SECURITIES AND EXCHANGE COMMISSION
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 December 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 as specified in its charter)
UNITED STATES 52-2062351
------------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1101 Maiden Choice Lane, Baltimore, Maryland 21229
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(Address of principal executive offices)
Registrant's telephone number, including area code: 410-242-1234
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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 5,195,597 shares
of the Registrant's common stock outstanding as of December 31, 1998.
<PAGE>
LEEDS FEDERAL BANKSHARES, INC
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 1998 (unaudited), and June 30, 1998 ................... 1
Consolidated Statements of Income and Comprehensive Income (unaudited)
for the three months and six months ended December, 1998 and 1997 .. 2
Consolidated Statements of Cash Flows (unaudited) for the six months
ended December 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.
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
December 31, June 30,
1998 1998
------------ -----------
(unaudited) (audited)
Assets
- ------
Cash:
On hand and due from banks ..................... $ 616,894 1,769,493
Interest-bearing deposits ...................... 12,275,778 11,906,061
Short-term investments ........................... 10,288,180 4,776,681
Secured short-term loans to commercial banks ..... 21,643,903 18,405,234
Investment securities, net (held to maturity) .... 45,467,066 40,669,525
Investment securities, net (available for sale) .. 6,090,187 8,034,695
Mortgage backed securities, net (held to maturity) 13,134,363 16,514,383
Loans receivable, net ............................ 194,095,280 190,965,595
Investment in Federal Home Loan Bank of Atlanta
stock, at cost ................................. 2,377,200 2,377,200
Property and equipment, net ...................... 1,469,675 851,265
Cash surrender value of life insurance ........... 6,272,363 6,132,929
Prepaid expenses and other assets ................ 191,364 333,630
------------ -----------
$313,922,253 302,736,691
------------ -----------
Liabilities and Stockholders' Equity
- ------------------------------------
Savings accounts ................................. $257,544,007 245,269,602
Borrowed funds-Employee Stock Ownership Plan ..... 528,000 552,000
Advance payments by borrowers for taxes, insurance
and ground rents ............................... 2,517,307 5,006,020
Federal and state income taxes:
Currently payable .............................. 192,532 133,676
Deferred ....................................... 1,752,827 1,296,001
Accrued expenses and other liabilities ........... 1,292,218 1,171,882
------------ -----------
Total Liabilities ............................ 263,826,891 253,429,181
------------ -----------
Stockholders' Equity:
Common Stock $1 par value:
20,000,000 shares authorized:
issued and outstanding 5,195,597 shares ........ 5,195,597 5,195,597
Additional paid-in capital ....................... 9,326,153 9,258,917
Employee stock ownership plan .................... (437,699) (487,891)
Management recognition plan ...................... -0- (11,907)
Treasury stock, at cost .......................... (2,144,550) (772,430)
Retained income, substantially restricted ........ 35,466,760 34,162,743
Accumulated other comprehensive income ........... 2,689,101 1,962,481
------------ -----------
Total Stockholders' Equity ................... 50,095,362 49,307,510
------------ -----------
$313,922,253 302,736,691
------------ -----------
See accompanying notes to consolidated financial statements.
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<PAGE>
LEEDS FEDERAL BANKSHARES, INC
Consolidated Statements of Income and Comprehensive Income
(unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended December 31, Ended December 31,
---------------------- --------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Interest Income:
First mortgage and other loans ....................... $7,306,304 6,738,520 3,602,410 3,411,883
Mortgage-backed securities ........................... 524,509 767,374 247,421 370,196
Investment securities and short-term investments ..... 2,583,107 2,597,556 1,297,477 1,291,574
---------- ---------- --------- ---------
Total interest income .............................. 10,413,920 10,103,450 5,147,308 5,073,653
---------- ---------- --------- ---------
Interest expense:
Savings accounts ..................................... 6,407,575 5,986,656 3,221,916 3,012,953
Other ................................................ 22,820 28,891 10,597 14,156
---------- ---------- --------- ---------
Total interest expense ............................. 6,430,395 6,015,547 3,232,513 3,027,109
---------- ---------- --------- ---------
Net interest income ................................ 3,983,525 4,087,903 1,914,795 2,046,544
Provision for loan losses ............................ 30,916 10,886 1,610 8,046
---------- ---------- --------- ---------
Net interest income after provision for loan losses 3,952,609 4,077,017 1,913,185 2,038,498
---------- ---------- --------- ---------
Noninterest income:
Service fees and charges ............................. 67,241 73,854 32,906 36,128
Other ................................................ 140,662 71,666 67,554 37,670
---------- ---------- --------- ---------
207,903 145,520 100,460 73,798
---------- ---------- --------- ---------
Noninterest expense:
Compensation and employee benefits ................... 783,541 894,863 384,034 463,742
Occupancy ............................................ 106,115 96,886 52,219 47,321
SAIF deposit insurance premiums ...................... 112,260 111,005 55,547 55,851
Advertising .......................................... 50,019 115,981 19,255 59,857
Other ................................................ 341,584 345,393 172,663 193,605
---------- ---------- --------- ---------
1,393,519 1,564,128 683,718 820,376
---------- ---------- --------- ---------
Income before provision for income taxes ............. 2,766,993 2,658,409 1,329,927 1,291,920
Provision for income taxes ............................. 988,188 975,181 474,292 473,250
---------- ---------- --------- ---------
Net Income ......................................... 1,778,805 1,683,228 855,635 818,670
---------- ---------- --------- ---------
Changes in accumulated other comprehensive income--
unrealized gains on securities available for sale, net 726,620 322,501 595,192 286,208
---------- ---------- --------- ---------
Comprehensive income ............................... $2,505,425 2,005,729 1,450,827 1,104,878
---------- ---------- --------- ---------
Net income per share of common stock
Basic ................................................ $ .35 $ .33 $ .17 $ .16
----- ----- ----- -----
Diluted .............................................. $ .35 $ .32 $ .17 $ .16
----- ----- ----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
LEEDS FEDERAL BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income ................................................. $ 1,778,805 1,683,228
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of loan fees, premiums and discounts,net .. (116,291) (31,482)
Provision for loan losses .............................. 30,916 10,886
Accretion of premiums(discounts) on investments
securities and mortgage-backed securities, net ....... (2) (9,978)
Depreciation ........................................... 63,900 71,502
Non-cash compensation under stock based benefit plans . 129,335 196,258
Increase in accrued interest receivable on securities
and loans receivable ................................. 240,905 115,653
Increase in income taxes currently payable ............. 58,856 16,319
Increase in accrued expenses and other liabilities ..... 120,336 221,540
Increase (decrease) in unearned loan fees .............. (14,457) 12,445
(Increase) decrease in prepaid expenses and other assets 142,266 50,881
----------- ----------
Net cash provided by operating activities .......... 2,434,569 2,337,252
----------- ----------
Cash flows from investing activities:
Purchase of investment securities held to maturity ......... (41,840,000) (7,916,506)
Purchase of securities available for sale .................. -0- (975,000)
Maturity of investment securities held to maturity ......... 37,022,452 17,736,031
Maturity of securities available for sale .................. 3,000,000 -0-
Loan disbursements, net of repayments ...................... (3,106,817) (7,986,483)
Mortgage-backed securities held to maturity principal
repayments ............................................... 3,364,042 2,635,356
Purchases of property and equipment ........................ (682,310) (94,000)
Investment in life insurance policies ...................... (139,434) (2,846,236)
----------- ----------
Net cash (used in) provided by investing activities (2,382,067) 553,162
----------- ----------
</TABLE>
Continued
-3-
<PAGE>
LEEDS FEDERAL BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from financing activities:
Net increase in savings accounts ........................... 12,274,405 4,658,964
Decrease in advance payments by borrowers for
taxes, insurance and ground rents ........................ (2,488,713) (2,366,560)
Payment of dividends ....................................... (474,788) (480,907)
Purchase of treasury stock ................................. (1,372,120) -0-
Repayment of borrowed funds ................................ (24,000) (48,000)
----------- ----------
Net cash provided by financing activities .......... 7,914,784 1,763,497
----------- ----------
Net increase in cash and cash equivalents .................... 7,967,286 4,653,911
Cash and cash equivalents at beginning of period ............. 36,857,469 31,306,699
----------- ----------
Cash and cash equivalents at end of period ................... $44,824,755 35,960,610
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LEEDS FEDERAL BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Leeds Federal Bankshares, Inc.(the Company) and its wholly owned subsidiary,
Leeds Federal Savings Bank. Leeds Investment Corporation (the Subsidiary), is a
wholly owned subsidiary of Leeds Federal Savings Bank (collectively, the Bank).
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 have been recorded. The financial statements have been
prepared using the accounting policies described in the June 30, 1998 Annual
Report. The results of operations for the three months and six months ended
December 31, 1998 , are not necessarily indicative of the results that may be
expected for the entire year.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities aa of the date of the statements of financial condition and income
and expenses for the period. Actual results could differ significantly from
those estimates.
(2) Net Income per Share of Common Stock
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:
-5-
<PAGE>
<TABLE>
<CAPTION>
Six Months Six Months
Ended December 31, Ended December 31,
1998 1997
---------------------- ---------------------
Basic Diluted Basic Diluted
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income .......................... $1,778,805 1,778,805 1,683,228 1,683,228
Dividends on unvested common stock .. (4,032) (2,362) (7,680) (3,182)
---------- --------- --------- ---------
Adjusted net income used in EPS
calculations ...................... $1,774,773 1,776,443 1,675,548 1,680,046
---------- --------- --------- ---------
Weighted average shares outstanding . 5,053,102 5,053,102 5,072,582 5,072,582
Diluted securities:
Options ........................... 73,702 94,924
Unvested common stock awards ...... -0- 16,870
---------- --------- --------- ---------
Adjusted weighted-average shares used
in EPS computation ................ 5,053,102 5,126,804 5,072,582 5,184,376
---------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months
Ended December 31, Ended December 31,
1998 1997
---------------------- ---------------------
Basic Diluted Basic Diluted
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income .......................... $ 855,635 855,635 818,670 818,670
Dividends on unvested common stock .. (2,016) (1,285) (4,032) (1,462)
---------- --------- --------- ---------
Adjusted net income used in EPS
calculations ...................... $ 853,619 854,350 814,638 817,208
---------- --------- --------- ---------
Weighted average shares outstanding . 5,029,281 5,029,281 5,072,582 5,072,582
Diluted securities:
Options ........................... 66,281 103,251
Unvested common stock awards ...... -0- 18,351
---------- --------- --------- ---------
Adjusted weighted-average shares used
in EPS computation ................ 5,029,281 5,095,562 5,072,582 5,194,184
---------- --------- --------- ---------
</TABLE>
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<PAGE>
(3) Dividends on Common Stock
On December 16,1998, the Company declared a quarterly cash dividend of $.14
per share. The dividends were payable to stockholders of record as of January 6,
1999 and were paid on January 20, 1999. Leeds Federal Bankshares, M.H.C. (the
MHC) , which owns 3,300,000 shares of stock in the Bank, waived receipt of its
quarterly dividend, thereby reducing the actual dividend payout to approximately
$247,300. 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 of a dividend solely to the
MHC. At December 31, 1998, the cumulative amount of such waived dividends was
$6,857,400.
(4) Impact of New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. Initial
application of this Statement should be as of the beginning of an entity's
fiscal quarter. On that date, hedging relationships must be designated anew and
documented pursuant to the provisions of SFAS No. 133. Earlier application is
encouraged, but is permitted only as of the beginning of any fiscal quarter that
begins after issuance of SFAS No. 133. It should not be applied retroactively to
financial statements of prior periods. Management has not determined when it
will adopt the provisions of SFAS No. 133 but believes that it will not have a
material effect on the Company's financial position or results of operations.
-7-
<PAGE>
LEEDS FEDERAL BANKSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
- --------------------------
In addition to historical information, this Quarterly Report contains
forward-looking statements. The forward-looking statements contained in this
document are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Important factors that might cause such a difference include, but
are not limited to, those discussed in this section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Readers should not place undue reliance on these forward-looking statements, as
they reflect management's analysis as of the date of this report. The Company
has no obligation to update or revise these forward-looking statements to
reflect events or circumstances that occur after the date of this report.
Readers should carefully review the risk factors described in other documents
the Company files from time to time with the Securities and Exchange Commission,
including current reports filed on Form 8-K.
Discussion of Financial Condition Changes from June 30, 1998 to
December 31, 1998
- ---------------------------------------------------------------
Cash on hand and due from banks, interest bearing deposits, other liquid
investments and investment securities totaled approximately $98.8 million at
December 31, 1998, an increase of approximately $10.9 million from June 30,
1998. Mortgage-backed securities totaled $13.1 million, a decrease of $3.4
million, due to repayments of principal. Loans receivable totaled $194.1
million, an increase of $3.1 million, due primarily to an increase in mortgage
originations.
Deposits increased approximately $12.2 million, to a total of $257.5
million at December 31, 1998. Such increase was primarily attributable to
general market trends. The Company has offered savings rates that are
competitive with other banks. However, it has not relied on brokered funds or
negotiated jumbo certificates to achieve increased 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 December 31, 1998, the
Company had tangible capital of $47.4 million, or 15.3% of total adjusted
assets, which was $42.8 million in excess of the requirement of minimum tangible
capital of $4.6 million, or 1.5% of total adjusted assets; core capital of $47.4
million, or 15.3% of total adjusted assets, which was $37.8 million in excess of
the requirement of minimum core capital of $9.3 million, or 3.0% of total
adjusted assets; and risk-based capital of $48.1 million, or 32.3% of risk
weighted assets, which was $36.2 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 Six Month Periods Ended
December 31, 1998 and 1997.
- ---------------------------------------------------------------------
The Company's net income for the three months ended December 31, 1998,
totaled $856,000, an increase of $37,000, or 4.5% as compared to $819,000 for
the three months ended December 31, 1997, due principally to a decrease in
noninterest expenses partially offset by a decrease in net interest income. The
Company's net income for the six months ended December 31, 1998, totaled $1.8
million, an increase of $96,000, or 5.7%, as compared to $1.7 million for the
same period last year.
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<PAGE>
Net Interest Income
- -------------------
Interest income on loans for the three months ended December 31, 1998,
totaled $3.6 million, an increase of $190,000, or 5.6%, as compared to $3.4
million for the three months ended December 31, 1997, due to a $13.8 million, or
7.6%, increase in average balance in loans to $194.0 million, partially offset
by a decrease in average yield on loans to 7.4% for the three months ended
December 31, 1998, from 7.6% for the three months ended December 31, 1997.
Interest income on loans for the six months ended December 31, 1998, totaled
$7.3 million, an increase of $568,000, or 8.4%, as compared to the six months
ended December 31, 1997. Average balances on loans increased by $15.2 million,
or 8.5%, to $193.3 million, for the period, while average yield on loans
remained relatively unchanged at 7.6%.
Interest income on mortgage-backed securities decreased by $123,000, to
$247,000 for the three months ended December 31, 1998, from $370,000 for the
three months ended December 31, 1997. Average yield on mortgage-backed
securities decreased to 7.0%, from 7.2%, while average balance of
mortgage-backed securities decreased by $6.4 million to $14.1 million from $20.5
million, for the three months ended December 31, 1998, compared to the same
period last year. Interest income on mortgage-backed securities decreased by
$242,000, to $525,000 for the six months ended December 31, 1998, as compared to
$767,000 for the prior period, due principally to a decrease in average balance
of mortgage-backed securities of $6.2 million to $14.9 million from $21.1
million, and a decrease in the average yield on mortgage-backed securities to
7.1%, from 7.3%.
Interest income on investment securities and short-term investments
("Investments") remained relatively unchanged at $1.3 million during the three
months ended December 31, 1998, compared with the three months ended December
31, 1997. Interest on Investments remained relatively unchanged at $2.6 million
during the six months ended December 31, 1998, compared with the six months
ended December 31, 1997. Average balance of Investments increased by $5.6
million to $87.8 million for the six months ended December 31, 1998, from $82.1
million for the same period in the prior year, while yield on Investments
decreased to 5.9% from 6.3%.
Total interest expense increased by approximately $206,000 during the
quarter ended December 31, 1998 to $3.2 million from $3.0 million for the
quarter ended December 31, 1997. This increase was the result of an increase in
average balances of interest bearing liabilities outstanding to $253.4 million
from $235.7 million, while average rates paid on deposits remained relatively
unchanged at 5.1%. For the six months ended December 31, 1998, total interest
expense increased by $414,000 to $6.4 million, as compared to the six months
ended December 31, 1997. The increase was the result of an increase in average
balance outstanding to $250.5 million from $234.8 million, while average rates
paid on deposits remained relatively unchanged at 5.1%.
As a result of the foregoing changes, the increase in interest income was
more than offset by an increase in interest expense resulting in a decrease in
net interest income of $132,000, or 6.4%, to $1.9 million during the three
months ended December 31, 1998, as compared to $2.0 million during the three
months ended December 31, 1997. During the six months ended December 31, 1998,
net interest income decreased by 104,000, or 2.6%, to $4.0 million from $4.1
million for the same period in the previous year.
Provision for Loan Losses
- -------------------------
The Bank had a provision for loan losses of $2,000 for the quarter ended
December 31, 1998, and $31,000 for the six months ended December 31, 1998.
During the three and six months ended December 31, 1997, the Bank had provisions
for loan losses of $8,000 and $11,000 respectively. Based on management's review
and analysis the allowance for loan losses as of December 31, 1998, management
considered the allowance for loan losses to be adequate.
-9-
<PAGE>
Noninterest Income
- ------------------
Noninterest income increased by approximately $26,000 to $100,000 during
the three months ended December 31, 1998, as compared to $74,000 during the
three months ended December 31, 1997. For the six months ended December 31,
1998, noninterest income increased to $208,000, from $146,000 for the six months
ended December 31, 1997. The increase was primarily the result of an increase in
income from life insurance contracts for the three and six months ended December
31, 1998.
Noninterest Expense
- -------------------
Noninterest expense for the three months ended December 31, 1998, decreased
by $136,000 to $684,000, from $820,000, compared to the three months ended
December 31, 1997. Compensation and employee benefits decreased $80,000 to
$384,000 for the three months ended December 31, 1998, from $464,000 for the
same period last year, as the noncash charge to expense for ESOP shares earned
reflected a decrease in the market price of the Company's stock. Advertising and
other expenses decreased by $62,000 for the quarter ended December 31, 1998, due
to a decrease in marketing and other activities. During the six months ended
December 31, 1998, noninterest expense decreased $170,000 to $1.4 million, from
$1.6 million, compared to the six months ended December 31, 1997. This decrease
was also due to reduced compensation cost relating to ESOP expense and lower
levels of advertising.
Provision for Income Taxes
- --------------------------
The effective income tax rate for the three and six months ended December
31, 1998, was 35.7%, compared to 36.6% for the three and six months ended
December 31, 1997. The decrease was due to increased state tax free investments.
Classified Loans
- ----------------
Loans which were 90 or more days delinquent but still accruing totaled
$19,000 at December 31, 1998, and $5,000 at June 30, 1998. Loans 90 or more days
delinquent and not accruing totaled $2.5 million at December 31, and June 30,
1998. At December 31, 1998, the Company had a $2.5 million loan which matured in
June, 1998, and has not been repaid. Subsequent to December 31, 1998, the
Company began foreclosure proceedings on the loan. Management has obtained an
appraisal, and based on the appraisal and other factors, believes the Company
will not incur a material loss on this loan.
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 40.26% during the quarter ended December 31, 1998, and equaled 41.89%
at December 31, 1998.
Capability of the Bank's Data Processing Software to Accommodate the Year 2000
- ------------------------------------------------------------------------------
The following information consitutes "Year 2000 Readiness Disclosure" under
the Year 2000 Information and Readiness Disclosure Act.
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
-10-
<PAGE>
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 operation 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. The Company has completed end-to-end tests with primary servicers, which
allowed the Company to simulate daily processing on sensitive century dates. The
Company is currently developing a contingency plan in the event that
unforseeable external factors disrupt it's normal operations as the year 2000
approaches, and expects to complete the plan by March 31, 1999. There can be no
assurance that the Company's contingency plan will fully mitigate the effects of
such potential failures. The Company has contacted its commercial borrowers and
has been informed that they are either compliant or in process of becoming
compliant in connection with the Year 2000 issue. As commercial loans represent
less than 2% of its assets, the Company believes that the effect of the Year
2000 issue on the Company's commercial borrowers will not have an adverse effect
on the Company in general. The Company has not incurred any material costs, and
management believes that it will incur costs of no more than $25,000 in
connection with the Year 2000 issue, although there can be no assurances in this
regard.
Stock Repurchase Plan To Repurchase Up To 275,000 Shares of Common Stock
- ------------------------------------------------------------------------
As of December 31, 1998, the Company has repurchased 128,928 shares of its
common stock in connection with its plan to repurchase up to 275,000 shares, or
approximately 5.3%, of its outstanding shares of common stock as part of its
capital management strategy.
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<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Legal Proceedings
- -----------------
The Company 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.
Submission of Matters to a Vote of Security-Holders
- ---------------------------------------------------
(A) On October 21, 1998, the Company held its annual meeting of stockholders.
(B) At the annual meeting Directors Amer and Wolf were elected to three year
terms. The following table shows the terms of all directors.
Director's Name Term Began Term Expires
--------------- ---------- ------------
John F. Amer 1998 2001
Gordon E. Clark 1996 1999
John F. Doyle 1996 1999
Raymond J. Hartman, Jr. 1997 2000
Joan H. McCleary 1997 2000
Marguerite E. Wolf 1998 2001
(C) There were present at the Annual Meeting in person or by proxy the holders
of 4,867,733 votes, said votes constituting a majority and more than a
quorum of the outstanding votes entitled to be cast.
The stockholders acted on the following two matters at the Annual Meeting,
approving each. Set forth below are the results of the stockholder vote on
the matters considered at the Annual Meeting.
(1) The following directors were elected by the stockholders to serve for
three year terms:
Votes For Withheld
--------- --------
John F. Amer. 4,860,718 7,015
Marguerite E. Wolf 4,860,568 7,165
(2) The appointment of KPMG LLP, to be the Company's auditors for the
fiscal year ending June 30, 1999, was approved as follows:
For Against
--------- -------
Number of Votes 4,851,561 7,325
Exhibits and Report on Form 8-K
- -------------------------------
No Form 8-K reports were filed during the quarter.
-12-
<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 BANKSHARES, INC.
Date: February 10, 1999 By: /s/ Gordon E. Clark
--------------------- -------------------------------------
Gordon E. Clark
President and Chief Executive Officer
Date: February 10, 1999 By: /s/ Kathleen Trumpler
--------------------- -------------------------------------
Kathleen Trumpler
Treasurer and Chief Financial Officer
-13-
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