<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
------------------
0R
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
COMMISSION FILE NUMBER 33-93312
BEAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2583551
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
SUITE 300, LB66, 15770 NORTH DALLAS PARKWAY, DALLAS, TEXAS 75248
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code: (972) 404-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X ] No [ ]
As of March 31, 1998, there were 300,000 shares of the Registrant's
common stock issued and outstanding.
<PAGE>
BEAL FINANCIAL CORPORATION
INDEX
<TABLE>
PAGE
NUMBER
PART I. FINANCIAL INFORMATION ------
<S> <C>
Item 1. - Financial Statements. . . . . . . . . . . . . . . . . 1
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 5
PART II. OTHER INFORMATION
SIGNATURES
</TABLE>
<PAGE>
BEAL FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
March December
1998 1997
(Unaudited)
----------- ----------
<S> <C> <C>
ASSETS
Cash $ 528 $ 630
Interest bearing deposits 82,195 150,219
---------- ----------
CASH AND CASH EQUIVALENTS 82,723 150,849
Accrued interest receivable 12,976 13,071
Securities available for sale 107,044 111,376
Net loans receivable 854,646 899,745
Less allowance for losses (11,373) (11,912)
---------- ----------
843,273 887,833
Federal Home Loan Bank stock 10,354 10,203
Real estate held for investment or sale 168,255 176,682
Premises and equipment, net 6,113 6,351
Other assets 11,224 9,389
---------- ----------
$1,241,962 $1,365,754
---------- ----------
---------- ----------
LIABILITIES
Deposit accounts $ 905,149 $1,001,476
Federal Home Loan Bank advances 76,000 110,000
Senior notes, net 57,215 57,188
Other borrowings 7,236 7,599
Other liabilities 14,729 28,673
---------- ----------
TOTAL LIABILITIES 1,060,329 1,204,936
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share
authorized 375,000
issued and outstanding 300,000 300 300
Paid-In capital 2,740 2,740
Unrealized gain on available for sale
securities 3,690 3,722
Retained earnings 174,903 154,056
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 181,633 160,818
---------- ----------
$1,241,962 $1,365,754
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
BEAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(In thousands, except per share data)
<TABLE>
Three Months Ended
March 31,
1998 1997
------- -------
<S> <C> <C>
Interest Income:
Loans, including fees $24,410 $35,658
Purchase discount accretion 11,907 16,558
Investment securities 2,511 2,730
------- -------
TOTAL INTEREST INCOME 38,828 54,946
Interest expense:
Deposits 13,088 14,685
Federal Home Loan Bank
advances and other borrowings 412 882
Senior notes 2,011 1,989
------- -------
TOTAL INTEREST EXPENSE 15,511 17,556
------- -------
NET INTEREST INCOME 23,317 37,390
Provision for loan losses 1,373 933
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 21,944 36,457
Other income
Gain on sales of loans 5 536
Gain on real estate transactions 3,014 1,344
Other real estate operations, net 1,485 583
Other operating income 137 188
------- -------
TOTAL NONINTEREST INCOME 4,641 2,651
Other expense
Salaries and employee benefits 1,695 2,006
Occupancy and equipment 647 647
SAIF deposit insurance premium 158 166
Other operating expenses 2,210 1,783
------- -------
TOTAL NONINTEREST EXPENSES 4,710 4,602
------- -------
INCOME BEFORE INCOME TAXES 21,875 34,506
Income taxes 1,028 1,203
------- -------
NET INCOME $20,847 $33,303
------- -------
------- -------
Income per common share $ 69.49 $111.01
------- -------
------- -------
Weighted average number of common shares outstanding 300 300
------- -------
------- -------
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
BEAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(In thousands)
<TABLE>
Three Months
ended March 31
-------------------------
1998 1997
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 20,847 $ 33,303
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 599 580
Accretion of purchased discount (11,907) (16,558)
Provision for loan losses 1,373 933
Amortization of bond premium and underwriting costs 179 155
Gains on real estate transactions (3,014) (1,344)
Gain on sales of loans (5) (536)
Loss on sale of premises and equipment 1 -
Changes in operating assets and liabilities
Accrued interest receivable (130) (2,426)
Prepaid expenses and other assets (1,865) 603
Accrued interest payable-bonds (1,833) (1,833)
Other liabilities and accrued expenses 321 4,737
-------------------------
Net cash provided by operating activities 4,566 17,614
INVESTING ACTIVITIES
Proceeds from sales of loans 5 12
Proceeds from paydowns of securities available
for sale 4,352 3,331
Proceeds from loan collections, less loan originations
and advances 53,775 81,245
Proceeds from sales of real estate 13,658 5,892
Proceeds from sales of premises and equipment - -
Purchases of loans and bid deposits on loan purchases (68) (10,813)
Purchases of Federal Home Loan Bank stock (151) (137)
Purchases of real estate held for investment or sale and
partnership/JV interests (933) (1,929)
Purchases of premises and equipment (40) (124)
-------------------------
Net cash provided by investing activities 70,598 77,477
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts (96,327) 56,120
Proceeds from long-term debt - 162
Repayments of long-term debt (363) (2,913)
Repayments of advances from the Federal Home Loan Bank (34,000) (146,000)
Cash dividends paid (12,600) -
-------------------------
Net cash used in financing activities (143,290) (92,631)
-------------------------
Increase (decrease) in cash and cash equivalents (68,126) 2,460
Cash and cash equivalents at beginning of period 150,849 65,940
-------------------------
Cash and cash equivalents at end of period $ 82,723 $ 68,400
-------------------------
-------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 17,992 $ 18,158
Income taxes 1,982 186
Supplemental disclosure of noncash investing and financing
activities
Real estate acquired in foreclosure or in
settlement of loans $ 3,333 $ 9,479
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
BEAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with instructions to Form 10-Q and Rule 10-1
of Regulation S-X. The financial statements as of March 31, 1998 and for the
three months ended March 31, 1998, and 1997 are unaudited and, in the opinion
of management, include all adjustments necessary (which consist of only
normal recurring adjustments) for a fair presentation of the financial
position and results of operations for the interim periods. The results of
operations for the three month period are not necessarily indicative of the
results to be expected for the full year.
These unaudited financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report in Form 10-K for the year ended December 31, 1997.
NOTE B--INCOME TAXES
On March 13, 1997, the Company filed an application with the Internal Revenue
Service to elect S Corporation status for federal income tax purposes
effective January 1, 1997. This election covered all subsidiaries of the
Company, except Beal Affordable Housing, Inc. and BRE-N, Inc.
As a result of the aforementioned application, beginning January 1, 1997, the
Company and all of its subsidiaries electing S Corporation status no longer
pay federal income taxes, except for federal taxes related to the recognition
of built-in gains which existed at January 1, 1997. For the three months
ended March 31, 1998, the Company recorded federal tax expense of $525,600,
related to the recognition of built-in gains. Except as discussed above, the
liability for federal income taxes of the Company is the responsibility of
its shareholders.
NOTE B--NEW ACCOUNTING PRONOUNCEMENT
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which requires reporting of
comprehensive income in the financial statements. The components of
comprehensive income are as follows:
<TABLE>
Three months ended March 31,
----------------------------
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Net income $20,847 $33,303
Other comprehensive income net
unrealized losses on investment
securities - available for sale (32) (1,962)
--------------------
Comprehensive income $20,815 $31,341
--------------------
--------------------
</TABLE>
4
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES", "ANTICIPATES", "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. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE
HEREOF, AND TO ADVISE READERS THAT VARIOUS FACTORS INCLUDING REGIONAL AND
NATIONAL ECONOMIC CONDITIONS, CHANGES IN DOMESTIC OR FOREIGN MARKETS, FINANCIAL
OR LEGAL CONDITIONS, CHANGES IN LEVELS OF MARKET INTEREST RATES, CREDIT RISKS OF
LENDING ACTIVITIES, AND COMPETITIVE AND REGULATORY FACTORS, COULD AFFECT THE
COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE COMPANY'S ACTUAL RESULTS FOR
FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO 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
Beal Financial Corporation ("Beal Financial" and with it's subsidiaries,
the "Company"), the parent company of Beal Bank, ssb, (the "Bank") had total
assets of $1.2 billion at March 31, 1998 representing a decrease of $123.8
million or 9.06%, from $1.4 billion at December 31, 1997. The decrease
resulted primarily from a decrease in cash and cash equivalents of $68.1
million, and a decrease in net loans receivable of $45.1 million. The
decrease in net loans receivable was due primarily to normal principal
repayments of loans, early loan payoffs and foreclosures of loans. The
Company believes that the combination of a decline in the supply of bulk
discounted loans available for purchase and competitors successful bids for
bulk asset purchases at net yields which are not acceptable to the Company
has resulted, and will continue to result in a decline in total assets,
including a decline in net loans receivable. Loan proceeds and cash and cash
equivalents were utilized to fund the decreases in deposits and borrowings,
described below. (See also--Liquidity and Capital Resources)
Total liabilities decreased $144.6 million, or 12.0% from $1.2 billion
at December 31, 1997 to $1.1 billion at March 31, 1998, primarily due to a
decline in deposits of $96.3 million, a decline in Federal Home Loan Bank
("FHLB") advances of $34.0 million, and a decrease in other liabilities of
$13.9 million. The decrease in deposits for the three months ended March 31,
1998 was primarily due to a decrease in brokered deposits of $121.8 million,
partially offset by an increase in retail deposits of $25.5 million. The
decrease in other liabilities was primarily due to the payment of a $12.6
million dividend that was declared on December 16, 1997 by the Board of
Directors and paid in January, 1998, and the payment of accrued interest on
the 12.75% senior notes due August 15, 2000, (the "Senior Notes").
Stockholders' equity increased $20.8 million from $160.8 million at
December 31, 1997 to $181.6 million at March 31, 1998, due to net income.
Subsequent to March 31, 1998 a dividend of $36.5 million was paid to
shareholders of record.
5
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NET INCOME. For the three months ended March 31, 1998, net income of
$20.8 million represented a decrease of $12.5 million, or 37.4% from the
three months ended March 31, 1997. As discussed in more detail below, the
decrease was primarily due to a decrease in net interest income after
provision for loan losses of $14.5 million, partially offset by an increase
in noninterest income of $2.0 million.
INTEREST INCOME. Interest income decreased $16.1 million, or 29.3%,
from $54.9 million at March 31, 1997 to $38.8 million at March 31, 1998. Of
the total decrease in interest income, $11.2 was due to a decrease in
interest income on loans, including fees, and $4.7 million was due to a
decrease in the discount accretion. The average balance of interest-earning
assets decreased $170.2 million during this period, as compared to the same
period a year ago, primarily due to a decrease in average net loans
receivable of $154.4 million. In addition, net interest spread decreased from
12.24% for the three months ended March 31, 1997 to 9.18% for the same
period ending March 31, 1998 primarily due to a decrease in yield on average
interest-earning assets from 12.44% to 9.04% for the three month periods
ending March 31, 1997 and March 31, 1998, respectively, due primarily to a
decline in the amount of discount accretion taken.
INTEREST EXPENSE. Interest expense decreased $2.0 million, or 11.7%,
from $17.6 million at March 31, 1997 to $15.5 million at March 31, 1998. The
decrease resulted from the average balance of interest-bearing liabilities
decreasing $104.9 million to $1.1 billion at March 31, 1998, resulting in a
$1.5 million decrease in interest expense and a $449,000 decrease due to the
average rate of interest bearing liabilities decreasing from 6.05% at March
31, 1997 to 5.88% at March 31, 1998. The decrease in average interest-bearing
liabilities was due to a decrease in the average balance of deposits of $73.3
million, a decrease in the average balance of FHLB advances of $26.4 million,
and a decrease in average other borrowings of $5.3 million.
PROVISION FOR LOAN LOSSES. The provision for loan losses is determined
by management as an amount sufficient to maintain the allowance for loan
losses at a level considered adequate to absorb future losses inherent in the
loan portfolio in accordance with generally accepted accounting principles.
The provision for loan losses increased $440,000, to $1.4 million, for the
three months ended March 31, 1998, as compared to the three months ended
March 31, 1997 primarily as a result of increased costs pertaining to the
resolution of certain classified loans.
The Company establishes an allowance for loan losses based upon a
systematic analysis of risk factors in the loan portfolio as well as a
specific analysis of certain impaired loans. This analysis includes an
evaluation of the Company's loan portfolio, past loan loss experience,
current economic conditions, loan volume and growth, composition of the loan
portfolio and other relevant factors. Management's analysis results in the
establishment of allowance amounts by loan type based on allocations by asset
classification. The allowance for loan losses as a percentage of net
non-performing loans was 8.53% at March 31, 1998 as compared to 6.71% at
March 31, 1997. Net non-performing loans decreased $47.4 million from $180.7
million at March 31, 1997 to $133.3 million at March 31, 1998.
6
<PAGE>
Although management believes that it uses the best information available
to determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowance will be the
result of periodic loan, property and collateral reviews and thus cannot be
predicted with absolute certainty in advance. In addition, regulatory
agencies, as an integral part of the examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance level based upon their
judgment of the information available to them at the time of their
examination.
NON-INTEREST INCOME. Total non-interest income increased $2.0 million,
or 75.1% to $4.6 million at March 31, 1998 from $2.6 million at March 31,
1997. This increase was due to an increase in the income attributable to the
gain on real estate transactions of $1.6 million, an increase in the income
from other real estate operations of $902,000, partially offset by an
decrease in the sale of loans of $531,000.
NON-INTEREST EXPENSE. Non-interest expense increased $108,000, or 2.4%
from $4.6 million for the three months ended March 31, 1997 to $4.7 million
for the three months ended March 31, 1998. The increase was due to an
increase of $427,000 in other operating expenses offset by a decrease of
$311,000 in salaries and employee benefits and an $8,000 decrease in SAIF
deposit insurance premiums.
FEDERAL AND STATE TAXATION
On March 13, 1997, the Company filed an application with the Internal
Revenue Service to elect S Corporation status for federal income tax purposes
effective January 1, 1997. This election covered all subsidiaries of the
Company, except Beal Affordable Housing, Inc. and BRE-N, Inc. (See also -
Note B--Income Taxes)
The future tax liability for the taxable earnings of Beal Financial and
all of its subsidiaries electing S Corporation status will be the
responsibility of the shareholders of Beal Financial. It is anticipated that
future dividends to shareholders will be declared equal to at least their tax
liability related to the earnings of Beal Financial.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds for operations are deposits
obtained from its market area, principal and interest payments on loans,
brokered deposits, and advances from the FHLB of Dallas and to a lesser
extent, from the sale of assets. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions, and competition.
Historically, the primary investing activity of the Company has been the
purchase of discounted loans from various U.S. government agencies through
the sealed bid process or auctions and other private sector sellers. During
the three month periods ended March 31, 1998, and March
7
<PAGE>
31, 1997 the Company purchased $0 and $10.8 million of net loans,
respectively. Loan originations and disbursements of loans in process for
the three months ended March 31, 1998 and March 31, 1997 totaled $7.8
million and $5.9 million, respectively.
The Company's primary financing activity has historically been the
attraction of deposits. During the three months ended March 31, 1998, the
Company experienced a net decrease in deposits of $96.3 million, primarily
due to a $25.5 million increase in retail deposits offset by a decrease of
$121.8 million in brokered deposits. The decrease in deposits for the three
months ended March 31, 1998 was primarily funded with cash flow provided from
normal operations. The Company had Senior Notes, net, of $57.2 million and
other borrowings of $7.2 million at March 31, 1998.
The Company has the ability to borrow additional funds from the FHLB of
Dallas by pledging assets as collateral, subject to certain restrictions. At
March 31, 1998, the Company had an undrawn advance arrangement with the FHLB
for $59.1 million.
The Bank is required to maintain minimum levels of liquid assets as
defined by the Texas Savings and Loan Department ("Texas Department").
Unless approved in advance by the Texas Department, a Texas savings bank is
required to maintain a minimum of 10% of the previous quarters average
deposits in liquid assets. At March 31, 1998, the Bank's liquidity ratio was
16.4%.
The Company's most liquid asset is cash and cash equivalents. The level
of cash equivalents is dependent on the Company's operating, financing, and
investing activities during any given period. At March 31, 1998, the Company
had cash and cash equivalents of $82.7 million.
The Company anticipates that it will have sufficient funds available to
meet its current foreseeable commitments. At March 31, 1998, the Company had
commitments to originate loans of $2.2 million and $679,000 of outstanding
commitments to purchase loans. Certificates of deposits which are scheduled
to mature in one year or less at March 31, 1998 totaled $683.5 million. Due
to the Company's high interest rate spread, management has typically relied
upon interest rate sensitive short-term deposits to fund its loan purchases.
The Company believes the potential interest rate risk is acceptable in view
of the Company's belief that it can maintain an acceptable net interest
spread.
At March 31, 1998, the Bank exceeded each of its three capital
requirements. The following is a summary of the Bank's regulatory capital
position at March 31, 1998, as adjusted for the payment of declared
dividends, as described below.
<TABLE>
At March 31, 1998
------------------------------------------
Required Actual
------------------- ------------------
Amount Percent Amount Percent
-------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Leverage capital ................... $61,252 5.00% $169,991 13.88%
Tier 1 capital ..................... 59,178 6.00 169,991 17.24
Total risk-based capital ........... 98,630 10.00 181,364 18.39
</TABLE>
8
<PAGE>
The Board of Directors of the Bank declared a dividend of $41.7 million
on March 24, 1998, the effect of which is reflected in the capital ratios set
forth above.
The Board of Directors of Beal Financial, on March 24, 1998 declared a
dividend payable to the shareholders of $36.5 million, which was paid on
April 7, 1998.
MARKET RISK
The Company's estimated sensitivity to interest rate risk, as measured
by the estimated interest earnings sensitivity profile and the interest
sensitivity gap analysis, has not changed materially from the information
disclosed in the Company's Form-10K for the period ended December 31, 1997.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations.
Nearly all the assets and liabilities of the corporation are financial,
unlike most industrial companies. As a result, the Company's performance is
directly impacted by changes in interest rates, which are indirectly
influenced by inflationary expectations. Since the Company has historically
placed more emphasis on increasing net interest margin rather than on
matching the maturities of interest rate sensitive assets and liabilities,
changes in interest rates may have a greater impact on the Company's
financial condition and results of operations. Changes in investment rates
do not necessarily move to the same extent as changes in the price of goods
and services.
RATIOS OF EARNING TO FIXED CHARGES
The Company's consolidated ratios of earnings to fixed charges for the
three months ended March 31, 1998 are set forth below. Earnings used in
computing the ratios shown consist of earnings from continuing operations
before taxes and interest expense. Fixed charges, excluding interest on
deposits, represent interest expense on borrowings. Fixed charges, including
interest on deposits, represent all of the foregoing items plus interest on
deposits. Interest expense (other than on deposits) includes interest on FHLB
of Dallas borrowings, the Senior Notes and other borrowed funds.
<TABLE>
For the Three Months Ended
March 31, 1998
--------------------------
<S> <C>
Excluding interest on deposits . . . . . . . 10.0:1
Including interest on deposits . . . . . . . 1.6:1
</TABLE>
9
<PAGE>
YEAR 2000
The Company is currently in the process of conducting a comprehensive
review of its computer systems to identify the systems that could be affected
by the "Year 2000" problem. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a major system failure or miscalculations.
Management anticipates that the enhancements necessary to prepare its systems
for the year 2000 will be completed in a timely manner.
The majority of the Company's information processing capabilities are
currently provided by third party vendors. The Company is aware of the risks
to third parties, including vendors (and the extent appropriate, depositors
and borrowers) and the potential adverse impact on the Company resulting from
failures by these parties to adequately address the Year 2000 problem. The
Company has been communicating with its outside data processing service
bureau, as well as other third party service providers ( and to the extent
appropriate, depositors and borrowers) to assess their progress in evaluating
their systems and implementing any corrective measures required by them to be
prepared for the year 2000. To date, the Company has not been advised by any
of its primary vendors that they do not have plans in place to address and
correct the issues associated with the Year 2000 problem; however, no
assurance can be given as to the adequacy of such plans or to the timeliness
of their implementation.
The Company anticipates that it will incur internal staff costs as well
as consulting and other expenses related to the enhancements necessary to
prepare the systems for the year 2000. Based on the Company's current
knowledge and investigations, the expense of the year 2000 project as well as
the related potential effect on the Company's earnings is not expected to
have a materiel effect on the Company's financial position or results of
operations.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings. The Bank
is involved in various legal proceedings occurring in the ordinary course of
business. Management of the Bank, based on discussions with litigation counsel,
believes that such proceedings will not have a material adverse effect on the
financial condition or operations of the Bank. There can be no assurance,
however, that any of the outstanding legal proceedings to which the Bank is a
party will not be decided adversely to the Company's interests and have a
material adverse effect on the financial position or results of operations of
the Company.
Item 2. CHANGES IN SECURITIES
None.
Items 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
David R. Farmer, the Company's Senior Vice President and Treasurer
resigned effective April 30, 1998 to pursue personal business opportunities.
James W. Lewis, Jr. is the Company's Chief Accounting Officer.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27--Financial Data Schedule
11
<PAGE>
Pursuant to the requirement 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.
BEAL FINANCIAL CORPORATION
Registrant
Date: May 13, 1998 /s/ D. Andrew Beal
---------------------------------------------
D. Andrew Beal, Chairman
Date: May 13, 1998 /s/ David C. Meek
---------------------------------------------
David C. Meek, Director, President
and Chief Executive Officer
Date: May 13, 1998 /s/ Timothy M. Fults
---------------------------------------------
Timothy M. Fults, Director
Date: May 13, 1998 /s/ Dr. Bernard L. Weinstein
---------------------------------------------
Dr. Bernard L. Weinstein, Director
Date: May 13, 1998 /s/ James W. Lewis, Jr.
---------------------------------------------
James W. Lewis, Jr., Chief Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 528
<INT-BEARING-DEPOSITS> 82,195
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 107,044
<INVESTMENTS-CARRYING> 0
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<DEPOSITS> 905,149
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<LONG-TERM> 64,451
0
0
<COMMON> 300
<OTHER-SE> 181,333
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<INTEREST-OTHER> 0
<INTEREST-TOTAL> 38,828
<INTEREST-DEPOSIT> 13,088
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<INCOME-PRETAX> 21,875
<INCOME-PRE-EXTRAORDINARY> 21,875
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<NET-INCOME> 20,847
<EPS-PRIMARY> 69.49
<EPS-DILUTED> 69.49
<YIELD-ACTUAL> 9.04
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<RECOVERIES> 135
<ALLOWANCE-CLOSE> 11,373
<ALLOWANCE-DOMESTIC> 11,230
<ALLOWANCE-FOREIGN> 143
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
