Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2005

OR

For the transition period from              to             

0-24571

Commission File Number

Pulaski Financial Corp.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (314) 878-2210

Not Applicable

(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 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Indicate the number of shares outstanding of the registrant’s classes of common stock, as of the latest practicable date.

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

FORM 10-Q

March 31, 2005

TABLE OF CONTENTS

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2005 AND SEPTEMBER 30, 2004 (UNAUDITED)

See accompanying notes to the unaudited consolidated financial statements.

- 1 -

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

THREE AND SIX MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)

See accompanying notes to the unaudited consolidated financial statements

- 2 -

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED MARCH 31, 2005 (UNAUDITED)

See accompanying notes to the unaudited consolidated financial statements.

3

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR SIX MONTHS

ENDED MARCH 31, 2005 (UNAUDITED) AND MARCH 31, 2004 (UNAUDITED)

(Continued)

- 4 -

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR SIX MONTHS ENDED

ENDED MARCH 31, 2005 (UNAUDITED) AND MARCH 31, 2004 (UNAUDITED)

See accompanying notes to the unaudited consolidated financial statements.

- 5 -

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 March 31, 2005 and September 30, 2004 and its results of operations for the three and six-month periods ended March 31, 2005 and 2004. The results of operations for the three and six-months ended March 31, 2005 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, 2004 contained in the Company’s 2004 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, 2004.

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 -

Table of Contents

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (SFAS 148), which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 requires disclosures in the interim as well as annual financial statements about the method of accounting used for stock-based employee compensation and the effect of the method on net income. The Company has elected to continue to account for stock-based employee compensation under APB Opinion No. 25. Accordingly, no stock-based employee compensation cost related to options granted is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant.

The following table shows pro forma compensation expense, net income and earnings per share as if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No.123, “Accounting for Stock Based Compensation.”

On March 30, 2004, Pulaski Financial Statutory Trust I (“Trust I”), a Connecticut statutory trust, issued $9.0 million adjustable-rate preferred securities. The proceeds from this issuance, along with the Company’s $279,000 capital contribution for Trust I’s common securities, were used to acquire $9.3 million aggregate principal amount of the Company’s floating rate junior subordinated deferrable interest debentures due 2034 (the “Debentures”), which constitute the sole asset of Trust I. The interest rate on the Debentures and the capital securities is variable and adjustable quarterly at 2.70% over the three-month LIBOR, with an initial rate of 3.81%. The current rate is 5.73%.

The stated maturity of the Debentures is June 17, 2034. In addition, the Debentures are subject to redemption at par at the option of the Company, subject to prior regulatory approval, in whole or in part on any interest payment date on or after June 17, 2009.

- 7 -

Table of Contents

On December 15, 2004, Pulaski Financial Statutory Trust II (“Trust II”), a Delaware statutory trust, issued $10.0 million adjustable-rate preferred securities. The proceeds from this issuance, along with the Company’s $310,000 capital contribution for Trust II’s common securities, were used to acquire $10.3 million of the Company’s floating rate junior subordinated deferrable interest debentures due 2034 (the “Debentures”), which constitute the sole asset of Trust II. The interest rate on the Debentures and the capital securities is variable and adjustable quarterly at 1.86% over the three-month LIBOR, with an initial rate of 4.31%. The current rate is 4.87%.

The stated maturity of the Debentures is December 15, 2034. In addition, the Debentures are subject to redemption at par at the option of the Company, subject to prior regulatory approval, in whole or in part on any interest payment date on or after December 15, 2009.

Certain reclassifications have been made to 2004 amounts to conform to the 2005 presentation.

* * * * * *

- 8 -

Table of Contents

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 they are statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are generally 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; changes in accounting principles and guidelines; competition, demand for loan products; deposit flows; 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.

OVERVIEW

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.

The Company’s business strategy is to focus on the growth and efficiency of five core products, which includes two deposit products, checking and money market accounts, and three loan products, residential, home equity and commercial loans. These five products provide the primary source of the Bank’s operating income and are the focus of the Company’s growth in the balance sheet. Driving these relationships are more than 50 seasoned residential and commercial lenders in the Company’s two market locations, St. Louis and Kansas City, which includes seven branch locations and two loan production offices. Following important gains in each of these products over the last year, the Company realized increased diluted earnings per share of $0.09 and $0.18 to $0.34 and $0.67 for the three and six-month periods ending March 31, 2005 compared to the same periods a year ago. Net income grew 40.6% and 38.3% for the same periods to $2.0 million and $3.9 million, respectively as the Company experienced stronger net interest income from strong loan growth.

The Company benefited from strong net interest income growth, which increased 52% to $5.4 million for the quarter ended March 31, 2005. For the six-month period ended March 31, 2005, the retained loan portfolio increased 10.8% or $55.3 million to $565.9 million, and year over year, the average balance of the retained loan portfolio increased $233.6 million to $555.3 million from $321.7 million for the same period ended March 31, 2004. Loan growth during the second fiscal quarter softened during the quarter to 2.2%, in part due to the loan pool sale of $5.9 million of second mortgage residential loans. The loans were sold out of portfolio to reduce the Company’s concentration in high loan-to-value mortgages.

- 9 -

Table of Contents

The net interest margin for the quarter ended March 31, 2005 was 3.42% compared to 3.31% for the quarter ended December 31, 2004 and 3.48% for the quarter ended March 31, 2004. The margin improved slightly during the quarter ended March 31, 2005 due to strong core deposit growth, which included a 13% increase in low cost checking account balances. In January, the CEO issued a challenge to raise deposits, which sparked a $46.5 million increase in deposits to $493.2 million, despite an $18.4 million runoff of brokered deposits. Brokered deposits totaled $103.3 million at March 31, 2005.

Asset quality improved during the quarter as non-performing assets declined from $6.0 million at December 31, 2004 to $3.9 million at March 31, 2005, which resulted in lower provision expense of $118,000 for the quarter ended March 31, 2005 compared to $316,000 for the quarter ended March 31, 2004. The decline in non-performing assets was due to improvement in the non-performing residential portfolio as well as a decline of $650,000 in real estate acquired in settlement of loans. At March 31, 2005, nonperforming loans as a percent of total loans was 0.46% compared to 0.76% at September 30, 2004.

Revenue in the recently formed title and investment divisions increased during the quarter ended March 31, 2005. The title division contributed pre-tax profit of $46,000 for the three months ended March 31, 2005 and $108,000 for six months on revenue of $200,000 and $359,000, respectively. The investment division operated at close to a break-even with revenue of $259,000 and $398,000 for the three and six month periods ending March 31, 2005. Neither division was in operation during the prior year.

Management’s Discussion on Core Business Strategy

The Company’s retained loan portfolio, net of allowance for loan losses increased to $55.3 million to $565.9 million at March 31, 2005 from $510.6 million at September 30, 2004. The Company experienced softer demand in each of its three core lending products, home equity lines of credit, residential mortgages and commercial loans, in the second quarter, which resulted in a $12.1 million, or 2.2%, increase in loans receivable during the quarter ended March 31, 2005. Year to date, commercial balances have increased $37.3 million and home equity loans $21.7 million, while residential loans have declined $7.9 million. The weighted average rate of the loan portfolio at March 31, 2005 was 6.02% compared to 5.67% at September 30, 2004.

Commercial real estate and commercial and industrial (“C&I”) loans increased $37.3 million to $142.6 million at March 31, 2005 compared to $105.3 million at September 30, 2004. The commercial portfolio consists of $78.0 million of commercial real estate loans, $23.5 million of commercial and industrial loans, $24.5 million of residential (multi-family and development) loans, $15.6 million in construction and development loans and $845,000 in equity lines. The commercial loan growth over the next three years has been targeted to be about 70% commercial real estate and 30% C&I. At March 31, 2005, the Company had commercial checking and money market accounts of more than $30 million, excluding a large commercial deposit that management expects to runoff in the next 90 days. At March 31, 2005, the Company had one substandard residential construction loan to a commercial borrower in the amount of $429,000 and had an allowance for loan losses of $1.4 million allocated to the commercial portfolio. The Company has no charge-off history with its commercial loan portfolio and no commercial loans on non-accrual at March 31, 2005. The weighted average coupon on commercial loans was 6.00% at March 31, 2005 compared to 5.41% at September 30, 2004.

Home equity lines of credit remain a consistent growing portfolio with low loss history and appealing interest rate risk characteristics. The equity line balances increased $21.7 million to $179.9 million at March 31, 2005 compared to $158.3 million at September 30, 2004. Home equity loans are approved for qualified borrowers in conjunction with the first mortgage loan applications. The large volume of mortgage loans originated in recent years has provided many opportunities to cross-sell this product to customers. As a prime-based asset, home equity lines carry low interest rate risk characteristics and attractive yields, lending stability to the Bank’s net interest margin. At March 31, 2005, the Bank had a balance of $238,000 of non-performing home equity loans or 0.13% of the home equity portfolio and had no charge-offs during the six months ended March 31, 2005. During the second fiscal quarter, home equity growth slowed to $8.0 million due to higher repayment rates by customers. Management believes the higher prepayment rate may be short lived as

- 10 -

Table of Contents

customers with the ability to payoff debts in the rising rate environment are doing so as their cost to carry debt rises. The weighted average coupon rate on home equity loans was 6.10% at March 31, 2005 compared to 5.20% at September 30, 2004.

Permanent and construction residential loan balances declined $7.9 million to $248.6 million at March 31, 2005 due primarily to the sale of $9.1 million of residential loans in the six months ended March 31, 2005. As a large volume mortgage lender, the Bank has the opportunity to carefully select loans to retain for portfolio. Typically, loans originated for portfolio mature or reprice within three years and carry higher credit risk and interest rate yields than residential loans that are originated for sale. At March 31, 2005, the balance of residential non-performing assets was $3.9 million, including $421,000 of real estate owned by the Bank. In part due to the historically strong collateral of the residential loan portfolio, the Company has absorbed few losses with this product, including just $49,000 during the six months ended March 31, 2005 and $73,000 for the fiscal year ended September 30, 2004. In the Midwest region of the United States, residential properties have not experienced any significant price declines over the last 10 years. In an economic environment that resulted in declining residential values, the Company would be at increased risk of credit losses from non-performing loans. Year to date, the Company sold $9.1 million of loans from portfolio, including $5.9 million in the quarter ending March 31, 2005 and $3.1 million for the quarter ended December 31, 2004. Each pool was sold as the Company sought to reduce its concentration in high loan to value second mortgage residential loans that have loan-to-values greater than 90%. The Company realized gains of $197,000 on the $5.9 million pool sale ($122,000 after tax) during the quarter ended March 31, 2005 and $29,000 ($18,000 after tax) on the pool sold during the quarter ended December 31, 2004. At March 31, 2005, the Company had $81.5 million of residential and commercial loans that exceed regulatory guidelines for high loan to value concentrations, including $67.5 million of residential first and second mortgage loans that exceeded 90% of loan to value.

Residential mortgage loans originated and sold to investors on a servicing released basis are the Company’s largest source of non-interest income and are the primary component of mortgage revenue. Mortgage revenue for the quarter ended March 31, 2005 increased $135,000 to $1.1 million from $930,000 for the quarter ended March 31, 2004 on $202.8 million and $170.4 million of sales, respectively. For the six months ended March 31, 2005, the mortgage revenue was $2.2 million compared to $2.1 million for the same period ended March 31, 2004. The average balance of mortgage loans held for sale declined from $49.7 million to $38.8 million for the quarter ended March 31, 2005 compared to the same period a year ago. The flattening of the yield curve continues to negatively impact the Company’s ability to maximize its spread on loans held for sale. The Company funds loans held for sale with overnight and short term advances because the loans are typically sold within 30 days of origination.

Total liabilities increased $66.8 million to $663.7 million at March 31, 2005 compared to $596.9 million at September 30, 2004. The Company’s strategic focus on growing core liability products centers on checking account and money market deposit growth. While the Company offers competitive CDs following strict pricing disciplines, it readily supports the core liability products with wholesale funding in order to support asset growth. Wholesale funding sources include FHLB borrowings and public brokered CDs. Brokered deposits declined $18.4 million during the quarter. At March 31, 2005, the Company had $103.3 million in brokered CDs.

The balance of checking accounts increased $7.6 million, or 14.7% during the six months ended March 31, 2005 to $59.1 million at March 31, 2005 from $51.4 million at September 30, 2004. In the last six quarters, the Company has doubled its checking account balances due primarily to the growth of commercial division deposits, which began operations in September 2003. Retail checking accounts are the lowest cost deposits for the Company and are also the primary source of retail banking revenue. Retail banking revenue was $566,000 for the quarter ended March 31, 2005 compared to $547,000 for the quarter ended March 31, 2004. The Company earns retail banking revenue principally through the activity of honoring checks for customers who lack sufficient funds (“NSF”) to clear the checks drawn on their account. By honoring the NSF, the Company is making an extension of credit. The Company’s highest risk loan is an NSF check. Year to date, the Company has $65,000 of loss on overdraft demand deposit accounts, or approximately 5.0% of gross retail banking revenue. In fiscal 2004, the Company had $129,000 of loan losses on overdraft checking accounts on $2.4 million of revenue, or 5.4% of gross revenue. Through six months ended March 31, 2005 the Company generated $36.5 million of loans by honoring overdraft checks.

- 11 -

Table of Contents

The balance of money market accounts increased $47.0 million to $127.0 million at March 31, 2005 from $80.0 million at September 30, 2004. The Company anticipates a decline of more than $30 million in money market balances as much of the growth during the quarter came from a single business transaction in which the customer was expected to move a majority of the deposits within 90 days. The Company is in its fourth year of pursuing money market accounts as a core product and its third year of a successful marketing campaign, “the Big Bertha Money Market Account”. The product carries similar interest rate characteristics as the Company’s home equity loans and results in an ideal source of funds for the growth of this line of credit portfolio. Money market accounts are generally less interest rate sensitive and more stable than CD balances. The market became very competitive in money market accounts during the last two months of the quarter, as several banks made aggressive marketing efforts to capture this market. The Company has stayed disciplined in its pricing and has seen slower growth toward the end of the quarter. Many bank managers have become very aggressive pricing short-term deposits as they anticipate increases in the rate environment.

AVERAGE BALANCE SHEET

The following table sets forth information regarding average daily balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin, and ratio of average interest-earning assets to average interest-bearing liabilities for the periods indicated.

- 12 -

Table of Contents