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 December 31, 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)
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
February 9, 2000, was 9,040,486.
<PAGE>
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands)
December 30, September 30,
1999 1999
(Unaudited)
---------- -----------
ASSETS
Cash and cash equivalents $ 5,068 $ 10,870
Securities available for sale 4,619 4,913
Stock in Federal Home Loan Bank, at cost 10,436 8,405
Mortgage-backed securities:
Available for sale 13,835 14,597
Held to maturity (market value of $12,414
and $13,268 at December 31, 1999, and
September 30, 1999, respectively) 12,273 13,019
Loans receivable:
Held for sale 92,625 92,232
Held for investment, net 705,430 658,808
Accrued interest receivable 4,973 4,832
Real estate owned, net 2,142 2,702
Premises and equipment, net 4,501 4,719
Mortgage servicing rights, net 8,983 8,382
Other assets 3,030 2,258
---------- ----------
$ 867,915 $ 825,737
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposit accounts $ 563,482 $ 565,463
Advances from Federal Home Loan Bank 213,726 168,088
Other borrowings 150 150
Escrows 1,663 6,310
Income taxes payable 5,060 2,965
Accrued expenses and other liabilities 3,250 3,898
---------- ----------
Total liabilities 787,331 746,874
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock of $0.15 par value:
3,000,000 authorized; 9,475,312 issued
at December 31, 1999, and
September 30, 1999 1,425 1,425
Serial preferred stock of $1.00 par
value: 7,500,000 shares authorized;
none outstanding -- --
Additional paid-in capital 13,856 13,856
Retained earnings 72,278 69,704
Treasury stock, at cost; 608,874 shares
at December 31, 1999, and 547,874 shares
at September 30, 1999. (6,346) (5,640)
Unrealized net loss on securities
available for sale (629) (482)
---------- ----------
Total stockholders' equity 80,584 78,863
---------- ----------
867,915 825,737
========== ==========
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
December 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Interest on loans $ 17,123 14,533
Interest on mortgage-backed securities 282 482
Interest and dividends on investments 268 234
Other interest income 123 223
--------- ---------
Total interest income 17,796 15,472
--------- ---------
Interest on customer deposit accounts 6,865 6,680
Interest on advances and notes payable 2,526 1,679
--------- ---------
Total interest expense 9,391 8,359
--------- ---------
Net interest income 8,405 7,113
Provision for loan losses 150 75
--------- ---------
Net interest after provision
for loan losses 8,255 7,038
--------- ---------
Other income (expense):
Loan servicing fees 232 (274)
Customer service fees and charges 651 532
Impairment recovery (loss) of mortgage
servicing rights 115 (104)
Gain (loss)on sale of securities held for sale -- 94
Gain on sale of loans held for sale 972 2,239
Other 216 334
-------- --------
Total other income 2,186 2,821
-------- --------
General and administrative expenses:
Compensation and fringe benefits 3,078 2,921
Premises and equipment 643 582
Advertising and business promotion 210 182
Federal deposit insurance premiums 82 79
Other 947 1,158
-------- --------
Total general and administrative expenses 4,962 4,922
-------- --------
Income before income tax expense 5,479 4,937
Income tax expense 2,191 1,922
-------- --------
Net income $ 3,288 3,015
======== ========
Basic earnings per share $ 0.37 0.34
======== ========
Diluted earnings per share $ 0.36 0.33
======== ========
Weighted average shares outstanding 8,919,286 8,935,244
</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 income(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 -- -- 3,288 -- -- 3,288
Other comprehensive income,
net of tax
Unrealized loss on securities -- -- -- -- (147) (147)
---------
Total comprehensive income -- -- -- -- -- 3,141
Cash dividends paid -- -- (714) -- -- (714)
Repurchase of common stock -- -- -- (706) -- (706)
----------------------------------------------------------------------
Balance at December 31, 1999 $ 1,425 13,856 72,278 (6,346) (629) 80,584
=======================================================================
</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 December 31,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,288 3,015
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 264 243
Amortization and accretion 96 47
Gain on sale of securities available for sale -- (94)
Impairment loss (recovery) of mortgage servicing rights (115) 104
Gain on sale of loans receivable held for sale (972) (2,239)
Provision for loan losses 150 75
Origination and purchase of loans receivable held for sale (71,677) (128,471)
Sale of loans receivable held for sale 71,445 119,575
Changes in:
Accrued interest receivable (142) 309
Accrued expenses and other liabilities and income taxes payable 1,546 5,433
--------------------------
Net cash provided by (used in) operating activities 3,883 (2,003)
Cash flows from investing activities:
Principal repayments of mortgage-backed securities:
Held to maturity 756 2,423
Available for sale 863 1,280
Principal repayments of mortgage loans held for investment
and held for sale 56,730 52,439
Principal repayments of other loans 6,322 5,399
Principal repayments of securities available for sale -- 30
Loan origination - mortgage loans held for investment (89,245) (46,943)
Loan origination - other loans (7,599) (6,824)
Purchase of mortgage loans held for investment (12,945) (5,379)
Proceeds from sale of securities available for sale -- 1,657
Purchase of stock in Federal Home Loan Bank (2,032) --
Proceeds for sale of real estate owned 776 688
Purchases of premises and equipment (46) (352)
Other (855) 511
--------------------------
Net cash provided by (used in) investing activities (47,275) 4,929
</TABLE>
4
<PAGE>
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three months ended December 31,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in customer deposit accounts (1,981) 904
Proceeds from advances from Federal Home Loan Bank 56,200 5,000
Repayment on advances from Federal Home Loan Bank (10,562) (40)
Cash dividends paid (714) (558)
Repurchase of common stock (706) --
Net decrease in escrows (4,647) (4,679)
---------------------------
Net cash provided by financing activities 37,590 627
---------------------------
Net increase (decrease) in cash and cash equivalents (5,802) 3,553
Cash and cash equivalents at beginning of the period 10,870 3,331
---------------------------
Cash and cash equivalents at end of period $ 5,068 6,884
===========================
Supplemental disclosure of cash flow information:
Cash paid for income taxes (net of refunds) $ (3) --
Cash paid for interest 9,422 8,456
Supplemental schedule of non-cash investing and financing
activities:
Conversion of loans receivable to real estate owned $ 258 230
Conversion of real estate owned to loans receivable -- 78
Capitalization of mortgage servicing rights 818 1,300
Capitalization of mortgage servicing interest only strips 329 805
</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 generally accepted accounting principles
(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 ended December 31, 1999, 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.
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.
December 31, 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 -- (969) 1,769
-------------------------------------------
Total $ 5,595 -- (976) 4,619
===========================================
(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.
December 31, 1999
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
Pass-through certificates
guaranteed by GNMA
- fixed rate $ 4,756 -- (35) 4,721
FNMA pass-through
certificates - fixed rate 3,460 -- (112) 3,348
Mortgage-backed derivatives
(including CMO residuals
and interest-only
securities) 5,684 82 -- 5,766
-------------------------------------------
Total $ 13,900 82 (147) 13,835
===========================================
6
<PAGE>
(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.
December 31, 1999
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
FHLMC participation
certificates:
Fixed rate $ 2,317 22 49 2,290
Balloon maturity and
adjustable rate 4,663 4 -- 4,667
FNMA pass-through
certificates:
Fixed rate 325 -- 15 310
Balloon maturity and
adjustable rate 523 -- 12 511
Pass-through certificates
guaranteed by GNMA
Fixed rate 436 19 -- 455
Collateralized mortgage
obligation bonds 1,080 60 1 1,139
Other asset-backed
Securities 2,929 113 -- 3,042
-------------------------------------------
Total $ 12,273 218 77 12,414
===========================================
(5) LOANS RECEIVABLE
Loans receivable are as follows:
December 31,
1999
---------------------
(Dollars in thousands)
LOANS HELD FOR INVESTMENT:
Mortgage loans:
Permanent loans on:
Residential properties $ 339,079
Business properties 166,931
Partially guaranteed by VA or
insured by FHA 28,253
Construction and development 218,750
----------
Total mortgage loans 753,013
Commercial loans 4,153
Installment loans to individuals 42,923
----------
Total loans held for investment 800,089
Less:
Undisbursed loan funds (82,525)
Unearned discounts and fees and costs
on loans, net (5,313)
Allowance for losses on loans (6,821)
----------
Net loans held for investment $ 705,430
==========
7
<PAGE>
December 31,
1999
---------------------
(Dollars in thousands)
LOANS HELD FOR SALE:
Mortgage loans:
Permanent loans on:
Residential properties $ 108,074
Partially insured by FHA 441
----------
Total loans held for sale 108,515
Less:
Undisbursed loan funds (15,843)
Unearned discounts and fees and costs
on loans, net (47)
----------
Net loans held for sale $ 92,625
==========
Included in the loans receivable balances at December 31, 1999, are
participating interests in mortgage loans and wholly owned mortgage
loans serviced by other institutions in the approximate amounts of $5.1
million. Loans and participations serviced for others amounted to
approximately $698.6 million at December 31, 1999.
(6) REAL ESTATE OWNED
Real estate owned and other repossessed property consisted of the
following:
December 31,
1999
---------------------
(Dollars in thousands)
Real estate acquired through (or deed
in lieu of) foreclosure $ 3,375
Less: allowance for losses (1,233)
----------
Total $ 2,142
==========
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 bank 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
Bank 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.
In accordance with the Statement, servicing fees recognized in
excess of normal servicing fees are carried as interest-only strip
securities and classified as available for sale in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Also, all previous amounts carried prior to SFAS No. 125
as excess servicing assets were combined and reclassified as interest-
only strip securities. At December 31, 1999, the Bank had such
interest-only strip securities in the amount of $5.6 million, classified
as available for sale.
8
<PAGE>
(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.
Three months ended
-------------------------
12/31/99 12/31/98
-------------------------
Net income (in thousands) $ 3,288 3,015
Basic weighted average shares outstanding 8,919,286 8,935,244
Effect of stock options 216,254 229,065
------------------------
Dilutive potential common shares 9,135,540 9,164,309
Net income per share:
Basic $ 0.37 0.34
Dilutive 0.36 0.33
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.
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
December 31, 1999 Banking Banking Eliminations Consolidated
- ------------------------------------------------------------------------
Net interest income $ 8,336 -- 69 8,405
Provision for loan losses 150 -- -- 150
Other income 1,463 2,345 (1,622) 2,186
General and administrative
Expenses 2,599 2,712 (349) 4,962
Income tax expense 2,820 (147) (482) 2,191
-------------------------------------------
Net income $ 4,230 (220) (722) 3,288
===========================================
Three months ended Mortgage Other and
December 31, 1998 Banking Banking Eliminations Consolidated
- ------------------------------------------------------------------------
Net interest income $ 7,044 -- 69 7,113
Provision for loan losses 75 -- -- 75
Other income 1,873 3,220 (2,272) 2,821
General and administrative
expenses 2,662 2,824 (564) 4,922
Income tax expense 2,472 158 (708) 1,922
-------------------------------------------
Net income $ 3,708 238 (931) 3,015
===========================================
9
<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 December 31, 1999, were $867.9
million, an increase of $42.2 million from September 30, 1999, the prior
fiscal year end.
During the three months ended December 31, 1999, securities
available for sale decreased $0.3 million, which was the result of
investment maturities.
Included in mortgage-backed securities available for sale as of
December 31, 1999, are $5.6 million in interest-only strips, which
consist of excess mortgage servicing rights established at the time of
various loan sales in accordance with SFAS No. 125. These are more
fully described in the notes to the consolidated financial statements.
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 three months ended December 31, 1999,
the Bank originated $71.7 million in mortgage loans held for sale, $89.2
million in mortgage loans held for investment, and $7.6 million in other
loans. This total of $168.5 million in loans originated was a decrease
of $13.7 million over the three months ended December 31, 1998.
10
<PAGE>
Included in the $92.6 million in loans held for sale as of December
31, 1999, are $17.6 million in mortgage loans held for sale with
servicing released. Also included in loans held for sale as of December
31, 1999, 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.
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.
12/31/99 9/30/99 12/31/98
-------------------------------------
Asset Classification:
Substandard $ 12,395 12,287 12,999
Doubtful -- -- 7
Loss 2,557 2,738 2,103
14,952 15,025 15,109
-------------------------------------
Allowance for losses (8,054) (7,960) (7,809)
-------------------------------------
$ 6,898 7,065 7,300
=====================================
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 decreased $2.0 million during the three
months ended December 31, 1999. The weighted average rate on customer
deposits as of December 31, 1999, was 4.93%, a decrease from 4.88% as of
December 31, 1998.
Advances from the FHLB were $213.7 million as of December 31, 1999,
an increase of $45.6 million from September 30, 1999. During the three-
month period, the Bank borrowed $56.2 million of new advances and repaid
$10.6 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.
11
<PAGE>
Escrows were $1.7 million as of December 31, 1999, a decrease of
$4.6 million from September 30, 1999. This decrease is due to amounts
paid for borrowers' taxes during the fourth calendar quarter of 1999.
Total stockholders' equity as of December 31, 1999, was $80.6
million (9.28% 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 $9.07 on December 31, 1999, compared to
$8.81 on September 30, 1999.
The Company paid cash dividends on its common stock of $0.08 on
November 26, 1999. Subsequent to the quarter ended December 31, 1999,
the Company announced a cash dividend of $0.10 per share to be paid on
February 25, 2000, to stockholders of record as of February 4, 2000.
Total stockholders' equity as of December 31, 1999, includes an
unrealized loss of $629,000, net of income tax, on available for sale
securities in accordance with SFAS No. 115. This amount is reflected in
the line item "Accumulated other comprehensive income."
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).
Three months ended
------------------------
12/31/99 12/31/98
------------------------
Return on assets 1.55% 1.63%
Return on equity 16.50% 16.93%
Equity-to-assets ratio 9.28% 9.62%
Dividend payout ratio 21.72% 18.51%
RESULTS OF OPERATIONS - Comparison of three months ended December 31,
1999, and 1998.
For the three months ended December 31, 1999, the Company had net
income of $3,288,000 or $0.37 per share. This compares to net income of
$3,015,000 or $0.34 per share for the quarter ended December 31, 1998.
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 three months ended
December 31, 1999, and 1998. 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.
12
<PAGE>
Three months ended 12/31/99 As of
--------------------------- 12/31/99
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 766,041 17,123 8.94% 8.37%
Mortgage-backed securities 21,042 282 5.36% 5.50%
Investments 16,487 268 6.50% 7.54%
Bank deposits 8,760 123 5.62% 4.91%
-------------------------------------
Total earning assets 812,330 17,796 8.76% 8.27%
---------------------------
Non-earning assets 32,763
---------
Total $ 845,093
=========
Interest-costing liabilities
Customer deposits accounts $ 570,200 6,865 4.82% 4.93%
FHLB Advances 183,332 2,523 5.51% 5.53%
Other borrowings 150 3 7.50% 7.50%
-------------------------------------
Total costing liabilities 753,682 9,391 4.98% 5.10%
---------------------------
Non-costing liabilities 11,703
Stockholders' equity 79,708
---------
Total $ 845,093
=========
Net earning balance $ 58,648
=========
Earning yield less costing rate 3.78% 3.17%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 812,330 8,405 4.14%
==========================
Three months ended 12/31/98 As of
--------------------------- 12/31/98
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 660,487 14,533 8.80% 7.94%
Mortgage-backed securities 31,415 482 6.14% 6.01%
Investments 17,809 234 5.26% 7.90%
Bank deposits 11,926 223 7.48% 4.58%
-------------------------------------
Total earning assets 721,637 15,472 8.58% 7.81%
---------------------------
Non-earning assets 23,948
---------
Total $ 745,585
=========
Interest-costing liabilities
Customer deposits accounts $ 549,070 6,680 4.87% 4.88%
FHLB Advances 113,678 1,675 5.89% 5.74%
Other borrowings 200 4 7.50% 7.50%
-------------------------------------
Total costing liabilities 662,948 8,359 5.04% 5.03%
---------------------------
Non-costing liabilities 10,810
Stockholders' equity 71,827
---------
Total $ 745,585
=========
Net earning balance $ 58,689
=========
Earning yield less costing rate 3.53% 2.79%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 721,636 7,113 3.94%
==========================
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>
Three months ended December 31, 1999, compared to
three months ended December 31, 1998
-----------------------------------------------
Yield/
Yield Volume Volume Total
-----------------------------------------------
<S> <C> <C> <C> <C>
Components of interest income:
Loans $ 231 2,322 37 2,590
Mortgage-backed securities (61) (159) 20 (200)
Investments 55 (17) (4) 34
Other assets (55) (60) 15 (100)
-----------------------------------------------
Net change in interest income 170 2,086 68 2,324
-----------------------------------------------
Components of interest expense:
Customer deposit accounts (69) 258 (4) 185
FHLB Advances (108) 1,025 (68) 849
Other borrowings (1) (1) -- (2)
-----------------------------------------------
Net change in interest expense (178) 1,282 (72) 1,032
-----------------------------------------------
Increase (decrease) in net
interest margin $ 348 804 140 1,292
===============================================
</TABLE>
Net interest margin before loan loss provision for the three months
ended December 31, 1999, increased $1.3 million from the same period in
the prior year. Specifically, interest on loans increased $2.6 million,
due primarily to an increase in the average balance of loans
outstanding. Total interest expense for the three months ended December
31, 1999, increased $1.0 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.
13
<PAGE>
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 December 31, 1999, was an increase of $75,000 over the
three months ended December 31, 1998. 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 December 31, 1999,
decreased $635,000 from the same period in the prior year.
Specifically, gain on loans held for sale decreased $1.3 million due to
a decrease in the volume of loan sales. This was offset by an increase
of $506,000 in loan servicing fees, which was a result of decreased
amortization of capitalized mortgage servicing rights. Also in the
three months ended December 31, 1999, the Bank had recovery of
impairment on capitalized mortgage servicing rights of $115,000,
compared to an impairment provision of $104,000 in the period a year
ago. The reduction in amortization and the recovery of impairment on
the mortgage servicing rights were the result of a decrease in
prepayments and estimated prepayment speeds of the underlying mortgage
loans.
General and Administrative Expenses
Total general and administrative expenses for the quarter ended
December 31, 1999, increased $40,000 (less than 1%) from the same
quarter in 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.
YEAR 2000 ISSUE
The Company did not experience any problems with its equipment,
computer systems, data service bureau, or other automated systems
related to the Year 2000 issue. Since the renovations made to the
Company's systems over the last three years were successful, no part of
the contingency or business resumption plans were implemented.
Management and the Board of Directors are confident that all Year 2000
related issues are in the past, however, management is continuing to
monitor all systems for any unknown problems that could arise after
December 31, 1999, and is ready to implement the contingency and
business resumption plans if needed.
The Company's Year 2000 implementation plan cost approximately
$400,000, most of which is the cost of capitalized computer hardware for
the wide area network. Substantially all of this cost has been incurred
as of December 31, 1999.
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
14
<PAGE>
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 of 0.59% of insured deposits to
service the interest on Financing Corporation ("FICO") debt.
Regulatory Capital Requirements
At December 31, 1999, 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 December 31,
1999, 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 December 31, 1999 Amount
- ----------------------------------------------------------------
GAAP capital (Bank only) $ 73,192
Adjustment for regulatory capital:
Intangible assets (1,504)
Disallowed portion of servicing assets --
Reverse the effect of SFAS No. 115 43
---------
Tangible capital 71,731
Qualifying intangible assets 1,384
---------
Tier 1 capital (core capital) 73,115
Qualifying general valuation allowance 4,844
---------
Risk-based capital $ 77,959
=========
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------------------------------------------
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 $ 77,959 12.5% 49,932 >=8% 62,415 >=10%
Core capital to adjusted tangible assets 73,115 8.4% 34,675 >=4% 43,343 >=5%
Tangible capital to tangible assets 71,731 9.2% 13,003 >=1.5% -- --
Tier 1 capital to risk-weighted assets 73,115 11.7% -- -- 37,449 >=6%
</TABLE>
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"
15
<PAGE>
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 generally accepted accounting principles 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 December
31, 1999, 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 December 31, 1999, 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 December 1999, the required liquidity ratio
was 4%, and the Bank's average regulatory liquidity ratio was 10.3%.
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.
16
<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.
17
<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)
February 11, 2000 By: /s/ David H. Hancock
David H. Hancock
Chairman and
Chief Executive Officer
February 11, 2000 By: /s/ Keith B. Cox
Keith B. Cox
Vice President and
Treasurer
18
<PAGE>
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 5,068 2,309
<INT-BEARING-DEPOSITS> 132 4,575
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 15,055 28,129
<INVESTMENTS-CARRYING> 15,055 28,129
<INVESTMENTS-MARKET> 15,055 28,129
<LOANS> 824,163 669,950
<ALLOWANCE> 8,054 7,300
<TOTAL-ASSETS> 867,915 745,468
<DEPOSITS> 563,482 546,408
<SHORT-TERM> 213,726 114,170
<LIABILITIES-OTHER> 9,973 12,061
<LONG-TERM> 150 200
0 0
0 0
<COMMON> 1,425 1,421
<OTHER-SE> 79,159 73,968
<TOTAL-LIABILITIES-AND-EQUITY> 867,915 745,468
<INTEREST-LOAN> 17,405 15,015
<INTEREST-INVEST> 268 234
<INTEREST-OTHER> 123 223
<INTEREST-TOTAL> 17,796 15,472
<INTEREST-DEPOSIT> 6,865 6,680
<INTEREST-EXPENSE> 9,391 8,359
<INTEREST-INCOME-NET> 8,405 7,113
<LOAN-LOSSES> 150 75
<SECURITIES-GAINS> 0 94
<EXPENSE-OTHER> 4,962 4,922
<INCOME-PRETAX> 5,479 4,937
<INCOME-PRE-EXTRAORDINARY> 5,479 4,937
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,288 3,015
<EPS-BASIC> 0.37 0.34
<EPS-DILUTED> 0.36 0.33
<YIELD-ACTUAL> 4.14 3.94
<LOANS-NON> 4,791 3,724
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 6,408 7,257
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 6,671 6,365
<CHARGE-OFFS> 139 524
<RECOVERIES> 139 0
<ALLOWANCE-CLOSE> 6,821 5,916
<ALLOWANCE-DOMESTIC> 6,821 5,916
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 4,881 4,821
</TABLE>
