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, 2002
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 9, 2002, was 8,420,342.
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands)
June 30, September 30,
2002 2001
(Unaudited)
---------- -----------
ASSETS
Cash and cash equivalents $ 20,686 $ 16,043
Securities available for sale 14,396 5,014
Stock in Federal Home Loan Bank, at cost 15,173 13,676
Mortgage-backed securities:
Available for sale 1,622 2,406
Held to maturity (market value of $3,401
and $7,462 at June 30, 2002, and
September 30, 2001, respectively) 3,253 6,864
Loans receivable:
Held for sale 44,777 92,864
Held for investment, net 805,312 803,606
Accrued interest receivable 5,143 5,587
Real estate owned, net 6,546 8,043
Premises and equipment, net 6,653 6,872
Mortgage servicing rights, net 4,960 8,008
Other assets 3,817 2,479
---------- ----------
$ 932,338 $ 971,462
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposit accounts $ 564,816 $ 576,040
Brokered deposit accounts -- 9,997
Advances from Federal Home Loan Bank 255,263 273,471
Escrows 4,705 7,116
Income taxes payable 1,421 6,427
Accrued expenses and other liabilities 2,532 2,914
---------- ----------
Total liabilities 828,737 875,965
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock of $0.15 par value:
20,000,000 authorized; 9,802,112 issued
at June 30, 2002, and 9,773,612 issued
at September 30, 2001 1,470 1,466
Serial preferred stock of $1.00 par
value: 7,500,000 shares authorized;
none issued or outstanding -- --
Additional paid-in capital 15,862 15,635
Retained earnings 102,681 93,340
Treasury stock, at cost; 1,381,770 shares
at June 30, 2002 and 1,269,522 shares
at September 30, 2001 (16,716) (14,854)
Accumulated other comprehensive loss 304 (90)
---------- ----------
Total stockholders' equity 103,601 95,497
---------- ----------
932,338 971,462
========== ==========
See accompanying notes to consolidated financial statements.
1
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
(In thousands, except share data)
Three months ended Nine months ended
June 30, June 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Interest on loans $ 17,078 20,314 53,381 62,590
Interest on mortgage-backed securities 98 232 389 788
Interest and dividends on securities 253 436 724 1,111
Other interest income 63 362 310 528
--------- --------- --------- ---------
Total interest income 17,492 21,344 54,804 65,017
--------- --------- --------- ---------
Interest on customer deposit accounts 4,419 8,100 15,585 24,446
Interest on advances from FHLB and
other borrowings 3,088 4,634 10,468 14,389
--------- --------- --------- ---------
Total interest expense 7,507 12,734 26,053 38,835
--------- --------- --------- ---------
Net interest income 9,985 8,610 28,751 26,182
Provision for loan losses 18 150 509 450
--------- --------- --------- ---------
Net interest income after provision
for loan losses 9,967 8,460 28,242 25,732
--------- --------- --------- ---------
Other income (expense):
Loan servicing fees (1,716) (250) (1,792) (2,231)
Impairment (loss) recovery on mortgage
servicing rights 496 (45) 305 (711)
Impairment loss on mortgage-backed securities -- -- (170) --
Customer service fees and charges 1,029 1,009 3,144 2,478
Provision for losses on real estate owned -- -- (67) --
Gain on sale of loans held for sale 1,176 3,806 6,468 6,583
Other 174 319 592 802
--------- --------- --------- ---------
Total other income 1,159 4,839 8,480 6,921
--------- --------- --------- ---------
General and administrative expenses:
Compensation and fringe benefits 3,402 3,469 10,424 10,162
Premises and equipment 526 581 1,665 1,733
Advertising and business promotion 125 142 399 347
Federal deposit insurance premiums 26 30 84 92
Other 1,102 1,033 3,175 2,799
--------- --------- --------- ---------
Total general and administrative expenses 5,181 5,255 15,747 15,133
--------- --------- --------- ---------
Income before income tax expense 5,945 8,044 20,975 17,520
Income tax expense 2,203 3,097 8,046 6,772
--------- --------- --------- ---------
Net income $ 3,742 4,947 12,929 10,748
========= ========= ========= =========
Basic earnings per share $ 0.44 0.58 1.53 1.26
========= ========= ========= =========
Diluted earnings per share $ 0.44 0.57 1.53 1.25
========= ========= ========= =========
Weighted average shares outstanding - basic 8,418,968 8,556,995 8,446,417 8,551,381
See accompanying notes to consolidated financial statements.
2
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Unaudited)
(In thousands, except share data)
Accumulated
Additional other Total
Common paid-in Retained Treasury comprehensive stockholders'
stock capital earnings stock loss equity
-----------------------------------------------------------------------
(Dollars in thousands)
Balance at October 1, 2001 $ 1,466 15,635 93,340 (14,854) (90) 95,497
Comprehensive income:
Net income -- -- 12,929 -- -- 12,929
Other comprehensive loss,
net of tax
Unrealized loss on securities -- -- -- -- 394 394
---------
Total comprehensive income -- -- -- -- -- 13,323
Cash dividends paid -- -- (3,588) -- -- (3,588)
Stock options exercised 4 227 -- -- -- 231
Purchase of common stock for
Treasury -- -- -- (1,862) -- (1,862)
----------------------------------------------------------------------
Balance at June 30, 2002 $ 1,470 15,862 102,681 (16,716) 304 103,601
======================================================================
See accompanying notes to consolidated financial statements.
3
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
(In thousands, except share data)
Three months ended Nine months ended
June 30, June 30,
---------------------- ----------------------
2002 2001 2002 2001
---------------------- ----------------------
Cash flows from operating activities:
Net income $ 3,742 4,947 12,929 10,748
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 189 214 609 645
Amortization and accretion, net 2,464 636 1,379 3,400
Impairment loss (recovery) on mortgage servicing rights (496) 45 (305) 711
Impairment loss on mortgage-backed securities -- -- 170 --
Gain on sale of loans receivable held for sale (1,176) (3,806) (6,468) (6,583)
Provision for loan losses 18 150 509 450
Provision for losses on real estate owned -- -- 67 --
Origination and purchase of loans held for sale (106,588) (178,137) (352,416) (375,413)
Sale of loans held for sale 110,191 240,291 444,989 401,216
Changes in:
Accrued interest receivable 76 -- 444 (19)
Accrued expenses and other liabilities and
income taxes payable (1,065) (1,509) (5,804) (669)
---------------------- ----------------------
Net cash provided by operating activities 7,355 62,831 96,103 34,486
Cash flows from investing activities:
Principal repayments of mortgage-backed securities:
Held to maturity 976 1,252 3,319 2,388
Available for sale 214 555 753 2,554
Principal repayments of mortgage loans held
for investment and held for sale 96,358 103,582 338,639 280,091
Principal repayments of other loans receivable 7,742 9,043 26,642 22,841
Principal repayments of securities available for sale -- -- 20,479 367
Loan origination - mortgage loans held for investment (95,988) (97,439) (370,957) (268,812)
Loan origination - other loans receivable (5,504) (9,107) (15,880) (24,140)
Purchase of mortgage loans held for investment (2,106) (10,292) (14,878) (23,660)
Purchase of other loans receivable -- -- (5,173) --
Purchase of investment securities available for sale (9,194) (19,772) (29,194) (19,772)
Purchase of FHLB stock -- -- (1,496) (2,909)
Proceeds for sale of real estate owned 1,075 1,804 4,866 3,124
Purchases of premises and equipment, net (75) (389) (394) (1,656)
Other 142 30 (1,126) (1,181)
---------------------- ----------------------
Net cash used in investing activities (6,360) (20,733) (44,400) (30,765)
4
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(In thousands, except share data)
Three months ended Nine months ended
June 30, June 30,
---------------------- ----------------------
2002 2001 2002 2001
---------------------- ----------------------
Cash flows from financing activities:
Net increase (decrease) in customer deposit accounts (2,827) 23,794 (21,221) 27,490
Proceeds from advances from FHLB 64,000 65,000 119,000 205,000
Repayment on advances from FHLB (62,070) (104,067) (137,209) (191,898)
Repayment of notes payable -- (50) -- (100)
Cash dividends paid (1,263) (1,070) (3,588) (2,995)
Stock options exercised 45 -- 231 15
Repurchase of common stock -- -- (1,862) --
Net increase (decrease) in escrows 647 (7) (2,411) (1,986)
---------------------- ----------------------
Net cash provided by (used in) financing activities (1,468) (16,400) (47,060) 35,526
---------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (473) 25,698 4,643 39,247
Cash and cash equivalents at beginning of the period 21,159 17,196 16,043 3,647
---------------------- ----------------------
Cash and cash equivalents at end of period $ 20,686 42,894 20,686 42,894
====================== ======================
Supplemental disclosure of cash flow information:
Cash paid for income taxes (net of refunds) $ 3,720 4,387 13,298 8,841
Cash paid for interest 7,525 12,720 26,305 38,864
Supplemental schedule of non-cash investing and financing
activities:
Conversion of loans receivable to real estate owned $ 1,196 2,783 3,400 5,595
Conversion of real estate owned to loans receivable -- -- 57 78
Capitalization of mortgage servicing rights -- 611 44 1,603
Transfer of loans from held to maturity to
held for sale -- -- -- 67,117
See accompanying notes to consolidated financial statements.
5
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are
prepared in accordance with instructions to Form 10-Q and do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States of America ("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.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K to the Securities and Exchange Commission.
Operating results for the three months and nine months ended June 30,
2002, are not necessarily indicative of the results that may be expected
for the fiscal year ended September 30, 2002.
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, real estate owned,
and valuation of mortgage servicing rights. Management believes that
these allowances are adequate, future additions to the allowances may be
necessary based on changes in economic conditions.
The company's critical accounting policies involving the more
significant judgements and assumptions used in the preparation of the
consolidated financial statements as of June 30, 2002, have remained
unchanged from September 30, 2001. These policies are provision for
loan losses and mortgage servicing rights. Disclosure of these critical
accounting policies is incorporated by reference under Item 8
"Financial Statements and Supplementary Data"in the Company's Annual
Report on Form 10-K for the Company's year ended September 30, 2001.
The FASB recently issued SFAS No. 142, "Goodwill and Other
Intangible Assets," No. 143, "Accounting for Asset Retirement
Obligations," No.144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statements No. 13, and Technical
Corrections," and No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities." These Statements are effective on various
dates throughout the Company's 2003 fiscal year. Implementation of
these Statements is not expected to have a material effect 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, 2002
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
U.S. Government Obligations $ 2,011 -- (5) 2,006
Equity securities 2,738 47 -- 2,785
Debt securities 9,189 416 -- 9,605
-------------------------------------------
Total $ 13,938 463 (5) 14,396
===========================================
6
(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, 2002
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
Pass-through certificates
guaranteed by GNMA
- fixed rate $ 1,531 28 -- 1,559
Mortgage-backed derivatives
(including CMO residuals
and interest-only
securities) 54 9 -- 63
-------------------------------------------
Total $ 1,585 37 -- 1,622
===========================================
(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, 2002
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
FHLMC participation
certificates:
Balloon maturity and
adjustable rate $ 948 48 -- 996
FNMA pass-through
certificates:
Fixed rate 122 -- -- 122
Balloon maturity and
adjustable rate 262 2 -- 264
Pass-through certificates
guaranteed by GNMA:
Fixed rate 280 15 -- 295
Collateralized mortgage
obligation bonds 44 -- -- 44
Other asset-backed
securities 1,597 83 -- 1,680
-------------------------------------------
Total $ 3,253 148 -- 3,401
===========================================
(5) LOANS RECEIVABLE
Loans receivable are as follows:
June 30,
2002
---------------------
(Dollars in thousands)
LOANS HELD FOR INVESTMENT:
Mortgage loans:
Permanent loans on:
Residential properties $ 252,366
Business properties 373,615
Partially guaranteed by VA or
insured by FHA 19,387
Construction and development 201,045
----------
Total mortgage loans 846,413
Commercial loans 15,973
Installment loans to individuals 40,032
----------
Total loans held for investment 902,418
Less:
Undisbursed loan funds (84,318)
Unearned discounts and fees and costs
on loans, net (6,649)
Allowance for losses on loans (6,139)
----------
Net loans held for investment $ 805,312
==========
7
June 30,
2002
---------------------
(Dollars in thousands)
LOANS HELD FOR SALE:
Mortgage loans:
Permanent loans on:
Residential properties $ 69,263
Less:
Undisbursed loan funds (24,435)
Unearned discounts and fees and costs
on loans, net (51)
----------
Net loans held for sale $ 44,777
==========
Included in the loans receivable balances at June 30, 2002, are
participating interests in mortgage loans and wholly owned mortgage
loans serviced by other institutions in the approximate amount of $698
thousand. Loans and participations serviced for others amounted to
approximately $429.3 million at June 30, 2002.
(6) REAL ESTATE OWNED
Real estate owned and other repossessed property consisted of the
following:
June 30,
2002
---------------------
(Dollars in thousands)
Real estate acquired through (or deed
in lieu of) foreclosure $ 7,168
Less: allowance for losses (622)
----------
Total $ 6,546
==========
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 following provides information about the Bank's mortgage
servicing rights for the period ended June 30, 2002. Dollar amounts are
expressed in thousands.
Balance at October 1, 2001 $ 8,008
Additions:
Originated mortgage servicing rights 44
Impairment recovery 305
Reductions:
Amortization 3,397
Sale of mortgage servicing rights --
Impairment loss --
--------
Balance at June 30, 2002 $ 4,960
========
8
(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 Nine months ended
---------------------- ----------------------
6/30/02 6/30/01 6/30/02 6/30/01
---------------------- ----------------------
Net income (in thousands) $ 3,742 4,947 12,929 10,748
Basic weighted average shares outstanding 8,418,968 8,556,995 8,446,417 8,551,381
Effect of stock options 17,655 51,095 26,473 60,130
---------------------- ----------------------
Dilutive potential common shares 8,436,623 8,608,090 8,472,890 8,611,511
Net income per share:
Basic $ 0.44 0.58 1.53 1.26
Diluted 0.44 0.57 1.53 1.25
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, "Disclosures about Segments of an
Enterprise and Related Information," 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
June 30, 2002 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $ 9,917 -- 68 9,985
Provision for loan losses 168 -- -- 168
Other income 220 2,752 (1,663) 1,309
General and administrative
expenses 3,041 2,597 (457) 5,181
Income tax expense 2,667 60 (524) 2,203
-------------------------------------------
Net income $ 4,261 95 (614) 3,742
===========================================
Three months ended Mortgage Other and
June 30, 2001 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $ 8,542 -- 68 8,610
Provision for loan losses 150 -- -- 150
Other income 3,923 4,320 (3,404) 4,839
General and administrative
expenses 2,829 3,366 (940) 5,255
Income tax expense 3,970 390 (1,263) 3,097
-------------------------------------------
Net income $ 5,516 564 (1,133) 4,947
===========================================
9
Nine months ended Mortgage Other and
June 30, 2002 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $28,544 -- 207 28,751
Provision for loan losses 659 -- -- 659
Other income 5,978 9,884 (7,232) 8,630
General and administrative
expenses 8,882 8,611 (1,746) 15,747
Income tax expense 9,618 490 (2,062) 8,046
-------------------------------------------
Net income $15,363 783 (3,217) 12,929
===========================================
Nine months ended Mortgage Other and
June 30, 2001 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $25,984 -- 198 26,182
Provision for loan losses 450 -- -- 450
Other income 3,716 10,333 (7,128) 6,921
General and administrative
expenses 8,055 8,828 (1,750) 15,133
Income tax expense 8,478 602 (2,308) 6,772
-------------------------------------------
Net income $12,717 903 (2,872) 10,748
===========================================
10
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, 2002, were $932.3
million, a decrease of $39.2 million from September 30, 2001, the prior
fiscal year end.
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, 2002, the Bank
originated and purchased $352.4 million in mortgage loans held for sale,
$385.8 million in mortgage loans held for investment, and $21.1 million
in other loans. This total of $759.3 million in loans originated
compares to $692.0 million in loans originated during the nine months
ended June 30, 2001.
Included in the $44.8 million in loans held for sale as of June 30,
2002, are $19.6 million in mortgage loans held for sale with servicing
released. 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, plus any classified assets of the holding company.
Dollar amounts are expressed in thousands.
6/30/02 9/30/01 6/30/01
-------------------------------------
Asset Classification:
Substandard $ 17,053 18,780 21,222
Doubtful -- -- --
Loss 1,730 1,851 2,945
-------------------------------------
18,783 20,631 24,167
Allowance for losses (6,794) (7,035) (8,648)
-------------------------------------
$ 11,989 13,596 15,519
=====================================
11
Management records a provision for loan losses in amounts
sufficient to cover current net charge-offs and an estimate of probable
losses based on an analysis of risks that management believes to be
inherent in the loan portfolio. The Allowance for Loan and Lease Losses
("ALLL") recognizes the inherent risks associated with lending
activities but, unlike specific allowances, have not been allocated to
particular problem assets but to a homogenous pool of loans. Management
believes that the specific loss allowances and ALLL 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 $11.2 million during the nine
months ended June 30, 2002. The weighted average rate on customer
deposits as of June 30, 2002, was 3.18%, a decrease from 5.12% as of
June 30, 2001.
Advances from the FHLB were $255.3 million as of June 30, 2002, a
decrease of $18.2 million from September 30, 2001. During the nine-
month period, the Bank borrowed $119.0 million of new advances and
repaid $137.2 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 $4.7 million as of June 30, 2002, a decrease of $2.4
million from September 30, 2001. This decrease is due to amounts paid
for borrowers' taxes during the fourth calendar quarter of 2001.
Total stockholders' equity as of June 30, 2002, was $103.6 million
(11.11% of total assets). This compares to $95.5 million (9.83% of
total assets) at September 30, 2001. On a per share basis,
stockholders' equity was $12.30 on June 30, 2002, compared to $11.23 on
September 30, 2001.
The Company paid cash dividends on its common stock of $0.125 on
November 30, 2001, and of $0.15 on February 22, 2002, and May 24, 2002.
Subsequent to the quarter ended June 30, 2002, the Company announced a
cash dividend of $0.15 per share to be paid on August 23, 2002, to
stockholders of record as of August 2, 2002.
Total stockholders' equity as of June 30, 2002, includes an
unrealized gain of $304,000, net of deferred income taxes, on available
for sale securities. This amount is reflected in the line item
"Accumulated other comprehensive income (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 total equity); equity-
to-assets ratio (ending total equity divided by ending total assets);
and dividend payout ratio (dividends paid divided by net income).
Nine month ended
------------------------
6/30/02 6/30/01
------------------------
Return on assets 1.81% 1.42%
Return on equity 17.32% 16.36%
Equity-to-assets ratio 11.11% 8.88%
Dividend payout ratio 27.75% 27.87%
RESULTS OF OPERATIONS - Comparison of three months and nine months ended
June 30, 2002 and 2001.
For the three months ended June 30, 2002, the Company had net
income of $3,742,000 or $0.44 per share. This compares to net income of
$4,947,000 or $0.58 per share for the quarter ended June 30, 2001.
For the nine months ended June 30, 2002, the Company had net income
of $12,929,000 or $1.53 per share. This compares to net income of
$10,748,000 or $1.26 per share for the nine months ended June 30, 2001.
12
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, 2002 and 2001. 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.
Nine months ended 6/30/02 As of
--------------------------- 6/30/02
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 869,629 53,381 8.18% 7.65%
Mortgage-backed securities 6,961 388 7.43% 7.18%
Securities 23,050 724 4.19% 4.89%
Bank deposits 24,277 310 1.70% 1.29%
-------------------------------------
Total earning assets 923,917 54,803 7.91% 7.41%
---------------------------
Non-earning assets 30,557
---------
Total $ 954,474
=========
Interest-costing liabilities
Customer deposits accounts $ 572,233 15,585 3.63% 3.18%
FHLB Advances 273,068 10,468 5.11% 4.56%
Other borrowings -- -- --% --
-------------------------------------
Total costing liabilities 845,301 26,053 4.11% 3.61%
---------------------------
Non-costing liabilities 10,119
Stockholders' equity 99,054
---------
Total $ 954,474
=========
Net earning balance $ 78,616
=========
Earning yield less costing rate 3.80% 3.80%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 954,474 28,750 4.15%
==========================
Nine months ended 6/30/01 As of
--------------------------- 6/30/01
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 922,937 62,590 9.04% 8.22%
Mortgage-backed securities 15,893 788 6.61% 5.86%
Securities 23,935 1,111 6.19% 5.68%
Bank deposits 17,952 528 3.92% 3.57%
-------------------------------------
Total earning assets 980,717 65,017 8.84% 7.91%
---------------------------
Non-earning assets 40,292
---------
Total $1,021,009
=========
Interest-costing liabilities
Customer deposits accounts $ 624,081 24,446 5.22% 5.12%
FHLB Advances 295,508 14,386 6.49% 5.74%
Other borrowings 60 3 6.67% --
-------------------------------------
Total costing liabilities 919,649 38,835 5.63% 5.31%
---------------------------
Non-costing liabilities 14,864
Stockholders' equity 86,496
---------
Total $1,021,009
=========
Net earning balance $ 61,068
=========
Earning yield less costing rate 3.21% 2.61%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 980,717 26,182 3.56%
==========================
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.
13
Nine months ended June 30, 2002, compared to
nine months ended June 30, 2001
-----------------------------------------------
Yield/
Yield Volume Volume Total
-----------------------------------------------
Components of interest income:
Loans $ (5,953) (3,614) 358 (9,209)
Mortgage-backed securities 98 (443) (55) (400)
Securities (359) (41) 13 (387)
Bank deposits (299) 186 (105) (218)
-----------------------------------------------
Net change in interest income (6,513) (3,912) 211 (10,214)
-----------------------------------------------
Components of interest expense:
Customer deposit accounts (7,442) (2,030) 611 (8,861)
FHLB Advances (3,059) (1,092) 233 (3,918)
Other borrowings (3) (3) 3 (3)
-----------------------------------------------
Net change in interest expense (10,504) (3,125) 847 (12,782)
-----------------------------------------------
Increase (decrease) in net
interest margin $ 3,991 (787) (636) 2,568
===============================================
Net interest margin before loan loss provision for the three months
ended June 30, 2002, increased $1.4 million from the same period in the
prior year. Specifically, total interest expense decreased $5.2 million
due to a decrease in interest rates paid on interest-costing
liabilities. This was partially offset by a decrease in interest income
of $3.9 million.
Net interest margin before loan loss provision for the nine months
ended June 30, 2002, increased $2.6 million from the same period in the
prior year. Specifically, total interest expense decreased $12.8
million, due to a $74.3 million decrease in the average balances of
interest-costing liabilities and a decrease in the interest rate cost of
those liabilities of 1.5%. This was partially off set by a decrease in
total interest income of $10.2 million, which resulted from a decrease
in the average balance of interest-earning assets of $56.8 million and
decrease in the average interest rates earned on those assets of 93
basis points.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses was $18,000 during the
quarter ended June 30, 2002, and was $509,000 for the nine months ended
June 30, 2002. Management performs an ongoing analysis of individual
loans and of homogenous pools of loans to assess for any impairment. An
increase in delinquencies of the Bank's residential single-family sub-
prime loan portfolio during the nine months ended June 30, 2002,
resulted in the increase in provision for loan losses. On a
consolidated basis, loan loss reserve was 36.2% of total classified
assets at June 30, 2002, 34.1% at September 30, 2001, and 35.8% at June
30, 2001.
As stated above, management believes that the provisions for loan
losses is adequate. The provision 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.
OTHER INCOME
Other income for the three months ended June 30, 2002, decreased
$3.7 million from the same period in the prior year. Specifically, gain
on sale of loans held for sale decreased $2.6 million due to decreased
mortgage banking volume. Additionally, net loan servicing fees
decreased $1.6 million, which was a result of increases in actual and
estimated future prepayment of the underlying mortgage loans during the
quarter.
Other income for the nine months ended June 30, 2002, increased
$1.7 million from the same period in the prior year. Specifically,
customer service fees increased $666,000 from the prior year, primarily
due to the implementation of an overdraft privilege program, which
increased the level of overdraft fees collected from demand deposit
customers. Loan servicing fees increased $439,000 and impairment loss
on mortgage servicing rights decreased $1.0 million, which were both a
result of a decrease in the actual and estimated future prepayments of
the underlying mortgage loans that occurred primarily in the first
quarter of fiscal 2002. This was partially offset by an impairment loss
on a particular mortgage-backed security held for investment of
$170,000, which represented its full carrying value.
14
Income from loan servicing fees are net of amortization of
mortgage servicing rights. Such amortization is greatly affected by the
level of actual prepayments and estimated future prepayments on the
underlying mortgage loans. Management performs an ongoing analysis of
mortgage servicing rights to determine to what extent, if any, they may
be impaired. Changes in the trend of mortgage interest rates can occur
quickly and may have a significant impact on future mortgage prepayments
and amortization of mortgage servicing rights
GENREAL AND ADMINISTRATIVE EXPENSES
Total general and administrative expenses for the quarter ended
June 30, 2002, was nearly unchanged from the same period in the previous
year. General and administrative expenses for the nine months ended
June 30, 2002, increased $614,000 from the same period in the prior
year. This was due primarily to an increase in compensation and other
expenses attributable to the increased loan origination volume.
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, 2002, 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, 2002,
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, 2002 Amount
----------------------------------------------------------------
GAAP capital (Bank only) $ 97,162
Adjustment for regulatory capital:
Intangible assets (123)
Disallowed portion of servicing assets (456)
Reverse the effect of SFAS No. 115 (275)
---------
Tangible capital 96,308
Qualifying intangible assets --
---------
Tier 1 capital (core capital) 96,308
Qualifying general valuation allowance 4,518
---------
Risk-based capital $ 100,826
=========
15
As of June 30, 2002
-------------------------------------------------------------------
Minimum required for Minimum required to be
Actual Capital Adequacy "Well Capitalized"
------------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------------- ---------------------- -----------------------
Total capital to risk-weighted assets $100,829 13.5% 59,654 >=8% 74,568 >=10%
Core capital to adjusted tangible assets 96,308 10.4% 37,018 >=4% 46,272 >=5%
Tangible capital to tangible assets 96,308 10.4% 13,882 >=1.5% -- --
Tier 1 capital to risk-weighted assets 96,308 12.9% -- -- 44,741 >=6%
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,
2002, 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, 2002, 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.
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
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended June 30, 2002, a class of plaintiffs
filed a lawsuit against the Bank and eleven other financial
institution defendants in the Circuit Court of St. Louis
County, Missouri. The suit alleges that all the defendants,
including the Bank, who charged fees to their customers for
the preparation of mortgage documents have engaged in the
practice of law without a license. The suit covers such fees
charged during the period between March 15, 1997, and March
31, 2002. The class seeks to recover all fees charged during
that period, plus an unspecified amount of punitive damages.
This legal action is still in its initial stages, however,
management believes the suit is without merit and is preparing
a response to vigorously defend the Bank's position.
Management believes that the Bank will prevail, but at this
preliminary stage cannot determine its level of exposure. An
adverse outcome could have a material impact on the financial
statements of the Bank.
There were no other 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
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 13, 2002 By:/s/David H. Hancock
David H. Hancock
Chairman and
Chief Executive Officer
August 13, 2002 By:/s/Rhonda Nyhus
Rhonda Nyhus
Vice President and
Treasurer
18
19