NASB FINANCIAL INC - 10-Q Quarterly Report

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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, 2003

or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from to

Commission File Number 0-24033

NASB Financial, Inc.
(Exact name of registrant as specified in its charter)

Missouri 43-1805201
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

12498 South 71 Highway, Grandview, Missouri 64030
(Address of principal executive offices) (Zip Code)

(816) 765-2200
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since
last report)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes X No

The number of shares of Common Stock of the Registrant outstanding as of
February 11, 2004, was 8,455,442.

NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands)

See accompanying notes to consolidated financial statements.

1

NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
(In thousands, except share data)

See accompanying notes to consolidated financial statements.

2

NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Unaudited)
(In thousands, except share data)

See accompanying notes to consolidated financial statements.

3

NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
(In thousands, except share data)

4

NASB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(In thousands, except share data)

See accompanying notes to consolidated financial statements.

5

(1) BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements are
prepared in accordance with instructions to Form 10-Q and do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America ("GAAP") for
complete financial statements. All adjustments are of a normal and
recurring nature and, in the opinion of management, the statements
include all adjustments considered necessary for fair presentation.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K to the Securities and Exchange Commission.
Operating results for the three months ended December 31, 2003, are not
necessarily indicative of the results that may be expected for the
fiscal year ended September 30, 2004. The consolidated balance sheet of
the Company as of September 30, 2003, 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 and real estate
owned and valuation of mortgage servicing rights. Management believes
that these allowances and valuations are adequate. However, future
additions to the allowances and changes in the valuations may be
necessary based on changes in economic conditions.

The Company's critical accounting policies involving the more
significant judgements and assumptions used in the preparation of the
consolidated financial statements as of December 31, 2003, have remained
unchanged from September 30, 2003. These policies are provision for
loan losses and mortgage servicing rights. Disclosure of these critical
accounting policies is incorporated by reference under Item 8
"Financial Statements and Supplementary Data" in the Company's Annual
Report on Form 10-K for the Company's year ended September 30, 2003.

Certain quarterly amounts for previous periods have been
reclassified to conform to the current quarter's presentation.

(2) SECURITIES AVAILABLE FOR SALE

The following table presents a summary of securities available for
sale. Dollar amounts are expressed in thousands.

December 31, 2003
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
Debt securities $ 4,990 259 -- 5,249
Equity securities 180 -- -- 180
Municipal securities 67 -- -- 67
-------------------------------------------
Total $ 5,237 259 -- 5,496
===========================================

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, 2003
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------

Pass-through certificates
guaranteed by GNMA
- fixed rate $ 737 14 -- 751
FHLMC participation
certificates
- fixed rate 2,556 -- 83 2,473
- adjustable rate 93,217 172 39 93,350
Other asset backed
securities 860 -- -- 860
Mortgage-backed derivatives
(including CMO residuals
and interest-only
securities) 5 -- -- 5
-------------------------------------------
Total $ 97,375 186 122 97,439
===========================================

At December 31, 2003, the mortgage-backed securities available for
sale portfolio had gross unrealized losses of $122,000, none of which
were continuous losses exceeding twelve months. Based on evaluation of
available evidence, including recent changes in market interest rates,
management believes the declines in fair value of these securities are
temporary. Should the impairment of any of these securities become
other than temporary, the cost basis of the investment will be reduced,
and the resulting loss recognized in net income in the period the other-
than-temporary impairment is identified.

(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, 2003
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------------------------------------------
FHLMC participation
certificates:
Balloon maturity and
adjustable rate $ 415 31 -- 446
FNMA pass-through
certificates:
Fixed rate 93 -- -- 93
Balloon maturity and
adjustable rate 135 1 -- 136
Pass-through certificates
guaranteed by GNMA
- fixed rate 192 14 -- 206
Collateralized mortgage
obligation bonds 28 -- -- 28
-------------------------------------------
Total $ 863 46 -- 909
===========================================

7

(5) LOANS RECEIVABLE

Loans receivable are as follows:

December 31,
2003
---------------------
(Dollars in thousands)
LOANS HELD FOR INVESTMENT:
Mortgage loans:
Permanent loans on:
Residential properties $ 184,799
Business properties 418,285
Partially guaranteed by VA or
insured by FHA 12,861
Construction and development 278,536
----------
Total mortgage loans 894,481
Commercial loans 29,795
Installment loans to individuals 24,949
----------
Total loans held for investment 949,225
Less:
Undisbursed loan funds (76,480)
Unearned discounts and fees and costs
on loans, net (5,636)
----------
Net loans held for investment $ 867,109
==========

December 31,
2003
---------------------
(Dollars in thousands)
LOANS HELD FOR SALE:
Mortgage loans:
Permanent loans on:
Residential properties $ 195,602
Less:
Undisbursed loan funds (12,087)
Unearned discounts and fees and costs
on loans, net 271
----------
Net loans held for sale $ 183,786
==========

Included in the loans receivable balances at December 31, 2003, are
participating interests in mortgage loans and wholly owned mortgage
loans serviced by other institutions in the amount of $550,000. Loans
and participations serviced for others amounted to approximately $162.7
million at December 31, 2003.

(6) FORECLOSED ASSETS HELD FOR SALE

Real estate owned and other repossessed property consisted of the
following:

December 31,
2003
---------------------
(Dollars in thousands)
Real estate acquired through (or deed
in lieu of) foreclosure $ 4,885
Less: allowance for losses (1,086)
----------
Total $ 3,799
==========

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.

8

(7) MORTGAGE SERVICING RIGHTS

The following provides information about the Bank's mortgage
servicing rights for the period ended December 31, 2003. Dollar amounts
are expressed in thousands.

Balance at October 1, 2003 $ 1,191
Additions:
Originated mortgage servicing rights 2
Amortization 16
Reductions:
Impairment loss (31)
--------
Balance at December 31, 2003 $ 1,178
========

(8) RECONCILIATION OF BASIC EARNINGS PER SHARE TO DILUTED EARNINGS PER
SHARE

The following table presents a reconciliation of basic earnings per
share to diluted earnings per share for the periods indicated.

The dilutive securities included for each period presented above
consist entirely of stock options granted to employees as incentive
stock options under Section 442A of the Internal Revenue Code as
amended.

(9) SEGMENT INFORMATION

In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has identified two
principal operating segments for purposes of financial reporting:
Banking and Mortgage Banking. These segments were determined based on
the Company's internal financial accounting and reporting processes and
are consistent with the information that is used to make operating
decisions and to assess the Company's performance by the Company's key
decision makers.

The Mortgage Banking segment originates mortgage loans for sale to
investors and for the portfolio of the Banking segment. The Banking
segment provides a full range of banking services through the Bank's
branch network, exclusive of mortgage loan originations. A portion of
the income presented in the Mortgage Banking segment is derived from
sales of loans to the Banking segment based on a transfer pricing
methodology that is designed to approximate economic reality. The Other
and Eliminations segment includes financial information from the parent
company plus inter-segment eliminations.

9

The following table presents financial information from the
Company's operating segments for the periods indicated. Dollar amounts
are expressed in thousands.

(10) ACQUISITION

On December 19, 2002, the acquisition of CBES Bancorp, Inc
("CBES") was completed. Pursuant to a definitive agreement dated
September 5, 2002, CBES was acquired by a wholly owned subsidiary of
NASB Financial, Inc. formed solely to facilitate the transaction. The
agreement provided that upon the effective date of the acquisition, each
shareholder of CBES would receive $17.50 in cash for each share of CBES
common stock owned by such shareholder. The aggregate purchase price
was $15.6 million. The following table summarizes the fair values of
the assets acquired and the liabilities assumed at the date of
acquisition. Dollar amounts are expressed in thousands.

Cash and cash equivalents $ 32,251
Investments and mortgage backed securities 9,171
Loans receivable 58,624
Premises and equipment 955
Core deposits 1,499
Goodwill 1,846
Other assets 5,577
-----------
Total assets acquired 109,923
-----------
Customer deposit accounts 82,750
Advances from Federal Home Loan Bank 10,358
Other liabilities 1,228
-----------
Total liabilities assumed 94,336
-----------
Net assets acquired $ 15,587
===========

The only significant identifiable intangible asset acquired was the
core deposit base, which has a useful life of approximately 15 years and
will be amortized using the straight-line method. The $1.8 million of
goodwill was assigned entirely to the banking segment of the business.

10

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

GENERAL

The principal business of the Company is to provide banking
services through the Bank. Specifically, the Bank obtains savings and
checking deposits from the public, then uses those funds to originate
and purchase real estate loans and other loans. The Bank also purchases
mortgage-backed securities ("MBS") and other investment securities
from time to time as conditions warrant. In addition to customer
deposits, the Bank obtains funds from the sale of loans held-for-sale,
the sale of securities available-for-sale, repayments of existing
mortgage assets, and advances from the Federal Home Loan Bank
("FHLB"). The Bank's primary sources of income are interest on loans,
MBS, and investment securities plus customer service fees and income
from mortgage banking activities. Expenses consist primarily of
interest payments on customer deposits and other borrowings and general
and administrative costs.

The Bank is regulated by the Office of Thrift Supervision ("OTS")
and the Federal Deposit Insurance Corporation ("FDIC"), and is subject
to periodic examination by both entities. The Bank is also subject to
the regulations of the Board of Governors of the Federal Reserve System
("FRB"), which establishes rules regarding reserves that must be
maintained against customer deposits.

FINANCIAL CONDITION

ASSETS
The Company's total assets as of December 31, 2003, were $1,217.4
million, an increase of $110.0 million from September 30, 2003, the
prior fiscal year end. $93.2 million of this increase was due to the
purchase of mortgage-backed securities which were financed primarily
with repurchase agreements.

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, 2003, the Bank
originated and purchased $127.6 million in mortgage loans held for sale,
$147.4 million in mortgage loans held for investment, and $2.2 million
in other loans. This total of $277.2 million in loans originated
compares to $434.6 million in loans originated during the three months
ended December 31, 2002.

Included in the $183.8 million in loans held for sale as of
December 31, 2003, are $42.3 million in mortgage loans held for sale
with servicing released. All loans held for sale are carried at the
lower of cost or fair value.

The Bank classifies problem assets as "substandard," "doubtful"
or "loss." Substandard assets have one or more defined weaknesses,
and it is possible that the Bank will sustain some loss unless the
deficiencies are corrected. Doubtful assets have the same defects as
substandard assets plus other weaknesses that make collection or full
liquidation improbable. Assets classified as loss are considered
uncollectible and of such little value that a specific loss allowance is
warranted.

The following table summarizes the Bank's classified assets as
reported to the OTS, plus any classified assets of the holding company.
Dollar amounts are expressed in thousands.

12/31/03 9/30/03 12/31/02
-------------------------------------
Asset Classification:
Substandard $ 14,927 15,932 16,537
Doubtful -- -- --
Loss 2,243 2,325 2,979
-------------------------------------
17,170 18,257 19,516
Allowance for losses (9,402) (9,348) (9,377)
-------------------------------------
$ 7,768 8,909 10,139
=====================================

11

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.

12/31/03 9/30/03 12/31/02
----------------------------------------
Total Assets $ 1,217,396 1,107,359 1,106,750
========================================

Non-accrual loans $ 6,920 6,924 7,861
Troubled debt
restructurings 3,549 3,565 4,013
Net real estate and
other assets acquired
through foreclosure 3,799 4,561 5,821
----------------------------------------
Total $ 14,268 15,050 17,695
========================================
Percent of total assets 1.17% 1.36% 1.60%
========================================

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.

The following table sets forth the activity in the allowance for
loan losses for the three months ending December 31, 2003, and 2002.
Dollar amounts are expressed in thousands.

2003 2002
-------------------------
Balance at beginning of year $ 7,986 5,865
Provision for loan losses -- 18
Acquired in merger -- 1,309
Recoveries 8 6
Charge-offs (22) (41)
-------------------------
Balance at December 31 $ 7,972 7,157
==========================

LIABILITIES AND EQUITY
Customer deposit accounts decreased $1.5 million during the three
months ended December 31, 2003. The weighted average rate on customer
deposits as of December 31, 2003, was 2.07%, a decrease from 2.52% as of
December 31, 2002.

Advances from the FHLB were $336.0 million as of December 31, 2003,
an increase of $27.9 million from September 30, 2003. During the three-
month period, the Bank borrowed $143.0 million of new advances and
repaid $115.1 million. Management uses FHLB advances at various times
as an alternate funding source to provide operating liquidity and to
fund the origination and purchase of mortgage loans.

During the three months ended December 31, 2003, the Bank financed
the purchase of mortgage-backed securities primarily with repurchase
agreements. A total of $85.0 million of mortgage-backed securities were
sold under agreements to repurchase.

Escrows were $3.9 million as of December 31, 2003, a decrease of
$4.4 million from September 30, 2003. This decrease is due to amounts
paid for borrowers' taxes during the fourth calendar quarter of 2003.

12

Total stockholders' equity as of December 31, 2003, was $126.1
million (10.4% of total assets). This compares to $127.4 million (11.5%
of total assets) at September 30, 2003. On a per share basis,
stockholders' equity was $14.92 on December 31, 2003, compared to $15.09
on September 30, 2003.

The Company paid cash dividends on its common stock of $0.85 on
November 28, 2003. Subsequent to the quarter ended December 31, 2003,
the Company announced a cash dividend of $0.20 per share to be paid on
February 27, 2004, to stockholders of record as of February 6, 2004.

Total stockholders' equity as of December 31, 2003, includes an
unrealized gain of $198,000, net of deferred income taxes, on available
for sale securities. 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
------------------------
12/31/03 12/31/02
------------------------
Return on assets 1.98% 1.94%
Return on equity 18.12% 18.16%
Equity-to-assets ratio 10.38% 10.23%
Dividend payout ratio 125.12% 25.00%

RESULTS OF OPERATIONS - Comparison of three months ended December 31,
2003 and 2002.

For the three months ended December 31, 2003, the Company had net
income of $5,744,000 or $0.68 per share. This compares to net income of
$5,055,000 or $0.60 per share for the quarter ended December 31, 2002.

NET INTEREST MARGIN
The Company's net interest margin is comprised of the difference
("spread") between interest income on loans, mortgage-backed
securities and investments and the interest cost of customer deposits
and other borrowings. Management monitors net interest spreads and,
although constrained by certain market, economic, and competition
factors, it establishes loan rates and customer deposit rates that
maximize net interest margin.

The following table presents the total dollar amounts of interest
income and expense on the indicated amounts of average interest-earning
assets or interest-costing liabilities for the three months ended
December 31, 2003 and 2002. 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.

13

Three months ended 12/31/03 As of
--------------------------- 12/31/03
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 1,018,443 16,512 6.49% 6.17%
Mortgage-backed securities 75,811 766 4.04% 4.98%
Securities 20,619 190 3.69% 3.53%
Bank deposits 18,469 26 0.56% 0.55%
--------------------------------------
Total earning assets 1,133,342 17,494 6.18% 5.96%
---------------------------
Non-earning assets 37,523
----------
Total $ 1,170,865
==========
Interest-costing liabilities
Customer checking and savings
deposit accounts $ 208,095 394 0.76% 0.68%
Customer certificates of
deposit 448,779 2,875 2.56% 2.70%
FHLB advances 310,772 1,148 1.48% 1.55%
Repurchase agreements 63,750 195 1.22% 1.23%
--------------------------------------
Total costing liabilities 1,031,396 4,612 1.79% 1.84%
---------------------------
Non-costing liabilities 12,683
Stockholders' equity 126,786
----------
Total $ 1,170,865
==========
Net earning balance $ 101,946
==========
Earning yield less costing rate 4.39% 4.12%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 1,133,342 12,882 4.55%
============================

Three months ended 12/31/02 As of
--------------------------- 12/31/02
Average Yield/ Yield/
Balance Interest Rate Rate
-------------------------------------
Interest-earning assets
Loans $ 926,802 17,730 7.65% 7.02%
Mortgage-backed securities 5,382 89 6.61% 6.33%
Securities 28,678 270 3.77% 4.19%
Bank deposits 10,576 27 1.02% 0.81%
-------------------------------------
Total earning assets 971,438 18,116 7.46% 6.93%
---------------------------
Non-earning assets 26,846
---------
Total $ 998,284
=========
Interest-costing liabilities
Customer checking and savings
deposit accounts $ 181,501 533 1.17% 1.13%
Customer certificates of
deposit 365,333 3,031 3.32% 3.23%
FHLB advances 312,813 2,801 3.58% 3.30%
Repurchase agreements -- -- --% --
-------------------------------------
Total costing liabilities 859,647 6,365 2.96% 2.80%
---------------------------
Non-costing liabilities 31,358
Stockholders' equity 107,279
---------
Total $ 998,284
=========
Net earning balance $ 111,791
=========
Earning yield less costing rate 4.50% 4.13%
================
Average interest-earning assets,
net interest, and net yield
spread on average interest-
earning assets $ 971,438 11,751 4.84%
===========================

The following table provides information regarding changes in
interest income and interest expense. For each category of interest-
earning asset and interest-costing liability, information is provided on
changes attributable to (1) changes in volume (change in volume
multiplied by the old rate), (2) changes in rates (change in rate
multiplied by the old volume), and (3) changes in rate and volume
(change in rate multiplied by the change in volume). Average balances,
yields and rates used in the preparation of this analysis come from the
preceding table. Dollar amounts are expressed in thousands.

14

Net interest margin before loan loss provision for the three months
ended December 31, 2003, increased $1.1 million from the same period in
the prior year. Specifically, total interest expense decreased $1.8
million due to a decrease in the interest rate cost of those liabilities
of 1.2%. This was partially offset by a decrease in total interest
income of $622,000 from the same period in the prior year. A decrease
in interest income of $2.7 million resulted from a 128 basis point
decrease in the average rate earned on interest-earning assets, which
was largely offset by $161.9 million increase in the average balance of
interest-earning assets.

PROVISION FOR LOAN LOSSES
The Company recorded no provision for loan losses during the
quarter ended December 31, 2003. A provision of $18,000 was recorded
for the three months ended December 31, 2002. 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
loan and real estate owned losses was 54.8% of total classified assets
at December 31, 2003, 51.2% at September 30, 2003, and 48.0% at December
31, 2002.

As stated above, management believes that the provisions for loan
losses is adequate. The provision can fluctuate based on changes in
economic conditions or changes in the information available to
management. Also, regulatory agencies review the Company's allowances
for losses as a part of their examination process and they may require
changes in loss provision amounts based on information available at the
time of their examination.

OTHER INCOME
Other income for the three months ended December 31, 2003,
increased $1.2 million from the same period in the prior year.
Provision for loss on real estate owned decreased $1.2 million to a
reserve recorded during the quarter ended December 31, 2002, on a hotel
property in the Southeast area of Kansas City, Missouri. This property
was subsequently sold in April 2003. Net loan servicing fees increased
$951,000 due to a decrease in the amortization of capitalized servicing.
Other income increased $710,000 due to an increase in loan prepayment
penalties and 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." These
increases in other income were offset by a $1.4 million decrease in gain
on sale of loans held for sale due to a decrease in mortgage banking
volume.

GENERAL AND ADMINISTRATIVE EXPENSES
Total general and administrative expenses for the three months
ended December 31, 2003, increased $1.4 million from the same period in
the prior year. Specifically, compensation and fringe benefits increased
$1.2 million due primarily to the addition of an internet loan
origination office and the acquisition of CBES Bancorp, Inc. on
December 19, 2002. The number of full time equivalent employees
increased from 307 at December 31, 2002, to 388 at December 31, 2003.
The increase compensation and fringe benefits was partially offset by a
decrease of $270,000 in commission-based mortgage banking compensation
due to a decrease in mortgage banking volume. Advertising increased
$111,000, premises and equipment expense increased $151,000, and other
expenses increased $227,000 due primarily to the addition of the
internet loan origination office and the acquisition of CBES Bancorp,
Inc.

15

REGULATION

The Bank is a member of the FHLB System and its customers' deposits
are insured by the Savings Association Insurance Fund ("SAIF") of the
FDIC. The Bank is subject to regulation by the OTS as its chartering
authority. Since passage of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA" or the "Act"), the
FDIC also has regulatory control over the Bank. The transactions of
SAIF-insured institutions are limited by statute and regulations that
may require prior supervisory approval in certain instances.
Institutions also must file reports with regulatory agencies regarding
their activities and their financial condition. The OTS and FDIC make
periodic examinations of the Bank to test compliance with the various
regulatory requirements. The OTS can require an institution to re-value
its assets based on appraisals and to establish specific valuation
allowances. This supervision and regulation is intended primarily for
the protection of depositors. Also, savings institutions are subject to
certain reserve requirements under Federal Reserve Board regulations.

INSURANCE OF ACCOUNTS
The SAIF insures the Bank's customer deposit accounts to a maximum
of $100,000 for each insured member. Deposit insurance premiums are
determined using a Risk-Related Premium Schedule ("RRPS"), a matrix
which places each insured institution into one of three capital groups
and one of three supervisory groups. Currently, deposit insurance
premiums range from 0 to 27 basis points of the institution's total
deposit accounts, depending on the institution's risk classification.
The Bank is currently considered "well capitalized", which is the most
favorable capital group and supervisory subgroup. SAIF-insured
institutions are also assessed a premium to service the interest on
Financing Corporation ("FICO") debt.

REGULATORY CAPITAL REQUIREMENTS
At December 31, 2003, 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,
2003, the Bank did not have any investments in or loans to subsidiaries
engaged in activities not permissible for national banks.

The following tables summarize the relationship between the Bank's
capital and regulatory requirements. Dollar amounts are expressed in
thousands.

At December 31, 2003 Amount
- ----------------------------------------------------------------
GAAP capital (Bank only) $ 118,953
Adjustment for regulatory capital:
Intangible assets (3,246)
Disallowed portion of servicing assets
and deferred tax assets (4,538)
Reverse the effect of SFAS No. 115 (198)
---------
Tangible capital 110,971
Qualifying intangible assets --
---------
Tier 1 capital (core capital) 110,971
Qualifying general valuation allowance 6,073
---------
Risk-based capital $ 117,044
=========

16

LOANS TO ONE BORROWER
Institutions are prohibited from lending to any one borrower in
excess of 15% of the Bank's unimpaired capital plus unimpaired surplus,
or 25% of unimpaired capital plus unimpaired surplus if the loan is
secured by certain readily marketable collateral. Renewals that exceed
the loans-to-one-borrower limit are permitted if the original borrower
remains liable and no additional funds are disbursed. As of December
31, 2003, the Bank had no loans that exceeded the loans to one borrower
limit.

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, 2003, there was $82.3 million available
to the Bank in the form of FHLB advances. The Bank has established
relationships with various brokers, and, as a secondary source of
liquidity, the Bank may purchase brokered deposit accounts. Although
the Bank does not have any brokered deposits at December 31, 2003, it
could purchase up to $223.6 million 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.

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, 2003.

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, 2003.

Item 4. Controls and Procedures

An evaluation of the Company's disclosure controls and procedures
was carried out under the supervision and with the participation of the
Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO")
within the 90-day period preceding the filing date of this quarterly
report. Based on that evaluation, the CEO and CFO have concluded that
the Company's disclosure controls and procedures are effective in
ensuring that the information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is (i)
accumulated and communicated to management in a timely manner, and (ii)
recorded, processed, summarized, and reported within the time periods
specified by the SEC. Since the date of this evaluation, there have not
been any significant changes in the Company's internal controls or in
other factors that could significantly affect those controls.

17

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

During the quarter ended June 30, 2002, a class of plaintiffs filed
a lawsuit against the Bank and eleven other financial institution
defendants in the Circuit Court of St. Louis County, Missouri. The suit
alleged that all the defendants, including the Bank, who had charged
fees to their customers for the preparation of mortgage documents had
engaged in the practice of law without a license. The Bank was
dismissed as a defendant early in this case on the basis that, as a
federally chartered institution, federal law preempts state law with
regard to the action. This case continues with regard to other
defendants and, although North American was named in the plaintiff's
amended petitions, the Bank was dismissed each time on the basis of
federal preemption. Management believes that the Bank will also prevail
in any subsequent appeal.

There were no other material proceedings pending other than
ordinary and routine litigation incidental to the business of the
Company.

Item 2. Changes in Securities
None.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Submission of Matters to a Vote of Security Holders
None

Item 5. Other Information
None.

Item 6. Exhibits and Reports on Form 8-K

(a)Exhibits

Exhibit 99.1 - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

Exhibit 99.2 - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

(b) Reports of Form 8-K

A report on Form 8-K was filed on October 28, 2003, which announced
a quarterly cash dividend of $0.17 per share and a special one-time cash
dividend of $0.68 per share payable on November 28, 2003 to
shareholder's of record as of November 7, 2003.

A report on Form 8-K was filed on December 18, 2003, which
announced financial results for the quarter ended September 30, 2003.

18

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 13, 2004 By: /s/David H. Hancock
David H. Hancock
Chairman and
Chief Executive Officer

February 13, 2004 By: /s/Rhonda Nyhus
Rhonda Nyhus
Vice President and
Treasurer

19

I, David Hancock, Chairman and Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of NASB Financial,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statement were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidate subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions);

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: February 13, 2004

20

I, Rhonda Nyhus, Vice President and Treasurer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of NASB Financial,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statement were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidate subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions);

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: February 13, 2004

21