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 June 30, 1998
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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24523 (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 tthe 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 August 7, 1998: 2,297,900 shares
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
June 30, 1998 and September 30, 1997 (unaudited) 1
Consolidated Statements of Income for the three and nine months
ended June 30, 1998 and 1997 (unaudited) 2
Consolidated Statements of Cash Flows for the nine months ended
June 30, 1998 and 1997 (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 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
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
June 30, September 30
1998 1997
---- ----
(In Thousands)
Assets
- ------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,897 $ 5,446
Investment securities held to maturity (estimated market value of $2,113 and $4,581) . . . . 2,099 4,596
Mortgage-backed securities held to maturity (estimated market value of $16 and $20) . . . . 16 20
Marketable equity securities available for sale, at market value . . . . . . . . . . . . . . 4,341 4,238
Investment securities available for sale, at market value . . . . . . . . . . . . . . . . . . 15,279 5,006
Investment in Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . 1,550 932
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,483 116,093
Foreclosed real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 212
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,128 1,214
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 958 847
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 58
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494 427
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $156,308 $139,089
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $104,660 $103,612
Advances from the Federal Home Loan Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 15,000
Advances from borrowers for taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . 296 502
Dividends payable . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 184 160
Other liabilities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 436 194
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . 135,576 119,468
-------- --------
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, par value $.10 per share, authorized 250,000 shares; issued and outstanding, none -- --
Common stock, par value $.10 per share, authorized 2,750,000 shares; issued and outstanding
2,297,900 and 2,284,850 at June 30, 1998 and September 30, 1997, respectively. . . . . . . 230 228
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,969 10,836
Retained earnings, substantially restricted . . . . . . . . . . . . . . . . . . . . . . . . . 10,456 9,649
Unrealized gain on securities available for sale, net . . . . . . . . . . . . . . . . . . . . 5 22
Less stock acquired by ESOP and RRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (928) (1,114)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,732 19,621
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . $156,308 $139,089
======== ========
See notes to consolidated financial statements.
-1-
BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
June 30 June 30
1998 1997 1996 1997
---- ---- ---- ----
(Dollars in Thousands, Except Per Share Data)
Interest Income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,525 $2,342 $7,352 $6,868
U.S. Government Obligations including agencies . . . . . . . . .. 282 204 733 583
Other investments, including overnight deposits . . . . . . . . . 128 40 243 136
----- ----- ----- -----
Total interest income. . . . . . . . . . . . . . . . . . . . . . 2,935 2,586 8,328 7,587
----- ----- ----- -----
Interest Expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,122 1,075 3,423 3,158
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . .. 382 217 831 654
----- ----- ----- -----
Total interest expense . . . . . . . . . . . . . . . . . . . . . 1,504 1,292 4,254 3,812
----- ----- ----- -----
Net interest income . . . . . . . . . . . . . . . . . . . . . .. 1,431 1,294 4,074 3,775
Provision for credit losses . . . . . . . . . . . . . . . . . . .. 30 25 90 75
----- ----- ----- -----
Net interest income after provision for credit losses . . . . .. 1,401 1,269 3,984 3,700
----- ----- ----- -----
Noninterest income:
Service charges and fees on loans . . . . . . . . . . . . . . . . 112 87 322 237
Other customer service fees and commissions . . . . . . . . . . . 82 58 227 178
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9 64 39
----- ----- ----- -----
Total noninterest income . . . . . . . . . . . . . . . . . . . . 202 154 613 454
----- ----- ----- -----
Noninterest expense:
Personnel compensation and benefits . . . . . . . . . . . . . . . 432 429 1,334 1,231
Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . 78 82 229 234
Data processing . . . . . . . . . . . . . . . . . . . . . . . . . 97 84 273 254
Federal insurance of accounts . . . . . . . . . . . . . . . . . . 16 16 48 73
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 46 89 105
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . 32 28 157 100
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 81 261 258
----- ----- ----- -----
Total noninterest expense . . . . . . . . . . . . . . . . . . .. 766 766 2,391 2,255
--- --- ----- -----
Income before income taxes . . . . . . . . . . . . . . . . . .. 837 657 2,206 1,899
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 325 250 850 721
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $512 $407 $1,356 $1,178
===== ===== ===== =====
Basic earnings per share . . . . . . . . . . . . . . . . . . . . $0.23 $0.19 $0.62 $0.54
===== ===== ===== =====
Diluted earnings per share . . . . . . . . . . . . . . . . . .. $0.22 $0.18 $0.58 $0.52
===== ===== ===== =====
See notes to consolidated financial statements
-2-
BEDFORD BANCSHARES, INC AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
------ June 30 -------
1998 1997
---- ----
(Dollars in Thousands)
Operating activities:
Net income ......................................................................... $ 1,356 $ 1,178
Adjustments to reconcile net income to net cash provided by operating activities :
Provision for credit losses ...................................................... 90 75
Provision for depreciation and amortization ...................................... 112 120
Amortization of investment security premiums and accretion of discounts, net ..... (7) (8)
(Increase) decrease in deferred income taxes ..................................... (5) 66
(Gain) loss on sale of loans, investments and foreclosed real estate ............. (3) (8)
Loans originated for sale ........................................................ -- (185)
Proceeds from sale of loans originated for sale .................................. -- 185
(Increase) decrease in accrued interest receivable ............................... (111) (166)
(Increase) decrease in other assets .............................................. (67) 117
Increase (decrease) in other liabilities ......................................... 242 345
------ ------
Net cash provided by (used in) operating activities ............................ 1,607 1,719
------ ------
Investing activities:
Proceeds from the sale of investment securities available for sale................ 992 1,000
Proceeds from the maturities of investment securities available for sale ......... 2,500 --
Proceeds from the maturities of investment securities held to maturity ........... 2,000 1,400
Purchases of investment securities available for sale ............................ (13,266) (3,695)
Purchase of Federal Home Loan Bank stock ......................................... (618) --
Net increase in loans to customers ............................................... (9,480) (6,683)
Principal collected on mortgage-backed securities ................................ 4 26
Purchases of premises, equipment and leasehold improvements ...................... (26) (128)
Proceeds from the sale of REO .................................................... 212 48
------ ------
Net cash provided by (used in) investing activities ............................ (17,682) (8,032)
------ ------
Financing activities:
Exercise of stock options ........................................................ 103 --
Allocation of ESOP and RRP shares ................................................ 189 --
Dividends paid ................................................................... (481) (402)
Net increase (decrease) in customer deposits ..................................... 1,048 4,669
Proceeds from advances and other borrowed money .................................. 15,000 2,500
Purchase of stock by ESOP and RRP ................................................ (86) (23)
Net increase (decrease) in advance payments from borrowers for taxes and insurance (206) (217)
Other, net ....................................................................... (41) --
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Net cash provided by financing activities ............................................ 15,526 6,527
------ ------
Increase (decrease) in cash and cash equivalents ..................................... (549) 214
Cash and cash equivalents at beginning of period ..................................... 5,446 3,075
------ ------
Cash and cash equivalents at end of period ........................................... $ 4,897 $ 3,289
====== ======
See notes to consolidated financial statements
-3-
BEDFORD BANCSHARES, INC AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements
June 30, 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying unaudited interim consolidated financial statements
include the accounts of Bedford Bancshares, Inc. (the "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.
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 June 30, 1998
are not necessarily indicative of the results which may be expected for any
future period. For further information, refer to consolidated financial
statements and footnotes thereto included in the Corporation's Annual Report on
Form 10-KSB for the year ended September 30, 1997.
NOTE 2: EARNINGS PER SHARE
On May 20, 1998 , the Corporation's Board of Directors approved a 2-for-1
stock split in the form of a 100% stock dividend. The stock split was payable
June 15, 1998 to shareholders of record on June 1, 1998. All per share data has
been adjusted to reflect the effects of the stock split.
The Corporation adopted Statement of Financial Accounting Standards
("SFAS") 128, as of December 31, 1997. SFAS is effective for financial
statements, including interim reports issued for periods ending after December
15, 1997. SFAS 128 provides a different method for calculating earnings per
share than was used in accordance with APB 15, "Earnings Per Share."
SFAS 128 provides for the calculation of basic and diluted earnings per
share. Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in earnings of an entity,
similar to fully diluted earnings per share.
Earnings per share calculated in accordance with SFAS 128 is as follows:
Three Months Ended Nine Months Ended
June 30 June 30
--------------------- -----------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
Basic Earnings Per Share:
Net Income ................................... $ 512,000 $ 407,000 $1,356,000 $1,178,000
========= ========= ========== ==========
Average Shares Outstanding, Net of
unallocated ESOP Shares (109,334 and 121,694
at June 30, 1998 and 1997, respectively ) .. 2,180,575 2,161,264 2,188,566 2,162,150
========= ========= ========== ==========
Basic Earnings Per Share ..................... $ 0.23 $ 0.19 $ 0.62 $ 0.54
========= ========= ========== ==========
Diluted Earnings Per Share:
Net Income ................................... $ 512,000 $ 407,000 $1,356,000 $1,178,000
========= ========= ========== ==========
Average Shares Outstanding, Net of
unallocated ESOP Shares (109,334 and 121,694
at June 30, 1998 and 1997, respectively ) .. 2,180,575 2,161,264 2,188,566 2,162,150
Dilutive effect of RRP Plan shares ....... 26,008 25,015 25,852 23,680
Dilutive effect of Stock Options ......... 121,507 78,809 120,155 71,435
--------- --------- ---------- ----------
Average Shares Outstanding ................... 2,328,090 2,265,088 2,334,573 2,257,265
========= ========= ========== ==========
Diluted Earnings Per Share ................... $ 0.22 $ 0.18 $ 0.58 $ 0.52
========= ========= ========== ==========
-4-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
The Corporation's assets totaled $156.3 million at June 30, 1998, an
increase of $17.2 million from September 30, 1997. The asset expansion was
concentrated in investment securities available for sale which were up $10.3
million and in net loans receivable which reflected a $9.4 million increase.
Funding for the asset growth was provided by a $15 million increase in FHLB
borrowings and a $1.0 million rise in deposits. Stockholders' equity was $20.7
million on June 30, 1998, up $1.1 million from the $19.6 million on September
30, 1997.
At June 30, 1998, nonperforming assets were $328,000, or .21% of total
assets, compared to $730,000, or .52% of total assets at September 30, 1997.
During the quarter ended June 30, 1998, nonperforming mortgage loans decreased a
net $283,000, while nonperforming consumer loans decreased $42,000. The decrease
in nonperforming mortgage loans was primarily due to the pay-off of a $220,000
loan, while the reduction in nonperforming consumer loans was the result of
several loans being brought current.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1997
- -------------------------------------------------------
General. For the three months ended June 30, 1998 net income was
$512,000, up 25.8% from the $407,000 earned in the comparable period of fiscal
1997. Net interest income for the third quarter of fiscal 1998 was $1.4 million,
compared to $1.3 million for the same quarter of fiscal 1997. In addition,
$30,000 was added to the allowance for credit losses during the third quarter of
fiscal 1998, compared to $25,000 for the comparable period of fiscal 1997.
Interest Income. Total interest income was $2.9 million for the three
months ended June 30, 1998, compared to $2.6 million earned in the comparable
quarter of fiscal 1997. The $349,000 increase was due to a $9.0 million rise in
the average balance of loans receivable, an increase of $6.5 million in average
investment securities available for sale and a $6.4 million rise in average
overnight funds.
Interest Expense. For the three months ended June 30, 1998, total
interest expense rose to $1.5 million from the $1.3 million for the three months
ended June 30, 1997, primarily due to an increase in the average balance of
interest bearing liabilities to $125.0 million for the third quarter of fiscal
1998 from $108.1 million for the same quarter of fiscal 1997. The increase was
primarily in FHLB advances which averaged $26.7 million for the three months
ended June 30, 1998, compared to $14.4 million for the third quarter of fiscal
1997.
Net Interest Income. For the three months ended June 30, 1998, net
interest income was $1.4 million, up $132,000 from the net interest income
earned in the same period of 1997. During the three months ended June 30, 1998,
the Corporation's interest rate spread and net interest margin decreased to
3.09% and 3.85%, respectively, compared to 3.28% and 4.03%, respectively, for
the same period of 1997. A 14 basis point decline in the yield on earning assets
combined with a 4 basis point rise in the cost of funds were the primary reasons
for the declines.
-5-
Provision for Credit Losses. For the three months ended June 30, 1998, the Bank
recorded a provision for credit losses of $30,000, compared to $25,000 for the
same period of fiscal 1997. During the third quarter of fiscal 1998, net loans
receivable rose $4.6 million, compared to an increase of $3.1 million in the
same quarter of 1997, which was the primary reason for the increase in the
provision.
Total Noninterest Income. Noninterest income totaled $202,000 for the third
quarter of fiscal 1998, compared to $154,000 for the same quarter of fiscal
1997. The $48,000 increase was attributable to a $25,000 increase in service
charges and fees on loans, due to recently introduced processing fees on
mortgage and consumer loans, and an increase in other customer service fees and
commissions which were up $24,000 primarily due to higher income on checking
accounts, and increased ATM charges. Other noninterest income was relatively
unchanged when comparing the third quarter of fiscal 1998 to the same quarter of
fiscal 1997.
Total Noninterest Expense. Total noninterest expense was $766,000 for
the three months ended June 30, 1998, unchanged from the total for the
comparable quarter of fiscal 1997. Data processing expenses were $97,000 for the
third quarter of fiscal 1998, compared to $84,000 for the same quarter of fiscal
1997 due to higher expenses related to year-end processing and an increase in
processing volume. Advertising expenses of $28,000 for the three months ended
June 30, 1998 decreased $18,000 from the comparable period of fiscal 1997 due to
expenses related to an equity line promotion in 1997.
Provision for Income Taxes. The provision for income taxes was $325,000 for the
three months ended June 30, 1998, up from the $250,000 provision recorded in the
three months ended June 30, 1997. The increase reflects the higher profitability
of the Company in the quarter ended June 30, 1998, as the effective tax rate for
both periods was 38%.
COMPARISON OF NINE MONTHS ENDED JUNE 30, 1998 AND 1997
- ------------------------------------------------------
Forethe.nine months ended June 30, 1998 net income was $1.4 million, up
15.1% from the $1.2 million earned in the comparable period of fiscal 1997. Net
interest income for the first nine months of fiscal 1998 was $4.1 million,
compared to net interest income for the nine months ended June 30, 1997 of $3.8
million. For the first nine months of fiscal 1998, noninterest income was
$613,000 compared to $454,000 for the same period of 1997. Noninterest expense
totaled $2.4 million for the nine months ended June 30, 1998, up from the $2.3
million for the comparable period of fiscal 1997.
Interest Income. Total interest income amounted to $8.3 million for the nine
months ended June 30, 1998, up from the $7.6 million earned in the comparable
period of fiscal 1997. The increase was attributable to expansion of average
loans receivable to $119.8 million for the nine months ended June 30, 1998 from
$112.4 million for the same period of 1997. In addition, overnight funds
averaged $4.1 million and investment securities averaged $10.7 for the first
nine months of 1998, compared to averages of $1.1 million and $7.4 million,
respectively, for the comparable period of 1997. These increases reflects the
Bank's continued success in originating mortgage loans and expanding the
consumer and commercial loan portfolios, as well as effective asset/liability
management strategies.
-6-
Interest Expense. For the nine months ended June 30, 1998, total interest
expense rose to $4.3 million from the $3.8 million for the nine months ended
June 30, 1997, primarily due to an increase in the average balance of interest
bearing liabilities to $117.6 million for the first nine months of fiscal 1998
from $106.3 million for the comparable period of fiscal 1997. The average
balance of interest bearing deposits increased $6.4 million from $91.9 million
for the nine months ended June 30, 1997 to $98.3 million for the nine months
ended June 30, 1998. In addition, average FHLB advances were $19.3 million for
the first nine months of fiscal 1998, up $4.9 million from the same period of
fiscal 1997.
Net Interest Income. Net interest income was $4.1 million for the nine months
ended June 30, 1998, up 7.9% from the net interest income earned in the same
period of 1997. The Corporation's interest rate spread and net interest margin
were 3.11% and 3.88% for the first nine months of fiscal 1998, down from the
3.25% and 4.00%, respectively, for the same nine months of fiscal 1997. A 10
basis point decline in the yield on earning assets combined with a 4 basis point
rise in the cost of funds were the primary reasons for the declines.
Provision for Credit Losses. For the nine months ended June 30, 1998, the Bank
recorded a provision for credit losses of $90,000, compared to $75,000 for the
same nine months of fiscal 1997. Expansion of the consumer and commercial loan
portfolios and continued growth of the mortgage loan portfolio were the primary
reasons for the higher provision.
Total Noninterest Income. For the first nine months of fiscal 1998, noninterest
income totaled $613,000, compared to $454,000 for the same period of 1997.
Service charges and fees on loans were up $85,000 due to fees associated with
refinancings and loan modifications, and loan processing fees. Other customer
service fees and commissions rose $49,000 due to higher income on checking
accounts and increased ATM usage. Other noninterest income was up $25,000 due
primarily to income from the sale of mortgage insurance.
Total Noninterest Expense. Total noninterest expense was $2.4 million for the
nine months ended June 30, 1998, up $136,000 from the $2.3 million total for the
comparable period of fiscal 1997. Personnel compensation and benefits totaled
$1.3 million for the nine months June 30, 1998, up $103,000 from the same nine
months of 1997, primarily due to merit increases and the increased valuation of
ESOP shares for fiscal 1998 which is based on the period end market value of the
Corporation's common stock. Professional fees totaled $157,000 for the nine
months ended June 30, 1998, compared to $100,000 for the same period of fiscal
1997 due primarily to consulting fees associated with the Corporation's three
year strategic business plan. Advertising expenses were $89,000 for the first
nine month of fiscal 1998, down $16,000 from the $105,000 for the same period of
1997 due to an equity line promotion in 1997.
Provision for Income Taxes. The provision for income taxes was $850,000 for the
nine months ended June 30, 1998, compared to $721,000 for the same period of
fiscal 1997. The increase was due to the increase in taxable income as the
effective tax rate for both periods was 38%.
-7-
CAPITAL COMPLIANCE
- ------------------
The following table presents the Bank's compliance with its regulatory capital
requirements of June 30, 1998. (Dollar amounts in thousands).
June 30, 1998
-----------------------
Percentage
of assets
---------
GAAP Capital . . . . . . . . . . . . . . . . . . $18,615 11.90 %
======= =====
Tangible capital . . . . . . . . . . . . . . . . $18,615 11.90 %
Tangible capital requirement . . . . . . . . . . 2,346 1.50
----- ----
Excess . . . . . . . . . . . . . . . . . . . . $16,269 10.40 %
======= =====
Core capital . . . . . . . . . . . . . . . . . . $18,615 11.90 %
Core capital requirement . . . . . . . . . . . . 6,256 4.00
----- ----
Excess . . . . . . . . . . . . . . . . . . . . $12,359 7.90 %
======= ====
Total risk-based capital (1). . . . . . . . . .. $19,274 23.82 %
Total risk-based capital requirement (1). . . . 6,473 8.00
----- ----
Excess . . . . . . . . . . . . . . . . . . . . $12,801 15.82 %
======= =====
- -----------------
(1) Based on risk-weighted assets of $80,909
Management believes that under current regulations, the Bank will continue
to meet its minimum capital requirements in the foreseeable future. Events
beyond the control of the Bank, such as increased interest rates or a downturn
in the economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
LIQUIDITY
- ---------
The Bank's liquidity is a measure of its ability to fund loans, pay deposit
withdrawals, and other cash outflows in an efficient, cost effective manner. The
Bank's primary sources 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 June 30, 1998, such borrowed funds totaled $30.0
million. Loan payments and maturing investments are greatly influenced by
general interest rates, economic conditions and competition.
The OTS adopted a new liquidity rule effective November 24, 1997. The new
rule lowers liquidity requirements for savings associations from 5 to 4 percent
of the association's liquidity base. In addition, the liquidity base has been
reduced by modifying the definition of net withdrawable accounts to exclude
accounts with maturities exceeding one year. Another change removes the
requirement that
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certain obligations must mature in five years or less in order to qualify as a
liquid asset. The new rule also eliminates a separate limit that required
savings associations to hold assets equal to 1 percent of a thrift's liquidity
base in cash or short term liquid assets. At June 30, 1998, the Bank's
regulatory liquidity as measured by the new requirement was 19.44%.
The amount of certificate accounts which are scheduled to mature during the
next twelve months ending June 30, 1999, is approximately $40.2 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 June 30, 1998, the Bank had loan commitments outstanding of $10.4
million. Funds required to fulfill these commitments are derived primarily from
current excess liquidity, deposit inflows, borrowings or loan and investment
repayments.
THE YEAR 2000 ISSUE
- -------------------
The Year 2000 Issue relates to whether computer systems will properly
recognize and process date sensitive information on and after January 1, 2000.
Systems that do not properly interpret such information could generate erroneous
data or fail. The Bank is heavily dependent on computer systems in the conduct
of substantially all of its business activities. The Bank has conducted a
comprehensive review of its computer systems, including its core processing
systems maintained by a third party service bureau, to identify the systems that
could be affected by the Year 2000 Issue. Management has identified the
corrective actions required to ensure that the Bank's internal and
vendor-maintained systems that are date sensitive will be Year 2000 compliant,
and is monitoring the progress of vendor maintained systems in effecting the
necessary modifications. In addition, the Bank is required by Federal regulators
to develop contingency plans should any of its mission critical computer systems
fail to meet the Year 2000 requirements. These contingency plans will be tested
and reviewed by the both the Bank's management and regulators to ensure their
reliability.
Based on a preliminary estimates, the Bank expects to spend approximately
$125,000 to $150,000 from 1998 through 1999 to modify its computer information
systems enabling proper processing of transactions relative to the year 2000 and
beyond. The Bank continues to evaluate appropriate courses of corrective action,
including replacement of certain systems whose associated costs would be
recorded as assets and amortized. Accordingly, the Bank does not expect the
amounts required to be expensed over the next two years to have a material
effect on its financial position or results of operations.
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BEDFORD BANCSHARES, INC. AND SUBSIDIARY
Key Operating Ratios
Three Months Ended Nine Months Ended
June 30 June 30
1998(1) 1997(1) 1998(1) 1997(1)
------- ------- ------- -------
(Unaudited)
Basic earnings per share (2). . . . . . . . . $0.23 $0.19 $0.62 $0.54
Diluted earnings per share (2). . . . . . . . $0.22 $0.18 $0.58 $0.52
Return on average assets . . . . . . . . . . . 1.33 % 1.22 % 1.25 % 1.19 %
Return on average equity . . . . . . . . . . . 9.95 % 8.52 % 8.96 % 8.36 %
Interest rate spread . . . . . . . . . . . . . 3.09 % 3.28 % 3.11 % 3.25 %
Net interest margin . . . . . . . . . . . . .. 3.85 % 4.03 % 3.88 % 4.00 %
Noninterest expense to average assets . . . .. 1.99 % 2.29 % 2.20 % 2.28 %
Net charge-offs to average outstanding loans . -- % 0.01 % -- % 0.06 %
June 30 September 30
1998 1997
--------- -----------
(DOLLARS IN THOUSANDS)
(Unaudited)
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . $328 $518
Repossessed real estate . . . . . . . . . . . . . . . .. -- 212
---- ---
Total nonperforming assets . . . . . . . . . . . . . . . $328 $730
==== ====
Allowance for credit losses to nonperforming assets . .. 232.93 % 92.88 %
Nonperforming loans to total loans . . . . . . . . . . . 0.26 % 0.63 %
Nonperforming assets to total assets . . . . . . . . . . 0.21 % 0.52 %
Book value per share (2). . . . . . . . . . . . . . . .. $9.02 $8.59
===== =====
- --------------
(1) The ratios for the three- and nine-month periods are annualized
(2) All per share data has been adjusted to reflect the 2-for-1 stock dividend
paid June 15, 1998.
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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 June 30, 1998. From time to
time, the Corporation is a party to legal proceedings in the
ordinary course of business wherein it enforces its security
interest in loans.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit
Exhibit 27: Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
On May 29, 1998, the Corporation filed a Form 8-K
announcing Board authorization to repurchase up to 5% of
its outstanding Common Stock. In addition, the Corporation
announced a two for one stock split in the form of a 100%
stock dividend.
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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: August 12, 1998 By: /s/ Harold K. Neal
---------------------------------
Harold K. Neal
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1998 By: /s/ James W. Smith
---------------------------------
James W. Smith
Vice President and Treasurer
(Principal Accounting and
Financial officer)
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