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, 1996
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 reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class: Common Stock, par value $.10 per share
Outstanding at February 5, 1997: 1,143,669 shares
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, 1996 and September 30, 1996 (unaudited) 1
Consolidated Statements of Income for the three months
ended December 31, 1996 and 1995 (unaudited) 2
Consolidated Statements of Cash Flows for the three months ended
December 31, 1996 and 1995 (unaudited) 3
Notes to Unaudited Interim Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II OTHER INFORMATION
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Item 1. Legal proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
December 31 September 30
1996 1996
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(Dollars in Thousands)
Assets
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Cash and cash equivalents ................................................................. $ 2,862 $ 3,075
Investment securities held for investment (estimated market value of $5,210 and $5,161).... 5,219 5,214
Mortgage-backed securities held for investment (estimated market value of $24 and $25)..... 24 25
Mortgage-backed securities available for sale, at market value ............................ 474 457
Marketable equity securities available for sale, at market value .......................... 3,944 3,879
Investment securities available for sale, at market value ................................. 1,872 1,860
Investment in Federal Home Loan Bank stock, at cost ....................................... 932 932
Loans receivable, net ..................................................................... 111,568 108,873
Foreclosed real estate, net ............................................................... 43 --
Property and equipment, net ............................................................... 1,240 1,238
Accrued interest receivable ............................................................... 609 662
Deferred income taxes ..................................................................... 389 438
Other assets .............................................................................. 425 548
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Total assets .......................................................................... $ 129,601 $ 127,201
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Liabilities and Stockholders' Equity
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Liabilities
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Deposits .................................................................................. $ 96,284 $ 95,378
Advances from the Federal Home Loan Bank .................................................. 14,000 12,000
Advances from borrowers for taxes and insurance ........................................... 312 539
Dividends payable ......................................................................... 137 126
Other liabilities ......................................................................... 390 931
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Total liabilities .................................................................... 111,123 108,974
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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
1,143,669 at December 31, 1996 and September 30, 1996 .................................. 114 114
Additional paid in capital ................................................................ 10,790 10,773
Retained earnings, substantially restricted ............................................... 8,967 8,739
Unrealized (loss) gain on securities available for sale ................................... (35) (33)
Less stock acquired by ESOP and RRP ....................................................... (1,358) (1,366)
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Total stockholders' equity ........................................................... 18,478 18,227
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Total liabilities and stockholders' equity ........................................... $ 129,601 $ 127,201
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See notes to consolidated financial statements
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BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended
December 31
1996 1995
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(Dollars in Thousands
Except Per Share Date)
Interest Income:
Loans ........................................................................ $2,218 $2,052
U.S. Government Obligations including agencies ............................... 190 176
Mortgage-backed securities ................................................... 8 1
Other investments, including overnight deposits .............................. 46 23
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Total interest income ....................................................... 2,462 2,252
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Interest Expense:
Deposits ..................................................................... 1,053 1,037
Borrowed funds ............................................................... 215 69
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Total interest expense ...................................................... 1,268 1,106
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Net interest income ......................................................... 1,194 1,146
Provision for credit losses ................................................... 25 --
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Net interest income after provision for credit losses ....................... 1,169 1,146
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Noninterest income:
Service charges and fees on loans ............................................ 87 74
Other customer service fees and commissions .................................. 61 58
Other ........................................................................ 7 23
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Total noninterest income .................................................... 155 155
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Noninterest expense:
Personnel compensation and benefits .......................................... 399 367
Occupancy and equipment ...................................................... 72 84
Data processing .............................................................. 79 79
Federal insurance of accounts ................................................ 42 50
Advertising .................................................................. 34 22
Professional fees ............................................................ 27 39
Net cost of (gain on) operations of foreclosed real estate ................... 2 3
Other ........................................................................ 94 84
Total noninterest expense ................................................... 749 728
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Income before income taxes ................................................. 575 573
Provision for income taxes .................................................... 218 218
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Net income .................................................................. $ 357 $ 355
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Net income per share ........................................................ $ 0.33 $ 0.31
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See notes to consolidated financial statements.
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BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
December 31
1996 1995
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(Dollars in Thousands)
Operating activities:
Net income ..................................................................... $ 357 $ 355
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses .................................................. 25 --
Provision for depreciation and amortization .................................. 34 42
Amortization of investment security premiums and accretion of discounts, net.. 1 1
(Increase) decrease in deferred income taxes ................................. 49 18
Loans originated for sale .................................................... -- (75)
Proceeds from sale of loans originated for sale .............................. -- 75
(Increase) decrease in interest receivable ................................... 53 (29)
(Increase) decrease in other assets .......................................... 123 148
Increase (decrease) in other liabilities ..................................... (541) (137)
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Net cash provided by (used in) operating activities ........................ 101 398
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Investing activities:
Proceeds from the maturities of investments .................................. -- 400
Purchases of investment securities ........................................... (57) (58)
Net increase in loans to customers ........................................... (2,741) (628)
Principal collected on mortgage-backed securities ............................ 10 2
Purchases of premises, equipment and leasehold improvements .................. (36) (36)
Purchase of foreclosed real estate ........................................... (43) --
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Net cash provided by (used in) investing activities ........................ (2,867) (320)
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Financing activities:
Repurchase of stock .......................................................... -- (179)
Proceeds - allocation of ESOP and RRP shares ................................. -- 21
Dividends paid ............................................................... (126) (186)
Net increase (decrease) in customer deposits ................................. 906 1,694
Proceeds from advances and other borrowed money .............................. 2,000 (1,000)
Purchase of stock by ESOP and RRP ............................................ -- (206)
Net increase (decrease) in advance payments from borrowers for taxes and in .. (227) (71)
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Net cash provided by financing activities .................................. 2,553 73
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Increase (decrease) in cash and cash equivalents ........................... (213) 151
Cash and cash equivalents at beginning of period ................................. 3,075 3,337
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Cash and cash equivalents at end of period ....................................... $ 2,862 $ 3,488
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See notes to consolidated financial statements.
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Note to Unaudited Interim Consolidated Fianancial Statements
December 31, 1996
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying unaudited interim consolidated financial statements
include the accounts of Bedford Bancshares, Inc. (the "Corporation") and Bedford
Federal Savings Bank (the "Bank"), a wholly owned subsidiary of the Corporation.
All significant intercompany balances and transactions have been eliminated in
consolidation.
During the first quarter of fiscal 1997, First Financial Corporation, a
wholly owned subsidiary of the Bank was dissolved. The assets and liabilities of
First Financial (which were immaterial) were transferred to the Bank.
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 periods ended December 31,
1996 and 1995 are 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, 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
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Total assets of the Corporation were $129.6 million at December 31, 1996,
an increase of $2.4 million from September 30, 1996. The $2.7 million rise in
loan receivables ($.9 million in mortgage loans and $1.8 million in consumer
loans), primarily reflected the economic health of the Bank's market area and
competitive pricing of the Bank's loan products. Funding for the asset growth
was mainly provided by increases in FHLB borrowings and deposits. Stockholders'
equity was $18.5 million on December 31, 1996, up $251,000 from the $18.2
million on September 30, 1996.
At December 31, 1996, nonperforming assets were $1.2 million, or .93% of
total assets, compared to $684,000, or .54% of total assets at September 30,
1996. During the first quarter of fiscal 1997, an additional $231,000 of
residential real estate loans and $258,000 of consumer loans were added to the
nonperforming category. These credits are primarily secured by first liens on
the underlying real estate for which the Bank believes the allowance for loan
losses is adequate at December 31, 1996. Management classifies loans as
nonperforming after they have been delinquent greater than 90 days or earlier if
the Bank becomes aware that the borrower has entered bankruptcy proceedings, or
in situations in which the loans have developed inherent problems prior to being
90 days delinquent that indicate payments of principal or interest will not be
made in full. Whenever the accrual of interest is stopped, previously accrued
but uncollected interest income is reversed. Thereafter, interest is recognized
only as cash is received until the loan is reinstated.
RESULTS OF OPERATIONS
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COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
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General. Net income for the three months ended December 31, 1996 was
$357,000, up slightly from the $355,000 earned in the comparable period of
fiscal 1996. Net interest income for the first quarter of fiscal 1997 was $1.2
million, compared to net interest income for the first quarter of fiscal 1996 of
$1.1 million. In addition, $25,000 was added to the allowance for credit losses
during the first quarter of fiscal 1997.
Interest Income. Total interest income amounted to $2.5 million for the
three months ended December 31, 1996 up from the $2.3 million earned in the
comparable quarter of fiscal 1995. The increase was primarily due to an increase
in the average balance of loans receivable to $110.5 million for the quarter
ended December 31, 1996 from $98.1 million for the same period of 1995. This
increase reflects the Corporation's continuing success in originating mortgage
loans and increased emphasis on expanding the consumer loan portfolio, primarily
home equity loans.
Interest Expense. For the three months ended December 31, 1996, total
interest expense rose to $1.3 million from the $1.1 million for the three months
ended December 31, 1995, primarily due to an increase in the average balance of
interest bearing liabilities to $104.5 million for the first quarter of fiscal
1997 from $90.9 million for the same quarter of fiscal 1996. The average balance
of FHLB advances increased $9.9 million from $4.3 million for the three months
ended December 31, 1995 to $14.2 million for the three months ended December 31,
1996, providing the additional funding needed to support the Bank's loan growth.
In addition, average interest bearing deposits totaled $90.3 million for the
first quarter of fiscal 1997, a $3.7 million increase from the $86.6 million
average for the comparable period of fiscal 1996.
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Net Interest Income. For the three months ended December 31, 1996, net
interest income was $1.2 million, up slightly from the net interest income
earned in the same period of 1995. During the three months ended December 31,
1996, the Corporation's interest rate spread and net interest margin declined to
3.07% and 3.84%, respectively, compare to 3.27% and 4.14%, respectively for the
same period of 1995. During the three months ended December 31, 1996, $37,000 of
interest related to nonperforming loans was placed in the reserve for
uncollected interest and was not recorded as income. For the same period of
1995, there was $16,000 of interest on nonperforming loans added to the reserve
for uncollected interest and not recorded as income.
Provision for Credit Losses. For the three months ended December 31, 1996,
the Bank, after reviewing nonperfoming assets and loan growth during the first
quarter of fiscal 1997, recorded a provision for credit losses of $25,000. There
was no provision for credit losses taken during the three months ended December
31, 1995. The determination of the adequacy of the allowance for credit losses
involves subjective judgements regarding future events, and, therefore, there
can be no assurance that additions to the allowance for credit losses will not
be required in future periods. Management will continue to evaluate the level of
the allowance for credit losses based on, among other things, growth of the loan
portfolio, loan delinquency rates and general market conditions. There can be no
assurance, however, that additional provisions will be required in future
periods.
Total Noninterest Income. Noninterest income totaled $155,000 for each of
the first quarters of fiscal 1997 and 1996. Increases of $13,000 in service
charges and fees on loans and $3,000 in other customer service fees and
commissions was offset by a decrease of $16,000 in other income.
Total Noninterest Expense. Total noninterest expense was $749,000 for the
three months ended December 31, 1996, up $21,000 from the $728,000 total for the
comparable quarter of fiscal 1996. Personnel compensation and benefits totaled
$399,000 for the three months ended December 31, 1996, up $32,000 from the same
quarter of 1995 primarily due to staff increases and general merit increases.
All other categories of noninterest expense reflected a net decrease of $11,000
when comparing the first quarter of fiscal 1997 to the same quarter of fiscal
1996.
Provision for Income Taxes. The provision for income taxes was $218,000 for
each of the three months ended December 31, 1996 and 1995.
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CAPITAL COMPLIANCE
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The following table presents the Bank's compliance with its regulatory
requirements of December 31, 1996. (Dollar amounts in thousands).
December 31, 1996
---------------------
Percentage
of assets
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GAAP Capital ................................ $16,131 12.39 %
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Tangible capital ............................ $16,163 12.41 %
Tangible capital requirement ................ 1,954 1.50 %
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Excess ...................................... $14,209 10.91 %
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Core capital ................................ $16,163 12.41 %
Core capital requirement .................... 3,908 3.00 %
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Excess ...................................... $12,255 9.41 %
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Total risk-based capital (1) ............... $16,776 23.07 %
Total risk-based capital requirement (1) ... 5,817 8.00 %
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Excess ...................................... $10,959 15.07 %
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(1) Based on risk-weighted assets of $72,707
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
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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, 1996, such borrowed funds totaled $14.0
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 investments," which include certain United States
government obligations and other approved investments. Current regulations
require the Bank to maintain liquid assets of not less than 5% of net
withdrawable accounts plus short term borrowings. Short term liquid assets must
consist of not less then 1% of such accounts and borrowings, which amount is
also included within the 5% requirement. Those levels may be changed from time
to time by the regulators to reflect current economic conditions. The Bank has
generally maintained liquidity far in excess of
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regulatory requirements. The Bank's regulatory liquidity was 7.06% and 10.01% at
December 31, 1996 and 1995, respectively, and its short term liquidity was 2.61%
and 4.77% at such dates, respectively.
The amount of certificate accounts which are scheduled to mature during the
next twelve months ending December 31, 1997, is approximately $34.5 million. To
the extent that these deposits do not remain at the Bank upon maturity, the Bank
believes that it can replace these funds with other deposits, excess liquidity,
FHLB advances, or other borrowings. It has been the Bank's experience that a
substantial portion of such maturing deposits remain at the Bank.
At December 31, 1996, the Bank had loan commitments outstanding of $4.1
million and no commitments to purchase mortgage-backed or investment securities.
Funds required to fill these commitments are derived primarily from current
excess liquidity, deposit inflows, borrowings or loan and investment repayments.
IMPACT OF INFLATION AND CHANGING PRICES
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The consolidated financial statements of the Corporation and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
requires the measurement of financial position and operating results in terms of
historical dollars without considering the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased cost of the Corporation's operations. Unlike most industrial
companies, nearly all of the assets and liabilities of the Corporation are
financial. As a result, interest rates have a greater impact on the
Corporation's performance than do the general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
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BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Key Operating Ratios
(Unaudited)
For the
Three Months Ended
December 31
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1996(1) 1995(1)
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(Unaudited)
Earnings per common share .......................... $ 0.33 $ 0.31
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Return on average assets .......................... 1.10 % 1.23 %
Return on average equity .......................... 7.72 % 7.57 %
Interest rate spread .............................. 3.07 % 3.27 %
Net interest margin ............................... 3.84 % 4.14 %
Noninterest expense to average assets ............. 2.31 % 2.53 %
Net charge-offs to average outstanding loans ...... -- --
At At
December 31 September 30
1996 1996
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(Dollars in Thousands)
Nonaccrual and 90 days past due loans .............. $ 1,160 $ 684
Repossessed real estate ............................ 43 --
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Total nonperforming assets ......................... $ 1,203 $ 684
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Allowance for credit losses to nonperforming assets 56.11% 95.03%
Nonperforming loans to total loans ................. 1.04% .63%
Nonperforming assets to total assets ............... 0.93% .54%
Book value per share (2) .......................... $ 17.08 $ 16.95
========== =======
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(1) The ratios for the three-month periods are annualized
(2) The number of shares outstanding as of December 31, 1996 and September 30,
1996 were 1,081,876 and 1,075,639, respectively, net of unallocated ESOP
shares..
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PART II - OTHER INFORMATION
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Item 1. Legal Proceeedings
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Neither the Corporation nor the Bank was engaged in any legal
proceedings of a material nature at December 31, 1996. 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
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Not applicable.
Item 3. Defaults upon Senior Securities
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 11: Statement regarding computation of earnings per
share.
Exhibit 27: Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
Not applicable.
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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 5, 1997 By: /s/ Harold K. Neal
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Harold K. Neal
President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 5, 1997 By: /s/ James W. Smith
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James W. Smith
Vice President and Treasurer
(Principal Accounting and
Financial officer)
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