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 March 31, 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
May 10, 2002, was 8,420,342.
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands)
March 31, September 30,
2002 2001
(Unaudited)
---------- -----------
ASSETS
Cash and cash equivalents $ 21,159 $ 16,043
Securities available for sale 4,706 5,014
Stock in Federal Home Loan Bank, at cost 15,173 13,676
Mortgage-backed securities:
Available for sale 1,852 2,406
Held to maturity (market value of $4,393
and $7,462 at March 31, 2002, and
September 30, 2001, respectively) 4,259 6,864
Loans receivable:
Held for sale 62,604 92,864
Held for investment, net 791,233 803,606
Accrued interest receivable 5,219 5,587
Real estate owned, net 6,335 8,043
Premises and equipment, net 6,771 6,872
Mortgage servicing rights, net 6,664 8,008
Other assets 4,668 2,479
---------- ----------
$ 930,643 $ 971,462
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposit accounts $ 567,643 $ 576,040
Brokered deposit accounts -- 9,997
Advances from Federal Home Loan Bank 253,333 273,471
Escrows 4,057 7,116
Income taxes payable 2,769 6,427
Accrued expenses and other liabilities 2,061 2,914
---------- ----------
Total liabilities 829,863 875,965
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock of $0.15 par value:
20,000,000 authorized; 9,797,112 issued
at March 31, 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 15,818 15,635
Retained earnings 100,202 93,340
Treasury stock, at cost; 1,381,770 shares
at March 31, 2002 and 1,269,522 shares
at September 30, 2001 (16,716) (14,854)
Accumulated other comprehensive loss 6 (90)
---------- ----------
Total stockholders' equity 100,780 95,497
---------- ----------
930,643 971,462
========== ==========
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 Six months ended
March 31, March 31,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Interest on loans $ 17,580 21,138 36,303 42,276
Interest on mortgage-backed securities 114 251 291 555
Interest and dividends on securities 201 316 471 675
Other interest income 73 72 246 166
--------- --------- --------- ---------
Total interest income 17,968 21,777 37,311 43,672
--------- --------- --------- ---------
Interest on customer deposit accounts 4,972 7,982 11,166 16,346
Interest on advances from FHLB and
other borrowings 3,371 5,074 7,380 9,755
--------- --------- --------- ---------
Total interest expense 8,343 13,056 18,546 26,101
--------- --------- --------- ---------
Net interest income 9,625 8,721 18,765 17,571
Provision for loan losses 150 150 491 300
--------- --------- --------- ---------
Net interest income after provision
for loan losses 9,475 8,571 18,274 17,271
--------- --------- --------- ---------
Other income (expense):
Loan servicing fees (390) (1,507) (77) (1,981)
Impairment (loss) recovery on mortgage
servicing rights 86 67 (190) (666)
Impairment loss on mortgage-backed securities -- -- (170) --
Customer service fees and charges 1,016 794 2,116 1,469
Provision for losses on real estate owned -- -- (67) --
Gain on sale of loans held for sale 1,552 1,446 5,292 2,777
Other (2) 263 418 483
--------- --------- --------- ---------
Total other income 2,262 1,063 7,322 2,082
--------- --------- --------- ---------
General and administrative expenses:
Compensation and fringe benefits 3,338 3,518 7,022 6,692
Premises and equipment 611 569 1,139 1,152
Advertising and business promotion 150 90 274 205
Federal deposit insurance premiums 27 31 57 62
Other 958 889 2,074 1,766
--------- --------- --------- ---------
Total general and administrative expenses 5,084 5,097 10,566 9,877
--------- --------- --------- ---------
Income before income tax expense 6,653 4,537 15,030 9,476
Income tax expense 2,627 1,746 5,843 3,676
--------- --------- --------- ---------
Net income $ 4,026 2,791 9,187 5,800
========= ========= ========= =========
Basic earnings per share $ 0.48 0.33 1.09 0.68
========= ========= ========= =========
Diluted earnings per share $ 0.48 0.32 1.08 0.67
========= ========= ========= =========
Weighted average shares outstanding 8,412,887 8,556,995 8,460,142 8,548,574
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 -- -- 9,187 -- -- 9,187
Other comprehensive loss,
net of tax
Unrealized loss on securities -- -- -- -- 96 96
---------
Total comprehensive income -- -- -- -- -- 9,283
Cash dividends paid -- -- (2,325) -- -- (2,325)
Stock options exercised 4 183 -- -- -- 187
Purchase of common stock for
Treasury -- -- -- (1,862) -- (1,862)
----------------------------------------------------------------------
Balance at March 31, 2002 $ 1,470 15,818 100,202 (16,716) 6 100,780
======================================================================
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 Six months ended
March 31, March 31,
---------------------- ----------------------
2002 2001 2002 2001
---------------------- ----------------------
Cash flows from operating activities:
Net income $ 4,026 2,791 9,187 5,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 205 214 420 432
Amortization and accretion (636) 1,854 (1,085) 2,764
Impairment (loss) recovery on mortgage servicing rights (86) (67) 190 666
Impairment loss on mortgage-backed securities -- -- 170 --
Gain on sale of loans receivable held for sale (1,552) (1,446) (5,292) (2,777)
Provision for loan losses 150 150 491 300
Provision for losses on real estate owned -- -- 67 --
Origination and purchase of loans held for sale (95,644) (120,999) (245,828) (197,276)
Sale of loans receivable held for sale 142,722 79,604 334,798 160,925
Changes in:
Accrued interest receivable (166) 521 368 (19)
Accrued expenses and other liabilities and
income taxes payable (6,203) (782) (4,739) 777
---------------------- ----------------------
Net cash provided by (used in) operating activities 42,816 (38,160) 88,747 (28,408)
Cash flows from investing activities:
Principal repayments of mortgage-backed securities:
Held to maturity 1,367 584 2,343 1,136
Available for sale 250 1,430 539 1,999
Principal repayments of mortgage loans held
for investment and held for sale 98,484 108,692 242,281 176,509
Principal repayments of other loans receivable 8,526 8,340 18,900 13,798
Principal repayments of securities available for sale 478 367 20,478 367
Loan origination - mortgage loans held for investment (103,670) (86,510) (274,969) (171,372)
Loan origination - other loans (5,008) (7,323) (10,376) (15,034)
Purchase of mortgage loans held for investment (4,478) (5,692) (12,771) (13,369)
Purchase of other loans receivable (5,173) -- (5,173) --
Purchase of investment securities available for sale -- -- (20,000) --
Purchase of FHLB stock -- (1,047) (1,497) (2,910)
Proceeds for sale of real estate owned 2,239 901 3,791 1,320
Purchases of premises and equipment, net (96) (1,093) (319) (1,267)
Other (338) (349) (1,267) (1,146)
---------------------- ----------------------
Net cash provided by (used in) investing activities (7,419) 18,300 (38,040) (9,969)
4
NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(In thousands, except share data)
Three months ended Six months ended
March 31, March 31,
---------------------- ----------------------
2002 2001 2002 2001
---------------------- ----------------------
Cash flows from financing activities:
Net increase (decrease) in customer deposit accounts (23,570) 11,113 (18,394) 3,696
Proceeds from advances from FHLB 10,000 68,000 55,000 140,000
Repayment on advances from FHLB (45,069) (53,066) (75,138) (87,831)
Repayment of notes payable -- (50) -- (50)
Cash dividends paid (1,262) (1,070) (2,325) (1,925)
Stock options exercised 93 -- 187 15
Repurchase of common stock (1,533) -- (1,862) --
Net increase (decrease) in escrows 1,201 2,370 (3,059) (1,979)
---------------------- ----------------------
Net cash provided by (used in) financing activities (60,140) 27,297 (45,591) 51,926
---------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (24,743) 7,437 5,116 13,549
Cash and cash equivalents at beginning of the period 45,902 9,759 16,043 3,647
---------------------- ----------------------
Cash and cash equivalents at end of period $ 21,159 17,196 21,159 17,196
====================== ======================
Supplemental disclosure of cash flow information:
Cash paid for income taxes (net of refunds) $ 5,466 3,994 9,578 4,454
Cash paid for interest 8,334 13,001 18,780 26,145
Supplemental schedule of non-cash investing and financing
activities:
Conversion of loans receivable to real estate owned $ 1,147 1,513 2,204 2,812
Conversion of real estate owned to loans receivable -- 78 57 78
Capitalization of mortgage servicing rights 7 -- 44 992
Transfer of loans from held to maturity to
held for sale -- 67,117 -- 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 six months ended March 31,
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 FASB recently issued SFAS No. 141, "Business Combinations,"
No. 142, "Goodwill and Other Intangible Assets," No. 143, "Accounting
for Asset Retirement Obligations," and No.144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." 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.
March 31, 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 -- (38) 2,700
-------------------------------------------
Total $ 4,749 -- (43) 4,706
===========================================
(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.
March 31, 2002
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
Pass-through certificates
guaranteed by GNMA
- fixed rate $ 1,737 43 -- 1,780
Mortgage-backed derivatives
(including CMO residuals
and interest-only
securities) 62 10 -- 72
-------------------------------------------
Total $ 1,799 53 -- 1,852
===========================================
6
(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.
March 31, 2002
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
FHLMC participation
certificates:
Fixed rate $ 581 14 -- 595
Balloon maturity and
adjustable rate 1,126 49 -- 1,175
FNMA pass-through
certificates:
Fixed rate 134 -- (1) 133
Balloon maturity and
adjustable rate 276 3 -- 279
Pass-through certificates
guaranteed by GNMA
Fixed rate 298 15 -- 313
Collateralized mortgage
obligation bonds 142 -- (1) 141
Other asset-backed
securities 1,702 55 -- 1,757
-------------------------------------------
Total $ 4,259 136 (2) 4,393
===========================================
(5) LOANS RECEIVABLE
Loans receivable are as follows:
March 31,
2002
---------------------
(Dollars in thousands)
LOANS HELD FOR INVESTMENT:
Mortgage loans:
Permanent loans on:
Residential properties $ 254,690
Business properties 344,287
Partially guaranteed by VA or
insured by FHA 18,853
Construction and development 193,810
----------
Total mortgage loans 811,640
Commercial loans 15,020
Installment loans to individuals 41,638
----------
Total loans held for investment 868,298
Less:
Undisbursed loan funds (64,165)
Unearned discounts and fees and costs
on loans, net (6,673)
Allowance for losses on loans (6,227)
----------
Net loans held for investment $ 791,233
==========
March 31,
2002
---------------------
(Dollars in thousands)
LOANS HELD FOR SALE:
Mortgage loans:
Permanent loans on:
Residential properties $ 78,096
Less:
Undisbursed loan funds (15,425)
Unearned discounts and fees and costs
on loans, net (67)
----------
Net loans held for sale $ 62,604
==========
7
Included in the loans receivable balances at March 31, 2002, are
participating interests in mortgage loans and wholly owned mortgage
loans serviced by other institutions in the approximate amount of $2.2
million. Loans and participations serviced for others amounted to
approximately $467.2 million at March 31, 2002.
(6) REAL ESTATE OWNED
Real estate owned and other repossessed property consisted of the
following:
March 31,
2002
---------------------
(Dollars in thousands)
Real estate acquired through (or deed
in lieu of) foreclosure $ 7,486
Less: allowance for losses (1,151)
----------
Total $ 6,335
==========
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 March 31, 2002. Dollar amounts
are expressed in thousands.
Balance at October 1, 2001 $ 8,008
Additions:
Originated mortgage servicing rights 44
Reductions:
Amortization 1,198
Sale of mortgage servicing rights --
Impairment loss 190
--------
Balance at March 31, 2002 $ 6,664
========
(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 Six months ended
---------------------- ----------------------
3/31/02 3/31/01 3/31/02 3/31/01
---------------------- ----------------------
Net income (in thousands) $ 4,026 2,791 9,187 5,800
Basic weighted average shares outstanding 8,412,887 8,556,995 8,460,142 8,548,574
Effect of stock options 27,824 57,030 32,943 64,950
---------------------- ----------------------
Dilutive potential common shares 8,440,711 8,614,025 8,493,085 8,613,524
Net income per share:
Basic $ 0.48 0.33 1.09 0.68
Diluted 0.48 0.32 1.08 0.67
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.
8
(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
March 31, 2002 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $ 9,556 -- 69 9,625
Provision for loan losses 150 -- -- 150
Other income 2,200 2,590 (2,528) 2,262
General and administrative
expenses 2,835 2,684 (435) 5,084
Income tax expense 3,238 (54) (557) 2,627
-------------------------------------------
Net income $ 5,533 (40) (1,467) 4,026
===========================================
Three months ended Mortgage Other and
March 31, 2001 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $ 8,661 -- 60 8,721
Provision for loan losses 150 -- -- 150
Other income (292) 3,546 (2,191) 1,063
General and administrative
expenses 2,560 3,054 (517) 5,097
Income tax expense 2,178 189 (621) 1,746
-------------------------------------------
Net income $ 3,481 303 (993) 2,791
===========================================
Six months ended Mortgage Other and
March 31, 2002 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $18,627 -- 138 18,765
Provision for loan losses 491 -- -- 491
Other income 5,758 7,132 (5,568) 7,322
General and administrative
expenses 5,842 6,014 (1,290) 10,566
Income tax expense 6,950 430 (1,537) 5,843
-------------------------------------------
Net income $11,102 688 (2,603) 9,187
===========================================
Six months ended Mortgage Other and
March 31, 2001 Banking Banking Eliminations Consolidated
------------------------------------------------------------------------
Net interest income $17,442 -- 129 17,571
Provision for loan losses 300 -- -- 300
Other income (207) 6,012 (3,723) 2,082
General and administrative
expenses 5,226 5,462 (811) 9,877
Income tax expense 4,508 212 (1,044) 3,676
-------------------------------------------
Net income $ 7,201 338 (1,739) 5,800
===========================================
9
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 March 31, 2002, were $930.6
million, a decrease of $40.8 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 six months ended March 31, 2002, the Bank
originated and purchased $245.8 million in mortgage loans held for sale,
$287.7 million in mortgage loans held for investment, and $15.5 million
in other loans. This total of $549.1 million in loans originated
compares to $397.1 million in loans originated during the six months
ended March 31, 2001.
Included in the $62.6 million in loans held for sale as of March
31, 2002, are $13.5 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.
3/31/02 9/30/01 3/31/01
-------------------------------------
Asset Classification:
Substandard $ 17,164 18,780 20,979
Doubtful -- -- --
Loss 2,080 1,851 2,313
-------------------------------------
19,244 20,631 23,292
Allowance for losses (7,378) (7,035) (8,634)
-------------------------------------
$ 11,866 13,596 14,658
=====================================
10
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 $8.4 million during the six
months ended March 31, 2002. The weighted average rate on customer
deposits as of March 31, 2002, was 3.45%, a decrease from 5.24% as of
March 31, 2001.
Advances from the FHLB were $253.3 million as of March 31, 2002, an
decrease of $20.1 million from September 30, 2001. During the six-month
period, the Bank borrowed $55.0 million of new advances and repaid $75.1
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 $4.1 million as of March 31, 2002, a decrease of $3.1
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 March 31, 2002, was $100.8 million
(10.83% 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 $11.98 on March 31, 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. Subsequent to the
quarter ended March 31, 2002, the Company announced a cash dividend of
$0.15 per share to be paid on May 24, 2002, to stockholders of record as
of May 3, 2002.
Total stockholders' equity as of March 31, 2002, includes an
unrealized gain of $6,000, 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).
Six month ended
------------------------
3/31/02 3/31/01
------------------------
Return on assets 1.93% 1.14%
Return on equity 18.72% 13.53%
Equity-to-assets ratio 10.83% 8.42%
Dividend payout ratio 25.31% 32.67%
RESULTS OF OPERATIONS - Comparison of three months and six months ended
March 31, 2002 and 2001.
For the three months ended March 31, 2002, the Company had net
income of $4,026,000 or $0.48 per share. This compares to net income of
$2,791,000 or $0.33 per share for the quarter ended March 31, 2001.
For the six months ended March 31, 2002, the Company had net income
of $9,187,000 or $1.09 per share. This compares to net income of
$5,800,000 or $0.68 per share for the six months ended March 31, 2001.
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,
11
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 six months ended March
31, 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.
Six months ended 3/31/02 As of
--------------------------- 3/31/02
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 879,928 36,303 8.25% 7.75%
Mortgage-backed securities 7,761 291 7.50% 7.20%
Securities 22,637 471 4.16% 4.30%
Bank deposits 24,178 246 2.03% 1.31%
-------------------------------------
Total earning assets 934,504 37,311 7.99% 7.54%
---------------------------
Non-earning assets 31,744
---------
Total $ 966,248
=========
Interest-costing liabilities
Customer deposits accounts $ 577,962 11,166 3.86% 3.45%
FHLB Advances 279,259 7,380 5.29% 4.97%
Other borrowings -- -- --% --
-------------------------------------
Total costing liabilities 857,221 18,546 4.33% 3.92%
---------------------------
Non-costing liabilities 10,931
Stockholders' equity 98,096
---------
Total $ 966,248
=========
Net earning balance $ 77,283
=========
Earning yield less costing rate 3.66% 3.62%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 934,504 18,765 4.02%
==========================
Six months ended 3/31/01 As of
--------------------------- 3/31/01
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 933,333 42,276 9.06% 8.30%
Mortgage-backed securities 16,760 555 6.62% 6.19%
Securities 19,389 675 6.96% 6.27%
Bank deposits 5,926 166 5.60% 4.93%
-------------------------------------
Total earning assets 975,408 43,672 8.95% 8.19%
---------------------------
Non-earning assets 36,274
---------
Total $1,011,682
=========
Interest-costing liabilities
Customer deposits accounts $ 617,136 16,346 5.30% 5.24%
FHLB Advances 293,771 9,752 6.64% 6.40%
Other borrowings 79 3 7.64% 7.50%
-------------------------------------
Total costing liabilities 910,986 26,101 5.73% 5.63%
---------------------------
Non-costing liabilities 14,997
Stockholders' equity 85,699
---------
Total $1,011,682
=========
Net earning balance $ 64,422
=========
Earning yield less costing rate 3.22% 2.56%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 975,408 17,571 3.60%
==========================
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.
Six months ended March 31, 2002, compared to
six months ended March 31, 2001
-----------------------------------------------
Yield/
Yield Volume Volume Total
-----------------------------------------------
Components of interest income:
Loans $ (3,780) (2,419) 226 (5,973)
Mortgage-backed securities 74 (298) (40) (264)
Securities (271) 113 (46) (204)
Other assets (106) 511 (325) 80
-----------------------------------------------
Net change in interest income (4,083) (2,093) (185) (6,361)
-----------------------------------------------
Components of interest expense:
Customer deposit accounts (4,443) (1,038) 301 (5,180)
FHLB Advances (1,983) (482) 93 (2,372)
Other borrowings (3) (3) 3 (3)
-----------------------------------------------
Net change in interest expense (6,429) (1,523) 397 (7,555)
-----------------------------------------------
Increase (decrease) in net
interest margin $ 2,346 (570) (582) 1,194
===============================================
12
Net interest margin before loan loss provision for the three months
ended March 31, 2002, increased $904,000 from the same period in the
prior year. Specifically, total interest expense decreased $4.7 million
due to a decrease in interest rates paid on interest-costing
liabilities. This was partially offset by a decrease in interest income
of $3.8 million.
Net interest margin before loan loss provision for the six months
ended March 31, 2002, increased $1.2 million from the same period in the
prior year. Specifically, total interest expense decreased $7.6
million, due to a $53.8 million decrease in the average balances of
interest-costing liabilities and a decrease in the interest rate cost of
those liabilities of 1.4%. This was partially off set by a decrease in
total interest income of $6.4 million, which resulted from a decrease in
the average balance of interest-earning assets of $40.9 million and
decrease in the average interest rates earned on those assets of 96
basis points.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses was $150,000 during the
quarter ended March 31, 2002, and was $491,000 for the six months ended
March 31, 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 six months ended March 31, 2002,
resulted in the increase in provision for loan losses. On a
consolidated basis, loan loss reserve was 38.3% of total classified
assets at March 31, 2002, 34.1% at September 30, 2001, and 37.1% at
March 31, 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 March 31, 2002, increased
$1.2 million from the same period in the prior year. This increase was
primarily the result of and increase in net loan servicing fees of $1.1
million, which was a result of decreases in actual and estimated future
prepayment of the underlying mortgage loans.
Other income for the six months ended March 31, 2002, increased
$5.2 million from the same period in the prior year. Specifically, gain
on sale of loans held for sale increased $2.5 million due to the
increased volume of mortgage banking. Customer service fees increased
$647,000 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
$1.9 million and impairment loss on mortgage servicing rights decreased
$476,000, which were both a result of a decrease in the actual and
estimated future prepayments of the underlying mortgage loans. This was
partially offset by a provision for loss on real estate owned of
$67,000, and an impairment loss on a particular mortgage-backed security
held for investment of $170,000, which represented its full carrying
value.
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, it 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
March 31, 2002, was nearly unchanged from the same period in the
previous year. General and administrative expenses for the six months
ended March 31, 2002, increased $0.7 million 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
13
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 March 31, 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 March 31, 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 March 31, 2002 Amount
----------------------------------------------------------------
GAAP capital (Bank only) $ 93,077
Adjustment for regulatory capital:
Intangible assets (128)
Disallowed portion of servicing assets (569)
Reverse the effect of SFAS No. 115 (30)
---------
Tangible capital 92,350
Qualifying intangible assets --
---------
Tier 1 capital (core capital) 92,350
Qualifying general valuation allowance 4,669
---------
Risk-based capital $ 97,019
=========
As of March 31, 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 $ 97,019 13.5% 57,565 >=8% 71,956 >=10%
Core capital to adjusted tangible assets 92,350 10.0% 36,970 >=4% 46,213 >=5%
Tangible capital to tangible assets 92,350 10.0% 13,864 >=1.5% -- --
Tier 1 capital to risk-weighted assets 92,350 12.8% -- -- 43,174 >=6%
INTEREST RATE RISK COMPONENT
The OTS has adopted a rule which requires savings institutions with
a "greater than normal" level of interest rate exposure to deduct
amounts from their total capital for the purpose of calculating the
risk-based capital requirement. The deduction is an amount equal to
one-half of the difference between the institution's measured exposure
and the "normal" exposure level (i.e., 2% of the estimated economic
value of the institution's assets). The rule measures interest rate
risk as the decline in Net Portfolio Value that would result from a
sharp increase or decrease in market interest rates. The rule sets
forth a description of valuation methodologies for assets, liabilities,
and off-balance sheet items. Subsidiaries that are deemed to be
controlled by an institution under accounting principles generally
accepted in the United States of America will be consolidated for
purposes of calculating interest rate risk. Although the interest rate
component was originally
14
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 March 31,
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 March 31, 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.
15
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
The annual stockholders' meeting was held on January 22,
2002. The following persons were elected to NASB Financial
Inc.'s Board of Directors for three-year terms:
Barrett Brady
James A. Watson
Keith B. Cox
The firm of Deloitte & Touche LLP was ratified for
appointment as independent auditors for the fiscal year
ended September 30, 2002.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
16
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)
May 13, 2002 By: /s/David H. Hancock
David H. Hancock
Chairman and
Chief Executive Officer
May 13, 2002 By: /s/Keith B. Cox
Keith B. Cox
Vice President and
Treasurer
17
19