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 March
31,2010
 
 OR
 
  ̈
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d)OF
      THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from ___________________ to
______________________
 
 0-24571
 
 Commission
File Number
 
 Pulaski Financial
Corp.
 
 (Exact
name of registrant as specified in its charter)
  Missouri
                    
                    43-1816913(State
      or other jurisdiction of
                    
                    (I.R.S.
      Employerincorporation
      or organization)
                    
                    Identification
      Number)12300
      Olive BoulevardSt. 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.
 Yesx                                                
No          ̈
 
 Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).  Yes ̈No ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
  Large
      accelerated filer
                 ̈
                Accelerated
      filer
                 ̈Non-accelerated
      filer
                 ̈
                Smaller
      reporting company
                x(Do
      not check if a smaller reporting company.)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)  Yes 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 atJune 21,
    2010Common
      Stock, par value $.01 per share
                    
                    10,762,114
      shares
  
  PULASKI
FINANCIAL CORP. AND SUBSIDIARIES
  FORM
10-Q
  MARCH
31, 2010
  TABLE
OF CONTENTS
  PagePART
      I            
      FINANCIAL INFORMATIONItem
      1.
                      Financial
      StatementsConsolidated
      Balance Sheets at March 31, 2010 and September 30, 2009
      (Unaudited)
                      1Consolidated
      Statements of Operations and Comprehensive Income for the Three and Six
      Months Ended March 31, 2010 and 2009 (Unaudited)
                      2Consolidated
      Statement of Stockholders’ Equity for the Six Months Ended March 31, 2010
      (Unaudited)
                      3Consolidated
      Statements of Cash Flows for the Six Months Ended March 31, 2010 and 2009
      (Unaudited)
                      4Notes
      to Unaudited Consolidated Financial Statements
                      6Item
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      21Item 3.
                      Quantitative and Qualitative
      Disclosures About Market Risk
                      39Item 4.
                      Controls and
      Procedures
                      40PART IIOTHER
      INFORMATIONItem 1.
                      Legal
      Proceedings
                      43Item 1A.
                      Risk
Factors
                      43Item 2.
                      Unregistered Sales of Equity
      Securities and Use of Proceeds
                      44Item 3.
                      Defaults Upon Senior
      Securities
                      44Item 4.
                      [Reserved]
                      44Item 5.
                      Other
      Information
                      44Item 6.
                      Exhibits
                      44Signatures
                      46
  
  PART I - FINANCIAL
INFORMATION
  
  PULASKI
FINANCIAL CORP. AND SUBSIDIARIES
 
 CONSOLIDATED
BALANCE SHEETS
 MARCH
31, 2010 AND SEPTEMBER 30, 2009 (UNAUDITED)
 
 March 31,
                  
                  
                  September 30,ASSETS
                  
                  2010
                  
                  
                  2009Cash
      and amounts due from depository institutions
                  
                  $
                  7,335,329
                  
                  
                  $
                  3,911,448Federal
      funds sold and overnight interest-bearing deposits
                  
                  
                  47,368,939
                  
                  
                  
                  33,539,216Total cash and cash
      equivalents
                  
                  
                  54,704,268
                  
                  
                  
                  37,450,664Equity
      securities available for sale, at fair value
                  
                  
                  589,000
                  
                  
                  
                  589,000Debt
      securities available for sale, at fair value
                  
                  
                  3,508,113
                  
                  
                  
                  1,997,396Mortgage-backed
      securities held to maturity, at amortized cost (fair value of$11,731,610 and $12,374,966 at
      March 31, 2010 and September 30, 2009,
respectively)
                  
                  
                  11,366,099
                  
                  
                  
                  12,077,794Mortgage-backed
      securities available for sale, at fair value
                  
                  
                  13,389,101
                  
                  
                  
                  16,087,148Capital
      stock of Federal Home Loan Bank - at cost
                  
                  
                  4,331,600
                  
                  
                  
                  11,649,800Mortgage
      loans held for sale, at lower of cost or market
                  
                  
                  96,600,151
                  
                  
                  
                  109,129,721Loans
      receivable (net of allowance for loan losses of $26,493,763 and
      $20,579,170 atMarch 31,
      2010 and September 30, 2009, respectively)
                  
                  
                  1,086,377,450
                  
                  
                  
                  1,132,094,844Real
      estate acquired in settlement of loans (net of allowance for lossesof $1,029,400 and $274,076 at
      March 31, 2010 and September 30, 2009,
respectively)
                  
                  
                  13,899,544
                  
                  
                  
                  8,454,610Premises
      and equipment, net
                  
                  
                  18,365,894
                  
                  
                  
                  18,962,001Goodwill
                  
                  
                  3,938,524
                  
                  
                  
                  3,938,524Core
      deposit intangible
                  
                  
                  192,442
                  
                  
                  
                  243,100Accrued
      interest receivable
                  
                  
                  4,667,667
                  
                  
                  
                  4,906,919Bank-owned
      life insurance
                  
                  
                  29,226,713
                  
                  
                  
                  28,678,679Deferred
      tax asset
                  
                  
                  11,628,824
                  
                  
                  
                  9,296,234Prepaid
      expenses, accounts receivable and other assets
                  
                  
                  15,907,374
                  
                  
                  
                  10,869,438Total
assets
                  
                  $
                  1,368,692,764
                  
                  
                  $
                  1,406,425,872LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits
                  
                  $
                  1,164,173,899
                  
                  
                  $
                  1,191,629,239Advances from Federal Home Loan
      Bank
                  
                  
                  59,500,000
                  
                  
                  
                  61,000,000Subordinated
      debentures
                  
                  
                  19,589,000
                  
                  
                  
                  19,589,000Advance payments by borrowers for
      taxes and insurance
                  
                  
                  2,213,307
                  
                  
                  
                  4,655,867Accrued interest
      payable
                  
                  
                  1,101,459
                  
                  
                  
                  1,034,896Other
      liabilities
                  
                  
                  10,098,421
                  
                  
                  
                  11,555,500Total
      liabilities
                  
                  
                  1,256,676,086
                  
                  
                  
                  1,289,464,502Stockholders'
      Equity:Preferred stock - $.01 par value
      per share, 1,000,000 shares authorized; 32,538 shares issued at March 31,
      2010 and September 30, 2009, $1,000 per share liquidation
      value,net of
    discount
                  
                  
                  30,870,801
                  
                  
                  
                  30,655,060Common stock - $.01 par value per
      share, 18,000,000 shares authorized;13,068,618 shares issued at March
      31, 2010 and September 30, 2009
                  
                  
                  130,687
                  
                  
                  
                  130,687Treasury stock-at cost; (2,795,494
      and 2,963,817 shares at March 31, 2010 and September 30, 2009,
      respectively)
                  
                  
                  (17,777,926
                  )
                  
                  
                  (18,544,173
                  )Additional paid-in capital from
      common stock
                  
                  
                  55,514,811
                  
                  
                  
                  55,247,464Accumulated other comprehensive
      income, net
                  
                  
                  97,915
                  
                  
                  
                  192,773Retained
      earnings
                  
                  
                  43,180,390
                  
                  
                  
                  49,279,559Total stockholders’
      equity
                  
                  
                  112,016,678
                  
                  
                  
                  116,961,370Total liabilities and
      stockholders’ equity
                  
                  $
                  1,368,692,764
                  
                  
                  $
                  1,406,425,872
 
 See
accompanying notes to the unaudited consolidated financial
statements.
  - 1
-
  PULASKI FINANCIAL CORP. AND
SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
 THREE AND SIX MONTHS ENDED MARCH 31,
2010 AND 2009 (UNAUDITED)
 
 Three Months Ended
                                March31,
                              
                              
                              Six Months Ended
                                March31,2010
                              
                              
                              2009
                              
                              
                              2010
                              
                              
                              2009Interest and Dividend
      Income:Loans
      receivable
                              
                              $
                              14,653,620
                              
                              
                              $
                              14,552,939
                              
                              
                              $
                              29,512,430
                              
                              
                              $
                              30,238,170Mortgage loans held for
      sale
                              
                              
                              1,093,852
                              
                              
                              
                              1,757,531
                              
                              
                              
                              2,713,860
                              
                              
                              
                              2,423,222Securities and
      other
                              
                              
                              306,847
                              
                              
                              
                              346,558
                              
                              
                              
                              668,917
                              
                              
                              
                              830,348Total interest and dividend
      income
                              
                              
                              16,054,319
                              
                              
                              
                              16,657,028
                              
                              
                              
                              32,895,207
                              
                              
                              
                              33,491,740Interest
      Expense:Deposits
                              
                              
                              4,339,331
                              
                              
                              
                              5,312,328
                              
                              
                              
                              8,966,100
                              
                              
                              
                              11,435,622Advances from Federal Home Loan
      Bank
                              
                              
                              506,125
                              
                              
                              
                              915,395
                              
                              
                              
                              1,063,367
                              
                              
                              
                              2,086,048Borrowings from the Federal
      Reserve Bank
                              
                              
                              193
                              
                              
                              
                              135,165
                              
                              
                              
                              257
                              
                              
                              
                              214,932Subordinated
      debentures
                              
                              
                              123,021
                              
                              
                              
                              200,190
                              
                              
                              
                              250,512
                              
                              
                              
                              446,613Note
payable
                              
                              
                              -
                              
                              
                              
                              12,233
                              
                              
                              
                              -
                              
                              
                              
                              113,353Total interest
      expense
                              
                              
                              4,968,670
                              
                              
                              
                              6,575,311
                              
                              
                              
                              10,280,236
                              
                              
                              
                              14,296,568Net interest
      income
                              
                              
                              11,085,649
                              
                              
                              
                              10,081,717
                              
                              
                              
                              22,614,971
                              
                              
                              
                              19,195,172Provision for loan
      losses
                              
                              
                              11,240,000
                              
                              
                              
                              5,664,407
                              
                              
                              
                              17,314,000
                              
                              
                              
                              10,355,985Net interest income (loss) after
      provision for loan losses
                              
                              
                              (154,351
                              )
                              
                              
                              4,417,310
                              
                              
                              
                              5,300,971
                              
                              
                              
                              8,839,187Non-Interest
      Income:Mortgage
      revenues
                              
                              
                              1,676,561
                              
                              
                              
                              4,313,013
                              
                              
                              
                              4,378,047
                              
                              
                              
                              5,862,643Retail banking
      fees
                              
                              
                              869,997
                              
                              
                              
                              935,598
                              
                              
                              
                              1,802,158
                              
                              
                              
                              1,902,632Investment brokerage
      revenues
                              
                              
                              347,654
                              
                              
                              
                              379,227
                              
                              
                              
                              771,698
                              
                              
                              
                              640,691Gain on the sales of
      securities
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              243,386Bank-owned life
      insurance
                              
                              
                              272,411
                              
                              
                              
                              263,854
                              
                              
                              
                              548,033
                              
                              
                              
                              557,063Other
                              
                              
                              217,045
                              
                              
                              
                              48,620
                              
                              
                              
                              327,366
                              
                              
                              
                              115,258Total non-interest
      income
                              
                              
                              3,383,668
                              
                              
                              
                              5,940,312
                              
                              
                              
                              7,827,302
                              
                              
                              
                              9,321,673Non-Interest
      Expense:Salaries and employee
      benefits
                              
                              
                              3,653,845
                              
                              
                              
                              3,593,274
                              
                              
                              
                              7,550,423
                              
                              
                              
                              6,935,276Occupancy, equipment and data
      processing expense
                              
                              
                              2,014,696
                              
                              
                              
                              2,053,152
                              
                              
                              
                              4,019,609
                              
                              
                              
                              3,933,441Advertising
                              
                              
                              94,918
                              
                              
                              
                              209,286
                              
                              
                              
                              241,776
                              
                              
                              
                              495,285Professional
      services
                              
                              
                              548,407
                              
                              
                              
                              370,947
                              
                              
                              
                              1,065,856
                              
                              
                              
                              632,417FDIC deposit insurance premuim
      expense
                              
                              
                              493,752
                              
                              
                              
                              410,593
                              
                              
                              
                              985,611
                              
                              
                              
                              609,812Real estate foreclosure losses and
      expense, net
                              
                              
                              905,486
                              
                              
                              
                              409,437
                              
                              
                              
                              1,341,689
                              
                              
                              
                              751,001Other
                              
                              
                              709,770
                              
                              
                              
                              776,020
                              
                              
                              
                              1,398,310
                              
                              
                              
                              1,406,002Total non-interest
      expense
                              
                              
                              8,420,874
                              
                              
                              
                              7,822,709
                              
                              
                              
                              16,603,274
                              
                              
                              
                              14,763,234(Loss) income before income
      taxes
                              
                              
                              (5,191,557
                              )
                              
                              
                              2,534,913
                              
                              
                              
                              (3,475,001
                              )
                              
                              
                              3,397,626Income tax (benefit)
      expense
                              
                              
                              (869,669
                              )
                              
                              
                              761,910
                              
                              
                              
                              (403,548
                              )
                              
                              
                              1,058,766Net (loss)
      income
                              
                              $
                              (4,321,888
                              )
                              
                              $
                              1,773,003
                              
                              
                              $
                              (3,071,453
                              )
                              
                              $
                              2,338,860Other comprehensive (loss)
      income
                              
                              
                              (46,557
                              )
                              
                              
                              58,944
                              
                              
                              
                              (94,858
                              )
                              
                              
                              171,140Comprehensive (loss)
      income
                              
                              $
                              (4,368,445
                              )
                              
                              $
                              1,831,947
                              
                              
                              $
                              (3,166,311
                              )
                              
                              $
                              2,510,000(Loss) income available to common
      shares
                              
                              $
                              (4,836,673
                              )
                              
                              $
                              1,535,393
                              
                              
                              $
                              (4,100,644
                              )
                              
                              $
                              2,101,250Per Common Share
      Amounts:Basic (loss) earnings per common
      share
                              
                              $
                              (0.47
                              )
                              
                              $
                              0.15
                              
                              
                              $
                              (0.40
                              )
                              
                              $
                              0.21Weighted average common shares
      outstanding - basic
                              
                              
                              10,364,565
                              
                              
                              
                              10,153,221
                              
                              
                              
                              10,318,818
                              
                              
                              
                              10,133,651Diluted (loss) earnings per common
      share
                              
                              $
                              (0.47
                              )
                              
                              $
                              0.15
                              
                              
                              $
                              (0.40
                              )
                              
                              $
                              0.20Weighted average common shares
      outstanding - diluted
                              
                              
                              10,364,565
                              
                              
                              
                              10,283,324
                              
                              
                              
                              10,318,818
                              
                              
                              
                              10,324,389
 
 See accompanying notes to the unaudited
consolidated financial statements.
  - 2
-
  PULASKI FINANCIAL CORP. AND
SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY
 SIX MONTHS ENDED MARCH 31, 2010
(UNAUDITED)
 
 Preferred
                      
                      
                      
                      
                      
                      
                      
                      
                      Additional
                      
                      
                      AccumulatedStock,
                      
                      
                      
                      
                      
                      
                      
                      
                      Paid-In
                      
                      
                      OtherNet of
                      
                      
                      Common
                      
                      
                      Treasury
                      
                      
                      Capital From
                      
                      
                      Comprehensive
                      
                      
                      RetainedDiscount
                      
                      
                      Stock
                      
                      
                      Stock
                      
                      
                      Common Stock
                      
                      
                      Income (Loss), Net
                      
                      
                      Earnings
                      
                      
                      TotalBalance,
      September 30, 2009
                      
                      $
                      30,655,060
                      
                      
                      $
                      130,687
                      
                      
                      $
                      (18,544,173
                      )
                      
                      $
                      55,247,464
                      
                      
                      $
                      192,773
                      
                      
                      $
                      49,279,559
                      
                      
                      $
                      116,961,370Comprehensive
      income:Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (3,071,453
                      )
                      
                      
                      (3,071,453
                      )Change
      in unrealized loss on investment securities, net of
      tax
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (94,858
                      )
                      
                      
                      -
                      
                      
                      
                      (94,858
                      )Comprehensive
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (94,858
                      )
                      
                      
                      (3,071,453
                      )
                      
                      
                      (3,166,311
                      )Common
      stock dividends ($0.095 per share)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,998,525
                      )
                      
                      
                      (1,998,525
                      )Preferred
      stock dividends
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (813,450
                      )
                      
                      
                      (813,450
                      )Accretion
      of discount on preferred stock
                      
                      
                      215,741
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (215,741
                      )
                      
                      
                      -Stock
      options excercised
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      297,504
                      
                      
                      
                      (100,675
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      196,829Stock
      option and award expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      305,043
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      305,043Commmon
      stock issued under dividend reinvestment plan (67,585
      shares)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      275,816
                      
                      
                      
                      163,701
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      439,517Restricted
      stock awards issued, net (48,400 shares)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      197,520
                      
                      
                      
                      (197,520
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Common
      stock surrendered to satisfy tax withholding obligations of stock-based
      compensation (5,705 shares)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (38,568
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (38,568
                      )Purchase
      of equity trust shares
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (152,285
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (152,285
                      )Distribution
      of equity trust shares (15,406 shares)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      186,260
                      
                      
                      
                      (186,260
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Amortization
      of equity trust expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      311,373
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      311,373Tax
      expense from release of equity shares
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (31,037
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (31,037
                      )Excess
      tax benefit from stock-based compensation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,722
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,722Balance,
      March 31, 2010
                      
                      $
                      30,870,801
                      
                      
                      $
                      130,687
                      
                      
                      $
                      (17,777,926
                      )
                      
                      $
                      55,514,811
                      
                      
                      $
                      97,915
                      
                      
                      $
                      43,180,390
                      
                      
                      $
                      112,016,678
 
 See accompanying  notes to the
unaudited consolidated financial statements.
  - 3
-
  PULASKI FINANCIAL CORP. AND
SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS
 ENDED MARCH 31, 2010 AND MARCH 31, 2009
(UNAUDITED)
  
 SixMonthsEndedMarch31,2010
                      
                      
                      2009Cash Flows From Operating
      Activities:Net (loss)
      income
                      
                      $
                      (3,071,453
                      )
                      
                      $
                      2,338,860Adjustments to reconcile net
      (loss) income to net cash from operating
activities:Depreciation, amortization and
      accretion:Premises and
      equipment
                      
                      
                      927,318
                      
                      
                      
                      927,688Net deferred loan
      costs
                      
                      
                      1,077,169
                      
                      
                      
                      1,388,296Debt and equity securities
      premiums and discounts, net
                      
                      
                      55,653
                      
                      
                      
                      79,593Equity trust expense,
      net
                      
                      
                      311,373
                      
                      
                      
                      296,913Stock option and award
      expense
                      
                      
                      305,043
                      
                      
                      
                      232,185Provision for loan
      losses
                      
                      
                      17,314,000
                      
                      
                      
                      10,355,985Provision for losses on real
      estate acquired in settlement of loans
                      
                      
                      1,201,900
                      
                      
                      
                      196,956(Gains) losses on sales of real
      estate acquired in settlement of loans
                      
                      
                      (28,995
                      )
                      
                      
                      239,229Originations of mortgage loans
      held for sale
                      
                      
                      (781,817,430
                      )
                      
                      
                      (899,539,005
                      )Proceeds from sales of mortgage
      loans held for sale
                      
                      
                      798,475,993
                      
                      
                      
                      866,710,228Gain on sales of mortgage loans
      held for sale
                      
                      
                      (4,128,993
                      )
                      
                      
                      (5,406,228
                      )Loss on equity securities
      available for sale
                      
                      
                      -
                      
                      
                      
                      155,500Gain on sales of debt securities
      available for sale
                      
                      
                      -
                      
                      
                      
                      (398,886
                      )Increase in cash value of
      bank-owned life insurance
                      
                      
                      (548,034
                      )
                      
                      
                      (557,063
                      )(Increase) decrease in deferred
      tax asset
                      
                      
                      (2,332,590
                      )
                      
                      
                      2,048,755Excess tax benefit from
      stock-based compensation
                      
                      
                      (2,722
                      )
                      
                      
                      (11,380
                      )Tax expense for release of equity
      trust shares
                      
                      
                      31,037
                      
                      
                      
                      -(Decrease) increase in accrued
      expenses
                      
                      
                      (634,611
                      )
                      
                      
                      108,141Decrease in current income taxes
      payable
                      
                      
                      (1,699,781
                      )
                      
                      
                      (261,869
                      )Changes in other assets and
      liabilities
                      
                      
                      (3,774,328
                      )
                      
                      
                      441,233Net
    adjustments
                      
                      
                      24,732,002
                      
                      
                      
                      (22,993,729
                      )Net cash provided by (used in)
      operating activities
                      
                      
                      21,660,549
                      
                      
                      
                      (20,654,869
                      )Cash Flows From Investing
      Activities:Proceeds
    from:Maturities of time deposits in
      other banks
                      
                      
                      -
                      
                      
                      
                      99,000Maturities of debt securities
      available for sale
                      
                      
                      12,000,000
                      
                      
                      
                      1,000,000Sales of debt securities available
      for sale
                      
                      
                      -
                      
                      
                      
                      51,050,500Principal payments on
      mortgage-backed securities
                      
                      
                      3,200,507
                      
                      
                      
                      1,892,020Redemption of Federal Home Loan
      Bank stock
                      
                      
                      9,858,100
                      
                      
                      
                      4,571,500Sales of real estate acquired in
      settlement of loans receivable
                      
                      
                      2,829,975
                      
                      
                      
                      3,248,200Purchases
    of:Debt securities available for
      sale
                      
                      
                      (13,510,130
                      )
                      
                      
                      (56,715,014
                      )Mortgage-backed securities
      available for sale
                      
                      
                      -
                      
                      
                      
                      (7,003,443
                      )Federal Home Loan Bank
      stock
                      
                      
                      (2,539,900
                      )
                      
                      
                      (5,325,200
                      )Premises and
      equipment
                      
                      
                      (331,211
                      )
                      
                      
                      (623,255
                      )Net decrease (increase) in loans
      receivable
                      
                      
                      17,878,411
                      
                      
                      
                      (99,958,911
                      )Net cash provided by (used in)
      investing activities
                      
                      $
                      29,385,752
                      
                      
                      $
                      (107,764,603
                      )
 
 Continued on next
page.
  - 4
-
  PULASKI FINANCIAL CORP. AND
SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS
 ENDED MARCH 31, 2010 AND MARCH 31, 2009,
CONTINUED (UNAUDITED)
  
 Six Months EndedMarch31,2010
                  
                  
                  2009Cash Flows From Financing
      Activities:Net (decrease) increase in
      deposits
                  
                  $
                  (27,455,340
                  )
                  
                  $
                  179,561,557Proceeds from (repayment of)
      Federal Home Loan Bank advances, net
                  
                  
                  (1,500,000
                  )
                  
                  
                  (124,500,000
                  )Proceeds from Federal Reserve Bank
      borrowings, net
                  
                  
                  -
                  
                  
                  
                  90,000,000Proceeds from notes
      payable
                  
                  
                  -
                  
                  
                  
                  (7,640,000
                  )Net decrease in due to other
      banks
                  
                  
                  -
                  
                  
                  
                  (14,377,831
                  )Net decrease in advance payments
      by borrowers for taxes and insurance
                  
                  
                  (2,442,560
                  )
                  
                  
                  (904,623
                  )Proceeds from cash received in
      dividend reinvestment plan
                  
                  
                  439,517
                  
                  
                  
                  341,405Proceeds from issuance of
      preferred stock and common stock warrants
                  
                  
                  -
                  
                  
                  
                  32,501,768Proceeds from stock options
      excercised
                  
                  
                  196,829
                  
                  
                  
                  -Purchase of equity trust
      shares
                  
                  
                  (152,285
                  )
                  
                  
                  (68,200
                  )Excess tax benefit for stock based
      compensation
                  
                  
                  2,722
                  
                  
                  
                  11,380Tax expense for release of equity
      trust shares
                  
                  
                  (31,037
                  )
                  
                  
                  -Dividends paid on common
      stock
                  
                  
                  (1,998,525
                  )
                  
                  
                  (1,951,442
                  )Dividends paid on preferred
      stock
                  
                  
                  (813,450
                  )
                  
                  
                  (131,056
                  )Common stock surrendered to
      satisfy tax withholding obligations of stock-based
      compensation
                  
                  
                  (38,568
                  )
                  
                  
                  (28,181
                  )Net cash (used in) provided by
      financing activities
                  
                  
                  (33,792,697
                  )
                  
                  
                  152,814,777Net increase in cash and cash
      equivalents
                  
                  
                  17,253,604
                  
                  
                  
                  24,395,305Cash and cash equivalents at
      beginning of period
                  
                  
                  37,450,664
                  
                  
                  
                  29,077,862Cash and cash equivalents at end
      of period
                  
                  $
                  54,704,268
                  
                  
                  $
                  53,473,167Supplemental Disclosures of Cash
      Flow Information:Cash paid during the period
      for:Interest on
      deposits
                  
                  $
                  8,902,312
                  
                  
                  $
                  11,696,714Interest on advances from
      FHLB
                  
                  
                  1,063,367
                  
                  
                  
                  2,110,196Interest on other
      borrowings
                  
                  
                  258
                  
                  
                  
                  227,754Interest on subordinated
      debentures
                  
                  
                  270,118
                  
                  
                  
                  457,860Interest on note
      payable
                  
                  
                  -
                  
                  
                  
                  114,323Cash paid during the period for
      interest
                  
                  
                  10,236,055
                  
                  
                  
                  14,606,847Income taxes,
      net
                  
                  
                  3,599,000
                  
                  
                  
                  (659,000
                  )Noncash Investing
      Activities:Real estate acquired in settlement
      of loans receivable
                  
                  
                  9,447,814
                  
                  
                  
                  4,165,257
 
 See accompanying notes to the unaudited
consolidated financial statements.
  - 5
-
  PULASKI FINANCIAL CORP. AND
SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 1.
              BASIS OF
      PRESENTATION
  The
unaudited consolidated financial statements include the accounts of Pulaski
Financial Corp. (the “Company”) and its wholly owned subsidiary, Pulaski Bank
(the “Bank”), and the Bank’s wholly owned subsidiary, Pulaski Service
Corporation. All significant intercompany accounts and transactions have been
eliminated. The assets of the Company consist primarily of the investment in the
outstanding shares of the Bank and its liabilities consist principally of
subordinated debentures. Accordingly, the information set forth in this report,
including the consolidated financial statements and related financial data,
relates primarily to the Bank. The Company, through the Bank, operates as a
single business segment, providing traditional community banking services
through its full service branch network.
  In the
opinion of management, the unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial condition of the Company as of March 31, 2010
and September 30, 2009 and its results of operations for the three- and
six-month periods ended March 31, 2010 and 2009. The results of operations for
the three- and six-month periods ended March 31, 2010 are not necessarily
indicative of the operating results that may be expected for the entire fiscal
year. These unaudited consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial statements for the
year ended September 30, 2009 contained in the Company’s 2009 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, 2009.
  The
preparation of these consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements that affect the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from those
estimates. The allowance for loan losses and fair values of financial
instruments are significant estimates reported within the consolidated financial
statements.
  Certain
reclassifications have been made to fiscal 2009 amounts to conform to the fiscal
2010 presentation.
 
 The
Company has evaluated all subsequent events through the filing date of this
document to ensure that the accompanying financial statements include the
effects of any subsequent events that should be recognized in such financial
statements as of March 31, 2010, and the appropriate disclosure of any
subsequent events that were not recognized in the financial
statements.
 
 2.
              PREFERRED
      STOCK
  In
January 2009, as part of the U.S. Department of Treasury’s Capital Purchase
Program, the Company issued 32,538 shares of Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, $1,000 per share liquidation preference, and a
warrant to purchase up to 778,421 shares of the Company’s common stock for a
period of ten years at an exercise price of $6.27 per share in exchange for
$32.5 million in cash from the U.S. Department of Treasury. The proceeds, net of
issuance costs consisting primarily of legal fees, were allocated between the
preferred stock and the warrant on a pro rata basis, based upon the estimated
market values of the preferred stock and the warrant. As a result,
$2.2 million of the proceeds were allocated to the warrant, which increased
additional paid in capital from common stock. The amount allocated to the
warrant is considered a discount on the preferred stock and is being accreted
using the level yield method over a five-year period through a charge to
retained earnings. Such accretion does not reduce net income, but reduces income
available for common shares.
 
 The fair
value of the preferred stock was estimated on the date of issuance by computing
the present value of expected future cash flows using a risk-adjusted rate of
return for similar securities of 12%. The fair value of the warrant was
estimated on the date of grant using the Black-Scholes option pricing model
assuming a risk-free interest rate of 4.30%, expected volatility of 35.53% and a
dividend yield of 4.27%.
  - 6
-
  The
preferred stock pays cumulative dividends of 5% per year for the first five
years and 9% per year thereafter. The Company may, at its option, redeem the
preferred stock at its liquidation preference plus accrued and unpaid dividends.
The securities purchase agreement between the Company and the U.S. Treasury
limits, for three years, the rate of dividend payments on the Company’s common
stock to the amount of its last quarterly cash dividend prior to participation
in the program, which as was of $0.095 per share, unless an increase is approved
by the Treasury, limits the Company’s ability to repurchase its common stock for
three years, and subjects the Company to certain executive compensation
limitations included in the Emergency Economic Stabilization Act of 2008, as
amended by the American Recovery and Reinvestment Act of 2009.
 
 3.
              EARNINGS PER
      SHARE
  Basic
earnings per common share is computed using the weighted average number of
common shares outstanding. The dilutive effect of potential common shares
outstanding is included in diluted earnings per share. The computations of basic
and diluted earnings per share are presented in the following
table.
  Three Months Ended
                    
                    
                    Six Months EndedMarch31,
                    
                    
                    March31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net (loss)
      income
                    
                    $
                    (4,321,888
                    )
                    
                    $
                    1,773,003
                    
                    
                    $
                    (3,071,453
                    )
                    
                    $
                    2,338,860Less:Preferred dividends
      declared
                    
                    
                    (406,725
                    )
                    
                    
                    (131,056
                    )
                    
                    
                    (813,450
                    )
                    
                    
                    (131,056
                    )Accretion of discount on preferred
      stock
                    
                    
                    (108,060
                    )
                    
                    
                    (106,554
                    )
                    
                    
                    (215,741
                    )
                    
                    
                    (106,554
                    )(Loss) income available for common
      shares
                    
                    $
                    (4,836,673
                    )
                    
                    $
                    1,535,393
                    
                    
                    $
                    (4,100,644
                    )
                    
                    $
                    2,101,250Weighted average common shares
      outstanding - basic
                    
                    
                    10,364,565
                    
                    
                    
                    10,153,221
                    
                    
                    
                    10,318,818
                    
                    
                    
                    10,133,651Effect of dilutive
      securities:Treasury stock held in equity
      trust - unvested shares
                    
                    
                    -
                    
                    
                    
                    87,987
                    
                    
                    
                    -
                    
                    
                    
                    95,001Equivalent shares - employee stock
      options and awards
                    
                    
                    -
                    
                    
                    
                    42,116
                    
                    
                    
                    -
                    
                    
                    
                    50,275Equivalent shares - common stock
      warrant
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    45,462Weighted average common shares
      outstanding - diluted
                    
                    
                    10,364,565
                    
                    
                    
                    10,283,324
                    
                    
                    
                    10,318,818
                    
                    
                    
                    10,324,389(Loss) earnings per common
      share:Basic
                    
                    $
                    (0.47
                    )
                    
                    $
                    0.15
                    
                    
                    $
                    (0.40
                    )
                    
                    $
                    0.21Diluted
                    
                    $
                    (0.47
                    )
                    
                    $
                    0.15
                    
                    
                    $
                    (0.40
                    )
                    
                    $
                    0.20
 Under the
treasury stock method, outstanding stock options are dilutive when the average
market price of the Company’s common stock, combined with the effect of any
unamortized compensation expense, exceeds the option price during a period. In
addition, proceeds from the assumed exercise of dilutive options along with the
related tax benefit are assumed to be used to repurchase common shares at the
average market price of such stock during the period. Similarly, outstanding
warrants are dilutive when the average market price of the Company’s common
stock exceeds the exercise price during a period. Proceeds from the assumed
exercise of dilutive warrants are assumed to be used to repurchase common shares
at the average market price of such stock during the period.
  - 7
-
  The
following options and warrants to purchase common shares during the three- and
six-month period ended March 31, 2010 and 2009 were not included in the
respective computations of diluted earnings per share since they were considered
anti-dilutive because there was either a net loss for the period or the exercise
price of the options, when combined with the effect of the unamortized
compensation expense, and the exercise price of the warrants were greater than
the average market price of the common shares. The options expire in various
periods from 2013 through 2020, respectively, and the warrant expires in
2019.
 
 Three Months Ended
                    
                    
                    Six Months EndedMarch31,
                    
                    
                    March31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Number of option shares
      excluded
                    
                    
                    952,214
                    
                    
                    
                    747,245
                    
                    
                    
                    1,001,667
                    
                    
                    
                    696,873Equivalent anti-dilutive
      shares
                    
                    
                    513,579
                    
                    
                    
                    812,231
                    
                    
                    
                    507,814
                    
                    
                    
                    696,917Number of warrant shares
      excluded
                    
                    
                    778,421
                    
                    
                    
                    -
                    
                    
                    
                    778,421
                    
                    
                    
                    -Equivalent anti-dilutive
      shares
                    
                    
                    35,544
                    
                    
                    
                    -
                    
                    
                    
                    65,910
                    
                    
                    
                    -
  4.
              STOCK-BASED
      COMPENSATION
  The
Company’s shareholder-approved, stock-based incentive plans permit the grant of
awards in the form of options intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code, options that do not so qualify
(non-statutory stock options,) and grants of restricted shares of common stock.
All employees, non-employee directors and consultants of the Company and its
affiliates are eligible to receive awards under the plans. Except as described
below, all stock option awards issued during the six months ended March 31, 2010
were granted with an exercise price equal to the market value of the Company’s
shares at the date of grant and all stock option and stock grant awards vest
over a period of two to five years. In October 2009, stock grants for 11,016
shares of the Company’s common stock were awarded to directors with terms
providing for vesting of 5,508 shares immediately and 5,508 shares in twelve
months. The exercise period for stock options generally may not exceed 10 years
from the date of grant. Option and share awards provide for accelerated vesting
if there is a change in control (as defined in the plans). As a participant in
the U.S. Department of Treasury’s Capital Purchase Program, certain employees
are prohibited from receiving golden parachute payments while the Company has
any outstanding funds related to the program. Under the Treasury’s guidelines,
golden parachute payments are defined to include any payment due to a change in
control of the Company, which includes the acceleration of vesting in
stock-based incentive plans due to the departure or change in control.
Accordingly, the affected employees have signed agreements to forfeit the right
to accelerated vesting while any funds related to the Treasury’s program are
outstanding.
 
 A summary
of the Company’s stock option program as of March 31, 2010 and changes during
the six-month period then ended, is presented below:
 
 Weighted-Weighted
                    
                    
                    
                    
                    
                    AverageAverage
                    
                    
                    Aggregate
                    
                    
                    RemainingNumber
                    
                    
                    Exercise
                    
                    
                    Intrinsic
                    
                    
                    ContractualOf Shares
                    
                    
                    Price
                    
                    
                    Value
                    
                    
                    Life
(years)Outstanding at October 1,
      2009
                    
                    
                    930,306
                    
                    
                    $
                    9.82Granted
                    
                    
                    15,000
                    
                    
                    
                    7.25Exercised
                    
                    
                    (72,900
                    )
                    
                    
                    2.70Forfeited
                    
                    
                    (12,475
                    )
                    
                    
                    8.69Outstanding at March 31,
      2010
                    
                    
                    859,931
                    
                    
                    $
                    10.39
                    
                    
                    $
                    135,921
                    
                    
                    
                    6.4Exercisable at March 31,
      2010
                    
                    
                    515,709
                    
                    
                    $
                    10.33
                    
                    
                    $
                    122,200
                    
                    
                    
                    5.3
  - 8
-
  The
weighted-average grant-date fair value of options granted during the six months
ended March 31, 2010 was $2.72 per share. As of March 31, 2010, the total
unrecognized compensation expense related to non-vested stock options and awards
was $1.0 million and the related weighted average period over which it is
expected to be recognized is 2.3 years.
 
 The fair
value of stock options granted during the six-month periods ended March 31, 2010
and 2009 is estimated on the date of grant using the Black-Scholes option
pricing model with the following average assumptions:
 
 Six Months EndedMarch31,2010
                    
                    
                    2009Risk free interest
      rate
                    
                    
                    2.44
                    %
                    
                    
                    4.30
                    %Expected
      volatility
                    
                    
                    38.59
                    %
                    
                    
                    35.53
                    %Expected life in
      years
                    
                    
                    5.6
                    
                    
                    
                    5.4Dividend
    yield
                    
                    
                    4.37
                    %
                    
                    
                    4.27
                    %Expected forfeiture
      rate
                    
                    
                    3.37
                    %
                    
                    
                    3.37
                    %
 
 The
Company maintains an Equity Trust Plan for the benefit of key loan officers and
sales staff. The plan is designed to recruit, retain and motivate top-performing
loan officers and other key revenue-producing employees who are instrumental to
the Company’s success. The plan allows the recipients to defer a percentage of
commissions earned, which might be partially matched by the Company and paid
into a rabbi trust for the benefit of the participants. The assets of the trust
are limited to Company shares purchased in the open market and cash. Should the
participants voluntarily leave the Company, they forego any unvested accrued
benefits.
 
 At March
31, 2010, there were 299,015 shares in the plan with an aggregate value of $3.5
million, which were included in treasury stock in the Company’s consolidated
financial statements, including 82,920 shares that were not yet vested. Vested
shares in the plan are treated as issued and outstanding when computing basic
and diluted earnings per share, whereas unvested shares are treated as issued
and outstanding only when computing diluted earnings per share.
 
 5.   
INCOME TAXES
  Deferred
tax assets totaled $11.6 million and $9.3 million at March 31, 2010 and
September 30, 2009, 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 asset at March 31, 2010 is more likely than not, and
accordingly, no valuation allowance has been recorded. The ultimate outcome of
future facts and circumstances could require a valuation allowance and any
charges to establish such valuation allowance could have a material adverse
effect on the Company’s results of operations and financial
position.
 
 At March
31, 2010, the Company had $167,000 of unrecognized tax benefits, $134,000 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 March 31, 2010, the Company had approximately $33,000 accrued for the payment
of interest and penalties. The tax years ended September 30, 2006 through 2009
remain open to examination by the taxing jurisdictions to which the Company is
subject.
  - 9
-
  6.   
DEBT AND EQUITY SECURITIES
  The
amortized cost and estimated fair value of debt and equity securities available
for sale at March 31, 2010 and September 30, 2009 are summarized as
follows:
  Gross
                        
                        
                        Gross
                        
                        
                        EstimatedAmortized
                        
                        
                        Unrealized
                        
                        
                        Unrealized
                        
                        
                        FairCost
                        
                        
                        Gains
                        
                        
                        Losses
                        
                        
                        ValueMarch 31,
    2010:Available for
      Sale:Equity
      securities
                        
                        $
                        589,000
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        589,000Debt
    securities
                        
                        
                        3,509,703
                        
                        
                        
                        -
                        
                        
                        
                        (1,590
                        )
                        
                        
                        3,508,113Total
                        
                        $
                        4,098,703
                        
                        
                        $
                        -
                        
                        
                        $
                        (1,590
                        )
                        
                        $
                        4,097,113Weighted average rate at end of
      period
                        
                        
                        0.25
                        %September 30,
      2009:Available for
      Sale:Equity
      securities
                        
                        $
                        589,000
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        589,000Debt
    securities
                        
                        
                        1,999,590
                        
                        
                        
                        -
                        
                        
                        
                        (2,194
                        )
                        
                        
                        1,997,396Total
                        
                        $
                        2,588,590
                        
                        
                        $
                        -
                        
                        
                        $
                        (2,194
                        )
                        
                        $
                        2,586,396Weighted average rate at end of
      period
                        
                        
                        0.16
                        %
 The
summary below displays the length of time the securities available for sale were
in a continuous unrealized loss position as of March 31, 2010 and September 30,
2009. The unrealized losses were not deemed to be other-than-temporary. The
Company does not have the intent to dispose of these investments and it is not
more likely than not that the Company will be required to sell these investments
prior to recovery of the unrealized losses. Further, the Company believes the
deterioration in value is attributable to changes in market interest rates and
not the credit quality of the issuer.
  Length
      of Time in Continuous Unrealized Loss Position at March 31,
      2010Lessthan12months
                  
                  
                  12monthsormore
                  
                  
                  TotalFair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  UnrealizedValue
                  
                  
                  Losses
                  
                  
                  Value
                  
                  
                  Losses
                  
                  
                  Value
                  
                  
                  LossesAvailable
      for Sale:Debt
      obligations of government-sponsored entities
                  
                  $
                  3,508,113
                  
                  
                  $
                  1,590
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  3,508,113
                  
                  
                  $
                  1,590Percent
      of total
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
 
 Length
      of Time in Continuous Unrealized Position at September 30, 2009Lessthan12months
                        
                        
                        12monthsormore
                        
                        
                        TotalFair
                        
                        
                        Unrealized
                        
                        
                        Fair
                        
                        
                        Unrealized
                        
                        
                        Fair
                        
                        
                        UnrealizedValue
                        
                        
                        Losses
                        
                        
                        Value
                        
                        
                        Losses
                        
                        
                        Value
                        
                        
                        LossesAvailable
      for Sale:Debt
      obligations of government-sponsored entities
                        
                        $
                        1,997,396
                        
                        
                        $
                        2,194
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,997,396
                        
                        
                        $
                        2,194Percent
      of total
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
  - 10
-
  7.   
MORTGAGE-BACKED SECURITIES
  Mortgage-backed
securities held to maturity and available for sale at March 31, 2010 and
September 30, 2009 are summarized as follows:
  March31,2010Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      FairCost
                      
                      
                      Gains
                      
                      
                      Losses
                      
                      
                      ValueHeld to
      Maturity:Mortgage-backed
      securities:Freddie Mac
                      
                      $
                      60
                      
                      
                      $
                      -
                      
                      
                      $
                      (3
                      )
                      
                      $
                      57Ginnie Mae
                      
                      
                      206,778
                      
                      
                      
                      24,521
                      
                      
                      
                      -
                      
                      
                      
                      231,299Fannie Mae
                      
                      
                      11,144,413
                      
                      
                      
                      340,990
                      
                      
                      
                      -
                      
                      
                      
                      11,485,403Total mortgage-backed
      securities
                      
                      
                      11,351,251
                      
                      
                      
                      365,511
                      
                      
                      
                      (3
                      )
                      
                      
                      11,716,759Collateralized mortgage
      obligations:Freddie Mac
                      
                      
                      14,848
                      
                      
                      
                      3
                      
                      
                      
                      -
                      
                      
                      
                      14,851Total held to
      maturity
                      
                      $
                      11,366,099
                      
                      
                      $
                      365,514
                      
                      
                      $
                      (3
                      )
                      
                      $
                      11,731,610Weighted average rate at end of
      period
                      
                      
                      4.24
                      %Available for
      Sale:Mortgage-backed
      securities:Ginnie Mae
                      
                      $
                      478,982
                      
                      
                      $
                      38,440
                      
                      
                      $
                      -
                      
                      
                      $
                      517,422Fannie Mae
                      
                      
                      967,813
                      
                      
                      
                      6,664
                      
                      
                      
                      -
                      
                      
                      
                      974,477Total mortgage-backed
      securities
                      
                      
                      1,446,795
                      
                      
                      
                      45,104
                      
                      
                      
                      -
                      
                      
                      
                      1,491,899Collateralized mortgage
      obligations:Freddie Mac
                      
                      
                      1,228,828
                      
                      
                      
                      30,071
                      
                      
                      
                      -
                      
                      
                      
                      1,258,899Ginnie Mae
                      
                      
                      5,404,778
                      
                      
                      
                      43,475
                      
                      
                      
                      -
                      
                      
                      
                      5,448,253Fannie Mae
                      
                      
                      5,149,182
                      
                      
                      
                      40,868
                      
                      
                      
                      -
                      
                      
                      
                      5,190,050Total collateralized mortgage
      obligations
                      
                      
                      11,782,788
                      
                      
                      
                      114,414
                      
                      
                      
                      -
                      
                      
                      
                      11,897,202Total available for
      sale
                      
                      $
                      13,229,583
                      
                      
                      $
                      159,518
                      
                      
                      $
                      -
                      
                      
                      $
                      13,389,101Weighted average rate at end of
      period
                      
                      
                      4.14
                      %
  - 11
-
 
 September 30,
      2009Gross
                                                                              
                                                                              
                                                                              GrossAmortized
                                                                              
                                                                              
                                                                              Unrealized
                                                                              
                                                                              
                                                                              Unrealized
                                                                              
                                                                              
                                                                              FairCost
                                                                              
                                                                              
                                                                              Gains
                                                                              
                                                                              
                                                                              Losses
                                                                              
                                                                              
                                                                              ValueHeld To
      Maturity:Mortgage-backed
      securities:Freddie Mac
                                                                              
                                                                              $
                                                                              231
                                                                              
                                                                              
                                                                              $
                                                                              6
                                                                              
                                                                              
                                                                              $
                                                                              -
                                                                              
                                                                              
                                                                              $
                                                                              237Ginnie Mae
                                                                              
                                                                              
                                                                              219,247
                                                                              
                                                                              
                                                                              
                                                                              24,025
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              243,272Fannie Mae
                                                                              
                                                                              
                                                                              11,839,470
                                                                              
                                                                              
                                                                              
                                                                              276,050
                                                                              
                                                                              
                                                                              
                                                                              (2,856
                                                                              )
                                                                              
                                                                              
                                                                              12,112,664Total
                                                                              
                                                                              
                                                                              12,058,948
                                                                              
                                                                              
                                                                              
                                                                              300,081
                                                                              
                                                                              
                                                                              
                                                                              (2,856
                                                                              )
                                                                              
                                                                              
                                                                              12,356,173Collateralized mortgage
      obligations:Freddie Mac
                                                                              
                                                                              
                                                                              18,846
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              (53
                                                                              )
                                                                              
                                                                              
                                                                              18,793Total
                                                                              
                                                                              
                                                                              18,846
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              (53
                                                                              )
                                                                              
                                                                              
                                                                              18,793Total held to
      maturity
                                                                              
                                                                              $
                                                                              12,077,794
                                                                              
                                                                              
                                                                              $
                                                                              300,081
                                                                              
                                                                              
                                                                              $
                                                                              (2,909
                                                                              )
                                                                              
                                                                              $
                                                                              12,374,966Weighted average rate at end of
      period
                                                                              
                                                                              
                                                                              4.39
                                                                              %Available For
      Sale:Mortgage-backed
      securities:Ginnie Mae
                                                                              
                                                                              $
                                                                              514,944
                                                                              
                                                                              
                                                                              $
                                                                              28,716
                                                                              
                                                                              
                                                                              $
                                                                              -
                                                                              
                                                                              
                                                                              $
                                                                              543,660Fannie Mae
                                                                              
                                                                              
                                                                              1,292,870
                                                                              
                                                                              
                                                                              
                                                                              9,659
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              1,302,529Total
                                                                              
                                                                              
                                                                              1,807,814
                                                                              
                                                                              
                                                                              
                                                                              38,375
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              1,846,189Collateralized mortgage
      obligations:Freddie Mac
                                                                              
                                                                              
                                                                              1,503,822
                                                                              
                                                                              
                                                                              
                                                                              52,233
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              1,556,055Ginnie Mae
                                                                              
                                                                              
                                                                              7,303,502
                                                                              
                                                                              
                                                                              
                                                                              158,052
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              7,461,554Fannie Mae
                                                                              
                                                                              
                                                                              5,158,890
                                                                              
                                                                              
                                                                              
                                                                              64,460
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              5,223,350Total
                                                                              
                                                                              
                                                                              13,966,214
                                                                              
                                                                              
                                                                              
                                                                              274,745
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              14,240,959Total available for
      sale
                                                                              
                                                                              $
                                                                              15,774,028
                                                                              
                                                                              
                                                                              $
                                                                              313,120
                                                                              
                                                                              
                                                                              $
                                                                              -
                                                                              
                                                                              
                                                                              $
                                                                              16,087,148Weighted average rate at end of
      period
                                                                              
                                                                              
                                                                              4.14
                                                                              %
 
 The
summary below displays the length of time mortgage-backed securities held to
maturity and available for sale were in a continuous unrealized loss position as
of March 31, 2010 and September 30, 2009. The unrealized losses were not deemed
to be other-than-temporary. The Company does not have the intent to dispose of
these investments and it is not more likely than not that the Company will be
required to sell these investments prior to recovery of the unrealized losses.
Further, the Company believes the deterioration in value is attributable to
changes in market interest rates and not the credit quality of the
issuer.
  - 12
-
 
 Length
      of Time in Continuous Unrealized Loss Position at March 31,
      2010Lessthan12months
                  
                  
                  12monthsormore
                  
                  
                  TotalAmortized
                  
                  
                  Unrealized
                  
                  
                  Amortized
                  
                  
                  Unrealized
                  
                  
                  Amortized
                  
                  
                  UnrealizedCost
                  
                  
                  Losses
                  
                  
                  Cost
                  
                  
                  Losses
                  
                  
                  Cost
                  
                  
                  LossesHeld To
      Maturity:Mortgage-backed
      securities
                  
                  $
                  23
                  
                  
                  $
                  3
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  23
                  
                  
                  $
                  3Percent of
      total
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
 
 Length of Time in Continuous Unrealized Loss Position at September 30, 2009Lessthan12months
                        
                        
                        12monthsormore
                        
                        
                        TotalAmortized
                        
                        
                        Unrealized
                        
                        
                        Amortized
                        
                        
                        Unrealized
                        
                        
                        Amortized
                        
                        
                        UnrealizedCost
                        
                        
                        Losses
                        
                        
                        Cost
                        
                        
                        Losses
                        
                        
                        Cost
                        
                        
                        LossesHeld To
      Maturity:Mortgage-backed
      securities
                        
                        $
                        1,580,173
                        
                        
                        $
                        2,856
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,580,173
                        
                        
                        $
                        2,856Collateralized
      mortgage obligations
                        
                        
                        18,846
                        
                        
                        
                        53
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        18,846
                        
                        
                        
                        53Total held to
      maturity
                        
                        $
                        1,599,019
                        
                        
                        $
                        2,909
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,599,019
                        
                        
                        $
                        2,909Percent of
      total
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
  - 13
-
 
 8.     
LOANS RECEIVABLE
  Loans
      receivable at March 31, 2010 and September 30, 2009 are summarized as
      follows:
  March 31,
                      
                      
                      September 30,2010
                      
                      
                      2009Real estate
      mortgage:Residential first
      mortgage
                      
                      $
                      252,027,255
                      
                      
                      $
                      248,798,923Residential second
      mortgage
                      
                      
                      67,163,501
                      
                      
                      
                      72,083,535Home equity lines of
      credit
                      
                      
                      217,249,152
                      
                      
                      
                      227,141,590Multi-family
      residential
                      
                      
                      44,461,304
                      
                      
                      
                      44,462,990Commercial real
      estate
                      
                      
                      255,923,074
                      
                      
                      
                      231,270,107Land acquisition and
      development
                      
                      
                      82,361,057
                      
                      
                      
                      80,258,931Real estate construction and
      development:Residential
                      
                      
                      12,543,255
                      
                      
                      
                      19,664,258Multi-family
                      
                      
                      5,238,127
                      
                      
                      
                      6,864,072Commercial
                      
                      
                      26,915,233
                      
                      
                      
                      59,429,776Commercial and
      industrial
                      
                      
                      141,743,010
                      
                      
                      
                      154,972,793Consumer and
      installment
                      
                      
                      4,073,085
                      
                      
                      
                      4,170,8631,109,698,053
                      
                      
                      
                      1,149,117,838Add (less):Deferred loan
      costs
                      
                      
                      4,088,391
                      
                      
                      
                      4,369,122Loans in
      process
                      
                      
                      (915,231
                      )
                      
                      
                      (812,946
                      )Allowance for loan
      losses
                      
                      
                      (26,493,763
                      )
                      
                      
                      (20,579,170
                      )Total
                      
                      $
                      1,086,377,450
                      
                      
                      $
                      1,132,094,844Weighted average interest rate at
      end of period
                      
                      
                      5.38
                      %
                      
                      
                      5.33
                      %Specific loan loss allowance on
      impaired loans determined in accordance with SFAS
    114
                      
                      $
                      5,487,753
                      
                      
                      $
                      6,822,942Balance of impaired loans with
      specific allowance
                      
                      
                      18,270,829
                      
                      
                      
                      19,753,191Balance of impaired loans with no
      specific allowance
                      
                      
                      44,678,148
                      
                      
                      
                      39,198,182Ratio of allowance to total
      outstanding loans
                      
                      
                      2.39
                      %
                      
                      
                      1.79
                      %
  The
      following table summarizes the activity in the allowance for loan losses
      for the six months ended March 31, 2010 and
  2009:
  2010
                        
                        
                        2009Balance, beginning of
      period
                        
                        $
                        20,579,170
                        
                        
                        $
                        12,761,532Provision charged to
      expense
                        
                        
                        17,314,000
                        
                        
                        
                        10,355,985Charge-offs
                        
                        
                        (11,528,062
                        )
                        
                        
                        (4,695,220
                        )Recoveries
                        
                        
                        128,655
                        
                        
                        
                        45,238Net
    charge-offs
                        
                        
                        (11,399,407
                        )
                        
                        
                        (4,649,982
                        )Balance, end of
      period
                        
                        $
                        26,493,763
                        
                        
                        $
                        18,467,535
  Included
in non-performing assets at March 31, 2010 and September 30, 2009 were $37.0
million and $35.0 million, respectively, of loans that were modified in
troubled debt restructurings because of the borrowers’ financial difficulties.
The restructured terms of the loans generally included a reduction of the
interest rates and the addition of past due interest to the principal balance of
the loans. At March 31, 2010, $23.5 million, or 63.4%, of these loans were
performing as agreed under the modified terms of the loans compared with $22.6
million, or 64.7%, at September 30, 2009. A loan modified in a troubled debt
restructuring will remain on non-accrual and will be included in non-performing
assets until 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. Accordingly, excluded from non-performing assets at March
31, 2010 and December 31, 2009 were $6.2 million and $1.7 million, respectively,
of loans that were modified in troubled debt restructurings but were no longer
classified as non-performing because of the borrowers’ favorable performance
histories.
  - 14
-
  9.
              DEPOSITS
  Deposits
      at March 31, 2010 and September 30, 2009 are summarized as
      follows:
  March31,2010
                    
                    September30,2009Weighted
                    
                    
                    
                    
                    WeightedAverage
                    
                    
                    
                    
                    AverageInterest
                    
                    
                    
                    
                    InterestAmount
                    
                    
                    Rate
                    
                    Amount
                    
                    
                    RateTransaction
      accounts:Non-interest-bearing
      checking
                    
                    $
                    104,586,133
                    
                    
                    
                    -
                    
                    
                    $
                    103,398,563
                    
                    
                    
                    -Interest-bearing
      checking
                    
                    
                    341,587,396
                    
                    
                    
                    1.20
                    %
                    
                    
                    263,019,571
                    
                    
                    
                    1.25
                    %Passbook savings
      accounts
                    
                    
                    29,577,323
                    
                    
                    
                    0.17
                    %
                    
                    
                    28,874,588
                    
                    
                    
                    0.24
                    %Money
market
                    
                    
                    246,154,986
                    
                    
                    
                    0.55
                    %
                    
                    
                    253,995,786
                    
                    
                    
                    0.76
                    %Total transaction
      accounts
                    
                    
                    721,905,838
                    
                    
                    
                    0.76
                    %
                    
                    
                    649,288,508
                    
                    
                    
                    0.81
                    %Certificates of
      deposit:Retail
                    
                    
                    349,700,282
                    
                    
                    
                    2.49
                    %
                    
                    
                    348,622,361
                    
                    
                    
                    2.63
                    %CDARS
                    
                    
                    84,129,779
                    
                    
                    
                    0.81
                    %
                    
                    
                    110,240,370
                    
                    
                    
                    1.54
                    %Brokered
                    
                    
                    8,438,000
                    
                    
                    
                    5.23
                    %
                    
                    
                    83,478,000
                    
                    
                    
                    2.67
                    %Total certificates of
      deposit
                    
                    
                    442,268,061
                    
                    
                    
                    2.22
                    %
                    
                    
                    542,340,731
                    
                    
                    
                    2.42
                    %Total
    deposits
                    
                    $
                    1,164,173,899
                    
                    
                    
                    1.32
                    %
                    
                    $
                    1,191,629,239
                    
                    
                    
                    1.54
                    %
  10.
              FAIR
      VALUE MEASUREMENTS
  Effective
October 1, 2008, the Company adopted the provisions of Accounting Standards
Codification TM (“ASC”) Topic 820, Fair Value Measurements and
Disclosures, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
measurement date. A fair value measurement should reflect all of the assumptions
that market participants would use in pricing the asset or liability, including
assumptions about the risk inherent in a particular valuation technique, the
effect of a restriction on the sale or use of an asset, and the risk of
non-performance.
  A
three-level hierarchy for valuation techniques is used to measure financial
assets and financial liabilities at fair value. This hierarchy is based on
whether the valuation inputs are observable or unobservable. Financial
instrument valuations are considered Level 1 when they are based on quoted
prices in active markets for identical assets or liabilities. Level 2 financial
instrument valuations use quoted prices for similar assets or liabilities,
quoted prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data. Financial
instrument valuations are considered Level 3 when they are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable, and when
determination of the fair value requires significant management judgment or
estimation. ASC Topic 820 also provides guidance on determining fair value when
the volume and level of activity for the asset or liability has significantly
decreased and on identifying circumstances when a transaction may not be
considered orderly.
  - 15
-
  The
      Company records securities available for sale and derivative financial
      instruments at their fair values on a recurring basis. Additionally, the
      Company records other assets at their fair values on a nonrecurring basis,
      such as mortgage loans held for sale, loans held for investment and
      certain other assets. These nonrecurring fair value adjustments typically
      involve application of lower-of-cost-or-market accounting or impairment
      write-downs of individual assets. The following is a general description
      of the methods used to value such
assets.
  Equity Securities Available for
Sale. The fair values of equity securities available for sale are
generally based on quoted market prices or market prices for similar assets.
However, non-public investments are initially valued at transaction price and
subsequently adjusted when evidence is available to support such
adjustments.
  Mortgage-Backed Securities Held to
Maturity. The fair values of mortgage-backed securities held to maturity
are generally based on quoted market prices or market prices for similar
assets.
  Debt and Mortgage-Backed Securities
Available for Sale. The fair values of debt and mortgage-backed
securities available for sale are generally based on quoted market prices or
market prices for similar assets.
  Interest Rate Swap Assets and
Liabilities. The fair
values are based on quoted market prices by an independent valuation
service.
  Mortgage Loans Held for Sale.
The fair values of mortgage loans held for sale are generally based on commitment sales prices obtained from
the Company’s investors.
  Impaired Loans. The fair
values of impaired loans are generally based on market prices for similar assets
determined through independent appraisals (Level 2 valuations) or discounted
values of independent appraisals or brokers’ opinions of value (Level 3
valuations).
  Real Estate Acquired in Settlement
of Loans consists of loan collateral which has been repossessed through
foreclosure or obtained by deed in lieu of foreclosure. This collateral is
comprised of commercial and residential real estate. Such assets are recorded as
held for sale initially at the lower of the loan balance or fair value of the
collateral less estimated selling costs. Fair values are generally obtained
through external appraisals and assessment of property values by the Company’s
internal staff. Subsequent to foreclosure, valuations are updated periodically,
and the assets may be written down to reflect a new cost basis. Because many of
these inputs are not observable, the measurements are classified as Level
3.
  Intangible Assets and Goodwillare reviewed annually in the fourth fiscal quarter and/or when
circumstances or other events indicate that impairment may have occurred.
Because of the decline in the market value of the Company’s common stock during
the six months ended March 31, 2010, the Company reviewed goodwill for
impairment as of March 31, 2010 in addition to its annual review at
September 30, 2009. No impairment losses were recognized during fiscal year 2009
or the six months ended March 31, 2010.
  - 16
-
  Assets
      and liabilities that were recorded at fair value on a recurring basis at
      March 31, 2010 and the level of inputs used to determine their fair values
      are summarized below:
  CarryingValueatMarch31,2010FairValueMeasurementsUsingTotal
                  
                  
                  Level1
                  
                  
                  Level2
                  
                  
                  Level3(In
    thousands)Assets:Equity securities available for
      sale
                  
                  $
                  589
                  
                  
                  $
                  -
                  
                  
                  $
                  589
                  
                  
                  $
                  -Debt securities available for
      sale
                  
                  
                  3,508
                  
                  
                  
                  -
                  
                  
                  
                  3,508
                  
                  
                  
                  -Mortgage-backed securities
      available for sale
                  
                  
                  13,389
                  
                  
                  
                  -
                  
                  
                  
                  13,389
                  
                  
                  
                  -Interest-rate
      swap
                  
                  
                  1,104
                  
                  
                  
                  -
                  
                  
                  
                  1,104
                  
                  
                  
                  -Total
assets
                  
                  $
                  18,590
                  
                  
                  $
                  -
                  
                  
                  $
                  18,590
                  
                  
                  $
                  -Liabilities:Interest-rate
      swap
                  
                  $
                  1,104
                  
                  
                  $
                  -
                  
                  
                  $
                  1,104
                  
                  
                  $
                  -Total
      liabilities
                  
                  $
                  1,104
                  
                  
                  $
                  -
                  
                  
                  $
                  1,104
                  
                  
                  $
                  -
  Assets
      that were recorded at fair value on a non-recurring basis at March 31,
      2010 and the level of inputs used to determine their fair values are
      summarized below:
  TotalGains (Losses)Recognized inCarryingValueatMarch31,2010
                  
                  the Quarter EndedFairValueMeasurementsUsing
                  
                  
                  March 31,Total
                  
                  
                  Level1
                  
                  
                  Level2
                  
                  
                  Level3
                  
                  
                  2010(In
    thousands)Assets:Mortgage loans held for
      sale
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Impaired loans,
      net
                  
                  
                  51,264
                  
                  
                  
                  -
                  
                  
                  
                  17,741
                  
                  
                  
                  33,523
                  
                  
                  
                  2,981Real estate acquired in settlement
      of loans
                  
                  
                  13,900
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  13,900
                  
                  
                  
                  (1,798
                  )Total
assets
                  
                  $
                  65,164
                  
                  
                  $
                  -
                  
                  
                  $
                  17,741
                  
                  
                  $
                  47,423
                  
                  
                  $
                  1,183
  11.     DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
  The
following fair values of financial instruments have been estimated by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data used to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Company might realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies could have a material effect on the
estimated fair value amounts.
  The fair
value estimates presented herein are based on pertinent information available to
management as of March 31, 2010 and September 30, 2009. 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.
  - 17
-
  Carrying
values and estimated fair values at March 31, 2010 and September 30, 2009 are
summarized as follows:
  March31,2010
                                
                                
                                September30,2009Estimated
                                
                                
                                
                                
                                
                                EstimatedCarrying
                                
                                
                                Fair
                                
                                
                                Carrying
                                
                                
                                FairValue
                                
                                
                                Value
                                
                                
                                Value
                                
                                
                                Value(In
    Thousands)ASSETS:Cash and cash
      equivalents
                                
                                $
                                54,704
                                
                                
                                $
                                54,704
                                
                                
                                $
                                37,451
                                
                                
                                $
                                37,451Debt securities -
      AFS
                                
                                
                                3,508
                                
                                
                                
                                3,508
                                
                                
                                
                                1,997
                                
                                
                                
                                1,997Equity securities -
      AFS
                                
                                
                                589
                                
                                
                                
                                589
                                
                                
                                
                                589
                                
                                
                                
                                589Capital stock of
      FHLB
                                
                                
                                4,332
                                
                                
                                
                                4,332
                                
                                
                                
                                11,650
                                
                                
                                
                                11,650Mortgage-backed securities -
      HTM
                                
                                
                                11,366
                                
                                
                                
                                11,732
                                
                                
                                
                                12,078
                                
                                
                                
                                12,375Mortgage-backed securities -
      AFS
                                
                                
                                13,389
                                
                                
                                
                                13,389
                                
                                
                                
                                16,087
                                
                                
                                
                                16,087Loans receivable held for
      sale
                                
                                
                                96,600
                                
                                
                                
                                98,506
                                
                                
                                
                                109,130
                                
                                
                                
                                111,247Loans
      receivable
                                
                                
                                1,086,377
                                
                                
                                
                                1,124,357
                                
                                
                                
                                1,132,095
                                
                                
                                
                                1,158,721Accrued interest
      receivable
                                
                                
                                4,668
                                
                                
                                
                                4,668
                                
                                
                                
                                4,907
                                
                                
                                
                                4,907Interest-rate swap
      assets
                                
                                
                                1,104
                                
                                
                                
                                1,104
                                
                                
                                
                                1,170
                                
                                
                                
                                1,170LIABILITIES:Deposit transaction
      accounts
                                
                                
                                721,906
                                
                                
                                
                                721,906
                                
                                
                                
                                649,289
                                
                                
                                
                                649,289Certificate of
      deposits
                                
                                
                                442,268
                                
                                
                                
                                448,398
                                
                                
                                
                                542,341
                                
                                
                                
                                550,175Advances from the
      FHLB
                                
                                
                                59,500
                                
                                
                                
                                60,472
                                
                                
                                
                                61,000
                                
                                
                                
                                62,759Subordinated
      debentures
                                
                                
                                19,589
                                
                                
                                
                                19,583
                                
                                
                                
                                19,589
                                
                                
                                
                                19,591Accrued interest
      payable
                                
                                
                                1,101
                                
                                
                                
                                1,101
                                
                                
                                
                                1,035
                                
                                
                                
                                1,035Interest-rate swap
      liabilities
                                
                                
                                1,104
                                
                                
                                
                                1,104
                                
                                
                                
                                1,170
                                
                                
                                
                                1,170
 
 March31,2010
                              
                              
                              September30,2009Contract
                              
                              
                              Estimated
                              
                              
                              Contract
                              
                              
                              Estimatedor Notional
                              
                              
                              Fair
                              
                              
                              or Notional
                              
                              
                              FairAmount
                              
                              
                              Value
                              
                              
                              Amount
                              
                              
                              Value(In
    Thousands)OFF BALANCE SHEET FINANCIAL
      INSTRUMENTS:Commitments to originate first and
      second mortgage loans
                              
                              $
                              100,285
                              
                              
                              $
                              -
                              
                              
                              $
                              105,157
                              
                              
                              $
                              -Commitments to originate
      commercial mortgage loans
                              
                              
                              14,952
                              
                              
                              
                              -
                              
                              
                              
                              41,027
                              
                              
                              
                              -Commitments to originate
      non-mortgage loans
                              
                              
                              27,512
                              
                              
                              
                              -
                              
                              
                              
                              1,600
                              
                              
                              
                              -Unused lines of
      credit
                              
                              
                              227,782
                              
                              
                              
                              -
                              
                              
                              
                              258,249
                              
                              
                              
                              -
  In
addition to the methods described in Note 10 above, the following methods and
assumptions were used to estimate the fair value of the financial instruments
that were recorded at historical cost in the Company’s financial statements at
March 31, 2010 and September 30, 2009.
  Cash and Cash
Equivalents -The carrying amount approximates fair value.
  Equity securities- Estimated fair values are based on stock market prices for publicly
quoted stocks.
  Capital Stock of
the Federal Home Loan Bank- The carrying amount represents redemption
value, which approximates fair value.
  Loans Receivable- The fair value of loans receivable is estimated based on present values
using applicable risk-adjusted spreads to the U. S. Treasury curve to
approximate current interest rates applicable to each category of such financial
instruments. No adjustment was made to the interest rates for changes in credit
risk of performing loans where there are no known credit concerns. Management
segregates loans in appropriate risk categories. Management believes that the
risk factor embedded in the interest rates along with the allowance for loan
losses applicable to the performing loan portfolio results in a fair valuation
of such loans. The fair values of impaired loans are generally based on market
prices for similar assets determined through independent appraisals or
discounted values of independent appraisals and brokers’ opinions of value. This
method of estimating fair value does not incorporate the exit-price concept of
fair value prescribed by ASC Topic 820.
  - 18
-
  Accrued Interest
Receivable- The carrying value approximates fair value.
  Interest-Rate
Swap Assets- The fair value is based on quoted market prices by an
independent valuation service.
  Deposits - The estimated fair value of
demand deposits and savings accounts is the amount payable on demand at the
reporting date. The estimated fair value of fixed-maturity certificates of
deposit is estimated by discounting the future cash flows of existing deposits
using rates currently available on advances from the Federal Home Loan Bank
having similar characteristics.
  Advances from
Federal Home Loan Bank- The estimated fair value of advances from Federal Home Loan Bank is
determined by discounting the future cash flows of existing advances using rates
currently available on advances from Federal Home Loan Bank having similar
characteristics.
  Subordinated
Debentures-The estimated fair
values of subordinated debentures are determined by discounting the estimated
future cash flows using rates currently available on debentures having similar
characteristics.
  Accrued Interest
Payable- The carrying value approximates fair value.
  Interest-Rate
Swap Liabilities- The fair value is based on quoted market prices by an
independent valuation service.
  Off-Balance-Sheet
Items-The estimated fair
value of commitments to originate or purchase loans is based on the fees
currently charged to enter into similar agreements and the difference between
current levels of interest rates and the committed rates. The Company believes
such commitments have been made on terms that are competitive in the markets in
which it operates; however, no premium or discount is offered thereon, and
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.
  12.
              INTEREST-RATE
      SWAPS
  The
Company entered into two $14 million notional value interest-rate swap contracts
during 2008 totaling $28 million notional value.  These contracts
supported a $14 million, variable-rate, commercial loan relationship and were
used to allow the commercial loan customer to pay a fixed interest rate to the
Bank, while the Bank, in turn, charged the customer a floating interest rate on
the loan.  Under the terms of the swap contract between the Bank and
the loan customer, the customer pays the Bank a fixed interest rate of 6.58%,
while the Bank pays the customer a variable interest rate of one-month LIBOR
plus 2.30%.  Under the terms of a similar but separate swap contract
between the Bank and a major securities broker, the Bank pays the broker a fixed
interest rate of 6.58%, while the broker pays the Bank a variable interest rate
of one-month LIBOR plus 2.30%.  The two contracts have identical terms
and are scheduled to mature on May 15, 2015.  While these two swap
derivatives generally work together as an interest-rate hedge, the Company has
not designated them for hedge accounting treatment.  Consequently,
both derivatives are marked to fair value through either a charge or credit to
current earnings.
  - 19
-
  The fair
values of these contracts recorded in the consolidated balance sheets are
summarized as follows:
  March 31,
                    
                    
                    September
    30,2010
                    
                    
                    2009Fair value recorded in other
      assets
                    
                    $
                    1,104,000
                    
                    
                    $
                    1,170,000Fair value recorded in other
      liabilities
                    
                    
                    1,104,000
                    
                    
                    
                    1,170,000
  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
six-month period ended March 31, 2010 and 2009 are summarized as
follows:
  Three Months
      Ended
                      
                      
                      Six Months
      EndedMarch 31,
                      
                      
                      March 31,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009(in
    thousands)Gross (gains) losses on derivative
      financial assets
                      
                      $
                      (179,000
                      )
                      
                      $
                      (25,000
                      )
                      
                      $
                      66,000
                      
                      
                      $
                      (1,491,000
                      )Gross (gains) losses on derivative
      financial liabilities
                      
                      
                      179,000
                      
                      
                      
                      25,000
                      
                      
                      
                      (66,000
                      )
                      
                      
                      1,491,000Net loss
    (gain)
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
  13.
              GOODWILL
  Goodwill
totaled $3.9 million at March 31, 2010 and September 30, 2009,
respectively.  Goodwill represents the amount of acquisition cost over
the fair value of net assets acquired in the purchase of another financial
institution.  The Company reviews goodwill for impairment at least
annually or more frequently if events or changes in circumstances indicate the
carrying value of the asset might be impaired.  Impairment is
determined by comparing the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill.  If the carrying amount of
the reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess.  Any
such adjustments are reflected in the results of operations in the periods in
which they become known.  After a goodwill impairment loss is
recognized, the adjusted carrying amount of goodwill becomes its new accounting
basis.  Because of the decline in the market value of the Company’s
common stock during the six months ended March 31, 2010, the Company reviewed
goodwill for impairment as of March 31, 2010 in addition to its annual
review at September 30, 2009.  No impairment losses were recognized
during fiscal year 2009 or the six months ended March 31, 2010.
  - 20
-
  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;ratherthey arestatements 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.  Factorsthatcould affect actual results include
interest rate trends, theeconomyin the market area in which Pulaski
Financial Corp. operates, as well as nationwide, Pulaski Financial Corp.’s
ability to control costs and expenses, competitive products and pricing,loan demand,loan delinquency rates, changes in accounting
policiesand 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 endedSeptember 30, 2009,
includingthe Risk Factors
section of that report.  The Company’s forward-looking statements may
also be subject to other risks and uncertainties, including those that it may
discuss elsewhere in this report or in its other filings with the
SEC.These factors should be considered in
evaluating the forward-looking statements and undue reliance should not be
placed on such statements.  Pulaski Financial Corp. assumes no
obligation to update any forward-looking statementsto reflect events or circumstances
after the date of the statements or to reflect the occurrence of anticipated or
unanticipated events.
  GENERAL
  Pulaski
Financial Corp., operating in its eighty-eighth 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 $1.4 billion in assets at March
31, 2010.  Pulaski Bank provides an array of financial products and
services for businesses and consumers primarily through its twelve full-service
offices in the St. Louis metropolitan area and five loan production offices in
the St. Louis and Kansas City metropolitan areas.
  The
Company has primarily grown its assets and deposits internally by building its
residential and commercial lending operations, by opening de novo branches, and
by hiring experienced bankers with existing customer relationships in its
market.  The Company’s goal is to continue to deliver value to its
shareholders and enhance its franchise value and earnings through controlled
growth in its banking operations, while maintaining the personal,
community-oriented customer service that has characterized its success to
date.
  RESULTS OFCOMMUNITYBANKING 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.
  - 21
-
  Commercial Banking
Services
  The
Company’s commercial banking services are centered on serving small- to
medium-sized businesses and the Company’s operations in the St. Louis market
continue to be driven by its staff of experienced commercial bankers and the
commercial banking relationships they generate.  Commercial loan
originations totaled $88.2 million and $184.9 million during the three and
six months ended March 31, 2010, respectively, compared with $91.4 million and
$234.8 million during the same periods last year.  Although
origination activity slowed during the 2010 periods compared with the prior-year
as the result of the distressed local and national economic climate, the Company
continued to originate commercial loans to its most credit-worthy customers
under tightened credit standards.  However, as the result of the
weakened market demand for the Company’s loan products and the Company’s
tightened underwriting standards, the commercial loan portfolio decreased $27.7
million during the six-month period to $569.2 million at March 31,
2010.  Commercial and multi-family construction and development loans
decreased $34.1 million while commercial real estate loans increased
$24.7 million primarily as the result of the conversion of certain maturing
construction loans to permanent financing.  Commercial and industrial
loans decreased $13.2 million.
  The
Company’s commercial loan customers are also among the best sources of core
deposit accounts.  Commercial checking account balances increased $6.2
million to $311.4 million at March 31, 2010 compared with $305.2 million at
September 30, 2009.
  Retail Mortgage
Lending
  The
Company is a conforming, residential mortgage lender that originates loans
directly through commission-based sales staffs in the St. Louis and Kansas City
metropolitan areas.  The Company is a leading mortgage originator in
these two markets, as it has successfully leveraged its reputation for strength
and quality customer service with its staff of experienced mortgage loan
officers who have strong community relationships.  Substantially all
of the loans originated in the retail mortgage division are one- to four-family
residential loans that are sold to investors on a servicing-released
basis.  Such sales generate mortgage revenues, which is the Company’s
largest source of non-interest income.  In addition, loans that are
closed and are held pending their sale to investors provide a valuable source of
interest income until they are delivered to such investors.
  Residential
mortgage loans originated for sale to investors totaled $320.9 million and
$793.1 during the three and six months ended March 31, 2010 compared with $647.0
million and $926.8 million during the same 2009 periods,
respectively.  The origination activity the Company experienced in the
2009 periods represented historically-high levels driven by consumer demand for
mortgage refinancings that resulted from the low interest rate environment
existing during most of 2009.  The reduced activity during the 2010
periods reflected softening market demand.  Mortgage loan refinancing
activity represented approximately 45% of total loan originations during the six
months ended March 31, 2010 compared with 70% during the same 2009
period.
  Residential
loans sold to investors for the three months ended March 31, 2010 totaled
$380.6 million, which generated mortgage revenues totaling $1.7 million,
compared with $620.4 million of loans sold and $4.3 million in revenues for the
three months ended March 31, 2009.  Residential loans sold to
investors for the six months ended March 31, 2010 totaled $794.3 million, which
generated mortgage revenues totaling $4.4 million, compared with $861.3 million
of loans sold and $5.9 million in revenues for the six months ended March 31,
2009.  The net profit margin on loans sold decreased to 0.44% and
0.55% for the three and six months ended March 31, 2010, respectively, compared
with 0.70% and 0.68% for the same 2009 periods, respectively.  The
Company was able to absorb the increased loan origination and sales volumes that
it experienced in the 2009 periods without significantly adding direct, fixed
costs to its infrastructure resulting in higher profit
margins.  Accordingly, such fixed costs did not decline in proportion
to the decreased activity in the 2010 periods, resulting in lower net profit
margins.  Loans sold during the six months ended March 31, 2010
exceeded loans originated for sale, resulting in a $12.5 million, or 12%,
decrease in mortgage loans held for sale to $96.6 million at March 31, 2010 from
$109.1 million at September 30, 2009.
  - 22
-
  Retail Banking
Services
  Core
deposits, which include checking, money market and passbook accounts, provide a
stable funding source for the Company’s asset growth and produce valuable fee
income.  Their growth continues to be one of the Company’s primary
strategic objectives, resulting in an increase of $72.6 million, or 11%, to
$721.9 million at March 31, 2010 from $649.3 million at September 30,
2009.  Checking accounts, which represent the cornerstone product in a
customer relationship, increased $79.8 million to $446.2 million at March 31,
2010 from $366.4 million at September 30, 2009 primarily as the result of growth
in deposits from commercial and retail customers, and movement of money market
accounts and maturing CDARS time deposits into checking
accounts.  Also enhancing its ability to attract core deposits, the
Bank elected to participate in the FDIC’s Transaction Account Guarantee Program,
which provides full FDIC insurance coverage for non interest-bearing transaction
accounts and qualifying NOW accounts, regardless of the dollar amount, and is in
addition to the standard FDIC insurance that was temporarily increased to
$250,000 per depositor.  Both FDIC limits will be in effect through
December 31, 2013.  Money market accounts decreased $7.8 million to
$246.2 million at March 31, 2010 from $254.0 million at September 30,
2009 primarily as the result of a shift in such deposits into interest-bearing
checking accounts.  Primarily as the result of declining market
interest rates, the weighted-average costs of interest-bearing checking accounts
and money market accounts decreased to 1.20% and 0.55%, respectively, at March
31, 2010 compared with 1.25% and 0.76% at September 30, 2009.
  Certificates
of deposit decreased $100.1 million to $442.3 million at March 31, 2010
from $542.3 million at September 30, 2009, primarily as the result of a
$75.0 million decrease in brokered time deposits to $8.4 million, and a
$26.1 million decrease in CDARS time deposits to $84.1 million.  CDARS
deposits, which are generally offered to in-market retail and commercial
customers and to public entities, offer the Bank’s customers the ability to
receive FDIC insurance on deposits up to $50 million.  Higher-cost,
maturing brokered deposits were repaid with proceeds from the increase in core
deposits.  Total deposits decreased $27.5 million, or 2.30%, to $1.16
billion at March 31, 2010 from $1.19 billion at September 30,
2009.
  Retail
banking fees, which include fees charged to customers who have overdrawn their
checking accounts and service charges on other retail banking products, were
$870,000 and $1.8 million for the three and six months ended March 31, 2010,
respectively, compared with $936,000 and $1.9 million for the same 2009 periods,
respectively.  While the Bank’s checking accounts grew significantly
during the three and six months ended March 31, 2010, the volume of overdrawn
checking accounts did not increase proportionately, primarily as the result of
tightened consumer spending in the current difficult economic
environment.
  - 23
-
  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 EndedMarch
      31, 2010
                                              
                                              
                                              March
      31, 2009Interest
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              InterestAverage
                                              
                                              
                                              and
                                              
                                              
                                              Yield/
                                              
                                              
                                              Average
                                              
                                              
                                              and
                                              
                                              
                                              Yield/Balance
                                              
                                              
                                              Dividends
                                              
                                              
                                              Cost
                                              
                                              
                                              Balance
                                              
                                              
                                              Dividends
                                              
                                              
                                              CostInterest-earning
      assets:
                                              
                                              (Dollars
      in thousands)Loans
      receivable:(1)Real
      estate
                                              
                                              $
                                              300,038
                                              
                                              
                                              $
                                              4,604
                                              
                                              
                                              
                                              6.14
                                              %
                                              
                                              $
                                              335,981
                                              
                                              
                                              $
                                              5,317
                                              
                                              
                                              
                                              6.33
                                              %Commercial
                                              
                                              
                                              609,922
                                              
                                              
                                              
                                              7,825
                                              
                                              
                                              
                                              5.13
                                              %
                                              
                                              
                                              594,094
                                              
                                              
                                              
                                              7,013
                                              
                                              
                                              
                                              4.72
                                              %Home
      equity lines of credit
                                              
                                              
                                              220,210
                                              
                                              
                                              
                                              2,184
                                              
                                              
                                              
                                              3.97
                                              %
                                              
                                              
                                              231,975
                                              
                                              
                                              
                                              2,169
                                              
                                              
                                              
                                              3.74
                                              %Consumer
                                              
                                              
                                              3,615
                                              
                                              
                                              
                                              41
                                              
                                              
                                              
                                              4.56
                                              %
                                              
                                              
                                              3,599
                                              
                                              
                                              
                                              54
                                              
                                              
                                              
                                              5.94
                                              %Total
      loans receivable
                                              
                                              
                                              1,133,785
                                              
                                              
                                              
                                              14,654
                                              
                                              
                                              
                                              5.17
                                              %
                                              
                                              
                                              1,165,649
                                              
                                              
                                              
                                              14,553
                                              
                                              
                                              
                                              4.99
                                              %Mortgage
      loans held for sale
                                              
                                              
                                              94,844
                                              
                                              
                                              
                                              1,094
                                              
                                              
                                              
                                              4.61
                                              %
                                              
                                              
                                              153,190
                                              
                                              
                                              
                                              1,758
                                              
                                              
                                              
                                              4.59
                                              %Securities
      and other
                                              
                                              
                                              84,796
                                              
                                              
                                              
                                              307
                                              
                                              
                                              
                                              1.45
                                              %
                                              
                                              
                                              59,869
                                              
                                              
                                              
                                              346
                                              
                                              
                                              
                                              2.31
                                              %Total
      interest-earning assets
                                              
                                              
                                              1,313,425
                                              
                                              
                                              
                                              16,055
                                              
                                              
                                              
                                              4.89
                                              %
                                              
                                              
                                              1,378,708
                                              
                                              
                                              
                                              16,657
                                              
                                              
                                              
                                              4.83
                                              %Non-interest-earning
      assets
                                              
                                              
                                              76,447
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              66,950Total
      assets
                                              
                                              $
                                              1,389,872
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              1,445,658Interest-bearing
      liabilities:Interest-bearing
      checking
                                              
                                              $
                                              331,357
                                              
                                              
                                              
                                              995
                                              
                                              
                                              
                                              1.20
                                              %
                                              
                                              $
                                              207,412
                                              
                                              
                                              
                                              809
                                              
                                              
                                              
                                              1.56
                                              %Passbook
      savings
                                              
                                              
                                              28,814
                                              
                                              
                                              
                                              15
                                              
                                              
                                              
                                              0.22
                                              %
                                              
                                              
                                              25,440
                                              
                                              
                                              
                                              12
                                              
                                              
                                              
                                              0.19
                                              %Money
      market
                                              
                                              
                                              245,206
                                              
                                              
                                              
                                              633
                                              
                                              
                                              
                                              1.03
                                              %
                                              
                                              
                                              135,634
                                              
                                              
                                              
                                              266
                                              
                                              
                                              
                                              0.78
                                              %Certificates
      of deposit
                                              
                                              
                                              462,349
                                              
                                              
                                              
                                              2,696
                                              
                                              
                                              
                                              2.33
                                              %
                                              
                                              
                                              586,746
                                              
                                              
                                              
                                              4,225
                                              
                                              
                                              
                                              2.88
                                              %Total
      interest-bearing deposits
                                              
                                              
                                              1,067,726
                                              
                                              
                                              
                                              4,339
                                              
                                              
                                              
                                              1.63
                                              %
                                              
                                              
                                              955,232
                                              
                                              
                                              
                                              5,312
                                              
                                              
                                              
                                              2.22
                                              %FHLB
      advances
                                              
                                              
                                              69,891
                                              
                                              
                                              
                                              506
                                              
                                              
                                              
                                              2.90
                                              %
                                              
                                              
                                              109,399
                                              
                                              
                                              
                                              915
                                              
                                              
                                              
                                              3.35
                                              %Federal
      Reserve borrowings
                                              
                                              
                                              157
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              0.49
                                              %
                                              
                                              
                                              122,922
                                              
                                              
                                              
                                              135
                                              
                                              
                                              
                                              0.44
                                              %Note
      payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,613
                                              
                                              
                                              
                                              13
                                              
                                              
                                              
                                              3.03
                                              %Subordinated
      debentures
                                              
                                              
                                              19,589
                                              
                                              
                                              
                                              124
                                              
                                              
                                              
                                              2.51
                                              %
                                              
                                              
                                              19,589
                                              
                                              
                                              
                                              200
                                              
                                              
                                              
                                              4.09
                                              %Total
      interest-bearing liabilities
                                              
                                              
                                              1,157,363
                                              
                                              
                                              
                                              4,969
                                              
                                              
                                              
                                              1.72
                                              %
                                              
                                              
                                              1,208,755
                                              
                                              
                                              
                                              6,575
                                              
                                              
                                              
                                              2.18
                                              %Non-interest
      bearing liabilities:Non-interest
      bearing deposits
                                              
                                              
                                              102,367
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              109,302Other
      non-interest bearing
    liabilities
                                              
                                              
                                              10,967
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              14,775Total
      non-interest-bearing
    liabilities
                                              
                                              
                                              113,334
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              124,077Stockholders'
      equity
                                              
                                              
                                              119,175
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              112,826Total
      liabilities and stockholders'
      equity
                                              
                                              $
                                              1,389,872
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              1,445,658Net
      interest income
                                              
                                              
                                              
                                              
                                              
                                              $
                                              11,086
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              10,082Interest
      rate spread(2)
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              3.17
                                              %
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2.65
                                              %Net
      interest margin (3)
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              3.38
                                              %
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2.93
                                              %Ratio
      of average interest-earning assets to average interest-bearing
      liabilities
                                              
                                              
                                              113.48
                                              %
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              114.06
                                              %
 
 (1)
              Includes non-accrual loans with an
      average balance of $18.5 million and $14.9 million for the three months
      ended March 31, 2010 and 2009,
  respectively.
 (2)
              Yield on interest-earning assets
      less cost of interest-bearing
  liabilities.
 (3)
              Net interest income divided by
      average interest-earning
assets.
  - 24
-
  Six
      Months EndedMarch
      31, 2010
                                                  
                                                  
                                                  March
      31, 2009Interest
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  InterestAverage
                                                  
                                                  
                                                  and
                                                  
                                                  
                                                  Yield/
                                                  
                                                  
                                                  Average
                                                  
                                                  
                                                  and
                                                  
                                                  
                                                  Yield/Balance
                                                  
                                                  
                                                  Dividends
                                                  
                                                  
                                                  Cost
                                                  
                                                  
                                                  Balance
                                                  
                                                  
                                                  Dividends
                                                  
                                                  
                                                  CostInterest-earning
      assets:
                                                  
                                                  (Dollars
      in thousands)Loans
      receivable: (1)Real
      estate
                                                  
                                                  $
                                                  301,863
                                                  
                                                  
                                                  $
                                                  9,376
                                                  
                                                  
                                                  
                                                  6.21
                                                  %
                                                  
                                                  $
                                                  340,055
                                                  
                                                  
                                                  $
                                                  11,074
                                                  
                                                  
                                                  
                                                  6.51
                                                  %Commercial
                                                  
                                                  
                                                  613,505
                                                  
                                                  
                                                  
                                                  15,616
                                                  
                                                  
                                                  
                                                  5.09
                                                  %
                                                  
                                                  
                                                  570,434
                                                  
                                                  
                                                  
                                                  14,188
                                                  
                                                  
                                                  
                                                  4.97
                                                  %Home
      equity lines of credit
                                                  
                                                  
                                                  222,414
                                                  
                                                  
                                                  
                                                  4,437
                                                  
                                                  
                                                  
                                                  3.99
                                                  %
                                                  
                                                  
                                                  229,350
                                                  
                                                  
                                                  
                                                  4,870
                                                  
                                                  
                                                  
                                                  4.25
                                                  %Consumer
                                                  
                                                  
                                                  3,596
                                                  
                                                  
                                                  
                                                  83
                                                  
                                                  
                                                  
                                                  4.61
                                                  %
                                                  
                                                  
                                                  3,664
                                                  
                                                  
                                                  
                                                  106
                                                  
                                                  
                                                  
                                                  5.82
                                                  %Total
      loans receivable
                                                  
                                                  
                                                  1,141,378
                                                  
                                                  
                                                  
                                                  29,512
                                                  
                                                  
                                                  
                                                  5.17
                                                  %
                                                  
                                                  
                                                  1,143,503
                                                  
                                                  
                                                  
                                                  30,238
                                                  
                                                  
                                                  
                                                  5.29
                                                  %Mortgage
      loans held for sale
                                                  
                                                  
                                                  115,014
                                                  
                                                  
                                                  
                                                  2,714
                                                  
                                                  
                                                  
                                                  4.72
                                                  %
                                                  
                                                  
                                                  101,402
                                                  
                                                  
                                                  
                                                  2,423
                                                  
                                                  
                                                  
                                                  4.78
                                                  %Securities
      and other
                                                  
                                                  
                                                  74,381
                                                  
                                                  
                                                  
                                                  669
                                                  
                                                  
                                                  
                                                  1.80
                                                  %
                                                  
                                                  
                                                  60,117
                                                  
                                                  
                                                  
                                                  831
                                                  
                                                  
                                                  
                                                  2.76
                                                  %Total
      interest-earning assets
                                                  
                                                  
                                                  1,330,773
                                                  
                                                  
                                                  
                                                  32,895
                                                  
                                                  
                                                  
                                                  4.94
                                                  %
                                                  
                                                  
                                                  1,305,022
                                                  
                                                  
                                                  
                                                  33,492
                                                  
                                                  
                                                  
                                                  5.13
                                                  %Non-interest-earning
      assets
                                                  
                                                  
                                                  71,138
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  73,709Total
      assets
                                                  
                                                  $
                                                  1,401,911
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  1,378,731Interest-bearing
      liabilities:Interest-bearing
      checking
                                                  
                                                  $
                                                  311,199
                                                  
                                                  
                                                  
                                                  1,914
                                                  
                                                  
                                                  
                                                  1.23
                                                  %
                                                  
                                                  $
                                                  197,678
                                                  
                                                  
                                                  
                                                  1,868
                                                  
                                                  
                                                  
                                                  1.89
                                                  %Passbook
      savings
                                                  
                                                  
                                                  28,769
                                                  
                                                  
                                                  
                                                  34
                                                  
                                                  
                                                  
                                                  0.23
                                                  %
                                                  
                                                  
                                                  25,627
                                                  
                                                  
                                                  
                                                  25
                                                  
                                                  
                                                  
                                                  0.19
                                                  %Money
      market
                                                  
                                                  
                                                  248,852
                                                  
                                                  
                                                  
                                                  1,337
                                                  
                                                  
                                                  
                                                  1.07
                                                  %
                                                  
                                                  
                                                  137,895
                                                  
                                                  
                                                  
                                                  834
                                                  
                                                  
                                                  
                                                  1.21
                                                  %Certificates
      of deposit
                                                  
                                                  
                                                  475,665
                                                  
                                                  
                                                  
                                                  5,681
                                                  
                                                  
                                                  
                                                  2.39
                                                  %
                                                  
                                                  
                                                  552,448
                                                  
                                                  
                                                  
                                                  8,709
                                                  
                                                  
                                                  
                                                  3.15
                                                  %Total
      interest-bearing deposits
                                                  
                                                  
                                                  1,064,485
                                                  
                                                  
                                                  
                                                  8,966
                                                  
                                                  
                                                  
                                                  1.68
                                                  %
                                                  
                                                  
                                                  913,648
                                                  
                                                  
                                                  
                                                  11,436
                                                  
                                                  
                                                  
                                                  2.50
                                                  %FHLB
      advances
                                                  
                                                  
                                                  84,748
                                                  
                                                  
                                                  
                                                  1,063
                                                  
                                                  
                                                  
                                                  2.51
                                                  %
                                                  
                                                  
                                                  155,277
                                                  
                                                  
                                                  
                                                  2,086
                                                  
                                                  
                                                  
                                                  2.69
                                                  %Federal
      Reserve borrowings
                                                  
                                                  
                                                  103
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  0.50
                                                  %
                                                  
                                                  
                                                  74,538
                                                  
                                                  
                                                  
                                                  215
                                                  
                                                  
                                                  
                                                  0.58
                                                  %Note
      payable
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  4,660
                                                  
                                                  
                                                  
                                                  113
                                                  
                                                  
                                                  
                                                  4.87
                                                  %Subordinated
      debentures
                                                  
                                                  
                                                  19,589
                                                  
                                                  
                                                  
                                                  251
                                                  
                                                  
                                                  
                                                  2.56
                                                  %
                                                  
                                                  
                                                  19,589
                                                  
                                                  
                                                  
                                                  447
                                                  
                                                  
                                                  
                                                  4.56
                                                  %Total
      interest-bearing liabilities
                                                  
                                                  
                                                  1,168,925
                                                  
                                                  
                                                  
                                                  10,280
                                                  
                                                  
                                                  
                                                  1.76
                                                  %
                                                  
                                                  
                                                  1,167,712
                                                  
                                                  
                                                  
                                                  14,297
                                                  
                                                  
                                                  
                                                  2.45
                                                  %Non-interest
      bearing liabilities:Non-interest
      bearing deposits
                                                  
                                                  
                                                  99,926
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  98,043Other
      non-interest bearing liabilities
                                                  
                                                  
                                                  13,739
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  14,141Total
      non-interest-bearing liabilities
                                                  
                                                  
                                                  113,665
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  112,184Stockholders'
      equity
                                                  
                                                  
                                                  119,321
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  98,835Total
      liabilities and stockholders' equity
                                                  
                                                  $
                                                  1,401,911
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  1,378,731Net
      interest income
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  22,615
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  19,195Interest
      rate spread (2)
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  3.18
                                                  %
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2.68
                                                  %Net
      interest margin (3)
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  3.40
                                                  %
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2.94
                                                  %Ratio
      of average interest-earning assets toaverage
      interest-bearing liabilities
                                                  
                                                  
                                                  113.85
                                                  %
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  111.76
                                                  %
 
 (1)
              Includes non-accrual loans with an
      average balance of $20.9 million and $12.8 million for the six months
      ended March 31, 2010 and 2009,
  respectively.
 (2)
              Yield on interest-earning assets
      less cost of
    interest-bearing  liabilities.
 (3)
              Net interest income divided by
      average interest-earning
assets.
  - 25
-
 
 RATE VOLUME ANALYSIS
  The
following table sets forth the effects of changing rates and volumes on net
interest income for the periods indicated. The total change for each category of
interest-earning asset and interest-bearing liability is segmented into the
change attributable to variations in volume (change in volume multiplied by
prior period rate) and the change attributable to variations in interest rates
(changes in rates multiplied by prior period volume).  Changes in
interest income and expense attributed to both changes in volume and changes in
rate are allocated proportionately to rate and volume.
 
 Three
      Months Ended
                              
                              
                              Six
      Months EndedMarch
      31, 2010 vs 2009
                              
                              
                              March
      31, 2010 vs 2009Volume
                              
                              
                              Rate
                              
                              
                              Net
                              
                              
                              Volume
                              
                              
                              Rate
                              
                              
                              Net(In
      thousands)Interest-earning
      assets:Loans
      receivable:Real
      estate
                              
                              $
                              (557
                              )
                              
                              $
                              (156
                              )
                              
                              $
                              (713
                              )
                              
                              $
                              (1,204
                              )
                              
                              $
                              (494
                              )
                              
                              $
                              (1,698
                              )Commercial
                              
                              
                              190
                              
                              
                              
                              622
                              
                              
                              
                              812
                              
                              
                              
                              1,082
                              
                              
                              
                              346
                              
                              
                              
                              1,428Home
      equity lines of credit
                              
                              
                              (476
                              )
                              
                              
                              491
                              
                              
                              
                              15
                              
                              
                              
                              (143
                              )
                              
                              
                              (290
                              )
                              
                              
                              (433
                              )Consumer
                              
                              
                              2
                              
                              
                              
                              (15
                              )
                              
                              
                              (13
                              )
                              
                              
                              (2
                              )
                              
                              
                              (21
                              )
                              
                              
                              (23
                              )Total
      loans receivable
                              
                              
                              (841
                              )
                              
                              
                              942
                              
                              
                              
                              101
                              
                              
                              
                              (267
                              )
                              
                              
                              (459
                              )
                              
                              
                              (726
                              )Mortgage
      loans held for sale
                              
                              
                              (718
                              )
                              
                              
                              54
                              
                              
                              
                              (664
                              )
                              
                              
                              378
                              
                              
                              
                              (87
                              )
                              
                              
                              291Securities
      and other
                              
                              
                              (24
                              )
                              
                              
                              (15
                              )
                              
                              
                              (39
                              )
                              
                              
                              (80
                              )
                              
                              
                              (82
                              )
                              
                              
                              (162
                              )Net
      change in income on interest earning assets
                              
                              
                              (1,583
                              )
                              
                              
                              981
                              
                              
                              
                              (602
                              )
                              
                              
                              31
                              
                              
                              
                              (628
                              )
                              
                              
                              (597
                              )Interest-bearing
      liabilities:Interest-bearing
      checking
                              
                              
                              1,212
                              
                              
                              
                              (1,026
                              )
                              
                              
                              186
                              
                              
                              
                              1,651
                              
                              
                              
                              (1,605
                              )
                              
                              
                              46Passbook
      savings
                              
                              
                              1
                              
                              
                              
                              2
                              
                              
                              
                              3
                              
                              
                              
                              3
                              
                              
                              
                              6
                              
                              
                              
                              9Money
      market
                              
                              
                              263
                              
                              
                              
                              104
                              
                              
                              
                              367
                              
                              
                              
                              777
                              
                              
                              
                              (274
                              )
                              
                              
                              503Certificates
      of deposit
                              
                              
                              (805
                              )
                              
                              
                              (724
                              )
                              
                              
                              (1,529
                              )
                              
                              
                              (1,107
                              )
                              
                              
                              (1,921
                              )
                              
                              
                              (3,028
                              )Total
      interest-bearing deposits
                              
                              
                              671
                              
                              
                              
                              (1,644
                              )
                              
                              
                              (973
                              )
                              
                              
                              1,324
                              
                              
                              
                              (3,794
                              )
                              
                              
                              (2,470
                              )FHLB
      advances
                              
                              
                              (298
                              )
                              
                              
                              (111
                              )
                              
                              
                              (409
                              )
                              
                              
                              (892
                              )
                              
                              
                              (131
                              )
                              
                              
                              (1,023
                              )Federal
      Reserve borrowings
                              
                              
                              (231
                              )
                              
                              
                              96
                              
                              
                              
                              (135
                              )
                              
                              
                              (189
                              )
                              
                              
                              (26
                              )
                              
                              
                              (215
                              )Note
      payable
                              
                              
                              (7
                              )
                              
                              
                              (6
                              )
                              
                              
                              (13
                              )
                              
                              
                              (56
                              )
                              
                              
                              (57
                              )
                              
                              
                              (113
                              )Subordinated
      debentures
                              
                              
                              -
                              
                              
                              
                              (76
                              )
                              
                              
                              (76
                              )
                              
                              
                              -
                              
                              
                              
                              (196
                              )
                              
                              
                              (196
                              )Net
      change in expense on interest bearing
      liabilities
                              
                              
                              135
                              
                              
                              
                              (1,741
                              )
                              
                              
                              (1,606
                              )
                              
                              
                              187
                              
                              
                              
                              (4,204
                              )
                              
                              
                              (4,017
                              )Change
      in net interest income
                              
                              $
                              (1,718
                              )
                              
                              $
                              2,722
                              
                              
                              $
                              1,004
                              
                              
                              $
                              (156
                              )
                              
                              $
                              3,576
                              
                              
                              $
                              3,420
  - 26
-
  RESULTS OF
OPERATIONS
 
 The
Company reported anet loss
for the quarter ended March 31, 2010 of $4.3 million compared with net income of
$1.8 million during the same quarter last year.  For the six
months ended March 31, 2010, the Company reported a net loss of $3.1 million
compared with net income of $2.3 million during the same period last
year.  The Company reported a net loss
available to common shares for the quarter ended March 31, 2010 of $4.8
million, or $0.47 per diluted common share on 10.4 million average diluted
shares outstanding, compared with net income available to common shares of $1.5
million, or $0.15 per diluted common share on 10.3 million average diluted
shares outstanding, during the same quarter last year. For the six months ended
March 31, 2010, the Company reported a net loss available to common shares of
$4.1 million, or $0.40 per diluted common share on 10.3 million average diluted
shares outstanding, compared with net income available to common shares of $2.1
million, or $0.20 per diluted common share on a 10.3 million average diluted
shares outstanding, for the same period a year ago. Results for the three- and
six-months ended March 31, 2010 were negatively impacted by an $11.2 million and
$17.3 million provision for loan losses compared with $5.7 million and $10.4
million provision for the same periods in 2009.  Also reducing income
available to common shares for the three and six months ended March 31, 2010
were dividends and discount accretion on the Company’s preferred stock, issued
during January 2009 as part of the U.S. Treasury’s TARP Capital Purchase Plan,
totaling $515,000, or $0.05 per diluted common share, and $1.0 million, or $0.10
per diluted common share, respectively, compared with $238,000, or $0.02 per
diluted common share, and $238,000 or $0.02 per diluted common share, in the
comparable 2009 periods, respectively.
 
 Net interest
income rose 10.0%, or $1.0 million, to $11.1 million for the quarter
ended March 31, 2010 compared with $10.1 million for the same period last
year primarily as the result of an increase in the net interest margin,
partially offset by a decrease in the average balance of interest-earning
assets.  The net interest margin increased to 3.38% for the quarter
ended March 31, 2010 compared with 2.93% for the quarter ended March 31,
2009.  The net interest margin benefited from a market-driven decline
in the cost of deposits and wholesale borrowings and a decrease in brokered
deposits and wholesale borrowings, which was funded by an increase in lower-cost
core deposits.  The average balance of interest-earning assets
decreased to $1.31 billion for the quarter ended March 31, 2010 compared with
$1.38 billion for the quarter ended March 31, 2009 primarily at the result
of declines in the average balances of loans receivable and mortgage loans held
for sale, partially offset by an increase in the average balance of other
interest-earning assets.
  For the
six months ended March 31, 2010, net interest income rose to $22.6 million
compared with $19.2 million for the same six-month period last year primarily as
the result of an increase in the net interest margin to 3.40% for the six months
ended March 31, 2010 compared with 2.94% for the 2009 period.  The net
interest margin benefited from a market-driven decline in the cost of deposits
and wholesale borrowings and a decrease in brokered deposits and wholesale
borrowings, which was funded with an increase in lower-cost core
deposits.
  Total interest
and dividend income decreased 3.6% to $16.1 million for the quarter ended
March 31, 2010, compared with $16.7 million for the same quarter last year
primarily as the result of a decrease in interest income on mortgage loans held
for sale partially offset by an increase in interest income on loans
receivable.  For the six months ended March 31, 2010, total interest
and dividend income decreased 1.8% to $32.9 million compared with
$33.5 million for the same period a year ago primarily as the result of a
decrease in interest income on loans receivable partially offset by an increase
in interest income on mortgage loans held for sale.
  Interest income
on loans receivableincreased 0.7% to $14.7 million for the quarter ended
March 31, 2010, compared with $14.6 million for the same quarter last year
as the result of an increase in the average yield partially offset by a decrease
in the average balance.  The average balance of loans receivable
decreased to $1.13 billion during the three months ended March 31, 2010,
compared with $1.17 billion during the same 2009 period primarily as the result
of softened market demand for the Company’s residential first mortgage and home
equity loans.  The average yield on loans receivable increased to
5.17% during the three months ended March 31, 2010 compared with 4.99% during
the same 2009 period primarily as the result of a market-driven increase in the
average yield on home equity loans and an increase in the average yield on
commercial loans, partially offset by a decrease in the average yield on
residential first mortgages.  The yield on commercial loans benefitted
from the implementation of interest-rate floors on new and renewing
loans.
  For the
six-month periods, interest income on loans receivabledecreased
2.4% to $29.5 million for the 2010 period, compared with $30.2 million for
the 2009 period.  The average balance of loans receivable was $1.14
billion for each of the six month periods ended March 31, 2010 and 2009 while
the average yield on loans receivable decreased to 5.17% during the six months
ended March 31, 2010 from 5.29% for the same period a year ago primarily as the
result of market-driven declines in the average yields on residential mortgage
and home equity loans.
  - 27
-
  Interest income
on mortgage loans held for saledecreased 37.8% to $1.1 million for the
quarter ended March 31, 2010, compared with $1.8 million for the same
quarter last year as the result of a decrease in the average balance, partially
offset by a slight increase in the average yield.  The average balance
of mortgage loans held for sale decreased to $94.8 million during the three
months ended March 31, 2010 compared with $153.2 million during the same 2009
period as the result of decreased origination activity.  The average
yield on mortgage loans held for sale was 4.61% during the three months ended
March 31, 2010 compared with 4.59% during the same 2009 period.
  For the
six month periods, interest income on mortgage loans held for sale increased
12.0% to $2.7 million for the 2010 period, compared with $2.4 million for
the same period last year as the result of an increase in the average balance
partially offset by a market-driven decrease in the average
yield.  The average balance of mortgage loans held for sale increased
to $115.0 million during the six months ended March 31, 2010 compared with
$101.4 million during the same 2009 period as the result of increased
origination activity.  The average yield on mortgage loans held for
sale decreased from 4.78% during the six months ended March 31, 2009 to 4.72%
during the six months ended March 31, 2010.  See Results of Community Banking
Strategy – Retail Mortgage Lending.
  Total interest
expense decreased $1.6 million, or 24.4%, to $5.0 million for the quarter
ended March 31, 2010 compared with $6.6 million for the quarter ended March 31,
2009 and decreased $4.0 million, or 28.1%, to $10.3 million for the six months
ended March 31, 2010 compared with $14.3 million for the same six-month period
last year. The lower expense was primarily the result of a decrease in the
average cost of funds.  The average cost of funds decreased from 2.18%
for the quarter ended March 31, 2009 to 1.72% for the quarter ended March 31,
2010 and the average balance of interest-bearing liabilities decreased from
$1.21 billion to $1.16 billion during the same periods,
respectively.  The decrease in the average balance of interest-bearing
liabilities resulted primarily from a decrease in the average balance of
borrowings from the Federal Reserve Bank of St. Louis (“Federal Reserve Bank”)
and advances from the Federal Home Loan Bank of Des Moines (“FHLB”) partially
offset by an increase in the average balance of deposits.  For the six
months ended March 31, 2010, the average cost of funds decreased to 1.76% from
2.45% for the same six-month period last year and the average balance of
interest-bearing liabilities remained the same at $1.17 billion for the same
periods, respectively.  The decreased average cost during the three-
and six-month periods was the result of lower market interest rates, growth in
core deposits and a shift in the mix of wholesale funding
sources.  The Company primarily funds its assets with savings deposits
from its retail and commercial customers.  This funding source is
supplemented with wholesale funds consisting primarily of borrowings from the
FHLB, short-term borrowings from the Federal Reserve Bank and time deposits from
national brokers.  Management actively chooses among these wholesale
funding sources depending on their relative costs, the Company’s overall
interest rate risk exposure and the Company’s overall borrowing capacity at the
FHLB and the Federal Reserve Bank.
  Interest expense
on depositsdecreased $973,000, or 18.3%, to $4.3 million during the
quarter ended March 31, 2010 compared with $5.3 million for the quarter ended
March 31, 2009.  For the six months ended March 31, 2010, interest
expense on deposits was $9.0 million compared with $11.4 million for the same
period a year ago.  The decreases were primarily the result of
decreases in the average cost partially offset by increases in the average
balance.  The average balance of interest-bearing deposits increased
to $1.07 billion for the quarter ended March 31, 2010 from $955.2 million
for the quarter ended March 31, 2009 while the average cost decreased from 2.22%
to 1.63% during the same periods, respectively.  For the six-month
periods, the average balance of interest-bearing deposits increased to $1.06
billion from $913.6 million while the average cost of deposits decreased from
2.50% to 1.68% during the same periods, respectively.  Growth in
average total deposits during the 2010 periods was the result of growth in core
deposits.  The growth in core deposits combined with lower market
interest rates resulted in lower average costs during the fiscal 2010
periods.  See Results of Community Banking
Strategy – Retail Banking Services.
  Interest expense
on advances from the Federal Home Loan Bank decreased $409,000, or 44.7%,
to $506,000 during the quarter ended March 31, 2010 compared with $915,000 for
the quarter ended March 31, 2009 and decreased to $1.1 million during the six
months ended March 31, 2010 compared with $2.1 million for the same six-month
period last year primarily as the result of decreases in the average
balance.  The average balance decreased to $69.9 million for the
quarter ended March 31, 2010 from $109.4 million for the quarter ended March 31,
2009 and the average cost decreased from 3.35% to 2.90% during the same periods,
respectively.  For the six-month periods, the average balance
decreased to $84.7 million during 2010 from $155.3 million during 2009 and the
average cost decreased from 2.69% to 2.51% during the same periods,
respectively.  The decreased average balance resulted from the
repayment of such borrowings with proceeds from growth in deposits and sales of
mortgage loans held for sale.  The decrease in the average cost was
the result of lower market interest rates during the 2010
period.
  - 28
-
  Provision for Loan
Losses
  The provision for
loan losses for the three and six months ended March 31, 2010 was $11.2
million and $17.3 million respectively, compared with $5.7 million and $10.4
million, respectively, for the same periods a year ago.  The increase
in the provision was primarily due to an increase in the levels of net
charge-offs reflecting the impact of the adverse economic climate on the
Company’s borrowers.  See Non-Performing AssetsandAllowance for Loan
Losses.
  Non-Interest Income
  Total
non-interest income decreased 43.0% to $3.4 million for the quarter ended
March 31, 2010 compared with $5.9 million for the same period last
year.  For the six months ended March 31, 2010, total non-interest
income decreased $1.5
million to $7.8 million compared with $9.3 million for the same six-month period
last year.  The decreases were primarily the result of lower mortgage
revenues.  See Results of Community Banking
Strategy – Retail Mortgage Lending.
 
 Gain
on sales of securitiestotaled $244,000for the six months ended March 31, 2009
on sales of $51.1million of debt securities
classified as available for sale.  There were no such sales
during the six months ended March 31, 2010.Debt securities are
primarily held as collateral to secure large commercial and municipal
deposits.  The total balance held in these securities is adjusted to
reflect fluctuations in the balances of the deposits they are
securing.
  Investment
brokerage revenuestotaled $348,000 and $772,000 for the
three and six months ended March 31, 2010 compared with $379,000and $641,000, respectively,for the same period a year
ago.The
Company operates an investment brokerage division whose operations consist
principally of brokering bonds from wholesale brokerage houses to other banks,
municipalities and individual investors.  Revenues are generated on
trading spreads and fluctuate with changes in customer demand, trading volumes
and market interest rates.  The Company saw an increase in sales
volumes during the December 2009 quarter compared with the prior-year quarter as
many of its customers shifted funds from loan originations to lower-risk bonds
because of the current economic environment, but experienced a softened demand
during the March 2010 quarter.
  Other
non-interest income totaled $217,000 and $327,000 for the three and six
months ended March 31, 2010, respectively, compared with $49,000 and $115,000
for the same 2009 periods.  The increase was primarily the result of a
gain on the sale of the Company’s equity interest in a small-bank fund during
January 2010.
  Non-Interest
Expense
  Total
non-interest expenseincreased $598,000to $8.4million for the quarter endedMarch31, 2010compared with$7.8million for the same period a year
ago.For the six
months ended March 31, 2010, total non-interestexpense increased$1.8million to $16.6millioncompared with $14.8 million for the
same six-month period lastyear.
  Salaries
and employee benefitsexpenseincreased $61,000 to $3.7million for the quarter endedMarch31, 2010compared with $3.6million for the quarter endedMarch31, 2009 andincreased $615,000 to $7.6
millionfor the six months
endedMarch 31, 2010
compared with $6.9 million for the six months ended March 31,
2009.The
increase was primarily the result of additional expense for temporary employees
and the payment of incentives related to the increased mortgage lending volumes,
which did not qualify as capitalized loan origination expenses, and the addition
of other key personnel to support the Company’s expanded
operations.
  Advertising
expense decreased $114,000 to $95,000 for the three months ended March
31, 2010 compared with $209,000 for the three months ended March 31, 2009 and
decreased $254,000 to $242,000 for the six months ended March 31, 2010 compared
with $495,000 for the six months ended March 31, 2009.  The decreases
were generally due to a reduction in the overall level of advertising during the
2010 periods and a more focused effort to control such
expenses.
  - 29
-
  Professional
fees increased $177,000 to $548,000 for the quarter ended March 31, 2010
compared with $371,000 for the quarter ended March 31, 2009.  For the
six months ended March 31, 2010, professional fees increased $433,000 to
$1.1 million compared with $632,000 for the same six-month period last
year.  The increases were generally due to increased expenses related
to regulatory compliance and increased loan collection activity resulting from
the depressed economic environment.
 
 FDIC
deposit insurance premiumexpenseincreased $83,000 to $494,000 for the
three months ended March 31, 2010 compared with $411,000 for the same period in
2009 and increased $376,000 to $986,000 for the six months ended March 31,
2010 comparedwith
$610,000for the six months
ended March 31, 2009.  The increase was the result of higher
average deposit balances and an industry-wide increase in FDIC deposit insurance
premiums, which initially became effective in April 2009.
 
 Real estate
foreclosure losses and expense, netincludes realized losses
on the final disposition of foreclosed properties, additional write-downs for
declines in the fair market values of properties that occur subsequent to
foreclosure, and expenses incurred in connection with maintaining the properties
until they are sold.  Real estate foreclosure losses and expense, net
increased $496,000 to $905,000 for the quarter ended March 31, 2010 compared
with $409,000 for the same period last year and increased $591,000 to $1.3
million for the six-month period ended March 31, 2010 compared to $751,000 for
the same period a year ago.  The increase was primarily due to an
$826,000 write-down of a parcel of raw ground, which was acquired through
foreclosure in a prior period, due to an estimated decline in its fair market
value based on a new appraisal.  See Non-Performing Assets and Allowance
for Loan Losses.
  Income Taxes
  The provision for
income taxes decreased $1.6 million to a benefit of $870,000, or an
effective rate of 16.75%, for the quarter ended March 31, 2010, compared with
expense of $762,000, or an effective rate of 30.06%, for the three months ended
March 31, 2009.  For the six months ended March 31, 2010, the
provision for income taxes decreased $1.5 million to a benefit of $404,000, or
an effective rate of 11.61%, compared with $1.1 million, or an effective rate of
31.16%, for the same six-month period last year.  The lower effective
tax rates in the 2010 periods was primarily the result of a higher ratio of
tax-exempt income on bank owned life insurance and tax-exempt interest on loans
to total pre-tax income that resulted from the lower level of pre-tax
income.
  - 30
-
  NON-PERFORMING ASSETSAND ALLOWANCE FOR LOAN
LOSSES
  Non-performing
assets at March 31, 2010, December 31, 2009 and September 30, 2009 are
summarized as follows:
  March 31,
                                  
                                  
                                  December
31,
                                  
                                  
                                  September
    30,2010
                                  
                                  
                                  2009
                                  
                                  
                                  2009Non-accrual
      loans:Residential real
      estate:First
    mortgage
                                  
                                  $
                                  5,662,202
                                  
                                  
                                  $
                                  6,715,585
                                  
                                  
                                  $
                                  7,093,095Second
    mortgage
                                  
                                  
                                  777,938
                                  
                                  
                                  
                                  1,171,605
                                  
                                  
                                  
                                  629,183Home equity
                                  
                                  
                                  2,761,159
                                  
                                  
                                  
                                  3,608,166
                                  
                                  
                                  
                                  3,086,013Commercial and multi-family real
      estate
                                  
                                  
                                  3,108,588
                                  
                                  
                                  
                                  1,885,970
                                  
                                  
                                  
                                  2,594,526Land acquisition and
      development
                                  
                                  
                                  3,106,038
                                  
                                  
                                  
                                  1,315,004
                                  
                                  
                                  
                                  2,193,457Real estate construction and
      development
                                  
                                  
                                  1,465,644
                                  
                                  
                                  
                                  1,760,288
                                  
                                  
                                  
                                  7,454,604Commercial and
      industrial
                                  
                                  
                                  2,735,634
                                  
                                  
                                  
                                  1,502,896
                                  
                                  
                                  
                                  702,999Consumer and
      other
                                  
                                  
                                  98,476
                                  
                                  
                                  
                                  148,902
                                  
                                  
                                  
                                  219,849Total non-accrual
      loans
                                  
                                  
                                  19,715,679
                                  
                                  
                                  
                                  18,108,416
                                  
                                  
                                  
                                  23,973,726Accruing loans past due 90 days or
      more:Residential real
      estate:First
    mortgage
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,394Second
    mortgage
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  27,531Home equity
                                  
                                  
                                  -
                                  
                                  
                                  
                                  95,765
                                  
                                  
                                  
                                  42,720Land acquisition and
      development
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  315,589Real estate construction and
      development
                                  
                                  
                                  -
                                  
                                  
                                  
                                  76,180
                                  
                                  
                                  
                                  -Consumer and
      other
                                  
                                  
                                  -
                                  
                                  
                                  
                                  21,424
                                  
                                  
                                  
                                  -Total accruing loans past due 90
      days or more
                                  
                                  
                                  -
                                  
                                  
                                  
                                  193,369
                                  
                                  
                                  
                                  387,234Troubled debt
      restructurings:Current under restructured
      terms:Residential real
      estate:First
    mortgage
                                  
                                  
                                  15,169,737
                                  
                                  
                                  
                                  21,884,237
                                  
                                  
                                  
                                  17,785,408Second
    mortgage
                                  
                                  
                                  1,639,419
                                  
                                  
                                  
                                  1,811,827
                                  
                                  
                                  
                                  2,062,096Home equity
                                  
                                  
                                  1,631,132
                                  
                                  
                                  
                                  2,199,455
                                  
                                  
                                  
                                  1,694,670Commercial and multi-family real
      estate
                                  
                                  
                                  164,564
                                  
                                  
                                  
                                  164,564
                                  
                                  
                                  
                                  -Land acquisition and
      development
                                  
                                  
                                  -
                                  
                                  
                                  
                                  107,041
                                  
                                  
                                  
                                  107,041Real estate construction and
      development
                                  
                                  
                                  4,674,305
                                  
                                  
                                  
                                  4,469,367
                                  
                                  
                                  
                                  100,404Commercial and
      industrial
                                  
                                  
                                  119,186
                                  
                                  
                                  
                                  157,900
                                  
                                  
                                  
                                  787,485Consumer and
      other
                                  
                                  
                                  87,345
                                  
                                  
                                  
                                  89,667
                                  
                                  
                                  
                                  91,967Total current troubled debt
      restructurings
                                  
                                  
                                  23,485,688
                                  
                                  
                                  
                                  30,884,058
                                  
                                  
                                  
                                  22,629,071Past due under restructured
      terms:Residential real
      estate:First
    mortgage
                                  
                                  
                                  8,125,665
                                  
                                  
                                  
                                  4,006,536
                                  
                                  
                                  
                                  2,787,514Second
    mortgage
                                  
                                  
                                  1,468,413
                                  
                                  
                                  
                                  1,274,969
                                  
                                  
                                  
                                  745,704Home equity
                                  
                                  
                                  321,189
                                  
                                  
                                  
                                  176,325
                                  
                                  
                                  
                                  150,153Commercial and multi-family real
      estate
                                  
                                  
                                  3,234,950
                                  
                                  
                                  
                                  7,499,951
                                  
                                  
                                  
                                  7,830,991Land acquisition and development
                                  
                                  
                                  121,718
                                  
                                  
                                  
                                  57,112
                                  
                                  
                                  
                                  57,277Real estate construction and
      development
                                  
                                  
                                  100,404
                                  
                                  
                                  
                                  100,404
                                  
                                  
                                  
                                  -Commercial and
      industrial
                                  
                                  
                                  177,958
                                  
                                  
                                  
                                  1,019,026
                                  
                                  
                                  
                                  776,938Total past due troubled debt
      restructurings
                                  
                                  
                                  13,550,297
                                  
                                  
                                  
                                  14,134,323
                                  
                                  
                                  
                                  12,348,577Total troubled debt
      restructurings
                                  
                                  
                                  37,035,985
                                  
                                  
                                  
                                  45,018,381
                                  
                                  
                                  
                                  34,977,648Total non-performing
      loans
                                  
                                  
                                  56,751,664
                                  
                                  
                                  
                                  63,320,166
                                  
                                  
                                  
                                  59,338,608Real estate acquired in settlement
      of loans:Residential real
      estate
                                  
                                  
                                  3,133,915
                                  
                                  
                                  
                                  3,405,871
                                  
                                  
                                  
                                  3,386,106Commercial real
      estate
                                  
                                  
                                  10,765,629
                                  
                                  
                                  
                                  12,312,262
                                  
                                  
                                  
                                  5,068,504Total real estate acquired in
      settlement of loans
                                  
                                  
                                  13,899,544
                                  
                                  
                                  
                                  15,718,133
                                  
                                  
                                  
                                  8,454,610Other nonperforming
      assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,900
                                  
                                  
                                  
                                  -Total non-performing
      assets
                                  
                                  $
                                  70,651,208
                                  
                                  
                                  $
                                  79,041,199
                                  
                                  
                                  $
                                  67,793,218Ratio of non-performing loans to
      total loans receivable
                                  
                                  
                                  5.11
                                  %
                                  
                                  
                                  5.53
                                  %
                                  
                                  
                                  5.16
                                  %Ratio of non-performing assets to
      totals assets
                                  
                                  
                                  5.16
                                  %
                                  
                                  
                                  5.51
                                  %
                                  
                                  
                                  4.82
                                  %Ratio of allowance for loan losses
      to non-performing loans
                                  
                                  
                                  46.68
                                  %
                                  
                                  
                                  36.20
                                  %
                                  
                                  
                                  34.68
                                  %Excluding troubled debt
      restructurings that are current underrestructured terms and related
      allowance for loan losses:Ratio of non-performing loans to
      total loans receivable
                                  
                                  
                                  3.00
                                  %
                                  
                                  
                                  2.83
                                  %
                                  
                                  
                                  3.19
                                  %Ratio of non-performing assets to
      totals assets
                                  
                                  
                                  3.45
                                  %
                                  
                                  
                                  3.36
                                  %
                                  
                                  
                                  3.21
                                  %Ratio of allowance for loan losses
      to non-performing loans
                                  
                                  
                                  79.59
                                  %
                                  
                                  
                                  70.48
                                  %
                                  
                                  
                                  55.94
                                  %
  - 31
-
  Non-performing
assets decreased $8.4 million to $70.7 million at March 31, 2010 compared with
$79.0 million at December 31, 2009 primarily the result of an $8.0 million
decrease in troubled debt restructurings and a $1.8 million decrease in real
estate acquired through in settlement of loans, partially offset by a $1.6
million increase in non-accrual loans.  For the six-month period,
non-performing assets increased $2.9 million from $67.8 million at September 30,
2009, primarily as the result of a $5.4 million increase in real estate
acquired in settlement of loans
anda$2.1 million
increase in troubled debt restructurings,partially offset by a $4.3
million decrease in non-accrual loans.
  A loan is classified as a troubled debt
restructuring if the Company, for economic or legal reasons related to the
borrower’s financial difficulties, grants a concession to the borrower that it
would not otherwise consider.  A loan classified as a troubled debt
restructuring willbe
included in non-performing assetsuntil the borrower demonstrates the
ability to pay under the terms of the restructured note through a sustained
period of repayment performance.  Interest income on restructured
loans is accrued at the reduced rate once the borrower demonstrates the ability
to pay under the terms of the restructured note through a sustained period of
repayment performance.
  Restructured residential loans totaled
$28.4million at March 31,
2010 compared with $31.4 million at December 31, 2009 and $25.2 million at
September 30, 2009.Management continued its efforts to
proactively modify loan repayment terms with residential borrowers who were
experiencing financial difficulties in the current economic climate with the
belief that these actions would maximize theBank’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.  During the three and six
months ended March 31, 2010, the Company restructured approximately $4.2 million
and $13.9million, respectively, of loans to
troubled residential borrowers and returned approximately $6.2 million and
$7.9million, respectively, of previously
restructured residential loans to performing status as the result of the
borrowers’ favorable performance history since restructuring.  At
March 31,2010,
$28.4million, or 77%of total restructured loans, related to
residential borrowers compared with $31.4 million, or 70% of total restructured
loans, at December 31, 2009 and $25.2million, or72% of total restructured loans, at
September 30, 2009.  At March 31, 2010,65%of these residential borrowers were
performing as agreed under the modified terms of the loans compared with 83% at
December 31, 2009 and85% at September 30, 2009.  The
decline in the percentage of restructured residential loans that were performing
under their modified terms was primarily the result of returning a portionofsuch loans to performing status during
the three- and six-monthsended March 31, 2010.
  Restructuredcommercialloanstotaled $8.6million at March 31, 2010 compared with$13.6million at December 31, 2009 and
$9.7million at September
30, 2009.Contributing to the decrease
in commercial troubled debt restructurings during the March 2010 quarter was a$3.8 million partial charge-off of the Company’s largest
non-performing asset, a commercial real estate loan secured by a strip shopping
center in Naples, Florida.  Although the Company’s lending practices
generally limit lending outside of its two primary market areas, St. Louis and
Kansas City, the loan was made to one of the Company’s St. Louis-based
customers who had historically demonstrated successful
performance.  The charge-off was determined to be necessary as the
Company acquired the property in settlement of the debt and subsequently sold
the property for cash during May 2010.
  Also contributing to the fluctuations in
troubled debt restructuringsand non-accrual loansduring the six-month period was the
restructuring of a commercial relationship secured by a high-rise, residential
condominium development in the St. Louis metropolitan area.  The loan
was restructured during the December 2009 quarter because of the borrower’s
weakened financial condition.  The terms of the restructuring
primarily included an extension of the maturity date of the loan.  The
balance of the loan at September 30, 2009 was $5.4 million, which was included
in non-accrual loans.  The balance of the loan had paid down to
$4.7million and $4.5 million at March 31,
2010 and December 31, 2009, respectively, and was included in troubled debt
restructurings on a non-accrual basis.
  Loans are placed on non-accrual status
when, in the opinion of management, there is reasonable doubt as to the
collectability of interest or principal.  Management considers many
factors before placing a loan on non-accrual, including the overall financial
condition of the borrower, the progress of management’s collection efforts and
the value of the underlying collateral.
  - 32
-
  Non-accrual
loans totaled $19.7 million at March 31, 2010 compared with $18.1 million at
December 31, 2009 and $24.0 million at September 30, 2009.  The
increase during the three-month period was primarily due a $4.0 million increase
in non-accrual commercial loans partially offset by a $2.3 million decrease in
non-accrual residential loans resulting primarily from the restructuring,
foreclosure or charge-off of such loans, as appropriate.  The decrease
during the six-month period was primarily the result of the restructuring of the
commercial loan discussed above
that wassecured by a
high-rise, residential condominium development.  The restructuring resulted
in a decrease in non-accrual loans and a corresponding increase in troubled debt
restructurings.
  Real estate acquired in settlement of
loansincreasedto $13.9million atMarch 31, 2010compared with $8.5 million at September
30, 2009, but decreased
from $15.7 million at December 31, 2009.The increase during the six-month period
was the result oftheforeclosure, during the
December 2009 quarter,on a
commercial loan secured by a retail strip shopping center in the St. Louis
metropolitan area resulting ina $1.8 millioncharge-offand a $6.8million increase in real estate
acquired in settlement of loans.The decrease during the three months
ended March 31, 2010 was the result of sales activity and the$826,000
write-down during March 2010 of a parcel of raw ground, which was acquired
through foreclosure in a prior period, due to an estimated decline in its fair
market value based on a new appraisal.
  Real estate foreclosure losses and expense was$905,000and $1.3 millionfor thethree and six monthsendedMarch 31,2010, respectively, comparedwith $409,000and $751,000for thesame 2009 periods,
respectively.Real estate foreclosure losses and
expense includes realized losses on the final disposition of foreclosed
properties, additional write-downs for declines in the fair market values of
properties subsequent to foreclosure, and expenses incurred in connection with
maintaining the properties until they are sold.  Theincreasedexpensefor the 2010 periodswasprimarily the result of an$826,000 write-down of a parcel of raw ground discussed
above.
  - 33
-
  The
following table summarizes the activity in the allowance for loan losses for the
period indicated.
 
 Three Months
      Ended
                      
                      
                      Six Months
      EndedMarch 31,
                      
                      
                      March 31,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Balance, beginning of
      period
                      
                      $
                      22,922,608
                      
                      
                      $
                      15,663,958
                      
                      
                      $
                      20,579,170
                      
                      
                      $
                      12,761,532Provision charged to
      expense
                      
                      
                      11,240,000
                      
                      
                      
                      5,664,407
                      
                      
                      
                      17,314,000
                      
                      
                      
                      10,355,985Charge-offs:Residential real
      estate first mortgage
                      
                      
                      328,498
                      
                      
                      
                      1,288,669
                      
                      
                      
                      1,259,411
                      
                      
                      
                      2,322,210Residential real
      estate second mortgage
                      
                      
                      304,867
                      
                      
                      
                      206,909
                      
                      
                      
                      490,804
                      
                      
                      
                      462,479Home equity
      lines of credit
                      
                      
                      668,629
                      
                      
                      
                      778,673
                      
                      
                      
                      1,394,278
                      
                      
                      
                      1,237,853Land acquisition
      and development
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      326,590
                      
                      
                      
                      -Real estate
      construction & development
                      
                      
                      444,529
                      
                      
                      
                      458,400
                      
                      
                      
                      1,880,842
                      
                      
                      
                      466,703Commercial &
      multi-family real estate
                      
                      
                      3,938,315
                      
                      
                      
                      -
                      
                      
                      
                      3,938,315
                      
                      
                      
                      -Commercial &
      industrial
                      
                      
                      2,057,042
                      
                      
                      
                      107,394
                      
                      
                      
                      2,130,264
                      
                      
                      
                      130,971Consumer and
      other
                      
                      
                      32,100
                      
                      
                      
                      31,522
                      
                      
                      
                      107,558
                      
                      
                      
                      75,004Total
      charge-offs
                      
                      
                      7,773,980
                      
                      
                      
                      2,871,567
                      
                      
                      
                      11,528,062
                      
                      
                      
                      4,695,220Recoveries:Residential real
      estate first mortgage
                      
                      
                      52,743
                      
                      
                      
                      3,591
                      
                      
                      
                      53,728
                      
                      
                      
                      9,472Residential real
      estate second mortgage
                      
                      
                      28,773
                      
                      
                      
                      185
                      
                      
                      
                      29,865
                      
                      
                      
                      508Home equity
      lines of credit
                      
                      
                      3,308
                      
                      
                      
                      3,482
                      
                      
                      
                      6,814
                      
                      
                      
                      11,544Real estate
      construction & development
                      
                      
                      5,000
                      
                      
                      
                      -
                      
                      
                      
                      5,000
                      
                      
                      
                      -Commercial and
      multi-family real estate
                      
                      
                      5,000
                      
                      
                      
                      -
                      
                      
                      
                      10,253
                      
                      
                      
                      14,283Commercial &
      industrial
                      
                      
                      5,234
                      
                      
                      
                      -
                      
                      
                      
                      15,805
                      
                      
                      
                      -Consumer and
      other
                      
                      
                      5,077
                      
                      
                      
                      3,479
                      
                      
                      
                      7,190
                      
                      
                      
                      9,431Total
      recoveries
                      
                      
                      105,135
                      
                      
                      
                      10,737
                      
                      
                      
                      128,655
                      
                      
                      
                      45,238Net
      charge-offs
                      
                      
                      7,668,845
                      
                      
                      
                      2,860,830
                      
                      
                      
                      11,399,407
                      
                      
                      
                      4,649,982Balance,
      end of period
                      
                      $
                      26,493,763
                      
                      
                      $
                      18,467,535
                      
                      
                      $
                      26,493,763
                      
                      
                      $
                      18,467,535
 
 The
provision for loan losses for the three and six months ended March 31, 2010 was
$11.2 million and $17.3 million, respectively, compared with $5.7 million and
$10.4 million in the same 2009 periods, respectively.  The increased
provisions over the prior-year amounts were primarily due to increased
charge-offs, reflecting the impact of the adverse economic climate on the
Company’s borrowers, and the increase in certain loss factors in the Company’s
general valuation allowance model, reflecting the risks in the Company’s loan
portfolio resulting from decreases in real estate values in certain geographic
regions where the Bank has originated loans, the continued elevated level of
unemployment, the level of non-performing loans and the increase in loan
charge-offs.
  Net
charge-offs for the three- and six-month periods ended March 31, 2010 totaled
$7.7 million, or 2.71% of average loans on an annualized basis, and $11.4
million, or 2.00% of average loans on an annualized basis, respectively,
compared with $2.9 million, or 0.98% of average loans on an annualized basis,
and $4.6 million, or 0.81% of average loans on an annualized basis, for the same
periods a year ago, respectively.  Net charge-offs in the March 2010
quarter included $6.4 million of charge-offs on commercial loans, including
the $3.7 million charge-off related to the commercial real estate loan secured
by a strip shopping center discussed above, $552,000 of charge-offs on first and
second mortgage residential loans and $665,000 of charge-offs on home equity
lines of credit.  Commercial loan charge-offs also included a
$1.2 million total charge-off of a loan secured by a partnership interest
in a mixed use real estate construction project due to the weak financial
condition of the borrower and the project’s slow sales
activity.  Management adheres to specific loan underwriting guidelines
focusing primarily on residential and commercial real estate and home equity
loans secured by one- to four-family and commercial properties within its
primary market areas.  Because a large portion of the Company’s loan
portfolio is collateralized by real estate, losses occur more frequently when
property values are declining and borrowers are losing equity in the underlying
collateral.  Recent declines in residential real estate values in the
Company’s market areas, as well as nationally, contributed to the increased
charge-offs in the 2010 period.
  - 34
-
  The ratio of the allowance for loan
losses to loans receivablewas2.39%atMarch 31, 2010compared with2.00% at December 31, 2009 and1.79% at September 30,
2009.  The ratio of the allowance for loan losses to non-performing
loanswas46.68%atMarch 31, 2010compared with36.20% at December 31, 2009 and34.68% at September 30,
2009.  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 loanswas 79.59%atMarch31, 2010compared with70.48% at December 31, 2009 and55.94% at September 30,
2009.  Management believes the changes in this coverage ratio are
appropriate due to a change in the mix of non-performing loans during the
period, specifically increased troubled debt restructurings that were performing
under their restructured terms.
  The
Company maintains the allowance for loan losses to absorb probable losses in the
Company’s loan portfolio.   Loan losses are charged against and
recoveries are credited to the allowance.  Provisions for loan losses
are charged to income and credited to the allowance in an amount necessary to
maintain an appropriate allowance given risks identified in the
portfolio.  The allowance is based upon management’s quarterly
estimates of probable losses inherent in the loan
portfolio.  Management’s estimates are determined through a method of
quantifying certain risks in the portfolio that are affected primarily by
changes in the composition and size of the portfolio combined with an analysis
of past due and classified loans, and can also be affected by the following
factors:  changes in lending policies and procedures, including
underwriting standards and collections, charge-off and recovery practices,
changes in national and local economic conditions and developments, assessment
of collateral values based on independent appraisals, and changes in the
experience, ability, and depth of lending management staff.
  The
following assessments are performed quarterly in accordance with the Company’s
allowance for loan losses methodology:
  Homogeneous
residential mortgage loans are given one of five standard risk ratings at the
time of origination.  The risk ratings are assigned through the use of
a credit scoring model, which assesses credit risk determinants from the
borrower’s credit history, the loan-to-value, debt-to-income ratios or other
personal history.  The Company’s historical loss rates and industry
data for each credit rating, adjusted as described below, are used to determine
the appropriate allocation percentage for each loan grade.  Commercial
real estate, consumer and home equity loans are assigned standard risk
weightings that determine the allocation percentage.
  When
commercial loans are over 30 days delinquent or residential, consumer and home
equity loans are over 90 days past due, they are evaluated individually for
impairment.  Additionally, loans that demonstrate credit weaknesses
that may impact the borrower’s ability to repay or the value of the collateral
are also reviewed individually for impairment.  The Company considers
a loan to be impaired when management believes it will be unable to collect all
principal and interest due according to the contractual terms of the
loan.  If a loan is determined to be impaired, the Company establishes
an allowance for loan losses equal to the excess of the loan’s carrying value
over the present value of estimated future cash flows or the fair value of
collateral if the loan is collateral dependent.
  The
Company’s methodology includes factors that allow the Company to adjust its
estimates of losses based on the most recent information
available.  Historical loss rates used to determine the allowance are
adjusted to reflect the impact of current conditions, including actual
collection and charge-off experience.
  Management
believes that the amount maintained in the allowance will be adequate to absorb
probable losses inherent in the portfolio.  Although management
believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.  While management believes it has
established the allowance for loan losses in accordance with U.S. generally
accepted accounting principles, there can be no assurance that the Bank’s
regulators, in reviewing the Bank’s loan portfolio, will not request the Bank to
increase its allowance for loan losses or downgrade the risk classifications of
additional loans, which could result in a higher provision for loan losses for
such loans.  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 could adversely affect the Company’s financial
condition and results of operations.
  - 35
-
  FINANCIAL CONDITION
  Cash and cash
equivalentsincreased to $54.7 million at March 31, 2010 from $37.5
million at September 30, 2009.  Federal funds sold and overnight
interest-bearing deposit accounts increased to $47.4 million at March 31, 2010
compared with $33.5 million at September 30, 2009.  A portion of the
funds received from the proceeds of the sale of mortgage loans held for sale
were held on a short-term basis in Federal funds sold pending their investment
in new loan originations.
  Debt securities
available for sale increased to $3.5 million at March 31, 2010 from $2.0
million at September 30, 2009.  Mortgage-backed
securities available for sale decreased to $13.4 million at March 31,
2010 from $16.1 million at September 30, 2009, while mortgage-backed
and related securities held to maturity decreased to $11.4 million at
March 31, 2010 from $12.1 million at September 30, 2009.  Such
securities are primarily held as collateral to secure large commercial and
municipal deposits.  The total balance held in these securities is
adjusted as individual securities mature to reflect fluctuations in the balances
of the deposits they are securing.
  Stock in the
Federal Home Loan Bank of Des Moinesdecreased $7.3 million to $4.3
million at March 31, 2010 from $11.6 million at September 30,
2009.  The Bank is generally required to hold stock equal to 5% of its
total FHLB borrowings.  However, effective in December 2008, the FHLB
temporarily suspended redemptions of its stock when members reduced their
outstanding borrowings.  The FHLB subsequently resumed the redemptions
of excess stock in December 2009.
  Prepaid expenses,
accounts receivable and other assetsincreased $6.5 million to $17.4
million at March 31, 2010 from $10.9 million at September 30, 2009 primarily as
the result of the prepayment of FDIC deposit insurance premiums.  On
November 12, 2009, the FDIC adopted a final rule requiring insured depository
institutions to prepay their estimated quarterly risk-based assessments for the
fourth quarter of 2009, and for all of 2010, 2011 and 2012, on December 30,
2009, along with each institution's risk-based deposit insurance assessment for
the third quarter of 2009.  The amount paid on December 30, which
totaled $7.3 million, was recorded as a prepaid asset and will be charged to
expense during the future periods to which it relates.
  Advances from
the Federal Home Loan
Bank of Des Moinesdecreased to $59.5 million at March 31, 2010 from
$61.0 million at September 30, 2009.  The Company supplements its
primary funding source, retail deposits, with wholesale funding sources
consisting of borrowings from the FHLB, short-term borrowings from the Federal
Reserve Bank of St. Louis and brokered certificates of deposit acquired on
a national level.  Management chooses between these wholesale funding
sources depending on their relative costs.  See Liquidity and Capital
Resources.
  Advance
paymentsby borrowers for taxes and insurancerepresent insurance and real estate tax
payments collected from borrowers on loans serviced by the Bank.  The
balancedecreased
$2.4million to
$2.2 millionatMarch31, 2010comparedwith $4.7 million at September 30, 2009due to the payment of real estate taxes in December 2009.
  Total
stockholders’ equity decreased $4.9 million to $112.0 million at March
31, 2010 from $116.7 million at September 30, 2009 primarily as the result
of the net loss for the period.  Also decreasing stockholders’ equity
were common stock dividend payments of $2.0 million and preferred stock
dividends of $813,000, partially offset by increases in stockholders’ equity
resulting from common stock issued under the Company’s dividend reinvestment
plan totaling $440,000, the amortization of equity trust expense of $311,000 and
the amortization of stock option and award expense of $305,000.
  - 36
-
  LIQUIDITY AND CAPITAL
RESOURCES
  The
Company primarily funds its assets with deposits from its retail and commercial
customers.  If the Bank or the Company requires funds beyond their
ability to generate them internally, the Bank has the ability to borrow funds
from the FHLB and the Federal Reserve Bank and to raise certificates of deposit
on a national level through broker relationships.  Management chooses
among these wholesale funding sources depending on their relative costs, the
Company’s overall interest rate risk exposure and the Company’s overall
borrowing capacity at the FHLB and the Federal Reserve Bank.  At March
31, 2010, the combined balance of borrowings from the FHLB, borrowings from the
Federal Reserve Bank and brokered deposits totaled $67.9 million, had a
weighted-average interest rate of 3.54%, a weighted average maturity of
approximately 33 months and represented 5% of total assets.  At
September 30, 2009, these combined balances totaled $144.5 million, had a
weighted-average interest rate of 2.97%, a weighted average maturity of
approximately 20 months and represented 10% of total assets.  Use of
these funds has given the Company an alternative source to support its asset
growth while avoiding, when necessary, aggressive deposit pricing strategies
used from time to time by some of its competitors in its market.  In
addition, because approximately two-thirds of the Company’s assets are scheduled
to mature or reprice within one year, the use of these wholesale funds has given
management a low-cost means to maximize net interest income and manage
interest-rate risk by providing the Company greater flexibility to control the
interest rates and maturities of these funds, as compared to
deposits.  This increased flexibility has allowed the Company to
better respond to fluctuations in the interest rate environment and demand for
its loan products, especially mortgage loans held for sale that are awaiting
final settlement (generally within 30 days) with Company’s
investors.  While the Company effectively utilized wholesale funding
to support its asset growth in recent years, controlled growth in core deposits
and retail certificates of deposit during the six months ended March 31, 2010
allowed the Company to reduce its use of such wholesale funding from a high
during fiscal year 2009 of approximately 27% of total assets.
  The
borrowings from the FHLB are obtained under a blanket agreement, which assigns
all investments in FHLB stock, qualifying first residential mortgage loans,
residential mortgage loans held for sale and home equity loans with a 90% or
less loan-to-value ratio as collateral to secure the amounts
borrowed.  Total borrowings from the FHLB are subject to limitations
based upon a risk assessment of the Bank.  At March 31, 2010, the Bank
had approximately $194.1 million in additional borrowing authority under
the arrangement with the FHLB in addition to the $59.5 million in advances
outstanding at that date.
  Borrowings
from the Federal Reserve Bank consist of short-term borrowings (generally
maturing overnight or within 28 days) borrowed under the Bank’s primary credit
line at the Federal Reserve’s Discount Window and its Term Auction
Facility.  At March 31, 2010, the Company had approximately
$98.1 million in total borrowing authority under this arrangement with no
borrowings outstanding and had approximately $153.3 million of commercial loans
pledged as collateral under this agreement.
  At March
31, 2010, the Bank had outstanding commitments to originate loans totaling
$143.3 million and commitments to sell loans totaling $196.2
million.  Certificates of deposit totaling $314.9 million at March 31,
2010 were scheduled to mature in one year or less.  Based on past
experience, management believes the majority of certificates of deposit maturing
in one year or less will remain with the Bank.
  The
Company is a legal entity, separate and distinct from the Bank, which must
provide its own liquidity to meet its operating needs.  In addition to
funding its operating expenses, the Company pays cash dividends to its common
and preferred shareholders and interest and principal on outstanding
debt.  A large portion of the Company’s liquidity is obtained from the
Bank in the form of dividends.  OTS regulations impose limitations
upon payment of capital distributions from the Bank to the
Company.  Under the regulations, the prior approval of the OTS is
required prior to any capital distribution if the total capital distributions
for the calendar year exceed net income for that year plus the amount of
retained net income for the preceding two years or if the Bank would be
undercapitalized following the distribution.
 
 SOURCES
AND USES OF CASH
  The
Company is a large originator of residential mortgage loans with substantially
all of such loans sold in the secondary residential mortgage
market.  Consequently, the primary source
and use of cash in operations is the origination and subsequent sale of
mortgage loans held for sale.  During the six months ended March 31,
2010, the origination of mortgage loans held for sale used $781.8 million of
cash and the sales of such loans provided cash totaling $798.5 million compared
with originations and sales totaling $899.5 million and $866.7 million,
respectively, during the six months ended March 31, 2009.
  - 37
-
  The
primary use of cash frominvesting
activities is the origination of loans receivable which are held in
portfolio.  During the six months ended March 31, 2010, the Company
had a net decrease in loans receivable of $17.9 million compared with an
increase of $100.0 million for the six months ended March 31,
2009.  In addition, the Company purchased $13.5 million in debt
securities during the six months ended March 31, 2010 compared with purchases of
$56.7 million in debt securities and $7.0 million in mortgage-backed securities
during the six months ended March 31, 2009.  Sources of cash from
investing activities also included maturities of debt securities totaling
$12.0 million during the six months ended March 31, 2010 compared with
maturities and sales of debt securities of $1.0 million and $51.1 million,
respectively, during the six months ended March 31, 2009.
  The
Company’s primary sources and uses of funds from financing
activities during the six months ended March 31, 2010 included a
$27.5 million decrease in deposits compared with a $179.6 million increase
for the six months ended March 31, 2009, and a $1.5 million decrease in advances
from the Federal Home Loan Bank during the six months ended March 31, 2010
compared with a $124.5 million decrease during the same period last
year.  Other significant sources and uses of cash from financing
activities for the six months ended March 31, 2009 included a $90.0 million
increase in borrowings from the Federal Reserve, a $7.6 million decrease in
notes payable, and a $14.4 million decrease in due to other banks.  A
significant source of funds from financing activities for the six months ended
March 31, 2009 were proceeds from the issuance of preferred stock totaling $32.5
million.
  The
following table presents the maturity structure of time deposits and other
maturing liabilities at March 31, 2010:
  March
      31, 2010FederalCertificates
                                            
                                            
                                            FHLB
                                            
                                            
                                            Reserve
                                            
                                            
                                            Subordinatedof
      Deposit
                                            
                                            
                                            Borrowings
                                            
                                            
                                            Borrowings
                                            
                                            
                                            Debentures(In
      thousands)Maturing
      in:Three
      months or less
                                            
                                            $
                                            124,616
                                            
                                            
                                            $
                                            30,500
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Over
      three months through six months
                                            
                                            
                                            80,734
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Over
      six months through twelve months
                                            
                                            
                                            109,526
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Over
      twelve months
                                            
                                            
                                            127,392
                                            
                                            
                                            
                                            29,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            19,589Total
                                            
                                            $
                                            442,268
                                            
                                            
                                            $
                                            59,500
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            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 March 31, 2010 are as follows:
  Less than one
      year
                      
                      $
                      595,751Over 1 year through 3
      years
                      
                      
                      1,174,956Over 3 years through 5
      years
                      
                      
                      1,163,268Over 5
years
                      
                      
                      1,772,927Total
                      
                      $
                      4,706,902
  REGULATORY
CAPITAL
  The Bank
is required to maintain specific amounts of capital pursuant to Office of Thrift
Supervision (“OTS”) regulations on minimum capital standards.  The
OTS’s minimum capital standards generally require the maintenance of regulatory
capital sufficient to meet each of three tests, hereinafter described as the
tangible capital requirement, the Tier I (core) capital requirement and the
risk-based capital requirement.  The tangible capital requirement
provides for minimum tangible capital (defined as stockholders’ equity less all
intangible assets) equal to 1.5% of adjusted total assets.  The Tier I
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible assets)
equal to 4.0% of adjusted total assets.  The risk-based capital
requirement provides for the maintenance of core capital plus a portion of
unallocated loss allowances equal to 8.0% of risk-weighted assets.  In
computing risk-weighted assets, the Bank multiplies the value of each asset on
its balance sheet by a defined risk-weighting factor (e.g., one-to four-family
conventional residential loans carry a risk-weighting factor of
50%).
  - 38
-
  The
following table illustrates the Bank’s actual regulatory capital levels compared
with its regulatory capital requirements at March 31, 2010 and September 30,
2009.
  To be Categorized
      as"Well
      Capitalized"Under
PromptFor Capital
                                    
                                    
                                    Corrective
      ActionActual
                                    
                                    
                                    Adequacy
      Purposes
                                    
                                    
                                    ProvisionsAmount
                                    
                                    
                                    Ratio
                                    
                                    
                                    Amount
                                    
                                    
                                    Ratio
                                    
                                    
                                    Amount
                                    
                                    
                                    Ratio(Dollars in
      thousands)As of March 31,
      2010:Tangible capital (to
      total assets)
                                    
                                    $
                                    125,682
                                    
                                    
                                    
                                    9.22
                                    %
                                    
                                    $
                                    20,442
                                    
                                    
                                    
                                    1.50
                                    %
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    N/ATotal risk-based
      capital (to risk-weighted
      assets)
                                    
                                    
                                    139,909
                                    
                                    
                                    
                                    12.37
                                    %
                                    
                                    
                                    90,487
                                    
                                    
                                    
                                    8.00
                                    %
                                    
                                    $
                                    113,109
                                    
                                    
                                    
                                    10.00
                                    %Tier I risk-based
      capital (to risk-weighted
      assets)
                                    
                                    
                                    125,682
                                    
                                    
                                    
                                    11.11
                                    %
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    67,865
                                    
                                    
                                    
                                    6.00
                                    %Tier I leverage
      capital (to averageassets)
                                    
                                    
                                    125,682
                                    
                                    
                                    
                                    9.22
                                    %
                                    
                                    
                                    54,513
                                    
                                    
                                    
                                    4.00
                                    %
                                    
                                    
                                    68,141
                                    
                                    
                                    
                                    5.00
                                    %As of September 30,
      2009:Tangible capital (to
      total assets)
                                    
                                    $
                                    128,750
                                    
                                    
                                    
                                    9.19
                                    %
                                    
                                    $
                                    21,004
                                    
                                    
                                    
                                    1.50
                                    %
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    N/ATotal risk-based
      capital (to risk-weighted
      assets)
                                    
                                    
                                    143,297
                                    
                                    
                                    
                                    12.33
                                    %
                                    
                                    
                                    92,943
                                    
                                    
                                    
                                    8.00
                                    %
                                    
                                    $
                                    116,179
                                    
                                    
                                    
                                    10.00
                                    %Tier I risk-based
      capital (to risk-weighted
      assets)
                                    
                                    
                                    128,750
                                    
                                    
                                    
                                    11.08
                                    %
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    69,707
                                    
                                    
                                    
                                    6.00
                                    %Tier I leverage
      capital (to averageassets)
                                    
                                    
                                    128,750
                                    
                                    
                                    
                                    9.19
                                    %
                                    
                                    
                                    56,010
                                    
                                    
                                    
                                    4.00
                                    %
                                    
                                    
                                    70,012
                                    
                                    
                                    
                                    5.00
                                    %
  EFFECTS
OF INFLATION
  Changes
in interest rates may have a significant impact on a bank’s performance because
virtually all assets and liabilities of banks are monetary in
nature.  Interest rates do not necessarily move in the same direction
or in the same magnitude as the prices of goods and
services.  Inflation does have an impact on the growth of total assets
in the banking industry, often resulting in a need to increase equity capital at
higher than normal rates to maintain an appropriate equity to asset
ratio.  The Company’s operations are not currently impacted by
inflation.
  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 AND
OFF-BALANCE SHEET ARRANGEMENTS
  There
have been no material changes in the Company's quantitative or qualitative
aspects of market risk during the quarter ended March 31, 2010 from those
disclosed in the Company's Annual Report on Form 10-K for the year ended
September 30, 2009.
  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 six months ended March 31, 2010, the Company did not engage in any
off-balance-sheet transactions reasonably likely to have a material effect on
its financial condition, results of operations or cash flows.
 
 The
Company originates and purchases derivative financial instruments, including
interest rate lock commitments and, in prior periods, interest rate
swaps.  Derivative financial instruments originated by the Company
consist of interest rate lock commitments to originate residential real estate
loans.  At March 31, 2010, the Company had issued $143.3 million of
unexpired interest rate lock commitments to loan customers compared with $147.8
million of unexpired commitments at September 30, 2009.
  - 39
-
 
 The
Company entered into two $14 million notional value interest-rate swap contracts
during 2008.  These contracts supported a $14 million, variable-rate,
commercial loan relationship and were used to allow the commercial loan customer
to pay a fixed interest rate to the Bank, while the Bank, in turn, charged the
customer a floating interest rate on the loan.  Under the terms of the
swap contract between the Bank and the loan customer, the customer pays the Bank
a fixed interest rate of 6.58%, while the Bank pays the customer a variable
interest rate of one-month LIBOR plus 2.30%.  Under the terms of a
similar but separate swap contract between the Bank and a major securities
broker, the Bank pays the broker a fixed interest rate of 6.58%, while the
broker pays the Bank a variable interest rate of one-month LIBOR plus
2.30%.  The two contracts have identical terms and are scheduled to
mature on May 15, 2015.  While these two swap derivatives generally
work together as an interest-rate hedge, the Company has not designated them for
hedge accounting treatment.  Consequently, both derivatives are marked
to fair value through either a charge or credit to current earnings, the net
effect of which offset one another during the six months ended March 31,
2010.  The fair values of these derivative instruments recorded in
other assets and other liabilities in the Company’s financial statements at
March 31, 2010 and September 30, 2009 were $1.1 million and $1.2 million,
respectively.
  CONTROLS
AND PROCEDURES
  The Companymaintains
“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 Companyfiles or submits
under the Exchange Act with the Securities and Exchange Commission (the “SEC”)
(1) is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (2) is accumulated and communicated
to the Company’s
management including its principal executive and principal financial officers as
appropriate to allow timely decisions regarding required
disclosure.
  During
the quarter ended March 31, 2010, the Company’s management,
including its principal
executive officer and principal financial officer, evaluated the effectiveness
of the Company’s
disclosure controls and procedures as of March 31, 2010, and concluded that
the Company’s disclosure
controls and procedures were effective as of such date.
 
 There
have been no changes in the Company’s internal control over financial reporting
during the quarter ended March 31, 2010 that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting.
  IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS
  In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Business Combinations, which
was subsequently incorporated into Accounting Standards Codification TM (“ASC”)
Topic 805, Business
Combinations, significantly changing how entities apply the acquisition
method to business combinations. The most significant changes affecting how
entities account for business combinations under ASC Topic 805 include: (a) the
acquisition date is the date the acquirer obtains control; (b) all (and only)
identifiable assets acquired, liabilities assumed, and non-controlling interests
in the acquiree are stated at fair value on the acquisition date; (c) assets or
liabilities arising from non-contractual contingencies are measured at their
acquisition date fair value only if it is more likely than not that they meet
the definition of an asset or liability on the acquisition date; (d) adjustments
subsequently made to the provisional amounts recorded on the acquisition date
are made retroactively during a measurement period not to exceed one year; (e)
acquisition-related restructuring costs that do not meet the criteria in SFAS
No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which was subsequently
incorporated into ASC Topic 420, Exit or Disposal Cost
Obligations, are expensed as incurred; (f) transaction costs are expensed
as incurred; (g) reversals of deferred income tax valuation allowances and
income tax contingencies are recognized in earnings subsequent to the
measurement period; and (h) the allowance for loan losses of an acquiree is not
permitted to be recognized by the acquirer. Additionally, ASC Topic 805 requires
new and modified disclosures surrounding subsequent changes to
acquisition-related contingencies, contingent consideration, non-controlling
interests, acquisition-related transaction costs, fair values and cash flows not
expected to be collected for acquired loans, and an enhanced goodwill
rollforward. ASC Topic 805 is effective for all business combinations completed
on or after January 1, 2009. For business combinations in which the acquisition
date was before the effective date, the provisions of ASC Topic 805 apply to the
subsequent accounting for deferred income tax valuation allowances and income
tax contingencies and will require any changes in those amounts to be recorded
in earnings. The adoption of ASC Topic 805 did not have a material impact on the
Company’s financial condition, results of operations or the disclosures that are
presented in its consolidated financial statements.
  - 40
-
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51, which was
subsequently incorporated into ASC Topic 810, Consolidation. ASC Topic 810
establishes new accounting and reporting standards for noncontrolling interests
in a subsidiary and for the deconsolidation of a subsidiary. ASC Topic 810
requires entities to classify noncontrolling interests as a component of
stockholders’ equity and requires subsequent changes in ownership interests in a
subsidiary to be accounted for as an equity transaction. Additionally, ASC Topic
810 requires entities to recognize a gain or loss upon the loss of control of a
subsidiary and to remeasure any ownership interest retained at fair value on
that date. ASC Topic 810 also requires expanded disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. ASC Topic 810 is effective on a prospective basis
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, except for the presentation and disclosure
requirements, which are required to be applied retrospectively. The
implementation of ASC Topic 810 did not have a material impact on the Company’s
financial condition or results of operations.
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was subsequently incorporated
into ASC Topic 815, Derivatives and Hedging. ASC
Topic 815 requires entities to provide greater transparency about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under ASC Topic 815 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, results of operations and cash flows. To
meet those objectives, ASC Topic 815 requires (1) qualitative disclosures about
objectives for using derivatives by primary underlying risk exposure and by
purpose or strategy (fair value hedge, cash flow hedge, and non-hedges), (2)
information about the volume of derivative activity in a flexible format that
the preparer believes is the most relevant and practicable, (3) tabular
disclosures about balance sheet location and gross fair value amounts of
derivative instruments, income statement and other comprehensive income location
of gain and loss amounts on derivative instruments by type of contract, and (4)
disclosures about credit-risk related contingent features in derivative
agreements. ASC Topic 815 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The
implementation of ASC Topic 815 did not have a material impact on the Company’s
financial condition or results of operations.
 
 In April
2009, the FASB issued FASB Staff Position (“FSP”) SFAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, which was
subsequently incorporated into ASC Topic 820, Fair Value Measurements and
Disclosures. ASC Topic 820 affirms that the definition of fair value,
when the market for an asset is not active, is the price that would be received
to sell the asset in an orderly transaction, and clarifies and includes
additional factors for determining whether there has been a significant decrease
in market activity for an asset when the market for that asset is not active.
ASC Topic 820 requires an entity to base its conclusion about whether a
transaction was not orderly on the weight of the evidence. ASC Topic 820 also
amended existing accounting guidance to expand certain disclosure requirements.
ASC Topic 820 is effective for interim and annual periods ending after June 15,
2009 and is applied prospectively. The adoption of the provisions of ASC Topic
820 during the quarter ended June 30, 2009 did not have a material impact on the
Company’s financial condition or results of operations.
 
 In April
2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, which was subsequently incorporated
into ASC Topic 320, Investments – Debt and Equity
Securities. This ASC Topic (i) changes existing guidance for determining
whether an impairment is other than temporary to debt securities and (ii)
replaces the existing requirement that the entity’s management assert it has
both the intent and ability to hold an impaired security until recovery with a
requirement that management assert: (a) it does not have the intent to sell the
security; and (b) it is more likely than not it will not have to sell the
security before recovery of its cost basis. Under ASC Topic 320, declines in the
fair value of held-to-maturity and available-for-sale securities below their
cost that are deemed to be other than temporary are reflected in earnings as
realized losses to the extent the impairment is related to credit losses. The
amount of the impairment related to other factors is recognized in other
comprehensive income. The provisions of ASC Topic 320 are effective for interim
and annual periods ending after June 15, 2009 and are applied prospectively. The
adoption of the provisions of ASC Topic 320 did not have a material impact on
the Company’s financial condition or results of operations.
  - 41
-
  In April
2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board Opinion
28-1, Interim Disclosures
about Fair Value of Financial Instruments, which were subsequently
incorporated into ASC Topic 825, Financial Instruments. This
ASC Topic amends the existing guidance to require an entity to provide
disclosures about fair value of financial instruments in interim financial
information and to require those disclosures in summarized financial information
at interim reporting periods. Under ASC Topic 825, a publicly traded company
shall include disclosures about the fair value of its financial instruments
whenever it issues summarized financial information for interim reporting
periods. In addition, entities must disclose, in the body or in the accompanying
notes of its summarized financial information for interim reporting periods and
in its financial statements for annual reporting periods, the fair value of all
financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position, as
required by ASC Topic 825. ASC Topic 825 is effective for interim periods ending
after June 15, 2009 and is applied prospectively. The adoption of the provisions
of ASC Topic 825 did not have a material impact on the Company’s financial
condition or results of operations.
 
 In May
2009, the FASB issued SFAS No. 165, Subsequent Events, which was
subsequently incorporated into ASC Topic 855, Subsequent Events. ASC Topic
855 incorporates accounting and disclosure requirements related to subsequent
events into U.S. generally accepted accounting principles (“GAAP”) making
management directly responsible for subsequent-events accounting and disclosure.
The requirements for subsequent-events accounting and disclosure are not
significantly different from those in auditing standards. ASC Topic 855 is
effective for interim and annual periods ending after June 15, 2009. The
adoption of the provisions of ASC Topic 855 did not have a material impact on
the Company’s financial condition or results of operations.
 
 In
February 2010, the FASB issued ASU 2010-09, Amendments to Certain Recognition
and Disclosure Requirements, as an amendment to ASC Topic
855.  As a result of ASU 2010-09, SEC registrants will not disclose
the date through which management evaluated subsequent events in financial
statements.  ASU 2010-09 is effective immediately for all financial
statements that have not yet been issued or have not yet become available to be
issued, or March 31, 2010 for the Company.  The adoption of ASU
2010-09 is for disclosure purposes only and did not have any effect on the
Company’s financial position or results of operations.
 
 In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an Amendment of SFAS No. 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
was subsequently incorporated into ASC Topic 860, Transfers and Servicing. SFAS
No. 166 amends ASC Topic 860 and requires more information about transfers of
financial assets, including securitization transactions and where companies have
continuing exposure to the risks related to transferred financial assets. It
eliminates the concept of a “qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets and requires additional
disclosures. SFAS No. 166 is effective for the annual period beginning after
November 15, 2009 and for interim periods within the first annual reporting
period, and must be applied to transfers occurring on or after the effective
date. The adoption of the provisions of this Topic are not expected to have a
material impact on the Company’s financial condition or results of
operations.
 
 In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R). SFAS No. 167 amends FIN 46(R), Consolidation of Variable Interest
Entities, which was subsequently incorporated into ASC Topic 810, Consolidation, to change how
a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated, and
requires additional disclosures about involvement with variable interest
entities, any significant changes in risk exposure due to that involvement and
how that involvement affects the company’s financial statements. The
determination of whether a company is required to consolidate an entity is based
on, among other things, an entity’s purpose and design and a company’s ability
to direct the activities of the entity that most significantly impact the
entity’s economic performance. The provisions of this Topic are effective for
the annual period beginning after November 15, 2009 and for interim periods
within the first annual reporting period. Management is currently evaluating the
requirements of this Topic, which are not expected to have a material impact on
the Company’s financial condition or results of operations.
  - 42
-
  In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification TM
and the Hierarchy of Generally
Accepted Accounting Principles, a Replacement of SFAS No. 162 – The Hierarchy of
Generally Accepted Accounting Principles, which was subsequently
incorporated into ASC Topic 105, Generally Accepted Accounting
Principles. The ASC establishes the source of authoritative GAAP
recognized by the FASB to be applied by non-governmental entities. Rules and
interpretive releases of the United States Securities and Exchange Commission
(“SEC”) under authority of federal securities laws, are also sources of
authoritative GAAP for SEC registrants. The ASC supersedes all then-existing
non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the ASC will become non-authoritative. ASC
Topic 105 is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The implementation of the ASC did not
have a material impact on the Company’s financial condition or results of
operations.
  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, 2009, 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.
  - 43
-
  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 March 31, 2010.
  ISSUER
PURCHASES OF EQUITY SECURITIES
 
 Period
                                          
                                          (a)
                                              Total
      Number of Shares (or Units) Purchased (1)
                                          
                                          
                                          (b)
                                            Average
      Price Paid per Share (or Unit)
                                          
                                          
                                          (c)
                                              Total
      Number of Shares (or Units) Purchased as Part of Publicly Announced Plans
      or Programs (2)
                                          
                                          
                                          (d)
                                            Maximum
      Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be
      Purchased Under the Plans or Programs (2)January
      1, 2010 through
      January 31, 2010
                                          
                                          
                                          253
                                          
                                          
                                          $
                                          6.70
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          372,488February
      1, 2010 through
      February 28, 2010
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          372,488March
      1, 2010 through
      March 31, 2010
                                          
                                          
                                          1,000
                                          
                                          
                                          
                                          6.28
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          371,488Total
                                          
                                          
                                          1,253
                                          
                                          
                                          $
                                          6.36
                                          
                                          
                                          
                                          -
 
 (1)
              Total
      number of shares purchased represents shares surrendered by employees to
      satisfy tax withholding requirements upon vesting of stock
      awards.
  (2)
              In
      February 2007, the Company announced a repurchase program under which it
      would repurchase up to 497,000 shares of the Company’s common stock and
      that the repurchase program would continue until it is completed or
      terminated by the Board of Directors.  However, as part of the
      Company’s participation in the Capital Purchase Program of the U.S.
      Department of Treasury’s Troubled Asset Relief Program, prior to the
      earlier of January 16, 2012 or the date on which the preferred stock
      issued in that transaction has been redeemed in full or the Treasury has
      transferred its shares to non-affiliates, the Company cannot increase its
      quarterly cash dividend above $0.095 per share or repurchase any shares of
      its common stock, without the prior approval of the
      Treasury.  Accordingly, no shares of common stock were
      repurchased under this program during the three months ended March 31,
      2010.
  Item
      3.
              Defaults
      Upon Senior Securities: Not
applicable
  Item
      4.
              Submission
      of Matters to a Vote of Security Holders: Not
  applicable
  Item
      5.
              Other
      Information: Not applicable
  Item
      6.
              Exhibits:
  3.1
                Articles
      of Incorporation of Pulaski Financial Corp. (1)
  3.2
                Certificate
      of Amendment to Articles of Incorporation of Pulaski Financial Corp. (2)
  - 44
-
  3.3
                Certificate
      of Designations establishing Fixed Rate Cumulative Perpetual Preferred
      Stock, Series A, of Pulaski Financial Corp. (3)
  3.4
                Bylaws
      of Pulaski Financial Corp.(4)
  4.1
                Form
      of Certificate for Common Stock(5)
  4.2
              Form
      of stock certificate for Fixed Rate Cumulative Perpetual Preferred Stock,
      Series A(3)
  4.3
              Warrant
      to Purchase 778,421 Shares of Common Stock of Pulaski Financial
      Corp.(3)
  31.1
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer
  31.2
              Rule
      13a-14(a)/15d-14(a) Certification of the Chief Financial
      Officer
  32.1
              Section
      1350 Certification of Chief Executive
Officer
  32.2
              Section
      1350 Certification of Chief Financial
Officer
 (1)
                  Incorporated
      by reference into this document from the Exhibits to the 2003 proxy
      statement as filed with the Securities and Exchange Commission on December
      27, 2002.
  (2)
                  Incorporated
      by reference into this document from the Form 10-Q, as filed with the
      Securities and Exchange Commission on February 17,
  2004.
  (3)
                  Incorporated
      herein by reference into this document from the Form 8-K, as filed with
      the Securities and Exchange Commission on January 16,
  2009.
  (4)
                  Incorporated
      herein by reference from the Form 8-K, as filed with the Securities and
      Exchange Commission on December 21,
2007.
 (5)
                Incorporated
      by reference from the Form S-1 (Registration No. 333-56465), as amended,
      as filed with the Securities and Exchange Commission on June 9,
      1998.
  - 45
-
  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:
                              June 22, 2010
                              
                              /s/Gary W. DouglassGary
      W. DouglassPresident
      and Chief Executive OfficerDate:
                              June 22, 2010
                              
                              /s/Paul J. MilanoPaul
      J. MilanoChief
      Financial
Officer
 
 - 46
-