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 11-Aug-2014All Recent SEC Filings

Show all filings for NASB FINANCIAL INC

Form 10-Q for NASB FINANCIAL INC


11-Aug-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 and Lee's Summit, 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 June 30, 2014 were $1,206.9 million, an increase of $62.8 million from September 30, 2013, the prior fiscal year end.

Loans receivable held for investment were $748.1 million as of June 30, 2014, an increase of $32.4 million during the nine month period. This increase was primarily due to the origination of new loans in the Bank's construction and land development and residential loan portfolios. The weighted average rate on total loans receivable held for investment as of June 30, 2014, was 5.09%, a decrease from 5.42% as of June 30, 2013.

Loans receivable held for sale as of June 30, 2014, were $78.2 million, an increase of $9.1 million from September 30, 2013. This portfolio consists of residential mortgage loans originated by the Bank's mortgage banking division that will be sold on the secondary market. 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 nine months ended June 30, 2014, the Bank originated and purchased $827.8 million in mortgage loans held for sale, $175.6 million in mortgage loans held for investment, and $1.2 million in other loans. This total of $1,004.6 million in loans compares to $1,605.3 million in loans originated and purchased during the nine months ended June 30, 2013.

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.

                                        6/30/14        9/30/13        6/30/13
           Asset Classification:
           Substandard                 $  48,726         82,760         90,475
           Doubtful                           34            168            655
           Loss                               -              -              -

                                          48,760         82,928         91,130
           Allowance for loan losses     (14,190 )      (20,383 )      (20,650 )

                                       $  34,570         62,545         70,480

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.

                                                 6/30/14            9/30/13           6/30/13
Total Assets                                   $  1,206,935         1,144,155         1,142,405

Non-accrual loans                                    19,237            31,622            36,728
Performing troubled debt restructurings              26,733            32,637            33,313
Net real estate and other assets acquired
through foreclosure                                  10,276            11,252            13,007

Total                                          $     56,246            75,511            83,048

Percent of total assets                                4.66 %            6.60 %            7.27 %

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 June 30, 2014, loans of $387,000 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 June 30, 2014, $29.2 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 $275.9 million as of June 30, 2014, an increase of $23.2 million from September 30, 2013. During the nine month period, the Bank purchased $97.5 million and sold $52.6 million of investment securities. The average yield on the investment securities portfolio was 2.32% at June 30, 2014, an increase from 1.77% at June 30, 2013.

Mortgage-backed securities were $37.7 million as of June 30, 2014, a decrease of $5.9 million from the prior year end. The Bank made no purchases, but sold $4.9 million of mortgage-backed securities during the nine month period ended June 30, 2014. The average yield on the mortgage-backed securities portfolio was 3.68% at June 30, 2014, which is unchanged from the average yield at June 30, 2013.

The Company's investment in LLCs, which is accounted for using the equity method, was $16.6 million at June 30, 2014, an increase of $72,000 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 June 30, 2014.

Liabilities and Equity

Customer deposit accounts decreased $3.8 million during the nine months ended June 30, 2014. The weighted average rate on customer deposits as of June 30, 2014, was 0.50%, a decrease from 0.56% as of June 30, 2013.

Advances from the FHLB were $215.0 million as of June 30, 2014, an increase of $60.0 million from September 30, 2013. During the nine month period, the Bank borrowed $316.0 million of new advances and repaid $256.0 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 June 30, 2014. 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 $7.4 million as of June 30, 2014, a decrease of $1.1 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 June 30, 2014, was $205.5 million (17.0% 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 $26.12 on June 30, 2014, compared to $24.85 on September 30, 2013.

In accordance with the regulatory written agreement, which is described more fully in Footnote 15, Regulatory Agreements, the Company was 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, which was paid 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 2013 quarter. In addition, the Company received regulatory written non-objection to pay all accrued interest on its outstanding Trust Preferred Securities on 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 was operating under the regulatory written agreement, each interest payment on Trust Preferred Securities and dividend distribution to shareholders was subject to prior written non-objection from regulators. Upon receipt of written non-objection from the FRB, the Company's Board of Directors declared a cash dividend of $0.10 per share on April 25, 2014, which was paid on May 20, 2014, to shareholders of record as of May 9, 2014. In addition, the Company received regulatory written non-objection to pay accrued interest on its outstanding Trust Preferred Securities on the April 30, 2014, payment date, which amounted to $122,000.


Upon receipt of written non-objection from the FRB, the Company's Board of Directors declared a cash dividend of $0.10 per share on July 1, 2014, payable on July 25, 2014, to shareholders of record as of July 11, 2014. In addition, the Company received regulatory written non-objection to pay accrued interest on its outstanding Trust Preferred Securities on the July 30, 2014, payment date, which amounted to $122,000. On July 22, 2014, the Federal Reserve Bank of Kansas City, the Company's primary regulator, announced that their written agreement with the Company dated November 29, 2012, was terminated. Therefore, future dividends or other capital distributions are no longer subject to the prior written non-objection from the Company's primary regulator.

Total stockholders' equity as of June 30, 2014, includes an unrealized gain, net of deferred income taxes, on available for sale securities of $1.5 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).



                                              Nine months ended
                                            6/30/14       6/30/13
                  Return on assets              1.45 %        2.36 %
                  Return on equity              8.49 %       15.55 %
                  Equity-to-assets ratio       17.03 %       16.68 %
                  Dividend payout ratio        43.14 %          -  %

RESULTS OF OPERATIONS - Comparison of three and nine months ended June 30, 2014 and 2013.

For the three months ended June 30, 2014, the Company had net income of $4.6 million or $0.58 per share. This compares to a net income of $1.8 million or $0.23 per share for the three month period ended June 30, 2013.

For the nine months ended June 30, 2014, the Company had net income of $12.8 million or $1.62 per share. This compares to a net income of $21.1 million or $2.68 per share for the nine month period ended June 30, 2013.


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 nine months ended June 30, 2014 and 2013. 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
                                                   Nine months ended 6/30/14             6/30/14             Nine months ended 6/30/13             6/30/13
                                               Average                     Yield/        Yield/          Average                     Yield/        Yield/
                                               Balance       Interest       Rate          Rate           Balance       Interest       Rate          Rate
Interest-earning assets
Loans                                        $   777,079        31,515        5.41 %         4.98 %    $   826,849        34,954        5.64 %         5.16 %
Mortgage-backed securities                        43,073         1,179        3.65 %         3.68 %         21,452           484        3.01 %         3.68 %
Securities                                       275,976         4,632        2.24 %         2.32 %        252,700         3,155        1.66 %         1.77 %
Bank deposits                                      3,562             9        0.34 %         0.11 %         18,371             4        0.03 %         0.22 %

Total earning assets                           1,099,690        37,335        4.53 %         4.25 %      1,119,372        38,597        4.60 %         4.26 %

Non-earning assets                                63,182                                                    74,741

Total                                        $ 1,162,872                                               $ 1,194,113

Interest-costing liabilities
Customer checking and savings deposit
accounts                                     $   371,260           990        0.36 %         0.32 %    $   325,875         1,088        0.45 %         0.40 %
Customer and brokered certificates of
deposit                                          371,960         1,855        0.66 %         0.68 %        511,226         3,200        0.83 %         0.71 %
FHLB Advances                                    184,606         1,424        1.03 %         0.91 %        132,305         1,573        1.59 %         1.69 %
Subordinated debentures                           25,000           362        1.93 %         1.87 %         25,000           378        2.02 %         1.93 %
Other borrowings                                     421            16        5.07 %         5.00 %            337            13        5.14 %         5.00 %

Total costing liabilities                        953,247         4,647        0.65 %         0.62 %        994,743         6,252        0.84 %         0.73 %

Non-costing liabilities                           11,018                                                    15,642
Stockholders' equity                             198,607                                                   183,728

Total                                        $ 1,162,872                                               $ 1,194,113

Net earning balance                              146,443                                                   124,629

Earning yield less costing rate                                               3.88 %         3.63 %                                     3.76 %         3.53 %

Average interest-earning assets, net
interest, and net yield spread on average
interest -earning assets                     $ 1,099,690        32,688        3.96 %                   $ 1,119,372        32,345        3.85 %


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.

                                                         Nine months ended June 30, 2014, compared to
                                                               nine months ended June 30, 2013
                                                                                       Yield/
                                                    Yield             Volume           Volume         Total
Components of interest income:
Loans                                            $    (1,426 )           (2,105 )           92         (3,439 )
Mortgage-backed securities                               103                488            104            695
Securities                                             1,099                290             88          1,477
Bank deposits                                             43                 (3 )          (35 )            5

Net change in interest income                           (181 )           (1,330 )          249         (1,262 )

Components of interest expense:
Customer and brokered deposit accounts                (1,067 )             (479 )          103         (1,443 )
FHLB Advances                                           (556 )              624           (217 )         (149 )
Subordinated debentures                                  (17 )               -               1            (16 )
Other borrowings                                          -                   3             -               3

Net change in interest expense                        (1,640 )              148           (113 )       (1,605 )

Increase (decrease) in net interest margin       $     1,459             (1,478 )          362            343

Net interest margin before loan loss provision for the nine months ended June 30, 2014, increased $343,000 from the same period in the prior year. Specifically, interest income decreased $1.3 million, which was offset by a $1.6 million decrease in interest expense for the period. Interest on loans decreased $3.4 million as the result of a $49.8 million decrease in the average balance of loans receivable outstanding during the period and a 23 basis point decrease in the average rate earned on such loans during the period. Interest on mortgage-backed securities increased $695,000 due to a $21.6 million increase in the average balance and a 64 basis point increase in the average rate earned on such securities during the period. Interest earned on investment securities increased $1.5 million resulting from a 58 basis point increase in the average rate and a $23.3 million increase in the average balance of such securities during the period. Interest expense on customer and brokered deposit accounts decreased $1.4 million due to a 17 basis point decrease in the average rate paid on such liabilities and a $93.9 million decrease in the average balance of customer and brokered deposits during the period. Interest expense on FHLB advances decreased $149,000 as the result a 56 basis point decrease in the average rate paid on such liabilities, the effect of which was largely offset by a $52.3 million increase in the average balance of advances outstanding during the period.

Provision for Loan Losses

During the nine months ended June 30, 2014, the Company recorded a negative provision for loan losses of $5.0 million, consistent with the changes in both qualitative and quantitative factors of the Bank's Allowance for Loan and Lease Losses ("ALLL") methodology, including the following:

The level of criticized loans (those classified as special mention, . . .

  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.