Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the period ended SEPTEMBER 30, 1999
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-24033
NASB FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1805201
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12498 South 71 Highway, Grandview, Missouri 64030
(Address of principal executive offices) (Zip Code)
(816) 765-2200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.15 par value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[ ]Yes [X] No
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, based on the asking price of its Common
Stock on December 15, 1999, was approximately $107.0 million.
As of December 15, 1999, there were issued and outstanding
8,914,438 shares of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Part II - Annual report to Stockholders for the Fiscal Year Ended
September 30, 1999.
2. Part III - Proxy Statement for the 2000 Annual Meeting of
Stockholders.
PART I
ITEM 1. BUSINESS
General Description
NASB Financial, Inc. (the "Company") was formed in 1998 as a
unitary thrift holding company of North American Savings Bank, F.S.B.
("North American" or the "Bank"). The Bank is a federally chartered
stock savings bank, with its headquarters in the Kansas City area. The
Bank began operating in 1927, and became a member of the Federal Home
Loan Bank ("FHLB") of Des Moines in 1940. Its customer deposit
accounts are insured by the Savings Association Insurance Fund
("SAIF"), a division of the Federal Deposit Insurance Corporation
("FDIC"). The Bank converted to a stock form of ownership in
September, 1985.
The Bank's market area includes the counties of Jackson, Cass,
Clay, Buchanan, Andrew, and Lafayette in Missouri, and Johnson and
Wyandotte counties in Kansas. The Bank currently has eight customer
deposit offices including one in Leawood, Kansas, and one each in
Grandview, Lee's Summit, Independence, Harrisonville, Gladstone, and St.
Joseph in Missouri. North American also operates loan production
offices in Lee's Summit, St. Louis, St. Charles and Springfield in
Missouri, in Swansea, Illinois, Des Moines, Iowa, and Topeka and
Overland Park in Kansas. The economy of the Kansas City area is
diversified with major employers in agribusiness, greeting cards,
automobile production, transportation, telecommunications, and
government.
The Bank's principal business is to attract deposits from the
general public and to originate real estate loans, other loans and
short-term investments. The Bank obtains funds mainly from deposits
received from the general public, sales of loans and loan
participations, advances from the FHLB and other borrowings, and
principal repayments on loans and mortgage-backed securities ("MBS").
The Bank's primary sources of income include interest on loans, interest
on MBS, customer service fees, and mortgage banking fees. Its primary
expenses are interest payments on customer deposit accounts and
borrowings and normal operating costs.
YEAR-END WEIGHTED AVERAGE YIELDS AND RATES
The following table presents the year-end balances of interest-
earning assets and interest-costing liabilities with weighted average
yields and rates. Balances and weighted average yields include all
accrual and non-accrual loans. Dollar amounts are expressed in
thousands.
As of 9/30/99
----------------------
Yield/
Balance Rate
----------------------
Interest-earning assets:
Loans $ 749,572 8.28%
Mortgage-backed securities 29,083 6.04%
Investments 13,317 7.49%
Bank deposits 7,317 4.86%
----------------------
Total earning assets 799,289 8.15%
Non-earning assets 26,448 ---------
-----------
Total $ 825,737
===========
Interest-costing liabilities:
Customer deposit accounts $ 565,463 4.83%
FHLB advances 168,088 5.51%
Other borrowings 150 7.50%
----------------------
Total costing liabilities 733,701 4.99%
Non-costing liabilities 13,355 ---------
Stockholders' equity 78,681
-----------
Total $ 825,737
===========
Net earning balance $ 65,588
===========
Earning yield less costing rate 3.16%
=========
As of 9/30/98
----------------------
Yield/
Balance Rate
----------------------
Interest-earning assets:
Loans $ 658,357 8.09%
Mortgage-backed securities 41,689 6.57%
Investments 13,170 7.81%
Bank deposits -- --
----------------------
Total earning assets 713,216 7.99%
Non-earning assets 22,838 ---------
-----------
Total $ 736,054
===========
Interest-costing liabilities:
Customer deposit accounts $ 545,504 5.04%
FHLB advances 109,210 5.77%
Other borrowings 200 7.50%
----------------------
Total costing liabilities 654,914 5.16%
Non-costing liabilities 11,307 ---------
Stockholders' equity 69,833
-----------
Total $ 736,054
===========
Net earning balance $ 58,302
===========
Earning yield less costing rate 2.83%
=========
As of 9/30/97
----------------------
Yield/
Balance Rate
----------------------
Interest-earning assets:
Loans $ 636,742 8.16%
Mortgage-backed securities 51,279 7.16%
Investments 22,152 6.80%
Bank deposits 513 5.31
----------------------
Total earning assets 710,686 8.05%
Non-earning assets 22,778 ---------
-----------
Total $ 733,464
===========
Interest-costing liabilities:
Customer deposit accounts $ 520,544 5.29%
FHLB advances 143,226 6.03%
Other borrowings 1,680 6.22%
----------------------
Total costing liabilities 665,450 5.45%
Non-costing liabilities 8,818 ---------
Stockholders' equity 59,196
-----------
Total $ 733,464
===========
Net earning balance $ 45,236
===========
Earning yield less costing rate 2.60%
=========
1
<PAGE>
RATIOS
The following table sets forth, for the periods indicated, the
Company's return on assets (net income divided by average total assets),
return on equity (net income divided by average equity), and equity-to-
assets ratio (average equity divided by average total assets).
Year ended September 30,
---------------------------------------
1999 1998 1997 1996 1995
---------------------------------------
Return on average assets 1.65% 1.85% 1.53% 1.14% 1.41%
Return on average equity 17.37% 21.06% 20.07% 15.89% 20.05%
Equity to asset ratio 9.53% 8.78% 8.07% 7.19% 7.04%
Dividend payout ratio 21.11% 15.63% 15.38% 17.51% 10.15%
The following table sets forth the amount of cash dividends per
share paid on the Company's common stock during the months indicated.
Calendar year
-----------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------
February $ 0.08 0.0625 0.05 0.0390625 0.03125
May 0.08 0.0625 0.05 0.0390625 0.03125
August 0.08 0.0625 0.05 0.0390625 0.03125
November 0.08 0.0625 0.05 0.0390625 0.03125
ASSET ACTIVITIES
LENDING ACTIVITIES
The Bank, like most other savings institutions, has traditionally
concentrated its lending activities on mortgage loans secured by
residential property and, to a lesser extent, commercial property. The
residential mortgage loan originations have predominantly long-term
fixed and adjustable rates. The Bank also has a portfolio of mortgage
loans that are secured by multifamily, construction, development, and
commercial real estate properties. The remaining part of North
American's loan portfolio consists of non-mortgage commercial loans and
installment loans. The following table presents the Bank's total loans
receivable, held for investment plus held for sale, for the periods
indicated. The related discounts, premiums, deferred fees and loans-in-
process accounts are excluded. Dollar amounts are expressed in
thousands.
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
Amount Pct. Amount Pct. Amount Pct. Amount Pct. Amount Pct.
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Permanent Loans on:
Residential properties $ 430,635 50 455,503 61 450,240 64 427,458 64 343,659 67
Business properties 153,549 18 79,460 11 92,477 13 102,286 15 87,187 17
Partially guaranteed by VA or
insured by FHA 34,945 4 25,533 3 25,790 4 49,308 7 12,269 2
Construction and development 197,041 23 150,729 20 102,131 14 62,881 10 38,459 8
------------- ------------ ------------ ------------ ------------
Total mortgage loans 816,170 95 711,225 95 670,638 95 641,933 96 481,574 94
Commercial loans 4,335 -- 7,225 1 10,973 2 14,668 2 21,444 4
Installment loans to individuals 41,737 5 28,524 4 22,071 3 12,305 2 9,177 2
------------- ------------ ------------ ------------ ------------
$ 862,242 100 746,974 100 703,682 100 668,906 100 512,195 100
============= ============ ============ ============ ============
</TABLE>
2
<PAGE>
The following table sets forth information at September 30, 1999,
regarding the dollar amount of loans maturing in the Bank's portfolio
based on their contractual terms to maturity. Demand loans, which have
no stated schedule of repayment and no stated maturity, are reported as
due in one year or less. Scheduled repayments are reported in the
maturity category in which the payment is due. As of September 30,
1999, net real estate loans totaled 85% of the Bank's assets. Dollar
amounts are expressed in thousands.
2001
Through After
2000 2004 2005 Total
------------------------------------------
Mortgage Loans:
Permanent:
- at fixed rates $ 3,006 14,996 281,945 299,947
- at adjustable rates 1,464 4,536 313,182 319,182
Construction and development:
- at fixed rates 7,687 9,477 3,065 20,229
- at adjustable rates 139,022 33,990 3,800 176,812
------------------------------------------
Total mortgage loans 151,179 62,999 601,992 816,170
Commercial loans 554 89 3,692 4,335
Installment loans to
Individuals 3,392 10,788 27,557 41,737
------------------------------------------
Total loans receivable $155,125 73,876 633,241 862,242
==========================================
RESIDENTIAL REAL ESTATE LOANS
The Bank offers a range of residential loan programs. At September
30, 1999, approximately 54% of total loans receivable were permanent
loans on residential properties. Also, the Bank is authorized to
originate loans guaranteed by the Veteran's Administration ("VA") and
loans insured by the Federal Housing Administration ("FHA"). As of
September 30, 1999, approximately $34.9 million or 4% of the Bank's
total loans were insured by the FHA or VA.
The Bank's residential loans come from several sources. The loans
that the Bank originates are generally a result of direct solicitations
of real estate brokers, builders, or developers. North American
periodically purchases real estate loans from other savings institutions
or mortgage bankers. Loan originations and purchases must be approved
by various levels of management and, depending on the loan amount, are
subject to ratification by the Board of Directors.
At the time a potential borrower applies for a single family
residential mortgage loan, it is designated as either a portfolio loan,
which is held for investment and carried at amortized cost, or a loan
held-for-sale in the secondary market and carried at the lower of cost
or fair value. All the loans on single family property that the Bank
holds for sale conform to secondary market underwriting criteria
established by the Federal Home Loan Mortgage Corporation ("FHLMC")
and the Federal National Mortgage Association ("FNMA"). All loans
originated, whether held for sale or held for investment, conform to
internal underwriting guidelines, which consider a property's loan-to-
value ratio and the borrower's ability to repay the loan.
CONSTRUCTION AND DEVELOPMENT LOANS
Construction and land development loans are offered to
owner/occupants, to persons building a residence for seasonal use or for
investment purposes, and to builders/developers who build properties to
be sold. As of September 30, 1999, approximately 23% of the Bank's
total loans receivable were construction and development loans.
Construction loans are originated at interest rates that adjust daily
based on a pre-determined percentage above the prime lending rate. Most
construction loans are due and payable within one year or else converted
to a permanent loan. In some cases extensions are permitted if payments
are current and the construction has continued satisfactorily. Land
acquisition and development loans for the purpose of developing raw land
into residential or commercial property typically have three-year terms
at floating interest rates.
3
<PAGE>
The Bank's requirements for a construction loan are similar to
those of a mortgage on an existing residence. In addition, the borrower
must submit accurate plans, specifications, and cost projections of the
property to be constructed. North American's staff performs periodic
inspections of each property during construction to ensure adequate
progress is achieved before scheduled loan disbursements are made.
COMMERCIAL REAL ESTATE LOANS
The Bank purchases and originates several different types of
commercial real estate loans. As of September 30, 1999, commercial real
estate loans on business properties were $153.5 million or 18% of the
Bank's total loan portfolio. Permanent multifamily mortgage loans on
properties of 5 to 36 dwelling units have a 50% risk-weight for risk-
based capital requirements if they have an initial loan-to-value ratio
of not more than 80% and if their annual average occupancy rate exceeds
80%. All other performing commercial real estate loans have 100% risk-
weights.
CONSUMER LOANS
As of September 30, 1999, consumer installment loans and lease
financing to individuals represented approximately 5% of loans
receivable. These loans consist primarily of loans on savings accounts
and consumer lines of credit that are secured by a customer's equity in
their primary residence. During fiscal 1997, the Bank began offering
more traditional consumer loan products in an effort to provide a wider
range of banking products to its customers.
SALES OF MORTGAGE LOANS
The Bank is an active seller of loans in the national secondary
mortgage market. A portion of loans originated are sold to various
investors along with the rights to service the loans (servicing
released). Another portion are originated for sale with loan servicing
rights kept by the Bank (servicing retained). At the time of each loan
commitment, management decides if the loan will be held in portfolio or
sold and, if sold, which investor is appropriate. During fiscal 1999,
the Bank sold $108.9 million in loans with servicing released.
The Bank records loans held for sale at the lower of cost or
estimated fair value, and any adjustments made to record them at
estimated fair value are made through the income statement. As of
September 30, 1999, the Bank had loans held for sale with a carrying
value of $92.2 million, which included $0.4 million in commercial
residential loans that are insured by the FHA. The Bank holds options
to put these loans back to the FHA during specified periods in the
future. Management plans to exercise the options if future market
conditions are favorable, which precludes management's intention to hold
them to maturity.
CLASSIFIED ASSETS, DELINQUENCIES, AND ALLOWANCE FOR LOSS
Classified Assets. In accordance with the asset classification
system outlined by the Office of Thrift Supervision ("OTS"), North
American's problem assets are classified as either "substandard,"
"doubtful," or "loss."
An asset is considered substandard if it is inadequately protected
by the borrower's current net worth, the borrower's ability to repay, or
the value of collateral. Substandard assets include those characterized
by the distinct possibility that the insured institution will sustain
some loss if the deficiencies are not corrected. Assets classified as
doubtful have the same weaknesses of those classified as substandard
with the added characteristic that the weaknesses present make
collection or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Assets classified as loss are considered uncollectible and of such
little value that their existence without establishing a specific loss
reserve is not warranted.
When the Bank classifies a problem asset, it establishes a specific
loss allowance needed to reduce its book value to the present value of
the expected future cash flows discounted at the loan's initial
effective interest rate, or as a practical expedient, to the loan's
observable market price or the fair value of the collateral, if the loan
is dependent on collateral. In addition, general valuation allowances
("GVA") are established by management. GVA represents allowances that
recognize inherent risks associated with lending activities but have not
yet been allocated to particular assets. When the Bank classifies all
or part of problem assets as loss, it establishes a specific loss
allowance equal to 100% of the loss classification. The OTS reviews
North American's asset classification during each examination and can
require changes to asset classifications, specific loss allowances, GVA,
and loan loss provision.
4
<PAGE>
Each month, management reviews the problem loans in its portfolio
to determine whether changes to the asset classifications or allowances
are needed. The following table summarizes the Bank's classified
assets. Dollar amounts are expressed in thousands.
As of September 30,
-----------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------
Asset Classification
Substandard $ 12,287 10,772 10,263 9,482 8,844
Doubtful -- 8 12 15 17
Loss 2,738 1,956 2,944 2,967 2,716
-----------------------------------------
Total Classified 15,025 12,736 13,219 12,464 11,577
Allowance for loan/REO
Losses (7,960) (7,701) (7,952) (7,551) (7,060)
-----------------------------------------
Net classified assets $ 7,065 5,035 5,267 4,913 4,517
=========================================
Net classified to total
classified assets 47% 40% 40% 39% 39%
When a loan becomes 90 days past due, the Bank stops accruing
interest and establishes a reserve for the interest accrued-to-date.
The following table summarizes non-performing assets, troubled debt
restructurings, and real estate acquired through foreclosure or in-
substance foreclosure. Dollar amounts are expressed in thousands.
September 30,
1999 1998 1997 1996 1995
------------------------------------------
Total Assets $ 825,797 736,054 733,464 711,088 641,838
Non-accrual loans $ 4,074 3,854 3,679 3,303 985
Troubled debt
Restructurings 4,004 6,031 10,051 11,766 14,312
Net real estate and
other assets acquired
through foreclosure 2,702 3,232 4,184 4,377 4,462
------------------------------------------
Total $ 10,780 13,117 17,914 19,446 19,759
==========================================
Percent of total assets 1.31% 1.78% 2.44% 2.73% 3.08%
==========================================
Delinquencies. The following table summarizes delinquent loan
information.
As of September 30, 1999
- -----------------------------------------------------------------------
Number of Percent of
Loans delinquent for Loans Amount Total Loans
- -----------------------------------------------------------------------
30 to 89 days 162 $ 4,957 0.6%
90 or more days 73 3,978 0.5%
----------- -----------------------------
Total 235 $ 8,935 1.1%
=========== =============================
As of September 30, 1998
- -----------------------------------------------------------------------
Number of Percent of
Loans delinquent for Loans Amount Total Loans
- -----------------------------------------------------------------------
30 to 89 days 86 $ 4,848 0.7%
90 or more days 48 3,854 0.6%
----------- -----------------------------
Total 134 $ 8,702 1.3%
=========== =============================
5
<PAGE>
The effect of non-performing loans on interest income for fiscal
year 1999 is presented below. Dollar amounts are expressed in
thousands.
Principal amount of non-performing loans
as of September 30, 1999 $ 4,074
========
Gross amount of interest income that would
have been recorded during fiscal 1999 if
these loans had been performing $ 373
Actual amount included in interest income for
fiscal 1999 125
--------
Interest income not recognized on non-performing
loans $ 248
========
Allowance for loss. Management records a provision for estimated
loan losses in an amount sufficient to cover current net charge-offs and
potential future losses based on an analysis of risks inherent in the
loan portfolio. Management continually monitors the performance of the
loan portfolio and establishes specific loss allowances when warranted.
Specifically, when it appears that a property and borrower are no longer
capable of full repayment, management establishes a specific loss
allowance to reduce the loan's book value to fair value based on the
anticipated results of collections. In addition, management establishes
a GVA through charges to the provision for loan loss based on an
assessment of the portfolio's credit risk, other than specifically
identified problem loans. Management attempts to maintain a GVA
proportionate to the level of risk in the Bank's performing loan
portfolio.
The following table sets forth the activity in the allowance for
loan losses. Dollar amounts are expressed in thousands.
September 30,
-----------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------
Balance at beginning of year $ 6,405 6,272 5,836 5,484 6,285
Total provisions 300 64 477 633 (749)
Recoveries (charge-offs) (34) 69 (41) (281) (52)
-----------------------------------------
Balance at end of year $ 6,671 6,405 6,272 5,836 5,484
=========================================
The following table is a summary of quarterly loss provisions for
the years ended September 30. Dollar amounts are expressed in
thousands.
1999 1998
---------------------
1st quarter provision $ 75 6
2nd quarter provision 75 308
3rd quarter provision 75 75
4th quarter provision 75 (325)
---------------------
Total $ 300 64
=====================
During the fourth quarter of fiscal 1998, management booked a
recovery of losses on loans after a periodic analysis of the Bank's GVA
on loans showed the Bank to be over reserved. The excess GVA was
accumulated as a result of several recoveries on residential loans
during that quarter.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE
The Bank's staff attempts to contact borrowers who fail to make
scheduled payments, generally after a payment is more than 15 days past
due. In most cases, delinquencies are cured promptly. If a delinquency
exceeds 90 days, North American will implement measures to remedy the
default, such as accepting a voluntary deed for the property in lieu of
foreclosure or commencing a foreclosure action. If a foreclosure
occurs, the property is classified as real estate owned ("REO") until
the property is sold. North American sometimes finances the sale of
foreclosed real estate ("loan to facilitate"). Loans to facilitate
may involve a reduced down payment, a reduced rate, or a longer term
than the Bank's typical underwriting standards.
6
<PAGE>
If a loan has a specific loss reserve at the time it is foreclosed,
the specific reserve is netted against the loan balance in recording the
foreclosed loan as REO. Management records a provision for losses on
REO when, subsequent to foreclosure, the estimated net realizable value
of a repossessed asset declines below its book value. The following
table sets forth activity in the allowance for loss on REO. Dollar
amounts are expressed in thousands.
September 30,
-----------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------
Beginning allowance for loss $ 1,336 1,680 1,715 1,576 1,574
Provisions -- (1,987) (172) 3 203
Net recoveries (charge-offs) (47) 1,643 137 136 (201)
-----------------------------------------
Allowance for loss at year-end $ 1,289 1,336 1,680 1,715 1,576
=========================================
SECURITIES AND MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
In accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," management classifies debt
securities as available for sale if the Bank does not have the intention
and ability to hold it until maturity. Assets available for sale are
carried at estimated fair value, with all fair value adjustments
recorded in a separate component of stockholders' equity. The Bank does
not actively trade in derivative financial instruments and management
does not currently use derivative financial instruments for interest
rate risk management or to accomplish any hedging strategies.
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The Bank's MBS portfolio consists primarily of securities issued by
the FHLMC, FNMA, and Government National Mortgage Association
("GNMA"). As of September 30, 1999, the Bank had $3.3 million in
fixed rate and $5.5 million in balloon and adjustable rate mortgage-
backed securities ("MBS") issued by these agencies. The Bank also had
$1.1 million in CMO bonds and $4.5 million in other asset-backed
securities held to maturity.
INVESTMENT SECURITIES
As of September 30, 1999, the Bank held no investment security from
a single issuer for which the market value exceeded 10% of the Bank's
stockholders' equity.
SOURCE OF FUNDS
In addition to customer deposits, the Bank obtains funds from loan
and MBS repayments, sales of loans held-for-sale and securities
available-for-sale, investment maturities, FHLB advances, and other
borrowings. Loan repayments, as well as the availability of customer
deposits, are influenced significantly by the level of market interest
rates. Borrowings may be used to compensate for insufficient customer
deposits or to support expanded loan and investment activities.
CUSTOMER DEPOSITS
The following table sets forth the composition of various types of
customer deposit accounts. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Amount Pct. Amount Pct. Amount Pct. Amount Pct. Amount Pct.
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Account and Rate:
Demand deposit accounts $ 57,987 10 60,803 11 51,934 10 43,073 8 48,919 9
Savings accounts 85,758 15 78,991 14 70,457 13 63,495 11 54,438 10
Money market demand accounts 7,004 1 8,276 2 9,723 2 19,560 4 19,183 4
Certificates of deposit 414,714 74 397,434 73 388,430 75 373,503 77 407,088 77
------------- ------------ ------------ ------------ ------------
$ 565,463 100 545,504 100 520,544 100 499,631 100 529,628 100
============= ============ ============ ============ ============
Weighted average interest rate 4.83% 5.04% 5.29% 5.29% 5.49%
</TABLE>
7
<PAGE>
The following table presents the deposit activities at the Bank.
Dollar amounts are expressed in thousands.
For the years ended September 30,
-------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------
Deposit receipts $ 741,718 582,168 540,220 473,035 586,266
Withdrawals 744,325 576,831 537,489 485,992 557,424
-------------------------------------------------
Deposit receipts
and purchases in
Excess of (less
than) withdrawals (2,607) 5,337 2,731 (12,957) 28,842
Deposits sold -- -- -- (36,225) --
Interest credited 22,566 19,623 18,182 19,185 17,119
-------------------------------------------------
Net increase
(decrease) $ 19,959 24,960 20,913 (29,997) 45,961
=================================================
Balance at end
of year $ 565,463 545,504 520,544 499,631 529,628
=================================================
Customers who wish to withdraw certificates of deposit prior to
maturity are subject to a penalty for early withdrawal.
FHLB ADVANCES AND OTHER BORROWINGS
FHLB advances are an important source of borrowing for North
American. The FHLB functions as a central reserve bank providing credit
for thrifts and other member institutions. As a member of the FHLB,
North American is required to own stock in the FHLB of Des Moines and
can apply for advances, collateralized by the stock and certain types of
residential mortgages, provided that certain standards related to
credit-worthiness are met.
The Bank has historically relied on customer deposits and loan
repayments as its primary sources of funds. Advances are sometimes used
as a funding supplement, particularly when management determines that it
can profitably invest the advances over their term. During fiscal 1999,
the Bank borrowed an additional $259 million in advances and as of
September 30, 1999, had a balance of $168.1 million (23% of total
liabilities) of advances from the FHLB.
The following table presents, for the periods indicated, certain
information as to the Bank's advances from the FHLB and other
borrowings. Dollar amounts are expressed in thousands.
As of September 30,
--------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------
FHLB advances $ 168,088 109,210 143,226 145,242 50,258
Other notes payable 150 200 1,680 1,565 1,690
--------------------------------------------------
Total $ 168,238 109,410 144,906 146,807 51,948
==================================================
Weighted average
rate 5.51% 5.77% 6.03% 6.00% 6.63%
==================================================
As of September 30, 1999, the Bank had no category of short-term
borrowings for which the average balance outstanding during the year was
more than stockholders' equity.
OTHER ACTIVITIES
SERVICE CORPORATION ACTIVITIES
The Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA") substantially limits the types of service corporation
activities permissible by the Bank. North American's service
corporation, Nor-Am, was incorporated in 1972. Nor-Am sells tax-
deferred annuities and mutual funds through the Bank's branch offices
and credit life and disability insurance to loan customers.
8
<PAGE>
OTHER INFORMATION
EMPLOYEES
As of September 30, 1999, the Bank and its subsidiaries had 322
employees. Management considers its relations with the employees to be
excellent.
The Bank currently maintains a comprehensive employee benefit
program including a qualified pension plan, hospitalization and major
medical insurance, paid vacations, paid sick leave, long-term disability
insurance, life insurance, and reduced loan fees for employees who
qualify. The Bank's employees are not represented by any collective
bargaining group.
COMPETITION
The Bank, like other savings institutions, is operating in a
changing environment. Non-depository financial service companies such
as securities dealers, insurance agencies, and mutual funds have become
competitors for retail savings and investments. In addition to offering
competitive interest rates, a savings institution can attract customer
deposits by offering a variety of services and convenient office
locations and business hours. Mortgage banking/brokerage firms compete
for the residential mortgage business. The primary factors in competing
for loans are interest rates and rate adjustment provisions, loan
maturity, loan fees, and the quality of service to borrowers and
brokers.
REGULATION
GENERAL
Federal savings institutions are members of the FHLB System and
their deposits are insured by the SAIF, a division of the Federal
Deposit Insurance Corporation ("FDIC"). They are subject to extensive
regulation by the OTS as the chartering authority and now, since the
passage of the FIRREA, the FDIC. SAIF insured institutions are limited
in the transactions in which they may engage by statute and regulation,
which in certain instances may require an institution to conform with
regulatory standards or to receive prior approval from regulators.
Institutions must also file periodic reports with these government
agencies regarding their activities and their financial condition. The
OTS and FDIC make periodic examinations of the Bank to test compliance
with the various regulatory requirements. If it is deemed appropriate,
the FDIC can require a re-valuation of the Bank's assets based on
examinations and they can require the Bank to establish specific
allowances for loss that reflect any such re-valuation. This
supervision and regulation is intended primarily for the protection of
depositors. Savings institutions are also subject to certain reserve
requirements under Federal Reserve Board regulations.
The enforcement provisions of the Federal Deposit Insurance Act
("FDI Act") are applicable to savings institutions and savings and
loan holding companies. While the OTS is primarily responsible for
enforcing those provisions, the FDIC also has authority to impose
enforcement action on savings institutions in certain situations. The
jurisdiction of the FDI Act's enforcement powers cover all "insured-
related parties" including stockholders, attorneys, appraisers and
accountants who knowingly or recklessly participate in wrongful action
likely to have an adverse effect on an insured institution. Regulators
have broad flexibility to impose enforcement action on an institution
that fails to comply with its regulatory requirements, particularly with
respect to the capital requirements. Possible enforcement action ranges
from requiring a capital plan, restricting operations, or terminating
deposit insurance. The FDIC can recommend to the director of the OTS
(the "Director") enforcement action, and if action is not taken by the
Director, the FDIC has the authority to compel such action under certain
circumstances.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
("FDICIA")
Key provisions of FDICIA allow the Bank Insurance Fund ("BIF") of
the FDIC to increase its borrowing from the Treasury Department. The
BIF can also borrow up to 90% of the fair market value of its assets to
provide working capital. These borrowed funds will be repaid from
assessments on the banking industry.
The FDICIA required the FDIC to formulate safety and soundness
standards, effective December 31,1993. The standards address matters
such as underwriting and documentation standards, internal controls and
audit systems, interest rate risk, and compensation and other employee
benefits.
9
<PAGE>
FEDERAL HOME LOAN BANKING SYSTEM
The Bank is a member of the FHLB System, which consists of 12
regional Federal Home Loan Banks each subject to OTS supervision and
regulation. The FHLBs provide a central credit facility for member
institutions. The Bank, as a member of the FHLB of Des Moines, is
required to hold shares of capital stock of the FHLB in an amount equal
to at least 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or 1/20 of its advances from
the FHLB of Des Moines, whichever is greater. The Bank complies with
this requirement and holds stock in the FHLB of Des Moines at September
30, 1999, of $8.4 million. FHLB advances must be secured by specified
types of collateral. Also, standards of community investment and
community service must be met by members that apply for FHLB advances.
LIQUIDITY
As a member of the FHLB System, the Bank is required to maintain an
average balance of liquid assets equal to a monthly average of not less
than a specified percentage of its net withdrawable deposit accounts
plus short-term borrowings. This liquidity requirement, which is
currently 5%, may be changed from time to time by the OTS to an amount
within the range of 4% to 10%, depending on economic conditions and the
savings flows of member banks. Federal regulations also require each
member institution to maintain an average daily balance of short-term
liquid assets at a specified percentage (currently 1%) of the total of
its net withdrawable savings accounts and borrowings payable in one year
or less. Monetary penalties may be imposed for failure to meet
liquidity requirements. The Bank's average liquidity for the month of
September 1999 was 11.5%.
INSURANCE ON CUSTOMER DEPOSIT ACCOUNTS
The SAIF insures the Bank's deposit accounts to a maximum of
$100,000 for each insured member. Deposit premiums are determined using
a Risk-Related premium Schedule ("RRPS"), a matrix which places each
insured institution into one of three capital groups and one of three
supervisory subgroups. The capital groups are an objective measure of
risk based on regulatory capital calculations and include well
capitalized, adequately capitalized, and undercapitalized. The
supervisory subgroups (A, B, and C) are more subjective and are
determined by the FDIC based on recent regulatory examinations. Member
institutions are eligible for reclassification every six months.
On September 30, 1996, the Deposit Insurance Funds Act of 1996
("Funds Act") was signed into law. The Funds Act outlined a one-time
assessment of 65.7 basis points of insured deposits, which was used to
increase the SAIF to 1.25% of total insured deposits. Beginning January
1, 1997, annual deposit insurance premiums range from 0 to 27 basis
points of insured deposits based on where an institution fits on the
RRPS. North American is considered to be "well capitalized" and has
been placed in the most favorable capital subgroup. In addition to
deposit insurance premiums, SAIF-insured institutions are currently
assessed a premium of 0.059% of insured deposits, which is used to
service the interest on the Financing Corporation ("FICO") debt.
The FDIC has authority to conduct examinations of, require
reporting of, and initiate enforcement actions against a thrift.
Regardless of an institution's capital level, insurance of deposits may
be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS.
REGULATORY CAPITAL REQUIREMENTS
Regulations require that thrifts maintain minimum levels of
regulatory capital, which are at least as stringent as those imposed on
national banks by the Office of the Comptroller of the Currency
("OCC").
Leverage Limit. The leverage limit requires that a thrift maintain
"core capital" of at least 4% of its adjusted tangible assets.
"Core capital" includes (i) common stockholders' equity, including
retained earnings; non-cumulative preferred stock and related earnings;
and minority interest in the equity accounts of consolidated
subsidiaries, minus (ii) those intangibles (including goodwill) and
investments in and loans to subsidiaries not permitted in computing
capital for national banks, plus (iii) certain purchased mortgage
servicing rights and certain qualifying supervisory goodwill. At
September 30, 1999, the Bank had no supervisory goodwill and none of the
Bank's servicing rights were deducted from its regulatory capital. At
September 30, 1999, the Bank's core capital ratio was 9.0%
10
<PAGE>
Tangible Capital Requirement. The tangible capital requirement
mandates that a thrift maintain tangible capital of at least 1.5% of
tangible assets. For the purposes of this requirement, adjusted total
assets are generally calculated on the same basis as for the leverage
ratio requirement. Tangible capital is defined in the same manner as
core capital, except that all goodwill and certain other intangible
assets must be deducted. As of September 30, 1999, North American's
regulatory tangible capital was 8.8% of tangible assets.
Risk-Based Capital Requirement. The OTS's standards require that
institutions maintain risk-based capital equal to at least 8% of risk-
weighted assets. Total risk-based capital includes core capital plus
supplementary capital. In determining risk-weighted assets, all assets
including certain off-balance-sheet items are multiplied by a risk
weight factor from 0% to 100%, based on risk categories assigned by the
OTS. The RRPS categorizes bank risk-based capital ratio over 10% as
well capitalized, 8% to 10% as adequately capitalized, and under 8% as
undercapitalized. As of September 30, 1999, the Bank's current risk-
based regulatory capital was 13.3% of risk-weighted assets.
Interest Rate Risk Rule. The OTS has adopted a rule, which
requires that thrifts with a "greater than normal" level of interest
rate exposure to deduct amounts from their total capital for the purpose
of calculating the risk-based capital requirement. The deduction is an
amount equal to one-half of the difference between an institution's
measured exposure and the "normal" exposure level (i.e., 2% of the
estimated economic value of the institution's assets). The rule
measures interest rate risk as the decline in Net Portfolio Value that
would result from a 200 basis point increase or decrease in market
interest rates. The rule sets forth a description of valuation
methodologies for assets, liabilities, and off-balance sheet items.
Although the interest rate component was originally scheduled to become
effective by December 31, 1994, the OTS has notified institutions to
delay implementation until further notice.
OTS ASSESSMENTS
The OTS has a sliding scale assessment formula to provide funding
for its operations. Troubled savings associations are charged a
"premium assessment" at a rate of 50% higher than non-troubled savings
associations at the same level of assets. Non-troubled institutions are
charged "general assessments." The changes in assessment fees reflect
the increased supervisory attention that troubled institutions require
from the OTS, which in turn increases the cost of regulation and
examinations.
EQUITY RISK INVESTMENTS
OTS regulations limit the aggregate amount that an insured
institution may invest in real estate, service corporations, equity
securities, and nonresidential construction loans and loans with loan-
to-value ratios greater than 80%. Under the regulations, savings
associations which meet their minimum regulatory capital requirements
and have tangible capital of less than 6% of total liabilities may make
aggregate equity risk investments equal to the greater of 3% of assets
or two and one-half times their tangible capital. Savings associations
that meet their minimum regulatory capital requirements and have
tangible capital equal to or greater than 6% of total liabilities may
make aggregate equity risk investments of up to three times their
tangible capital.
LOANS TO ONE BORROWER
FIRREA prohibits an institution from investing in any one real
estate project in an amount in excess of the applicable loans-to-one-
borrower limit, which is an amount equal to 15% of unimpaired capital on
an unsecured basis and an additional amount equal to 10% of unimpaired
capital and surplus if the loan is secured by certain readily marketable
collateral. Renewals that exceed the loans-to-one-borrower limit are
permissible if the original borrower remains liable for the debt and no
additional funds are disbursed. As of September 30, 1999, North
American had no loans that exceeded its loans-to-one-borrower limit.
INVESTMENT IN SUBSIDIARIES
Investments in and extensions of credit to subsidiaries not engaged
in activities permissible for national banks must generally be deducted
from capital. As of September 30, 1999, the Bank did not have any
investments in or advances to subsidiaries engaged in activities not
permissible for national banks.
11
<PAGE>
FEDERAL RESERVE SYSTEM
Regulations require that institutions maintain reserves of 3%
against transaction accounts up to a specified level and an initial
reserve of 10% against that portion of total transaction accounts in
excess of such amount. In addition, an initial reserve of 3% must be
maintained on non-personal time deposits, which include borrowings with
maturities of less than four years. Such reserves are non-interest
bearing. These percentages are subject to change by the Federal Reserve
Board. The balance maintained to meet these reserve requirements may
also be used to satisfy the liquidity requirements imposed by the OTS.
As of September 30, 1999, North American met its reserve requirements.
Savings institutions have authority to borrow from the Federal
Reserve Bank's "discount window," but only after exhausting all FHLB
sources of borrowing.
TAXATION
The Company is subject to the general applicable corporate tax
provisions of the Internal Revenue Code ("Code") and the Bank is
subject to certain additional provisions of the Code which apply to
savings institutions and other types of financial institutions. The
Company most recently underwent an examination by the IRS during fiscal
year 1996.
BAD DEBT RESERVES
Prior to October 1, 1996, the Bank was allowed a special bad debt
deduction for additions to tax bad debt reserves established for the
purpose of absorbing losses. This deduction was either based on an
institution's actual loss experience (the "experience method") or,
subject to certain tests relating to the composition of assets, based on
a percentage of taxable income ("percentage method"). Under the
percentage method, qualifying institutions generally deducted 8% of
their taxable income.
As a result of changes in the Federal tax code, the Bank's bad debt
deduction for the year ended September 30, 1999 and 1998, was based on
actual experience as the percentage method for additions to the tax bad
debt reserve has been eliminated. Under the new tax rules, thrift
institutions are required to recapture their accumulated tax bad debt
reserve, except for the portion that was established prior to 1988, the
"base-year". The recapture will be completed over a six-year phase-in
period. The phase-in period will be delayed for two years for
institutions who meet certain residential lending requirements. As of
September 30, 1999, North American had approximately $2 million
established as a tax bad debt reserve in the base-year, and zero tax bad
debt reserve after the base year. Distributing the Bank's capital in the
form of purchasing treasury stock has forced North American to recapture
its after base-year bad debt reserve prior to the phase-in period.
Management believes that accelerating the recapture is more than offset
by opportunity to buy treasury stock at lower average market prices.
MINIMUM TAX
For taxable years beginning after December 31, 1986, the
alternative minimum tax rate is 20%. The alternative minimum tax
generally applies to a base of regular taxable income plus certain tax
preferences and is payable to the extent such preferences exceed an
exemption amount.
STATE TAXATION
The Bank is subject to a special financial institution tax based on
7% of net income. This tax is in lieu of all other taxes on thrift
institutions except taxes on real estate, tangible personal property
owned by the Bank, contributions paid to the State unemployment
insurance fund, and sales/use taxes.
ITEM 2. PROPERTIES
North America's main office is located at 12498 South 71 Highway,
Grandview, Missouri. In addition to its main office, the Bank has 7
branch offices, 7 loan origination offices, and one customer service
office. Net book value of premises owned and leasehold improvement (net
of accumulated depreciation) at September 30, 1999, was approximately
$3.4 million.
12
<PAGE>
Date Owned/ Lease
Location Occupied Leased Expiration
- -----------------------------------------------------------------------
12498 South 71 Highway
Grandview, Missouri 1972 Owned
646 N, 291 Highway
Lees Summit, Missouri 1992 Leased November 2002
8501 North Oak Trafficway
Kansas City, Missouri 1994 Owned
920 North Belt
St. Joseph, Missouri 1979 Owned
3011-B North Belt
St. Joseph, Missouri 1999 Leased January 2004
8840 State Line Road
Leawood, Kansas 1994 Owned
2002 E Mechanic
Harrisonville, Missouri 1975 Owned
11221 E 23rd St.
Independence, Missouri 1990 Owned
12125-D Blue Ridge Extension
Grandview, Missouri 1990 Leased January 2000
949 NE Columbus
Lee's Summit, Missouri 1993 Leased November 2002
12900 Metcalf - Suite 140
Overland Park, Kansas 1996 Leased December 2001
1611 Des Peres Rd. - Suite 110
St. Louis, Missouri 1994 Leased February 2001
1014 Country Club Road
St. Charles, Missouri 1997 Leased February 2000
# 7 Executive Woods Ct.
Suite C
Swansea, Illinois 1999 Leased August 2002
11237 Nall Avenue
Leawood, Kansas 1997 Leased May 2002
5620 SW 29th Street
Topeka, Kansas 1998 Leased August 2001
3322 South Campbell - Suite W
Springfield, Missouri 1993 Leased August 2001
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions that arose in the
normal course of business. There are no legal proceedings to which the
Company or its subsidiaries is a party that would have a material impact
on its consolidated financial statements.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information appearing on page 39 of the 1999 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 6. Selected Financial Data
The information appearing on page 3 of the 1999 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information appearing on pages 4 through 11 in the 1999 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The information appearing on pages 12 through 35 of the 1999
Annual Report to Stockholders is incorporated herein by reference. See
Item 14 below for a list of the financial statements and notes so
incorporated.
ITEM 9. Change in and Disagreements with Accountants on Accounting and
Finance Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information appearing on pages 3 through 6 of the Company's
Proxy Statement for the 2000 Annual Meeting is incorporated herein by
reference.
ITEM 11. Executive Compensation
The information appearing on pages 5 through 6 of the Company's
Proxy Statement for the 2000 Annual Meeting is incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing on page 2 of the Company's Proxy
Statement for the 2000 Annual Meeting is incorporated herein by
reference.
ITEM 13. Certain Relationships and Related Transactions
The information appearing on page 9 of the Company's Proxy
Statement for the 2000 Annual Meeting s incorporated herein by
reference.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following consolidated financial statements of NASB Financial,
Inc. and the independent auditor's report thereon which appear in the
Company's 1999 Annual report to Stockholders ("Annual Report") have
been incorporated herein by reference to Item 8.
Consolidated Balance Sheets at September 30, 1999, and 1998 (Annual
Report - Page 12).
14
<PAGE>
Consolidated Statements of Income for the years ended September 30,
1999, 1998, and 1997 (Annual Report - Page 13).
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, 1998, and 1997 (Annual Report - Page 16).
Consolidated Statements of Cash Flows for the years ended September
30, 1999, 1998, and 1997 (Annual Report - Pages 14 and 15).
Notes to Consolidated Financial Statements (Annual Report - Pages
17 through 35).
Report of Independent Auditors (Annual Report - Page 36).
(2) Financial Statement Schedules.
Schedules are provided in the Consolidated Financial Statements.
(3) Exhibits.
Exhibit
Number
- ---------
2) Agreement and Plan of Merger by and among North American Savings
Bank, F.S.B., NASB Interim Savings Bank, F.S.B., and NASB Financial
Inc. Exhibit 2 to Form 8-K, dated April 15, 1998, and incorporated
herein by reference.
3) Federal Stock Savings Bank Charter and Bylaws. Exhibit 3 to Form
10-K for fiscal year ended September 30, 1992, dated December 27,
1992, and incorporated herein by reference.
3.1) Articles of Incorporation of NASB Financial, Inc. Exhibit 3.1 to
Form 8-K, dated April 15, 1998, and incorporated herein by
reference.
3.2) Bylaws of NASB Financial, Inc. Exhibit 3.2 to Form 8-K, dated April
15, 1998, and incorporated herein by reference.
10.1)Employees' Stock Option Plan and specimen copy of Option Agreement
entered into between the Company and the Plan participants.
(Exhibit 10.4 to Form 10-K for fiscal year ended September 30,
1986, dated December 26, 1986, and incorporated herein by
reference.)
10.2)Amended and Restated Retirement Income Plan for Employees of North
American Savings Bank dated September 30, 1988, dated December 20,
1988, and incorporated herein by reference).
*13) 1999 Annual Report to Stockholders.
22) Subsidiaries of the Registrant at September 30, 1999, listed on
page 1.
23) Proxy Statement of NASB Financial, Inc. for the 2000 Annual
Meeting of Stockholders filed with the SEC (certain portions of
such proxy Statement are incorporated herein by reference to page
numbers in the text of this report on Form 10-K).
* Filed Herewith
(b) Reports of Form 8-K.
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) 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.
NASB FINANCIAL, INC.
By: /s/ David H. Hancock
David H. Hancock
Chairman
Date: December 28, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on December 28, 1999, by the
following persons on behalf of the Registrant and in the capacities
indicated.
Signature Title
/s/ David H. Hancock Chairman (Chief Executive Officer)
David H. Hancock
/s/ Walter W. Pinnell President
Walter W. Pinnell
/s/ Keith B. Cox Chief Financial Officer
Keith B. Cox (Principal Accounting Officer)
/s/ Frederick V. Arbanas Director
Frederick V. Arbanas
/s/ Barrett Brady Director
Barrett Brady
/s/ Linda S. Hancock Director
Linda S. Hancock
/s/ W. Russell Welsh Director
W. Russell Welsh
/s/ James A. Watson Director
James A. Watson
16
<PAGE>
NASB FINANCIAL, INC.
1999 ANNUAL REPORT
- --------------------------------------------------------------------------
Contents
2 Letter to Shareholders
3 Selected Consolidated Financial and Other Data
4-11 Management's Discussion and Analysis of Financial Condition and
Results of Operations
12-35 Consolidated Financial Statements
36 Report of Independent Auditors
37 Summary of Unaudited Quarterly Operating Results
38 Listing of Directors and Officers
39 Branch Offices, Investor Information, Common Stock Prices
and Dividends
Financial Highlights
1999 1998 1997
----------------------------------------
(Dollars in thousands, except per share data)
For the year ended September 30:
Net interest income $ 30,455 27,849 24,777
Net income 12,900 13,586 11,071
Net income per share 1.43 1.52 1.23
Return on average assets 1.64% 1.85% 1.53%
Return on average equity 17.24% 21.06% 20.07%
At year end:
Assets $ 825,737 736,054 733,464
Loans 749,572 658,357 636,742
Customer deposit accounts 565,463 545,504 520,544
Stockholders' equity 78,681 69,833 59,196
Stockholders' equity to assets 9.53% 9.49% 8.07%
Book value per share $ 8.81 7.84 6.62
Selected year end information:
Stock price per share: Bid $ 10.375 12.500 12.750
Ask 10.500 13.750 13.625
1
<PAGE>
(LOGO)
December 20, 1999
Dear Shareholder:
As indicated by the summary on the following page, NASB Financial
experienced continued modest growth during the past year. While mortgage
markets remain vibrant in our areas, they also continue to be quite
competitive.
During 1999, we opened a second full-service office in St. Joseph,
Missouri, and mortgage origination offices in Des Moines, Iowa, Topeka,
Kansas, and Swansea, Illinois (E. St. Louis). The addition of the new
mortgage offices is a continuation of our focus on residential mortgage
lending. We also remain active in residential development and
construction lending, and commercial real estate lending.
As we enter the new millennium, we are cautiously optimistic that we will
continue to succeed. We probably know more what we are not going to do,
or be, than what we will. We are not going to become a small portion of a
large bank, with decisions made for our customers several thousand miles
from Kansas City. We are not going to become a lender in every market
segment, but will rather retain our focus on mortgage lending. While we
will attempt to utilize technology to enable us to better serve our
customers, we will not become NASB.COM, at least not in the foreseeable
future. There is an abundance of lenders in each segment we serve. Each
appears determined to offer their products, sometimes without regard to a
borrowers qualifications, at a lower price than the previous transaction.
This will also not be our course.
As in previous years, we appreciate your continued support. We will
continue our efforts in the coming year.
Sincerely,
/s/ David H. Hancock
David H. Hancock
Board Chairman
2
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables include selected information concerning the
financial position of NASB Financial, Inc., (including consolidated data
from the operations of subsidiaries) for the years ended September 30.
Dollar amounts are expressed in thousands, except per share data.
<TABLE>
<CAPTION>
SUMMARY STATEMENT OF OPERATIONS 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 63,557 62,391 60,031 56,002 50,075
Interest expense 33,102 34,542 35,254 33,760 28,893
------------------------------------------------
Net interest income 30,455 27,849 24,777 22,242 21,182
Provision for loan losses 300 64 477 633 (749)
------------------------------------------------
Net interest income after provision
for loan losses 30,155 27,785 24,300 21,609 21,931
Other income 11,382 11,424 8,596 9,045 4,679
General and administrative expenses 20,129 17,067 14,888 18,085 13,319
------------------------------------------------
Income before income taxes and
cumulative effect of change in
accounting principle 21,408 22,142 18,008 12,569 13,291
Income tax expense 8,508 8,556 6,937 4,838 5,115
------------------------------------------------
Income before cumulative effect of
change in accounting principle 12,900 13,586 11,071 7,731 8,176
Cumulative effect of change in
accounting principle -- -- -- -- 369
------------------------------------------------
Net income $ 12,900 13,586 11,071 7,731 8,545
================================================
Income per share:
Before cumulative effect of change in
accounting principle $ 1.43 1.52 1.23 0.85 0.89
Cumulative effect of change in
accounting principle -- -- -- -- 0.04
------------------------------------------------
Total income per share $ 1.43 1.52 1.23 0.85 0.93
================================================
Average shares outstanding (in thousands) 8,998 8,938 9,004 9,116 9,236
================================================
</TABLE>
<TABLE>
<CAPTION>
SUMMARY BALANCE SHEET 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Bank deposits $ 7,317 -- 513 10,087 11,327
Stock in Federal Home Loan Bank 8,405 5,961 9,812 9,012 3,990
Securities available for sale 19,510 24,951 33,603 25,095 1,341
Loans receivable held for sale 92,232 131,845 138,869 33,963 23,122
Securities held to maturity -- -- -- -- 13,583
Mortgage-backed securities 13,019 21,612 30,016 25,072 80,709
Loans receivable 658,808 528,847 497,873 585,299 483,858
Non-interest earning assets 26,446 22,838 22,778 22,560 23,908
------------------------------------------------
Total assets $ 825,737 736,054 733,464 711,088 641,838
================================================
Liabilities:
Customer deposit accounts $ 565,463 545,504 520,544 499,631 529,628
Advances from Federal Home Loan Bank 168,088 109,210 143,226 145,242 50,258
Other borrowings 150 200 1,680 1,565 1,690
Non-interest costing liabilities 13,173 11,307 8,818 13,501 14,076
------------------------------------------------
Total liabilities 746,874 666,221 674,268 659,939 595,652
Stockholders' equity 78,863 69,833 59,196 51,149 46,186
------------------------------------------------
Total liabilities and
stockholders' equity $ 825,737 736,054 733,464 711,088 641,838
================================================
Book value per share $ 8.81 7.84 6.62 5.65 4.99
================================================
OTHER DATA 1999 1998 1997 1996 1995
------------------------------------------------
Loans serviced for others $ 667,644 546,198 454,169 370,817 434,769
Number of full service branches 8 7 7 7 8
Number of employees 322 296 267 267 245
Shares outstanding (in thousands) 8,949 8,904 8,944 9,056 9,260
</TABLE>
3
<PAGE>
GENERAL
NASB Financial, Inc. ("the Company") was formed in April 1998 to
become a unitary thrift holding company of North American Savings Bank,
F.S.B. ("the Bank" or "North American"). The Company's principal
business is to provide banking services through the Bank. Specifically,
the Bank obtains savings and checking deposits from the public, then uses
those funds to originate and purchase real estate loans and other loans.
The Bank also purchases mortgage-backed securities ("MBS") and other
investment securities from time to time as conditions warrant. In
addition to customer deposits, the Bank obtains funds from the sale of
loans held-for-sale, the sale of securities available-for-sale, repayments
of existing mortgage assets, and advances from the Federal Home Loan Bank
("FHLB"). The Bank's primary sources of income are interest on loans,
MBS, and investment securities plus customer service fees and income from
lending activities. Expenses consist primarily of interest payments on
customer deposits and other borrowings and general and administrative
costs.
The Bank operates eight deposit branch locations, eight residential
loan origination branch offices, and two residential construction loan
origination offices, primarily in the greater Kansas City area. Consumer
loans are also offered through the Bank's branch network. Customer
deposit accounts are insured up to allowable limits by the Savings
Association Insurance Fund ("SAIF"), a division of the Federal Deposit
Insurance Corporation ("FDIC"). The Bank is regulated by the Office of
Thrift Supervision ("OTS") and the FDIC.
FINANCIAL CONDITION
Total assets as of September 30, 1999, were $825.7 million, an
increase of $89.7 million from the prior year-end. Average interest-
earning assets increased $28.5 million from the prior year to $736.1
million.
During the fiscal year ended September 30, 1999, securities available
for sale decreased $2.3 million, which was primarily the result of the
sale of one taxable municipal obligation.
Included in mortgage-backed securities available for sale are $5.5
million in interest-only strips, which consist of excess mortgage
servicing rights established at the time of various loan sales in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." These are more fully described in the
notes to consolidated financial statements. Derivative financial
instruments are carried at estimated fair value in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Bank does not actively trade in derivative financial
instruments and management does not currently use derivative financial
instruments to manage interest rate risk or for other hedging strategies.
As the Bank originates loans each month, management evaluates the
existing market conditions to determine which loans will be held in the
Bank's portfolio and which loans will be sold in the secondary market.
Loans sold in the secondary market are sold with servicing released or
converted into mortgage-backed securities ("MBS") and sold with the
servicing retained by the Bank. At the time of each loan commitment, a
decision is made to either hold the loan for investment, hold it for sale
with servicing retained, or hold it for sale with servicing released.
Management monitors market conditions to decide whether loans should be
held in the portfolio or sold and if sold, which method of sale is
appropriate. During the year ended September 30, 1999, the Bank
originated $388.3 million in mortgage loans held for sale, $265.5 million
in mortgage loans held for investment, and $32.9 million in other loans.
This total of $686.7 million in loan originations was an increase of $99.5
over the prior fiscal year.
Included in the $92.2 million in loans held for sale as of September
30, 1999, are $18.1 million in residential mortgage loans held for sale
with servicing released. Also included in loans held for sale at
September 30, 1999, are $0.4 million in commercial residential loans
insured by the FHA. The Bank holds options to sell these insured loans
back to the FHA during specified periods in the future at specified
prices. All loans held for sale are carried at the lower of cost or fair
value.
The balance of total loans held for investment at September 30, 1999,
was $658.8 million, an increase of $130.0 million from the balance at
September 30, 1998. During fiscal 1999, total originations and purchases
of mortgage loans and other loans held for investment were $336.1 million.
A portion of the increase in loans held for investment were residential
construction loans. The gross balance of construction and development
loans was $197.0 million at September 30, 1999, an increase of $46.3
million (31%).
4
<PAGE>
Mortgage servicing rights increased $3.9 million during fiscal 1999
as a result of loans sold with servicing retained. In relationship to
this increase, the total balance of mortgage loans serviced for others was
$667.6 million, an increase of $121.4 million from the prior fiscal year-
end.
Total liabilities were $746.9 million at September 30, 1999, an
increase of $80.7 million (12%) from the previous year. Average interest-
costing liabilities during fiscal year 1999 were $677.5 million, an
increase of $18.8 million from fiscal 1998.
Total customer deposit accounts increased $20.0 million during fiscal
year 1999, which includes an increase of $6.8 million in savings accounts
and an increase of $17.3 million in certificates of deposit, offset by a
decrease of $2.8 million in demand deposit accounts and a decrease of $1.3
million in money market demand accounts. The average interest rate on
customer deposits at September 30, 1999, was 4.83%, a decrease of 21 basis
points from the prior year-end. The average balance of customer deposits
during fiscal 1999 was $552.2 million, an increase of $19.1 million from
fiscal 1998.
Advances from the FHLB were $168.1 million at September 30, 1999, an
increase of $58.9 million from the prior fiscal year-end. During fiscal
year 1999, the Bank borrowed $259.1 million of new advances and made
$200.2 million of repayments. Management continues to use FHLB advances
as a primary funding source to provide operating liquidity and to fund the
origination of mortgage loans.
During the year ended September 30, 1999, the Company repurchased
115,926 shares of its common stock at a cost of $1.6 million. Also, the
Company paid a total of $2.7 million in cash dividends to its
stockholders.
NET INTEREST MARGIN
The Bank's net interest margin is comprised of the difference
("spread") between interest income on loans, MBS, and investments and the
interest cost of customer deposits, FHLB advances, and other borrowings.
Management monitors net interest spreads and, although constrained by
certain market, economic, and competition factors, it establishes loan
rates and customer deposit rates that maximize net interest margin.
During fiscal year 1999, average interest-earning assets exceeded
average interest-costing liabilities by $58.6 million, which was 7.7% of
average total assets. In fiscal year 1998, average interest-earning
assets exceeded average interest-costing liabilities by $48.8 million,
which was 6.7% of average total assets.
5
<PAGE>
The table below presents the total dollar amounts of interest income
and expense on the indicated amounts of average interest-earning assets or
interest-costing liabilities, with the average interest rates for the year
and at the end of each year. Average yields reflect yield reductions due
to non-accrual loans. Average balances and weighted average yields at
year-end include all accrual and non-accrual loans. Dollar amounts are
expressed in thousands.
As of
Fiscal 1999 9/30/99
---------------------------
Average Yield/ Yield/
Balance Interest Rate Rate
--------------------------------------
Interest-earning assets:
Loans receivable $ 681,004 60,247 8.85% 8.28%
Mortgage-backed securities 26,757 2,060 7.70% 6.04%
Investments 17,523 887 5.06% 7.49%
Bank deposits 10,827 363 3.35% 4.86%
--------------------------------------
Total earning assets 736,111 63,557 8.63% 8.15%
-----------------------------
Non-earning assets 26,603
--------
Total $ 762,714
========
Interest-costing liabilities:
Customer deposit accounts $ 552,226 26,083 4.72% 4.83%
FHLB advances 125,116 7,006 5.60% 5.51%
Other borrowings 165 13 7.86% 7.50%
--------------------------------------
Total costing liabilities 677,507 33,102 4.89% 4.99%
-----------------------------
Non-costing liabilities 9,999
Stockholders' equity 75,208
--------
Total $ 762,714
========
Net earning balance $ 58,604
========
Earning yield less costing rate 3.74% 3.16%
===================
Average interest-earning
assets $ 736,111
========
Net interest 30,455
========
Net yield spread on avg.
Interest-earning assets 4.14%
========
As of
Fiscal 1998 9/30/98
---------------------------
Average Yield/ Yield/
Balance Interest Rate Rate
--------------------------------------
Interest-earning assets:
Loans receivable $ 639,956 57,714 9.02% 8.09%
Mortgage-backed securities 42,443 3,056 7.20% 6.57%
Investments 18,890 1,186 6.28% 7.81%
Bank deposits 6,291 435 6.92% --
--------------------------------------
Total earning assets 707,580 62,391 8.82% 7.99%
-----------------------------
Non-earning assets 25,274
--------
Total $ 732,854
========
Interest-costing liabilities:
Customer deposit accounts $ 533,097 27,014 5.07% 5.04%
FHLB advances 124,774 7,478 5.99% 5.77%
Other borrowings 875 50 5.71% 7.50%
--------------------------------------
Total costing liabilities 658,746 34,542 5.24% 5.16%
-----------------------------
Non-costing liabilities 8,982
Stockholders' equity 65,126
--------
Total $ 732,854
========
Net earning balance $ 48,834
========
Earning yield less costing rate 3.58% 2.83%
===================
Average interest-earning
assets $ 707,580
========
Net interest 27,849
========
Net yield spread on avg.
Interest-earning assets 3.94%
========
As of
Fiscal 1997 9/30/97
---------------------------
Average Yield/ Yield/
Balance Interest Rate Rate
--------------------------------------
Interest-earning assets:
Loans receivable $ 620,914 55,052 8.87% 8.16%
Mortgage-backed securities 56,965 3,609 6.34% 7.16%
Investments 17,375 1,083 6.23% 6.80%
Bank deposits 8,356 287 3.43% 5.31%
--------------------------------------
Total earning assets 703,610 60,031 8.53% 8.05%
-----------------------------
Non-earning assets 22,996
--------
Total $ 726,606
========
Interest-costing liabilities:
Customer deposit accounts $ 510,365 25,881 5.07% 5.29%
FHLB advances 148,400 9,280 6.25% 6.03%
Other borrowings 1,575 93 5.91% 6.22%
--------------------------------------
Total costing liabilities 660,340 35,254 5.34% 5.45%
-----------------------------
Non-costing liabilities 10,252
Stockholders' equity 56,014
--------
Total $ 726,606
========
Net earning balance $ 43,270
========
Earning yield less costing rate 3.19% 2.60%
===================
Average interest-earning
assets $ 703,610
========
Net interest 24,777
========
Net yield spread on avg.
Interest-earning assets 3.52%
========
The following tables set forth information regarding changes in
interest income and interest expense. For each category of interest-
earning asset and interest-costing liability, information is provided on
changes attributable to (1) changes in rates (change in rate multiplied
by the old volume), (2) changes in volume (change in volume multiplied by
the old rate), and (3) changes in rate and volume (change in rate
multiplied by the change in volume). Average balances, yields and rates
used in the preparation of this analysis come from the preceding table.
Dollar amounts are expressed in thousands.
Year ended September 30, 1999
compared to
year ended September 30, 1998
----------------------------------------
Rate/
Rate Volume Volume Total
----------------------------------------
Components of interest income:
Loans receivable $ (1,088) 3,703 (82) 2,533
Mortgage-backed securities 212 (1,130) (78) (996)
Investments (230) (86) 17 (299)
Bank deposits (225) 314 (161) (72)
----------------------------------------
Net change in interest income (1,331) 2,801 (304) 1,166
----------------------------------------
Components of interest expense:
Customer deposit accounts (1,866) 970 (35) (931)
FHLB advances (487) 21 (6) (472)
Other borrowings 19 (41) (15) (37)
----------------------------------------
Net change in
interest expense (2,334) 950 (56) (1,440)
----------------------------------------
Increase (decrease) in
net interest income $ 1,003 1,851 (248) 2,606
========================================
6
<PAGE>
Year ended September 30, 1998
compared to
year ended September 30, 1997
----------------------------------------
Rate/
Rate Volume Volume Total
----------------------------------------
Components of interest income:
Loans receivable $ 931 1,689 42 2,662
Mortgage-backed securities 490 (921) (122) (553)
Investments 9 94 -- 103
Bank deposits 292 (71) (73) 148
----------------------------------------
Net change in interest income 1,722 791 (153) 2,360
----------------------------------------
Components of interest expense:
Customer deposit accounts -- 1,152 (19) 1,133
FHLB advances (386) (1,477) 61 (1,802)
Other borrowings (3) (41) 1 (43)
----------------------------------------
Net change in
interest expense (389) (366) 43 (712)
----------------------------------------
Increase (decrease) in
net interest income $ 2,111 1,157 (196) 3,072
========================================
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1999 AND 1998
For the fiscal year ended September 30, 1999, the Company had net
income of $12.9 million, or $1.43 per share, compared to net income $13.6
million, or $1.52 per share in the prior year.
Total interest income for the year ended September 30, 1999, was
$63.6 million, an increase of $1.2 million (2%) over fiscal year 1998.
This was the result of an increase in average interest-earning assets of
$28.5 million during the period from $707.6 million during fiscal 1998 to
$736.1 million during fiscal 1999. This was partially offset by a
decrease in average yield on assets during the period of 19 basis points
from 8.82% during fiscal 1998 to 8.63% during fiscal 1999.
Interest income on loans increased $2.5 million to $60.2 million in
fiscal 1999, compared to $57.7 million during fiscal 1998. This increase
was the result of an increase in the average balance of loans outstanding
of $41.0 million over the prior period, partially offset by a decrease in
the average yield on loans of 17 basis points. The weighted average rate
on loans receivable at the year ended September 30, 1999, was 8.28%, a 19
basis point increase from September 30, 1998. However, the weighted
average yield on the Bank's loan portfolio decreased 17 basis points
during fiscal 1998 to 8.85%, due to a decrease in the amortization of
deferred fees and discounts on loans, which occurred because of a decrease
in loan repayments.
Interest on MBS declined during fiscal year 1999 due to a decrease in
the average balance of MBS of $15.7 million, partially offset by an
increase in yield on MBS of 50 basis points. As North American has
remained focused on its residential "whole loan" portfolio, repayments of
MBS have been used for the origination of new residential loans.
Total interest expense during the year ended September 30, 1999,
decreased $1.4 million (4%) from the same period in the prior year.
Specifically, interest on customer deposits decreased $931,000 due to a 35
basis point decrease in the average rate paid on interest-costing
liabilities, partially offset by a $19.1 million increase in the average
balances. The average rate paid on FHLB advances decreased 39 basis point
from the prior year, partially offset by $342,000 increase in average
balances. Management continues to use FHLB advances as a primary source
of short-term financing.
The Bank's net interest income is impacted by changes in market
interest rates, which have varied greatly over time. Changing interest
rates also affect the level of loan prepayments and the demand for new
loans. Management monitors the Bank's net interest spreads (the
difference between yields received on assets and paid on liabilities) and,
although constrained by market conditions, economic conditions, and
prudent underwriting standards, it offers deposit rates and loan rates
that maximize net interest income. Management does not predict interest
rates, but instead attempts to fund the Bank's assets with liabilities of
a similar duration to minimize the impact of changing interest rates on
the Bank's net interest margin. Since the relative spread between
financial assets and liabilities is constantly changing, North American's
current net interest spread may not be an indication of future net
interest income.
7
<PAGE>
Management records a provision for loan losses in amounts sufficient
to cover current net charge-offs and an estimate of potential future
losses based on an analysis of risks that management believes to be
inherent in the loan portfolio. The General Valuation Allowance ("GVA")
recognizes the inherent risks associated with lending activities but,
unlike specific allowances, have not been allocated to particular problem
assets. The provision for losses on loans was $300,000 during the year
ended September 30, 1999, compared to $64,000 during fiscal 1998. The
provision was reduced during fiscal 1998 because of a recovery realized
during the quarter ended September 30, 1998. Management analyzes the
adequacy of the allowance on a monthly basis and believes that the Bank's
specific loss allowances and GVA are adequate. While management uses
information currently available to determine these allowances, they can
fluctuate based on changes in economic conditions and changes in the
information available to management. Also, regulatory agencies review the
Bank's allowances for loan loss as part of their examination, and they may
require the Bank to recognize additional loss provisions based on the
information available at the time of their examinations.
Total other income for fiscal year 1999 was $11.4 million, unchanged
in total from the amount recorded in fiscal year 1998. Specifically, loan
servicing fees increased $0.5 million due to a decrease in amortization of
capitalized mortgage servicing rights, which was a result of a decrease in
prepayments of the underlying mortgage loans. During the quarter ended
September 30, 1998, a valuation allowance of $651,000 was established for
impairment of mortgage servicing rights. The valuation of mortgage
servicing rights during fiscal 1999 resulted in a recovery of impairment
of $118,000. Provision for losses on real estate owned for fiscal 1998
was a net recovery of $2.0 million as a result of the sale of one large
commercial property. Gains on loans held for sale increased $593,000 due
to an increase in the volume of loans sold.
Total general and administrative expenses for fiscal year 1998
increased $3.1 million from the prior year. Specifically, compensation
expense increased $1.5 million, due primarily to an increase in staffing
in the residential, construction, and consumer lending departments. Other
operating expense increased $938,000, due primarily to increased expenses
related to the increase in total loan origination volume, start-up
expenses to open one new retail deposit branch and two new loan
origination branches, and costs associated with the renovation of the
Bank's automated systems for year 2000 compliance.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1998 AND 1997
For the fiscal year ended September 30, 1998, the Company had net
income of $13.6 million, or $1.52 per share, compared to net income in the
prior year of $11.1 million, or $1.23 per share.
Total interest income for the year ended September 30, 1998, was $62.4
million, an increase of $2.4 million (4%) over fiscal year 1997. Total
interest earning assets increased $4.0 million from $703.6 million during
fiscal 1997 to $707.6 million during fiscal 1998. The average yield on
interest-earning assets increased 29 basis points from 8.53% during fiscal
year 1997 to 8.82% during fiscal year 1998.
The increase in the Bank's total interest income during fiscal 1998
was due primarily to an increase of $2.7 million in interest from the
Bank's loan portfolio, of which $931,000 was the result of an increase in
the average balance of loans outstanding and $1.7 million was due to an
increase in yield on loans. The average balance of loans outstanding was
$640.0 million during fiscal year 1998, an increase of $19.0 million over
the fiscal year 1997 average balance of $620.9 million. The weighted
average rate on loans receivable at the year ended September 30, 1998, was
8.09%, a 7 basis point decrease from September 30, 1997. However, the
weighted average yield on the Bank's loan portfolio increased 15 basis
points during fiscal 1998 to 9.02%, due to an increase in the amortization
of deferred fees and discounts on loans, which occurred because of an
increase in loan repayments.
Interest on MBS declined during fiscal year 1998 due to a decrease in
the average balance of MBS of $14.5 million, partially offset by an
increase in yield on MBS of 86 basis points.
Total interest expense during the year ended September 30, 1998,
decreased $0.7 million (2%) from the same period in the prior year,
primarily due to a $23.6 million decrease in the average balance and 26
basis point decrease in the average rate paid on FHLB advances. These
decreases in FHLB advances were partially offset by an $22.7 million
increase in the average balances of customer deposits. The average cost
of customer deposits during fiscal 1998 was 5.07%, unchanged from fiscal
1997.
The provision for losses on loans was $64,000 during the year ended
September 30, 1998, compared to $477,000 during fiscal 1997. As discussed
above, the decrease in loss provision during 1998 was the result of a loan
recovery.
8
<PAGE>
Total other income for fiscal year 1998 was $11.4 million, an
increase of $2.8 million from fiscal 1997. Specifically, loan servicing
fees decreased $0.4 million due to an increase in amortization of
capitalized mortgage servicing rights, which was a result of an increase
in prepayments of the underlying mortgage loans. Customer service fees
increased $468,000 due to a higher volume of demand deposit and other
transaction accounts, an increase in late charges on mortgage loans, and
an increase in appraisal fees on loan originations. During the quarter
ended September 30, 1998, a valuation allowance of $651,000 was
established for impairment of mortgage servicing rights. Provision for
losses on real estate owned for fiscal 1998 was a net recovery of $2.0
million compared to a net recovery of $172,000 during fiscal 1997, due to
the sale of one large commercial property. Gains on loans held for sale
increased $0.8 million due to an increase in the volume of loans sold.
Other operating income increased $741,000 due to an increase in loan
prepayment fees plus an increase in sales of tax-deferred annuities and
mutual fund products through the Bank's subsidiary, Nor-Am Service
Corporation.
Total general and administrative expenses for fiscal year 1998
increased $2.2 million from the prior year. Specifically, compensation
expense increased $1.5 million, due primarily to an increase in costs
related to the increase in total loan origination volume. This 17%
increase from the prior year is in relationship to a 28% increase in total
loan origination volume.
ASSET/LIABILITY MANAGEMENT
Management recognizes that there are certain market risk factors
present in the structure of the Bank's financial assets and liabilities.
Since the Bank does not have material amounts of derivative securities,
equity securities, or foreign currency positions, interest rate risk
("IRR") is the primary market risk that is inherent in the Bank's
portfolio.
The objective of the Bank's IRR management process is to maximize net
interest income over a range of possible interest rate paths. The
monitoring of interest rate sensitivity on both the interest-earning
assets and the interest-costing liabilities are key to effectively
managing IRR. Management maintains an IRR policy, which outlines a
methodology for monitoring interest rate risk. The Board of Directors
reviews this policy and approves changes on a quarterly basis. The IRR
policy also identifies the duties of the Bank's Asset/Liability Committee
("ALCO"). Among other things, the ALCO is responsible for developing the
Bank's annual business plan and investment strategy, monitoring
anticipated weekly cashflows, establishing prices for the Bank's various
products, and implementing strategic IRR decisions.
On a quarterly basis, the Bank monitors the estimate of changes that
would potentially occur to its net portfolio value ("NPV") of assets,
liabilities, and off-balance sheet items assuming a sudden change in
market interest rates. Management presents a NPV analysis to the Board of
Directors each quarter and NPV policy limits are reviewed and approved.
The following table is an interest rate sensitivity analysis, which
summarizes information provided by the OTS, which estimates the changes in
NPV of the Bank's portfolio of assets, liabilities, and off-balance sheet
items given a range of assumed changes in market interest rates. These
computations estimate the effect on the Bank's NPV of a instantaneous and
sustained change in market interest rates of plus and minus 300 basis
points, as well as the Bank's current IRR policy limits on such estimated
changes. The computations of the estimated effects of interest rate
changes are based on numerous assumptions, including a constant
relationship between the levels of various market interest rates and
estimates of prepayments of financial assets. The OTS compiled this
information using data from the Bank's Thrift Financial Report as of
September 30, 1999. Dollar amounts are expressed in thousands.
Changes in Net Portfolio Value Board Board NPV as
Market ------------------------------------ approved % of PV
Interest rates $ Amount $ Change % Change policy limit of assets
- -----------------------------------------------------------------------------
+ 3% 75,125 (23,668) -24% -50% 9.5%
+ 2% 85,438 (13,358) -14% -30% 10.5%
+ 1% 93,718 (5,077) -5% -15% 11.3%
no change 98,796 -- --- --- 11.8%
- 1% 100,499 1,703 +2% -15% 11.8%
- 2% 103,379 4,483 +5% -30% 12.0%
- 3% 108,097 9,301 +9% -50% 12.4%
9
<PAGE>
Management cannot predict future interest rates and the effect of
changing interest rates on future net interest margin, net income, or NPV
can only be estimated. However, management believes that its overall
system of monitoring and managing IRR is effective.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented have
been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results
in terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. Unlike most
industrial companies, most of the Bank's assets and liabilities are
monetary in nature. Except for inflation's impact on general and
administrative expenses, interest rates have a more significant impact on
the Bank's performance than do the effects of inflation. However, the
level of interest rates may be significantly affected by the potential
changes in the monetary policies of the Board of Governors of the Federal
Reserve System in an attempt to impact inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the
prices of goods and services.
Changing interest rates impact the demand for new loans, which affect
the value and profitability of North American's loan origination
department. Rate fluctuations inversely affect the value of the Bank's
mortgage servicing portfolio because of their impact on mortgage
prepayments. Falling rates usually stimulate a demand for new loans,
which makes the mortgage banking operation more valuable, but also
encourages mortgage prepayments, which depletes the value of mortgage
servicing. Rising rates generally have the opposite effect on these
operations.
YEAR 2000 ISSUE
The Board of Directors and the management of the Company have
established a formal process for the implementation of a plan to evaluate
and correct the problems that the year 2000 could cause to the Company's
critical automated systems. The year 2000 ("Y2K") problem exists because
many automated systems use only two digit fields to represent the year,
such as "98" representing 1998. However, with the two digit format, the
year 2000 is indistinguishable from 1900, 2001 from 1901, and so on.
Should these critical systems fail in Y2K, the Bank would have difficulty
in processing transactions for loan and deposit customers, which could
cause significant damage to its important customer relationships. Since
the Company does not develop any of the software programs that are
utilized, the process is focused on follow-up and testing of software
provided by third party vendors and data centers to ensure their
renovation.
In calendar year 1997, management implemented a process to evaluate
and renovate its critical systems using the standard framework set forth
by the Federal Financial Institutions Examination Council, which includes
separate phases for awareness, assessment, renovation, validation, and
implementation. In the awareness phase, management committed resources
and established a Y2K committee consisting of managers from all
departments of the Company. The committee proceeded through the
assessment phase, which included an analysis of the Y2K impact on all
hardware, software, and electronic equipment; the identification of the
Company's critical business processes; developing priorities by risk;
gaining commitment from vendors and service providers; and evaluating the
impact on the Bank's customers. The renovation phase included the
replacement or elimination of non-compliant software, hardware, and
vendors. In the validation phase, the committee tested all renovated
systems and tested all data exchanges with outside organizations. In the
implementation phase, all renovated systems were put into service.
Management has kept the Board of Directors apprised of the status of the
Y2K process at regular intervals. To date, the Company has completed all
phases of its Y2K plan.
Data processing of the Bank's core operations is provided by a third
party service bureau. In November 1998, the Bank's service bureau
installed its fully renovated Y2K compliant software. The Bank actively
participated with the service bureau in testing procedures. The Company's
Y2K process also included the evaluation of phone systems, alarm systems,
funds transfer providers, and all hardware and software on its wide-area
network ("WAN"). Approximately one-half of the total $400,000 cost for
the Bank's Y2K process was incurred in the 1999 fiscal year. The first
one-half was incurred in fiscal 1998. During the last two years, the OTS
has performed three on-site examinations at all OTS regulated thrift
institutions, including the Bank.
10
<PAGE>
The Company has also developed an in-depth Y2K contingency plan for
each of the Company's critical automated systems. The contingency plan
will be implemented if any of the critical systems or vendors' systems
should fail before, on, or after January 1, 2000. The Bank's third party
service bureau has also formulated a contingency plan, which management
incorporated into the Company's overall contingency plan. Although the
Y2K contingency plan was developed and fully tested prior to June 30,
1999, management continues to monitor the impact of Y2K on its customers,
vendors, and service providers and will make any necessary changes to the
contingency plan up to and through the year 2000.
The Bank's Y2K committee has also taken action to keep the Bank's
customers informed of its Y2K preparedness through the branch network, in
direct mailings, and with account statement inserts. Management realizes
that some customers may still wish to withdraw cash from their accounts
prior to December 31, 1999, in preparation for Y2K. Because of this, the
Y2K committee has composed and implemented a cash management plan to
ensure that customers' cash needs are met. Cash needs will be monitored
during the month of December 1999 and through the new year. The cash
management plan is flexible and will be modified if customers' cash needs
change.
LIQUIDITY AND CAPITAL RESOURCES
The OTS specifies a required minimum liquidity ratio for thrift
institutions, defined as liquid assets as a percentage of net withdrawable
deposits and current borrowings. The Bank's liquidity ratio may increase
or decrease depending on the availability of funds and the comparative
yields on investment alternatives. For secondary sources of liquidity,
the Bank may sell assets available for sale, borrow from primary
securities dealers on a collateralized basis, or may use the FHLB of Des
Moines' credit facility.
North American maintains a balance of liquid assets above the minimum
regulatory requirement and at a level adequate to meet the requirements of
normal banking activities, including the repayment of maturing debt and
potential deposit withdrawals. The required liquidity ratio, which may
vary from time to time, was 4% during September 1999 and 1998. For the
months of September 1999 and 1998, North American's liquidity ratios were
11.5% and 11.3%, respectively.
The OTS also requires thrift institutions to maintain specified
levels of regulatory capital. As of September 30, 1999, the Bank's
regulatory capital exceeded all minimum capital requirements, which
consist of three components: tangible, core, and risk-based. A schedule,
which more fully describes the Bank's regulatory capital requirement, is
provided in the notes to the consolidated financial statements.
Fluctuations in the level of interest rates typically impact
prepayments on mortgage loans and mortgage related securities. During
periods of falling rates, these prepayments increase and a greater demand
exists for new loans. The availability of customer deposits is partially
impacted by area competition. Management is not currently aware of any
other market or economic conditions that could materially impact the
Bank's future ability to meet obligations as they come due.
11
<PAGE>
NASB Financial, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
-----------------------
1999 1998
-----------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,870 3,331
Securities available for sale (Note 4) (amortized cost of
$5,595 and $7,485 at September 30, 1999 and 1998, respectively) 4,913 7,209
Stock in Federal Home Loan Bank, at cost 8,405 5,961
Mortgage-backed securities (Notes 5 and 6):
Available for sale, at market value (amortized cost of $14,711 and
$17,824 at September 30, 1999 and 1998, respectively) 14,597 17,742
Held to maturity (market value of $13,268 and $22,687 at
September 30, 1999 and 1998, respectively) 13,019 21,612
Loans receivable (Note 7):
Held for sale (estimated market value of $93,413 and $133,732 at
September 30, 1999 and 1998, respectively) 92,232 131,845
Held for investment, net 658,808 528,847
Accrued interest receivable 4,832 4,455
Real estate owned, net (Note 8) 2,702 3,232
Premises and equipment, net (Note 9) 4,719 4,818
Mortgage servicing rights, net (Note 18) 8,382 4,517
Other assets 2,258 2,485
-----------------------
$ 825,737 736,054
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposit accounts (Note 10) $ 565,463 545,504
Advances from Federal Home Loan Bank (Note 11) 168,088 109,210
Other borrowings (Note 12) 150 200
Escrows 6,310 5,915
Income taxes payable (Note 13) 2,965 1,606
Accrued expenses and other liabilities 3,898 3,786
-----------------------
Total liabilities 746,874 666,221
-----------------------
Commitments and contingencies (Note 20)
Stockholders' equity (Notes 14, 15 and 17):
Common stock of $0.15 par value: 20,000,000 authorized; 9,497,312
shares and 9,335,312 shares issued at September 30, 1999 and
1998, respectively 1,425 1,400
Serial preferred stock of $1.00 par value: 7,500,000 shares
authorized; none outstanding -- --
Additional paid-in capital 13,856 13,196
Retained earnings 69,704 59,527
Treasury stock, at cost; 547,874 shares and 431,948 shares at
September 30, 1999 and 1998, respectively (5,640) (4,070)
Accumulated other comprehensive income (482) (220)
-----------------------
Total stockholders' equity 78,863 69,833
-----------------------
$ 825,737 736,054
=======================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
NASB Financial, Inc. and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------
1999 1998 1997
------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest on loans receivable $ 60,247 57,714 55,052
Interest on mortgage-backed securities 2,060 3,056 3,609
Interest and dividends on securities 887 1,186 1,083
Other interest income 363 435 287
------------------------------------
Total interest income 63,557 62,391 60,031
------------------------------------
Interest on customer deposit accounts 26,083 27,014 25,881
Interest on advances from Federal Home Loan
Bank and other borrowings 7,019 7,528 9,373
------------------------------------
Total interest expense 33,102 34,542 35,254
------------------------------------
Net interest income 30,455 27,849 24,777
Provision for loan losses 300 64 477
------------------------------------
Net interest income after provision
for loan losses 30,155 27,785 24,300
------------------------------------
Other income (expense):
Loan servicing fees 854 351 777
Customer service fees and charges 2,651 2,594 2,126
Impairment recovery (loss) of mortgage
servicing rights 118 (651) --
Provision for losses on real estate owned -- 1,987 172
Gain on sale of securities available for sale 95 -- --
Gain on sale of loans receivable held for sale 6,236 5,643 4,762
Other 1,428 1,500 759
------------------------------------
Total other income 11,382 11,424 8,596
------------------------------------
General and administrative expenses:
Compensation and fringe benefits 11,781 10,285 8,769
Premises and equipment 2,422 2,312 2,239
Advertising and business promotion 923 403 309
Federal deposit insurance premiums 325 327 480
Other 4,678 3,740 3,091
------------------------------------
Total general and administrative expenses 20,129 17,067 14,888
Income before income tax expense 21,408 22,142 18,008
------------------------------------
Income tax expense:
Current 6,799 7,582 5,659
Deferred 1,709 974 1,278
------------------------------------
Total income tax expense 8,508 8,556 6,937
------------------------------------
Net income $ 12,900 13,586 11,071
====================================
Basic earnings per share $ 1.43 1.52 1.23
====================================
Diluted earnings per share $ 1.40 1.48 1.19
====================================
Weighted average shares outstanding 8,997,552 8,937,740 9,003,500
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
NASB Financial, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------
1999 1998 1997
-----------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,900 13,586 11,071
Adjustments to reconcile net income to net cash
provided by(used in) operating activities:
Depreciation 1,056 1,044 1,061
Amortization and accretion (1,221) (1,066) (1,168)
Deferred income tax expense 1,709 974 1,278
Gain on sale of securities available for sale (95) -- --
Impairment loss (recovery) of mortgage servicing rights (118) 651 --
Gain on sale of loans receivable held for sale (6,236) (5,643) (4,762)
Provision for loan losses 300 64 477
Provision for losses on real estate owned -- (1,987) (172)
Origination and purchase of loans receivable
held for sale (388,317) (378,760) (398,091)
Sale of loans receivable held for sale 384,693 344,502 293,346
Changes in:
Accrued interest receivable (377) 268 (511)
Accrued expenses and other liabilities and
income taxes payable (62) 1,522 (6,035)
----------------------------
Net cash provided by (used in) operating activities 4,232 (24,845) (103,506)
Cash flows from investing activities:
Principal repayments of mortgage-backed securities:
Held to maturity 8,520 6,059 4,847
Available for sale 5,100 12,037 4,156
Principal repayments of mortgage loans receivable held
for investment and held for sale 229,323 221,560 151,980
Principal repayments of other loans receivable 20,441 17,406 11,262
Principal repayments of securities:
Held to maturity -- -- 16,000
Available for sale 31 32 30
Loan origination - mortgage loans receivable
held for investment (265,514) (186,393) (42,172)
Loan origination - other loans receivable (32,885) (21,821) (18,909)
Purchase of mortgage loans receivable held for investment (37,696) (26,703) (23,230)
Purchases of mortgage-backed securities held to maturity -- -- (9,826)
Purchases of securities:
Held to maturity -- -- (16,782)
Available for sale -- (5,147) --
Sales (purchases) of FHLB stock (2,444) 3,851 --
Proceeds from sale of securities available for sale 1,948 11,960 --
Proceeds from sale of real estate owned 1,653 5,908 1,592
Premises and equipment purchases (957) (553) (817)
Other cash flows from investing activities 898 618 (239)
----------------------------
Net cash provided by (used in) investing activities (71,582) 38,814 77,892
</TABLE>
14
<PAGE>
NASB Financial, Inc. and Subsidiary
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------
1999 1998 1997
-----------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in customer deposit accounts 19,959 24,960 20,913
Proceeds from advances from FHLB 259,100 291,000 534,000
Repayment of advances from FHLB (200,222) (325,016) (536,016)
Cash dividends paid (2,723) (2,123) (1,702)
Repurchase of common stock (1,570) (1,107) (1,381)
Proceeds from issuance of other borrowings -- -- 250
Repayment of other borrowings (50) (1,480) (135)
Change in escrows 395 (139) 63
-----------------------------
Net cash provided by (used in) financing activities 74,889 (13,905) 15,992
-----------------------------
Net increase (decrease) in cash and cash equivalents 7,539 64 (9,622)
Cash and cash equivalents at beginning of period 3,331 3,267 12,889
-----------------------------
Cash and cash equivalents at end of period $ 10,870 3,331 3,267
Supplemental disclosure of cash flow information:
Cash paid for income taxes (net of refunds received) $ 6,973 7,563 7,406
Cash paid for interest 33,224 34,619 35,376
Supplemental schedule of non-cash investing and financing
activities:
Conversion of loans receivable to real estate owned $ 1,782 3,459 1,370
Conversion of real estate owned to loans receivable 314 766 100
Conversion of loans receivable to securities
available for sale (FHA debentures) -- 2,012 10,714
Capitalization of mortgage servicing rights 4,884 3,498 1,852
Capitalization of mortgage servicing interest-only
strip securities 2,772 2,237 912
Excess servicing reclassified to mortgage-backed
securities available for sale
(interest-only strip securities) -- -- 1,527
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
NASB Financial, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained Treasury comprehensive stockholders'
stock capital earnings stock income (loss) equity
---------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996 $ 1,391 13,092 38,695 (1,582) (447) 51,149
Comprehensive income:
Net income -- -- 11,071 -- -- 11,071
Other comprehensive income,
net of tax:
Unrealized gain on securities -- -- -- -- 18 18
----------
Total comprehensive income -- -- -- -- -- 11,089
Cash dividends declared -- -- (1,702) -- -- (1,702)
Stock options exercised 5 36 -- -- -- 41
Purchase of common stock
for treasury -- -- -- (1,381) -- (1,381)
---------------------------------------------------------------------
Balance at September 30, 1997 1,396 13,128 48,064 (2,963) (429) 59,196
Comprehensive income:
Net income -- -- 13,586 -- -- 13,586
Other comprehensive income,
net of tax:
Unrealized gain on securities -- -- -- -- 209 209
----------
Total comprehensive income -- -- -- -- -- 13,795
Cash dividends declared -- -- (2,123) -- -- (2,123)
Stock options exercised 4 68 -- -- -- 72
Purchase of common stock
for treasury -- -- -- (1,107) -- (1,107)
---------------------------------------------------------------------
Balance at September 30, 1998 1,400 13,196 59,527 (4,070) (220) 69,833
Comprehensive income:
Net income -- -- 12,900 -- -- 12,900
Other comprehensive income,
net of tax:
Unrealized loss on securities
of $357, net of
reclassification adjustment
for gains included in net
income of $95 -- -- -- -- (262) (262)
----------
Total comprehensive income -- -- -- -- -- 12,638
Cash dividends declared -- -- (2,723) -- -- (2,723)
Stock options exercised 25 660 -- -- -- 685
Purchase of common stock
for treasury -- -- -- (1,570) -- (1,570)
---------------------------------------------------------------------
Balance at September 30, 1999 $ 1,425 13,856 69,704 (5,640) (482) 78,863
======================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of NASB
Financial, Inc. (the "Company"), its wholly-owned subsidiary, North
American Savings Bank, F.S.B. (the "Bank"), and the Bank's wholly-owned
subsidiary, Nor-Am Service Corporation. All significant inter-company
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand plus interest-
bearing deposits in the Federal Home Loan Bank of Des Moines totaling $7.3
million as of September 30, 1999. The Bank held no cash equivalents at
September 30, 1998.
Securities and Mortgage-Backed Securities Available for Sale
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," management determines the appropriate classification of debt
securities at the time of purchase. Debt securities are classified as
held to maturity when the Bank has the positive intent and ability to hold
the securities to maturity. Debt securities not classified as held to
maturity or trading are classified as available for sale. As of September
30, 1999, and 1998, the Bank had no assets designated as trading.
Securities and mortgage-backed securities classified as available for
sale are recorded at their fair values, with unrealized gains and losses,
net of income taxes, reported as accumulated other comprehensive income.
Premiums and discounts are recognized as adjustments to interest income
over the life of the securities using a method that approximates the level
yield method. Gains or losses on the disposition of securities are based
on the specific identification method. The calculation of any adjustment
to carry assets available for sale at market value is computed on certain
pools of assets, which have been aggregated, based on common
characteristics. Market prices are obtained from broker-dealers and
reflect estimated offer prices.
Loans Receivable Held for Sale
Loans receivable held for sale consist of loans that management does
not intend to hold until maturity. Accordingly, such loans are carried at
the lower of amortized cost (outstanding principal balance adjusted for
deferred loan fees and costs) or market value. Market values for such
loans are determined based on sale commitments or dealer quotations.
Gains or losses on such sales are recognized using the specific
identification method. Interest, including amortization and accretion of
deferred loan fees and costs, is included in interest income.
Loans Receivable Held for Investment, Net
Loans are stated at the amount of unpaid principal less an allowance
for loan losses, undisbursed loan funds and unearned discounts and loan
fees, net of certain direct loan origination costs. Interest on loans is
credited to income as earned and accrued only when it is deemed
collectible. Loans are placed on nonaccrual status when, in the opinion
of management, the full timely collection of principal or interest is in
doubt. As a general rule, the accrual of interest is discontinued when
principal or interest payments become doubtful. When a loan is placed on
nonaccrual status, previously accrued but unpaid interest is reversed
against current income. Subsequent collections of cash may be applied as
reductions to the principal balance, interest in arrears or recorded as
income, depending on management's assessment of the ultimate
collectibility of the loan. Nonaccrual loans may be restored to accrual
status when principal and interest become current and the full payment of
principal and interest is expected.
Deferred Loan Origination Fees and Costs
Net loan fees and direct loan origination costs are deferred and
amortized to interest income using a method which approximates the level-
yield method over the life of the loan.
Provisions for Losses
Loans - The Company considers a loan to be impaired when management
believes it will be unable to collect all principal and interest due
according to the contractual terms of the loan. If a loan is impaired,
the Company records a loss valuation equal to the excess of the loan's
carrying value over the present value of the estimated future cash flows
discounted at the loan's effective rate based on the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. The allowance for loan losses is increased by charges to
income and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on the
Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral, and current
economic conditions. Assessing the adequacy of the allowance for loan
17
<PAGE>
losses is inherently subjective as it requires making material estimates,
including the amount and timing of future cash flows expected to be
received on impaired loans, that may be susceptible to significant change.
In management's opinion, the allowance, when taken as a whole, is adequate
to absorb reasonable estimated loan losses inherent in the Bank's loan
portfolio.
Securities - The provision for losses on securities is charged to
earnings in an amount which, based on management's estimate, is necessary
to establish a general valuation allowance sufficient to absorb credit
losses that may exist within the Bank's investment portfolio. These
provisions are made based on the results of management's continuing
reviews of the investment security portfolio, which include analysis of
issuer financial data and assessments of an issuer's ability to continue
to meet obligations.
Real Estate Owned
Real estate owned represents foreclosed assets held for sale and is
recorded at fair value as of the date of foreclosure less any estimated
disposal costs (the "new basis") and is subsequently carried at the lower
of the new basis or fair value less selling costs on the current
measurement date. Adjustments for estimated losses are charged to
operations when any significant decline in fair value is less than the
carrying value. Costs and expenses related to major additions and
improvements are capitalized, while maintenance and repairs that do not
improve or extend the lives of the respective assets are expensed.
Applicable gains on the sale of real estate owned are recognized when the
asset is disposed depending on the adequacy of the down payment and other
requirements.
Premises and Equipment
Premises and equipment are recorded at cost, less accumulated
depreciation. Depreciation of premises and equipment is provided over the
estimated useful lives of the respective assets (three to forty years)
using the straight-line method. Maintenance and repairs are charged to
expense. Major renewals and improvements are capitalized. Gains and
losses on dispositions are credited or charged to earnings as incurred.
Income Taxes
The Bank qualifies as a savings and loan for tax purposes in
accordance with Section 7701(a)(19) of the Internal Revenue Code.
The provision for deferred income taxes is based on the liability
method and represents the change in the Bank's deferred income tax
liability or asset during the year. Deferred income taxes arise from
temporary differences in the carrying values of various assets and
liabilities for financial reporting and income tax purposes. Deferred tax
liabilities or assets are recorded at the tax rate that will be in effect
at the time the temporary differences are expected to reverse.
As a result of changes in the Federal tax code, the Bank's bad debt
deduction for the year ended September 30, 1999 and 1998, was based on
actual experience as the percentage method for additions to the tax bad
debt reserve has been eliminated. Under the new tax rules, thrift
institutions are required to recapture their accumulated tax bad debt
reserve, except for the portion that was established prior to 1988, the
"base-year". The recapture will be completed over a six-year phase-in
period. The phase-in period will be delayed for two years for
institutions who meet certain residential lending requirements. As of
September 30, 1999, the Bank had approximately $2 million established as a
tax bad debt reserve in the base-year, and zero tax bad debt reserve after
the base year. Distributing the Bank's capital in the form of purchasing
treasury stock has forced the Bank to recapture its after base-year bad
debt reserve prior to the phase-in period.
Mortgage Servicing Rights
The Bank adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," on
January 1, 1997. For each servicing contract in existence before that
date, the previously recognized originated and purchased servicing rights
and "excess servicing" receivables were combined, net of any previously
recognized servicing obligations under that contract, as a servicing asset
or liability. The Statement provides that servicing assets and other
retained interests in transferred assets be measured by allocating the
previous carrying amount between the assets sold, if any, and retained
interest, if any, based on their relative fair values at the date of the
transfer, and that servicing assets and liabilities be subsequently
measured by (1) amortization in proportion to and over the period of
estimated net servicing income or loss, and (2) assessment for asset
impairment or increased obligation based on their fair values.
Originated mortgage servicing rights are recorded at cost based upon
the relative fair values of the loans and the servicing rights. Servicing
release fees paid on comparable loans and discounted cash flows are used
to determine estimates of fair values. Purchased mortgage servicing
rights are acquired from independent third-party originators and are
recorded at the
18
<PAGE>
lower of cost or fair value. These rights are amortized in proportion to
and over the period of expected net servicing income or loss.
Impairment Evaluation - The Bank evaluates the carrying value of
capitalized mortgage servicing rights on a periodic basis based on their
estimated fair value. For purposes of evaluating and measuring impairment
of capitalized servicing rights in accordance with SFAS No. 125, the Bank
stratifies the rights based on their predominant risk characteristics.
The significant risk characteristics considered by the Bank are loan type,
period of origination and stated interest rate. If the fair value
estimated, using a discounted cash flow methodology, is less than the
carrying amount of the portfolio, the portfolio is written down to the
amount of the discounted expected cash flows utilizing a valuation
allowance. The Bank utilizes consensus market prepayment assumptions and
discount rates to evaluate its capitalized servicing rights, which
considers the risk characteristics of the underlying servicing rights.
For the year ended 1997, there were no write downs or valuation allowances
established for capitalized servicing. A valuation allowance of $651,000
was established during the period ending September 30, 1998. During the
year ended September 30, 1999, the value of servicing rights increased,
which resulted in a recovery of the valuation allowance of $118,000.
In accordance with the SFAS No. 125, servicing fees recognized in
excess of normal servicing fees are carried as interest-only strip
securities and classified as mortgage-backed securities available for sale
in accordance with SFAS No. 115. Also, all previous amounts carried as
excess servicing assets were combined and reclassified as interest-only
strip securities within mortgage-backed securities available for sale. At
September 30, 1999, the Bank held $5.5 million of such interest-only strip
securities.
Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." The Statement establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
This Statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. In accordance with the
Statement, the Company has classified items of other comprehensive income
by their nature in a financial statement and displayed the accumulated
balance of other comprehensive income separately from retained earnings
and additional paid-in capital in the consolidated balance sheets. The
Statement was adopted for the Company's consolidated financial statements
as of and for the fiscal year ended September 30, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
The Statement was adopted for the Company's consolidated financial
statements as of and for the fiscal year ended September 30, 1999. See
Note 18 to the consolidated financial statements for the disclosures made
in accordance with this Statement.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The
Statement revises employers' disclosures about pensions and other post-
retirement benefit plans, but does not change the measurement or
recognition of those plans. The Statement was adopted for the Company's
consolidated financial statements as of and for the fiscal year ended
September 30, 1999.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise." The Statement
changes the way entities conducting mortgage banking activities account
for certain securities and other interests they retain after securitizing
mortgage loans that were held for sale. The Statement was effective for
the Company's consolidated financial statements as of January 1, 1999.
The adoption of this Statement did not have a material impact on the
Company's consolidated financial statements as of and for the fiscal year
ended September 30, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and hedging activities. The
Statement requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Due to the issuance of SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of SFAS No. 133," the Statement will not be
effective for the Company's consolidated
19
<PAGE>
financial statements until the fiscal year ending September 30, 2001. The
adoption of this Statement is not expected to have a material impact on
the Company's consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses during the reported periods.
Estimates were used to establish loss reserves, the valuation of mortgage
servicing rights, and fair values of financial instruments. Actual
results could differ from those estimates.
Reclassifications
Certain amounts for 1998 and 1997 have been reclassified to conform
to the current year presentation.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments," requires the Company to disclose fair value information
about financial instruments for which it is practicable to estimate,
whether or not such fair values are reflected in the consolidated balance
sheets. Estimated fair value amounts have been determined using available
market information and a selection from a variety of valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data in developing the estimates of fair value.
Accordingly, the estimates presented are not necessarily indicative of the
amount that could be realized in a current market exchange. The use of
different market assumptions and estimation methodologies may have a
material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument presented as of September 30,
1999 and 1998:
Cash and cash equivalents
The carrying amount reported in the consolidated balance sheets is a
reasonable estimate of fair value.
Securities available for sale
Fair values are based on quoted market prices, where available. When
quoted market prices are unavailable, fair values are computed using
consensus estimates of prepayment speeds and market spreads to treasury
securities.
Mortgage-backed securities available for sale and held to maturity
Fair values are based on quoted market prices, where available. When
quoted market prices are unavailable, fair values are computed using
consensus estimates of prepayment speeds and market spreads to treasury
securities.
Stock in Federal Home Loan Bank of Des Moines ("FHLB")
The carrying value of stock in Federal Home Loan Bank approximates
its fair value.
Loans receivable - held for sale
Fair values of mortgage loans held for sale are based on quoted
market prices for loans with no commitment to sell. Fair values of
mortgage loans sold forward are based on the committed prices.
Loans receivable - held for investment
Fair values are computed for each loan category using market spreads
to treasury securities for similar existing loans in the portfolio and
management's estimates of prepayments.
Accrued interest receivable
The carrying amount reported in the consolidated balance sheets is a
reasonable estimate of fair value.
Mortgage servicing rights
The estimated fair values of mortgage servicing rights are determined
by discounting estimated future cash flows using a market rate of interest
and consensus estimates of prepayment speeds.
Customer deposit accounts
The estimated fair values of demand deposits and savings accounts are
equal to the amount payable on demand at the reporting date. Fair values
of certificates of deposit are computed at fixed spreads to treasury
securities with similar maturities.
20
<PAGE>
FHLB advances
The estimated fair values of advances from FHLB are determined by
discounting the future cash flows of existing advances using rates
currently available for new advances with similar terms and remaining
maturities.
Other borrowings
Fair values are estimated using rates currently available to the Bank
for debt with similar terms and remaining maturities.
Off balance sheet items
The estimated fair value of commitments to originate, purchase, or
sell loans is based on the fees currently charged to enter into similar
agreements and the difference between current levels of interest rates and
the committed rates.
(2) REORGANIZATION AND MERGER
On April 1, 1998, the Company completed a transaction whereby the
Bank became a wholly-owned subsidiary of the Company, through a merger of
the Bank with and into NASB Interim Savings Bank, F.S.B., a federally
chartered stock savings bank formed solely to facilitate this transaction.
To complete the transaction, the Company issued an aggregate of
9,500,448 shares of Company common stock by exchanging one share of the
Company common stock for each share of common stock of the Bank. It also
exchanged an option to purchase one share of Company common stock for each
outstanding option to purchase one share of the Bank's common stock.
The resulting Bank from the merger continues to operate under the
name "North American Savings Bank, F.S.B." The transaction was intended
to qualify as a tax-deferred reorganization under the Internal Revenue
Code of 1986, as amended, providing certain tax-deferred benefits for
income tax purposes for Bank stockholders. The merger was accounted for
as a pooling of interests, and accordingly, the accompanying financial
information has been restated to include the accounts of the Bank and the
Company for all periods presented.
(3) STOCK SPLIT, CHANGE IN PAR VALUE, AND CHANGE IN NUMBER OF AUTHORIZED
SHARES
On January 26, 1999, the stockholders of the Company voted to amend
the Company's Articles of Incorporation to increase the number of
authorized common stock from 3,000,000 to 20,000,000 shares. At the same
time, stockholders also approved a reduction in the par value of common
stock from $1.00 to $0.15.
On January 27, 1999, the Board of Directors declared a four-for-one
stock split. Each stockholder received three additional shares of the
Company's common stock for each share they already owned. The pay date of
the split was March 5, 1999.
All prior period amounts have been adjusted for the effect of the
stock split, change in par value of common stock, and change in number of
authorized shares of common stock.
(4) SECURITIES AVAILABLE FOR SALE
Summaries of securities available for sale are provided in the
following tables. Dollar amounts are expressed in thousands.
September 30, 1999
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------
U.S. Government Obligations $ 2,857 -- (7) 2,850
Equity securities 2,738 -- (675) 2,063
-----------------------------------------------
Total $ 5,595 -- (682) 4,913
===============================================
21
<PAGE>
September 30, 1998
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------
Taxable municipal obligations $ 1,597 -- -- 1,597
U.S. Government obligations 3,150 -- (10) 3,140
Equity securities 2,738 -- (266) 2,472
-----------------------------------------------
Total $ 7,485 -- (276) 7,209
===============================================
During the year ended September 30, 1999, gross gains of $95,000 and
no losses were recognized on the sale of securities available for sale.
There were no realized gains or losses on the sale of securities available
for sale during the year ended September 30, 1998 or 1997.
The scheduled maturities of securities available for sale at
September 30, 1999, are presented in the following table. Dollar amounts
are expressed in thousands.
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------
No stated maturity $ 2,738 -- (675) 2,063
Due from five to ten years 2,857 -- (7) 2,850
-----------------------------------------------
Total $ 5,595 -- (682) 4,913
===============================================
(5) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The following tables present a summary of mortgage-backed securities
available for sale. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------------
<S> <C> <C> <C> <C>
Pass-through certificates guaranteed
by GNMA - fixed rate $ 5,005 -- (10) 4,995
FNMA pass-through certificates -
fixed rate 4,053 -- (97) 3,956
Mortgage-backed derivatives (including
CMO residuals and interest-only
securities) 5,653 5 (12) 5,646
-----------------------------------------------------
Total $ 14,711 5 (119) 14,597
=====================================================
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------------
<S> <C> <C> <C> <C>
Pass-through certificates guaranteed
by GNMA - fixed rate $ 6,432 39 -- 6,471
FNMA pass-through certificates -
fixed rate 7,650 58 (1) 7,707
Mortgage-backed derivatives (including
CMO residuals and interest-only
securities) 3,742 -- (178) 3,564
-----------------------------------------------------
Total $ 17,824 97 (179) 17,742
=====================================================
</TABLE>
There were no gross realized gains or losses on the sale of
mortgage-backed securities available for sale during the years ended
September 30, 1999, 1998, or 1997.
22
<PAGE>
The scheduled maturities of mortgage-backed securities available
for sale at September 30, 1999, are presented in the following table.
Dollar amounts are expressed in thousands.
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------
Due in one year or less $ 2,319 -- (42) 2,277
Due from one to five years 1,733 -- (55) 1,678
Due after ten years 10,659 5 (22) 10,642
-----------------------------------------------
Total $ 14,711 5 (119) 14,597
===============================================
Actual maturities of mortgage-backed securities available for sale
may differ from scheduled maturities depending on the repayment
characteristics and experience of the underlying financial instruments,
on which borrowers have the right to call or prepay certain
obligations.
(6) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The following tables present a summary of mortgage-backed
securities held to maturity. Dollar amounts are expressed in
thousands.
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------------
<S> <C> <C> <C> <C>
FHLMC participation certificates:
Fixed rate $ 2,514 29 (24) 2,519
Balloon maturity and
adjustable rate 4,928 14 (30) 4,912
FNMA pass-through certificates:
Fixed rate 356 -- (11) 345
Balloon maturity and
adjustable rate 583 -- (13) 570
Pass-through certificates guaranteed
by GNMA - fixed rate 447 21 -- 468
Collateralized mortgage
obligation bonds 1,139 63 -- 1,202
Other asset-backed securities 3,052 200 -- 3,252
-----------------------------------------------------
Total $ 13,019 327 (78) 13,268
=====================================================
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------------
<S> <C> <C> <C> <C>
FHLMC participation certificates:
Fixed rate $ 3,753 195 -- 3,948
Balloon maturity and
adjustable rate 7,809 145 -- 7,954
FNMA pass-through certificates:
Fixed rate 572 7 -- 579
Balloon maturity and
adjustable rate 922 2 -- 924
Pass-through certificates guaranteed
by GNMA - fixed rate 525 38 -- 563
Collateralized mortgage
obligation bonds 3,684 280 (2) 3,962
Other asset-backed securities 4,347 410 -- 4,757
-----------------------------------------------------
Total $ 21,612 1,077 (2) 22,687
=====================================================
</TABLE>
The scheduled maturities of mortgage-backed securities held to
maturity at September 30, 1999, are presented in the following table.
Dollar amounts are expressed in thousands.
23
<PAGE>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------
Due in one year or less $ 4 -- -- 4
Due from one to five years 5,087 23 (30) 5,080
Due from five to ten years 4,575 248 (9) 4,814
Due after ten years 3,353 56 (39) 3,370
-----------------------------------------------
Total $ 13,019 327 (78) 13,268
===============================================
Actual maturities of mortgage-backed securities held to maturity may
differ from scheduled maturities depending on the repayment
characteristics and experience of the underlying financial instruments, on
which borrowers have the right to call or prepay certain obligations.
The principal balances of mortgage-backed securities held to maturity
that are pledged to secure certain obligations of the Bank as of September
30 are as follows. Dollar amounts are expressed in thousands.
September 30, 1999
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------
Customer deposit accounts $ 4,325 6 (30) 4,301
September 30, 1998
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-----------------------------------------------
Customer deposit accounts $ 6,533 126 -- 6,659
All dispositions of mortgage-backed securities held to maturity
during fiscal 1999, 1998, and 1997 were the result of maturities or calls.
(7) LOANS RECEIVABLE
The following table provides a detail of loans receivable as of
September 30. Dollar amounts are expressed in thousands.
HELD FOR INVESTMENT 1999 1998
---------------------------
Mortgage loans:
Permanent loans on:
Residential properties $ 315,934 311,982
Business properties 153,549 79,460
Partially guaranteed by VA or
insured by FHA 34,500 25,071
Construction and development 197,041 150,729
---------------------------
Total mortgage loans 701,024 567,242
Commercial loans 4,335 7,225
Installment loans and lease financing
to individuals 41,737 28,524
---------------------------
Total loans receivable held
for investment 747,096 602,991
Less:
Undisbursed loan funds (76,474) (61,836)
Unearned discounts and fees on
loans, net of deferred costs (5,143) (5,903)
Allowance for losses on loans (6,671) (6,405)
---------------------------
Net loans receivable held
for investment $ 658,808 528,847
===========================
24
<PAGE>
HELD FOR SALE 1999 1998
---------------------------
Mortgage loans:
Permanent loans on:
Residential properties $ 114,701 143,521
Partially insured by FHA 445 462
--------------------------
115,146 143,983
Less:
Undisbursed loan funds (22,878) (12,168)
Unearned discounts and fees on loans,
net of deferred costs (36) 30
--------------------------
Net loans receivable held for sale $ 92,232 131,845
==========================
Included in the loans receivable balances are participating interests
in mortgage loans and wholly owned mortgage loans serviced by other
institutions of approximately $5.1 million and $6.0 million at September
30, 1999 and 1998, respectively. Whole loans and participations
serviced for others were approximately $667.6 million and $546.2 million
at September 30, 1999 and 1998, respectively. Loans serviced for others
are not included in the accompanying consolidated balance sheets.
First mortgage loans were pledged to secure FHLB advances in the
amount of approximately $252.1 million and $163.8 million at September 30,
1999 and 1998, respectively.
Aggregate loans to executive officers, directors and their
associates, including companies in which they have partial ownership
interest did not exceed 5% of equity as of September 30, 1999 and 1998.
Such loans were made under terms and conditions substantially the same as
loans made to parties not affiliated with the Bank.
As of September 30, 1999 and 1998, loans with an aggregate principal
balance of approximately $4.1 million and $3.8 million, respectively,
were on nonaccrual status. Gross interest income would have increased by
$248,000 and $236,000 for the years ended September 30, 1999 and 1998,
respectively, if the nonaccrual loans had been performing.
The following table presents the activity in the allowance for losses
on loans for 1999, 1998, and 1997. Allowance for losses on mortgage loans
includes specific valuation allowances and general valuation allowances.
Dollar amounts are expressed in thousands.
Amount
------------
Balance at October 1, 1996 $ 5,836
Provisions 477
Charge-offs (41)
Recoveries --
------------
Balance at September 30, 1997 $ 6,272
Provisions 64
Charge-offs (7)
Recoveries 76
------------
Balance at September 30, 1998 $ 6,405
Provisions 300
Charge-offs (57)
Recoveries 23
------------
Balance at September 30, 1999 $ 6,671
============
25
<PAGE>
Although the Bank has a diversified loan portfolio, a substantial
portion is secured by real estate. The following table presents
information as of September 30 about the location of real estate that
secures loans in the Bank's mortgage loan portfolio. The line item
"Other" includes total investments in other states of less than $10
million each. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------
Residential
---------------------- Construction
1-4 5 or more Commercial and
State family family real estate development Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Missouri $ 209,126 1,104 101,945 104,582 416,757
Kansas 82,565 -- 20,904 88,374 191,843
Iowa 14,345 -- 6,290 -- 20,635
Oklahoma 4,503 -- 9,964 4,085 18,552
Other 35,205 3,586 14,446 -- 53,237
---------------------------------------------------------------
$ 345,744 4,690 153,549 197,041 701,024
===============================================================
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
Residential
---------------------- Construction
1-4 5 or more Commercial and
State family family real estate development Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Missouri $ 203,965 10,000 42,878 76,170 333,013
Kansas 73,908 8,392 16,287 70,059 168,646
Other 35,904 4,884 20,295 4,500 65,583
---------------------------------------------------------------
$ 313,777 23,276 79,460 150,729 567,242
===============================================================
</TABLE>
Proceeds from the sale of loans receivable held for sale during
fiscal years 1999, 1998 and 1997, were $384.7 million, $344.5 million, and
$293.3 million, respectively. In fiscal 1999, the Bank realized gross
gains of $6.3 million and gross losses of $40,000 on those sales. In
fiscal 1998, gross gains of $5.7 million and gross losses of $0.1 million
were realized. In fiscal 1997, the Bank realized gross gains of $5.1
million and $0.3 of gross losses.
(8) REAL ESTATE OWNED
The following table presents real estate owned and other repossessed
property as of September 30. Dollar amounts are expressed in thousands.
1999 1998
-----------------------------
Real estate acquired through (or deed in
lieu of) foreclosure $ 3,991 4,568
Less: allowance for losses (1,289) (1,336)
-----------------------------
Total $ 2,702 3,232
=============================
The allowance for losses on real estate owned includes the following
activity for the years ended September 30. Dollar amounts are expressed
in thousands.
1999 1998 1997
--------------------------
Balance at beginning of year $ 1,336 1,680 1,715
Provisions -- (1,987) (172)
Charge-offs (262) (434) (242)
Recoveries 215 2,077 379
--------------------------
Balance at end of year $ 1,289 1,336 1,680
==========================
26
<PAGE>
(9) PREMISES AND EQUIPMENT
The following table summarizes premises and equipment as of September
30. Dollar amounts are expressed in thousands.
1999 1998
-------------------
Land $ 1,913 1,774
Buildings and improvements 3,851 3,678
Furniture, fixtures and equipment 6,898 6,839
-------------------
12,662 12,291
Accumulated depreciation (7,943) (7,473)
-------------------
Total $ 4,719 4,818
===================
Certain facilities of the Bank are leased under various operating
leases. Amounts paid for rent expense for the fiscal years ended
September 30, 1999, 1998, and 1997 were approximately $584,000, $510,000,
and $470,000, respectively.
Future minimum rental commitments under noncancelable leases are
presented in the following table. Dollar amounts are expressed in
thousands.
Fiscal year ended
September 30, Amount
- ----------------------------------
2000 $ 530
2001 456
2002 293
2003 39
--------
Total $ 1,318
========
(10) CUSTOMER DEPOSIT ACCOUNTS
Customer deposit accounts as of September 30 are illustrated in the
following table. Dollar amounts are expressed in thousands.
1999 1998
----------------- -----------------
Amount % Amount %
- ---------------------------------------------------------------------
Demand deposit accounts $ 57,987 10 60,803 11
Savings accounts 85,758 15 78,991 14
Money market demand accounts 7,004 1 8,276 2
Certificate accounts 414,714 74 397,434 73
----------------- -----------------
$ 565,463 100 545,504 100
================= =================
Weighted average interest rate 4.83% 5.04%
=========== ============
The aggregate amount of certificates accounts in excess of $100,000
was approximately $40.8 million and $31.4 million as of September 30, 1999
and 1998, respectively.
The following table presents contractual maturities of certificate
accounts as of September 30, 1999. Dollar amounts are expressed in
thousands.
Two to After
Up to One to three three
one year two years years years Total
-------------------------------------------------
Certificate accounts $ 312,824 59,910 27,136 14,844 414,714
27
<PAGE>
The following table presents interest expense on customer deposit
accounts for the years ended September 30. Dollar amounts are expressed
in thousands.
1999 1998 1997
--------------------------------
Savings accounts $ 3,257 3,048 2,777
Money market demand and
demand deposit accounts 994 1,121 1,325
Certificate accounts 21,832 22,845 21,779
--------------------------------
$ 26,083 27,014 25,881
================================
(11) ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the FHLB are secured by all stock held in the FHLB,
mortgage-backed securities and first mortgage loans with aggregate unpaid
principal balances equal to at least 150% of outstanding advances not
secured by FHLB stock. The following table provides a summary of advances
by year of maturity as of September 30. Dollar amounts are expressed in
thousands.
1999 1998
----------------- -----------------
Weighted Weighted
Average Average
Year ended September 30, Amount Rate Amount Rate
- --------------------------------------------------------------------
1999 $ -- -- $ 85,016 5.76%
2000 134,352 5.46% 16 5.18%
2001 5,265 5.80% 16 5.18%
2002 278 5.25% 16 5.18%
2003 24,293 5.78% 24,016 5.79%
2004 through 2014 3,900 5.25% 130 5.18%
------------------ -----------------
$ 168,088 5.51% $109,210 5.77%
================== =================
(12) OTHER BORROWINGS
Other borrowings with original terms of greater than one year are
listed in the schedule below. Dollar amounts are expressed in thousands.
Description Rate Amount
- -------------------------------------------------
Other notes payable 7.50% $ 150
The balance of other borrowings at September 30, 1999, is scheduled
to mature according to the following table. Dollar amounts are expressed
in thousands.
Years ending Amount
September 30, Maturing
- ----------------------------------
2000 50
2001 50
2002 50
------------
$ 150
============
28
<PAGE>
(13) INCOME TAXES PAYABLE
The differences between the effective income tax rates and the
statutory federal corporate tax rate for the years ended September 30 are
as follows:
1999 1998 1997
--------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 3.2 3.2 3.4
Other, net 1.5 0.4 0.1
--------------------------
39.7% 38.6% 38.5%
==========================
Deferred income tax expense (benefit) results from temporary
differences in the recognition of income and expense for tax purposes and
financial statement purposes. The following table lists these temporary
differences and their related tax effect for the years ended September 30.
Dollar amounts are expressed in thousands.
1999 1998 1997
----------------------------
Deferred loan fees and costs $ 344 282 457
Accrued interest receivable (15) (10) (20)
Book depreciation in excess of
tax depreciation (122) (108) (84)
Basis difference on investments 6 (1) 6
Special SAIF assessment -- -- 1,292
Loan loss reserves (173) 157 (908)
Mark-to-market adjustment 165 (314) (118)
Mortgage servicing rights 1,545 964 660
Prepaid expenses 7 1 --
Other (48) 3 (7)
----------------------------
$ 1,709 974 1,278
============================
The tax effect of significant temporary differences representing
deferred tax assets (liabilities) are presented in the following table.
Dollar amounts are expressed in thousands.
1999 1998
------------------------
Deferred loan fees and costs $ (850) (506)
Accrued interest receivable (21) (36)
Book depreciation in excess of
tax depreciation 341 219
Basis difference on investments (431) (425)
Loan loss reserves 1,744 1,571
Mark-to-market adjustment 31 196
Mortgage servicing rights (3,169) (1,624)
Prepaid expenses (80) (73)
Unrealized loss on securities
available for sale 318 143
Other (94) (142)
------------------------
$(2,211) (677)
========================
(14) STOCKHOLDERS' EQUITY
During fiscal 1999, the Company paid quarterly cash dividends on
common stock of $0.08 per share on February 26, 1999, May 28, 1999, and
August 27, 1999, and $0.0625 per share on November 30, 1998.
During fiscal 1998, the Company paid quarterly cash dividends on
common stock of $0.0625 per share on February 27, 1998, May 29, 1998, and
August 31, 1998, and $0.05 per share on December 1, 1997.
29
<PAGE>
During fiscal 1999, the Company repurchased 115,926 shares of its own
stock with a total value of $1.6 million at the time of repurchase.
During fiscal 1998, 74,640 shares were repurchased with a total value of
$1.1 million at the time of repurchase.
(15) REGULATORY CAPITAL REQUIREMENTS
The Bank is required to maintain capital in excess of certain minimum
requirements as prescribed by the Office of Thrift Supervision ("OTS").
Any institution that fails to meet these minimum regulatory capital
requirements will be subject to action by the regulators that, if
undertaken, could have a direct material effect on the Bank's financial
statements. Under the capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts are
also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures have been established by regulation to ensure
capital adequacy require the Bank to maintain minimum capital amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined), and of
Tier 1 capital (as defined) to average assets (as defined). As of
September 30, 1999, the Bank meets all capital adequacy requirements.
As of September 30, 1999, the most recent notification from the OTS
categorized the Bank as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the tables presented. Management does not
believe that there are any conditions or events occurring since
notification that would change the Bank's classification. Also, management
is not aware of any existing or potential conditions that would change the
Bank's capital adequacy classification.
The following tables summarize the relationship between the Bank's
capital and regulatory requirements. Dollar amounts are expressed in
thousands.
At September 30, 1999 Amount
- ------------------------------------------------------------
GAAP capital (Bank only) $ 74,314
Adjustment for regulatory capital:
Intangible assets (1,544)
Reverse the effect of SFAS No. 115 73
--------
Tangible capital 72,843
Qualifying intangible assets 1,421
--------
Tier 1 capital (core capital) 74,264
Qualifying general valuation allowance 4,450
--------
Risk-based capital $ 78,714
========
<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------------------------------------
Actual Minimum Required for Minimum Required to be
Capital Adequacy "Well Capitalized"
---------------- ------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk-weighted assets $ 78,714 13.3% 47,371 >=8% 59,213 >=10%
Core capital to adjusted tangible assets 74,264 9.0% 32,949 >=4% 41,187 >=5%
Tangible capital to tangible assets 72,843 8.8% 12,356 >=1.5% -- --
Tier 1 capital to risk-weighted assets 74,264 12.5% -- -- 35,528 >=6%
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1998
--------------------------------------------------------------
Actual Minimum Required for Minimum Required to be
Capital Adequacy "Well Capitalized"
---------------- ------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk-weighted assets $ 68,895 13.6% 40,559 >=8% 50,698 >=10%
Core capital to adjusted tangible assets 63,714 8.7% 29,347 >=4% 36,683 >=5%
Tangible capital to tangible assets 62,146 8.5% 11,005 >=1.5% -- --
Tier 1 capital to risk-weighted assets 63,714 12.6% -- -- 30,419 >=6%
</TABLE>
(16) EMPLOYEES' RETIREMENT PLAN
Substantially all of the Bank's full-time employees participate in a
401(k) retirement plan (the "Plan"). The Plan is administered by
American United Life Insurance Company ("AUL"), through which employees
can choose from a variety of retail mutual funds to invest their fund
contributions. Under the terms of the Plan, the Bank makes monthly
contributions for the benefit of each participant in an amount that
matches one-half of the participant's contribution, not to exceed 3% of
the participants' monthly base salary, provided that the participant makes
a monthly contribution of at least 1% of his monthly base salary and no
greater than 15%. All contributions made by participants are immediately
vested and cannot be forfeited. Contributions made by the Bank, and
related earnings thereon, become vested to the participants according to
length of service requirements as specified in the Plan. Any forfeited
portions of the contributions made by the Bank and the allocated earnings
thereon are used to reduce future contribution requirements of the Bank.
The Plan may be modified, amended or terminated at the discretion of the
Bank.
The Bank's contributions to the Plan amounted to $226,000, $195,000,
and $151,000 for the years ended September 30, 1999, 1998, and 1997,
respectively. These amounts have been included as compensation expense in
the accompanying consolidated statements of income.
(17) STOCK OPTION PLAN
The Bank maintains a stock option plan ("Option Plan") through which
options to purchase up to 10% of the number of shares of common stock
originally issued, as adjusted for the stock split discussed in Note 3 and
the stock dividends discussed below, were granted to officers and
employees of the Bank. Options were granted for a period of ten years.
The option price may not be less than 100% of the fair market value of the
shares on the date of the grant. As of September 30, 1999, the time frame
for issuing new option agreements under the Option Plan had expired.
The following table summarizes Option Plan activity during fiscal
1999, 1998, and 1997. The number of shares and price per share have been
adjusted in accordance with the Option Plan to reflect the 10% stock
dividends paid in fiscal 1986, 1987, and 1989 and the four-for-one stock
split in fiscal 1999.
Number Price
Of shares per share
---------------------------
Options outstanding at October 1, 1996 544,956 $ 1.02 - 7.66
Granted 52,000 8.97
Exercised (29,260) (1.02 - 2.25)
Forfeited (8,860) (1.02 - 7.66)
---------------------------
Options outstanding at September 30, 1997 558,836 1.02 - 8.97
Granted -- --
Exercised (37,036) (1.02 - 7.78)
Forfeited -- --
---------------------------
Options outstanding at September 30, 1998 521,800 1.02 - 8.97
Granted -- --
Exercised (162,000) 2.25 - 5.06
Forfeited -- --
---------------------------
Options outstanding at September 30, 1999 359,800 $ 2.25 - 8.97
===========================
31
<PAGE>
The following table provides information regarding the expiration
dates of the stock options outstanding at September 30, 1999.
Number Weighted average
of shares exercise price
-------------------------------------
Expiring on:
June 25, 2000 153,848 $ 5.88
June 13, 2001 109,952 7.50
December 22, 2002 12,000 2.25
August 23, 2004 4,000 5.06
September 26, 2005 8,000 7.53
January 23, 2006 8,000 7.63
June 12, 2006 12,000 7.50
January 21, 2007 52,000 8.97
-------------------------------------
359,800 $ 6.82
=====================================
Of the options outstanding at September 30, 1999, 244,249 are
immediately exercisable and 115,551 are exercisable at future dates in
accordance with the vesting schedules outlined in each stock option
agreement.
The Company applies Accounting Principles Board Opinion ("APB") No.
25 in accounting for its stock option plan, under which no compensation
cost has been recognized for stock option awards. Had compensation cost
for the stock option plan been determined in accordance with the fair
value accounting method prescribed under SFAS 123, "Accounting for Stock-
Based Compensation," the Company's net income and net income per share on
a pro forma basis would have been as presented in the following table.
Dollar amounts are expressed in thousands, except per share data.
1999 1998 1997
------------------------------
Net Income:
As reported $ 12,900 13,586 11,071
Pro forma 12,817 13,557 11,050
Basic earnings per share:
As reported $ 1.43 1.52 1.23
Pro forma 1.42 1.52 1.23
Diluted earnings per share:
As reported 1.40 1.48 1.19
Pro forma 1.40 1.48 1.19
For purposes of computing the pro forma effects of stock option
grants under the fair value accounting method, the fair value of each
stock option grant was estimated on the date of the grant using the Black-
Scholes option pricing model. The following assumptions for fiscal 1999,
1998 and 1997 were used for the grants:
1999 1998 1997
-----------------------------------
Risk free interest rate 5.76% 4.22% 6.00%
Expected volatility .364 .213 .12
Expected life 6 Years 6 Years 6 years
Dividend yield 3.6%-4.3% 3.5%-4.2% 3.5%-4.2%
32
<PAGE>
(18) MORTGAGE SERVICING RIGHTS
The following provides information about the Bank's mortgage
servicing rights for the years ended September 30. Dollar amounts are
expressed in thousands.
1999 1998 1997
----------------------------
Balance at beginning of year $ 4,517 2,681 1,276
Additions:
Originated mortgage servicing rights 4,884 3,498 1,852
Reductions:
Amortization (1,137) (1,011) (447)
Impairment recovery (loss) 118 (651) --
----------------------------
Balance at end of year $ 8,382 4,517 2,681
============================
(19) SEGMENT INFORMATION
In accordance with SFAS No. 131, the Company has identified two
principal operating segments for purposes of financial reporting: Banking
and Mortgage Banking. These segments were determined based on the
Company's internal financial accounting and reporting processes and are
consistent with the information that is used to make operating decisions
and to assess the Company's performance by the Company's key decision
makers.
The Mortgage Banking segment originates mortgage loans for sale to
investors and for the portfolio of the Banking segment. The Banking
segment provides a full range of banking services through the Bank's
branch network, exclusive of mortgage loan originations. A portion of the
income presented in the Mortgage Banking segment is derived from sales of
loans to the Banking segment based on a transfer pricing methodology that
is designed to approximate economic reality. The Other and Eliminations
segment includes financial information from the parent company plus inter-
segment eliminations.
The following table presents financial information from the Company's
operating segments for the years ended September 30, 1999, 1998, and 1997.
Dollar amounts are expressed in thousands.
Year ended Mortgage Other and
September 30, 1999 Banking Banking Eliminations Consolidated
- ------------------------------------------------------------------------
Net interest income $ 30,180 -- 275 30,455
Provision for
loan losses 300 -- -- 300
Other income 8,575 11,527 (8,720) 11,382
General and admin.
Expenses 11,138 10,983 (1,992) 10,129
Income tax expense 10,927 217 (2,636) 8,508
-------------------------------------------------
Net income $ 16,390 327 (3,817) 12,900
=================================================
Year ended Mortgage Other and
September 30, 1998 Banking Banking Eliminations Consolidated
- ------------------------------------------------------------------------
Net interest income $ 27,690 -- 159 27,849
Provision for
loan losses 64 -- -- 64
Other income 8,144 10,478 (7,198) 11,424
General and admin.
Expenses 9,725 9,112 (1,770) 17,067
Income tax expense 10,027 526 (1,997) 8,556
-------------------------------------------------
Net income $ 16,018 840 (3,272) 13,586
=================================================
33
<PAGE>
Year ended Mortgage Other and
September 30, 1997 Banking Banking Eliminations Consolidated
- ------------------------------------------------------------------------
Net interest income $ 24,777 -- -- 24,777
Provision for
loan losses 477 -- -- 477
Other income 5,551 8,224 (5,179) 8,596
General and admin.
Expenses 8,483 7,726 (1,321) 14,888
Income tax expense 8,226 192 (1,481) 6,937
-------------------------------------------------
Net income $ 13,142 306 (2,377) 11,071
=================================================
(20) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Bank has entered into financial
agreements with off-balance-sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit risk, interest
rate risk, and liquidity risk, which may exceed the amount recognized in
the consolidated financial statements. The contract amounts or notional
amounts of those instruments express the extent of involvement the Bank
has in particular classes of financial instruments.
With regard to financial instruments for commitments to extend
credit, standby letters of credit, and financial guarantees, the Bank's
exposure to credit loss because of non-performance by another party is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments
As of September 30, 1999, the Bank had outstanding commitments to
originate $15.6 million in commercial real estate loans, $29.1 million of
fixed rate residential first mortgage loans and $20.8 million of
adjustable rate residential first mortgage loans. Commercial real estate
loan commitments have approximate average committed rates of 8.2%.
Residential mortgage loan commitments have an approximate average
committed rate of 8.4% and approximate average fees and discounts of 0.7%.
The interest rate commitments on residential loans generally expire 60
days after the commitment date. Interest rate commitments on commercial
real estate loans have varying terms to expiration.
At September 30, 1999 and 1998, the Bank had commitments to sell
loans of approximately $58.3 million and $72.5 million, respectively.
These instruments contain an element of risk in the event that other
parties are unable to meet the terms of such agreements. In such event,
the Bank's loans receivable held for sale would be exposed to market
fluctuations. Management does not expect any other party to default on
its obligations and, therefore, does not expect to incur any costs due to
such possible default. Any unrealized loss on these commitment
obligations are considered in conjunction with the Bank's lower of cost or
market valuation on its loans receivable held for sale.
(21) RECONCILIATION OF BASIC EARNINGS PER SHARE TO DILUTED EARNINGS
PER SHARE
Basic earnings per share is computed using the weighted average
number of common shares outstanding. The dilutive effect of potential
common shares outstanding are included in diluted earnings per share. The
computations of basic and diluted earnings per share are presented in the
following table. Dollar amounts are expressed in thousands, except per
share data.
Year Ended September 30,
--------------------------------------
1999 1998 1997
--------------------------------------
Net income $ 12,900 13,586 11,071
Basic weighted average shares 8,997,552 8,937,740 9,003,500
Effect of stock options 189,049 216,832 302,096
Dilutive potential common shares 9,186,601 9,154,572 9,305,596
Earnings per share:
Basic $ 1.43 1.52 1.23
Dilutive 1.40 1.48 1.19
The dilutive securities included for each period presented above
consist entirely of stock options granted to employees as incentive
stock options under Section 442A of the Internal Revenue Code as
amended (Note 17).
(22) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying values and fair values
of the Company's financial instruments presented in accordance with
SFAS No. 107. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
-------------------------- -------------------------
Estimated Estimated
Carrying fair Carrying fair
value value value value
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 10,870 10,870 3,331 3,331
Securities available for sale 4,913 4,913 7,209 7,209
Stock in Federal Home Loan Bank 8,405 8,405 5,961 5,961
Mortgage-backed securities:
Available for sale 14,597 14,597 17,742 17,742
Held to maturity 14,487 15,111 23,947 25,029
Loans receivable:
Held for sale 92,232 93,413 131,845 133,732
Held for investment 657,340 664,531 526,512 543,729
Accrued interest receivable 4,832 4,832 4,455 4,455
Mortgage servicing rights 8,382 9,326 4,517 4,517
Financial Liabilities:
Customer deposit accounts 565,463 566,707 545,504 541,394
Advances from FHLB 168,088 166,200 109,210 110,955
Other borrowings 150 149 200 204
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
-------------------------- -------------------------
Estimated Estimated
Carrying fair Carrying fair
value value value value
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Unrecognized financial instruments:
Lending commitments - fixed
rate, net $ 43,994 324 62,857 1,182
Lending commitments - floating
Rate 21,582 345 5,480 118
Commitments to sell loans 58,308 (227) 72,534 (790)
</TABLE>
The fair value estimates presented are based on pertinent information
available to management as of September 30, 1999 and 1998. Although
management is not aware of any factors that would significantly affect the
estimated fair values, such amounts have not been comprehensively revalued
for purposes of these consolidated financial statements since that date.
Therefore, current estimates of fair value may differ significantly from
the amounts presented above.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------
The Board of Directors and Stockholders
NASB Financial, Inc., and Subsidiary
We have audited the accompanying consolidated balance sheets of NASB
Financial, Inc. and Subsidiary (the "Company") as of September 30, 1999
and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits. The financial statements of the Company for the year
ended September 30, 1997, were audited by other auditors whose report,
dated November 14, 1997, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such 1999 and 1998 financial statements present
fairly, in all material respects, the financial position of the Company as
of September 30, 1999 and 1998, and the results of their operations and
their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
December 2, 1999
Kansas City, Missouri
36
<PAGE>
SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
- -------------------------------------------------------------------------
The following tables include certain information concerning the
quarterly consolidated results of operations of the Company at the dates
indicated. Dollar amounts are expressed in thousands except per share
data.
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 15,472 15,262 15,811 17,012 63,557
Interest expense 8,359 7,965 8,071 8,707 33,102
--------------------------------------------------------
Net interest income 7,113 7,297 7,740 8,305 30,455
Provision for loan losses 75 75 75 75 300
--------------------------------------------------------
Net interest income after
provision for loan losses 7,038 7,222 7,665 8,230 30,155
Other income 2,821 3,177 2,675 2,709 11,382
General and administrative
Expenses 4,922 4,721 5,092 5,394 20,129
--------------------------------------------------------
Income before income taxes 4,937 5,678 5,248 5,545 21,408
Income tax expense 1,922 2,270 2,099 2,217 8,508
--------------------------------------------------------
Net income $ 3,015 3,408 3,149 3,328 12,900
========================================================
Income per share $ 0.33 0.38 0.35 0.37 1.43
========================================================
Average shares outstanding 8,935 9,042 9,023 8,991 8,998
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 15,674 15,632 15,606 15,479 62,391
Interest expense 8,942 8,611 8,509 8,480 34,542
--------------------------------------------------------
Net interest income 6,732 7,021 7,097 6,999 27,849
Provision for loan losses 7 308 62 (313) 64
--------------------------------------------------------
Net interest income after
provision for loan losses 6,725 6,713 7,035 7,312 27,785
Other income 2,333 2,612 2,477 4,002 11,424
General and administrative
expenses 3,964 4,119 4,299 4,685 17,067
--------------------------------------------------------
Income before income taxes 5,094 5,206 5,213 6,629 22,142
Income tax expense 1,961 2,004 2,037 2,554 8,556
--------------------------------------------------------
Net income $ 3,133 3,202 3,176 4,075 13,586
========================================================
Income per share $ 0.35 0.36 0.35 0.46 1.52
========================================================
Average shares outstanding 8,948 8,960 8,932 8,904 8,938
</TABLE>
37
<PAGE>
BOARD OF DIRECTORS OF NASB FINANCIAL INC., AND NORTH AMERICAN SAVINGS
BANK, F.S.B.
- -------------------------------------------------------------------------
David H. Hancock
Chairman
Chief Executive Officer
NASB Financial, Inc. and North American Savings Bank
Walter W. Pinnell
President, NASB Financial, Inc. and North American Savings Bank
James A. Watson
Executive Vice President, North American Savings Bank
Frederick V. Arbanas
President, Fred Arbanas, Inc. National Yellow Pages Service
Jackson County Legislature
Kansas City, Missouri
W. Russell Welsh
Managing Partner, Polsinelli, White, Vardeman & Shalton
Kansas City, Missouri
Barrett Brady
President, J.C. Nichols Company
Kansas City, Missouri
Linda S. Hancock
Linda Smith Hancock Interiors
Kansas City, Missouri
OFFICERS OF NASB FINANCIAL, INC.
- -------------------------------------------------------------------------
David H. Hancock
Chairman
Chief Executive Officer
Keith B. Cox
Vice President and Treasurer
Paul L. Thomas
Vice President and Corporate Secretary
John M. Nesselrode
Senior Vice President
Chief Investment Officer
Walter W. Pinnell
President
James A. Watson
Vice President
Brad Lee
Vice President
Bruce Thielen
Vice President
OFFICERS OF NORTH AMERICAN SAVINGS BANK, F.S.B.
- -------------------------------------------------------------------------
David H. Hancock
Chairman
Chief Executive Officer
Walter W. Pinnell
President
James A. Watson
Executive Vice President
Operations and Branch Admin.
Keith B. Cox
Executive Vice President, Chief Financial Officer
Paul L. Thomas
Vice President, Corporate Secretary
Brad Lee
Senior Vice President, Construction Lending
John M. Nesselrode
Senior Vice President, Chief Investment Officer
Bruce Thielen
Senior Vice President, Residential Lending
Dena Sanders
Vice President, Consumer Lending
Lisa M. Reynolds
Vice President, Construction Lending
Mike Anderson
Vice President, Construction Lending
Roger Campbell
Vice President, Construction Lending
Patricia K. Pittack
Vice President, Product Management
Pat Cox
Vice President, Residential Lending
Neil Volkmann
Vice President, Residential Lending
Joe O'Flaherty
Vice President, Residential Lending
Ron Reagan
Vice President, Residential Lending
38
<PAGE>
BRANCH OFFICES
- -------------------------------------------------------------------------
Headquarters
12498 South 71 Highway
Grandview, Missouri
646 N. 291 Highway
Lee's Summit, Missouri
8840 State Line Road
Leawood, Kansas
8501 North Oak Trafficway
Kansas City, Missouri
920 North Belt
St. Joseph, Missouri
3011-B North Belt
St. Joseph, Missouri
11221 East 23rd Street
Independence, Missouri
2002 East Mechanic
Harrisonville, Missouri
LOAN ADMINISTRATION
12125-D Blue Ridge Ext.
Grandview, Missouri
RESIDENTIAL LENDING
949 NE Columbus
Lee's Summit, Missouri
12900 Metcalf - Suite 140
Overland Park, Kansas
1611 Des Peres Road,
Suite 110
St. Louis, Missouri
1014 Country Club Road
St. Charles, Missouri
3322 S. Campbell - Suite W
Springfield, Missouri
#7 Executive Woods Court
Suite C
Swansea, Illinois
5620 SW 29th St.
Topeka, Kansas
CONSTRUCTION LENDING
12125-D Blue Ridge Ext.
Grandview, Missouri
11237 Nall Avenue
Leawood, Kansas
INVESTOR INFORMATION
- -------------------------------------------------------------------------
Annual Meeting of Stockholders:
The Annual Meeting of Stockholders will be held on Tuesday, January
26, 1999, at 10:00 a.m. at North American Savings Bank, 12125-D Blue Ridge
Extension, Grandview, Missouri.
Annual Report on 10-K:
Copies of NASB Financial, Inc. Form 10-K Report to the Securities and
Exchange Commission are available without charge upon written request to
Keith B. Cox, Vice President and Treasurer, NASB Financial, Inc., 12498
South 71 Highway, Grandview, Missouri 64030.
Transfer Agent:
UMB Bank, n.a., P.O. Box 64, Kansas City, Missouri 64141
Stock Trading Information:
The common stock of NASB Financial, Inc. and subsidiaries is traded
in the over-the-counter market. The Company's symbol is NASB.
Independent Auditors:
Deloitte & Touche LLP, 1010 Grand Avenue, Suite 400, Kansas City,
Missouri 64106
Shareholder and Financial Information:
Contact Keith B. Cox, NASB Financial, Inc., 12498 South 71 Highway,
Grandview, Missouri 64030, (816) 765-2200.
Common Stock Prices and Dividends
At September 30, 1999, approximately 500 registered stockholders held
8,949,438 outstanding shares of NASB Financial, Inc. common stock. The
Company paid cash dividends of $0.05 per share were paid in February, May,
and August, and November of 1997. Cash dividends of $0.0625 per share
were paid in February, May, August, and November of 1998. Cash dividends
of $0.08 per share were paid in February, May, and August of 1999.
The table below reflects the Bank's high and low bid prices. The
quotations represent intra-dealer quotations without retail markups,
markdowns or commissions, and do not necessarily represent actual
transactions.
Fiscal 1999 Fiscal 1998
---------------- ----------------
Quarter ended High Low High Low
- -----------------------------------------------------------
December 31 $ 13.75 10.00 13.60 12.00
March 31 23.00 12.75 19.72 12.50
June 30 14.06 12.63 15.50 14.53
September 30 10.38 14.00 14.63 12.50
39
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 10,870 3,331
<INT-BEARING-DEPOSITS> 7,317 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 13,318 13,170
<INVESTMENTS-CARRYING> 13,318 13,170
<INVESTMENTS-MARKET> 13,318 13,170
<LOANS> 778,656 700,046
<ALLOWANCE> 7,960 7,741
<TOTAL-ASSETS> 825,737 736,054
<DEPOSITS> 565,463 545,504
<SHORT-TERM> 134,352 85,016
<LIABILITIES-OTHER> 13,173 11,307
<LONG-TERM> 33,886 24,394
0 0
0 0
<COMMON> 1,425 1,400
<OTHER-SE> 77,438 68,433
<TOTAL-LIABILITIES-AND-EQUITY> 825,737 736,054
<INTEREST-LOAN> 62,307 60,770
<INTEREST-INVEST> 887 1,186
<INTEREST-OTHER> 363 435
<INTEREST-TOTAL> 63,557 62,391
<INTEREST-DEPOSIT> 26,083 27,014
<INTEREST-EXPENSE> 33,102 34,542
<INTEREST-INCOME-NET> 30,455 27,849
<LOAN-LOSSES> 300 64
<SECURITIES-GAINS> 95 0
<EXPENSE-OTHER> 20,129 17,067
<INCOME-PRETAX> 21,408 22,142
<INCOME-PRE-EXTRAORDINARY> 21,408 22,142
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,900 13,586
<EPS-BASIC> 1.43 1.52
<EPS-DILUTED> 1.40 1.48
<YIELD-ACTUAL> 4.14 3.94
<LOANS-NON> 4,074 3,854
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 4,004 6,031
<LOANS-PROBLEM> 7,065 5,035
<ALLOWANCE-OPEN> 6,405 6,272
<CHARGE-OFFS> 57 7
<RECOVERIES> 23 76
<ALLOWANCE-CLOSE> 6,671 6,405
<ALLOWANCE-DOMESTIC> 6,671 6,405
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 5,223 5,225
</TABLE>
