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 December 31, 2008
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
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or non-accelerated filer, or a small
reporting company. See definition of "accelerated filer", "large
accelerated filer" and "small reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer _____ Accelerated filer __X__
Non-accelerated filer _____ Small reporting Company _____
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
The number of shares of Common Stock of the Registrant outstanding as of
February 6, 2009, was 7,867,614.
NASB FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(In thousands)
December 31, September 30,
2008 2008
(Unaudited)
---------- -----------
ASSETS
Cash and cash equivalents $ 19,596 21,735
Securities available for sale, at
fair value 35 35
Stock in Federal Home Loan Bank, at cost 23,881 26,284
Mortgage-backed securities:
Available for sale, at fair value 54,093 59,889
Held to maturity, at cost 130 135
Loans receivable:
Held for sale, at fair value at
December 31, 2008, and at lower
of amortized cost or fair value
at September 30, 2008 73,769 64,030
Held for investment, net 1,300,863 1,294,297
Allowance for loan losses (13,071) (13,807)
Accrued interest receivable 6,671 6,886
Foreclosed asset held for sale, net 9,315 6,038
Premises and equipment, net 14,272 14,599
Investment in LLCs 21,009 20,683
Mortgage servicing rights, net 471 716
Deferred income tax asset, net 6,241 6,293
Other assets 9,179 8,948
---------- ----------
$ 1,526,454 1,516,761
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposit accounts $ 708,088 691,615
Brokered deposit accounts 127,144 77,764
Advances from Federal Home Loan Bank 496,075 550,091
Subordinated debentures 25,774 25,774
Escrows 4,731 9,776
Income taxes payable 3,509 4,002
Liability for unrecognized tax benefit 850 850
Accrued expenses and other liabilities 5,886 4,477
---------- ----------
Total liabilities 1,372,057 1,364,349
---------- ----------
Stockholders' equity:
Common stock of $0.15 par value:
20,000,000 authorized; 9,857,112
issued at December 31, 2008, and
September 30, 2008 1,479 1,479
Serial preferred stock of $1.00 par
value: 7,500,000 shares authorized;
none issued or outstanding -- --
Additional paid-in capital 16,509 16,484
Retained earnings 175,140 172,612
Treasury stock, at cost; 1,989,498
shares at December 31, 2008, and
at September 30, 2008 (38,418) (38,418)
Accumulated other comprehensive
Income (loss) (313) 255
---------- ----------
Total stockholders' equity 154,397 152,412
---------- ----------
$ 1,526,454 1,516,761
========== ==========
See accompanying notes to condensed consolidated financial statements.
1
NASB FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except share data)
Three months ended
December 31,
----------------------
2008 2007
--------- ---------
Interest on loans receivable $ 22,219 24,514
Interest on mortgage-backed securities 545 670
Interest and dividends on securities 104 297
Other interest income 87 64
--------- ---------
Total interest income 22,955 25,545
--------- ---------
Interest on customer and brokered
deposit accounts 6,899 8,613
Interest on advances from FHLB 5,161 6,412
Interest on subordinated debentures 313 431
--------- ---------
Total interest expense 12,373 15,456
--------- ---------
Net interest income 10,582 10,089
Provision for loan losses 250 700
--------- ---------
Net interest income after provision
for loan losses 10,332 9,389
--------- ---------
Other income (expense):
Loan servicing fees, net (212) (54)
Impairment recovery on mortgage
servicing rights 23 37
Customer service fees and charges 1,397 1,295
Provision for loss on real estate owned (250) (550)
Gain from loans held for sale 4,743 1,602
Other (502) (42)
--------- ---------
Total other income 5,199 2,288
--------- ---------
General and administrative expenses:
Compensation and fringe benefits 3,861 3,740
Commission-based mortgage banking
compensation 2,188 1,465
Premises and equipment 967 1,063
Advertising and business promotion 1,296 1,028
Federal deposit insurance premiums 34 23
Other 1,253 1,319
--------- ---------
Total general and administrative expenses 9,599 8,638
--------- ---------
Income before income tax expense 5,932 3,039
Income tax expense 2,284 1,170
--------- ---------
Net income $ 3,648 1,869
========= =========
Basic earnings per share $ 0.46 0.24
========= =========
Diluted earnings per share $ 0.46 0.23
========= =========
Basic weighted average shares outstanding 7,867,614 7,867,614
See accompanying notes to condensed consolidated financial statements.
2
NASB FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity (Unaudited)
(In thousands)
Accumulated
Additional other Total
Common paid-in Retained Treasury comprehensive stockholders'
stock capital earnings stock income (loss) equity
-----------------------------------------------------------------------
(Dollars in thousands)
Balance at October 1, 2008 $ 1,479 16,484 172,612 (38,418) 255 152,412
Comprehensive income:
Net income -- -- 3,648 -- -- 3,648
Other comprehensive income (loss),
net of tax:
Unrealized gain on securities -- -- -- -- (568) (568)
available for sale -------
Total comprehensive income 3,080
Cash dividends paid -- -- (1,770) -- -- (1,770)
Stock based compensation expense -- 25 -- -- -- 25
Adoption of FAS 159 -- -- 650 -- -- 650
----------------------------------------------------------------------
Balance at December 31, 2008 $ 1,479 16,509 175,140 (38,418) (313) 154,397
======================================================================
See accompanying notes to condensed consolidated financial statements.
3
NASB FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three months ended
December 31,
----------------------
2008 2007
----------------------
Cash flows from operating activities:
Net income $ 3,648 1,869
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 441 447
Amortization and accretion, net (1,078) (265)
Loss from investment in LLCs 48 64
Impairment recovery on mortgage
servicing rights (23) (37)
Gain from loans receivable held for sale (4,743) (1,602)
Provision for loan losses 250 700
Provision for loss on real estate owned 250 550
Origination of loans receivable held for sale (242,682) (159,722)
Sale of loans receivable held for sale 239,017 165,788
Stock based compensation - stock options 25 26
Changes in:
Net fair value of loan-related commitments 432 220
Accrued interest receivable 215 583
Accrued expenses and other liabilities and
income taxes payable 422 810
----------------------
Net cash provided by (used in) operating activities (3,778) 9,431
Cash flows from investing activities:
Principal repayments of mortgage-backed securities:
Held to maturity 5 11
Available for sale 4,831 5,568
Principal repayments of mortgage loans receivable
held for investment 41,866 97,172
Principal repayments of other loans receivable 1,501 1,362
Loan origination - mortgage loans receivable
held for investment (53,982) (140,298)
Loan origination - other loans receivable (948) (1,566)
Proceeds from sale (purchase) of Federal Home
Loan Bank stock 2,403 (3,738)
Proceeds from sale of real estate owned 1,702 2,114
Purchases of premises and equipment, net (114) (121)
Investment in LLCs (373) (767)
Other (194) 392
----------------------
Net cash used in investing activities (3,303) (39,871)
4
NASB FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three months ended
December 31,
----------------------
2008 2007
----------------------
Cash flows from financing activities:
Net increase (decrease) in customer and
brokered deposit accounts 65,757 (53,385)
Proceeds from advances from Federal Home Loan Bank 105,000 108,000
Repayment on advances from Federal Home Loan Bank (159,000) (30,000)
Cash dividends paid (1,770) (1,770)
Change in escrows (5,045) (5,221)
----------------------
Net cash provided by financing activities 4,942 17,624
----------------------
Net decrease in cash and cash equivalents (2,139) (12,816)
Cash and cash equivalents at beginning of the period 21,735 26,050
----------------------
Cash and cash equivalents at end of period $ 19,596 13,234
======================
Supplemental disclosure of cash flow information:
Cash paid for income taxes (net of refunds) $ 2,771 34
Cash paid for interest 11,409 14,713
Supplemental schedule of non-cash investing and financing
activities:
Conversion of loans receivable to real estate owned $ 6,391 1,237
Conversion of real estate owned to loans receivable -- 1,669
See accompanying notes to condensed consolidated financial statements.
5
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed 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 ended December 31,
2008, are not necessarily indicative of the results that may be expected
for the fiscal year ending September 30, 2009. The condensed
consolidated balance sheet of the Company as of September 30, 2008, has
been derived from the audited balance sheet of the Company as of that
date.
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,
valuation of mortgage servicing rights, and unrecognized tax benefits.
Management believes that these allowances are adequate, however, future
additions to the allowances may be necessary based on changes in
economic conditions.
The Company's critical accounting policies involving the more
significant judgements and assumptions used in the preparation of the
condensed consolidated financial statements as of December 31, 2008,
have remained unchanged from September 30, 2008. These policies relate
to the allowance for loan losses and the valuation of mortgage servicing
rights. Disclosure of these critical accounting policies is
incorporated by reference under Item 8 "Financial Statements and
Supplementary Data" in the Company's Annual Report on Form 10-K for the
Company's year ended September 30, 2008.
Certain quarterly amounts for previous periods have been
reclassified to conform to the current quarter's presentation.
(2) 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
----------------------
12/31/08 12/31/07
----------------------
Net income (in thousands) $ 3,648 1,869
Average common shares outstanding 7,867,614 7,867,614
Average common share stock options
outstanding -- 95,639
----------------------
Average diluted common shares 7,867,614 7,963,253
Earnings per share:
Basic $ 0.46 0.24
Diluted 0.46 0.23
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.
At December 31, 2008, options to purchase 72,038 shares of the
Company's stock were outstanding. These options were not included in
the calculated of diluted earnings per share, as they were considered
anti-dilutive.
6
(3) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The following table presents a summary of mortgage-backed securities
available for sale. Dollar amounts are expressed in thousands.
December 31, 2008
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------------------------------------------
Pass-through certificates
guaranteed by GNMA
- fixed rate $ 127 -- 1 126
Pass-through certificates
guaranteed by FNMA
- adjustable rate 7,147 -- 67 7,080
FHLMC participation
certificates:
- fixed rate 698 -- 21 677
- adjustable rate 46,630 -- 420 46,210
------------------------------------------
Total $ 54,602 -- 509 54,093
===========================================
(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.
December 31, 2008
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------------------------------------------
FHLMC participation
certificates:
Balloon maturity and
adjustable rate $ 72 5 -- 77
FNMA pass-through
certificates:
Fixed rate 12 -- -- 12
Balloon maturity and
adjustable rate 46 -- -- 46
-------------------------------------------
Total $ 130 5 -- 135
===========================================
7
(5) LOANS RECEIVABLE
Loans receivable are as follows:
December 31,
2008
---------------------
(Dollars in thousands)
LOANS HELD FOR INVESTMENT:
Mortgage loans:
Permanent loans on:
Residential properties $ 385,020
Business properties 477,712
Partially guaranteed by VA or
insured by FHA 3,642
Construction and development 375,563
----------
Total mortgage loans 1,241,937
Commercial loans 109,182
Installment loans to individuals 14,366
----------
Total loans held for investment 1,365,485
Less:
Undisbursed loan funds (56,246)
Unearned discounts and fees and costs
on loans, net (8,376)
----------
Net loans held for investment $1,300,863
==========
December 31,
2008
---------------------
(Dollars in thousands)
LOANS HELD FOR SALE:
Mortgage loans:
Permanent loans on:
Residential properties $ 106,761
Less:
Undisbursed loan funds (32,992)
----------
Net loans held for sale $ 73,769
==========
Included in the loans receivable balances at December 31, 2008, are
participating interests in mortgage loans and wholly owned mortgage
loans serviced by other institutions in the amount of $61,000. Loans
and participations serviced for others amounted to approximately $62.8
million at December 31, 2008.
The following table presents the activity in the allowance for
losses on loans for the period ended December 31, 2008. Allowance for
losses on mortgage loans includes specific valuation allowances and
valuation allowances associated with homogenous pools of loans. Dollar
amounts are expressed in thousands.
Balance at October 1, 2008 $ 13,807
Provisions 250
Charge-offs (988)
Recoveries 2
--------
Balance at December 31, 2008 $ 13,071
========
8
(6) FORECLOSED ASSETS HELD FOR SALE
Real estate owned and other repossessed property consisted of the
following:
December 31,
2008
---------------------
(Dollars in thousands)
Real estate acquired through (or deed
in lieu of) foreclosure $ 10,143
Less: allowance for losses (828)
----------
Total $ 9,315
==========
Foreclosed assets held for sale are initially recorded at fair
value as of the date of foreclosure minus any estimated selling costs
(the "new basis"), and are 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 December 31, 2008. Dollar amounts
are expressed in thousands.
Balance at October 1, 2008 $ 716
Additions:
Impairment recovery 23
Reductions:
Amortization (268)
--------
Balance at December 31, 2008 $ 471
========
(8) SUBORDINATED DEBENTURES
On December 13, 2006, NASB Financial, Inc. (the "Company"), through
its wholly owned statutory trust, NASB Preferred Trust I (the "Trust"),
issued $25 million of pooled Trust Preferred Securities. The Trust used
the proceeds from the offering to purchase a like amount of NASB
Financial Inc.'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. In exchange for the capital contributions
made to the Trust by NASB Financial, Inc. upon formation, NASB
Financial. Inc. owns all the common securities of the Trust.
In accordance with Financial Accounting Standards Board
Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN
46R), the Trust qualifies as a special purpose entity that is not
required to be consolidated in the financial statements of the Company.
The $25.0 million Trust Preferred Securities issued by the Trust will
remain on the records of the Trust. The debentures are included in Tier
I capital for regulatory capital purposes.
The Trust Preferred Securities have a variable interest rate of
1.65% over the 3-month LIBOR, and are mandatorily redeemable upon the
30-year term of the debentures, or upon earlier redemption as provided
in the Indenture. The debentures are callable, in whole or in part,
after five years from the issuance date. The Company did not incur a
placement or annual trustee fee related to the issuance. The securities
are subordinate to all other debt of the Company and interest may be
deferred up to five years.
9
(9) INCOME TAXES
Effective October 1, 2007, the Company adopted Financial Accounting
Standards Board Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" (FIN 48). As of December 31, 2008, the Company's
liability for unrecognized tax benefits of $850,000 included $149,000 of
related interest and penalties. The Company's policy is to recognize
interest and penalties related to unrecognized tax benefits within
income tax expense in the consolidated statements of income.
The Company's unrecognized tax benefit is expected to decrease in
the next twelve months as a result of the settlements with various
taxing authorities.
The Company's federal and state income tax returns for fiscal years
2005 through 2007 remain subject to examination by the Internal Revenue
Service and various state jurisdictions, based on the statute of
limitations.
(10) 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
December 31, 2008 Banking Banking Eliminations Consolidated
-------------------------------------------------------------------------------
Net interest income $ 10,882 -- (300) 10,582
Provision for loan losses 250 -- -- 250
Other income (26) 5,971 (746) 5,199
General and administrative
expenses 4,848 5,012 (261) 9,599
Income tax expense (benefit) 2,216 369 (301) 2,284
---------------------------------------------------
Net income $ 3,542 590 (484) 3,648
===================================================
Three months ended Mortgage Other and
December 31, 2007 Banking Banking Eliminations Consolidated
-------------------------------------------------------------------------------
Net interest income $ 10,503 -- (414) 10,089
Provision for loan losses 700 -- -- 700
Other income (657) 4,206 (1,261) 2,288
General and administrative
expenses 4,345 4,545 (252) 8,638
Income tax expense (benefit) 1,848 (130) (548) 1,170
---------------------------------------------------
Net income $ 2,953 (209) (875) 1,869
===================================================
10
(11) FAIR VALUE OPTION
On October 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities - Including an Amendment of FASB Statement No.
115 (FAS 159). FAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value.
In accordance with FAS 159, the Company has elected to measure
loans held for sale at fair value. This portfolio is made up entirely
of mortgage loans held for immediate sale with servicing released. Such
loans are sold prior to origination at a contracted price to outside
investors on a best-efforts basis (i.e., the loan becomes mandatorily
deliverable to the investor only when, and if, it closes) and remain on
the Company's balance sheet for a very short period of time, typically
less than one month. It is management's opinion, given the short-term
nature of these loans, that fair value provides a reasonable measure of
the economic value of these assets. In addition, carrying such loans at
fair value eliminates some measure of volatility created by the timing
of sales proceeds from outside investors, which typically occur in the
month following origination. Management believes that measuring these
loans at fair value appropriately matches commission-based mortgage
banking compensation expense related to their origination with the
revenue created by their sale.
The Company elected the fair value option for the following item
(in thousands):
Balance Sheet Balance Sheet
Prior to Adoption Gain Upon After Adoption
10/1/08 Adoption 10/1/08
--------------------------------------------
Loans held for sale $ 64,030 1,058 65,088
============================================
Pre-tax cumulative effect of
Adoption $ 1,058
Decrease in deferred tax asset (408)
------
Cumulative effect of adoption $ 650
======
The difference between the aggregate fair value and the aggregate
unpaid principal balance of these loans was $1.9 million at December 31,
2008. Interest income on loans held for sale is included in interest on
loans receivable in the accompanying statements of income.
(12) FAIR VALUE MEASUREMENTS
On October 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS
157 establishes a framework for measuring fair value and expands
disclosures about fair value measurements. FAS 157 defines fair value
as the price that would be received to sell an asset, or paid to
transfer a liability, in an orderly transaction between market
participants at the measurement date. FAS 157 identifies three primary
measurement techniques: the market approach, the income approach, and
the cost approach. The market approach uses prices and other relevant
information generated by market transactions involving identical or
comparable assets or liabilities. The income approach uses valuations
or techniques to convert future amounts, such as cash flows or earnings,
to a single present amount. The cost approach is based on the amount
that currently would be required to replace the service capability of an
asset.
FAS 157 establishes a fair value hierarchy and prioritizes the
inputs to valuation techniques used to measure fair value into three
broad levels. The fair value hierarchy gives the highest priority to
observable inputs such as quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The maximization of observable inputs and the
minimization of the use of unobservable inputs are required.
Classification within the fair value hierarchy is based upon the
objectivity of the inputs that are significant to the valuation of an
asset or liability as of the measurement date. The three levels within
the fair value hierarchy are characterized as follows:
- Level 1 - Quoted prices in active markets for identical assets
or liabilities that the Company has the ability to access at the
measurement date.
11
- Level 2 - Inputs other than quoted prices included with Level 1
that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include: quoted prices for similar
assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not
active; inputs other than quoted prices that are observable for the
asset or liability; and inputs that are derived principally from,
or corroborated by, observable market data by correlation or other
means.
- Level 3 - Unobservable inputs for the asset or liability for which
there is little, if any, market activity for the asset or liability
at the measurement date. Unobservable inputs reflect the Company's
own assumptions about what market participants would use to price
the asset or liability. These inputs may include internally
developed pricing models, discounted cash flow methodologies, as
well as instruments for which the fair value determination requires
significant management judgment.
The Company measures certain financial assets and liabilities at
fair value in accordance with FAS 157. These measurements involve
various valuation techniques and assume that the transactions would
occur between market participants in the most advantageous market for
the Company.
The following is a summary of valuation techniques utilized by the
Company for its significant financial assets and liabilities measured at
fair value on a recurring basis and recognized in the accompanying
balance sheets, as well as the general classification of such assets and
liabilities pursuant to the valuation hierarchy:
Available for sale securities
Mortgage-backed available for sale securities are valued using
industry-standard pricing models that consider assumptions, including
market yield and prepayment speeds. These measurements are classified as
Level 2.
Loans held for sale
Loans held for sale are valued using estimated future cash flows
expected to be received by the Company, typically within less than one
month. This measurement is classified as Level 2 within the hierarchy.
Mortgage Servicing Rights
Mortgage servicing rights do not trade in an active market with
readily observable market prices. Therefore, fair value is assessed
using a valuation model that calculates the discounted cash flow using
assumption such as estimates of prepayment speeds, market discount
rates, servicing fee income, and cost of servicing. These measurements
are classified as Level 3. Mortgage servicing rights are carried on the
Company's books at fair value and are amortized over the period of net
servicing income. Additionally, they are evaluated for impairment
monthly.
The following table presents the fair value measurements of assets
recognized in the accompanying balance sheets measured at fair value on
a recurring basis and the level within the fair value hierarchy in which
the measurements fall at December 31, 2008 (in thousands):
Quoted Prices in Significant Significant
Active Markets for Other Unobservable
Fair Identical Assets Observable Inputs
Value (Level 1) Inputs (Level 2) (Level 3)
-------------------------------------------------------
Assets:
Mortgage-backed securities
available for sale $ 54,093 -- 54,093 --
Loans held for sale 73,769 -- 73,769 --
Mortgage servicing rights 471 -- -- 471
-------------------------------------------------------
Total assets $ 128,333 -- 127,862 471
=======================================================
12
The following table is a reconciliation of the beginning and ending
balances of recurring fair value measurements recognized in the
accompanying balance sheet using significant unobservable (Level 3)
inputs (in thousands):
Mortgage
Servicing
Rights
-----------
Asset balance at October 1, 2008 $ 716
Total realized and unrealized
gains (losses):
Included in net income (245)
Included in other comprehensive
income --
Purchases, issuances, and settlements --
Transfers in (out) of Level 3 --
-----------
Asset balance at December 31, 2008 $ 471
===========
Realized and unrealized gains and losses noted in the table above
and included in net income for the period ended December 31, 2008, are
reported in the consolidated statements of income as follows (in
thousands):
Impairment
Loan Recovery
Servicing on Mortgage
Fees Servicing Rights
------------------------------
Total gains (losses) $ (268) 23
==============================
Changes in unrealized gains
(losses) relating to assets
still held at the balance
sheet date $ -- --
==============================
The following is a summary of valuation techniques utilized by the
Company for its significant financial assets and liabilities measured at
fair value on a nonrecurring basis and recognized in the accompanying
balance sheets, as well as the general classification of such assets and
liabilities pursuant to the valuation hierarchy:
Impaired loans
Loans for which it is probable that the Company will not collect
principal and interest due according to contractual terms are measured
for impairment in accordance with Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan.
Allowable methods for estimating fair value include using the fair value
of the collateral for collateral dependent loans, or, where the loan is
determined not to be collateral dependent, using the discounted cash
flows.
If the impaired loan is identified as collateral dependent, then
the fair value method of measuring the amount of impairment is utilized.
This method requires obtaining a current independent appraisal of the
collateral and other internal assessments of value. If the impaired
loan is determined not to be collateral dependent, then the discounted
cash flow method is used. This method requires the impaired loan to be
recorded at the present value of expected future cash flows discounted
at the loans effective interest rate. Impaired loans are classified
within Level 3 of the fair value hierarchy.
The carrying value of impaired loans was $4.9 million at December
31, 2008.
13
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,
advances from the Federal Home Loan Bank ("FHLB"), and the purchase of
brokered deposit accounts. 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 December 31, 2008, were $1,526.5
million, an increase of $9.7 million from September 30, 2008, 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 three months ended December 31, 2008, the Bank
originated and purchased $242.7 million in mortgage loans held for sale,
$54.0 million in mortgage loans held for investment, and $948,000 in
other loans. This total of $297.6 million in loans compares to $301.6
million in loans originated and purchased during the three months ended
December 31, 2007.
Loans held for sale as of December 31, 2008 were $73.8 million, and
consisted entirely of mortgage loans held for sale with servicing
released. As of October 1, 2008, the Company elected to carry loans
held for sale are at fair value, as permitted under FAS 159.
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.
14
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.
12/31/08 9/30/08 12/31/07
-------------------------------------
Asset Classification:
Substandard $ 36,513 34,320 11,364
Doubtful -- -- --
Loss 1,231 1,442 791
-------------------------------------
37,744 35,762 12,155
Allowance for losses on
loans and real estate
owned (13,899) (14,476) (9,130)
-------------------------------------
$ 23,845 21,286 3,025
=====================================
The following table summarizes non-performing assets, troubled debt
restructurings, and real estate acquired through foreclosure or in-
substance foreclosure. Dollar amounts are expressed in thousands.
12/31/08 9/30/08 12/31/07
----------------------------------------
Total Assets $ 1,526,454 1,516,761 1,528,729
========================================
Non-accrual loans $ 15,297 35,075 7,998
Troubled debt
restructurings -- -- --
Net real estate and
other assets acquired
through foreclosure 9,315 6,038 3,439
----------------------------------------
Total $ 24,612 41,113 11,437
========================================
Percent of total assets 1.61% 2.71% 0.75%
========================================
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 and brokered deposit accounts increased $65.9 million
during the three months ended December 31, 2008. The weighted average
rate on customer and brokered deposits as of December 31, 2008, was
3.26%, a decrease from 4.21% as of December 31, 2007.
Advances from the FHLB were $496.1 million as of December 31, 2008,
a decrease of $54.0 million from September 30, 2008. During the three-
month period, the Bank borrowed $105.0 million of new advances and
repaid $159.0 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, 2008.
Such debentures resulted from the issuance of pooled 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.
15
Escrows were $4.7 million as of December 31, 2008, a decrease of
$5.0 million from September 30, 2008. This decrease is due to amounts
paid for borrowers' taxes during the fourth calendar quarter of 2008.
Total stockholders' equity as of December 31, 2008, was $154.4
million (10.1% of total assets). This compares to $152.4 million (10.0%
of total assets) at September 30, 2008. On a per share basis,
stockholders' equity was $19.62 on December 31, 2008, compared to $19.37
on September 30, 2008.
The Company paid cash dividends on its common stock of $0.225 per
share on November 28, 2008. Subsequent to the quarter ended December
31, 2008, the Company announced a cash dividend of $0.225 per share to
be paid on February 27, 2009, to stockholders of record as of February
6, 2009.
Total stockholders' equity as of December 31, 2008, includes an
unrealized loss of $313,000 net of deferred income taxes, on available
for sale securities. This amount is reflected in the line item
"Accumulated other comprehensive 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).
Three months ended
------------------------
12/31/08 12/31/07
------------------------
Return on assets 0.96% 0.49%
Return on equity 9.51% 5.00%
Equity-to-assets ratio 10.11% 9.79%
Dividend payout ratio 48.52% 94.70%
RESULTS OF OPERATIONS - Comparison of three months ended December 31,
2008 and 2007.
For the three months ended December 31, 2008, the Company had net
income of $3,648,000 or $0.46 per share. This compares to net income of
1,869,000 or $0.24 per share for the quarter ended December 31, 2007.
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.
16
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, 2008 and 2007. 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.
Three months ended 12/31/08 As of
--------------------------- 12/31/08
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $1,341,684 22,219 6.62% 6.14%
Mortgage-backed securities 56,639 545 3.85% 4.20%
Securities 25,098 104 1.66% 3.01%
Bank deposits 44,364 87 0.78% 0.01%
--------------------------------------
Total earning assets 1,467,785 22,955 6.26% 6.00%
---------------------------
Non-earning assets 64,117
----------
Total $1,531,902
==========
Interest-costing liabilities
Customer checking and savings
deposit accounts $ 163,499 420 1.03% 0.80%
Customer and brokered
certificates of deposit 656,030 6,479 3.95% 3.87%
FHLB Advances 522,146 5,161 3.95% 3.33%
Subordinated debentures 25,000 313 5.01% 5.12%
--------------------------------------
Total costing liabilities 1,366,675 12,373 3.62% 3.32%
---------------------------
Non-costing liabilities 12,287
Stockholders' equity 152,940
----------
Total $1,531,902
==========
Net earning balance $ 101,110
==========
Earning yield less costing rate 2.64% 2.68%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $1,467,785 10,582 2.88%
============================
Three months ended 12/31/07 As of
--------------------------- 12/31/07
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $1,354,604 24,514 7.24% 7.02%
Mortgage-backed securities 79,201 670 3.38% 4.16%
Securities 25,351 297 4.69% 4.50%
Bank deposits 6,455 64 3.97% 3.74%
--------------------------------------
Total earning assets 1,465,611 25,545 6.97% 6.81%
---------------------------
Non-earning assets 62,051
----------
Total $1,527,662
==========
Interest-costing liabilities
Customer checking and savings
deposit accounts $ 166,975 635 1.52% 1.22%
Customer and brokered
certificates of deposit 640,832 7,978 4.98% 5.04%
FHLB Advances 525,230 6,412 4.88% 4.87%
Subordinated debentures 25,000 431 6.90% 6.63%
--------------------------------------
Total costing liabilities 1,358,037 15,456 4.55% 4.51%
---------------------------
Non-costing liabilities 20,061
Stockholders' equity 149,564
----------
Total $1,527,662
==========
Net earning balance $ 107,574
==========
Earning yield less costing rate 2.42% 2.30%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $1,465,611 10,089 2.75%
============================
17
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, 2008, compared to
three months ended December 31, 2007
-----------------------------------------------
Yield/
Yield Volume Volume Total
-----------------------------------------------
Components of interest income:
Loans $ (2,100) (234) 39 (2,295)
Mortgage-backed securities 93 (191) (27) (125)
Securities (192) (3) 2 (193)
Bank deposits (51) 376 (302) 23
-----------------------------------------------
Net change in interest income (2,250) (52) (288) (2,590)
-----------------------------------------------
Components of interest expense:
Customer and brokered
deposit accounts (1,797) 125 (42) (1,714)
FHLB Advances (1,221) (38) 8 (1,251)
Subordinated debentures (118) -- -- (118)
-----------------------------------------------
Net change in interest expense (3,136) 87 (34) (3,083)
-----------------------------------------------
Increase in net interest
margin $ 886 (139) (254) 493
===============================================
Net interest margin before loan loss provision for the three
months ended December 31, 2008, increased $493,000 from the same period
in the prior year. Specifically, interest income decreased $2.6
million, which was offset by a $3.1 million decrease in interest expense
for the period. Interest on loans decreased $2.3 million as the result
of a 62 basis point decrease in the average yield and a $12.9 decrease
in the average balance of loans receivable outstanding during the
period. Interest on mortgage-backed securities decreased $125,000 due
primarily to a $22.6 million decrease in the average balance of such
securities. Interest on investment securities decreased $193,000 due
primarily to a 303 basis point decrease in the average yield earned on
such securities. Interest expense on customer and brokered deposit
accounts decreased $1.7 million due primarily to a 95 basis point
decrease in the average rate paid on such interest-costing liabilities.
Interest expense on FHLB advances decreased $1.3 million primarily as
the result of a 93 basis point decrease in the average rate paid on such
liabilities. Interest expense on subordinated debentures decreased
$118,000 due to a 189 basis point decrease in the average rate paid on
such liabilities.
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan losses of $250,000 during
the quarter ended December 31, 2008, due primarily to increases in
commercial real estate and residential construction and development
loans classified as special mention. Management performs an ongoing
analysis of individual loans and of homogenous pools of loans to assess
for any impairment. On a consolidated basis, the allowance for losses
on loans and real estate owned was 40.0% of total classified assets at
December 31, 2008, 36.8% at September 30, 2008, and 75.1% at December
31, 2007.
Management believes that the allowance for losses on loans and real
estate owned is adequate. The provision can fluctuate based on changes
in economic conditions, changes in the level of classified assets,
changes in the amount of loan charge-offs and recoveries, or changes in
other 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.
18
OTHER INCOME
Other income for the three months ended December 31, 2008,
increased $2.9 million from the same period in the prior year.
Specifically, gain on sale of loans held for sale increased $3.1 million
due to increased mortgage banking volume during the period. Provision
for loss on real estate owned decreased $300,000 due to a decrease in
charge-offs of foreclosed assets held for sale during the quarter.
Customer service fees and charges increased $102,000 due to an increase
in miscellaneous loan origination fees resulting from the increase in
mortgage banking volume. These increases were offset by a $158,000
decrease in loan servicing fees due an increase in capitalized servicing
amortization, which resulted from an increase in actual prepayments and
estimated future repayments of the underlying mortgage loans during the
period. In addition, other income decreased $460,000 due primarily to
the effect of recording the net fair value of certain loan-related
commitments in accordance with FASB Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and to decreases in loan
prepayment penalties and official check processing fee income.
GENERAL AND ADMINISTRATIVE EXPENSES
Total general and administrative expenses for the three months
ended December 31, 2008, increased $961,000 from the same period in the
prior year. Specifically, compensation, fringe benefits, and
commission-based mortgage banking compensation increased $844,000 due
primarily to an increase in mortgage banking volume for the period.
Advertising and business promotion expense increased $268,000 resulting
from an increase in mortgage banking volume for the quarter. These
increases were partially offset by a $96,000 decrease in premises and
equipment expense resulting primarily from a decrease in rent and
maintenance costs related to the continued consolidation of loan
origination offices in fiscal 2008.
REGULATION
The Bank is a member of the FHLB System and its customers' deposits
are insured by the Deposit Insurance Fund ("DIF") 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 DIF-insured institutions are
limited by statute and regulations that may require prior supervisory
approval in certain instances. Institutions also must file reports with
regulatory agencies regarding their activities and their financial
condition. The OTS and FDIC make periodic examinations of the Bank to
test compliance with the various regulatory requirements. The OTS can
require an institution to re-value its assets based on appraisals and to
establish specific valuation allowances. This supervision and
regulation is intended primarily for the protection of depositors.
Also, savings institutions are subject to certain reserve requirements
under Federal Reserve Board regulations.
INSURANCE OF ACCOUNTS
The DIF insures the Bank's customer deposit accounts to a maximum
of $100,000 for each insured owner, with the exception of self-directed
retirement accounts, which are insured to a maximum of $250,000. On
October 3, 2008, the Emergency Economic Stabilization Act of 2008
temporarily raised the basic limit of federal deposit insurance coverage
from $100,000 to $250,000 per depositor. This legislation provides that
the basic deposit insurance limit will return to $100,000 after December
31, 2009. 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 5
to 43 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. DIF-insured institutions are
also assessed a premium to service the interest on Financing Corporation
("FICO") debt.
REGULATORY CAPITAL REQUIREMENTS
At December 31, 2008, 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 December 31,
2008, the Bank did not have any investments in or loans to subsidiaries
engaged in activities not permissible for national banks.
19
The following tables summarize the relationship between the Bank's
capital and regulatory requirements. Dollar amounts are expressed in
thousands.
At December 31, 2008 Amount
----------------------------------------------------------------
GAAP capital (Bank only) $ 155,448
Adjustment for regulatory capital:
Intangible assets (2,746)
Disallowed portion of servicing assets
and deferred tax assets (6,281)
Reverse the effect of SFAS No. 115 313
---------
Tangible capital 146,734
Qualifying intangible assets --
---------
Tier 1 capital (core capital) 146,734
Qualifying general valuation allowance 11,840
---------
Risk-based capital $ 158,574
=========
As of December 31, 2008
-------------------------------------------------------------------
Minimum required for Minimum required to be
Actual Capital Adequacy "Well Capitalized"
------------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------------- ---------------------- -----------------------
Total capital to risk-weighted assets $ 158,574 12.2% 103,703 >=8% 129,628 >=10%
Core capital to adjusted tangible assets 146,734 9.8% 59,811 >=4% 74,764 >=5%
Tangible capital to tangible assets 146,734 9.8% 22,429 >=1.5% -- --
Tier 1 capital to risk-weighted assets 146,734 11.3% -- -- 77,777 >=6%
LOANS TO ONE BORROWER
Institutions are prohibited from lending to any one borrower in
excess of 15% of the Bank's unimpaired capital plus unimpaired surplus,
or 25% of unimpaired capital plus unimpaired surplus if the loan is
secured by certain readily marketable collateral. Renewals that exceed
the loans-to-one-borrower limit are permitted if the original borrower
remains liable and no additional funds are disbursed. The Bank has
received regulatory approval from the OTS under 12 CFR 560.93 to
increase its loans-to-one-borrower limit to $30 million for loans
secured by certain residential housing units. Such loans must not, in
the aggregate, exceed 150% of the Bank's unimpaired capital and surplus.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures the ability to meet deposit withdrawals and
lending commitments. The Bank generates liquidity primarily from the
sale and repayment of loans, retention or newly acquired retail
deposits, and advances from FHLB of Des Moines' credit facility.
Management continues to use FHLB advances as a primary source of short-
term funding. At December 31, 2008, the Bank had $101.6 million
available in the form of additional FHLB advances. The Bank has
established relationships with various brokers, and, as a secondary
source of liquidity, the Bank purchases brokered deposit accounts. At
December 31, 2008, the Bank has $127.1 million in brokered deposits, and
it could purchase up to $278.7 million in additional brokered deposits
and remain "well capitalized" as defined by the OTS.
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 believes that the Bank will retain most of
its maturing time deposits in the foreseeable future. However, any
material funding needs that may arise in the future can be reasonably
satisfied through the use of additional FHLB advances and/or brokered
deposits. Management is not aware of any other current market or
economic conditions that could materially impact the Bank's future
ability to meet obligations as they come due.
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a complete discussion of the Company's asset and liability
management policies, as well as the potential impact of interest rate
changes upon the market value of the Company's portfolio, see the
"Asset/Liability Management" section of the Company's Annual Report for
the year ended September 30, 2008.
Management recognizes that there are certain market risk factors
present in the structure of the Bank's financial assets and liabilities.
Since the Bank does not have material amounts of derivative securities,
equity securities, or foreign currency positions, interest rate risk
("IRR") is the primary market risk that is inherent in the Bank's
portfolio. On a quarterly basis, the Bank monitors the estimate of
changes that would potentially occur to its net portfolio value ("NPV")
of assets, liabilities, and off-balance sheet items assuming a sudden
change in market interest rates. Management presents a NPV analysis to
the Board of Directors each quarter and NPV policy limits are reviewed
and approved. There have been no material changes in the market risk
information provided in the Annual Report for the year ended September
30, 2008.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934. Based on this
evaluation, our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures were
effective at the end of the period covered by this quarterly report.
There were no changes in the Company's internal control over financial
reporting during the period covered by this quarterly report on Form 10-
Q that have materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
21
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
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to
Rules 13a-15(e) and 15d-15(e)
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to
Rules 13a-15(e) and 15d-15(e)
Exhibit 32.1 - Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 - Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
22
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)
February 9, 2009 By: /s/David H. Hancock
David H. Hancock
Chairman and
Chief Executive Officer
February 9, 2009 By: /s/Rhonda Nyhus
Rhonda Nyhus
Vice President and
Treasurer
23
19
19