SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 2000
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)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
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 number of shares of Common Stock of the Registrant outstanding as of
August 11, 2000, was 8,500,249.
<PAGE>
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands)
June 30, September 30,
2000 1999
(Unaudited)
---------- -----------
ASSETS
Cash and cash equivalents $ 13,905 $ 10,870
Securities available for sale 4,738 4,913
Stock in Federal Home Loan Bank, at cost 12,580 8,405
Mortgage-backed securities:
Available for sale 10,644 14,597
Held to maturity (market value of $10,954
and $13,268 at June 30, 2000, and
September 30, 1999, respectively) 10,889 13,019
Loans receivable:
Held for sale 83,317 92,232
Held for investment, net 808,282 658,808
Accrued interest receivable 5,950 4,832
Real estate owned, net 3,933 2,702
Premises and equipment, net 5,677 4,719
Mortgage servicing rights, net 9,209 8,382
Other assets 2,366 2,258
---------- ----------
$ 971,490 $ 825,737
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposit accounts $ 617,196 $ 565,463
Advances from Federal Home Loan Bank 251,600 168,088
Other borrowings 100 150
Escrows 4,829 6,310
Income taxes payable 5,938 2,965
Accrued expenses and other liabilities 4,641 3,898
---------- ----------
Total liabilities 884,304 746,874
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock of $0.15 par value:
3,000,000 authorized; 9,651,160 issued
at June 30, 2000, and 9,497,312 issued
at September 30, 1999 1,448 1,425
Serial preferred stock of $1.00 par
value: 7,500,000 shares authorized;
none issued or outstanding -- --
Additional paid-in capital 14,737 13,856
Retained earnings 78,184 69,704
Treasury stock, at cost; 633,646 shares
at June 30, 2000, and 547,874 shares
at September 30, 1999. (6,612) (5,640)
Accumulated other comprehensive loss (571) (482)
---------- ----------
Total stockholders' equity 87,186 78,863
---------- ----------
971,490 825,737
========== ==========
See accompanying notes to consolidated financial statements.
1
<PAGE>
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest on loans $ 20,117 15,020 55,178 43,956
Interest on mortgage-backed securities 332 540 1,021 1,607
Interest and dividends on securities 313 209 870 657
Other interest income 42 42 256 324
--------- --------- --------- ---------
Total interest income 20,804 15,811 57,325 46,544
--------- --------- --------- ---------
Interest on customer deposit accounts 7,556 6,363 21,456 19,389
Interest on advances from FHLB and
other borrowings 3,621 1,708 9,107 5,007
--------- --------- --------- ---------
Total interest expense 11,177 8,071 30,563 24,396
--------- --------- --------- ---------
Net interest income 9,627 7,740 26,762 22,148
Provision for loan losses 150 75 450 225
--------- --------- --------- ---------
Net interest income after provision
for loan losses 9,477 7,665 26,312 21,923
--------- --------- --------- ---------
Other income (expense):
Loan servicing fees 394 145 890 137
Impairment (loss) recovery on mortgage
servicing rights (150) 7 (56) 111
Customer service fees and charges 794 456 2,096 1,373
Gain (loss)on sale of securities held for sale -- -- -- 95
Gain on sale of loans held for sale 1,057 1,758 2,861 5,830
Other 503 309 1,190 1,129
--------- --------- --------- ---------
Total other income 2,598 2,675 6,981 8,675
--------- --------- --------- ---------
General and administrative expenses:
Compensation and fringe benefits 3,231 3,002 9,234 8,707
Premises and equipment 594 589 1,870 1,768
Advertising and business promotion 134 214 501 624
Federal deposit insurance premiums 30 82 144 246
Other 1,144 1,205 3,217 3,392
--------- --------- --------- ---------
Total general and administrative expenses 5,133 5,092 14,966 14,737
--------- --------- --------- ---------
Income before income tax expense 6,942 5,248 18,327 15,861
Income tax expense 2,775 2,099 7,327 6,291
--------- --------- --------- ---------
Net income $ 4,167 3,149 11,000 9,570
========= ========= ========= =========
Basic earnings per share $ 0.46 0.35 1.23 1.06
========= ========= ========= =========
Diluted earnings per share $ 0.45 0.34 1.20 1.04
========= ========= ========= =========
Weighted average shares outstanding 9,017,823 9,023,057 8,972,162 8,999,661
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained Treasury comprehensive stockholders'
stock capital earnings stock loss equity
-----------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1999 $ 1,425 13,856 69,704 (5,640) (482) 78,863
Comprehensive income:
Net income -- -- 11,000 -- -- 11,000
Other comprehensive loss,
net of tax
Unrealized loss on securities -- -- -- -- (89) (89)
---------
Total comprehensive income -- -- -- -- -- 10,911
Cash dividends paid -- -- (2,520) -- -- (2,520)
Stock options exercised 23 881 -- -- -- 904
Purchase of common stock for
Treasury -- -- -- (972) -- (972)
----------------------------------------------------------------------
Balance at June 30, 2000 $ 1,448 14,737 78,184 (6,612) (571) 87,186
=======================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------------------- ----------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,167 3,149 11,000 9,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 221 273 741 775
Amortization and accretion (1,071) (866) (295) (395)
Gain on sale of securities available for sale -- -- -- (95)
Impairment loss (recovery) on mortgage servicing rights 150 (7) 56 (111)
Gain on sale of loans receivable held for sale (1,057) (1,758) (2,861) (5,830)
Provision for loan losses 150 75 450 225
Origination and purchase of loans held for sale (69,828) (86,164) (201,375) (307,908)
Sale of loans receivable held for sale 67,532 88,225 207,395 319,860
Changes in:
Accrued interest receivable (609) (351) (1,118) (157)
Accrued expenses and other liabilities and
income taxes payable 3,094 1,013 3,784 617
---------------------- ----------------------
Net cash provided by operating activities 2,749 3,589 17,777 16,551
Cash flows from investing activities:
Principal repayments of mortgage-backed securities:
Held to maturity 641 1,261 2,154 5,378
Available for sale 1,139 1,267 3,532 3,618
Principal repayments of mortgage loans held
for investment and held for sale 71,013 57,367 182,169 159,685
Principal repayments of other loans 6,234 5,345 19,774 15,503
Principal repayments of securities available for sale -- -- -- 30
Loan origination - mortgage loans held for investment (112,228) (78,776) (296,549) (173,906)
Loan origination - other loans (8,811) (9,438) (24,081) (23,807)
Purchase of mortgage loans held for investment (7,172) (11,598) (28,157) (24,740)
Purchase of FHLB stock (1,746) (893) (4,175) (893)
Proceeds for sale of real estate owned 499 349 1,438 1,224
Purchases of premises and equipment (1,537) (142) (1,699) (865)
Other 473 899 630 2,093
---------------------- ----------------------
Net cash used in investing activities (51,495) (34,359) (144,964) (36,680)
</TABLE>
4
<PAGE>
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------------------- ----------------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in customer deposit accounts 19,406 21,547 51,733 18,587
Proceeds from advances from FHLB 155,000 172,000 244,700 191,000
Repayment on advances from FHLB (120,063) (149,060) (161,188) (171,161)
Repayment of notes payable -- -- (50) (50)
Cash dividends paid (902) (722) (2,520) (2,004)
Repurchase of common stock (62) (552) (972) (551)
Net increase (decrease) in escrows 1,128 1,223 (1,481) (1,531)
---------------------- ----------------------
Net cash provided by financing activities 54,507 44,436 130,222 34,290
---------------------- ----------------------
Net increase in cash and cash equivalents 5,761 13,666 3,035 14,161
Cash and cash equivalents at beginning of the period 8,144 3,826 10,870 3,331
---------------------- ----------------------
Cash and cash equivalents at end of period $ 13,905 17,492 13,905 17,492
====================== ======================
Supplemental disclosure of cash flow information:
Cash paid for income taxes (net of refunds) $ 1,556 2,598 4,287 5,590
Cash paid for interest 11,187 8,253 30,536 24,646
Supplemental schedule of non-cash investing and financing
activities:
Conversion of loans receivable to real estate owned $ 2,044 601 2,782 1,367
Conversion of real estate owned to loans receivable 94 236 94 314
Capitalization of mortgage servicing rights 490 1,453 1,599 4,223
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are
prepared in accordance with accounting principles generally accepted in
the United States of America ("GAAP") for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. All
adjustments are of a normal and recurring nature and, in the opinion of
management, the statements include all adjustments considered necessary
for fair presentation. Operating results for the three months and nine
months ended June 30, 2000, are not necessarily indicative of the
results that may be expected for the fiscal year ended September 30,
2000.
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues
and expenses for the period. Material estimates that are particularly
susceptible to significant change in the near-term relate to the
determination of the allowances for losses on loans and real estate
owned. While management believes that these allowances are adequate,
future additions to the allowances may be necessary based on changes in
economic conditions.
In June 1998, the FASB issued Statement of Financial Accounting
Standards ("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 be
effective for the Company's fiscal year beginning October 1, 2000. The
adoption of this Statement is not expected to have a material impact on
the Company's consolidated financial statements.
In December 1999, the Securities & Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," which will be adopted by the
Company during the quarter ended December 31, 2000. The adoption of
this Statement is not expected to have a material impact on the
Company's consolidated financial statements.
Certain quarterly amounts for previous periods have been
reclassified to conform to the current quarter's presentation.
(2) SECURITIES AVAILABLE FOR SALE
The following table presents a summary of securities available for
sale. Dollar amounts are expressed in thousands.
June 30, 2000
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
U.S. Government Obligations $ 2,857 -- (7) 2,850
Equity securities 2,738 -- (850) 1,888
-------------------------------------------
Total $ 5,595 -- (857) 4,738
===========================================
6
<PAGE>
(3) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The following table presents a summary of mortgage-backed securities
available for sale. Dollar amounts are expressed in thousands.
June 30, 2000
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
Pass-through certificates
guaranteed by GNMA
- fixed rate $ 4,256 5 (39) 4,222
FNMA pass-through
certificates - fixed rate 1,302 -- (64) 1,238
Mortgage-backed derivatives
(including CMO residuals
and interest-only
securities) 5,180 4 -- 5,184
-------------------------------------------
Total $ 10,738 9 (103) 10,644
===========================================
(4) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The following table presents a summary of mortgage-backed
securities held to maturity. Dollar amounts are expressed in thousands.
June 30, 2000
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
FHLMC participation
certificates:
Fixed rate $ 2,002 23 (27) 1,998
Balloon maturity and
adjustable rate 4,104 -- (83) 4,021
FNMA pass-through
certificates:
Fixed rate 258 -- (11) 247
Balloon maturity and
adjustable rate 457 -- (12) 445
Pass-through certificates
guaranteed by GNMA
Fixed rate 399 13 (1) 411
Collateralized mortgage
obligation bonds 980 63 (1) 1,042
Other asset-backed
Securities 2,689 101 -- 2,790
-------------------------------------------
Total $ 10,889 200 (135) 10,954
===========================================
7
<PAGE>
(5) LOANS RECEIVABLE
Loans receivable are as follows:
June 30,
2000
---------------------
(Dollars in thousands)
LOANS HELD FOR INVESTMENT:
Mortgage loans:
Permanent loans on:
Residential properties $ 357,984
Business properties 204,299
Partially guaranteed by VA or
insured by FHA 34,067
Construction and development 252,548
----------
Total mortgage loans 848,898
Commercial loans 7,280
Installment loans to individuals 47,581
----------
Total loans held for investment 903,759
Less:
Undisbursed loan funds (82,721)
Unearned discounts and fees and costs
on loans, net (5,729)
Allowance for losses on loans (7,027)
----------
Net loans held for investment $ 808,282
==========
June 30,
2000
---------------------
(Dollars in thousands)
LOANS HELD FOR SALE:
Mortgage loans:
Permanent loans on:
Residential properties $ 100,505
Partially insured by FHA 431
----------
Total loans held for sale 100,936
Less:
Undisbursed loan funds (17,561)
Unearned discounts and fees and costs
on loans, net (58)
----------
Net loans held for sale $ 83,317
==========
Included in the loans receivable balances at June 30, 2000, are
participating interests in mortgage loans and wholly owned mortgage
loans serviced by other institutions in the approximate amounts of $4.6
million. Loans and participations serviced for others amounted to
approximately $688.3 million at June 30, 2000.
(6) REAL ESTATE OWNED
Real estate owned and other repossessed property consisted of the
following:
June 30,
2000
---------------------
(Dollars in thousands)
Real estate acquired through (or deed
in lieu of) foreclosure $ 5,119
Less: allowance for losses (1,186)
----------
Total $ 3,933
==========
8
<PAGE>
Real estate owned is carried at fair value as of the date of
foreclosure minus 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.
(7) MORTGAGE SERVICING RIGHTS
The Company accounts for mortgage servicing rights in accordance
with SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities." SFAS No. 125 requires the
Company to calculate and recognize all retained servicing value
(including "normal servicing") at the time of a loan sale in which
servicing is retained. These amounts for normal originated mortgage
servicing rights ("OMSRs") are recorded as assets and amortized as
offsets to future servicing income. Impairment of OMSRs is assessed
based on the fair value of the rights on a pool by pool basis. Fair
values are estimated using discounted cash flows based on a market rate
of interest.
(8) RECONCILIATION OF BASIC EARNINGS PER SHARE TO DILUTED EARNINGS PER
SHARE
The following table presents a reconciliation of basic earnings per
share to diluted earnings per share for the periods indicated.
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------- ----------------------
6/30/00 6/30/99 6/30/00 6/30/99
---------------------- ----------------------
<S> <C> <C>
Net income (in thousands) $ 4,167 3,149 11,000 9,570
Basic weighted average shares outstanding 9,017,823 9,023,057 8,972,162 8,999,661
Effect of stock options 141,138 187,173 176,685 187,102
---------------------- ----------------------
Dilutive potential common shares 9,158,961 9,210,230 9,148,847 9,186,763
Net income per share:
Basic $ 0.46 0.35 1.23 1.06
Diluted 0.45 0.34 1.20 1.04
</TABLE>
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.
(9) 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.
9
<PAGE>
The following table presents financial information from the
Company's operating segments for the periods indicated. Dollar amounts
are expressed in thousands.
Three months ended Mortgage Other and
June 30, 2000 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $ 9,558 -- 69 9,627
Provision for loan losses 150 -- -- 150
Other income 1,796 2,650 (1,848) 2,598
General and administrative
expenses 2,810 2,643 (320) 5,133
Income tax expense 3,358 3 (586) 2,775
-------------------------------------------
Net income $ 5,036 4 (873) 4,167
===========================================
Three months ended Mortgage Other and
June 30, 1999 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $ 7,671 -- 69 7,740
Provision for loan losses 75 -- -- 75
Other income 2,076 2,884 (2,285) 2,675
General and administrative
expenses 2,921 2,674 (503) 5,092
Income tax expense 2,700 84 (685) 2,099
-------------------------------------------
Net income $ 4,051 126 (1,028) 3,149
===========================================
Nine months ended Mortgage Other and
June 30, 2000 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $26,556 -- 206 26,762
Provision for loan losses 450 -- -- 450
Other income 5,071 6,941 (5,031) 6,981
General and administrative
expenses 8,167 7,676 (877) 14,966
Income tax expense 9,204 (294) (1,583) 7,327
-------------------------------------------
Net income $13,806 (441) (2,365) 11,000
===========================================
Nine months ended Mortgage Other and
June 30, 1999 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $21,942 -- 206 22,148
Provision for loan losses 225 -- -- 225
Other income 6,573 8,692 (6,590) 8,675
General and administrative
expenses 8,205 8,089 (1,557) 14,737
Income tax expense 8,034 241 (1,984) 6,291
-------------------------------------------
Net income $12,051 362 (2,843) 9,570
===========================================
(10) SUBSEQUENT EVENT
On June 5, 2000, the Company commenced an Issuer Tender Offer to
purchase for cash up to 387,500 shares of its own common stock. The
offer of $12.50 per share expired at 5:00 p.m. on July 5, 2000. As a
result of the offer, 517,265 shares (5.7% of the total shares
outstanding) were tendered. A settlement payment of $6.47 million for
the shares purchased was disbursed on July 10, 2000. Total fees and
expenses incurred for the offer were approximately $10,000.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
The principal business of the Company 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 mortgage banking activities. Expenses consist primarily of
interest payments on customer deposits and other borrowings and general
and administrative costs.
The Bank is regulated by the Office of Thrift Supervision ("OTS")
and the Federal Deposit Insurance Corporation ("FDIC"), and is subject
to periodic examination by both entities. The Bank is also subject to
the regulations of the Board of Governors of the Federal Reserve System
("FRB"), which establishes rules regarding reserves that must be
maintained against customer deposits.
FINANCIAL CONDITION
Assets
The Company's total assets as of June 30, 2000, were $971.5
million, an increase of $145.8 million from September 30, 1999, the
prior fiscal year end.
During the nine months ended June 30, 2000, securities available
for sale decreased $0.2 million, which was the result of investment
maturities.
Derivative financial instruments are carried at estimated fair
value in accordance with SFAS No. 115. 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 mortgage 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 can be sold with
servicing released or converted into MBS and sold with the loan
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 portfolio or sold and if sold, which method of sale is
appropriate. During the nine months ended June 30, 2000, the Bank
originated and purchased $201.4 million in mortgage loans held for sale,
$296.5 million in mortgage loans held for investment, and $24.1 million
in other loans. This total of $522.0 million in loans originated
compares to $505.6 million in loans originated over the nine months
ended June 30, 1999.
Included in the $83.3 million in loans held for sale as of June 30,
2000, are $15.7 million in mortgage loans held for sale with servicing
released. Also included in loans held for sale as of June 30, 2000, are
$0.4 million in commercial residential loans insured by the Federal
Housing Administration ("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.
11
<PAGE>
The Bank classifies problem assets as "substandard," "doubtful"
or "loss." Substandard assets have one or more defined weaknesses,
and it is possible that the Bank will sustain some loss unless the
deficiencies are corrected. Doubtful assets have the same defects as
substandard assets plus other weaknesses that make collection or full
liquidation improbable. Assets classified as loss are considered
uncollectible and of such little value that a specific loss allowance is
warranted.
The following table summarizes the Bank's classified assets as
reported to the OTS. Dollar amounts are expressed in thousands.
6/30/00 9/30/99 6/30/99
-------------------------------------
Asset Classification:
Substandard $ 11,863 12,287 12,395
Doubtful -- -- --
Loss 3,266 2,738 2,557
-------------------------------------
15,129 15,025 14,952
Allowance for losses (8,213) (7,960) (7,919)
-------------------------------------
$ 6,916 7,065 7,033
=====================================
When an insured institution classifies problem assets as either
substandard or doubtful, regulations require specific loss allowances to
reduce their book value to fair value. In addition, management
establishes GVA ("general valuation allowances") for other possible
loan losses. GVA are allowances that recognize the inherent risks
associated with lending activities but, unlike specific allowances, have
not been allocated to particular problem assets. When an entity
classifies a problem asset as loss, it is required to establish a
specific allowance for 100% of the asset balance. The Bank's
classification of its assets and the amount of its valuation allowances
are subject to review by the OTS who may require additional GVA or
specific loss allowances.
Management believes that the specific loss allowances and GVA are
adequate. While management uses available information to determine
these allowances, future allowances may be necessary because of changes
in economic conditions. Also, regulatory agencies (OTS and FDIC) review
the Bank's allowance for losses as part of their examinations, and they
may require the Bank to recognize additional loss provisions based on
the information available at the time of their examinations.
Liabilities and Equity
Customer deposit accounts increased $51.7 million during the nine
months ended June 30, 2000. The weighted average rate on customer
deposits as of June 30, 2000, was 5.28%, an increase from 4.76% as of
June 30, 1999.
Advances from the FHLB were $251.6 million as of June 30, 2000, an
increase of $83.5 million from September 30, 1999. During the nine-
month period, the Bank borrowed $244.7 million of new advances and
repaid $161.2 million. Management uses FHLB advances at various times
as an alternate funding source to provide operating liquidity and to
fund the origination and purchase of mortgage loans.
Escrows were $4.8 million as of June 30, 2000, a decrease of $1.5
million from September 30, 1999. This decrease is due to amounts paid
for borrowers' taxes during the fourth calendar quarter of 1999.
12
<PAGE>
Total stockholders' equity as of June 30, 2000, was $87.1 million
(8.97% of total assets). This compares to a book value of $78.9 million
(9.55% of total assets) at September 30, 1999. On a per share basis,
stockholders' equity was $9.67 on June 30, 2000, compared to $8.81 on
September 30, 1999. Subsequent to the quarter ended June 30, 2000, the
Company completed an issuer tender offer for the purchase of 517,265
shares of its common stock for $12.50 per share. This transaction is
described in more detail in the notes to the consolidated financial
statements.
The Company paid cash dividends on its common stock of $0.08 on
November 26, 1999, $0.10 on February 25, 2000, and $0.10 on May 26,
2000. Subsequent to the quarter ended June 30, 2000, the Company
announced a cash dividend of $0.10 per share to be paid on August 25,
2000, to stockholders of record as of August 4, 2000.
Total stockholders' equity as of June 30, 2000, includes an
unrealized loss of $571,000, net of deferred income taxes, on available
for sale securities. This amount is reflected in the line item
"Accumulated other comprehensive loss."
Ratios
The following table illustrates the Company's return on assets
(annualized net income divided by average total assets); return on
equity (annualized net income divided by average equity); equity-to-
assets ratio (ending equity divided by ending total assets); and
dividend payout ratio (dividends paid divided by net income).
Nine months ended
------------------------
6/30/00 6/30/99
------------------------
Return on assets 1.63% 1.68%
Return on equity 17.67% 17.36%
Equity-to-assets ratio 8.97% 9.88%
Dividend payout ratio 22.91% 20.95%
RESULTS OF OPERATIONS - Comparison of three months and nine months ended
June 30, 2000 and 1999.
For the three months ended June 30, 2000, the Company had net
income of $4,167,000 or $0.46 per share. This compares to net income of
$3,149,000 or $0.35 per share for the quarter ended June 30, 1999.
For the nine months ended June 30, 2000, the Company had net income
of $11,000,000 or $1.23 per share. This compares to net income of
$9,570,000 or $1.06 per share during the same period in the prior year.
Net Interest Margin
The Company'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 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.
The following table presents the total dollar amounts of interest
income and expense on the indicated amounts of average interest-earning
assets or interest-costing liabilities for the nine months ended June
30, 2000 and 1999. Average yields reflect reductions due to non-accrual
loans. Once a loan becomes 90 days delinquent, any interest that has
accrued up to that time is reserved and no further interest income is
recognized unless the loan is paid current. Average balances and
weighted average yields for the periods include all accrual and non-
accrual loans. The table also presents the interest-earning assets and
yields for each respective period. Dollar amounts are expressed in
thousands.
13
<PAGE>
Nine months ended 6/30/00 As of
--------------------------- 6/30/00
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 811,116 55,178 9.07% 8.72%
Mortgage-backed securities 20,585 1,021 6.61% 5.67%
Securities 16,153 870 7.18% 7.39%
Bank deposits 6,787 256 5.06% 6.29%
-------------------------------------
Total earning assets 854,641 57,325 8.94% 8.60%
---------------------------
Non-earning assets 33,157
---------
Total $ 887,798
=========
Interest-costing liabilities
Customer deposits accounts $ 585,381 21,456 4.89% 5.28%
FHLB Advances 207,625 9,102 5.85% 6.53%
Other borrowings 120 5 5.56% 7.50%
-------------------------------------
Total costing liabilities 793,126 30,563 5.14% 5.64%
---------------------------
Non-costing liabilities 12,271
Stockholders' equity 82,401
---------
Total $ 887,798
=========
Net earning balance $ 61,515
=========
Earning yield less costing rate 3.81% 2.96%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 854,641 26,762 4.18%
==========================
Nine months ended 6/30/99 As of
--------------------------- 6/30/99
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 665,603 43,956 8.81% 8.18%
Mortgage-backed securities 28,327 1,607 7.56% 6.38%
Securities 17,405 657 5.03% 7.55%
Bank deposits 12,196 324 3.54% 4.44%
-------------------------------------
Total earning assets 723,531 46,544 8.58% 8.02%
---------------------------
Non-earning assets 24,773
---------
Total $ 748,304
=========
Interest-costing liabilities
Customer deposits accounts $ 547,978 19,389 4.72% 4.76%
FHLB Advances 116,738 4,996 5.71% 5.41%
Other borrowings 170 11 8.63% 7.50%
-------------------------------------
Total costing liabilities 664,886 24,396 4.89% 4.88%
---------------------------
Non-costing liabilities 9,212
Stockholders' equity 74,206
---------
Total $ 748,304
=========
Net earning balance $ 58,645
=========
Earning yield less costing rate 3.69% 3.14%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 723,531 22,148 4.08%
==========================
The following table provides 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 volume (change in volume
multiplied by the old rate), (2) changes in rates (change in rate
multiplied by the old volume), 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.
<TABLE>
<CAPTION>
Nine months ended June 30, 2000, compared to
nine months ended June 30, 1999
-----------------------------------------------
Yield/
Yield Volume Volume Total
-----------------------------------------------
<S> <C> <C> <C> <C>
Components of interest income:
Loans $ 1,298 9,615 309 11,222
Mortgage-backed securities (202) (439) 55 (586)
Securities 280 (47) (20) 213
Other assets 136 (144) (60) (68)
-----------------------------------------------
Net change in interest income 1,512 8,985 284 10,781
-----------------------------------------------
Components of interest expense:
Customer deposit accounts 698 1,324 45 2,067
FHLB Advances 123 3,892 91 4,106
Other borrowings (4) (3) 1 (6)
-----------------------------------------------
Net change in interest expense 817 5,213 137 6,167
-----------------------------------------------
Increase (decrease) in net
interest margin $ 695 3,772 147 4,614
===============================================
</TABLE>
Net interest margin before loan loss provision for the three months
ended June 30, 2000, increased $1.9 million from the same period in the
prior year. Specifically, interest on loans increased $5.1 million, due
primarily to an increase in the average balance of loans outstanding.
This was offset by an increase in total interest expense for the three
months ended June 30, 2000, of $3.1 million, which was due primarily to
an increase in the average balances of customer deposits and FHLB
advances.
14
<PAGE>
Net interest margin before loan loss provision for the nine months
ended June 30, 2000, increased $4.6 million from the same period in the
prior year. Specifically, interest on loans increased $11.2 million,
$9.6 million of which was due to an increase in the average balance of
loans outstanding and $1.3 million due to an increase in yield on loans.
Total interest expense for the nine months ended June 30, 2000,
increased $6.2 million from the same period in the prior year, which was
due primarily to an increase in the average balances of customer
deposits and FHLB advances, and to a lesser extent, an increase in their
average balances. The total yield on interest-earning assets increased
36 basis points to 8.94% during the nine months ended June 30, 2000,
compared to 8.58% in the prior year. Also during the nine-month period,
the weighted average cost of total liabilities was 5.14%, compared to
4.89% in the prior year, an increase of 25 basis points.
The Company's net interest margin is impacted by changes in market
interest rates, which have varied greatly over time. Changing interest
rates affect the level of prepayments on mortgages, the demand for new
mortgage loans, and the supply and interest cost of customer deposits
and borrowings used to fund interest-earning assets. Management
monitors the Company'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 Company's assets with
liabilities of a similar duration to minimize the impact of changing
interest rates on the Company's net interest margin. Since the relative
spread between financial assets and liabilities is constantly changing,
the Company's current net interest spread may not be an indication of
future net interest income.
Provision for Loan Losses
The Company's provision for loan losses of $150,000 during the
quarter ended June 30, 2000, was an increase of $75,000 over the three
months ended June 30, 1999. Provision for loan losses was $450,000 for
the nine months ended June 30, 2000, an increase of $225,000 from the
prior year. As stated above, management believes that the provisions
for loss are adequate. These provisions can fluctuate based on changes
in economic conditions or changes in the information available to
management. Also, regulatory agencies review the Company's allowances
for losses as a part of their examination process and they may require
changes in loss provision amounts based on information available at the
time of their examination. Management establishes allowances for losses
based on current economic values and any disruptions in the real estate
market could cause management to increase the provision for loss.
Other Income
Other income for the three months ended June 30, 2000, decreased
$77,000 from the same period in the prior year. Specifically, gain on
loans held for sale decreased $0.7 million due to a decrease in the
volume of loan sales. Also in the three months ended June 30, 2000, the
Bank had impairment on capitalized mortgage servicing rights of
$150,000, compared to a recovery of impairment of $7,000 in the period a
year ago. Changes in the impairment of mortgage servicing rights are
based on changes in prepayments and estimated prepayment speeds of the
underlying mortgage loans. These decreases were partially offset by an
increase of $338,000 in customer service fees due to increased customer
usage of check cards and ATM cards, an increase of $249,000 in loan
servicing fees, and an increase of $194,000 in other income.
Other income for the nine months ended June 30, 2000, decreased
$1.7 million from the same period in the prior year. Specifically, gain
on loans held for sale decreased $3.0 million due to a decrease in the
volume of loan sales. Also, the Bank had impairment on capitalized
mortgage servicing rights of $56,000, compared to a recovery of
impairment of $111,000 in the period a year ago. The sale of securities
available for sale that resulted in a gain of $95,000 in the prior
period did not recur in the current period. These decreases were offset
by an increase of $723,000 in customer service fees due to increased
customer usage of check cards and ATM cards, an increase in loan
servicing fees of $753,000, which was a result of decreased amortization
of capitalized mortgage servicing rights.
General and Administrative Expenses
Total general and administrative expenses for the quarter ended
June 30, 2000, increased $41,000 (0.8%) from the same quarter in the
prior year. Total general and administrative expenses for the nine
months ended June 30, 2000, increased $229,000 (1.5%) from the prior
year.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." The most recent audit of the
Bank's tax returns by the Internal Revenue Service was completed during
the quarter ended June 30, 1996.
15
<PAGE>
REGULATION
The Bank is a member of the FHLB System and its customers' deposits
are insured by the Savings Association Insurance Fund ("SAIF") of the
FDIC. The Bank is subject to regulation by the OTS as its chartering
authority. Since passage of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA" or the "Act"), the
FDIC also has regulatory control over the Bank. The transactions of
SAIF-insured institutions are limited by statute and regulations that
may require prior supervisory approval in certain instances.
Institutions also must file reports with regulatory 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. The OTS can require an institution to re-value
its assets based on appraisals and to establish specific valuation
allowances. This supervision and regulation is intended primarily for
the protection of depositors. Also, savings institutions are subject to
certain reserve requirements under Federal Reserve Board regulations.
Insurance of Accounts
The SAIF insures the Bank's customer deposit accounts to a maximum
of $100,000 for each insured member. Deposit insurance 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 groups. Currently, deposit insurance
premiums range from 0 to 27 basis points of the institution's total
deposit accounts, depending on the institution's risk classification.
The Bank is currently considered "well capitalized", which is the most
favorable capital group and supervisory subgroup. SAIF-insured
institutions are also assessed a premium to service the interest on
Financing Corporation ("FICO") debt.
Regulatory Capital Requirements
At June 30, 2000, the Bank exceeds all capital requirements
prescribed by the OTS. To calculate these requirements, a thrift must
deduct any investments in and loans to subsidiaries that are engaged in
activities not permissible for a national bank. As of June 30, 2000,
the Bank did not have any investments in or loans to subsidiaries
engaged in activities not permissible for national banks.
The following tables summarize the relationship between the Bank's
capital and regulatory requirements. Dollar amounts are expressed in
thousands.
At June 30, 2000 Amount
----------------------------------------------------------------
GAAP capital (Bank only) $ 79,827
Adjustment for regulatory capital:
Intangible assets (1,425)
Disallowed portion of servicing assets --
Reverse the effect of SFAS No. 115 61
---------
Tangible capital 78,463
Qualifying intangible assets 1,311
---------
Tier 1 capital (core capital) 79,774
Qualifying general valuation allowance 4,495
---------
Risk-based capital $ 84,269
=========
<TABLE>
<CAPTION>
As of June 30, 2000
-------------------------------------------------------------------
Minimum required for Minimum required to be
Actual Capital Adequacy "Well Capitalized"
------------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk-weighted assets $ 84,269 11.9% 56,715 >=8% 70,894 >=10%
Core capital to adjusted tangible assets 79,774 8.2% 38,800 >=4% 48,487 >=5%
Tangible capital to tangible assets 78,463 8.1% 14,546 >=1.5% -- --
Tier 1 capital to risk-weighted assets 79,774 11.3% -- -- 42,537 >=6%
</TABLE>
16
<PAGE>
Interest Rate Risk Component
The OTS has adopted a rule which requires savings institutions 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 the 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. Subsidiaries that are deemed
to be controlled by an institution under accounting principles generally
accepted in the United States of America will be consolidated for
purposes of calculating interest rate risk. 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.
Loans to One Borrower
Institutions are prohibited from lending to any one borrower in
excess of 15% of the Bank's unimpaired capital plus unimpaired surplus,
or 25% of unimpaired capital plus unimpaired surplus if the loan is
secured by certain readily marketable collateral. Renewals that exceed
the loans-to-one-borrower limit are permitted if the original borrower
remains liable and no additional funds are disbursed. As of June 30,
2000, the Bank had no loans that exceeded the 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 June 30, 2000, the Bank did not have any
investments in or advances to subsidiaries engaged in activities not
permissible for national banks.
LIQUIDITY AND CAPITAL RESOURCES
The Bank generates liquidity primarily from savings deposits and
repayments on loans, investments, and MBS. Liquidity measures the
ability to meet deposit withdrawals and lending commitments. For
secondary sources of liquidity, the Bank has the ability to sell assets
held for sale, can borrow from primary securities dealers on a
collateralized basis, and can use the FHLB of Des Moines' credit
facility. The Bank, as a member of the FHLB System, is subject to
regulations that require the maintenance of liquidity ratios (daily
average liquid assets as a percentage of net withdrawable customer
deposits and current borrowings). The regulatory liquidity requirement
may vary depending on economic conditions and activity of customer
deposits. For the month of June 2000, the required liquidity ratio was
4%, and the Bank's average regulatory liquidity ratio was 8.2%.
Fluctuations in the level of interest rates typically impact
prepayments on mortgage loans and MBS. During periods of falling
interest rates, these prepayments increase and a greater demand exists
for new loans. The Bank's customer deposits are 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.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material proceedings pending other than ordinary
and routine litigation incidental to the business of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
18
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NASB Financial, Inc.
(Registrant)
August 11, 2000 By: /s/ David H. Hancock
David H. Hancock
Chairman and
Chief Executive Officer
August 11, 2000 By: /s/ Keith B. Cox
Keith B. Cox
Vice President and
Treasurer
19
<PAGE>
19
