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, 1999
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 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 4, 2000: 2,153,050 shares
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
December 31, 1999 (unaudited) and September 30, 1999 1
Consolidated Statements of Income for the three months
ended December 31, 1999 and 1998 (unaudited) 2
Consolidated Statements of Comprehensive Income for the three
months ended December 31, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the three months ended
December 31, 1999 and 1998 (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
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31 September 30
1999 1999
---- ----
(Unaudited)
(In Thousands)
<S> <C> <C>
Assets
- ------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,941 $2,744
Investment securities held to maturity (estimated market value of $808 and $810) . . . . . . 809 810
Marketable equity securities available for sale, at market value . . . . . . . . . . . . . . 4,634 4,628
Investment securities available for sale, at market value . . . . . . . . . . . . . . . . . 5,719 5,830
Investment in Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . 2,000 1,500
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,675 147,689
Foreclosed real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,113 1,105
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996 924
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 225
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 282
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $176,535 $165,737
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $116,448 $114,720
Advances from the Federal Home Loan Bank . . . . . . . . . . . . . . . . . . . . . . . . . 38,000 28,000
Advances from borrowers for taxes and insurance . . . . . . . . . . . . . . . . . . . . . 378 605
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 196
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 1,150
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,398 144,671
-------- --------
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
2,153,050 and 2,173,050 at December 31, 1999 and September 30, 1999, respectively. . . . . 215 217
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,420 10,497
Retained earnings, substantially restricted . . . . . . . . . . . . . . . . . . . . . . . . 11,431 11,223
Unrealized losses on securities available for sale . . . . . . . . . . . . . . . . . . . . . (223) (151)
Less stock acquired by ESOP and RRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . (706) (720)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,137 21,066
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $176,535 $165,737
======== ========
</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
1999 1998
---- ----
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Interest Income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$2,868 2,610
U.S. Government Obligations including agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 304
Other investments, including overnight deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 68
------ -----
Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,107 2,982
------ -----
Interest Expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,137 1,135
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 476 396
------ -----
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,613 1,531
------ -----
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,494 1,451
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 23
------ -----
Net interest income after provision for credit losses . . . . . . . . . . . . . . . . . . . .. . . . . 1,464 1,428
------ -----
Noninterest income:
Service charges and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 158
Other customer service fees and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 85
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 27
------ -----
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 270
------ -----
Noninterest expense:
Personnel compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503 474
Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 80
Data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 96
Federal insurance of accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 15
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 29
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 63
Net cost of (gain on) operations of foreclosed real estate . . . . . . . . . . . . . . . . . . . . . . - 3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 88
------ -----
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 886 848
------ -----
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864 850
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353 323
------ -----
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $511 $527
====== =====
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.24 $0.24
===== =====
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$0.23 $0.23
===== =====
</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
1999 1998
(In Thousands of Dollars)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $511 $527
Other comprehensive income, net of tax effect:
Unrealized losses on securities available for sale . .. . (72) (44)
---- ----
Comprehensive Income . . . . . . . . . . . . . . . . . . . $439 $483
==== ====
-3-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1999 1998
------- --------
(Dollars in Thousands)
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $511 $527
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 23
Provision for depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 35 35
Amortization of investment security premiums and accretion of discounts, net (2) (2)
(Increase) decrease in deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (44) (28)
Loans originated for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (852)
Proceeds from sale of loans originated for sale . . . . . . . . . . . . . . . . . . . . . - 943
(Increase) decrease in accrued interest receivable . . . . . . . . . . . . . . . . . . . (72) 120
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . (45) 291
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . . (736) (126)
------- -------
Net cash provided by (used in) operating activities . . . . . . . . . . (323) 931
------- -------
Investing activities:
Proceeds from the maturities of investments . . . . . . . . . . . . . . . . . . . . . . . 509 2,800
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . (560) (2,000)
Net increase in loans to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,986) (3,211)
Principal collected on mortgage-backed securities . . . . . . . . . . . . . . . . . . . . 1 1
Purchases of premises, equipment and leasehold improvements . . . . . . . . . . . . . . . (42) (9)
Sale (purchase) of FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (500) -
Net (increase) decrease in foreclosed real estate, net . . . . . . . . . . . . . . . . . - (83)
------- -------
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . (8,578) (2,502)
------- -------
Financing activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179) (184)
Net increase (decrease) in customer deposits . . . . . . . . . . . . . . . . . . . . . . 1,727 1,830
Proceeds from (repayments of) advances and other borrowed money . . . . . . . . . . . . . . . 10,000 (1,000)
Repurchase of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (224) -
Net increase (decrease) in advance payments from borrowers for taxes and insurance . . . (226) (225)
------- -------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . 11,098 421
------- -------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 2,197 (1,150)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . 2,744 5,666
------- -------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,941 $ 4,516
======= =======
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
Note to Unaudited Interim Consolidated Financial Statements
December 31, 1999
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., Bedford Federal Savings Bank ,
and CVFS, its wholly-owned subsidiaries. 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,
1999 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, 1999.
NOTE 2: EARNINGS PER SHARE
Earnings per share calculated in accordance with SFAS 128 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31
1999 1998
-------- --------
<S> <C> <C>
Basic Earnings Per Share:
Net Income . . . . . . . . . . . . . . . . . . . . . . . $511,000 $527,000
-------- --------
Average Shares Outstanding, Net of
unallocated ESOP Shares (77,334 and 93,334
at December 31, 1999 and 1998, respectively.) . . . . 2,090,662 2,204,566
========= =========
Basic Earnings Per Share . . . . . . . . . . . . . . . . $0.24 $0.24
========= =========
Diluted Earnings Per Share:
Net Income . . . . . . . . . . . . . . . . . . . . . . . $511,000 $527,000
========= =========
Average Shares Outstanding, Net of
unallocated ESOP Shares (77,334 and 93,334
at December 31, 1999 and 1998, respectively.) . . . . 2,090,662 2,204,566
Dilutive effect of RRP Plan shares . . . . . . . . 10,406 19,704
Dilutive effect of Stock Options . . . . . . . . . 92,557 106,250
--------- ---------
Average Diluted Shares Outstanding . . . . . . . . . . 2,193,625 2,330,520
========= =========
Diluted Earnings Per Share . . . . . . . . . . . . . . $0.23 $0.23
========= =========
</TABLE>
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", anticipates", "contemplates", "expects", and
similar expressions are intended to identify forward- looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, Year
2000 issues, and general economic conditions. We undertake no obligation to
publicly release the results of any revisions to those forward looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
FINANCIAL CONDITION
- -------------------
Consolidated assets totaled $176.5 million at December 31, 1999, an
increase of $10.8 million from September 30, 1999. The asset expansion was
reflected in growth of the loan portfolio which increased $8.0. million and a
$2.2 million rise in cash and cash equivalents. Funding for the asset expansion
was provided by a $10.0 million increase in FHLB advances and a $1.7 million
rise in deposits.
At December 31, 1999, nonperforming assets were $1.7 million, or .94%
of total assets, compared to $1.1 million, or .66% of total assets at September
30, 1999. During the quarter ended December 31, 1999, five mortgage loans,
totaling $102,000, were classified as nonperforming. These loans are secured by
residential property with appraised values exceeding the respective loan
balances, and as such no material loss is anticipated. In addition, $511,000 of
consumer and commercial loans were added to the nonperforming category. These
loans are well collateralized and as such no material loss is anticipated. At
December 31, 1999, the allowance for credit losses was $832,000, up $28,000 from
the level at September 30, 1999.
At December 31, 1999, accumulated other comprehensive loss increased to
$66,000 to a loss of $223,000 from a loss of $152,000 at September 30, 1999. The
increase in loss resulted from the fluctuation in market value of our investment
in available for sale securities. Because of interest rate volatility,
accumulated other comprehensive loss and stockholders' equity could materially
fluctuate for each interim period and year-end period. The decrease in market
value of the investment securities available for sale is considered temporary in
nature and will not affect our net income until the securities are sold. We plan
to hold these securities until maturity or until the market values of these
securities increase. Accordingly, we do not expect, though there is no
assurance, that the investment in these securities will affect net income in
future periods.
During the first quarter of fiscal 2000, we repurchased 20,000 shares
of our common stock in open market transactions. These shares were purchased at
an average price of $11.20 per share and will be used for general corporate and
other purposes.
-6-
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
General. Net income for the three months ended December 31, 1999
decreased $16,000, or 3%, to $511,000 from $527,000 for the comparable 1998
period. Such decrease in net income was primarily caused by our effective tax
rates. For the three months ended December 31, 1999, net income before income
taxes increased $14,000 to $864,000 from $848,000 for the comparable 1998
period.
Interest Income. Total interest income was $3.1 million for the three
months ended December 31, 1999, compared to $3.0 million earned in the
comparable quarter of fiscal 1999. Although the average balance of loans
receivable increased $20.7 million from the first quarter of fiscal 1999 to the
first quarter of fiscal 2000, a decline of 40 basis points in the yield on the
loan portfolio offset the impact of the higher average volume.
Interest Expense. For the three months ended December 31, 1999, total
interest expense was $1.6 million, up 5.4% from the level for the same period of
fiscal 1999. The increase was primarily due to the $5.3 million increase in
average FHLB advances in the first quarter of fiscal 2000 over the same quarter
of fiscal 1999, combined with a 10 basis point rise in the cost of those
advances. Although average interest bearing liabilities of $106.7 million for
the three months ended December 31, 1999 were up $5.2 million from the average
balance for the same quarter of fiscal 1999, the cost of deposits was down 21
basis points which offset the higher volume.
Net Interest Income. For the three months ended December 31, 1999, net
interest income was $1.5 million, up slightly from the net interest income
earned in the same period of 1998. For the three months ended December 31, 1999,
our interest rate spread and net interest margin decreased to 2.93% and 3.62%,
respectively, compared to 2.96% and 3.75%, respectively, for the same period of
1998. The increased use of FHLB advances was the primary reason for the
declines, since the average rate paid on advances is higher than the composite
rate paid on interest bearing deposits.
Provision for Credit Losses. The provision for credit losses increased
$7,000, to $30,000 for the three months ended December 31, 1999 from $23,000 for
the same 1998 period. Although nonperforming assets increased $574,000 from
September 30, 1999, management believes the allowance for credit losses is
sufficient since these loans are adequately secured. Management performs regular
assessments of the credit risk in the loan portfolio based on information
available at such times, including the levels of our nonperforming loans and
assets, trends in the local real estate market, and current and potential
charge-offs. The assessment of the adequacy of the allowance for credit losses
involves subjective judgment regarding future events, and there can be no
assurance that additional provisions for credit losses will not be required in
future periods.
Total Noninterest Income. For the three months ended December 31, 1999,
non- interest income increased $16,000, or 5.9%, to $286,000 from $270,000 for
the comparable 1998 period. Service charges and fees on loans increased $11,000
and other customer service charges and fees increased $17,000. Such increases
were primarily due to the increased volume of loan originations. However, other
noninterest income decreased $12,000 for the three months ended December 31,
1999. In the 1998 comparable period, we recognized a
-7-
<PAGE>
gain of $14,000 on the sale of mortgage loans. We had no sales of mortgage loans
for the quarter ended December 31, 1999.
Total Noninterest Expense. Total noninterest expense was $886,000 for
the three months ended December 31, 1999, up 4.4% from the level in the
comparable quarter of fiscal 1999. Increases of $29,000 in personnel
compensation and benefits due to increased staffing and merit increases, and
$29,000 in other noninterest expenses due to higher costs associated with
transaction accounts, additional ATM expense and increased postage.
Provision for Income Taxes. The provision for income taxes was $353,000
for the three months ended December 31, 1999, up slightly from the $323,000
provision recorded in the same three months of fiscal 1999. Higher profitability
combined with a slight increase in the effective tax rate were the major reasons
for the increase.
CAPITAL COMPLIANCE
- ------------------
The following table presents our compliance with current regulatory capital
requirements as of December 31, 1999. (Dollar amounts in thousands).
December 31, 1999
-------------------------
Percentage
of assets
---------
GAAP Capital . . . . . . . . . . . . . . . . $19,344 10.97%
======= =====
Tangible capital . . . . . . . . . . . . . . $19,560 11.03%
Tangible capital requirement . . . . . . . . 2,659 1.50
------- -----
Excess . . . . . . . . . . . . . . . . . . . $16,901 9.53%
======= =====
Core capital . . . . . . . . . . . . . . . . $19,560 11.03%
Core capital requirement . . . . . . . . . . 7,090 4.00
------- -----
Excess . . . . . . . . . . . . . . . . . . . $12,470 7.03%
======= =====
Total risk-based capital (1). . . . . . . . $20,299 18.53%
Total risk-based capital requirement (1). . 8,764 8.00
------- -----
Excess . . . . . . . . . . . . . . . . . . . $11,535 10.53%
======= =====
- --------------------------------------
(1) Based on risk-weighted assets of $109,550
Management believes that under current regulations, we will continue to
meet our minimum capital requirements in the foreseeable future. Events beyond
our control ,such as increased increased interest rates or a downturn in the
economy in areas in which we operate could adversely affect future earnings and
as a result, our ability to meet our future minimum capital requirements.
-8-
<PAGE>
LIQUIDITY
- ---------
Our liquidity is a measure of our ability to fund loans, pay deposit
withdrawals, and other cash outflows in an efficient, cost effective manner. Our
primary sources of funds are deposits and scheduled amortization and prepayment
of loans. During the past several years, we have used such funds primarily to
fund maturing time deposits, pay savings withdrawals, fund lending commitments,
purchase new investments, and increase liquidity. We fund our operations
internally but also borrow funds from the Federal Home Loan Bank ("FHLB") of
Atlanta. As of December 31, 1999, such borrowed funds totaled $38.0 million.
Loan payments and maturing investments are greatly influenced by general
interest rates, economic conditions and competition.
We are 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 us to
maintain liquid assets of not less than 4% of net withdrawable accounts plus
short-term borrowings. At December 31, 1999, our regulatory liquidity was 10.8%.
The amount of certificate accounts which are scheduled to mature during
the next twelve months ending December 31, 2000, is approximately $44.0 million.
To the extent that these deposits do not remain with us upon maturity, we
believe that we can replace these funds with other deposits, excess liquidity,
FHLB advances, or other borrowings. It has been our experience that a
substantial portion of such maturing deposits remain with us.
At December 31, 1999, we had loan commitments outstanding of $20.2
million. These commitments are funded primarily from current excess liquidity,
deposit inflows, borrowings or loan and investment repayments.
YEAR 2000
- ---------
Like many financial institutions, we rely on computers to conduct our
business and information systems processing. Industry experts were concerned
that on January 1, 2000, some computers might not be able to interpret the new
year properly, causing computer malfunctions. Some banking industry experts
remain concerned that some computers may not be able to interpret additional
dates in the year 2000 properly. We have operated and evaluated our computer
operating systems following January 1, 2000 and have not identified any errors
or experienced any computer system malfunctions. We will continue to monitor our
information systems to assess whether our systems are at risk of misinterpreting
any future dates. We have not been informed of any such problem experienced by
our vendors or our customers, nor by any of the municipal agencies that provide
service to us.
Nevertheless, it is too soon to conclude that there will not be any
problems arising from the Year 2000 problem. We will continue to monitor our
significant vendors of goods and services, and customers with respect to Year
2000 problems they might encounter as those issues may effect our ability to
continue operations, or might adversely affect our financial position, results
of operations and cash flows. We do not believe at this time that these
potential problems will materially impact our ability to continue our
operations. However, no assurance can be given that this will be the case.
-9-
<PAGE>
RECENT DEVELOPMENTS
- -------------------
We recently announced our intent to establish a branch facility in the
Poplar Forest Center located in Eastern Bedford County. The branch will be
leased at an initial annual cost of $30,000 and will be a full service facility
providing our full array of loan and deposit services, and will also include an
ATM, drive thru, and night depository. In addition to the lease expense, we
estimate that costs incurred in connection with renovating and equipping the
building to be approximately $350,000. It is anticipated that the branch will
open in the late spring of 2000. We expect noninterest expense to increase in
fiscal 2000 due to costs associated with opening and maintaining this additional
branch office.
-10-
<PAGE>
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Key Operating Ratios
(Unaudited)
For the
Three Months Ended
December 31
1999(1) 1998(1)
(Unaudited)
Basic earnings per common share . . . . . . . . 0.24 $0.24
==== =====
Diluted earnings per common share . . . . . . . 0.23 $0.23
==== =====
Return on average assets . . . . . . . . . . . . 1.19% 1.32%
Return on average equity . . . . . . . . . . . . 9.63% 9.82%
Interest rate spread . . . . . . . . . . . . . . 2.93% 2.96%
Net interest margin . . . . . . . . . . . . . . 3.62% 3.75%
Noninterest expense to average assets . . . . . 2.07% 2.19%
Net charge-offs to average outstanding loans . . - -
At At
December 31 September 30
1999 1999
---- ----
(Dollars in Thousands)
Nonaccrual and 90 days past due loans . . . . . . . . $1,663 $1,089
Foreclosed real estate . . . . . . . . . . . . . . . - -
-- ------ ------
Total nonperforming assets . . . . . . . . . . . . . $1,663 $1,089
====== ======
Allowance for credit losses to nonperforming assets . 50.07% 73.83%
Nonperforming loans to total loans . . . . . . . . . 1.07% 0.74%
Nonperforming assets to total assets . . . . . . . . 0.94% 0.66%
Book value per share . . . . . . . . . .. . . . . . . 9.82 $9.69
====== ======
- --------------
(1) The ratios for the three-month periods are annualized
-11-
<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, 1999. 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.
-12-
<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 10, 2000 By: /s/ Harold K. Neal
-----------------------------------
Harold K. Neal
President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 10, 2000 By: /s/ James W. Smith
-----------------------------------
James W. Smith
Vice President and Treasurer
(Principal Accounting and
Financial officer)
-13-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10QSB 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-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 4,941
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,353
<INVESTMENTS-CARRYING> 809
<INVESTMENTS-MARKET> 11,161
<LOANS> 156,507
<ALLOWANCE> 832
<TOTAL-ASSETS> 176,535
<DEPOSITS> 116,448
<SHORT-TERM> 19,000
<LIABILITIES-OTHER> 950
<LONG-TERM> 19,000
0
0
<COMMON> 215
<OTHER-SE> 20,922
<TOTAL-LIABILITIES-AND-EQUITY> 176,535
<INTEREST-LOAN> 2,868
<INTEREST-INVEST> 239
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,107
<INTEREST-DEPOSIT> 1,137
<INTEREST-EXPENSE> 1,613
<INTEREST-INCOME-NET> 1,494
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 886
<INCOME-PRETAX> 864
<INCOME-PRE-EXTRAORDINARY> 864
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 511
<EPS-BASIC> .24
<EPS-DILUTED> .23
<YIELD-ACTUAL> 3.62
<LOANS-NON> 1,663
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 804
<CHARGE-OFFS> 2
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 832
<ALLOWANCE-DOMESTIC> 832
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 832
</TABLE>
