<PAGE>
UNITED STATES
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 Quarterly Period ended June 30, 1997
[_] 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 0-19391
NAB ASSET CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Texas 76-0332956
- ------------------------------------------- -------------------------------
(State of Incorporation) (I.R.S. Employer Identification
Number)
19200 Von Karman Ave., Ste. 950, Irvine, CA 92612
- ------------------------------------------- -------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 475-4444
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 [_]
As of June 30, 1997, there were 5,091,300 shares of common stock, $.10 par
value per share, of the registrant outstanding.
<PAGE>
PART I Financial Information
Item 1. Financial Statements
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1997 1996
------ -------- ------------
<S> <C> <C>
Cash and cash equivalents $ 3,321 $ 3,315
Receivables:
Commercial loans held for
investment, net 1,587 -
Residential mortgage loans held
for sale 13,667 12,648
Other receivables 122 1,092
Note receivable from the sale of CARS
USA 1,300 -
Vehicle and parts inventory - 3,446
Property and equipment, net 472 340
Costs in excess of net assets acquired,
net 650 1,095
Other assets 196 201
------- -------
Total Assets $21,315 $22,137
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Notes payable:
Mortgage warehouse line of credit 12,599 11,819
Note payable to affiliate 800 -
Automobile flooring lines of credit - 3,349
Accounts payable and accrued expenses 566 1,194
Deferred income 370 120
------- -------
Total Liabilities 14,335 16,482
------- -------
Minority interest 59 50
Shareholders' equity (note 1):
Common stock: $.10 par value,
30,000,000 authorized shares:
5,091,300 shares issued and
outstanding at June 30, 1997
and December 31, 1996 509 509
Additional paid-in capital 7,217 7,217
Accumulated deficit (805) (2,121)
------- -------
Total shareholders' equity 6,921 5,605
------- -------
$21,315 $22,137
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Gains on sales of loans $ 1,921 $ -
Interest income 597 10
Other operating revenues 200 -
--------- ---------
Total revenues 2,718 10
Costs and expenses:
Compensation and benefits 1,393 27
Interest expense 289 -
Bad debt expense 7 -
General and administrative 772 21
Minority interest in earnings 39 -
---------- ----------
Total costs and expenses 2,500 48
---------- ----------
Net earnings (loss) from continuing
operations 218 (38)
Net earnings (loss) from discontinued
operations, net of income taxes:
Retail automobile sales (64) -
Real estate services - 2,576
Gain on disposal of CARS USA 1,384 -
---------- ----------
Net earnings $ 1,538 $ 2,538
========== ==========
Net earnings (loss) per share from
continuing operations $ 0.04 $ (0.01)
========== ==========
Net earnings per share $ 0.29 $ 0.50
========== ==========
Weighted average number of common and
common equivalent shares outstanding
from continuing and discontinued
operations 5,296,300 5,091,300
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
----------- -----------
Revenues:
<S> <C> <C>
Gains on sales of loans $ 3,291 $ -
Interest income 1,123 10
Other operating revenues 318 -
---------- ----------
Total revenues 4,732 10
Costs and expenses:
Compensation and benefits 2,614 27
Interest expense 558 -
Bad debt expense 7 -
General and administrative 1,293 21
Minority interest in earnings 57 -
---------- ----------
Total costs and expenses 4,529 48
---------- ----------
Net earnings (loss) from continuing
operations 203 (38)
Net earnings (loss) from discontinued
operations, net of income taxes:
Retail automobile sales (271) -
Real estate services - 3,467
Gain on disposal of CARS USA 1,384 -
---------- ----------
Net earnings $ 1,316 $ 3,429
========== ==========
Net earnings (loss) per share from
continuing operations $ 0.04 $ (0.01)
========== ==========
Net earnings per share $ 0.25 $ 0.67
========== ==========
Weighted average number of common and
common equivalent shares outstanding
from continuing and discontinuing
operations 5,296,300 5,091,300
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
------------ ----------
<S> <C> <C>
Cash flows from operating activities: $ 203 $ (38)
Net earnings (loss) from
continuing operations
Adjustments to reconcile net
earnings (loss) to net cash
from operating activities:
Cash (used in) provided by
discontinued operations (176) 1,657
Proceeds from sale of CARS USA 200 -
Depreciation and amortization 137 -
Minority interest 57 -
Net changes in:
Residential mortgage loans
originated, purchased and sold (1,019) -
Provision for credit losses 7 -
Other receivables 37 -
Deferred income, net 250 -
Other assets 361 (113)
Accounts payable and accrued
expenses 206 58
----------- ---------
Net cash from operating
activities 263 1,564
Cash flows from investing activities:
Loan to Mortgage Portfolio Services,
Inc. - (2,999)
Commercial loans purchased and
originated (1,797) -
Principal collections on
commercial loans 204 -
Purchases of property and
equipment (244) -
----------- ---------
Net cash (used by)
investing activities (1,837) (2,999)
Cash flows from financing activities:
Contribution of capital by CPS in
merger - 4,000
Net borrowings under warehouse
line of credit 780 -
Proceeds from note payable to
affiliate 800 -
----------- ---------
Net cash from financing
activities 1,580 4,000
----------- ---------
Net increase in cash and cash
equivalents 6 2,565
Cash and cash equivalents at beginning
of period 3,315 1,961
----------- ---------
Cash and cash equivalents at end of
period $ 3,321 $ 4,526
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Notes to the Financial Statements
(1) Summary of Business and Significant Accounting Policies
NAB Asset Corporation, a Texas Corporation (the "Company" or "NAB") is
primarily engaged in the financial services business. Prior to June 5, 1996 the
Company's business consisted of the acquisition, ownership, management and
disposition of loans and real estate for its own account and the account of
others. As discussed in Note (2), on June 27, 1997, the Company sold its retail
automotive sales business. The company has reported the results of the segment
as discontinued operations for financial statement purposes.
The Company was organized on March 31, 1991, by National Asset Bank (a bank
in liquidation) (the "Bank") as a wholly-owned subsidiary of the Bank for the
purpose of acquiring substantially all of the assets of the Bank through a
series of transactions and agreements intended to effect the final liquidation
of the Bank. On July 17, 1991, the shareholders of the Bank approved such
transactions and the Acquisition Agreement and Plan of Reorganization (the
"Acquisition Agreement"). Accordingly, the Company acquired substantially
all of the assets of the Bank in consideration of for the issuance by the
Company of shares of its 's common stock, $.01 par value (the "Common
Stock"), and the assumption of all the Bank's liabilities. Immediately
following such acquisition, the Bank distributed the shares of Common Stock
received to the holders of the Bank's common stock, $.01 par value (the "Bank
Common Stock"), on the basis of one share of Common Stock for each ten shares of
the Bank Common Stock held of record as of the close of business on July 17,
1991. Because the Company was formed for the purpose of effecting the
acquisition of substantially all of the Bank's assets, the Company had only
limited business operating activities prior to such acquisition.
On June 5, 1996, pursuant to the Plan and Agreement of Merger, CPS
Investing Corp. ("CPS Sub"), a wholly owned subsidiary of CPS, was merged with
and into NAB. Under the terms of the Plan and Agreement of Merger and in
exchange for all of the outstanding shares of NAB $.01 par value common stock,
the shareholders of NAB received on a pro rata basis (i) an aggregate cash
distribution of $15.3 million ($3.64 per share), (ii) an undivided interest in a
liquidating trust ("Liquidating Trust"), and (iii) 62% of the outstanding shares
of common stock, $.10 par value (the "New Common Stock") of the new combined
company which had a net asset value of $7.5 million as of the merger date. The
Liquidating Trust was established for the benefit of converting the trust assets
to cash for the NAB shareholders. On June 5, 1996 in connection with the
Merger, NAB contributed approximately $3.0 million in cash and all of the
remaining non-cash assets of NAB with a net book value of $3.7 million to the
Liquidating Trust. No gain or loss was recognized by NAB in connection with the
merger.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share".
SFAS 128 supersedes APB Opinion No. 15, "Earnings per Share" ("APB 15") and
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. SFAS 128 will replace the
<PAGE>
presentation of primary EPS with a presentation of primary EPS with a
presentation of basic EPS, and fully diluted EPS with diluted EPS. SFAS 128 will
also require dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. The
Company has determined that this statement will have no significant impact on
the financial position or results of operations for 1997.
In February 1997, the FASB issued Statement of Financial Standards, "Disclosure
of Information about Capital Structure" (SFAS 129). This statement shall be
effective for the financial statements for both interim and annual periods
ending after December 15, 1997. It is not expected that the issuance of FASB
No. 129 will require significant revision of prior disclosures since the
Statement lists required disclosures that had been included in a number of
previously existing separate statements and opinions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains, and losses) in full set of
general purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that
an enterprise (a) classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Management is in the process of determining
the impact, if any, this statements will have on the Company.
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
------------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period
Interest $ 300 $ -
Non-cash disclosure
Note received from sale of
CARS $1,300 $ -
</TABLE>
(2) Basis of Financial Statement Presentation
The consolidated balance sheet of the Company as of June 30, 1997, the
related consolidated statements of operations for the three month and six month
periods ended June 30, 1997 and 1996 and the related statements of cash flows
for the six month periods ended June 30, 1997 and 1996 are unaudited. These
statements reflect, in the opinion of management, all
<PAGE>
material adjustments consisting only of normal recurring accruals, necessary for
a fair presentation of the consolidated balance sheet of the Company as of June
30, 1997, and results of consolidated operations for the three month and six
month periods ended June 30, 1997 and 1996 and the consolidated cash flows for
the six month periods ended June 30, 1997 and 1996. The results of consolidated
operations for the unaudited periods are not necessarily indicative of the
results of consolidated operations to be expected for the entire year of 1997.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Securities and Exchange
Commission ("SEC") Form 10-Q and therefore do not include all information and
footnotes normally included in consolidated financial statements prepared in
conformity with generally accepted accounting principles. Accordingly, these
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's annual report on SEC form 10-K for the year ended December 31, 1996.
(3) Subsidiary Operations
Investment in Mortgage Portfolio Services, Inc. On July 10, 1996, NAB
acquired from CPS 84 percent of the outstanding voting common stock of Mortgage
Portfolio Services, Inc. ("MPS") for a purchase price of $300,000 in cash. The
remaining common stock of MPS is owned by its management. NAB also acquired
$2.25 million of MPS preferred stock through conversion of debt to equity and
contributed approximately $249,000 to the additional paid-in capital of MPS.
The MPS preferred stock acquired by NAB provides for cumulative dividends at a
rate of 10% per annum and has a liquidation preference over the MPS common stock
equal to the purchase price of the MPS preferred stock plus any accrued and
unpaid dividends. At June 30, 1996, just prior to the acquisition, the Company
had advanced MPS $2,999,000 of which $2,499,000 was subsequently converted to
equity as described above and $500,000 was repaid to the Company.
MPS is a mortgage banking company with headquarters in Dallas that
specializes in the purchase, origination and servicing of residential mortgage
loans that do not meet traditional secondary market guidelines due to credit or
employment history of the borrower, debt-to-income ratios, or the nature of the
collateral. MPS originated $40.79 million in loans for the three months ending
June 30, 1997 and $82.42 million in loans for the six months ended June 30,
1997.
Investment in NAFCO, Inc. In January, 1997, NAB acquired 84 percent of
the voting common stock and preferred stock of a newly created entity, NAFCO,
Inc., for a purchase price of $1,501,000. The NAFCO preferred stock acquired by
NAB provides for cumulative dividends at a rate of 10% per annum and has a
liquidation preference over the NAFCO common stock plus any accrued and unpaid
dividends.
In January, 1997, NAFCO, Inc. acquired a portfolio of loans of which the
debtors are rent-to-own and rental purchase retail operations with a principal
balance of $1,966,000 at a discount for a net purchase price of $1,227,000.
The discount of $739,000 is being amortized in
<PAGE>
accordance with FASB 91 and will fully amortize by March, 2001. NAFCO, Inc. is a
finance company that specializes in providing financing and consulting services
to small independently owned rent-to-own retailers throughout the United States.
Disposition of CARS USA, Inc. On June 27, 1997, NAB sold its interest in
CARS for $1,500,000. The Company received a down payment of $200,000 and a note
for $1,300,000 of which $500,000 in principal is due on the first anniversary of
the purchase and sale agreement and $800,000 is due on the second anniversary of
the purchase and sale agreement. The note bears interest at 9% and is payable
quarterly. The acquirer is a newly formed company owned by Charles E. Bradley,
Sr. and Charles E. Bradley, Jr. Mr. Bradley, Sr. is the Chairman of the Board
and Chief Executive Officer of NAB, and Mr. Bradley, Jr. is a director of NAB.
As a result of the decision to divest NAB of its retail automobile sales
company, all related operating activity was reported as discontinued operations
for financial reporting purposes. The operating results of the discontinued
retail automobile sales company are summarized as follows:
<TABLE>
<CAPTION>
For the period from For the period from
April 1, 1997 to January 1, 1997 to
June 27, 1997 June 27, 1997
-------------------- -------------------
<S> <C> <C>
Total revenues: $ 3,185,000 $ 5,384,000
Total expenses: (3,249,000) (5,655,000)
----------- -----------
Net loss from discontinued
operations: $ (64,000) $ (271,000)
=========== ===========
</TABLE>
PART II - Other Information
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to assist in the understanding of the
Company's financial position as of June 30, 1997, and results of operations for
the period from April 1, 1997 through June 30, 1997 compared to the three months
ended June 30, 1996, and January 1 through June 30, 1997 compared to the six
months ended June 30, 1996. The notes to the Company's consolidated financial
statements included in this report and the Company's annual Report on Form 10-K
for the year ended December 31, 1996 and the notes thereto, should be read in
conjunction with this discussion.
General
The Company's primary operations are mortgage lending and commercial
lending to rental purchase (sometimes referred to as "rent to own") businesses.
As discussed in Item 1, on
<PAGE>
June 27, 1997, the Company sold its interest in CARS USA, a retail automotive
dealership. Prior to the Merger on June 5, 1996, the Company's primary
operations consisted of the acquisition, ownership, management and disposition
of loans and real estate for its own account and the account of others. For
financial statement purposes, the retail automobile sales operations have been
classified as discontinued operations.
Results of Operations
Results of operations for the three months ended June 30, 1997 reflected
net earnings from continuing operations of $218,000, or $0.04 per share, and a
net loss from discontinued operations of ($64,000), or $(0.01) per share. Loss
from operations for the three months ended June 30, 1996 was ($38,000), or
$(0.01) per share. Earnings from the discontinued real estate operations for
the three months ended June 30, 1996 was $2,576,000 and $3,467,000 for the six
months ended June 30, 1996.
Revenues from continuing operations for the three months ended June 30,
1997, were $2,718,000. Included in revenues were gains on sales of loans of
$1,921,000, other operating revenues of $200,000, and interest of $597,000.
Operating expenses relating to continuing operations for the three months
ended June 30, 1997, were $2,500,000, and consist primarily of costs and
expenses associated with the mortgage banking operation of $1,642,000. The
costs and expenses of the mortgage banking operations were comprised primarily
of compensation and benefit expenses of $1,130,000 and general and
administrative expenses of $512,000.
Results of operations for the six months ended June 30, 1997, reflected net
earnings from continuing operations of $203,000 or $0.04 per share, and a net
loss from discontinued operations of ($271,000) or $(0.05) per share. Loss from
operations for the six months ended June 30, 1996 was ($38,000) or $(0.01) per
share. Earnings from the discontinued real estate operations for the six months
ended June 30, 1997 was $3,467,000.
Revenues from continuing operations for the six months ended June 30, 1997
were $4,732,000. Included in revenues were gains on sales of loans of
$3,291,000, other operating revenues of $318,000, and interest of $1,123,000.
Operating expenses relating to continuing operations for the six months
ended June 30, 1997 were $4,529,000 and consist primarily of cost and expenses
associated with the mortgage banking operation of $2,989,000. The costs and
expenses of the mortgage banking operations were comprises primarily of
compensation and benefit expenses of $2,099,000 and general and administrative
expenses of $890,000.
Liquidity and Capital Resources
At June 30, 1997, NAB had approximately $3,321,000 in cash and cash
equivalents compared to $3,315,000 at December 31, 1996.
<PAGE>
The Company's primary requirements for liquidity is to fund MPS's mortgage
loans and NAFCO's rental purchase loans. MPS currently has in place a line of
credit totaling $35,000,000 for which it can finance 97% of the mortgage loan
principal balance and is currently negotiating an increase in the line of credit
to $80,000,000. NAFCO has obtained a $5,000,000 line of credit from a financial
institution secured by loans to rental purchase/rent-to-own businesses.
The Company has a short-term loan totaling $800,000 from Stanwich Financial
Services Corp. (SFSC). The loan bears interest at 14% and is due August 27,
1997. Charles E. Bradley, Sr., who is an officer and director of NAB, and
Charles E. Bradley, Jr., who is a director of NAB, together own a majority
interest in SFSC.
It is anticipated that both MPS and NAFCO will require, and the Company
believes it can obtain, additional financing to support the growth of MPS's and
NAFCO's loan production.
CARS incurred a $271,000 loss for the period of January 1, 1997 to June 27,
1997. As discussed in Item 2 above, the company sold its interest in CARS on
June 27, 1997.
The Company anticipates that any material capital expenditure requirements
relating to the operations can be funded with existing liquidity or additional
bank borrowings that can be obtained on terms no less favorable than it's
current bank borrowings.
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
1) Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 13(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 12, 1997
By: /s/ Michael W. Caton
--------------------
Michael W. Caton
President and Chief Operating Officer
By: /s/ Alan Ferree
----------------
Alan Ferree
Senior Vice President and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q,
QTR ENDED 6/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 3,321 3,321
<SECURITIES> 0 0
<RECEIVABLES> 16,676 16,676
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 472 472
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 21,315 21,315
<CURRENT-LIABILITIES> 14,335 14,335
<BONDS> 0 0
0 0
0 0
<COMMON> 509 509
<OTHER-SE> 6,412 6,412
<TOTAL-LIABILITY-AND-EQUITY> 21,315 21,315
<SALES> 0 0
<TOTAL-REVENUES> 2,718 4,732
<CGS> 0 0
<TOTAL-COSTS> 2,500 4,529
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 289 558
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 218 203
<DISCONTINUED> 1,320 1,113
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,538 1,316
<EPS-PRIMARY> 0.29 0.25
<EPS-DILUTED> 0.29 0.25
</TABLE>
