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, 1999
[ ] 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
--------------------------------------------------
(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 4,614,391 shares
of the Registrant's common stock outstanding as of January 1, 2000.
<PAGE>
LEEDS FEDERAL BANKSHARES, INC
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 1999(unaudited), and June 30, 1998 1
Consolidated Statements of Income and Comprehensive Income
(unaudited)for the three months and six months ended
December, 1999 and 1998 2
Consolidated Statements of Cash Flows (unaudited) for the six months
ended December 30, 1999 and 1998 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>
December 31, June 30,
1999 1999
------- ------
(unaudited) (audited)
Assets
Cash:
<S> <C> <C>
On hand and due from banks $3,330,930 5,093,316
Interest-bearing deposits 2,131,440 4,964,126
Short-term investments 7,901,104 12,941,254
Secured short-term loans to commercial banks 5,439,872 10,011,970
Investment securities, net (held to maturity) 67,663,230 66,167,181
Investment securities, net (available for sale) 5,693,573 6,551,478
Mortgage backed securities, net (held to maturity) 9,054,002 10,008,111
Loans receivable, net 219,193,056 203,886,170
Investment in Federal Home Loan Bank of Atlanta stock, at cost 1,935,700 1,935,700
Property and equipment, net 1,744,153 1,484,620
Cash surrender value of life insurance 6,522,308 6,399,473
Accrued interest receivable 2,003,956 1,994,604
Prepaid expenses and other assets 188,450 204,020
-------- ---------
Total assets 332,801,774 331,642,023
----------- -----------
Liabilities and Stockholders' Equity
Savings accounts $280,526,536 274,625,611
Borrowed funds-Employee Stock Ownership Plan 432,000 470,813
Advance payments by borrowers for taxes, insurance and groundrents 2,436,302 5,203,532
Federal and state income taxes:
Currently payable 82,804 107,577
Deferred 1,066,914 1,393,803
Accrued expenses and other liabilities 1,457,698 1,336,275
---------- ---------
286,002,254 283,137,611
Total liabilities ----------- -----------
Stockholders' Equity:
Common Stock $1 par value:
20,000,000 shares authorized; 5,195,597 shares
issued and outstanding 5,195,597 5,195,597
Additional paid-in capital 9,393,781 9,367,161
Employee stock ownership plan (343,820) (390,682)
Treasury stock, at cost,(581,206 shares and 331,941 shares) (7,422,456) (4,740,869)
Retained income, substantially restricted 38,168,545 36,734,317
Accumulated other comprehensive income 1,807,873 2,338,888
---------- ---------
Total stockholders' equity 46,799,520 48,504,412
----------- -----------
$332,801,774 331,642,023
</TABLE>
See accompanying notes to consolidated financial statements.
<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,
1999 1998 1999 1998
==== ==== ==== ====
<S> <C> <C> <C> <C>
Interest income:
First mortgage and other loans $7,579,672 7,306,304 3,856,944 3,602,410
Mortgage-backed securities 323,459 524,509 160,627 247,421
Investment securities and short term
investments 3,043,721 2,583,107 1,480,728 1,297,477
----------- ---------- ---------- ---------
Total interest income 10,946,852 10,413,920 5,498,299 5,147,308
------------ ----------- ---------- ---------
Interest expense:
Savings accounts 6,862,979 6,407,575 3,450,862 3,221,916
Other 18,240 22,820 8,732 10,597
----------- ------- ------- ------
Total interest expense 6,881,219 6,430,395 3,459,594 3,232,513
----------- ---------- ---------- ---------
Net interest income 4,065,633 3,983,525 2,038,705 1,914,795
Provision for loan losses 20,983 30,916 8,609 1,610
---------- ---------- ---------- ------
Net interest income after provision for
loan losses 4,044,650 3,952,609 2,030,096 1,913,185
----------- ---------- ---------- ---------
Noninterest income:
Service fees and charges 74,937 67,241 37,910 32,906
Other 123,355 140,662 60,880 67,554
----------- --------- ------- ------
198,292 207,903 98,790 100,460
-------- -------- -------- -------
Noninterest expense:
Compensation and employee benefits 799,296 783,541 420,844 384,034
Occupancy 123,735 106,115 58,506 52,219
SAIF deposit insurance premiums 118,658 112,260 58,851 55,547
Advertising 65,064 50,019 31,162 19,255
Other 345,390 341,584 199,223 172,663
-------- -------- -------- -------
1,452,143 1,393,519 768,586 683,718
---------- ---------- -------- -------
Income before provision for income
taxes 2,790,799 2,766,993 1,360,300 1,329,927
Provision for income taxes: 965,965 988,188 467,998 474,292
---------- ---------- -------- -------
Net income 1,824,834 1,778,805 892,302 855,635
----------- ---------- -------- -------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
available for sale, net (531,015) 726,620 (252,611) 595,192
--------- -------- --------- -------
Comprehensive income $1,293,819 2,505,425 639,691 1,450,827
----------- ---------- ---------- ---------
Net income per share of common stock
Basic $ .39 $ .35 $ .19 $ . 17
----------- -------- ---------- -------
Diluted $ .38 $ .35 $ .19 $ .17
----------- -------- ---------- -------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LEEDS FEDERAL BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------ ------
Cash flows from operating activities:
<S> <C> <C>
Net income $1,824,834 1,778,805
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of loan fees, premiums and discounts,net 45,798 (116,291)
Provision for loan losses 20,983 30,916
Accretion of premiums(discounts) on investments securities and
mortgage-backed securities, net ( 6,766) (2)
Depreciation 63,834 63,900
Non-cash compensation under stock based benefit plans 73,482 129,335
Decrease (increase) in accrued interest receivable on securities and
loans receivable (9,352) 240,905
(Decrease) increase in income taxes currently payable (24,773) 58,856
Increase in accrued expenses and other liabilities 121,423 120,336
Increase in unearned loan fees 41,087 (14,457)
Decrease in prepaid expenses and other assets 15,570 142,266
Net cash provided by operating activities 2,166,120 2,434,569
Cash flows from investing activities:
Purchase of investment securities held to maturity ( 1,700,000) (41,840,000)
Maturity of investment securities held to maturity -0- 36,792,182
Maturity of securities available for sale -0- 3,000,000
Principal repayments of investment securities 206,681 230,270
Loan disbursements, net of repayments (15,414,754) (3,106,817)
Purchase of mortgage-backed securities (400,000) -0-
Mortgage-backed securities held to maturity principal repayments 1,358,145 3,364,042
Purchases of property and equipment (323,367) (682,310)
Investment in life insurance policies (122,835) (139,434)
Net cash used in investing activities (16,396,130) (2,382,067)
(continued)
<PAGE>
Cash flows from financing activities:
Net increase in savings accounts 5,900,925 12,274,405
Decrease in advance payments by borrowers for taxes, insurance
and ground rents (2,767,230) (2,488,713)
Payment of dividends (390,606) (474,788)
Purchase of treasury stock (2,681,587) (1,372,120)
Repayment of borrowed funds (38,813) (24,000)
---------- ----------
Net cash provided by financing activities 22,689 7,914,784
---------- ----------
Net increase (decrease) in cash and cash equivalents (14,207,320) 7,967,286
Cash and cash equivalents at beginning of period 33,010,666 36,857,469
---------- ----------
Cash and cash equivalents at end of period $18,803,346 44,824,755
---------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest on deposits and other
borrowings $6,881,000 6,430,000
Cash paid for income taxes 991,000 929,000
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LEEDS FEDERAL BANKSHARES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Unaudited and continued)
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Leeds Federal Bankshares, Inc. (the Company), its wholly owned subsidiary, Leeds
Federal Savings Bank and Leeds Investment Corporation, a wholly owned subsidiary
of Leeds Federal Savings 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, 1999 Annual Report. The results of operations for the
three months and six months ended December 31, 1999, 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 as of the date of the consolidated statements of financial condition
and income and comprehensive income for the period. Actual results could differ
significantly from those estimates.
(2) Reclassification of Prior Year's Statements
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
(3) Net Income per Share of Common Stock
Basic earnings per share (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:
<PAGE>
LEEDS FEDERAL BANKSHARES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Unaudited and continued)
<TABLE>
<CAPTION>
Six Months Six Months
Ended December 31, 1999 Ended December 31, 1998
Basic Diluted Basic Diluted
===== ======= ===== ========
<S> <C> <C> <C> <C>
Net income $1,824,834 $1,824,834 $1,778,805 $1,778,805
---------- ---------- ---------- ----------
Weighted-average shares outstanding 4,705,623 4,705,623 5,053,102 5,053,102
Dilutive securites
Options 36,726 73,702
---------- ---------- ---------- --------
Adjusted weighted-average shares used
in EPS computation 4,705,623 4,742,349 5,053,102 5,126,804
---------- ---------- ---------- ---------
Three Months Three Months
Ended December 31, 1999 Ended December 31, 1998
Basic Diluted Basic Diluted
===== ======= ===== ========
<S> <C> <C> <C> <C>
Net income $ 892,302 $ 892,302 $ 855,635 $ 855,635
---------- ---------- ---------- ----------
Weighted-average shares outstanding 4,643,359 4,643,369 5,029,281 6,209,281
Dilutive securites
Options 29,489 66,281
--------- ---------- --------- ---------
Adjusted weighted-average shares used
in EPS computation 4,643,359 4,672,848 5,029,281 5,095,562
--------- ---------- --------- ---------
</TABLE>
<PAGE>
(4) Dividends on Common Stock
On December 15,1999, the Company declared a quarterly cash dividend of $.15
per share. The dividends were payable to stockholders of record as of January 5,
2000 and were paid on January 19, 2000. 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
$200,000. 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, 1999, the cumulative amount of such waived dividends was
$8,738,400.
(5) Impact of New Accounting Standards
The Financial Accounting Standards Board has issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS
No. 133). 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, 2000. 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 of SFAS No. 133 is
encouraged, but it may 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 adoption will not have a material effect on
the Company's financial position or results of operations.
<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, 1999 to December
31, 1999
- -----------------------------------------------------------------------------
Cash on hand and due from banks, interest bearing deposits, other liquid
investments and investment securities totaled approximately $94.1 million at
December 31, 1999, a decrease of approximately $13.6 million, or 12.5%, from
June 30, 1999. Mortgage-backed securities totaled $9.1 million, a decrease of
$1.0 million, or 9.5%, due primarily to repayments of principal, offset by the
purchase of a mortgage-backed security totaling $400,000. Loans receivable
totaled $219.2 million, an increase of $15.3 million, or 7.5%, due primarily to
an increase in mortgage originations.
Deposits increased approximately $5.9 million, to a total of $280.5 million
at December 31, 1999. 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 Bank is subject to capital standards which generally require the
maintenance of regulatory capital sufficient to meet each of three tests,
hereinafter described as the Tier 1 core capital requirement, the Tier 1 risk
based capital requirement and the total risk based capital requirement. At
December 31, 1999, the Bank had Tier 1 core capital of $44.5 million, or 13.5%
of total adjusted assets, which was $31.4 million in excess of the requirement
of minimum core capital of $13.1 million, or 4% of total adjusted assets; Tier 1
risk based capital of $44.5 million, or 27.6% of risk weighted assets, which was
$38.0 million in excess of the requirement of minimum Tier 1 risk based capital
of $6.5 million, or 4% of risk weighted assets; and total risk-based capital of
$46.6 million, or 28.9% of risk weighted assets, which was $33.7 million in
excess of the requirement of a minimum total risk-based capital of 8% of risk
weighted assets.
Comparison of Operating Results for Three and Six Month Periods Ended December
31, 1999 and 1998.
- ------------------------------------------------------------------------------
General
- -------
The Company's net income for the three months ended December 31, 1999,
totaled $892,000, an increase of $37,000, or 4.3% as compared to $856,000 for
the three months ended December 31, 1998, due principally to an increase in net
interest income partially offset by an increase in noninterest expenses.
Unrealized gains (losses) on securities available for sale decreased $848,000
<PAGE>
to ($252,611) for the three months ended December 31, 1999, as compared to
the same period last year, as a result of a decrease in the fair value of the
Company's investment securities available for sale, due to an increase in
interest rates during the quarter. The Company's net income for the six months
ended December 31, 1999, remained relatively unchanged at $1.8 million as
compared to the same period in 1998. Unrealized gains (losses) on securities
available for sale decreased $1.3 million to ($531,000) for the six months ended
December 31, 1999, as compared to the same period last year, as a result of a
decrease in the fair value of the Company's investment securities available for
sale, due to an increase in interest rates during the period.
Net Interest Income
- -------------------
Interest income on loans for the three months ended December 31, 1999,
totaled $3.9 million, an increase of $255,000, or 7.1%, as compared to $3.6
million for the three months ended December 31, 1998, due to a $24.8 million, or
12.8%, increase in average balance in loans to $218.8 million, partially offset
by a decrease in average yield on loans to 7.1% for the three months ended
December 31, 1999, from 7.4% for the three months ended December 31, 1998.
Interest income on loans for the six months ended December 31, 1999, totaled
$7.6 million, an increase of $273,000, or 3.7%, as compared to the six months
ended December 31, 1998. Average balances on loans increased by $21.2 million,
or 11.0%, to $214.5 million, for the six months ended December 31, 1999, as
compared to the six months ended December 31, 1998, while average yield on loans
decreased to 7.1%, from 7.6%. The increases in the average balance in loans was
the result of increased loan demand during the three and six months ended
December 31, 1999, as compared to the same periods last year. Decreases in
average yields on loans for these periods was due principally to new loan
originations at lower yields.
Interest income on mortgage-backed securities decreased by $86,000, to
$161,000 for the three months ended December 31, 1999, from $247,000 for the
three months ended December 31, 1998. Average yield on mortgage-backed
securities decreased to 6.9%, from 7.0%, while average balance of
mortgage-backed securities decreased by $4.8 million to $9.3 million from $14.1
million, for the three months ended December 31, 1999, compared to the same
period last year. Interest income on mortgage-backed securities decreased by
$202,000, to $323,000 for the six months ended December 31, 1999, as compared to
$525,000 for the prior period, due principally to a decrease in average balance
of mortgage-backed securities of $5.4 million to $9.5 million from $14.9
million, and a decrease in the average yield on mortgage-backed securities to
6.8%, from 7.1%. The decreases in the average balance of mortgage-backed
securities and average yields on these securities during the three and six
months ended December 31, 1999, as compared to the same periods last year was
attributable to higher principal repayments on higher yielding securities.
Interest income on investment securities and short-term investments
("Investments") increased by $183,000, to $1.5 million for the three months
ended December 31, 1999, from $1.3 million for the three months ended December
31, 1998. The average balance of Investments increased by $2.5 million to $93.6
million for the three months ended December 31, 1999, from $91.1 million for the
same period in the prior year, while yield on Investments increased to 6.3% from
5.7%. Interest income on Investments increased by $461,000 to $3.0 million
during the six months ended December 31, 1999, from $2.6 million for the six
months ended December 31, 1998. The average balance of Investments increased by
$9.7 million to $97.5 million for the six months ended December 31, 1999, from
$87.8 million for the same period in the prior year, while yield on Investments
increased to 6.2% from 5.9%. The increases in average balance of Investments for
the three and six months ended December 31, 1999, was the result of an increase
in the supply of funds to invest in such securities. The increases in average
yield on Investments for these periods was due to increases in market rates on
short term investments.
<PAGE>
Total interest expense increased by approximately $227,000 during the
quarter ended December 31, 1999 to $3.5 million from $3.2 million for the
quarter ended December 31, 1998. This increase was the result of an increase in
average balances of interest bearing liabilities outstanding to $279.8. million
from $253.4 million, while average rates paid on deposits decreased to 5.0%,
from 5.1%. For the six months ended December 31, 1999, total interest expense
increased by $451,000 to $6.9 million, from $6.4 million for the six months
ended December 31, 1998. The increase was the result of an increase in average
balances of interest bearing liabilities outstanding to $278.4 million from
$250.5 million, while average rates paid on deposits decreased to 4.9% from
5.1%. The increases in average balance on interest bearing liabilities
outstanding for the three and six months ended December 31, 1999, as compared to
the same periods last year, was due to increased customer deposits, while the
decrease in average rates paid on deposits for these periods decreased due to
general market conditions.
As a result of the foregoing changes, the increase in interest income was
partially offset by an increase in interest expense resulting in an increase in
net interest income of $124,000, or 6.5%, to $2.0 million during the three
months ended December 31, 1999, as compared to $1.9 million during the three
months ended December 31, 1998. During the six months ended December 31, 1999,
net interest income increased by $82,000, or 2.1%, to $4.1 million from $4.0
million for the same period in the previous year.
Provision for Loan Losses
- -------------------------
The Bank had a provision for loan losses of $9,000 for the quarter ended
December 31, 1999, and $21,000 for the six months ended December 31, 1999.
During the three and six months ended December 31, 1998, the Bank had provisions
for loan losses of $2,000 and $31,000 respectively. The allowance for loan
losses, which was $743,000 and $725,000 at December 31, 1999 and June 30, 1999,
respectively, is established in accordance with generally accepted accounting
principles and exists to absorb potential losses inherent in the Company's
overall loan portfolio. In addition to historical loss experience, the Company
considers other factors that are likely to cause credit losses; including
changes in economic and business conditions and developments, changes in the
nature and volume of the portfolio, trends in the level of past due and
classified loans, and the status of nonperforming loans. Based on management's
review and analysis of the allowance for loan losses as of December 31, 1999,
management considered the allowance for loan losses to be adequate.
Noninterest Income
- ------------------
Noninterest income totaled $99,000 and $100,000 during the three months
ended December 31, 1999 and 1998, respectively. For the six months ended
December 31, 1999, noninterest income decreased to $198,000, from $208,000 for
the six months ended December 31, 1998. The decrease was primarily the result of
a decrease in income from life insurance contracts, partially offset by
increases in service fee income, for the six months ended December 31, 1999.
Noninterest Expense
- -------------------
Noninterest expense for the three months ended December 31, 1999, increased
by $85,000 to $769,000, from $684,000, compared to the three months ended
December 31, 1998. Compensation and employee benefits increased $37,000 to
$421,000 for the three months ended December 31, 1999, from $384,000 for the
same period last year, due to additional staffing in anticipation of opening a
branch and increasing salaries, partially offset by a decrease in the noncash
charge to expense for ESOP shares earned due to a decrease in the market price
of the Company's stock. Occupancy, advertising and other expenses increased by
$45,000 for the quarter ended December 31, 1999, due to
<PAGE>
an increase in marketing and other activities. During the six months ended
December 31, 1999, noninterest expense increased $59,000 to $1.5 million, from
$1.4 million, compared to the six months ended December 31, 1998. This increase
was also due to increased compensation costs, higher levels of advertising, and
increased occupancy expenses.
Provision for Income Taxes
- --------------------------
The effective income tax rate for the three and six months ended December
31, 1999, was 34.4% and 34.6% respectively, compared to 35.7% for the three and
six months ended December 31, 1998. The decrease was due to lower state taxes.
Classified Loans
- ----------------
There were no loans which were 90 or more days delinquent but still
accruing at December 31, 1999, and such loans totaled $7,000 at June 30, 1999.
Loans 90 or more days delinquent and not accruing totaled $2.7 million at
December 31, and June 30, 1999. At December 31, 1999, the Company had a $2.5
million loan which matured in June, 1998, and has not been repaid. 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 36.06% during the quarter ended December 31, 1999, and equaled 35.74%
at December 31, 1999.
Capability of the Bank's Data Processing Software to Accommodate the Year 2000
- ------------------------------------------------------------------------------
The following information constitutes "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act.
The Company has not incurred any significant disruptions to its operations
to date relating to the year 2000 transition. Beyond January 1, 2000, including,
for example, potential problems related to the first leap year of the year 2000,
the Company continues to monitor its contingency plan in the event it becomes
necessary to invoke it. The Company is aware of potential Year 2000 risks to
third parties, including vendors, depositors and borrowers and their possible
impact on the Company. Based on our assessment of operations through February
10, 2000, the Company is not aware of any significant Year 2000 issues, although
there can be no assurances in this regard.
Stock Repurchase Plan and Increased Dividend
- --------------------------------------------
As of December 31, 1999, the Company has repurchased 581,206 shares of its
common stock in connection with its plan to repurchase approximately 20% of its
outstanding shares of common stock. The Company has the Board's authorization to
repurchase an additional 442,235 shares as part of its current plan, as in the
opinion of management, market conditions warrant.
On December 15, 1999, as part of its capital management strategy, the
Company announced an increase in its quarterly dividend to $.15, from $.14 for
prior periods.
<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 November 3, 1999, the Company held its annual meeting of
stockholders.
(B) At the annual meeting Directors Clark and Doyle 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 1999 2002
John F. Doyle 1999 2002
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 4,800,341 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
--------- --------
Gordon E. Clark 4,540,006 25,111
John F. Doyle 4,540,156 24,961
(2) The appointment of KPMG LLP to be the Company's auditors for the fiscal
year ending June 30, 2000, was approved as follows:
For Against
----- -------
Number of Votes 4,542,586 7,250
Exhibits and Report on Form 8-K
No Form 8-K reports were filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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 14, 2000 \s\ Gordon E. Clark
---------------------------
Gordon E. Clark
President and Chief
Executive Officer
Date February 14, 2000 /s/ Kathleen Trumpler
---------------------------
Kathleen Trumpler
Treasurer and Chief
Financial Officer
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