balances decreased $3.3
million from $126.6 million in 1998 to $123.3 million in 1999. During
the same period, the weighted average cost of deposits decreased from
4.45% to 4.43% due to a higher concentration of money market demand
accounts and a 14 basis point decrease in the average cost of
certificates of deposit.
Net interest margin was 1.94% for the year ended March 31, 1999
and 2.30% for the year ended March 31, 1998. The decrease in net
interest margin is a result of a highly competitive lending environment,
a decrease in adjustable rate mortgages due to refinancing activity in
the lower interest rate environment and Equality Bancorp's leverage
strategy.
Provision for Losses on Loans. Provision for losses on loans was
-----------------------------
$-0- in 1999 as compared to $116,000 in 1998. The provision for loan
losses is determined by management as the amount to be added to the
allowance for loan losses after net charge-offs have been deducted to
bring the allowance to a level which is considered adequate to absorb
losses inherent in the loan portfolio. Equality Savings Bank's
allowance for loan losses totaled $366,000 at March 31, 1999 and
$374,000 at March 31, 1998. The allowance for loan losses is
established through a provision for loan losses charged to expense.
While Equality Savings Bank maintains its allowance for losses at a
level which it considered to be adequate, there can be no assurances
that further additions will not be made to the allowance or that such
losses will not exceed the estimated amounts.
Noninterest Income. Noninterest income increased $1.4 million, or
------------------
47.1%, to $4.2 million in 1999 from $2.9 million in 1998. The increase
is due primarily to gain on sales of mortgage loans which increased from
$1.7 million in 1998 to $2.0 million in 1999, increased loan servicing
fees and late charges which increased $370,000 from $920,000 in 1998 to
$1.3 million in 1999, increased gain on sale of real estate of $147,000
due to Equality Commodity Corporation's sale of its 50% ownership
interest in WC Joint Venture, a direct investment, and one investment
property, and increased gain on sale of investments of $125,000 from
$41,000 in 1998 to $166,000 in 1999. The increase of $645,000, or
55.2%, on gain on sales of mortgage loans was due to a continued
improvement in market interest rates during calendar year 1999. In
1999, Equality Savings Bank, through Equality Mortgage Corporation, sold
$184.8 million of mortgage loans as compared to $105.4 million in 1998.
The increased sales volume of $79.4 million resulted in increased gain
on sales of mortgage loans due to the condition of the secondary
mortgage market. Loan servicing fees and late charges increased
$370,000, or 40.2%, due primarily to an increase in the average
servicing portfolio of Equality Mortgage Corporation. Average loan
servicing by Equality Mortgage Corporation increased $29.2 million, or
8.6%, from $340.1 million in 1998 to $369.2 million in 1999.
Noninterest Expense. Noninterest expense increased $1.9 million,
-------------------
or 33.4%, to $7.6 million in 1999 from $5.7 million in 1998, due
primarily to increased salaries and employee benefits of $1.1 million,
or 33.3%, from $3.4 million in 1998 to $4.5 million in 1999, increased
advertising expenses of $158,000, or 128.0%, from $124,000 in 1998 to
$282,000 in 1999 and increased other expenses of $486,000, or 37.3%,
from $1.3 million in 1998 to $1.8 million in 1999. Increased salary and
employee benefits are the direct result of increased commissions paid to
mortgage loan origination personnel of $169,000, or 42.5%, from $398,000
in 1998 to $567,000 in 1999, general wage increases and an increase in
five bank personnel to staff the new Washington branch facility, in
addition to Employee Stock Ownership Plan and Management Recognition
Plan compensation expenses which increased $308,000 in 1999 as compared
to 1998. Advertising expenses increased as a result of marketing
promotions during 1999 for Equality Savings Bank's relocated bank
office, newly opened Washington, Missouri facility, and overall
promotion of Equality Savings Bank. Other expenses increased due
primarily to an increase in expenses totaling $155,000 in connection
with professional services and taxes for Equality Bancorp with no
comparable items in 1998, increases in supplies and services associated
with increased mortgage loan activity and an increased number of
Equality Savings Bank branch facilities.
Income Taxes. Income tax expense decreased $70,000, or 9.0%, to
------------
$708,000 in 1999 from $778,000 in 1998. The decrease was the result of
the decrease in income before income tax expense of $180,000. The
effective tax rate was approximately 38.5% and 38.6% in 1999 and 1998,
respectively.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Accounting For Derivative Instruments And Hedging Activities. In
------------------------------------------------------------
June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (Statement of Financial Accounting
Standards 133) which establishes standards
- 123 -
<PAGE>
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. In June 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of Financial Accounting Standards Board Statement
No. 133, an Amendment of Financial Accounting Standards Board Statement
No. 133, which defers the effective date of Statement of Financial
Accounting Standards 133 from fiscal years beginning after June 15, 1999
to fiscal years beginning after June 15, 2000. Initial application
should be as of the beginning of an equity's fiscal quarter; on that
date, hedging relationships must be designated and documented according
to the provisions of Statement of Financial Accounting Standards 133, as
amended. Earlier application of all of the provisions is encouraged but
is permitted only as of the beginning of any fiscal quarter that begins
after the issuance date of Statement of Financial Accounting Standards
133, as amended. Additionally, Statement of Financial Accounting
Standards 133, as amended, should not be applied retroactively to
financial statements of prior periods. Equality Bancorp is currently
evaluating the requirements and impact of Statement of Financial
Accounting Standards 133.
COMPARISON OF THE QUARTERS ENDED JUNE 30, 2000 AND 1999
Changes in Financial Condition. The total assets of Equality
------------------------------
Bancorp increased $5.8 million, or 1.8%, to $329.1 million at June 30,
2000 from $323.3 million at March 31, 2000. This increase in asset size
primarily relates to an increase in cash and loans receivable which were
funded through increased savings deposits, the proceeds from the sales
of investment securities, and the proceeds from repayment of mortgage
loans and mortgage-backed securities.
Cash, primarily interest bearing demand accounts, increased $4.7
million, or 51.4%, to $13.7 million at June 30, 2000 from $9.1 million
at March 31, 2000. At June 30, 2000, cash was being accumulated to
repay a FHLB advance maturing July 14, 2000. This increase is also the
result of decreased investment securities and mortgage-backed securities
partially offset by increased loans receivable.
Interest bearing deposits totaled $198,000 at June 30, 2000 and
March 31, 2000.
Investment securities available for sale decreased $4.1 million,
or 3.4%, to $116.5 million at June 30, 2000 from $120.6 million at
March 31, 2000. The decrease is due primarily to $3.9 million of
purchases of securities and a mark to market adjustment of $231,000 to
reflect the unrealized gain on investment securities during the three
months ended June 30, 2000, offset by $1.7 million of maturities and
sales proceeds of $7.0 million. The decrease in investment securities
is the result of management's efforts to shift funds from investing in
securities to investing in loans receivable. Included in investment
securities is a $2.0 million corporate obligation, with a fair value of
$1.3 million at June 30, 2000 and maturity date of March 15, 2003 which
has been downgraded below investment grade; however, the security
continues to meet its interest payment obligations. Management believes
the decline in the fair value of this security is temporary. Equality
Bancorp has the ability and it is management's intent to hold this
security until maturity.
Investment securities held to maturity totaled $600,000 at
June 30, 2000 and March 31, 2000.
Mortgage-backed securities available for sale decreased $2.0
million, or 3.0%, to $62.2 million at June 30, 2000 from $64.1 million
at March 31, 2000. This decrease is the result of principal repayments
of $2.2 million, offset by a mark to market adjustment of $341,000 to
reflect the unrealized gain on mortgage-backed securities during the
three months ended June 30, 2000.
Loans receivable, net, increased $8.7 million, or 8.3%, to $114.0
million at June 30, 2000, from $105.3 million at March 31, 2000. Loans
held for investment increased $7.0 million, or 6.9%, to $109.7 million
at June 30, 2000 from $102.7 million at March 31, 2000. This increase
reflects Equality Bancorp's efforts to prudently increase its loan
portfolio while developing an expanded retail banking presence in its
market area. Loans held for sale increased $1.7 million, or 63.4%, to
$4.3 million at June 30, 2000 from $2.6 million at March 31, 2000. This
increase is the result of Equality Mortgage Corporation mortgage loan
originations totaling $23.1 million, offset by mortgage loan sales of
$21.6 million at June 30, 2000.
- 124 -
<PAGE>
<PAGE>
The following table sets forth composition of the Company's loan
portfolio in dollars and in percentages of total loans at the dates
indicated:
<TABLE>
<CAPTION>
JUNE 30, 2000 MARCH 31, 2000
---------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LOANS SECURED BY REAL ESTATE
Residential:
One- to-four family:
Conventional $ 73,541 64.3% $ 68,183 64.5%
FHA/VA 12,573 11.0 10,758 10.2
Loans held for sale 4,315 3.8 2,641 2.5
Multi-family 1,220 1.1 1,343 1.3
Commercial 3,176 2.8 4,097 3.9
Total Real Estate Loans 94,825 82.9 87,022 82.4
-------- ----- -------- -----
Commercial Business Loans 14,573 12.7 14,476 13.7
-------- ----- -------- -----
CONSUMER LOANS
Loans secured by savings deposits 221 0.2 257 0.2
Property improvement loans 1,749 1.5 1,633 1.5
Automobile loans 2,627 2.3 1,763 1.7
Other consumer loans 439 0.4 563 0.5
-------- ----- -------- -----
Total Consumer Loans 5,036 4.4 4,216 3.9
-------- ----- -------- -----
Total Loans 114,434 100.0% 105,714 100.0%
LESS
Deferred loan fees 41 21
Unearned discounts 10 13
Allowance for loan losses 363 364
-------- --------
Total loans receivable, net $114,020 $105,316
======== ========
</TABLE>
Office properties and equipment increased $73,000, or 1.1%, to
$7.0 million at June 30, 2000 from $6.9 million at March 31, 2000. The
increase resulted from additional improvements to Equality Savings
Bank's future full-service branch in Fenton, Missouri, scheduled to open
in the third quarter of 2000.
Savings deposits increased $18.9 million, or 13.4%, to $159.7
million at June 30, 2000 from $140.9 million at March 31, 2000.
Interest credited during the three months ended June 30, 2000 was
approximately $1.4 million. Savings deposits have increased as a result
of specific marketing tactics directed to that effort as well as to
replace borrowed funds with savings deposit relationships.
FHLB advances decreased $14.1 million, or 8.8%, to $145.6 million
at June 30, 2000 from $159.7 million at March 31, 2000. FHLB advances
were decreased as a result of marketing efforts directed at increasing
savings deposits and the associated banking relationships.
Other borrowed money increased $673,000, or 39.7%, to $2.4 million
at June 30, 2000 from $1.7 million at March 31, 2000. These short term
borrowings relate to a warehouse line of credit established with an
independent bank and maintained by Equality Mortgage Corporation, the
proceeds of which were invested solely in residential mortgage loans.
Total stockholders' equity increased $504,000, or 2.5%, to $20.4
million at June 30, 2000 from $19.9 million at March 31, 2000. The
increase was primarily attributable to net income of $234,000, a
reduction in ESOP indebtedness of $37,000, a reduction of unamortized
restricted stock awards of $36,000, and a mark to market adjustment to
reflect unrealized gain on securities available for sale of $349,000,
offset by Equality Bancorp's purchase of treasury stock of $12,000 and
payment of quarterly dividends totaling $136,000.
The following table presents the net interest income, net interest
margin and net interest spread for the quarters ended June 30, 2000 and
1999. The table compares interest income and average interest-earning
assets with interest expense and average interest-bearing liabilities.
- 125 -
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED AVERAGE BALANCE SHEET,
INTEREST AND DIVIDENDS EARNED OR PAID,
AND RELATED INTEREST YIELDS AND RATES
<CAPTION>
QUARTERS ENDED JUNE 30,
--------------------------------------------------------------------------------------
2000 1999
----------------------------------------- -----------------------------------------
INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE<F1> DIVIDENDS COST<F2> BALANCE<F1> DIVIDENDS COST<F2>
----------- --------- -------- ----------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans receivable <F3> $111,516 $2,182 7.83 $ 97,037 $1,825 7.52%
Investment securities 127,437 2,234 7.01 93,704 1,614 6.89
Mortgage-backed securities 65,326 1,096 6.71 84,419 1,256 5.95
Interest-bearing deposits 8,399 36 1.71 2,864 10 1.40
Investment in FHLB 7,519 130 6.92 7,084 109 6.15
-------- ------ -------- ------
Total interest-earning assets 320,197 5,678 7.10 285,108 4,814 6.76
------ ------
Other assets 5,396 12,681
-------- --------
Total assets $325,593 $297,789
======== ========
INTEREST BEARING LIABILITIES
Regular savings 19,450 21,042
NOW accounts 19,674 16,222
Money market accounts 12,706 8,426
Certificates of deposit 102,740 82,601
-------- --------
Total savings deposits 154,570 1,714 4.44 128,291 1,373 4.28
FHLB advances 149,664 2,273 6.07 139,279 1,821 5.23
Other interest-bearing
liabilities 2,239 11 1.97 2,423 12 1.98
-------- ------ -------- ------
Total interest bearing
liabilities 306,473 3,998 5.22 269,993 3,206 4.75
------ ------
Other liabilities (1,025) 2,553
-------- --------
Total liabilities 305,448 272,546
Stockholders' equity 20,145 25,243
-------- --------
Total liabilities and
stockholders' equity $325,593 $297,789
======== ========
Net interest income $1,680 $1,608
====== ======
Interest rate spread 1.88% 2.01%
====== ======
Net interest margin <F4> 2.10% 2.26%
====== ======
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 1.04x 1.06x
==== ====
<FN>
---------------
<F1> Average balances are computed on a monthly basis (month-end
balances).
<F2> Annualized.
<F3> Does not include accrued interest on loans 90 days or more past
due.
<F4> Net interest income divided by average interest-earning assets.
</TABLE>
- 126 -
<PAGE>
<PAGE>
Net Income. Net income decreased $11,000, or 4.6%, to $234,000
----------
for the three months ended June 30, 2000 from $245,000 for the three
months ended June 30, 1999. The decrease was primarily the result of
decreased noninterest income of $85,000, or 10.0%, and increased
noninterest expense of $24,000, or 1.2%, offset by increased net interest
income of $73,000, or 4.5%, and decreased income taxes of $26,000, or
15.3%, for the three months ended June 30, 2000.
Interest Income. Interest income increased $864,000, or 18.0%, to
---------------
$5.7 million for the three months ended June 30, 2000 from $4.8 million
for the three months ended June 30, 1999. The increase is primarily due
to increased average investment securities of $33.7 million to $127.4
million for the three months ended June 30, 2000 from $93.7 million for
the three months ended June 30, 1999 and increased average loans
receivable of $14.5 million to $111.5 million for the three months ended
June 30, 2000 from $97.0 million for the three months ended June 30, 1999,
offset by decreased average mortgage-backed securities of $19.1 million
to $65.3 million for the three months ended June 30, 2000 from $84.4
million for the three months ended June 30, 1999. The weighted average
yield on total interest-earning assets increased to 7.10% for the three
months ended June 30, 2000 from 6.76% for the three months ended
June 30, 1999 due to the investment of proceeds of mortgage loan and
mortgage-backed securities repayments and investment securities sales
and maturities into loans receivable and investment securities at
current market rates.
Interest Expense. Interest expense increased $792,000, or 24.7%,
----------------
to $4.0 million for the three months ended June 30, 2000 from $3.2
million for the three months ended June 30, 1999. The increase is
primarily due to increased average FHLB advances of $10.4 million to
$149.7 million for the three months ended June 30, 2000 from $139.3
million for the three months ended June 30, 1999 and increased average
savings deposits of $26.3 million to $154.6 million for the three months
ended June 30, 2000 from $128.3 million for the three months ended
June 30, 1999. This increase is due primarily to the opening of three
new branch facilities and increased general marketing efforts. Weighted
average cost of funds increased to 5.22% for the three months ended
June 30, 2000 from 4.75% for the three months ended June 30,1999, which
reflect increased general market interest rates on deposits and FHLB
advances.
Provision for Losses on Loans. Equality Bancorp had no provision
-----------------------------
for losses on loans for the three-month periods ended June 30, 2000 or
June 30, 1999. The provision for loan losses is determined by
management as the amount to be added to the allowance for loan losses
after net charge-offs have been deducted to bring the allowance to a
level which is considered adequate to absorb losses inherent in the loan
portfolio. Equality Savings Bank's allowance for loan losses totaled
$363,000 at June 30, 2000 and $364,000 at March 31, 2000. The allowance
for loan losses is established through a provision for loan losses
charged to expense. While Equality Savings Bank maintains its allowance
for losses at a level which it considered to be adequate, there can be
no assurances that further additions will not be made to the allowance
or that such losses will not exceed the estimated amounts.
Noninterest Income. Noninterest income decreased $85,000, or
------------------
10.0%, to $766,000 for the three months ended June 30, 2000 from
$851,000 for the three months ended June 30, 1999. This decrease was
due primarily to decreased gain on sale of loans of $87,000, or 26.2%,
to $244,000 for the three months ended June 30, 2000 from $331,000 for
the three months ended June 30, 1999, decreased loan servicing fees and
late charges of $62,000, or 19.9%, to $249,000 for the three months
ended June 30, 2000 from $311,000 for the three months ended June 30,
1999, and decreased gain on sale of investment securities of $31,000, to
a negligible gain for the three months ended June 30, 2000 from $31,000
for the three months ended June 30, 1999, offset by increased other
noninterest income of $88,000, or 62.2%, to $230,000 for the three
months ended June 30, 2000 from $142,000 for the three months ended
June 30, 1999. For the three months ended June 30, 2000, Equality
Bancorp, through Equality Mortgage Corporation, sold $21.6 million of
mortgage loans as compared to sales of $28.5 million for the three
months ended June 30, 1999. The decreased volume of sales due to rising
interest rates resulted in decreased gain on sale for the comparable
periods. During the period the average loan servicing portfolio
decreased $16.6 million, or 4.5%, to $353.4 million from $370.0 million
for the three months ended June 30, 1999.
Noninterest Expense. Noninterest expense increased $24,000, or
-------------------
1.2%, to $2.1 million for the three months ended June 30, 2000 from $2.0
million for the three months ended June 30, 1999. The increase was due
primarily to increased occupancy expense of $13,000, or 6.8%, to
$196,000 for the three months ended June 30, 2000 from $184,000 for the
three months ended June 30, 1999, increased data processing expenses of
$9,000, or 9.3%, to $100,000 for the three months ended June 30, 2000
from $91,000 for the three months ended June 30, 1999, increased
advertising expense of $52,000, or 65.9%, to $132,000 for the three
months ended June 30, 2000 from $80,000 for the three months ended
June 30, 1999, offset by decreased salary and employee benefits of
$34,000, or
- 127 -
<PAGE>
<PAGE>
2.9%, to $1.1 million for the three months ended June 30, 2000, from
$1.2 million for the three months ended June 30, 1999 and decreased FDIC
insurance premiums of $11,000, or 61.1%, to $7,000 for the three months
ended June 30, 2000 from $19,000 for the three months ended June 30,
1999. Salary and employee benefits decreased primarily due to a
reduction of Equality Mortgage Corporation personnel. The increase in
occupancy and data processing is reflective of the new branch in Arnold,
Missouri which opened in July 1999.
Income Taxes. Income tax expense decreased $26,000, or 15.3%, to
------------
$143,000 for the three months ended June 30, 2000 from $169,000 for the
three months ended June 30, 1999. This decrease was primarily due to a
decrease in income before income tax of $37,000, or 9.0%. The effective
tax rate was approximately 38.0% and 40.9% for the three-month periods
ended June 30, 2000 and 1999, respectively.
Nonperforming Assets. At June 30, 2000, nonperforming assets were
--------------------
approximately $447,000, which represents a decrease of $272,000, or
37.8%, as compared to March 31, 2000. A summary of nonperforming assets
by category is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
NONACCRUING LOANS
One- to four- family<F1> $ 408 471
Commercial business -- 233
Consumer and other 39 13
----- ----
Total nonaccruing loans 447 717
Repossessed assets -- 2
----- ----
Total nonperforming assets $ 447 719
===== ====
Nonaccruing loans as a percent of net loans 0.39% 0.68%
===== ====
Nonaccruing loans as a percent of total assets 0.14% 0.22%
===== ====
Nonperforming assets as a percent of total assets 0.14% 0.22%
===== ====
<FN>
-----------
<F1> Includes $293,000 and $388,000 of FHA/VA loans, the principal and
interest payments of which are either issued by FHA or guaranteed
by the VA at June 30, 2000 and March 31, 2000, respectively.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Equality Savings Bank's primary sources of funds are deposits,
advances from the FHLB, repayments, prepayments and maturities of
outstanding loans, maturities of investment securities and other short-
term investments, and funds provided from operations. While scheduled
loan repayments and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows
and loan prepayments are greatly influenced by the movement of interest
rates in general, economic conditions and competition. Equality Savings
Bank manages the pricing of its deposits to maintain a deposit balance
deemed appropriate and desirable. In addition, Equality Savings Bank
invests in short-term investment securities and interest-earning assets
which provide liquidity to meet lending requirements. Although Equality
Savings Bank's deposits have historically represented the majority of
its total liabilities, Equality Savings Bank also utilizes other
borrowing sources, primarily advances from the FHLB which totaled $145.6
million at June 30, 2000. At June 30, 2000, Equality Savings Bank had
approximately $964,000 in outstanding commitments to originate loans,
approximately $874,000 of which were adjustable rate loans. The
interest rate on one fixed rate commitment was 8.375% at June 30, 2000.
The majority of the loans will be sold into the secondary market upon
origination.
Liquidity management is both a daily and long-term function.
Excess liquidity is generally invested in short-term investments such as
cash and cash equivalents, and U.S. Government agency securities. On a
longer-term basis, Equality Savings Bank invests in various loans,
mortgage-backed securities, and investment securities. Equality Savings
Bank uses its sources of funds primarily to meet its ongoing commitments
to pay maturing savings certificates and savings withdrawals, fund loan
commitments and maintain an investment securities portfolio. Management
of Equality Savings Bank believes that it has adequate resources,
including principal prepayments and repayments of loans and maturing
investments, to fund all of its commitments to the extent required.
Based upon its
- 128 -
<PAGE>
<PAGE>
historical run-off experience, management believes that a significant
portion of maturing deposits will remain with Equality Savings Bank.
In an effort to increase earnings, Equality Savings Bank deployed
a strategy in late 1997 in order to better leverage its balance sheet.
The funds received from Federal Home Loan Bank System advances have been
invested in mortgage-backed securities and investment securities.
Federal Home Loan Bank System advances obtained by Equality Savings Bank
were generally longer-term borrowings which contained call features. In
general, the investments purchased by Equality Savings Bank with these
advances were medium to long-term investments, many of which have call
or prepayment features. As interest rates have risen, Federal Home Loan
Bank System advances have been called and replaced with shorter-term,
but higher-cost borrowings, however, the investments have not been
called. As a result of Equality Savings Bank's strategy, the increase
in interest rates, Federal Home Loan Bank System advances exceeding core
deposits, and a $2.0 million corporate bond that has been downgraded
below investment grade, Equality Savings Bank now has considerable
interest rate risk. Management is considering reducing Equality Bancorp's
interest rate risk by selling a minimum of $60.0 million of available for
sale investment securities. In connection with such a sale, Equality
Bancorp estimates that it would likely report a pre-tax loss of
approximately $2.0 million. See "Pro Forma Financial Information--Notes
to Pro Forma Combined Consolidated Financial Statements--Subsequent Events."
As a result of Equality Savings Bank's charter change on
December 28, 1999 from a federally-chartered thrift to a Missouri 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.
The following table sets forth certain information concerning
Equality Savings Bank's regulatory capital as of June 30, 2000:
<TABLE>
<CAPTION>
REGULATORY CAPITAL
---------------------------------------
TIER I TIER I TOTAL
LEVERAGE RISK-BASED RISK-BASED
CAPITAL CAPITAL CAPITAL
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity $ 24,371 24,371 24,371
Additional capital item - general
loan loss reserves -- -- 363
-------- -------- --------
Total regulatory capital 24,371 24,371 24,734
Minimum capital requirement 9,543 6,563 13,126
-------- -------- --------
Excess regulatory capital $ 14,828 $ 17,808 $ 11,608
======== ======== ========
Adjusted total assets $238,574 $164,073 $164,073
Regulatory capital ratio 10.37% 14.85% 15.08%
</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.
- 129 -
<PAGE>
<PAGE>
REGULATORY AGREEMENT
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's assessment of Equality Savings Bank's management
and staffing needs to ensure proper supervision of Equality Savings Bank's
affairs; (2) Equality Savings Bank's review of its earnings performance,
development of a written plan to improve earnings performance and preparation
of a revised 2001 budget reflecting remedial actions to improve Equality Savings
Bank's earnings; (3) Equality Savings Bank's implementation of 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's development of 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 the establishment
of goals and strategies for managing or improving Equality Savings
Bank's interest rate risk profile; (5) Equality Savings Bank's
maintenance of a Tier I Leverage Ratio of not less than 7% while the
Memorandum of Understanding is in effect; (6) Equality Savings Bank's
refrain from declaring or paying any dividends and/or management fees to
Equality Bancorp without prior written regulatory approval; (7) Equality
Savings Bank's presentation to the FDIC and the Missouri Division of
Finance of periodic updates regarding Equality Savings Bank's asset
growth objectives, particularly in light of capital and liquidity needs;
(8) Equality Savings Bank's provision of a revised investment policy,
modify certain investment practices, and assurance that the policy is
implemented and followed; (9) Equality Savings Bank's development of an
internal audit program and appointment of an internal auditor who shall
report to the Board of Directors; (10) Equality Savings Bank's efforts
to correct and/or eliminate violations cited by the FDIC and the
Missouri Division of Finance; (11) Equality Savings Bank's
implementation of procedures to address regulatory concerns regarding
the retail sale of nondeposit investment products by Equality Savings
Bank; and (12) Equality Savings Bank's submission of periodic progress
reports to the FDIC and Missouri Division of Finance regarding Equality
Savings Bank's compliance with the Memorandum of Understanding.
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 a formal 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 and 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 or upon consummation of the proposed
merger of Equality Savings Bank into Allegiant Bank.
- 130 -
<PAGE>
<PAGE>
INFORMATION REGARDING ALLEGIANT BANCORP COMMON STOCK
As a result of the conversion of shares of Equality Bancorp common
stock to shares of Allegiant Bancorp common stock at the effective time,
Equality Bancorp stockholders will become Allegiant Bancorp
shareholders. Your rights as Allegiant Bancorp shareholders will be
governed by Missouri law and Allegiant Bancorp's articles of
incorporation and by-laws. This description of Allegiant Bancorp's
capital stock, including the Allegiant Bancorp common stock to be issued
in the merger, reflects the anticipated state of affairs at the
effective time. The following summarizes the material terms of
Allegiant Bancorp's capital stock but does not purport to be complete,
and is qualified in its entirety by reference to the applicable
provisions of federal law governing bank holding companies, Missouri law
and Allegiant Bancorp's articles of incorporation and by-laws.
DESCRIPTION OF ALLEGIANT BANCORP COMMON STOCK
Allegiant Bancorp is authorized to issue 20,000,000 shares of
Allegiant Bancorp common stock. All of the issued and outstanding
shares of Allegiant Bancorp common stock are, and upon the issuance of
Allegiant Bancorp common stock in connection with the merger will be,
validly issued, fully paid and non-assessable except for possible
assessment in limited circumstances required by Delaware law. See
"Comparative Rights of Shareholders."
VOTING AND OTHER RIGHTS. The holders of Allegiant Bancorp common
stock are entitled to one vote per share, and in general, a majority of
votes cast with respect to a matter will be sufficient to authorize
action upon routine matters. Directors are to be elected by a plurality
of the votes cast, and, unlike Equality Bancorp stockholders, Allegiant
Bancorp shareholders may cumulate their votes in the election of
directors.
* amendments to Allegiant Bancorp's articles of incorporation
will be approved if the votes cast within a voting group
favoring the action exceed the votes cast within the voting
group opposing the action; and
* a merger or dissolution of Allegiant Bancorp, or the sale of
all or substantially all of its assets, must be approved by
the affirmative vote of the holders of at least two-thirds
of the voting power of the outstanding voting shares and the
affirmative vote of the holders of a majority of the
outstanding shares of each class entitled to vote on the
matter as a class.
NO PREEMPTIVE OR CONVERSION RIGHTS. Allegiant Bancorp common stock
does not entitle its holders to any preemptive rights, redemption
privileges, sinking fund privileges or conversion rights.
ASSETS UPON DISSOLUTION. In the event of liquidation, holders of
Allegiant Bancorp common stock would be entitled to receive
proportionately any assets legally available for distribution to
shareholders of Allegiant Bancorp with respect to shares held by them,
subject to any prior rights of any Allegiant Bancorp preferred stock
then outstanding.
DISTRIBUTIONS. Allegiant Bancorp shareholders are entitled to
receive the dividends or distributions that Allegiant Bancorp's board of
directors may declare out of funds legally available for these payments.
The payment of distributions by Allegiant Bancorp is subject to the
restrictions of Missouri law applicable to the declaration of
distributions by a corporation. A corporation generally may not
authorize and make distributions if, after giving effect to the
distribution, it would be unable to meet its debts as they become due in
the usual course of business or if the corporation's total assets would
be less than the sum of its total liabilities plus, unless the
corporation's articles of incorporation provide otherwise, the amount
that would be needed, if it were to be dissolved at the time of
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to the rights of
those receiving the distribution.
As a bank holding company, the ability of the Allegiant Bancorp to
pay distributions will be affected by the ability of its banking
subsidiary to pay dividends. The ability of Allegiant Bank, as well as
of Allegiant Bancorp, to pay dividends in the future currently is, and
could be further, influenced by bank regulatory requirements and capital
guidelines. See "Supervision and Regulation" for a more detailed
description.
- 131 -
<PAGE>
<PAGE>
RESTRICTIONS ON OWNERSHIP. The Bank Holding Company Act requires
any bank holding company to obtain the approval of the Federal Reserve
Board prior to the acquisition of 5% or more of Allegiant Bancorp common
stock. Any person, other than a bank holding company, is required to
obtain prior approval of the Federal Reserve Board to acquire 10% or
more of Allegiant Bancorp common stock under the Change in Bank Control
Act. Any holder of 25% or more of Allegiant Bancorp common stock (or a
holder of 5% or more if such holder otherwise exercises a controlling
influence over Allegiant Bancorp) is subject to regulation as a bank
holding company under the Bank Holding Company Act. See "Supervision
and Regulation--Control Acquisitions" for further description of the
effects of the Change in Bank Control Act.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Allegiant Bancorp common stock to be issued to
Equality Bancorp stockholders in the merger have been registered under
the Securities Act. They may be traded freely and without restriction
by you if you are not deemed to be an affiliate of Equality Bancorp
under the Securities Act. An "affiliate" of Equality Bancorp, as
defined by the rules promulgated under the Securities Act, is a person
who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, Equality
Bancorp. Any subsequent transfer of these shares by any person who is
an affiliate of Equality Bancorp at the time of the merger is submitted
for vote of the Equality Bancorp stockholders will, under existing law,
require one of the following:
* the further registration under the Securities Act of the
proposed transfer of these shares of Allegiant Bancorp
common stock, however, Allegiant Bancorp is not bound to
effect any such registration and has no plans to do so;
* compliance with Rule 145 under the Securities Act
(permitting limited sales in some circumstances); or
* the availability of another exemption from the registration
requirements of the Securities Act.
We expect these restrictions to apply to the directors and
executive officers of Equality Bancorp, some of their family members and
to entities in which they may have a substantial ownership interest.
Stop transfer instructions will be given by Allegiant Bancorp to its
transfer agent with respect to the Allegiant Bancorp common stock to be
received by persons subject to the restrictions described above, and the
certificates for this stock will bear appropriate legends.
Equality Bancorp has agreed in the merger agreement to cause each
person who is an affiliate of Equality Bancorp to deliver to Allegiant
Bancorp a written agreement intended to ensure compliance with the
Securities Act.
- 132 -
<PAGE>
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS
Following the merger, Equality Bancorp stockholders will become
shareholders of Allegiant Bancorp. The rights of Equality Bancorp
stockholders currently are governed by the Delaware General Corporation
Law and Equality Bancorp's certificate of incorporation and by-laws.
The rights of Allegiant Bancorp shareholders currently are governed by
the Missouri Business and General Corporation Law, and by Allegiant
Bancorp's articles of incorporation and by-laws. The following is a
summary of the material differences between Delaware law and Equality
Bancorp's certificate of incorporation and by-laws, on the one hand,
and Missouri law and Allegiant Bancorp's articles of incorporation and
by-laws, on the other hand. This summary does not purport to be a
complete discussion of, and is qualified in its entirety by reference
to, Equality Bancorp's certificate of incorporation and by-laws,
Allegiant Bancorp's articles of incorporation and by-laws, Delaware
law and Missouri law.
<TABLE>
AUTHORIZED CAPITAL STOCK
<CAPTION>
Allegiant Bancorp Equality Bancorp
<S> <S>
* 20,000,000 shares of common stock, $0.01 * 4,000,000 shares of common stock, $0.01
par value per share par value per share
* 200,000 shares of preferred stock, $0.01
par value per share
<CAPTION>
SIZE OF BOARD OF DIRECTORS
Allegiant Bancorp Equality Bancorp
<S> <S>
Allegiant Bancorp's articles of incorporation Equality Bancorp's by-laws provide that its
provide for the number of members of the board board of directors shall fix the number of
of directors to be set by Allegiant Bancorp's members of the Board, within a minimum of
by-laws. Allegiant Bancorp's by-laws provide seven and a maximum of 12 member limitation.
that the Board shall consist of not less than Currently, Equality Bancorp has nine members
six nor more than 24 directors. Currently, of its board of directors.
Allegiant Bancorp has nine members of its
board of directors.
</TABLE>
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting entitles each shareholder to cast an aggregate
number of votes equal to the number of voting shares held, multiplied by
the number of directors to be elected. Each shareholder may cast all of
their votes for one nominee or distribute them among two or more
nominees, thus permitting holders of less than a majority of the
outstanding shares of voting stock to achieve board representation.
Where cumulative voting is not permitted, holders of all outstanding
shares of voting stock of a corporation elect the entire board of
directors of the corporation, thereby precluding the election of any
directors by the holders of less than a majority of the outstanding
shares of voting stock.
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Allegiant Bancorp Equality Bancorp
<S> <S>
Missouri law requires cumulative voting, Under Delaware law, a corporation's
unless a corporation's articles of certificate of incorporation may provide
incorporation or by-laws provide otherwise. that stockholders have a right to cumulate
Allegiant Bancorp's shareholders have a their votes for directors. Equality
right to cumulative voting because Allegiant Bancorp's certificate of incorporation
Bancorp's articles of incorporation and does not provide for cumulative voting.
by-laws are silent on cumulative voting.
<CAPTION>
CLASSES OF DIRECTORS
Allegiant Bancorp Equality Bancorp
<S> <S>
Allegiant Bancorp's articles of incorporation Equality Bancorp's certificate of
and by-laws provide that Allegiant Bancorp's incorporation contains a substantially
board of directors is divided into three identical provision.
classes of directors as nearly equal in
number as possible, with each class being
elected to a staggered three-year term.
<CAPTION>
QUALIFICATIONS OF DIRECTORS
Allegiant Bancorp Equality Bancorp
<S> <S>
Allegiant Bancorp's by-laws provide that for Equality Bancorp's by-laws set forth no age
directors appointed or elected in the year requirement for directors.
2000 or later, their term shall expire at the
first annual shareholders' meeting following
that director's 70th birthday; provided that
such limitation does not apply to directors
elected to Allegiant Bancorp's board prior
to 2000.
<CAPTION>
FILLING VACANCIES ON THE BOARD
Allegiant Bancorp Equality Bancorp
<S> <S>
Allegiant Bancorp's by-laws provide that, if Equality Bancorp's certificate of
authorized by a resolution of the board of incorporation and by-laws provide that a
directors, shareholders may fill a vacancy majority vote of the directors in office,
on Allegiant Bancorp's Board by election at even if only one sole director, may fill any
any shareholders' meeting. vacancy occurring on Equality Bancorp's
board of directors.
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<PAGE>
<PAGE>
<CAPTION>
REMOVAL OF DIRECTORS
Allegiant Bancorp Equality Bancorp
<S> <S>
Any director of a Missouri corporation may be Equality Bancorp's certificate of
removed for cause by a majority of the board incorporation provides that a director may be
of directors if that director fails to meet removed at any time, but only for cause and
the qualifications for director or is in only by the affirmative vote of the holders
breach of any agreement with the corporation of at least 80% of the outstanding shares of
relating to the director's service to the all classes of stock.
corporation as a director or employee.
Allegiant Bancorp's articles of incorporation
and by-laws are silent on the removal of
directors.
<CAPTION>
NOMINATION OF DIRECTORS FOR ELECTION
Allegiant Bancorp Equality Bancorp
<S> <S>
Allegiant Bancorp's by-laws provide that Under Equality Bancorp's certificate of
shareholders may elect directors at the incorporation, nominations for Equality
shareholders' annual meeting but do not Bancorp's board may be made by the board
contain notice provisions. of directors or by any stockholder who
complies with the notice procedures described
in Equality Bancorp's certificate of
incorporation. These procedures require the
notice to be received by Equality Bancorp no
later than the 40th nor earlier than the 70th
day prior to the first anniversary of the
preceding year's annual meeting. The content
of the stockholder's notice to Equality
Bancorp's secretary must:
* comply with the SEC's proxy rules
(including the nominee's written consent
to being named in the proxy statement and
to serving as a director, if elected); and
* provide the stockholder's name and address
and class, series (if applicable) and
number of shares owned beneficially by the
stockholder and such beneficial owner.
Equality Bancorp's certificate of
incorporation further provides that if the
number of directors is increased and there is
no public announcement naming the nominees or
specifying the size of the increased board at
least 50 days before the first anniversary
of the preceding year's annual meeting, a
notice for a nominee for the new position
must be received within ten business days
following the announcement.
Equality Bancorp's certificate of
incorporation also provides that stockholders
may nominate candidates for the board of
directors at a special meeting of
stockholders at which directors are to be
elected according to the corporation's notice
of meeting (1) by or at the direction of the
board of directors, or (2) provided that the
board of directors has determined that
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<PAGE>
<PAGE>
Allegiant Bancorp Equality Bancorp
directors shall be elected at such special
meeting, by any stockholder of record at the
time of the giving of notice of the special
meeting who is entitled to vote for the
election of directors at the meeting and who
complies with the notice procedures set forth
above.
A stockholder must deliver notice to
Equality Bancorp's Secretary at the principal
executive offices not later than the 14th day
following the earlier of: (1) the date of
public disclosure of the date of such meeting
and of the nominees proposed by the board of
directors, or (2) the date on which notice of
such meeting is mailed to the stockholders
unless notice mailed more than 21 days before
the date of such special meeting, then notice
is due by the 7th day following the earlier
of public disclosure or notice is mailed to
the stockholders.
</TABLE>
ANTI-TAKEOVER PROVISIONS--BUSINESS COMBINATIONS
Both Missouri law and Delaware law contain business combination
statutes that protect domestic corporations from hostile takeovers,
and from actions following such a takeover, by prohibiting some
transactions once an acquirer has gained a significant holding in
the corporation.
<TABLE>
<CAPTION>
Missouri law Delaware law
<S> <S>
Under Missouri law, during the five-year Delaware law contains a business combination
period after a person becomes an interested statute similar to that contained in Missouri
shareholder, no business combination may law. However, in accordance with the
occur unless the business combination, or the Delaware statute, Equality Bancorp elected
transaction in which an interested shareholder in its certificate of incorporation not to
becomes an interested shareholder, was be governed by such business combination
approved by the board of directors before the statute.
person became an interested shareholder,
business combinations may occur following this
five-year period if one of these conditions is
met:
* before the stock acquisition by the
interested shareholder, the board of
directors approves the transaction in
which the interested shareholder became
an interested shareholder or approves
the business combination;
* the holders of a majority of the outstanding
voting stock, other than stock owned by the
interested shareholder, approve the business
combination; or
* the business combination satisfies "fair
price" and procedural requirements detailed
in the statute.
Under Missouri law, a BUSINESS COMBINATION
includes mergers, sales of corporate assets
or stock; dissolutions or liquidations
proposed by or as a result of an agreement
with an interested shareholder; and certain
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<PAGE>
<PAGE>
Missouri law Delaware law
reclassifications and recapitalizations
involving the corporation or any subsidiary
of the corporation. An INTERESTED SHAREHOLDER
includes any person or entity which
beneficially owns or controls 20% or more of
the outstanding voting shares of the
corporation, or is an affiliate or associate
of the corporation and had such ownership
within the past five years.
</TABLE>
In addition, the charters of both of our companies also contain
provisions regulating business combinations with persons who own a
specified portion of our stock.
<TABLE>
<CAPTION>
Allegiant Bancorp Equality Bancorp
<S> <S>
The Allegiant Bancorp articles of Equality Bancorp's certificate of
incorporation provide that, in addition to incorporation prohibits business combinations
any shareholder vote required under Missouri with an interested party who or which,
law, the affirmative vote of the holders of together with its associates is the
not less than 75% of the total votes of the beneficial owner of 10% or more of the voting
then outstanding shares of capital stock of shares in connection with business
Allegiant Bancorp voting together as a single combinations, amending certificate of
class is required for the approval of any incorporation or the determination of
business combination. An INTERESTED PERSON interested directors unless the transaction
is any person that is, or at any time within is approved by an affirmative vote of the
the previous two years was, the beneficial holders of at least that number of voting
owner of 5% or more of the voting power of shares equal to the sum of:
Allegiant Bancorp's outstanding voting stock.
If, however, at least two-thirds of Allegiant * at least 80% of the voting power of all
Bancorp's board of directors approves the the shares of capital stock of Equality
business combination, the 75% vote Bancorp not beneficially owned by an
requirement does not apply. Similar interested person, plus
supermajority vote requirements apply to
amendments of this provision. * the number of voting shares
beneficially owned by all interested
persons.
The higher vote described above is not
required for any business combination if:
* prior to the acquisition of beneficial
ownership of 10% or more of the voting
shares by all interested parties with
respect to the Business Transaction, a
majority (or at least 662/3% of non-
interested directors) of the board of
directors approved and adopted the
business combination; or
* all of the following conditions have been
met:
(1) the aggregate amount of consideration
for each share of common stock in the
business combination by holders is not
less than the highest of (A) the highest
per share price (including any brokerage
commissions, transfer taxes, soliciting
dealer's fees, dealer-management
compensation and similar expenses) paid or
payable by the interested party within the
five-year period immediately prior to the
record date, (B) the per share book value
of common stock at the end of the fiscal
quarter immediately preceding the record
date, and (C) the highest market price per
share of common stock
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<PAGE>
<PAGE>
Allegiant Bancorp Equality Bancorp
during the two-year period ending
immediately prior to the first public
announcement of the proposal of the
business combination;
(2) the non-interested party holders of
common stock receive cash or the same form
of consideration used by the interested
party to acquire the largest number of
shares of common stock from non-interested
parties;
(3) at the record date, there shall be one
or more non-interested directors with
respect to the business combination; and
(4) a proxy or information statement
(complying with the requirements of the
Securities Exchange Act of 1934 and the
rules and regulations thereunder) shall be
mailed to the holders of voting shares as
of the record date at least 30 days prior
to the consummation of such business
combination (whether or not such proxy or
information statement is required to be
mailed pursuant to such Act or subsequent
provisions), and such proxy or information
statement shall contain in a prominent
place (I) any recommendations as to the
advisability (or inadvisability) of the
business combination that those members of
the board of directors who are not
themselves interested directors with
respect to the business combination may
choose to state, and (II) the opinion of
an investment banking firm as to both (x)
the fair market value of any consideration
other than cash to be received by holders
of common stock, and (y) the fairness (or
not) of the terms of the business
combination from a financial point of view
to the holders of common stock other than
interested parties.
For this purpose, Equality Bancorp's
certificate of incorporation defines
"BUSINESS COMBINATION" to include
substantially the same events included under
Delaware law, but also includes any other
transaction involving the corporation or any
subsidiary (whether or not with or otherwise
involving an interested party) which has the
effect, directly or indirectly, of increasing
the proportionate interest of any interested
party or any associate of an interested party
in the equity securities or assets of the
corporation or any subsidiary and an adoption
of any plan or proposal with respect to any
business combination.
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<PAGE>
<PAGE>
<CAPTION>
ANTI-TAKEOVER PROVISIONS--CONTROL SHARE ACQUISITIONS
Allegiant Bancorp Equality Bancorp
<S> <S>
The Missouri control share acquisition Unlike Missouri law, Delaware law does not
statute provides that an acquiring person contain control share acquisition provisions.
who, after any acquisition of shares of a
publicly traded corporation, has voting
power, when added to all shares of the same
corporation already owned or controlled by
the acquiring person, to exercise or direct
the exercise of:
* 20% or more but less than 33-1/3%,
* 33-1/3% or more but less than a majority,
or
* a majority,
of the voting power of outstanding stock of
the corporation, must obtain shareholder
approval for the purchase of these "control
shares." If approval is not given, the
acquiring person loses the right to vote the
control shares. The statute prohibits an
acquiring person from voting its shares
unless specific disclosure requirements are
met and the retention or restoration of
voting rights is approved by both holders of
(1) a majority of the outstanding voting
stock, and (2) a majority of the outstanding
voting stock after exclusion of interested
shares.
"INTERESTED SHARES" are shares owned by
the acquiring person, by directors who
are also employees, and by officers of
the corporation. Shareholders are given
dissenters' rights with respect to the
vote on control share acquisitions and may
demand payment of the fair value of their
shares by following the procedures set forth
in the control share acquisition statute.
A number of acquisitions of shares are deemed
not to constitute control share acquisitions,
including:
* purchases in connection with an issuance
of shares by the corporation
* mergers involving the corporation which
satisfy the other requirements of Missouri
law
* transactions with a person who owned a
majority of the voting power of the
corporation within the prior year
* purchases by or from a person who has
previously satisfied the provisions of the
control share acquisition statute, so long
as the transaction does not result in the
purchasing party having voting power after
the purchase in the percentage range
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<PAGE>
Allegiant Bancorp Equality Bancorp
beyond the range for which the selling
party previously satisfied the provisions
of the statute.
A corporation may exempt itself from
application of the statute by including a
provision in its articles of incorporation
or by-laws expressly electing not to be
covered by the statute. Allegiant Bancorp's
articles of incorporation and by-laws do not
"opt out" of the control share acquisition
statute.
<CAPTION>
SHAREHOLDER ACTION WITHOUT A MEETING
Allegiant Bancorp Equality Bancorp
<S> <S>
Under Missouri law and Allegiant Bancorp's Under Equality Bancorp's certificate of
by-laws, written action of shareholders in incorporation and by-laws, all action by its
lieu of a meeting is permitted only if the stockholders must be effected at a duly
consent is signed by all of the shareholders called stockholder meeting and may not be
entitled to vote with respect to the subject effected by consent.
matter.
<CAPTION>
CALLING SPECIAL MEETINGS OF SHAREHOLDERS
Allegiant Bancorp Equality Bancorp
<S> <S>
Allegiant Bancorp's by-laws provide that Under Equality Bancorp's certificate of
special meetings of shareholders may be incorporation, only the chairman of the
called by the chairman of the board or by board, the president or a majority of
the board of directors upon the written Equality Bancorp's board of directors may
request of shareholders owning at least 50% call a special meeting upon not less than
in the entire issued and outstanding capital ten days' nor more than 60 days' notice.
stock.
<CAPTION>
SUBMISSION OF SHAREHOLDER PROPOSALS
Allegiant Bancorp Equality Bancorp
<S> <S>
Allegiant Bancorp's by-laws provide that in Equality Bancorp's by-laws provide that in
order for a shareholder to bring business order for a stockholder to bring business
before the annual meeting, the shareholder before the annual meeting, the shareholder
must give timely notice of the proposal to must give timely notice of the proposal to
Allegiant Bancorp. To be timely, the notice Equality Bancorp. To be timely, a notice
must be received not later than the 60th day must be received no later than the close of
nor earlier than the 90th day prior to the business on the 60th day prior to the first
first anniversary of the preceding year's anniversary of the preceding year's annual
annual meeting. However, if the annual meeting, and no sooner than the close of
meeting is more than 30 days before or more business on the 90th day prior to the first
than 60 days after the anniversary of the anniversary of the preceding year's annual
prior year's annual meeting, to be timely meeting.
the notice must be delivered no earlier than
90 days prior to the annual meeting and no
later than the later of 60 days prior to
the annual meeting or 10 days after the
first public announcement of the meeting
date.
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<PAGE>
<PAGE>
<CAPTION>
SHAREHOLDER VOTE REQUIRED FOR MERGERS
Allegiant Bancorp Equality Bancorp
<S> <S>
Missouri law provides that a plan of merger Delaware law requires that a merger,
or consolidation requires the affirmative consolidation, disposition of all the assets
vote of holders of at least two-thirds of or voluntary dissolution of a corporation be
the outstanding shares entitled to vote in approved by the affirmative vote of holders
order to be approved. of a majority of the outstanding shares
entitled to vote thereon. However,
shareholder approval is not required for
mergers in which
* the certification of incorporation of the
surviving corporation is not amended,
* shares of the surviving corporation
outstanding before the merger are
unchanged, and
* new shares to be issued in the merger do
not exceed twenty percent of the shares
outstanding before the merger.
<CAPTION>
DIVIDENDS
Allegiant Bancorp Equality Bancorp
<S> <S>
Under Missouri law, a Missouri corporation Delaware law provides that a corporation may
may not pay cash dividends at a time when pay dividends out of the corporation's
the net assets of the corporation are less surplus or, if the corporation has no
than its stated capital or when the payment available surplus, out of net profits for
of the dividend would reduce the net assets the fiscal year in which the dividend is
below stated capital. The Missouri law declared or the preceding fiscal year.
places additional restrictions on dividends
that are payable in shares of the
corporation's stock. In addition, under
Missouri law, a dividend paid out of paid-in
capital cannot be paid:
* unless all cumulative dividends on
preferred or special classes of stock
have been paid,
* when net assets are less than stated
capital or the dividend would reduce
net assets below stated capital, and
* unless identified as a liquidating
dividend.
<CAPTION>
DISSENTERS' APPRAISAL RIGHTS
Allegiant Bancorp Equality Bancorp
<S> <S>
Under Missouri law, a shareholder of any Delaware law does not grant approval rights
corporation which is a party to a merger where the dissenting shares are listed on a
or consolidation, or which sells all or national securities exchange.
substantially all of its assets, has the
right to dissent from this corporate action
and to demand payment of the fair value of
his shares.
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<CAPTION>
SHAREHOLDERS' PREEMPTIVE RIGHTS
Allegiant Bancorp Equality Bancorp
<S> <S>
Missouri law allows preemptive rights to be Under Delaware law, unless otherwise provided
limited or denied to the extent provided in in a corporation's articles of incorporation,
a corporation's articles of incorporation. stockholders do not have preemptive rights.
Allegiant Bancorp's articles of incorporation Equality Bancorp's articles of incorporation
expressly eliminate preemptive rights. do not provide for preemptive rights.
<CAPTION>
SHAREHOLDER CLASS VOTING RIGHTS
Allegiant Bancorp Equality Bancorp
<S> <S>
Missouri law permits holders of a particular Similar to Missouri law, Delaware law permits
class of shares are entitled to vote as a holders of a particular class of shares to
separate class if the rights of that class vote as a separate class if an amendment to
are affected in various respects by the certificate of incorporation:
amendments to the articles of incorporation.
Missouri law does not treat mergers and * alters or changes the powers, preferences
consolidations as an amendment to the or special rights of that class; or
articles of incorporation. If the amendment
affects only a part of a class, that affected * would increase or decrease the authorized
part is entitled to vote as a class. shares or par value of that class.
<CAPTION>
AMENDMENTS TO CHARTER
Allegiant Bancorp Equality Bancorp
<S> <S>
Under Missouri law, shareholders must approve The Delaware law requires that an amendment
a proposed amendment to the articles of to a Delaware corporation's certificate of
incorporation by a vote of the holders of a incorporation first be adopted by the board
majority of the outstanding shares entitled of directors before the amendment is
to vote. submitted to the stockholders for approval by
the affirmative vote of holders of a majority
of the outstanding shares entitled to vote
and a majority of the adversely affected
shareholders.
In addition, any amendment, alteration or repeal
of certain provisions of Equality Bancorp's
certificate of incorporation requires the
affirmative vote of the holders of at least 80%
of the outstanding shares of all classes of stock
generally entitled to vote for directors. These
include the provisions for the following:
* election and terms of directors;
* special meetings and actions by
stockholders;
* amending Equality Bancorp's by-laws;
* indemnification of Equality Bancorp's
directors and officers;
* elimination of directors' personal
liability required for sales and
takeovers, or change in control;
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<PAGE>
<PAGE>
Allegiant Bancorp Equality Bancorp
* board of director (and committee)
consideration; and
* vote required for certain business
transactions however provided and
restrictions on beneficial ownership
of Equality Bancorp stock;
provided, that if a resolution to amend the
certificate of incorporation is adopted
by the holders of at least 66-2/3% of
disinterested directors, then no stockholder
vote is required.
<CAPTION>
AMENDMENT OF BY-LAWS
Allegiant Bancorp Equality Bancorp
<S> <S>
Missouri law vests the power to amend the Delaware law provides that a corporation's
by-laws in the shareholders, unless and to stockholders or board of directors may adopt,
the extent that this power is vested in the amend or repeal the corporation's by-laws.
board of directors by the articles of Equality Bancorp's certificate of
incorporation. Allegiant Bancorp's articles incorporation provides that the by-laws may
of incorporation do vest this power in the be amended, altered or repealed only by the
Allegiant Bancorp board of directors. affirmative vote of:
* a majority of the members of the board of
directors then in office; or
* the holders of at least 80% of the
outstanding shares entitled to vote for
directors.
</TABLE>
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<PAGE>
SUPERVISION AND REGULATION
GENERAL
The following discussion briefly describes the material elements
of the regulatory framework governing bank holding companies and their
subsidiaries, and provides specific information relevant to our
companies. This regulatory framework is intended primarily for the
protection of depositors and the federal deposit insurance funds and not
for the protection of security holders. To the extent that the
following information describes statutory and regulatory provisions, it
is qualified in its entirety by reference to those provisions. A change
in the statutes, regulations or regulatory policies applicable to our
companies or our subsidiaries may have a material effect on our
businesses.
As a bank holding company, Allegiant Bancorp is subject to
regulation under the Bank Holding Company Act, and to inspection,
examination and supervision by the Federal Reserve Board. Under the
Bank Holding Company Act, bank holding companies generally may not
acquire the ownership or control of more than 5% of the voting shares,
or substantially all the assets, of any company, including a bank or
another bank holding company, without the Federal Reserve Board's prior
approval. Also, bank holding companies generally may engage only in
banking and other activities that are determined by the Federal Reserve
Board to be closely related to banking.
Allegiant Bank is subject to primary federal regulation and
examination by the FDIC. In addition, the bank is regulated and
examined by the Missouri Division of Finance. Allegiant Bancorp and its
subsidiaries also are affected by general economic conditions, the
fiscal and monetary policies of the federal government and the Federal
Reserve Board, and by various other governmental requirements and
regulations.
LIABILITY FOR BANK SUBSIDIARIES
Under current Federal Reserve Board policy, a bank holding company
is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to maintain resources adequate to
support each subsidiary bank. This support may be required at times
when the bank holding company may not have the resources to provide it.
In the event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a U.S. federal bank regulatory agency to
maintain the capital of a subsidiary bank would be assumed by the
bankruptcy trustee and entitled to priority of payment.
Allegiant Bank is a FDIC-insured depository institution. Any
depository institution insured by the FDIC can be held liable for any
loss incurred, or reasonably expected to be incurred, by the FDIC due to
the default of an FDIC-insured depository institution controlled by the
same bank holding company, or for any assistance provided by the FDIC to
an FDIC-insured depository institution controlled by the same bank
holding company that is in danger of default.
"Default" generally means the appointment of a conservator or
receiver. "In danger of default" generally means the existence of
certain conditions indicating that a default is likely to occur in the
absence of regulatory assistance.
Also, if a default occurred with respect to a bank, any capital
loans to the bank from its parent holding company would be subordinate
in right of payment to payment of the bank's depositors and certain of
its other obligations.
CAPITAL REQUIREMENTS
GENERAL. The Federal Reserve Board imposes risk-based capital
requirements and guidelines on Allegiant Bancorp which are substantially
similar to the capital requirements and guidelines imposed by the
Federal Reserve Board and the FDIC on the depository institutions under
their jurisdictions. For this purpose, the Federal Reserve Board
assigns a depository institution's or holding company's assets, and some
of its specified off-balance sheet commitments and obligations to
various risk categories. A depository institution's or holding
company's capital, in turn, is classified in one of three tiers,
depending on type:
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<PAGE>
<TABLE>
<CAPTION>
Core ("Tier 1") capital Supplementary ("Tier 2") capital Market risk ("Tier 3") capital
--------------------------------------- -------------------------------------- -----------------------------------------
<S> <S> <S>
* common equity among other items: among other items:
* retained earnings * perpetual preferred stock not * qualifying unsecured subordinated
* qualifying non-cumulative perpetual meeting the tier 1 definition debt
preferred stock * qualifying mandatory
* a limited amount of qualifying convertible securities
cumulative perpetual preferred * qualifying subordinated debt
stock at the holding company level * allowances for loan and lease
* minority interests in equity losses, subject to limitations
accounts of consolidated
subsidiaries
* less goodwill and most intangible
assets
</TABLE>
Allegiant Bancorp currently is required to maintain Tier 1 capital
and "total capital" (the sum of Tier 1, Tier 2 and Tier 3 capital) equal
to at least 4% and 8%, respectively, of its total risk-weighted assets
(including various off-balance-sheet items, such as standby letters of
credit). For a holding company to be considered "well capitalized" for
regulatory purposes, its Tier 1 and total capital ratios must be at
least 6% and 10% on a risk-adjusted basis, respectively. At June 30,
2000, Allegiant Bancorp was well capitalized for Tier 1 capital purposes
with Tier 1 capital to total risk-weighted assets of 8.12% and
adequately capitalized for total capital purposes with total capital to
total risk-weighted assets of 9.47%.
Federal Reserve Board and FDIC rules requires Allegiant Bancorp to
incorporate market and interest rate risk components into their risk-
based capital standards. Under these market risk requirements, capital
is allocated to support the amount of market risk related to a financial
institution's ongoing trading activities.
The Federal Reserve Board also requires bank holding companies to
maintain a minimum "leverage ratio" (Tier 1 capital to adjusted total
assets) of at least 3% if the holding company has the highest regulatory
rating and meets other requirements, or of at least 3% plus an
additional "cushion" of at least 100 to 200 basis points (one to two
percentage points) if the holding company does not meet these
requirements. At June 30, 2000, Allegiant Bancorp's leverage ratio was
6.93%.
The Federal Reserve Board may set capital requirements higher than
the minimums described above for holding companies whose circumstances
warrant it. For example, holding companies experiencing or anticipating
significant growth may be expected to maintain capital positions
substantially above the minimum supervisory levels without significant
reliance on intangible assets. The Federal Reserve Board has also
indicated that it will consider a "tangible Tier 1 capital leverage
ratio" (deducting all intangibles) and other indications of capital
strength in evaluating proposals for expansion or new activities.
Allegiant Bank is subject to similar risk-based and leverage
capital requirements adopted by its applicable federal banking agency.
Allegiant Bank was in compliance with the applicable capital
requirements as of June 30, 2000.
Failure to meet capital requirements could subject a bank to a
variety of enforcement remedies, including the termination of deposit
insurance by the FDIC, and to restrictions on its business, which are
described below under "--Federal Deposit Insurance Corporation
Improvement Act of 1991."
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991.
The FDICIA, among other things, identifies five capital categories for
insured depository institutions: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. It requires U.S. federal bank regulatory
agencies to implement systems for "prompt corrective action" for insured
depository institutions that do not meet minimum capital requirements
based on these categories. The FDICIA imposes progressively more
restrictive constraints on operations, management and capital
distributions, depending on the category in which an institution is
classified. Unless a bank or thrift is well capitalized, it is subject
to restrictions on its ability to offer brokered deposits and on other
aspects of its operations. An undercapitalized bank or thrift must
develop a capital restoration plan and its parent holding company must
guarantee the bank's or thrift's compliance with the plan up to the
lesser of 5% of the bank's or thrift's assets at the time it became
undercapitalized and the amount needed to comply with the plan.
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As of June 30, 2000 Allegiant Bancorp's bank subsidiary was well
capitalized, based on the prompt corrective action ratios and guidelines
described above. You should note, however, that a bank's capital
category is determined solely for the purpose of applying the FDIC's
prompt corrective action regulations and that the capital category may
not constitute an accurate representation of the bank's overall
financial condition or prospects for other purposes.
DIVIDEND RESTRICTIONS
Federal and state laws limit the amount of dividends Allegiant
Bank can pay to Allegiant Bancorp without regulatory approval. Dividend
payments by a Missouri state-chartered trust company are limited to the
lesser of (1) the level of undivided profits and (2) absent regulatory
approval, an amount not more than net income for the current year
combined with retained net income for the preceding two years. At
June 30, 2000, $23.8 million of the total shareholders' equity of
Allegiant Bank was available for payment of dividends to Allegiant
Bancorp without approval by the applicable regulatory authority.
In addition, federal bank regulatory authorities have authority to
prohibit Allegiant Bank from engaging in unsafe or unsound practices in
conducting its business. The payment of dividends, depending upon the
financial condition of the bank in question, could be deemed an unsafe
or unsound practice. The ability of Allegiant Bank to pay dividends in
the future is currently, and could be further, influenced by bank
regulatory policies and capital guidelines.
DEPOSIT INSURANCE ASSESSMENTS
The deposits of Allegiant Bank are insured up to regulatory limits
by the FDIC, and, accordingly, are subject to deposit insurance
assessments to maintain the Bank Insurance Fund and/or the Savings
Association Insurance Fund administered by the FDIC. The FDIC has
adopted regulations establishing a permanent risk-related deposit
insurance assessment system. Under this system, the FDIC places each
insured bank in one of nine risk categories based on the bank's
capitalization and supervisory evaluations provided to the FDIC by the
institution's primary federal regulator. Each insured bank's insurance
assessment rate is then determined by the risk category in which it is
classified by the FDIC.
SUPERVISORY ASSESSMENTS
All Missouri banks are required to pay supervisory assessments to
the Missouri Division of Finance to fund the operations of the Missouri
Division of Finance. The amount of the assessment is calculated based
on a formula established by the Missouri Division of Finance which takes
into account the institution's total assets.
DEPOSITOR PREFERENCE STATUTE
In the "liquidation or other resolution" of the institution by any
receiver, federal legislation provides that deposits and certain claims
for administrative expenses and employee compensation against the
insured depository institution would be afforded a priority over other
general unsecured claims against that institution, including federal
funds and letters of credit.
BROKERED DEPOSITS
Under FDIC regulations, no FDIC-insured depository institution can
accept brokered deposits unless it is well capitalized or both is
adequately capitalized and receives a waiver from the FDIC. In
addition, these regulations prohibit any depository institution that is
not well capitalized from paying an interest rate on deposits in excess
of 75 basis points over certain prevailing market rates or, unless it
provides certain notice to affected depositors, offering "pass through"
deposit insurance on certain employee benefit plan accounts.
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INTERSTATE BANKING AND BRANCHING
Under the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994, subject to certain concentration limits and other
requirements:
* bank holding companies such as Allegiant Bancorp and
Equality Bancorp can acquire banks and bank holding
companies located in any state
* any subsidiary bank of a bank holding company can receive
deposits, renew time deposits, close loans, service loans
and receive loan payments as an agent for any other bank
subsidiary of that bank holding company
* banks can acquire branch offices outside their home states
by merging with out-of-state banks, purchasing branches in
other states and establishing de novo branch offices in
other states. The ability of banks to acquire branch
offices through purchase or opening of other branches is
contingent, however, on the host state having adopted
legislation "opting in" to those provisions of Riegle-Neal.
In addition, the ability of a bank to merge with a bank
located in another state is contingent on the host state not
having adopted legislation "opting out" of that provision of
Riegle-Neal.
Our combined company might use Riegle-Neal to acquire banks in
additional states and to consolidate its bank subsidiaries under a
smaller number of separate charters.
CONTROL ACQUISITIONS
The Change in Bank Control Act prohibits a person or group of
persons from acquiring "control" of a bank holding company, unless the
Federal Reserve Board has been notified and has not objected to the
transaction. Under a rebuttable presumption established by the Federal
Reserve Board, the acquisition of 10% or more of a class of voting stock
of a bank holding company with a class of securities registered under
Section 12 of the Securities Exchange Act of 1934, such as Allegiant
Bancorp, would, under the circumstances set forth in the presumption,
constitute acquisition of control of the bank holding company.
In addition, a company is required to obtain the approval of the
Federal Reserve Board under the Bank Holding Company Act before
acquiring 25% (5% in the case of an acquirer that is a bank holding
company) or more of any class of outstanding common stock of a bank
holding company, or otherwise obtaining control or a "controlling
influence" over that bank holding company.
GRAMM-LEACH-BLILEY
On November 12, 1999, President Clinton signed legislation that
could have a far-reaching impact on the financial services industry.
The Gramm-Leach-Bliley Financial Services Modernization Act authorizes
affiliations between banking, securities and insurance firms and
authorizes bank holding companies and national banks to engage in a
variety of new financial activities. Among the new activities that will
be permitted to bank holding companies are securities and insurance
brokerage, securities underwriting, insurance underwriting and merchant
banking. The Federal Reserve Board, in consultation with the Department
of Treasury, may approve additional financial activities. National bank
subsidiaries will be permitted to engage in similar financial activities
but only on an agency basis unless they are one of the 50 largest banks
in the country. National bank subsidiaries will be prohibited from
insurance underwriting, real estate development and merchant banking.
We are unable to predict the impact of the Gramm-Leach-Bliley Act on our
operations at this time. Although the Gramm-Leach-Bliley Act reduces
the range of companies with which we may affiliate, it may facilitate
affiliations with companies in the financial services industry.
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<PAGE>
FUTURE LEGISLATION
Various legislation is from time to time introduced in the U.S.
Congress that may change banking statutes and the operating environment
of Allegiant Bancorp and/or Allegiant Bank in substantial and
unpredictable ways. We cannot accurately predict whether this potential
legislation will ultimately be enacted, and, if enacted, the ultimate
effect that it, or implementing regulations, would have upon the
financial, condition or results of operations of Allegiant Bancorp
and/or Allegiant Bank.
FDIC AND EQUALITY SAVINGS BANK MEMORANDUM OF UNDERSTANDING
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 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 agreed to
take certain actions in response to concerns raised by the FDIC.
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 a formal enforcement action.
Equality Savings Bank believes that it can comply with the memorandum of
understanding and currently is taking the necessary steps to do so.
Compliance with the memorandum of understanding is not expected to have
a material adverse impact on the operations and financial condition of
Equality Savings Bank. The memorandum of understanding will remain in
effect until terminated by the Kansas City Regional Director of the
FDIC or upon consummation of the proposed merger of Equality Savings Bank
into Allegiant Bank.
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LEGAL MATTERS
The legality of the Allegiant Bancorp common stock offered by this
Joint Proxy Statement/Prospectus and the qualification of the merger as
a reorganization under the Internal Revenue Code will be passed upon for
Allegiant Bancorp by Thompson Coburn LLP, St. Louis, Missouri. Certain
legal matters will be passed upon for Equality Bancorp by Schiff Hardin
& Waite, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Allegiant Bancorp and its
subsidiaries as of December 31, 1999 and 1998 and for each of the years
in the two-year period ended December 31, 1999, included and
incorporated by reference in this Joint Proxy Statement/Prospectus and
in the registration statement on Form S-4, have been included and
incorporated by reference herein and in the registration statement in
reliance upon the report of Ernst & Young LLP, independent certified
public accountants, and upon the authority of Ernst & Young LLP as
experts in accounting and auditing.
The consolidated financial statements of Allegiant Bancorp and
subsidiaries for the year ended December 31, 1997, included and
incorporated by reference in this Joint Proxy Statement/Prospectus and
in the registration statement on Form S-4, have been included and
incorporated by reference herein and in the registration statement in
reliance upon the report of BDO Seidman, LLP, independent certified
public accountants, and upon the authority of BDO Seidman, LLP as
experts in accounting and auditing.
The consolidated financial statements of Equality Bancorp and
subsidiaries as of March 31, 2000 and 1999 and for each of the years in
the three-year period ended March 31, 2000, included in this Joint Proxy
Statement/Prospectus and in the registration statement on Form S-4, have
been included herein and in the registration statement in reliance upon
the report of KPMG LLP, independent certified public accountants, and
upon the authority of KPMG LLP as experts in accounting and auditing.
INDEPENDENT PUBLIC ACCOUNTANTS
ALLEGIANT BANCORP
Ernst & Young LLP served as Allegiant Bancorp's independent public
accountants for 1999 and has been selected by Allegiant Bancorp's board
of directors to continue in such capacity during 2000. Allegiant
Bancorp's board of directors retained Ernst & Young based upon the board's
determination that Allegiant Bancorp would benefit from Ernst & Young's
local expertise in financial institutions and in matters involving the
Securities and Exchange Commission. Representatives of Ernst & Young are
not expected to be present at Allegiant Bancorp's special meeting called
to vote upon the issuance of shares of Allegiant Bancorp common stock
in the merger.
EQUALITY BANCORP
On March 15, 2000, the board of directors of Equality Bancorp
engaged the accounting firm of Rubin Brown Gornstein & Co. LLP as its
independent accountants, for the year commencing April 1, 2000 and
ending March 31, 2001, replacing KPMG LLP as Equality Bancorp's
independent accountant. KPMG completed its audit of Equality Bancorp's
consolidated financial statements for the year ended March 31, 2000 and
issued its report thereon. Rubin Brown Gornstein previously performed
the audit work solely for Equality Mortgage Corporation, a subsidiary of
Equality Savings Bank. Equality Bancorp decided to engage Rubin Brown
Gornstein for all of its audit and tax work. The decision to change
accountants was approved by Equality Bancorp's board of directors.
During the years ended March 31, 2000 and 1999, there were no
disagreements between Equality Bancorp and KPMG on any matter of
accounting principles or practices, financial statement disclosure,
auditing scope or procedure, which, if not resolved to KPMG's
satisfaction, would have caused KPMG to make reference to the subject
matter of the disagreement.
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<PAGE>
KPMG's audit report on the consolidated financial statements of
Equality Bancorp and subsidiaries for the years ended March 31, 2000 and
1999 contained no adverse opinion or disclaimer of opinion and was not
modified as to uncertainty, audit scope of accounting principles, except
as follows: KPMG's audit reports on the consolidated financial
statements of Equality Bancorp and subsidiaries as of and for the years
ended March 31, 2000 and 1999, state they "did not audit the financial
statements of Equality Mortgage Corporation, which statements reflect
total assets constituting 2% and 3% in 2000 and 1999, respectively, and
total interest income and non-interest income constituting 13%, 20%, and
19% in 2000, 1999, and 1998, respectively, and total interest income and
non-interest income constituting 20%, 19%, and 16% in 1999, 1998 and
1997, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose report has been
furnished to us, and in our opinion, insofar as it relates to the
amounts included for Equality Mortgage Corporation, is based solely on
the report of the other auditors."
None of the following events has occurred within Equality
Bancorp's two most recent fiscal years:
(A) KPMG has not advised Equality Bancorp that the internal
controls necessary for Equality Bancorp to develop reliable financial
statements did not exist;
(B) KPMG has not advised Equality Bancorp that information had
come to its attention that made it unwilling to rely on management's
representations, or that it made it unwilling to be associated with the
financial statements prepared by management;
(C) KPMG has not advised Equality Bancorp that the scope of its
audit should be expanded significantly, or that information has come to
its attention that it has concluded will, or if further investigated
might, materially impact the fairness or reliability of a previously
issued audit report or the underlying financial statements, or the
financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent audited financial statements
(including information that might preclude the issuance of an
unqualified audit report) and KPMG has not advised Equality Bancorp of
any issue that was not resolved to KPMG's satisfaction prior to its
dismissal.
During the two most recent fiscal years, except for the current
and sole past performance by Rubin Brown Gornstein of Equality Mortgage
Corporation's audit work, neither Equality Bancorp nor anyone on its
behalf consulted Rubin Brown Gornstein regarding either: (1) the
application of accounting principles to a specific competed or
contemplated transaction, or the type of audit opinion that might be
rendered on Equality Bancorp's financial statements, where either
written or oral advice was provided that was an important factor
considered by Equality Bancorp in reaching a decision as to the
accounting, auditing or financial reporting issue; or (2) any matter
that was the subject of a disagreement as defined in paragraph
304(a)(1)(iv) of Regulation S-B.
SHAREHOLDER PROPOSALS
ALLEGIANT BANCORP
Allegiant Bancorp's shareholders will not be entitled to submit
proposals for consideration at the special meeting except to the extent
the proposals relate directly to the matters to come before the special
meeting as set forth in this Joint Proxy Statement/Prospectus.
Allegiant Bancorp's by-laws provide that shareholder proposals
which do not appear in the proxy statement may be considered at a
meeting of shareholders only if written notice of the proposal is
received by the Secretary of Allegiant Bancorp not less than 80 and not
more than 100 days before the anniversary of the preceding year's annual
meeting. However, if the date of the annual meeting is more than 30 days
before or more than 60 days after that anniversary date, the notice of a
shareholder proposal, to be timely, must be received by the Secretary not
later than the close of business on the later of the 80th day prior to the
annual meeting or the tenth day following the day on which public announcement
of the meeting date is first made. Any notice of a shareholder proposal by a
shareholder to the Secretary of Allegiant Bancorp must be accompanied by:
* the name and address of the shareholder who intends to
present the proposal for a vote;
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* a representation that the shareholder is a holder of record
of shares entitled to vote at the meeting;
* a description of all agreements, arrangements or
understandings between the shareholder and any other
shareholder relating to the proposal to be voted on and any
financial or contractual interest of either shareholder in
the outcome of the vote; and
* all other information regarding the proposal to be voted on
and the shareholder intending to present the proposal for a
vote as would be required to be included in a proxy
statement soliciting the vote of shareholders in respect of
the proposal according to the proxy rules of the Securities
and Exchange Commission.
Allegiant Bancorp's board of directors will consider and include
in Allegiant Bancorp's proxy statement for the 2001 annual meeting of
Allegiant Bancorp shareholders proposals which meet the regulations of
the Securities and Exchange Commission and Missouri law and which comply
with Allegiant Bancorp's by-laws. In order to be eligible for
inclusion, proposals were required to be addressed to Allegiant
Bancorp's Secretary and must have been received on or before February 19,
2001.
EQUALITY BANCORP
Equality Bancorp stockholders will not be entitled to submit
proposals for consideration at the special meeting except to the extent
the proposals relate directly to the matters to come before the special
meeting as set forth in this Joint Proxy Statement/Prospectus. If the
merger is completed, we do not anticipate that there will be any future
meetings of Equality Bancorp stockholders.
Equality Bancorp's by-laws provide that stockholder proposals
which do not appear in the proxy statement may be considered at a
meeting of stockholders only if written notice of the proposal is
received by the Secretary of Equality Bancorp not less than 60 and not
more than 90 days before the anniversary of the preceding year's annual
meeting. However, if the date of the annual meeting is more than 30
days before or more than 60 days after that anniversary date, the notice
of a stockholder proposal, to be timely, must be received by the
Secretary not later than the close of business on the later of the 80th
day prior to the annual meeting or the tenth day following the day on
which public announcement of the meeting date is first made. Any notice
of a stockholder proposal by a stockholder to the Secretary of Equality
Bancorp must be accompanied by:
* name and address of stockholder (and beneficial owner, if
any), who intends to present the proposal for a vote;
* the class and number of shares of Equality Bancorp's capital
stock beneficially owned and of record by such stockholder;
* a brief description of the business proposed to come before
meeting;
* the reasons for conducting such business at the annual
meeting;
* any material interest in such business to such stockholder;
and
* all other information regarding the proposal to be voted on
and the shareholder intending to present the proposal for a
vote as would be required to be included in a proxy
statement soliciting the vote of shareholders in respect of
the proposal according to the proxy rules of the Securities
and Exchange Commission.
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OTHER MATTERS
Neither Allegiant Bancorp's nor Equality Bancorp's board of
directors is aware of any business to come before their respective
special meetings, other than those matters described in this Joint Proxy
Statement/Prospectus. However, if any other matters should properly
come before the special meeting, the proxy holders intend to vote on
those matters with their reasonable business judgment.
WHERE YOU CAN FIND MORE INFORMATION
Allegiant Bancorp filed with the SEC under the Securities Act of
1933 the registration statement which registers the shares of Allegiant
Bancorp common stock to be issued to Equality Bancorp stockholders in
connection with the merger. The registration statement, including the
attached exhibits and schedules, contains additional relevant
information about Allegiant Bancorp and Allegiant Bancorp common stock.
The rules and regulations of the Securities and Exchange Commission
allow us to omit certain information included in the registration
statement from this Joint Proxy Statement/Prospectus.
In addition, Allegiant Bancorp (File No. 0-26350) and Equality
Bancorp (File No. 1-13413) file reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You
may read and copy this information at the following locations of the
SEC:
<TABLE>
<S> <S> <S>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
The SEC also maintains an Internet world wide web site that
contains reports, proxy statements and other information about issuers,
like Allegiant Bancorp and Equality Bancorp, who file electronically
with the SEC. The address of that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other
information about Equality Bancorp at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006.
The Securities and Exchange Commission allows Allegiant Bancorp to
"incorporate by reference" information into this Joint Proxy
Statement/Prospectus. This means that we can disclose important
information to you by referring you to another document filed separately
with the Securities and Exchange Commission. The information
incorporated by reference is considered to be a part of this Joint Proxy
Statement/Prospectus, except for any information that is superseded by
information that is included directly in this document.
This Joint Proxy Statement/Prospectus incorporates by reference
the documents listed below that Allegiant Bancorp has previously filed
with the Securities and Exchange Commission.
Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Reports on Form 10-Q Quarters ended March 31, 2000 and
June 30, 2000
Current Report on Form 8-K Report dated July 26, 2000
You may read and copy any materials we file with the Securities
and Exchange Commission at the Securities and Exchange Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public
Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission maintains an
Internet site that contains reports, proxy and information statements
and other information regarding issuers that file electronically with
the Securities and Exchange Commission. The address of the Securities
and Exchange Commission's website is
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<PAGE>
http://www.sec.gov. You can obtain additional copies of the documents
incorporated by reference in this Joint Proxy Statement/Prospectus by
requesting them in writing or by telephone from the following address:
Allegiant Bancorp, Inc.
Attention: Investor Relations
2122 Kratky Road
St. Louis, Missouri 63114
Telephone: (314) 692-8200
If you would like to request additional copies of the documents,
please do so by October 12, 2000 to receive them before the special
meeting. If you request any documents from us, we will mail them to you
by first class mail, or another equally prompt means, within one
business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from,
or in addition to, that contained in this Joint Proxy Statement/
Prospectus or in any of the materials that we have incorporated into
this document. Therefore, if anyone does give you information of this
sort, you should not rely on it. Information in this Joint Proxy
Statement/Prospectus about Allegiant Bancorp has been supplied by Allegiant
Bancorp and information about Equality Bancorp has been supplied by Equality
Bancorp. The information contained in this document speaks only as of
the date of this document unless the information specifically indicates
that another date applies.
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<TABLE>
ALLEGIANT BANCORP AND EQUALITY BANCORP
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
-----
<CAPTION>
Page
----
<S> <C>
ALLEGIANT BANCORP
Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997 F-3
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
Unaudited Consolidated Balance Sheet as of June 30, 2000 F-26
Unaudited Consolidated Statements of Income for the three months and six months
ended June 30, 2000 and 1999 F-27
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30,
2000 and 1999 F-28
Note to Unaudited Consolidated Financial Statements F-29
EQUALITY BANCORP
Independent Auditors' Report F-30
Consolidated Balance Sheets as of March 31, 2000 and 1999 F-31
Consolidated Statements of Income for the years ended March 31, 2000,
1999 and 1998 F-32
Consolidated Statements of Stockholders' Equity for the years ended March 31, 2000,
1999 and 1998 F-33
Consolidated Statements of Cash Flows for the years ended March 31, 2000,
1999 and 1998 F-36
Consolidated Statements of Comprehensive Income (Loss) for the years ended
March 31, 2000, 1999 and 1998 F-38
Notes to Consolidated Financial Statements F-39
Consolidated Balance Sheet (Unaudited) as of June 30, 2000 F-64
Consolidated Statements of Income (Unaudited) for the three months ended
June 30, 2000 and 1999 F-65
Consolidated Statement of Stockholders' Equity (Unaudited) for the three months
ended June 30, 2000 F-66
Consolidated Statements of Cash Flows (Unaudited) for the three months ended
June 30, 2000 and 1999 F-67
Consolidated Statements of Comprehensive Income (Unaudited) for the three months
ended June 30, 2000 and 1999 F-69
Note to Unaudited Consolidated Financial Statements F-70
</TABLE>
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REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Allegiant Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of
Allegiant Bancorp, Inc. as of December 31, 1999 and 1998 and the related
consolidated statements of income, shareholders' equity and cash flows
for both of the years ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits. The consolidated statements of income,
shareholders' equity and cash flows for the year ended December 31, 1997
were audited by other auditors whose report dated March 13, 1998
expressed an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Allegiant Bancorp, Inc. at December 31, 1999 and 1998 and the
consolidated results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted
in the United States.
St. Louis, Missouri /s/ Ernst & Young
January 19, 2000
F-1
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,842 $ 13,693
Federal funds sold and other overnight investments 9,927 3,430
Investment securities
Available for sale (at estimated market value) 49,129 42,740
Held-to-maturity (estimated market value of $11,284
and $12,132, respectively) 11,668 12,040
Loans, net of allowance for loan losses of $8,315
and $6,442, respectively 606,876 489,227
Premises and equipment 9,896 11,010
Accrued interest and other assets 12,430 11,438
Cost in excess of fair value of net assets acquired 11,724 12,696
-------- --------
Total assets $728,492 $596,274
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 51,845 $ 55,417
Interest bearing 449,071 364,176
Certificates of deposit over $100,000 47,550 31,173
-------- --------
Total deposits 548,466 450,766
-------- --------
Short-term borrowings 75,861 53,542
Long-term debt 35,860 40,275
Guaranteed preferred beneficial interest in
subordinated debentures 17,250 --
Accrued expenses and other liabilities 3,064 3,587
-------- --------
Total liabilities 680,501 548,170
-------- --------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value - authorized 20,000,000
shares; issued 6,208,102 shares and 6,536,164 shares,
respectively 66 65
Capital surplus 42,373 41,898
Retained earnings 10,482 6,058
Accumulated other comprehensive income (loss) (754) 83
Treasury stock, at cost, 419,260 shares (4,176) --
-------- --------
Total shareholders' equity 47,991 48,104
-------- --------
Total liabilities and shareholders' equity $728,492 $596,274
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $48,604 $44,412 $33,473
Investment securities 3,361 4,295 3,966
Federal funds sold and other overnight investments 147 511 326
------- ------- -------
Total interest income 52,112 49,218 37,765
------- ------- -------
INTEREST EXPENSE
Interest on deposits 20,595 21,948 17,253
Interest on short-term borrowings 3,002 2,625 2,895
Interest on long-term debt 2,271 2,694 1,318
Interest on guaranteed beneficial interest in
subordinated debentures 733 -- --
------- ------- -------
Total interest expense 26,601 27,267 21,466
------- ------- -------
Net interest income 25,511 21,951 16,299
Provision for loan losses 2,546 2,420 2,397
------- ------- -------
Net interest income after provision for loan losses 22,965 19,531 13,902
------- ------- -------
OTHER INCOME
Service charges on deposits 1,888 1,387 913
Net gain on sale of securities -- 68 2
Other income 2,955 7,869 2,383
------- ------- -------
Total other income 4,843 9,324 3,298
------- ------- -------
OTHER EXPENSES
Salaries and employee benefits 9,717 9,663 6,192
Occupancy and furniture and equipment 2,994 3,275 1,681
Other expense 6,051 8,357 5,196
------- ------- -------
Total other expenses 18,762 21,295 13,069
------- ------- -------
Income before income taxes 9,046 7,560 4,131
Provision for income taxes 3,644 3,026 1,716
------- ------- -------
Net income $ 5,402 $ 4,534 $ 2,415
======= ======= =======
Basic earnings per share $ 0.84 $ 0.72 $ 0.54
Diluted earnings per share 0.83 0.68 0.49
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
COMMON STOCK TREASURY CAPITAL
SHARES PAR STOCK SURPLUS
------ --- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance January 1, 1997 3,405,696 $34 $ -- $15,972
Net income -- -- -- --
Change in net unrealized gains (losses)
on available for sale securities -- -- -- --
Comprehensive income
Cash dividends declared -- -- -- --
Issuance of Common Stock for:
Rights offerings 1,523,037 15 -- 11,226
Acquisition of Reliance Financial, Inc. 898,689 9 -- 10,578
Exercise of stock warrants/options 260,414 3 -- 1,509
Various stock issuance plans 23,907 -- -- 199
--------- --- ------- -------
Balance December 31, 1997 6,111,743 61 -- 39,484
--------- --- ------- -------
Net income -- -- -- --
Change in net unrealized gains (losses)
on available for sale securities -- -- -- --
Comprehensive income
Cash dividends declared -- -- -- --
Issuance of Common Stock for:
Exercise of stock warrants/options 384,785 4 -- 2,112
Various stock issuance plans 39,636 -- -- 302
--------- --- ------- -------
Balance December 31, 1998 6,536,164 65 -- 41,898
--------- --- ------- -------
Net income -- -- --
Change in net unrealized gains (losses)
on available for sale securities -- -- --
Comprehensive income
Issuance of Common Stock for:
Exercise of stock warrants/options 86,703 1 -- 423
Various stock issuance plans 4,495 -- -- 52
Repurchase of common stock (419,260) -- (4,176) --
Cash dividends declared -- -- -- --
--------- --- ------- -------
Balance December 31, 1999 6,208,102 $66 $(4,176) $42,373
========= === ======= =======
<PAGE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
EARNINGS INCOME EQUITY INCOME
-------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance January 1, 1997 $ 357 $ 23 $16,386
Net income 2,415 -- 2,415 $2,415
Change in net unrealized gains (losses)
on available for sale securities -- 62 62 62
------
Comprehensive income $2,477
======
Cash dividends declared (331) -- (331)
Issuance of Common Stock for:
Rights offerings -- -- 11,241
Acquisition of Reliance Financial, Inc. -- -- 10,587
Exercise of stock warrants/options -- -- 1,512
Various stock issuance plans -- -- 199
------- ----- -------
Balance December 31, 1997 2,441 85 42,071
------- ----- -------
Net income 4,534 -- 4,534 $4,534
Change in net unrealized gains (losses)
on available for sale securities -- (2) (2) (2)
------
Comprehensive income $4,532
======
Cash dividends declared (917) -- (917)
Issuance of Common Stock for:
Exercise of stock warrants/options -- -- 2,116
Various stock issuance plans -- -- 302
------- ----- -------
Balance December 31, 1998 6,058 83 48,104
------- ----- -------
Net income 5,402 -- 5,402 $5,402
Change in net unrealized gains (losses)
on available for sale securities -- (837) (837) (837)
------
Comprehensive income $4,565
======
Issuance of Common Stock for:
Exercise of stock warrants/options -- -- 424
Various stock issuance plans -- -- 52
Repurchase of common stock -- -- (4,176)
Cash dividends declared (978) -- (978)
------- ----- -------
Balance December 31, 1999 $10,482 $(754) $47,991
======= ===== =======
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Reclassification adjustments:
Unrealized gains (losses) on
available for sale securities $(837) $39 $63
Less:
Reclassification adjustment for gains
realized included in net income -- 41 1
----- --- ---
Net unrealized gains (losses) on
available for sale securities $(837) $(2) $62
===== === ===
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
OPERATING ACTIVITIES (IN THOUSANDS)
<S> <C> <C> <C>
Net income $ 5,402 $ 4,534 $ 2,415
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,610 4,366 1,057
Provision for loan losses 2,546 2,420 2,397
Net realized gains on securities available for sale -- (68) (2)
Deferred tax benefit (934) (496) (685)
Net gain on sale of mortgage loans -- (1,112) --
Net gain on disposition of branches -- (2,370) --
Other changes in assets and liabilities:
Accrued interest receivable and
other assets (999) 811 (1,077)
Accrued expenses and other liabilities (523) (745) 623
--------- --------- ---------
Cash provided by operating activities 8,102 7,340 4,728
--------- --------- ---------
INVESTING ACTIVITIES
Net cash received in acquisition of Reliance Financial, Inc. -- -- 1,533
Net cash received in acquisition of branches -- -- 83,596
Net cash paid in disposition of branches -- (22,662) --
Proceeds from maturities of securities held-to-maturity 4,043 22,885 17,019
Purchase of investment securities held-to-maturity (3,671) (2,974) (10,396)
Proceeds from maturities of securities available for sale 16,225 87,840 25,020
Proceeds from sales of securities available for sale -- 8,989 2,949
Purchase of investments securities available for sale (23,924) (94,586) (39,211)
Loans made to customers, net of repayments (120,195) (102,815) (175,387)
Proceeds from sale of mortgage loans -- 78,374 --
Purchases of assets held for operating leases, net 1,414 (2,959) (2,992)
Additions to premises and equipment (524) (3,186) (4,710)
--------- --------- ---------
Cash used in investing activities (126,632) (31,094) (102,579)
--------- --------- ---------
FINANCING ACTIVITIES
Net increase in deposits 97,700 5,201 57,518
Net increase in short-term borrowings 16,819 338 17,442
Proceeds from issuance of long-term debt 1,085 31,150 8,625
Repayment of long-term debt -- (13,650) (13)
Proceeds from issuance of guaranteed preferred
beneficial interest in subordinated debentures 17,250 -- --
Proceeds from issuance of common stock 476 2,283 12,753
Repurchase of common stock (4,176) -- --
Payment of dividends (978) (917) (331)
--------- --------- ---------
Cash provided by financing activities 128,176 24,405 95,994
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents 9,646 651 (1,857)
Cash and cash equivalents, beginning of year 17,123 16,472 18,329
--------- --------- ---------
Cash and cash equivalents, end of year $ 26,769 $ 17,123 $ 16,472
========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES:
BASIS OF PRESENTATION. The accompanying consolidated financial
statements include the accounts of Allegiant Bancorp, Inc. and its
subsidiaries. The financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and
reporting practices applicable to the banking industry. All significant
intercompany transactions and balances have been eliminated. The
significant accounting policies are summarized below.
BUSINESS. Our bank subsidiary, Allegiant Bank, operates within
one segment, the banking industry, and provides a full range of banking
services to individual and corporate customers in the St. Louis,
Missouri metropolitan area. Our bank is subject to intense competition
from other financial institutions. Our bank also is subject to the
regulations of certain federal and state agencies and undergoes periodic
examination by those regulatory authorities.
ACCOUNTING ESTIMATES. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from estimates.
RECLASSIFICATIONS. Certain reclassifications have been made to
the 1997 and 1998 financial statements to conform to the 1999
presentation. These reclassifications had no effect on net income.
INVESTMENT SECURITIES. Securities are classified as held-to-
maturity or available for sale. Only those securities which management
has the intent and ability to hold to maturity are classified as held-
to-maturity and are reported at amortized cost. Securities that are
purchased with the intent to hold for an indefinite period of time,
including securities that management intends to use as part of its
asset/liability strategy or that may be sold to meet liquidity needs,
are classified as available for sale securities. Available for sale
securities are reported at fair value with unrealized gains and losses,
net of related deferred income taxes, reported in other comprehensive
income. Interest and dividends on securities, including amortization of
premium and accretion of discounts, are reported in interest income
using the interest method. Realized securities gains or losses are
reported in the Consolidated Statements of Income. Gains and losses on
securities are determined on an identified certificate basis.
LOANS HELD-FOR-SALE. In our lending activities, we originate
residential mortgage loans intended for sale in the secondary market.
Loans held-for-sale are carried at the lower of cost or fair value,
which is determined on an aggregate basis. Gains or losses on the sale
of loans held-for-sale are determined on a specific identification
method.
LOANS. Interest income on loans is generally accrued on a simple
interest basis. Loan fees and direct costs of loan originations are
deferred and amortized over the estimated life of the loans under
methods approximating the interest method.
When, in management's opinion, the collection of interest on a
loan will not be collected in the normal course of business, or when
either principal or interest is past due over 90 days, that loan is
generally placed on a non-accrual status. When a loan is placed on non-
accrual status, accrued interest for the current year is reversed and
charged against current earnings, and accrued interest from prior years
is charged against the reserve for loan losses. Interest payments
received on non-accrual loans are applied to principal if there is doubt
as to the collectibility of such principal; otherwise, these receipts
are recorded as interest income. A loan remains on non-accrual 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.
All non-accrual and renegotiated loans are considered impaired.
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, or
at the loan's observable market price, or the fair value of the
collateral, if the loan is collateral dependent.
F-6
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
ALLOWANCE FOR LOAN LOSSES. We maintain an allowance to absorb
possible loan losses inherent in the portfolio. Credit losses are
charged and recoveries are credited to the reserve. Provisions for
credit losses are credited to the allowance in an amount that we
consider necessary to maintain an appropriate allowance given the risk
identified in the portfolio. The allowance is based on ongoing monthly
assessments of the possible estimated losses inherent in the loan
portfolio. Our monthly evaluation of the adequacy of the allowance is
comprised of the following elements.
Larger commercial loans and any additional loans that exhibit
potential or observed credit weaknesses are subject to individual
review. Where appropriate, specific allowances are made for individual
loans based on our estimate of the borrower's ability to repay the loan
given the availability of collateral, other sources of cash flow and
collection options available to us.
Included in the review of individual loans are those that are
impaired as provided in Statement of Financial Accounting Standards
("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan. Any
reserves for impaired loans are measured based on the present value of
expected future cash flows discounted at the loans' effective interest
rate or fair value of the underlying collateral. We evaluate the
collectibility of both principal and interest when assessing the need
for loss accrual.
Loans are graded on a risk rating system that encompasses ten
categories. Collateral protection and the borrower's ability to repay
loan obligations define each category. Historic loss rates and observed
industry standards are utilized to determine the appropriate allocation
percentage for each loan grade.
Homogenous loans, such as consumer installment or home equity
credit, are given a standard risk rating that is adjusted on a
delinquency basis. Residential mortgage loans are not individually risk
rated, but are identified as a "pool" of loans. Delinquent mortgage
loans are segregated and reserve allocations are determined based on the
same factors utilized for risk rated loans.
An unallocated allowance is maintained to recognize the
imprecision in estimating and measuring loss when evaluating reserves
for individual loans or pool of loans.
Historical loss rates for commercial and consumer loans may be
adjusted for significant factors that, in our judgment, reflect the
impact of any current conditions on loss recognition. Factors that we
consider in the analysis include the effects of the national and local
economies, trends in the nature and volume of loans (delinquencies,
charge-offs, nonaccrual and problem loans), changes in the internal
lending policies and credit standards, collection practices and
examination results from bank regulatory agencies and our internal loan
reviews.
Allowance for individual loans are reviewed monthly and adjusted
as necessary based on changing borrower and/or collateral conditions and
actual collection and charge-off experience.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost
less accumulated depreciation. The provision for depreciation is
computed using the straight-line method over the estimated useful lives
of the individual assets for book purposes and accelerated methods for
tax purposes. Ordinary maintenance and repairs are charged to expense
as incurred.
REAL ESTATE OWNED. Real estate acquired in foreclosure or other
settlement of loans is initially recorded at the lower of fair market
value of the assets received (less estimated selling costs) or the
recorded investment in the loan at the date of transfer. Any adjustment
to fair market value at the date of transfer is charged against the
allowance for loan losses. Subsequent write-downs are charged to
operating expense including charges relating to operating, holding or
disposing of the property.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED. Intangible
assets consist primarily of goodwill. Goodwill, the excess of cost over
the fair value of net assets acquired in business combinations accounted
for as purchases, is amortized using the straight-line method over the
estimated period to be benefited, but not exceeding 15 years.
Management reviews goodwill for impairment if there is a significant
event that detrimentally affects
F-7
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
operations. Impairment is measured using estimates of the undiscounted
future earnings potential of the entity or assets acquired.
INCOME TAXES. Income taxes are accounted for under the liability
method in which deferred income taxes are recognized as a result of
temporary differences between the financial reporting basis and the tax
basis of our assets and liabilities.
CASH EQUIVALENTS. For purposes of the Consolidated Statements of
Cash Flows, we consider cash and due from banks, federal funds sold and
other overnight investments to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1998, the FASB issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities,
which established accounting and reporting standards for derivative
instruments and hedging activities and requires recognition of all
derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133, amends SFAS No. 133 to
be effective for us beginning January 1, 2001. Although we have not
completed our analysis of these pronouncements, we do not anticipate
that the adoption of SFAS No. 133, as amended by SFAS No. 137, will
have a significant effect on our results of operations or financial
position.
NOTE 2. ACQUISITIONS AND DIVESTITURES:
In August 1997, we acquired all the outstanding capital stock of
Reliance Financial, Inc. in exchange for 599,126 shares of our common
stock. In September 1997, we purchased two bank branch offices from
Roosevelt Bank. As part of the agreement, we assumed deposits of $96.1
million in exchange for loans of $3.0 million, premises and equipment of
$537,000 and cash of $84.0 million. Total goodwill recorded by us in
connection with this acquisition was $8.8 million. Both acquisitions
were recorded using the purchase method of accounting. Results of
operations of companies and branches acquired in purchase business
combinations are included from the date of acquisition.
In December 1998, we sold three out-of-market branches to another
financial institution. The book value of assets disposed of totaled
$17.5 million, the book value of liabilities transferred totaled $40.0
million and the net cash paid for the divestiture was $22.7 million. A
$2.4 million gain was recognized from the sale.
NOTE 3. INVESTMENT SECURITIES:
Debt and equity securities have been classified in the Consolidated
Balance Sheets according to management's intent to have these securities
available for sale or held-to-maturity. The carrying amount of
securities and their approximate fair values were as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1999 DECEMBER 31, 1999
------------------------------------------- -------------------------------------------
GROSS GROSS GROSS GROSS
AMOR- UNREAL- UNREAL- AMOR- UNREAL- UNREAL-
TIZED IZED IZED FAIR TIZED IZED IZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and
agency securities $34,553 $ 3 $(1,032) $33,524 $ 5,500 $ 1 $ (15) $ 5,486
State and municipal securities 598 -- (14) 584 4,210 4 (418) 3,796
Mortgage-backed securities 7,558 13 (132) 7,439 1,958 44 -- 2,002
Federal Home Loan Bank
stock 7,124 -- -- 7,124 -- -- -- --
Other securities 458 -- -- 458 -- -- -- --
------- --- ------- ------- ------- --- ----- -------
Total $50,291 $16 $(1,178) $49,129 $11,668 $49 $(433) $11,284
======= === ======= ======= ======= === ===== =======
F-8
<PAGE>
<PAGE>
<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
SECURITIES AVAILABLE FOR SALE SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1998 DECEMBER 31, 1998
------------------------------------------- -------------------------------------------
GROSS GROSS GROSS GROSS
AMOR- UNREAL- UNREAL- AMOR- UNREAL- UNREAL-
TIZED IZED IZED FAIR TIZED IZED IZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and
agency securities $29,269 $217 $ (51) $29,435 $ 7,585 $ 30 $(21) $ 7,594
State and municipal securities 598 9 -- 607 858 28 -- 886
Mortgage-backed securities 8,360 38 (65) 8,333 3,597 55 -- 3,652
Federal Home Loan Bank
stock 3,574 -- -- 3,574 -- -- -- --
Other securities 791 -- -- 791 -- -- -- --
------- ---- ----- ------- ------- ---- ---- -------
Total $42,592 $264 $(116) $42,740 $12,040 $113 $(21) $12,132
======= ==== ===== ======= ======= ==== ==== =======
</TABLE>
Proceeds from the sale of securities totaled $8.9 million in 1998.
There were gross realized gains and losses on the sale of securities
available for sale of $71,000 and $3,000, respectively, in 1998. There
were no sales in 1999.
Held-to-maturity and available for sale securities with a carrying
value of $36.6 million and $33.6 million at December 31, 1999 and 1998,
respectively, were pledged to secure public deposits and short-term
borrowings.
The contractual maturities of securities (other than Federal Home
Loan Bank stock and other securities), available for sale and securities
held-to-maturity at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------
SECURITIES SECURITIES
AVAILABLE FOR SALE HELD-TO-MATURITY
----------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 4,294 $ 4,296 $ 5,585 $ 5,571
Due from one year to five years 23,688 23,003 176 163
Due from five years to ten years 7,386 7,034 729 701
Due after ten years 198 190 3,220 2,847
------- ------- ------- -------
Subtotal 35,566 34,523 9,710 9,282
Mortgage-backed securities 7,558 7,439 1,958 2,002
------- ------- ------- -------
Total $43,124 $41,962 $11,668 $11,284
======= ======= ======= =======
</TABLE>
<PAGE>
NOTE 4. LOANS:
The components of loans in the Consolidated Balance Sheets were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Commercial $150,259 $126,239 $109,937
Real estate-construction 65,310 36,590 27,181
Real estate-mortgage
One- to four-family residential 141,264 116,291 195,964
Multi-family and commercial 235,158 196,545 135,452
Consumer and other 24,152 20,908 16,821
Net deferred loan fees, premiums and discounts (952) (904) (493)
-------- -------- --------
Total loans 615,191 495,669 484,862
Allowance for loan losses (8,315) (6,442) (5,193)
-------- -------- --------
Net loans $606,876 $489,227 $479,669
======== ======== ========
</TABLE>
F-9
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year $6,442 $ 5,193 $3,100
Acquired subsidiary balance -- -- 403
Loans charged off (860) (1,226) (759)
Recoveries 188 55 52
------ ------- ------
Net loans charged off (672) (1,171) (707)
Provision for loan losses 2,545 2,420 2,397
------ ------- ------
Balance, end of year $8,315 $ 6,442 $5,193
====== ======= ======
</TABLE>
The recorded investment in loans that were considered to be
impaired under SFAS No. 114, as amended by SFAS No. 118, was $628,000 in
1999, $1.8 million in 1998 and $1.7 million in 1997 (these impaired
loans were all classified as non-accrual loans). The related allowance
for these impaired loans was $82,000 in 1999, $269,000 in 1998 and
$86,000 in 1997. Interest income that would have been recognized for
non-accrual loans was $84,000 in 1999, $72,000 in 1998 and $57,000 in
1997. Cash basis income on non-accrual loans was not significant for
1999, 1998 or 1997. Other real estate owned and foreclosed assets were
approximately $402,000, $0 and $33,000 at December 31, 1999, 1998 and
1997, respectively.
We and Allegiant Bank have entered into transactions with our
directors, significant shareholders and affiliates (related parties).
Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates
and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related
parties at December 31, 1999, 1998 and 1997 was $35.5 million, $35.9
million and $16.4 million, respectively. During 1999, $11.5 million of
new loans and $11.9 million of repayments were made on related party
loans. As of December 31, 1999, no related party loans were past due 90
days or more. At December 31, 1998, our bank had $166,000 in related
party loans that were past due more than 90 days.
NOTE 5. PREMISES AND EQUIPMENT:
Components of premises and equipment as of December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land $ 2,654 $ 2,546
Bank premises 5,601 5,657
Furniture, equipment and automobiles 6,802 6,537
------- -------
Total cost 15,057 14,740
Less accumulated depreciation (5,161) (3,730)
------- -------
Net book value $ 9,896 $11,010
======= =======
</TABLE>
F-10
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
The bank leases various banking facilities and one piece of
equipment under agreements which expire at various dates through
September 2012. These agreements have options to renew. Future minimum
lease payments required under operating leases which have initial or
remaining non-cancelable terms in excess of one year as of December 31,
1999 were approximately as follows:
<TABLE>
<CAPTION>
YEARS ENDED MINIMUM
DECEMBER 31, RENTAL
------------ -------
(IN THOUSANDS)
<S> <C>
2000 $ 352
2001 372
2002 362
2003 292
2004 292
2005 and later 1,207
------
Total $2,877
======
</TABLE>
Rental expense for all operating leases was $352,000 in 1999,
$327,000 in 1998 and $210,000 in 1997.
NOTE 6. DEPOSITS:
Deposits consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Non-interest bearing $ 51,845 $ 55,417
Interest bearing demand 24,492 19,075
Money market accounts 160,701 123,827
Savings 13,052 14,917
Time and IRA certificates under $100,000 202,826 206,357
-------- --------
Total core deposits 452,916 419,593
Time certificates over $100,000 47,550 31,173
Brokered deposits over $100,000 48,000 --
-------- --------
Total deposits $548,466 $450,766
======== ========
</TABLE>
AMOUNTS AND MATURITIES OF BROKERED DEPOSITS AND TIME DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
2000 $223,510
2001 55,236
2002 10,496
2003 5,477
2004 2,871
2005 and later 787
--------
Total $298,376
========
</TABLE>
F-11
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 7. INCOME TAXES:
Our results include income tax expense (benefit) as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current $4,578 $3,522 $2,401
Deferred (934) (496) (685)
------ ------ ------
Total $3,644 $3,026 $1,716
====== ====== ======
</TABLE>
The tax effects of temporary differences that gave rise to the
deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Reserve for loan losses $3,000 $2,217 $1,536
Deferred loan fees 175 -- 194
Deferred compensation -- -- 74
Accrued expenses -- -- 63
Investments in debt and equity
securities - SFAS No. 115 465 (50) 44
Other -- 116 72
------ ------ ------
Total deferred tax assets 3,640 2,283 1,983
------ ------ ------
DEFERRED TAX LIABILITIES
Depreciation (203) (119) (461)
Discount accretion (23) (83) --
Other (57) (10) (29)
------ ------ ------
Total deferred tax liabilities (283) (212) (490)
------ ------ ------
Net deferred tax assets $3,357 $2,071 $1,493
====== ====== ======
</TABLE>
A valuation allowance would be provided on deferred tax assets
when it is more likely than not that some portion of the assets will not
be realized. We had not established a valuation allowance as of
December 31, 1999, 1998 or 1997, due to management's belief that all
criteria for recognition had been met, including the existence of a
history of taxes paid sufficient to support the realization of the
deferred tax assets.
Income tax expense as reported differs from the amounts computed
by applying the statutory federal income tax rate to pre-tax income as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed expected tax expense $3,166 $2,646 $1,405
Tax-exempt income (93) (157) (38)
State and local income taxes,
net of federal tax benefits 137 314 258
Goodwill amortization 392 318 24
Other, net 42 (95) 67
------ ------ ------
Total tax expense $3,644 $3,026 $1,716
====== ====== ======
</TABLE>
F-12
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 8. SHORT-TERM BORROWINGS:
Short-term borrowings were as follows at year end:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities sold under agreements to repurchase $18,361 $14,042 $ 8,252
Federal funds purchased -- -- 6,500
Federal Home Loan Bank advances 57,000 39,500 37,850
Other short-term borrowings 500 -- 977
------- ------- -------
Total short-term borrowings $75,861 $53,542 $53,579
======= ======= =======
</TABLE>
As collateral for the Federal Home Loan Bank advances, our bank
has entered into a blanket agreement that pledges first mortgage loans
with principal balances aggregating 130% of the outstanding advances.
NOTE 9. LONG-TERM DEBT:
Long-term debt consisted of the following at year-end:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable to a financial institution, interest payable
quarterly (7% on December 31, 1999), matures on
November 12, 2001, secured by Bank stock $12,650 $13,650 $ --
Note payable to a financial institution -- -- 10,400
Notes payable to FHLB, interest payable monthly at rates
varying from 5.05% to 6.95%, principal balance due at maturity
ranging from December 13, 2002 to December 31, 2019,
secured by stock in FHLB and certain loans 23,210 26,625 9,625
Subordinated debentures with certain shareholders,
interest payable quarterly at prime plus 3% (with a
minimum floor of 10%), called in 1998 -- -- 3,250
------- ------- -------
Total long-term debt $35,860 $40,275 $23,275
======= ======= =======
</TABLE>
Under the terms of the current notes payable to a financial
institution, we and/or our subsidiaries are required to maintain certain
financial ratios and are limited with respect to cash dividends, capital
expenditures and the incurrence of additional indebtedness without prior
approval. Principal payments are required as follows: $500,000 payable
on October 1, 2000; $1.0 million payable on October 1, 2001; and the
balance outstanding payable on November 12, 2001.
F-13
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
A summary of annual principal reductions of long-term debt as of
December 31, 1999 was as follows:
<TABLE>
<CAPTION>
ANNUAL
PRINCIPAL
YEAR REDUCTIONS
---- ----------
(IN THOUSANDS)
<S> <C>
2001 $12,650
2002 625
2003 1,500
2004 --
2005 and later 21,085
-------
Total $35,860
=======
</TABLE>
NOTE 10. CAPITAL SECURITIES OF SUBSIDIARY TRUST:
During 1999, we formed Allegiant Capital Trust I, a statutory
business trust. We purchased all the common securities of Allegiant
Capital Trust for $672,080. Allegiant Capital Trust sold 1,725,000
preferred securities, having a liquidation value of $10 per security,
for $17.3 million. The sole assets of Allegiant Capital Trust are our
subordinated debentures totaling $17.9 million which are due August 2,
2029. The distributions payable on the preferred securities are fixed
at 9.875%. All accounts of Allegiant Capital Trust are included in our
consolidated financial statements. The preferred securities are
entitled "Guaranteed preferred beneficial interest in subordinated
debentures" for financial reporting purposes. The preferred securities
are traded on the American Stock Exchange under the symbol ACT.pr. Cash
distributions on the securities are made to the extent interest on the
debentures is received by Allegiant Capital Trust. The securities are
redeemable in whole at any time on or after August 2, 2004, or earlier
in the event of certain changes or amendments to regulatory requirements
or federal tax rules.
NOTE 11. COMMON STOCK AND EARNINGS PER SHARE:
On July 1, 1998, our board of directors declared a six-for-five
stock split (in the form of a stock dividend) of our common stock to
shareholders of record on January 8, 1999, payable January 29, 1999.
Common stock was credited and capital surplus was charged for the
aggregate par value of shares that were issued. The stated par value of
each share was not changed from $.01.
On September 19, 1997, our board of directors declared a five-
for-four stock split (in the form of a stock dividend) of our common
stock to shareholders of record on January 7, 1998, payable on January
21, 1998. Common stock was credited and capital surplus was charged for
the aggregate par value of the shares that were issued. The stated par
value of each share was not changed from $0.01.
On September 19, 1996, our board of directors declared a 10%
stock dividend to shareholders of record on January 2, 1997, payable on
January 15, 1997. The transaction was valued based on the closing
market price of our common stock at the date of declaration.
All per share data in this report have been restated to reflect
the aforementioned stock splits and stock dividend.
Basic earnings per share is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share gives effect to
all dilutive potential common shares that were outstanding during the
year. The components of basic and diluted earnings per share as
prescribed by SFAS No. 128 were as follows:
F-14
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income $ 5,402 $ 4,534 $ 2,415
========== ========== ==========
Denominator:
Weighted average shares outstanding 6,450,639 6,256,715 4,481,724
Effect of dilutive securities:
Stock options and warrants 59,406 390,450 403,579
---------- ---------- ----------
Denominator for diluted earnings per
share-adjusted weighted average shares 6,510,045 6,647,165 4,885,303
========== ========== ==========
Basic earnings per share $ 0.84 $ 0.72 $ 0.54
Diluted earnings per share 0.83 0.68 0.49
</TABLE>
NOTE 12. EMPLOYEE BENEFITS:
PENSION PLAN. We have a defined contribution pension plan in
effect for substantially all full-time employees. Salaries and employee
benefits expense includes $209,000 in 1999, $124,000 in 1998 and $39,000
in 1997 for such plans. Contributions under the defined contribution
plan are made at the discretion of our management and board of
directors.
PHANTOM STOCK PLAN. In December 1994, our board of directors
approved a Phantom Stock Plan for our president. All benefits under the
Phantom Stock Plan have been paid and the plan terminated in 1999. The
annual provision under this plan for the years ended December 31, 1999,
1998 and 1997 were approximately $0, $47,000 and $225,000, respectively.
Deferred compensation for this plan included in accrued expenses and
other liabilities totaled $0, $365,000 and $318,000 at December 31,
1999, 1998 and 1997, respectively.
NOTE 13. STOCK OPTION PLANS AND DIRECTORS STOCK PURCHASE PLAN:
We have reserved 1,454,000 shares of our common stock for
issuance under various stock option plans offered to our directors and
certain of our key employees. Options are granted, by action of our
board of directors, to acquire stock at 110% of fair market value at the
date of the grant, for a term of up to ten years.
At December 31, 1999, approximately 397,000 shares remained
available for option grants under these programs. The following tables
summarize option activity over the last three years and the current
options outstanding and exercisable:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1999 1998 1997
-------------------------- --------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES OPTION PRICE SHARES OPTION PRICE SHARES OPTION PRICE
-------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 431,336 $10.02 681,726 $ 6.42 605,483 $ 5.11
Granted 120,598 10.99 146,386 14.84 284,273 9.20
Exercised (34,666) 4.13 (378,767) 4.51 (204,580) 5.79
Canceled (6,896) 4.19 (18,009) 11.28 (3,450) 10.00
-------- ------ --------- ------ --------- ------
Outstanding, end of year 510,372 10.59 431,336 10.02 681,726 6.42
======== ========= =========
Weighted-average fair value of
options granted during the year $ 2.51 $ 3.59 $ 2.74
======== ========= =========
</TABLE>
F-15
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------ ------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 1999 LIFE PRICE 1999 PRICE
------------------------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
$ 3.30 - $ 7.92 90,142 1.3 years $ 6.95 90,412 $ 6.95
8.78 - 10.45 157,284 1.9 years 8.70 128,914 9.30
10.75 - 18.57 262,946 3.9 years 12.92 141,315 13.49
------- -------
3.30 - 18.57 510,372 2.9 years 10.59 360,641 10.35
======= =======
</TABLE>
We have a directors stock purchase plan whereby our outside
directors may elect to use their directors' fees to purchase shares of
our common stock at market value. In 1999, 26,000 shares were purchased
at an average price of $9.94. In 1998, 12,000 shares were purchased at
an average price of $11.50 and in 1997, 13,000 shares were purchased at
an average price of $10.74.
We apply Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting
for our plans. Accordingly, no compensation expense has been recognized
for our stock-based compensation plans. Had compensation cost for our
stock-based compensation plans been determined based upon the fair value
of the grant date for the awards under these plans consistent with the
methodology prescribed under SFAS No. 123, Accounting for Stock-Based
Compensation, our net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income As reported $5,402 $4,534 $2,415
Pro forma 5,223 4,208 1,988
Basic earnings per share As reported 0.84 0.72 0.54
Pro forma 0.81 0.67 0.44
Diluted earnings per share As reported 0.83 0.68 0.49
Pro forma 0.80 0.63 0.41
</TABLE>
The fair value of each option granted is estimated on the date
of the grant using the Black-Scholes option-pricing model using the
following weighted-average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield 2.00% 1.80% 0.90%
Volatility 28.80 30.80 16.38
Risk-free interest rate 5.41% 5.02% 6.44%
Expected life 5 years 5 years 5 years
</TABLE>
NOTE 14. CONCENTRATIONS OF CREDIT:
Substantially all of our loans, commitments and commercial and
standby letters of credit have been granted to customers that are
depositors of Allegiant Bank and in our market area. Investments in
state and municipal securities also involve governmental entities within
our market area. The concentrations of credit by type of loan are set
forth in Note 4. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. Commercial and
standby letters of credit were granted primarily to commercial
borrowers.
F-16
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 15. FINANCIAL INSTRUMENTS:
Allegiant Bank 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 include
commitments to extend credit, standby letters of credit and financial
guarantees. These instruments involve, to varying degrees, elements of
credit and interest-rate risk in excess of the amount recognized in the
Consolidated Balance Sheets. The contract or notional amounts of these
instruments reflect the extent of the bank's involvement in particular
classes of financial instruments.
Allegiant Bank's exposure to credit loss in the event of non-
performance by the other party to the financial instrument for
commitments to extend credit, standby letters of credit and financial
guarantees written is represented by the contractual or notional amount
of those instruments. The bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
A summary of the notional amounts of Allegiant Bank's financial
instruments with off-balance sheet risk at December 31, 1999, 1998 and
1997 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Commitments to extend credit $109,913 $82,530 $84,604
Standby letters of credit 4,213 6,496 3,868
</TABLE>
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. Since many
of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Allegiant Bank evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if it is
deemed necessary by the bank upon extension of credit, is based on
management's credit evaluation of the counterparts. Collateral held
varies but may include accounts receivable, inventory, property, plant,
equipment and real estate.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the bank to guarantee the performance
of a customer to a third party. Those guarantees are primarily issued to
support contractual obligations of Allegiant Bank customers. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
The carrying amount and estimated fair values of our financial
instruments were as follows:
F-17
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks, federal
funds sold and other
overnight investments $ 26,769 $ 26,769 $ 17,123 $ 17,123
Securities available for sale 49,129 49,129 42,740 42,740
Securities held-to-maturity 11,668 11,284 12,040 12,132
Loans, net of allowance 606,876 605,751 489,227 492,746
FINANCIAL LIABILITIES
Deposits $548,466 $545,869 $450,766 $452,788
Short-term borrowings 75,861 75,859 53,542 53,566
Long-term debt 35,860 35,368 40,275 40,219
Guaranteed preferred beneficial
interest in subordinated debentures 17,250 15,932 -- --
</TABLE>
The following methods and assumptions were used by us in
estimating fair values of financial instruments as disclosed herein:
CASH AND SHORT-TERM INSTRUMENTS: The carrying amounts of cash and
due from banks and federal funds sold approximate their fair value.
SECURITIES: Fair values for held-to-maturity and available for
sale securities are based on quoted market prices or dealer quotes,
where available. If quoted market prices are not available for a
specific security, fair values are based on quoted market prices of
comparable instruments.
LOANS: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for fixed-rate loans are estimated using
discounted cash flow analyses and applying interest rates currently
being offered for loans with similar terms to borrowers of similar
credit quality. The fair values for non-performing loans are estimated
using assumptions regarding current assessments of collectibility and
historical loss experience.
DEPOSITS: The fair values disclosed for deposits generally payable
on demand, such as non-interest bearing checking accounts, savings
accounts, NOW accounts and market rate deposit accounts, are by
definition, equal to the amount payable on demand at the reporting date.
The carrying amounts for variable-rate, fixed-term market rate deposit
accounts and certificates of deposit approximate their fair values at
the reporting date. Fair values for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates of similar
remaining maturities to a schedule of aggregated monthly maturities on
time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds
purchased, borrowings under repurchase agreements and other short-term
borrowings approximate their fair values at the reporting date.
LONG-TERM DEBT: The fair values of our long-term debt and
guaranteed preferred beneficial interest in subordinated debentures are
based on quoted market prices for similar issues or estimates using
discounted cash flow analyses, based on our current incremental
borrowing rates for similar types of debt instruments.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: The fair value of
commitments to extend credit and standby letters of credit are estimated
using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements, the
likelihood of the counterparties drawing on such financial instruments
and the present creditworthiness of such counterparties. We believe
such commitments have been made on terms
F-18
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
which are competitive in the markets in which we operate; however, no
premium or discount is offered thereon and accordingly, we have not assigned
a value to such instruments for the purposes of this disclosure.
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time our entire holdings of a
particular financial instrument. Because no market exists for a
significant portion of our 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 estimates.
Fair value estimates are based on existing on- and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in many of the estimates.
NOTE 16. REGULATORY MATTERS:
We and Allegiant Bank are subject to various regulatory capital
requirements administered by federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on our
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, we and Allegiant Bank
must meet specific capital guidelines that involve quantitative measures
of our and the bank's assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. Our and
Allegiant Bank's capital amounts and classifications also are subject to
qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulators to ensure capital
adequacy require us and Allegiant Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined), and of
Tier 1 capital (as defined) to average assets (as defined). Management
believes that, as of December 31, 1999 we and Allegiant Bank met all
capital adequacy requirements to which they are subject.
As of December 31, 1999, the date of the most recent notification
from the regulatory agencies, the Bank was categorized as well
capitalized under the regulatory framework.
F-19
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
The actual and required capital amounts and ratios as of December
31, 1999 and 1998 for Allegiant and Allegiant Bank are listed in the
following table:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
Total Capital (to Risk-Weighted Assets)
Allegiant Bancorp, Inc. $61,885 10.23% $48,404 8.00% $ N/A N/A
Allegiant Bank 69,107 11.52 47,974 8.00 59,967 10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Allegiant Bancorp, Inc. 53,269 8.80 24,202 4.00 N/A N/A
Allegiant Bank 61,601 10.27 23,987 4.00 35,980 6.00
Tier 1 Capital (to Average Assets)
Allegiant Bancorp, Inc. 53,269 7.47 28,523 4.00 N/A N/A
Allegiant Bank 61,601 8.89 27,716 4.00 34,645 5.00
AS OF DECEMBER 31, 1998
Total Capital (to Risk-Weighted Assets)
Allegiant Bancorp, Inc. $41,272 8.68% $38,059 8.00% $ N/A N/A
Allegiant Bank 51,931 10.93 37,999 8.00 47,499 10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Allegiant Bancorp, Inc. 35,319 7.42 19,030 4.00 N/A N/A
Allegiant Bank 45,991 9.68 18,999 4.00 28,499 6.00
Tier 1 Capital (to Average Assets)
Allegiant Bancorp, Inc. 35,319 5.83 24,221 4.00 N/A N/A
Allegiant Bank 45,991 7.61 24,185 4.00 30,232 5.00
</TABLE>
NOTE 17. RESTRICTIONS ON CASH AND DUE FROM BANKS:
At December 31, 1999, $6.1 million in cash and due from bank
balances were maintained in accordance with the guidelines set forth by
the Federal Reserve Bank to maintain certain average reserve balances.
F-20
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 18. OTHER INCOME AND EXPENSES:
A summary of the components of other income and other expenses
exceeding 1% of revenues in each of the years presented is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
OTHER INCOME
Leasing revenue $1,077 $1,527 $ 433
Mortgage banking revenue 944 2,299 1,300
Gain on sale of branches -- 2,370 --
Gain on sale of mortgage loans -- 1,112 27
OTHER EXPENSES
Furniture and equipment 1,650 1,752 943
Occupancy 1,344 1,523 738
Goodwill amortization 980 910 358
Depreciation of operating leases 861 1,340 394
Supplies 274 489 428
Operating losses - other 80 450 870
Operating losses - overdrawn customer accounts 35 272 68
</TABLE>
NOTE 19. PARENT COMPANY CONDENSED FINANCIAL INFORMATION:
Following are our condensed financial statements (parent company
only) for the periods indicated:
<TABLE>
BALANCE SHEETS
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash $ 4,962 $ 1,044
Investment securities 43 --
Loans and lease financing receivables 73 --
Investment in subsidiaries 73,201 60,046
Other assets 1,222 1,707
------- -------
Total assets $79,501 $62,797
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 500 $ --
Long-term debt 12,650 13,650
Other liabilities 438 1,043
Balances due to nonbank subsidiaries 17,922 --
------- -------
Total liabilities 31,510 14,693
Total shareholders' equity 47,991 48,104
------- -------
Total liabilities and
shareholders' equity $79,501 $62,797
======= =======
</TABLE>
F-21
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Management and service fees from subsidiaries $ 1,116 $ -- $ --
Dividends from subsidiaries -- 1,000 1,475
Other operating income 53 -- --
------- ------- ------
Total Income 1,169 1,000 1,475
------- ------- ------
EXPENSE
Interest on long-term debt 1,699 1,183 812
Salaries and employee benefits 800 1,674 350
Other operating expenses 832 799 248
------- ------- ------
Total Expense 3,331 3,656 1,410
------- ------- ------
Income (loss) before income tax benefit and equity
in undistributed income of subsidiaries (2,162) (2,656) 65
Income tax benefit 866 1,448 490
------- ------- ------
Income (loss) before equity in undistributed
income of subsidiaries (1,296) (1,208) 555
Equity in undistributed income of subsidiaries 6,698 5,742 1,860
------- ------- ------
Net income $ 5,402 $ 4,534 $2,415
======= ======= ======
</TABLE>
F-22
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,402 $ 4,534 $ 2,415
Adjustment to reconcile net income to net cash
used by operating activities
Net income of subsidiaries (6,698) (6,742) (3,335)
Dividends from subsidiaries -- 1,000 1,475
Net loss on disposition of subsidiary 20 -- --
Other, net (118) 346 (558)
------- -------- --------
Cash used by operating activities (1,394) (862) (3)
------- -------- --------
INVESTING ACTIVITIES
Contributions of capital to subsidiaries (8,000) (1,000) (13,979)
Net cash received in disposition of subsidiary 1,348 -- --
Other, net (108) (15) --
------- -------- --------
Cash used in investing activities (6,760) (1,015) (13,979)
------- -------- --------
FINANCING ACTIVITIES
Payment of dividends (978) (917) (331)
Proceeds from issuance of common stock 476 2,418 12,753
Repurchase of common stock (4,176) -- --
Net decrease in short-term borrowings (500) -- --
Proceeds from issuance of long-term debt -- 13,650 3,000
Repayment of long-term debt -- (13,650) --
Proceeds from issuance of guaranteed preferred
beneficial interest in subordinated debentures 17,250 -- --
------- -------- --------
Cash provided by financing activities 12,072 1,366 15,422
------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,918 (511) 1,440
Cash and cash equivalents, beginning of year 1,044 1,555 115
------- -------- --------
Cash and cash equivalents, end of year $ 4,962 $ 1,044 $ 1,555
======= ======== ========
</TABLE>
NOTE 20. RESTRICTIONS ON SUBSIDIARY DIVIDENDS:
Subsidiary bank dividends are the principal source of funds for
payment of dividends by us to our shareholders. The payment of
dividends by Allegiant Bank is subject to regulation by the Federal
Deposit Insurance Corporation. Allegiant Bank is also subject to
regulation by the State of Missouri. These payments are not restricted
as to the amount of dividends that can be paid, other than what prudent
and sound banking principles permit and what must be retained to meet
minimum legal capital requirements. Accordingly, approximately $18.6
million at December 31, 1999, in addition to net income in 2000, could
be paid without prior regulatory approval.
Extensions of credit by subsidiaries to us are permitted by
regulatory authorities but are limited in amount and subject to
collateral requirement. At December 31, 1999 approximately $5.1 million
would have been available under Federal Reserve guidelines.
F-23
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
NOTE 21. SUPPLEMENTAL DISCLOSURE FOR THE CONSOLIDATED STATEMENT OF CASH
FLOWS:
Supplemental disclosures of noncash investing and financing
activities, and additional disclosures including details of cash and
cash equivalents from acquisitions accounted for as purchases and
dispositions of branches, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fair value of assets purchased $ 473 $ 17,492 $ 46,682
Liabilities assumed (transferred) 99 (40,154) 119,691
Issuance of common stock -- -- 10,587
------- -------- --------
Net cash received (paid) for acquisitions and dispositions 374 (22,662) 83,596
Cash and cash equivalents acquired 974 -- 1,533
------- -------- --------
$ 1,348 $(22,662) $ 85,129
======= ======== ========
CASH PAID DURING THE YEAR FOR
Interest on deposits and borrowings $25,619 $ 28,096 $ 20,930
Income taxes 4,081 3,345 2,768
NONCASH TRANSACTIONS
Transfers to other real estate owned in settlement of loans $ 402 $ -- $ 330
Loans securitized -- -- 7,102
Common stock issued in acquisition of Reliance Financial, Inc. -- -- 10,587
Conversion of directors' fees to common stock 258 135 136
Conversion of employee stock bonus to common stock -- -- 63
</TABLE>
NOTE 22. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following is a summary of quarterly operating results for the
years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1999
----
<S> <C> <C> <C> <C>
Interest income $11,925 $12,308 $13,250 $14,629
Interest expense 6,088 6,150 6,798 7,565
------- ------- ------- -------
Net interest income 5,837 6,158 6,452 7,064
Provision for loan losses 562 450 580 954
Other income 1,254 1,188 1,207 1,194
Other expense 4,858 4,654 4,705 4,545
Income taxes 669 897 945 1,133
------- ------- ------- -------
Net income $ 1,002 $ 1,345 $ 1,429 $ 1,626
======= ======= ======= =======
EARNINGS PER SHARE
Basic $ 0.15 $ 0.20 $ 0.22 $ 0.27
Diluted 0.15 0.20 0.22 0.26
</TABLE>
F-24
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<TABLE>
<CAPTION>
1998
----
<S> <C> <C> <C> <C>
Interest income $12,270 $12,288 $12,452 $12,208
Interest expense 6,841 7,052 6,835 6,539
------- ------- ------- -------
Net interest income 5,429 5,236 5,617 5,669
Provision for loan losses 400 315 465 1,240
Securities transactions 12 46 4 6
Other income 1,097 2,130 1,946 4,083
Other expense 5,118 5,295 5,112 5,770
Income taxes 393 725 783 1,125
------- ------- ------- -------
Net income $ 627 $ 1,077 $ 1,207 $ 1,623
======= ======= ======= =======
EARNINGS PER SHARE
Basic $ 0.10 $ 0.17 $ 0.19 $ 0.26
Diluted 0.09 0.16 0.18 0.25
</TABLE>
F-25
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
JUNE 30, 2000
-------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks $ 22,042
Federal funds sold and overnight investments 320
Investment securities:
Available for sale (at estimated market value) 54,394
Held-to-maturity (estimated market value of $6,399) 6,574
Loans, net of allowance for loan losses of $9,580 694,185
Premises and equipment 9,809
Accrued interest and other assets 28,609
Cost in excess of fair value and net assets acquired 11,249
--------
Total assets $827,182
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 65,925
Interest bearing 510,958
Certificate of deposit of $100,000 or more 62,523
--------
Total deposits 639,406
--------
Short-term borrowings 86,490
Long-term debt 30,860
Guaranteed preferred beneficial interest in
Subordinated debentures 17,250
Accrued expenses and other liabilities 4,084
--------
Total liabilities 778,090
--------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value - authorized
20,000,000 shares, outstanding 6,208,102 shares $ 66
Capital surplus 42,373
Retained earnings 13,058
Accumulated other comprehensive loss (790)
Treasury stock, at cost, 554,775 shares (5,615)
--------
Total shareholders' equity 49,092
--------
Total liabilities and shareholders' equity $827,182
========
See Note to Consolidated Financial Statements.
</TABLE>
F-26
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 16,085 $ 11,470 $ 30,683 $ 22,543
Investment securities 938 815 1,874 1,588
Federal funds sold and overnight
investments 6 23 41 102
---------- ---------- ---------- ----------
Total interest income 17,029 12,308 32,598 24,233
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 7,233 4,938 13,677 9,794
Interest on short-term borrowings 1,462 647 2,526 1,286
Interest on long-term debt 407 565 857 1,158
Interest on guaranteed preferred beneficial
interest in subordinated debentures 442 -- 885 --
---------- ---------- ---------- ----------
Total interest expense 9,544 6,150 17,945 12,238
---------- ---------- ---------- ----------
Net interest income 7,485 6,158 14,653 11,995
Provision for loan losses 850 450 1,565 1,012
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 6,635 5,708 13,088 10,983
---------- ---------- ---------- ----------
OTHER INCOME
Service charges and other fees 336 161 564 309
Net gain on sale of securities 137 -- 173 --
Other income 1,138 1,027 2,123 2,133
---------- ---------- ---------- ----------
Total other income 1,611 1,188 2,860 2,442
---------- ---------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits 2,868 2,401 5,379 4,846
Occupancy and furniture
and equipment 700 741 1,604 1,508
Other operating expenses 2,008 1,512 3,523 3,158
---------- ---------- ---------- ----------
Total other expenses 5,576 4,654 10,506 9,512
---------- ---------- ---------- ----------
Income before income taxes 2,670 2,242 5,442 3,913
Provision for income taxes 1,084 897 2,221 1,566
---------- ---------- ---------- ----------
Net income $ 1,586 $ 1,345 $ 3,221 $ 2,347
========== ========== ========== ==========
PER SHARE DATA
Net income:
Basic $ 0.26 $ 0.20 $ 0.53 $ 0.36
Diluted 0.26 0.20 0.52 0.35
Weighted average common shares
Outstanding:
Basic 6,072,588 6,581,451 6,106,169 6,566,643
Diluted 6,094,261 6,625,764 6,138,101 6,653,125
See Note to Consolidated Financial Statements.
</TABLE>
F-27
<PAGE>
<PAGE>
<TABLE>
ALLEGIANT BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
--------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,221 $ 2,347
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,298 1,743
Provision for loan losses 1,565 1,012
Net realized losses on securities available for sale (173) --
Other changes in assets and liabilities:
Accrued interest receivable and other assets (911) 230
Accrued expenses and other liabilities 1,020 (1,127)
--------- --------
Cash provided by operating activities 6,020 4,205
--------- --------
INVESTING ACTIVITIES
Proceeds from maturities of securities held-to-maturity 5,594 2,648
Purchase of investment securities held-to-maturity (500) (918)
Proceeds from maturities of securities available for sale 2,590 11,859
Proceeds from sales of securities available for sale 8,066 --
Purchase of investment securities available for sale (15,803) (16,306)
Loans made to customers, net of repayments (88,874) (48,327)
Purchase of bank-owned life insurance (15,249) --
Additions to premises and equipment (736) (525)
--------- --------
Cash used in investing activities (104,912) (51,569)
--------- --------
FINANCING ACTIVITIES
Net increase in deposits 90,940 39,050
Net increase in short-term borrowings 629 5,122
Net increase (decrease) of long-term debt 5,000 (3,000)
Proceeds from issuance of common stock -- 417
Repurchase of common stock (1,439) --
Payment of dividends (645) (331)
--------- --------
Cash provided by financing activities 94,485 41,258
--------- --------
Net decrease in cash and cash equivalents (4,407) (6,106)
Cash and cash equivalents, beginning of period 26,769 17,123
--------- --------
Cash and cash equivalents, end of period $ 22,362 $ 11,017
========= ========
See Note to Consolidated Financial Statements.
</TABLE>
F-28
<PAGE>
<PAGE>
ALLEGIANT BANCORP, INC.
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 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.
F-29
<PAGE>
<PAGE>
[letterhead of KPMG]
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 generally accepted auditing
standards. 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
generally accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
June 26, 2000
F-30
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<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>
F-31
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<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>
F-32
<PAGE>
<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
F-33
<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
F-34
<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>
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>
F-35
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<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
F-36
<PAGE>
<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>
F-37
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<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>
F-38
<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.
F-39
<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.
F-40
<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.
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.
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
F-41
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
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
I risk-based, and Tier I leverage ratios as set forth in the table
below. At March 31, 2000, Equality Savings Bank is considered well
capitalized.
F-42
<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 I capital
(to risk-weighted assets) 24,144 14.94 6,464 4.00 9,696 6.00
Tier I 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 I 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.
F-43
<PAGE>
<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 I (core) capital, and
ratio to adjusted assets 8.39 24,151 3.00 8,637 5.00% $14,395
Tier I 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>
F-44
<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>
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,
F-45
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
$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%
====
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
F-46
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
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
Multifamily 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.
F-47
<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>
F-48
<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.
F-49
<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>
F-50
<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>
F-51
<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
F-52
<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>
F-53
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
The components of deferred tax assets and deferred tax liabilities
at March 31, 2000 and 1999 were as follows:
<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
F-54
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
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. 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.
F-55
<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.
F-56
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
A summary of the carrying amounts and fair values of Equality
Bancorp's financial instruments at March 31, 2000 and 1999 is as
follows:
<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.
F-57
<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
============ ========= ========== ===========
F-58
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
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
============ ========= ========== ===========
F-59
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<CAPTION>
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
====== ===== ===== =====
F-60
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
<CAPTION>
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>
F-61
<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>
F-62
<PAGE>
<PAGE>
<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>
F-63
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
JUNE 30,
2000
------------
<S> <C>
ASSETS
Cash, primarily interest-bearing demand accounts $ 13,749,604
Interest-bearing deposits 198,000
Investment securities:
Available for sale, at fair value 116,519,529
Held to maturity, at amortized cost 600,000
Mortgage-backed securities available
for sale, at fair value 62,184,092
Loans receivable, net 114,019,602
Investment in real estate 58,054
Stock in Federal Home Loan Bank 7,285,200
Mortgage servicing rights 1,156,211
Office properties and equipment, net 7,008,424
Deferred tax asset 2,475,269
Accrued interest receivable and other assets 3,880,971
------------
Total assets $329,134,956
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits $159,739,909
Accrued interest payable on savings deposits 137,146
Federal Home Loan Bank advances 145,625,505
Other borrowed money 2,367,867
Advance payments by borrowers for taxes and
insurance 42,152
Income tax payable 194,705
Accrued expenses and other liabilities 599,061
------------
Total liabilities 308,706,345
------------
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; 2,544,094
shares issued and outstanding 25,441
Additional paid-in capital 16,188,613
Retained earnings 11,947,728
Accumulated other comprehensive loss (5,098,109)
Treasury stock, at cost, 160,105 shares (1,246,136)
Unamortized restricted stock awards (435,788)
Unearned ESOP shares (953,138)
------------
Total stockholders' equity 20,428,611
------------
Total liabilities and stockholders' equity $329,134,956
============
See accompanying note to consolidated financial statements.
</TABLE>
F-64
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED JUNE 30
2000 1999
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans receivable $2,181,803 1,824,517
Investment securities 2,234,579 1,614,286
Mortgage-backed securities 1,096,509 1,255,743
Interest-bearing deposits 35,579 9,920
Other 129,762 109,633
---------- ----------
Total interest income 5,678,232 4,814,099
---------- ----------
INTEREST EXPENSE
Savings deposits 1,713,698 1,373,683
Advances from the Federal Home Loan Bank 2,273,056 1,820,977
Other borrowed money 11,242 11,802
---------- ----------
Total interest expense 3,997,996 3,206,462
---------- ----------
Net interest income 1,680,236 1,607,637
Provision for losses on loans -- --
---------- ----------
Net interest income after provision
for losses on loans 1,680,236 1,607,637
---------- ----------
NONINTEREST INCOME
Gain on sale of mortgage loans 244,344 331,133
Loan servicing fees and late charges 249,152 311,123
Gain on sale of investment and mortgage-
backed securities available for sale 174 30,703
Rental income 42,226 36,326
Other 229,682 141,606
---------- ----------
Total noninterest income 765,578 850,891
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 1,125,749 1,159,866
Occupancy 196,180 183,612
Data processing 99,606 91,131
Advertising 131,980 79,536
Federal insurance premiums 7,207 18,512
Other 507,531 511,105
---------- ----------
Total noninterest expense 2,068,253 2,043,762
---------- ----------
Income before income tax expense 377,561 414,766
Income tax expense 143,481 169,440
---------- ----------
Net income 234,080 245,326
========== ==========
Basic earnings per share $ .10 $ .10
========== ==========
Diluted earnings per share $ .10 $ .10
========== ==========
See accompanying note to consolidated financial statements.
</TABLE>
F-65
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
ACCUMULATED
OTHER UNAMORTIZED
COMMON STOCK ADDITIONAL COMPREHENSIVE RESTRICTED UNEARNED TOTAL
------------ PAID-IN RETAINED INCOME TREASURY STOCK ESOP STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) STOCK AWARDS SHARES EQUITY
--------- ------- ---------- ---------- ------------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 2000 2,544,094 $25,441 16,192,342 11,849,449 (5,447,058) (1,233,799) (471,509) (989,864) $19,925,002
Net income 234,080 234,080
Dividend paid on
unvested stock
options 3,159 3,159
Purchase of Treasury
stock, at cost (12,337) (12,337)
Amortization of
restricted stock
awards 35,721 35,721
Amortization of
ESOP awards (6,888) 36,726 29,838
Dividend declared on
common stock at
$.06 per share (135,801) (135,801)
Change in accumulated
other comprehensive
income (loss),
net of tax 348,949 348,949
--------- ------- ---------- ---------- ---------- ---------- -------- -------- -----------
Balance, June 30, 2000 2,544,094 $25,441 16,188,613 11,947,728 (5,098,109) (1,246,136) (435,788) (953,138) $20,428,611
========= ======= ========== ========== ========== ========== ======== ======== ===========
See accompanying note to consolidated financial statements.
</TABLE>
F-66
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED JUNE 30
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 234,080 245,326
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization:
Office properties and equipment 101,822 104,620
Premiums and discounts, net (362,083) (237,357)
Restricted stock awards 35,721 39,194
Mortgage servicing rights 122,374 153,610
Increase in accrued interest receivable (127,722) (371,453)
Gain on sale of mortgage loans (244,344) (331,133)
Gain on sale of investment and mortgage-
Backed securities available for sale (174) (30,703)
Decrease in accrued interest payable on savings
deposits (10,565) (400)
Change in income tax payable (81,863) 41,501
Other, net 724,518 (78,821)
Origination and purchase of loans held for sale (23,057,795) (35,379,780)
Proceeds from sales of loans held for sale 21,628,401 28,534,090
------------ -----------
Net cash provided by (used in) operating
activities (1,037,630) 7,311,306
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans receivable (7,047,607) (4,771,815)
Decrease in interest-bearing deposits -- 95,000
Principal repayments on investment securities, AFS 936 5,146
Principal repayments on mortgage-backed
securities, AFS 2,228,623 7,568,074
Proceeds from the sale of investment securities,
AFS 6,957,510 2,018,000
Proceeds from the maturity of investment
securities, AFS 1,650,000 15,110,000
Proceeds from the sale of mortgage-backed
securities, AFS -- 1,278,561
Purchase of investment securities, AFS (3,875,780) (35,547,815)
Sale (purchase) of stock in Federal Home Loan
Bank 701,900 (519,600)
Increase in cost of mortgage servicing rights (4,817) (353,140)
Purchase of office properties and equipment, net (175,131) (529,309)
------------ -----------
Net cash provided by (used in) investing
Activities 435,634 (15,646,898)
------------ -----------
F-67
<PAGE>
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in savings deposits 18,854,665 (278,680)
Proceeds from Federal Home Loan Bank advances -- 18,000,000
Repayment of Federal Home Loan Bank
advances (14,115,121) (108,434)
Proceeds from other borrowed money 673,333 1,060,436
Cash dividends paid (135,801) (140,525)
Purchase of treasury stock (12,337) (242,668)
Proceeds from exercise of stock options -- 3,300
Increase in advance payments by borrowers
for taxes and insurance 6,352 65,062
------------ -----------
Net cash provided by financing activities 5,271,091 18,358,491
------------ -----------
Net increase (decrease) in cash and cash
equivalents 4,669,095 (4,599,713)
Cash and cash equivalents, beginning of period 9,080,509 6,449,613
------------ -----------
Cash and cash equivalents, end of period $ 13,749,604 1,849,900
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 4,092,421 3,206,862
Income taxes paid, net 193,606 110,452
See accompanying note to consolidated financial statements.
</TABLE>
F-68
<PAGE>
<PAGE>
<TABLE>
EQUALITY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED JUNE 30
2000 1999
-------- --------
<C> <C>
Net Income $234,080 245,326
Other comprehensive income (loss):
Net unrealized gain (loss) on investment and
mortgage-backed securities available for sale,
net of tax 349,055 (814,128)
Less adjustment for gain on sale of investment and
mortgage-backed securities available for sale
realized in net income, net of tax of $68
and $11,974 for the three months ended June 30,
2000 and 1999, respectively (106) (18,729)
-------- --------
Total other comprehensive income (loss) 348,949 (832,857)
-------- --------
Comprehensive income (loss) $583,029 (587,531)
======== ========
See accompanying note to consolidated financial statements.
</TABLE>
F-69
<PAGE>
<PAGE>
EQUALITY BANCORP, INC.
AND SUBSIDIARIES
NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 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.
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ANNEX A
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
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entered into as of the 26th day of July, 2000, by and among ALLEGIANT
BANCORP, INC., a Missouri corporation ("Allegiant"), ALLEGIANT
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ACQUISITION CORPORATION, a Delaware corporation and wholly-owned
subsidiary of Allegiant ("Acquisition Corp."), and EQUALITY BANCORP,
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INC., a Delaware corporation ("Equality").
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WHEREAS, the respective Boards of Directors of the parties hereto
deem it advisable and in the best interests of the parties hereto and
their respective shareholders to consummate the Merger (as defined in
Section 1.1), upon the terms and subject to the conditions of this
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Agreement;
WHEREAS, as an inducement to Allegiant and Acquisition Corp. to
enter into this Agreement, concurrently with the execution hereof,
Equality has entered into an Option Agreement in the form attached
hereto as Exhibit A (the "Option Agreement") pursuant to which
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Equality has granted to Allegiant an option to purchase from Equality,
upon the terms and conditions described in the Option Agreement, shares
of Equality Common Stock (as defined below);
WHEREAS, as an inducement to Allegiant and Acquisition Corp. to
enter into this Agreement, concurrently with the execution hereof,
Equality and each director of Equality in his or her capacity as a
shareholder of Equality has entered into a Voting Agreement in the form
attached hereto as Exhibit B (each a "Voting Agreement") pursuant to
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which, among other things, each such shareholder has agreed to vote in
favor of this Agreement and the Merger; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement
and the Merger;
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions herein
contained, the parties hereto covenant and agree as follows.
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ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section
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1.2) and subject to and upon the terms and conditions of this Agreement
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and the Delaware General Corporation Law ("Delaware Law"), Acquisition
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Corp. shall merge with and into Equality (the "Merger"), the separate
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corporate existence of Acquisition Corp. shall cease, and Equality shall
continue as the surviving corporation (as such, the "Surviving
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Corporation"), which shall be a wholly-owned subsidiary of Allegiant.
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Pursuant to the Merger:
(a) the Certificate of Incorporation of Equality, as in
effect immediately before the Effective Time, shall be, from and after
the Effective Time, the Certificate of Incorporation of the Surviving
Corporation, until thereafter amended as provided therein and under
Delaware Law;
(b) the Bylaws of Equality, as in effect immediately
before the Effective Time, shall be, from and after the Effective Time,
the Bylaws of the Surviving Corporation, until thereafter amended as
provided therein and under Delaware Law;
(c) the directors of Acquisition Corp. immediately before
the Effective Time shall be, from and after the Effective Time, the
directors of the Surviving Corporation, each to serve until his or her
death, resignation or removal or until his or her successor is duly
elected and qualified; and
(d) the officers of Acquisition Corp. immediately before
the Effective Time shall be, from and after the Effective Time, the
officers of the Surviving Corporation, each to serve until his or her
death, resignation or removal or until his or her successor is duly
elected and qualified.
1.2 Effective Time. As promptly as practicable on the Closing
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Date (as hereinafter defined), the parties shall cause the Merger to be
consummated by filing a Certificate of Merger (the "Certificate of
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Merger") with the Delaware Secretary of State with respect to the
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Merger, in such form as required by, and executed in accordance with,
the relevant provisions of Delaware Law. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with
the Delaware Secretary of State, or at such later date or time as may be
set forth in the Certificate of Merger (such time as the Merger becomes
effective being hereinafter referred to as the "Effective Time").
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1.3 Effects of the Merger. At the Effective Time, the effect of the
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Merger shall be as provided in the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of Equality and Acquisition Corp. shall continue
with, or vest in, as the case may be, Equality as the Surviving
Corporation, and all debts, liabilities and duties of Equality and
Acquisition Corp. shall continue to be, or become, as the case may be,
the debts, liabilities and duties of Equality as the Surviving
Corporation. At the Effective Time, the Surviving Corporation shall be
a direct wholly-owned subsidiary of Allegiant.
1.4 Effect on Capital Stock.
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(a) At the Effective Time, subject to Section 2.2, by
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virtue of the Merger and without any action on the part of Equality, or
the holder of any securities of Equality, each share of common stock,
$.01 par value per share, of Equality (the "Equality Common Stock")
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issued and outstanding (other than shares canceled pursuant to Section
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1.4(c)), shall be converted into the right to receive 1.118 shares of
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common stock, $.01 par value per share, of Allegiant ("Allegiant Common
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Stock"), provided that holders of fractional shares shall be entitled
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to receive cash in lieu of fractional shares pursuant to Section
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2.2(d). The conversion of each share of Equality Common Stock into
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1.118 shares of Allegiant Common Stock shall be hereinafter referred to
as the "Exchange Ratio." The Exchange Ratio shall be appropriately
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adjusted to eliminate the effect of any dividend (whether in cash,
securities or other property, but excluding any regular, quarterly cash
dividend of Allegiant), stock split, reclassification, recapitalization,
reverse split, or similar event, announced or occurring, with respect to
Allegiant Common Stock and with a record date after execution of this
Agreement and before the Effective Time. The parties hereby acknowledge
and agree that the Exchange Ratio shall be adjusted after the date
hereof to take into account any reconciliation adjustments with respect
to the accounts of Equality described on Schedule 1.4 hereto if the
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impact of such adjustments to Equality's consolidated shareholders'
equity, including any relevant tax effecting adjustments, results in an
increase or decrease of greater than $50,000 in the aggregate. The
amount by which such adjustment exceeds $50,000, whether as an increase
or a decrease to Equality's consolidated shareholders' equity, is the
"Adjusting Amount." If the Exchange Ratio is subject to adjustment
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pursuant to the above provision, the Exchange Ratio, for all purposes of
this Agreement, shall equal 1.118 plus or minus (as appropriate) the
amount determined by dividing (x) the quotient of (A) the Adjusting
Amount and (B) $9.25 by (y) the total number of shares of Equality
Common Stock issued and outstanding as of the date hereof. The Exchange
Ratio shall be rounded to three decimal
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places. Equality will assist Allegiant in obtaining the specified
reconciliations and supporting information and any proposed adjustments
must be submitted by Allegiant to Equality within three weeks from the
date of this Agreement.
(b) All of the shares of Equality Common Stock converted
into Allegiant Common Stock pursuant to this Article I shall no longer
be outstanding, shall automatically be canceled and shall cease to exist
as of the Effective Time, and each certificate (each an "Equality
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Common Stock Certificate") previously representing any such shares of
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Equality Common Stock shall thereafter represent only the right to
receive (i) a certificate representing the number of whole shares of
Allegiant Common Stock (each an "Allegiant Common Stock Certificate")
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and (ii) cash in lieu of any fractional shares of Allegiant Common Stock
into which such shares of Equality Common Stock have been converted
pursuant to this Section 1.4 and Section 2.2. Equality Common Stock
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Certificates previously representing shares of Equality Common Stock
shall be exchanged for Allegiant Common Stock Certificates representing
whole shares of Allegiant Common Stock and cash in lieu of fractional
shares issued in consideration therefor upon the surrender of such
Equality Common Stock Certificates in accordance with Section 2.2,
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without any interest thereon.
(c) At the Effective Time, (i) each share of Equality
Common Stock held in the treasury of Equality, (ii) each share of
Equality Common Stock held under the Equality 1997 Management
Development and Recognition Plan (the "Equality MRP") that, as of the
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Effective Time, is not subject to an outstanding plan share award under
the Equality MRP, (iii) each share of Equality Common Stock held by any
of Equality's Subsidiaries (as hereinafter defined) other than in a
fiduciary capacity and (iv) each share of Equality Common Stock owned by
Allegiant, Acquisition Corp. or any other Subsidiary (as hereinafter
defined) of Allegiant other than in a fiduciary capacity shall be
canceled and retired and no shares of stock or other securities of
Allegiant or the Surviving Corporation shall be issuable, and no payment
or other consideration shall be made, with respect thereto.
(d) At the Effective Time, the shares of common stock, par
value $.01 per share, of Acquisition Corp. issued and outstanding
immediately before the Effective Time, and all rights in respect
thereof, shall, without any action on the part of Allegiant, forthwith
cease to exist and be converted into an aggregate of 1,000 validly
issued, fully paid and nonassessable shares of common stock of the
Surviving Corporation, par value $.01 per share (the "Surviving
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Corporation Common Stock"). Immediately after the Effective Time and
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upon surrender by Allegiant of the certificate representing the shares
of the common stock of Acquisition Corp., the Surviving Corporation
shall deliver to Allegiant an appropriate certificate or
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certificates representing the shares of Surviving Corporation Common
Stock created by conversion of the common stock of Acquisition Corp.
owned by Allegiant.
1.5 Stock Options.
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(a) Allegiant shall, as of the Closing Date, convert the
outstanding and unexercised options granted by Equality under the terms
of the Equality 1993 Stock Option and Incentive Plan and the Equality
1997 Stock Option and Incentive Plan (collectively, the "Equality
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Option Plans") for the purchase of shares of Equality Common Stock
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(each an "Option" and collectively the "Options"), whether or not
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the option is then exercisable under the terms of the applicable
Equality Option Plan, into options to purchase shares of Allegiant
Common Stock on the following terms (the "Converted Options"):
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(i) The number of shares of Allegiant Common Stock
to be subject to the Converted Option shall be equal to the number
of shares of Equality Common Stock subject to the original option
multiplied by the Exchange Ratio;
(ii) The exercise price per share of Allegiant
Common Stock under the converted option shall be equal to the
exercise price per share of Equality Common Stock under the
original option divided by the Exchange Ratio, provided that such
exercise price shall be rounded up to the nearest cent; and
(iii) Converted Options shall be immediately
exercisable on and after the Effective Time.
(b) The adjustment provided herein with respect to any
options that are "incentive stock options" (as defined in Section 422 of
the Code (as defined in Section 3.10(a)(i) hereof)) shall be and is
intended to be effected in a manner that is consistent with Section
424(a) of the Code and is not intended as a modification of such option
(as defined in Section 424(h)(3) of the Code).
(c) Allegiant may, at its option, merge the Equality
Option Plans with its own plan or continue the Equality Option Plans
after the Effective Time. If Allegiant merges the Equality Option Plans
with its own option plan, each Converted Option shall be subject to the
terms, benefits, rights and features of
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Allegiant's option plan and the related agreement evidencing the grant
of such option thereunder from and after the Closing Date, provided that
the terms, benefits, rights and features of the Equality Option Plans
and of the agreements evidencing the grant of the option under Equality
Option Plans shall continue to apply to the Converted Option to the
extent that such terms, benefits, rights and features are more favorable
to the holder of the Converted Option than the terms, benefits, rights
and features of the stock option plan of Allegiant.
(d) Attached hereto as Schedule 1.5 of the disclosure
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schedules to this Agreement prepared and delivered by Equality (the
"Equality Disclosure Schedules") is a list that includes the name of
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each optionee and the number of shares of Equality Common Stock subject
to, and the exercise price of, all Options held by each such Optionee as
of the date hereof.
1.6 MRP Awards. At the Effective Time, all unearned plan
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shares subject to outstanding awards under the Equality MRP shall be
deemed earned, and the holders thereof shall receive Allegiant Common
Stock in the manner set forth in Section 1.4 of this Agreement. No
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additional plan share awards shall be granted after the date of this
Agreement pursuant to the Equality MRP. Attached hereto as Schedule
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1.6 of the Equality Disclosure Schedules is a list that includes the
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names of all individuals holding outstanding awards under the Equality
MRP and the number of unearned shares subject thereto as of the date
hereof.
1.7 Tax Consequences. It is intended that the Merger shall
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constitute a reorganization within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(E) of the Code, and that this Agreement shall constitute a
"plan of reorganization" for purposes of Section 368 of the Code. Each
of the parties hereto agrees to file any and all tax Returns (as
hereinafter defined) in a manner consistent with the qualification of
the Merger as a reorganization under Section 368 of the Code unless
advised by its principal tax advisors that substantial authority does
not exist for such qualification.
1.8 The Closing. Unless otherwise mutually agreed in writing
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by Allegiant and Equality, subject to the terms and conditions of this
Agreement, the consummation of the transactions contemplated by this
Agreement shall take place at a closing (the "Closing") to be held on
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such date (the "Closing Date") as Allegiant shall notify Equality in
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writing (such notice to be at least five business days in advance of
the Closing Date) but (A) not earlier than the satisfaction or waiver of
all of the conditions to the Merger set forth herein, and (B) not later
than the first business day of the first month following the month in
which all the
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conditions to the Merger set forth herein have been satisfied or waived
or have become capable of being satisfied. The Closing shall take
place at 10:00 a.m., local time, at the offices of Thompson Coburn LLP,
St. Louis, Missouri (or at such other place upon which the parties may
agree).
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Allegiant to Make Shares Available. At or before the
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Effective Time, Allegiant shall deposit, or shall cause to be deposited,
with UMB Bank, Kansas City, Missouri (the "Exchange Agent"), for the
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benefit of the holders of Equality Common Stock Certificates for
exchange in accordance with this Article II, Allegiant Common Stock
Certificates and cash in lieu of any fractional shares of Allegiant
Common Stock (such cash and Allegiant Common Stock Certificates,
together with any dividends or distributions with respect thereto paid
after the Effective Time, being hereinafter referred to as the
"Conversion Fund") to be issued pursuant to Section 1.4 and paid
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pursuant to Section 2.2(a) in exchange for outstanding shares of
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Equality Common Stock.
2.2 Exchange of Certificates.
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(a) As soon as practicable after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each
holder of record of one or more Equality Common Stock Certificates a
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Equality Common Stock
Certificates shall pass, only upon delivery of the Equality Common Stock
Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the Equality Common Stock Certificates in
exchange for Allegiant Common Stock Certificates and any cash in lieu of
fractional shares into which the shares of Equality Common Stock
represented by such Equality Common Stock Certificate or Certificates
shall have been converted pursuant to this Agreement. Upon proper
surrender of an Equality Common Stock Certificate for exchange and
cancellation to the Exchange Agent, together with such properly
completed letter of transmittal, duly executed, the holder of such
Equality Common Stock Certificate shall be entitled to receive in
exchange therefor, as applicable, (i) an Allegiant Common Stock
Certificate representing that number of whole shares of Allegiant Common
Stock to which such holder of Equality Common Stock shall have become
entitled pursuant to the provisions of Section 1.4 hereof (after
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taking into account all shares of Equality Common Stock then held by
such holder), and (ii) a check representing the amount of any cash in
lieu of
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fractional shares that such holder has the right to receive in respect
of such Equality Common Stock Certificate, and the Equality Common Stock
Certificate so surrendered shall forthwith be canceled. No interest
will be paid or accrued on any cash in lieu of fractional shares payable
to holders of Equality Common Stock Certificates.
(b) If any Allegiant Common Stock Certificate is to be
issued in a name other than that in which the Equality Common Stock
Certificate surrendered in exchange therefor is registered, it shall be
a condition of the issuance thereof that the Equality Common Stock
Certificate so surrendered shall be properly endorsed or accompanied by
an appropriate instrument of transfer and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason
of the issuance of an Allegiant Common Stock Certificate in any name
other than that of the registered holder of the Equality Common Stock
Certificate surrendered, or required for any other reason, or shall
establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
(c) As of the close of business on the day immediately
preceding the Closing Date, there shall be no transfers on the stock
transfer books of Equality of the shares of Equality Common Stock. If a
transfer of ownership of Equality Common Stock is not registered in the
transfer records before the closing of such record books, the Conversion
Fund issuable or payable with respect to such stock may be delivered to
the transferree only if the Certificate or Certificates representing
such stock is presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer with all
applicable stock transfer taxes paid. Equality shall cause its transfer
agent to provide to Allegiant as soon as possible after the Effective
Time a complete and verified list of registered holders of Equality
Common Stock as of the Effective Time, including, to the extent
available, names addresses, certificate numbers and tax pay
identification numbers for all such holders.
(d) Notwithstanding anything to the contrary contained
herein, no certificates or scrip representing fractional shares of
Allegiant Common Stock shall be issued upon the surrender for exchange
of Equality Common Stock Certificates, no dividend or distribution with
respect to Allegiant Common Stock shall be payable on or with respect to
any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a
shareholder of the Surviving Corporation. In lieu of the issuance of
any such fractional share, the Surviving Corporation shall pay to each
former shareholder of
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Equality, who otherwise would be entitled to receive such fractional
share, an amount of cash equal to the product obtained by multiplying
the fractional share interest to which such holder would otherwise be
entitled by the average closing price of Allegiant Common Stock on the
Nasdaq National Market, for the twenty trading days ending on the fifth
trading day before the date of the Effective Time.
(e) Any portion of the Conversion Fund that remains
unclaimed by the shareholders of Equality for twelve (12) months after
the Effective Time shall be paid to the Surviving Corporation. Any
shareholders of Equality who have not theretofore complied with this
Article II shall thereafter look only to the Surviving Corporation for
the issuance of certificates representing shares of Allegiant Common
Stock and the payment of cash in lieu of any fractional shares and any
unpaid dividends and distributions on Allegiant Common Stock deliverable
in respect of each share of Equality Common Stock such shareholder holds
as determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of Allegiant,
Equality, the Exchange Agent or any other person shall be liable to any
former holder of shares of Equality Common Stock, for any amount
delivered in good faith to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(f) If any Equality Common Stock Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Equality Common Stock Certificate to be
lost, stolen or destroyed and, if reasonably required by the Surviving
Corporation, the posting by such person of a bond in such amount as the
Exchange Agent may determine is reasonably necessary as indemnity
against any claim that may be made against it with respect to such
Equality Common Stock Certificate, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Equality Common Stock
Certificate an Allegiant Common Stock Certificate representing the
shares of Allegiant Common Stock and any cash in lieu of fractional
shares deliverable in respect thereof pursuant to this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EQUALITY
Equality hereby represents and warrants to Allegiant and
Acquisition Corp. as follows:
3.1 Corporate Organization.
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(a) Equality is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
Equality has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now
being conducted, and is duly licensed or qualified to do business in
each jurisdiction in which the nature of the business conducted by it or
the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified would not have a Material Adverse
Effect (as defined below) on Equality. Equality is duly registered as a
savings and loan holding company under the Home Owners' Loan Act
("HOLA"). Attached hereto as Schedule 3.1(a) of the Equality
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Disclosure Schedules are true and complete copies of the Certificate of
Incorporation and Bylaws of Equality, and the Charter and Bylaws of
Equality Savings Bank, each as in effect as of the date of this
Agreement. As used in this Agreement, the term "Material Adverse
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Effect" means, with respect to Equality or Allegiant, as the case may
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be, a material adverse effect (i) on the business, assets, properties,
results of operations, financial condition, or (insofar as they can
reasonably be foreseen) prospects of such party and its Subsidiaries,
taken as a whole, or (ii) on the consummation of the Merger. The word
"Subsidiary" when used with respect to any party means any bank,
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corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, which is
consolidated with such party for financial reporting purposes.
(b) As of the date of this Agreement, Equality has, as its
sole direct or indirect Subsidiaries, Equality Savings Bank (the
"Savings Bank"), a Missouri state chartered savings bank, Equality
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Mortgage Corporation, a Missouri corporation, Equality Commodity
Corporation, a Missouri corporation, Dutch Town Development Co., a
Missouri corporation, and Charles J. Wolter & Co., a Missouri
corporation (together with the Savings Bank, the "Equality
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Subsidiaries"). Except as set forth in Schedule 3.1(b) of the
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Equality Disclosure Schedules, neither Equality nor any Equality
Subsidiary owns, directly or indirectly, any voting stock or equity
securities or interests of any bank, corporation, partnership, joint
venture, limited liability company, or other organization, whether
incorporated or unincorporated, other than the Equality Subsidiaries.
(c) Each Equality Subsidiary (i) is duly organized and
validly existing as a business corporation or depository institution, as
the case may be, under the laws of its jurisdiction of organization,
(ii) is duly licensed and qualified to do business and is in good
standing in all jurisdictions (whether federal, state,
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local or foreign) where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on
Equality, and (iii) has all requisite corporate power and authority to
own or lease its properties and assets and to carry on its business as
now conducted. The deposits of the Savings Bank are insured under the
Federal Deposit Insurance Corporation (the "FDIC") under the Federal
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Deposit Insurance Act of 1950, as amended.
3.2 Capitalization.
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(a) The authorized capital stock of Equality consists of
4,000,000 shares of Equality Common Stock, $.01 par value per share, of
which, as of the date hereof, 2,385,177 shares were issued and
outstanding, and 200,000 shares of Preferred Stock, $.01 par value per
share, of which, as of the date hereof, none were issued and
outstanding. As of the date hereof, 160,105 shares of Equality Common
Stock were held in treasury. All of the issued and outstanding shares
of Equality Common Stock have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights. As of
the date hereof, Equality has reserved 245,163 shares of Equality Common
Stock for issuance under the Equality Option Plans, pursuant to which
Options covering 186,269 shares of Equality Common Stock were
outstanding as of the date hereof. Except for the Equality Option Plans
and the Option Agreement, Equality does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the issuance of any shares of
Equality Common Stock or any other equity securities of Equality or any
securities representing the right to purchase or otherwise receive any
shares of the capital stock of Equality. No shares of Equality Common
Stock have been reserved for issuance, other than the shares of Equality
Common Stock reserved for issuance under the Equality Option Plan and
the Option Agreement.
(b) Equality owns, directly or indirectly, all of the
issued and outstanding shares of capital stock of each of the Equality
Subsidiaries, free and clear of any liens, claims, pledges, charges,
options, encumbrances, mortgage, restriction or security interests
whatsoever ("Liens"). All of the shares of capital stock of each
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Equality Subsidiary are duly authorized and validly issued and are fully
paid and nonassessable. No Equality Subsidiary has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any
shares of capital stock or any other equity security of such Equality
Subsidiary or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity
security of such Equality Subsidiary.
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3.3 Authority.
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(a) Equality has full corporate power and authority to
execute and deliver this Agreement, the Option Agreement and the Voting
Agreement, and, subject to shareholder and regulatory approvals, to
consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement, the Option Agreement and the
Voting Agreement, and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved by the Board of
Directors of Equality. Except for the adoption of this Agreement by the
affirmative vote of the holders of a majority of the outstanding shares
of Equality Common Stock, no other corporate proceedings on the part of
Equality are necessary to approve this Agreement, the Option Agreement
and the Voting Agreement, and to consummate the transactions
contemplated hereby and thereby. This Agreement, the Option Agreement
and the Voting Agreement have been duly and validly executed and
delivered by Equality and (assuming due authorization, execution and
delivery by the other parties hereto and thereto) each constitutes a
valid and binding obligation of Equality, enforceable against Equality
in accordance with its terms.
(b) Except as disclosed on Schedule 3.3(b) of the
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Equality Disclosure Schedules, neither the execution nor delivery nor
performance by Equality of this Agreement, the Option Agreement or the
Voting Agreement, nor the consummation by Equality of the transactions
contemplated hereby or thereby, nor compliance by Equality with any of
the provisions hereof or thereof, will violate, conflict with, or result
in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration of, or
result in the creation of any Lien upon any of the properties or assets
of Equality or any of the Equality Subsidiaries under any of the terms,
conditions or provisions of, (i) its Certificate or Articles of
Incorporation or Agreement as the case may be, and Bylaws or (ii) any
note, bond, mortgage, indenture, deed of trust, license, lease,
agreement, or other instrument or obligation to which Equality or any of
the Equality Subsidiaries is a party, other than those as to which any
such violation, conflict, breach, event, termination, acceleration or
creation would not have a Material Adverse Effect, or violate any
judgment, ruling, order, writ, injunction, or decree applicable to
Equality or the Equality Subsidiaries or any of their respective
properties or assets.
3.4 Consents and Approvals. No consents or approvals of or
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filings or registrations with any court, administrative agency or
commission or other governmental authority or instrumentality (each a
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"Governmental Entity") or with any third party are necessary in
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connection with the execution and delivery by Equality of this
Agreement, the Option Agreement or the Voting Agreement, and the
consummation by Equality of the Merger and the other transactions
contemplated hereby and thereby except for (a) the filing by Allegiant
of applications with the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956, as amended, and the
Office of Thrift Supervision (the "OTS") under 12 CFR Section
---
563b.3(i)(3) and the approval of such applications (the "Regulatory
----------
Applications"), (b) the filing with the Securities and Exchange
------------
Commission (the "SEC") of a joint proxy statement in definitive form
---
and a registration statement on Form S-4 relating to the Equality
Shareholders Meeting (as defined in Section 5.4(a)) and the Allegiant
--------------
Shareholders Meeting (as defined in Section 5.4(b)) (the "Joint Proxy
-------------- -----------
Statement/Prospectus"), (c) the filing of the Certificate of Merger
--------------------
with the Delaware Secretary of State under Delaware Law, (d) such
filings and approvals as are required to be made or obtained under the
securities or "blue sky" laws of various states in connection with the
issuance of the shares of Allegiant Common Stock pursuant to this
Agreement, and (e) the approval of this Agreement and the transactions
contemplated hereby by the requisite vote of the shareholders of
Equality and by Allegiant, as sole shareholder of Acquisition Corp., and
the approval of the issuance of Allegiant Common Stock in the Merger by
the requisite vote of the shareholders of Allegiant.
3.5 Reports. Except as set forth on Schedule 3.5 of the
------- ------------
Equality Disclosure Schedules, Equality and each of the Equality
Subsidiaries have filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto,
that they were required to file during the five years preceding the date
hereof with (i) the OTS, (ii) the FDIC, (iii) any state regulatory
authority, (iv) the SEC, and (v) any self-regulatory organization with
jurisdiction over any of the activities of Equality or any of the
Equality Subsidiaries (collectively "Regulatory Agencies"), and all
-------------------
other reports, registrations, and statements required to be filed by
them during the five years preceding the date hereof, including, without
limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state, or any
Regulatory Agency, and have paid all fees and assessments due and
payable in connection therewith, except where the failure to file such
report, registration or statement or to pay such fees and assessments,
either individually or in the aggregate, will not have a Material
Adverse Effect on Equality. To the best of Equality's knowledge, as of
each of their respective dates, such reports, registrations and
statements complied in all material respects with the rules and
regulations promulgated by the applicable Regulatory Agency. Except for
normal examinations conducted by a Regulatory Agency in the regular
course of the business of Equality and the Equality Subsidiaries and
except as set forth in Schedule 3.5 of the Equality Disclosure
------------
Schedules, no
A-13
<PAGE>
<PAGE>
Regulatory Agency has initiated any proceeding or, to the knowledge of
Equality, investigation into the business or operations of Equality or
any of the Equality Subsidiaries during the five years preceding the
date hereof. Except as set forth in Schedule 3.5 of the Equality
------------
Disclosure Schedules, there is no unresolved written violation, written
criticism, or written exception by any Regulatory Agency with respect to
any report or statement relating to any examinations of Equality or any
of the Equality Subsidiaries, which is reasonably likely, either
individually or in the aggregate, to have a Material Adverse Effect on
Equality.
3.6 SEC Documents. Equality has made available to Allegiant a
-------------
true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by Equality with the SEC (other
than reports filed pursuant to Section 13(d) or 13(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") since the date
------------
Equality has been required to file such documents as such documents have
since the time of their filing been amended, (the "Equality SEC
------------
Documents"), which are all the documents (other than preliminary
---------
material and reports required pursuant to Section 13(d) or 13(g) of the
Exchange Act and other than as described in Schedule 3.5) that
------------
Equality was required to file with the SEC since such date. As of their
respective dates of filing with the SEC, the Equality SEC Documents
complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the
--------------
Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Equality SEC Documents, and did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Equality
included in the Equality SEC Documents complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, including Item 310 of
Regulation S-B as promulgated by the SEC, and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated
in the notes thereto or, in the case of the unaudited statements, as
permitted by Form 10-QSB of the SEC) and fairly present the consolidated
financial position of Equality and the Equality Subsidiaries as of the
dates thereof and the consolidated results of operations, changes in
stockholders' equity and cash flows of such companies for the periods
then ended. All material agreements, contracts and other documents
required to be filed as exhibits to any of the Equality SEC Documents
have been so filed.
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<PAGE>
<PAGE>
3.7 Broker's Fees. Other than Equality's arrangement with RP
-------------
Financial, LC. to serve as a financial advisor to Equality in connection
with the Merger and related transactions contemplated by this Agreement,
neither Equality nor any Equality Subsidiary nor any of their respective
officers or directors has employed any financial advisor, broker or
finder or incurred any liability for any financial advisory fees,
broker's fees, commissions or finder's fees in connection with the
Merger or related transactions contemplated by this Agreement. Attached
hereto as Schedule 3.7 of the Equality Disclosure Schedules is a true
------------
and complete copy of the engagement letter between Equality and RP
Financial, LC.
3.8 Absence of Certain Changes or Events.
------------------------------------
(a) Except as publicly disclosed in the Equality SEC
Documents filed before the date hereof or as set forth in Schedule
--------
3.8(a) of the Equality Disclosure Schedules, since March 31, 2000, (i)
------
Equality and the Equality Subsidiaries, taken as a whole, have not
incurred any material liability, except in the ordinary course of their
respective businesses, and (ii) no event has occurred which has had,
individually or in the aggregate, a Material Adverse Effect on Equality
or is reasonably likely to have a Material Adverse Effect on Equality.
(b) Except as publicly disclosed in the Equality SEC
Documents filed before the date hereof, since March 31, 2000, Equality
and each Equality Subsidiary have conducted their respective businesses
in all material respects in the ordinary and usual course.
3.9 Legal Proceedings.
-----------------
(a) Except as set forth in Schedule 3.9(a) of the
---------------
Equality Disclosure Schedules or otherwise disclosed in the Equality SEC
Reports, there are no pending, or to Equality's knowledge threatened,
legal, administrative, arbitration or other proceedings, claims,
actions, suits or governmental or regulatory order, judgment, decree,
investigations or proceedings of any nature against Equality or any of
the Equality Subsidiaries, or challenging the validity or propriety of
the transactions contemplated by this Agreement, except for matters
which, in the aggregate, will not have or reasonably could not be
expected to have a Material Adverse Effect on Equality. Without limiting
the generality of the foregoing, there are no actions, suits or
proceedings pending, or to the knowledge of Equality threatened, against
Equality or the Equality Subsidiaries
A-15
<PAGE>
<PAGE>
by any shareholder of Equality, or involving claims under the Community
Reinvestment Act of 1977, as amended, the Bank Secrecy Act, the fair
lending laws, or any other similar laws.
(b) Except as set forth in Schedule 3.9(b) of the
---------------
Equality Disclosure Schedules, there is no injunction, order, judgment,
decree, or regulatory restriction (other than regulatory restrictions
that apply to similarly situated savings and loan holding companies or
savings associations) imposed upon Equality, any of the Equality
Subsidiaries or the assets of Equality or any of the assets of the
Equality Subsidiaries.
3.10 Taxes and Tax Returns.
---------------------
(a) Definitions. For purposes of this Section 3.10:
-----------
(i) the term "Code" shall mean the Internal
----
Revenue Code of 1986, as amended. All citations to the Code or to the
regulations promulgated thereunder shall include any amendments or any
substitute or successor provisions thereto.
(ii) the term "Group" shall mean, individually
-----
and collectively, (A) Equality, (B) each Equality Subsidiary, and (C)
any individual, trust, corporation, partnership, limited liability
company or any other entity as to which any Equality Subsidiary is or
may be liable for Taxes incurred by such individual or entity as a
partner or member or as a transferee, or pursuant to Treasury
Regulations Section 1.1502-6, or pursuant to any other provision of
Federal, territorial, state, local, or foreign law or regulations.
(iii) the term "Returns" shall mean,
-------
collectively, all material reports, declarations, estimates, returns,
information statements, and similar documents, relating to or required
to be filed in respect of, any Taxes, including information returns or
reports with respect to back withholding or other payments to (or from)
third parties, and the term "Return" means any one of the foregoing
------
Returns.
(iv) the term "Taxes" shall mean (A) all
-----
material taxes measured with respect to net income, gross income, gross
receipts or taxable income, and all material sales, use, ad valorem,
transfer, franchise, profits, license, registration, lease, service,
service use, withholding, employment, payroll, excise, severance, stamp,
occupation, environmental, premium, property, windfall, profits,
customs, duties, and other material taxes, fees, assessments or charges
of any kind whatever, together with any material interest, penalties,
A-16
<PAGE>
<PAGE>
and other additions with respect thereto, imposed by any Federal,
territorial, state, local or foreign government; (B) any material
penalties, interest, or other additions to tax for the failure to
collect, withhold or pay over any of the foregoing, or to accurately
file any Return; and (C) other material taxes, fees assessments and
charges of the same or of a similar nature to any of the foregoing and
the term "Tax" mean any one of the foregoing Taxes.
---
(b) Each of Equality and the Equality Subsidiaries has duly
filed all material federal, state, county, foreign and local information
Returns and material tax Returns required to be filed by it on or before
the date hereof (all such returns being accurate and complete in all
material respects) and has duly paid or made provisions for the payment
of all Taxes and other governmental charges which have been incurred or
are due or claimed to be due from it by federal, state, county, foreign
or local taxing authorities on or before the date of this Agreement
other than Taxes or other charges which are not yet delinquent or are
being contested in good faith and have not been finally determined.
Equality has made available to Allegiant true copies of the federal
state and local income, sales, use and employment tax Returns (and
amended Returns, revenue agents' reports and other notices from state
taxing authorities) of Equality and each Equality Subsidiary for the
last four taxable years. Except as provided in Schedule 3.10 of the
-------------
Equality Disclosure Schedules, there are no disputes pending with
respect to, or claims asserted for, Taxes or assessments upon Equality
or any of the Equality Subsidiaries for which Equality does not have
adequate reserves, nor has Equality or any of the Equality Subsidiaries
given any currently effective waivers extending the statutory period of
limitation applicable to any federal, state, county, foreign or local
income tax return for any period. No audit of federal, state or local
Returns for Taxes by any relevant taxing authority has been conducted
for any Tax period beginning after December 31, 1996. Except where set
forth in Schedule 3.10 of the Equality Disclosure Schedules, no claim
-------------
has ever been made by any authority in any jurisdiction where Equality
or the Group does not file Returns that is or may be subject to taxation
by that jurisdiction. Equality and the Group have no knowledge of any
basis for the assertion of any claim which, if adversely determined,
would result in Liens on any of Equality's or the Group's assets
relating to Taxes. In addition, proper and accurate amounts have been
withheld by Equality and each of the Equality Subsidiaries from their
employees for all prior periods in compliance in all respects with the
tax withholding provisions of applicable federal, state, foreign and
local laws. There are no Tax Liens upon any property or assets of
Equality or any of the Equality Subsidiaries except Liens for Taxes not
yet past due.
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<PAGE>
<PAGE>
(c) (i) Except as set forth in Schedule 3.10 of the
-------------
Equality Disclosure Schedules or as reflected in Equality's consolidated
federal income Tax Returns, there are no material elections with respect
to Taxes affecting Equality or any Equality Subsidiary as of the date
hereof.
(ii) No member of the Group: (A) has agreed to make any
adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise; (B) has made an election, or is
required, to treat any of its assets as owned by another person for
federal income tax purposes or as tax-exempt bond financed property or
tax-exempt use property within the meaning of Section 168 of the Code;
(C) has made any payments, is obligated to make any payments, or is a
party to any agreement that could obligate it to make any payments that
will not be deductible under Section 280G, 162, or 404 of the Code; (D)
has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable periods
specified in Section 897(c)(1)(A)(ii) of the Code; (E) has violated any
of the COBRA (as defined in Section 5.19 hereof) continuation coverage
------------
requirements set forth in Section 4980B of the Code; (F) has failed to
disclose on its federal income Tax Return all positions taken therein
that could give rise to substantial understatement of federal income
Taxes within the meaning of Section 6662 of the Code; or (G) holds, or
has acquired, any "Section 197 intangible" within the meaning of Section
197(c) of the Code that is not amortizable in the hands of such member
by reason of having been acquired by such member pursuant to the
nonrecognition transactions described in Section 197(f)(2)(B) of the
Code or the anti-churning rules of Section 197(f)(9) of the Code and the
regulations thereunder.
(d) Except as part of the Group, neither Equality nor any
Equality Subsidiary has ever been a member of any combined,
consolidated, or unitary group for federal or state income or franchise
tax purposes, or is required to file combined, consolidated, or unitary
Returns for federal or state income or franchise tax purposes. The
transactions contemplated by this Agreement are not subject to the Tax
withholding provisions of Code Section 3406, or of subchapter A of
Chapter 3 of the Code, or of any other comparable provision of law.
3.11 Employee Benefit Plans.
----------------------
(a) (i) Equality Plan. The term "Equality Plan"
------------- -------------
includes each bonus, deferred compensation, pension, retirement, profit
sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plan, each employment or
severance contract, each other material
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<PAGE>
<PAGE>
employee benefit plan, any applicable "change in control" or similar
provisions in any plan, program, policy, contract or arrangement, and
each other benefit plan, contract, program, policy or arrangement,
including but not limited to, each employee benefit plan as defined in
Section 3(3) of ERISA (other than an Equality Multiemployer Plan) that
currently or since January 1, 1999: (1) is or has been maintained for
directors or employees of Equality or of any Equality Control Group
member or (2) to which Equality or any Equality Control Group member
made or was required to make contributions.
(ii) Equality Qualified Plan. The term
-----------------------
"Equality Qualified Plan" means any Equality Plan which is an employee
-----------------------
pension benefit plan as defined in Section 3(2) of ERISA and which is
intended to meet the qualification requirements of the Code.
(iii) Equality Title IV Plan. The term
----------------------
"Equality Title IV Plan" means any Equality Qualified Plan that is a
----------------------
defined benefit plan (as defined in Section 3(35) of ERISA) and is
subject to Title IV of ERISA.
(iv) Equality Multiemployer Plan. The term
---------------------------
"Equality Multiemployer Plan" means any employee benefit plan that is
---------------------------
a "multiemployer plan" within the meaning of Section 3(37) of ERISA and
to which Equality or any Equality Control Group member has or had since
January 1, 1998 any obligation to contribute.
(v) Equality Control Group. The term
----------------------
"Equality Control Group" means a controlled group of corporations of
----------------------
which Equality is a member within the meaning of Section 414(b) of the
Code, any group of corporations or entities under common control with
Equality within the meaning of Section 414(c) of the Code or any
affiliated service group of which Equality is a member within the
meaning of Section 414(m) of the Code.
(vi) ERISA. The term "ERISA" means the
----- -----
Employee Retirement Income Security Act of 1974, as amended.
(b) A list and brief description of all Equality Plans
are set forth in Schedule 3.11(b) of the Equality Disclosure
----------------
Schedules.
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<PAGE>
<PAGE>
(c) (i) Each Equality Plan has been timely amended as
required by ERISA and the Code and has been administered in material
compliance with its terms and with all filing, reporting, disclosure and
other requirements of all applicable statutes (including but not limited
to ERISA and the Code), regulations or interpretations thereunder.
(ii) Except as set forth in Schedule 3.11(c) of
----------------
the Equality Disclosure Schedules, either Equality nor any Equality
Control Group member currently or at any time maintains or maintained,
or contributes or contributed to, or is required to contribute to, any
Equality Title IV Plan or any Equality Multiemployer Plan.
(iii) Neither Equality nor any Equality Control
Group member, nor to Equality's knowledge any of their respective
employees or directors, has engaged in any transaction, including the
execution and delivery of this Agreement and other agreements,
instruments and documents for which execution and delivery by Equality
is contemplated herein, in violation of Section 406(a) or (b) of ERISA
or any "prohibited transaction" (as defined in Section 4975(c)(1) of the
Code) for which no exemption exists under Section 408(b) of ERISA or
Section 4975(d) of the Code or for which no administrative exemption has
been granted under Section 408(a) of ERISA.
(iv) Each Equality Qualified Plan is the subject
of a favorable Internal Revenue Service determination letter with
respect to such qualification under 401(a) of the Code, and exemption
under Section 501(a) of the Code and that Equality's Employee Stock
Ownership Plan is an ESOP under Section 4975 of the Code and such
letters have not been revoked by the Internal Revenue Service.
(v) No matter is pending relating to any Equality
Plan before any court or governmental agency and to Equality's
knowledge, there are no issues which reasonably could be expected to
give rise to such action.
(vi) Equality has no material liability to provide
death or health benefits (whether or not insured) with respect to any
person beyond such person's retirement or other termination of service
with Equality or any Equality Subsidiary other than (A) coverage
mandated by Part 6 of Title I of ERISA or Section 4980B of the Code, (B)
disability benefits under an Equality Plan that have been fully provided
for by insurance or otherwise, or (C) benefits in the nature of
severance payments.
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<PAGE>
<PAGE>
(vii) Equality is not a party to any collective
bargaining agreement and there is no union organizing effort or campaign
pending against or involving Equality and Equality has timely prepared
and filed all required Immigration and Naturalization Service Forms I-9.
(d) (i) Complete and correct copies of all current
and prior documents, including all amendments thereto, with respect to
each Equality Plan, have been delivered to Allegiant. These documents
include, but are not limited to, the following: Equality Plan documents,
trust agreements, insurance contracts, annuity contracts, summary plan
descriptions, filings with governmental agencies, investment manager and
investment adviser contracts, and actuarial reports, audit reports,
financial statements and annual reports (Form 5500) for the most recent
three plan years ending before the date of this Agreement.
(ii) All contributions payable to each Equality
Qualified Plan for all benefits earned and other liabilities accrued
through March 31, 2000, determined in accordance with the terms and
conditions of such Equality Qualified Plan, ERISA and the Code, have
been paid or otherwise provided for, and to the extent unpaid are
reflected in the consolidated balance sheet of Equality and Equality
Subsidiaries as of March 31, 2000.
3.12 Compliance with Applicable Law. Equality and each of the
------------------------------
Equality Subsidiaries hold all licenses, franchises, permits, approvals
and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and have complied with and are not
in default under any, applicable laws, statutes, orders, rules,
regulations, policies and/or guidelines of any Governmental Entity
relating to Equality or any of the Equality Subsidiaries, except where
the failure to hold such license, franchise, permit or authorization or
such noncompliance or default would not, individually or in the
aggregate, have a Material Adverse Effect on Equality. To the knowledge
of Equality, all such licenses, franchises, permits or authorizations
are in full force and effect and no suspension or cancellation of any of
these licenses, franchises, permits, approvals and authorizations is
threatened.
3.13 Certain Contracts.
-----------------
(a) Except as listed on Schedule 3.13(a) of the
----------------
Equality Disclosure Schedules or as an exhibit to the Equality SEC
Documents, as of the date of this Agreement, neither Equality nor any of
the Equality Subsidiaries is a party to or is bound by any:
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<PAGE>
<PAGE>
(i) contract, arrangement, commitment or
understanding (whether written or oral) with respect to the employment
or compensation of any directors, officers, employees, agents or
consultants or with any labor union;
(ii) material franchise or license agreement,
excluding those such agreements entered into in the ordinary course of
business;
(iii) material agreement, arrangement or commitment
(A) not made in the ordinary course of business and (B) pursuant to
which Equality or any Equality Subsidiary is or will become obligated
to invest in or contribute to any Equality Subsidiary other than
pursuant to the Equality Plans (as that term is defined in Section
-------
3.11 hereof) or agreements relating to joint ventures or partnerships
----
set forth in Schedule 3.1(b) of the Equality Disclosure Schedules,
---------------
true and complete copies of which, if any, have been furnished to
Allegiant;
(iv) any material contract, arrangement,
commitment or understanding (whether written or oral), including any
stock option plan, stock appreciation rights plan, restricted stock plan
or stock purchase plan, (A) not made in the ordinary course of business,
and (B) pursuant to which any of the benefits of which will be increased
or be required to be paid, or the vesting of the benefits of which will
be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement, or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(v) contract containing covenants which limit the
ability of Equality or any of the Equality Subsidiaries to compete in
any line of business or with any person or which involves any
restrictions on the geographical area in which, or method by which,
Equality or any of the Equality Subsidiaries may carry on their
respective businesses (other than as may be required by law or any
applicable Governmental Entity);
(vi) contract or agreement which is a "material
contract" within the meaning of item 601(b)(10) of Regulations S-B as
promulgated by the SEC to be performed after the date of this Agreement
that has not been filed or incorporated by reference in the Equality SEC
Documents;
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<PAGE>
(vii) lease with annual rental payments aggregating
$50,000 or more;
(viii) loans or other obligations payable or owing
to any officer, director or employee except (A) salaries, wages and
directors' fees or other compensation incurred and accrued in the
ordinary course of business and (B) obligations due in respect of any
depository accounts maintained by any of the foregoing with Equality or
any of the Equality Subsidiaries in the ordinary course of business; or
(ix) other agreement, contract, arrangement,
understanding or commitment involving an obligation by Equality or any
of the Equality Subsidiaries of more than $50,000 and extending beyond
six months from the date hereof that cannot be canceled without cost or
penalty upon notice of 30 days or less, other than contracts entered
into in respect of deposits, loan agreements and commitments, notes
security agreements, repurchase and reverse repurchase agreements,
bankers' acceptances, outstanding letters of credit, participation
agreements and other documents relating to transactions entered into by
Equality or any of Equality Subsidiaries in the ordinary course of
business.
(b) To the knowledge of Equality, each of the agreements,
contracts, leases, insurance policies and other documents referred to
in Schedules 3.13(a) of the Equality Disclosure Schedules is a valid,
-----------------
binding and enforceable obligation of the parties sought to be bound
thereby, except as the enforceability thereof against the parties
thereto (other than Equality or any of the Equality Subsidiaries)
may be limited by bankruptcy, insolvency, reorganization, moratorium,
and other laws now or hereafter in effect relating to the enforcement
of creditors' rights generally, and except that equitable principles
may limit the right to obtain specific performance or other equitable
remedies.
3.14 Agreements with Regulatory Agencies. Except as set forth
-----------------------------------
in Schedule 3.14 of the Equality Disclosure Schedules, neither
-------------
Equality nor any of the Equality Subsidiaries is subject to any cease-
and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is
a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or has been during the five years
preceding the date hereof, a recipient of any supervisory letter from,
or during the five years preceding the date hereof, has adopted any
board resolutions at the request of any Regulatory Agency or other
Governmental Entity that currently restricts the conduct of its business
or that relates to its capital adequacy, compliance with laws, its
credit policies, its management or its business (each, whether or not
set forth in the Equality Disclosure Schedules, a "Equality Regulatory
-------------------
Agreement"), nor has
---------
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<PAGE>
<PAGE>
Equality or any of the Equality Subsidiaries been advised during the
five years preceding the date hereof by any Regulatory Agency or other
Governmental Entity that it is considering issuing or requesting any
such Equality Regulatory Agreement.
3.15 Investment Securities. Each of Equality and the Equality
---------------------
Subsidiaries has good and marketable title to all securities held by it
(except securities sold under repurchase agreements or held in any
fiduciary or agency capacity), free and clear of any Lien, except to the
extent such securities are pledged in the ordinary course of business
consistent with prudent banking practices to secure obligations of
Equality or any of the Equality Subsidiaries. Such securities are
valued on the books of Equality and the Equality Subsidiaries in
accordance with GAAP.
3.16 Undisclosed Liabilities. Except for those liabilities
-----------------------
that are fully reflected or reserved against on the consolidated
statement of financial condition of Equality included in the Equality
Form 10-KSB for fiscal year ended March 31, 2000, liabilities disclosed
in Schedule 3.16 of the Equality Disclosure Schedules, and liabilities
-------------
incurred in the ordinary course of business consistent with past
practice since March 31, 2000, neither Equality nor any of the Equality
Subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or
to become due) that, either alone or when combined with all similar
liabilities, has had, or could reasonably be expected to have, a
Material Adverse Effect on Equality.
3.17 Insurance. A list of all policies of insurance in which
---------
Equality or any of the Equality Subsidiaries is named as an insured
party or which otherwise relate to or cover any assets or properties of
Equality or any of the Equality Subsidiaries has been made available to
Allegiant (the "Equality Policies"). Each Equality Policy is in full
-----------------
force and effect, and the coverage provided thereunder complies with the
requirements of any contracts binding on Equality or any of the Equality
Subsidiaries relating to such assets or properties. Neither Equality
nor any of the Equality Subsidiaries has received any notice of
cancellation or termination with respect to any material Equality
Policy.
3.18 Allowance for Loan Losses. The allowance for loan
-------------------------
losses set forth in the March 31, 2000 financial statements of Equality
is adequate in all material respects under the requirements of GAAP to
provide for possible losses, net of recoveries relating to loans
previously charged off, on loans outstanding, (including accrued
interest receivable) as of March 31, 2000. The aggregate loan balances
of the Savings Bank at such
A-24
<PAGE>
<PAGE>
date in excess of such allowance are, to the knowledge and belief of
Equality, collectible in accordance with their terms.
3.19 Environmental Liability. Except as set forth in
-----------------------
Schedule 3.19 of the Equality Disclosure Schedules, to Equality's
-------------
knowledge, there are no legal, administrative, arbitration or other
proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations
of any nature pending or threatened against Equality or any Equality
Subsidiary seeking to impose, or that could reasonably result in the
imposition, on Equality or any Equality Subsidiary of any liability or
obligation arising under common law or under any local, state, federal
or foreign environmental statute, regulation or ordinance including,
without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") which,
------
insofar as reasonably can be foreseen, could have a Material Adverse
Effect on Equality. Except as set forth in Schedule 3.19 of the
-------------
Equality Disclosure Schedules, to Equality's knowledge, there is no
reasonable basis for any proceeding, claim, action or governmental
investigation that would impose any such liability or obligation which,
insofar as reasonably can be foreseen, could have a Material Adverse
Effect on Equality. Neither Equality nor any Equality Subsidiary is not
subject to any agreement, order, judgment, decree, letter or memorandum
by or with any court, governmental authority, regulatory agency or third
party imposing any such liability or obligation which, insofar as
reasonably can be foreseen, could have a Material Adverse Effect on
Equality.
3.20 Approval Delays. Equality knows of no reason why any of
---------------
the regulatory approvals referenced in Sections 6.1(c) and 6.2(c)
--------------------------
should be denied or unduly delayed.
3.21 Vote Required. The approval by the holders of a majority
-------------
of the votes entitled to be cast by all holders of Equality Common Stock
to approve this Agreement and the Merger and the transactions
contemplated hereby, is the only vote of the holders of any class or
series of the capital stock of Equality required for any of the
transactions contemplated by this Agreement, the Option Agreement and
the Voting Agreement.
--------------------
3.22 Title and Condition of Assets.
-----------------------------
(a) Except as may be reflected in the Equality SEC
Documents or as set forth on Schedule 3.22(a) of the Equality
----------------
Disclosure Schedules and with the exception of all "Real Property"
(which
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<PAGE>
<PAGE>
is the subject of Section 3.23 hereof), Equality and the Equality
------------
Subsidiaries have, good and marketable title to their owned properties
and assets, free and clear of any Lien, except for Liens for (i) taxes,
assessments or other governmental charges not yet delinquent, (ii) as
set forth or described in the Equality SEC Documents, and (iii) pledges
to secure deposits and other Liens incurred in the ordinary course of
business.
(b) No material properties or assets that are reflected
as owned by Equality or any of the Equality Subsidiaries in the Equality
SEC Documents have been sold, leased, transferred, assigned or otherwise
disposed of since March 31, 2000, other than in the ordinary course of
business.
3.23 Real Property.
-------------
(a) A list of each parcel of real property owned by
Equality or any of the Equality Subsidiaries is set forth in Schedule
--------
3.23(a) of the Equality Disclosure Schedules under the heading "Owned
-------
Real Property" (such real property being herein referred to as the
"Owned Real Property"). A list of each parcel of real property leased
-------------------
by Equality or any of the Equality Subsidiaries is also set forth in
Schedule 3.23(a) under the heading "Leased Real Property" (such real
----------------
property being herein referred to as the "Leased Real Property").
--------------------
Collectively, the Owned Real Property and the Leased Real Property are
herein referred to as the "Real Property."
(b) To the knowledge of Equality, none of the buildings,
structures or other improvements located on the Real Property encroaches
upon or over any adjoining parcel of real estate or any easement or
right-of-way or "setback" line, and to the knowledge of Equality, all
such buildings, structures, and improvements are located and constructed
in material conformity with all applicable zoning ordinances and
building codes.
(c) Except as may be reflected in the Equality SEC
Documents or as set forth in Schedule 3.23(c) of the Equality
----------------
Disclosure Schedules or with respect to such easements, Liens, defects
or encumbrances as do not individually or in the aggregate materially
adversely affect the use or value of the parcel of Owned Real Property,
Equality and the Equality Subsidiaries have good and marketable title to
their respective Owned Real Properties.
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<PAGE>
<PAGE>
3.24 Conduct of Equality to Date. From and after March 31,
---------------------------
2000 through the date of this Agreement, except as set forth in the
Equality SEC Documents: (i) Equality and the Equality Subsidiaries have
conducted their respective businesses in the ordinary course consistent
with past practices; (ii) neither Equality nor any of the Equality
Subsidiaries has sold, assigned, transferred, leased, exchanged, or
otherwise disposed of any of its properties or assets other than for a
fair consideration in the ordinary course of business; (iii) except as
required by contract or law, or as described in Schedule 3.24 of the
-------------
Equality Disclosure Schedules, neither Equality nor any of the Equality
Subsidiaries has (A) increased the rate of compensation of, or paid any
bonus to, any of its directors, officers, or other employees, except in
accordance with existing policy, (B) entered into any new, or amended or
supplemented any existing, employment, management, consulting, deferred
compensation, severance, or other similar contract, (C) entered into,
terminated, or substantially modified any of the Equality Plans or (D)
agreed to do any of the foregoing; (iv) neither Equality nor any
Equality Subsidiary has suffered any material damage, destruction, or
loss, whether as the result of fire, explosion, earthquake, accident,
casualty, labor trouble, requisition, or taking of property by any
Governmental Entity, flood, windstorm, embargo, riot, act of God or the
enemy, or other casualty or event, and whether or not covered by
insurance.
3.25 Registration Obligations. Except for the Option
------------------------
Agreement attached hereto as Exhibit A, neither Equality nor any of
---------
the Equality Subsidiaries is subject to an agreement, contingent or
otherwise, which will survive the Effective Time, to register any
transaction involving its securities under the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ALLEGIANT AND ACQUISITION CORP.
Each of Allegiant and Acquisition Corp. jointly and severally
represent and warrant to Equality as follows:
4.1 Corporate Organization.
----------------------
(a) Allegiant is a corporation duly organized, validly
existing and in good standing under the laws of the State of Missouri.
Allegiant has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now
being conducted, and is duly licensed or qualified to do business in
each jurisdiction in which the nature of the business conducted by it or
the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary,
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<PAGE>
<PAGE>
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on Allegiant. Allegiant is duly registered as a
bank holding company under the Bank Holding Company Act of 1956, as
amended. Attached hereto as Schedule 4.1(a) of the disclosure
---------------
schedules to this Agreement prepared and delivered by Allegiant (the
"Allegiant Disclosure Schedules") are true and complete copies of the
------------------------------
Articles of Incorporation and Bylaws of Allegiant, and the Articles of
Incorporation and Bylaws of Allegiant Bank, as in effect as of the date
of this Agreement, as well as true and complete copies of the
Certificate of Incorporation and Bylaws of Acquisition Corp., as in
effect as of the date of this Agreement.
(b) As of the date of this Agreement, Allegiant has, as
its sole direct or indirect subsidiaries, Allegiant Acquisition
Corporation, a Delaware corporation, Allegiant Bank, a Missouri state-
chartered bank, Allegiant Investment Company, a Delaware corporation,
Allegiant Real Estate Investment Trust, a Delaware statutory business
trust, Allegiant Insurance Services Co., a Missouri corporation, Kratky
Road Inc., a Missouri corporation, and Allegiant Capital Trust I, a
Delaware statutory business trust (the "Allegiant Subsidiaries").
----------------------
Except as set forth in Schedule 4.1(b) of the Allegiant Disclosure
---------------
Schedules, and other than as a part of its or Allegiant Bank's
investment portfolio, Allegiant does not own directly or indirectly any
voting stock or equity securities or equity interests of any bank,
corporation, partnership, joint venture, limited liability company, or
other organization, whether incorporated or unincorporated, other than
Allegiant Subsidiaries.
(c) Each Allegiant Subsidiary (i) is duly organized and
validly existing as a business corporation, business trust or depository
institution, as the case may be, under the laws of its jurisdiction of
organization, (ii) is duly qualified to do business and is in good
standing in all jurisdictions (whether federal, state, local or foreign)
where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and in which the failure to be
so qualified would have a Material Adverse Effect on Allegiant, and
(iii) has all requisite corporate power and authority to own or lease
its properties and assets and to carry on its business as now conducted.
4.2 Capitalization.
--------------
(a) The authorized capital stock of Allegiant consists
of 20,000,000 shares of common stock, $.01 par value per share, of
which, as of the date hereof, 6,627,362 shares were issued and
6,072,587 shares were outstanding. As of the date hereof, Allegiant had
reserved 1,454,000 shares of Allegiant Common
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<PAGE>
<PAGE>
Stock for issuance under Allegiant's Dividend Reinvestment Plan and
Stock Purchase Plan (the "Investment Plan") and various employee
---------------
and/or director stock option, incentive and benefit plans, each
described in Schedule 4.2(a) of the Allegiant Disclosure Schedules
---------------
under the heading "Allegiant Employee/Director Stock Grants"), pursuant
to which options covering 598,121 shares of Allegiant Common Stock were
outstanding as of the date hereof. All of the issued and outstanding
shares of Allegiant Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights.
Except as set forth in Schedule 4.2(a) of the Allegiant Disclosure
---------------
Schedules, Allegiant does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of
any character calling for the issuance of any shares of Allegiant Common
Stock or any other equity securities of Allegiant or any securities
representing the right to purchase or otherwise receive any shares of
the capital stock of Allegiant. No shares of Allegiant Common Stock
have been reserved for issuance, other than shares set forth in
Schedule 4.2(a).
---------------
(b) Except as set forth on Schedule 4.2(b) of the
---------------
Allegiant Disclosure Schedules, Allegiant owns, directly or indirectly,
all of the issued and outstanding shares of capital stock of each of
Allegiant Subsidiaries, free and clear of any Liens. All of the shares
of capital stock of each Allegiant Subsidiary are duly authorized and
validly issued and are fully paid and nonassessable. No Allegiant
Subsidiary has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other
equity security of such Allegiant Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Allegiant Subsidiary.
4.3 Authority.
---------
(a) Each of Allegiant and Acquisition Corp. has full
corporate power and authority to execute and deliver this Agreement and,
in the case of Allegiant, the Option Agreement and the Voting Agreement,
and, subject to shareholder and regulatory approvals, to consummate the
transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and, in the case of Allegiant, the Option
Agreement and the Voting Agreement, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of Allegiant and Acquisition Corp.
Except for the adoption of this Agreement and the transactions
contemplated hereby by Allegiant, as sole shareholder of Acquisition
Corp., and the approval by the holders of a majority of the votes
present in person
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<PAGE>
<PAGE>
or by proxy at the Allegiant Shareholders Meeting (as defined in
Section 5.4(b) hereof) of the issuance of shares of Allegiant Common
--------------
Stock in the Merger, no other corporate proceedings on the part of
Allegiant or Acquisition Corp. are necessary to approve this Agreement,
and, in the case of Allegiant, the Option Agreement and the Voting
Agreement, and to consummate the transactions contemplated hereby and
thereby. This Agreement, and, in the case of Allegiant, the Option
Agreement and the Voting Agreement, have been duly and validly executed
and delivered by Allegiant and Acquisition Corp. and (assuming due
authorization, execution and delivery by each other party thereto) each
constitutes a valid and binding obligation of Allegiant and Acquisition
Corp., as the case may be, enforceable against Allegiant and Acquisition
Corp., respectively, in accordance with its terms.
(b) Except as set forth on Schedule 4.3(b) of the
---------------
Allegiant Disclosure Schedules, neither the execution nor delivery nor
performance by Allegiant of this Agreement, the Option Agreement or the
Voting Agreement, nor the consummation by Allegiant of the transactions
contemplated hereby or thereby, nor compliance by Allegiant with any of
the provisions hereof or thereof will violate, conflict with, or result
in a breach of any of the provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration of, or result in the creation of any Lien upon any of the
properties or assets of Allegiant or any of the Allegiant Subsidiaries
under any of the terms, conditions or provisions of, (i) its Certificate
or Articles of Incorporation, charter or Bylaws or (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Allegiant or any of the Allegiant
Subsidiaries is a party, other than those as to which any such
violation, conflict, breach, event, termination, acceleration or
creation would not have a Material Adverse Effect, taken as a whole, or
violate any judgment, ruling, order, writ, injunction or decree
applicable to Allegiant or any of the Allegiant Subsidiaries or any of
their respective properties or assets.
4.4 Consents and Approvals. No consents or approvals of or
----------------------
filings or registrations with any Governmental Entity or with any third
party are necessary in connection with the execution and delivery by
each of Allegiant and Acquisition Corp. of this Agreement and, in the
case of Allegiant, the Option Agreement and the Voting Agreement and the
consummation by Acquisition Corp. of the Merger and the other
transactions contemplated hereby and thereby except for (a) the filing
by Allegiant and Acquisition Corp. of the Regulatory Applications and
the approval of the Regulatory Applications, (b) the filing with the SEC
of the Joint Proxy Statement/Prospectus, (c) the filing of the
Certificate of Merger with the Delaware Secretary
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<PAGE>
<PAGE>
of State under Delaware Law, (d) such filings and approvals as are
required to be made or obtained under the securities or "blue sky" laws
of various states in connection with the issuance of the shares of
Allegiant Common Stock pursuant to this Agreement, and (e) the approval
of this Agreement by the requisite vote of the shareholders of Equality
and by Allegiant, as sole shareholder of Acquisition Corp., and the
approval of the issuance of Allegiant Common Stock in the Merger by the
requisite vote of the shareholders of Allegiant.
4.5 Reports. Allegiant and each of the Allegiant
-------
Subsidiaries have filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto,
that they were required to file during the five years preceding the date
hereof with the Regulatory Agencies, and all other reports and
statements required to be filed by them during the five years preceding
the date hereof, including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the
United States, any state, or any Regulatory Agency, and have paid all
fees and assessments due and payable in connection therewith, except
where the failure to file such report, registration or statement or to
pay such fees and assessments, either individually or in the aggregate,
will not have a Material Adverse Effect on Allegiant. Except for normal
examinations conducted by a Regulatory Agency in the regular course of
the business of Allegiant or the Allegiant Subsidiaries, no Regulatory
Agency has initiated any proceeding or, to the knowledge of Allegiant,
investigation into the business or operations of Allegiant or any of the
Allegiant Subsidiaries during the five years preceding the date hereof.
There is no unresolved written violation, written criticism, or written
exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of Allegiant or any of the
Allegiant Subsidiaries, which is reasonably likely, either individually
or in the aggregate, to have a Material Adverse Effect on Allegiant.
4.6 SEC Documents. Allegiant has made available to Equality
-------------
a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by Allegiant with the SEC
(other than reports filed pursuant to Section 13(d) or 13(g) of the
Exchange Act) since December 31, 1995 as such documents have since the
time of their filing been amended, (the "Allegiant SEC Documents"),
-----------------------
which are all the documents (other than preliminary material and reports
required pursuant to Section 13(d) or 13(g) of the Exchange Act) that
Allegiant was required to file with the SEC since such date. As of
their respective dates of filing with the SEC, the Allegiant SEC
Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Allegiant SEC
Documents, and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements
A-31
<PAGE>
<PAGE>
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of Allegiant included
in the Allegiant SEC Documents complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated
in the notes thereto or, in the case of the unaudited statements, as
permitted by Form 10-Q or 10-QSB of the SEC) and fairly present in all
material respects the consolidated financial position of Allegiant and
its consolidated Subsidiaries as of the dates thereof and the
consolidated results of operations, changes in shareholders' equity and
cash flows of such companies for the periods then ended. All material
agreements, contracts and other documents required to be filed as
exhibits to any of the Allegiant SEC Documents have been so filed.
4.7 Broker's Fees. Other than Allegiant's arrangement with
-------------
Howe Barnes Investments, Inc. to serve as a financial advisor to
Allegiant in connection with the Merger and the related transactions
contemplated by this Agreement, neither Allegiant nor any Allegiant
Subsidiary nor any of their respective officers or directors has
employed any financial advisor, broker or finder or incurred any
liability for any financial advisory fees, broker's fees, commissions
or finder's fees in connection with the Merger or related transactions
contemplated by this Agreement.
4.8 Absence of Certain Changes or Events.
------------------------------------
(a) Except as publicly disclosed in Allegiant SEC
Documents filed before the date hereof or as set forth in Schedule
--------
4.8(a) of Allegiant Disclosure Schedules, since December 31, 1999, (i)
------
Allegiant and the Allegiant Subsidiaries, taken as a whole, have not
incurred any material liability, except in the ordinary course of their
businesses, and (ii) no event has occurred which has had, individually
or in the aggregate, a Material Adverse Effect on Allegiant or will have
a Material Adverse Effect on Allegiant.
(b) Except as publicly disclosed in Allegiant SEC
Documents filed before the date hereof, since December 31, 1999,
Allegiant and each Allegiant Subsidiary have carried on their respective
businesses in all material respects in the ordinary and usual course.
A-32
<PAGE>
<PAGE>
4.9 Legal Proceedings.
-----------------
(a) Except as set forth in Schedule 4.9(a) of the
---------------
Allegiant Disclosure Schedules or otherwise disclosed in the Allegiant
SEC Reports, there are no pending, or to Allegiant's knowledge
threatened, legal, administrative, arbitration or other proceedings,
claims, actions or governmental or regulatory investigations of any
nature against Allegiant or any of the Allegiant Subsidiaries or
challenging the validity or propriety of the transactions contemplated
by this Agreement, except for matters which, in the aggregate, will not
have or reasonably could not be expected to have a Material Adverse
Effect on Allegiant. Without limiting the generality of the foregoing,
there are no actions, suits, or proceedings pending, or to the knowledge
of Allegiant threatened, against Allegiant or Allegiant Subsidiaries, by
any shareholder of Allegiant or involving claims under the Community
Reinvestment Act of 1977, as amended, the Bank Secrecy Act, the fair
lending laws, or any other similar laws.
(b) Except as set forth in Schedule 4.9(b), there is
---------------
no injunction, order, judgment, decree, or regulatory restriction (other
than regulatory restrictions that apply to similarly situated bank
holding companies or Missouri chartered trust companies) imposed upon
Allegiant, any of the Allegiant Subsidiaries or the assets of Allegiant
or any of the assets of the Allegiant Subsidiaries.
4.10 Taxes and Tax Returns.
---------------------
(a) Definitions. For purposes of this Section 4.10:
----------- ------------
(i) the term "Code" shall mean the Internal
----
Revenue Code of 1986, as amended. All citations to the Code or to the
regulations promulgated thereunder shall include any amendments or any
substitute or successor provisions thereto.
(ii) the term "Group" shall mean, individually
-----
and collectively, (A) Allegiant, (B) each Allegiant Subsidiary, and (C)
any individual, trust, corporation, partnership, limited liability
company or any other entity as to which any Allegiant Subsidiary is or
may be liable for Taxes incurred by such individual or entity as a
partner or member or as a transferee, or pursuant to Treasury
Regulations Section 1.1502-6, or pursuant to any other provision of
Federal, territorial, state, local or foreign law or regulations.
A-33
<PAGE>
<PAGE>
(iii) the term "Returns" shall mean, collectively,
-------
all material reports, declarations, estimates, returns, information
statements, and similar documents relating to, or required to be filed
in respect of, any Taxes, including information returns or reports
with respect to backup withholding or other payments to (or from)
third parties, and the term "Return" means any one of the foregoing
------
Returns.
(iv) the term "Taxes" shall mean (A) all
-----
material taxes measured with respect to net income, gross income, gross
receipts or taxable income, and all material sales, use, ad valorem,
transfer, franchise, profits, license, registration, lease, service,
use, withholding, employment, payroll, excise, severance, stamp,
occupation, environmental, premium, property, windfall, profits,
customs, duties, and other material taxes, fees, assessments or charges
of any kind whatever, together with any material interest, penalties and
other additions with respect thereto, imposed by any Federal,
territorial, state, local or foreign government; (B) any material
penalties, interest, or other additions to tax for the failure to
collect, withhold, or pay over any of the foregoing, or to accurately
file any Return; and (C) other material taxes, fees, assessments and
charges of the same or of a similar nature to any of the foregoing, and
the term "Tax" mean any one of the foregoing Taxes.
---
(b) Each of Allegiant and the Allegiant Subsidiaries has
duly filed all material federal, state, county, foreign and local
information Returns and material tax Returns required to be filed by it
on or before the date hereof (all such returns being accurate and
complete in all material respects) and has duly paid or made provisions
for the payment of all Taxes and other governmental charges which have
been incurred or are due or claimed to be due from it by federal, state,
county, foreign or local taxing authorities on or before the date of
this Agreement other than Taxes or other charges which are not yet
delinquent or are being contested in good faith and have not been
finally determined. Allegiant has made available to Equality true
copies of the federal state and local income, sales, use and employment
tax Returns (and amended Returns, revenue agents' reports and other
notices from state taxing authorities) of Allegiant and each Allegiant
Subsidiary for the last four taxable years. Except as provided in
Schedule 4.10 of the Allegiant Disclosure Schedules, there are no disputes
-------------
pending with respect to, or claims asserted for, Taxes or assessments
upon Allegiant or any of the Allegiant Subsidiaries for which Allegiant
does not have adequate reserves, nor has Allegiant or any of the Allegiant
Subsidiaries given any currently effective waivers extending the statutory
period of limitation applicable to any federal, state, county, foreign
or local income tax return for any period. No audit of federal, state or
local Returns for Taxes by any relevant taxing authority has been conducted
for any Tax period beginning after December 31, 1996. Except where set
forth in Schedule 4.10 of the Allegiant
-------------
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<PAGE>
<PAGE>
Disclosure Schedules, no claim has ever been made by any authority in
any jurisdiction where Allegiant or the Group does not file Returns
that is or may be subject to taxation by that jurisdiction. Allegiant
and the Group have no knowledge of any basis for the assertion of any
claim which, if adversely determined, would result in Liens on any of
Allegiant's or the Group's assets relating to Taxes. In addition,
proper and accurate amounts have been withheld by Allegiant and each
of the Allegiant Subsidiaries from their employees for all prior
periods in compliance in all respects with the tax withholding
provisions of applicable federal, state, foreign and local laws.
There are no Tax Liens upon any property or assets of Allegiant or
any of the Allegiant Subsidiaries except Liens for Taxes not yet
past due.
(c) (i) Except as set forth in Schedule 4.10 of the
-------------
Allegiant Disclosure Schedules or as reflected in Allegiant's
consolidated federal income Tax Returns, there are no material elections
with respect to Taxes affecting Allegiant or any Allegiant Subsidiary as
of the date hereof.
(ii) No member of the Group: (A) has agreed to
make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise; (B) has made an election, or
is required, to treat any of its assets as owned by another person for
federal income tax purposes or as tax-exempt bond financed property or
tax-exempt use property within the meaning of Section 168 of the Code;
(C) has made any payments, is obligated to make any payments, or is a
party to any agreement that could obligate it to make any payments that
will not be deductible under Section 280G, 162, or 404 of the Code; (D)
has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable periods
specified in Section 897(c)(1)(A)(ii) of the Code; (E) has violated any
of the COBRA continuation coverage requirements set forth in Section
4980B of the Code; (F) has failed to disclose on its federal income Tax
Return all positions taken therein that could give rise to substantial
understatement of federal income Taxes within the meaning of Section
6662 of the Code; or (G) holds, or has acquired, any "Section 197
intangible" within the meaning of Section 197(c) of the Code that is not
amortizable in the hands of such member by reason of having been
acquired by such member pursuant to the nonrecognition transactions
described in Section 197(f)(2)(B) of the Code or the anti-churning rules
of Section 197(f)(9) of the Code and the regulations thereunder.
(d) Except as part of the Group, neither Allegiant nor
any Allegiant Subsidiary has ever been a member of any combined,
consolidated, or unitary group for federal or state income or franchise
tax purposes, or is required to file combined, consolidated, or unitary
Returns for federal or state income or
A-35
<PAGE>
<PAGE>
franchise tax purposes. The transactions contemplated by this Agreement
are not subject to the Tax withholding provisions of Code Section 3406,
or of subchapter A of Chapter 3 of the Code, or of any other comparable
provision of law.
4.11 Employee Benefit Plans.
----------------------
(a) (i) Allegiant Plan. The term "Allegiant
-------------- ---------
Plan" includes each bonus, deferred compensation, pension, retirement,
----
profit sharing, thrift savings, employee stock ownership, stock bonus,
stock purchase, restricted stock and stock option plan, each employment
or severance contract, each other material employee benefit plan, any
applicable "change in control" or similar provisions in any plan,
program, policy, contract or arrangement, and each other benefit plan,
contract, program, policy or arrangement, including but not limited to,
each employee benefit plan, as defined in Section 3(3) of ERISA (other
than a Allegiant Multiemployer Plan) which currently or since January 1,
1999: (1) is or has been maintained for directors or employees of
Allegiant or of any Allegiant Control Group member or (2) to which
Allegiant or any Allegiant Control Group member made or was required to
make contributions.
(ii) Allegiant Qualified Plan. The term
------------------------
"Allegiant Qualified Plan" means any Allegiant Plan which is an
------------------------
employee pension benefit plan as defined in Section 3(2) of ERISA and
which is intended to meet the qualification requirements of the Code.
(iii) Allegiant Title IV Plan. The term
-----------------------
"Allegiant Title IV Plan" means any Allegiant Qualified Plan that is a
-----------------------
defined benefit plan (as defined in Section 3(35) of ERISA) and is
subject to Title IV of ERISA.
(iv) Allegiant Multiemployer Plan. The term
----------------------------
"Allegiant Multiemployer Plan" means any employee benefit plan that is
----------------------------
a "multiemployer plan" within the meaning of Section 3(37) of ERISA and
to which Allegiant or any Allegiant Control Group member has or had
since January 1, 1998 any obligation to contribute.
(v) Allegiant Control Group. The term
-----------------------
"Allegiant Control Group" means a controlled group of corporations of
-----------------------
which Allegiant is a member within the meaning of Section 414(b) of the
Code, any group of corporations or entities under common control with
Allegiant within the meaning of
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<PAGE>
Section 414(c) of the Code or any affiliated service group of which
Allegiant is a member within the meaning of Section 414(m) of the Code.
(b) A list and brief description of all Allegiant Plans
are set forth in Schedule 4.11(b) of Allegiant Disclosure Schedules.
----------------
(c) (i) Each Allegiant Plan has been timely amended
as required by ERISA and the Code and has been administered in material
compliance with its terms and with all filing, reporting, disclosure and
other requirements of all applicable statutes (including but not limited
to ERISA and the Code), regulations or interpretations thereunder.
(ii) Neither Allegiant nor any Allegiant Control
Group member currently or at any time maintains or maintained, or
contributes or contributed to, or is required to contribute to, any
Allegiant Title IV Plan or any Allegiant Multiemployer Plan.
(iii) Neither Allegiant nor any Allegiant Control
Group member, nor to Allegiant's knowledge any of their respective
employees or directors, has engaged in any transaction, including the
execution and delivery of this Agreement and other agreements,
instruments and documents for which execution and delivery by Allegiant
is contemplated herein, in violation of Section 406(a) or (b) of ERISA
or any "prohibited transaction" (as defined in Section 4975(c)(1) of the
Code) for which no exemption exists under Section 408(b) of ERISA or
Section 4975(d) of the Code or for which no administrative exemption has
been granted under Section 408(a) of ERISA.
(iv) Each Allegiant Qualified Plan is the subject
of a favorable Internal Revenue Service determination with respect to
qualification under 401(a) of the Code and exemption under Section
501(a) of the Code and such letters have not been revoked by the
Internal Revenue Service.
(v) No matter is pending relating to any
Allegiant Plan before any court or governmental agency and to
Allegiant's knowledge, there are no issues which reasonably could be
expected to give rise to such action.
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(d) (i) Complete and correct copies of all current
and prior documents, including all amendments thereto, with respect to
each Allegiant Plan, have been made available to Equality. These
documents include, but are not limited to, the following: Allegiant Plan
documents, trust agreements, insurance contracts, annuity contracts,
summary plan descriptions, filings with governmental agencies,
investment manager and investment adviser contracts, and actuarial
reports, audit reports, financial statements and annual reports (Form
5500) for the most recent three plan years ending before the date of
this Agreement.
(ii) All contributions payable to each Allegiant
Qualified Plan for all benefits earned and other liabilities accrued
through December 31, 1999, determined in accordance with the terms and
conditions of such Allegiant Qualified Plan, ERISA and the Code, have
been paid or otherwise provided for, and to the extent unpaid are
reflected in the consolidated balance sheet of Allegiant or any
Allegiant Subsidiaries as of December 31, 1999.
4.12 Compliance with Applicable Law. Allegiant and each of
------------------------------
the Allegiant Subsidiaries hold all licenses, franchises, permits,
approvals and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with
and are not in default under any, applicable laws, statutes, orders,
rules, regulations, policies and/or guidelines of any Governmental
Entity relating to Allegiant or any of the Allegiant Subsidiaries,
except where the failure to hold such license, franchise, permit or
authorization or such noncompliance or default would not, individually
or in the aggregate, have a Material Adverse Effect on Allegiant. To the
knowledge of Allegiant, no suspension or cancellation of any of these
licenses, franchises, permits, approvals and authorizations is
threatened.
4.13 Certain Contracts.
-----------------
(a) Except as listed on Schedule 4.13(a) of the
----------------
Allegiant Disclosure Schedules or as an exhibit to the Allegiant SEC
Documents, as of the date of this Agreement, neither Allegiant nor any
of the Allegiant Subsidiaries is a party to or is bound by any:
(i) contract, arrangement, commitment or
understanding (whether written or oral) with respect to the employment
or compensation of any directors, officers, employees, agents or
consultants or with any labor union;
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(ii) material franchise or license agreement,
excluding those such agreements entered into in the ordinary course of
business;
(iii) material agreement, arrangement or commitment
(A) not made in the ordinary course of business and (B) pursuant to
which Allegiant or any Allegiant Subsidiary is or will become obligated
to invest in or contribute to any Allegiant Subsidiary other than
pursuant to the Allegiant Plans (as that term is defined in Section
-------
4.11 hereof) or agreements relating to joint ventures or partnerships
----
set forth in Schedule 4.1(b) of the Allegiant Disclosure Schedules
---------------
true and complete copies of which, if any, have been furnished to
Allegiant;
(iv) any material contract, arrangement,
commitment or understanding (whether written or oral), including any
stock option plan, stock appreciation rights plan, restricted stock plan
or stock purchase plan, (A) not made in the ordinary course of business,
and (B) pursuant to which any of the benefits of which will be increased
or be required to be paid, or the vesting of the benefits of which will
be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement, or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(v) contract containing covenants which limit the
ability of Allegiant or any of the Allegiant Subsidiaries to compete in
any line of business or with any person or which involves any
restrictions on the geographical area in which, or method by which,
Allegiant or any of the Allegiant Subsidiaries may carry on their
respective businesses (other than as may be required by law or any
applicable Governmental Entity);
(vi) contract or agreement which is a "material
contract" within the meaning of item 601(b)(10) of Regulations S-K as
promulgated by the SEC to be performed after the date of this Agreement
that has not been filed or incorporated by reference in the Allegiant
SEC Documents;
(vii) lease with annual rental payments aggregating
$100,000 or more;
(viii) loans or other obligations payable or owing
to any officer, director or employee except (A) salaries, wages and
directors' fees or other compensation incurred and accrued in the
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ordinary course of business and (B) obligations due in respect of any
depository accounts maintained by any of the foregoing with Allegiant or
any of the Allegiant Subsidiaries in the ordinary course of business; or
(ix) other agreement, contract, arrangement,
understanding or commitment involving an obligation by Allegiant or any
of the Allegiant Subsidiaries of more than $100,000 and extending beyond
six months from the date hereof that cannot be canceled without cost or
penalty upon notice of 30 days or less, other than contracts entered
into in respect of deposits, loan agreements and commitments, notes
security agreements, repurchase and reverse repurchase agreements,
bankers' acceptances, outstanding letters of credit, participation
agreements and other documents relating to transactions entered into by
Allegiant or any of the Allegiant Subsidiaries in the ordinary course of
business.
(b) To the knowledge of Allegiant, each of the agreements,
contracts, leases, insurance policies and other documents referred to
in Schedule 4.13(a) of the Allegiant Disclosure Schedules is a valid,
----------------
binding and enforceable obligation of the parties sought to be bound
thereby, except as the enforceability thereof against the parties
thereto (other than Allegiant or any of the Allegiant Subsidiaries)
may be limited by bankruptcy, insolvency, reorganization, moratorium,
and other laws now or hereafter in effect relating to the enforcement
of creditors' rights generally, and except that equitable principles
may limit the right to obtain specific performance or other equitable
remedies.
4.14 Agreements with Regulatory Agencies. Neither Allegiant
-----------------------------------
nor any of the Allegiant Subsidiaries is subject to any cease-and-desist
or other order issued by, or is a party to any written agreement,
consent agreement or memorandum of understanding with, or is a party to
any commitment letter or similar undertaking to, or is subject to any
order or directive by, or has been during the five years preceding the
date hereof, a recipient of any supervisory letter from, or during the
five years preceding the date hereof has adopted any board resolutions
at the request of any Regulatory Agency or other Governmental Entity
that currently restricts the conduct of its business or that relates to
its capital adequacy, compliance with laws, its credit policies, its
management or its business (each, whether or not set forth in the
Allegiant Disclosure Schedules, an "Allegiant Regulatory Agreement")
------------------------------
nor has Allegiant or any of Allegiant Subsidiaries been advised during
the five years preceding the date hereof by any Regulatory Agency or
other Governmental Entity that it is considering issuing or requesting
any such Allegiant Regulatory Agreement.
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4.15 Investment Securities. Each of Allegiant and the Allegiant
---------------------
Subsidiaries has good and marketable title to all securities held by
them (except securities sold under repurchase agreements or held in
any fiduciary or agency capacity), free and clear of any Lien, except
to the extent such securities are pledged in the ordinary course of
business consistent with prudent banking practices to secure obligations
of Allegiant or any of the Allegiant Subsidiaries. Such securities are
valued on the books of Allegiant and the Allegiant Subsidiaries in
accordance with GAAP.
4.16 Undisclosed Liabilities. Except for those liabilities
-----------------------
that are fully reflected or reserved against on the consolidated
statement of financial condition of Allegiant included in the Allegiant
Form 10-K for the fiscal year ended December 31, 1999, liabilities
disclosed in Schedule 4.16 of the Allegiant Disclosure Schedules, and
-------------
liabilities incurred in the ordinary course of business consistent with
past practice since December 31, 1999, neither Allegiant nor any of the
Allegiant Subsidiaries has incurred any liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either alone or when combined with
all similar liabilities, has had, or could reasonably be expected to
have, a Material Adverse Effect on Allegiant.
4.17 Insurance. A list of policies of insurance in which
---------
Allegiant or any of the Allegiant Subsidiaries is named as an insured
party or which otherwise relate to or cover any assets or properties of
Allegiant or any of the Allegiant Subsidiaries has been made available
to Equality (the "Allegiant Policies"). Each Allegiant Policy is in
------------------
full force and effect, and the coverage provided thereunder complies
with the requirements of any contracts binding on Allegiant or any of
the Allegiant Subsidiaries relating to such assets or properties.
Neither Allegiant nor any of the Allegiant Subsidiaries has received any
notice of cancellation or termination with respect to any material
Allegiant Policy.
4.18 Allowance for Loan Loss. The allowance for loan losses
-----------------------
set forth in the December 31, 1999 financial statements of Allegiant is
adequate in all material respects under the requirements of GAAP to
provide for possible losses, net of recoveries relating to loans
previously charged off, on loans outstanding (including accrued interest
receivable) as of December 31, 1999. The aggregate loan balances of
Allegiant Bank at such date in excess of such allowance are, to the
knowledge and belief of Allegiant, collectible in accordance with their
terms.
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4.19 Environmental Liability. Except as set forth in
-----------------------
Schedule 4.19 of the Allegiant Disclosure Schedules, to Allegiant's
-------------
knowledge, there are no legal, administrative, arbitration or other
proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations
of any nature pending or threatened against Allegiant seeking to impose,
or that could reasonably result in the imposition, on Allegiant of any
liability or obligation arising under common law or under any local,
state, federal or foreign environmental statute, regulation or ordinance
including, without limitation, CERCLA which, insofar as reasonably can
be foreseen, could have a Material Adverse Effect on Allegiant. Except
as set forth in Schedule 4.19 of the Allegiant Disclosure Schedules,
-------------
to Allegiant's knowledge, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would
impose any such liability or obligation which, insofar as reasonably can
be foreseen, could have a Material Adverse Effect on Allegiant.
Allegiant is not subject to any agreement, order, judgment, decree,
letter or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability or
obligation which, insofar as reasonably can be foreseen, could have a
Material Adverse Effect on Allegiant.
4.20 Approval Delays. Allegiant knows of no reason why any of
---------------
the regulatory approvals referenced to in Sections 6.1(c) and 6.2(c)
--------------------------
should be denied or unduly delayed.
4.21 Vote Required. The only votes of the holders of any
-------------
class or series of the capital stock of Allegiant or Acquisition Corp.
required for any of the transactions contemplated by this Agreement, the
Option Agreement and the Voting Agreement are the following: (i) the
approval by the holders of a majority of the votes present in person or
by proxy at the Allegiant Shareholders Meeting (as defined in Section
-------
5.4(b) hereof) of the issuance of shares of Allegiant Common Stock in
------
the Merger; and (ii) the approval by Allegiant, as sole shareholder of
Acquisition Corp., of this Agreement and the Merger.
4.22 Title and Condition of Assets.
-----------------------------
(a) Except as may be reflected in the Allegiant SEC
Documents or as set forth on Schedule 4.22(a) of the Allegiant
----------------
Disclosure Schedules and with the exception of all "Real Property"
(which is the subject of Section 4.23 hereof), Allegiant and the
------------
Allegiant Subsidiaries have good and marketable title to their owned
properties and assets, free and clear of any Lien, except for Liens for
(i) taxes, assessments or other governmental charges not yet delinquent,
(ii) as set forth or described in the Allegiant SEC Documents, and (iii)
pledges to secure deposits and other Liens incurred in the ordinary
course of business.
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(b) No material properties or assets that are reflected
as owned by Allegiant or any of the Allegiant Subsidiaries in the
Allegiant SEC Documents have been sold, leased, transferred, assigned or
otherwise disposed of since December 31, 1999, other than in the
ordinary course of business.
4.23 Real Property.
-------------
(a) A list of each parcel of real property owned by
Allegiant or any of the Allegiant Subsidiaries is set forth in Schedule
--------
4.23(a) of the Allegiant Disclosure Schedules under the heading "Owned
-------
Real Property" (such real property being herein referred to as the
"Owned Real Property"). A list of each parcel of real property leased
-------------------
by Allegiant or any of the Allegiant Subsidiaries is also set forth in
Schedule 4.23(a) under the heading "Leased Real Property" (such real
----------------
property being herein referred to as the "Leased Real Property").
--------------------
Collectively, the Owned Real Property and the Leased Real Property are
herein referred to as the "Real Property."
-------------
(b) To the knowledge of Allegiant, none of the buildings,
structures or other improvements located on the Real Property encroaches
upon or over any adjoining parcel of real estate or any easement or
right-of-way or "setback" line, and to the knowledge of Allegiant all
such buildings, structures, and improvements are located and constructed
in material conformity with all applicable zoning ordinances and building
codes.
(c) Except as may be reflected in the Allegiant SEC
Documents or as set forth in Schedule 4.23(c) of the Allegiant
----------------
Disclosure Schedules or with respect to such easements, Liens, defects
or encumbrances as do not individually or in the aggregate materially
adversely affect the use or value of the parcel of Owned Real Property,
Allegiant and the Allegiant Subsidiaries have good and marketable title
to their respective Owned Real Properties.
4.24 Conduct of Allegiant to Date. From and after December 31,
----------------------------
1999 through the date of this Agreement, except as set forth in the
Allegiant SEC Documents: (i) Allegiant and the Allegiant Subsidiaries
have conducted their respective businesses in the ordinary course
consistent with past practices; (ii) neither Allegiant nor any of the
Allegiant Subsidiaries has sold, assigned, transferred, leased,
exchanged, or otherwise disposed of any of its properties or assets
other than for a fair consideration in the ordinary course of business;
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<PAGE>
(iii) except as required by contract or law, neither Allegiant nor any
of the Allegiant Subsidiaries has (A) increased the rate of compensation
of, or paid any bonus to, any of its directors, officers, or other
employees, except in accordance with existing policy, (B) entered into
any new, or amended or supplemented any existing, employment,
management, consulting, deferred compensation, severance, or other
similar contract, (C) entered into, terminated, or substantially
modified any of the Allegiant Plans or (D) agreed to do any of the
foregoing; and (iv) neither Allegiant nor any Allegiant Subsidiary has
suffered any material damage, destruction, or loss, whether as the
result of fire, explosion, earthquake, accident, casualty, labor
trouble, requisition, or taking of property by any Governmental Entity,
flood, windstorm, embargo, riot, act of God or the enemy, or other
casualty or event, and whether or not covered by insurance.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business. Except for any potential business
-------------------
combination transactions or similar acquisitions to be entered into by
Allegiant and except for any Allegiant capital formation transaction,
between the date hereof and the Closing Date, the parties shall conduct
their respective businesses and shall cause their Subsidiaries to
conduct their businesses in the usual and ordinary course consistent in
all material respects with past and current practices and prudent
banking practices, and shall use their best efforts to maintain and
preserve their business organization and advantageous business
relationships.
5.2 Negative Covenants. Without the prior written consent
------------------
of Allegiant, between the date hereof and the Effective Time, Equality
shall not and shall not permit any of the Equality Subsidiaries to:
(a) except upon the exercise of Options under the
Equality Option Plans, make any changes in the number of their issued
and outstanding shares or in their respective charters or bylaws;
(b) increase the compensation of their directors,
officers or key employees, provided, however, that the compensation
-------- -------
of officers and key employees of Equality and each Equality Subsidiary
may be increased in a manner consistent with prior practice of Equality
and each Equality Subsidiary, provided that the combined amount of the
increases paid to all such officers and key employees shall not exceed,
in the aggregate, $20,000;
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(c) make any loan for $300,000 or more, except for loans
currently committed to be made pursuant to written commitment letters,
and Equality shall, and shall cause each Equality Subsidiary to, make no
other loans, or renewals or restructuring of loans regardless of amount
except in the ordinary course of business and consistent in all material
respects with prudent banking practices and applicable rules and
regulations of regulatory authorities with respect to amount, terms,
security and quality of the borrower's credit;
(d) declare, set aside or pay any stock dividend, cash
dividend or other distribution, provided, however, that until the
-------- -------
Closing Date, Equality may continue to declare and pay its regular
quarterly cash dividend to its shareholders in the amount of $.06 per
share of Equality Common Stock, except that Equality shall coordinate
with Allegiant the payment of Equality's regular quarterly cash dividend
for the quarter in which the Closing will occur so as to avoid receipt
by shareholders of Equality of a cash dividend from both Equality and
Allegiant for such quarterly period.
(e) except for Equality's proposed sale of its current
mortgage servicing rights as described in Schedule 3.13(a) of the
----------------
Equality Disclosure Schedules, make any significant changes, outside the
ordinary course of business, in the general nature of the business
conducted by Equality and each Equality Subsidiary, including, but not
limited to, the investment or use of their assets, the liabilities they
incur, or the facilities they operate;
(f) enter into any employment, consulting or other
similar agreements that are not terminable on 30 days' notice or less
without penalty or obligation (beyond the notice period of 30 days or
less), amend any existing employment, severance, or similar agreement or
arrangement with any director, officer or employee or modify any of the
Equality Plans or increase any employee benefit (including incentive or
bonus payments or severance amounts);
(g) take any action that would result in a termination,
partial termination, curtailment, discontinuance or merger into another
plan or trust of any Equality Plan, except as contemplated by this
Agreement or as disclosed in the Equality Disclosure Schedules;
(h) except as already reflected in the consolidated
financial statements referred to in Section 3.6 hereof, make any
-----------
expenditure for fixed assets in excess of $10,000 for any single item,
or $50,000
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<PAGE>
in the aggregate, or enter into any lease of fixed assets, if the
monthly rental payment under such lease exceeds $1,000;
(i) except for Equality's proposed sale of its current
mortgage servicing rights as described in Schedule 3.13(a) of the
----------------
Equality Disclosure Schedules, and except for dispositions of other
real estate owned, incur any liabilities or obligations, make any
commitments or disbursements, acquire or dispose of any property or
asset, make any contract or agreement, or engage in any transaction,
except in the ordinary course consistent in all material respects with
past practices and prudent banking practices;
(j) do or fail to do anything that will cause a breach
of, or default under, any contract, agreement, commitment, obligation,
appointment, plan, trust or other arrangement to which Equality or each
Equality Subsidiary is a party or by which either Equality or each
Equality Subsidiary is otherwise bound where such breach would have a
Material Adverse Effect on Equality;
(k) make any change of a material nature in their
accounting procedures, methods, policies or practices or the manner in
which they conduct their businesses and maintain their records;
(l) accept or renew any brokered deposits; and
(m) agree, in writing or otherwise, to take any of the
foregoing actions.
5.3 Access to Information and Due Diligence.
---------------------------------------
(a) Upon reasonable notice and subject to applicable
laws relating to the exchange of information, each of Equality and
Allegiant shall, and shall cause the Equality Subsidiaries and the
Allegiant Subsidiaries, respectively, to, afford to the officers,
employees, accountants, counsel and other representatives of the other
party, access, during normal business hours during the period before the
Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, each of Equality and Allegiant shall,
and shall cause the Equality Subsidiaries and the Allegiant Subsidiaries,
respectively, to, make available to the other party (i) a copy of each
report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws or federal or state banking laws, and (ii) all other
information concerning its business, properties and personnel as such
party may
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<PAGE>
reasonably request. Neither Equality, Allegiant, the Equality
Subsidiaries nor the Allegiant Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure
would (A) violate or prejudice the rights of Equality's or Allegiant's,
as the case may be, customers or contravene any law, rule, regulation,
order, judgment, decree, fiduciary duty or binding agreement entered
into before the date of this Agreement, or (B) impair any attorney-
client privilege of the disclosing party. The parties hereto shall make
appropriate substitute disclosure arrangements under circumstances in
which the restrictions of the preceding sentence apply.
(b) Each of Equality and Allegiant shall hold all
information furnished by or on behalf of the other party or the Equality
Subsidiaries or Allegiant Subsidiaries, as the case may be, or their
representatives pursuant to Section 5.3(a) in confidence and, upon
--------------
termination of this Agreement, shall promptly return all documents
containing any information concerning the properties, business and
assets of each other party that may have been obtained in the course of
negotiations or examination of the affairs of each other party either
before or after the execution of this Agreement (other than such
information as shall be in the public domain or otherwise ascertainable
from public sources) and shall destroy any information, analyses or the
like derived from such confidential information. Each of Equality and
Allegiant shall use such information solely for the purpose of
conducting business, legal and financial reviews of the other party and
for such other purposes as may be related to this Agreement.
(c) No investigation by either of the parties or their
respective representatives shall affect the representations and
warranties of the other set forth herein.
5.4 Shareholder Approvals.
---------------------
(a) As soon as practicable after the date of this Agreement,
Equality shall call and convene a meeting of its shareholders and shall
submit to its shareholders for approval this Agreement and the Merger
in accordance with Equality's Certificate of Incorporation, its bylaws
and Delaware Law (the "Equality Shareholders Meeting"). If such
-----------------------------
recommendation is consistent with the fiduciary duties of the Board
of Directors of Equality, the Board of Directors of Equality shall
recommend to the shareholders of Equality approval of this Agreement and
the Merger. Equality shall submit this Agreement and the Merger to its
shareholders whether or not the Board of Directors of Equality
determines at any time after the date hereof that
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this Agreement and the Merger are no longer advisable and recommends
that the shareholders of Equality reject this Agreement and the Merger.
(b) As soon as practicable after the date of this
Agreement, Allegiant shall call and convene a meeting of its
shareholders and shall submit to its shareholders for approval the
issuance of Allegiant Common Stock in the Merger (the "Allegiant
---------
Shareholders Meeting"). If such recommendation is consistent with the
--------------------
fiduciary duties of the Board of Directors of Allegiant, the Board of
Directors of Allegiant shall recommend to the shareholders of Allegiant
approval of such issuance of Allegiant Common Stock. Allegiant, as the
owner of all of the outstanding shares of capital stock of Acquisition
Corp., shall cause this Agreement and the Merger to be approved in
accordance with Delaware Law.
5.5 Registration Statement and Regulatory Filings.
---------------------------------------------
(a) Allegiant shall file with the SEC as soon as
practicable after the execution of this Agreement, using its best
efforts, a Registration Statement on an appropriate form under the
Securities Act covering Allegiant Common Stock to be issued pursuant to
this Agreement and shall use its reasonable best efforts to cause the
same to become effective, and thereafter, until the Effective Time or
termination of this Agreement, to keep the same effective and, if
necessary, amend and supplement the same. Such Registration Statement
and any amendments and supplements thereto are referred to herein as the
"Registration Statement." The Registration Statement shall include
----------------------
the Joint Proxy Statement/Prospectus reasonably acceptable to Allegiant
and Equality, prepared by Allegiant and Equality for use in connection
with the Equality Shareholders Meeting and the Allegiant Shareholders
Meeting, all in accordance with the rules and regulations of the SEC.
Allegiant shall, as soon as practicable after the execution of this
Agreement, make all filings, if any, required to obtain all blue sky
permits, authorizations, consents or approvals required for the issuance
of Allegiant Common Stock. In advance of filing the Registration
Statement, Allegiant shall provide Equality and its counsel with a copy
of the Registration Statement and provide an opportunity to comment
thereon, and thereafter shall promptly advise Equality and its counsel
of any material communication received by Allegiant or its counsel from
the SEC with respect to the Registration Statement. Each of Allegiant
and Equality covenant that none of the information furnished by
Allegiant or Equality, respectively, for inclusion in the Registration
Statement, the Joint Proxy Statement/Prospectus or any other document
filed with the SEC or any state securities commission, at the respective
times at which such documents are filed with the SEC or such state
securities commission, or, in the case of the Registration Statement,
when it becomes effective, or in the case of the Joint Proxy
Statement/Prospectus, when mailed or at the time of the Equality
Shareholders Meeting
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or the Allegiant Shareholders Meeting, shall be false or misleading with
respect to any material fact or shall omit to state any material fact
necessary to make the statements therein, in light of the circumstances
in which they were made, not misleading.
(b) Allegiant, as soon as practicable after the
execution of this Agreement, using its best efforts, shall take all
appropriate actions necessary to obtain the regulatory approvals
referred to in Sections 6.1(c) and 6.2(c) hereof including making all
--------------------------
appropriate initial filings necessary to obtain such regulatory
approvals, and Equality shall cooperate fully in the process of
obtaining all such approvals. Allegiant shall provide Equality with
copies of all applications filed and all approvals when received.
5.6 Reasonable Efforts. The parties to this Agreement agree
------------------
to use their reasonable efforts in good faith to satisfy the various
conditions to Closing and to consummate the Merger as soon as
practicable. None of the parties hereto shall intentionally take or
intentionally permit to be taken any action that would be in breach of
the terms or provisions of this Agreement or that would cause any of the
representations contained herein to be or to become untrue.
5.7 Business Relations and Publicity. Equality shall use
--------------------------------
reasonable efforts to preserve its reputation and relationship with
suppliers, clients, depositors, customers, employees and others having
business relations with it. No press release or other communication in
connection with or relating to this Agreement or the transactions
contemplated hereby (other than communications with appropriate
regulatory authorities) shall be issued or made except as mutually
agreed upon, provided that either party hereto, after consultation with
the other party, may make such disclosures concerning the transactions
provided for herein as the disclosing party reasonably believes are
required by law.
5.8 Listing of Shares. Allegiant shall use all reasonable
-----------------
efforts to cause the shares of Allegiant Common Stock issuable in the
Merger to be approved for listing on the Nasdaq National Market.
5.9 Maintenance of Insurance. Equality shall, and shall
------------------------
cause the Equality Subsidiaries to use their best efforts to maintain
their present insurance coverage in respect to their respective
properties and businesses.
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5.10 Affiliate Letters. Equality shall provide Allegiant with
-----------------
such information as may be reasonably necessary to determine the
identity of those persons who may be deemed to be "affiliates" of
Equality within the meaning of Rule 145 (or any successor rule)
promulgated by the SEC under the Securities Act and a list of those
persons whom Equality believes may be deemed to be affiliates. Within
45 days of the execution of this Agreement, Equality shall obtain and
deliver to Allegiant affiliate letters, substantially in the form of
Exhibit C to this Agreement, from each of the directors and principal
---------
officers of Equality with respect to any shares over which they possess
sole investment power and Equality shall use its best efforts to obtain
an affiliate letter from any other affiliate identified by Equality
pursuant to this Section 5.10.
------------
5.11 No Conduct Inconsistent with this Agreement.
-------------------------------------------
(a) Except for Equality's proposed sale of its current
mortgage servicing rights as described in Schedule 3.13(a) of the
----------------
Equality Disclosure Schedules, Equality agrees that it shall not, during
the term of this Agreement, (i) solicit, encourage or authorize any
individual, corporation or other entity to solicit from any third party
any inquiries or proposals relating to the disposition of its business
or assets, other than in the ordinary course of business, or the
acquisition of its capital stock, or the merger of it or any of the
Equality Subsidiaries with any corporation or other entity other than as
provided by this Agreement except pursuant to a written direction from a
regulatory authority; or (ii) negotiate with, furnish information to, or
entertain any proposals from any other person for any such transaction
wherein the business, assets or capital stock of it or the Equality
Subsidiaries would be acquired, directly or indirectly, by any party
other than as provided by this Agreement, except pursuant to a written
direction from any regulatory authority or upon the receipt of an
unsolicited offer from a third party where the Board of Directors of
Equality reasonably believes, upon the written opinion of counsel, that
its fiduciary duties require it to enter into discussions with, or
furnish information to, such party. Equality shall promptly notify
Allegiant of all of the relevant details relating to all inquiries and
proposals that it may receive relating to any proposed disposition of
its business or assets, or the acquisition of its capital stock, or the
merger of it or the Equality Subsidiaries with any corporation or other
entity other than as provided by this Agreement and shall keep Allegiant
informed of the status and details of any such inquiry or proposal
(including the identity of all involved parties), and shall give
Allegiant at least five days' advance notice of any agreement to be
entered into with, or any information to be supplied to, any person
making such inquiry or proposal.
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(b) Nothing contained in Section 5.10(a) shall
---------------
prohibit Equality from disclosing to its shareholders a position
contemplated by Rule 14e-2(a) under the Exchange Act with respect to a
tender offer for Equality's Common Stock.
5.12 Board of Directors' Notices, Minutes, Etc. Equality
------------------------------------------
shall give reasonable notice to Allegiant of all meetings of the Board
of Directors and Board committees of Equality and each Equality
Subsidiary, and if known, the agenda for or business to be discussed at
such meeting. Equality shall transmit to Allegiant, promptly, copies of
all notices, minutes, consents and other materials that Equality or each
Equality Subsidiary provides to their directors to the extent
permissible under law, other than materials relating to any proposed
acquisition of Equality or each Equality Subsidiary. Allegiant agrees
to hold in confidence and trust and to act in a fiduciary manner with
respect to such information.
5.13 Untrue Representations and Warranties. During the term
-------------------------------------
of this Agreement, if a party hereto becomes aware of any facts or of
the occurrence or impending occurrence of any event that would cause one
or more of such party's representations and warranties contained in this
Agreement to be or to become untrue as of the Closing Date, then such
party shall immediately give detailed written notice thereof to the
other party.
5.14 Indemnification; Directors' and Officers' Insurance.
---------------------------------------------------
(a) In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action,
suit, proceeding or investigation in which any individual who is now, or
has been at any time before the date of this Agreement, or who becomes
before the Effective Time, a director or officer or employee of Equality
or the Equality Subsidiaries (the "Indemnified Parties"), is, or is
-------------------
threatened to be, made a party based in whole or in part on, or arising
in whole or in part out of, or pertaining to (i) the fact that he or she
is or was a director, officer or employee of Equality or the Equality
Subsidiaries or any of their respective predecessors, or (ii) this
Agreement or any of the transactions contemplated hereby, whether in any
case asserted or arising before or after the Effective Time, Allegiant
agrees to cooperate and use reasonable efforts to defend against and
respond thereto. It is understood and agreed that after the Effective
Time, Allegiant shall (and shall cause the Surviving Corporation to)
defend, indemnify and hold harmless, as and to the fullest extent
permitted by law, each such Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including payment of
reasonable attorney's fees and expenses and other costs in advance of
the final disposition of any claim, suit,
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<PAGE>
proceeding or investigation incurred by each Indemnified Party to the
fullest extent permitted by law upon receipt of any undertaking required
by applicable law), judgments, fines and amounts paid in settlement in
connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened or
actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the Indemnified
Parties may retain counsel reasonably satisfactory to them after
consultation with the Surviving Corporation; provided, however, that
-------- -------
(A) Allegiant shall have the right to assume the defense thereof and
upon such assumption Allegiant shall not be liable to any Indemnified
Party for any legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection with the
defense thereof, except that if Allegiant elects not to assume such
defense or if any Indemnified Party furnishes Allegiant with a written
legal opinion reasonably acceptable to Allegiant that there are issues
that raise conflicts of interest between Allegiant and the Indemnified
Party, such Indemnified Party may retain counsel reasonably satisfactory
to it after consultation with Allegiant, and Allegiant shall pay the
reasonable fees and expenses of such counsel for such Indemnified Party
(provided that if Allegiant assumes the defense thereof, Allegiant shall
not settle any claim, action, suit, proceeding or investigation or
consent to any legal judgment without first obtaining the consent of the
Indemnified Party, which consent shall not be unreasonably withheld or
delayed), (B) Allegiant shall be obligated pursuant to this Section
-------
5.14(a) to pay for only one firm of counsel for all Indemnified
-------
Parties, unless an Indemnified Party shall have furnished to Allegiant a
written legal opinion reasonably acceptable to Allegiant that there is a
material conflict of interest between the interests of such Indemnified
Party and the interests of one or more other Indemnified Parties and
that the interests of such Indemnified Party will not be adequately
represented unless separate counsel is retained, in which case,
Allegiant shall be obligated to pay such separate counsel, (C) Allegiant
shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld or
delayed) and (D) Allegiant shall have no obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
nonappealable, that indemnification of such Indemnified Party in the
manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim Indemnification under this Section
-------
5.14, upon learning of any such claim, action, suit, proceeding or
----
investigation, shall notify Allegiant thereof, provided that the failure
to so notify shall not affect the obligations of Allegiant under this
Section 5.14 except to the extent such failure to notify materially
------------
prejudices Allegiant.
(b) Allegiant shall use reasonable efforts (i) to
obtain, after the Effective Time, directors' and officers' liability
insurance coverage for the officers and directors of the Surviving
Corporation, and (ii)
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<PAGE>
either (A) to cause any individual who had served as an officer or
director of Equality or the Equality Subsidiaries at any time during the
three years before the Effective Time to be covered for a period of
three years from the Effective Time by the directors' and officers'
liability insurance policies maintained by the Surviving Corporation, or
to (B) substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are not less advantageous
than the policies previously maintained by Equality and the Equality
Subsidiaries, respectively, with respect to acts or omissions occurring
before the Effective Time that were committed by such officers and
directors in their capacity as such; provided, however, that
-------- -------
Allegiant's reasonable efforts under this Section 5.13(b) shall not be
---------------
deemed to include obtaining any such coverage beyond an aggregate cost
greater than 1.5 times Equality's current annual premium for directors'
and officers' liability insurance coverage.
5.15 Employee Benefit and Incentive Plans.
------------------------------------
(a) At the Effective Time, each employee of Equality and
the Equality Subsidiaries ("Equality Employee") shall immediately
-----------------
become eligible to participate in all Allegiant Plans on the same terms
and conditions that Allegiant and its subsidiaries may make available to
their similarly situated officers and employees (provided, however, that
participation need not extend to split dollar life insurance or other
nonqualified deferred compensation plans). The period of employment and
compensation of each Equality Employee accrued with Equality or any
Equality Subsidiary before the Closing Date shall be counted for all
purposes under Allegiant Plans, including, without limitation, for
purposes of service credit, eligibility and vesting. Allegiant shall
waive any pre-existing condition exclusions and actively-at-work
requirements contained in any Allegiant Plan as they apply to Equality
Employees, former Equality Employees and their dependents, and Allegiant
shall provide that any expenses incurred on or before the Closing by a
Equality Employee or a Equality Employee's covered dependent or spouse
shall be taken into account for purposes of satisfying any applicable
deductible, coinsurance and maximum out-of-pocket provisions of the year
in which the Closing occurs.
(b) At the Effective Time, the Savings Bank Employee
Stock Ownership Plan (the "ESOP") shall be terminated as Allegiant and
----
Equality shall mutually determine, and the loan between Equality and the
ESOP shall be repaid in full with an amount of unallocated shares of
Allegiant Common Stock (which shall have been converted from shares of
Equality Common Stock pursuant to this Agreement) held in the ESOP
having an aggregate fair market value equal to the balance of such loan
at the Effective Time.
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<PAGE>
The fair market value of Allegiant Common Stock for this purpose shall
be determined by the trustees of the ESOP in the exercise of their
fiduciary duties. Any remaining unallocated shares of Allegiant Common
Stock after such repayment shall be allocated in kind to the ESOP
accounts of those Equality Employees or former Equality Employees who
are participants, or their beneficiaries, (the "ESOP Participants") in
-----------------
accordance with the terms of the ESOP as amended with respect to such
termination and as in effect on the Effective Time. All ESOP
Participants shall fully vest and have a nonforfeitable interest in
their accounts under the ESOP determined as of the Effective Time. As
soon as practicable after the receipt of a favorable determination
letter from the Internal Revenue Service ("IRS") as to the tax
---
qualified status of the ESOP upon its termination under Section 401(a)
and 4975(e) of the Code (the "Final Determination Letter"),
--------------------------
distributions of the benefits under the ESOP shall be made to the ESOP
Participants. From and after the date of this Agreement, in
anticipation of such termination and distribution, Equality shall cause
the Savings Bank and its representatives before the Effective Time to
use, and Allegiant and its representatives after the Effective Time
shall use, their best efforts to apply for and to obtain such favorable
Final Determination Letter from the IRS. If the Savings Bank and its
representatives, before the Effective Time, and Allegiant and its
representatives after the Effective Time, reasonably determine that the
ESOP cannot obtain a favorable Final Determination Letter, or that the
amounts held therein cannot be so applied, allocated or distributed
without causing the ESOP to lose its tax qualified status, Equality, or
the Savings Bank at the direction of Equality, before the Effective Time
and Allegiant after the Effective Time shall take such action as they
may reasonably determine with respect to the distribution of benefits to
the ESOP Participants, provided that the assets of the ESOP shall be
held or paid for the benefit of the ESOP Participants and provided
further that in no event shall any portion of the amounts held in the
ESOP revert, directly or indirectly, to Equality or any affiliate
thereof, or to Allegiant or any affiliate thereof. Equality Employees
shall become eligible to participate in any employee stock ownership
plan maintained by Allegiant or any affiliate thereof at any time after
the Effective Time ("Allegiant ESOP"), and each Equality Employee's
--------------
period of employment with Equality or any Equality Subsidiary shall be
counted for all purposes under Allegiant ESOP, including without
limitation, for purposes of eligibility and vesting. The compensation
of each participant attributable to employment with Equality or a
Equality Subsidiary before the Effective Time shall be counted for all
purposes under the Allegiant ESOP.
(c) Allegiant acknowledges and agrees that all
participants in the Savings Bank's Profit Sharing 401(k) Plan (the
"401(k) Plan") shall be fully vested as of the Effective Time in their
-----------
accounts under the 401(k) Plan. If Allegiant maintains a defined
contribution plan subject to a favorable IRS letter as to its tax
qualified status under Section 401(a) of the Code (the "Allegiant
---------
Plan") on or after the Effective Time, the
----
A-54
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<PAGE>
401(k) Plan may be merged with and into Allegiant Plan or may be
continued by Allegiant, as Allegiant shall determine. As of the
Effective Time, Equality Employees shall become eligible to participate
in Allegiant Plan, and each Equality Employee's period of employment
with Equality or any Equality Subsidiary shall be counted for all
purposes under Allegiant Plan, including, without limitation, for
purposes of eligibility and vesting. The compensation of each 401(k)
Plan participant attributable to employment with Equality or a Equality
Subsidiary before the Effective Time shall be counted for all purposes
under the Allegiant Plan, including without limitation, for purposes of
contribution allocations.
(d) Allegiant shall credit each Equality Employee with
the amount of such vacation, sick time and personal time that is accrued
but unused as of the Effective Time. Equality Employees may use such
vacation, sick time and personal time during the remainder of 2000 and
any subsequent period as permitted by Allegiant's policies. Allegiant's
vacation, sick time and personal time policies shall apply on and after
the Effective Time and shall include Equality Employees' employment with
Equality or any Equality Subsidiary for purposes of determining
vacation, sick time and personal time entitlement.
5.16 Employment Agreements. Allegiant acknowledges and
---------------------
agrees that pursuant to the Merger it is assuming all obligations of
Equality and/or the Savings Bank under, and it agrees to honor all the
provisions of, the present employment agreements, as amended, between
each of Richard C. Fellhauer, Michael A. Deelo, Leonard O. Wolter and
John L. Tacke on one hand and Equality and/or the Savings Bank on the
other hand, including those that relate to a termination of employment
following a change-in-control of Equality. Attached hereto as Schedule
--------
5.16 of the Equality Disclosure Schedules are true and complete copies
----
of each such employment agreement, as amended.
5.17 Deferred Compensation Agreements. Allegiant acknowledges
--------------------------------
and agrees that pursuant to the Merger it is assuming all obligations
of Equality and/or the Savings Bank under, and it agrees to honor all
of the provisions of, the present deferred compensation agreements
between Richard C. Fellhauer, Michael A. Deelo and Leonard O. Wolter
on one hand and Equality and/or the Savings Bank on the other hand.
The employment of such persons with Equality and its affiliates
before the Effective Time, and with Allegiant and its affiliates from
and after the Effective Time, shall be considered employment for all
purposes of the deferred compensation agreements. Attached hereto as
Schedule 5.17 of the Equality Disclosure Schedules are true and
-------------
complete copies of each such deferred compensation agreement, as
amended.
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5.18 Severance Program and Stay Bonus Program. Allegiant
----------------------------------------
Agrees to honor the Severance Program and Stay Bonus Program of
Equality. Attached hereto as Schedule 5.18 of the Equality Disclosure
-------------
Schedules is a true and complete copy of the Severance Program and the
Stay Bonus Program. Equality agrees to consult with Allegiant before
awarding any bonus under its Stay Bonus Program.
5.19 COBRA and HIPAA. Until the Effective Time, Equality
---------------
shall be liable for all obligations for continued health coverage
pursuant to Section 4980B of the Code and Section 601 through 609 of
ERISA ("COBRA") with respect to each qualified beneficiary (as defined
-----
in COBRA) of Equality or any Equality Subsidiary who incurs a qualifying
event (as defined in COBRA) before the Effective Time and for all
obligations to provide certificates pursuant to Section 701(e) of ERISA
and Section 9801(e) of the Code. As of the Effective Time, Allegiant
shall be liable for (i) all obligations for continued health coverage
under COBRA with respect to each qualified beneficiary (as defined in
COBRA) of Equality or any Equality Subsidiary who incurs a qualifying
event (as defined in COBRA) from and after the Effective Time, and (ii)
for continued health coverage under COBRA from and after the Effective
Time for each qualified beneficiary of Equality or any Equality
Subsidiary who incurs a qualifying event before the Effective Time.
5.20 Filing and Other Fees. Each party hereto shall bear its
---------------------
own expenses incident to preparing, entering into and carry out this
Agreement and to consummating the Merger; provided, however, that all
filing and other fees paid to the SEC, the OTS or any other Government
Entity in connection with the Merger and the transactions contemplated
by this Agreement and the costs and expenses of printing and mailing the
Joint Proxy/Statement Prospectus shall be borne by Allegiant.
5.21 Board Seat. Before the Closing Date, the directors of Allegiant
----------
shall take such action as may be necessary to elect to the Board of
Directors of Allegiant, effective at the Effective Time, Richard C.
Fellhauer ("New Director"). Allegiant shall then nominate such New
------------
Director for election at the 2001 Annual Meeting of Allegiant's
shareholders for a three-year term.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of Allegiant and
-----------------------------------------------------
Acquisition Corp. Unless the conditions are waived by Allegiant or
-----------------
Acquisition Corp., all obligations of Allegiant and Acquisition Corp.
under this Agreement are subject to the fulfillment, before or at the
Closing, of each of the following conditions:
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(a) Representations and Warranties; Performance of
-----------------------------------------------
Agreements. The representations and warranties of Equality contained
----------
in Article III of this Agreement, or in any documents, certificates,
schedules or exhibits delivered by, or on behalf, of Equality to
Allegiant pursuant to this Agreement shall be true and correct as of
this date and shall be true and correct as of the Closing Date as though
made on and as of the Closing Date, except where the failure of such
representations and warranties to be so true and correct would not have,
individually or in the aggregate, a Material Adverse Effect on Allegiant
or Equality shall have performed all agreements herein required to be
performed by it on or before the Closing Date.
(b) Closing Certificate. Allegiant shall have received
-------------------
a certificate signed by the Chief Executive Officer of Equality,
dated as of the Closing Date, certifying in such detail as Allegiant
may reasonably request, as to the fulfillment of the conditions to
the obligations of Allegiant as set forth in this Agreement and
required to be fulfilled by Equality on or before the Closing Date.
(c) Regulatory and Other Approvals. Allegiant shall
------------------------------
have obtained the approval of all appropriate regulatory entities
(including, without limitation, the approval of the Regulatory
Applications) of the transactions contemplated by this Agreement, all
required regulatory waiting periods shall have expired, and there shall
have been no motion for rehearing or appeal from such approval or
commencement of any suit or action seeking to enjoin the transaction
provided for herein or to obtain substantial damages in respect of them.
(d) Shareholder Approvals and Delivery of this Agreement.
----------------------------------------------------
This Agreement and the transactions contemplated herein shall have been
approved by the Board of Directors and the shareholders of Equality in
accordance with applicable law and the Certificate of Incorporation
and Bylaws of Equality, and the proper officers of Equality shall have
executed and delivered to Allegiant copies of this Agreement and the
Certificate of Merger, in form suitable for filing with the Delaware
Secretary of State, and shall have executed and delivered all such other
certificates, statements or other instruments as may be necessary or
appropriate to effect such filings. The issuance of Allegiant Common
Stock in the Merger shall have been approved by the requisite vote of
the shareholders of Allegiant.
(e) Effectiveness of the Registration Statement. The
-------------------------------------------
Registration Statement shall have become effective with respect to all
shares of Allegiant Common Stock to be issued in the Merger, no stop
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<PAGE>
order suspending the effectiveness of such Registration Statement shall
have been issued, no proceeding for that purpose shall have been
instituted or threatened, and all requests for additional information on
the part of the SEC shall have been complied with to Allegiant's
satisfaction.
(f) No Litigation with Respect to Transactions. No suit
------------------------------------------
or other legal proceeding shall have been instituted or threatened
seeking to enjoin the consummation of the transactions contemplated
hereby, which reasonably could be expected to result in the issuance of
a court order enjoining such transactions;
(g) Opinion of Counsel. Allegiant shall have received
------------------
an opinion of Schiff Hardin & Waite, counsel for Equality, dated as of
the Closing Date, and in form and substance satisfactory to Allegiant
and its counsel as follows:
(i) Equality is a corporation validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to execute, deliver and perform its
obligations under the Agreement. Equality is a registered savings and
loan holding company under the Home Owners' Loan Act.
(ii) The Savings Bank is validly existing as a
savings association under the laws of the State of Missouri.
(iii) The authorized capitalization of Equality
consists of 4,000,000 shares of common stock, $.01 par value per share,
and 200,000 shares of preferred stock, $.01 par value per share.
(iv) The execution, delivery and performance of
the Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of Equality,
and, to the best of counsel's knowledge, in the case of the Agreement,
by the shareholders of Equality, these being the only corporate
authorizations required under the Certificate of Incorporation and
Bylaws of Equality and Delaware Law. The Agreement has been duly
executed and delivered by Equality and constitutes the valid and binding
obligation of Equality, enforceable against Equality in accordance with
its terms.
(v) The execution, delivery and performance by
Equality of the Agreement do not violate the Certificate of
Incorporation or Bylaws of Equality.
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(vi) No consents or approvals of, or filings or
registrations with, any Governmental Entity are necessary in connection
with the execution and delivery by Equality of the Agreement and the
consummation by Equality of the Merger and the other transactions
contemplated hereby that have not been received or obtained as of the
date hereof, except where the failure to obtain such consent or approval
or to make such filing or registration will not have or will not be
reasonably likely to have a Material Adverse Effect on Equality.
(vii) The Registration Statement and Joint Proxy
Statement/Prospectus set forth therein and any amendments and
supplements thereto made before the Closing Date (other than the
financial statements and related schedules and other financial
information contained or incorporated by reference therein, as to which
such counsel need express no opinion) comply as to form in all material
respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and the rules and regulations thereunder; and such
counsel has no reason to believe that, as of the effective date of the
Registration Statement, the date of the Equality Shareholders Meeting,
the date of the Allegiant Shareholders Meeting and the Closing Date, the
Registration Statement or Joint Proxy Statement/Prospectus (other than
the financial statements and related schedules and other financial and
statistical information contained or incorporated by reference therein,
as to which such counsel need express no opinion) or, as of its date,
any further amendment or supplement thereto made before the Closing
Date, contained an untrue statement of material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
In rendering its opinion, such counsel may rely as to
matters of fact upon such certificates of the officers of Equality or
the Equality Subsidiaries or governmental officials as such counsel
deems appropriate.
(h) No Adverse Changes. Between the date of this
------------------
Agreement and the Closing Date, the business of Equality and the
Equality Subsidiaries, taken as a whole, shall have been conducted in
the ordinary course consistent in all respects with prudent banking
practices, and there shall not have occurred any material adverse change
or any condition, event, circumstance, fact or occurrence (other than
general economic or competitive conditions) that may reasonably be
expected to result in a material adverse change in the business,
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<PAGE>
properties, financial condition, loan portfolio, operations or prospects
of Equality and the Equality Subsidiaries, taken as a whole.
(i) Consents. Equality and the Savings Bank shall have
--------
obtained all such written consents, permissions and approvals as
required under any agreements, contracts, appointments, indentures,
plans, trusts or other arrangements with third parties required to
effect the transactions contemplated by this Agreement.
(j) Fairness Opinion. Allegiant shall have received
----------------
from Howe Barnes Investments, Inc. a fairness opinion updating as of a
date approximately the date of mailing the Joint Proxy Statement/
Prospectus the opinion delivered on the date of this Agreement and in
form and substance reasonably satisfactory to Allegiant to the effect
that the consideration to be delivered to the shareholders of Equality
is fair from a financial point of view to the shareholders of Allegiant.
(k) Other Documents. Allegiant shall have received at
---------------
the Closing all such other documents, certificates or instruments as it
may have reasonably requested evidencing compliance by Equality with the
terms of this Agreement.
6.2 Conditions Precedent to Obligations of Equality. Unless
-----------------------------------------------
the conditions are waived by Equality, all obligations of Equality under
this Agreement are subject to the fulfillment, before or at the Closing,
of each of the following conditions:
(a) Representations and Warranties; Performance of
-----------------------------------------------
Agreements. The representations and warranties of Allegiant and
----------
Acquisition Corp. contained in Article IV of this Agreement, or in any
documents, certificates, schedules or exhibits delivered by them, or on
their behalf to Equality pursuant to this Agreement shall be true and
correct as of this date and shall be true and correct as of the Closing
Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
would not have, individually or in the aggregate, a Material Adverse
Effect on Equality or Allegiant. Allegiant and Acquisition Corp. shall
have performed all agreements herein required to be performed by them on
or before the Closing Date.
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(b) Closing Certificate. Equality shall have received
-------------------
a certificate signed by the Chief Executive Officer of Allegiant, dated
as of the Closing Date, certifying in such detail as Equality may
reasonably request, as to the fulfillment of the conditions to the
obligations of Equality as set forth in this Agreement and required to
be fulfilled by Allegiant or Acquisition Corp. on or before the Closing.
(c) Regulatory and Other Approvals. Allegiant shall
------------------------------
have obtained the approval of all appropriate regulatory entities
(including, without limitation, the approval of the Regulatory
Applications) of the transactions contemplated by this Agreement; all
required regulatory waiting periods shall have expired, and there shall
have been no motion for rehearing or appeal from such approval or
commencement of any suit or action seeking to enjoin the transaction
provided for herein or to obtain substantial damages in respect of them.
(d) Shareholder Approvals and Delivery of this Agreement.
----------------------------------------------------
This Agreement and the transactions contemplated herein shall have been
approved by the Board of Directors of Allegiant and Acquisition Corp.,
and Allegiant, as the sole shareholder of Acquisition Corp., in
accordance with applicable law and the Certificate of Incorporation
and Bylaws of Acquisition Corp., and the proper officers of Allegiant
and Acquisition Corp. shall have executed and delivered to Equality
copies of this Agreement and the Certificate of Merger, in form suitable
for filing with the Delaware Secretary of State, and shall have executed
and delivered all such other certificates, statements or other
instruments as may be necessary or appropriate to effect such filings.
The issuance of Allegiant Common Stock in the Merger shall have been
approved by the requisite vote of the shareholders of Allegiant. This
Agreement and the transactions contemplated herein shall have been
approved by the shareholders of Equality in accordance with Delaware Law
and the Certificate of Incorporation and Bylaws of Equality.
(e) Effectiveness of the Registration Statement. The
-------------------------------------------
Registration Statement shall have become effective with respect to all
shares of Allegiant Common Stock to be issued in the Merger, no stop
order suspending the effectiveness of such Registration Statement shall
have been issued, no proceeding for that purpose shall have been
instituted or threatened, and all requests for additional information on
the part of the SEC shall have been complied with to Equality's
satisfaction.
A-61
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<PAGE>
(f) No Litigation with Respect to Transactions. No
------------------------------------------
suit or other legal proceeding shall have been instituted or threatened
seeking to enjoin the consummation of the transactions contemplated
hereby, which reasonably could be expected to result in the issuance of
a court order enjoining such transactions.
(g) Opinion of Counsel. Equality shall have received
------------------
an opinion of Thompson Coburn LLP, counsel for Allegiant, dated as of
the Closing Date, and in form and substance satisfactory to Equality and
its counsel as follows.
(i) Allegiant is a corporation validly existing
and in good standing under the laws of the State of Missouri and has the
corporate power and authority to execute, deliver and perform its
obligations under the Agreement. Acquisition Corp. is a corporation
validly existing under the laws of the State of Delaware and has the
corporate power and authority to execute, deliver and perform its
obligations under the Agreement. Allegiant is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended.
(ii) The shares of common stock of Allegiant
deliverable pursuant to this Agreement will be duly authorized and, upon
issuance and delivery in accordance with the terms hereof and thereof,
will be validly issued, fully paid, and nonassessable, with no liability
attaching to the ownership thereof arising from Allegiant, and will have
been registered under the Securities Act and will have been registered
or qualified under the securities laws of all jurisdictions in which
such registration or qualification is required, based on information
provided by Equality, and will be qualified for listing on the Nasdaq
National Market.
(iii) The execution, delivery and performance of
the Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of Allegiant
and Acquisition Corp., and, in the case of the Agreement, by Allegiant
as the sole shareholder of Acquisition Corp., and, in the case of the
issuance of Allegiant Common Stock in the Merger, to the best of such
counsel's knowledge, by the shareholders of Allegiant, these being the
only corporate authorizations required under the Articles and
Certificate of Incorporation, as the case may be, and Bylaws of
Allegiant and Acquisition Corp., Delaware Law, the laws of the State of
Missouri and the rules of The Nasdaq Stock Market. The Agreement has
been duly executed and delivered by Allegiant and Acquisition Corp. and
constitutes the valid and binding obligation of Allegiant and
Acquisition Corp. enforceable against Allegiant and Acquisition Corp. in
accordance with its terms.
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(iv) The execution, delivery and performance by
Allegiant and Acquisition Corp. of the Agreement do not violate the
Articles and Certificate of Incorporation, respectively, or Bylaws of
Allegiant or Acquisition Corp.
(v) No consents or approvals of, or filings or
registrations with, any Governmental Entity are necessary in connection
with the execution and delivery by Allegiant or Acquisition Corp. of the
Agreement and the consummation by Allegiant and Acquisition Corp. of the
Merger and the other transactions contemplated hereby, that have not
been received or obtained as of the date hereof, except where the
failure to obtain such consent or approval or to make such filing or
registration will not have or be reasonably likely to have a Material
Adverse Effect on Allegiant or Equality.
(vi) No consent, approval, authorization, order,
registration or qualification of or with any court or Governmental
Entity are necessary for the issuance of the shares of Allegiant Common
Stock in connection with the Merger.
(vii) The Registration Statement and Joint Proxy
Statement/Prospectus set forth therein and any amendments and
supplements thereto made before the Closing Date (other than the
financial statements and related schedules and other financial
information contained or incorporated by reference therein, as to which
such counsel need express no opinion) comply as to form in all material
respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and the rules and regulations thereunder; and such
counsel has no reason to believe that, as of the effective date of the
Registration Statement, the date of the Equality Shareholders Meeting,
the date of the Allegiant Shareholders Meeting and the Closing Date, the
Registration Statement or Joint Proxy Statement/Prospectus (other than
the financial statements and related schedules and other financial and
statistical information contained or incorporated by reference therein,
as to which such counsel need express no opinion) or, as of its date,
any further amendment or supplement thereto made before the Closing
Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading.
In rendering its opinion, such counsel may rely as to
matters of fact upon such certificates of the officers of Allegiant or
governmental officials as such counsel deems appropriate.
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(h) No Adverse Changes. Between the date of this
------------------
Agreement and the Closing Date, the business of Allegiant and the
Allegiant Subsidiaries, taken as a whole, shall have been conducted in
the ordinary course consistent in all respects with prudent banking
practices, and there shall not have occurred any material adverse change
or any condition, event, circumstance, fact or occurrence (other than
general economic or competitive conditions) that may reasonably be
expected to result in a material adverse change in the business,
properties, financial condition, loan portfolio, operations or prospects
of Allegiant and the Allegiant Subsidiaries, taken as a whole.
(i) Fairness Opinion. Equality shall have received
----------------
from RP Financial, LC. a fairness opinion updating as of a date
approximately the date of mailing the Joint Proxy Statement/Prospectus
the opinion delivered on the date of this Agreement and in form and
substance reasonably satisfactory to Equality to the effect that the
consideration to be received in the Merger by the shareholders of
Equality is fair from a financial point of view to the shareholders of
Equality.
(j) Tax Opinion. Equality shall have received an
-----------
opinion of Thompson Coburn LLP, in form and substance reasonably
satisfactory to it, dated as of the Closing Date, substantially to the
effect that the Merger will constitute a tax free reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
(k) Listing of Shares. The shares of Allegiant Common
-----------------
Stock issuable in the Merger shall be approved for listing upon notice
of issuance on the Nasdaq National Market.
(l) Other Documents. Equality shall have received at
---------------
the Closing all such other documents, certificates or instruments as it
may have reasonably requested evidencing compliance by Allegiant and
Acquisition Corp. with the terms of this Agreement.
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ARTICLE VII
TERMINATION, EXPENSES AND AMENDMENT
7.1 Termination. This Agreement may be terminated before
-----------
the Effective Time:
(a) at any time, by written agreement between Allegiant
and Equality, if the Board of Directors of each so determines;
(b) at any time, by Equality if any of the conditions
set forth in Section 6.2 shall have become incapable of fulfillment,
-----------
and shall not have been waived by Equality;
(c) at any time, by Allegiant if any of the conditions
set forth in Section 6.1 shall have become incapable of fulfillment,
-----------
and shall not have been waived by Allegiant;
(d) at any time, by either the Board of Directors of
Equality or the Board of Directors of Allegiant and Acquisition Corp. if
(i) any Governmental Entity that must grant a requisite regulatory
approval has denied approval of the Merger and such denial has become
final and nonappealable or (ii) any Governmental Entity of competent
jurisdiction shall have issued a final nonappealable order permanently
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement;
(e) by either the Board of Directors of Equality or the
Board of Directors of Allegiant if the Merger shall not have been
consummated on or before March 31, 2001, unless the failure of the
Closing to occur by such date shall be due to the breach by the party
seeking to terminate this Agreement of the covenants and agreements of
such party set forth herein;
(f) by Allegiant or Equality if any approval of the
shareholders of Equality or the shareholders of Allegiant required for
the consummation of the Merger shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of
shareholders or at any adjournment or postponement thereof;
(g) by Equality, upon at least two days' prior notice to
Allegiant, if, as a result of a tender offer by a party other than
Allegiant or its affiliates or any written offer or proposal with
respect to a merger, share exchange, sale of a material portion of its
assets or other business combination (each, a "Business Combination
---------------------
Proposal") by a party other than Allegiant or its affiliates, the Board
--------
of Directors of Equality determines in good faith that its fiduciary
obligations under applicable law require that such Business Combination
Proposal be accepted; provided, however, that
-------- -------
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(x) the Board of Directors of Equality shall have
been advised in a written opinion of outside counsel that
notwithstanding a binding commitment to consummate an agreement of the
nature of this Agreement entered into in the proper exercise of its
applicable fiduciary duties, and notwithstanding all concessions that
may be offered by Allegiant in negotiations entered into pursuant to
clause (y) below, such fiduciary duties would require the directors to
reconsider such commitment as a result of such tender offer or other
written offer or proposal;
(y) before any such termination, Equality shall,
and shall cause its financial and legal advisors to, negotiate with
Allegiant for five business days to make such adjustments in the terms
and conditions of this Agreement as would enable Equality to proceed
with the transactions contemplated herein on such adjusted terms; and
(z) Equality shall not have breached its
obligations under Section 5.11 of this Agreement.
------------
(h) by Equality, by written notice to Allegiant, if
(x) there exists any material breach or breaches
of the representations and warranties of Allegiant made herein, and such
breaches shall not have been remedied within 30 days after receipt by
Allegiant of notice in writing from Equality, specifying the nature of
such breaches and requesting that they be remedied; or
(y) Allegiant shall have failed to perform and
comply with, in all material respects, its agreements and covenants
hereunder and such failure to perform or comply shall not have been
remedied within 30 days after receipt by Allegiant of notice in writing
from Equality, specifying the nature of such failure and requesting that
it be remedied; or
(i) by Allegiant, by written notice to Equality, if
(x) there exists any material breach or breaches
of the representations and warranties of Equality made herein, and such
breaches shall not have been remedied within 30 days after
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receipt by Equality of notice in writing from Allegiant, specifying the
nature of such breaches and requesting that they be remedied;
(y) Equality shall have failed to perform and
comply with, in all material respects, its agreements and covenants
hereunder and such failure to perform or comply shall not have been
remedied within 30 days after receipt by Equality of notice in writing
from Allegiant, specifying the nature of such failure and requesting
that it be remedied; or
(z) the Board of Directors of Equality or any
committee thereof:
(A) shall withdraw or modify in any
manner adverse to Allegiant its approval or recommendation of this
Agreement or the Merger,
(B) shall fail to reaffirm such approval
or recommendation upon Allegiant's request,
(C) shall approve or recommend any Business
Combination Proposal involving Equality other than the Merger involving
Equality, in each case, by or involving a party other than Allegiant
or any of its affiliates or
(D) shall resolve to take any of the
actions specified in clause (A), (B) or (C).
7.2 Effect of Termination. Subject to Section 7.3, in the
--------------------- -----------
event of termination of this Agreement by Equality or Allegiant pursuant
to Section 7.1 there shall be no liability on the part of either
-----------
Equality or Allegiant or their respective officers or directors
hereunder, except that Section 5.3(b), Section 5.20, this Section 7.2
-------------- ------------ -----------
and Section 7.3 shall survive the termination.
-----------
7.3 Termination Fee; Expenses.
-------------------------
(a) If this Agreement is terminated at such time that
this Agreement is terminable pursuant to one (but not both) of (A)
Section 7.1(h)(x) or (y) or (B) Section 7.1(i)(x) or (y), then the
------------------------ ------------------------
non-terminating party shall promptly (but no later than five (5)
business days after receipt of notice from the
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terminating party) pay to the terminating party in cash an amount equal
to all documented out-of-pocket expenses and fees incurred by the
terminating party (including, without limitation, fees and expenses
payable to all legal, accounting, financial, public relations and other
professional advisors arising out of, in connection with or related to
the Merger or the transactions contemplated by this Agreement) not in
excess of $250,000; provided, however, that, if this Agreement is
-------- -------
terminated by a party as a result of a willful breach by the other party
of any representation, warranty, agreement or covenant contained in this
Agreement, the terminating party may pursue any remedies available to it
at law or in equity and shall, in addition to its documented out-of-
pocket expenses and fees (which shall be paid as specified above and
shall not be limited to $250,000), be entitled to recover such
additional amounts as such terminating party may be entitled to receive
at law or in equity.
(b) The parties agree that the agreements contained in
this Section 7.3 are an integral part of the transactions contemplated
-----------
by this Agreement and constitute liquidated damages and not a penalty.
If one party fails to promptly pay to any other party any fee due
hereunder, the defaulting party shall pay the costs and expenses
(including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any unpaid fee
at the publicly announced prime rate as published in The Wall Street
---------------
Journal (Midwest Edition) from the date such fee was required to be
-------------------------
paid.
7.4 Amendment. Subject to compliance with applicable law,
---------
this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before
or after approval of the matters presented in connection with the Merger
by the shareholders of Equality; provided, however, that after any
-------- -------
approval of the transactions contemplated by this Agreement by the
shareholders of Equality, there may not be, without further approval of
such shareholders, any amendment of this Agreement that changes the
amount or the form of the consideration to be delivered to the holders
of Equality Common Stock hereunder other than as contemplated by this
Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time before the Effective Time,
-----------------
the parties hereto, by action taken or authorized by their respective
Board of Directors, may, to the extent legally allowed, (a) extend
the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document
delivered pursuant hereto, and (c)
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waive compliance with any of the agreements or conditions contained
herein; provided, however, that after any approval of the
-------- -------
transactions contemplated by this Agreement by the shareholders of
Equality, there may not be, without further approval of such
shareholders, any extension or waiver of this Agreement or any portion
thereof which reduces the amount or changes the form of the
consideration to be delivered to the holders of Equality Common Stock
hereunder other than as contemplated by this Agreement. Any agreement
on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such
party, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-survival of Representations, Warranties and Agreements.
----------------------------------------------------------
None of the representations, warranties, covenants and agreements in
this Agreement (or in any instrument delivered pursuant to this
Agreement, which shall terminate in accordance with its terms)
shall survive the Effective Time, except for those covenants and
agreements contained herein which by their terms apply in whole or in
part after the Effective Time. Without by implication limiting the
foregoing, none of the directors or officers of the parties hereto shall
have any liability for any of the representations, warranties, covenants
and agreements contained herein.
8.2 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), mailed by registered or certified mail
(return receipt requested) or delivered by an express courier (with
confirmation) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
If to Allegiant addressed to: If to Equality addressed to:
Allegiant Bancorp, Inc. Equality Bancorp, Inc.
2122 Kratky Road 4131 South Grand Blvd.
St. Louis, Missouri 63114 St. Louis, Missouri 63118
Attention: Shaun R. Hayes Attention: Richard C. Fellhauer
Telephone: (314) 692-8200 Telephone: (314) 352-3333
Facsimile: (314) 692-8500 Facsimile: (314) 352-7768
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with a copy to: with a copy to:
Thomas A. Litz, Esq. Christopher J. Zinski, Esq.
Thompson Coburn LLP Schiff Hardin & Waite
One Firstar Plaza 6600 Sears Tower
St. Louis, Missouri 63101 Chicago, Illinois 60606
Telephone: (314) 552-6000 Telephone: (312) 258-5548
Facsimile: (314) 552-7000 Facsimile: (312) 258-5700
8.3 Interpretation. When a reference is made in this
--------------
Agreement to Sections, Exhibits or Schedules, such reference shall be to
a section of or exhibit or schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." No
provision of this Agreement shall be construed to require Equality, the
Equality Subsidiaries, Allegiant or Allegiant Subsidiaries or affiliates
to take any action that would violate any applicable law, rule or
regulation.
8.4 Counterparts. This Agreement may be executed in
------------
counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed
by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
8.5 Entire Agreement. This Agreement (including the documents
----------------
and the instruments referred to herein) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and
oral, among the parties hereto with respect to the subject matter hereof.
8.6 Governing Law. This Agreement and the exhibits attached
-------------
hereto shall be governed and construed in accordance with the laws of
the State of Illinois, without regard to any applicable conflicts of
law.
8.7 Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting
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<PAGE>
the validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If, however, any provision of this
Agreement is declared invalid or unenforceable by a court of competent
jurisdiction, then the parties hereto shall in good faith amend this
Agreement to include an alternative provision that accomplishes a
similar result.
8.8 Publicity. Except as otherwise required by applicable
---------
law or the rules of The Nasdaq Stock Market or the American Stock
Exchange or any other applicable securities exchange, neither Equality
nor Allegiant shall, nor shall Equality or Allegiant permit the Equality
Subsidiaries or Allegiant Subsidiaries, respectively, to issue or cause
the publication of any press release or other public announcement with
respect to, or otherwise make any public statement concerning, the
transactions contemplated by this Agreement without the consent of the
other party, which consent shall not be unreasonably withheld or
delayed.
8.9 Assignment; Third Party Beneficiaries. Neither this
-------------------------------------
Agreement nor any of the rights, interests or obligations of the parties
under this Agreement shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the parties and their respective successors and assigns.
Except as otherwise specifically provided in this Section 8.9 and in
-----------
Section 5.10, this Agreement (including the documents and instruments
------------
referred to herein) is not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
[remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, Allegiant, Acquisition Corp. and Equality have
executed this Agreement as of the day and year hereinabove first
written.
ALLEGIANT BANCORP, INC.
By: /s/ Shaun R. Hayes
-------------------------------
Name: Shaun R. Hayes
Title: President and Chief
Executive Officer
ALLEGIANT ACQUISITION CORPORATION
By: /s/ Shaun R. Hayes
--------------------------------
Name: Shaun R. Hayes
Title: President
EQUALITY BANCORP, INC.
By: /s/ Richard C. Fellhauer
-------------------------------
Name: Richard C. Fellhauer
Title: President and Chief
Executive Officer
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<PAGE>
Howe Barnes Investments, Inc. ANNEX B
Member of the New York Stock Exchange -------
135 South LaSalle Street
Chicago, Illinois 60603
312-655-3000
(800) 800-4693
September 15, 2000
Board of Directors
Allegiant Bancorp, Inc.
2122 Kratky Road
St. Louis, Missouri 63114
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock
of Allegiant Bancorp, Inc. ("Allegiant Bancorp") of the consideration
(the "Consideration") to be paid for the exchange of common shares in
the merger (the "merger") of Equality Bancorp, Inc. ("Equality") with
Allegiant Bancorp, pursuant to the Agreement and Plan of Merger, dated
July 26, 2000 by and between Allegiant Bancorp and Equality (the "merger
agreement").
Pursuant to the merger agreement, Equality will merge with and into
Allegiant Bancorp, and Allegiant Bancorp shall be the surviving
corporation in the merger. Each share of Equality common stock
outstanding immediately prior to the effective time of the merger (other
than shares as to which statutory dissenters' appraisal rights have been
exercised) will be converted into and exchanged for 1.118 shares of
Allegiant Bancorp common stock. The maximum aggregate number of shares
of Allegiant Bancorp common stock to be issued as part of the merger is
2,665,000. The terms of the merger are more fully set forth in the
merger agreement.
For purposes of this opinion and in connection with our review of the
proposed transaction, we have, among other things:
1. Participated in discussions with representatives of
Allegiant Bancorp concerning Allegiant Bancorp's and
Equality's financial condition, businesses, assets,
earnings, prospects, and such senior management's views as
to its future financial performance;
2. Reviewed the terms of the merger agreement;
3. Reviewed certain publicly available financial statements,
both audited (where available) and unaudited, and related
financial information of Allegiant Bancorp and Equality,
including those included in their respective Annual Reports
on Form 10-K and Form 10-KSB for the past two years and the
respective Quarterly Reports on Form 10-Q and Form 10-QSB
for the periods ended March 31, 2000 and June 30, 2000, as
well as other internally generated reports relating to
asset/liability management, asset quality, and so forth;
4. Reviewed certain financial forecasts and projections of
Allegiant Bancorp and Equality prepared by its management
and reviewed publicly available information for Allegiant
Bancorp and Equality;
B-1
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<PAGE>
Board of Directors
Allegiant Bancorp, Inc.
Page 2
5. Discussed and reviewed certain aspects of the past and
current business operations, financial condition, and future
prospects of Allegiant Bancorp and Equality with certain
members of management;
6. Reviewed reported market prices and historical trading
activity of Allegiant Bancorp and Equality common stock;
7. Reviewed certain aspects of the financial performance of
Allegiant Bancorp and Equality and compared such financial
performance of Allegiant Bancorp and Equality, together with
stock market data relating to Allegiant Bancorp and Equality
common stock, with similar data available for certain other
financial institutions and certain of their publicly traded
securities; and
8. Reviewed certain of the financial terms, to the extent
publicly available, of certain recent business combinations
involving other financial institutions.
We have assumed and relied, without independent verification, upon the
accuracy and completeness of all of the financial and other information
that has been provided to us by Allegiant Bancorp, Equality, and their
respective representatives, and of the publicly available information
that was reviewed by us. We are not experts in the evaluation of
allowances for loan losses and have not independently verified such
allowances, and have relied on and assumed that the aggregate allowances
for loan losses set forth in the balance sheets of each of Allegiant
Bancorp and Equality at June 30, 2000 are adequate to cover such losses
and complied fully with applicable law, regulatory policy and sound
banking practice as of the date of such financial statements. We were
not retained to and we did not conduct a physical inspection of any of
the properties or facilities of Allegiant Bancorp or Equality, did not
make any independent evaluation or appraisal of the assets, liabilities
or prospects of Allegiant Bancorp or Equality, were not furnished with
any such evaluation or appraisal, and did not review any individual
credit files. Our opinion is necessarily based on economic, market, and
other conditions as in effect on, and the information made available to
us as of, the date hereof.
Howe Barnes Investments, Inc., as part of its investment banking
business, is regularly engaged in the valuation of banks and bank
holding companies, thrifts and thrift holding companies, and various
other financial services companies, in connection with mergers and
acquisitions, initial and secondary offerings of securities, and
valuations for other purposes. In rendering this fairness opinion, we
have acted on behalf of the board of directors of Allegiant Bancorp and
will receive a fee for our services.
Howe Barnes Investments' opinion as expressed herein is limited to the
fairness, from a financial point of view, of the consideration to be
received by holders of Equality common stock in the merger and does not
address Allegiant Bancorp's underlying business decision to proceed with
the merger. We have been retained on behalf of the board of directors
of Allegiant Bancorp, and our opinion does not constitute a
recommendation to any holder of Allegiant Bancorp common stock as to how
such holder should vote with respect to the merger agreement at any
meeting of holders of Allegiant Bancorp common stock.
B-2
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<PAGE>
Board of Directors
Allegiant Bancorp, Inc.
Page 3
Subject to the foregoing and based on our experience as investment
bankers, our activities as described above, and other factors we have
deemed relevant, we are of the opinion as of the date hereof that the
Consideration is fair, from a financial point of view, to the holders of
Allegiant Bancorp common stock.
Sincerely,
HOWE BARNES INVESTMENTS, INC.
/s/ Daniel E. Coughlin
-------------------------------------------------
Daniel E. Coughlin, Senior Vice President
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RP FINANCIAL, LC.
----------------------------------------------- ANNEX C
Financial Services Industry Consultants -------
September 15, 2000
Board of Directors
Equality Bancorp, Inc.
4131 South Grand Boulevard
St. Louis, Missouri 63118
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide
you with its opinion as to the fairness from a financial point of view
to the shareholders of Equality Bancorp, Inc., St. Louis, Missouri, a
Delaware Corporation ("Equality"), of the Agreement and Plan of merger
(the "Agreement"), dated July 26, 2000, by and among Allegiant Bancorp,
Inc., St. Louis, Missouri, a Missouri Corporation ("Allegiant"),
Allegiant Acquisition Corporation, a Delaware corporation and wholly-
owned subsidiary of Allegiant ("Acquisition Corp.") and Equality. The
Agreement is incorporated herein by reference. Unless otherwise defined,
all capitalized terms incorporated herein have the meanings ascribed to
them in the Agreement.
Summary Description of Consideration
------------------------------------
At the Effective Time, by virtue of the merger and without any
action on the part of Equality or the holder of any securities of
Equality, each share of common stock, $.01 par value per share, of
Equality (the "Equality common stock") issued and outstanding (other
than shares held in the treasury of Equality, shares in the Equality MRP
not subject to an award under the Equality MRP, shares held by any of
Equality's Subsidiaries other than in a fiduciary capacity, and shares
owned by Allegiant, Acquisition Corp or any other Subsidiary of
Allegiant other than in a fiduciary capacity) shall be converted into
the right to receive 1.118 shares of common stock, $.01 par value per
share, of Allegiant ("Allegiant common stock"), provided that holders
of fractional shares shall be entitled to receive cash in lieu of
fractional shares. The conversion of each share of Equality Common
Stock into 1.118 shares of Allegiant Common Stock shall hereinafter
be referred to as the "exchange ratio."
RP Financial Background and Experience
--------------------------------------
RP Financial, as part of its financial institution valuation and
consulting practice, is regularly engaged in the valuation of financial
institution securities in connection with mergers and acquisitions of
commercial banks and thrift institutions, initial and secondary stock
offerings, mutual-to-stock conversions of thrift institutions, and
business valuations for other corporate purposes for financial
institutions. As specialists in the securities of financial
institutions, RP Financial has experience in, and knowledge of, the
Missouri and Midwest U.S. markets for bank securities and financial
institutions operating in Missouri.
Materials Reviewed
------------------
In rendering this fairness opinion, RP Financial reviewed the
following material: (1) the Agreement; (2) the Joint Proxy Statement/
Prospectus and related Annexes included in the Form S-4 Registration
Statement; (3) financial and other information for Equality, all
with regard to balance sheet and off-balance sheet composition,
profitability, interest rates, volumes, maturities, trends, credit risk,
interest rate risk, liquidity risk and operations including: (a) audited
financial statements for the fiscal years ended March 31, 1997 through
2000, (b) Form 10-KSB as of March 31, 2000, (c) shareholder, regulatory
and internal financial and other reports through June 30, 2000, (d) the
most recent proxy materials for Equality, (e) internal budgets, financial
projections and business plan forecasts prepared by management, (f) the
-------------------------------------------------------------------------
Washington Headquarters Telephone: (703) 528-1700
Rosslyn Center Fax No.: (703) 528-1788
1700 North Moore Street, Suite 2210 E-Mail: [email protected]
Arlington, VA 22209
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Board of Directors
September 15, 2000
Page 2
memorandum of understanding in effect between Equality and the Federal
Deposit Insurance Corporation, and (g) Equality's management comments regarding
past and current business, operations, financial condition, and future
prospects; and (4) financial and other information for Allegiant Bancorp
including: (a) audited financial statements for the fiscal years ended
December 31, 1997 through 1999, incorporated in Annual Reports to shareholders
and Form 10-Ks; (b) Forms 10-Q as of March 31, 2000 and June 30, 2000 and
interim results and developments through June 30, 2000 released in press
release form; (c) regulatory and internal financial and other reports through
June 30, 2000, (d) internal budgets and financial projections prepared
by management of Allegiant Bancorp, (e) recent research materials
concerning Allegiant prepared by third party financial analysts, and,
(f) Allegiant's management comments regarding past and current business,
operations, financial condition, and future prospects.
In addition, RP Financial reviewed financial, operational, market
area and stock price and trading characteristics for Allegiant and
Equality relative to publicly-traded banks and bank holding companies
and savings institutions, respectively, with comparable resources,
financial condition, earnings, operations and markets. RP Financial
also considered the economic and demographic characteristics in the
local market area, and the potential impact of the regulatory,
legislative and economic environments on operations for Allegiant and
Equality and the public perception of the thrift and banking industries.
RP Financial also considered: (a) a transaction summary of the financial
terms of the merger, including the aggregate consideration represented by
the exchange ratio relative to book value, fully diluted earnings, assets,
and deposit liabilities of Equality; (b) the financial terms, financial
condition, operating performance, and market areas of other recently
completed mergers and acquisitions of comparable financial institution
entities, including evaluating Midwest U.S. transactions both generally
and specifically and U.S. transactions nationwide where the selling
institution's financial condition and operations were comparable to those
of Equality; (c) discounted cash flow analyses for Equality on a stand-
alone basis, incorporating the current business plan should Equality
determine to remain and operate as an independent institution and future
prospects of operating as an independent institution; and (d) the pro
forma impact of the merger to the holders of Equality Common Stock
incorporating the exchange ratio, estimated transaction adjustments, and
potential earnings improvements resulting from consolidation, including
the resulting impact to the market value per share, tangible book value
per share, earnings per share, and dividends per share of Equality Common
Stock. RP Financial also considered the more attractive liquidity
characteristics of Allegiant Common Stock relative to Equality Common
Stock, the enhanced competitive position of Allegiant resulting from the
merger, the greater return on equity of Allegiant relative to Equality,
and the opportunities for Allegiant to increase earnings in the future,
and the results of Equality's strategic planning activities including
expressions of interest received from other potential acquirers of Equality.
The results of these analyses and the other factors considered were
evaluated as a whole, with the aggregate results indicating a range of
financial parameters utilized to assess the Exchange Ratio as described in
the Agreement.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information
concerning Equality and Allegiant furnished by the respective
institutions to RP Financial for review, as well as publicly-available
information regarding other financial institutions and economic and
demographic data. Neither Equality nor Allegiant restricted RP
Financial as to the material it was permitted to review. RP Financial
did not perform or obtain any independent appraisals or evaluations
of the assets and liabilities and potential and/or contingent assets
of liabilities of Equality or Allegiant. The financial forecasts
and budgets reviewed by RP Financial were prepared by the respective
management teams of Equality and Allegiant. Neither Equality nor
Allegiant publicly discloses internal management forecasts or budgets
of the type provided to RP Financial in connection with the review of
the Merger, and such financial forecasts were not prepared with a view
towards public disclosure. The financial forecasts and budgets were
based upon numerous variables and assumptions that are inherently
uncertain, including without limitation factors related to general
economic and competitive conditions, as well as trends in asset quality.
Accordingly, actual results could vary significantly from those set
forth in such financial forecasts.
RP Financial expresses no opinion on matters of a legal,
regulatory, tax or accounting nature or the ability of the Merger as set
forth in the Agreement to be consummated. In rendering its opinion, RP
Financial assumed that, in the course of obtaining the necessary
regulatory and governmental approvals for the proposed merger, no
restriction will be imposed on Allegiant that would have a material
adverse effect on the ability of the merger to be consummated as set
forth in the Agreement.
C-2
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<PAGE>
Board of Directors
September 15, 2000
Page 3
Opinion
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It is understood that this letter is directed to the board of
directors of Equality in its consideration of the Agreement, and does
not constitute a recommendation to any shareholder of Equality as to any
action that such shareholder should take in connection with the
Agreement, or otherwise.
It is understood that this opinion is based on market conditions
and other circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety
in any communication by Equality or its board of directors to the
stockholders of Equality. It is also understood that this opinion may
be included in its entirety in any regulatory filing by Allegiant
or Equality, and that RP Financial consents to the summary of the opinion
in the proxy materials of Equality, and any amendments thereto. Except
as described above, this opinion may not be summarized, excerpted from
or otherwise publicly referred to without RP Financial's prior written
consent.
Based upon and subject to the foregoing, and other such matters
considered relevant, it is RP Financial's opinion that, as of the date
hereof, the exchange ratio, as described in the Agreement, is fair to
such shareholders from a financial point of view.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ RP FINANCIAL, LC.
C-3
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<PAGE>
PROXY
ALLEGIANT BANCORP, INC.
2122 KRATKY ROAD
ST. LOUIS, MISSOURI 63114
For the Special Meeting of Shareholders to be held October 19, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of ALLEGIANT BANCORP, INC., does
hereby nominate, constitute and appoint Shaun R. Hayes and Thomas A.
Daiber, or each of them (with full power to act alone), true and lawful
proxies and attorneys-in-fact, with full power of substitution, for the
undersigned and in the name, place and stead of the undersigned to vote
all of the shares of common stock, $0.01 par value, of Allegiant
Bancorp, Inc. standing in the name of the undersigned on its books at
the close of business on September 1, 2000 at the Special Meeting of
Shareholders to be held at Allegiant Bancorp's headquarters, 2122 Kratky
Road, St. Louis, Missouri, on Thursday, October 19, 2000, at 3:00 p.m.,
Central Time, and at any adjournments or postponements thereof, with all
the powers the undersigned would possess if personally present, as
follows:
1. To consider and vote upon the approval of the issuance of
shares of common stock, $0.01 par value, of Allegiant Bancorp,
Inc. in connection with the consummation of the transactions
contemplated by the Agreement and Plan of Merger, dated
as of July 26, 2000, by and among Allegiant Bancorp, Inc.,
Allegiant Acquisition Corporation and Equality Bancorp, Inc. The
merger agreement provides that (a) Allegiant Bancorp, Inc. will
acquire Equality Bancorp, Inc. through the merger of Allegiant
Acquisition Corporation with and into Equality Bancorp, Inc.,
(b) in connection with the merger, each issued and outstanding
share of common stock, $0.01 par value, of Equality Bancorp, Inc.
will be converted into and become the right to receive 1.118
shares of Allegiant Bancorp, Inc. and (c) each outstanding option
to acquire shares of common stock of Equality Bancorp will be
converted into an option to acquire shares of common stock of
Allegiant Bancorp, upon the terms and subject to the conditions
contained in the merger agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
THE PROPOSAL TO ISSUE SHARES OF ALLEGIANT BANCORP
COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.
The undersigned hereby revokes any other proxies to vote at such
meeting and hereby ratifies and confirms all that the proxies and
attorneys-in-fact, or each of them, appointed hereunder may lawfully do
by virtue hereof. Said proxies and attorneys-in-fact, without limiting
their general authority, are specifically authorized to vote in
accordance with their best judgment with respect to all matters incident
to the conduct of the special meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS
GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED ABOVE.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY.
RETURN USING THE ENVELOPE PROVIDED
Check appropriate box Date _______________, 2000
Indicate changes below:
Address Change? / / Name Change? / /
-------------------------
/ /
/ /
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Signature(s) In Box
When signing as attorney,
executor, administrator,
trustee or guardian, please
give your full title. If more
than one person holds the
power to vote the same shares,
all must sign. All joint
owners must sign. The
undersigned hereby
acknowledges receipt of the
notice of Special Meeting and
the Joint Proxy Statement/
Prospectus (with all
enclosures and attachments),
dated September 15, 2000,
relating to the special meeting.
<PAGE>
<PAGE>
PROXY
EQUALITY BANCORP, INC.
4131 SOUTH GRAND BOULEVARD
ST. LOUIS, MISSOURI 63118
(Please sign and date on reverse side)
For the Special Meeting of Shareholders to be held October 19, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of EQUALITY BANCORP, INC., does
hereby nominate, constitute and appoint RICHARD C. FELLHAUER AND MICHAEL
A. DEELO, or each of them (with full power to act alone), true and
lawful proxies and attorneys-in-fact, with full power of substitution,
for the undersigned and in the name, place and stead of the undersigned
to vote all of the shares of common stock, $0.01 par value, of Equality
Bancorp, Inc. standing in the name of the undersigned on its books at
the close of business on September 6, 2000 at the Special Meeting of
Shareholders to be held at 558 Gravois Road, Fenton, Missouri 63026, on
Thursday, October 19, 2000, at 10:00 a.m., Central Time, and at any
adjournments or postponements thereof, with all the powers the undersigned
would possess if personally present, as follows:
1. To approve and adopt the Agreement and Plan of Merger, dated
as of July 26, 2000, by and among Allegiant Bancorp, Inc., a
Missouri corporation, Allegiant Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of Allegiant
Bancorp, and Equality Bancorp, Inc., and the related transactions,
pursuant to which, among other things, (i) Allegiant Bancorp
Corporation will be merged with and into Equality Bancorp, Inc.,
with Equality Bancorp being the surviving corporation in the merger,
and (ii) each outstanding share of our common stock, $0.01 par value,
will be canceled and converted into the right to receive 1.118 shares
of common stock, $0.01 par value, of Allegiant Bancorp, upon the terms
and subject to the conditions set forth in the merger agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
THE PROPOSAL LISTED ABOVE.
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PLEASE LIST
NAMES OF PERSONS ATTENDING
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<PAGE>
<PAGE>
[LOGO] EQUALITY
BANCORP, INC.
SPECIAL MEETING
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
PLEASE COMPLETE, DATE, SIGN AND MAIL THE
DETACHED PROXY CARD IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
DETACH PROXY CARD HERE
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The undersigned hereby revokes any other proxies to vote at such
meeting and hereby ratifies and confirms all that the proxies and
attorneys-in-fact, or each of them, appointed hereunder may lawfully do
by virtue hereof. Said proxies and attorneys-in-fact, without limiting
their general authority, are specifically authorized to vote in
accordance with their best judgment with respect to all matters incident
to the conduct of the special meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS
GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED ON THE
REVERSE SIDE.
Signed:
------------------------------
------------------------------
Dated: , 2000
------------------------
IMPORTANT: When signing as attorney, executor, administrator, trustee
or guardian, please give your full title. If more than one
person holds the power to vote the same shares, all must
sign. All joint owners must sign. The undersigned hereby
acknowledges receipt of the notice of Special Meeting and
the Joint Proxy Statement/Prospectus (with all enclosures
and attachments), dated September 15, 2000, relating to the
Special Meeting.
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[LOGO] EQUALITY
BANCORP, INC.
SPECIAL MEETING
If you personally plan to attend the Special Meeting of Shareholders,
please check the box below and list names of attendees on reverse aide.
Return this stub in the enclosed envelope with your completed proxy
card.
I/We do plan to attend the
Special Meeting. / /
