SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] 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: N/A
Indicate 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 4,538,181
shares of the Registrant's common stock outstanding as of Nov. 1, 2001.
1
LEEDS FEDERAL BANKSHARES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 2001 (unaudited), and June 30, 2001 3
Consolidated Statements of Income and Comprehensive
Income (unaudited) for the three months ended
September 30, 2001 and 2000 4
Consolidated Statements of Cash Flows (unaudited)
for the three months ended September 30, 2001 and 2000 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LEEDS FEDERAL BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30 June 30,
2001 2001
(unaudited) (audited)
Assets
Cash:
On hand and due from banks.................................. $ 2,743,059 $ 4,817,724
Interest-bearing deposits................................... 2,215,623 2,198,218
Short term investments........................................ 65,579,899 35,334,058
Secured short-term loans to commercial banks.................. 2,621,502 16,225,333
Investment securities held-to-maturity........................ 42,448,381 60,518,903
Securities available-for-sale................................. 4,509,280 5,802,094
Mortgage backed securities held-to-maturity................... 31,604,310 20,021,025
Loans receivable, net......................................... 227,036,559 217,182,587
Investment in Federal Home Loan Bank
of Atlanta stock, at cost................................... 2,187,200 2,187,200
Property and equipment, net................................... 2,168,913 2,205,229
Cash surrender value of life insurance........................ 7,109,212 7,023,712
Accrued interest receivable................................... 2,178,762 2,236,760
Other real estate owned ....................................... 2,544,405 2,540,127
Prepaid expenses and other assets............................. 217,620 207,267
395,164,725 378,500,237
Liabilities and Stockholders' Equity
Liabilities:
Savings accounts............................................... 338,225,646 320,470,865
Borrowed funds-- Employee
Stock Ownership Plan........................................ 215,804 274,123
Advance payments by borrowers for taxes,
insurance and ground rents.................................. 1,869,787 3,515,261
Federal and state income taxes:
Currently payable........................................... 414,073 218,075
Deferred.................................................... 1,144,752 1,219,523
Accrued expenses and other liabilities......................... 1,977,177 1,913,349
Total liabilities........................................... 343,847,239 327,611,196
Stockholders' equity:
Common stock, $1 par value: 20,000,000
shares authorized: and 5,205,597 shares issued.............. 5,205,597 5,205,597
Additional paid in capital .................................... 9,751,928 9,667,133
Unearned employee stock ownership plan shares.................. (122.509) (180,672)
Retained income, substantially restricted...................... 42,153,974 41,750,444
Treasury stock at cost: 667,416 shares......................... (8,336,969) (8,336,969)
Accumulated other comprehensive income......................... 2,665,465 2,783,508
Total stockholders' equity............................ 51,317,486 50,889,041
$ 395,164,725 $ 378,500,237
See accompanying notes to consolidated financial statements.
3
LEEDS FEDERAL BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Three Months Ended
September 30,
2001 2000
Interest Income:
First mortgage and other loans.................. $ 3,947,164 $ 3,892,896
Mortgage-backed securities ..................... 417,923 153,202
Investment securities and short term
investments................................... 1,575,176 1,663,931
Total interest income........................... 5,940,263 5,710,029
Interest expense:
Savings accounts................................ 4,321,229 3,773,578
Other......................................... 3,579 8,907
Total interest expense.......................... 4,324,808 3,782,485
Net interest income............................. 1,615,455 1,927,544
Provision for loan losses....................... -0- -0-
Net interest income after
provision for loan losses................... 1,615,455 1,927,544
Noninterest income:
Service fees and charges........................ 54,550 45,621
Other .......................................... 96,089 81,511
150,639 127,132
Noninterest expense:
Compensation and employee benefits.............. 526,477 481,215
Occupancy....................................... 7 78,173
SAIF deposit insurance premiums................. 33,841 32,662
Advertising..................................... 26,946 46,520
Other .......................................... 322,762 171,389
986,376 809,959
Income before provision for income taxes........ 779,718 1,244,717
Provision for income taxes......................... 195,998 446,640
Net income.................................... 583,720 798,077
Other comprehensive income net of taxes
Unrealized gain (loss) on securities
available-for-sale, net....................... (118,043) 582,008
Comprehensive income............................... $ 465,677 $1,380,085
Net income per share of common stock
Basic........................................... $ .13 $ .18
Diluted......................................... $ .13 $ .18
See accompanying notes to consolidated financial statements.
4
LEEDS FEDERAL BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
September 30,
2001 2000
Cash flows from operating activities:
Net income................................................. $ 583,720 $ 798,077
Adjustments to reconcile net income to
net cash provided by operating activities:
Accretion of loan fees..................................... (35,699) 20,385
Accretion of premiums (discounts) on investment
and mortgage-backed securities.......................... (10,230) (9,381)
Depreciation............................................... 39,515 44,110
Non-cash compensation under stock-based benefit plans..... 142,958 31,248
Decrease (increase) in accrued interest receivable........ 57,998 (130,028)
Increase in income taxes currently payable................. 195,998 445,140
Increase in accrued expenses and other liabilities......... 63,828 72,947
Increase (decrease) in unearned loan fees.................. 69,789 (27,033)
Decrease (increase) in prepaid expenses and other assets (14,631) 162,355
Net cash provided by operating activities............... 1,093,246 1,407,820
Cash flows from investing activities:
Purchase of investment securities held-to-maturity......... -0- -0-
Maturities of and principal repayments on
investment securities held-to-maturity.................. 18,077,940 -0-
Maturies of securities available-for-sale.................. 1,100,000 -0-
Purchase of Federal Home Loan Bank Stock.................. -0- 431,858
Loan repayments (disbursements), net....................... (9,888,062) 2,760,838
Purchase of mortgage-backed securities held-to-maturity (12,699,770) -0-
Principal repayments on mortgage-backed securities
held-to-maturity........................................ 1,119,297 389,123
Purchases of property and equipment........................ (3,199) (6,170)
Increase in cash surrender value of life insurance ........ (85,500) (70,089)
Net cash used in investing activities................... (2,379,294) (3,505,560)
Cash flows from financing activities:
Net increase in savings accounts........................... 17,754,781 2,115,313
Decrease in advance payments by borrowers for taxes,
insurance and ground rents.............................. (1,645,474) (1,849,396)
Payment of dividends ..................................... (180,190) (170,171)
Purchase of treasury stock ............................... -0- (120,250)
Repayment of borrowed funds............................... (58,319) (24,000)
Net cash provided by (used in) financing activities... 15,870,798 (48,504)
Net increase in cash and cash equivalents.................... 14,584,750 4,864,876
Cash and cash equivalents at beginning of period.............. 58,575,333 23,155,887
Cash and cash equivalents at end of period.................... $ 73,160,083 $ 28,020,763
Cash paid during the period for interest
on deposits and other borrowings........................... $ 4,325,000 $ 3,783,000
Cash paid during the period for income taxes.................. -0- 1,500
See accompanying notes to consolidated financial statements.
5
LEEDS FEDERAL BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
(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 and Leeds Investor
Service Inc., wholly owned subsidiaries of 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, 2001 Annual Report. The results of operations
for the three months ended September 30, 2001, are not necessarily indicative of
the results that may be expected for the entire year.
(2) Dividends on Common Stock
On September 12, 2001, the Company declared a quarterly cash dividend
of $.15 per share. The dividends were payable to stockholders of record as of
October 3, 2001 and were paid on October 17, 2001. 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 $186,000. 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 as a
dividend solely to the MHC. At September 30, 2001, the cumulative amount of such
waived dividends was $12,203,400.
(3) Subsequent Event
At September 30, 2001, the Company had Real Estate Owned of $2.54
million. A public sale of the property was held on November 2, 2001. The Company
expects to receive approximately $3 million after transaction costs. The
sale is subject to various terms and conditions and is scheduled to close in the
first quarter of 2002. There can be no assurances that the sale will close as
scheduled.
(4) Recent Developments
On August 16, 2001, the Company , the MHC and the Bank , entered into
an Agreement and Plan of Merger (the "Agreement") with Northwest Bancorp, Inc.
("Northwest Mid-Tier"), Northwest Bancorp, MHC ("Northwest MHC"), the mutual
holding company of Northwest Mid-Tier, and Northwest Savings Bank. Under the
terms of the Agreement, the MHC will be merged with and into Northwest MHC with
Northwest MHC as the surviving entity, and the Company will be merged with and
into Northwest Mid-Tier with Northwest Mid-Tier as the surviving entity.
Stockholders of the Company other than the MHC will receive $32.00 in cash for
each share of the Company's common stock, par value $1.00 per share (the "Common
Stock") they hold. Shares of Common Stock held by the MHC will be cancelled.
Each option to purchase Common Stock will be converted into the right to receive
cash in a amount equal the difference between $32.00 and the exercise price of
the option. The transaction is subject to certain conditions, including, among
others, approval by the Company's stockholders and the MHC's members (if
necessary) and applicable regulatory authorities.
6
(5) 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:
Three months Three months
Ended September 30, Ended September 30,
2001 2000
Basic Diluted Basic Diluted
Net income $ 583,720 $ 583,720 $ 798,077 $ 798,077
Weighted-average shares outstanding 4,516,417 4,516,417 4,501,026 4,501,026
Dilutive securities - options 92,482 44,543
Adjusted weighted-average shares used
in EPS computation 4,516,417 4,608,899 4,501,026 4,545,569
7
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, 2001 to September 30,
2001
Cash on hand and due from banks, interest bearing deposits, other
liquid investments and investment securities totaled approximately $122.3
million at September 30, 2001, a decrease of approximately $4.8 million, or
3.8%, from June 30, 2001. Mortgage-backed securities totaled $31.6 million, an
increase of $11.6 million, or 58.0%, due primarily to the purchase of $12.8
million of mortgage-backed securities, partially offset by repayments of
principal. Loans receivable totaled $227.0 million, an increase of $9.9 million,
or 4.5%, due primarily to an increase in mortgage originations.
Deposits increased approximately $17.7 million, or 5.5%, to $338.2
million at September 30, 2001 from $320.5 million at June 30, 2001. 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
September 30, 2001, the Bank had Tier 1 core capital of $48.1 million, or 12.3%
of total adjusted assets, which was $32.5 million in excess of the requirement
of minimum core capital of $15.6 million, or 4% of total adjusted assets; Tier 1
risk based capital of $48.1 million, or 21.3% of risk weighted assets, which was
$39.1 million in excess of the requirement of minimum Tier 1 risk based capital
of $9.0 million, or 4% of risk weighted assets; and total risk-based capital of
$50.9 million, or 22.5% of risk weighted assets, which was $32.8 million in
excess of the requirement of a minimum total risk-based capital of 8% of risk
weighted assets.
8
Comparison of Operating Results for the Three Months Ended September 30, 2001
and 2000.
General
The Company's net income for the three months ended September 30, 2001,
totaled $584,000, a decrease of $214,000, or 26.8%, as compared to $798,000 for
the three months ended September 30, 2000, due principally to a decrease in net
interest income and an increase in noninterest expenses. Unrealized gains
(losses) on securities available-for-sale decreased $700,000 to ($118,000) for
the three months ended September 30, 2001, as compared to $582,000 for the same
period last year, as a result of a decrease in the fair value of the Company's
investment securities available-for-sale, principally the Company's Federal Home
Loan Mortgage Corporation preferred stock.
Net Interest Income
Interest income on loans remained approximately the same at $3.9
million for the quarters ended September 30, 2001and 2000. The average yield on
loans remained unchanged at 7.1% while average balances of loans increased by
$3.7 million, to $222.7 million for the current quarter compared to $219.0
million for the same quarter last year.
Interest income on mortgage-backed securities increased $265,000 to
$418,000 for the three months ended September 30, 2001, from $153,000 for the
three months ended September 30, 2000. The average balance of mortgage-backed
securities increased by $16.7 million to $24.9 million for the three months
ended September 30, 2001, compared to $8.2 million for the same period last
year. The average yield on mortgage-backed securities decreased to 6.7% from
7.5%. The increase in the average balance of mortgage-backed securities for the
three months ended September 30, 2001, was the result of the purchase of
mortgage-backed securities, including $12.8 million during the quarter. The
decrease in average yield on mortgage-backed securities for the period was
attributable to lower interest rates on recently purchased mortgage- backed
securities.
Interest income on investment securities and short-term investments
("Investments") decreased by $89,000, to $1.6 million for the three months ended
September 30, 2001, from $1.7 million for the three months ended September 30,
2000. The average balance of Investments increased by $20.1 million to $120.2
million for the three months ended September 30, 2001, from $100.1 million for
the same period in the prior year, while the yield on Investments decreased to
5.2% from 6.7%. The increase in average balance of Investments for the three
months ended September 30, 2001, was the result of an increase in the supply of
funds to invest in such securities. The change in average yield on Investments
for the periods was due to lower market rates on short term investments.
Total interest expense increased by approximately $542,000 during the
quarter ended September 30, 2001, to $4.3 million from $3.8 million for the
quarter ended September 30, 2000. This increase was the result of an increase in
average balances of interest bearing liabilities outstanding to $330.8 million
from $284.9 million, partially offset by a decrease in average rates paid on
deposits to 5.2%, from 5.3%. The increases in average balance on interest
bearing liabilities outstanding for the three months ended September 30, 2001,
as compared to the same periods last year, was due to increased customer
deposits, while the decrease in average rates paid on deposits for the period
was due to general market conditions.
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 $312,000, or 16.2%, to $1.6 million during the three
months ended September 30, 2001, as compared to $1.9 million during the three
months ended September 30, 2000.
9
Provision for Loan Losses
The Bank had no provision for loan losses for the three months ended
September 30, 2001 and September 30, 2000. The allowance for loan losses, which
was $732,000 at September 30, 2001 and June 30, 2001, is established in
accordance with generally accepted accounting principles and exists to absorb
known and inherent losses 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 September 30, 2001, management considered the allowance
for loan losses to be adequate.
Noninterest Income
Noninterest income increased $24,000 to $151,000, for the three months
ended September 30, 2001, from $127,000 for the same period last year. The
increase was primarily the result of increases in the cash surrender value of
life insurance contracts and service fee income.
Noninterest Expense
Noninterest expense for the three months ended September 30, 2001,
increased by $176,000 to $986,000, from $810,000 for the three months ended
September 30, 2000. Compensation and employee benefits increased $45,000 to
$526,000 for the three months ended September 30, 2001, from $481,000 for the
same period last year, due to higher noncash compensation expense related to the
ESOP due to an increase in the Company's stock price. Other expenses increased
by $151,000 for the quarter ended September 30, 2001, due primarily to legal and
other expenses incurred in connection with the pending merger.
Provision for Income Taxes
Provision for income taxes for the three months ended September 30,
2001, totaled $196,000, compared to $447,000 for the three months ended
September 30, 2000. The effective income tax rate for the three months ended
September 30, 2001, was 25.1%, compared to 35.9% for the three months ended
September 30, 2000. The lower effective tax rate in 2001 reflects treatment of
the increase in cash surrender value of life insurance as a permanent
difference.
Classified Assets
There was one loan totaling $10,000 which was 90 or more days
delinquent but still accruing at September 30, 2001, and no such loans at June
30, 2001. Loans 90 or more days delinquent and not accruing totaled $86,000 at
September 30, 2001. There were no such loans at June 30, 2001. At September 30,
2001, the Company had real estate owned totaling $2.5 million. A public sale for
the property was held on November 2, 2001. The Company expects to receive
approximately $3 million after transaction costs. The sale is subject to various
terms and conditions and is scheduled to close in the first quarter of 2002.
There can be no assurances that the sale will close as scheduled.
10
Liquidity
The Company is required to maintain levels of liquid assets as defined
by Office of Thrift Supervision regulations to support safe and sound
operations. The Company's liquidity ratio averaged 45.93 % during the quarter
ended September 30, 2001, and equaled 46.55% at September 30, 2001.
Stock Repurchase Plan
As of September 30, 2001, the Company has repurchased 667,416 shares of
its common stock in connection with its repurchase plan. The Company has the
Board's authorization to repurchase an additional 356,025 shares as, in the
opinion of management, market conditions warrant.
11
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K
On August 16, 2001, the Company filed a Form 8-K to report that it had
entered into an agreement under which the Company would be acquired by Northwest
Bancorp, Inc., for $32.00 per share of the Company's stock held by stockholders
other than the MHC.
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.
Changes in Securities
None
Defaults Upon Senior Securities
None
.
12
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: November 13, 2001 By: /s/ Gordon E. Clark
----------------------------------
Gordon E. Clark
President and Chief Executive
Officer
Date: November 13, 2001 By: /s/ Kathleen Trumpler
----------------------------------
Kathleen Trumpler
Treasurer and Chief Financial
Officer
13