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 December 31, 1997
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission File No. 0-24330
Bedford Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1709924
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 West Main Street, Bedford, Virginia 24523
---------------------------------------------
(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 February 5, 1998: 1,142,425 shares
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
December 31, 1997 and September 30, 1997 (unaudited) 1
Consolidated Statements of Income for the three months
ended December 31, 1997 and 1996 (unaudited) 2
Consolidated Statements of Cash Flows for the three months ended
December 31, 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 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES
</TABLE>
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
December 31 September 30
1997 1997
-------------------------
(In Thousands)
Assets
- ------
<S> <C> <C>
Cash and cash equivalents ................................................................. $ 3,394 $ 5,446
Investment securities held for investment (estimated market value of $3,591 and $4,581) ... 3,599 4,596
Mortgage-backed securities held for investment (estimated market value of $19 and $20) .... 19 20
Marketable equity securities available for sale, at market value .......................... 4,239 4,238
Investment securities available for sale, at market value ................................. 4,531 5,006
Investment in Federal Home Loan Bank stock, at cost ....................................... 932 932
Loans receivable, net ..................................................................... 117,692 116,093
Foreclosed real estate, net ............................................................... -- 212
Property and equipment, net ............................................................... 1,193 1,214
Accrued interest receivable ............................................................... 807 847
Deferred income taxes ..................................................................... 49 58
Other assets .............................................................................. 453 427
-------- --------
Total assets .......................................................................... 136,908 139,089
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits................................................................................... 103,387 103,612
Advances from the Federal Home Loan Bank .................................................. 13,000 15,000
Advances from borrowers for taxes and insurance ........................................... 246 502
Dividends payable ......................................................................... 160 160
Other liabilities ......................................................................... 234 194
-------- --------
Total liabilities .................................................................... 117,027 119,468
-------- --------
Commitments and contingent liabilities
Stockholders' equity
- --------------------
Preferred stock, par value $.10 per share, authorized 250,000; issues and outstanding, none -- --
Common stock, par value $.10 per share, authorized 2,750,000 shares; issued and outstanding
1,142,425 at December 31, 1997 and September 30, 1997 ................................... 114 114
Additional paid in capital ................................................................ 10,884 10,836
Retained earnings, substantially restricted ............................................... 9,958 9,763
Unrealized (loss) gain on securities available for sale ................................... 28 22
Less stock acquired by ESOP and RRP (1,103) (1,114)
-------- --------
Total stockholders' equity ........................................................... 19,881 19,621
-------- --------
Total liabilities and stockholders' equity ........................................... $136,908 $139,089
======== ========
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1997 1996
------ ------
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Interest Income:
Loans .................................................... $2,404 $2,218
U.S. Government Obligations including agencies ........... 217 190
Other investments, including overnight deposits .......... 47 54
------ ------
Total interest income ................................... 2,668 2,462
------ ------
Interest Expense:
Deposits ................................................. 1,167 1,053
Borrowed funds ........................................... 204 215
------ ------
Total interest expense .................................. 1,371 1,268
------ ------
Net interest income ..................................... 1,297 1,194
Provision for credit losses ............................... 30 25
------ ------
Net interest income after provision for credit losses ... 1,267 1,169
------ ------
Noninterest income:
Service charges and fees on loans ........................ 95 87
Other customer service fees and commissions .............. 68 61
Other .................................................... 24 7
------ ------
Total noninterest income ................................ 187 155
------ ------
Noninterest expense:
Personnel compensation and benefits ...................... 463 396
Occupancy and equipment .................................. 80 72
Data processing .......................................... 85 79
Federal insurance of accounts ............................ 16 42
Advertising .............................................. 33 34
Professional fees ........................................ 72 30
Net cost of (gain on) operations of foreclosed real estate -- 2
Other .................................................... 86 94
------ ------
Total noninterest expense ............................... 835 749
------ ------
Income before income taxes ............................. 619 575
Provision for income taxes ................................ 235 218
------ ------
Net income .............................................. $ 384 $ 357
====== ======
Basic earnings per share ................................ $ 0.35 $ 0.33
====== ======
Diluted earnings per share ............................. $ 0.33 $ 0.32
====== ======
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Operating activities:
Net income .......................................................................... $ 384 $ 357
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses ....................................................... 30 25
Provision for depreciation and amortization ....................................... 37 34
Amortization of investment security premiums and accretion of discounts, net ...... (3) 1
(Increase) decrease in deferred income taxes ...................................... 9 49
Loans originated for sale ......................................................... -- --
Proceeds from sale of loans originated for sale ................................... -- --
(Increase) decrease in accrued interest receivable ................................ 40 53
(Increase) decrease in other assets ............................................... (26) 123
Increase (decrease) in other liabilities .......................................... 40 (541)
------- -------
Net cash provided by (used in) operating activities ........................... 511 101
------- -------
Investing activities:
Proceeds from the maturities of investments ....................................... 1,000 --
Proceeds from the sales of investments ............................................ 992 --
Purchases of investment securities ................................................ (500) (57)
Net increase in loans to customers ................................................ (1,599) (2,741)
Net proceeds from the sale of foreclosed real estate .............................. 200 --
Principal collected on ortgage-backed securities .................................. 1 10
Purchases of premises, equipment and leasehold improvements ....................... (16) (36)
Purchase of foreclosed real estate ................................................ -- (43)
------- -------
Net cash provided by (used in) investment activities .......................... 78 (2,867)
------- -------
Financing activities:
Dividends paid .................................................................... (160) (126)
Net increase (decrease) in customer deposits ...................................... (225) 906
Proceeds from advances and other borrowed money ................................... (2,000) 2,000
Net increase (decrease) in advance payments from borrowers for taxes and insurance. (256) (227)
------- -------
Net cash provided by financing activities ..................................... (2,641) 2,553
------- -------
Increase (decrease) in cash and cash equivalents .............................. (2,052) (213)
Cash and cash equivalents at beginning of period .................................... 5,446 3,075
------- -------
Cash and cash equivalents at end of period .......................................... $ 3,394 $ 2,862
======= =======
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
Note to Unaudited Interim Consolidated Financial Statements
December 31, 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 Bedford
Federal Savings Bank (the "Bank"), a wholly owned subsidiary of the Corporation.
All significant intercompany balances and 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 period ended December 31,
1997 is not necessarily indicative of the results which may may be expected for
any future period. For futher 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, 1997.
For the quarter ended December 31, 1997, the Corporation adopted Statement
of Financial Accounting Standards ("SFAS") 128, Earnings Per Share. SFAS 128 is
effective for financial statements, including interim periods issued for periods
ending after December 15, 1977. SFAS 128 provides a different method for
calculating earnings per share than was used in accordance with APB 15,
"Earnings Per Share." SFAS 128 provides for the calculation of basic and diluted
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in earnings
of an entity, similar to fully diluted earnings per share.
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Total assets of the Corporation were $136.9 million at December 31, 1997, a
decrease of $2.2 million from September 30, 1997. The $2.1 million decline in
cash and cash equivalents primarily reflects the $2 million reduction in Federal
Home Loan bank borrowings. Net loans increased $1.6 million as investments were
reduced $1.5 million providing funding for the loan growth. Stockholders' equity
was $19.9 million on December 31, 1997, up $260,000 from the $19.6 million on
September 30, 1997.
At December 31, 1997, nonperforming assets were $735,000, or .54% of total
assets, compared to $730,000, or .52% of total assets at September 30, 1997.
During the quarter ended December 31, 1997, nonperforming loans increased
$217,000 due primarily to the addition of one large consumer loan. The loan is
well secured and no material loss is anticipated. The $212,000 of foreclosed
property held at September 30, 1997 was sold during the first quarter of fiscal
1998. No material gain or loss was realized from the sale of the foreclosed
property. On December 31, 1997, the allowance for credit losses totaled $709,000
and equaled 96.37% of nonperforming assets.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------
General. Net income for the three months ended December 31, 1997 was
$384,000, up 7.6% from the $357,000 earned in the comparable period of fiscal
1997. Net interest income for the first quarter of fiscal 1998 was $1.3 million,
compared to net interest income for the first quarter of fiscal 1997 of $1.2
million. In addition, $30,000 was added to the allowance for credit losses
during the first quarter of fiscal 1998, compared to $25,000 for the comparable
period of fiscal 1997.
Interest Income. Total interest income amounted to $2.7 million for the
three months ended December 31, 1997 up from the $2.5 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 $116.8 million for the quarter
ended December 31, 1997 from $110.5 million for the same period of 1996.
Interest Expense. For the three months ended December 31, 1997, total
interest expense rose to $1.4 million from the $1.3 million for the three months
ended December 31, 1996, primarily due to an increase in the average balance of
interest bearing liabilities to $111.1 million for the first quarter of fiscal
1998 from $104.5 million for the same quarter of fiscal 1997. Average interest
bearing deposits were $97.8 million for the first quarter of fiscal 1998,
compared to an average of $90.3 million for the same three months of fiscal
1997.
Net Interest Income. For the three months ended December 31, 1997, net
interest income was $1.3 million, up $103,000 from the net interest income
earned in the same period of 1996. During the three months ended December 31,
1997, the Corporation's interest rate spread and net interest margin increased
to 3.13% and 3.92%, respectively, compare to 3.07% and 3.84%, respectively for
the same period of 1996.
-5-
<PAGE>
Provision for Credit Losses. For the three months ended December 31, 1997,
the Bank recorded a provision for credit losses of $30,000, compared $25,000 for
the same period of fiscal 1997. As discussed in the Financial Condition Section,
we added one consumer loan in the amount of $185,000 and several small consumer
loans, totaling a net $38,000, to the nonperforming category.
Total Noninterest Income. Noninterest income totaled $187,000 for the first
quarter of fiscal 1998, compared to $155,000 for the same quarter of fiscal
1997. The increase was primarily attributable to an increase in income from the
sale of mortgage insurance, coupled with moderate increases in service charges
and fees on loans and other customer service fees.
Total Noninterest Expense. Total noninterest expense was $835,000 for the
three months ended December 31, 1997, up $86,000 from the $749,000 total for the
comparable quarter of fiscal 1997. Personnel compensation and benefits totaled
$463,000 for the three months ended December 31, 1997, up $67,000 from the same
quarter of 1996 primarily due to benefit plans based on the market value of the
Company's common stock, merit increases and increases in other benefits. In
addition, professional fees totaled $72,000 for the three months ended December
31, 1997, compared to $30,000 for the same three months of 1996 due primarily to
consulting fees associated with the Corporation's three year strategic business
plan.
Provision for Income Taxes. The provision for income taxes was $235,000 for
the three months ended December 31, 1997, up from the $218,000 provision
recorded in the three months ended December 31, 1996. The increased reflects the
higher profitability of the Company in the quarter ended December 31, 1997.
CAPITAL COMPLIANCE
- ------------------
The following table presents the Bank's compliance with its regulatory
requirements of December 31, 1997. (Dollar amounts in thousands).
December 31, 1997
---------------------
Percentage
of assets
----------
GAAP Capital ........................... $17,681 12.88%
======= =====
Tangible capital ....................... $17,681 12.88%
Tangible capital requirement ........... 2,059 1.50
------- -----
Excess ............................... $15,622 11.38%
======= =====
Core capital ........................... $17,681 12.88%
Core capital requirement ............... 4,119 3.00
------- -----
Excess ............................... $13,562 9.88%
======= =====
Total risk-based capital (1) ........... $18,290 25.37%
Total risk-based capital requirement (1) 5,767 8.00
------- -----
Excess ............................... $12,523 17.37
======= =====
- -----------------------------------
(1) Based on risk-weighted assets of $72,093
- -----------------------------------
-6-
<PAGE>
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.
LIQUIDITY
- ---------
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 also borrows funds from the Federal Home Loan Bank
("FHLB") of Atlanta. As of December 31, 1997, such borrowed funds totaled $13.0
million. Loan payments and maturing investments are greatly influenced by
general interest rates, economic conditions and competition.
The OTS adopted a new liquidity rule effective Novenber 24, 1997. The new
rule lowers liquidity requirements for savings associations from 5 to 4 percent
of the association's liquidity base. In addition, the liquidity base has been
reduced by modifying the definition of net withdrawable accounts to exclude
accounts with maturities exceeding one year. Another change removes the
requirement that certain obligations must mature in five years or less in order
to qualify as a liquid asset. The new rule also eliminates a separate limit that
required savings associations to hold assets equal to 1 percent of a thrift's
liquidity base in cash or short term liquid assets. At December 31, 1997, the
Bank's regulatory liquidity as measured by the new requirement was 10.12%.
The amount of certificate accounts which are scheduled to mature during the
next twelve months ending December 31, 19987, is approximately $40.8 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 December 31, 1997, the Bank had loan commitments outstanding of $ 5.7
million and a $500,000 commitment to purchase an investment security. Funds
required to fulfill these commitments are derived primarily from current excess
liquidity, deposit inflows, borrowings or loan and investment repayments.
-7-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Key Operating Ratios
(Unaudited)
For the
Three Months Ended
December 31
--------------------
1997(1) 1996(1)
----------- -----------
(Unaudited)
Earnings per common share .................. $ 0.35 $ 0.33
======== ========
Return on average assets ................... 1.11% 1.10%
Return on average equity ................... 7.76% 7.72%
Interest rate spread ....................... 3.13% 3.07%
Net interest margin ........................ 3.92% 3.84%
Noninterest expense to average assets ...... 2.41% 2.31%
Net charge-offs to average outstanding loans -- --
<TABLE>
<CAPTION>
At At
December 31 September 30
1997 1997
----------- ------------
(Dollars in Thousands)
<S> <C> <C>
Nonaccrual and 90 days past due loans ............. $ 735 $ 518
Foreclosed real estate ............................ -- 212
------- -------
Total nonperforming assets ........................ $ 735 $ 730
======= =======
Allowance for credit losses to nonperforming assets 96.37% 92.81%
Nonperforming loans to total loans ................ 0.62% 0.45%
Nonperforming assets to total assets .............. 0.54% 0.52%
Book value per share .............................. $ 17.40 17.17
======= =======
</TABLE>
- -------------------
(1) The ratios for the three-month periods are annualized
-8-
<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 December 31, 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.
-9-
<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: February 12, 1998 By: /s/ Harold K. Neal
----------------------
Harold K. Neal
President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 12, 1998 By: /s/ Harold K. Neal
----------------------
James W. Smith
Vice President and Treasurer
(Principal Accounting and
Financial officer)
-10-
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
December 31
------------------------
1997 1996
---------- -----------
Basic Earnings Per Share:
Net Income ...................................... $ 384,000 $ 357,000
========== ==========
Average Shares Outstanding, Net of
unallocated ESOP Shares (54,667 and 61,793
at December 31, 1997 and 1996, respectively.) 1,087,758 1,081,582
========== ==========
Basic Earnings Per Share ........................ $ 0.35 $ 0.33
========== ==========
Diluted Earnings Per Share:
Net Income ...................................... $ 384,000 $ 357,000
========== ==========
Average Shares Outstanding, Net of
unallocated ESOP Shares (54,667 and 61,793
at December 31, 1997 and 1996, respectively.) 1,087,758 1,081,582
Add:
Dilutive effect of RRP Plan shares .......... 10,127 12,656
Dilutive effect of Stock Options ............ 63,744 37,980
---------- ----------
Average Shares Outstanding ...................... 1,161,629 1,132,218
========== ==========
Diluted Earnings Per Share ...................... $ 0.33 $ 0.32
========== ==========
-11-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,498
<INT-BEARING-DEPOSITS> 896
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,770
<INVESTMENTS-CARRYING> 12,388
<INVESTMENTS-MARKET> 12,380
<LOANS> 118,401
<ALLOWANCE> 709
<TOTAL-ASSETS> 136,908
<DEPOSITS> 103,387
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 640
<LONG-TERM> 8,000
0
0
<COMMON> 114
<OTHER-SE> 19,767
<TOTAL-LIABILITIES-AND-EQUITY> 136,908
<INTEREST-LOAN> 2,404
<INTEREST-INVEST> 264
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,668
<INTEREST-DEPOSIT> 1,167
<INTEREST-EXPENSE> 1,371
<INTEREST-INCOME-NET> 1,297
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 835
<INCOME-PRETAX> 619
<INCOME-PRE-EXTRAORDINARY> 619
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384
<EPS-PRIMARY> .35
<EPS-DILUTED> .30
<YIELD-ACTUAL> 3.92
<LOANS-NON> 735
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 678
<CHARGE-OFFS> 0
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 709
<ALLOWANCE-DOMESTIC> 709
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 709
</TABLE>
