SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-24330
Bedford Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1709924
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 West Main Street, Bedford, Virginia 24523
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(Address of principal executive offices)
(540) 586-2590
--------------
(Registrant's telephone number, including area code)
Check whether issuer (1) filed all reports required to be filed by Sections 13
or 15(d) of the Exchange Act during the past 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 .
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class: Common Stock, par value $.10 per share
Outstanding at August 8, 1997: 1,142,425 shares
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
June 30, 1997 and September 30, 1996 (unaudited) 1
Consolidated Statements of Income for the three and nine months
ended June 30, 1997 and 1996 (unaudited) 2
Consolidated Statements of Cash Flows for the nine months ended
June 30, 1997 and 1996 (unaudited) 3
Notes to Unaudited Interim Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II OTHER INFORMATION
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Item 1. Legal proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30 September 30
1997 1996
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(Dollars in Thousands)
<S> <C> <C>
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,289 $3,075
Investment securities held to maturity (estimated market value of $3,804 and $5,161) . . . . . . . 3,835 5,214
Mortgage-backed securities held for investment (estimated market value of $21 and $25) . . . . . . 21 25
Mortgage-backed securities available for sale, at market value . . . . . . . . . . . . . . . . . . 461 457
Marketable equity securities available for sale, at market value . . . . . . . . . . . . . . . . . 4,101 3,879
Investment securities available for sale, at market value . . . . . . . . . . . . . . . . . . . . 4,383 1,860
Investment in Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . . 932 932
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,556 108,873
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,246 1,238
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828 662
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 438
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 548
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $135,455 $127,201
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
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Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,047 $95,378
Advances from the Federal Home Loan Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500 12,000
Advances from borrowers for taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . . 322 539
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 126
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,243 931
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,272 108,974
-------- --------
Stockholders' equity
- --------------------
Preferred stock, par value $.10 per share, authorized 250,000; issued and outstanding, none . . . 0 0
Common stock, par value $.10 per share, authorized 2,750,000 shares; issued and outstanding
1,142,425 at June 30, 1997 and 1,143,669 at September 30, 1996. . . . . . . . . . . . . . . . . 114 114
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,792 10,773
Retained earnings, substantially restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,470 8,739
Unrealized loss on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . (7) (33)
Less stock acquired by ESOP and RRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,186) (1,366)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,183 18,227
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . $135,455 $127,201
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
----------------------- ------------------------
1997 1996 1997 1996
------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,342 $2,078 $6,868 $6,211
U.S. Government Obligations, including agencies . . . . . . 204 199 583 551
Other investments, including overnight deposits . . . . . . 40 46 136 96
------ ------ ------ ------
Total interest income. . . . . . . . . . . . . . . . . . . 2,586 2,323 7,587 6,858
------ ------ ------ ------
Interest Expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 1,075 1,026 3,158 3,086
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . 217 89 654 218
------ ------ ------ ------
Total interest expense . . . . . . . . . . . . . . . . . . 1,292 1,115 3,812 3,304
------ ------ ------ ------
Net interest income . . . . . . . . . . . . . . . . . . . 1,294 1,208 3,775 3,554
Provision for credit losses . . . . . . . . . . . . . . . . 25 - 75 -
------ ------ ------ ------
Net interest income after provision for credit losses . 1,269 1,208 3,700 3,554
------ ------ ------ ------
Noninterest income:
Service charges and fees on loans . . . . . . . . . . . . . 87 122 237 255
Other customer service fees and commissions . . . . . . . . 58 61 178 181
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 8 39 72
------ ------ ------ ------
Total noninterest income . . . . . . . . . . . . . . . . . 154 191 454 508
------ ------ ------ ------
Noninterest expense:
Personnel compensation and benefits . . . . . . . . . . . . 435 364 1,244 1,101
Occupancy and equipment . . . . . . . . . . . . . . . . . . 82 89 234 254
Data processing . . . . . . . . . . . . . . . . . . . . . . 84 74 254 232
Federal insurance of accounts . . . . . . . . . . . . . . . 16 53 73 154
Advertising . . . . . . . . . . . . . . . . . . . . . . . . 46 23 105 65
Professional fees . . . . . . . . . . . . . . . . . . . . . 22 23 87 95
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 89 258 263
------ ------ ------ ------
Total noninterest expense . . . . . . . . . . . . . . . . 766 715 2,255 2,164
------ ------ ------ ------
Income before income taxes . . . . . . . . . . . . . . . 657 684 1,899 1,898
Provision for income taxes . . . . . . . . . . . . . . . . . 250 260 721 721
------ ------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $407 $424 $1,178 $1,177
====== ====== ====== ======
Net income per share . . . . . . . . . . . . . . . . . . . $0.38 $0.38 $1.09 $1.05
===== ===== ===== =====
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
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1997 1996
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(In Thousands)
<S> <C> <C>
Operating activities:
Net income ...................................................................................... $1,178 $ 1,177
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses ................................................................... 75 --
Provision for depreciation and amortization ................................................... 120 121
Amortization of investment security premiums and accretion of discounts, net .................. (8) (8)
(Increase) decrease in deferred income taxes .................................................. 66 (37)
(Gain) loss on sale of loans, investments and foreclosed real estate .......................... (8) (30)
Loans originated for sale ..................................................................... (185) (152)
Proceeds from sale of loans originated for sale ............................................... 185 152
(Increase) decrease in accrued interest receivable ............................................ (166) 79
(Increase) decrease in other assets ........................................................... 117 (13)
Increase (decrease) in other liabilities ...................................................... 345 182
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Net cash provided by (used in) operating activities ......................................... 1,719 1,471
------- -------
Investing activities:
Proceeds from the sale of investments, available for sale ..................................... 1,000 500
Proceeds from the maturities of investments ................................................... 1,400 1,391
Purchases of investment securities ............................................................ (3,695) (3,596)
Net increase in loans to customers ............................................................ (6,683) (5,783)
Principal collected on mortgage-backed securities ............................................. 26 8
Purchases of premises, equipment and leasehold improvements ................................... (128) (64)
Proceeds from the sale of REO ................................................................. 48 83
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Net cash provided by (used in) investing activities ......................................... (8,032) (7,461)
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Financing activities:
Repurchase of stock ........................................................................... -- (824)
Proceeds - allocation of ESOP and RRP shares .................................................. -- 149
Dividends paid ................................................................................ (402) (401)
Net increase (decrease) in customer deposits .................................................. 4,669 4,067
Proceeds from advances and other borrowed money ............................................... 2,500 3,000
Purchase of stock by ESOP and RRP ............................................................. (23) (484)
Net increase (decrease) in advance payments from borrowers for taxes and insurance ............ (217) (179)
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Net cash provided by financing activities ................................................... 6,527 5,328
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Increase (decrease) in cash and cash equivalents ............................................ 214 (662)
Cash and cash equivalents at beginning of period .................................................. 3,075 3,337
------- -------
Cash and cash equivalents at end of period ........................................................ $ 3,289 $ 2,675
======= =======
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
Note to Unaudited Interim Consolidated Fianancial Statements
June 30, 1997
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying unaudited interim consolidated financial statements
include the accounts of Bedford Bancshares, Inc. (the "Corporation") and its
wholly owned subsidiary Bedford Federal Savings Bank (the "Bank"). All
significant intercompany transactions have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for the fair presentations have been
included. The results of operations for the interim periods ended June 30, 1997
and 1996 are not necessarily indicative of the results which may be expected for
any future period. For further information, refer to consolidated financial
statements and footnotes thereto included in the Corporation's Annual Report on
Form 10-KSB for the year ended September 30, 1996.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Total assets of the Corporation were $135.5 million at June 30, 1997, an
increase of $8.3 million from September 30, 1996. Approximately one-half of the
$6.7 million rise in loan receivables was concentrated in the consumer and
commercial categories, with mortgage loans and home equity lines of credit
reflecting an increase of $3.3 million. In addition, investment securities
available for sale were up $2.5 million from September 30, 1996 to June 30,
1997. Funding for the asset growth was mainly provided by increases in FHLB
borrowings and deposits. Stockholders' equity was $19.2 million on June 30,
1997, up $956,000 from the $18.2 million on September 30, 1996.
At June 30, 1997, nonperforming assets were $ 819,000, or .60% of total
assets, compared to $684,000, or .54% of total assets at September 30, 1996. At
June 30, 1997 nonperforming assets were comprised of $680,000 of mortgage loans
and $139,000 of consumer loans. Theses credits are well collateralized and,
therefore, the Bank anticipates no material losses from their disposition. The
level of nonperforming assets at June 30, 1997 is $ 13,000 lower than the level
at March 31, 1997.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------
General. Net income for the three months ended June 30, 1997 was $407,000,
down 4.0% from the $424,000 earned in the comparable period of fiscal 1996. Per
share earnings of $.38 were recorded for both the quarter ended June 30, 1997
and June 30, 1996. Net interest income for the third quarter of fiscal 1997 was
$1.3 million, compared to net interest income for the third quarter of fiscal
1996 of $1.2 million. In addition, $25,000 was added to the allowance for credit
losses during the third quarter of fiscal 1997.
Interest Income. Total interest income amounted to $2.6 million for the
three months ended June 30, 1997, up from the $2.3 million earned in the
comparable quarter of fiscal 1996. The increase was primarily due to an increase
in the average balance of loans receivable to $114.1 million for the quarter
ended June 30, 1997, from $100.9 million for the same period of 1996. This
increase reflects the Corporation's continuing success in originating mortgage
loans and increased emphasis on expanding the consumer loan , primarily home
equity loans, and commercial loan portfolios.
Interest Expense. For the three months ended June 30, 1997, total interest
expense was $1.3 million, compared to $1.1 million for the three months ended
June 30, 1996, primarily due to an increase in the average balance of interest
bearing liabilities to $108.1 million for the third quarter of fiscal 1997 from
$93.9 million for the same quarter of fiscal 1996. The average balance of FHLB
advances increased $8.4 from $6.0 million for the three months ended June 30,
1996 to $14.4 million for the three months ended June 30, 1997, providing the
additional funding needed to support the Bank's loan growth. In addition,
average interest bearing deposits
-5-
<PAGE>
totaled $93.7 million for the third quarter of fiscal 1997, a $5.8 million
increase from the $87.9 million average for the comparable period of fiscal
1996.
Net Interest Income. For the three months ended June 30, 1997, net interest
income was $1.3 million, up slightly from the net interest income earned in the
same period of 1996. During the three months ended June 30, 1997, the
Corporation's interest rate spread and net interest margin declined modestly to
3.28% and 4.03%, respectively, compared to 3.36% and 4.22%, respectively for the
same period of 1996. A slight decline in the yield on earning assets was the
primary reason for the decreases.
Provision for Credit Losses. For the three months ended June 30, 1997, the
Bank, after reviewing nonperfoming assets, loan portfolio growth and
year-to-date net charge-offs , recorded a provision for credit losses of
$25,000. There was no provision for credit losses taken during the three months
ended June 30, 1996. The determination of the adequacy of the allowance for
credit losses involves subjective judgements regarding future events, and,
therefore, there can be no assurance that additions to the allowance for credit
losses will not be required in future periods. Management will continue to
evaluate the level of the allowance for credit losses based on, among other
things, growth of the loan portfolio, loan delinquency rates and general market
conditions. There can be no assurance, however, that additional provisions will
be required in future periods.
Total Noninterest Income. Noninterest income totaled $154,000 for the third
quarter of fiscal 1997, compared to $191,000 for the same three months of 1996.
The decline is primarily the result of a decrease in loan fees earned due to a
moderation in mortgage loan closings when comparing the third quarter of 1997
with the same period of 1996.
Total Noninterest Expense. Total noninterest expense was $766,000 for the
three months ended June 30, 1997, up $51,000 from the $715,000 total for the
comparable quarter of fiscal 1996. Personnel compensation and benefits totaled
$435,000 for the three months ended June 30, 1997, up $71,000 from the same
quarter of 1996 primarily due to staff increases, general merit increases and
higher benefits costs. In addition, advertising expenses were up $23,000 due to
home equity line and certificate of deposit promotions. These increases were
partially offset by a reduction in the cost of Federal Deposit Insurance.
Provision for Income Taxes. The provision for income taxes was $250,000 for
the three months ended June 30, 1997, compared to a provision of $260,000 for
the same quarter of fiscal 1996. The slightly lower provision is due to the
modest decline in taxable income.
COMPARISON OF NINE MONTHS ENDED JUNE 30, 1997 AND 1996
- -------------------------------------------------------
General. Net income for the nine months ended June 30, 1997 was $1,178,000,
compared to $1,177,000 earned in the comparable period of fiscal 1996. On a per
share basis, earnings were $1.09 and $1.05 for the first nine months of fiscal
1997 and 1996, respectively. Net interest income for the nine months ended June
30, 1997 was $3.8 million, compared to $3.6 million for the first nine months of
fiscal 1996. In addition, $75,000 was added to the allowance for credit losses
during the first nine months of fiscal 1997.
Interest Income. Total interest income amounted to $7.6 million for the
nine months ended June 30, 1997, up from the $6.9 million earned in the
comparable period of fiscal 1996. The increase was primarily due to an increase
in the average balance of loans receivable to $112.4
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<PAGE>
million for the nine months ended June 30, 1997 from $99.3 million for the same
period of 1996. This increase reflects the Corporation's continuing success in
originating mortgage loans and increased emphasis on expanding the consumer and
commercial loan portfolios.
Interest Expense. For the nine months ended June 30, 1997, total interest
expense rose to $3.8 million from the $3.3 million for the nine months ended
June 30, 1996, primarily due to an increase in the average balance of interest
bearing liabilities to $106.3 million for the first nine months of fiscal 1997
from $92.3 million for the comparable period of fiscal 1996. The average balance
of FHLB advances increased $9.7 million from $4.8 million for the nine months
ended June 30, 1996 to $14.5 million for the nine months ended June 30, 1997,
providing the additional funding needed to support the Bank's loan growth. In
addition, average interest bearing deposits totaled $91.9 million for the first
nine months of fiscal 1997, a $4.4 million increase from the $87.5 million
average for the comparable period of fiscal 1996.
Net Interest Income. For the nine months ended June 30, 1997, net interest
income was $3.8 million, up 6.2% from the net interest income earned in the same
period of 1996. During the nine months ended June 30, 1997, the Corporation's
interest rate spread and net interest margin declined to 3.25% and 4.00%,
respectively, compared to 3.37% and 4.22%, respectively for the same period of
1996. The lower margin and spread are primarily due to a slightly lower yield on
earning assets.
Provision for Credit Losses. For the nine months ended June 30, 1997, the
Bank, after reviewing nonperfoming assets, loan growth and the level of net
charge-offs, recorded a a provision for credit losses of $75,000. There was no
provision for credit losses taken during the nine months ended June 30, 1996.
The determination of the adequacy of the allowance for credit losses involves
subjective judgements regarding future events, and, therefore, there can be no
assurance that additions to the allowance for credit losses will not be required
in future periods. Management will continue to evaluate the level of the
allowance for credit losses based on, among other things, growth of the loan
portfolio, loan delinquency rates and general market conditions. There can be no
assurance, however, that additional provisions will be required in future
periods.
Total Noninterest Income. Noninterest income totaled $454,000 for the first
nine months of fiscal 1997, compared to $508,000 for the same period of 1996.
During the nine months ended June 30, 1996, the Corporation realized a gain of
$27,000 on the sale of foreclosed property, compared to a gain of $4,000 in the
same period of 1997.
Total Noninterest Expense. Total noninterest expense was $2,255,000 for the
nine months ended June 30, 1997, up $91,000 from the $2,164,000 total for the
comparable period of fiscal 1996. Personnel compensation and benefits totaled
$1,244,000 for the nine months ended June 30, 1997, up $143,000 from the same
nine months of 1996, primarily due to staff increases, general merit increases
and higher benefits costs. In addition, advertising expenses were up $40,000 due
to several product promotions during the first nine months of 1997. Partially
offsetting these items was a $81,000 reduction in the cost of Federal Deposit
Insurance which amounted to $73,000 for the first nine months of 1997, compared
to $154,000 for the same period of 1996.
Provision for Income Taxes. The provision for income taxes was $721,000 for
both the nine months ended June 30, 1997 and 1996, as there was virtually no
change in the amount of taxable income for the two periods.
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<PAGE>
CAPITAL COMPLIANCE
- ------------------
The following table presents the Bank's compliance with its regulatory
requirements of June 30, 1997.
(Dollar amounts in thousands).
<TABLE>
<CAPTION>
June 30, 1997
-------------
Percentage
Amount of assets
------ ---------
<S> <C> <C>
GAAP Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,916 12.45%
======= =====
Tangible capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,916 12.45%
Tangible capital requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,038 1.50%
------- -----
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,878 10.95%
======= =====
Core capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,916 12.45%
Core capital requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,076 3.00%
------- -----
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,840 9.45%
======= ====
Total risk-based capital (1). . . . . . . . . . . . . . . . . . . . .. . . . . . . $17,517 22.92%
Total risk-based capital requirement (1). . . . . . . . . . . . . . .. . . . . . . 6,115 8.00%
------- -----
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,402 14.92%
======= =====
</TABLE>
(1) Based on risk-weighted assets of $76,432
Management believes that under current regulations, the Bank will continue
to meet its minimum capital requirements in the foreseeable future. Events
beyond the control of the Bank, such as increased interest rates or a downturn
in the economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
The Bank's liquidity is a measure of its ability to fund loans, pay deposit
withdrawals, and other cash outflows in an efficient, cost effective manner. The
Bank's primary source of funds are deposits and scheduled amortization and
prepayment of loans. During the past several years, the Bank has used such funds
primarily to fund maturing time deposits, pay savings withdrawals, fund lending
commitments, purchase new investments, and increase liquidity. The Bank funds
its operations internally but has, at times, borrowed funds from the Federal
Home Loan Bank ("FHLB") of Atlanta. As of June 30, 1997, such borrowed funds
totaled $14.5 million. Loan payments and maturing investments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank is required under Federal regulations to maintain certain
specified levels of "liquid investments," which include certain United States
government obligations and other approved investments. Current regulations
require the Bank to maintain liquid assets of not less than 5% of net
withdrawable accounts plus short-term borrowings. Short-term liquid assets must
consist of
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<PAGE>
not less than 1% of such accounts and borrowings, which amount is also included
within the 5% requirement. Those levels may be changed from time to time by the
regulators to reflect current economic conditions. The Bank has generally
maintained liquidity far in excess of regulatory requirements. The Bank's
regulatory liquidity was 7.53% and and its short-term liquidity was 2.61% at
June 30, 1997.
The amount of certificate accounts which are scheduled to mature during the
next twelve months ending June 30, 1998, is approximately $42.2 million. To the
extent that these deposits do not remain at the Bank upon maturity, the Bank
believes that it can replace these funds with other deposits, excess liquidity,
FHLB advances, or other borrowings. It has been the Bank's experience that a
substantial portion of such maturing deposits remain at the Bank.
At June 30, 1997, the Bank had loan commitments outstanding of $4.3 million
and no commitments to purchase mortgage-backed or investment securities. Funds
required to fill these commitments are primarily derived from current excess
liquidity, deposit inflows, borrowings, or loan and investment repayments.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The consolidated financial statements of the Corporation and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
requires the measurement of financial position and operating results in terms of
historical dollars without considering the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased cost of the Corporation's operations. Unlike most industrial
companies, nearly all of the assets and liabilities of the Corporation are
financial. As a result, interest rates have a greater impact on the
Corporation's performance than do the general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
-9-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Key Operating Ratios
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------- -------
1997(1) 1996(1) 1997(1) 1996(1)
------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Earnings per common share . . . . . . . .. . .. . . . . . . . $0.38 $0.38 $1.09 $1.05
Return on average assets . . . . . . . . . . . . . . . . . . . 1.22 % 1.42 % 1.19 % 1.34 %
Return on average equity . . . . . . . . . . . . . . . . . . . 8.52 % 9.12 % 8.36 % 8.38 %
Interest rate spread . . . . . . . . . . . . . . . . . . . . . 3.28 % 3.36 % 3.25 % 3.37 %
Net interest margin . . . . . . . . . . . . . . . . . . . . . 4.03 % 4.22 % 4.00 % 4.22 %
Noninterest expense to average assets . . . . . . . . . . . . 2.29 % 2.39 % 2.28 % 2.47 %
Net charge-offs to average outstanding loans . . . . . . . . . 0.01 % --- 0.06 % ---
</TABLE>
<TABLE>
<CAPTION>
June 30 September 30
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
(Unaudited) (Unaudited)
<S> <C> <C>
Nonaccrual and 90 days past due loans . . . . . . . . . . . . $ 819 $ 684
Repossessed real estate . . . . . . . . . . . . . . . . . . . - -
----- -----
Total nonperforming assets . . . . . . . . . . . . . . . . . . $ 819 $ 684
===== =====
Allowance for credit losses to nonperforming assets . . . . . 79.88 % 95.03 %
Nonperforming loans to total loans . . . . . . . . . . . . . . .71 % .63 %
Nonperforming assets to total assets . . . . . . . . . . . . . .60 % .54 %
Book value per share (2)
Excluding unallocated ESOP shares . . . . . . . . . . . . . . $17.75 $16.95
Including unallocated ESOP shares . . . . . . . . . . . . . . $16.79 $15.94
====== ======
</TABLE>
- --------------
(1) The ratios for the three- and nine-month periods are annualized
(2) At June 30, 1997 and September 30,1996, there were 60,847 and 62,667
unallocated ESOP shares, respectively.
-10-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceeedings
------------------
Neither the Corporation nor the Bank was engaged in any legal
proceedings of a material nature at June 30, 1997. From time
to time, the Corporation is a party to legal proceedings in the
ordinary course of business wherein it enforces its security
interest in loans.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 11: Statement regarding computation of earnings
per share.
Exhibit 27: Financial Data Schedule (electronic filing
only)
(b) Reports on Form 8-K
Not applicable.
-11-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEDFORD BANCSHARES, INC.
Date: August 6, 1997 By: /s/ Harold K. Neal
------------------
Harold K. Neal
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 6, 1997 By: /s/ James W. Smith
------------------
James W. Smith
Vice President and Treasurer
(Principal Accounting and
Financial officer)
-12-
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
-------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $407,000 $424,000 $1,178,000 $1,177,000
======== ======== ========== ==========
Primary and Fully Diluted:
Average Shares Outstanding, Net of
ESOP Shares (60,847 and 68,749 at June 30,
1997 and 1996, respectively.) . . . . . . . . . . . . . 1,080,632 1,115,240 1,081,075 1,123,771
========= ========= ========= =========
Per Share Amount . . . . . . . . . . . . . . . . . . . . . $.38 $.38 $1.09 $1.05
==== ==== ===== =====
</TABLE>
Earnings per share of common stock for the three and nine months ended June
30, 1997 and 1996 have been determined by dividing net income for the periods by
the weighted average number of shares of common stock outstanding net of ESOP
shares.
-13-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,289
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,945
<INVESTMENTS-CARRYING> 3,856
<INVESTMENTS-MARKET> 12,770
<LOANS> 116,210
<ALLOWANCE> 654
<TOTAL-ASSETS> 135,455
<DEPOSITS> 100,047
<SHORT-TERM> 14,500
<LIABILITIES-OTHER> 1,725
<LONG-TERM> 0
0
0
<COMMON> 114
<OTHER-SE> 19,069
<TOTAL-LIABILITIES-AND-EQUITY> 135,455
<INTEREST-LOAN> 6,868
<INTEREST-INVEST> 719
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,587
<INTEREST-DEPOSIT> 3,158
<INTEREST-EXPENSE> 3,812
<INTEREST-INCOME-NET> 3,775
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,255
<INCOME-PRETAX> 1,899
<INCOME-PRE-EXTRAORDINARY> 1,178
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,178
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.15
<LOANS-NON> 819
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 650
<CHARGE-OFFS> 72
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 654
<ALLOWANCE-DOMESTIC> 654
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 654
</TABLE>
