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, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File No. 0-24330
Bedford Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1709924
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 West Main Street, Bedford, Virginia 24523
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(Address of principal executive offices)
(540) 586-2590
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(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 report(s), 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 6, 2001: 2,136,370
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
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Item 1 Financial Statements
Consolidated Statements of Financial Condition at December 31
(unaudited) and September 30, 2000 3
Consolidated Statements of Income for the three months
ended December 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Comprehensive Income for
Comprehensive Statement of Income for the three months
ended December 31, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the three months
ended December 31, 2000 and 1999 (unaudited) 6
Notes to Unaudited Interim Consolidated Financial Statements
7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
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Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K
13
SIGNATURES 14
2
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
December 31 September 30
2000 2000
----------- ------------
(In Thousands)
Assets
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Cash and cash equivalents...................................................... $ 4,065 $ 5,512
Investment securities held to maturity (estimated market value of
$500 and $506)................................................................. 506 507
Marketable equity securities available for sale, at market value............... 50 50
Investment securities available for sale, at market value...................... 7,471 6,855
Investment in Federal Home Loan Bank stock, at cost............................ 1,950 1,900
Loans receivable, net.......................................................... 175,661 169,592
Foreclosed real estate, net.................................................... 26 0
Property and equipment, net.................................................... 1,349 1,365
Accrued interest receivable 1,231 1,133
Deferred income taxes.......................................................... 206 270
Other assets................................................................... 876 357
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Total assets............................................................... $193,391 $187,541
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits....................................................................... $129,756 $129,770
Advances from the Federal Home Loan Bank....................................... 39,000 34,000
Advances from borrowers for taxes and insurance................................ 378 694
Dividends payable.............................................................. 215 215
Other liabilities.............................................................. 1,160 306
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Total liabilities.......................................................... 170,509 164,985
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Commitments and contingent liabilities
Stockholders' equity
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Preferred stock, par value $.10 per share, authorized 250,000; issued and - -
outstanding, none
Common stock, par value, $.10 per share, authorized 2,750,000 shares; issued
and outstanding 2,136,370 at December 31, 2000 and 2,149,270 at September 30,
2000........................................................................... 214 215
Additional paid in capital..................................................... 10,418 10,466
Retained earnings, substantially restricted.................................... 12,757 12,503
Accumulated other comprehensive income......................................... (16) (122)
Less stock acquired by ESOP and RRP............................................ (491) (506)
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Total stockholders' equity................................................. 22,882 22,556
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Total liabilities and stockholders' equity................................. $193,391 $187,541
======== ========
See notes to consolidated financial statements
3
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended
December 31
2000 1999
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(Dollars in Thousands,
Except Per Share Data)
Interest Income:
Loans ................................................... $3,391 $2,868
U.S. Government Obligations including agencies .......... 160 208
Other investments, including overnight deposits ......... 49 31
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Total interest income ................................ 3,600 3,107
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Interest Expense:
Deposits ................................................ 1,485 1,137
Borrowed funds .......................................... 535 476
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Total interest expense ............................... 2,020 1,613
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Net interest income .................................. 1,580 1,494
Provision for credit losses .............................. 30 30
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Net interest income after provision for credit
Losses .................................................. 1,550 1,464
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Noninterest income:
Service charges and fees on loans ....................... 120 169
Other customer service fees and
Commissions ............................................. 96 102
Other ................................................... 10 15
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Total noninterest income ............................. 226 286
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Noninterest expense:
Personnel compensation and benefits ..................... 517 503
Occupancy and equipment ................................. 105 73
Data Processing ......................................... 118 102
Federal insurance of accounts ........................... 6 16
Advertising ............................................. 36 32
Professional fees ....................................... 82 43
Other ................................................... 98 117
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Total noninterest expense ............................ 962 886
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Income before income taxes ........................... 814 864
Provision for income taxes .............................. 309 353
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Net income ............................................ $ 505 $ 511
====== ======
Basic earnings per share ................................. $ 0.24 $ 0.24
====== ======
Diluted earnings per share ............................... $ 0.23 $ 0.23
====== ======
See notes to consolidated financial statements
4
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
December 31
2000 1999
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(Dollars in Thousands,
Except Per Share Data)
Net Income.............................................. $505 $511
Other comprehensive income, net of tax effect:
Unrealized gains (losses) on securities
available for sale................................... 106 (72)
---- ----
Comprehensive income.................................... $611 $439
==== ====
5
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
December 31
2000 1999
---- ----
(Dollars in Thousands)
Operating activities:
Net Income ........................................................... $ 505 $ 511
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses ........................................ 30 30
Provision for depreciation and amortization ........................ 45 35
Amortization of investment security premiums and accretion of
discounts, net ..................................................... (2) (2)
(Increase) decrease in deferred income taxes ....................... - (44)
(Gain) loss on sale of loans, investments and foreclosed real estate - -
(Increase) decrease in accrued interest receivable ................. (98) (72)
(Increase) decrease in other assets ................................ (465) (45)
Increase (decrease) in other liabilities ........................... 869 (736)
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Net cash provided by (used in) operating activities ............... 884 (323)
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Investing activities:
Proceeds from the maturities of investments available for sale ..... 1,000 509
Purchases of investment securities available for sale .............. (1,500) (560)
Purchase of Federal Home Loan Bank stock ........................... (50) (500)
Net increase in loans to customers ................................. (6,068) (7,986)
Principal collected on mortgage-backed securities .................. 1 1
Purchases of premises, equipment and leasehold improvements ........ (27) (42)
Net (increase) decrease in foreclosed real estate .................. (26) -
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Net cash provided by (used in) investing activities ............... (6,670) (8,578)
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Financing activities:
Dividends paid ..................................................... (215) (179)
Net increase (decrease) in customer deposits ....................... (14) 1,727
Proceeds from (repayments of) advances and other borrowed money .... 5,000 10,000
Repurchase of stock ................................................ (116) (224)
Net increase (decrease) in advance payments from borrower for taxes
and insurance ...................................................... (316) (226)
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Net cash provided by financing activities ......................... 4,339 11,098
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Increase (decrease) in cash and cash equivalents .................. (1,447) 2,197
Cash and cash equivalents at beginning of period ...................... 5,512 2,744
-------- --------
Cash and cash equivalents at end of period ............................ $ 4,065 $ 4,941
======== ========
See notes to consolidated financial statements
6
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements
December 31, 2000
NOTE 1: BASIS OF PRESENTATION
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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 presentation have been
included. The results of operations for the interim period ended December 31,
2000 is not necessarily indicative of the results which may be expected for any
future period. For further information, refer to consolidated financial
statements and footnotes thereto included in the Corporation's Annual Report on
Form 10-KSB for the year ended September 30, 2000.
NOTE 2: EARNINGS PER SHARE
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Earnings per share is calculated as follows:
Three Months Ended
December 31
2000 1999
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Basic Earnings Per Share:
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Net Income ........................................ $ 505,000 $ 511,000
========== ==========
Average Shares Outstanding, Net of
unallocated ESOP Shares (61,334 and 77,334 at
December 31, 2000 and 1999, respectively) ......... 2,086,141 2,090,662
========== ==========
Basic Earnings Per Share .......................... $ 0.24 $ 0.24
========== ==========
Diluted Earnings Per Share;
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Net Income ........................................ $ 505,000 $ 511,000
========== ==========
Average Shares Outstanding, Net of unallocated ESOP
Shares (61,334 and 77,334
At December 31, 2000 and 1999, respectively) ...... 2,086,141 2,090,662
Dilutive effect of RRP Plan shares .............. 444 10,406
Dilutive effect of Stock Options ................ 64,938 92,557
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Average Shares Outstanding ........................ 2,151,523 2,193,625
========== ==========
Diluted Earnings Per Share ........................ $ 0.23 $ 0.23
========== ==========
7
MANAGEMENTS 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, and
general economic conditions. We undertake no obligation to publicly release the
results of any revision 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
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At December 31, 2000, consolidated assets totaled $193.3 million, an
increase of $5.7 million from September 30, 2000. The asset expansion was
reflected in growth of the loan portfolio which increased $6.1 million. Funding
for the loan growth was provided by a $5.0 million increase in FHLB advances.
RESULTS OF OPERATIONS
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General. Net income for the three months ended December 31, 2000
decreased $6,000 to $505,000 from $511,000 for the comparable quarter of fiscal
2000. A decrease in the amount of service charges and fees on loans combined
with expenses related to opening and operating a new branch, partially offset by
higher net interest income, were primary factors in the lower earnings.
Interest Income. Interest income totaled $3.6 million for the three
months ended December 31, 2000, compared to $3.1 million earned in the three
months ended December 31, 1999. Interest income on loans increased $523,000 due
to a 31 basis point improvement in the yield, primarily due to higher market
rates, combined with a $20.6 million increase in the average balance outstanding
when comparing the first quarters of fiscal 2001 and 2000.
Interest Expense. Interest expense totaled $2.0 million for the three
months ended December 31, 2000, a $407,000 increase from $1.6 million for the
comparable 2000 period. The increase was primarily due to a $348,000 increase in
interest on deposits, due to a $12.9 million increase in average volume, and a
71 basis point rise in the average cost. Additionally, interest on borrowed
funds increased $59,000 due to higher volume and cost of FHLB advances.
8
Net Interest Income. For the three months ended December 31, 2000, net
interest income was $1.6 million, up $86,000 from the net interest income earned
in the same three months of 1999. For the three months ended December 31, 2000,
our interest rate spread and net interest margin decreased to 2.64% and 3.46%,
respectively, compared to 2.93% and 3.62%, respectively for the same period of
1999.
Provision for Loan Losses. The provision for loan losses was $30,000
for the three months ended December 31, 2000 and for the same 1999 period.
Although loans receivable increased 3.6% in the first quarter of fiscal 2001,
the level of nonperforming loans decreased from .57% of total loans at September
30, 2000 to .46% at December 31, 2000. The allowance for loan losses at December
31, 2000 was $866,000 compared to $850,000 at September 30, 2000. This increase
combined with the decrease in nonperforming loans increased the ratio of the
allowance for loan losses to nonperforming assets to 106.91% at December 31,
2000 from 88.55% at September 30, 2000. Management performs regular assessments
of the credit risk in the loan portfolio based on information available at such
times, including the level 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 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.
Noninterest income. For the three months ended December 31, 2000,
noninterest income was $226,000, down 20.6% from the $286,000 for the comparable
1999 period. Service charges and fees on loans were down $49,000 to $120,000 for
the first quarter of fiscal 2001 from $169,000 for the comparable period of
fiscal 2000 due primarily to the lower number and dollar volume of loans closed.
Other fees and commissions were down 5.9% to $96,000 for the three months ended
December 31, 2000 from $102,000 for the comparable period of 1999 due primarily
to a $6,000 decline in income from checking.
Noninterest expense. Noninterest expense was $962,000 for the three
months December 31, 2000, up 8.7% from $885,000 for the comparable 1999 period.
Occupancy and equipment expense was up $32,000 due primarily to expenses
associated with the New London branch, which opened in September of 2000. Data
processing expense was $118,000, up 15.4% from the comparable 1999 period, due
primarily to increased pricing from our primary service provider. The cost of
Federal insurance of accounts was down $10,000 or 61.9% due to a lower
assessment by the FDIC. Professional fees for the three months ended December
31, 2000 were $82,000 up $40,000 from the comparable 1999 period due to higher
legal and accounting fees.
Provision for Income Taxes. The provision for income taxes was $309,000
for the three months ended December 31, 2000, down 12.4% from the $353,000
provision recorded in the same three months of fiscal 2000. The primary reason
for the decrease was the lower level of taxable income.
9
CAPITAL COMPLIANCE
- ------------------
The following table presents the Bank's compliance with its regulatory capital
requirements of December 31, 2000. (Dollar amounts in thousands).
December 31, 2000
-------------------------
Percentage
.. of assets
------------
GAAP Capital...................................... $21,831 11.30%
======= =====
Tangible capital.................................. $21,849 11.31%
Tangible capital requirement...................... $2,897 1.50%
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Excess............................................ $18,952 9.81%
======= ====
Core capital...................................... $21,849 11.31%
Core capital requirement.......................... 7,726 4.00%
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Excess............................................ $14,123 7.31%
======= =====
Total risk-based capital (1)...................... $22,631 18.44%
Total risk-based capital requirement (1).......... 9,817 8.00%
------- -----
Excess............................................ $12,814 10.44%
======= ======
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(1) Based on risk-weighted assets of $122,707
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 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.
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. In addition, we supplement our funding needs by borrowing funds from
the Federal Home Loan Bank ("FHLB") of Atlanta. As of December 31, 2000, such
borrowed funds totaled $39 million. Loan payments and prepayments, deposits and
borrowings 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, 2000, our regulatory liquidity ratio was
10.14%.
The amount of certificate accounts, which are scheduled to mature
during the next twelve months ending December 31, 2001, is approximately $50.3
million. To the extent that these
10
deposits do not remain with us upon maturity, we believe that we can replace
these funds with other deposits, FHLB advances or other borrowings. It has been
our experience that a substantial portion of such maturing deposits remains with
us.
At December 31, 2000, we had loan commitments outstanding of $19.7
million. These commitments will be funded from deposit inflows, loan repayments
and borrowings.
11
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Key Operating Ratios
Three Months Ended
December 31
-----------
2000(1) 1999(1)
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(Unaudited)
Basic earnings per share........................ $0.24 $0.24
Diluted earnings per share...................... $0.23 $0.23
Return on average assets........................ 1.07% 1.19%
Return on average equity........................ 8.88% 9.63%
Interest rate spread............................ 2.64% 2.93%
Net interest margin............................. 3.46% 3.62%
Noninterest expense to average assets........... 2.03% 2.19%
Net charge-offs to average outstanding loans.... .01% --%
December 31 September 30
2000 2000
---- ----
(DOLLARS IN THOUSANDS)
(Unaudited)
Nonaccrual loans....................................... $784 $960
Repossessed real estate................................ 26 -
---- ----
Total nonperforming assets............................. $810 $960
==== ====
Allowance for credit losses to nonperforming assets.... 106.91% 88.55%
Nonperforming loans to total loans..................... 0.46% 0.57%
Nonperforming assets to total assets................... 0.42% 0.51%
Book value per share................................... $10.66 $10.49
====== ======
- ------------------------
(1) The ratios for the three month periods are annualized
12
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
-----------------
Neither the Corporation nor the Bank was engaged in any
legal proceedings of a material nature at December 31, 2000.
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) List of Exhibits:
3(i) Restated Articles of Incorporation of Bedford Bancshares, Inc.*
3(ii) Bylaws of Bedford Bancshares, Inc.*
4 Specimen of Stock Certificate*
10.1 1994 Stock Option Plan*
10.2 Recognition and Retention Plan and Trust Agreement
10.3 Employment Agreement between the Registrant and Harold K. Neal*
(b) Reports on Form 8-K
Not applicable.
- -----------------------
o Incorporated by reference to the Registrant's Form 10-KSB filed with the
SEC on December 9, 1994.
13
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, 2001 By: /s/ Harold K. Neal
-------------------------------
Harold K. Neal
President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 8, 2001 By: /s/ James W. Smith
-------------------------------
James W. Smith
Vice President and Treasurer
(Principal Accounting and
Financial Officer)
14