PULASKI FINANCIAL CORP - FORM 10-Q

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Table of Contents

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 June 30, 2014

o 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 o

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 x 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	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o
(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 o 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 August 8, 2014
Common Stock, par value $.01 per share		12,081,767 shares

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

FORM 10-Q

JUNE 30, 2014

TABLE OF CONTENTS

			Page

PART I		FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Consolidated Balance Sheets at June 30, 2014 and September 30, 2013		1

	Unaudited Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended June 30, 2014 and 2013		2

	Unaudited Consolidated Statement of Stockholders’ Equity for the Nine Months Ended June 30, 2014 and 2013		3

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2014 and 2013		5

	Notes to Unaudited Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		60

Item 4.	Controls and Procedures		60

PART II		OTHER INFORMATION

Item 1.	Legal Proceedings		63

Item 1A.	Risk Factors		63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		63

Item 3.	Defaults Upon Senior Securities		63

Item 4.	Mine Safety Disclosures		63

Item 5.	Other Information		63

Item 6.	Exhibits		64

Signatures			65

Table of Contents

PART I - FINANCIAL INFORMATION

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2014 AND SEPTEMBER 30, 2013

	June 30,			September 30,
	2014			2013
ASSETS
Cash and amounts due from depository institutions	$	20,847,442		$	16,829,435
Federal funds sold and overnight interest-bearing deposits	57,991,392			69,479,143
Total cash and cash equivalents	78,838,834			86,308,578
Debt and mortgage-backed securities available for sale, at fair value	3,084,079			38,916,833
Debt and mortgage-backed securities held to maturity, at amortized cost (fair value of $48,558,004 and $4,537,359 at June 30, 2014 and September 30, 2013, respectively)	48,422,441			4,294,096
Capital stock of Federal Home Loan Bank, at cost	9,019,800			4,777,400
Mortgage loans held for sale, at lower of cost or market	60,231,204			70,473,361
Loans receivable (net of allowance for loan losses of $16,830,091 and $18,306,114 at June 30, 2014 and September 30, 2013, respectively)	1,093,309,304			988,668,268
Real estate acquired in settlement of loans (net of allowance for losses of $850,829 and $1,837,800 at June 30, 2014 and September 30, 2013, respectively)	7,592,634			6,394,712
Premises and equipment, net	17,364,976			17,859,113
Goodwill	3,938,524			3,938,524
Accrued interest receivable	2,905,366			3,151,197
Bank-owned life insurance	33,436,062			32,747,251
Deferred tax assets	9,228,370			10,570,235
Prepaid expenses, accounts receivable and other assets	6,792,027			7,844,852

Total assets	$	1,374,163,621		$	1,275,944,420

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits	$	999,463,477		$	1,010,811,599
Borrowed money	224,113,419			113,482,909
Subordinated debentures	19,589,000			19,589,000
Advance payments by borrowers for taxes and insurance	2,887,947			3,864,859
Accrued interest payable	348,037			469,909
Other liabilities	11,211,632			11,668,078
Total liabilities	1,257,613,512			1,159,886,354

STOCKHOLDERS’ EQUITY :

Preferred stock - $0.01 par value per share, 1,000,000 shares authorized; 6,653 and 17,388 shares issued at June 30, 2014 and September 30, 2013, respectively; $1,000 per share liquidation value, net of discount	6,653,000			17,310,083
Common stock - $0.01 par value per share, 18,000,000 shares authorized; 13,082,087 and 13,082,271 shares issued at June 30, 2014 and September 30, 2013, respectively	130,821			130,823
Treasury stock - at cost (1,360,757 and 2,017,782 shares at June 30, 2014 and September 30, 2013, respectively)	(12,352,444		)	(15,851,041		)
Additional paid-in capital	62,409,549			58,402,572
Accumulated other comprehensive loss, net	(17,342		)	(25,540		)
Retained earnings	59,726,525			56,091,169
Total stockholders’ equity	116,550,109			116,058,066

Total liabilities and stockholders’ equity	$	1,374,163,621		$	1,275,944,420

See accompanying notes to the unaudited consolidated financial statements.

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PULASKI FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED JUNE 30, 2014 AND 2013

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Interest and Dividend Income:
Loans receivable	$	11,578,360		$	11,380,812		$	33,312,740		$	34,963,841
Mortgage loans held for sale	487,684			1,237,637			1,419,295			4,219,411
Securities and other	91,158			88,745			297,893			312,987
Total interest and dividend income	12,157,202			12,707,194			35,029,928			39,496,239
Interest Expense:
Deposits	829,150			1,168,553			2,693,578			3,929,897
Borrowed money	327,569			251,401			851,061			725,778
Subordinated debentures	123,342			125,621			371,415			382,877
Total interest expense	1,280,061			1,545,575			3,916,054			5,038,552
Net interest income	10,877,141			11,161,619			31,113,874			34,457,687
Provision for loan losses	200,000			1,800,000			900,000			5,240,000
Net interest income after provision for loan losses	10,677,141			9,361,619			30,213,874			29,217,687
Non-Interest Income:
Mortgage revenues	1,244,621			3,443,682			2,784,470			9,579,825
Retail banking fees	1,099,467			997,753			3,133,262			3,144,944
Investment brokerage revenues	1,605			185,367			163,765			742,496
Bank-owned life insurance	232,880			211,815			688,812			665,119
Other	17,030			74,963			151,206			133,217
Total non-interest income	2,595,603			4,913,580			6,921,515			14,265,601
Non-Interest Expense:
Salaries and employee benefits	4,651,328			4,414,003			13,416,154			13,392,998
Occupancy, equipment and data processing expense	2,762,297			2,663,861			8,121,985			7,569,056
Advertising	167,298			157,381			473,095			387,981
Professional services	507,797			568,774			1,832,547			1,924,058
FDIC deposit insurance premium expense	277,713			265,281			802,172			975,452
Real estate foreclosure (recoveries) losses and expense, net	(10,927		)	111,523			(296,134		)	1,565,679
Postage, document delivery and office supplies expense	190,165			169,499			493,741			536,260
Other	340,471			447,059			980,606			1,409,808
Total non-interest expense	8,886,142			8,797,381			25,824,166			27,761,292
Income before income taxes	4,386,602			5,477,818			11,311,223			15,721,996
Income tax expense	1,381,966			1,869,647			3,700,604			5,333,922
Net income	$	3,004,636		$	3,608,171		$	7,610,619		$	10,388,074
Other comprehensive income:
Unrealized gain (loss) on debt and mortgage-backed securities available for sale	27,656			(68,466		)	13,223			(99,255		)
Income tax (benefit) expense	(10,509		)	26,017			(5,025		)	37,716
Net unrealized gain (loss)	17,147			(42,449		)	8,198			(61,539		)
Comprehensive income	$	3,021,783		$	3,565,722		$	7,618,817		$	10,326,535
Income available to common shares	$	2,804,241		$	3,234,526		$	6,926,774		$	9,203,203
Per Common Share Amounts:
Basic earnings per common share	$	0.25		$	0.30		$	0.63		$	0.85
Weighted average common shares outstanding - basic	11,023,167			10,914,913			10,980,401			10,881,986
Diluted earnings per common share	$	0.25		$	0.29		$	0.61		$	0.83
Weighted average common shares outstanding - diluted	11,418,794			11,147,049			11,373,371			11,116,479

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED JUNE 30, 2014

	Preferred												Accumulated
	Stock,									Additional			Other
	Net of			Common			Treasury			Paid-In			Comprehensive			Retained
	Discount			Stock			Stock			Capital			Loss			Earnings			Total
BALANCE, SEPTEMBER 30, 2013	$	17,310,083		$	130,823		$	(15,851,041	)	$	58,402,572		$	(25,540	)	$	56,091,169		$	116,058,066
Net income	—			—			—			—			—			7,610,619			7,610,619
Other comprehensive loss	—			—			—			—			8,198			—			8,198
Common stock dividends ($0.285 per share)	—			—			—			—			—			(3,291,418		)	(3,291,418		)
Commission on shares purchased for dividend reinvestment plan	—			—			—			(14,925		)	—			—			(14,925		)
Preferred stock dividends	—			—			—			—			—			(579,113		)	(579,113		)
Accretion of discount on preferred stock	77,917			—			—			—			—			(77,917		)	—
Repurchase of preferred shares (10,000 shares)	(10,000,000		)	—			—			—			—			—			(10,000,000		)
Exchange of preferred shares (735 shares) for common shares (68,818 shares)	(735,000		)	—			340,511			421,304			—			(26,815		)	—
Stock options exercised (3,400 shares)	—			—			20,023			(513		)	—			—			19,510
Stock option and award expense	—			—			—			242,296			—			—			242,296
Common stock issued (604,542 shares)	—			—			3,421,038			3,192,911			—			—			6,613,949
Common stock issued under employee compensation plans (37,891 shares)	—			(2		)	189,232			(108,657		)	—			—			80,573
Forfeiture of restricted common stock (43,452 shares)	—			—			(316,331		)	316,331			—			—			—
Common stock surrendered to satisfy tax withholding obligations of stock-based compensation (14,358 shares)	—			—			(155,876		)	—			—			—			(155,876		)
Equity trust expense, net of forfeitures	—			—			—			(34,334		)	—			—			(34,334		)
Excess tax benefit from stock-based compensation	—			—			—			(7,436		)	—			—			(7,436		)
BALANCE, JUNE 30, 2014	$	6,653,000		$	130,821		$	(12,352,444	)	$	62,409,549		$	(17,342	)	$	59,726,525		$	116,550,109

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PULASKI FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED JUNE 30, 2013

	Preferred											Accumulated
	Stock,								Additional			Other
	Net of			Common		Treasury			Paid-In			Comprehensive			Retained
	Discount			Stock		Stock			Capital			Loss			Earnings			Total

BALANCE, SEPTEMBER 30, 2012	$	24,976,239		$	130,687	$	(15,939,378	)	$	56,849,475		$	21,475		$	52,128,674		$	118,167,172
Net income	—			—		—			—			—			10,388,074			10,388,074
Other comprehensive loss	—			—		—			—			(61,539		)	—			(61,539		)
Common stock dividends ($0.285 per share)	—			—		—			—			—			(3,241,042		)	(3,241,042		)
Commission on shares purchased for dividend reinvestment plan	—			—		—			(18,175		)	—			—			(18,175		)
Preferred stock dividends	—			—		—			—			—			(927,800		)	(927,800		)
Accretion of discount on preferred stock	257,071			—		—			—			—			(257,071		)	—
Repurchase of preferred shares (2,030 shares)	(2,008,757		)	—		—			—			—			28,178			(1,980,579		)
Stock options exercised (8,400 shares)	—			—		29,568			34,390			—			—			63,958
Stock option and award expense	—			—		—			993,020			—			—			993,020
Common stock issued, net (13,653 shares)	—			136		—			(136		)	—			—			—
Common stock issued under employee compensation plans (49,758 shares)	—			—		88,940			(15,706		)	—			—			73,234
Common stock surrendered to satisfy tax withholding obligations of stock-based compensation (66,428 shares)	—			—		(620,715		)	—			—			—			(620,715		)
Distribution of equity trust shares (87,769 shares)	—			—		776,760			(776,760		)	—			—			—
Equity trust expense, net of forfeitures	—			—		—			415,546			—			—			415,546
Tax cost from release of equity trust shares	—			—		—			42,078			—			—			42,078
BALANCE, JUNE 30, 2013	$	23,224,553		$	130,823	$	(15,664,825	)	$	57,523,732		$	(40,064	)	$	58,119,013		$	123,293,232

See accompanying notes to the unaudited consolidated financial statements.

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PULASKI FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2014 AND 2013

	Nine Months Ended
	June 30,
	2014			2013
Cash Flows From Operating Activities:
Net income	$	7,610,619		$	10,388,074
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amortization and accretion:
Premises and equipment	1,547,362			1,491,210
Net deferred loan costs	1,268,700			1,269,970
Debt and mortgage-backed securities premiums and discounts, net	90,392			362,614
Equity trust (benefit) expense	(34,334		)	96,989
Stock option and award expense	242,296			993,020
Provision for loan losses	900,000			5,240,000
(Recovery of) provision for losses on real estate acquired in settlement of loans	(391,259		)	1,219,026
Gains on sales of real estate acquired in settlement of loans	(120,571		)	(396,846		)
Originations of mortgage loans held for sale	(500,242,713		)	(1,052,475,470		)
Proceeds from sales of mortgage loans held for sale	507,607,356			1,081,676,904
Gain on sales of loans held for sale	(3,026,356		)	(9,874,904		)
Increase in cash value of bank-owned life insurance	(688,812		)	(665,119		)
Decrease in deferred tax asset	1,341,865			739,142
Common stock issued under employee compensation plan	80,573			73,234
Excess tax expense from stock-based compensation	7,436			—
Tax benefit for release of equity trust shares	—			(42,078		)
(Decrease) increase in accrued expenses	(227,527		)	907,765
Increase in current income taxes payable	663,007			304,984
Changes in other assets and liabilities	272,399			3,902,711
Net adjustments	9,289,814			34,823,152
Net cash provided by operating activities	16,900,433			45,211,226

Cash Flows From Investing Activities:
Proceeds from:
Maturities of debt securities available for sale	58,255,000			44,285,000
Principal payments on mortgage-backed securities	992,650			1,113,639
Redemption of Federal Home Loan Bank stock	11,109,600			12,798,100
Sales of real estate acquired in settlement of loans receivable	3,035,788			9,956,308
Purchases of:
Debt securities available for sale	(22,496,540		)	(58,296,301		)
Debt securities held to maturity	(45,123,871		)	—
Federal Home Loan Bank stock	(15,352,000		)	(13,791,900		)
Premises and equipment	(1,053,225		)	(908,770		)
Net increase in loans receivable	(104,627,746		)	(21,842,831		)
Net cash used in investing activities	$	(115,260,344	)	$	(26,686,755	)

(Continued on next page.)

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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2014 AND 2013, CONTINUED

	Nine Months Ended
	June 30,
	2014			2013
Cash Flows From Financing Activities:
Net decrease in deposits	$	(11,348,122	)	$	(38,798,535	)
Net (decrease) increase in overnight retail repurchase agreements	(7,569,490		)	14,895,851
Proceeds from (repayment of) Federal Home Loan Bank advances, net	108,700,000			21,000,000
Proceeds received from term loan	10,000,000			—
Payment on term loan	(500,000		)	—
Net decrease in advance payments by borrowers for taxes and insurance	(976,912		)	(2,038,381		)
Proceeds from stock options excercised	19,510			63,958
Issuance of treasury shares to equity trust	—			318,557
Excess tax expense from stock-based compensation	(7,436		)	—
Tax expense for release of equity trust shares	—			42,078
Repurchase of preferred shares, net	(10,000,000		)	(1,980,579		)
Dividends paid on common stock	(3,291,418		)	(3,241,042		)
Dividends paid on preferred stock	(579,113		)	(927,800		)
Common stock issued from treasury shares	6,613,949			—
Commission on shares purchased for dividend reinvestment plan	(14,925		)	(18,175		)
Common stock surrendered to satisfy tax withholding obligations of stock-based compensation	(155,876		)	(620,715		)
Net cash provided by (used in) financing activities	90,890,167			(11,304,783		)
Net (decrease) increase in cash and cash equivalents	(7,469,744		)	7,219,688
Cash and cash equivalents at beginning of period	86,308,578			62,334,922
Cash and cash equivalents at end of period	$	78,838,834		$	69,554,610

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest on deposits	$	2,816,576		$	4,098,717
Interest on borrowed money	849,376			723,989
Interest on subordinated debentures	371,596			383,143
Cash paid during the period for interest	4,037,548			5,205,849
Income taxes, net	1,708,192			4,210,000

Noncash Activities:
Real estate acquired in settlement of loans receivable	4,061,080			7,812,578
Loans to facilitate the sale of real estate acquired in settlement of loans receivable	339,200			1,235,050
Exchange of preferred shares for common shares	735,000			—

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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 subsidiaries, Pulaski Service Corporation and Priority Property Holdings, LLC. 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 and mortgage loan production offices.

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not contain all of the information and disclosures required by U.S. GAAP as applied to annual reports on Form 10-K. Therefore, these unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended September 30, 2013 contained in the Company’s 2013 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, 2013.

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of June 30, 2014 and September 30, 2013 and its results of operations for the three- and nine-month periods ended June 30, 2014 and 2013. The results of operations for the three- and nine-month periods ended June 30, 2014 are not necessarily indicative of the operating results that may be expected for the entire fiscal year or for any other period.

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 determination of the allowance for loan losses, the liability for loans sold and the valuation of the deferred tax assets are significant estimates reported within the consolidated financial statements.

Certain reclassifications have been made to the 2013 amounts to conform to the 2014 presentation.

The Company has evaluated all subsequent events to ensure that the accompanying consolidated financial statements include the effects of any subsequent events that should be recognized in such consolidated financial statements as of June 30, 2014, and the appropriate disclosure of any subsequent events that were not recognized in the financial statements.

2. PREFERRED STOCK

On January 16, 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 (the “Preferred Stock”), 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 (the “Warrant”) 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 fair values of the Preferred Stock and the Warrant. As a result, $2.2 million of the proceeds were allocated to the Warrant, which increased

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additional paid-in capital from common stock. The amount allocated to the Warrant was considered a discount on the Preferred Stock and was amortized using the level yield method over a five-year period ending December 31, 2013 through a charge to retained earnings. Such amortization did not reduce net income, but reduced income available for common shares.

The Preferred Stock paid cumulative dividends of 5% per year for the first five years and 9% per year beginning on February 16, 2014. The Company may, at its option, redeem the Preferred Stock at the liquidation preference plus accrued and unpaid dividends.

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%.

The Treasury Department sold all of the Preferred Stock to private investors in a dutch auction that was completed in July 2012. On several dates subsequent to the Treasury’s auction, the Company repurchased from private investors an aggregate of $15.2 million in liquidation value of the Preferred Stock in exchange for $14.6 million in cash and repurchased the Warrant from the Treasury in exchange for $1.1 million in cash. Following the Treasury’s auction of the Preferred Stock and the Company’s repurchase of the Warrant, the U.S. Treasury has no remaining equity stake in the Company.

During January 2014, the Company repurchased from a private investor, $10.0 million in liquidation value of the Preferred Stock using the proceeds from a term loan obtained from a commercial bank. Refer to Note 9, Borrowed Money, for a summary of the loan terms. During June 2014, the Company issued 68,818 shares of its common stock in exchange for $735,000 in liquidation value of the Preferred Stock, representing a premium paid of $26,815. The common shares were issued in a private transaction exempt from registration under the federal securities laws. Following these transactions, $6.7 million of the Preferred Stock remained outstanding. On July 31, 2014, the Company completed the mandatory redemption of the remaining balance of its Preferred Stock using the $6.7 million in cash obtained from the common shares issued during June 2014. The transaction reduced total shareholders’ equity by the same amount.

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3. EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of common shares outstanding. The effect of potential dilutive securities 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						Nine Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Net income	$	3,004,636		$	3,608,171		$	7,610,619		$	10,388,074
Less:
Premium paid to repurchase of preferred stock	(26,815		)	—			(26,815		)	—
Preferred dividends declared	(173,580		)	(292,350		)	(579,113		)	(927,800		)
Accretion of discount on preferred stock	—			(81,295		)	(77,917		)	(257,071		)
Income available to common shares	$	2,804,241		$	3,234,526		$	6,926,774		$	9,203,203

Weighted average common shares outstanding - basic	11,023,167			10,914,913			10,980,401			10,881,986
Effect of dilutive securities:
Treasury stock held in equity trust - unvested shares	202,724			179,313			208,210			189,598
Equivalent shares - employee stock options and awards	192,903			52,823			184,760			44,895
Weighted average common shares outstanding - diluted	11,418,794			11,147,049			11,373,371			11,116,479

Earnings per share:
Basic	$	0.25		$	0.30		$	0.63		$	0.85
Diluted	$	0.25		$	0.29		$	0.61		$	0.83

Under the treasury stock method, outstanding stock options are dilutive when the average market price of the Company’s common stock, when combined with the effect of any unamortized compensation expense, exceeds the option price during a period. 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. Options to purchase common shares totaling 384,568 and 410,579 were excluded from the computations of diluted earnings per share for the three months ended June 30, 2014 and 2013, respectively, and 396,666 and 442,067 for the nine months ended June 30, 2014 and 2013, respectively, because the exercise price of the options, when combined with the effect of the unamortized compensation expense, were greater than the average market price of the common shares and were considered anti-dilutive.

4. STOCK-BASED COMPENSATION

The Company maintains shareholder-approved, stock-based incentive plans which permit the granting of options to purchase common stock of the Company and awards 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. The plans authorize the granting 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 the granting of restricted shares of common stock. Stock option awards are generally granted with an exercise price equal to the market value of the Company’s shares at the date of grant and generally vest over a period of three to five years. The exercise period for all stock options generally may not exceed 10 years from the date of grant. Restricted stock awards generally vest over a period of two to five years. Generally, option and share awards provide for accelerated vesting if there is a change in control (as defined in the plans). Shares used to satisfy stock awards and

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stock option exercises are generally issued from treasury stock. At June 30, 2014, the Company had 577,911 reserved but unissued shares that can be awarded in the form of stock options or restricted share awards.

Restricted Stock Awards - A summary of activity in the Company’s restricted stock awards as of and for the nine- month period ended June 30, 2014 is as follows:

			Weighted
			Average
	Number		Grant-Date
	Of Shares		Fair Value
Nonvested at September 30, 2013	269,530		$	7.31
Granted	30,596		10.23
Vested	(39,868	)	7.61
Forfeited	(43,452	)	7.28
Nonvested at June 30, 2014	216,806		$	7.68

Stock Option Awards - A summary of activity in the Company’s stock option program as of and for the nine-month period ended June 30, 2014 is as follows:

							Weighted
			Weighted				Average
			Average		Aggregate		Remaining
	Number		Exercise		Intrinsic		Contractual
	Of Shares		Price		Value		Life (years)
Outstanding at September 30, 2013	604,586		$	11.26
Granted	—		—
Exercised	(3,400	)	5.74
Expired	(2,375	)	13.82
Forfeited	(20,651	)	12.57
Outstanding at June 30, 2014	578,160		$	11.23	$	736,635	3.4
Exercisable at June 30, 2014	565,794		$	11.30	$	697,845	3.3

As of June 30, 2014, the total unrecognized compensation expense related to nonvested stock options and restricted stock awards was approximately $15,000 and $462,000, respectively, and the related weighted average periods over which it is expected to be recognized are approximately 1.3 and 2.2 years, respectively.

There were no stock options granted during the nine months ended June 30, 2014. The Company granted options to acquire 17,500 shares of its common stock during the nine months ended June 30, 2013 at an average exercise price of $8.39. The fair value of stock options granted during the nine months ended June 30, 2013 was estimated on the dates of grant using the Black-Scholes option pricing model with the following average assumptions:

Risk free interest rate	0.85	%
Expected volatility	44.36	%
Expected life in years	6.0
Dividend yield	5.02	%
Expected forfeiture rate	5.30	%

Equity Trust Plan - The Company maintains a deferred compensation plan (“Equity Trust Plan”) for the benefit of key loan officers and sales staff. The plan is designed to recruit and retain 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 into a rabbi trust for the benefit of the participants. The assets of the trust are limited to shares of Company common stock and cash. Awards related to participant contributions generally vest

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immediately or over a period of two to five years. Awards related to Company contributions generally vest over a period of three to five years. The participants will generally forgo any accrued but unvested benefits if they voluntarily leave the Company. 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. Excess shares held by the trust were used to fund participant contributions during the nine months ended June 30, 2014. As a result, the plan purchased no shares on behalf of the participants during the nine months ended June 30, 2014. The plan purchased 13,600 shares on behalf of the participants at an average price of $9.86 during the nine months ended June 30, 2013. There were no vested shares distributed to participants during the nine months ended June 30, 2014. There were 87,769 vested shares distributed to participants during the nine months ended June 30, 2013 with an aggregate market value at the time of distribution of $888,000. At June 30, 2014, there were 354,123 shares in the plan with an aggregate carrying value of $3.2 million. Such shares were included in treasury stock in the Company’s consolidated financial statements, including 199,802 shares that were not yet vested.

5. INCOME TAXES

Deferred tax assets totaled $9.2 million and $10.6 million at June 30, 2014 and September 30, 2013, respectively, 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 assets at June 30, 2014 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 June 30, 2014, the Company had $138,000 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 June 30, 2014, the Company had approximately $9,000 accrued for the payment of interest and penalties. The tax years ended September 30, 2010 through 2013 remain open to examination by the taxing jurisdictions to which the Company is subject.

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6. DEBT AND MORTGAGE-BACKED SECURITIES

The amortized cost and estimated fair value of debt and mortgage-backed securities held to maturity and available for sale at June 30, 2014 and September 30, 2013 are summarized as follows:

	June 30, 2014
				Gross		Gross
	Amortized			Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
HELD TO MATURITY:

Debt obligations of U.S. Treasury	$	5,007,383		$	2,773	$	—		$	5,010,156
Debt obligations of government-sponsored entities	40,095,031			2,736		(14,221		)	40,083,546
Mortgage-backed securities:
Ginnie Mae	49,483			1,559		—			51,042
Fannie Mae	3,266,766			142,682		—			3,409,448
Collateralized mortgage obligations:
Freddie Mac	3,778			34		—			3,812

Total held to maturity	$	48,422,441		$	149,784	$	(14,221	)	$	48,558,004

Weighted average yield at end of period	0.38		%

AVAILABLE FOR SALE:
Debt obligations of government-sponsored entities	$	2,925,000		$	—	$	(32,552	)	$	2,892,448
Mortgage-backed securities:
Ginnie Mae	187,050			4,581		—			191,631
Total available for sale	$	3,112,050		$	4,581	$	(32,552	)	$	3,084,079

Weighted average yield at end of period	1.54		%

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	September 30, 2013
				Gross		Gross
	Amortized			Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
HELD TO MATURITY:
Mortgage-backed securities:
Ginnie Mae	$	63,961		$	2,250	$	—		$	66,211
Fannie Mae	4,225,929			240,972		—			4,466,901
Collateralized mortgage obligations:
Freddie Mac	4,206			41		—			4,247

Total held to maturity	$	4,294,096		$	243,263	$			$	4,537,359

Weighted average yield at end of period	3.72		%

AVAILABLE FOR SALE:
Debt obligations of U.S. Treasury	$	9,038,947		$	3,240	$	—		$	9,042,187
Debt obligations of government-sponsored entities	29,698,954			5,059		(55,302		)	29,648,711
Mortgage-backed securities:
Ginnie Mae	220,126			5,809		—			225,935
Total available for sale	$	38,958,027		$	14,108	$	(55,302	)	$	38,916,833

Weighted average yield at end of period	0.32		%

The following summary displays the length of time debt securities were in a continuous unrealized loss position as of June 30, 2014 and September 30, 2013. Based on the existing facts and circumstances, the Company determined that no other-than-temporary impairment exists. In addition, the Company has no intent to sell any securities in unrealized loss positions prior to their recovery and it is not more-likely-than-not that the Company would be required to sell such securities. Further, the Company believes the deterioration in value is attributable to changes in market interest rates and not the credit quality of the issuer.

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	June 30, 2014
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

Held to Maturity:
Debt obligations of government-sponsored entities	$	35,080,049	$	14,221	$	—	$	—	$	35,080,049	$	14,221

Available for Sale:
Debt obligations of government-sponsored entities	—		—		2,892,448		32,552		2,892,448		32,552

Total	$	35,080,049	$	14,221	$	2,892,448	$	32,552	$	37,972,497	$	46,773

	September 30, 2013
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

Available for Sale:
Debt obligations of government-sponsored entities	$	19,203,205	$	55,302	$	—	$	—	$	19,203,205	$	55,302

Certain debt and mortgage-backed securities available for sale and held to maturity with aggregate carrying values totaling approximately $30.1 million and $42.7 million at June 30, 2014 and September 30, 2013, respectively, were pledged to secure deposits of public entities, trust funds, retail repurchase agreements and for other purposes as required by law.

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7. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable at June 30, 2014 and September 30, 2013 are summarized as follows:

	June 30,			September 30,
	2014			2013
Single-family residential real estate:
First mortgage	$	252,961,465		$	212,357,311
Second mortgage	40,784,487			43,208,366
Home equity lines of credit	96,672,105			110,905,455
Total single-family residential real estate	390,418,057			366,471,132
Commercial:
Commercial and multi-family real estate:
Owner-occupied	128,474,466			110,486,449
Non-owner occupied	274,975,329			237,516,168
Land acquisition and development	37,431,067			40,430,063
Real estate construction and development	47,426,874			20,548,621
Commercial and industrial	224,816,493			226,263,371
Total commercial	713,124,229			635,244,672
Consumer and installment	3,164,576			3,326,428
Subtotal	1,106,706,862			1,005,042,232
Add (less):
Deferred loan costs	4,159,580			3,188,386
Loans in process	(727,047		)	(1,256,236		)
Allowance for loan losses	(16,830,091		)	(18,306,114		)
Total	$	1,093,309,304		$	988,668,268

Weighted average interest rate at end of period	4.21		%	4.45		%

Ratio of allowance to total outstanding loans	1.52		%	1.82		%

Allowance for Loan Losses

The Company maintains an allowance for loan losses to absorb probable losses in the Company’s loan portfolio. Loan charge-offs 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 adequate allowance given the risks identified in the entire portfolio. The allowance is comprised of specific allowances on impaired loans (assessed for loans that have known credit weaknesses) and pooled or general allowances based on a number of factors discussed below, including historical loan loss experience for each loan type. The allowance is based upon management’s estimates of probable losses inherent in the entire loan portfolio.

In general, impairment losses on all single-family residential real estate loans that become 180 days past due and all consumer loans that become 120 days past due are recognized through charge-offs to the allowance for loan losses. For impaired single-family residential real estate and consumer loans that do not meet these criteria, management considers many factors before charging off a loan and might establish a specific reserve in lieu of a charge-off if management determines that the circumstances affecting the collectability of the loan are subject to change. While the delinquency status of the loan is a primary factor in determining whether to establish a specific reserve or record a charge-off, other key factors are considered, including the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. For purposes of determining the general allowance for loan losses, all residential and consumer loan charge-offs and changes in the level of specific reserves are included in the determination of historical loss rates for each pool of loans with similar risk characteristics, as described below.

For commercial loans, all or a portion of a loan is 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 the collection of the full amount of the loan. Similar to single-family residential real estate loans, management

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considers many factors before charging off a loan and might establish a specific reserve in lieu of a charge-off if management determines that the circumstances affecting the collectability of the loan are subject to change. While the delinquency status of the loan is a primary factor, other key factors are considered and the Company does not charge off commercial loans based solely on a predetermined length of delinquency. The other factors considered include the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. For purposes of determining the general allowance for loan losses, all commercial loan charge-offs and changes in the level of specific reserves are included in the determination of historical loss rates for each pool of loans with similar risk characteristics, as described below.

For purposes of determining the general allowance for loan losses, the Company has segmented its loan portfolio into the following pools (or segments) that have similar risk characteristics: residential loans, commercial loans and consumer loans. Loans within these segments are further divided into subsegments, or classes, based on the associated risks within these subsegments. Residential mortgage loans are divided into three classes, including single-family first mortgage loans, single-family second mortgage loans and home equity lines of credit. Commercial loans are divided into four classes, including land acquisition and development loans, real estate construction and development loans, commercial and multi-family real estate loans and commercial and industrial loans. Consumer loans are not subsegmented because of the small balance in this segment.

The following is a summary of the significant risk characteristics for each segment of loans:

Residential mortgage loans are secured by one- to four-family residential properties with loan-to-value ratios at the time of origination generally equal to 80% or less. Such loans with loan-to-value ratios of greater than 80% at the time of origination generally require private mortgage insurance. Second mortgage loans and home equity lines of credit generally involve greater credit risk than first mortgage loans because they are secured by mortgages that are subordinate to the first mortgage on the property. If the borrower is forced into foreclosure, the Company will receive no proceeds from the sale of the property until the first mortgage loan has been completely repaid. Second mortgage loans and home equity lines of credit often have high loan-to-value ratios when combined with the first mortgage loan on the property. Loans with high combined loan-to-value ratios will be more sensitive to declining property values than loans with lower combined loan-to-value ratios and, therefore, may experience a higher incidence of default and severity of losses. Prior to 2008, the Company offered second mortgage loans that exceeded 80% combined loan-to-value ratios, which were priced with enhanced yields. The Company continues to offer second mortgage loans, but only up to 80% of the collateral values and on a limited basis to credit-worthy borrowers. However, the current underwriting guidelines are more stringent due to the adverse economic environment that existed over the past several years. Since substantially all home equity lines of credit are originated in conjunction with the origination of first mortgage loans eligible for sale in the secondary market, and the Company typically does not service the related first mortgage loans if they are sold, the Company may be unable to track the delinquency status of the related first mortgage loans and whether such loans are at risk of foreclosure by others.

Home equity lines of credit are initially offered as “revolving” lines of credit whereby funds can be borrowed during a “draw” period. The only required payments during the draw period are scheduled monthly interest payments. In previous years, the Company offered home equity lines of credit with ten-year maturities that included a draw period for the entire ten years. The full principal amount was due at the end of the draw period as a lump-sum balloon payment and no required monthly principal payments were due prior to maturity. Beginning in 2012, the Company discontinued this product and began offering home equity lines of credit with 15-year maturities, including an initial five-year draw period requiring interest-only payments, followed by the required monthly payment of principal and interest on a fully-amortizing basis for the remaining ten-year term. The conversion of a home equity line of credit to a fully amortizing basis presents an increased level of default risk to the Company since the borrower no longer has the ability to make principal draws on the line, and the amount of the required monthly payment could substantially increase to provide for scheduled repayment of principal and interest. At June 30, 2014, all of the Company’s home equity lines of credit were in the interest-only payment phase and all of its second mortgage loans were fully amortizing. The following table summarizes when home equity lines of credit at June 30, 2014 are scheduled to convert to a fully-amortizing basis:

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	Principal Balance
	At June 30,
	2014
	(In thousands)
Period ended June 30,
2014	$	3,746
2015	12,463
2016	17,960
2017	22,920
2018	29,187
2019	9,148
Thereafter	1,248
Total	$	96,672

Commercial loans represent loans to varying types of businesses, including municipalities, school districts and nonprofit organizations, to support working capital, operational needs and term financing of equipment. Repayment of such loans is generally provided through operating cash flows of the business. Commercial and multi-family real estate loans include loans secured by real estate occupied by the borrower for ongoing operations, non-owner occupied real estate leased to one or more tenants and greater-than-four family apartment buildings. Land acquisition and development loans are made to borrowers to fund infrastructure improvements to vacant land to create finished marketable residential and commercial lots or land. Most land development loans are originated with the intent that the loans will be paid through the sale of developed lots or land by the developers generally within twelve months of the completion date. Real estate construction and development loans include secured loans for the construction of residential properties by real estate professionals and, to a lesser extent, individuals, and business properties that often convert to a commercial real estate loan at the completion of the construction period. Commercial and industrial loans include loans made to support working capital, operational needs and term financing of equipment and are generally secured by equipment, inventory, accounts receivable and personal guarantees of the owner. Repayment of such loans is generally provided through operating cash flows of the business, with the liquidation of collateral as a secondary repayment source.

Consumer loans include primarily loans secured by savings accounts and automobiles. Savings account loans are fully secured by restricted deposit accounts held at the Bank. Automobile loans include loans secured by new and pre-owned automobiles.

In determining the allowance and the related provision for loan losses, the Company establishes valuation allowances based upon probable losses identified during the review of impaired loans. These estimates are based upon a number of factors, such as payment history, financial condition of the borrower, expected future cash flows and discounted collateral exposure. For further information, see the discussion of impaired loans below. In addition, 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 as described above. Historical loss rates for each risk group, which are updated quarterly, are quantified using all recorded loan charge-offs, changes in specific allowances on loans and real estate acquired through foreclosure and any gains and losses on the final disposition of real estate acquired through or in lieu of foreclosure. These historical loss rates for each risk group are used as the starting point to determine the level of the allowance. The Company’s methodology includes risk factors that allow management to adjust its estimates of losses based on the most recent information available. Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect actual changes and anticipated changes in national and local economic conditions and developments, the volume and severity of delinquent and internally classified loans, including the impact of scheduled loan maturities, conversion of home equity lines of credit to a fully amortizing basis, loan concentrations, assessment of trends in collateral values, assessment of changes in borrowers’ financial stability, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices.

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.

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The following table summarizes the activity in the allowance for loan losses for the three and nine months ended June 30, 2014 and 2013:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Balance, beginning of period	$	16,829,103	$	18,607,768	$	18,306,114	$	17,116,595
Provision charged to expense	200,000		1,800,000		900,000		5,240,000
Charge-offs:
Single-family residential real estate:
First mortgage	525,651		1,328,243		1,500,407		2,930,293
Second mortgage	130,677		209,903		499,550		1,077,609
Home equity lines of credit	236,824		557,041		1,249,188		1,906,290
Total single-family residential real estate	893,152		2,095,187		3,249,145		5,914,192
Commercial loans:
Commercial and multi-family real estate	—		438,336		—		1,002,650
Land acquisition and development	—		—		1,027,207		24,444
Real estate construction and development	—		1,400		—		259,743
Commercial and industrial	—		—		995		483,620
Total commercial	—		439,736		1,028,202		1,770,457
Consumer and installment	26,528		25,244		80,316		84,355
Total charge-offs	919,680		2,560,167		4,357,663		7,769,004
Recoveries:
Single-family residential real estate:
First mortgage	199,078		30,063		391,164		58,547
Second mortgage	18,774		44,792		76,784		153,974
Home equity lines of credit	7,334		151,876		237,364		309,015
Total single-family residential real estate	225,186		226,731		705,312		521,536
Commercial loans:
Commercial and multi-family real estate	484,981		109,873		777,826		1,218,642
Land acquisition and development	3,600		5,900		4,200		22,560
Real estate construction and development	200		383		260		1,797,460
Commercial and industrial	600		375,350		471,500		400,496
Total commercial	489,381		491,506		1,253,786		3,439,158
Consumer and installment	6,101		15,435		22,542		32,988
Total recoveries	720,668		733,672		1,981,640		3,993,682
Net charge-offs	199,012		1,826,495		2,376,023		3,775,322
Balance, end of period	$	16,830,091	$	18,581,273	$	16,830,091	$	18,581,273

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The following table summarizes, by loan portfolio segment, the changes in the allowance for loan losses for the three and nine months ended June 30, 2014 and 2013, respectively.

	Three Months Ended June 30, 2014
	Residential
	Real Estate			Commercial			Consumer			Unallocated			Total
Activity in allowance for loan losses:
Balance, beginning of period	$	8,282,179		$	8,354,250		$	18,748		$	173,926		$	16,829,103
Provision charged (credited) to expense	441,844			(248,734		)	30,431			(23,541		)	200,000
Charge-offs	(893,152		)	—			(26,528		)	—			(919,680		)
Recoveries	225,186			489,381			6,101			—			720,668
Balance, end of period	$	8,056,057		$	8,594,897		$	28,752		$	150,385		$	16,830,091

	Three Months Ended June 30, 2013
	Residential
	Real Estate			Commercial			Consumer			Unallocated			Total
Activity in allowance for loan losses:
Balance, beginning of period	$	9,420,655		$	9,020,493		$	24,067		$	142,553		$	18,607,768
Provision charged (credited) to expense	2,567,952			(740,358		)	4,985			(32,579		)	1,800,000
Charge-offs	(2,095,187		)	(439,736		)	(25,244		)	—			(2,560,167		)
Recoveries	226,731			491,506			15,435			—			733,672
Balance, end of period	$	10,120,151		$	8,331,905		$	19,243		$	109,974		$	18,581,273

	Nine Months Ended June 30, 2014
	Residential
	Real Estate			Commercial			Consumer			Unallocated			Total
Activity in allowance for loan losses:
Balance, beginning of period	$	9,973,713		$	8,110,926		$	24,947		$	196,528		$	18,306,114
Provision charged (credited) to expense	626,177			258,387			61,579			(46,143		)	900,000
Charge-offs	(3,249,145		)	(1,028,202		)	(80,316		)	—			(4,357,663		)
Recoveries	705,312			1,253,786			22,542			—			1,981,640
Balance, end of period	$	8,056,057		$	8,594,897		$	28,752		$	150,385		$	16,830,091

	Nine Months Ended June 30, 2013
	Residential
	Real Estate			Commercial			Consumer			Unallocated		Total
Activity in allowance for loan losses:
Balance, beginning of period	$	9,348,111		$	7,633,303		$	28,272		$	106,909	$	17,116,595
Provision charged (credited) to expense	6,164,696			(970,099		)	42,338			3,065		5,240,000
Charge-offs	(5,914,192		)	(1,770,457		)	(84,355		)	—		(7,769,004		)
Recoveries	521,536			3,439,158			32,988			—		3,993,682
Balance, end of period	$	10,120,151		$	8,331,905		$	19,243		$	109,974	$	18,581,273

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The following table summarizes the information regarding the balance in the allowance and the recorded investment in loans by impairment method as of June 30, 2014 and September 30, 2013, respectively.

	June 30, 2014
	Residential
	Real Estate		Commercial		Consumer		Unallocated		Total
Allowance balance at end of period based on:
Loans individually evaluated for impairment	$	1,000,819	$	166,004	$	—	$	—	$	1,166,823
Loans collectively evaluated for impairment	7,055,238		8,428,893		28,752		150,385		15,663,268
Loans acquired with deteriorated credit quality	—		—		—		—		—
Total balance, end of period	$	8,056,057	$	8,594,897	$	28,752	$	150,385	$	16,830,091

Recorded investment in loans receivable at end of period:
Total loans receivable	$	393,024,665	$	713,943,745	$	3,170,985			$	1,110,139,395
Loans receivable individually evaluated for impairment	16,804,650		6,979,180		72,275				23,856,105
Loans receivable collectively evaluated for impairment	376,220,015		706,964,565		3,098,710				1,086,283,290
Loans receivable acquired with deteriorated credit quality	—		—		—				—

	September 30, 2013
	Residential
	Real Estate		Commercial		Consumer		Unallocated		Total
Allowance balance at end of period based on:
Loans individually evaluated for impairment	$	1,852,701	$	536,529	$	16,487	$	—	$	2,405,717
Loans collectively evaluated for impairment	8,121,012		7,574,397		8,460		196,528		15,900,397
Loans acquired with deteriorated credit quality	—		—		—		—		—
Total balance, end of period	$	9,973,713	$	8,110,926	$	24,947	$	196,528	$	18,306,114

Recorded investment in loans receivable at end of period:
Total loans receivable	$	368,073,208	$	635,572,841	$	3,328,333			$	1,006,974,382
Loans receivable individually evaluated for impairment	18,902,744		8,758,681		106,724				27,768,149
Loans receivable collectively evaluated for impairment	349,170,464		626,814,160		3,221,609				979,206,233
Loans receivable acquired with deteriorated credit quality	—		—		—				—

Impaired Loans

The following is a summary of the unpaid principal balance and recorded investment of impaired loans as of June 30, 2014 and September 30, 2013. The unpaid principal balances and recorded investments have been reduced by all partial charge-offs of the related loans to the allowance for loan losses. The recorded investment of certain loan categories exceeds the unpaid principal balance of such categories as the result of the deferral and capitalization of certain direct loan origination costs, net of any origination fees collected, under Accounting Standards Codification (“ASC”) Topic 310-20-30.

	June 30, 2014				September 30, 2013
	Unpaid				Unpaid
	Principal				Principal
	Balance				Balance
	Net of		Recorded		Net of		Recorded
	Charge-offs		Investment		Charge-offs		Investment
Classified as non-performing loans: (1)
Non-accrual loans	$	6,661,996	$	6,717,810	$	9,752,803	$	9,812,044
Troubled debt restructurings current under restructured terms	12,401,694		12,478,522		11,305,093		11,371,198
Troubled debt restructurings past due under restructured terms	4,612,866		4,659,773		6,549,904		6,584,907
Total non-performing loans	23,676,556		23,856,105		27,607,800		27,768,149
Troubled debt restructurings returned to accrual status	18,937,697		19,036,609		23,418,016		23,528,528
Total impaired loans	$	42,614,253	$	42,892,714	$	51,025,816	$	51,296,677

(1) All non-performing loans at June 30, 2014 and September 30, 2013 were classified as non-accrual.

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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 loss is measured based on either the present value of expected future cash flows, discounted at the loan’s effective interest rate, or for collateral-dependent loans, observable market prices or the current fair value of the collateral. See Impaired Loans under Note 10, Fair Value Measurements. If the amount of impairment loss is measured based on the present value of expected future cash flows, the entire change in present value is recorded in the provision for loan losses. If the fair value of the collateral is used to measure impairment of a collateral-dependent loan and repayment or satisfaction of the loan is dependent on the sale of the collateral, the fair value of the collateral is adjusted to consider estimated costs to sell. However, if repayment or satisfaction of the loan is dependent only on the operation, rather than the sale of the collateral, the measurement of impairment does not incorporate estimated costs to sell the collateral. 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. The following table summarizes the principal balance, net of amounts charged off, of impaired loans at June 30, 2014 and September 30, 2013 by the impairment method used.

	June 30,		September 30,
	2014		2013
	(In thousands)
Fair value of collateral method	$	31,535	$	39,691
Present value of cash flows method	11,079		11,335
Total impaired loans	$	42,614	$	51,026

Loans considered for individual impairment analysis include loans that are past due, loans that have been placed on non-accrual status, troubled debt restructurings, loans with internally assigned credit risk ratings that indicate an elevated level of risk, and loans that management has knowledge of or concerns about the borrower’s ability to pay under the contractual terms of the note. Residential and consumer 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. See discussion of credit quality below.

The following tables contain summaries of the unpaid principal balances of impaired loans segregated by loans that had partial charge-offs recorded and loans with no partial charge-offs recorded, and the related recorded investments and allowance for loan losses as of June 30, 2014 and September 30, 2013. The recorded investments have been reduced by all partial charge-offs.

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	June 30, 2014
	Loans with Partial Charges-off Recorded						Unpaid		Total
					Unpaid		Principal		Unpaid		Total
					Principal		Balance		Principal		Recorded
			Less		Balance		of Loans		Balance		Investment		Related
	Unpaid		Amount of		Net of		With No		Net of		Net of		Allowance
	Principal		Partial		Partial		Partial		Partial		Partial		For Loan
	Balance		Charge-offs		Charge-offs		Charge-offs		Charge-offs		Charge-offs		Losses
With no related allowance recorded:
Single-family residential real estate:
First mortgage	$	4,253,352	$	1,837,642	$	2,415,710	$	17,082,486	$	19,498,196	$	19,679,990	$	—
Second mortgage	866,769		492,171		374,598		2,506,077		2,880,675		2,906,579		—
Home equity lines of credit	1,162,431		489,595		672,836		2,958,586		3,631,422		3,631,422		—
Total single-family residential real estate	6,282,552		2,819,408		3,463,144		22,547,149		26,010,293		26,217,991		—
Commercial:
Commercial and multi-family real estate	5,242,865		1,514,641		3,728,224		5,655,543		9,383,767		9,403,349		—
Land acquisition and development	—		—		—		—		—		—		—
Real estate construction and development	299,903		259,743		40,160		—		40,160		37,441		—
Commercial and industrial	1,861,075		1,434,034		427,041		1,834,434		2,261,475		2,270,921		—
Total commercial	7,403,843		3,208,418		4,195,425		7,489,977		11,685,402		11,711,711		—
Consumer and installment	111,430		93,843		17,587		101,960		119,548		120,085		—
Total	13,797,825		6,121,669		7,676,156		30,139,086		37,815,243		38,049,787		—
With an allowance recorded:
Single-family residential real estate:
First mortgage	668,456		249,996		418,460		2,830,166		3,248,626		3,283,355		598,015
Second mortgage	33,008		57		32,951		724,835		757,786		765,153		203,352
Home equity lines of credit	22,287		16,286		6,001		225,148		231,149		231,148		199,452
Total single-family residential real estate	723,751		266,339		457,412		3,780,149		4,237,561		4,279,656		1,000,819
Commercial:
Commercial and multi-family real estate	—		—		—		28,899		28,899		29,174		28,899
Land acquisition and development	55,413		14,879		40,534		—		40,534		41,522		2,285
Commercial and industrial	—		—		—		492,016		492,016		492,575		134,820
Total commercial	55,413		14,879		40,534		520,915		561,449		563,271		166,004
Total	779,164		281,218		497,946		4,301,064		4,799,010		4,842,927		1,166,823
Total:
Single-family residential real estate:
First mortgage	4,921,808		2,087,638		2,834,170		19,912,652		22,746,822		22,963,345		598,015
Second mortgage	899,777		492,228		407,549		3,230,912		3,638,461		3,671,732		203,352
Home equity lines of credit	1,184,718		505,881		678,837		3,183,734		3,862,571		3,862,570		199,452
Total single-family residential real estate	7,006,303		3,085,747		3,920,556		26,327,298		30,247,854		30,497,647		1,000,819
Commercial:
Commercial and multi-family real estate	5,242,865		1,514,641		3,728,224		5,684,442		9,412,666		9,432,523		28,899
Land acquisition and development	55,413		14,879		40,534		—		40,534		41,522		2,285
Real estate construction and development	299,903		259,743		40,160		—		40,160		37,441		—
Commercial and industrial	1,861,075		1,434,034		427,041		2,326,450		2,753,491		2,763,496		134,820
Total commercial	7,459,256		3,223,297		4,235,959		8,010,892		12,246,851		12,274,982		166,004
Consumer and installment	111,430		93,843		17,587		101,960		119,548		120,085		—
Total	$	14,576,989	$	6,402,887	$	8,174,102	$	34,440,150	$	42,614,253	$	42,892,714	$	1,166,823

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	September 30, 2013
	Loans with Partial Charge-offs Recorded							Unpaid			Total
					Unpaid			Principal			Unpaid			Total
					Principal			Balance			Principal			Recorded
			Less		Balance			of Loans			Balance			Investment			Related
	Unpaid		Amount of		Net of			With No			Net of			Net of			Allowance
	Principal		Partial		Partial			Partial			Partial			Partial			For Loan
	Balance		Charge-offs		Charge-offs			Charge-offs			Charge-offs			Charge-offs			Losses
With no related allowance recorded:
Single-family residential real estate:
First mortgage	$	4,817,704	$	1,892,403	$	2,925,301	$		22,621,982	$		25,547,283	$		25,712,587	$		—
Second mortgage	961,909		473,023		488,886		2,648,996			3,137,882			3,154,434			—
Home equity lines of credit	709,439		290,032		419,407		2,715,868			3,135,275			3,135,274			—
Total single-family residential real estate	6,489,052		2,655,458		3,833,594		27,986,846			31,820,440			32,002,295			—
Commercial:
Commercial and multi-family real estate	3,827,364		1,159,528		2,667,836		7,628,698			10,296,534			10,343,639			—
Land acquisition and development	57,523		14,879		42,644		—			42,644			43,706			—
Real estate construction and development	301,834		259,743		42,091		—			42,091			38,439			—
Commercial and industrial	2,239,375		1,434,034		805,341		1,459,460			2,264,801			2,275,433			—
Total commercial	6,426,096		2,868,184		3,557,912		9,088,158			12,646,070			12,701,217			—
Consumer and installment	121,830		93,842		27,988		111,912			139,900			140,480			—
Total	13,036,978		5,617,484		7,419,494		37,186,916			44,606,410			44,843,992			—

With an allowance recorded:
Single-family residential real estate:
First mortgage	286,226		68,947		217,279		3,574,340			3,791,619			3,823,190			1,068,205
Second mortgage	—		—		—		386,847			386,847			388,532			255,196
Home equity lines of credit	278,663		34,664		243,999		465,885			709,884			709,884			529,300
Total single-family residential real estate	564,889		103,611		461,278		4,427,072			4,888,350			4,921,606			1,852,701
Commercial:
Commercial and multi-family real estate	1,251,458		141,660		1,109,798		36,915			1,146,713			1,146,988			351,047
Land acquisition and development	—		—		—		—			—			—			—
Real estate construction and development	—		—		—		—			—			—			—
Commercial and industrial	—		—		—		367,856			367,856			367,605			185,482
Total commercial	1,251,458		141,660		1,109,798		404,771			1,514,569			1,514,593			536,529
Consumer and installment	—		—		—		16,487			16,487			16,486			16,487
Total	1,816,347		245,271		1,571,076		4,848,330			6,419,406			6,452,685			2,405,717

Total:
Single-family residential real estate:
First mortgage	5,103,930		1,961,350		3,142,580		26,196,322			29,338,902			29,535,777			1,068,205
Second mortgage	961,909		473,023		488,886		3,035,843			3,524,729			3,542,966			255,196
Home equity lines of credit	988,102		324,696		663,406		3,181,753			3,845,159			3,845,158			529,300
Total single-family residential real estate	7,053,941		2,759,069		4,294,872		32,413,918			36,708,790			36,923,901			1,852,701
Commercial:
Commercial and multi-family real estate	5,078,822		1,301,188		3,777,634		7,665,613			11,443,247			11,490,627			351,047
Land acquisition and development	57,523		14,879		42,644		—			42,644			43,706			—
Real estate construction and development	301,834		259,743		42,091		—			42,091			38,439			—
Commercial and industrial	2,239,375		1,434,034		805,341		1,827,316			2,632,657			2,643,038			185,482
Total commercial	7,677,554		3,009,844		4,667,710		9,492,929			14,160,639			14,215,810			536,529
Consumer and installment	121,830		93,842		27,988		128,399			156,387			156,966			16,487
Total	$	14,853,325	$	5,862,755	$	8,990,570	$		42,035,246	$		51,025,816	$		51,296,677	$		2,405,717

During the three months ended June 30, 2014 and 2013, charge-offs of non-performing and impaired loans totaled $920,000 and $2.6 million, respectively, including partial charge-offs of $320,000 and $821,000, respectively. During the nine months ended June 30, 2014 and 2013, charge-offs of impaired loans totaled $4.4 million and $7.8 million, respectively, including partial charge-offs of $2.4 million and $3.5 million, respectively. At June 30, 2014 and September 30, 2013, the remaining principal balance of non-performing and impaired loans for which the Company previously recorded partial charge-offs totaled $8.2 million and $9.0 million, respectively.

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The following tables contain a summary of the average recorded investments in impaired loans and the interest income recognized on such loans for the three and nine months ended June 30, 2014 and 2013. The recorded investments have been reduced by all partial charge-offs.

	Three Months Ended								Nine Months Ended
	June 30, 2014				June 30, 2013				June 30, 2014				June 30, 2013
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Single-family residential real estate:
First mortgage	$	20,491,467	$	129,437	$	26,443,627	$	216,213	$	22,193,327	$	344,725	$	29,398,694	$	825,333
Second mortgage	2,867,697		25,025		2,854,636		24,369		3,002,043		66,616		3,427,877		106,011
Home equity lines of credit	3,314,696		7,144		3,822,400		10,027		3,214,241		37,479		3,838,364		28,039
Total single-family residential real estate	26,673,860		161,606		33,120,663		250,609		28,409,611		448,820		36,664,935		959,383
Commercial:
Commercial and multi-family real estate	9,732,352		80,980		12,156,010		—		9,993,685		227,833		13,374,282		96,378
Land acquisition and development	1,484,981		—		59,325		—		764,229		—		58,050		—
Real estate construction and development	38,364		—		35,086		—		36,380		—		138,723		—
Commercial and industrial	2,384,954		—		5,109,292		—		2,341,296		878		5,189,616		43,535
Total commercial	13,640,651		80,980		17,359,713		—		13,135,590		228,711		18,760,671		139,913
Consumer and installment	141,252		—		102,066		—		139,232		—		152,240		297
Total	40,455,763		242,586		50,582,442		250,609		41,684,433		677,531		55,577,846		1,099,593

With an allowance recorded:
Single-family residential real estate:
First mortgage	3,416,106		—		2,997,131		—		3,544,431		528		3,276,768		—
Second mortgage	705,207		—		545,964		—		603,041		—		406,447		—
Home equity lines of credit	353,763		—		542,586		—		440,880		—		371,956		—
Total single-family residential real estate	4,475,076		—		4,085,681		—		4,588,352		528		4,055,171		—
Commercial:
Commercial and multi-family real estate	594,222		—		1,289,368		—		877,030		—		644,684		—
Land acquisition and development	20,761		—		—		—		867,754		—		—		—
Real estate construction and development	—		—		—		—		2,022		—		—		—
Commercial and industrial	381,056		—		255,149		—		399,473		—		193,076		—
Total commercial	996,039		—		1,544,517		—		2,146,279		—		837,760		—
Consumer and installment	—		—		1,862		—		4,122		—		931		—
Total	5,471,115		—		5,632,060		—		6,738,753		528		4,893,862		—

Total:
Single-family residential real estate:
First mortgage	23,907,573		129,437		29,440,758		216,213		25,737,758		345,253		32,675,462		825,333
Second mortgage	3,572,904		25,025		3,400,600		24,369		3,605,084		66,616		3,834,324		106,011
Home equity lines of credit	3,668,459		7,144		4,364,986		10,027		3,655,121		37,479		4,210,320		28,039
Total single-family residential real estate	31,148,936		161,606		37,206,344		250,609		32,997,963		449,348		40,720,106		959,383
Commercial:
Commercial and multi-family real estate	10,326,574		80,980		13,445,378		—		10,870,715		227,833		14,018,966		96,378
Land acquisition and development	1,505,742		—		59,325		—		1,631,983		—		58,050		—
Real estate construction and development	38,364		—		35,086		—		38,402		—		138,723		—
Commercial and industrial	2,766,010		—		5,364,441		—		2,740,769		878		5,382,692		43,535
Total commercial	14,636,690		80,980		18,904,230		—		15,281,869		228,711		19,598,431		139,913
Consumer and installment	141,252		—		103,928		—		143,354		—		153,171		297
Total	45,926,878		242,586		56,214,502		250,609		48,423,186		678,059		60,471,708		1,099,593

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Delinquent and Non-Accrual Loans

The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectibility of interest or principal is no longer probable. In general, loans are placed on non-accrual when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, 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 condition of the borrower indicates that the timely collectibility of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months. Prior to returning a loan to accrual status, the loan is individually reviewed and evaluated. Many factors are considered prior to returning a loan to accrual status, including a positive change in the borrower’s financial condition or the Company’s collateral position that, together with the sustained period of repayment performance, result in the likelihood of a loss that is no longer probable.

The following is a summary of the recorded investment in loans receivable by class that were 30 days or more past due with respect to contractual principal or interest payments at June 30, 2014 and September 30, 2013. The summary does not include $1.3 million of commercial loans at June 30, 2014 that had passed their contractual maturity dates and were in the process of renewal, because the borrowers were not past due 30 days or more with respect to their scheduled periodic principal or interest payments.

	June 30, 2014
													90 Days
					90 Days						Total		or More
	30 to 59 Days		60 to 89 Days		or More		Total				Loans		And Still
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing		Nonaccrual
Single-family residential real estate:
First mortgage	$	3,646,670	$	817,319	$	2,649,042	$	7,113,031	$	247,814,899	$	254,927,930	$	—	$	11,881,172
Second mortgage	159,994		569,536		119,106		848,636		40,148,376		40,997,012		—		1,795,043
Home equity lines of credit	1,198,219		451,195		899,027		2,548,441		94,551,282		97,099,723		—		3,128,436
Total single-family residential real estate	5,004,883		1,838,050		3,667,175		10,510,108		382,514,557		393,024,665		—		16,804,651
Commercial:
Commercial and multi-family real estate	—		1,139,273		—		1,139,273		402,946,141		404,085,414		—		4,136,720
Land acquisition and development	—		—		41,522		41,522		37,464,443		37,505,965		—		41,522
Real estate construction and development	—		—		—		—		47,116,152		47,116,152		—		37,441
Commercial and industrial	293,696		99,585		1,295,258		1,688,539		223,547,675		225,236,214		—		2,763,497
Total commercial	293,696		1,238,858		1,336,780		2,869,334		711,074,411		713,943,745		—		6,979,180
Consumer and installment	1,064		—		348		1,412		3,169,573		3,170,985		—		72,274
Total	$	5,299,643	$	3,076,908	$	5,004,303	$	13,380,854	$	1,096,758,541	$	1,110,139,395	$	—	$	23,856,105

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	September 30, 2013
													90 Days
					90 Days						Total		or More
	30 to 59 Days		60 to 89 Days		or More		Total				Loans		And Still
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing		Nonaccrual
Single-family residential real estate:
First mortgage	$	2,661,510	$	1,033,315	$	4,618,113	$	8,312,938	$	204,993,105	$	213,306,043	$	—	$	14,593,039
Second mortgage	172,686		44,601		366,645		583,932		42,743,577		43,327,509		—		1,510,637
Home equity lines of credit	1,301,620		706,112		1,210,541		3,218,273		108,221,383		111,439,656		—		2,799,067
Total single-family residential real estate	4,135,816		1,784,028		6,195,299		12,115,143		355,958,065		368,073,208		—		18,902,743
Commercial:
Commercial and multi-family real estate	—		278,163		3,108,453		3,386,616		344,732,193		348,118,809		—		6,039,604
Land acquisition and development	—		—		4,278,495		4,278,495		36,234,753		40,513,248		4,278,495		43,706
Real estate construction and development	18,957		—		—		18,957		20,506,816		20,525,773		—		38,439
Commercial and industrial	24,175		3,509		450,925		478,609		225,936,402		226,415,011		—		2,636,932
Total commercial	43,132		281,672		7,837,873		8,162,677		627,410,164		635,572,841		4,278,495		8,758,681
Consumer and installment	555		3,163		16,987		20,705		3,307,628		3,328,333		—		106,725
Total	$	4,179,503	$	2,068,863	$	14,050,159	$	20,298,525	$	986,675,857	$	1,006,974,382	$	4,278,495	$	27,768,149

Credit Quality

The credit quality of the Company’s residential and consumer loans is primarily monitored on the basis of aging and delinquency, as summarized in the table above. The credit quality of the Company’s commercial loans is primarily monitored using an internal rating system reflecting management’s risk assessment based on an analysis of several factors including the borrower’s financial condition, the financial condition of the underlying business, cash flows of the underlying collateral and the delinquency status of the loan. The internal system assigns one of the following five risk gradings. The “pass” category consists of a range of loan sub-grades that reflect various levels of acceptable risk. Movement of risk through the various sub-grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is considered a “watch” rating rather than an “adverse” rating and is assigned to loans where the borrower exhibits negative financial trends due to borrower-specific or systemic conditions that, if left uncorrected, threaten the borrower’s capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. This is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is assigned to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. The “doubtful” rating is assigned to loans that have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, questionable resulting in a high probability of loss. An asset classified as “loss” is considered uncollectible and of such little value that charge-off is generally warranted. In limited circumstances, the Company might establish a specific allowance on assets classified as loss if a charge-off is not yet warranted because circumstances that impact the valuation are changing.

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The following is a summary of the recorded investment of loan risk ratings by class at June 30, 2014 and September 30, 2013:

	June 30, 2014
			Special
	Pass		Mention		Substandard			Doubtful			Loss
Single-family residential real estate:
First mortgage	$	242,039,366	$	132,551	$	9,196,413		$	3,559,600		$	—
Second mortgage	39,141,970		—		1,585,708			269,334			—
Home equity lines of credit	93,931,917		39,371		1,942,628			1,185,807			—
Total single-family residential real estate	375,113,253		171,922		12,724,749			5,014,741			—
Commercial:
Commercial and multi-family real estate	390,528,023		5,825,636		7,731,755			—			—
Land acquisition and development	27,252,984		4,242,253		5,969,206			41,522			—
Real estate construction and development	47,078,711		—		—			37,441			—
Commercial and industrial	220,276,112		2,120,146		2,839,956			—			—
Total commercial	685,135,830		12,188,035		16,540,917			78,963			—
Consumer and installment	3,098,710		—		18,085			54,190			—
Total	1,063,347,793		12,359,957		29,283,751			5,147,894			—
Less related specific allowance	—		—		(639,894		)	(526,929		)	—
Total net of allowance	$	1,063,347,793	$	12,359,957	$	28,643,857		$	4,620,965		$	—

	September 30, 2013
			Special
	Pass		Mention		Substandard			Doubtful			Loss
Single-family resdential real estate:
First mortgage	$	197,061,832	$	269,891	$	10,833,561		$	5,140,759		$	—
Second mortgage	41,767,041		49,831		1,101,032			409,605			—
Home equity lines of credit	108,494,113		—		1,371,395			1,574,148			—
Total single-family residential real estate	347,322,986		319,722		13,305,988			7,124,512			—
Commercial:
Commercial and multi-family real estate	324,959,886		6,939,560		16,159,063			60,300			—
Land acquisition and development	27,675,231		6,954,392		5,883,625			—			—
Real estate construction and development	20,487,334		—		38,439			—			—
Commercial and industrial	218,211,564		4,936,156		3,267,291			—			—
Total commercial	591,334,015		18,830,108		25,348,418			60,300			—
Consumer and installment	3,221,608		—		—			106,725			—
Total	941,878,609		19,149,830		38,654,406			7,291,537			—
Less related specific allowance	—		—		(1,058,007		)	(1,347,710		)	—
Total net of allowance	$	941,878,609	$	19,149,830	$	37,596,399		$	5,943,827		$	—

Troubled Debt Restructurings

The following is a summary of the unpaid principal balance and recorded investment of troubled debt restructurings as of June 30, 2014 and September 30, 2013. The recorded investments and unpaid principal balances have been reduced by all partial charge-offs of the related loans to the allowance for loan losses. The recorded investment of certain loan categories exceeds the unpaid principal balance of such categories as the result of the deferral and capitalization of certain direct loan origination costs, net of any origination fees collected, under ASC 310-20-30.

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	June 30, 2014				September 30, 2013
	Unpaid				Unpaid
	Principal				Principal
	Balance				Balance
	Net of		Recorded		Net of		Recorded
	Charge-offs		Investment		Charge-offs		Investment
Classified as non-performing loans (1):
Current under restructured terms	$	12,401,694	$	12,478,522	$	11,305,093	$	11,371,198
Past due under restructured terms	4,612,866		4,659,773		6,549,904		6,584,907
Total non-performing	17,014,560		17,138,295		17,854,997		17,956,105
Returned to accrual status	18,937,697		19,036,609		23,418,016		23,528,528
Total troubled debt restructurings	$	35,952,257	$	36,174,904	$	41,273,013	$	41,484,633

(1) All non-performing loans at June 30, 2014 and September 30, 2013 were classified as non-accrual.

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. Such concessions related to residential mortgage and consumer loans usually include a modification of loan terms, such as a reduction of the rate to below-market terms, adding past-due interest to the loan balance, extending the maturity date, or a discharge in bankruptcy and the borrower has not reaffirmed the debt. Such concessions related to commercial loans usually include 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, to a much lesser extent, a partial forgiveness of debt. In addition, because of their short term nature, a commercial loan could be classified as a troubled debt restructuring if the loan matures, the borrower is considered troubled and the scheduled renewal rate on the loan is determined to be less than a risk-adjusted market interest rate on a similar credit. A loan classified as a troubled debt restructuring will generally retain such classification until the loan is paid in full. However, a restructured loan that is in compliance with its modified terms and yields a market rate of interest at the time of restructuring is removed from the troubled debt restructuring classification 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 one year. 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. Loans classified as troubled debt restructurings are evaluated individually for impairment. See Impaired Loans. In addition, all charge-offs and changes in specific allowances related to loans classified as troubled debt restructurings are included in the historical loss rates used to determine the allowance and related provision for loan losses, as discussed above.

Loans that were restructured within the three and nine months ended June 30, 2014 and 2013, and loans that were restructured during the preceding twelve months and defaulted during the three and nine months ended June 30, 2014 and 2013 are presented within the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to non-accrual status, has been charged off or has been acquired through or in lieu of foreclosure.

					Restructured During Preceding
					Twelve Months and
	Total Restructured During				Defaulted During
	Three Months Ended June 30,				Three Months Ended June 30,
	2014		2013		2014		2013
Residential mortgage loans	$	1,655,317	$	1,361,459	$	—	$	349,145
Commercial loans	1,471,431		1,301,616		—		—
Consumer loans	—		—		—		—
Total	$	3,126,748	$	2,663,075	$	—	$	349,145

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					Restructured During Preceding
					Twelve Months and
	Total Restructured During				Defaulted During
	Nine Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
Residential mortgage loans	$	3,653,276	$	2,871,137	$	881,422	$	2,620,018
Commercial loans	2,232,836		4,388,717		—		89,296
Consumer loans	—		1,341		—		—
Total	$	5,886,112	$	7,261,195	$	881,422	$	2,709,314

The amount of additional undisbursed funds that were committed to borrowers who were included in troubled debt restructured status at June 30, 2014 and September 30, 2013 was $0 and $175,000, respectively.

The financial impact of troubled debt restructurings can include loss of interest due to reductions in interest rates and partial or total forgiveness of accrued interest, and increases in the provision for losses. The gross amount of interest that would have been recognized under the original terms of renegotiated loans was $1.8 million for the nine months ended June 30, 2014 compared with $2.2 million for the nine months ended June 30, 2013. The actual amount of interest income recognized under the restructured terms totaled $628,000 for the nine months ended June 30, 2014 compared with $772,000 for the nine months ended June 30, 2013. The Company experienced a net credit to the provision for losses related to restructured loans totaling $271,000 during the three months ended June 30, 2014 and a net increase totaling $14,000 during the nine months ended June 30, 2014, compared with increases in the provision totaling $1.0 million and $2.3 million during the same periods last year, respectively. Specific loan loss allowances related to troubled debt restructurings at June 30, 2014 and September 30, 2013 were $785,000 and $1.3 million, respectively.

8. DEPOSITS

Deposits at June 30, 2014 and September 30, 2013 are summarized as follows:

	June 30, 2014				September 30, 2013
			Weighted				Weighted
			Average				Average
			Interest				Interest
	Amount		Rate		Amount		Rate

Demand deposits:
Non-interest-bearing checking	$	182,941,324	—		$	168,031,839	—
Interest-bearing checking	242,843,982		0.10	%	237,362,430		0.10	%
Savings accounts	43,194,781		0.13	%	39,845,424		0.13	%
Money market	215,206,816		0.29	%	206,926,830		0.26	%
Total demand deposits	684,186,903		0.13	%	652,166,523		0.13	%

Certificates of deposit:
Traditional	275,568,971		0.67	%	313,216,661		0.84	%
CDARS	39,707,603		0.25	%	45,428,415		0.28	%
Total certificates of deposit	315,276,574		0.62	%	358,645,076		0.77	%

Total deposits	$	999,463,477	0.29	%	$	1,010,811,599	0.35	%

CDARS certificates of deposit represent deposits offered directly by the Bank primarily to its in-market customers through the Promontory Interfinancial Network Certificate of Deposit Account Registry Service (“CDARS”). The CDARS program enables the Company’s customers to receive FDIC insurance on their account balances up to $50 million. There were no certificates of deposit obtained through national brokers at June 30, 2014 or September 30, 2013.

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9. BORROWED MONEY

Borrowed money at June 30, 2014 and September 30, 2013 is summarized as follows:

	June 30, 2014				September 30, 2013
			Weighted				Weighted
			Average				Average
			Interest				Interest
	Amount		Rate		Amount		Rate
FHLB advances maturing within the period ending September 30:
2013	$	—	—		$	49,000,000	0.24	%
2014	157,700,000		0.25	%	—		—
2015	25,000,000		2.70	%	25,000,000		2.70	%
Thereafter	4,000,000		5.48	%	4,000,000		5.48	%
Total FHLB advances	186,700,000		0.69	%	78,000,000		1.30	%

Retail repurchase agreements	27,913,419		0.10	%	35,482,909		0.10	%
Term loan	9,500,000		2.65	%	—		—	%
Total borrowed money	$	224,113,419	0.70	%	$	113,482,909	0.93	%

The Bank offers a sweep account program for which certain customer demand deposits in excess of a certain amount are “swept” on a daily basis into retail repurchase agreements pursuant to individual repurchase agreements between the Bank and its customers. Retail repurchase agreements represent overnight borrowings that are secured by certain of the Bank’s investment securities. Unlike regular savings deposits, retail repurchase agreements are not insured by the Federal Deposit Insurance Corporation. At June 30, 2014 and September 30, 2013, the Bank had $30.1 million and $42.7 million, respectively, in U.S. Treasury, debt and mortgage-backed securities pledged to secure retail repurchase agreements.

During January 2014, the Company entered into a loan agreement with a commercial bank for a $10.0 million term loan. The proceeds of the term loan were used to finance the repurchase from a private investor of $10.0 million of outstanding shares of the Company’s Preferred Stock during January 2014. The loan agreement also provides a $2.0 million revolving line of credit to the Company. There was no balance outstanding under the revolving line of credit during the nine months ended June 30, 2014. The rate of interest on these borrowings equals the Daily LIBOR Rate plus 2.50%. Monthly payments under the term loan began on March 31, 2014 and are scheduled to end on January 17, 2021. All of the common stock of the Bank that was held by the Company was pledged as collateral to secure the loans.

The loan agreement requires the Company to adhere to certain covenants while the borrowings are outstanding, including that the Company will: (1) require the Bank to maintain a minimum ratio of Tier 1 capital to risk-weighted assets of at least 8%; (2) maintain consolidated net income in an amount equal to or greater than the sum of (a) the total amount of principal installments required to be paid under the term loan plus (b) the total amount of cash distributions paid to its common shareholders; and (3) cause the Bank to maintain a ratio of adversely classified assets to Tier 1 capital plus loan loss reserves of not more than 50%. Failure to comply with these covenants will result in any outstanding principal balances and all accrued and unpaid interest becoming immediately due and payable.

The Bank has the ability to borrow funds from the Federal Home Loan Bank equal to 35% of the Bank’s total assets under a blanket agreement that assigns all investments in Federal Home Loan Bank stock as well as qualifying first mortgage loans as collateral to secure the amounts borrowed. In addition to the $186.7 million in advances outstanding at June 30, 2014, the Bank had approximately $9.2 million in additional borrowing capacity available to it under this arrangement. The assets underlying the Federal Home Loan Bank borrowings are under the Bank’s physical control.

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The Bank has the ability to borrow funds from the Federal Reserve under an agreement that assigns certain qualifying loans as collateral to secure the amounts borrowed. At June 30, 2014, $185.1 million of commercial loans were assigned under this arrangement. The assets underlying these borrowings are under the Bank’s physical control. As of June 30, 2014, the Bank had no borrowings outstanding from the Federal Reserve and had approximately $147.6 million in additional borrowing capacity available to it under this arrangement.

10. FAIR VALUE MEASUREMENTS

The Company follows the provisions of Accounting Standards Codification (“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.

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 impaired loans and real estate acquired in settlement of loans. 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.

Debt and Mortgage-Backed Securities. The fair values of debt and mortgage-backed securities available for sale and held to maturity are generally based on quoted market prices or market prices for similar assets. The Company uses a third-party pricing service as its primary source for obtaining market value prices. On a quarterly basis, the Company validates the reasonableness of prices received from the third-party pricing service through independent price verification on a representative sample of securities in the portfolio.

Interest Rate Swap Assets and Liabilities. The fair values are based on quoted market prices by an independent valuation service.

Impaired Loans. The fair values of impaired loans that are determined to be collateral dependent 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). Since substantially all of the Company’s loans receivable that are secured by real estate are within the St. Louis metropolitan area, management is able to closely monitor the trend in real estate values in this area. Residential real estate loans are generally inspected when they become 45 to 60 days delinquent or when communications with the borrower indicate that a potential problem exists. New appraisals are generally obtained for impaired residential real estate loans if an inspection indicates the possibility of a significant decline in fair value. If a new appraisal is determined not to be necessary, management may obtain a broker’s opinion of value or apply a discount to the existing appraised value based on the age of such appraisal and the overall trend in real estate values in the market area since the date of such appraisal. Similarly, the Company maintains close contact with its commercial borrowers whose loans are determined to be impaired, and new appraisals are obtained when

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management believes there has been a significant change in fair value. Factors that management considers when determining whether there has been a significant change in fair value for commercial real estate secured loans generally include overall market value trends in the surrounding areas and changes in factors that impact the properties’ cash flows such as rental rates and occupancy levels that differ materially from the most current appraisals. The significance of such events is determined on a loan-by-loan basis based on the circumstances surrounding each of such loans. If a new appraisal is determined not to be necessary, management may apply a discount to the existing appraised value based on the age of such appraisal and the overall trend in real estate values in the market area since the date of such appraisal, or other factors that affect the value of the property, such as rental rates and occupancy levels.

Real Estate Acquired in Settlement of Loans consists of loan collateral that 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. If the loan balance exceeds the fair value of the collateral less estimated selling costs at the time of foreclosure, the difference is recorded as a charge to the allowance for loan losses. Any decline in the fair value of the property subsequent to acquisition is charged to non-interest expense and credited to the allowance for losses on real estate acquired in settlement of loans. During the nine months ended June 30, 2014 and 2013, charge-offs to the allowance for loan losses at the time of foreclosure totaled $335,000 and $856,000, respectively, which represented 9% and 9% of the principal balance of loans that became subject to foreclosure during such periods, respectively.

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. No impairment losses were recognized during the year ended September 30, 2013 or the nine months ended June 30, 2014.

Assets and liabilities that were recorded at fair value on a recurring basis at June 30, 2014 and September 30, 2013 and the level of inputs used to determine their fair values are summarized below:

	Carrying Value at June 30, 2014
			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Debt and mortgage-backed securities available for sale	$	3,084	$	—	$	3,084	$	—
Interest-rate swap	469		—		469		—
Total assets	$	3,553	$	—	$	3,553	$	—
Liabilities:
Interest-rate swap	$	469	$	—	$	469	$	—
Total liabilities	$	469	$	—	$	469	$	—

	Carrying Value at September 30, 2013
			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Debt and mortgage-backed securities available for sale	$	38,917	$	—	$	38,917	$	—
Interest-rate swap	843		—		843		—
Total assets	$	39,760	$	—	$	39,760	$	—
Liabilities:
Interest-rate swap	$	843	$	—	$	843	$	—
Total liabilities	$	843	$	—	$	843	$	—

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Assets that were recorded at fair value on a non-recurring basis at June 30, 2014 and September 30, 2013 and the level of inputs used to determine their fair values are summarized below:

									Total Losses (Gains)
									Recognized in
	Carrying Value at June 30, 2014								Nine Months
			Fair Value Measurements Using						Ended June
	Total		Level 1		Level 2		Level 3		30, 2014
	(In thousands)
Assets:
Impaired loans, net	3,632		—		—		3,632		2,255
Real estate acquired in settlement of loans	7,593		—		—		7,593		(192		)
Total assets	$	11,225	$	—	$	—	$	11,225	$	2,063

									Total Losses
									Recognized in
	Carrying Value at September 30, 2013								Nine Months
			Fair Value Measurements Using						Ended June
	Total		Level 1		Level 2		Level 3		30, 2013
	(In thousands)
Assets:
Impaired loans, net	$	4,014	$	—	$	—	$	4,014	$	7,713
Real estate acquired in settlement of loans	6,395		—		—		6,395		2,902
Total assets	$	10,409	$	—	$	—	$	10,409	$	10,615

There were no transfers of assets or liabilities among the levels of inputs used to determine their fair values during the nine months ended June 30, 2014 or 2013.

11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments have been estimated by the Company using available market information and appropriate valuation methodologies, including those described in Note 9. 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 June 30, 2014 and September 30, 2013. 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.

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Carrying values and estimated fair values at June 30, 2014 and September 30, 2013 are summarized as follows:

	Level in	June 30, 2014				September 30, 2013
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Value		Value		Value		Value
		(In thousands)
ASSETS:
Cash and cash equivalents	Level 1	$	78,839	$	78,339	$	86,309	$	86,309
Debt and mortgage-backed securities - AFS	Level 2	3,084		3,084		38,917		38,917
Capital stock of FHLB	Level 2	9,020		9,020		4,777		4,777
Debt and mortgage-backed securities - HTM	Level 2	48,422		48,558		4,294		4,537
Mortgage loans held for sale	Level 2	60,231		61,971		70,473		72,481
Loans receivable	Level 3	1,093,309		1,103,818		988,668		1,001,898
Accrued interest receivable	Level 1	2,905		2,905		3,151		3,151
Interest-rate swap assets	Level 2	469		469		843		843

LIABILITIES:
Deposit transaction accounts	Level 2	684,187		684,187		652,167		652,167
Certificates of deposit	Level 2	315,277		316,125		358,645		359,917
Borrowed money	Level 2	224,113		225,619		113,483		115,254
Subordinated debentures	Level 2	19,589		19,583		19,589		19,583
Accrued interest payable	Level 2	348		348		470		470
Interest-rate swap liabilities	Level 2	469		469		843		843

In addition to the methods described in Note 9 above, the following methods and assumptions were used to estimate the fair value of the financial instruments:

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 into 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 valuation does not incorporate the exit price concept of valuation prescribed by Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures.

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.

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.

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Borrowed Money - 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. The estimated fair value of retail repurchase agreements is the carrying value since such agreements are at market rates and mature daily. The carrying value of the term loan approximates fair value since the loan carries a variable interest rate tied to the daily LIBOR rate.

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. The aggregate value of these fees is not material. Such commitments are summarized in Note 12, Commitments and Contingencies.

12. LIABILITY FOR LOANS SOLD

The Company records an estimated liability for probable amounts due to the Company’s loan investors under contractual obligations related to residential mortgage loans originated for sale that were previously sold and became delinquent or defaulted, or were determined to contain certain documentation or other underwriting deficiencies. Under standard representations and warranties and early payment default clauses in the Company’s mortgage sale agreements, the Company could be required to repurchase mortgage loans sold to investors or reimburse the investors for losses incurred on loans (collectively “repurchase”) in the event of borrower default within a defined period after origination (generally 90 days), or in the event of breaches of contractual representations or warranties made at the time of sale that are not remedied within a defined period after the Company receives notice of such breaches (generally 90 days). In addition, the Company may be required to refund the profit received from the sale of a loan to an investor if the borrower pays off the loan within a defined period after origination, which is generally 120 days.

The Company establishes a mortgage repurchase liability related to these events that reflect management’s estimate of losses on loans for which the Company could have a repurchase obligation based on a combination of factors. Such factors incorporate the volume of loans sold in current and previous periods, borrower default expectations, historical investor repurchase demand and appeals success rates (where the investor rescinds the demand based on a cure of the defect or acknowledges that the loan satisfies the investor’s applicable representations and warranties), and estimated loss severity. Payments made to investors as reimbursement for losses incurred are charged against the mortgage repurchase liability. Loans repurchased from investors are initially recorded at fair value, which becomes the Company’s new accounting basis. Any difference between the loan’s fair value and the outstanding principal amount is charged or credited to the mortgage repurchase liability, as appropriate. Subsequent to repurchase, such loans are carried in loans receivable. Loans repurchased with deteriorated credit quality at the date of repurchase are accounted for under ASC Topic 310-30.

The principal balance of loans sold that remain subject to recourse provisions related to early payment default clauses totaled approximately $191 million and $412 million at June 30, 2014 and September 30, 2013, respectively. Because the Company does not service the loans that it sells to its investors, the Company is generally unable to track the outstanding balances or delinquency status of a large portion of such loans that may be subject to repurchase under the representations and warranties clauses in the Company’s mortgage sale agreements. The following is a summary of the principal balance of mortgage loan repurchase demands on loans previously sold that were received and resolved during the nine months ended June 30, 2014 and 2013:

	2014		2013
Received during period	$	6,102,000	$	6,416,000
Resolved during period	5,102,000		6,396,000
Unresolved at end of period	7,381,000		5,085,000

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The following is a summary of the changes in the liability for loans sold during the nine months ended June 30, 2014 and 2013:

	2014			2013
Balance at beginning of period	$	1,353,095		$	977,134
Provisions charged to expense	243,469			769,407
Losses incurred to resolve demands	(235,531		)	(386,661		)
Balance at end of period	$	1,361,033		$	1,359,880

The following summarizes the manner in which the Company resolved mortgage loan repurchase demands received from its investors during the nine months ended June 30, 2014 and 2013:

	June 30, 2014				June 30, 2013
	Principal Balance of Loans Involved in Existing Claims That Were Resolved		Losses Charged to Liability for Loans Sold		Principal Balance of Loans Involved in Existing Claims That Were Resolved		Payments Charged to Liability for Loans Sold
Resolved by providing additional documentation with no further action required	$	3,973,000	$	—	$	5,445,000	$	—

Resolved by repurchasing loans previously sold to investors	977,000		21,696		951,000		270,470

Resolved by payments to reimburse investors for losses incurred	152,000		55,620		—		—

Payments due upon early payoff of loans previously sold	—		158,215		—		116,191

Total	$	5,102,000	$	235,531	$	6,396,000	$	386,661

The liability for loans sold of $1.4 million at June 30, 2014 represents the Company’s best estimate of the probable losses that the Company will incur for various early default provisions and contractual representations and warranties associated with the sales of mortgage loans. Because the level of mortgage loan repurchase losses depends upon economic factors, investor demand strategies and other external conditions that may change over the life of the underlying loans, the level of the liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management judgment. In addition, the Company does not service the loans that it sells to investors and is generally unable to track the remaining unpaid balances after sale. As a result, there may be a range of possible losses in excess of the estimated liability that cannot be estimated. Management maintains regular contact with the Company’s investors to monitor and address their repurchase demand practices and concerns.

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13. COMMITMENTS AND CONTINGENCIES

The Company engages in commitments to originate loans in the ordinary course of business to meet customer financing needs. Such commitments are generally made following the Company’s usual underwriting guidelines, represent off-balance sheet financial instruments and do not present more than a normal amount of risk. The following table summarizes the notional amount of these commitments at June 30, 2014 and September 30, 2013.

	June 30,		September 30,
	2014		2013
	(In thousands)

Commitments to originate residential first and second mortgage loans	$	80,269	$	65,936
Commitments to originate commercial mortgage loans	33,931		62,626
Commitments to originate non-mortgage loans	28,965		15,778
Unused lines of credit - residential	54,864		67,265
Unused lines of credit - commercial	157,080		148,411
Unused lines of credit - consumer	61		—

The Company is a defendant in legal actions arising from normal business activities. Management, after consultation with counsel, believes that the resolution of these actions will not have any material adverse effect on the Company’s consolidated financial statements.

14. DERIVATIVES

The Company originates and purchases derivative financial instruments, including interest rate lock commitments and interest rate swaps. Derivative financial instruments originated by the Company consist of interest rate lock commitments to originate residential mortgage loans.

Interest Rate Lock Commitments - At June 30, 2014, the Company had issued $82.7 million of unexpired interest rate lock commitments to loan customers compared with $68.6 million of unexpired commitments at September 30, 2013. The Company typically economically hedges interest rate lock commitments by obtaining a corresponding best-efforts lock commitments with an investor to sell the loans at an agreed-upon price.

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 Company, while the Company, in turn, charged the customer a floating interest rate on the loan. Under the terms of the swap contract between the Company and the loan customer, the customer pays the Company a fixed interest rate of 6.58%, while the Company 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 Company and a major securities broker, the Company pays the broker a fixed interest rate of 6.58%, while the broker pays the Company a variable interest rate of one-month LIBOR plus 2.30%. The two contracts have identical terms except for the interest rates 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 treatment. Consequently, both derivatives are marked to fair value through either a charge or credit to current earnings.

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The fair values of these contracts recorded in the consolidated balance sheets at June 30, 2014 and September 30, 2013 are summarized as follows:

	June 30,		September 30,
	2014		2013
Fair value recorded in other assets	$	469,000	$	843,000
Fair value recorded in other liabilities	469,000		843,000

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- and nine-months ended June 30, 2014 and 2013 are summarized as follows:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Gross losses on derivative financial assets	$	128,000		$	145,000		$	374,000		$	408,000
Gross gains on derivative financial liabilities	(128,000		)	(145,000		)	(374,000		)	(408,000		)
Net gain or loss	$	—		$	—		$	—		$	—

The Bank had $1.8 million in cash pledged to secure its obligation under these contracts at June 30, 2014 and September 30, 2013.

15. GOODWILL

Goodwill totaled $3.9 million at June 30, 2014 and September 30, 2013. 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. No such impairment losses were recognized during the nine months ended June 30, 2014 or the year ended September 30, 2013.

16. SUBSEQUENT EVENT

On July 31, 2014, the Company completed the mandatory redemption of the remaining balance of its Preferred Stock using $6,653,000 in cash obtained from common shares issued during June 2014 in a private transaction exempt from registration under the federal securities laws. The transaction reduced total shareholders’ equity by the same amount.

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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 the Company operates, as well as nationwide, the market values of the real estate in the Company’s market area, the Company’s ability to control costs and expenses, competitive products and pricing, loan demand, the size, composition and quality of the loan portfolio, including trends in adversely classified loans, charge-offs, troubled debt restructurings and 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, 2013, 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 Securities and Exchange Commission. 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 ninety-second 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 $1.37 billion in assets at June 30, 2014. Pulaski Bank provides an array of financial products and services for businesses and consumers primarily through its thirteen full-service offices in the St. Louis metropolitan area and residential mortgage loan production offices in the St. Louis, Kansas City and Chicago metropolitan areas, mid-Missouri, southwestern Missouri, eastern Kansas, Omaha, Nebraska and Council Bluffs, Iowa.

The Company has primarily grown its assets and deposits internally by building its residential and commercial lending operations, by opening de novo branches and loan production offices, and by hiring experienced bankers with existing customer relationships in its market areas. 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.

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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 its operations continue to be driven by its staff of experienced commercial bankers and the commercial banking relationships they generate. The commercial loan portfolio includes permanent mortgage loans secured by owner and non-owner occupied commercial and multi-family residential real estate, commercial and industrial loans, and to a much lesser extent, commercial and multi-family construction loans and land acquisition and development loans.

Commercial loan originations totaled $127.4 million and $371.7 million during the three and nine months ended June 30, 2014, respectively, compared with $120.0 million and $356.5 million during the same periods last year, respectively. The commercial loan portfolio increased $77.9 million, or 12.3%, during the nine-month period to $713.1 million at June 30, 2014 compared with $635.2 million at September 30, 2013. Commercial and multi-family real estate loans increased $55.4 million, or 15.9%, to $403.4 million at June 30, 2014 compared with $348.0 million at September 30, 2013. Real estate construction and development loans increased $26.9 million, or 130.8%, during the nine-month period to $47.4 million at June 30, 2014 compared with $20.5 million at September 30, 2013. The increases were generally due to an increase in market demand for these types of products during the nine months ended June 30, 2014 combined with an increase in the number of producing commercial loan officers compared with the same period last year. Partially offsetting these increases was a $3.0 million decrease in land acquisition and development loans to $37.4 million at June 30, 2014 compared with $40.4 million at September 30, 2013 and a $1.4 million decrease in commercial and industrial loans to $224.8 million at June 30, 2014 compared with $226.3 million at September 30, 2013. Given the increased level of risk associated with certain types of commercial real estate lending created by the weakened economic climate, the Company substantially deemphasized land acquisition and development lending in recent years. New commercial and industrial loan originations totaling approximately $41 million during the nine months ended June 30, 2014 were more than offset by payments and payoffs received on existing loans. Commercial and industrial loans generally have shorter maturities than other loans in the commercial loan portfolio and the competition for such loans in the Company’s market area remains intense, making growth in this type of loans difficult.

The Company’s commercial loan customers are also among the best sources of core deposit accounts. Commercial checking and money market demand accounts totaled $205.1 million, or 20.5% of total deposits, at June 30, 2014 compared with $192.7 million, or 19.1% of total deposits, at September 30, 2013.

Retail Mortgage Lending

The Company originates conforming, residential mortgage loans directly through commission-based sales staffs in the St. Louis, Kansas City and Chicago metropolitan areas, mid-Missouri, southwestern Missouri, eastern Kansas, Omaha, Nebraska and Council Bluffs, Iowa. The Company is one of the leading mortgage originators in the St. Louis and Kansas City markets, and 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 lending division are one- to four-family residential loans secured by properties in the Company’s market areas that are sold to investors on a best-efforts, servicing-released basis. Such sales generate mortgage revenues, which have historically been 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 sold.

The following is a summary of the principal balance of residential mortgage loans originated for sale to investors during the three- and nine-month periods ended June 30, 2014 and 2013:

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	2014						2013
	Mortgage		Home				Mortgage		Home
	Refinancings		Purchases		Total		Refinancings		Purchases		Total
	(In thousands)
First quarter	$	29,996	$	136,423	$	166,419	$	230,399	$	149,241	$	379,640
Second quarter	24,376		98,065		122,441		186,515		123,009		309,524
Third quarter	28,212		186,716		214,928		133,380		224,655		358,035
Total	$	82,584	$	421,204	$	503,788	$	550,294	$	496,905	$	1,047,199

The higher level of interest rates during the fiscal 2014 periods significantly diminished the industry-wide consumer demand for loans to refinance existing mortgages. Loans originated to refinance existing mortgages totaled $28.2 million, or 13% of total loans originated for sale, for the quarter ended June 30, 2014 compared with $133.4 million, or 37% of total loans originated for sale, for the same quarter last year. For the nine-month periods, mortgage loan refinancing activity totaled $82.6 million, or 16% of total loans originated for sale, in 2014 compared with $550.3 million, or 53% of total loans originated for sale, in 2013. In addition, the weak housing market continued to dampen the level of consumer demand for loans to finance the purchase of homes. Loans originated to finance the purchase of homes totaled $186.7 million for the quarter ended June 30, 2014 compared with $224.7 million for the same quarter last year. For the nine-month periods, loans originated to finance the purchase of homes totaled $421.2 million in 2014 compared to $496.9 million for the same period last year.

The following is a summary of the principal balance of residential loans sold to investors and the related mortgage revenues for the three and nine months ended June 30, 2014 and 2013.

	2014						2013
					Net						Net
	Loans		Mortgage		Profit		Loans		Mortgage		Profit
	Sold		Revenues		Margin		Sold		Revenues		Margin
	(Dollars in thousands)
First quarter	$	179,919	$	1,033	0.57	%	$	367,388	$	2,988	0.81	%
Second quarter	136,231		507		0.37	%	349,870		3,148		0.90	%
Third quarter	188,431		1,245		0.66	%	354,544		3,444		0.97	%
Total	$	504,581	$	2,785	0.55	%	$	1,071,802	$	9,580	0.89	%

The principal balance of residential mortgage loans sold to investors totaled $188.4 million for the quarter ended June 30, 2014, which generated mortgage revenues totaling $1.2 million, compared with $354.5 million of loans sold and $3.4 million of mortgage revenues for the quarter ended June 30, 2013. For the nine-month periods, the principal balance of residential mortgage loans sold to investors totaled $504.6 million, which generated mortgage revenues of $2.8 million, compared with $1.07 billion of loans sold and $9.6 million of mortgage revenues for the same period last year. The net profit margin on loans sold decreased to 0.66% during the quarter ended June 30, 2014 compared with 0.97% for the quarter ended June 30, 2013. For the nine-month periods, the net profit margin decreased to 0.55% compared with 0.89% for the same period last year. The lower net profit margins realized during the fiscal 2014 periods were primarily the result of higher direct origination costs as the Company did not reduce the level of direct production costs in proportion to the decrease in loan origination volume and, to a lesser extent, market-driven decreases in selling prices realized from the Company’s loan investors.

Mortgage revenues were reduced by charges to earnings totaling $96,000 and $243,000 during the three- and nine-months ended June 30, 2014, respectively, and $268,000 and $769,000 during the three- and nine-months ended June 30, 2013, respectively, for estimated liabilities due to the Company’s loan investors under contractual obligations related to loans that were previously sold and became delinquent or defaulted or were determined to contain certain documentation or other underwriting deficiencies. Refer to Note 12 of Notes to Unaudited Consolidated Financial Statements for a discussion of the Company’s treatment of the estimated liability. The Company does not sell loans directly to government-sponsored enterprises, but rather to large national seller servicers on a servicing-released basis. The Company’s loans originated for

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sale are primarily made to its customers within its market areas and are underwritten according to government agency and investor standards. In addition, all loans sold to investors are subject to stringent quality control reviews by such investors before the purchases are funded. As a result, the Company has been successful in defending and resolving a large number of repurchase requests.

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 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 generally results in interest-rate spreads higher than other interest-earning assets held by the Company. Interest income on loans held for sale decreased 60.6% to $488,000 for the quarter ended June 30, 2014 compared with $1.2 million for the quarter ended June 30, 2013 as the result of a $104.8 million decrease in the average balance between the comparable periods partially offset by a 105 basis point market-driven increase in the average yield. For the nine-month periods, interest income on loans held for sale decreased 66.4% to $1.4 million in 2014 compared with $4.2 million during the same period last year. The decrease was due to a $125.9 million decrease in the average balance partially offset by a 92 basis point increase in the average yield. Loan sales during the nine months ended June 30, 2014 exceeded loan originations resulting in a $10.2 million, or 14.5%, decrease in mortgage loans held for sale to $60.2 million from $70.5 million at September 30, 2013.

Although the Company primarily originates residential mortgage loans for sale to investors, it has historically retained a certain number of loans in portfolio, consisting of first mortgage, second mortgage and home equity lines of credit, which are revolving lines of credit secured by residential real estate. However, over the past several years, the Company has repeatedly tightened its underwriting standards in response to the prevailing economic conditions and has de-emphasized second mortgage and home equity lending. In addition, the low interest rate environment that has existed over the past several years has significantly diminished the demand for variable-rate first mortgage loans, which were generally the Company’s primary portfolio product in prior periods. However, during the nine months ended June 30, 2014, the Company was successful in marketing two “niche” adjustable-rate residential first mortgage loan products to customers primarily in its St. Louis, Kansas City and Omaha markets. As a result, the balance of residential first mortgage loans increased $40.6 million, or 19.1%, to $253.0 million at June 30, 2014 compared with $212.4 million at September 30, 2013. The balances of residential second mortgage loans and home equity lines of credit decreased $2.4 million and $14.2 million, respectively, to $40.8 million and $96.7 million, respectively, at June 30, 2014 compared with $43.2 million and $110.9 million, respectively, at September 30, 2013.

Retail Banking Services

The Company considers demand deposits, which include checking, money market and savings accounts, to be “core” deposits because they allow it to establish banking relationships with its customers that are less dependent upon interest rates paid. Such deposits provide a stable funding source for the Bank’s asset growth and produce valuable fee income. Core deposits are received from retail customers, commercial customers and municipal or other public entities. Growth of relationship-based core deposits continues to be one of the Company’s primary, long-term strategic objectives. The Company’s approach to attracting deposits involves three key components: providing excellence in customer service, best-in-class products and convenient banking locations. To enhance its ability to attract depositors, the Company offers its customers the ability to receive FDIC deposit insurance on their balances in excess of the standard amount of $250,000 per depositor through its participation in the Promontory Interfinancial Network (“Promontory”) Certificate of Deposit Account Registry Service (“CDARS”). The CDARS program enables the Company’s customers to receive FDIC insurance on their account balances up to $50 million. The Company also offers similar “reciprocal” arrangements on money market deposit accounts through Promontory. These accounts are offered directly to the Bank’s customers in its St. Louis market.

Total deposits decreased 1.1%, or $11.3 million, to $999.5 million at June 30, 2014 compared with $1.01 billion at September 30, 2013. Total demand deposits increased $32.0 million to $684.2 million at June 30, 2014 compared with $652.2 million at September 30, 2013, while certificates of deposit decreased $43.4 million to $315.3 million compared with $358.6 million at the same dates. The weighted average interest rates on total demand deposits and total certificates of deposit at June 30, 2014 were 0.13% and 0.62%, respectively, compared with 0.13% and 0.77%, respectively, at September 30, 2013. As the result of the shift in the mix of deposits and lower market interest rates paid on maturing

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certificates of deposits, the weighted average interest rate on total deposits at June 30, 2014 decreased to 0.29% compared with 0.35% at September 30, 2013.

Deposits received from retail customers continue to be the Company’s largest source of deposits. However, the Company has also concentrated on attracting deposits from commercial customers and municipal or other public entities in recent years. The interest rates paid on such deposits are typically lower than the rates paid on retail deposits. In addition, such deposits generally provide a stable source of fee income.

The balance of deposits from retail customers decreased 5.8%, or $38.2 million, to $625.1 million at June 30, 2014 compared with $663.3 million at September 30, 2013 as management focused on reducing the cost of maturing retail certificates of deposit and accounts that were determined not to have other business relationships with the Bank. The average interest rate paid on retail deposits at June 30, 2014 was 0.38% compared with 0.47% at September 30, 2013.

The balance of deposits from commercial customers increased $9.2 million, or 4.2%, to $225.9 million at June 30, 2014 compared with $216.7 million at September 30, 2013. The increase in commercial deposits was the result of additional deposits gathered from the Bank’s new and existing commercial loan customers combined with normal activity within existing deposit accounts. The average interest rate paid on commercial deposits at June 30, 2014 was 0.11% compared with 0.10% at September 30, 2013.

The balance of deposits from municipal and other public entities increased $17.7 million, or 14.1%, to $143.8 million at June 30, 2014 compared with $126.1 million at September 30, 2013. The increase in municipal and public entity deposits was largely the result of increases in the balances of existing customer relationships. The average interest rate paid on municipal and public entity deposits at June 30, 2014 was 0.19% compared with 0.21% at September 30, 2013.

Retail banking fees, which include fees charged to customers who have overdrawn their checking accounts and service charges on other banking products, remained almost constant between the comparable periods at $1.1 million and $3.1 million for the three and nine months ended June 30, 2014 compared with $998,000 and $3.1 million for the three and nine months ended June 30, 2013.

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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
	June 30, 2014							June 30, 2013
				Interest							Interest
	Average			and		Yield/		Average			and		Yield/
	Balance			Dividends		Cost		Balance			Dividends		Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable: (1)
Residential real estate	$	250,541		$	2,926	4.67	%	$	226,301		$	2,990	5.29	%
Commercial	716,088			7,719		4.31	%	664,479			7,212		4.34	%
Home equity lines of credit	99,185			925		3.73	%	125,480			1,167		3.72	%
Consumer	2,009			8		1.71	%	1,947			12		2.44	%
Total loans receivable	1,067,823			11,578		4.34	%	1,018,207			11,381		4.47	%
Mortgage loans held for sale	44,718			488		4.36	%	149,517			1,238		3.31	%
Securities and other	71,262			91		0.51	%	55,158			89		0.65	%
Total interest-earning assets	1,183,803			12,157		4.11	%	1,222,882			12,708		4.16	%
Non-interest-earning assets	87,326							83,141
Total assets	$	1,271,129						$	1,306,023

Interest-bearing liabilities:
Interest-bearing checking	$	244,075		98		0.16	%	$	255,444		111		0.17	%
Savings	42,581			20		0.18	%	39,198			19		0.19	%
Money market	216,308			171		0.32	%	189,606			132		0.28	%
Certificates of deposit	328,533			540		0.66	%	409,324			907		0.89	%
Total interest-bearing deposits	831,497			829		0.40	%	893,572			1,169		0.52	%
Borrowed money	113,752			328		1.15	%	87,467			251		1.15	%
Subordinated debentures	19,589			123		2.52	%	19,589			126		2.57	%
Total interest-bearing liabilities	964,838			1,280		0.53	%	1,000,628			1,546		0.62	%
Non-interest bearing liabilities:
Non-interest bearing deposits	184,362							167,810
Other non-interest bearing liabilities	11,576							13,984
Total non-interest-bearing liabilities	195,938							181,794
Stockholders’ equity	110,353							123,601

Total liabilities and stockholders’ equity	$	1,271,129						$	1,306,023

Net interest income				$	10,877						$	11,162

Interest rate spread (2)						3.58	%						3.54	%

Net interest margin (3)						3.68	%						3.65	%

Ratio of average interest-earning assets to average interest-bearing liabilities	122.69		%					122.21		%

(1) Includes non-accrual loans with an average balance of $27.0 million and $35.3 million for the three months ended June 30, 2014 and 2013, respectively.

(2) Yield on interest-earning assets less cost of interest-bearing liabilities.

(3) Net interest income divided by average interest-earning assets.

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	Nine Months Ended
	June 30, 2014							June 30, 2013
				Interest							Interest
	Average			and		Yield/		Average			and		Yield/
	Balance			Dividends		Cost		Balance			Dividends		Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable: (1)
Residential real estate	$	238,364		$	8,506	4.76	%	$	224,958		$	8,969	5.32	%
Commercial	687,580			21,806		4.23	%	644,106			22,246		4.60	%
Home equity lines of credit	104,169			2,976		3.81	%	132,993			3,716		3.73	%
Consumer	2,065			25		1.60	%	2,053			33		2.21	%
Total loans receivable	1,032,178			33,313		4.30	%	1,004,110			34,964		4.64	%
Mortgage loans held for sale	44,832			1,419		4.22	%	170,719			4,219		3.30	%
Securities and other	95,800			298		0.41	%	57,309			314		0.73	%
Total interest-earning assets	1,172,810			35,030		3.98	%	1,232,138			39,497		4.27	%
Non-interest-earning assets	82,343							83,982
Total assets	$	1,255,153						$	1,316,120

Interest-bearing liabilities:
Interest-bearing checking	$	249,723		310		0.17	%	$	267,467		372		0.19	%
Savings	41,078			53		0.17	%	38,692			54		0.19	%
Money market	213,612			495		0.31	%	177,910			367		0.28	%
Certificates of deposit	342,021			1,836		0.72	%	431,643			3,137		0.97	%
Total interest-bearing deposits	846,434			2,694		0.42	%	915,712			3,930		0.57	%
Borrowed money	85,728			851		1.32	%	70,753			726		1.37	%
Subordinated debentures	19,589			371		2.53	%	19,589			383		2.61	%
Total interest-bearing liabilities	951,751			3,916		0.55	%	1,006,054			5,039		0.67	%
Non-interest bearing liabilities:
Non-interest bearing deposits	178,502							173,182
Other non-interest bearing liabilities	11,932							14,734
Total non-interest-bearing liabilities	190,434							187,916
Stockholders’ equity	112,968							122,150

Total liabilities and stockholders’ equity	$	1,255,153						$	1,316,120

Net interest income				$	31,114						$	34,458

Interest rate spread (2)						3.43	%						3.60	%

Net interest margin (3)						3.54	%						3.73	%

Ratio of average interest-earning assets to average interest-bearing liabilities	123.23		%					122.47		%

(1) Includes non-accrual loans with an average balance of $28.2 million and $41.1 million for the nine months ended June 30, 2014 and 2013, respectively.

(2) Yield on interest-earning assets less cost of interest-bearing liabilities.

(3) Net interest income divided by average interest-earning assets.

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RATE VOLUME ANALYSIS

The following table allocates the period-to-period changes in the Company’s various categories of interest income and expense between changes due to changes in volume (calculated by multiplying the change in average volumes of the related interest-earning asset or interest-bearing liability category by the prior year’s rate) and changes due to changes in rate (change in rate multiplied by the prior year’s volume). Changes due to changes in rate/volume (changes in rate multiplied by changes in volume) have been allocated proportionately between changes in volume and changes in rate.

	Three Months Ended									Nine Months Ended
	June 30, 2014 vs 2013									June 30, 2014 vs 2013
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest-earning assets:
Loans receivable:
Residential real estate	$	305		$	(369	)	$	(64	)	$	515		$	(981	)	$	(466	)
Commercial	557			(50		)	507			1,430			(1,870		)	(440		)
Home equity lines of credit	(244		)	2			(242		)	(819		)	79			(740		)
Consumer	—			(4		)	(4		)	—			(5		)	(5		)
Total loans receivable	618			(421		)	197			1,126			(2,777		)	(1,651		)
Mortgage loans held for sale	(1,056		)	306			(750		)	(3,742		)	942			(2,800		)
Securities and other	(3		)	5			2			26			(42		)	(16		)
Net change in income on interest earning assets	(441		)	(110		)	(551		)	(2,590		)	(1,877		)	(4,467		)

Interest-bearing liabilities:
Interest-bearing checking	(6		)	(7		)	(13		)	(24		)	(38		)	(62		)
Passbook savings	2			(1		)	1			3			(4		)	(1		)
Money market	20			19			39			84			44			128
Certificates of deposit	(159		)	(208		)	(367		)	(581		)	(720		)	(1,301		)
Total interest-bearing deposits	(143		)	(197		)	(340		)	(518		)	(718		)	(1,236		)
Borrowed money	77			—			77			153			(28		)	125
Subordinated debentures	—			(3		)	(3		)	—			(12		)	(12		)
Net change in expense on interest bearing liabilities	(66		)	(200		)	(266		)	(365		)	(758		)	(1,123		)

Change in net interest income	$	(375	)	$	90		$	(285	)	$	(2,225	)	$	(1,119	)	$	(3,344	)

RESULTS OF OPERATIONS

Overview

Net income for the quarter ended June 30, 2014 was $3.0 million compared with $3.6 million during the same quarter last year. For the nine months ended June 30, 2014, net income was $7.6 million compared with net income of $10.3 million for the same period a year ago. Net income available to common shares for the quarter ended June 30, 2014 was $2.8 million, or $0.25 per diluted common share on 11.4 million average diluted shares outstanding, compared with net income available to common shares of $3.3 million, or $0.29 per diluted common share on 11.1 million average diluted shares outstanding, during the same quarter last year. For the nine months ended June 30, 2014, net income available to common

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shares was $6.9 million, or $0.61 per diluted common share on 11.4 million average diluted shares outstanding, compared with net income available to common shares of $9.2 million, or $0.83 per diluted common share on 11.1 million average diluted shares outstanding, for the same period a year ago. Reducing net income available to common shares for the three and nine months ended June 30, 2014 were dividends and discount accretion on the Company’s preferred stock, totaling $200,000, or $0.02 per diluted common share, and $684,000, or $0.06 per diluted common share, respectively, compared with $374,000, or $0.03 per diluted common share and $1.2 million, or $0.11 per diluted common share in the comparable 2013 periods. The lower level of dividends and discount accretion during the three and nine months ended June 2014 resulted from the Company’s repurchases of preferred stock totaling $10.0 million in liquidation value during January 2014, $6.0 million in liquidation value during August 2013 and $2.0 million in liquidation value during April 2013.

Net Interest Income

Net interest income decreased 2.5% to $10.9 million for the quarter ended June 30, 2014 compared with $11.2 million for the same period last year. The decrease was the result of a decrease in the average balance of interest-earning assets partially offset by an increase in the net interest margin. The net interest margin increased to 3.68% for the three months ended June 30, 2014 compared with 3.65% for the three months ended June 30, 2013 primarily as the result of a decrease in the average cost of total interest-bearing liabilities partially offset by a decrease in the average yield on interest-earning assets. For the nine months ended June 30, 2014, net interest income decreased 9.7% to $31.1 million compared with $34.5 million for the same period last year. The decrease was the result of a decrease in the average balance of interest-earning assets combined with a decrease in the net interest margin. The net interest margin decreased to 3.54% for the nine months ended June 30, 2014 compared with 3.73% for the nine months ended June 30, 2013 primarily as the result of market-driven decreases in the average yield on interest-earning assets partially offset by a decrease in the average cost of total interest-bearing liabilities. The average balance of interest-earning assets decreased to $1.18 billion and $1.17 billion for the three and nine months ended June 30, 2014, respectively, compared with $1.22 billion and $1.23 billion for the three and nine months ended June 30, 2013, respectively.

Total interest and dividend income decreased 4.3% to $12.2 million for the quarter ended June 30, 2014 compared with $12.7 million for the same period last year primarily as a the result of a decrease in interest income on loans held for sale partially offset by an increase in interest income on loans receivable. For the nine months ended June 30, 2014, total interest and dividend income decreased 11.3% to $35.0 million compared with $39.5 million for the same period a year ago primarily as the result of decreases in interest income on loans held for sale and loans receivable.

Interest income on loans receivable increased 1.7% to $11.6 million for the quarter ended June 30, 2014 compared with $11.4 million for the same quarter last year as the result of an increase in the average balance partially offset by a decrease in the average yield. The average balance of loans receivable increased to $1.07 billion during the three months ended June 30, 2014 compared with $1.02 billion during the same period last year. The increase was due to a $51.6 million increase in the average balance of commercial loans and a $24.2 million increase in residential first and second mortgage loans, partially offset by a $26.3 million decrease in the average balance of home equity lines of credit. The average yield on loans receivable decreased to 4.34% during the three months ended June 30, 2014 compared with 4.47% during the same period last year primarily as the result of lower interest rates on new residential real estate loans and new and renewing commercial loans.

For the nine-month periods, interest income on loans receivable decreased 4.7% to $33.3 million in 2014 compared with $35.0 million in 2013 as the result of a decrease in the average yield partially offset by an increase in the average balance. The average balance of loans receivable increased to $1.03 billion for the nine months ended June 30, 2014 compared with $1.00 billion for the same period last year. The average yield on loans receivable decreased to 4.30% for the nine months ended June 30, 2014 compared with 4.64% for the same period a year ago for the same reasons discussed above.

See Results of Community Banking Strategy — Retail Mortgage Lending and Results of Community Banking Strategy — Commercial Banking Services.

Interest income on mortgage loans held for sale decreased to $488,000 and $1.4 million for the three and nine months ended June 30, 2014, respectively, compared with $1.2 million and $4.2 million for the same periods last year, respectively, as the result of decreases in the average balances partially offset by increases in the average rate. See Results of Community Banking Strategy — Retail Mortgage Lending.

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Total interest expense decreased to $1.3 million and $3.9 million for the three and nine months ended June 30, 2014, respectively, compared with $1.5 million and $5.0 million for the comparable 2013 periods, respectively. The decreases were due to market-driven declines in the average cost of funds combined with decreases in the average balance of interest-bearing liabilities. The average cost of funds decreased to 0.53% and 0.55% for the three and nine months ended June 30, 2014, respectively, compared with 0.62% and 0.67% for the three and nine months ended June 30, 2013, respectively. The average balance decreased to $964.8 million and $951.8 million for the three and nine months ended June 30, 2014, respectively, compared with $1.00 billion and $1.01 billion for the three and nine months ended June 30, 2013, respectively, as the result of decreases in the average balance of deposits partially offset by increases in the average balance of borrowed money.

Interest expense on deposits decreased to $829,000 and $2.7 million for the three and nine months ended June 30, 2014, respectively, compared with $1.2 million and $3.9 million for the comparable 2013 periods, respectively. The decreases were the result of decreases in the average cost and the average balance of interest-bearing deposits. Primarily as the result of a shift in the mix of deposits, the average cost of deposits decreased to 0.40% and 0.42% for the three and nine months ended June 30, 2014, respectively, compared with 0.52% and 0.57% for the three and nine months ended June 30, 2013, respectively. The average balance decreased to $831.5 million and $846.4 million for the three and nine months ended June 30, 2014, respectively, compared with $893.6 million and $915.7 million for the three and nine months ended June 30, 2013, respectively. See Results of Community Banking Strategy — Retail Banking Services.

Interest expense on borrowed money increased to $328,000 for the three months ended June 30, 2014 compared with $251,000 for the same period last year. The increase was the result of an increase in the average balance to $113.8 million for the three months ended June 30, 2014 compared with $87.5 million for the three months ended June 30, 2013 primarily due to the receipt during January 2014 of the proceeds from a $10.0 million term loan that were used to finance the repurchase of outstanding shares of the Company’s Preferred Stock and additional borrowings used to fund deposit outflows. Refer to Note 9 of Notes to Unaudited Consolidated Financial Statements for a summary of the loan terms. The average cost remained constant at 1.15% for the three months ended June 30, 2014 and 2013.

For the nine-month periods, interest expense on borrowed money increased to $851,000 in 2014 compared with $726,000 in 2013. The increase was the result of an increase in the average balance partially offset by a decrease in the average rate. The average balance increased to $85.7 million for the nine months ended June 30, 2014 compared with $70.8 million for the nine months ended June 30, 2013. The average cost decreased to 1.32% for the nine months ended June 30, 2014 compared with 1.37% for the nine months June 30, 2013 primarily as the result of lower market interest rates.

Provision for Loan Losses

The provision for loan losses for the three and nine months ended June 30, 2014 was $200,000 and $900,000, respectively, compared with $1.8 million and $5.2 million, respectively for the same periods a year ago. See Non-Performing Assets and Allowance for Loan Losses.

Non-Interest Income

Total non-interest income decreased $2.3 million to $2.6 million for the three months ended June 30, 2014 compared with $4.9 million for the same period last year. For the nine-month periods, total non-interest income decreased $7.3 million to $6.9 million in 2014 compared with $14.3 million in 2013. The decrease was primarily the result of lower mortgage revenues and investment brokerage revenues. See Results of Community Banking Strategy — Retail Mortgage Lending a for a discussion of mortgage revenues.

Investment brokerage revenues totaled $2,000 and $164,000 for the three and nine months ended June 30, 2014 compared with $185,000 and $742,000 for the same periods a year ago. The Company operated an investment brokerage division whose operations consisted principally of brokering fixed income securities from wholesale brokerage houses to other banks, municipalities and individual investors. Revenues were generated on trading spreads and fluctuated with changes in customer demand, trading volumes and market interest rates. The Company saw a decrease in securities sales volumes during the fiscal 2014 periods compared with the same 2013 periods as a result of weakened market demand for fixed-

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income investment products in the midst of the lower interest rate environment. Because of the decreased demand for these products, the Company ceased the operation of the investment brokerage division during the quarter ended March 31, 2014.

Non-Interest Expense

Total non-interest expense increased $89,000, or 1.0%, to $8.9 million for the quarter ended June 30, 2014 compared with $8.8 million for the same period last year. For the nine months ended June 30, 2014, total non-interest expense decreased $1.9 million, or 7.0%, to $25.8 million compared with $27.8 million for the same nine-month period last year.

Salaries and employee benefits expense increased $237,000, or 5.4%, to $4.7 million for the three months ended June 30, 2014 compared with $4.4 million for the same period a year ago. For the nine months ended June 30, 2014 and 2013, salaries and employee benefits expense remained relatively constant at $13.4 million. Reducing compensation expense during the nine months ended June 30, 2014 was the reversal during the quarter ended December 31, 2013 of approximately $488,000 in compensation expense recorded in prior periods for bonuses and restricted stock awards related to certain former mortgage division employees that were determined to no longer be payable to such employees. Excluding this amount, salaries and employee benefits expense increased $511,000, or 3.8%, for the nine months ended June 30, 2014 compared with the same period last year. Such increases were generally the result of increased commercial loan staffing levels partially offset by lower incentive compensation accruals.

Occupancy, equipment and data processing expense increased $98,000 to $2.8 million for the three months ended June 30, 2014 compared with $2.7 million for the three months ended June 30, 2013. For the nine months ended June 30, 2014, occupancy, equipment and data processing expense increased $553,000 to $8.1 million compared with $7.6 million for the same period a year ago. The increases were primarily related to the addition of new mortgage loan origination offices and expenses related to the enhancement of certain capabilities of the Bank’s data processing systems.

Professional services expense decreased $61,000 to $508,000 for the three months ended June 30, 2014 compared with $569,000 for the three months ended June 30, 2013. For the nine months ended June 30, 2014, total professional services expense was $1.8 million compared with $1.9 million for the nine months ended June 30, 2013. The Company experienced a higher level of professional recruiting fees paid in the March 31, 2013 quarter related to the hiring of certain key loan production personnel.

FDIC deposit insurance premium expense decreased to $278,000 and $802,000 for the three and nine months ended June 30, 2014 compared with $265,000 and $975,000 for the same 2013 periods. The Bank’s assessment rate decreased during the quarter ended March 31, 2013.

Real estate foreclosure (recoveries) expense and losses, net totaled net recoveries of $11,000 and $296,000 for the three and nine months ended June 30, 2014 compared with net expense of $112,000 and $1.6 million for the same periods in 2013. See Non-Performing Assets and Allowance for Loan Losses.

Income Taxes

Income tax expense totaled $1.4 million and $3.7 million for the three and nine months ended June 30, 2014, respectively, compared with $1.9 million and $5.3 million for the same periods last year. The effective tax rates were 31.50% and 32.72% for the three and nine months ended June 30, 2014, respectively, compared with 34.13% and 33.93% for the same fiscal 2013 periods. The effective tax rates differed from the combined federal and state statutory rates primarily as the result of non-taxable income related to bank-owned life insurance and tax-exempt interest income on certain loans receivable. The lower effective rates in the fiscal 2014 periods compared with the same 2013 periods were due to the lower total pre-tax income in the 2014 periods resulting in a higher ratio of non-taxable income to such pre-tax income.

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NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES

Non-performing assets at June 30, 2014 and September 30, 2013 are summarized below. The balances of non-performing loans represent the unpaid principal balances, net of amounts charged off. The balances of real estate acquired in settlement of loans are net of amounts charged off and any related valuation allowances.

	June 30,			September 30,
	2014			2013
NON-ACCRUAL LOANS:
Single-family residential real estate:
First mortgage	$	3,877,973		$	5,334,585
Second mortgage	353,021			442,174
Home equity lines of credit	2,026,928			2,123,714
Total single-family residential real estate	6,257,922			7,900,473
Commercial:
Commercial and multi-family real estate	—			1,774,172
Real estate construction and development	—			—
Commercial and industrial	349,923			—
Total commercial	349,923			1,774,172
Consumer and installment	54,151			78,158
Total non-accrual loans	6,661,996			9,752,803
NON-ACCRUAL TROUBLED DEBT RESTRUCTURINGS:
Current under restructured terms:
Single-family residential real estate:
First mortgage	5,224,599			5,169,173
Second mortgage	1,322,745			904,338
Home equity lines of credit	863,381			497,852
Total single-family residential real estate	7,410,725			6,571,363
Commercial:
Commercial and multi-family real estate	3,468,764			2,585,133
Land acquisition and development	—			42,644
Real estate construction and development	40,159			23,134
Commercial and industrial	1,464,457			2,054,831
Total commercial	4,973,380			4,705,742
Consumer and installment	17,589			27,988
Total current troubled debt restructurings	12,401,694			11,305,093
Past due under restructured terms:
Single-family residential real estate:
First mortgage	2,636,052			3,974,113
Second mortgage	99,246			155,237
Home equity lines of credit	238,126			177,501
Total single-family residential real estate	2,973,424			4,306,851
Commercial:
Commercial and multi-family real estate	659,796			1,652,377
Land acquisition and development	40,535			—
Real estate construction and development	—			18,957
Commercial and industrial	939,111			571,719
Total commercial	1,639,442			2,243,053
Total past due troubled debt restructurings	4,612,866			6,549,904
Total non-accrual troubled debt restructurings	17,014,560			17,854,997
Total non-performing loans	23,676,556			27,607,800
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS:
Residential real estate	2,363,791			3,019,237
Commercial real estate	5,228,843			3,375,475
Total real estate acquired in settlement of loans	7,592,634			6,394,712
Total non-performing assets	$	31,269,190		$	34,002,512

Ratio of non-performing loans to total loans receivable	2.14		%	2.75		%
Ratio of non-performing assets to total assets	2.28		%	2.66		%
Ratio of allowance for loan losses to non-performing loans	71.08		%	66.31		%
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	1.02		%	1.62		%
Ratio of non-performing assets to total assets	1.37		%	1.78		%
Ratio of allowance for loan losses to non-performing loans	144.30		%	106.56		%

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Non-performing assets decreased $2.7 million to $31.3 million at June 30, 2014 from $34.0 million at September 30, 2013 as a result of a $3.1 million decrease in non-accrual loans and a $840,000 decrease in troubled debt restructurings partially offset by a $1.2 million increase in real estate acquired in settlement of loans.

Loans are placed on non-accrual status when, in the opinion of management, the ultimate collectibility of interest or principal is no longer probable. Management considers many factors before placing a loan on non-accrual status, including the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Refer to Note 7 of Notes to Unaudited Consolidated Financial Statements for a discussion of the Company’s treatment of non-accrual interest. Non-accrual loans decreased to $6.7 million at June 30, 2014 compared with $9.8 million at September 30, 2013 primarily due to decreases in non-accrual residential real estate loans and non-accrual commercial loans. Non-accrual residential real estate loans decreased to $6.3 million at June 30, 2014 compared with $7.9 million at September 30, 2013 primarily as the result of a decrease in loans that were 90 days or more past due. Non-accrual commercial loans decreased to $350,000 at June 30, 2014 compared with $1.8 million at September 30, 2013. The decrease was primarily due to the foreclosure on a loan secured by commercial-use land in the St. Louis metropolitan area with a carrying value, net of partial charge-offs, of $2.2 million. The loan had been on the Company’s list of adversely classified loans for several quarters.

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. Refer to Note 7 of Notes to Unaudited Consolidated Financial Statements for a discussion of the Company’s treatment of troubled debt restructurings. Total non-accrual troubled debt restructurings decreased to $17.0 million at June 30, 2014 compared with $17.9 million at September 30, 2013 primarily due to a decreases in restructured residential real estate and commercial loans.

Management proactively modified loan repayment terms with residential borrowers who were experiencing financial difficulties with the belief that these actions would maximize the Company’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. Many of these borrowers were current at the time of their modifications and showed strong intent and ability to repay their obligations under the modified terms.

Non-performing restructured residential loans decreased $494,000 to $10.4 million at June 30, 2014 compared with $10.9 million at September 30, 2013. During the nine months ended June 30, 2014 and 2013, the Company restructured $3.7 million and $2.9 million, respectively, of loans to troubled residential borrowers and returned $1.9 million and $10.8 million, respectively, of previously restructured residential loans to performing status as the result of the borrowers’ favorable performance history since restructuring. Increasing non-performing restructured residential loans during the nine months ended June 30, 2014 and 2013 were $1.5 million and $1.4 million, respectively, of restructured residential loans that had been returned to performing status in previous periods because of the borrowers’ favorable performance history, but became past due during the current quarter. Reducing non-performing restructured residential loans during the nine months ended June 30, 2014 and 2013 were charge-offs of $532,000 and $1.6 million, respectively, and cash receipts totaling $1.5 million and $890,000, respectively. At June 30, 2014, $10.4 million, or 61% of the total principal balance of restructured loans related to residential borrowers compared with $10.9 million, or 61% at September 30, 2013. At June 30, 2014, 71% of these residential borrowers were performing as agreed under the modified terms of the loans compared with 60% at September 30, 2013.

Non-performing restructured commercial loans decreased $336,000 to $6.6 million at June 30, 2014 compared with $6.9 million at September 30, 2013. During the nine months ended June 30, 2014 and 2013, the Company restructured approximately $2.2 million and $4.4 million, respectively, of loans to troubled commercial borrowers. The restructured terms of the loans generally included a reduction of the interest rates or renewal of maturing loans at interest rates that were determined to be less than risk-adjusted market interest rates on similar credits, temporary deferral of payment due dates, and the addition of past-due interest to the principal balance of the loans. Reducing non-performing restructured commercial loans during the nine months ended June 30, 2014 and 2013 were cash receipts totaling $2.5 million and $931,000, respectively.

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Real estate acquired in settlement of loans increased $1.2 million to $7.6 million at June 30, 2014 compared with $6.4 million at September 30, 2013. Significant activity during the nine months ended June 30, 2014 included the foreclosure on a loan secured by commercial-use land in the St. Louis metropolitan area with a carrying value, net of partial charge-offs, of $2.2 million and the sale of one parcel of commercial-use land in rural Missouri with a carrying value $451,000.

Real estate foreclosure (recoveries) losses and expense for the three and nine months ended June 30, 2014 totaled net recoveries of $11,000 and $296,000, respectively, compared with net expense of $112,000 and $1.6 million for the three and nine months ended June 30, 2013, respectively. Real estate foreclosure (recoveries) 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. Net recoveries for the nine months ended June 30, 2014 included the recovery of $410,000 in specific valuation allowances on one parcel of commercial-use land in rural Missouri that was sold subsequent to March 2014 at a value in excess of its carrying value and the recovery of $155,000 in specific valuation allowances on another parcel of commercial-use land in rural Missouri that was sold subsequent to June 30, 2014 at a value in excess of the previous carrying value. These recoveries were partially offset by $174,000 of additional write-downs related to eleven residential properties due to their declines in their estimated values since their acquisition in prior periods. Real estate foreclosure losses and expense for the nine months ended June 30, 2013 included $1.1 million of additional write-downs related to two commercial real estate properties and $167,000 of write-downs related to several residential properties due to declines in their estimated values since their acquisition in prior periods. Partially offsetting these expenses during the nine months ended June 30, 2013 was a $120,000 gain on the sale of land in Jefferson County, Missouri. Refer to Note 10 of Notes to Unaudited Consolidated Financial Statements for a discussion of fair value measurements on real estate acquired in settlement of loans.

The following table is a summary of the activity in the allowance for loan losses for the periods indicated.

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Balance, beginning of period	$	16,829,103	$	18,607,768	$	18,306,114	$	17,116,595
Provision charged to expense	200,000		1,800,000		900,000		5,240,000
Charge-offs:
Residential real estate loans	893,152		2,095,187		3,249,145		5,914,192
Commercial loans	—		439,736		1,028,202		1,770,457
Consumer and other loans	26,528		25,244		80,316		84,355
Total charge-offs	919,680		2,560,167		4,357,663		7,769,004
Recoveries:
Residential real estate loans	225,186		226,731		705,312		521,536
Commercial loans	489,381		491,506		1,253,786		3,439,158
Consumer and other loans	6,101		15,435		22,542		32,988
Total recoveries	720,668		733,672		1,981,640		3,993,682
Net charge-offs	199,012		1,826,495		2,376,023		3,775,322
Balance, end of period	$	16,830,091	$	18,581,273	$	16,830,091	$	18,581,273

Refer to Note 7 of Notes to Unaudited Consolidated Financial Statements for a discussion of the Company’s loan loss allowance and charge-off methodology. The provision for loan losses for the three and nine months ended June 30, 2014 totaled $200,000 and $900,000, respectively, compared with $1.8 million and $5.2 million, respectively, in the same 2013 periods. The decreased provision for the 2014 periods compared with the same periods last year was generally the result of the overall improvement in credit quality, including reductions in charge-offs and the levels of impaired loans, past due loans and the combined balance of loans with risk ratings of special mention or worse.

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Net charge-offs for the three and nine months ended June 30, 2014 totaled $199,000, or 0.07% of average loans on an annualized basis, and $2.4 million, or 0.31% of average loans on an annualized basis, respectively, compared with $1.8 million, or 0.72% of average loans on an annualized basis, and $3.8 million, or 0.50% of average loans on an annualized basis, respectively, for the same periods in 2013. Gross charge-offs for the nine months decreased $3.4 million primarily as the result of a $2.7 million decrease in gross charge-offs on residential loans and a $742,000 decrease in gross charge-offs on commercial loans. The decrease in residential loan charge-offs was primarily the result of the decreased level of impaired residential loans combined with a recovering housing market. Significant activity in commercial loan charge-offs for the nine months ended June 30, 2014 included $1.0 million related to a loan secured by commercial-use land in the St. Louis metropolitan area. Significant activity in commercial loan charge-offs for the nine months ended June 30, 2013 included $959,000 related to two large commercial borrowers.

Reducing net charge-offs were recoveries totaling $721,000 and $2.0 million for the three and nine months ended June 30, 2014 compared with $734,000 and $4.0 million for the same periods in 2013, respectively. Recoveries for the three and nine months ended June 30, 2014 included the collection of $449,000 and $974,000 of cash payments from borrowers related to three large commercial real estate loans that had been charged off in a previous period. Recoveries for the three and nine months ended June 30, 2013 included the collection of approximately $360,000 and $3.2 million of cash payments from borrowers related to two large commercial real estate loans that had been charged off in previous periods. Such recoveries were the result of an extended period of collection efforts by the Company or other circumstances beyond the Company’s control. Accordingly, it is not expected that similar recoveries will be realized in future periods.

The ratio of the allowance for loan losses to loans receivable was 1.52% at June 30, 2014 compared with 1.82% at September 30, 2013. The ratio of the allowance for loan losses to non-performing loans was 71.08% at June 30, 2014 compared with 66.31% at September 30, 2013. 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 144.30% at June 30, 2014 compared with 106.56% at September 30, 2013. Management believes the changes in these coverage ratios are appropriate due to the changes in the volume and composition of non-performing and impaired loans and internally classified assets, and the volume and composition of loan charge-offs and foreclosures.

Management believes that the amount maintained in the allowance is 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, the Bank’s regulators, in reviewing the Bank’s loan portfolio, may 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.

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The following table summarizes the unpaid principal balances of impaired loans at June 30, 2014 and September 30, 2013. Such unpaid principal balances have been reduced by all partial charge-offs. Refer to Note 7 of Notes to Unaudited Consolidated Financial Statements for a summary of specific reserves on impaired loans.

	June 30, 2014								September 30, 2013
			Impaired Loans with								Impaired Loans with
	Impaired		No Specific Allowance						Impaired		No Specific Allowance
	Loans with		Partial		No Partial		Total		Loans with		Partial		No Partial		Total
	Specific		Charge-offs		Charge-offs		Impaired		Specific		Charge-offs		Charge-offs		Impaired
	Allowance		Recorded		Recorded		Loans		Allowance		Recorded		Recorded		Loans
Single-family residential real estate:
First mortgage	$	3,248,626	$	2,415,710	$	17,082,486	$	22,746,822	$	3,791,619	$	2,925,301	$	22,621,982	$	29,338,902
Second mortgage	757,786		374,598		2,506,077		3,638,461		386,847		488,886		2,648,996		3,524,729
Home equity lines of credit	231,149		672,836		2,958,586		3,862,571		709,884		419,407		2,715,868		3,845,159
Total single-family residential real estate	4,237,561		3,463,144		22,547,149		30,247,854		4,888,350		3,833,594		27,986,846		36,708,790
Commercial:
Commercial and multi-family real estate	28,899		3,728,224		5,655,543		9,412,666		1,146,713		2,667,836		7,628,698		11,443,247
Land acquisition and development	40,534		—		—		40,534		—		42,644		—		42,644
Real estate construction and development	—		40,160		—		40,160		—		42,091		—		42,091
Commercial and industrial	492,016		427,041		1,834,434		2,753,491		367,856		805,341		1,459,460		2,632,657
Total commercial	561,449		4,195,425		7,489,977		12,246,851		1,514,569		3,557,912		9,088,158		14,160,639
Consumer and installment	—		17,587		101,960		119,547		16,487		27,988		111,912		156,387
Total	$	4,799,010	$	7,676,156	$	30,139,086	$	42,614,252	$	6,419,406	$	7,419,494	$	37,186,916	$	51,025,816

The total unpaid principal balance of impaired loans decreased $8.4 million to $42.6 million at June 30, 2014 compared with $51.0 million at September 30, 2013 primarily as the result of a $6.5 million decrease in impaired residential real estate loans and a $1.9 million decrease in impaired commercial loans. Residential real estate first mortgage, second mortgage and home equity lines of credit that were determined to be impaired and had related specific allowances totaled $4.2 million at June 30, 2014 compared with $4.9 million at September 30, 2013. Such loans were determined to be impaired, but did not yet meet the Company’s criteria for charge-off. Refer to Note7 of Notes to Unaudited Consolidated Financial Statements for a discussion of the Company’s charge-off methodology. Residential real estate first mortgage, second mortgage and home equity lines of credit that were determined to be impaired and had partial charge-offs recorded totaled $3.5 million at June 30, 2014 compared with $3.8 million at September 30, 2013.

Residential loans that were determined to be impaired and had no specific allowance or no partial charge-offs recorded totaled $22.5 million at June 30, 2014 compared with $28.0 million at September 30, 2013. Such loans were determined to be impaired and were placed on non-accrual status because management determined that the Company will be unable to collect all amounts due on a timely basis according to the loan contract, including scheduled interest payments. However, after evaluation of the fair value of the underlying collateral for collateral-dependent loans, expected future cash flows for non-collateral dependent loans, the delinquency status of the notes and the ability of the borrowers to repay the principal balance of the loans, management determined that no impairment losses were probable on these impaired residential loans at June 30, 2014 and September 30, 2013. The decrease was primarily the result of $4.6 million of residential loans that were removed from impaired status during the nine months ended June 30, 2014 because of the borrowers’ favorable performance history combined with approximately $2.2 million of payments received on impaired loans.

Commercial loans that were determined to be impaired and had related specific allowances totaled $561,000 at June 30, 2014 compared with $1.5 million at September 30, 2013. Commercial loans that were determined to be impaired and had partial charge-offs recorded totaled $4.2 million at June 30, 2014 compared with $3.6 million at September 30, 2013. The increase was primarily the result of the partial charge-off and classification as impaired as of June 30, 2014 of a $1.1 million commercial and multi-family loan.

Commercial loans that were determined to be impaired and had no related specific allowances or no partial charge-offs recorded totaled $7.5 million at June 30, 2014 compared with $9.1 million at September 30, 2013. Such loans were determined to be impaired and were placed on non-accrual status because management determined that the Company will

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be unable to collect all amounts due on a timely basis according to the loan contract, including scheduled interest payments. However, after evaluation of the fair value of the underlying collateral securing the remaining balances of collateral dependent loans, expected future cash flows of non-collateral dependent loans and the ability of the borrowers to repay the principal balance of the loans, management determined that no impairment losses were probable on these loans. The decrease primarily resulted primarily from the overall decrease in past due commercial loans.

FINANCIAL CONDITION

Cash and cash equivalents decreased to $78.8 million at June 30, 2014 from $86.3 million at September 30, 2013. Available cash was used to fund loan growth.

Debt and mortgage-backed securities available for sale decreased to $3.1 million at June 30, 2014 from $38.9 million at September 30, 2013. Debt and mortgage-backed securities held to maturity increased to $48.4 million at June 30, 2014 from $4.3 million at September 30, 2013. Such securities are primarily held as collateral to secure large commercial and municipal deposits and retail repurchase agreements. The total balance held in these securities is adjusted as individual securities mature to reflect fluctuations in the balances of the deposits and retail repurchase agreements they are securing.

Borrowed money totaled $224.1 million at June 30, 2014 compared with $113.5 million at September 30, 2013. The Company supplements its primary funding source, retail deposits, primarily with borrowings from the Federal Home Loan Bank. The increase in borrowed money was primarily used to fund growth in loans receivable. See Liquidity and Capital Resources. In addition, during January 2014, the Company entered into a loan agreement with a commercial bank for a $10.0 million term loan. The proceeds of the term loan were used to finance the repurchase from a private investor of $10 million of higher costing shares of the Company’s Preferred Stock during January 2014. The rate of interest on the term loan is the Daily LIBOR Rate plus 2.50% and the interest payments are tax deductible. The dividend rate on the Preferred Stock increased to 9% in January 2014 and the dividend payments are not tax deductible. Refer to Note 9 of Notes to Unaudited Consolidated Financial Statements for a summary of the loan terms.

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 $977,000 to $2.9 million at June 30, 2014 compared with $3.9 million at September 30, 2013 primarily due to the Bank’s payment of borrowers’ real estate taxes in December 2013.

Total stockholders’ equity was $116.6 million at June 30, 2014 compared with $116.1 million at September 30, 2013. During June 2014, the Company issued 68,818 shares of its common stock in exchange for $735,000 in liquidation value of its preferred stock in a private transaction exempt from registration under the federal securities laws. While this transaction increased common equity and decreased preferred equity, it had no impact on total stockholder’s equity. In addition, the Company issued 604,542 shares of its common stock during June 2014 in exchange for $6.7 million in cash in a private transaction exempt from registration under the federal securities laws. This transaction increased total stockholder’s equity by $6.7 million. On July 31, 2014, the Company used the proceeds from the offering to redeem all of the remaining outstanding shares of preferred stock. Other items increasing total stockholders’ equity during the nine months ended June 30, 2013 were net income of $7.6 million and the amortization of stock option and award expense of $242,000. Items reducing total stockholders’ equity during the nine months ended June 30, 2013 were the repurchase of $10 million of preferred stock at par value in January 2014 using the proceeds from a term loan obtained from a commercial bank, the payment of common stock dividends totaling $3.3 million and preferred stock dividends totaling $579,000.

LIQUIDITY RISK

Liquidity risk arises from the possibility that the Company might not be able to satisfy current or future financial commitments, or may become unduly reliant on more costly alternative funding sources. The objective of liquidity risk management is to ensure that the cash flow requirements of the Bank’s depositors and borrowers, as well as the Company’s operating needs, are met. The Bank’s Asset/Liability Committee meets regularly to consider the operating cash needs of the organization.

The Company primarily funds its assets with deposits from its retail, commercial and public entity customers. In addition, the Company offers its in-market customers retail repurchase agreements, which represent overnight borrowings that are

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secured by certain of the Company’s investment securities. See Note 9 of Notes to Unaudited Consolidated Financial Statements for a description of retail repurchase agreements. If the Bank or the Company require funds beyond their ability to generate them internally, the Bank has the ability to borrow funds from the FHLB and the Federal Reserve and 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. At June 30, 2014, borrowings from the FHLB totaled $186.7 million, had a weighted-average interest rate of 0.69%, a weighted average maturity of approximately 3 months and represented 14% of total assets. At September 30, 2013, borrowings from the FHLB totaled $78.0 million, had a weighted-average interest rate of 1.30%, a weighted average maturity of approximately 11 months and represented 6% of total assets. There were no borrowings from the Federal Reserve or brokered certificates of deposit from national brokers outstanding at June 30, 2014 or September 30, 2013. These funds are available to the Company as alternative sources to support its asset growth while avoiding, when necessary, aggressive deposit pricing strategies that might be used from time to time by some of its competitors in its market. Use of these wholesale funds in previous periods has given management an alternative 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 with deposits. The increased flexibility has allowed the Company in past periods to better respond to changes in the interest rate environment and demand for its loans products, especially loans held for sale that are awaiting final settlement (generally within 30 to 60 days) with the Company’s investors.

The borrowings from the FHLB are obtained under a blanket agreement, which assigns all investments in FHLB stock, qualifying first residential mortgage loans, residential loans held for sale and home equity lines of credit 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 June 30, 2014, the Bank had approximately $9.2 million in additional borrowing authority under the arrangement with the FHLB in addition to the $186.7 million in advances outstanding at that date.

The Bank 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 June 30, 2014, the Bank had approximately $147.6 million in borrowing authority under this arrangement with no borrowings outstanding and had approximately $185.1 million of commercial loans pledged as collateral under this agreement.

During January 2014, the Company entered into a loan agreement with a commercial bank for a $10.0 million term note. The proceeds of the term loan were used to finance the repurchase from a private investor of $10.0 million of outstanding shares of the Preferred Stock during January 2014. The loan agreement also provides a $2.0 million revolving line of credit to the Company. The revolving line of credit is available to be used for working capital. There was no outstanding balance under the revolving line of credit during the three or nine months ended June 30, 2014. Interest on these borrowings equal the Daily LIBOR Rate plus 2.50%. Payments under the term loan are made monthly and began on March 31, 2014 and end on January 17, 2021. Common shares of the Bank that were held by the Company were pledged as collateral to secure the loans.

At June 30, 2014, the Bank had outstanding firm commitments to originate loans of $143.2 million and commitments to sell loans originated for sale of $124.6 million, all of which were on a “best-efforts” basis. Certificates of deposit totaling $215.1 million, or 21.5% of total deposits, at June 30, 2014 were scheduled to mature in one year or less. Based on historical experience, management believes the majority of maturing retail certificates of deposit will remain with the Bank. However, if these deposits do not remain with the Bank, the Bank will need to rely on wholesale funding sources, which might only be available at higher interest rates.

The Company is a legal entity, separate and distinct from the Bank, which must provide its own liquidity to meet its operating needs. The Company’s ongoing liquidity needs primarily include funding its operating expenses, paying cash dividends to its common and preferred shareholders and paying interest and principal on outstanding debt. During the three months ended June 30, 2014 and 2013, the Company paid cash dividends to its common and preferred shareholders totaling $1.3 million and $1.4 million, respectively, repaid principal on borrowed money of $250,000 and $0, respectively, and paid interest on outstanding debt totaling $189,000 and $127,000, respectively. During the nine months ended June 30, 2014 and 2013, the Company paid cash dividends to its common and preferred shareholders totaling $3.9 million and $4.1

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million, respectively, repaid principal on borrowed money of $500,000 and $0, respectively, and paid interest on outstanding debt totaling $487,000 and $383,000, respectively.

A large portion of the Company’s liquidity is obtained from the Bank in the form of dividends. Federal 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 OCC and the non-objection of the Federal Reserve Bank are required prior to any capital distribution when the total amount of capital distributions for the current calendar year exceeds net income for that year plus retained net income for the preceding two years. To the extent that any such capital distributions are not approved by these regulators 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 June 30, 2014 and September 30, 2013, the Company had cash and cash equivalents totaling $6.8 million and $511,000, respectively, and a demand loan extended to the Bank totaling $4.0 million and $3.5 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 these loans sold to secondary market investors on a “best efforts” basis. Consequently, the primary source and use of cash in operations is to originate loans held for sale, which used $500.2 million in cash and provided proceeds of $507.6 million from loan sales during the nine months ended June 30, 2014 compared with $1.05 billion and $1.08 billion, respectively, in the same 2013 period.

The primary use of cash from investing activities is the origination of loans receivable that are held in portfolio. Loans receivable held in portfolio increased $104.6 million for the nine months ended June 30, 2014 compared with an increase of $21.8 million for the nine months ended June 30, 2013. Other significant uses of cash from investing activities for the nine months ended June 30, 2014 included $22.5 million for the purchase of debt securities available for sale, $45.1 million for the purchase of debt securities held to maturity and $15.4 million for the purchase of FHLB stock. Other significant uses of cash from investing activities for the nine months ended June 30, 2013 included $58.3 million for the purchase of debt securities available for sale and $13.8 million for the purchase of FHLB stock.

Sources of cash from investing activities for the nine months ended June 30, 2014 included proceeds from maturities of debt securities available for sale totaling $58.3 million, proceeds from FHLB stock redemptions of $11.1 million, principal repayments on mortgage-backed securities totaling $993,000 and proceeds from the sale of real estate acquired in settlement of loans of $3.0 million. Sources of cash from investing activities for the nine months ended June 30, 2013 included proceeds from maturities of debt securities available for sale totaling $44.3 million, proceeds from FHLB stock redemptions of $12.8 million, principal repayments on mortgage-backed securities totaling $1.1 million and proceeds from the sale of real estate acquired in settlement of loans of $10.0 million.

The Company’s primary sources of cash from financing activities for the nine months ended June 30, 2014 included an $108.7 million increase in FHLB advances, a $10.0 million increase in other borrowed money and a $6.6 million increase in common stock issued. The primary sources of cash from financing activities for the nine months ended June 30, 2013 was a $21.0 million increase in FHLB advances and a $14.9 million increase in overnight retail repurchase agreements.

Primary uses of cash from financing activities for the nine months ended June 30, 2014 included an $11.3 million decrease in deposits, the repurchase of $10.7 million of preferred stock, a $7.6 million decrease in overnight retail repurchase agreements, a $977,000 decrease in advance payments by borrowers for taxes and insurance, dividends paid on common stock of $3.3 million and dividends paid on preferred stock of $579,000. Primary uses of cash from financing activities for the nine months ended June 30, 2013 included a $38.8 million decrease in deposits, $2.0 million for the repurchase of preferred stock, a $2.0 million decrease in advance payments by borrowers for taxes and insurance, dividends paid on common stock of $3.2 million and dividends paid on preferred stock of $928,000.

The Company has various financial obligations, including obligations that may require future cash payments. The table below presents, as of June 30, 2014, significant fixed and determinable contractual obligations to third parties, excluding interest payable, by payment due date.

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					Retail
	Certificates		FHLB		Repurchase		Term		Subordinated
	of Deposit		Borrowings		Agreements		Loan		Debentures
	(In thousands)
Maturing in:
Three months or less	$	62,141	$	157,700	$	27,913	$	250	$	—
Over three months through six months	52,698		—		—		250		—
Over six months through twelve months	100,248		25,000		—		500		—
Over twelve months	100,190		4,000		—		8,500		19,589
Total	$	315,277	$	186,700	$	27,913	$	9,500	$	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 June 30, 2014 are as follows:

Less than one year	$	1,518,602
Over 1 year through 3 years	2,591,278
Over 3 years through 5 years	1,495,161
Over 5 years	689,541
Total	$	6,294,582

REGULATORY CAPITAL

The Company is currently not subject to any separate capital requirements from those of the Bank. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators which, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures that have been established by regulation to ensure capital adequacy require the Bank to maintain minimum capital amounts and ratios (set forth in the table below). Under such regulations, the Bank is required to maintain minimum ratios of tangible capital of 1.5%, core capital of 4.0% and total risk-based capital of 8.0%. The Bank is also subject to prompt corrective action capital requirement regulations set forth by federal regulations. As defined in the regulations, the Bank is required 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 June 30, 2014.

As of June 30, 2014, the most recent notification from the Bank’s primary regulator, the Office of the Comptroller of the Currency, 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.

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The following table illustrates the Bank’s actual regulatory capital levels compared with its regulatory capital requirements at June 30, 2014 and September 30, 2013.

									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 June 30, 2014:
Tangible capital (to total assets)	$	131,350	9.59	%	$	20,542	1.50	%	N/A		N/A
Total risk-based capital (to risk-weighted assets)	144,992		13.33	%	87,019		8.00	%	$	108,774	10.00	%
Tier I risk-based capital (to risk-weighted assets)	131,350		12.08	%	N/A		N/A		65,264		6.00	%
Tier I leverage capital (to average assets)	131,350		9.59	%	54,779		4.00	%	68,474		5.00	%

As of September 30, 2013:
Tangible capital (to total assets)	$	127,757	10.05	%	$	19,064	1.50	%	N/A		N/A
Total risk-based capital (to risk-weighted assets)	140,336		14.03	%	80,016		8.00	%	$	100,020	10.00	%
Tier I risk-based capital (to risk-weighted assets)	127,757		12.77	%	N/A		N/A		60,012		6.00	%
Tier I leverage capital (to average assets)	127,757		10.05	%	50,838		4.00	%	63,547		5.00	%

The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies, including savings and loan holding companies, that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. In early July 2013, the Federal Reserve Board and the OCC approved revisions to their capital adequacy guidelines and prompt corrective action rules that implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The rules include new risk-based capital and leverage ratios, which are effective January 1, 2015, and revise the definition of what constitutes “capital” for calculating those ratios. The proposed new minimum capital level requirements applicable to the Company and the Bank will be: (1) a new common equity Tier 1 capital ratio of 4.5%; (2) a Tier 1 capital ratio of 6% (increased from 4%); (3) a total capital ratio of 8% (unchanged from current rules); and (4) a Tier 1 leverage ratio of 4%. The rules eliminate the inclusion of certain instruments, such as trust preferred securities, from Tier 1 capital. Instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. The rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

In addition, federal regulations, as currently applied to the Bank, impose limitations upon payment of capital distributions to the Company. Under the regulations, the prior approval of the Bank’s primary regulator, the OCC, and the non-objection of the Federal Reserve Bank, are required prior to any capital distribution when the total amount of capital distributions for the current calendar year exceeds net income for that year plus retained net income for the preceding two years. To the extent that any such capital distributions are not approved by the regulatory agencies in future periods, the Company could find it

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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.

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.

Item 3. 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 June 30, 2014 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2013.

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 and nine months ended June 30, 2014, 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 June 30, 2014, the Company had issued $82.7 million of unexpired interest rate lock commitments to loan customers compared with $68.6 million of unexpired commitments at September 30, 2013.

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 Company, while the Company, in turn, charged the customer a floating interest rate on the loan. Under the terms of the swap contract between the Company and the loan customer, the customer pays the Company a fixed interest rate of 6.58%, while the Company 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 Company and a major securities broker, the Company pays the broker a fixed interest rate of 6.58%, while the broker pays the Company 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 nine months ended June 30, 2014 and 2013. The fair values of these derivative instruments recorded in other assets and other liabilities in the Company’s financial statements at June 30, 2014 and September 30, 2013 were $469,000 and $843,000, respectively.

Item 4. 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

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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 June 30, 2014, 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 June 30, 2014, and concluded that the Company’s disclosure controls and procedures were effective as of such date. The Company’s management determined that the material weakness that existed as of September 30, 2013, December 31, 2013 and March 31, 2014, which is described below, had been remediated as of June 30, 2014.

A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management had previously identified the following material weakness in the Company’s internal control over financial reporting as of September 30, 2013, December 31, 2013 and March 31, 2014:

· The controls to verify (i) the legal adequacy and sufficiency of the commercial loan documentation and (ii) complete information with which to make the appropriate commercial loan underwriting decisions did not operate effectively and were not responsive to fraud risks.

· The monitoring controls intended to assess the operating effectiveness of controls over commercial loan administration identified certain commercial loan documentation deficiencies but did not result in adequate communication of the documentation control deficiencies to those parties responsible for taking or ensuring timely corrective action, as appropriate.

· As a result of these control deficiencies, there was inadequate communication of information that affected the commercial loan risk grading control, specifically impacting certain qualitative factors associated with the general reserve component of the allowance for loan losses.

During the quarter ended December 31, 2013, management began to implement changes to the Company’s internal control over financial reporting to address the material weakness. Such changes included providing clearer designation and allocation of responsibilities within the Company’s loan underwriting and credit administration functions, implementing additional processes and documentation procedures, and providing additional training to loan underwriting and credit administration staff. Such controls were fully implemented and tested during the quarter ended June 30, 2014 and, as a result, management concluded that the material weakness had been remediated as of June 30, 2014.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Fair Value Measurements. In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The ASU contains guidance on the application of the highest and best use and valuation premise concepts, the measurement of fair values of instruments classified in shareholders’ equity, the measurement of fair values of financial instruments that are managed within a portfolio, and the application of premiums and discounts in a fair value measurement. It also requires additional disclosures about fair value measurements, including information about the unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy, the sensitivity of recurring fair value measurements within Level 3 to changes in unobservable inputs and the interrelationships between those inputs, and the categorization by level of the fair value hierarchy for items that are not measured at fair value but for which the fair value is required to be disclosed. These amendments were applied prospectively, effective January 1, 2012, and their application did not have a material effect on the Company’s consolidated financial statements.

Other Comprehensive Income. In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. The ASU increases the prominence of other comprehensive income in financial statements by requiring comprehensive income to be reported in either a single statement or in two consecutive statements which report both net income and other comprehensive income. It eliminates the option to report the components of other comprehensive income in the statement of changes in equity. The ASU was effective for periods beginning January 1, 2012 and required retrospective application.

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The ASU did not change the components of other comprehensive income, the timing of items reclassified to net income, or the net income basis for income per share calculations. The Company has chosen to present net income and other comprehensive income in a single statement in the accompanying consolidated financial statements. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments are being made to allow the Board time to consider whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. Until the Board has reached a resolution, entities are required to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05.

Goodwill. In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment. The ASU allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Previous guidance required, on an annual basis, testing goodwill for impairment by comparing the fair value of a reporting unit to its carrying amount (including goodwill). As a result of this amendment, an entity will not be required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The ASU was effective for annual and interim goodwill impairment tests performed for periods beginning January 1, 2012. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

Balance Sheet. In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities”. The ASU is a joint requirement by the FASB and International Accounting Standards Board to enhance current disclosures and increase comparability of GAAP and International Financial Reporting Standards financial statements. Under the ASU, an entity will be required to disclose both gross and net information about instruments and transactions eligible for offset in the balance sheet, as well as instruments and transactions subject to an agreement similar to a master netting agreement. The scope of the ASU includes derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The ASU is effective for annual and interim periods beginning January 1, 2013. Adoption of the ASU did not have a material effect on the Company’s consolidated financial statements.

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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, 2013, 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.

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 June 30, 2014.

ISSUER PURCHASES OF EQUITY SECURITIES

	(a)	(b)		(c)	(d)
	Total Number of Shares (or Units) Purchased (1)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs (2)
April 1, 2014 through April 30, 2014	644	$	10.50	—	403,800
May 1, 2014 through May 31, 2014	400	$	11.05	—	403,800
June 1, 2014 through June 30, 2014	666	$	11.10	—	403,800
Total	1,710	$	10.86	—

(1) Represents shares surrendered by employees to satisfy tax withholding requirements upon the 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. No shares of common stock were repurchased under this program during the three months ended June 30, 2014.

Item 3. Defaults Upon Senior Securities: Not applicable

Item 4. Mine Safety Disclosures: Not applicable

Item 5. Other Information: Not applicable

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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)

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

101	The following materials from Pulaski Financial Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statement of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows and (v) related notes.

(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.

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SIGNATURES

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PULASKI FINANCIAL CORP.

Date:	August 8, 2014	/s/Gary W. Douglass
		Gary W. Douglass
		President and Chief Executive Officer


Date:	August 8, 2014	/s/Paul J. Milano
		Paul J. Milano
		Chief Financial Officer

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