OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
---------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 0-23645
LEEDS FEDERAL BANKSHARES, INC
(Exact name of registrant at specified in its charger)
UNITED STATES 52-2062351
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1101 Maiden Choice Lane, Baltimore,
Maryland 21229 (Address of
principal executive offices)
Registrant's telephone number, including area code: 410-242-1234
Former name, former address and former fiscal year, if changed since last report
Indicated by a check whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: There were 5,178,142
shares of the Registrant's common stock outstanding as of March 31, 1998 which
reflects 3-for-2 common stock split declared October 22, 1997.
<PAGE>
LEEDS FEDERAL BANKSHARES, INC
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 1998 (unaudited), and June 30, 1997 1
Consolidated Statements of Income and Comprehensive Income
(unaudited) for the three months and and nine months ended
March 31,1998 and 1997 2
Consolidated Statements of Cash Flows (unaudited) for the
three months and nine months ended March 31, 1998 and 1997 3
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LEEDS FEDERAL BANKSHARES, INC
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Mar 31, June 30,
1998 1997
---- ----
(unaudited)
Assets
Cash:
<S> <C> <C>
On hand and due from banks $2,469,404 2,158,453
Interest-bearing deposits 11,701,702 11,172,475
Short Term Investments 10,800,046 2,722,336
Secured short-term loans to commercial banks 14,653,891 9,735,532
Securities purchased under agreements to resell -0- 5,517,903
Investment securities, net (held to maturity) 34,381,313 43,614,562
Investment securities, net (available for sale) 9,428,026 8,162,419
Mortgage backed securities, net (held to maturity) 18,165,585 22,294,337
Loans receivable, net 187,727,143 174,877,796
Investment in Federal Home Loan Bank of Atlanta stock,
at cost 2,377,200 2,377,200
Property and equipment, net 874,532 863,823
Cash surrender value of life insurance 6,066,179 3,153,193
Prepaid expenses and other assets 351,884 309,808
Ground rents owned, at cost -0- 39,500
------------- -----------
298,996,905 286,999,337
------------- -----------
Liabilities and Stockholders' Equity
Savings accounts 242,810,457 232,590,009
Borrowed Funds-Employee Stock Ownership Plan 576,000 648,000
Advance payments by borrowers for taxes, insurance
and ground rents 3,716,667 4,804,060
Federal and state income taxes:
Currently Payable 157,369 335,841
Deferred 1,391,225 1,062,219
Accrued expenses and other liabilities 1,034,795 817,871
------------- -----------
Total Liabilities 249,686,513 240,258,000
------------- -----------
Stockholders' Equity:
Common Stock $1 par value:
20,000,000 shares authorized:
issued and outstanding 5,182,097 shares* 5,182,097 5,182,097
Additional paid in capital* 9,099,098 8,948,119
Employee stock ownership plan (513,117) (591,300)
Management recognition plan (18,963) (60,141)
Retained income, substantially restricted 33,668,609 31,854,434
Treasury Stock at cost: 3955 shares (83,055) -0-
Other comprehensive income 1,975,723 1,408,128
------------ -------------
Total Stockholders' Equity 49,310,392 46,741,337
------------- -----------
$298,996,905 286,999,337
------------- -----------
</TABLE>
* reflects 3-for-2 common stock split declared October 22,1997, described in
Note 3.
See accompanying notes to consolidated financial statements
<PAGE>
LEEDS FEDERAL BANKSHARES INC
Consolidated Statements of Income and Comprehensive Income
(unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended March 31, Ended March 31,
1998 1997 1998 1997
---- ---- ---- ----
Interest Income:
<S> <C> <C> <C> <C>
First mortgage and other loans $10,244,123 9,144,472 3,505,603 3,148,297
Mortgage-backed securities 1,107,812 1,445,667 340,438 454,229
Investment securities and short term
investments 3,842,790 3,970,078 1,245,234 1,308,383
----------- ---------- ---------- ---------
Total interest income 15,194,725 14,560,217 5,091,275 4,910,909
------------ ----------- ---------- ---------
Interest expense:
Savings accounts 9,007,802 8,626,836 3,021,146 2,844,942
Other 42,920 47,880 14,029 15,857
----------- ------- ------- ------
Total interest expense 9,050,722 8,674,716 3,035,175 2,860,799
----------- ---------- ---------- ---------
Net interest income 6,144,003 5,885,501 2,056,100 2,050,110
Provision for loan losses 10,886 132,816 -0- 30,059
---------- ---------- ---------- ------
Net interest income after provision
for loan losses 6,133,117 5,752,685 2,056,100 2,020,051
----------- ---------- ---------- ---------
Noninterest income:
Service fees and charges 105,740 97,382 31,886 31,664
Other 143,723 106,239 72,057 38,597
----------- --------- ------- ---------
249,463 203,621 103,943 70,261
-------- -------- -------- ------
Noninterest expense:
Compensation and employee benefits 1,341,327 1,114,302 446,464 386,586
Occupancy 147,524 152,407 50,638 53,291
SAIF deposit insurance premiums 166,217 1,699,601 55,212 26,307
Advertising 159,061 109,306 43,080 48,366
Other 551,179 471,134 205,786 173,614
-------- -------- -------- -------
2,365,308 3,546,750 801,180 688,164
---------- ---------- -------- -------
Income before provision for income taxes 4,017,272 2,409,556 1,358,863 1,402,148
Provision for income taxes 1,470,390 929,282 495,209 541,510
---------- ---------- -------- -------
Net Income $2,546,882 1,480,274 863,654 860,638
----------- ---------- -------- -------
Other comprehensive income(loss), net of tax
Unrealized gains on securities 567,596 301,855 240,022 (58,247)
-------- -------- -------- --------
Comprehensive income $3,114,478 $1,782,129 $1,103,676 $802,391
----------- ----------- ----------- --------
Net income per share of common stock
Basic $ .50 $ .29 $ .17 $ .17
----------- --------- ---------- --------
Diluted $ .49 $ .29 $ .17 $ .17
----------- --------- ---------- --------
</TABLE>
See accompaning notes to consolidated financial statements
<PAGE>
LEEDS FEDERAL BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income
Adjustments to reconcile net income to net cash provided by $2,546,882 1,480,274
operating activities:
Amortization of loan fees, premiums and discounts,net (67,962) (61,032)
Provision for loan losses 10,886 132,816
Accretion of premiums(discounts) on investments securities and
mortgage-backed securities, net (13,661) (30,637)
Gain on sale of fixed asset (1,800) -0-
Depreciation 77,864 92,459
Non-cash compensation under stock based benefit plans 270,340 199,751
(Increase) decrease in accrued interest receiveable on
mortgage-backed securities and loans receiveable 204,278 (15,651)
Decrease in income taxes currently payable (178,472) (43,265)
Increase in accrued expenses and other liabilities 216,924 145,938
Increase in unearned loan fees 4,038 212,312
Increase (decrease) in prepaid expenses and other assets (42,075) 128,318
Amortization of net unrealized holding loss (-0-) (11,997)
----- -----------
Net cash provided by operating activities 3,027,242 2,229,286
---------- ---------
Cash flows from investing activities:
Purchase of investment securities held for maturity (22,456,844) (5,400,000)
Purchase of available for sale securities (1,175,000) (300,000)
Maturity of investment securities held for maturity 31,585,031 13,104,940
Maturity of available for sale securities 700,000 - 0-
Principal repayment of investment securities 6,623 - 0-
Loan disbursements, net (12,775,450) (20,832,626)
Mortgage-backed securities principal repayments 4,120,708 4,550,885
Purchases of property and equipment (92,767) (25,232)
Sale of property and equipment 6,994 -0-
Sale of ground rents owned 39,500 1,600
Investment in life insurance (2,912,986) (100,997)
----------- ---------
Net cash used in investing activities (2,954,191) (9,001,430)
----------- -----------
</TABLE>
<PAGE>
LEEDS FEDERAL BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
Cash flows from financing activities:
<S> <C> <C>
Net increase in savings accounts 10,220,448 7,935,296
Decrease in advance payments by borrowers for taxes insurance
and ground rents (1,087,393) (974,002)
Proceeds from exercised options -0- 83,545
Dividends paid (732,707) (626,248)
Stock repurchases (83,055) -
Repayment of Borrowed Funds (72,000) (72,000)
----------- --------
Net cash provided by financing activities 8,245,293 6,346,591
----------- ----------
Net increase (decrease) in cash and cash equivalents 8,318,344 (425,553)
Cash and cash equivalents at beginning of period 31,306,699 25,921,657
------------ ----------
Cash and cash equivalents at end of period $39,625,043 25,496,104
------------ ----------
Non Cash Transactions - Increase in net unrealized gains on securities
available for sale, net of income tax effect. 567,595 305,422
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LEEDS FEDERAL BANKSHARES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements include all
adjustments, consisting of normal recurring adjustments, which, in the opinion
of management are necessary for a fair presentation of financial position and
results of operations. The financial statements have been prepared using the
accounting policies described in the June 30, 1997 Annual Financial Statements.
The results of operations for the three months and nine months ended March 31,
1998, are not necessarily indicative of the results that may be expected for the
entire year.
(2) Reclassification of Prior Year's Statements.
Certain amounts in the 1997 financial statements have been reclassified
to conform to the 1998 presentation.
(3) Net Income per Share of Common Stock
On November 19, 1997, the Leeds Federal Savings Bank, the wholly owned
subsidiary of Leeds Federal Bankshares,Inc. (The Company), declared a
three-for-two common stock split in the form of a stock dividend to stockholders
of record on November 5, 1997. All per share amounts herein have been adjusted
for the common stock split.
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share," during the three months ended December 31, 1997. Statement
No. 128 establishes revised standards for computing and presenting earnings per
share (EPS) data. It requires dual presentation of "basic" and "diluted" EPS on
the face of the statements of income and reconciliation of the numerators and
denominators used in the basic and diluted EPS calculations. As required by
Statement No. 128, EPS data for prior periods presented have been restated to
conform to the new standard.
<PAGE>
Basic EPS is calculated by dividing net income by the weighted average
number of common shares outstanding for the applicable period. Diluted EPS is
calculated after adjusting the numerator and the denominator of the basic EPS
calculation for the effect of all dilutive potential common shares outstanding
during the period. Information related to the calculation of net income per
share of common stock is summarized as follows:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended March 31, Ended March 31,
1998 1997
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Net Income 2,546,882 2,546,882 1,480,274 1,480,274
Dividends on unvested common stock (5,861) (2,318) (10,166) (7,915)
------- ------- ---------- ---------
Adjusted net income used in EPS
calculations 2,541,021 2,544,564 1,470,108 1,472,359
--------- ---------- ---------- ---------
Weighted average shares outstanding 5,086,817 5,086,817 5,056,623 5,056,623
Dilutive securities:
Options -0- 97,944 -0- 35,930
Unvested common stock awards -0- 8.704 -0- 6,378
------------- --------- ------------- -----
Adjusted weighted-average shares used
in EPS computation 5,086,817 5,193,465 5,056,623 5,098,931
------------ --------- --------- ---------
Three Months March 31, 1998 Three Months March 31,
Ended Ended 1997
Basic Diluted Basic Diluted
----- ------- ----- -------
Net Income 863,654 863,654 860,638 860,638
Dividends on unvested common stock (2,016) (732) (3,658) (2,459)
------- ---------- -------- --------
Adjusted net income used in EPS
calculations 861,638 862,922 856,980 858,179
----------- ---------- -------- -------
Weighted average shares outstanding 5,086,817 5,086,817 5,056,623 5,056,623
Dilutive securities:
Options -0- 103,206 -0- 53,098
Unvested common stock awards -0- 9,172 -0- 9,432
---------- -------- ----------- -----
Adjusted weighted-average shares used
in EPS computation 5,086,817 5,199,195 5,056,623 5,119,153
--------- --------- ---------- ---------
</TABLE>
<PAGE>
(4) Dividends on Common Stock
On March 18, 1998, The Company declared a quarterly cash dividend of
$.14 per share. The dividends were payable to stockholders of record as of April
1, 1998 and were paid on April 22, 1998. Leeds Federal Bankshares, M.H.C. (the
MHC) , which owns 3,300,000 shares of stock in the Company, waived receipt of
its quarterly dividend, thereby reducing the actual dividend payout to
approximately $260,700. The dollar amount of dividends waived by the MHC is
considered as a restriction on the retained earnings of the Company. The amount
of any dividend waived by the MHC shall be available for declaration as dividend
solely to the MHC. At March 31, 1998, the cumulative amount of such waived
dividends was $5,471,400.
(5) Impact of New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement is effective for fiscal years and interim
periods, beginning December 15, 1997 and has been adopted during the quarter
ended March 31, 1998. The comprehensive income and related cumulative equity
impact of comprehensive income items will be required to be disclosed
prominently as part of the financial statements or notes to the financial
statements. Only the impact of unrealized gains or losses on securities
available for sale is expected to be disclosed as an additional component of the
Company's income under the requirements of SFAS No. 130.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related information," which changes the way public
companies report information about segments of their business on their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity wide
disclosures about the products and services an entity provides, the foreign
countries in which it hold assets and reports revenues, and its major customers.
This statement is effective for fiscal years beginning after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pensions and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures that the FASB no longer considers as useful as when they were
issued. This statement suggests combined formats for presentation of pension and
other postretirement benefit disclosures. This statement is effective for fiscal
years beginning after December 15, 1997.
<PAGE>
LEEDS FEDERAL BANKSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 1997 to March 31, 1998
Cash on hand and due from banks, interest bearing deposits, other
liquid investments and investment securities (investments) totaled approximately
$85.8 million, an increase of approximately $351,000 from June 30, 1997 levels.
Mortgage-backed securities totaled $18.2 million, a decrease of $4.1 million,
due to repayments of principal. Loans receivable totaled $187.7 million, an
increase of $12.8 million, mainly in residential mortgages, which increase was
funded by increased savings deposits and the decrease in mortgage backed
securities.
Savings accounts increased approximately $10.2 million, to a total of
$242.8 million at March 31, 1998. Such increase was primarily attributable to
the general market interest rate trends. The Company has offered savings rates
that are competitive with other institutions. However, it has not relied on
brokered funds or negotiated jumbo certificates to maintain deposit levels.
The Company is subject to capital standards which generally require the
maintenance of regulatory capital sufficient to meet each of three tests,
hereinafter described as the tangible capital requirement, the core capital
requirement and the risk-based capital requirement. At March 31, 1998, the
Company had tangible capital of $47.3 million, or 16.0% of total adjusted
assets, which was $42.9 million in excess of the requirement of minimum tangible
capital of $4.4 million, or 1.5% of total adjusted assets; core capital of $47.3
million, or 16.0% of total adjusted assets, which was $38.4 million in excess of
the requirement of minimum core capital of $8.9 million, or 3.0% of total
adjusted assets; and risk-based capital of $47.9 million, or 32.5% of risk
weighted assets, which was $36.1 million in excess of the requirement of a
minimum risk-based capital of 8% of risk weighted assets.
Comparison of Operating Results for Three and Nine Month Periods Ended March 31,
1998 and 1997.
The Company's net income for the three months ended March 31, 1998,
totaled $864,000, an increase of $3,000, as compared to $861,000 for the three
months ended March 31, 1997. The Company's net income for the nine months ended
March 31, 1998, totaled $2.5 million, an increase of $218,000, or 9.3%, from net
income of $2.3 million (before the one-time after tax assessment of $849,000 to
recapitalize the Savings Association Insurance Fund) for the nine months ended
March 31, 1997. Such increase was due primarily to an increase in net interest
income and a decrease in the provision for loan losses of $122,000. After
recognition of the SAIF assessment, the Company's net income for the nine months
ended March 31, 1997, totaled $1.5 million.
Net Interest Income
Interest income on loans for the three months ended March 31, 1998,
totaled $3.5 million, an increase of $357,000, or 11.3%, as compared to $3.1
million for the three months ended March 31, 1997, due principally to a $19.0
million, or 11.4%, increase in average balance of loans to $185.7 million.
Average yield on loans remained relatively unchanged at 7.6%. Interest income on
loans for the nine months ended March 31, 1998, totaled $10.2 million, an
increase of $1.1 million, as compared to the nine months ended March 31, 1997.
The average balances of loans increased by $19.5 million, to $180.6 million, for
the period, while average yield on loans remained relatively unchanged at 7.6%.
<PAGE>
Interest income on mortgage-backed securities decreased by $114,000, or 25.1%,
to $340,000 for the three months ended March 31, 1998, from $454,000 during the
three months ended March 31, 1997. Average yield on mortgage-backed securities
remained relatively unchanged at 7.3%, while average balance of mortgage-backed
securities decreased by $6.4 million to $19.0 million from $25.4 million, for
the three months ended March 31, 1998, compared to the same period last year.
Interest income on mortgage-backed securities decreased by $338,000, to $1.1
million for the nine months ended March 31, 1998, as compared to $1.4 million
for the same period last year. Average yield on mortgage-backed securities
remained relatively unchanged at 7.3%, while average balance of mortgage-backed
securities decreased by $6.3 million to $20.4 million from $26.7 million, for
the nine months ended March 31, 1997.
Interest income on investment securities, certificates of deposit, and
short-term investments ("Investments") decreased by $63,000, or 4.8%, to $1.2
million during the three months ended March 31, 1998, from $1.3 million during
the three months ended March 31, 1997. The decrease in interest income from
Investments over the three month period ended March 31, 1998, from the three
month period ended March 31, 1997, was due to a $1.7 million decrease in average
balance of Investments to $81.2 million from $82.9 million, and a decrease in
average yield of Investments to 6.1%, from 6.3%. Interest on Investments
decreased by $127,000, or 3.2%, to $3.8 million during the nine months ended
March 31, 1998, from $4.0 million during the nine months ended March 31, 1997.
Such decrease was attributable to a $446,000 decrease in average balance of
Investments to $81.8 million, from $82.2 million, and a decrease in average
yield of Investments to 6.3% from 6.4%.
Total interest expense increased by approximately $174,000 during the
quarter ended March 31, 1998 to $3.0 million from $2.9 million for the quarter
ended March 31, 1997. This increase was the result of an increase in average
interest bearing liabilities to $240.8 million from $229.7 million and an
increase in the average rate paid on deposits to 5.1% from 5.0%. For the nine
months ended March 31, 1998, total interest expense increased by $376,000 to
$9.1 million, from $8.7 million for the quarter ended March 31, 1997. The
increase was the result of a $9.6 million increase in average balances to $236.8
million from $227.2 million, while the average rate paid on deposits remained
relatively unchanged at 5.1%. The increase in average balances and average
yields was a result of general market conditions.
As a result of the foregoing changes, interest income remained
relatively unchanged at $2.1 million during the three months ended March 31,
1998, as compared to the three months ended March 31, 1997. During the nine
months ended March 31, 1998, net interest income increased by 259,000, or 4.4%,
to $6.1 million from $5.9 million for the same period last year.
Provision for Loan Losses
The Company had no provision for loan losses for the quarter ended
March 31, 1998, and $30,000 for the quarter ended March 31, 1997. During the
nine months ended March 31, 1998, and 1997, the Company had a provision for loan
losses of $11,000 and $133,000, respectively. Based on management's review and
analysis the allowance for loan losses as of March 31, 1998, was considered
adequate.
Noninterest Income
Noninterest income increased by approximately $34,000 to $104,000
during the three months ended March 31, 1998, as compared to $70,000 during the
three months ended March 31, 1997, as income on life insurance investments
increased by $33,000. For the nine months ended March 31, 1998,
<PAGE>
noninterest income increased $46,000 to $249,000, as compared to the same period
last year, due to an increase in income on life insurance investments.
Noninterest Expense
Noninterest expense for the three months ended March 31, 1998,
increased by approximately $113,000, or 16.4%, to $801,000 from $688,000 during
the three months ended March 31, 1997. Compensation and employee benefits
expense increased by $60,000 for the quarter ended March 31, 1998, due
principally to an increase in the non-cash charges for ESOP contributions which
are accounted for at the current market price of the Company's stock. Other
expenses increased by $32,000 during the quarter ended March 31, 1998, as a
result of loss on the sale of the Company's remaining ground rents. During the
nine months ended March 31, 1998, noninterest expense increased $201,000, or
9.3%, to $2.4 million, from 2.2 million (before the one-time pretax SAIF
assessment of $1.4 million) for the same period last year.
Provision for Income Taxes
The effective income tax rates for the three months and nine months
ended March 31, 1998, were 36.4% and 36.6%, respectively, compared to 38.6% for
the three months and nine months ended March 31, 1997. The decrease was due to
increased state tax free investments.
Liquidity
The Company is required to maintain levels of liquid assets as defined by OTS
regulations. This requirement, which varies from time to time (currently set at
4%) depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The Company's liquidity ratio
averaged 40.58% during the quarter ended March 31, 1998, and equaled 40.84% at
March 31, 1998.
Capability of the Company's Data Processing Software and Hardware to Accommodate
the Year 2000
The Company relies upon computers for the daily conduct of its business and for
data processing generally. There is concern among industry experts that
commencing on January 1, 2000, computers will be unable to "read" the new year
and there may be widespread computer malfunctions. The Year 2000 issue is the
result of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's computer programs that would
have date sensitive software may recognize a date during "00" as the year 1900
rather than the year 2000. This could result in a systems failure or
miscalculations causing disruptions of operations. Management has assessed its
electronic systems, programs, applications and other electronic components used
in the operations of the Company. The Company contracts with service bureaus to
provide the majority of its data processing and is dependent upon purchased
application software. Management believes that it has implemented a plan
pursuant to which the progress toward full compliance of its service bureau and
other software vendors will be tracked and tested well in advance of January 1,
2000. Beginning in the third quarter of 1998, the Company will coordinate
end-to-end tests with primary servicers, which allow the Company to simulate
daily processing on sensitive century dates. The Company expects to complete the
Year 2000 project no later than December 31, 1998. Management believes that it
will not incur significant additional costs in connection with the year 2000
issue, although there can be no assurances in this regard.
Reorganization Into the Two-Tier Mutual Holding Company Structure
Effective January 21, 1998, Leeds Federal Savings Bank completed its
reorganization into a two-tier mutual holding company structure (the
"Reorganization") with the establishment of a Federal corporation as the stock
holding company parent of the Bank. As a result of the Reorganization, Leeds
Federal Bankshares, MHC, the mutual holding company, owns a majority of the
common stock of the new stock holding company, which owns 100% of the common
stock of the Bank. Management believes that the two-tier holding company
structure allows the new Company to retain the benefits of the mutual holding
<PAGE>
company structure, and at the same time gives the Company many of the
opportunities available to stock holding companies that are not currently
available in a mutual holding company structure. The mid-tier structure offers
the Company greater flexibility to structure and complete mergers and
acquisitions, to diversify operations, and to repurchase outstanding shares of
common stock.
Stock Repurchase Plan To Repurchase Up To 275,000 Shares of Common Stock
On April 15, 1998, Leeds Federal Bankshares, Inc., authorized a plan to
repurchase up to 275,000 shares, or approximately 5.3%, of its Common Stock, as
a part of its capital management strategy.
<PAGE>
PART II. OTHER INFORMATION
Legal Proceedings
The Bank is not involved in any litigation, nor is it aware of any pending
litigation, other than legal proceedings incidental to the Bank's business. In
the opinion of management, no material loss is expected from any such claims or
lawsuits.
Changes in Securities and Use of Proceeds
Notes To Financial Statements are incorporated by reference concerning
discussion of waiver of dividends by Leeds Federal Bankshares, M.H.C.
Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as a part of this report:
Exhibit 27 EDGAR Financial Data Schedule
(b) No Form 8-K reports were filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
LEEDS FEDERAL SAVINGS BANK
Date: May 12, 1998 By: /s/ Gordon E. Clark
-------------------
Gordon E. Clark
President and Chief Executive Officer
Date: May 12, 1998 By: /s/ Kathleen Trumpler
---------------------
Kathleen Trumpler
Treasurer and Chief Financial Officer
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