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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
-------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ______________________
Pulaski Financial Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
0-24571
- --------------------------------------------------------------------------------
Commission File Number
Delaware 43-1816913
- -------------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12300 Olive Boulevard
St. Louis, Missouri 63141-6434
- -------------------------------------------- ----------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (314) 878-2210
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 the number of shares outstanding of the registrant's classes of common
stock, as of the latest practicable date.
Class Outstanding at August 12, 2002
- -------------------------------------- ------------------------------
Common Stock, par value $.01 per share 2,738,213 shares
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 2002
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2002 (Unaudited) and September 30, 2001 1
Consolidated Statements of Income and Comprehensive Income for
The Three and Nine Months Ended June 30, 2002 and June 30, 2001 (Unaudited) 2
Consolidated Statement of Stockholders' Equity for the Nine Months Ended
June 30, 2002 (Unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 2002 and June 30, 2001 (Unaudited) 4-5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security-Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15-17
Signatures 18
PART I - FINANCIAL INFORMATION
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 (UNAUDITED) AND SEPTEMBER 30, 2001
June 30, September 30,
ASSETS 2002 2001
Cash and amounts due from depository institutions $ 10,803,930 $ 10,748,255
Federal funds sold and overnight deposits 300,000 2,300,000
------------- -------------
Total cash and cash equivalents 11,103,930 13,048,255
Investment securities available for sale, at market value 4,930,654 4,225,109
Investment securities held to maturity, at amortized cost (market value
$1,741,556 at September 30, 2001) - 1,737,109
Mortgage-backed and related securities held to maturity, at amortized cost (market value,
$2,255,503 and $2,703,562 at June 30, 2002 and September 30, 2001, respectively) 2,080,082 2,517,166
Mortgage-backed and related securities available for sale, at market value 6,370,843 8,787,558
Loans receivable held for sale, at lower of cost or market 40,196,346 38,087,434
Loans receivable, net of allowance for loan losses of $2,398,122 and $1,844,214 at
June 30, 2002 and September 30, 2001, respectively 218,704,382 204,114,915
Federal Home Loan Bank stock - at cost 4,700,000 3,960,000
Premises and equipment - net 5,122,449 3,680,810
Accrued interest receivable 1,532,893 1,554,484
Other assets 7,175,864 7,070,959
------------- -------------
TOTAL $ 301,917,443 $ 288,783,799
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 185,366,761 $ 189,710,385
Advances from Federal Home Loan Bank of Des Moines 70,300,000 55,000,000
Advance payments by borrowers for taxes and insurance 1,803,538 2,598,367
Accrued interest payable 38,793 220,110
Due to other banks 10,374,795 8,476,600
Other liabilities 2,429,975 1,771,162
------------- -------------
Total liabilities 270,313,862 257,776,624
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value per share, authorized 10,000,000 shares; none
issued or outstanding
Common stock - $.01 par value per share, authorized 9,000,000 shares; 3,972,885
shares issued at June 30, 2002 and September 30, 2001, respectively 39,729 39,729
Treasury stock - at cost (1,204,575 and 1,109,026 shares, respectively) (14,830,310) (12,718,797)
Treasury stock - equity trust - at cost (25,198 shares) (537,834) -
Additional paid-in capital 24,634,762 24,003,162
Unearned MRDP shares (476,454) (609,459)
Unearned ESOP shares (unreleased shares, 86,370 and 98,008 respectively) (863,690) (980,070)
Accumulated other comprehensive income 480,251 341,796
Retained earnings 23,157,127 20,930,814
------------- -------------
Total stockholders' equity 31,603,581 31,007,175
------------- -------------
TOTAL $ 301,917,443 $ 288,783,799
============= =============
See accompanying notes to the unaudited consolidated financial statements.
-1-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
INTEREST INCOME:
Loans receivable $ 4,105,643 $ 4,604,276 $12,837,841 $13,827,312
Investment securities 45,122 65,350 148,014 263,854
Mortgage-backed and related securities 153,866 225,551 512,395 928,235
Other 9,536 107,025 31,260 279,063
----------- ----------- ----------- -----------
Total interest income 4,314,167 5,002,201 13,529,510 15,298,463
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 1,036,017 1,928,865 3,461,367 5,663,182
Advances from Federal Home Loan Bank 827,743 931,752 2,713,789 3,172,671
Other - - - 37,500
----------- ----------- ----------- -----------
Total interest expense 1,863,760 2,860,617 6,175,156 8,873,353
----------- ----------- ----------- -----------
NET INTEREST INCOME 2,450,407 2,141,584 7,354,354 6,425,110
PROVISION FOR LOAN LOSSES 258,813 193,399 791,661 473,703
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 2,191,594 1,948,185 6,562,693 5,951,407
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
Retail banking fees 463,853 310,534 1,214,498 914,031
Mortgage revenues 950,868 1,075,425 3,274,177 2,442,546
Insurance commissions 41,466 56,565 144,329 275,949
Gain on sale of securities 22,265 436,478 44,065 540,488
Other 155,041 54,948 529,512 260,091
----------- ----------- ----------- -----------
Total other income 1,633,493 1,933,950 5,206,581 4,433,106
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,258,586 1,078,386 3,534,983 3,694,169
Occupancy, equipment and data processing expense 505,796 447,800 1,424,189 1,293,438
Advertising 140,284 118,873 366,380 349,775
Professional services 118,291 178,328 470,817 468,034
Other 298,628 296,518 1,190,398 801,659
----------- ----------- ----------- -----------
Total other expenses 2,319,585 2,119,905 6,986,767 6,607,075
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,505,502 1,762,230 4,782,507 3,777,438
INCOME TAXES 548,888 676,366 1,742,144 1,445,200
----------- ----------- ----------- -----------
NET INCOME 956,614 1,085,864 3,040,363 2,332,238
OTHER COMPREHENSIVE INCOME (LOSS) ITEMS 105,472 (126,872) 138,455 492,964
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 1,062,086 $ 958,992 $ 3,178,818 $ 2,825,202
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE - BASIC $ 0.36 $ 0.38 $ 1.13 $ 0.81
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE - DILUTED $ 0.34 $ 0.37 $ 1.07 $ 0.79
=========== =========== =========== ===========
See accompanying notes to the unaudited consolidated financial statements.
-2-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
Unearned
Management Accumulated
Additional Recognition and Other Unearned
Common Treasury Paid-In Development Comprehensive ESOP Retained
Stock Stock Capital Plan Shares Income Shares Earnings Total
BALANCE,
September 30, 2001 $ 39,729 $ (12,718,797) $ 24,003,162 $ (609,459) $ 341,796 $ (980,070) $ 20,930,814 $ 31,007,175
------------
Comprehensive income:
Net income 3,040,363 3,040,363
------------
Change in net unrealized
gain on securities 138,455 138,455
------------
Total comprehensive
income 3,178,818
------------
Dividends declared ($.09
per share) (635,144) (635,144)
Stock options exercised
and related tax benefit 644,274 (178,906) 465,368
Stock repurchases (2,755,787) (2,755,787)
Equity trust shares (537,834) 537,834 -
Release of ESOP shares 93,766 116,380 210,146
Amortization of Manage-
ment Recognition and
Development Plan shares 133,005 133,005
-------- ------------- ------------ ---------- --------- ---------- ------------ ------------
BALANCE,
June 30, 2002 $ 39,729 $ (15,368,144) $ 24,634,762 $ (476,454) $ 480,251 $ (863,690) $ 23,157,127 $ 31,603,581
======== ============= ============ ========== ========= ========== ============ ============
See accompanying notes to the unaudited consolidated financial statements.
-3-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,040,363 $ 2,332,238
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, amortization and accretion:
Premises and equipment 401,247 342,966
Management recognition and development plan stock awards 133,005 131,127
ESOP shares committed to be released 210,146 74,425
Loan fees, discounts and premiums - net 168,223 191,290
Provision for loan losses 791,661 473,703
Provision for losses on real estate acquired in settlement of loans 0 (2,108)
Losses on sale of real estate acquired in settlement of loans 15,944 (5,391)
Gains on sales of loans (3,049,780) (2,210,023)
Originations of loans receivable for sale to correspondent lenders (500,146,912) (302,506,016)
Proceeds from sales of loans to correspondent lenders 501,087,781 276,155,023
Gains on investment in Bank-owned life insurance (218,840) 0
Changes in other assets and liabilities 519,414 8,528,121
------------- -------------
Net adjustments (88,111) (18,826,883)
------------- -------------
Net cash provided by (used in) operating activities 2,952,252 (16,494,645)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of investment securities 2,213,035 25,716,673
Purchases of investment securities and FHLB stock (1,608,350) (3,544,159)
Gain on sale of investments (21,800) (540,488)
Principal payments received on mortgage-backed and related
securities 2,836,550 2,487,871
Loan originations, net of repayments (15,710,304) 7,018,085
Proceeds from sales of real estate acquired in settlement of
loans receivable 103,000 105,400
Disposal of equipment 0 29,606
Net additions to premises and equipment (1,842,886) (978,547)
------------- -------------
Net cash (used in) provided by investing activities (14,030,755) 30,294,441
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (4,343,624) 24,381,343
Federal Home Loan Bank advances - net 15,300,000 (11,100,000)
Due to other banks 1,898,195 0
Repayment of other debt 0 (12,500,000)
Net decrease in advance payments by borrowers for taxes and
insurance (794,829) (744,985)
Dividends declared on common stock (635,144) (585,275)
New MRDP stock issued 0 (37,613)
Treasury stock issued under stock option plan 465,368 115,993
Stock repurchases (2,755,788) (2,708,893)
------------- -------------
Net cash (used in) provided by financing activities 9,134,178 (3,179,430)
------------- -------------
(Continued)
-4-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
2002 2001
NET (DECREASE) INCREASE IN CASH AND CASH $ (1,944,327) $ 10,620,366
EQUIVALENTS
CASH AND CASH EQUIVALENTS, AT BEGINNING OF
PERIOD 13,048,255 7,562,265
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 11,103,930 $ 18,182,631
============ ============
ADDITIONAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest on deposits $ 3,608,534 $ 5,325,791
Interest on advances from the Federal Home Loan Bank
of Des Moines 2,713,789 3,172,671
Income taxes 1,456,000 1,987,084
NONCASH INVESTING ACTIVITIES:
Write-down of real estate owned 0 (2,108)
Real estate acquired in settlement of loans 118,944 109,134
Increase in investments for changes in unrealized
gains and losses 267,940 782,484
NONCASH FINANCING ACTIVITIES:
Dividends declared 247,122 218,722
-5-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS
The unaudited consolidated interim financial statements as of June 30, 2002
and for the period then ended include the accounts of Pulaski Financial
Corp. (the "Company") and its wholly-owned subsidiary, Pulaski Bank (the
"Bank"), and its wholly-owned subsidiary, Pulaski Service Corporation. All
significant intercompany accounts and transactions have been eliminated.
The Company's assets consist primarily of shares of the Bank, and it has no
significant liabilities. Accordingly, the information set forth in this
report, including the consolidated financial statements and related
financial data, relates primarily to the Bank. The Company operates as a
single business segment, providing traditional community banking services
through its full service branch network.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial condition of
the Company as of June 30, 2002 and September 30, 2001 and its results of
operations for the three and nine month periods ended June 30, 2002 and
2001. The results of operations for the period ended June 30, 2002, are not
necessarily indicative of the operating results that may be expected for
the entire fiscal year. These unaudited consolidated financial statements
should be read in conjunction with the Company's audited consolidated
financial statements for the year ended September 30, 2001 contained in the
Company's 2001 Annual Report to Stockholders, which was filed as an exhibit
to the Company's Annual Report on Form 10-K for the year ended September
30, 2001.
2. EARNINGS PER SHARE
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ---------------------
2002 2001 2002 2001
Weighted average shares
outstanding - basic 2,660,376 2,826,699 2,693,927 2,890,761
Common stock equivalent 169,944 102,226 158,824 77,056
--------- --------- --------- ---------
Weighted average shares
outstanding - diluted 2,830,320 2,928,925 2,852,751 2,967,817
========= ========= ========= =========
Anti-dilutive shares 0 8,516 0 14,132
========= ========= ========= =========
Under the Treasury Stock method, outstanding stock options are dilutive
when the average market price of the Company's common stock exceeds the
option price during a period. In addition, proceeds from the assumed
exercise of dilutive options along with the related tax benefit are assumed
to be used to repurchase common shares at the average market price of such
stock during the period. Anti-dilutive shares are those option shares with
exercise prices in excess of the current market value.
-6-
3. RECLASSIFICATIONS
Certain reclassifications have been made to 2001 amounts to conform to the
2002 presentation.
* * * * * *
-7-
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward Looking Statements
This report contains forward-looking statements within the meaning of the
federal securities laws. These statements are not historical facts, rather
statements based on the Company's current expectations regarding its business
strategies, intended results and future performance. Forward-looking statements
are preceded by terms such as "expects," "believes," "anticipates," "intends,"
and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause the Company's actual results, performance
and achievements to be materially different from those expressed or implied by
the forward-looking statements. Factors that may cause or contribute to these
differences include, without limitation, general economic conditions, including
changes in market interest rates and changes in monetary and fiscal policies of
the federal government; legislative and regulatory changes; and other factors
disclosed periodically in the Company's filings with the Securities and Exchange
Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
Except as required by applicable law or regulation, the Company assumes no
obligation to update any forward-looking statements.
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the unaudited consolidated financial
statements and accompanying notes thereto.
Financial Condition
Total assets at June 30, 2002 were $301.9 million, an increase of $13.1 million
from $288.8 million at September 30, 2001. The increase in total assets was
primarily attributable to growth in loans receivable, with lesser increases in
loans held for sale, premises and equipment. The growth in assets was funded
primarily by an increase in advances from the Federal Home Loan Bank ("FHLB")
and was offset by a decline in deposits.
Cash and cash equivalents decreased $1.9 million from $13.0 million at September
30, 2001 to $11.1 million at June 30, 2002. The cash balance is largely
non-interest bearing and meets the compensating balance requirements at the
Federal Home Loan Bank (the FHLB) and with others. The decline in overnight
deposits is a result of decreased liquidity as the funds have been used to fund
increased loan production.
Investments and mortgage-backed securities declined from $17.2 million at
September 30, 2001 to $13.4 million at June 30, 2002 primarily due to prepayment
of principal from the mortgage-backed securities and the maturity of an
investment security. The cash proceeds of these investments have been used to
fund loan growth.
Loans receivable increased $14.6 million from $204.1 million at September 30,
2001 to $218.7 million at June 30, 2002. The loan growth is primarily attributed
to an increase of $20.6 million in home equity line of
-8-
credit balances, increasing from $28.6 million at September 30, 2001 to $49.1
million at June 30, 2002. Commercial mortgage loan balances increased $3.5
million to $4.9 million at June 30, 2002 but this increase was offset by a $5.6
million reduction in consumer auto loans to $8.1 million. Home equity loans are
primarily approved for qualifying borrowers in conjunction with first mortgage
loan applications. The growth in prime-based adjustable home equity loans has
been established as a strategic objective, and the large volume of mortgage
loans originated during the year has provided greater opportunities to
cross-sell this product to customers. Likewise, the growth in commercial loans
is also a result of a strategic initiative to begin participating in quality
commercial real estate loans with other smaller banks in the St. Louis area. The
Bank has established a strict commercial underwriting guideline and is content
to limit commercial loan growth to high credit quality commercial real estate
borrowers. Consumer auto loans balances have continued to decline as the bank
strategically discontinued indirect auto lending in 1999 in favor of growing the
home equity lines of credit.
Loans held for sale increased $2.1 million from $38.1 million at September 30,
2001 to $40.2 million at June 30, 2002. The increase was attributable to the
origination of over $139 million in first mortgage loans held for sale during
the quarter ended June 30, 2002. The volume of loan originations increased due
to the addition of four residential loan officers. The great majority of the
loans originated are pre-committed for sale to investors on a servicing-released
basis and are typically held for sale for an average of 21 days. The increase in
loans held for sale is due to an increased volume of loans originated in the
last few weeks of the quarter.
Premises and equipment increased $1.4 million from $3.7 million at September 30,
2001 to $5.1 million at June 30, 2002. The increase was primarily due to the
Bank purchasing its St. Charles office from the lessor for $638,000 and
renovation and improvements made to the home office on Olive Boulevard.
Total liabilities increased $12.5 million from $257.8 million at September 30,
2001 to $270.3 million at June 30, 2002. The increase in total liabilities was
primarily attributable to an increase in advances from the FHLB used to fund
higher loan demand, but was partially offset by a decline in deposits. Deposits
declined $4.3 million as the Bank has continued to shift marketing efforts away
from certificates of deposit ("CD") in favor of less volatile accounts such as
money markets, demand deposits and passbook accounts. In the nine-month period
ending June 30, 2002, CD balances declined $11.9 million, but were offset by a
$7.6 million increase in demand deposit accounts and passbooks.
Due to other banks increased $1.9 million from $8.5 million at September 30,
2001 to $10.4 million at June 30, 2002. This balance represents a short-term
obligation the Bank has with a correspondent bank for the clearing of bank
checks. This balance consists principally of loan proceeds for loans funded on
last day of the quarter.
Total stockholders' equity at June 30, 2002 increased $596,000 from $31.0
million at September 30, 2001 to $31.6 million at June 30, 2002. Retained
earnings increased $3.0 million from year to date net income and $465,000 from
stock options exercised, but was largely offset by treasury share purchases of
153,599 shares of common stock for $2.8 million and dividends declared of
$635,000. During the year, the Bank added a new component of equity, treasury
shares-equity trust. Year to date, the Bank has purchased 25,000 shares of
common stock through a trust for the eight highest producing loan officers of
the Bank. These shares were purchased with funds resulting primarily from profit
participations and deferral of commissions.
Non-Performing Assets and Delinquencies
Total non-performing assets declined $49,000 from $2.4 million at September 30,
2001 to $2.3 million at June 30, 2002, due primarily to a $224,000 decline in
loans past due 90 days or more from $2.1 million to $1.9 million, of which
$684,000 and $154,000 were FHA/VA government-insured loans at September 30, 2001
and June 30, 2002, respectively. The decline in total non-performing assets and
in FHA/VA
-9-
government-insured loans is due to several foreclosures on past-due FHA
residential borrowers. The decline was partially offset by an increase in
non-accrual loans, which increased $158,000 from $276,000 to $434,000. The
increase in non-accrual loans represents an increase in the balance of loans
currently under foreclosure. Management considers the non-accrual loans well
secured by primarily 1-4 residential properties and does not expect significant
losses.
The allowance for loan losses increased $554,000 from $1.8 million or 77.8% of
non-performing loans at September 30, 2001 to $2.4 million or 103.4% of
non-performing loans at June 30, 2002. In response to current economic trends
and assessed risk in the portfolio, the Bank continued to increase the ALL
levels on mortgage loans by 0.03%, home equity loans by 0.125% and loans sold
with recourse by 0.03%. Net loan charge-offs increased $55,000 from $183,000 for
the nine months ended September 30, 2001 to $238,000 for the nine months ending
June 30, 2002 due to increased charge-offs in the Bank's declining auto loan
portfolio.
Comparison of Operating Results for the Three and Nine Months Ended June 30,
2002 and 2001:
All trends and reasons for increases and decreases for the three months ended
June 30, 2002 and 2001 are reflective of the trends and reasons for increases
and decreases for the nine month periods ended June 30, 2002 and 2001, in all
material respects, unless otherwise noted.
General
Net income for the three months ended June 30, 2002 was $957,000, compared to
$1.1 million for the three months ended June 30, 2001, which included a one-time
tax adjusted gain of $270,000. Net income for the nine months ended June 30,
2002 grew 30% to $3.0 million from $2.3 million at June 30, 2001 due to gains in
retail banking, mortgage and net interest income. Net interest income for three
and nine months increased 14% due to the changes in rate environment over the
last year, which has resulted in greater declines in interest costs compared to
interest revenue.
Interest Income
Interest income declined $688,000 or 14% for the three months ended June 30,
2002, compared to the three months ended June 30, 2001. Interest income
decreased primarily from a decline of $499,000 from loans receivable. For the
nine-month period ending June 30, 2002, interest income declined $1.8 million or
12% compared to the nine-month period ended June 30, 2001. Interest income
decreased primarily due to a decline of $989,000 from loans receivable.
The decrease in interest income on loans for the three-month periods resulted
from a decline in weighted average yield on loans to 6.8% at June 30, 2002 from
7.5% at June 30, 2001 due to the general decline in interest rate markets.
Contributing to the decline in interest income on loans was a $3.1 million
decline in average loan balances, which stemmed primarily from a $10.3 million
decline in average balance on loans held for sale, which resulted from shortened
delivery time required by investors. For the nine-month period, interest income
declined $1.8 million or 12% as yield on loans declined to 6.9% from 7.8%.
Offsetting the decline, the average balance of loans increased to $249.1 million
for the nine-month period ended June 30, 2002 compared to $239.0 million for
same period in 2001. In the declining rate environment, prepayment of loans
causes a reduction in interest income, as deferred origination expenses set to
amortize over the life of loans are immediately recognized.
-10-
The decrease in income from investment securities was due to a decline in the
average balance to $2.8 million for the three months ended June 30, 2002 from
$4.6 million for the three months ended June 30, 2001, as maturing securities
were used to fund lending activity. The weighted average yield on investment
securities increased to 6.3% from 5.7% for the three-month period as lower
yielding short-term investments matured from the prior year. The weighted
average yield for the nine-months ended June 30, 2002 was 6.9% compared to 5.9%
for the nine-month period ended June 30, 2001.
The decrease in interest income from mortgage-backed securities resulted
primarily from a decrease in the average balance to $8.8 million for the quarter
ended June 30, 2002 from $12.7 million for the three months ended June 30, 2001,
and by a reduction in the weighted average yield to 6.96% for the June 2002
quarter from 7.13% for the June 2001 quarter. For the nine-month period ended
June 30th, the average balance on mortgage-backed securities declined to
$9.8 million in fiscal 2002 from $17.3 million in fiscal 2001.
Interest income on overnight deposits decreased $97,000 as the average balance
of overnight deposits decreased to $2.4 million for the June 2002 quarter from
$10.4 million for the June 2001 quarter. The balance of overnight deposits has
declined due to increased compensating balance requirements in the Bank's demand
deposit accounts at the FHLB and with others. The weighted average yield on
overnight deposits declined to 1.65% for the June 2002 quarter from 4.2% for the
June 2001 quarter as a result of lower market interest rates.
Interest Expense
Interest expense decreased $997,000, or 35% for the three months ended June 30,
2002 compared to the same period last year. The quarterly decline in expense
resulted primarily from decreased interest expense of $893,000 on deposits as
the weighted average rate paid on deposits decreased to 2.31% from 4.18% due to
the decline in market interest rates. The average balance of interest-bearing
deposits declined to $179.3 million for the June 2002 quarter from $184.6
million for the quarter ended June 30, 2001. For the nine-month period ended
June 30, 2002, interest expense declined $2.2 million, or 39% primarily as a
result of decreased borrowing costs. The weighted average rate paid on deposits
decreased to 2.51% from 4.51% for the nine-months ended June 30, 2002 and 2001,
respectively. Interest expense on advances from the FHLB for the quarter ended
June 30, 2002 declined $104,000 from the quarter ended June 30, 2001 as the
weighted average rate on the FHLB borrowings decreased to 5.31% for the quarter
ended June 30, 2002 from 6.09% for the quarter ended June 30, 2001 as a result
of lower short-term interest rates in effect. For the nine-month period ended
June 30, 2002, the weighted average rate decreased to 5.28% from 6.35%.
Provision for Loan Losses
The provision for loan losses was $259,000 for the three months ended June 30,
2002 compared to $193,000 for the three months ended June 30, 2001. The increase
in provision expense was largely due to a board resolution to increase the
allowance for loan loss in accordance the Bank's ALL formula. The Board
resolution addressed specific concerns about economic conditions as well as
inherent risks in the Bank's portfolio products. The Bank increased its
allowance for mortgage loans by 0.025% to bring its current reserves to 0.40%,
home equity loans by 0.125% to 1.25% and loans sold with recourse by 0.03% to
0.10%. Net loan losses for the three months ending June 30, 2002 declined to
$63,000 from $95,000 for the quarter ended June 30, 2001. The losses are
primarily attributed to consumer automobile loans. For the nine months ended
June 30, 2002 the loan loss provision was $792,000 compared to $474,000 for the
nine months ended June 30, 2001. The allowance as a percent of non-performing
loans was 103.41% at June 30, 2002 compared to 77.84% at September 30, 2001. The
increase in the allowance as a percent of non-performing was attributable to the
increase in the allowance for loan loss, which has increased to $2.4 million at
June 30, 2002 from $1.8 million at September 30, 2001. Management feels the
non-performing loans are
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well secured and in the event of liquidation will not represent an increase in
losses. The allowance for loan losses as a percent of total loans was 0.93% as
of June 30, 2002 compared to 0.76% at September 30, 2001.
The provision for loan losses is determined by management as the amount that
must be added to the allowance for loan losses after net charge-offs have been
deducted to bring the allowance to a level which is considered adequate to
absorb losses inherent in the loan portfolio. The determination of the
appropriate level of loan loss allowance is based upon the quarterly evaluation
of eleven specific criteria. Additionally, senior management and the collection
department personnel meet quarterly and review all conventional mortgages and
all consumer loans which are over 90 days delinquent. Loan loss allowances are
provided when it is determined that loss is probable and the asset is impaired.
In addition to specific evaluations, management also reviews concentrations of
credit, lending volume, the general level of delinquencies, current trends in
charge-offs, current economic conditions, historical loss experience, and the
reasonableness of previous estimates in relation to payment performance on new
loan products. In the assessment of these and other characteristics, estimates
are made for the inherent loan losses associated with these products. Because
management adheres to specific loan underwriting guidelines focusing on mortgage
loans secured by one-to-four-family residences, the Bank's historical loan loss
experience has been low. No assurances, however, can be given as to future loan
loss levels.
Non-Interest Income
Non-interest income decreased $300,000 to $1.6 million for the quarter ended
June 30, 2002 from $1.9 million for the three months ended June 30, 2001. The
decline was primarily due to a one-time gain on sale of an equity security of
$436,000 in the prior year and a decline of $125,000 in mortgage revenues, which
were offset by an increase in retail banking fees of $153,000 and other
non-interest income of $100,000. For the nine months ended June 30, 2002,
non-interest income rose $773,000 due to a 34% increase in mortgage revenues and
a 33% increase in retail banking fees.
Retail banking fees rose 49% to $464,000 for the June 2002 quarter from $311,000
in the June 2001 quarter as a result of growth in the number of checking
accounts. For the nine months, retail banking fees rose 33% to $1.2 million from
$914,000.
Mortgage revenues continue to be the leading source of non-interest income as
revenue from the three months declined slightly to $951,000 at June 30, 2002
from $1.1 million at June 2001. The revenue was generated primarily from sales
of loans to investors, with servicing released. The volume of loans sold for the
three months ended June 30, 2002 increased 22% over the same quarter of the
prior year; however the revenue recognized on loan sales declined as the Bank
has realized higher origination costs associated with this activity. For the
year, mortgage revenue is up $832,000 to $3.3 million at June 30, 2002, due to
an 82% increase in loan sales to $498.0 million in 2002 from $273.9 million in
2001. The higher volume of sales is the result of increased production from an
expanded residential lending staff.
Other income increased primarily as a result of revenue from Bank-owned life
insurance. In September of 2001, the Bank purchased two separate "key man" life
insurance policies with a total surrender value of $5 million. For the three and
nine month periods ended June 30, 2002, the Bank recorded income from the
increase in the cash surrender value of these policies in the amount of $72,000
and $219,000, respectively.
Non-Interest Expense
Non-interest expense increased $200,000, to $2.3 million for the three months
ended June 30, 2002 from $2.1 million for the June 2001 quarter. The increase
was primarily due to increased salaries expense of $178,000 and occupancy and
equipment expenses of $58,000, which was offset by a decline in professional
services
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expense of $60,000. For the nine months ended June 30, 2002 non-interest expense
increased $380,000 to $7.0 million from $6.6 million at June 30, 2001, due
primarily to an increase in other non-interest expense resulting from increased
expense associated with the higher volume of loan originations.
The increase in compensation expenses for the three months ended June 30, 3002
was the result of commissions associated with increased volume of loan
originations. Compensation expense was offset by higher deferred origination
cost estimates, which have resulted in increased deferral of fixed and variable
origination costs on loans. The increase in loan officer compensation was due in
part to the implementation of an equity trust plan. The equity trust plan was
introduced at the beginning of the 2002 fiscal year and provides long-term
incentives as well as an opportunity to defer income for eight loan officers who
have originated a significant percentage of all one to four family mortgage
loans for year. The plan invests the proceeds in the company's stock.
Occupancy and equipment expense increased $58,000 for the quarter to $506,000
for June 2002 from $448,000 for the quarter ended June 2001. The increase in
expense was primarily due to an increase in data processing expense of $49,000,
furniture and equipment depreciation expense of $31,000, which was offset by a
$15,000 decline in rent expense due to the acquisition of a branch office in St.
Charles, which previously had been leased.
Income Taxes
The provision for income taxes declined $257,000 to $549,000 for the three
months ended June 30, 2002 from $676,000 for the three months ended June 30,
2001. The decline was primarily attributable to a decline in net income combined
with increased non-taxable income related to Bank-owned life insurance. The
effective tax rate for three and nine months 2002 was approximately 36%,
compared to 38% for the three and nine months ended June 30, 2001.
Liquidity and Capital Resources
The Bank attempts to maintain liquidity at levels it considers appropriate to
ensure the availability of funds to satisfy loan commitments and deposit
withdrawals. Maintaining levels of liquidity acts, in part, to reduce the
Company's balance sheet exposure to interest rate risk.
At June 30, 2002 the Bank had outstanding commitments to originate loans of
$19.3 million, and commitments to sell loans on a best-efforts basis of $51.7
million. At the same date, certificates of deposit that are scheduled to mature
in one year or less totaled $66.0 million. Management anticipates that it will
have sufficient funds available to meet these commitments. Based on past
experience, management believes the majority of maturing certificates of deposit
will remain with the Bank.
Management believes it has the ability to acquire funds to satisfy its liquidity
needs. If the Bank or the Company requires funds beyond its ability to generate
them internally, the Bank has the ability to borrow funds from the FHLB under a
blanket agreement which assigns all investments in FHLB stock as well as
qualifying first mortgage loans equal to 114% of the outstanding advances as
collateral to secure the amounts borrowed. Total borrowings from the FHLB are
subject to limitations based upon the asset size of the Bank, and credit
evaluations by the FHLB. At June 30, 2002, the Bank had $70.3 million in
advances from the FHLB of a total available borrowing line of $120.0 million
under the above-mentioned arrangement. The Company has also made financing
arrangements with a commercial bank to provide up to $10 million of additional
short-term, prime rate-based funds as an additional source of funding if the
need arises.
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The Bank is required to maintain specific amounts of capital pursuant to Office
of Thrift Supervision (the "OTS") regulations on minimum capital standards. The
OTS' minimum capital standards generally require the maintenance of regulatory
capital sufficient to meet each of three tests, the tangible capital
requirement, the core capital requirement and the risk-based requirement. The
tangible capital requirement provides for minimum tangible capital (defined as
stockholders' equity less all intangible assets) equal to 1.5% of adjusted total
assets. The core capital requirement provides for minimum core capital (tangible
capital plus certain forms of supervisory goodwill and other qualifying
intangible assets) equal to 3.0% of adjusted total assets. The risk-based
capital requirements provide for the maintenance of core capital plus a portion
of unallocated loss allowances equal to 8.0% of risk-weighted assets. In
computing risk-weighted assets the Bank multiplies the value of each asset on
its balance sheet by a defined risk-weighting factor (e.g., one-to four-family
conventional residential loans carry a risk-weighted factor of 50%).
The following table illustrates the Bank's regulatory capital levels compared to
its regulatory capital requirements at June 30, 2002.
To be Categorized as
"Well Capitalized"
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
---------------------------- -------------------------- -------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2002:
Tangible capital (to
adjusted total assets) $ 28,338 9.49% $ 4,480 1.50% N/A N/A
Total risk-based capital
(to risk-weighted assets) 30,699 15.56% 15,783 8.00% $ 19,728 10.00%
Tier I risk-based capital
(to risk-weighted assets) 28,338 14.36% N/A N/A 11,837 6.00%
Tier I total capital (to
adjusted total assets) 28,338 9.49% 11,946 4.00% 14,933 5.00%
Quantitative and Qualitative Disclosures About Market Risk
There has been no significant change in the Company's quantitative or
qualitative aspects of market risk during the quarter ended June 30, 2002 from
that disclosed in the Company's Annual Report on Form 10-K for the year ended
September 30, 2001.
-14-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on
properties in which the Bank holds security interests, claims involving
the making and servicing of real property loans and other issues
incident to the Bank's business. The Bank is not a party to any pending
legal proceedings that it believes would have a material adverse effect
on the financial condition or operations of the Bank.
Item 2. Changes in Securities and Use of Proceeds: Not applicable
Item 3. Defaults Upon Senior Securities: Not applicable
Item 4. Submission of Matters to a Vote of Security-Holders: Not Applicable
Item 5. Other Information: Certifications pursuant to Section 906 of the
recently enacted Sarbanes-Oxley Act accompanied this Form 10-Q filed
with the Securities and Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K:
A. Exhibits
3.1 Certificate of Incorporation of Pulaski Financial Corp.*
3.2 Bylaws of Pulaski Financial Corp.*
4.0 Form of Certificate for Common Stock*
------------
* Incorporated by reference from the Form S-1 (Registration No.
333-56465), as amended, as filed on June 9, 1998
B. Reports on Form 8-K: None
-15-
SIGNATURES
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.
PULASKI FINANCIAL CORP.
Date: August 14, 2002 /S/William A. Donius
-------------------------- ----------------------------------------
William A. Donius
Chairman and Chief Executive Officer
Date: August 14, 2002 /S/Ramsey K. Hamadi
-------------------------- ----------------------------------------
Ramsey K. Hamadi
Chief Financial Officer/Treasurer
16