Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NASB > SEC Filings for NASB > Form 10-Q on 10-Feb-2014All Recent SEC Filings

Show all filings for NASB FINANCIAL INC

Form 10-Q for NASB FINANCIAL INC


10-Feb-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

We may from time to time make written or oral "forward-looking statements," including statements contained in our filings with the Securities and Exchange Commission ("SEC"). These forward-looking statements may be included in this quarterly report and in other communications by the Company, which are made in good faith by us pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. The following factors, as well as those discussed under Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2013, filed with the Securities and Exchange Commission, among others, could cause our financial performance to differ materially from the plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:

the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;

the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;

the effects of, and changes in, foreign and governmental policy; inflation, interest rate, market and monetary fluctuations;

the timely development and acceptance of our new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services;

the willingness of users to substitute competitors' products and services for our products and services;

our success in gaining regulatory approval of our products, services and branching locations, when required;

the impact of changes in financial services' laws and regulations, including laws concerning taxes, banking, securities and insurance;

technological changes;

acquisitions and dispositions;

changes in consumer spending and saving habits;

our success at managing the risks involved in our business; and

changes in the fair value or economic value of, impairments of, and risks associated with the Bank's investments in real estate owned, mortgage backed securities and other assets.

This list of important factors is not all-inclusive. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank. For further discussion of these factors, see "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2013, filed with the Securities and Exchange Commission, and in our Quarterly Reports, if applicable.

GENERAL

NASB Financial, Inc. was formed in 1998 as a unitary thrift holding company of North American Savings Bank, F.S.B. The Bank is a federally chartered stock savings bank, with its headquarters in the Kansas City area. The Bank began operating in 1927, and became a member of the Federal Home Loan Bank of Des Moines ("FHLB") in 1940. Its customer deposit accounts are insured by the Deposit Insurance Fund ("DIF"), a division of the Federal Deposit Insurance Corporation ("FDIC"). The Bank converted to a stock form of ownership in September 1985.

The Bank's primary market area includes the counties of Jackson, Cass, Clay, Buchanan, Andrew, Platte, and Ray in Missouri, and Johnson and Wyandotte counties in Kansas. The Bank currently has nine retail deposit offices in Missouri including one each in Grandview, Lee's Summit, Independence, Harrisonville, Excelsior Springs, Platte City, and St. Joseph, and two in Kansas City. North American also operates loan production offices in Kansas City, Lee's Summit and Springfield in Missouri. The economy of the Kansas City area is diversified with major employers in agribusiness, greeting cards, automobile production, transportation, telecommunications, and government.


The Bank's principal business is to attract deposits from the general public and to originate real estate loans, other loans and short-term investments. The Bank obtains funds mainly from deposits received from the general public, sales of loans and loan participations, advances from the FHLB, and principal repayments on loans and mortgage-backed securities ("MBS"). The Bank's primary sources of income include interest on loans, interest on MBS, interest on investment securities, customer service fees, and mortgage banking fees. Its primary expenses are interest payments on customer deposit accounts and borrowings and normal operating costs.

FINANCIAL CONDITION

Assets

The Company's total assets as of December 31, 2013 were $1,181.3 million, an increase of $37.1 million from September 30, 2013, the prior fiscal year end.

Loans receivable held for investment were $736.6 million as of December 31, 2013, an increase of $20.9 million during the three month period. This increase was primarily due to the origination of new loans in the Bank's construction and land development portfolios. The weighted average rate on total loans receivable held for investment as of December 31, 2013, was 5.20%, a decrease from 5.73% as of December 31, 2012.

Loans receivable held for sale as of December 31, 2013, were $66.3 million, a decrease of $2.8 million from September 30, 2013. This portfolio consists of residential mortgage loans originated by the Bank's mortgage banking division that will be sold with servicing released. The Company has elected to carry loans held for sale at fair value, as permitted under GAAP.

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 sold with the loan servicing retained by the Bank. At the time of each loan commitment, a decision is made to either hold the loan for investment, hold it for sale with servicing retained, or hold it for sale with servicing released. Management monitors market conditions to decide whether loans should be held in portfolio or sold and if sold, which method of sale is appropriate. During the three months ended December 31, 2013, the Bank originated and purchased $290.6 million in mortgage loans held for sale, $67.2 million in mortgage loans held for investment, and $505,000 in other loans. This total of $358.3 million in loans compares to $569.0 million in loans originated and purchased during the three months ended December 31, 2012.

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 little value.

The following table summarizes the Bank's classified assets, including foreclosed assets held for sale, as reported to their primary regulator, plus any classified assets of the holding company. Dollar amounts are expressed in thousands.

                                       12/31/13        9/30/13       12/31/12
           Asset Classification:
           Substandard                 $  55,451         82,760        132,431
           Doubtful                          124            168            575
           Loss                               -              -              -

                                          55,575         82,928        133,006
           Allowance for loan losses     (21,270 )      (20,383 )      (27,853 )

                                       $  34,305         62,545        105,153


The following table summarizes non-performing assets, troubled debt restructurings, and real estate acquired through foreclosure, net of specific loss allowances. Dollar amounts are expressed in thousands.

                                                 12/31/13           9/30/13          12/31/12
Total Assets                                   $  1,181,290         1,144,155         1,252,524

Non-accrual loans                                    25,159            31,622            61,076
Performing troubled debt restructurings              33,429            32,637            34,469
Net real estate and other assets acquired
through foreclosure                                  10,596            11,252            15,314

Total                                                69,184            75,511           110,859

Percent of total assets                        $       5.86 %            6.60 %            8.85 %

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 recognizes the inherent risks associated with lending activities for individually identified problem assets as well as the entire homogenous and non-homogenous loan portfolios. Management believes that the specific loss allowances and ALLL are adequate. While management uses available information to determine these allowances, future provisions may be necessary because of changes in economic conditions or changes in the information available to management. Also, regulatory agencies 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.

With the exception of certain residential loans, which are not deemed impaired until they reach 180 days past due, loans in non-accrual status are considered impaired. (At December 31, 2013, loans of $1.6 million in non-accrual status were not deemed impaired.) Once a loan has been deemed impaired, the impairment must be measured by comparing the recorded investment in the loan to the present value of the estimated future cash flows discounted at the loan's effective rate, or to the fair value of the loan based on the loan's observable market price, or to the fair value of the collateral if the loan is collateral dependent. Any measured impairment that is deemed a "confirmed loss" is charged off and netted from the respective loan balance. For collateral dependent loans, which make up the majority of the Bank's impaired loans, a "confirmed loss" is generally the amount by which the loan's recorded investment exceeds the fair value of its collateral. Therefore, risks associated with non-accrual loans have been addressed within Bank's quarterly analysis of the adequacy of its ALLL, as essentially all were individually analyzed for impairment.

If loans classified as substandard are also impaired, they are individually analyzed for impairment, as noted above. At December 31, 2013, $34.1 million of loans classified as substandard have also been deemed impaired. In addition, the Bank utilizes a qualitative adjustment related to changes and trends in past due, non-accrual, and adversely classified loans. This adjustment is applied to the various pools of unimpaired loans when determining adequacy of the Bank's ALLL.

Investment securities were $272.4 million as of December 31, 2013, an increase of $19.7 million from September 30, 2013. During the three month period, the Bank purchased $61.4 million and sold $40.4 million of securities available for sale. The average yield on the investment securities portfolio was 2.21% at December 31, 2013, an increase from 1.56% at December 31, 2012.

Mortgage-backed securities were $43.0 million as of December 31, 2013, a decrease of $547,000 million from the prior year end. The Bank did not purchase or sell any mortgage-backed securities during the three month period ended December 31, 2013. The average yield on the mortgage-backed securities portfolio was 3.55% at December 31, 2013, a decrease from 4.51% at December 31, 2012.

The Company's investment in LLCs, which is accounted for using the equity method, was $16.5 million at December 31, 2013, an increase of $43,000 from September 30, 2013. There have been no events subsequent to September 30, 2013, that would indicate an additional impairment in value of the Company's investment in LLCs at December 31, 2013.


Liabilities and Equity

Customer deposit accounts decreased $12.5 million during the three months ended December 31, 2013. This decrease was due to an $8.1 million decrease in certificates of deposits and a $4.4 million decrease in money market accounts during the period. The weighted average rate on customer and brokered deposits as of December 31, 2013, was 0.49%, a decrease from 0.76% as of December 31, 2012.

Advances from the FHLB were $210.0 million as of December 31, 2013, an increase of $55.0 million from September 30, 2013. During the three month period, the Bank borrowed $110.0 million of new advances and repaid $55.0 million. Management regularly uses FHLB advances as an alternate funding source to provide operating liquidity and to fund the origination and purchase of mortgage loans.

Subordinated debentures were $25.8 million as of December 31, 2013. Such debentures resulted from the issuance of Trust Preferred Securities through the Company's wholly-owned statutory trust, NASB Preferred Trust I. The Trust used the proceeds from the offering to purchase a like amount of the Company's subordinated debentures. The debentures, which have a variable rate of 1.65% over the 3-month LIBOR and a 30-year term, are the sole assets of the Trust.

Escrows were $4.3 million as of December 31, 2013, a decrease of $4.1 million from September 30, 2013. This decrease is due to amounts paid for borrowers' taxes during the fourth calendar quarter of 2013.

Total stockholders' equity as of December 31, 2013, was $192.0 million (16.3% of total assets). This compares to $195.5 million (17.1% of total assets) at September 30, 2013. On a per share basis, stockholders' equity was $24.40 on December 31, 2013, compared to $24.85 on September 30, 2013.

The Company did not pay any cash dividends to its stockholders during the three month period ended December 31, 2013. In accordance with the regulatory written agreement, which is described more fully in Footnote 15, Regulatory Agreements, the Company is restricted from paying dividends or making other capital distributions without the prior written non-objection from its primary regulator. Upon receipt of written non-objection from the FRB, the Company's Board of Directors declared a special cash dividend of $0.60 per share on December 20, 2013, payable on January 17, 2014, to shareholders of record as of January 3, 2014. The special dividend, which amounted to $4.7 million, was accrued within the December quarter. In addition, the Company received regulatory written non-objection to pay all accrued interest on its outstanding Trust Preferred Securities at the January 30, 2014, payment date, which amounted to $893,000.

The Board intends to continue making quarterly interest payments on the Company's Trust Preferred Securities and to consider some level of quarterly cash dividend to the Company's shareholders; however, while the Company is operating under the regulatory written agreement, each interest payment on Trust Preferred Securities and dividend distribution to shareholders must first receive prior written non-objection from regulators. The Company will not declare future distributions of capital until it receives written non-objection from regulators.

Total stockholders' equity as of December 31, 2013, includes an unrealized loss, net of deferred income taxes, on available for sale securities of $2.1 million. This amount is reflected in the line item "Accumulated other comprehensive income."

Ratios

The following table illustrates the Company's return on assets (annualized net
income divided by average total assets); return on equity (annualized net income
divided by average total equity); equity-to-assets ratio (ending total equity
divided by ending total assets); and dividend payout ratio (dividends paid
divided by net income).



                                              Three months ended
                                          12/31/13         12/31/12
                 Return on assets              0.69 %           2.67 %
                 Return on equity              4.13 %          18.94 %
                 Equity-to-assets ratio       16.25 %          14.36 %
                 Dividend payout ratio           -  %             -  %


RESULTS OF OPERATIONS - Comparison of three ended December 31, 2013 and 2012.

For the three months ended December 31, 2013, the Company had net income of $2.0 million or $0.25 per share. This compares to a net income of $8.3 million or $1.06 per share for the three month period ended December 31, 2012.

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 and brokered deposits and other borrowings. Management monitors net interest spreads and, although constrained by certain market, economic, and competition factors, it establishes loan rates and customer deposit rates that maximize net interest margin.

The following table presents the total dollar amounts of interest income and expense on the indicated amounts of average interest-earning assets or interest-costing liabilities for the three months ended December 31, 2013 and 2012. Average yields reflect reductions due to non-accrual loans. Once a loan becomes 90 days delinquent, or when full payment of interest and principal is not expected, any interest that has accrued up to that time is reversed 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.

                                                                                      As of                                                       As of
                                             Three months ended 12/31/13             12/31/13            Three months ended 12/31/12             12/31/12
                                          Average                      Yield/         Yield/          Average                      Yield/         Yield/
                                          Balance        Interest       Rate           Rate           Balance        Interest       Rate           Rate
Interest-earning assets
Loans                                   $    767,807        10,600        5.52 %          5.10 %    $    862,292        12,334        5.72 %          5.28 %
Mortgage-backed securities                    45,609           411        3.60 %          3.55 %          28,649           294        4.10 %          4.51 %
Securities                                   262,941         1,421        2.16 %          2.21 %         244,369           963        1.58 %          1.56 %
Bank deposits                                  3,777             2        0.21 %          0.20 %          19,766             2        0.04 %          0.01 %

Total earning assets                       1,080,134        12,434        4.60 %          4.31 %       1,155,076        13,593        4.71 %          4.37 %

Non-earning assets                            64,238                                                      74,662

Total                                   $  1,144,372                                                $  1,229,738

Interest-costing liabilities
Customer checking and savings deposit
accounts                                $    370,959           333        0.36 %          0.32 %    $    297,848           344        0.46 %          0.41 %
Customer and brokered certificates of
deposit                                      366,605           612        0.67 %          0.66 %         583,967         1,405        0.96 %          0.94 %
FHLB Advances                                172,506           470        1.09 %          0.91 %         131,755           531        1.61 %          1.42 %
Subordinated debentures                       25,000           125        2.00 %          1.89 %          25,000           129        2.06 %          1.96 %
Other borrowings                                 421             5        4.75 %          5.00 %             210             3        5.71 %          5.00 %

Total costing liabilities                    935,491         1,545        0.66 %          0.62 %       1,038,780         2,412        0.93 %          0.88 %

Non-costing liabilities                       11,839                                                      15,966
Stockholders' equity                         197,042                                                     174,992

Total                                   $  1,144,372                                                $  1,229,738

Net earning balance                          144,643                                                     116,296

Earning yield less costing rate                                           3.94 %          3.69 %                                      3.78 %          3.49 %

Average interest-earning assets, net
interest, and net yield spread on
average interest -earning assets        $  1,080,134        10,889        4.03 %                    $  1,155,076        11,181        3.87 %


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 rates (change in rate multiplied by the old volume), and
(2) changes in volume (change in volume multiplied by the old rate), 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.

                                                     Three months ended December 31, 2013, compared to
                                                            three months ended December 31, 2012
                                                                                        Yield/
                                                Yield               Volume              Volume         Total
Components of interest income:
Loans                                         $     (431 )              (1,351 )             48         (1,734 )
Mortgage-backed securities                           (36 )                 174              (21 )          117
Securities                                           354                    73               31            458
Bank deposits                                          8                    (2 )             (6 )           -

Net change in interest income                       (105 )              (1,106 )             52         (1,159 )

Components of interest expense:
Customer and brokered deposit accounts              (617 )                (285 )             98           (804 )
FHLB Advances                                       (171 )                 164              (54 )          (61 )
Subordinated debentures                               (4 )                  -                -              (4 )
Other borrowings                                      (1 )                   3               -               2

Net change in interest expense                      (793 )                (118 )             44           (867 )

Increase (decrease) in net interest margin    $      688                  (988 )              8           (292 )

Net interest margin before loan loss provision for the three months ended December 31, 2013, decreased $292,000 from the same period in the prior year. Specifically, interest income decreased $1.2 million, which was offset by a $867,000 decrease in interest expense for the period. Interest on loans decreased $1.7 million as the result of a $94.5 million decrease in the average balance of loans receivable outstanding during the period and a 20 basis point decrease in the average rate earned on such loans during the period. Interest on mortgage-backed securities increased $117,000 due to a $17.0 million increase in the average balance during the period, the effect of which was partially offset by a 50 basis point decrease in the average rate earned on such securities during the period. Interest earned on investment securities increased $458,000 resulting from a 58 basis point increase in the average rate and an $18.6 million increase in the average balance of such securities during the period. Interest expense on customer and brokered deposit accounts decreased $804,000 due to a 28 basis point decrease in the average rate paid on such liabilities and a $144.3 million decrease in the average balance of customer and brokered deposits during the period. Interest expense on FHLB advances decreased $61,000 as the result a 52 basis point decrease in the average rate paid on such liabilities, the effect of which was largely offset by a $40.8 million increase in the average balance of advances outstanding during the period.

Provision for Loan Losses

The Company recorded no provision for loan losses during the current quarter. Management determined that the increase in the ALLL, resulting from net recoveries of $887,000 during the quarter, was appropriate due to increases in the Bank's portfolio of higher risk loans. Specifically, the construction and land development portfolio increased $19.9 million due to the origination of residential construction loans during the period. In addition, the residential portfolio increased $7.7 million due primarily to the origination of non-agency-conforming loans and loans secured by investment properties. Based upon management's analysis, the resulting allowance for loan losses of $21.3 million is adequate at December 31, 2013.

The Company recorded a negative provision for loan losses of $4.0 million during the three month period ended December 31, 2012. The negative provision for loan loss for the quarter was based upon the Bank's ALLL methodology, which contains both qualitative and quantitative factors. Specifically, activity during the quarter ended December 31, 2012, reflected in quantitative factors included the following:

The Bank's portfolio of loans held to maturity decreased $43.9 million during the quarter ended December 31, 2012, to $722.7 million. This decrease consisted almost entirely of declines within the Bank's . . .

  Add NASB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NASB - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.