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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 December 31, 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.
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(Exact name of registrant as specified in its charter)
0-24571
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Commission File Number
Missouri 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 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 an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
__________ ----------
Indicate the number of shares outstanding of the registrant's classes of common
stock, as of the latest practicable date.
Class Outstanding at February 13, 2003
- ---------------------------------------- ------------------------------------
Common Stock, par value $.01 per share 2,735,210 shares
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 2002
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 2002 (Unaudited) and
September 30, 2002 1
Consolidated Statements of Income and Comprehensive Income for
the Three Months Ended December 31, 2002 and 2001 (Unaudited) 2
Consolidated Statement of Stockholders' Equity for the Three Months
Ended December 31, 2002 (Unaudited) 3
Consolidated Statements of Cash Flows for the Three Months Ended
December 31, 2002 and 2001 (Unaudited) 4-5
Notes to Unaudited Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security-Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Certifications 16
PART I- FINANCIAL INFORMATION
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 (UNAUDITED) AND SEPTEMBER 30, 2002
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December 31, September 30,
ASSETS 2002 2002
Cash and amounts due from depository institutions $ 15,743,355 $ 11,176,728
Federal funds sold and overnight deposits 700,000 -
------------- -------------
Total cash and cash equivalents 16,443,355 11,176,728
Securities available for sale, at market value 4,802,013 4,876,508
Mortgage-backed securities held to maturity, at amortized cost (market value,
$1,837,841 and $1,950,294 at December 31, 2002 and at September 30, 2002, respectively) 1,678,252 1,795,016
Mortgage-backed securities available for sale, at market value 4,827,772 5,686,556
Capital stock of Federal Home Loan Bank - at cost 7,490,000 5,840,000
Loans receivable held for sale, at lower of cost or market 145,036,112 97,174,145
Loans receivable, net of allowance for loan losses of $2,877,728 and $2,553,004 at
December 31, 2002 and September 30, 2002, respectively 235,820,264 227,581,131
Premises and equipment - net 6,481,678 5,963,500
Accrued interest receivable 1,618,272 1,580,196
Other assets 7,204,071 7,573,145
------------- -------------
TOTAL $ 431,401,789 $ 369,246,925
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 229,296,863 $ 201,269,796
Advances from Federal Home Loan Bank 149,800,000 116,800,000
Advance payments by borrowers for taxes and insurance 1,079,608 3,080,472
Accrued interest payable 142,546 190,503
Due to other banks 14,062,470 12,548,881
Other liabilities 3,011,742 2,803,133
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Total liabilities 397,393,229 336,692,785
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
-1-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(UNAUDITED)
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Three Months Ended
December 31,
-------------------------
2002 2001
INTEREST INCOME:
Loans receivable $ 5,079,153 $ 4,503,344
Securities 45,288 57,852
Mortgage-backed securities 121,279 188,189
Other 1,824 14,465
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Total interest income 5,247,544 4,763,850
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INTEREST EXPENSE:
Deposits 1,112,743 1,334,129
Advances from Federal Home Loan Bank 980,845 970,368
----------- -----------
Total interest expense 2,093,588 2,304,497
----------- -----------
NET INTEREST INCOME 3,153,956 2,459,353
PROVISION FOR LOAN LOSSES 375,971 299,651
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 2,777,985 2,159,702
----------- -----------
NON-INTEREST INCOME:
Retail banking fees 447,401 398,867
Mortgage revenues 1,735,577 1,316,619
Insurance commissions 25,665 76,243
Gain on sales of securities 23,907 21,800
Other 235,994 211,059
----------- -----------
Total non-interest income 2,468,544 2,024,588
----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,644,659 1,134,996
Occupancy, equipment and data processing expense 611,991 382,146
Advertising 96,428 120,026
Professional services 157,428 204,003
Other 423,697 412,691
----------- -----------
Total non-interest expense 2,934,203 2,253,862
----------- -----------
INCOME BEFORE INCOME TAXES 2,312,326 1,930,428
INCOME TAXES 865,795 746,319
----------- -----------
NET INCOME 1,446,531 1,184,109
OTHER COMPREHENSIVE INCOME (LOSS) ITEMS 38,173 (61,680)
----------- -----------
COMPREHENSIVE INCOME $ 1,484,704 $ 1,122,429
=========== ===========
NET INCOME PER COMMON SHARE - BASIC $ 0.54 $ 0.43
=========== ===========
NET INCOME PER COMMON SHARE - DILUTED $ 0.51 $ 0.41
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
-2-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED)
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Unearned
Management Accumulated
Additional Recognition & Other Unearned
Common Treasury Paid-In Development Comprehensive ESOP Retained
Stock Stock Capital Plan Shares Income Shares Earnings Total
BALANCE,
September 30, 2002 $39,729 $(15,974,493) $25,080,348 $ (416,493) $ 449,651 $(664,893) $24,040,291 $32,554,140
-----------
Comprehensive income:
Net income 1,446,531 1,446,531
Change in net unreal-
ized gains on
securities 38,173 38,173
-----------
Total comprehen-
sive income 1,484,704
-----------
Dividends ($.09
per share) (231,645) (231,645)
Stock options exercised 110,089 (28,527) 81,562
Equity trust shares
purchased (325,350) 325,350 -
Release of ESOP shares 37,837 38,793 76,630
Net Management Recognition
and Development
Plan shares issued 16,515 (30,180) 13,665 -
Amortization of Management
Recognition and
Development
Plan shares issued 43,169 43,169
------- ------------ ----------- ------------- ------------- --------- ----------- -----------
BALANCE,
December 31, 2002 $39,729 $(16,173,239) $25,443,535 $ (403,504) $ 487,824 $(626,100) $25,240,315 $34,008,560
======= ============ =========== ============= ============= ========= =========== ===========
See accompanying notes to the unaudited consolidated financial statements.
-3-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THREE MONTHS
ENDED DECEMBER 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001 (UNAUDITED)
- --------------------------------------------------------------------------------
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,446,531 $ 1,184,109
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation, amortization and accretion:
Premises and equipment 186,975 82,854
Management Recognition and Development Plan stock awards 43,169 44,335
ESOP shares committed to be released 76,630 61,723
Loan fees, discounts and premiums - net 35,718 49,960
Provision for loan losses 375,971 299,651
Originations of loans receivable for sale to correspondent lenders (334,993,967) (221,400,735)
Proceeds from sales of loans to correspondent lenders 288,779,336 188,707,731
Gain on sale of loans (1,647,336) (1,217,731)
Gain on sale of securities (23,907) -
Changes in other assets and liabilities 543,866 636,974
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Net adjustments (46,623,545) (32,735,238)
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Net cash used in operating activities (45,177,014) (31,551,129)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities 209,425 2,065,803
Purchase of bank-owned life insurance policy (75,613) -
Purchases of securities and FHLB stock (1,686,875) (590,000)
Principal payments received on mortgage-backed securities 973,751 963,031
Loan originations - net (8,661,603) (208,628)
Net additions to premises and equipment (705,153) (262,142)
------------- -------------
Net cash (used in) provided by investing activities (9,946,068) 1,968,064
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) increase in deposits 28,027,067 (5,090,868)
Federal Home Loan Bank advances - net 33,000,000 36,000,000
Due to other banks 1,513,589 1,225,604
Net increase in advance payments by borrowers for taxes and insurance (2,000,864) (2,007,985)
Dividends paid on common stock (231,645) (192,890)
Common stock issued under stock option plan 81,562 41,037
Payments to acquire treasury stock - (960,860)
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Net cash provided by financing activities 60,389,709 29,014,038
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-4-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THREE MONTHS ENDED
ENDED DECEMBER 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001 (UNAUDITED)
- --------------------------------------------------------------------------------
2002 2001
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 5,266,627 $ (568,150)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 11,176,728 13,048,255
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,443,355 $ 12,480,105
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest on deposits $ 1,160,700 $ 1,541,922
Interest on advances from the Federal Home Loan Bank 980,845 970,368
NONCASH INVESTING ACTIVITIES:
Increase (decrease) in investments for changes in
unrealized gains or losses 61,570 (92,941)
NONCASH FINANCING ACTIVITIES:
Dividends declared 248,588 210,740
See accompanying notes to the unaudited consolidated financial statements.
-5-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements 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 assets of the Company consist
primarily of the outstanding 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 December 31, 2002 and September 30, 2002 and its results
of operations for the three-month periods ended December 31, 2002 and
2001. The results of operations for the three-month period ended December
31, 2002 are not necessarily indicative of the results that may be
expected for the entire fiscal year. These unaudited consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended
September 30, 2002 contained in the Company's 2002 Annual Report to
Stockholders, which is filed as an exhibit to the Company's Annual Report
on Form 10-K for the year ended September 30, 2002.
2. EARNINGS PER SHARE
Weighted average shares
outstanding - basic 2,691,269 2,723,690
Common stock equivalent 152,757 140,108
---------- ----------
Weighted average shares
outstanding - diluted 2,844,026 2,863,798
========== ==========
Anti-dilutive shares 897 -
========== ==========
Under the treasury stock method, outstanding stock options are dilutive
when the average market price of the Company's common stock exceeds the
option exercise 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-
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.
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 December 31, 2002 were $431.4 million, an increase of $62.2
million from $369.2 million at September 30, 2002. The increase in total assets
was primarily attributable to an increase in loans held for sale, which were
funded with an increase in Federal Home Loan Bank advances and an increase in
certificates of deposits
Loans held for sale increased $47.9 million from $97.2 million at September 30,
2002 to $145.0 million at December 31, 2002. The increase was attributable to
the origination of $335.0 million in first mortgage loans originated for sale
during the quarter ended December 31, 2002. The volume of loan originations
increased as a result of lower market interest rates available to borrowers
purchasing or refinancing residential properties. The majority of loans
originated are pre-committed for sale to investors on a servicing-released basis
and sold to investors typically within ninety days of funding the loan.
Loans receivable increased $8.2 million from $227.6 million at September 30,
2002 to $235.8 million at December 31, 2002. The increase was primarily
attributed to a $7.7 million increase in home equity loans and a $3.9 million
increase in commercial real estate mortgages, which was offset by a $3.0 million
decline in residential mortgages and a $941,000 reduction in consumer loans.
Home equity loans are approved for qualifying borrowers in conjunction with the
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
-7-
loans originated during the year has provided greater opportunities to
cross-sell this product to customers. The growth in the commercial real estate
portfolio was due primarily to the addition of loan participations with other
small commercial banks in this market. The Company is focused on selecting high
credit quality commercial real estate loans to provide diversification of assets
to its portfolio. Residential mortgage loans declined as a result of prepayment,
amortizations, and borrower refinancing during the low interest rate
environment.
Cash and cash equivalents increased from $11.2 million at September 30, 2002 to
$16.4 million at December 31, 2002. The increase in cash was due to the
Company's increased need for liquidity during a peak lending period.
Mortgage backed and other security investments declined from $12.4 million at
September 30, 2002 to $11.3 million at December 31, 2002 primarily due to
maturing securities and early principal repayment.
Total liabilities at December 31, 2002 were $397.4 million, an increase of $60.7
million from $336.7 million at September 30, 2002. The increase in total
liabilities was due to increases in borrowings from the Federal Home Loan Bank
and deposit balances.
Borrowings increased $33.0 million, from $116.8 million at September 30, 2002 to
$149.8 million at December 31, 2002. The proceeds were used to fund growth in
loans held for sale and were originated with short maturities of typically one
week.
Deposit account balances increased $28.0 million from $201.3 million at
September 30, 2002 to $229.3 million at December 31, 2002. The growth resulted
primarily from the addition of $14.3 million in school district deposits, which
have an average maturity of approximately 16 months. The school district funds
represent a new source of deposits; however, future growth of this type of
deposit is uncertain. The Company also added $9.5 million in one year and 18
month brokered certificates of deposit. At December 31, 2002 the Company had a
total of $26.0 million in brokered certificates. Money market and checking
account balances also grew by $2.3 million, as the Bank aggressively advertised
for checking and money market deposits through direct mail, television and radio
advertising.
Total stockholders' equity at December 31, 2002 was $34.0 million, an increase
of $1.5 million from $32.6 million at September 30, 2002. The increase was
attributed primarily to net income for the three months ended December 31, 2002
of $1.4 million that was partially offset by the payment of quarterly cash
dividends $232,000.
Non-performing Assets and Delinquencies
Total non-performing assets increased $832,000 from $2.5 million at September
30, 2002 to $3.3 million at December 31, 2002, due primarily to the restructure
of debt for one customer who owns multiple residential properties. While the
entire relationship of $961,000 was added to the non-performing assets list, the
properties securing the mortgages provide good collateral value. Non-accrual
loans amounted to $406,000 at December 31, 2002 compared to $381,000 at
September 30, 2002. The non-accrual loans consisted exclusively of single-family
residential and consumer loans. Accruing loans that were contractually past due
90 days or more at December 31, 2002 amounted to $2.1 million, which was
unchanged from September 30, 2002. The allowance for loan losses was $2.9
million at December 31, 2002, or .76% of total loans and 86.9% of non-performing
loans (non-accrual, accruing past due 90 days or more and troubled debt
restructured loans), compared to $2.6 million at September 30, 2002, or .78% of
total loans and 103.7% of non-performing loans.
-8-
The Bank maintains an allowance for loan losses to absorb inherent losses in the
Bank's loan portfolio. Credit losses are charged and recoveries are credited to
the allowance. Provisions for credit losses are credited to the allowance in an
amount necessary to maintain an appropriate allowance given risks identified in
the portfolio. The allowance is based upon quarterly management estimates of
expected losses inherent in the loan portfolio. Management estimates are
determined quarterly through a method of quantifying certain risks in the
portfolio that are affected primarily by changes in the nature and volume of the
portfolio combined with an analysis of past-due and classified loans, but can
also be affected by the following factors: changes in lending policies and
procedures, including underwriting standards and collection, charge-off and
recovery practices, changes in national and local economic conditions and
developments, and changes in the experience, ability, and depth of lending
management staff.
The following assessments are performed quarterly in accordance with the Bank's
allowance for loan losses methodology:
Homogeneous residential mortgage loans are given one of five standard risk
ratings at the time of origination. The risk ratings are assigned through the
use of a credit scoring model, which assesses credit risk determinants from the
borrower's credit history, the loan-to-value, the affordability ratios or other
personal history. Five-year historical loss rates and industry data for each
credit rating is used to determine the appropriate allocation percentage for
each loan grade. Commercial real estate, consumer and home equity loans are
assigned standard risk weightings that determine the allocation percentage.
When commercial real estate loans are over 30 days delinquent or residential,
consumer and home equity loans are over 90 days past due, they are evaluated
individually for impairment. Additionally, loans that demonstrate credit
weaknesses that may impact the borrower's ability to repay or the value of the
collateral are also reviewed individually for impairment. The Company considers
a loan to be impaired when management believes it will be unable to collect all
principal and interest due according to the contractual terms of the loan. If a
loan is impaired, the Company records a loss valuation equal to the excess of
the loan's carrying value over the present value of estimated future cash flows
or the fair value of collateral if the loan is collateral dependent.
The allowance for loan losses includes an unallocated allowance to provide for
conditions that cannot be directly measured in the Company's methodology. This
unallocated allowance provides for the Company's exposure to inherent but
undetected losses in the portfolio.
The Company's methodology includes factors that allow the Company to adjust its
estimates of losses based on the most recent information available. Historic
loss rates used to determine allowance provisions are adjusted to reflect the
impact of current conditions, including actual collection and charge-off
experience.
Comparison of Operating Results for the Three Months Ended December 31, 2002 and
2001:
General
Net income for the three months ended December 31, 2002 was $1.4 million
compared to net income of $1.2 million for the three months ended December 31,
2001.
Interest Income
Interest income increased $484,000, or 10% for the three months ended December
31, 2002, compared to the three months ended December 31, 2001. The increase
resulted from a $576,000 increase in interest on loans receivable, which was
offset by a decline in interest on mortgage-backed securities of $67,000 and
declines of $13,000 in both overnight investments and investment securities.
-9-
The increase in interest income on loans resulted primarily from an increase in
the average balance of loans held for sale during the three months ended
December 31, 2002 to $345.7 million compared to $256.3 million at December 31,
2001. The increase was offset by a decrease in weighted average yield on loans
from 7.03% to 5.89% over the same time period a year ago, which was caused
primarily by the decline in the overall interest rate environment.
The decrease in interest income from mortgage-backed securities resulted from a
decrease in the average balance from $10.8 million for the three months ended
December 31, 2001 to $7.0 million for the quarter ended December 31, 2002. The
average balance declined as a result of normal amortization and prepayments.
Interest Expense
Interest expense decreased $211,000 for the three months ended December 31, 2002
compared to the same period last year. The decline in expense resulted primarily
from decreased interest expense on deposits of $221,000, which was offset by a
$10,000 increase in interest expense on FHLB borrowings.
Interest on deposits was $1.1 million for the quarter ended December 31, 2002
compared to $1.3 million for the quarter ended December 31, 2001. The decrease
in interest was due to a decrease in the average rates paid on interest bearing
deposits, from 2.9% for the December 2001 quarter to 2.1% for the December 2002
quarter, due to the continued decline in the current interest rate environment.
The average balance of interest-bearing deposits increased from $181.4 million
to $212.3 million for the same period.
Interest on FHLB borrowings increased $10,000 during the quarter ended December
31, 2002 to $981,000 compared to $970,000 for the quarter ended December 31,
2001. The average balance of borrowings increased $47.5 million to $121.4
million during the quarter ended December 31, 2002 compared to $78.9 million
during the prior year, while the average cost of borrowings declined to 3.2%
from 5.3% for the prior year.
Provision for Loan Losses
The provision for loan losses was $376,000 for the three months ended December
31, 2002 compared to $300,000 for the three months ended December 31, 2001. The
increase in the provision for loan losses was in direct response to the
increased non-performing loans, which increased $832,000 during the quarter
ended December 31, 2002.
The provision for loan losses is determined by management as the amount to bring
the allowance to a level that is considered adequate to absorb losses inherent
in the loan portfolio. Because management believes it adheres to specific loan
underwriting guidelines focusing on mortgage loans secured by one-to four-family
residences, the Bank's historical mortgage loan loss experience has been low. No
assurances, however, can be given as to future loan loss levels. Consumer loans
are generally considered to carry a greater inherent risk of loss than
residential mortgage loans. Accordingly, the Bank may experience future
delinquencies or losses from these loans.
Non-Interest Income
Non-interest income increased $444,000 for the three months ended December 31,
2002 from $2.0 million to $2.5 million. The increase in non-interest income was
the result primarily of an increase in mortgage revenues of $419,000, increased
retail banking fees of $49,000 and increased other income of $25,000, which was
offset by a decline in insurance commissions of $51,000.
-10-
Mortgage revenues increased $419,000 to $1.7 million for the quarter ended
December 31, 2002 from $1.3 million for the December 31, 2001 quarter. The
revenues were generated primarily from sales of loans to investors, with
servicing released. The volume of loans sold for the three months ended December
31, 2002 increased to $287.3 million compared to $187.4 million for the three
months ended December 31, 2001. The higher volume of loans sold was the result
of a larger lending staff combined with a lower interest rate environment.
Retail banking fees rose 12% from $399,000 in the December 31, 2001 quarter, to
$447,000 in the December 31, 2002 quarter. Management continues to focus on
growth of checking accounts, and has continued to see growth in both the balance
and number of checking accounts, which is the primary source of retail banking
revenue.
Other income increased $25,000 over the three months ended December 31, 2001 and
was primarily the result of increased dividend income on FHLB stock and higher
fee income from transaction accounts with another correspondent Bank.
Non-Interest Expense
Non-interest expense increased $680,000 for the quarter ended December 31, 2002
due to higher salaries and benefit expense and occupancy and equipment expense,
which were partially offset by lower advertising and professional service
expense. Professional service expenses declined due to the Company ending
outsourced information services support and internal audit relationships in
favor of "in-house" support of those functions.
Compensation expense increased $419,000 to $1.6 million for the quarter ended
December 31, 2002 compared to $1.2 million for the quarter ended December 31,
2001. The increase in compensation expense was attributed to higher costs for
loan origination and support staff for the growth in the lending division
including the opening of a new mortgage origination office in Overland Park,
Kansas, as well as increased costs for internal audit, information systems
support, senior management compensation and benefits costs.
Occupancy, equipment and data processing expense increased $258,000 to $612,000
for the three months ended December 31, 2002 compared to the three months ended
December 31, 2001 as the Company has remodeled the Creve Coeur office, added the
Kansas City Office and has experienced higher utilities, maintenance service
agreements, insurance and other expenses related to growth in operations. In
addition, the Company has larger investments in furniture and equipment
resulting in higher depreciation expense.
Income Taxes
The provision for income taxes of $866,000 for the three-month period ended
December 31, 2002, resulted in a similar tax rate to the three-month period
expense at December 31, 2001 of $746,000.
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 December 31, 2002, the Bank had outstanding commitments to originate loans of
$6.7 million, and commitments to sell loans on a best-efforts basis of $160.9
million. At the same date, certificates of deposit that were scheduled to mature
in one year or less totaled $97.7 million. Management anticipates that it will
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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 120% and loans held-for-sale equal to
150% 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 December 31, 2002, the
Bank had $149.8 million in advances from the FHLB of a total available borrowing
line of $171.5 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 that could be lent to
the Bank. Further, the Bank has the ability to issue brokered certificates of
deposit through secondary markets.
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 December 31, 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 December 31, 2002:
Tangible capital (to
total assets) $28,210 6.59% $ 6,424 1.50% N/A N/A
Total risk-based capital
(to risk-weighted assets) 31,070 11.45% 21,711 8.00% $27,138 10.00%
Tier I risk-based capital
(to risk-weighted assets) 28,210 10.39% 13,394 5.00% 16,283 6.00%
Tier I leverage capital (to
average assets)
28,210 6.59% 17,130 4.00% 21,412 5.00%
-12-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's quantitative or qualitative
aspects of market risk during the quarter ended December 31, 2002 from that
disclosed in the Company's Annual Report on Form 10-K for the year ended
September 30, 2002 other than an increase in borrowings from the FHLB, as
previously disclosed in the financial statements.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company maintains
-------------------------------------------------
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and procedures
performed within 90 days of the filing date of this report, the chief executive
officer and the chief financial officer of the Company concluded that the
Company's disclosure controls and procedures were adequate.
(b) Changes in internal controls. The Company made no significant changes in its
-----------------------------
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer.
-13-
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: Not applicable
Item 6. Exhibits and Reports on Form 8-K:
A. Exhibits
2.1 Agreement and Plan of Merger dated December 18, 2002, between PFC
Merger Corp. and Pulaski Financial Corp.
3.1 Articles of Incorporation of Pulaski Financial Corp.*
3.2 Bylaws of Pulaski Financial Corp.*
4.0 Form of Certificate for Common Stock*
99.1 Certification pursuant to 18.U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act 2002.
99.2 Certification pursuant to 18.U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act 2002.
B. Reports on Form 8-K:
On October 30, 2002, the Company filed a Form 8-K, which announced
under Item 5 its expectations for growth in earnings per share in
fiscal 2003 and that Rodney Biehl had been named to the newly
created position of vice president, internal audit and compliance.
The press release announcing the expected earnings growth and the
hire of Mr. Biehl was attached as Exhibit 99.1.
On October 30, 2002, the Company filed a Form 8-K, which disclosed
under Item 9 that on October 29, 2002, the senior management team
of the Company made a presentation to analysts, in which they
discussed the Company's business, its financial condition and
results of operations in fiscal 2002 and certain expectations
regarding operations and earnings for fiscal 2003. A copy of the
slides used in the analyst presentation was attached as Exhibit
99.1.
-----------------------------------------------------------------------
* Incorporated by reference into this document from the Exhibits to
the 2003 proxy statement for Pulaski Financial Corp. as filed with
the Securities and Exchange Commission in December 27, 2002.
** Incorporated by reference into this document from the Exhibits to
the Form S-1 (Registration No. 333-56465), as filed on June 9, 1998.
-14-
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: February 13, 2003 /s/ William A. Donius
---------------------------- ----------------------------------------
William A. Donius
Chairman, President and Chief Executive
Date: February 13, 2003 /s/ Ramsey K. Hamadi
---------------------------- -----------------------------------------
Ramsey K. Hamadi
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Certification
I, William A. Donius, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pulaski Financial
Corp.;
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
statements 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 we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by other's 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 function):
a. all significant deficiencies in the design or operation of the
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 or not 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, 2003 /s/ William A. Donius
----------------------------------------
William A. Donius
Chairman, President and Chief Executive
-16-
Certification
I, Ramsey K. Hamadi, certify that:
7. I have reviewed this quarterly report on Form 10-Q of Pulaski Financial
Corp.;
8. 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
statements were made, not misleading with respect to the period covered by
this quarterly report;
9. 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;
10. 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 we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by other's 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;
11. 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 function):
a. all significant deficiencies in the design or operation of the
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
12. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not 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, 2003 /s/ Ramsey K. Hamadi
--------------------
Ramsey K. Hamadi
Chief Financial Officer
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