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, 1998
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
--------------------------------------------------------------
(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 thNop.st 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 8, 1999: 2,285,530 shares
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
------ --------------------- ----
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
December 31, 1998 and September 30, 1998 (unaudited) 1
Consolidated Statements of Income for the three months
ended December 31, 1998 and 1997 (unaudited) 2
Consolidated Statements of Comprehensive Income for the three
months ended December 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the three months ended
December 31, 1998 and 1997 (unaudited) 4
Notes to Unaudited Interim Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II OTHER INFORMATION
------- -----------------
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>
December 31 September 30
1998 1998
--------------------------
(In Thousands)
<S> <C> <C>
Assets
- ------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,516 $ 5,666
Investment securities held to maturity (estimated market value of $1,324 and $2,147) . . . . 1,313 2,114
Marketable equity securities available for sale, at market value . . . . . . . . . . . . . . 4,442 4,396
Investment securities available for sale, at market value . . . . . . . . . . . . . . . . . 12,315 12,424
Investment in Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . 1,550 1,550
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,937 129,744
Foreclosed real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 -
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,133 1,160
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 876 996
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 95
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 566
--- ---
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159,563 $158,711
-------- --------
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108,916 $107,086
Advances from the Federal Home Loan Bank . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000 29,000
Advances from borrowers for taxes and insurance. . . . . . . . . . . . . . . . . . . . . . . 303 528
Dividends payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 184
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 665
--- ---
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,942 137,463
-------- --------
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
2,297,900 at December 31, 1998 and September 30, 1998 . . . . . . . . . . . . . . . . . . 230 230
Additional paid in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 10,939
Retained earnings, substantially restricted . . . . . . . . . . . . . . . . . . . . . . . . 11,244 10,900
Unrealized (loss) gain on securities available for sale . . . . . . . . . . . . . . . . . . 16 60
Less stock acquired by ESOP and RRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . (869) (881)
--- ---
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,621 21,248
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $159,563 $158,711
-------- --------
</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
1998 1997
---- ----
(Dollars in Thousands
Except Per Share Data)
<S> <C> <C>
Interest Income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,610 $2,404
U.S. Government Obligations including agencies . . . . . . . 304 217
Other investments, including overnight deposits . . . . . . . 68 47
------ ------
Total interest income . . . . . . . . . . . . . . . . . . . 2,982 2,668
------ ------
Interest Expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135 1,167
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . 396 204
------ ------
Total interest expense . . . . . . . . . . . . . . . . . . . 1,531 1,371
------ ------
Net interest income . . . . . . . . . . . . . . . . . . . . 1,451 1,297
Provision for credit losses . . . . . . . . . . . . . . . . . 23 30
------ ------
Net interest income after provision for credit losses . . . 1,428 1,267
------ ------
Noninterest income:
Service charges and fees on loans . . . . . . . . . . . . . . 158 95
Other customer service fees and commissions . . . . . . . . . 85 68
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 24
------ ------
Total noninterest income . . . . . . . . . . . . . . . . . . 270 187
------ ------
Noninterest expense:
Personnel compensation and benefits . . . . . . . . . . . . . 474 463
Occupancy and equipment . . . . . . . . . . . . . . . . . . . 80 80
Data processing . . . . . . . . . . . . . . . . . . . . . . . 96 85
Federal insurance of accounts . . . . . . . . . . . . . . . . 15 16
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . 29 33
Professional fees . . . . . . . . . . . . . . . . . . . . . . 63 72
Net cost of (gain on) operations of foreclosed real estate . 3 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 86
------ ------
Total noninterest expense . . . . . . . . . . . . . . . . . 848 835
------ ------
Income before income taxes . . . . . . . . . . . . . . . . 850 619
Provision for income taxes . . . . . . . . . . . . . . . . . . 323 235
------ ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 527 $ 384
====== ======
Basic earnings per share . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.18
====== ======
Diluted earnings per share . . . . . . . . . . . . . . . . $ 0.23 $ 0.16
====== ======
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
December 31
1998 1997
---- ----
In Thousands
of Dollars)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $527 $384
Other comprehensive income, net of tax effect:
Unrealized gains on securities available for sale . . (44) 6
---- ----
Comprehensive Income . . . . . . . . . . . . . . . . . . . $483 $390
==== ====
See notes to consolidated financial statements.
-3-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 527 $ 384
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 30
Provision for depreciation and amortization . . . . . . . . . . . . . . . . . . . 35 37
Amortization of investment security premiums and accretion of discounts, net (2) (3)
(Increase) decrease in deferred income taxes . . . . . . . . . . . . . . . . . . . (28) 9
Loans originated for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . (852) -
Proceeds from sale of loans originated for sale . . . . . . . . . . . . . . . . . 943 -
(Increase) decrease in accrued interest receivable . . . . . . . . . . . . . . . . 120 40
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . 291 (26)
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . (126) 40
----- -----
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . 931 511
----- -----
Investing activities:
Proceeds from the maturities of investments . . . . . . . . . . . . . . . . . . . 2,800 1,000
Proceeds from the sales of investments . . . . . . . . . . . . . . . . . . . . . . - 992
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . (2,000) (500)
Net increase in loans to customers . . . . . . . . . . . . . . . . . . . . . . . . (3,211) (1,599)
Net proceeds from the sale of foreclosed real estate . . . . . . . . . . . . . . . - 200
Principal collected on mortgage-backed securities . . . . . . . . . . . . . . . . 1 1
Purchases of premises, equipment and leasehold improvements . . . . . . . . . . . (9) (16)
Net (increase) decrease in foreclosed real estate, net . . . . . . . . . . . . . . (83) -
----- -----
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . (2,502) 78
----- -----
Financing activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (184) (160)
Net increase (decrease) in customer deposits . . . . . . . . . . . . . . . . . . . 1,830 (225)
Proceeds from (repayment of ) advances and other borrowed money . . . . . . . . . (1,000) (2,000)
Net increase (decrease) in advance payments from borrowers for
taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (225) (256)
----- -----
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . 421 (2,641)
----- -----
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . (1,150) (2,052)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . 5,666 5,446
----- -----
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . $4,516 $3,394
====== ======
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements
December 31, 1998
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 "Company") and Bedford
Federal Savings Bank (the "Bank"), a wholly owned subsidiary of the Company. 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,
1998 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 Company's Annual Report on Form
10-KSB for the year ended September 30, 1998.
NOTE 2: EARNINGS PER SHARE
- --------------------------
Earnings per share calculated in accordance with SFAS 128 is as follows:
Three Months Ended
December 31
-----------------------
1998 1997
---- ----
Basic Earnings Per Share:
- -------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . $527,000 $384,000
======== ========
Average Shares Outstanding, Net of
unallocated ESOP Shares (93,334 and 109,334
at December 31, 1998 and 1997, respectively.) . . 2,204,566 2,175,516
========= =========
Basic Earnings Per Share . . . . . . . . . . . . . . $0.24 $0.18
===== =====
Diluted Earnings Per Share:
- ---------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . $527,000 $384,000
======== ========
Average Shares Outstanding, Net of
unallocated ESOP Shares (93,334 and 109,334
at December 31, 1998 and 1997, respectively) . . . 2,204,566 2,175,516
Dilutive effect of RRP Plan shares . . . . . . . 19,704 20,254
Dilutive effect of Stock Options . . . . . . . . 106,250 127,488
------- -------
Average Shares Outstanding . . . . . . . . . . . . . 2,330,520 2,323,258
========= =========
Diluted Earnings Per Share . . . . . . . . . . . . . $0.23 $0.16
===== =====
NOTE 3: COMPREHENSIVE INCOME
- ----------------------------
Effective October 1, 1998, the Company adopted FASB Statement No. 130,
"Reporting Comprehensive Income." Statement No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that has historically not been
recognized in the calculation of net income.
Statement No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain statements in this quarterly report on Form 10-QSB are
forward-looking and may be identified by the use of words such as "believe",
"expect", "anticipate", "should", "planned", "estimated", and "potential". These
statements are based on the Company's current expectations. A variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in such
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development, and results of the Company's business
include interest rate movements, competition from both financial and
non-financial institutions, the timing and occurrence (or nonoccurrence) of
transactions and events that may be subject to circumstances beyond the
Company's control, and general economic conditions.
FINANCIAL CONDITION
- -------------------
Total assets of the Corporation were $159.6 million at December 31, 1998,
compared to $158.7 million on September 30, 1998. Net loans receivable increased
$3.2 million, with funding provided by reductions of $ 1.1 million in cash and
cash equivalents and $.8 million in investment securities held to maturity, and
a $1.8 million increase in deposits. Stockholders' equity was $21.6 million on
December 31, 1998, up $373,000 from the level on September 30, 1998.
At December 31, 1998, nonperforming assets increased $387,000 to $919,000,
or .57% of total assets from $532,000, or .34% of total assets at September 30,
1998. This increase was due due primarily to the addition of four residential
real estate loans in the amount of $543,000, partially offset by the removal of
one large consumer loan of $186,000. These real estate loans are secured and no
material loss is anticipated. The $83,000 of foreclosed property held at
December 31, 1998 was classified as nonperforming at September 30, 1998. At
December 31, 1998, the allowance for credit losses totaled $782,000 and equaled
85.09% of nonperforming assets.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
- -----------------------------------------------------------
General. Net income for the three months ended December 31, 1998 was
$527,000, up 37.2% from the $384,000 earned in the comparable period of fiscal
1998. Net interest income for the first quarter of fiscal 1999 was $1.5 million,
compared to net interest income for the first quarter of fiscal 1998 of $1.3
million. In addition, $23,000 was added to the allowance for credit losses
during the first quarter of fiscal 1999, compared to $30,000 for the comparable
period of fiscal 1998.
Interest Income. Total interest income amounted to $3.0 million for the
three months ended December 31, 1998, up from the $2.7 million earned in the
comparable quarter of fiscal 1998. The increase was primarily due to an increase
in the average balance of loans receivable to $131.5 million for the quarter
ended December 31, 1998 from $116.8 million for the same quarter of fiscal 1998.
-6-
<PAGE>
Interest Expense. For the three months ended December 31, 1998, total
interest expense rose to $1.5 million from the $1.4 million for the three months
ended December 31, 1997, primarily due to an increase in the average balance of
interest bearing liabilities to $129.6 million for the first quarter of fiscal
1999 from $111.1 million for the same quarter of fiscal 1998. Average interest
bearing deposits were $101.5 million for the first quarter of fiscal 1999,
compared to an average of $97.8 million for the same three months of fiscal
1998.
Net Interest Income. For the three months ended December 31, 1998, net
interest income was $1.5 million, up $154,000 from the net interest income
earned in the same period of 1997. During the three months ended December 31,
1998, the Corporation's interest rate spread and net interest margin decreased
to 2.96% and 3.75%, respectively, compared to 3.13% and 3.92%, respectively for
the same period of 1997. These decreases are primaily the result of the 24 basis
point decline in the yield on mortgage loans, from 7.79% in the first quarter of
fiscal 1998 to 7.55% in the first quarter of fiscal 1999. The lower yield on
mortgage loans for the three months ended December 31, 1998 is reflective of the
overall lower market rates for mortgage loans.
Provision for Credit Losses. The provision for credit losses decreased
$7,000 to $23,000 for the three months ended December 31, 1998 from $30,000 for
the comparable 1997 period. Although non-performing assets increased $387,000
from September 30, 1998, management believes the allowance for credit losses is
sufficient since the loans are adequately secured. Management of the Bank
regularly assesses the credit risk of the loan portfolio based on information
available at such times, including trends in the local real estate market and
levels of the Bank's non-performing loans and assets. The assessment of the
adequacy of the allowance for loan losses involves subjective judgment regarding
future events and there can be no assurance that additional provisions for loan
losses will not be required in future periods.
Total Noninterest Income. Noninterest income totaled $270,000 for the first
quarter of fiscal 1999, compared to $187,000 for the same quarter of fiscal
1998. The increase was primarily attributable to strong growth in service
charges and fees on loans, due to new fees introduced in the second quarter of
fiscal 1998, and expansion of other customer service fees and commissions. The
increases in both of these categories reflects the impact of the strategic plan
implemented during fiscal 1998.
Total Noninterest Expense. Total noninterest expense was $848,000 for the
three months ended December 31, 1998, up $13,000, or 1.6%, from the comparable
quarter of fiscal 1998. Data processing expenses increased $11,000 or 12.9%, due
to the installation of a new installment loan origination system and an
increased level of items being processed. Professional fees declined $9,000, or
12.5%, due to fees paid in fiscal 1998 in connection with the Bank's three year
strategic plan.
Provision for Income Taxes. The provision for income taxes was $323,000 for
the three months ended December 31, 1998, up from the $235,000 provision
recorded in the three months ended December 31, 1997. The increase reflects the
higher profitability of the Company in the quarter ended December 31, 1998, as
the effective tax rate for both periods was 38%.
-7-
<PAGE>
CAPITAL COMPLIANCE
- ------------------
The following table presents the Bank's compliance with its regulatory
requirements of December 31, 1998. (Dollar amounts in thousands).
December 31, 1998
-------------------------
Percentage
of assets
---------
GAAP Capital . . . . . . . . . . . . . . . . . $19,703 12.33 %
======= =====
Tangible capital . . . . . . . . . . . . . . . $19,703 12.33 %
Tangible capital requirement . . . . . . . . . 2,397 1.50
----- ----
Excess . . . . . . . . . . . . . . . . . . . . $17,306 10.83 %
======= =====
Core capital . . . . . . . . . . . . . . . . . $19,703 12.33 %
Core capital requirement . . . . . . . . . . . 6,392 4.00
----- ----
Excess . . . . . . . . . . . . . . . . . . . . $13,311 8.33 %
======= ====
Total risk-based capital (1) . . . . . . . . . $20,386 21.57 %
Total risk-based capital requirement (1) . . . 7,561 8.00
----- ----
Excess . . . . . . . . . . . . . . . . . . . . $12,825 13.57 %
======= =====
- ------------------------------------------
(1) Based on risk-weighted assets of $94,512
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, 1998, such borrowed funds totaled $28.0
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 assets," which include certain United States
government obligations and other approved investments. Current regulations
require the Bank to maintain liquid assets of not less than 4% of net
withdrawable accounts plus short-term borrowings. At December 31, 1998, the
Bank's regulatory liquidity was 18.7%.
The amount of certificate accounts which are scheduled to mature during the
next twelve months ending December 31, 1999, is approximately $38.9 million. To
the extent that these deposits do not remain at the Bank upon maturity, the Bank
believes that it can replace these
-8-
<PAGE>
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, 1998, the Bank had loan commitments outstanding of $ 8.1
million. Funds required to fulfill these commitments are derived primarily from
current excess liquidity, deposit inflows, borrowings or loan and investment
repayments.
THE YEAR 2000 ISSUE
- -------------------
The Year 2000("Y2K") issue relates to whether computer systems will
properly recognize and process date sensitive information on and after January
1, 2000. Systems that do not properly recognize such information could generate
erroneous data or fail. The Bank is heavily dependent on computer systems in the
conduct of substantially all of its business activities.
The Company has both a Y2K Committee and a Y2K Plan that were established
and adopted in 1998. The Plan , as recommended by the Federal Financial
Institutions Examination Council, is based on five phases: Awareness,
Assessment, Renovation, Validation and Implementation. The Company continues in
the Validation phase, or testing phase, which is scheduled for completion by
June 30, 1999 and is proceeding on time. The Implementation Phase is targeted
for completion by September 30, 1999. In the event that any of its mission
critical computer systems fail to meet the Y2K requirements, or if other systems
that the Bank depends upon for automated processing its ongoing transactions,
such as electrical or data transmission , fail, the Bank is required by Federal
regulators to develop and test a comprehensive contingency plan. The contingency
plan is currently being developed and should be completed by September 30, 1999.
Successful and timely completion of the Y2K project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the testing results of the core
processing system maintained by a third party service bureau, and readiness of
all vendors, suppliers and customers. No assurance can be given that the Plan
will be sucessfully completed by the Year 2000, in which case the Company could
incur data processing delays, mistakes or failures. These delays, mistakes or
failures could have a significant adverse impact on the financial statements of
the Company.
OTHER DEVELOPMENTS
- ------------------
On January 19, 1999, Bedford Bancshares announced its intention to
repurchase up to 10% of its 2,297,900 outstanding common shares. The repurchases
will be made in open-market transactions subject to the availability of stock.
Repurchased shares become authorized but unissued shares and will be utilized
for general corporate and other purposes, including the issuance of shares in
connection with the exercise of stock options.
-9-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Key Operating Ratios
(Unaudited)
For the
Three Months Ended
December 31
--------------------------
1998(1) 1997(1)
--------- ---------
(Unaudited)
Basic earnings per common share . . . . . . . $0.24 $0.18
===== =====
Diluted earnings per common share . . . . . . $0.23 $0.16
===== =====
Return on average assets . . . . . . . . . . . 1.32 % 1.11 %
Return on average equity . . . . . . . . . . . 9.82 % 7.76 %
Interest rate spread . . . . . . . . . . . . . 2.96 % 3.13 %
Net interest margin . . . . . . . . . . . . . 3.75 % 3.92 %
Noninterest expense to average assets . . . . 2.19 % 2.41 %
Net charge-offs to average outstanding loans . - -
At At
December 31 September 30
1998 1998
----------- ------------
(Dollars in Thousands)
Nonaccrual and 90 days past due loans . . . . . . . $836 $532
Foreclosed real estate . . . . . . . . . . . . . . . 83 -
---- ----
Total nonperforming assets . . . . . . . . . . . . . $919 $532
==== ====
Allowance for credit losses to nonperforming assets 85.09 % 143.80 %
Nonperforming loans to total loans . . . . . . . . . 0.69 % 0.41 %
Nonperforming assets to total assets . . . . . . . . 0.57 % 0.34 %
Book value per share . . . . . . . . . . . . . . . . $9.41 $9.25
===== =====
- --------------
(1) The ratios for the three-month periods are annualized
-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 December 31, 1998. 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) Exhibit
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: February 8, 1999 By: /s/ Harold K. Neal
-------------------------------
Harold K. Neal
President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 8, 1999 By: /s/ James W. Smith
-------------------------------
James W. Smith
Vice President and Treasurer
(Principal Accounting and
Financial officer)
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 2,516
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<INVESTMENTS-MARKET> 19,631
<LOANS> 133,719
<ALLOWANCE> 782
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<DEPOSITS> 108,916
<SHORT-TERM> 9,000
<LIABILITIES-OTHER> 1,026
<LONG-TERM> 19,000
0
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<EPS-PRIMARY> .24
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