Attached files
file | filename |
---|---|
EX-32.1 - PULASKI FINANCIAL CORP | v210464_ex32-1.htm |
EX-31.1 - PULASKI FINANCIAL CORP | v210464_ex31-1.htm |
EX-32.2 - PULASKI FINANCIAL CORP | v210464_ex32-2.htm |
EX-31.2 - PULASKI FINANCIAL CORP | v210464_ex31-2.htm |
UNITED
STATES
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, 2010
|
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ___________________ to
______________________
0-24571
Commission
File Number
Pulaski
Financial Corp.
(Exact
name of registrant as specified in its charter)
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 offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (314) 878-2210
Not
Applicable
(Former
name, address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes
|
x
|
No
|
¨
|
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer
¨
|
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
|
(Do
not check if a smaller reporting
company.)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes ¨ No x
Indicate
the number of shares outstanding of the registrant’s classes of common stock, as
of the latest practicable date.
Class
|
Outstanding at February 11, 2011
|
|
Common
Stock, par value $.01 per share
|
10,958,322
shares
|
PULASKI
FINANCIAL CORP. AND SUBSIDIARIES
FORM
10-Q
DECEMBER
31, 2010
TABLE
OF CONTENTS
Page
|
|||
PART
I
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements
|
||
Consolidated
Balance Sheets at December 31, 2010 and September 30, 2010
(Unaudited)
|
1
|
||
Consolidated
Statements of Operations and Comprehensive Income for the Three Months
Ended December 31, 2010 and 2009 (Unaudited)
|
2
|
||
Consolidated
Statement of Stockholders’ Equity for the Three Months Ended December 31,
2010 (Unaudited)
|
3
|
||
Consolidated
Statements of Cash Flows for the Three Months Ended December 31, 2010 and
2009 (Unaudited)
|
4
|
||
Notes
to Unaudited Consolidated Financial Statements
|
6
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
24
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
39
|
|
Item
4.
|
Controls
and Procedures
|
40
|
|
PART
II
|
OTHER
INFORMATION
|
||
|
|||
Item
1.
|
Legal
Proceedings
|
42
|
|
Item
1A.
|
Risk
Factors
|
42
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
43
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
43
|
|
Item
4.
|
[Removed
and Reserved]
|
43
|
|
Item
5.
|
Other
Information
|
43
|
|
Item
6.
|
Exhibits
|
44
|
|
Signatures
|
PART
I - FINANCIAL INFORMATION
PULASKI
FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER 31, 2010 AND SEPTEMBER 30, 2010
(UNAUDITED)
December
31,
|
September
30,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
Cash
and amounts due from depository institutions
|
$ | 10,838,655 | $ | 11,641,550 | ||||
Federal
funds sold and overnight interest-bearing deposits
|
5,162,164 | 3,961,254 | ||||||
Total
cash and cash equivalents
|
16,000,819 | 15,602,804 | ||||||
Debt
securities available for sale, at fair value
|
13,593,571 | 8,001,092 | ||||||
Mortgage-backed
securities held to maturity, at amortized cost (fair value of $9,636,364
and $10,788,459 at Decembr 31, 2010 and September 30, 2010,
respectively)
|
9,242,819 | 10,296,891 | ||||||
Mortgage-backed
securities available for sale, at fair value
|
6,916,074 | 8,845,526 | ||||||
Capital
stock of Federal Home Loan Bank - at cost
|
10,184,000 | 9,773,600 | ||||||
Mortgage
loans held for sale, at lower of cost or market
|
271,151,534 | 253,578,202 | ||||||
Loans
receivable (net of allowance for loan losses of $27,275,405 and
$26,975,717 at December 31, 2010 and September 30, 2010,
respectively)
|
1,041,168,963 | 1,046,273,232 | ||||||
Real
estate acquired in settlement of loans (net of allowance for losses of
$2,125,500 and $1,651,100 at December 31, 2010 and September 30, 2010,
respectively)
|
13,009,722 | 14,900,312 | ||||||
Premises
and equipment, net
|
18,494,831 | 18,764,098 | ||||||
Goodwill
|
3,938,524 | 3,938,524 | ||||||
Core
deposit intangible
|
128,242 | 148,003 | ||||||
Accrued
interest receivable
|
4,323,014 | 4,432,361 | ||||||
Bank-owned
life insurance
|
30,036,202 | 29,770,828 | ||||||
Deferred
tax asset
|
13,222,247 | 13,157,300 | ||||||
Prepaid
expenses, accounts receivable and other assets
|
15,513,432 | 15,333,827 | ||||||
Total
assets
|
$ | 1,466,923,994 | $ | 1,452,816,600 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Deposits
|
$ | 1,151,151,888 | $ | 1,115,203,120 | ||||
Advances
from Federal Home Loan Bank
|
161,800,000 | 181,000,000 | ||||||
Subordinated
debentures
|
19,589,000 | 19,589,000 | ||||||
Advance
payments by borrowers for taxes and insurance
|
2,717,432 | 7,098,432 | ||||||
Accrued
interest payable
|
656,260 | 945,374 | ||||||
Other
liabilities
|
12,338,956 | 12,627,393 | ||||||
Total
liabilities
|
1,348,253,536 | 1,336,463,319 | ||||||
Stockholders'
Equity:
|
||||||||
Preferred
stock - $.01 par value per share, 1,000,000 shares authorized; 32,538
shares issued at December 31, 2010 and September 30, 2010, $1,000 per
share liquidation value, net of discount
|
31,197,262 | 31,088,060 | ||||||
Common
stock - $.01 par value per share, 18,000,000 shares authorized; 13,068,618
shares issued at December 31, 2010 and September 30, 2010
|
130,687 | 130,687 | ||||||
Treasury
stock-at cost; 2,622,210 and 2,753,799 shares at December 31, 2010 and
September 30, 2010, respectively
|
(17,423,842 | ) | (18,064,582 | ) | ||||
Additional
paid-in capital from common stock
|
56,727,815 | 56,702,495 | ||||||
Accumulated
other comprehensive income, net
|
20,447 | 37,834 | ||||||
Retained
earnings
|
48,018,089 | 46,458,787 | ||||||
Total
stockholders’ equity
|
118,670,458 | 116,353,281 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 1,466,923,994 | $ | 1,452,816,600 |
See
accompanying notes to the unaudited consolidated financial
statements.
- 1
-
PULASKI
FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009
(UNAUDITED)
Three
Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Interest
and Dividend Income:
|
||||||||
Loans
receivable
|
$ | 13,584,849 | $ | 14,858,809 | ||||
Mortgage
loans held for sale
|
3,229,108 | 1,620,008 | ||||||
Securities
and other
|
310,464 | 358,238 | ||||||
Total
interest and dividend income
|
17,124,421 | 16,837,055 | ||||||
Interest
Expense:
|
||||||||
Deposits
|
3,197,528 | 4,626,768 | ||||||
Advances
from Federal Home Loan Bank
|
382,959 | 557,242 | ||||||
Borrowings
from the Federal Reserve Bank
|
- | 64 | ||||||
Subordinated
debentures
|
127,739 | 127,492 | ||||||
Total
interest expense
|
3,708,226 | 5,311,566 | ||||||
Net
interest income
|
13,416,195 | 11,525,489 | ||||||
Provision
for loan losses
|
4,300,000 | 6,074,000 | ||||||
Net
interest income after provision for loan losses
|
9,116,195 | 5,451,489 | ||||||
Non-Interest
Income:
|
||||||||
Mortgage
revenues
|
1,846,807 | 2,701,486 | ||||||
Retail
banking fees
|
1,026,070 | 932,161 | ||||||
Investment
brokerage revenues
|
446,485 | 424,044 | ||||||
Bank-owned
life insurance
|
265,374 | 275,622 | ||||||
Other
|
63,435 | 114,154 | ||||||
Total
non-interest income
|
3,648,171 | 4,447,467 | ||||||
Non-Interest
Expense:
|
||||||||
Salaries
and employee benefits
|
3,402,002 | 3,896,579 | ||||||
Occupancy,
equipment and data processing expense
|
2,072,319 | 2,004,913 | ||||||
Advertising
|
100,391 | 146,858 | ||||||
Professional
services
|
444,710 | 517,449 | ||||||
FDIC
deposit insurance premuim expense
|
623,236 | 491,858 | ||||||
Real
estate foreclosure losses and expense, net
|
1,085,125 | 436,203 | ||||||
Other
|
573,291 | 688,540 | ||||||
Total
non-interest expense
|
8,301,074 | 8,182,400 | ||||||
Income
before income taxes
|
4,463,292 | 1,716,556 | ||||||
Income
tax expense
|
1,345,940 | 466,121 | ||||||
Net
income
|
$ | 3,117,352 | $ | 1,250,435 | ||||
Other
comprehensive loss
|
(17,387 | ) | (48,301 | ) | ||||
Comprehensive
income
|
$ | 3,099,965 | $ | 1,202,134 | ||||
Income
available to common shares
|
$ | 2,601,425 | $ | 736,029 | ||||
Per
Common Share Amounts:
|
||||||||
Basic
earnings per common share
|
$ | 0.25 | $ | 0.07 | ||||
Weighted
average common shares outstanding – basic
|
10,507,158 | 10,274,066 | ||||||
Diluted
earnings per common share
|
$ | 0.24 | $ | 0.07 | ||||
Weighted
average common shares outstanding – diluted
|
10,925,023 | 10,483,880 |
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, 2010 (UNAUDITED)
Preferred
|
Additional
|
Accumulated
|
||||||||||||||||||||||||||
Stock,
|
Paid-In
|
Other
|
||||||||||||||||||||||||||
Net
of
|
Common
|
Treasury
|
Capital
From
|
Comprehensive
|
Retained
|
|||||||||||||||||||||||
Discount
|
Stock
|
Stock
|
Common
Stock
|
Income
(Loss), Net
|
Earnings
|
Total
|
||||||||||||||||||||||
Balance,
September 30, 2010
|
$ | 31,088,060 | $ | 130,687 | $ | (18,064,582 | ) | $ | 56,702,495 | $ | 37,834 | $ | 46,458,787 | $ | 116,353,281 | |||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
- | - | - | - | - | 3,117,352 | 3,117,352 | |||||||||||||||||||||
Change
in unrealized loss on investment securities, net of tax
|
- | - | - | - | (17,387 | ) | - | (17,387 | ) | |||||||||||||||||||
Comprehensive
income
|
- | - | - | - | (17,387 | ) | 3,117,352 | 3,099,965 | ||||||||||||||||||||
Common
stock dividends ($0.095 per share)
|
- | - | - | (1,024 | ) | - | (1,042,123 | ) | (1,043,147 | ) | ||||||||||||||||||
Preferred
stock dividends
|
- | - | - | - | - | (406,725 | ) | (406,725 | ) | |||||||||||||||||||
Accretion
of discount on preferred stock
|
109,202 | - | - | - | - | (109,202 | ) | - | ||||||||||||||||||||
Stock
options excercised
|
- | - | 41,873 | 32,632 | - | - | 74,505 | |||||||||||||||||||||
Stock
option and award expense
|
- | - | - | 183,141 | - | - | 183,141 | |||||||||||||||||||||
Commmon
stock purchased under dividend reinvestment plan
|
- | - | - | (13,425 | ) | - | - | (13,425 | ) | |||||||||||||||||||
Common
stock issued under employee compensation plans (94,317
shares)
|
- | - | 29,695 | (89,117 | ) | - | - | (59,422 | ) | |||||||||||||||||||
Purchase
of equity trust shares (37,315 shares)
|
- | - | - | 271,208 | - | - | 271,208 | |||||||||||||||||||||
Distribution
of equity trust shares (62,722 shares)
|
- | - | 569,172 | (569,172 | ) | - | - | - | ||||||||||||||||||||
Amortization
of equity trust expense
|
- | - | - | 97,776 | - | - | 97,776 | |||||||||||||||||||||
Excess
tax benefit from stock-based compensation
|
- | - | - | 113,301 | - | - | 113,301 | |||||||||||||||||||||
Balance,
December 31, 2010
|
$ | 31,197,262 | $ | 130,687 | $ | (17,423,842 | ) | $ | 56,727,815 | $ | 20,447 | $ | 48,018,089 | $ | 118,670,458 |
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, 2010 AND DECEMBER 31, 2009
(UNAUDITED)
Three
Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
Flows From Operating Activities:
|
||||||||
Net
income
|
$ | 3,117,352 | $ | 1,250,435 | ||||
Adjustments
to reconcile net income to net cash from operating
activities:
|
||||||||
Depreciation,
amortization and accretion:
|
||||||||
Premises
and equipment
|
490,177 | 471,743 | ||||||
Net
deferred loan costs
|
454,789 | 554,924 | ||||||
Debt
and equity securities premiums and discounts, net
|
51,203 | 16,950 | ||||||
Equity
trust expense, net
|
97,776 | 147,238 | ||||||
Stock
option and award expense
|
183,141 | 179,227 | ||||||
Provision
for loan losses
|
4,300,000 | 6,074,000 | ||||||
Provision
for losses on real estate acquired in settlement of loans
|
725,300 | 278,600 | ||||||
(Gains)
losses on sales of real estate acquired in settlement of
loans
|
(3,608 | ) | 43,203 | |||||
Originations
of mortgage loans held for sale
|
(629,454,332 | ) | (455,782,621 | ) | ||||
Proceeds
from sales of mortgage loans held for sale
|
614,894,261 | 416,191,188 | ||||||
Gain
on sales of mortgage loans held for sale
|
(3,013,261 | ) | (2,474,188 | ) | ||||
Increase
in cash value of bank-owned life insurance
|
(265,374 | ) | (275,622 | ) | ||||
Increase
in deferred tax asset
|
(64,947 | ) | (76,670 | ) | ||||
Excess
tax benefit from stock-based compensation
|
(113,301 | ) | (2,722 | ) | ||||
Tax
expense for release of equity trust shares
|
- | 25,667 | ||||||
Decrease
in accrued expenses
|
(172,835 | ) | (1,072,253 | ) | ||||
Increase
in current income taxes payable
|
100,608 | 309,134 | ||||||
Changes
in other assets and liabilities
|
(431,862 | ) | (5,659,292 | ) | ||||
Net
adjustments
|
(12,222,265 | ) | (41,051,494 | ) | ||||
Net
cash used in operating activities
|
(9,104,913 | ) | (39,801,059 | ) | ||||
Cash
Flows From Investing Activities:
|
||||||||
Proceeds
from:
|
||||||||
Maturities
of debt securities available for sale
|
13,000,000 | 5,000,000 | ||||||
Principal
payments on mortgage-backed securities
|
2,902,760 | 1,032,058 | ||||||
Redemption
of Federal Home Loan Bank stock
|
3,910,700 | 6,601,800 | ||||||
Sales
of real estate acquired in settlement of loans receivable
|
1,924,002 | 882,201 | ||||||
Purchases
of:
|
||||||||
Debt
securities available for sale
|
(18,590,962 | ) | (7,998,695 | ) | ||||
Federal
Home Loan Bank stock
|
(4,321,100 | ) | (2,406,400 | ) | ||||
Premises
and equipment
|
(220,910 | ) | (158,064 | ) | ||||
Net
increase in loans receivable
|
(405,625 | ) | (9,376,407 | ) | ||||
Net
cash used in investing activities
|
$ | (1,801,135 | ) | $ | (6,423,507 | ) |
Continued
on next page.
- 4
-
PULASKI
FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THREE MONTHS
ENDED
DECEMBER 31, 2010 AND DECEMBER 31, 2009, CONTINUED (UNAUDITED)
Three
Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
Flows From Financing Activities:
|
||||||||
Net
increase (decrease) in deposits
|
$ | 35,948,768 | $ | (36,048,976 | ) | |||
Proceeds
from (repayment of) Federal Home Loan Bank advances, net
|
(19,200,000 | ) | 62,800,000 | |||||
Proceeds
from Federal Reserve Bank borrowings, net
|
- | 4,700,000 | ||||||
Net
decrease in advance payments by borrowers for taxes and
insurance
|
(4,381,000 | ) | (2,631,120 | ) | ||||
Proceeds
from cash received in dividend reinvestment plan
|
-
|
206,456
|
||||||
Proceeds
from stock options excercised
|
74,505
|
-
|
||||||
Purchase
of equity trust shares
|
271,208
|
(70,635
|
) | |||||
Excess
tax benefit for stock based compensation
|
113,301
|
2,722
|
||||||
Tax
expense for release of equity trust shares
|
-
|
(25,667
|
) | |||||
Dividends
paid on common stock
|
(1,043,147
|
) |
(994,171
|
) | ||||
Dividends
paid on preferred stock
|
(406,725
|
) |
(406,725
|
) | ||||
Common
stock issued under employee compensation plan
|
5,004
|
-
|
||||||
Common
stock purchased under dividend reinvestment plan
|
(13,425
|
) |
-
|
|||||
Common
stock surrendered to satisfy tax withholding obligations of stock-based
compensation
|
(64,426
|
) |
(30,593
|
) | ||||
Net
cash provided by financing activities
|
11,304,063
|
27,501,291
|
||||||
Net
increase (decrease) in cash and cash
equivalents
|
398,015
|
(18,723,275
|
) | |||||
Cash
and cash equivalents at beginning of period
|
15,602,804
|
37,450,664
|
||||||
Cash
and cash equivalents at end of period
|
$ |
16,000,819
|
$ |
18,727,389
|
||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
on deposits
|
$ |
3,490,935
|
$ |
4,942,917
|
||||
Interest
on advances from FHLB
|
378,962
|
556,719
|
||||||
Interest
on subordinated debentures
|
148,424
|
147,127
|
||||||
Cash
paid during the period for interest
|
4,018,321
|
5,646,763
|
||||||
Income
taxes, net
|
1,186,000
|
227,000
|
||||||
Noncash
Investing Activities:
|
||||||||
Real
estate acquired in settlement of loans receivable
|
755,105 | 8,467,527 |
See
accompanying notes to the unaudited consolidated financial
statements.
- 5
-
PULASKI
FINANCIAL CORP. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
BASIS
OF PRESENTATION
|
The
unaudited consolidated financial statements include the accounts of Pulaski
Financial Corp. (the “Company”) and its wholly owned subsidiary, Pulaski Bank
(the “Bank”), and the Bank’s wholly owned subsidiary, Pulaski Service
Corporation. All significant intercompany accounts and transactions
have been eliminated. The assets of the Company consist primarily of
the investment in the outstanding shares of the Bank and its liabilities consist
principally of obligations on its subordinated
debentures. Accordingly, the information set forth in this report,
including the consolidated financial statements and related financial data,
relates primarily to the Bank. The Company, through the Bank,
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,
2010 and September 30, 2010 and its results of operations for the three month
periods ended December 31, 2010 and 2009. The results of
operations for the three month period ended December 31, 2010 are not
necessarily indicative of the operating results that may be expected for the
entire fiscal year or for any other period. These unaudited
consolidated financial statements should be read in conjunction with the
Company’s audited consolidated financial statements for the year ended September
30, 2010 contained in the Company’s 2010 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, 2010.
The
preparation of these consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements that affect the reported amounts of revenues and
expenses during the reported periods. Actual results could differ
from those estimates. The allowance for loan losses is a significant
estimate reported within the consolidated financial statements.
Certain
reclassifications have been made to fiscal 2010 amounts to conform to the fiscal
2011 presentation.
The
Company has evaluated all subsequent events to ensure that the accompanying
financial statements include the effects of any subsequent events that should be
recognized in such financial statements as of December 31, 2010, and the
appropriate disclosure of any subsequent events that were not recognized in the
financial statements.
2.
|
PREFERRED
STOCK
|
In
January 2009, as part of the U.S. Department of Treasury’s Capital Purchase
Program, the Company issued 32,538 shares of Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, $1,000 per share liquidation preference, and a
warrant to purchase up to 778,421 shares of the Company’s common stock for a
period of ten years at an exercise price of $6.27 per share in exchange for
$32.5 million in cash from the U.S. Department of Treasury. The
proceeds, net of issuance costs consisting primarily of legal fees, were
allocated between the preferred stock and the warrant on a pro rata basis, based
upon the estimated market values of the preferred stock and the
warrant. As a result, $2.2 million of the proceeds were
allocated to the warrant, which increased additional paid in capital from common
stock. The amount allocated to the warrant is considered a discount
on the preferred stock and is being accreted using the level yield method over a
five-year period through a charge to retained earnings. Such
accretion does not reduce net income, but reduces income available to common
shares.
The fair
value of the preferred stock was estimated on the date of issuance by computing
the present value of expected future cash flows using a risk-adjusted rate of
return for similar securities of 12%. The fair value of the warrant
was estimated on the date of grant using the Black-Scholes option pricing model
assuming a risk-free interest rate of 4.30%, expected volatility of 35.53% and a
dividend yield of 4.27%.
- 6
-
The
preferred stock pays cumulative dividends of 5% per year for the first five
years and 9% per year thereafter. The Company may, at its option,
redeem the preferred stock at its liquidation preference plus accrued and unpaid
dividends. The securities purchase agreement between the Company and
the U.S. Treasury: (1) limits, for three years, the rate of dividend payments on
the Company’s common stock to the amount of its last quarterly cash dividend
prior to participation in the program, which was $0.095 per share, unless an
increase is approved by the Treasury; (2) limits the Company’s ability to
repurchase its common stock for three years; and (3) subjects the
Company to certain executive compensation limitations included in the Emergency
Economic Stabilization Act of 2008, as amended by the American Recovery and
Reinvestment Act of 2009.
3.
|
EARNINGS PER
SHARE
|
Basic
earnings per common share is computed using the weighted average number of
common shares outstanding. The dilutive effect of potential common
shares outstanding is included in diluted earnings per share. The
computations of basic and diluted earnings per share are presented in the
following table.
Three
Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Net
income
|
$ | 3,117,352 | $ | 1,250,435 | ||||
Less:
|
||||||||
Preferred
dividends declared
|
(406,725 | ) | (406,725 | ) | ||||
Accretion
of discount on preferred stock
|
(109,202 | ) | (107,681 | ) | ||||
Income
available to common shares
|
$ | 2,601,425 | $ | 736,029 | ||||
Weighted
average common shares outstanding - basic
|
10,507,158 | 10,274,066 | ||||||
Effect
of dilutive securities:
|
||||||||
Treasury
stock held in equity trust - unvested shares
|
291,609 | 98,263 | ||||||
Equivalent
shares - employee stock options and awards
|
13,688 | 19,586 | ||||||
Equivalent
shares - common stock warrant
|
112,568 | 91,965 | ||||||
Weighted
average common shares outstanding - diluted
|
10,925,023 | 10,483,880 | ||||||
Earnings
per common share:
|
||||||||
Basic
|
$ | 0.25 | $ | 0.07 | ||||
Diluted
|
$ | 0.24 | $ | 0.07 |
Under the
treasury stock method, outstanding stock options are dilutive when the average
market price of the Company’s common stock, combined with the effect of any
unamortized compensation expense, 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. Similarly, outstanding warrants are dilutive when the average
market price of the Company’s common stock exceeds the exercise price during a
period. Proceeds from the assumed exercise of dilutive warrants are
assumed to be used to repurchase common shares at the average market price of
such stock during the period.
- 7
-
The
following options and warrants to purchase common shares during the three month
periods ended December 31, 2010 and 2009 were not included in the respective
computations of diluted earnings per share since they were considered
anti-dilutive because the exercise price of the options, when combined with the
effect of the unamortized compensation expense, and the exercise price of the
warrants were greater than the average market price of the common
shares. The options expire in various periods from 2013 through 2020,
respectively, and the warrant expires in 2019.
Three Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Number
of option shares excluded
|
659,077 | 671,195 | ||||||
Equivalent
anti-dilutive shares
|
1,049,781 | 1,216,365 | ||||||
Number
of warrant shares excluded
|
- | - | ||||||
Equivalent
anti-dilutive shares
|
- | - |
4.
|
STOCK-BASED
COMPENSATION
|
The
Company’s shareholder-approved, stock-based incentive plans permit the grant of
awards in the form of options intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code, options that do not so qualify
(non-statutory stock options,) and grants of restricted shares of common
stock. All employees, non-employee directors and consultants of the
Company and its affiliates are eligible to receive awards under the
plans. Except as described as follows, all restricted stock awards
granted during the three months ended December 31, 2010 vest over a period of
two to five years. In December 2010, restricted stock awards for
12,960 shares of the Company’s common stock with terms providing for vesting of
6,480 shares immediately and 6,480 shares in twelve months were granted to
directors. The exercise period for stock options generally may not
exceed 10 years from the date of grant. Option and share awards
provide for accelerated vesting if there is a change in control (as defined in
the plans). As a participant in the U.S. Department of Treasury’s
Capital Purchase Program, certain employees are prohibited from receiving golden
parachute payments while the Company has any outstanding funds related to the
program. Under the Treasury’s guidelines, golden parachute payments
are defined to include any payment resulting from a change in control of the
Company, which includes the acceleration of vesting in stock-based incentive
plans. Accordingly, the affected employees have signed agreements to
forfeit the right to accelerated vesting while any funds related to the
Treasury’s program are outstanding.
A summary
of the Company’s stock option program as of December 31, 2010 and changes during
the three-month period then ended, is presented below:
Weighted-
|
||||||||||||||||
Weighted
|
Average
|
|||||||||||||||
Average
|
Aggregate
|
Remaining
|
||||||||||||||
Number
|
Exercise
|
Intrinsic
|
Contractual
|
|||||||||||||
Of Shares
|
Price
|
Value
|
Life (years)
|
|||||||||||||
Outstanding
at October 1, 2010
|
849,840 | $ | 10.40 | |||||||||||||
Granted
|
- | - | ||||||||||||||
Exercised
|
(11,875 | ) | 6.27 | |||||||||||||
Forfeited
|
(2,834 | ) | 7.70 | |||||||||||||
Outstanding
at December 31, 2010
|
835,131 | $ | 10.46 | $ | 292,790 | 5.7 | ||||||||||
Exercisable
at December 31, 2010
|
604,727 | $ | 10.47 | $ | 247,089 | 5.0 |
As of
December 31, 2010, the total unrecognized compensation expense related to
non-vested stock options and awards was $979,500 and the related weighted
average period over which it is expected to be recognized is 1.88
years.
- 8
-
There
were no stock options granted during the three-month period ended December 31,
2010. The fair value of stock options granted during the three-month
period ended December 31, 2009 was estimated on the date of grant using the
Black-Scholes option pricing model with the following average
assumptions:
Risk
free interest rate
|
2.44 | % | ||
Expected
volatility
|
38.59 | % | ||
Expected
life in years
|
5.6 | |||
Dividend
yield
|
4.37 | % | ||
Expected
forfeiture rate
|
3.37 | % |
The
Company maintains an Equity Trust Plan for the benefit of key loan officers and
sales staff. The plan is designed to recruit, retain and motivate
top-performing loan officers and other key revenue-producing employees who are
instrumental to the Company’s success. The plan allows the recipients
to defer a percentage of commissions earned, which might be partially matched by
the Company, and paid into a rabbi trust for the benefit of the
participants. The assets of the trust are limited to Company shares
purchased in the open market and cash. Should the participants
voluntarily leave the Company, they forego any unvested accrued
benefits.
At
December 31, 2010, there were 497,333 shares in the plan with an aggregate value
of $4.5 million, which were included in treasury stock in the Company’s
consolidated financial statements, including 302,887 shares that were not yet
vested. Vested shares in the plan are treated as issued and
outstanding when computing basic and diluted earnings per share, whereas
unvested shares are treated as issued and outstanding only when computing
diluted earnings per share.
5.
|
INCOME
TAXES
|
Deferred
tax assets totaled $13.2 million at December 31, 2010 and September 30, 2010,
and resulted primarily from the temporary differences related to the allowance
for loan losses. Deferred tax assets are recognized only to the
extent that they are expected to be used to reduce amounts that have been paid
or will be paid to tax authorities. Management believes, based on all
positive and negative evidence, that the realization of the deferred tax asset
at December 31, 2010 is more likely than not, and accordingly, no valuation
allowance has been recorded. The ultimate outcome of future facts and
circumstances could require a valuation allowance and any charges to establish
such valuation allowance could have a material adverse effect on the Company’s
results of operations and financial position.
At
December 31, 2010, the Company had $197,000 of unrecognized tax benefits,
$129,000 of which would affect the effective tax rate if
recognized. The Company recognizes interest related to uncertain tax
positions in income tax expense and classifies such interest and penalties in
the liability for unrecognized tax benefits. As of December 31, 2010,
the Company had approximately $68,000 accrued for the payment of interest and
penalties. The tax years ended September 30, 2007 through 2010 remain
open to examination by the taxing jurisdictions to which the Company is
subject.
- 9
-
6.
|
DEBT
AND EQUITY SECURITIES
|
The
amortized cost and estimated fair value of debt securities available for sale at
December 31, 2010 and September 30, 2010 are summarized as
follows:
Gross
|
Gross
|
Estimated
|
||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
December
31, 2010:
|
||||||||||||||||
Debt
obligations of government-sponsored entities
|
$ | 13,595,490 | $ | - | $ | (1,919 | ) | $ | 13,593,571 | |||||||
Weighted
average yield at end of period
|
0.16 | % | ||||||||||||||
September
30, 2010:
|
||||||||||||||||
Debt
obligations of government-sponsored entities
|
$ | 8,000,836 | 706 | $ | (450 | ) | $ | 8,001,092 | ||||||||
Weighted
average yield at end of period
|
0.25 | % |
As of
December 31, 2010 and September 30, 2010, the Company did not have any debt and
equity securities held to maturity or available for sale that were in a
continuous position for twelve months or more.
- 10
-
7.
|
MORTGAGE-BACKED
SECURITIES
|
Mortgage-backed
securities held to maturity and available for sale at December 31, 2010 and
September 30, 2010 are summarized as follows:
December 31, 2010
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
Held
to Maturity:
|
||||||||||||||||
Mortgage-backed
securities:
|
||||||||||||||||
Freddie
Mac
|
$ | 24 | $ | - | $ | - | $ | 24 | ||||||||
Ginnie
Mae
|
154,509 | 13,781 | - | 168,290 | ||||||||||||
Fannie
Mae
|
9,081,130 | 382,797 | (3,036 | ) | 9,460,891 | |||||||||||
Total
mortgage-backed securities
|
9,235,663 | 396,578 | (3,036 | ) | 9,629,205 | |||||||||||
Collateralized
mortgage obligations:
|
||||||||||||||||
Freddie
Mac
|
7,156 | 3 | - | 7,159 | ||||||||||||
Total
collateralized mortgage obligations
|
7,156 | 3 | - | 7,159 | ||||||||||||
Total
held to maturity
|
$ | 9,242,819 | $ | 396,581 | $ | (3,036 | ) | $ | 9,636,364 | |||||||
Weighted
average yield at end of period
|
4.02 | % | ||||||||||||||
Available
for Sale:
|
||||||||||||||||
Mortgage-backed
securities:
|
||||||||||||||||
Ginnie
Mae
|
$ | 392,683 | $ | 34,210 | $ | - | $ | 426,893 | ||||||||
Total
mortgage-backed securities
|
392,683 | 34,210 | - | 426,893 | ||||||||||||
Collateralized
mortgage obligations:
|
||||||||||||||||
Freddie
Mac
|
585,928 | 7,316 | - | 593,244 | ||||||||||||
Ginnie
Mae
|
2,508,740 | - | (5,667 | ) | 2,503,073 | |||||||||||
Fannie
Mae
|
3,393,824 | - | (960 | ) | 3,392,864 | |||||||||||
Total
collateralized mortgage obligations
|
6,488,492 | 7,316 | (6,627 | ) | 6,489,181 | |||||||||||
Total
available for sale
|
$ | 6,881,175 | $ | 41,526 | $ | (6,627 | ) | $ | 6,916,074 | |||||||
Weighted
average yield at end of period
|
4.17 | % |
- 11
-
September 30, 2010
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
HELD
TO MATURITY:
|
||||||||||||||||
Mortgage-backed
securities:
|
||||||||||||||||
Freddie
Mac
|
$ | 24 | $ | - | $ | - | $ | 24 | ||||||||
Ginnie
Mae
|
160,044 | 13,944 | - | 173,988 | ||||||||||||
Fannie
Mae
|
10,128,927 | 477,620 | - | 10,606,547 | ||||||||||||
Total
|
10,288,995 | 491,564 | - | 10,780,559 | ||||||||||||
Collateralized
mortgage obligations:
|
||||||||||||||||
Freddie
Mac
|
7,896 | 4 | - | 7,900 | ||||||||||||
Total
|
7,896 | 4 | - | 7,900 | ||||||||||||
Total
held to maturity
|
$ | 10,296,891 | $ | 491,568 | $ | - | $ | 10,788,459 | ||||||||
Weighted
average yield at end of year
|
4.02 | % | ||||||||||||||
AVAILABLE
FOR SALE:
|
||||||||||||||||
Mortgage-backed
securities:
|
||||||||||||||||
Ginnie
Mae
|
$ | 433,843 | $ | 37,163 | $ | - | $ | 471,006 | ||||||||
Fannie
Mae
|
27,433 | 40 | - | 27,473 | ||||||||||||
Total
|
461,276 | 37,203 | - | 498,479 | ||||||||||||
Collateralized
mortgage obligations:
|
||||||||||||||||
Freddie
Mac
|
794,329 | 13,610 | - | 807,939 | ||||||||||||
Ginnie
Mae
|
3,479,613 | - | (2,353 | ) | 3,477,260 | |||||||||||
Fannie
Mae
|
4,049,540 | 12,308 | - | 4,061,848 | ||||||||||||
Total
|
8,323,482 | 25,918 | (2,353 | ) | 8,347,047 | |||||||||||
Total
available for sale
|
$ | 8,784,758 | $ | 63,121 | $ | (2,353 | ) | $ | 8,845,526 | |||||||
Weighted
average yield at end of year
|
4.16 | % |
As of
December 31, 2010 and September 30, 2010, the Company did not have any
mortgage-backed securities held to maturity or available for sale that were in a
continuous loss position for twelve months or more.
- 12
-
8.
|
LOANS
RECEIVABLE
|
Loans
receivable at December 31, 2010 and September 30, 2010 are summarized as
follows:
December
31,
|
September
30,
|
|||||||
2010
|
2010
|
|||||||
Real
estate mortgage:
|
||||||||
Residential
first mortgage
|
$ | 237,930,151 | $ | 243,648,954 | ||||
Residential
second mortgage
|
57,764,812 | 60,281,107 | ||||||
Home
equity lines of credit
|
193,015,834 | 201,922,359 | ||||||
Multi-family
residential
|
42,282,167 | 43,735,853 | ||||||
Commercial
real estate
|
282,506,080 | 256,224,250 | ||||||
Land
acquisition and development
|
68,511,350 | 74,461,741 | ||||||
Real
estate construction and development:
|
||||||||
Residential
|
6,797,934 | 8,126,735 | ||||||
Multi-family
|
3,417,663 | 3,876,594 | ||||||
Commercial
|
7,072,270 | 19,067,773 | ||||||
Commercial
and industrial
|
162,140,974 | 155,622,170 | ||||||
Consumer
and installment
|
3,698,673 | 3,512,266 | ||||||
1,065,137,908 | 1,070,479,802 | |||||||
Add
(less):
|
||||||||
Deferred
loan costs
|
3,802,939 | 3,884,483 | ||||||
Loans
in process
|
(496,479 | ) | (1,115,336 | ) | ||||
Allowance
for loan losses
|
(27,275,405 | ) | (26,975,717 | ) | ||||
Total
|
$ | 1,041,168,963 | $ | 1,046,273,232 | ||||
Weighted
average interest rate at end of period
|
5.37 | % | 5.34 | % | ||||
Ratio
of allowance to total outstanding loans
|
2.56 | % | 2.52 | % |
The
following is a summary of the Company’s significant accounting policies related
to loans receivable.
Allowance for
Loan Losses - The Company maintains an allowance for loan losses to
absorb probable losses in the Company’s loan portfolio. Loan
losses are charged against and recoveries are credited to the
allowance. Provisions for loan losses are charged to income and
credited to the allowance in an amount necessary to maintain an appropriate
allowance given risks identified in the portfolio. The allowance is
based upon management’s quarterly estimates of probable losses inherent in the
loan portfolio. Management’s estimates are determined through a
method of quantifying certain risks in the portfolio that are affected primarily
by changes in the composition and volume of the portfolio combined with an
analysis of past-due and classified loans, and can also be affected by the
following factors: changes in national and local economic conditions
and developments, assessment of collateral values based on independent
appraisals, changes in lending policies and procedures, including underwriting
standards and collections, charge-off and recovery practices, and changes in the
experience, ability, and depth of lending management staff. Loans are
charged off when circumstances indicate that a loss is probable and there is no
longer a reasonable expectation that a change in such circumstances will result
in collection of the amount charged off.
The
following assessments are performed quarterly in accordance with the Company’s
allowance for loan losses methodology:
Loans
considered for individual impairment analysis include loans that are past due,
loans that have been placed on nonaccrual status, troubled debt restructurings,
loans with internally assigned credit risk ratings that indicate an elevated
level of risk, or loans that management has knowledge of or concerns about the
borrower’s ability to pay under the contractual terms of the
note. Residential loans to be evaluated for impairment are generally
identified through a review of loan delinquency reports, internally-developed
risk classification reports, and discussions with the Bank’s loan
collectors. Commercial loans evaluated for impairment are generally
identified through a review of loan delinquency reports, internally-developed
risk classification reports, discussions with loan officers, discussions with
borrowers, periodic individual loan reviews and local media reports indicating
problems with a particular project or borrower. Commercial loans are
individually reviewed and assigned a credit risk rating periodically by the
internal loan committee.
- 13
-
All loans
that are not evaluated individually for impairment and any individually
evaluated loans determined not to be impaired are segmented into groups based on
similar risk characteristics or internally assigned credit risk
ratings. Our methodology includes factors that allow us to adjust our
estimates of losses based on the most recent information
available. Historical loss rates for each risk group are used as the
starting point to determine allowance provisions. These rates are
then adjusted to reflect actual changes and anticipated changes in national and
local economic conditions and developments, assessment of collateral values
based on independent appraisals, changes in lending policies and procedures,
including underwriting standards and collections, charge-off and recovery
practices, and changes in the experience, ability, and depth of lending
management staff.
In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such
agencies may require the Company to modify its allowance for loan losses based
on their judgment about information available to them at the time of their
examination.
Accrued Interest
- The
Company’s policy is to discontinue the accrual of interest income on any loan
when, in the opinion of management, there is reasonable doubt as to the ultimate
collectibility of interest or principal. Management considers many factors
before placing a loan on non-accrual, including the overall financial condition
of the borrower, the progress of management’s collection efforts and the value
of the underlying collateral. Previously accrued but unpaid interest is charged
to current income at the time a loan is placed on non-accrual status. Subsequent
collections of cash may be applied as reductions to the principal balance,
interest in arrears, or recorded as income depending on management’s assessment
of the ultimate collectibility of the loan. Non-accrual loans are returned to
accrual status when, in the opinion of management, the financial position of the
borrower indicates there is no longer any reasonable doubt as to the timely
collectibility of interest or principal.
Impaired Loans -
A loan is considered to be impaired when, based on current information
and events, management determines that the Company will be unable to collect all
amounts due according to the loan contract, including scheduled interest
payments. When a loan is identified as impaired, the amount of
impairment is measured based on the present value of expected future cash flows,
discounted at the loan’s effective interest rate, except when the sole remaining
source of repayment for the loan is the operation or liquidation of the
collateral. In these cases, observable market prices or the current
fair value of the collateral, less selling costs when foreclosure is probable,
are used instead of discounted cash flows. If the value of the
impaired loan is determined to be less than the recorded investment in the loan
(net of previous charge-offs, deferred loan fees or costs and unamortized
premium or discount), an impairment charge is recognized through a provision for
loan losses.
Troubled Debt
Restructurings - A loan is classified as a troubled debt restructuring if
the Company, for economic or legal reasons related to the borrower’s financial
difficulties, grants a concession to the borrower that it would not otherwise
consider. This usually includes a modification of loan terms (such as
a reduction of the rate to below-market terms, adding past-due interest to the
loan balance or extending the maturity date) and possibly a partial forgiveness
of debt. A loan classified as a troubled debt restructuring will
generally retain such classification until the loan is paid in
full. However, a restructured one-to-four family residential mortgage
loan that yields a market rate and demonstrates the ability to pay under the
terms of the restructured note through a sustained period of repayment
performance, which is generally one year, is removed from the troubled debt
restructuring classification. Interest income on restructured loans
is accrued at the reduced rate and the loan is returned to performing status
once the borrower demonstrates the ability to pay under the terms of the
restructured note through a sustained period of repayment performance, which is
generally six months.
- 14
-
The
following table summarizes the activity in the allowance for loan losses for the
three months ended December 31, 2010 and 2009:
Three Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Balance,
beginning of period
|
$ | 26,975,717 | $ | 20,579,170 | ||||
Provision
charged to expense
|
4,300,000 | 6,074,000 | ||||||
Charge-offs:
|
||||||||
Residential
real estate first mortgage
|
173,980 | 930,913 | ||||||
Residential
real estate second mortgage
|
331,312 | 185,937 | ||||||
Home
equity lines of credit
|
530,529 | 725,649 | ||||||
Land
acquisition and development
|
2,117,352 | 326,590 | ||||||
Real
estate construction & development
|
178 | 1,436,313 | ||||||
Commercial
& multi-family real estate
|
722,239 | - | ||||||
Commercial
& industrial
|
161,251 | 73,222 | ||||||
Consumer
and other
|
36,553 | 75,459 | ||||||
Total
charge-offs
|
4,073,394 | 3,754,083 | ||||||
Recoveries:
|
||||||||
Residential
real estate first mortgage
|
8,208 | 986 | ||||||
Residential
real estate second mortgage
|
28,870 | 1,092 | ||||||
Home
equity lines of credit
|
9,649 | 3,506 | ||||||
Real
estate construction & development
|
143 | - | ||||||
Commercial
and multi-family real estate
|
1,050 | 5,253 | ||||||
Commercial
& industrial
|
20,038 | 10,571 | ||||||
Consumer
and other
|
5,124 | 2,113 | ||||||
Total
recoveries
|
73,082 | 23,521 | ||||||
Net
charge-offs
|
4,000,312 | 3,730,562 | ||||||
Balance,
end of period
|
$ | 27,275,405 | $ | 22,922,608 |
- 15
-
The
following table summarizes the allocation of the allowance for loan losses at
December 31, 2010 and September 30, 2010:
December
31, 2010
|
September
30, 2010
|
|||||||||||||||||||||||
General
|
Specific
|
General
|
Specific
|
|||||||||||||||||||||
Allowance
On
|
Allowance
On
|
Allowance
On
|
Allowance
On
|
|||||||||||||||||||||
Nonimpaired
|
Impaired
|
Nonimpaired
|
Impaired
|
|||||||||||||||||||||
Loans
|
Loans
|
Total
|
Loans
|
Loans
|
Total
|
|||||||||||||||||||
Residential
real estate first mortgage
|
$ | 2,644,510 | $ | 2,380,281 | $ | 5,024,791 | $ | 1,949,118 | $ | 1,708,815 | $ | 3,657,933 | ||||||||||||
Residential
real estate second mortgage
|
1,610,022 | 818,819 | 2,428,841 | 2,269,182 | 899,050 | 3,168,232 | ||||||||||||||||||
Home
equity lines of credit
|
2,789,287 | 1,749,699 | 4,538,986 | 3,294,174 | 1,071,757 | 4,365,931 | ||||||||||||||||||
Land
acquisition and development
|
3,860,182 | 995,188 | 4,855,370 | 4,467,237 | 3,156,482 | 7,623,719 | ||||||||||||||||||
Real
estate construction & development
|
77,436 | 150,437 | 227,873 | 207,888 | 88,037 | 295,925 | ||||||||||||||||||
Commercial
& multi-family real estate
|
4,997,013 | 1,005,314 | 6,002,327 | 3,958,350 | 815,459 | 4,773,809 | ||||||||||||||||||
Commercial
& industrial
|
2,151,014 | 1,002,049 | 3,153,063 | 2,266,756 | 573,707 | 2,840,463 | ||||||||||||||||||
Consumer
and other
|
221,168 | 249,886 | 471,054 | 86,925 | 62,652 | 149,577 | ||||||||||||||||||
Unallocated
|
573,100 | - | 573,100 | 100,128 | - | 100,128 | ||||||||||||||||||
Total
|
$ | 18,923,732 | $ | 8,351,673 | $ | 27,275,405 | $ | 18,599,758 | $ | 8,375,959 | $ | 26,975,717 |
The
following table summarizes the unpaid principal balances of nonimpaired and
impaired loans at December 31, 2010 and September 30, 2010:
December
31, 2010
|
September
30, 2010
|
|||||||||||||||||||||||
Impaired
|
Impaired
|
Impaired
|
Impaired
|
|||||||||||||||||||||
Loans
with
|
Loans
with
|
Loans
with
|
Loans
with
|
|||||||||||||||||||||
Nonimpaired
|
Specific
|
No
Specific
|
Nonimpaired
|
Specific
|
No
Specific
|
|||||||||||||||||||
Loans
|
Allowance
|
Allowance
|
Loans
|
Allowance
|
Allowance
|
|||||||||||||||||||
Residential
real estate first mortgage
|
$ | 204,775,774 | $ | 9,108,005 | $ | 24,046,372 | $ | 213,578,082 | $ | 7,805,475 | $ | 22,265,397 | ||||||||||||
Residential
real estate second mortgage
|
53,859,975 | 1,050,705 | 2,854,132 | 56,233,360 | 1,075,800 | 2,971,947 | ||||||||||||||||||
Home
equity lines of credit
|
188,035,857 | 2,975,397 | 2,004,580 | 197,938,843 | 1,720,474 | 2,263,042 | ||||||||||||||||||
Land
acquisition and development
|
61,610,475 | 4,155,763 | 2,745,112 | 65,503,326 | 8,796,057 | 162,358 | ||||||||||||||||||
Real
estate construction & development
|
13,167,860 | 398,992 | 3,721,015 | 26,576,489 | 126,992 | 4,367,621 | ||||||||||||||||||
Commercial
& multi-family real estate
|
315,113,238 | 5,383,598 | 4,291,411 | 294,237,924 | 4,439,491 | 1,282,688 | ||||||||||||||||||
Commercial
& industrial
|
160,226,472 | 1,820,491 | 94,011 | 153,521,430 | 2,062,052 | 38,688 | ||||||||||||||||||
Consumer
and other
|
3,353,810 | 284,671 | 60,192 | 3,328,210 | 97,423 | 86,633 | ||||||||||||||||||
Total
|
$ | 1,000,143,461 | $ | 25,177,622 | $ | 39,816,825 | $ | 1,010,917,664 | $ | 26,123,764 | $ | 33,438,374 |
Troubled Debt
Restructurings. Included in impaired loans at December 31,
2010 and September 30, 2010 were $33.3 million and $33.1 million,
respectively, of loans that were modified and are classified as troubled debt
restructurings because of the borrowers’ financial difficulties. The
restructured terms of the loans generally included a reduction of the interest
rates and the addition of past due interest to the principal balance of the
loans. At December 31, 2010, $22.6 million, or 68.0%, of
these loans were performing as agreed under the modified terms of the loans
compared with $24.7 million, or 74.7%, at September 30,
2010. Excluded from non-performing assets at December 31, 2010 and
September 30, 2010 were $9.0 million and $9.9 million, respectively, of loans
that were modified in troubled debt restructurings but were no longer classified
as non-performing because of the borrowers’ favorable performance
histories. Specific loan loss allowances related to troubled debt
restructurings at December 31, 2010 and September 30, 2010 were
$2.5 million and $1.5 million, respectively.
- 16
-
9.
|
DEPOSITS
|
Deposits
at December 31, 2010 and September 30, 2010 are summarized as
follows:
December 31, 2010
|
September 30, 2010
|
|||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||
Average
|
Average
|
|||||||||||||||
Interest
|
Interest
|
|||||||||||||||
Amount
|
Rate
|
Amount
|
Rate
|
|||||||||||||
Transaction
accounts:
|
||||||||||||||||
Non-interest-bearing
checking
|
$ | 121,101,134 | - | $ | 149,186,009 | - | ||||||||||
Interest-bearing
checking
|
376,232,430 | 0.71 | % | 345,012,929 | 0.90 | % | ||||||||||
Passbook
savings accounts
|
29,008,837 | 0.14 | % | 30,296,199 | 0.18 | % | ||||||||||
Money
market
|
205,068,263 | 0.48 | % | 189,851,005 | 0.52 | % | ||||||||||
Total
transaction accounts
|
731,410,664 | 0.51 | % | 714,346,142 | 0.58 | % | ||||||||||
Certificates
of deposit:
|
||||||||||||||||
Retail
|
332,846,588 | 2.01 | % | 328,394,523 | 2.20 | % | ||||||||||
CDARS
|
78,476,741 | 0.57 | % | 64,050,592 | 0.65 | % | ||||||||||
Brokered
|
8,417,895 | 5.23 | % | 8,411,863 | 5.23 | % | ||||||||||
Total
certificates of deposit
|
419,741,224 | 1.81 | % | 400,856,978 | 2.02 | % | ||||||||||
Total
deposits
|
$ | 1,151,151,888 | 0.98 | % | $ | 1,115,203,120 | 1.09 | % |
10.
|
FAIR
VALUE MEASUREMENTS
|
Effective
October 1, 2008, the Company adopted the provisions of Accounting Standards
Codification TM (“ASC”) Topic 820, Fair Value Measurements and
Disclosures, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. Fair value is defined as
the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. A fair value measurement should reflect all of the
assumptions that market participants would use in pricing the asset or
liability, including assumptions about the risk inherent in a particular
valuation technique, the effect of a restriction on the sale or use of an asset,
and the risk of non-performance.
A
three-level hierarchy for valuation techniques is used to measure financial
assets and financial liabilities at fair value. This hierarchy is
based on whether the valuation inputs are observable or unobservable. Financial
instrument valuations are considered Level 1 when they are based on quoted
prices in active markets for identical assets or liabilities. Level 2
financial instrument valuations use quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that
are observable or can be corroborated by observable market
data. Financial instrument valuations are considered Level 3 when
they are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is
unobservable, and when determination of the fair value requires significant
management judgment or estimation. ASC Topic 820 also provides
guidance on determining fair value when the volume and level of activity for the
asset or liability has significantly decreased and on identifying circumstances
when a transaction may not be considered orderly.
- 17
-
The
Company records securities available for sale and derivative financial
instruments at their fair values on a recurring basis. Additionally,
the Company records other assets at their fair values on a nonrecurring basis,
such as mortgage loans held for sale, loans held for investment and certain
other assets. These nonrecurring fair value adjustments typically
involve application of lower-of-cost-or-market accounting or impairment
write-downs of individual assets. The following is a general
description of the methods used to value such assets.
Mortgage-Backed Securities Held to
Maturity. The fair values of mortgage-backed securities held
to maturity are generally based on quoted market prices or market prices for
similar assets.
Debt and Mortgage-Backed Securities
Available for Sale. The fair values of debt and
mortgage-backed securities available for sale are generally based on quoted
market prices or market prices for similar assets.
Interest Rate Swap Assets and
Liabilities. The fair values are based on quoted
market prices by an independent valuation service.
Mortgage Loans Held for
Sale. The fair values of mortgage loans held for sale are
generally based on commitment
sales prices obtained from the Company’s investors.
Impaired
Loans. The fair values of impaired loans are generally based
on market prices for similar assets determined through independent appraisals
(Level 2 valuations) or discounted values of independent appraisals or brokers’
opinions of value (Level 3 valuations).
Real Estate Acquired in Settlement
of Loans consists of loan collateral which has been repossessed through
foreclosure or obtained by deed in lieu of foreclosure. This collateral is
comprised of commercial and residential real estate. Such assets are recorded as
held for sale initially at the lower of the loan balance or fair value of the
collateral less estimated selling costs. Fair values are generally obtained
through external appraisals and assessment of property values by the Company’s
internal staff. Subsequent to foreclosure, valuations are updated
periodically, and the assets may be written down to reflect a new cost basis.
Because many of these inputs are not observable, the measurements are classified
as Level 3.
Intangible Assets and Goodwill
are reviewed annually in the fourth fiscal quarter and/or when
circumstances or other events indicate that impairment may have
occurred. Because of the decline in the market value of the Company’s
common stock during the three months ended December 31, 2010, the Company
reviewed goodwill for impairment as of December 31, 2010 in addition to its
annual review at September 30, 2010. No impairment losses were
recognized during fiscal year 2010 or the three months ended December 31,
2010.
- 18
-
Assets
and liabilities that were recorded at fair value on a recurring basis at
December 31, 2010 and September 30, 2010 and the level of inputs used to
determine their fair values are summarized below:
Carrying Value at December 31, 2010
|
||||||||||||||||
Fair Value Measurements Using
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Assets:
|
||||||||||||||||
Debt
securities available for sale
|
$ | 13,594 | $ | - | $ | 13,594 | $ | - | ||||||||
Mortgage-backed
securities available for sale
|
6,916 | - | 6,916 | - | ||||||||||||
Interest-rate
swap
|
1,419 | - | 1,419 | - | ||||||||||||
Total
assets
|
$ | 21,929 | $ | - | $ | 21,929 | $ | - | ||||||||
Liabilities:
|
||||||||||||||||
Interest-rate
swap
|
$ | 1,419 | $ | - | $ | 1,419 | $ | - | ||||||||
Total
liabilities
|
$ | 1,419 | $ | - | $ | 1,419 | $ | - |
Carrying Value at September 30, 2010
|
||||||||||||||||
Fair Value Measurements Using
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Assets:
|
||||||||||||||||
Debt
securities available for sale
|
$ | 8,001 | $ | - | $ | 8,001 | $ | - | ||||||||
Mortgage-backed
securities available for sale
|
8,846 | - | 8,846 | - | ||||||||||||
Interest-rate
swap
|
1,860 | - | 1,860 | - | ||||||||||||
Total
assets
|
$ | 18,707 | $ | - | $ | 18,707 | $ | - | ||||||||
Liabilities:
|
||||||||||||||||
Interest-rate
swap
|
$ | 1,860 | $ | - | $ | 1,860 | $ | - | ||||||||
Total
liabilities
|
$ | 1,860 | $ | - | $ | 1,860 | $ | - |
- 19
-
Assets
that were recorded at fair value on a non-recurring basis at December 31, 2010
and September 30, 2010 and the level of inputs used to determine their fair
values are summarized below:
Total (Gains)/
|
||||||||||||||||||||
Losses
|
||||||||||||||||||||
Recognized in
|
||||||||||||||||||||
Carrying Value at December 31, 2010
|
the Year Ended
|
|||||||||||||||||||
Fair Value Measurements Using
|
December 31,
|
|||||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
2010
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Assets:
|
||||||||||||||||||||
Loans
held for sale
|
$ | 91,229 | $ | - | $ | 91,229 | $ | - | $ | (598 | ) | |||||||||
Impaired
loans, net
|
16,826 | 8,327 | 8,499 | (24 | ) | |||||||||||||||
Real
estate acquired in settlement of loans
|
13,010 | - | - | 13,010 | 1,090 | |||||||||||||||
Total
assets
|
$ | 121,065 | $ | - | $ | 99,556 | $ | 21,509 | $ | 468 | ||||||||||
Total Losses
|
||||||||||||||||||||
Recognized in
|
||||||||||||||||||||
Carrying Value at September 30, 2010
|
the Year Ended
|
|||||||||||||||||||
Fair Value Measurements Using
|
September 30,
|
|||||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
2010
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Assets:
|
||||||||||||||||||||
Loans
held for sale
|
$ | 113 | $ | - | $ | 113 | $ | - | $ | - | ||||||||||
Impaired
loans, net
|
17,748 | 10,826 | 6,922 | 4,335 | ||||||||||||||||
Real
estate acquired in settlement of loans
|
14,900 | - | - | 14,900 | 8,373 | |||||||||||||||
Total
assets
|
$ | 32,761 | $ | - | $ | 10,939 | $ | 21,822 | $ | 12,708 |
11.
|
DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
|
The
following fair values of financial instruments have been estimated by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data used to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Company might realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair value amounts.
The fair
value estimates presented herein are based on pertinent information available to
management as of December 31, 2010 and September 30, 2010. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that
date. Therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
- 20
-
Carrying
values and estimated fair values at December 31, 2010 and September 30, 2010 are
summarized as follows:
December 31, 2010
|
September 30, 2010
|
|||||||||||||||
Estimated
|
Estimated
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Value
|
Value
|
Value
|
Value
|
|||||||||||||
(In Thousands)
|
||||||||||||||||
ASSETS:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 16,001 | $ | 16,001 | $ | 15,603 | $ | 15,603 | ||||||||
Debt
securities - AFS
|
13,594 | 13,594 | 8,001 | 8,001 | ||||||||||||
Capital
stock of FHLB
|
10,184 | 10,184 | 9,774 | 9,774 | ||||||||||||
Mortgage-backed securities
- HTM
|
9,243 | 9,636 | 10,297 | 10,788 | ||||||||||||
Mortgage-backed securities
- AFS
|
6,916 | 6,916 | 8,846 | 8,846 | ||||||||||||
Loans
receivable held for sale
|
271,152 | 276,924 | 253,578 | 258,414 | ||||||||||||
Loans
receivable
|
1,041,169 | 1,090,986 | 1,046,273 | 1,094,190 | ||||||||||||
Accrued
interest receivable
|
4,323 | 4,323 | 4,432 | 4,432 | ||||||||||||
Interest-rate
swap assets
|
1,419 | 1,419 | 1,860 | 1,860 | ||||||||||||
LIABILITIES:
|
||||||||||||||||
Deposit
transaction accounts
|
731,411 | 731,411 | 714,346 | 714,346 | ||||||||||||
Certificate
of deposits
|
419,741 | 424,160 | 400,857 | 406,095 | ||||||||||||
Advances
from the FHLB
|
161,800 | 164,023 | 181,000 | 183,139 | ||||||||||||
Subordinated
debentures
|
19,589 | 19,583 | 19,589 | 19,583 | ||||||||||||
Accrued
interest payable
|
656 | 656 | 945 | 945 | ||||||||||||
Interest-rate
swap liabilities
|
1,419 | 1,419 | 1,860 | 1,860 | ||||||||||||
December 31, 2010
|
September 30, 2010
|
|||||||||||||||
Contract
|
Estimated
|
Contract
|
Estimated
|
|||||||||||||
or Notional
|
Fair
|
or Notional
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
(In Thousands)
|
||||||||||||||||
OFF
BALANCE SHEET FINANCIAL INSTRUMENTS:
|
||||||||||||||||
Commitments
to originate
|
||||||||||||||||
first
and second mortgage loans
|
$ | 32,922 | $ | 33,623 | $ | 80,944 | $ | 82,490 | ||||||||
Commitments
to originate commercial mortgage loans
|
26,940 | $ | 27,853 | 22,901 | 23,737 | |||||||||||
Commitments
to originate non-mortgage loans
|
18,723 | $ | 18,347 | 11,378 | 10,918 | |||||||||||
Unused
lines of credit
|
195,788 | $ | 198,999 | 206,451 | 204,985 |
In
addition to the methods described in Note 10 above, the following methods and
assumptions were used to estimate the fair value of the financial instruments
that were recorded at historical cost in the Company’s financial statements at
December 31, 2010 and September 30, 2010.
Cash and Cash
Equivalents - The carrying amount approximates fair value.
Capital Stock of
the Federal Home Loan Bank - The carrying amount represents redemption
value, which approximates fair value.
Loans Receivable
- The fair value of loans receivable is estimated based on present values
using applicable risk-adjusted spreads to the U. S. Treasury curve to
approximate current interest rates applicable to each category of such financial
instruments. No adjustment was made to the interest rates for changes in credit
risk of performing loans where there are no known credit concerns. Management
segregates loans in appropriate risk categories. Management believes that the
risk factor embedded in the interest rates along with the allowance for loan
losses applicable to the performing loan portfolio results in a fair valuation
of such loans. The fair values of impaired loans are generally based
on market prices for similar assets determined through independent appraisals or
discounted values of independent appraisals and brokers’ opinions of
value. This method of estimating fair value does not incorporate the
exit-price concept of fair value prescribed by ASC Topic 820.
- 21
-
Accrued Interest
Receivable - The carrying value approximates fair value.
Interest-Rate
Swap Assets - The fair value is based on quoted market prices by an
independent valuation service.
Deposits - The estimated fair value of
demand deposits and savings accounts is the amount payable on demand at the
reporting date. The estimated fair value of fixed-maturity certificates of
deposit is estimated by discounting the future cash flows of existing deposits
using rates currently available on advances from the Federal Home Loan Bank
having similar characteristics.
Advances from
Federal Home Loan Bank
- The estimated fair value of advances from Federal Home Loan Bank is
determined by discounting the future cash flows of existing advances using rates
currently available on advances from Federal Home Loan Bank having similar
characteristics.
Subordinated
Debentures - The estimated fair
values of subordinated debentures are determined by discounting the estimated
future cash flows using rates currently available on debentures having similar
characteristics.
Accrued Interest
Payable - The carrying value approximates fair value.
Interest-Rate
Swap Liabilities - The fair value is based on quoted market prices by an
independent valuation service.
Off-Balance-Sheet
Items - The estimated fair
value of commitments to originate or purchase loans is based on the fees
currently charged to enter into similar agreements and the difference between
current levels of interest rates and the committed rates. The Company believes
such commitments have been made on terms that are competitive in the markets in
which it operates; however, no premium or discount is offered thereon, and
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.
12.
|
INTEREST-RATE
SWAPS
|
The
Company entered into two $14 million notional value interest-rate swap contracts
during 2008 totaling $28 million notional value. These contracts
supported a $14 million, variable-rate, commercial loan relationship and were
used to allow the commercial loan customer to pay a fixed interest rate to the
Bank, while the Bank, in turn, charged the customer a floating interest rate on
the loan. Under the terms of the swap contract between the Bank and
the loan customer, the customer pays the Bank a fixed interest rate of 6.58%,
while the Bank pays the customer a variable interest rate of one-month LIBOR
plus 2.30%. Under the terms of a similar but separate swap contract
between the Bank and a major securities broker, the Bank pays the broker a fixed
interest rate of 6.58%, while the broker pays the Bank a variable interest rate
of one-month LIBOR plus 2.30%. The two contracts have identical terms
and are scheduled to mature on May 15, 2015. While these two swap
derivatives generally work together as an interest-rate hedge, the Company has
not designated them for hedge accounting treatment. Consequently,
both derivatives are marked to fair value through either a charge or credit to
current earnings.
- 22
-
The fair
values of these contracts recorded in the consolidated balance sheets are
summarized as follows:
December 31,
|
September 30,
|
|||||||
2010
|
2010
|
|||||||
Fair
value recorded in other assets
|
$ | 1,419,000 | $ | 1,860,000 | ||||
Fair
value recorded in other liabilities
|
1,419,000 | 1,860,000 |
The gross
gains and losses on these contracts recorded in non-interest expense in the
consolidated statements of income and comprehensive income for the three-month
period ended December 31, 2010 and 2009 are summarized as follows:
Three Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
(in thousands)
|
||||||||
Gross
(gains) losses on derivative financial assets
|
$ | 440,000 | $ | 245,000 | ||||
Gross
(gains) losses on derivative financial liabilities
|
(440,000 | ) | (245,000 | ) | ||||
Net
loss (gain)
|
$ | - | $ | - |
13.
|
GOODWILL
|
Goodwill
totaled $3.9 million at December 31, 2010 and September 30, 2010,
respectively. Goodwill represents the amount of acquisition cost over
the fair value of net assets acquired in the purchase of another financial
institution. The Company reviews goodwill for impairment at least
annually or more frequently if events or changes in circumstances indicate the
carrying value of the asset might be impaired. Impairment is
determined by comparing the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill. If the carrying amount of
the reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess. Any
such adjustments are reflected in the results of operations in the periods in
which they become known. After a goodwill impairment loss is
recognized, the adjusted carrying amount of goodwill becomes its new accounting
basis. Because of the decline in the market value of the Company’s
common stock during the three months ended December 31, 2010, the Company
reviewed goodwill for impairment as of December 31, 2010 in addition to its
annual review at September 30, 2010. No impairment losses were
recognized during fiscal year 2010 or the three months ended December 31,
2010.
- 23
-
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
FORWARD-LOOKING
STATEMENTS
This
report contains certain “forward-looking statements” within the meaning of the
federal securities laws, which are made in good faith pursuant to the “safe
harbor” provisions of the Private Securities Litigation Reform Act of
1995. These statements are not historical facts; rather they are
statements based on Pulaski Financial Corp.’s (the “Company”) 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.
Management’s
ability to predict results or the effect of future plans or strategies is
inherently uncertain. Factors that could affect actual results
include interest rate trends, the economy in the market area in which Pulaski
Financial Corp. operates, as well as nationwide, Pulaski Financial Corp.’s
ability to control costs and expenses, competitive products and pricing, loan
demand, loan delinquency rates, changes in accounting policies and changes in
federal and state legislation and regulation. The Company provides
greater detail regarding some of these factors in its Form 10-K for the year
ended September 30, 2010, including the Risk Factors section of that
report. The Company’s forward-looking statements may also be subject
to other risks and uncertainties, including those that it may discuss elsewhere
in this report or in its other filings with the SEC. These factors should
be considered in evaluating the forward-looking statements and undue reliance
should not be placed on such statements. Pulaski Financial Corp.
assumes no obligation to update any forward-looking statements to reflect events
or circumstances after the date of the statements or to reflect the occurrence
of anticipated or unanticipated events.
GENERAL
Pulaski
Financial Corp., operating in its eighty-ninth year, is a community-based,
financial institution holding company headquartered in St. Louis,
Missouri. It conducts operations primarily through Pulaski Bank (the
“Bank”), a federally chartered savings bank with $1.47 billion in assets at
December 31, 2010. Pulaski Bank provides an array of financial
products and services for businesses and consumers primarily through its twelve
full-service offices in the St. Louis metropolitan area and six loan production
offices in the St. Louis and Kansas City metropolitan areas and Wichita,
Kansas.
The
Company has primarily grown its assets and deposits internally by building its
residential and commercial lending operations, by opening de novo branches, and
by hiring experienced bankers with existing customer relationships in its
market. The Company’s goal is to continue to deliver value to its
shareholders and enhance its franchise value and earnings through controlled
growth in its banking operations, while maintaining the personal,
community-oriented customer service that has characterized its success to
date.
RESULTS
OF COMMUNITY BANKING STRATEGY
The
Company’s community banking strategy emphasizes high-quality, responsive, and
personalized customer service. The Company has been successful in
distinguishing itself from the larger regional banks operating in its market
areas by offering quicker decision making in the delivery of banking products
and services, offering customized products where needed, and providing customers
access to senior decision makers. Crucial to this strategy is growth
in the Company’s three primary business lines: commercial banking
services, retail mortgage lending and retail banking services.
- 24
-
Commercial Banking
Services
The
Company’s commercial banking services are centered on serving small- to
medium-sized businesses primarily in the St. Louis metropolitan area and the
Company’s operations continue to be driven by its staff of experienced
commercial bankers and the commercial banking relationships they
generate. Commercial loan originations totaled $89.2 million
during the three months ended December 31, 2010 compared with $96.6 million
during the same period last year. Although origination activity
slowed during the fiscal 2011 period compared with the prior year as the result
of the distressed local and national economic climate, the Company continued to
originate commercial loans to its most credit-worthy customers under tightened
credit standards. The commercial loan portfolio increased $11.6
million during the three-month period to $572.7 million at December 31, 2010
compared with $561.1 million at September 30, 2010. Commercial real
estate loans increased $26.3 million as the result of new originations and
the conversion of certain maturing construction loans to permanent financing,
and commercial and industrial loans increased $6.8
million. Commercial and multi-family construction and development
loans decreased $12.5 million and land acquisition and development loans
decreased $6.3 million as management decided to decrease the Company’s
exposure to construction and development lending because of the weakened
national and local economic conditions.
Retail Mortgage
Lending
The
Company is a conforming, residential mortgage lender that originates loans
directly through commission-based sales staffs in the St. Louis and Kansas City
metropolitan areas and, recently, in Wichita, Kansas. The Company is
a leading mortgage originator in the St. Louis and Kansas City markets, as it
has successfully leveraged its reputation for strength and quality customer
service with its staff of experienced mortgage loan officers who have strong
community relationships. Substantially all of the loans originated in
the retail mortgage division are one- to four-family residential loans that are
sold to investors on a servicing-released basis. Such sales generate
mortgage revenues, which is the Company’s largest source of non-interest
income. In addition, loans that are closed and are held pending their
sale to investors provide a valuable source of interest income until they are
delivered to such investors.
Residential
mortgage loans originated for sale to investors totaled $629.5 million during
the three months ended December 31, 2010 compared with $455.8 million
during the same period last year. The increased activity during the
fiscal 2011 period reflected an increased market demand for mortgage
refinancings as a result of the low interest rate environment that existed
during the December 2010 quarter. Mortgage loan refinancing activity
represented approximately 72% of total loan originations during the three months
ended December 31, 2010 compared with 45% during the same period last
year.
Residential
loans sold to investors for the three months ended December 31, 2010 totaled
$611.9 million, which generated mortgage revenues totaling $1.8 million,
compared with $413.7 million of loans sold and $2.7 million in revenues for the
three months ended December 31, 2009. The Company realized lower
profit margins on loans sold during the December 2010 quarter compared with the
prior year quarter as the result of: a higher percentage of loan activity
related to mortgage refinancings, which generally result in lower profit margins
than home purchase activity; a lower percentage of FHA and VA loan originations,
which generally produce higher sales margins than conventional mortgages;
extended commitment periods for delivery of loans to the Company’s mortgage loan
investors due to increased origination volumes, tightening underwriting criteria
required by such investors and increasing regulatory compliance requirements,
resulting in lower sales margins; and increased variable costs on loans
originated. In addition, the Company increased its reserve for
amounts potentially due to the Company’s loan investors under guarantees related
to loans that were previously sold and became delinquent or
defaulted. Expense related to such guarantees totaled $677,000 during
the three months ended December 31, 2010 compared with $54,000 during the same
period last year and, at December 31, 2010, the related reserve totaled
$787,000.
Another
important source of revenue generated by the Company’s mortgage banking
operation is interest income on mortgage loans that are held for sale pending
delivery to the Company’s loan investors. Because such loans are
generally held for short periods of time pending delivery to such investors, the
Company is able to fund them with short-term, low cost-funding sources, which
results in higher interest-rate spreads than other interest-earning assets held
by the Company. Interest income on loans held for sale increased
99.3% to $3.2 million for the quarter ended December 31, 2010 compared with $1.6
million for the same period last year, primarily due to a $171.2 million
increase in the average balance resulting from the increased origination
activity and extended delivery times to the Company’s loan
investors. Loans originated for sale during the three months ended
December 31, 2010 exceeded loans sold, resulting in a $17.6 million, or 7%,
increase in mortgage loans held for sale to $271.2 million at December 31, 2010
from $253.6 million at September 30, 2010.
- 25
-
Looking
forward to the March 2010 quarter compared with the December 2010 quarter, the
Company anticipates noticeable declines in mortgage revenues and net interest
income related to its mortgage banking operation based on an expectation of
seasonally lower loan origination volumes, lower refinancing activity and a
decline in loans held for sale as loan sales are likely to exceed
originations. These mortgage-related declines are expected to be
partially offset by growth in interest income from selective commercial loan
growth and modestly lower expense related to loan credit quality.
Retail Banking
Services
Core
deposits, which include checking, money market and passbook accounts, provide a
stable funding source for the Company’s asset growth and produce valuable fee
income. Their growth continues to be one of the Company’s primary
strategic objectives, resulting in an increase of $17.1 million, or 2.4%,
to $731.4 million at December 31, 2010 from $714.3 million at
September 30, 2010. Checking accounts, which represent the
cornerstone product in a customer relationship, increased $3.1 million to $497.3
million at December 31, 2010 from $494.2 million at September 30, 2010 as the
result of growth in deposits from municipal and retail customers, partially
offset by a decrease in deposits from commercial customers. Also
enhancing its ability to attract core deposits, the Bank participates in the
FDIC’s Transaction Account Guarantee Program, which provides full FDIC insurance
coverage for non interest-bearing transaction accounts and qualifying NOW
accounts, regardless of the dollar amount, and is in addition to the standard
FDIC insurance that was temporarily increased to $250,000 per
depositor. Both FDIC limits will be in effect through December 31,
2013. Money market accounts increased $15.2 million to
$205.1 million at December 31, 2010 from $189.9 million at September 30,
2010 primarily as the result of growth in deposits from commercial and retail
customers. The weighted-average costs of interest-bearing checking
accounts and money market accounts decreased to 0.51% at December 31, 2010
compared with 0.58% at September 30, 2010 primarily due to declining market
interest rates.
Certificates
of deposit increased $18.9 million to $419.7 million at December 31, 2010
from $400.9 million at September 30, 2010, primarily as the result of a
$14.4 million increase in CDARS time deposits to $78.5 million and a
$4.5 million increase in retail time deposits to $332.8
million. CDARS deposits, which are generally offered to in-market
retail and commercial customers and to public entities, offer the Bank’s
customers the ability to receive FDIC insurance on deposits up to $50
million. Total deposits increased $35.9 million, or 3.2%, to $1.15
billion at December 31, 2010 from $1.12 billion at September 30,
2010.
Retail
banking fees, which include fees charged to customers who have overdrawn their
checking accounts and service charges on other retail banking products, were
$1.0 million for the three months ended December 31, 2010, compared with
$932,000 for the same period last year, respectively. The increase in
retail banking fees during the December 2010 quarter resulted from a change in
deposit fee structure.
- 26
-
AVERAGE
BALANCE SHEETS
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.
Three Months Ended
|
||||||||||||||||||||||||
December 31, 2010
|
December 31, 2009
|
|||||||||||||||||||||||
Interest
|
Interest
|
|||||||||||||||||||||||
Average
|
and
|
Yield/
|
Average
|
and
|
Yield/
|
|||||||||||||||||||
Balance
|
Dividends
|
Cost
|
Balance
|
Dividends
|
Cost
|
|||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||
Loans receivable:
(1)
|
||||||||||||||||||||||||
Real
estate
|
$ | 274,743 | $ | 3,981 | 5.80 | % | $ | 303,648 | $ | 4,772 | 6.29 | % | ||||||||||||
Commercial
|
588,626 | 7,716 | 5.24 | % | 617,011 | 7,791 | 5.05 | % | ||||||||||||||||
Home
equity lines of credit
|
197,560 | 1,860 | 3.77 | % | 224,570 | 2,253 | 4.01 | % | ||||||||||||||||
Consumer
|
3,241 | 28 | 3.30 | % | 3,578 | 43 | 4.77 | % | ||||||||||||||||
Total
loans receivable
|
1,064,170 | 13,585 | 5.11 | % | 1,148,807 | 14,859 | 5.17 | % | ||||||||||||||||
Mortgage
loans held for sale
|
305,905 | 3,229 | 4.22 | % | 134,745 | 1,620 | 4.81 | % | ||||||||||||||||
Securities
and other
|
49,650 | 310 | 2.50 | % | 63,603 | 358 | 2.25 | % | ||||||||||||||||
Total
interest-earning assets
|
1,419,725 | 17,124 | 4.82 | % | 1,347,155 | 16,837 | 5.00 | % | ||||||||||||||||
Non-interest-earning
assets
|
85,062 | 66,533 | ||||||||||||||||||||||
Total
assets
|
$ | 1,504,787 | $ | 1,413,688 | ||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Interest-bearing
checking
|
$ | 349,761 | 791 | 0.91 | % | $ | 291,480 | 920 | 1.26 | % | ||||||||||||||
Passbook
savings
|
29,668 | 12 | 0.16 | % | 28,724 | 18 | 0.25 | % | ||||||||||||||||
Money
market
|
196,208 | 372 | 0.76 | % | 252,419 | 755 | 1.20 | % | ||||||||||||||||
Certificates
of deposit
|
407,003 | 2,023 | 1.99 | % | 488,691 | 2,934 | 2.40 | % | ||||||||||||||||
Total
interest-bearing deposits
|
982,640 | 3,198 | 1.30 | % | 1,061,314 | 4,627 | 1.74 | % | ||||||||||||||||
FHLB
advances
|
222,698 | 382 | 0.69 | % | 99,282 | 558 | 2.25 | % | ||||||||||||||||
Federal
Reserve borrowings
|
- | - | - | 51 | - | 0.50 | % | |||||||||||||||||
Subordinated
debentures
|
19,589 | 128 | 2.61 | % | 19,589 | 127 | 2.60 | % | ||||||||||||||||
Total
interest-bearing liabilities
|
1,224,927 | 3,708 | 1.21 | % | 1,180,236 | 5,312 | 1.80 | % | ||||||||||||||||
Non-interest
bearing liabilities:
|
||||||||||||||||||||||||
Non-interest
bearing deposits
|
141,331 | 97,538 | ||||||||||||||||||||||
Other
non-interest bearing liabilities
|
18,533 | 16,450 | ||||||||||||||||||||||
Total
non-interest-bearing liabilities
|
159,864 | 113,988 | ||||||||||||||||||||||
Stockholders'
equity
|
119,996 | 119,464 | ||||||||||||||||||||||
Total
liabilities and stockholders' equity
|
$ | 1,504,787 | $ | 1,413,688 | ||||||||||||||||||||
Net
interest income
|
$ | 13,416 | $ | 11,525 | ||||||||||||||||||||
Interest rate
spread
(2)
|
3.61 | % | 3.20 | % | ||||||||||||||||||||
Net interest
margin
(3)
|
3.78 | % | 3.42 | % | ||||||||||||||||||||
Ratio
of average interest-earning assets to average interest-bearing
liabilities
|
115.90 | % | 114.14 | % |
(1)
|
Include
non-accrual loans with an average balance of $29.4 million and $22.5
million for the three months ended December 31, 2010 and 2009,
respectively.
|
(2)
|
Yield
on interest-earning assets less cost of
interest-bearing liabilities.
|
(3)
|
Net
interest income divided by average interest-earning
assets.
|
- 27
-
RATE
VOLUME ANALYSIS
The
following table sets forth the effects of changing rates and volumes on net
interest income for the periods indicated. The total change for each category of
interest-earning asset and interest-bearing liability is segmented into the
change attributable to variations in volume (change in volume multiplied by
prior period rate) and the change attributable to variations in interest rates
(changes in rates multiplied by prior period volume). Changes in
interest income and expense attributed to both changes in volume and changes in
rate are allocated proportionately to rate and volume.
Three Months Ended
|
||||||||||||
December 31, 2010 vs 2009
|
||||||||||||
Volume
|
Rate
|
Net
|
||||||||||
(In thousands)
|
||||||||||||
Interest-earning
assets:
|
||||||||||||
Loans
receivable:
|
||||||||||||
Real
estate
|
$ | (435 | ) | $ | (356 | ) | $ | (791 | ) | |||
Commercial
|
(1,331 | ) | 1,256 | (75 | ) | |||||||
Home
equity lines of credit
|
(262 | ) | (131 | ) | (393 | ) | ||||||
Consumer
|
(3 | ) | (12 | ) | (15 | ) | ||||||
Total
loans receivable
|
(2,031 | ) | 757 | (1,274 | ) | |||||||
Mortgage
loans held for sale
|
2,917 | (1,308 | ) | 1,609 | ||||||||
Securities
and other
|
(86 | ) | 38 | (48 | ) | |||||||
Net
change in income on interest earning assets
|
800 | (513 | ) | 287 | ||||||||
Interest-bearing
liabilities:
|
||||||||||||
Interest-bearing
checking
|
799 | (928 | ) | (129 | ) | |||||||
Passbook
savings
|
3 | (9 | ) | (6 | ) | |||||||
Money
market
|
(145 | ) | (238 | ) | (383 | ) | ||||||
Certificates
of deposit
|
(450 | ) | (461 | ) | (911 | ) | ||||||
Total
interest-bearing deposits
|
207 | (1,636 | ) | (1,429 | ) | |||||||
FHLB
advances
|
1,875 | (2,051 | ) | (176 | ) | |||||||
Subordinated
debentures
|
1 | - | 1 | |||||||||
Net
change in expense on interest bearing liabilities
|
2,083 | (3,687 | ) | (1,604 | ) | |||||||
Change
in net interest income
|
$ | (1,283 | ) | $ | 3,174 | $ | 1,891 |
- 28
-
RESULTS OF
OPERATIONS
The
Company reported net income
for the quarter ended December 31, 2010 of $3.1 million compared with net income
of $1.3 million during the same quarter last year. The Company
reported net income
available to common shares for the quarter ended December 31, 2010 of
$2.6 million, or $0.24 per diluted common share on 10.9 million average diluted
shares outstanding, compared with net income available to common shares of
$736,000, or $0.07 per diluted common share on 10.5 million average diluted
shares outstanding, during the same quarter last year. Reducing
income available to common shares for the three months ended December 31, 2010
were dividends and discount accretion on the Company’s preferred stock, issued
during January 2009 as part of the U.S. Treasury’s TARP Capital Purchase Plan,
totaling $516,000, or $0.05 per diluted common share compared with $514,000, or
$0.05 per diluted common share in the comparable 2009 period.
Net interest
income rose 16%, or $1.9 million, to $13.4 million for the quarter ended
December 31, 2010 compared with $11.5 million for the same period last year
primarily as the result of a 36 basis point increase in the net interest
margin. The net interest margin increased to 3.78% for the quarter
ended December 31, 2010 compared with 3.42% for the quarter ended December 31,
2009 primarily as the result of an increase in the average balance of loans held
for sale, which typically produce higher interest-rate spreads than other
interest-earning assets held by the Company, combined with a market-driven
decline in the cost of deposits and wholesale borrowings. The average
balance of interest-earning assets increased to $1.42 billion for the
quarter ended December 31, 2010 compared with $1.35 billion for the quarter
ended December 31, 2009 primarily as the result of the increase in the average
balance of mortgage loans held for sale.
Total interest
and dividend income increased 2.0% to $17.1 million for the quarter ended
December 31, 2010, compared with $16.8 million for the same quarter last
year primarily as the result of the increase in interest income on mortgage
loans held for sale partially offset by a decrease in interest income on loans
receivable.
Interest income
on loans receivable decreased 8.6% to $13.6 million for the quarter ended
December 31, 2010, compared with $14.9 million for the same quarter last
year as the result of a decrease in the average balance and the average
yield. The average balance of loans receivable decreased to $1.06
billion during the three months ended December 31, 2010, compared with $1.15
billion during the same period last year primarily as the result of weakened
market demand for the Company’s loan products and the Company’s tightened
underwriting standards. The average yield on loans receivable
decreased to 5.11% during the three months ended December 31, 2010 compared with
5.17% during the same period last year primarily as the result of a market
driven decrease in the average yield on residential real estate and home equity
loans partially offset by an increase in the average yield on commercial
loans. The yield on commercial loans continued to benefit from the
implementation of interest-rate floors on new and renewing loans.
Interest income
on mortgage loans held for sale increased 99.3% to $3.2 million for the
quarter ended December 31, 2010, compared with $1.6 million for the same
quarter last year as the result of an increase in the average balance, partially
offset by a market driven decrease in the average yield. The average
balance of mortgage loans held for sale increased to $305.9 million during
the three months ended December 31, 2010 compared with $134.7 million during the
same period last year as the result of increased origination activity and
extended delivery times to the Company’s loan investors. The average
yield on mortgage loans held for sale was 4.22% during the three months ended
December 31, 2010 compared with 4.81% during the same period last year. See
Results of Community Banking
Strategy – Retail Mortgage Lending.
Total interest
expense decreased $1.6 million, or 30.2%, to $3.7 million for the quarter
ended December 31, 2010 compared with $5.3 million for the quarter ended
December 31, 2009. The lower expense was primarily the result of a
decrease in the average cost of funds partially offset by an increase in the
average balance. The average cost of funds decreased from 1.80% for
the quarter ended December 31, 2009 to 1.21% for the quarter ended December 31,
2010 and the average balance of interest-bearing liabilities increased from
$1.18 billion to $1.22 billion during the same period,
respectively. The increase in the average balance of interest-bearing
liabilities resulted primarily from an increase in the average balance of
advances from the Federal Home Loan Bank of Des Moines (“FHLB”), which was used
to fund asset growth and the decrease in time deposits. The decreased
average cost during the three-month period was the result of lower market
interest rates, a decrease in time deposits and a shift in the mix of wholesale
funding sources. The Company primarily funds its assets with savings
deposits from its retail and commercial customers. This funding
source is supplemented with wholesale funds consisting primarily of borrowings
from the FHLB, short-term borrowings from the Federal Reserve Bank and time
deposits from national brokers. Management actively chooses among
these wholesale funding sources depending on their relative costs, the Company’s
overall interest rate risk exposure and the Company’s overall borrowing capacity
at the FHLB and the Federal Reserve Bank.
- 29
-
Interest expense
on deposits decreased $1.4 million, or 30.9%, to $3.2 million during the
quarter ended December 31, 2010 compared with $4.6 million for the quarter ended
December 31, 2009. The decrease was primarily the result of a
decrease in the average cost to 1.30% for the quarter ended December 31, 2010
from 1.74% for the comparable quarter in the prior year. The lower
average cost resulted from decreases in market interest rates and the average
balance of higher-cost time deposits. See Results of Community Banking
Strategy – Retail Banking Services.
Interest expense
on advances from the Federal Home Loan Bank decreased $174,000, or 31.3%,
to $383,000 during the quarter ended December 31, 2010 compared with $557,000
for the quarter ended December 31, 2009 primarily as the result of a decrease in
the average cost partially offset by an increase in the average
balance. The average balance increased to $222.7 million for the
quarter ended December 31, 2010 from $99.3 million for the quarter ended
December 31, 2009 and the average cost decreased from 2.25% to 0.69% during the
same period, respectively. The increased average balance was used to
fund asset growth and the decrease in higher-cost time deposits. The
decrease in the average cost was the result of lower market interest rates
during the 2010 period.
Provision
for Loan Losses
The provision for
loan losses for the three months ended December 31, 2010 was $4.3 million
compared with $6.1 million for the same period a year ago. The change
in the provision for the three month period was primarily due to changes in the
levels of net charge-offs and the balance of non-performing
loans. See Non-Performing Assets
and Allowance for Loan
Losses.
Non-Interest
Income
Total
non-interest income decreased 18.0% to $3.6 million for the quarter ended
December 31, 2010 compared with $4.4 million for the same period last
year. The decrease was primarily the result of lower mortgage
revenues partially offset by an increase in retail banking fees. See
Results of Community Banking
Strategy – Retail Mortgage Lending and Results of Community Banking
Strategy – Retail Banking Services.
Investment
brokerage revenues totaled $446,000 for the
three months ended December 31, 2010 compared with $424,000 for the same
period a year ago. The Company operates an investment brokerage division
whose operations consist principally of brokering bonds from wholesale brokerage
houses to other banks, municipalities and individual
investors. Revenues are generated on trading spreads and fluctuate
with changes in customer demand, trading volumes and market interest
rates. The Company saw an increase in sales volumes during the
December 2010 period compared with the prior-year period as a result of stronger
market demand for fixed-income investment products in the midst of a favorable
interest rate environment and weakened loan demand by the Company’s investment
customers.
Non-Interest
Expense
Total
non-interest expense increased $119,000 to $8.3 million for the quarter
ended December 31, 2010 compared with $8.2 million for the same period a
year ago.
Salaries and
employee benefits expense decreased $495,000 to $3.4 million for the
quarter ended December 31, 2010 compared with $3.9 million for the quarter ended
December 31, 2009. The decrease was primarily due to a higher
level of direct, fixed compensation costs deferred against mortgage loans
originated as the result of increased activity.
Advertising
expense decreased $47,000 to $100,000 for the three months ended December
31, 2010 compared with $147,000 for the three months ended December 31,
2009. The decrease was generally due to a reduction in the overall
level of advertising during the December 2010 quarter resulting from a more
focused effort to control such expenses.
- 30
-
Professional
fees decreased $73,000 to $445,000 for the quarter ended December 31,
2010 compared with $517,000 for the quarter ended December 31,
2009. The decrease was primarily the result of lower expenses
associated with credit collections and regulatory compliance.
FDIC deposit
insurance premium expense increased $131,000 to
$623,000 for the three months ended December 31, 2010 compared with $492,000 for
the same period in 2009. The increase was the primarily the result of
an increase in the rate paid for deposit insurance partially offset by a
decrease in the average balance.
Real estate
foreclosure expense and losses was $1.1 million for the three
months ended December 31, 2010 compared with $436,000 for the same period in
2009. See Non-Performing Assets
and Allowance for Loan
Losses.
Income
Taxes
The provision for
income taxes increased $880,000 to $1.3 million, or an effective rate of
30.16%, for the quarter ended December 31, 2010, compared with $466,000, or an
effective rate of 27.15%, for the three months ended December 31,
2009. The higher effective tax rate in the December 2010 quarter was
primarily the result of a lower ratio of tax-exempt income on bank owned life
insurance and tax-exempt interest on loans to total pre-tax income that resulted
from the higher level of pre-tax income in the period.
- 31
-
NON-PERFORMING
ASSETS AND ALLOWANCE FOR LOAN LOSSES
Non-performing
assets at December 31, 2010 and September 30, 2010 are summarized as
follows:
December 31,
|
September 30,
|
|||||||
2010
|
2010
|
|||||||
Non-accrual
loans:
|
||||||||
Residential
real estate:
|
||||||||
First
mortgage
|
$ | 8,857,882 | $ | 6,726,710 | ||||
Second
mortgage
|
1,492,344 | 1,522,066 | ||||||
Home
equity
|
3,266,298 | 2,205,504 | ||||||
Commercial
and multi-family real estate
|
9,512,796 | 5,538,651 | ||||||
Land
acquisition and development
|
6,738,763 | 8,796,057 | ||||||
Real
estate construction and development
|
1,135,663 | 1,188,743 | ||||||
Commercial
and industrial
|
414,351 | 417,171 | ||||||
Consumer
and other
|
285,735 | 101,425 | ||||||
Total
non-accrual loans
|
31,703,832 | 26,496,327 | ||||||
Troubled
debt restructurings:
|
||||||||
Current
under restructured terms:
|
||||||||
Residential
real estate:
|
||||||||
First
mortgage
|
15,759,806 | 16,093,071 | ||||||
Second
mortgage
|
1,929,394 | 2,186,284 | ||||||
Home
equity
|
1,039,387 | 1,050,152 | ||||||
Commercial
and multi-family real estate
|
162,213 | 183,528 | ||||||
Land
acquisition and development Land acquisition and
development
|
120,890 | 97,501 | ||||||
Real
estate construction and development
|
2,933,531 | 3,305,869 | ||||||
Commercial
and industrial
|
618,220 | 1,683,568 | ||||||
Consumer
and other
|
59,127 | 82,631 | ||||||
Total
current troubled debt restructurings
|
22,622,568 | 24,682,604 | ||||||
Past
due under restructured terms:
|
||||||||
Residential
real estate:
|
||||||||
First
mortgage
|
8,536,690 | 7,251,091 | ||||||
Second
mortgage
|
483,100 | 339,397 | ||||||
Home
equity
|
674,293 | 727,859 | ||||||
Land
acquisition and development Land acquisition and
development
|
41,222 | 64,857 | ||||||
Real
estate construction and development
|
50,812 | - | ||||||
Commercial
and industrial
|
881,930 | - | ||||||
Total
past due troubled debt restructurings
|
10,668,047 | 8,383,204 | ||||||
Total
troubled debt restructurings
|
33,290,615 | 33,065,808 | ||||||
Total
non-performing loans
|
64,994,447 | 59,562,135 | ||||||
Real
estate acquired in settlement of loans:
|
||||||||
Residential
real estate
|
2,614,801 | 3,632,598 | ||||||
Commercial
real estate
|
10,394,921 | 11,267,714 | ||||||
Total
real estate acquired in settlement of loans
|
13,009,722 | 14,900,312 | ||||||
Other
nonperforming assets
|
11,705 | - | ||||||
Total
non-performing assets
|
$ | 78,015,874 | $ | 74,462,447 | ||||
Ratio
of non-performing loans to total loans receivable
|
6.10 | % | 5.56 | % | ||||
Ratio
of non-performing assets to totals assets
|
5.32 | % | 5.13 | % | ||||
Ratio
of allowance for loan losses to non-performing loans
|
41.97 | % | 45.29 | % | ||||
Excluding
troubled debt restructurings that are current under restructured terms and
related allowance for loan losses:
|
||||||||
Ratio
of non-performing loans to total loans receivable
|
2.56 | % | 2.52 | % | ||||
Ratio
of non-performing assets to totals assets
|
3.78 | % | 3.43 | % | ||||
Ratio
of allowance for loan losses to non-performing loans
|
63.80 | % | 75.47 | % |
- 32
-
Non-performing
assets increased $3.6 million to $78.0 million at December 31, 2010 compared
with $74.5 million at September 30, 2010 primarily the result of a $5.2 million
increase in non-accrual loans partially offset by a $1.9 million decrease in
real estate acquired in settlement of loans. Loans are placed on
non-accrual status when, in the opinion of management, there is reasonable doubt
as to the collectability of interest or principal. Management
considers many factors before placing a loan on non-accrual, including the
overall financial condition of the borrower, the progress of management’s
collection efforts and the value of the underlying collateral. Non-accrual
loans totaled $31.7 million at December 31, 2010 compared with $26.5 million at
September 30, 2010. The increase during the three-month period was
primarily due to a $3.2 million increase in non-accrual residential real estate
loans and $1.9 million increase in non-accrual commercial loans primarily
related to the continued adverse economic environment.
A loan is
classified as a troubled debt restructuring if the Company, for economic or
legal reasons related to the borrower’s financial difficulties, grants a
concession to the borrower that it would not otherwise consider. A loan
classified as a troubled debt restructuring will generally retain
such classification until the loan is paid in full. However, a
restructured one- to four-family residential mortgage loan that yields
a market rate and demonstrates the ability to pay under the terms of the
restructured note through a sustained period of repayment performance,
which is generally one year, is removed from the troubled debt restructuring
classification. Interest income on restructured loans is accrued at
the reduced rate and the loan is returned to performing status once the
borrower demonstrates the ability to pay under the terms of the
restructured note through a sustained period of repayment performance,
which is generally six months.
Restructured
residential loans totaled $28.4 million at December 31, 2010 compared with $27.6
million at September 30, 2010. Management continued its efforts to
proactively modify loan repayment terms with residential borrowers who were
experiencing financial difficulties in the current economic climate with the
belief that these actions would maximize the Bank’s ultimate recoveries on these
loans. The restructured terms of the loans generally included a
reduction of the interest rates and the addition of past due interest to the
principal balance of the loans. During the three months ended
December 31, 2010, the Company restructured approximately $834,000 of loans
to troubled residential borrowers and returned approximately $2.2 million of
previously restructured residential loans to performing status as the result of
the borrowers’ favorable performance history since restructuring, compared with
$8.2 million and $1.7 million, respectively, during the comparable period
last year. At December 31, 2010, $28.4 million, or 85% of
total restructured loans, related to residential borrowers compared with $27.6
million, or 84% of total restructured loans, at September 30,
2010. At December 31, 2010, 66% of these residential borrowers were
performing as agreed under the modified terms of the loans compared with 70% at
September 30, 2010. The fluctuation in the percentage of restructured
residential loans that were performing under their modified terms was primarily
the result of returning a portion of such loans to performing status during the
three months ended December 31, 2010 and migration of certain other
restructured residential loans to the past due status.
Real
estate acquired in settlement of loans decreased to $13.0 million at December
31, 2010 compared with $14.9 million at September 30, 2010 due to the sale of
several residential real estate properties and the write down of a large
commercial property. Real estate foreclosure losses and expense was
$1.1 million for the three months ended December 31, 2010 compared with
$436,000 for the same period last year. Real estate foreclosure
losses and expense includes realized losses on the final disposition of
foreclosed properties, additional write-downs for declines in the fair market
values of properties subsequent to foreclosure, and expenses incurred in
connection with maintaining the properties until they are
sold. Expense during the December 2010 quarter included an additional
$717,000 write-down of an existing commercial real estate property due to a
decline in its estimated value since its acquisition in a prior period.
- 33
-
The
following table summarizes the activity in the allowance for loan losses for the
period indicated.
Three Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Balance,
beginning of period
|
$ | 26,975,717 | $ | 20,579,170 | ||||
Provision
charged to expense
|
4,300,000 | 6,074,000 | ||||||
Net
charge-offs:
|
||||||||
Residential
real estate first mortgage
|
165,772 | 929,927 | ||||||
Residential
real estate second mortgage
|
302,442 | 184,845 | ||||||
Home
equity lines of credit
|
520,880 | 722,143 | ||||||
Land
acquisition and development
|
2,117,352 | 326,590 | ||||||
Real
estate construction & development
|
35 | 1,436,313 | ||||||
Commercial
& multi-family real estate
|
721,189 | (5,253 | ) | |||||
Commercial
& industrial
|
141,213 | 62,651 | ||||||
Consumer
and other
|
31,429 | 73,346 | ||||||
Total
charge-offs, net
|
4,000,312 | 3,730,562 | ||||||
Balance,
end of period
|
$ | 27,275,405 | $ | 22,922,608 |
The
provision for loan losses for the three months ended December 31, 2010 was $4.3
million compared with $6.1 million in the same period last year. The
larger three-month provision recorded in the December 2009 quarter was primarily
due to a 17% increase in non-performing assets during that quarter compared with
a 5% increase during the December 2010 quarter.
Net
charge-offs for the three-months ended December 31, 2010 totaled $4.0 million,
or 1.51% of average loans on an annualized basis compared with $3.7 million, or
1.30% of average loans on an annualized basis for the same period a year
ago. Net charge-offs in the December 2010 quarter included
$3.0 million of charge-offs on commercial loans and $989,000 of charge-offs
on residential mortgage loans compared with $1.8 million and $1.8 million,
respectively, in the same period last year. Because a large portion
of the Company’s loan portfolio is collateralized by real estate, losses occur
more frequently when property values are declining and borrowers are losing
equity in the underlying collateral. Approximately 70%, or $2.8
million, of net charge-offs in the December 2010 quarter related to a
relationship with one commercial borrower. In addition, declines in
residential real estate values in the Company’s market areas, as well as
nationally, contributed to the high levels of charge-offs in the December 2010
and 2009 quarters.
The ratio
of the allowance for loan losses to loans receivable was 2.56% at December 31,
2010 compared with 2.52% at September 30, 2010. The ratio of the
allowance for loan losses to non-performing loans was 41.97% at December 31,
2010 compared with 45.29% at September 30, 2010. Excluding
restructured loans that were performing under their restructured terms and the
related allowance for loan losses, the ratio of the allowance for loan losses to
the remaining non-performing loans was 63.80% at December 31, 2010 compared with
75.47% at September 30, 2010. Management believes the changes in this
coverage ratio are appropriate due to a change in the mix of non-performing
loans during the period, specifically troubled debt restructurings that were
performing under their restructured terms.
The
Company maintains an allowance for loan losses to absorb probable losses in the
Company’s loan portfolio. Loan losses are charged against and recoveries are
credited to the allowance. Provisions for loan losses are charged to income and
credited to the allowance in an amount necessary to maintain an appropriate
allowance given risks identified in the portfolio. The allowance is based upon
management’s quarterly estimates of probable losses inherent in the loan
portfolio. Management’s estimates are determined through a method of
quantifying certain risks in the portfolio that are affected primarily by
changes in the composition and volume of the portfolio combined with an analysis
of past-due and classified loans, and can also be affected by the following
factors: changes in national and local economic conditions and developments,
assessment of collateral values based on independent appraisals, changes in
lending policies and procedures, including underwriting standards and
collections, charge-off and recovery practices, and changes in the experience,
ability, and depth of lending management staff.
- 34
-
The
following assessments are performed quarterly in accordance with the Company’s
allowance for loan losses methodology:
Loans
considered for individual impairment analysis include loans that are past due,
loans that have been placed on nonaccrual status, troubled debt restructurings,
loans with internally assigned credit risk ratings that indicate an elevated
level of risk, or loans that management has knowledge of or concerns about the
borrower’s ability to pay under the contractual terms of the note. Residential
loans to be evaluated for impairment are generally identified through a review
of loan delinquency reports, internally-developed risk classification reports,
and discussions with the Bank’s loan collectors. Commercial loans evaluated for
impairment are generally identified through a review of loan delinquency
reports, internally-developed risk classification reports, discussions with loan
officers, discussions with borrowers, periodic individual loan reviews and local
media reports indicating problems with a particular project or borrower.
Commercial loans are individually reviewed and assigned a credit risk rating
periodically by the internal loan committee.
All loans
that are not evaluated individually for impairment and any individually
evaluated loans determined not to be impaired are segmented into groups based on
similar risk characteristics or internally assigned credit risk ratings. Our
methodology includes factors that allow us to adjust our estimates of losses
based on the most recent information available. Historical loss rates for each
risk group are used as the starting point to determine allowance provisions.
These rates are then adjusted to reflect actual changes and anticipated changes
in national and local economic conditions and developments, assessment of
collateral values based on independent appraisals, changes in lending policies
and procedures, including underwriting standards and collections, charge-off and
recovery practices, and changes in the experience, ability, and depth of lending
management staff.
In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such agencies may
require the Company to modify its allowance for loan losses based on their
judgment about information available to them at the time of their
examination.
Management
believes that the amount maintained in the allowance will be adequate to absorb
probable losses inherent in the portfolio. Although management believes that it
uses the best information available to make such determinations, future
adjustments to the allowance for loan losses may be necessary and results of
operations could be significantly and adversely affected if circumstances differ
substantially from the assumptions used in making the determinations. While
management believes it has established the allowance for loan losses in
accordance with U.S. generally accepted accounting principles, there can be no
assurance that the Bank’s regulators, in reviewing the Bank’s loan portfolio,
will not request the Bank to significantly increase its allowance for loan
losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the existing
allowance for loan losses is adequate or that a substantial increase will not be
necessary should the quality of any loans deteriorate as a result of the factors
discussed above. Any material increase in the allowance for loan losses will
adversely affect the Company’s financial condition and results of
operations.
- 35
-
FINANCIAL
CONDITION
Cash and cash
equivalents increased to $16.0 million at December 31, 2010 from $15.6
million at September 30, 2010. Federal funds sold and overnight
interest-bearing deposit accounts increased to $5.2 million at December 31, 2010
compared with $4.0 million at September 30, 2010 primarily as the result of an
increase in overnight deposits.
Debt securities
available for sale increased to $13.6 million at December 31, 2010 from
$8.0 million at September 30, 2010. Mortgage-backed
securities available for sale decreased to $6.9 million at December 31,
2010 from $8.8 million at September 30, 2010 and mortgage-backed
and related securities held to maturity decreased to $9.2 million at
December 31, 2010 from $10.3 million at September 30, 2010. Such
securities are primarily held as collateral to secure large commercial and
municipal deposits. The total balance held in these securities is
adjusted as individual securities mature to reflect fluctuations in the balances
of the deposits they are securing.
Stock in the
Federal Home Loan Bank of Des Moines increased $410,000 to $10.2 million
at December 31, 2010 from $9.8 million at September 30,
2010. The Bank is generally required to hold stock equal to 5% of its
total FHLB borrowings.
Advances from
the Federal Home Loan
Bank of Des Moines decreased to $161.8 million at December 31, 2010 from
$181.0 million at September 30, 2010. The Company supplements
its primary funding source, retail deposits, with wholesale funding sources
consisting of borrowings from the FHLB, short-term borrowings from the Federal
Reserve Bank of St. Louis and brokered certificates of deposit acquired on
a national level. Management chooses between these wholesale funding
sources depending on their relative costs. See Liquidity and Capital
Resources.
Advance
payments by borrowers for
taxes and insurance represent insurance and real estate tax payments
collected from borrowers on loans serviced by the Bank. The balance
decreased $4.4 million to $2.7 million at December 31, 2010 compared with
$7.1 million at September 30, 2010 due to the payment of borrowers’ real estate
taxes in December 2010.
Total
stockholders’ equity increased $2.3 million to $118.7 million at December
31, 2010 from $116.4 million at September 30, 2010 primarily as the result
of net income of $3.1 million, the amortization of equity trust expense of
$98,000 and the amortization of stock option and award expense of $183,000
partially offset by common stock dividend payments of $1.0 million and
preferred stock dividends of $407,000.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company primarily funds its assets with deposits from its retail and commercial
customers. If the Bank or the Company requires funds beyond their
ability to generate them internally, the Bank has the ability to borrow funds
from the FHLB and the Federal Reserve Bank and, subject to regulatory
restrictions discussed below, to raise certificates of deposit on a national
level through broker relationships. Management chooses among these
wholesale funding sources depending on their relative costs, the Company’s
overall interest rate risk exposure and the Company’s overall borrowing capacity
at the FHLB and the Federal Reserve Bank. At December 31, 2010, the
combined balance of borrowings from the FHLB, borrowings from the Federal
Reserve Bank and brokered deposits totaled $170.2 million, had a
weighted-average interest rate of 0.96%, a weighted average maturity of
approximately 11 months and represented 12% of total assets. At
September 30, 2010, these combined balances totaled $189.4 million, had a
weighted-average interest rate of 0.92%, a weighted average maturity of
approximately 10 months and represented 13% of total assets. Use of
these funds has given the Company alternative sources to support its asset
growth while avoiding, when necessary, aggressive deposit pricing strategies
used from time to time by some of its competitors in its market. In
addition, because approximately two-thirds of the Company’s assets are scheduled
to mature or reprice within one year, the use of these wholesale funds has given
management a low-cost means to maximize net interest income and manage
interest-rate risk by providing the Company greater flexibility to control the
interest rates and maturities of these funds, as compared to
deposits. This increased flexibility has allowed the Company to
better respond to fluctuations in the interest rate environment and demand for
its loan products, especially mortgage loans held for sale that are awaiting
final settlement (generally within 30 days) with the Company’s
investors. While the Company effectively utilized wholesale funding
to support its asset growth in recent years, controlled growth in core deposits
and retail certificates of deposit during the three months ended December 31,
2010 allowed the Company to reduce its use of such wholesale
funding.
- 36
-
During
July 2010, the Company agreed to comply with a request from its primary
regulator, the Office of Thrift Supervision (“OTS”), not to increase the
aggregate level of national brokered certificates of deposit, CDARS time
deposits and certain other similar reciprocal deposits above the level that
existed at July 2, 2010, which was $178.5 million. Prior to that
time, the Company had already begun reducing the level of these types deposits
with funds received from the increased levels of core deposits and retail
certificates of deposit. Management does not anticipate that this
restriction will have a significant impact on the Company’s financial condition,
results of operations or liquidity position.
The
borrowings from the FHLB are obtained under a blanket agreement, which assigns
all investments in FHLB stock, qualifying first residential mortgage loans,
residential mortgage loans held for sale and home equity loans with a 90% or
less loan-to-value ratio as collateral to secure the amounts
borrowed. Total borrowings from the FHLB are subject to limitations
based upon a risk assessment of the Bank. At December 31, 2010, the
Bank had approximately $146.2 million in additional borrowing authority
under the arrangement with the FHLB in addition to the $161.8 million in
advances outstanding at that date.
The
Company has the ability to borrow funds on a short-term basis under the Bank’s
primary credit line at the Federal Reserve’s Discount Window. At
December 31, 2010, the Company had approximately $89.9 million in total
borrowing authority under this arrangement with no borrowings outstanding and
had approximately $147.3 million of commercial loans pledged as collateral under
this agreement.
At
December 31, 2010, the Bank had outstanding commitments to originate loans
totaling $78.6 million and commitments to sell loans totaling $309.1
million. Certificates of deposit totaling $301.0 million at December
31, 2010 were scheduled to mature in one year or less. Based on past
experience, management believes the majority of certificates of deposit maturing
in one year or less will remain with the Bank.
A large
portion of the Company’s liquidity is obtained from the Bank in the form of
dividends. OTS regulations impose limitations upon payment of capital
distributions from the Bank to the Company. Under the regulations as
currently applied to the Bank, the approval of the OTS is required prior to any
capital distribution. To the extent that any such capital
distributions are not approved by the OTS in future periods, the Company could
find it necessary to reduce or eliminate the payment of common dividends to its
shareholders. In addition, the Company could find it necessary to
temporarily suspend the payment of dividends on its preferred stock and interest
on its subordinated debentures. At December 31, 2010 and September
30, 2010, the Company had cash and cash equivalents totaling $255,000 and
$109,000, respectively, and a demand loan extended to the Bank totaling $2.2
million and $1.9 million, respectively, that could be used to fulfill its
liquidity needs.
SOURCES
AND USES OF CASH
The
Company is a large originator of residential mortgage loans with substantially
all of such loans sold in the secondary residential mortgage
market. Consequently, the primary source
and use of cash in operations is the origination and subsequent sale of
mortgage loans held for sale. During the three months ended December
31, 2010, the origination of mortgage loans held for sale used $629.5 million of
cash and the sales of such loans provided cash totaling $614.9 million.
The
primary use of cash from investing
activities is the origination of loans receivable which are held in
portfolio. During the three months ended December 31, 2010, the
Company had a net increase in loans receivable of $406,000 compared with an
increase of $9.4 million for the three months ended December 31,
2009. In addition, the Company purchased $18.6 million and $4.3
million in debt securities available for sale and FHLB stock during the three
months ended December 31, 2010 compared with purchases of $8.0 million and $2.4
million respectively, in debt securities available for sale and FHLB stock
during the three months ended December 31, 2009. Sources of cash from
investing activities also included maturities of debt securities available for
sale and proceeds from FHLB stock redemptions totaling $13.0 million and
$3.9 million during the three months ended December 31, 2010 compared with
maturities of debt securities available for sale and proceeds from FHLB stock
redemptions of $5.0 million and $6.6 million respectively, during the three
months ended December 31, 2009.
- 37
-
The
Company’s primary sources and uses of funds from financing
activities during the three months ended December 31, 2010 included a
$35.9 million increase in deposits compared with a $36.0 million decrease
for the three months ended December 31, 2009, and a $19.2 million decrease in
advances from the Federal Home Loan Bank during the three months ended December
31, 2010 compared with a $62.8 million increase during the same period last
year. Other significant sources and uses of cash from financing
activities for the three months ended December 31, 2009 included a $4.7 million
increase in notes payable. There was no such activity during the
three months ended December 31, 2010.
The
following table presents the maturity structure of time deposits and other
maturing liabilities at December 31, 2010:
December 31, 2010
|
||||||||||||||||
Federal
|
||||||||||||||||
Certificates
|
FHLB
|
Reserve
|
Subordinated
|
|||||||||||||
of Deposit
|
Borrowings
|
Borrowings
|
Debentures
|
|||||||||||||
|
(In thousands)
|
|||||||||||||||
Maturing in: | ||||||||||||||||
Three
months or less
|
$ | 92,865 | $ | 132,800 | $ | - | $ | - | ||||||||
Over
three months through six months
|
82,964 | - | - | - | ||||||||||||
Over
six months through twelve months
|
125,218 | - | - | - | ||||||||||||
Over
twelve months
|
118,694 | 29,000 | - | 19,589 | ||||||||||||
Total
|
$ | 419,741 | $ | 161,800 | $ | - | $ | 19,589 |
CONTRACTUAL
OBLIGATIONS
In
addition to its owned banking facilities, the Company has entered into long-term
operating leases to support ongoing activities. The required payments
under such commitments at December 31, 2010 are as follows:
Less
than one year
|
$ | 701,968 | ||
Over
1 year through 3 years
|
1,504,814 | |||
Over
3 years through 5 years
|
1,453,538 | |||
Over
5 years
|
1,373,021 | |||
Total
|
$ | 5,033,341 |
REGULATORY
CAPITAL
The Bank
is required to maintain specific amounts of capital pursuant to OTS regulations
on minimum capital standards. The OTS’s minimum capital standards
generally require the maintenance of regulatory capital sufficient to meet each
of three tests, hereinafter described as the tangible capital requirement, the
Tier I (core) capital requirement and the risk-based capital
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 Tier I capital
requirement provides for minimum core capital (tangible capital plus certain
forms of supervisory goodwill and other qualifying intangible assets) equal to
4.0% of adjusted total assets. The risk-based capital requirement
provides 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-weighting factor of 50%).
The Bank
is also subject to prompt corrective action capital requirement regulations set
forth by the OTS. As defined in the regulations, the OTS requires the
Bank to maintain minimum total and Tier I capital to risk-weighted assets and
Tier I capital to average assets. The Bank met all capital adequacy requirements
to which it was subject at December 31, 2010.
As of
December 31, 2010, the most recent notification from the OTS categorized the
Bank as “well capitalized” under the regulatory framework for prompt corrective
action. To be categorized as “well capitalized,” the Bank must maintain minimum
total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the following table. There are no conditions or events since that notification
that management believes have changed the Bank’s category.
- 38
-
The
following table illustrates the Bank’s actual regulatory capital levels compared
with its regulatory capital requirements at December 31, 2010 and September 30,
2010.
To be Categorized as
|
||||||||||||||||||||||||
"Well Capitalized"
|
||||||||||||||||||||||||
Under Prompt
|
||||||||||||||||||||||||
For Capital
|
Corrective Action
|
|||||||||||||||||||||||
Actual
|
Adequacy Purposes
|
Provisions
|
||||||||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||
As
of Decenber 31, 2010:
|
||||||||||||||||||||||||
Tangible
capital (to total assets)
|
$ | 132,281 | 9.05 | % | $ | 21,936 | 1.50 | % | N/A | N/A | ||||||||||||||
Total
risk-based capital (to risk- weighted assets)
|
147,214 | 12.36 | % | 95,249 | 8.00 | % | $ | 119,061 | 10.00 | % | ||||||||||||||
Tier
I risk-based capital (to risk- weighted assets)
|
132,281 | 11.11 | % | N/A | N/A | 71,437 | 6.00 | % | ||||||||||||||||
Tier
I leverage capital (to average assets)
|
132,281 | 9.05 | % | 58,496 | 4.00 | % | 73,121 | 5.00 | % | |||||||||||||||
As
of September 30, 2010:
|
||||||||||||||||||||||||
Tangible
capital (to total assets)
|
$ | 130,571 | 9.02 | % | $ | 21,708 | 1.50 | % | N/A | N/A | ||||||||||||||
Total
risk-based capital (to risk- weighted assets)
|
145,268 | 12.40 | % | 93,750 | 8.00 | % | $ | 117,188 | 10.00 | % | ||||||||||||||
Tier
I risk-based capital (to risk- weighted assets)
|
130,571 | 11.14 | % | N/A | N/A | 70,313 | 6.00 | % | ||||||||||||||||
Tier
I leverage capital (to average assets)
|
130,571 | 9.02 | % | 57,887 | 4.00 | % | 72,359 | 5.00 | % |
EFFECTS
OF INFLATION
Changes
in interest rates may have a significant impact on a bank’s performance because
virtually all assets and liabilities of banks are monetary in
nature. Interest rates do not necessarily move in the same direction
or in the same magnitude as the prices of goods and
services. Inflation does have an impact on the growth of total assets
in the banking industry, often resulting in a need to increase equity capital at
higher than normal rates to maintain an appropriate equity to asset
ratio. The Company’s operations are not currently impacted by
inflation.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND
OFF-BALANCE SHEET ARRANGEMENTS
There
have been no material changes in the Company's quantitative or qualitative
aspects of market risk during the quarter ended December 31, 2010 from those
disclosed in the Company's Annual Report on Form 10-K for the year ended
September 30, 2010.
In the
normal course of operations, the Company engages in a variety of financial
transactions that, in accordance with generally accepted accounting principles,
are not recorded in its financial statements. These transactions involve, to
varying degrees, elements of credit, interest rate and liquidity
risk. Such transactions are used primarily to manage customers’
requests for funding and take the form of loan commitments and lines of
credit. Additionally, the Company engages in certain hedging
activities, which are described in greater detail below.
For the
three months ended December 31, 2010, the Company did not engage in any
off-balance-sheet transactions reasonably likely to have a material effect on
its financial condition, results of operations or cash flows.
The
Company originates and purchases derivative financial instruments, including
interest rate lock commitments and, in prior periods, interest rate
swaps. Derivative financial instruments originated by the Company
consist of interest rate lock commitments to originate residential real estate
loans. At December 31, 2010, the Company had issued $78.6 million of
unexpired interest rate lock commitments to loan customers compared with $115.2
million of unexpired commitments at September 30, 2010.
- 39
-
The
Company entered into two $14 million notional value interest-rate swap contracts
during 2008. These contracts supported a $14 million, variable-rate,
commercial loan relationship and were used to allow the commercial loan customer
to pay a fixed interest rate to the Bank, while the Bank, in turn, charged the
customer a floating interest rate on the loan. Under the terms of the
swap contract between the Bank and the loan customer, the customer pays the Bank
a fixed interest rate of 6.58%, while the Bank pays the customer a variable
interest rate of one-month LIBOR plus 2.30%. Under the terms of a
similar but separate swap contract between the Bank and a major securities
broker, the Bank pays the broker a fixed interest rate of 6.58%, while the
broker pays the Bank a variable interest rate of one-month LIBOR plus
2.30%. The two contracts have identical terms and are scheduled to
mature on May 15, 2015. While these two swap derivatives generally
work together as an interest-rate hedge, the Company has not designated them for
hedge accounting treatment. Consequently, both derivatives are marked
to fair value through either a charge or credit to current earnings, the net
effect of which offset one another during the three months ended December 31,
2010. The fair values of these derivative instruments recorded in
other assets and other liabilities in the Company’s financial statements at
December 31, 2010 and September 30, 2010 were $1.4 million and $1.9 million,
respectively.
CONTROLS
AND PROCEDURES
The Company maintains
“disclosure controls and procedures” as such term is defined in Rule 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), that are designed to ensure that the information required
to be disclosed in the reports that the Company files or submits
under the Exchange Act with the Securities and Exchange Commission (the “SEC”)
(1) is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (2) is accumulated and communicated
to the Company’s
management including its principal executive and principal financial officers as
appropriate to allow timely decisions regarding required
disclosure.
During
the quarter ended December 31, 2010, the Company’s management,
including its principal
executive officer and principal financial officer, evaluated the effectiveness
of the Company’s
disclosure controls and procedures as of December 31, 2010, and concluded
that the Company’s
disclosure controls and procedures were effective as of such date.
There
have been no changes in the Company’s internal control over financial reporting
during the quarter ended December 31, 2010 that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting.
IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS
In
February 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09,
Amendments to Certain
Recognition and Disclosure Requirements, as an amendment to ASC Topic
855. As a result of ASU 2010-09, SEC registrants will not disclose
the date through which management evaluated subsequent events in financial
statements. ASU 2010-09 is effective immediately for all financial
statements that have not yet been issued or have not yet become available to be
issued, or March 31, 2010 for the Company. The adoption of ASU
2010-09 is for disclosure purposes only and did not have any effect on the
Company’s financial position or results of operations.
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an Amendment of SFAS No. 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
was subsequently incorporated into ASC Topic 860, Transfers and Servicing. SFAS
No. 166 amends ASC Topic 860 and requires more information about transfers of
financial assets, including securitization transactions and where companies have
continuing exposure to the risks related to transferred financial assets. It
eliminates the concept of a “qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets and requires additional
disclosures. SFAS No. 166 is effective for the annual period beginning after
November 15, 2009 and for interim periods within the first annual reporting
period, and must be applied to transfers occurring on or after the effective
date. The adoption of the provisions of this Topic did not have a material
impact on the Company’s financial condition or results of
operations.
- 40
-
In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R). SFAS No. 167 amends FIN 46(R), Consolidation of Variable Interest
Entities, which was subsequently incorporated into ASC Topic 810, Consolidation, to change how
a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated, and
requires additional disclosures about involvement with variable interest
entities, any significant changes in risk exposure due to that involvement and
how that involvement affects the company’s financial statements. The
determination of whether a company is required to consolidate an entity is based
on, among other things, an entity’s purpose and design and a company’s ability
to direct the activities of the entity that most significantly impact the
entity’s economic performance. The provisions of this Topic are effective for
the annual period beginning after November 15, 2009 and for interim periods
within the first annual reporting period. The adoption of the provisions of this
Topic did not have a material impact on the Company’s financial condition or
results of operations.
In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification TM
and the Hierarchy of Generally
Accepted Accounting Principles, a Replacement of SFAS No. 162 – The Hierarchy of
Generally Accepted Accounting Principles, which was subsequently
incorporated into ASC Topic 105, Generally Accepted Accounting
Principles. The ASC establishes the source of authoritative GAAP
recognized by the FASB to be applied by non-governmental entities. Rules and
interpretive releases of the United States Securities and Exchange Commission
(“SEC”) under authority of federal securities laws, are also sources of
authoritative GAAP for SEC registrants. The ASC supersedes all then-existing
non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the ASC will become non-authoritative. ASC
Topic 105 is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The implementation of the ASC did not
have a material impact on the Company’s financial condition or results of
operations.
In
January 2010, the FASB issued ASU No. 2010-06 which amends ASC Topic 820, Fair Value Measurements and
Disclosures. This update will provide more robust disclosures about (a)
the different classes of assets and liabilities measured at fair value, (b) the
valuation techniques and inputs used, (c) the activity in Level 3 fair value
measurements, and (d) the transfers between Levels 1, 2, and 3. This is
effective for financial statements issued for interim and annual periods ending
after December 15, 2009. The interim disclosures required by this
update are reported in the notes to the Company’s consolidated financial
statements.
In July
2010, the FASB issued ASU No. 2010-20, Receivables (ASC Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses. This ASU requires expanded credit risk disclosures
intended to provide investors with greater transparency regarding the allowance
for credit losses and the credit quality of financing receivables. Under this
ASU, companies will be required to provide more information about the credit
quality of their financing receivables in the disclosures to financial
statements, such as aging information, credit quality indicators, changes in the
allowance for credit losses, and the nature and extent of troubled debt
restructurings and their effect on the allowance for credit losses. Both new and
existing disclosures must be disaggregated by portfolio segment or class based
on the level of disaggregation that management uses when assessing its allowance
for credit losses and managing its credit exposure. The disclosures as of the
end of a reporting period will be effective for interim and annual periods
ending on or after December 15, 2010. The disclosures about activity that occurs
during a reporting period will be effective for interim and annual reporting
periods beginning on or after December 15, 2010. The adoption of the provisions
of this Topic did not have a material impact on the Company’s financial
condition or results of operations.
- 41
-
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. Neither the
Bank nor the Company is a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Company.
Item 1A.
Risk
Factors:
In
addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, “Item 1A. Risk
Factors” in our Annual Report on Form 10-K for the year ended September
30, 2010, which could materially affect our business, financial condition
or future results. The risks described in our Annual Report on Form 10-K
are not the only risks that we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also
may materially adversely affect our business, financial condition and/or
operating results.
|
- 42
-
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds:
The
following table provides information regarding the Company’s purchases of its
equity securities during the three months ended December 31, 2010.
ISSUER
PURCHASES OF EQUITY SECURITIES
(d)
|
||||||||||||||||
(c)
|
Maximum Number
|
|||||||||||||||
(b)
|
Total Number of
|
(or Approximate
|
||||||||||||||
(a)
|
Average
|
Shares (or Units)
|
Dollar Value) of
|
|||||||||||||
Total Number
|
Price
|
Purchased as
|
Shares (or Units)
|
|||||||||||||
of Shares
|
Paid per
|
Part of Publicly
|
That May Yet Be
|
|||||||||||||
(or Units)
|
Share
|
Announced Plans
|
Purchased Under the
|
|||||||||||||
Period
|
Purchased (1)
|
(or Unit)
|
or Programs (2)
|
Plans or Programs (2)
|
||||||||||||
October
1, 2010 through
October 31, 2010
|
8,626 | $ | 6.89 | - | 356,912 | |||||||||||
November
1, 2010 through
November 30, 2010
|
419 | $ | 7.55 | - | 356,493 | |||||||||||
December
1, 2010 through
December 31, 2010
|
242 | $ | 7.57 | - | 356,251 | |||||||||||
Total
|
9,287 | $ | 6.94 | - |
|
(1)
|
Total
number of shares purchased represents shares surrendered by employees to
satisfy tax withholding requirements upon vesting of stock
awards. These shares are not included in the total number of
shares purchased as part of publicly announced
plans.
|
|
(2)
|
In
February 2007, the Company announced a repurchase program under which it
would repurchase up to 497,000 shares of the Company’s common stock and
that the repurchase program would continue until it is completed or
terminated by the Board of Directors. However, as part of the
Company’s participation in the Capital Purchase Program of the U.S.
Department of Treasury’s Troubled Asset Relief Program, prior to the
earlier of January 16, 2012 or the date on which the preferred stock
issued in that transaction has been redeemed in full or the Treasury has
transferred its shares to non-affiliates, the Company cannot increase its
quarterly cash dividend above $0.095 per share or repurchase any shares of
its common stock, without the prior approval of the
Treasury. Accordingly, no shares of common stock were
repurchased under this program during the three months ended December 31,
2010.
|
Item
3. Defaults Upon Senior Securities: Not applicable
Item
4. [Removed and reserved]
Item
5. Other Information: Not applicable
- 43
-
Item
6. Exhibits:
3.1
|
Articles
of Incorporation of Pulaski Financial Corp. (1)
|
3.2
|
Certificate
of Amendment to Articles of Incorporation of Pulaski Financial Corp. (2)
|
3.3
|
Certificate
of Designations establishing Fixed Rate Cumulative Perpetual Preferred
Stock, Series A, of Pulaski Financial Corp. (3)
|
3.4
|
Bylaws
of Pulaski Financial Corp.
(4)
|
4.1 Form
of Certificate for Common Stock (5)
4.2 Form
of stock certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series
A (3)
4.3 Warrant
to Purchase 778,421 Shares of Common Stock of Pulaski Financial Corp. (3)
31.1 Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule
13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
32.1
Section 1350 Certification of Chief Executive Officer
32.2
Section 1350 Certification of Chief Financial Officer
(1)
|
Incorporated
by reference into this document from the Exhibits to the 2003 proxy
statement as filed with the Securities and Exchange Commission on December
27, 2002.
|
(2)
|
Incorporated
by reference into this document from the Form 10-Q, as filed with the
Securities and Exchange Commission on February 17,
2004.
|
(3)
|
Incorporated
herein by reference into this document from the Form 8-K, as filed with
the Securities and Exchange Commission on January 16,
2009.
|
(4)
|
Incorporated
herein by reference from the Form 8-K, as filed with the Securities and
Exchange Commission on December 17,
2010.
|
(5)
|
Incorporated
by reference from the Form S-1 (Registration No. 333-56465), as amended,
as filed with the Securities and Exchange Commission on June 9,
1998.
|
- 44
-
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 11, 2011
|
/s/ Gary W. Douglass
|
||
Gary
W. Douglass
|
||||
President
and Chief Executive Officer
|
||||
Date:
|
February 11, 2011
|
/s/ Paul J. Milano
|
||
Paul
J. Milano
|
||||
Chief
Financial Officer
|