UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C.  20549




FORM
10-Q




(Mark
One)





x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)OF
      THE SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended June 30,2010





OR





 ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d)OF
      THE SECURITIES EXCHANGE ACT OF 1934





For the
transition period from ___________________ to
______________________





0-24571Commission
      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.


Yes
                x
                No
                 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈     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
                x
                Smaller
      reporting company
                 ̈(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 atAugust 11, 2010Common
      Stock, par value $.01 per share
                
                10,819,478
      shares







PULASKI
FINANCIAL CORP. AND SUBSIDIARIES




FORM
10-Q




JUNE
30, 2010




TABLE
OF CONTENTS




PagePART
      I
              FINANCIAL
      INFORMATIONItem
      1.
              Financial
      StatementsConsolidated
      Balance Sheets at June 30, 2010 and September 30, 2009
      (Unaudited)
              1Consolidated
      Statements of Operations and Comprehensive Income for the Three and Nine
      Months Ended June 30, 2010 and 2009 (Unaudited)
              2Consolidated
      Statement of Stockholders’ Equity for the Nine Months Ended June 30, 2010
      (Unaudited)
              3Consolidated
      Statements of Cash Flows for the Nine Months Ended June 30, 2010 and 2009
      (Unaudited)
              4Notes
      to Unaudited Consolidated Financial Statements
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              22Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              40Item
      4.
              Controls
      and Procedures
              41PART
      II
              OTHER
      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
              45Signatures





PART
I - FINANCIAL INFORMATION





PULASKI
FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEETS


JUNE
30, 2010 AND SEPTEMBER 30, 2009 (UNAUDITED)





June 30,
                      
                      
                      September 30,2010
                      
                      
                      2009ASSETSCash
      and amounts due from depository institutions
                      
                      $
                      3,610,141
                      
                      
                      $
                      3,911,448Federal
      funds sold and overnight interest-bearing deposits
                      
                      
                      22,019,630
                      
                      
                      
                      33,539,216Total
      cash and cash equivalents
                      
                      
                      25,629,771
                      
                      
                      
                      37,450,664Debt
      securities available for sale, at fair value
                      
                      
                      4,507,298
                      
                      
                      
                      1,997,396Mortgage-backed
      securities held to maturity, at amortized cost (fair value
      of $11,568,350 and $12,374,966 at June 30, 2010 and September 30,
      2009, respectively)
                      
                      
                      11,042,792
                      
                      
                      
                      12,077,794Mortgage-backed
      securities available for sale, at fair value
                      
                      
                      11,623,042
                      
                      
                      
                      16,087,148Capital
      stock of Federal Home Loan Bank – at cost
                      
                      
                      5,885,300
                      
                      
                      
                      11,649,800Mortgage
      loans held for sale, at lower of cost or market
                      
                      
                      161,077,687
                      
                      
                      
                      109,129,721Loans
      receivable (net of allowance for loan losses of $26,820,596 and
      $20,579,170 at June 30, 2010 and September 30, 2009,
      respectively)
                      
                      
                      1,067,465,309
                      
                      
                      
                      1,132,094,844Real
      estate acquired in settlement of loans (net of allowance for
      losses of $1,289,900 and $274,076 at June 30, 2010 and September 30,
      2009, respectively)
                      
                      
                      16,040,308
                      
                      
                      
                      8,454,610Premises
      and equipment, net
                      
                      
                      18,802,470
                      
                      
                      
                      18,962,001Goodwill
                      
                      
                      3,938,524
                      
                      
                      
                      3,938,524Core
      deposit intangible
                      
                      
                      169,420
                      
                      
                      
                      243,100Accrued
      interest receivable
                      
                      
                      4,614,834
                      
                      
                      
                      4,906,919Bank-owned
      life insurance
                      
                      
                      29,499,489
                      
                      
                      
                      28,678,679Deferred
      tax asset
                      
                      
                      11,677,769
                      
                      
                      
                      9,296,234Prepaid
      expenses, accounts receivable and other assets
                      
                      
                      16,020,119
                      
                      
                      
                      11,458,438Total
      assets
                      
                      $
                      1,387,994,132
                      
                      
                      $
                      1,406,425,872LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits
                      
                      $
                      1,145,963,369
                      
                      
                      $
                      1,191,629,239Advances
      from Federal Home Loan Bank
                      
                      
                      92,900,000
                      
                      
                      
                      61,000,000Subordinated
      debentures
                      
                      
                      19,589,000
                      
                      
                      
                      19,589,000Advance
      payments by borrowers for taxes and insurance
                      
                      
                      4,027,647
                      
                      
                      
                      4,655,867Accrued
      interest payable
                      
                      
                      849,526
                      
                      
                      
                      1,034,896Other
      liabilities
                      
                      
                      10,541,500
                      
                      
                      
                      11,555,500Total
      liabilities
                      
                      
                      1,273,871,042
                      
                      
                      
                      1,289,464,502Stockholders'
      Equity:Preferred
      stock - $.01 par value per share, 1,000,000 shares authorized; 32,538
      shares issued at June 30, 2010 and September 30, 2009, $1,000 per
      share liquidation value, net of discount
                      
                      
                      30,979,240
                      
                      
                      
                      30,655,060Common
      stock - $.01 par value per share, 18,000,000 shares
      authorized; 13,068,618 shares issued at June 30, 2010 and September
      30, 2009
                      
                      
                      130,687
                      
                      
                      
                      130,687Treasury
      stock-at cost; 2,761,485 and 2,963,817 shares at June 30, 2010
      and September 30, 2009, respectively
                      
                      
                      (17,987,672
                      )
                      
                      
                      (18,544,173
                      )Additional
      paid-in capital from common stock
                      
                      
                      56,117,631
                      
                      
                      
                      55,247,464Accumulated
      other comprehensive income, net
                      
                      
                      66,391
                      
                      
                      
                      192,773Retained
      earnings
                      
                      
                      44,816,813
                      
                      
                      
                      49,279,559Total
      stockholders’ equity
                      
                      
                      114,123,090
                      
                      
                      
                      116,961,370Total
      liabilities and stockholders’ equity
                      
                      $
                      1,387,994,132
                      
                      
                      $
                      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 NINE MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)





Three Months Ended
                
                
                Nine Months EndedJune30,
                
                
                June30,2010
                
                
                2009
                
                
                2010
                
                
                2009Interest
      and Dividend Income:Loans
      receivable
                
                $
                14,215,932
                
                
                $
                15,074,193
                
                
                $
                43,728,361
                
                
                $
                45,312,363Mortgage
      loans held for sale
                
                
                1,436,614
                
                
                
                2,047,308
                
                
                
                4,150,475
                
                
                
                4,470,530Securities
      and other
                
                
                269,123
                
                
                
                373,727
                
                
                
                938,040
                
                
                
                1,204,074Total
      interest and dividend income
                
                
                15,921,669
                
                
                
                17,495,228
                
                
                
                48,816,876
                
                
                
                50,986,967Interest
      Expense:Deposits
                
                
                3,752,590
                
                
                
                4,999,929
                
                
                
                12,718,689
                
                
                
                16,435,551Advances
      from Federal Home Loan Bank
                
                
                340,607
                
                
                
                841,363
                
                
                
                1,403,973
                
                
                
                2,927,411Borrowings
      from the Federal Reserve Bank
                
                
                226
                
                
                
                80,151
                
                
                
                484
                
                
                
                295,082Subordinated
      debentures
                
                
                126,846
                
                
                
                171,368
                
                
                
                377,359
                
                
                
                617,981Note
      payable
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                113,354Total
      interest expense
                
                
                4,220,269
                
                
                
                6,092,811
                
                
                
                14,500,505
                
                
                
                20,389,379Net
      interest income
                
                
                11,701,400
                
                
                
                11,402,417
                
                
                
                34,316,371
                
                
                
                30,597,588Provision
      for loan losses
                
                
                4,500,000
                
                
                
                6,154,000
                
                
                
                21,814,000
                
                
                
                16,509,985Net
      interest income after provision for loan losses
                
                
                7,201,400
                
                
                
                5,248,417
                
                
                
                12,502,371
                
                
                
                14,087,603Non-Interest
      Income:Mortgage
      revenues
                
                
                1,756,394
                
                
                
                4,437,660
                
                
                
                6,134,441
                
                
                
                10,300,303Retail
      banking fees
                
                
                1,004,708
                
                
                
                979,827
                
                
                
                2,806,865
                
                
                
                2,882,459Investment
      brokerage revenues
                
                
                609,511
                
                
                
                364,508
                
                
                
                1,381,209
                
                
                
                1,005,199Gain
      on the sales of securities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                243,386Bank-owned
      life insurance
                
                
                272,776
                
                
                
                251,928
                
                
                
                820,809
                
                
                
                808,991Other
                
                
                84,275
                
                
                
                69,631
                
                
                
                411,642
                
                
                
                184,889Total
      non-interest income
                
                
                3,727,664
                
                
                
                6,103,554
                
                
                
                11,554,966
                
                
                
                15,425,227Non-Interest
      Expense:Salaries
      and employee benefits
                
                
                3,152,967
                
                
                
                3,619,605
                
                
                
                10,703,391
                
                
                
                10,554,881Occupancy,
      equipment and data processing expense
                
                
                2,089,772
                
                
                
                2,045,677
                
                
                
                6,109,381
                
                
                
                5,979,118Advertising
                
                
                134,910
                
                
                
                249,056
                
                
                
                376,686
                
                
                
                744,341Professional
      services
                
                
                290,288
                
                
                
                401,687
                
                
                
                1,356,144
                
                
                
                1,034,105FDIC
      deposit insurance premuim expense
                
                
                492,556
                
                
                
                463,476
                
                
                
                1,478,167
                
                
                
                1,073,286FDIC
      special deposit insurance assessment
                
                
                -
                
                
                
                700,000
                
                
                
                -
                
                
                
                700,000Real
      estate foreclosure losses and expense, net
                
                
                549,911
                
                
                
                313,527
                
                
                
                1,891,601
                
                
                
                1,064,529Other
                
                
                631,813
                
                
                
                768,532
                
                
                
                2,030,121
                
                
                
                2,174,533Total
      non-interest expense
                
                
                7,342,217
                
                
                
                8,561,560
                
                
                
                23,945,491
                
                
                
                23,324,793Income
      before income taxes
                
                
                3,586,847
                
                
                
                2,790,411
                
                
                
                111,846
                
                
                
                6,188,037Income
      tax expense
                
                
                409,693
                
                
                
                775,624
                
                
                
                6,145
                
                
                
                1,834,390Net
      income
                
                $
                3,177,154
                
                
                $
                2,014,787
                
                
                $
                105,701
                
                
                $
                4,353,647Other
      comprehensive (loss) income
                
                
                (31,524
                )
                
                
                39,511
                
                
                
                (126,382
                )
                
                
                210,651Comprehensive
      income (loss)
                
                $
                3,145,630
                
                
                $
                2,054,298
                
                
                $
                (20,681
                )
                
                $
                4,564,298Income
      (loss) available to common shares
                
                $
                2,661,990
                
                
                $
                1,501,133
                
                
                $
                (1,438,654
                )
                
                $
                3,602,383Per
      Common Share Amounts:Basic
      earnings (loss) per common share
                
                $
                0.26
                
                
                $
                0.15
                
                
                $
                (0.14
                )
                
                $
                0.35Weighted
      average common shares outstanding - basic
                
                
                10,418,153
                
                
                
                10,200,321
                
                
                
                10,351,930
                
                
                
                10,155,874Diluted
      earnings (loss) per common share
                
                $
                0.25
                
                
                $
                0.14
                
                
                $
                (0.14
                )
                
                $
                0.35Weighted
      average common shares outstanding - diluted
                
                
                10,622,155
                
                
                
                10,395,653
                
                
                
                10,351,930
                
                
                
                10,348,468





See
accompanying notes to the unaudited consolidated financial
statements.


- 2
-





PULASKI
FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


NINE
MONTHS ENDED JUNE 30, 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
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          105,701
                          
                          
                          
                          105,701Change
      in unrealized loss  on investment securities, net of
    tax
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (126,382
                          )
                          
                          
                          -
                          
                          
                          
                          (126,382
                          )Comprehensive
      income (loss)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (126,382
                          )
                          
                          
                          105,701
                          
                          
                          
                          (20,681
                          )Common
      stock dividends ($0.095 per share)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (3,024,092
                          )
                          
                          
                          (3,024,092
                          )Preferred
      stock dividends
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,220,175
                          )
                          
                          
                          (1,220,175
                          )Accretion
      of discount on preferred stock
                          
                          
                          324,180
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (324,180
                          )
                          
                          
                          -Stock
      options excercised
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          297,504
                          
                          
                          
                          (100,675
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          196,829Stock
      option and award expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          432,793
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          432,793Commmon
      stock issued under dividend reinvestment plan (102,498
      shares)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          402,798
                          
                          
                          
                          254,596
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          657,394Common
      stock issued under equity trust plan (194,320 shares)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (444,686
                          )
                          
                          
                          444,686
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Restricted
      stock awards issued, net (48,400 shares)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          197,520
                          
                          
                          
                          (197,520
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Common
      stock surrendered to satisfy tax withholding obligations of
      stock-based compensation (11,655 shares)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (78,374
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (78,374
                          )Purchase
      of equity trust shares
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (219,785
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (219,785
                          )Distribution
      of equity trust shares (33,742 shares)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          401,524
                          
                          
                          
                          (401,524
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Equity
      trust expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          501,313
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          501,313Tax
      expense from release of equity shares
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (66,224
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (66,224
                          )Excess
      tax benefit from stock-based compensation
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,722
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,722Balance,
      June 30, 2010
                          
                          $
                          30,979,240
                          
                          
                          $
                          130,687
                          
                          
                          $
                          (17,987,672
                          )
                          
                          $
                          56,117,631
                          
                          
                          $
                          66,391
                          
                          
                          $
                          44,816,813
                          
                          
                          $
                          114,123,090




- 3
-


PULASKI
FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR NINE MONTHS


ENDED
JUNE 30, 2010 AND JUNE 30, 2009 (UNAUDITED)





Nine Months EndedJune 30,2010
                
                
                2009Cash
      Flows From Operating Activities:Net
      income
                
                $
                105,701
                
                
                $
                4,353,647Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation,
      amortization and accretion:Premises
      and equipment
                
                
                1,379,282
                
                
                
                1,409,024Net
      deferred loan costs
                
                
                1,628,422
                
                
                
                2,070,332Debt
      and equity securities premiums and discounts, net
                
                
                95,345
                
                
                
                117,353Equity
      trust expense, net
                
                
                501,313
                
                
                
                495,170Stock
      option and award expense
                
                
                432,793
                
                
                
                357,944Provision
      for loan losses
                
                
                21,814,000
                
                
                
                16,509,985Provision
      for losses on real estate acquired in settlement of loans
                
                
                1,564,700
                
                
                
                503,302(Gains)
      losses on sales of real estate acquired in settlement of
    loans
                
                
                (47,620
                )
                
                
                146,483Originations
      of mortgage loans held for sale
                
                
                (1,228,484,966
                )
                
                
                (1,637,934,201
                )Proceeds
      from sales of mortgage loans held for sale
                
                
                1,182,300,432
                
                
                
                1,543,779,588Gain
      on sales of mortgage loans held for sale
                
                
                (5,763,432
                )
                
                
                (9,734,588
                )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
                
                
                (820,810
                )
                
                
                (808,991
                )(Increase)
      decrease in deferred tax asset
                
                
                (2,381,535
                )
                
                
                2,048,774Excess tax benefit from
      stock-based compensationExcess tax benefit
      from stock-based compensation
                
                
                (2,722
                )
                
                
                (13,515
                )Tax
      expense for release of equity trust shares
                
                
                66,224
                
                
                
                -(Decrease)
      increase in accrued expenses
                
                
                (652,113
                )
                
                
                804,787Decrease
      in current income taxes payable
                
                
                (1,250,278
                )
                
                
                (624,182
                )Changes
      in other assets and liabilities
                
                
                (3,478,936
                )
                
                
                (481,222
                )Net
      adjustments
                
                
                (33,099,901
                )
                
                
                (81,597,343
                )Net
      cash used in operating activities
                
                
                (32,994,200
                )
                
                
                (77,243,696
                )Cash
      Flows From Investing Activities:Proceeds
      from:Maturities
      of time deposits in other banks
                
                
                -
                
                
                
                99,000Maturities
      of debt securities available for sale
                
                
                16,500,000
                
                
                
                4,000,000Sales
      of debt securities available for sale
                
                
                -
                
                
                
                51,050,500Principal
      payments on mortgage-backed securities
                
                
                5,197,952
                
                
                
                3,485,042Redemption
      of Federal Home Loan Bank stock
                
                
                12,205,600
                
                
                
                4,571,500Sales
      of real estate acquired in settlement of loans receivable
                
                
                7,242,956
                
                
                
                6,093,225Purchases
      of:Debt
      securities available for sale
                
                
                (19,007,933
                )
                
                
                (61,707,758
                )Mortgage-backed
      securities available for sale
                
                
                -
                
                
                
                (7,003,443
                )Federal
      Home Loan Bank stock
                
                
                (6,441,100
                )
                
                
                (5,325,200
                )Premises
      and equipment
                
                
                (1,219,751
                )
                
                
                (811,815
                )Net
      decrease (increase) in loans receivable
                
                
                24,841,379
                
                
                
                (93,755,344
                )Net
      cash provided by (used in) investing activities
                
                $
                39,319,103
                
                
                $
                (99,304,293
                )





Continued
on next page.


- 4
-


PULASKI
FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR NINE MONTHS


ENDED
JUNE 30, 2010 AND JUNE 30, 2009, CONTINUED (UNAUDITED)





Nine Months EndedJune 30,2010
                
                
                2009Cash
      Flows From Financing Activities:Net
      (decrease) increase in deposits
                
                $
                (45,665,871
                )
                
                $
                244,301,247Proceeds
      from (repayment of) Federal Home Loan Bank advances, net
                
                
                31,900,000
                
                
                
                (144,500,000
                )Proceeds
      from Federal Reserve Bank borrowings, net
                
                
                -
                
                
                
                90,000,000Repayment of notes
      payable
                
                
                -
                
                
                
                (7,640,000
                )Net
      decrease in due to other banks
                
                
                -
                
                
                
                (14,377,831
                )Net
      (decrease) increase in advance payments by borrowers for taxes and
      insurance
                
                
                (628,220
                )
                
                
                379,012Proceeds
      from cash received in dividend reinvestment plan
                
                
                657,394
                
                
                
                560,413Proceeds
      from issuance of preferred stock and common stock warrants
                
                
                -
                
                
                
                32,501,768Proceeds
      from stock options excercised
                
                
                196,829
                
                
                
                103,773Purchase
      of equity trust shares
                
                
                (219,785
                )
                
                
                (211,358
                )Excess
      tax benefit for stock based compensation
                
                
                2,722
                
                
                
                13,515Tax
      expense for release of equity trust shares
                
                
                (66,224
                )
                
                
                -Dividends
      paid on common stock
                
                
                (3,024,092
                )
                
                
                (2,935,671
                )Dividends
      paid on preferred stock
                
                
                (1,220,175
                )
                
                
                (537,781
                )Common
      stock surrendered to satisfy tax withholding obligations of
      stock-based compensation
                
                
                (78,374
                )
                
                
                (28,181
                )Net
      cash (used in) provided by financing activities
                
                
                (18,145,796
                )
                
                
                197,628,906Net
      (decrease) increase in cash and cash equivalents
                
                
                (11,820,893
                )
                
                
                21,080,917Cash
      and cash equivalents at beginning of period
                
                
                37,450,664
                
                
                
                29,077,862Cash
      and cash equivalents at end of period
                
                $
                25,629,771
                
                
                $
                50,158,779Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the period for:Interest
      on deposits
                
                $
                12,905,274
                
                
                $
                17,048,687Interest
      on advances from FHLB
                
                
                1,403,441
                
                
                
                2,951,560Interest
      on Federal Reserve borrowings
                
                
                484
                
                
                
                307,822Interest
      on subordinated debentures
                
                
                396,031
                
                
                
                635,958Interest
      on note payable
                
                
                -
                
                
                
                114,323Cash
      paid during the period for interest
                
                
                14,705,230
                
                
                
                21,058,350Income
      taxes, net
                
                
                3,624,000
                
                
                
                501,000Noncash
      Investing Activities:Real
      estate acquired in settlement of loans receivable
                
                
                16,345,734
                
                
                
                5,527,487





See
accompanying notes to the unaudited consolidated financial
statements.


- 5
-


PULASKI
FINANCIAL CORP. AND SUBSIDIARIES




NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




1.
            BASIS
      OF PRESENTATION




The
unaudited consolidated financial statements include the accounts of Pulaski
Financial Corp. (the “Company”) and its wholly owned subsidiary, Pulaski Bank
(the “Bank”), and the Bank’s wholly owned subsidiary, Pulaski Service
Corporation.  All significant intercompany accounts and transactions have
been eliminated.  The assets of the Company consist primarily of the
investment in the outstanding shares of the Bank and its liabilities consist
principally of obligations on its subordinated debentures.  Accordingly,
the information set forth in this report, including the consolidated financial
statements and related financial data, relates primarily to the Bank.  The
Company, through the Bank, operates as a single business segment, providing
traditional community banking services through its full service branch
network.




In the
opinion of management, the unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial condition of the Company as of June 30, 2010
and September 30, 2009 and its results of operations for the three- and
nine-month periods ended June 30, 2010 and 2009.  The results of
operations for the three- and nine-month periods ended June 30, 2010 are not
necessarily indicative of the operating results that may be expected for the
entire fiscal year or for any other period.  These unaudited consolidated
financial statements should be read in conjunction with the Company’s audited
consolidated financial statements for the year ended September 30, 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 to ensure that the accompanying
financial statements include the effects of any subsequent events that should be
recognized in such financial statements as of June 30, 2010, and the appropriate
disclosure of any subsequent events that were not recognized in the financial
statements.





2.
            PREFERRED
      STOCK




In
January 2009, as part of the U.S. Department of Treasury’s Capital Purchase
Program, the Company issued 32,538 shares of Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, $1,000 per share liquidation preference, and a
warrant to purchase up to 778,421 shares of the Company’s common stock for a
period of ten years at an exercise price of $6.27 per share in exchange for
$32.5 million in cash from the U.S. Department of Treasury.  The proceeds,
net of issuance costs consisting primarily of legal fees, were allocated between
the preferred stock and the warrant on a pro rata basis, based upon the
estimated market values of the preferred stock and the warrant.  As a
result, $2.2 million of the proceeds were allocated to the warrant, which
increased additional paid in capital from common stock.  The amount
allocated to the warrant is considered a discount on the preferred stock and is
being accreted using the level yield method over a five-year period through a
charge to retained earnings.  Such accretion does not reduce net income,
but reduces income available to common shares.





The fair
value of the preferred stock was estimated on the date of issuance by computing
the present value of expected future cash flows using a risk-adjusted rate of
return for similar securities of 12%.  The fair value of the warrant was
estimated on the date of grant using the Black-Scholes option pricing model
assuming a risk-free interest rate of 4.30%, expected volatility of 35.53% and a
dividend yield of 4.27%.


- 6
-


The
preferred stock pays cumulative dividends of 5% per year for the first five
years and 9% per year thereafter.  The Company may, at its option, redeem
the preferred stock at its liquidation preference plus accrued and unpaid
dividends.  The securities purchase agreement between the Company and the
U.S. Treasury 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
                      
                      
                      Nine Months EndedJune 30,
                      
                      
                      June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Net
      income
                      
                      $
                      3,177,154
                      
                      
                      $
                      2,014,787
                      
                      
                      $
                      105,701
                      
                      
                      $
                      4,353,647Less:Preferred
      dividends declared
                      
                      
                      (406,725
                      )
                      
                      
                      (406,725
                      )
                      
                      
                      (1,220,175
                      )
                      
                      
                      (537,781
                      )Accretion
      of discount on preferred stock
                      
                      
                      (108,439
                      )
                      
                      
                      (106,929
                      )
                      
                      
                      (324,180
                      )
                      
                      
                      (213,483
                      )Income
      (loss) available to common shares
                      
                      $
                      2,661,990
                      
                      
                      $
                      1,501,133
                      
                      
                      $
                      (1,438,654
                      )
                      
                      $
                      3,602,383Weighted
      average common shares outstanding - basic
                      
                      
                      10,418,153
                      
                      
                      
                      10,200,321
                      
                      
                      
                      10,351,930
                      
                      
                      
                      10,155,874Effect
      of dilutive securities:Treasury
      stock held in equity trust - unvested shares
                      
                      
                      137,330
                      
                      
                      
                      96,968
                      
                      
                      
                      -
                      
                      
                      
                      95,657Equivalent
      shares - employee stock options and awards
                      
                      
                      8,118
                      
                      
                      
                      52,715
                      
                      
                      
                      -
                      
                      
                      
                      51,409Equivalent
      shares - common stock warrant
                      
                      
                      58,554
                      
                      
                      
                      45,649
                      
                      
                      
                      -
                      
                      
                      
                      45,528Weighted
      average common shares outstanding - diluted
                      
                      
                      10,622,155
                      
                      
                      
                      10,395,653
                      
                      
                      
                      10,351,930
                      
                      
                      
                      10,348,468Earnings
      (loss) per common share:Basic
                      
                      $
                      0.26
                      
                      
                      $
                      0.15
                      
                      
                      $
                      (0.14
                      )
                      
                      $
                      0.35Diluted
                      
                      $
                      0.25
                      
                      
                      $
                      0.14
                      
                      
                      $
                      (0.14
                      )
                      
                      $
                      0.35




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
nine-month period ended June 30, 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
                    
                    
                    Nine Months EndedJune 30,
                    
                    
                    June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Number
      of option shares excluded
                    
                    
                    667,507
                    
                    
                    
                    723,958
                    
                    
                    
                    970,504
                    
                    
                    
                    705,902Equivalent
      anti-dilutive shares
                    
                    
                    493,457
                    
                    
                    
                    665,729
                    
                    
                    
                    540,841
                    
                    
                    
                    686,929Number
      of warrant shares excluded
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    778,421
                    
                    
                    
                    -Equivalent
      anti-dilutive shares
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    62,776
                    
                    
                    
                    -




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 nine months
ended June 30, 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 resulting from a change in control
of the Company, which includes the acceleration of vesting in stock-based
incentive plans.  Accordingly, the affected employees have signed
agreements to forfeit the right to accelerated vesting while any funds related
to the Treasury’s program are outstanding.





A summary
of the Company’s stock option program as of June 30, 2010 and changes during the
nine-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
                              
                              
                              (18,900
                              )
                              
                              
                              10.07Outstanding
      at June 30, 2010
                              
                              
                              853,506
                              
                              
                              $
                              10.38
                              
                              
                              $
                              98,734
                              
                              
                              
                              6.2Exercisable
      at June 30, 2010
                              
                              
                              550,627
                              
                              
                              $
                              10.52
                              
                              
                              $
                              89,427
                              
                              
                              
                              5.2




- 8
-


The
weighted-average grant-date fair value of options granted during the nine months
ended June 30, 2010 was $1.79 per share.  As of June 30, 2010, the total
unrecognized compensation expense related to non-vested stock options and awards
was $891,000 and the related weighted average period over which it is expected
to be recognized is 2.1 years.





The fair
value of stock options granted during the nine-month periods ended June 30, 2010
and 2009 is estimated on the date of grant using the Black-Scholes option
pricing model with the following average assumptions:





Nine Months EndedJune 30,2010
                  
                  
                  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 June
30, 2010, there were 488,289 shares in the plan with an aggregate value of $4.5
million, which were included in treasury stock in the Company’s consolidated
financial statements, including 274,570 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 $11.7 million and $9.3 million at June 30, 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 June 30, 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 June
30, 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 June 30, 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 SECURITIES




The
amortized cost and estimated fair value of debt securities available for sale at
June 30, 2010 and September 30, 2009 are summarized as
follows:




Gross
                  
                  
                  Gross
                  
                  
                  EstimatedAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueJune
      30, 2010:Available
      for Sale:Debt
      securities
                  
                  $
                  4,505,569
                  
                  
                  $
                  1,729
                  
                  
                  $
                  -
                  
                  
                  $
                  4,507,298Weighted
      average rate at end of period
                  
                  
                  0.30
                  %September
      30, 2009:Available
      for Sale:Debt
      securities
                  
                  $
                  1,999,590
                  
                  
                  $
                  -
                  
                  
                  $
                  (2,194
                  )
                  
                  $
                  1,997,396Weighted
      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 June 30, 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 June 30, 2010Less than 12 months
                  
                  
                  12 months or more
                  
                  
                  TotalFair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  UnrealizedValue
                  
                  
                  Losses
                  
                  
                  Value
                  
                  
                  Losses
                  
                  
                  Value
                  
                  
                  LossesAvailable
      for Sale:Debt
      obligations of government-sponsored entities
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Percent
      of total
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -





Length of Time in Continuous Unrealized Loss Position at September 30, 2009Less than 12 months
                  
                  
                  12 months or more
                  
                  
                  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 June 30, 2010 and
September 30, 2009 are summarized as follows:




June30,2010Gross
                
                
                GrossAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueHeld
      to Maturity:Mortgage-backed
      securities:Freddie
      Mac
                
                $
                33
                
                
                $
                -
                
                
                $
                (2
                )
                
                $
                31Ginnie
      Mae
                
                
                198,902
                
                
                
                23,886
                
                
                
                -
                
                
                
                222,788Fannie
      Mae
                
                
                10,829,842
                
                
                
                501,671
                
                
                
                -
                
                
                
                11,331,513Total
      mortgage-backed securities
                
                
                11,028,777
                
                
                
                525,557
                
                
                
                (2
                )
                
                
                11,554,332Collateralized
      mortgage obligations:Freddie
      Mac
                
                
                14,015
                
                
                
                3
                
                
                
                -
                
                
                
                14,018Total
      held to maturity
                
                $
                11,042,792
                
                
                $
                525,560
                
                
                $
                (2
                )
                
                $
                11,568,350Weighted
      average rate at end of period
                
                
                4.15
                %Available
      for Sale:Mortgage-backed
      securities:Ginnie
      Mae
                
                $
                446,911
                
                
                $
                34,491
                
                
                $
                -
                
                
                $
                481,402Fannie
      Mae
                
                
                787,148
                
                
                
                3,018
                
                
                
                -
                
                
                
                790,166Total
      mortgage-backed securities
                
                
                1,234,059
                
                
                
                37,509
                
                
                
                -
                
                
                
                1,271,568Collateralized
      mortgage obligations:Freddie
      Mac
                
                
                1,009,676
                
                
                
                21,738
                
                
                
                -
                
                
                
                1,031,414Ginnie
      Mae
                
                
                4,532,727
                
                
                
                8,922
                
                
                
                -
                
                
                
                4,541,649Fannie
      Mae
                
                
                4,741,227
                
                
                
                37,184
                
                
                
                -
                
                
                
                4,778,411Total
      collateralized mortgage obligations
                
                
                10,283,630
                
                
                
                67,844
                
                
                
                -
                
                
                
                10,351,474Total
      available for sale
                
                $
                11,517,689
                
                
                $
                105,353
                
                
                $
                -
                
                
                $
                11,623,042Weighted
      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 June 30, 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 June 30, 2010Less than 12 months
                
                
                12 months or more
                
                
                TotalAmortized
                
                
                Unrealized
                
                
                Amortized
                
                
                Unrealized
                
                
                Amortized
                
                
                UnrealizedCost
                
                
                Losses
                
                
                Cost
                
                
                Losses
                
                
                Cost
                
                
                LossesHeld
      To Maturity:Mortgage-backed
      securities
                
                $
                24
                
                
                $
                2
                
                
                $
                -
                
                
                $
                -
                
                
                $
                24
                
                
                $
                2Percent
      of total
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                -
                
                
                
                -
                
                
                
                100.0
                %
                
                
                100.0
                %





Length of Time in Continuous Unrealized Loss Position at September 30, 2009Less than 12 months
                
                
                12 months or more
                
                
                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 June 30, 2010 and September 30, 2009 are summarized as
follows:




June 30,
                          
                          
                          September 30,2010
                          
                          
                          2009Real
      estate mortgage:Residential
      first mortgage
                          
                          $
                          254,425,449
                          
                          
                          $
                          248,798,923Residential
      second mortgage
                          
                          
                          64,936,826
                          
                          
                          
                          72,083,535Home
      equity lines of credit
                          
                          
                          209,350,549
                          
                          
                          
                          227,141,590Multi-family
      residential
                          
                          
                          44,666,185
                          
                          
                          
                          44,462,990Commercial
      real estate
                          
                          
                          258,259,961
                          
                          
                          
                          231,270,107Land
      acquisition and development
                          
                          
                          76,588,457
                          
                          
                          
                          80,258,931Real
      estate construction and development:Residential
                          
                          
                          8,340,653
                          
                          
                          
                          19,664,258Multi-family
                          
                          
                          4,181,475
                          
                          
                          
                          6,864,072Commercial
                          
                          
                          20,071,539
                          
                          
                          
                          59,429,776Commercial
      and industrial
                          
                          
                          146,205,364
                          
                          
                          
                          154,972,793Consumer
      and installment
                          
                          
                          3,802,669
                          
                          
                          
                          4,170,8631,090,829,127
                          
                          
                          
                          1,149,117,838Add
      (less):Deferred
      loan costs
                          
                          
                          4,027,564
                          
                          
                          
                          4,369,122Loans
      in process
                          
                          
                          (570,786
                          )
                          
                          
                          (812,946
                          )Allowance
      for loan losses
                          
                          
                          (26,820,596
                          )
                          
                          
                          (20,579,170
                          )Total
                          
                          $
                          1,067,465,309
                          
                          
                          $
                          1,132,094,844Weighted
      average interest rate at end of period
                          
                          
                          5.39
                          %
                          
                          
                          5.33
                          %Specific
      loan loss allowance on impaired loans
                          
                          $
                          5,857,544
                          
                          
                          $
                          6,822,942Balance
      of impaired loans with specific allowance
                          
                          
                          15,418,869
                          
                          
                          
                          19,753,191Balance
      of impaired loans with no specific allowance
                          
                          
                          42,912,688
                          
                          
                          
                          39,198,182Ratio
      of allowance to total outstanding loans
                          
                          
                          2.46
                          %
                          
                          
                          1.79
                          %




The
following table summarizes the activity in the allowance for loan losses for the
nine months ended June 30, 2010 and 2009:




2010
                    
                    
                    2009Balance,
      beginning of period
                    
                    $
                    20,579,170
                    
                    
                    $
                    12,761,532Provision
      charged to expense
                    
                    
                    21,814,000
                    
                    
                    
                    16,509,985Charge-offs
                    
                    
                    (16,009,899
                    )
                    
                    
                    (8,579,248
                    )Recoveries
                    
                    
                    437,325
                    
                    
                    
                    51,201Net
      charge-offs
                    
                    
                    (15,572,574
                    )
                    
                    
                    (8,528,047
                    )Balance,
      end of period
                    
                    $
                    26,820,596
                    
                    
                    $
                    20,743,470




Included
in non-performing assets at June 30, 2010 and September 30, 2009 were $33.3
million and $35.0 million, respectively, of loans that were modified and
are classified as troubled debt restructurings because of the borrowers’
financial difficulties.  The restructured terms of the loans generally
included a reduction of the interest rates and the addition of past due interest
to the principal balance of the loans.  At June 30, 2010,
$26.2 million, or 78.7%, 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 classified as 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 June 30,
2010 and March 31, 2010 were $8.0 million and $6.2 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 June 30, 2010 and September 30, 2009 are summarized as
follows:




June30,2010
                    
                    
                    September30,2009Weighted
                    
                    
                    
                    
                    
                    WeightedAverage
                    
                    
                    
                    
                    
                    AverageInterest
                    
                    
                    
                    
                    
                    InterestAmount
                    
                    
                    Rate
                    
                    
                    Amount
                    
                    
                    RateTransaction
      accounts:Non-interest-bearing
      checking
                    
                    $
                    127,389,290
                    
                    
                    
                    -
                    
                    
                    $
                    103,398,563
                    
                    
                    
                    -Interest-bearing
      checking
                    
                    
                    361,430,625
                    
                    
                    
                    0.91
                    %
                    
                    
                    263,019,571
                    
                    
                    
                    1.25
                    %Passbook
      savings accounts
                    
                    
                    30,806,028
                    
                    
                    
                    0.17
                    %
                    
                    
                    28,874,588
                    
                    
                    
                    0.24
                    %Money
      market
                    
                    
                    214,917,624
                    
                    
                    
                    0.48
                    %
                    
                    
                    253,995,786
                    
                    
                    
                    0.76
                    %Total
      transaction accounts
                    
                    
                    734,543,567
                    
                    
                    
                    0.60
                    %
                    
                    
                    649,288,508
                    
                    
                    
                    0.81
                    %Certificates
      of deposit:Retail
                    
                    
                    330,422,229
                    
                    
                    
                    2.34
                    %
                    
                    
                    348,622,361
                    
                    
                    
                    2.63
                    %CDARS
                    
                    
                    72,591,741
                    
                    
                    
                    0.68
                    %
                    
                    
                    110,240,370
                    
                    
                    
                    1.54
                    %Brokered
                    
                    
                    8,405,832
                    
                    
                    
                    5.23
                    %
                    
                    
                    83,478,000
                    
                    
                    
                    2.67
                    %Total
      certificates of deposit
                    
                    
                    411,419,802
                    
                    
                    
                    2.10
                    %
                    
                    
                    542,340,731
                    
                    
                    
                    2.42
                    %Total
      deposits
                    
                    $
                    1,145,963,369
                    
                    
                    
                    1.14
                    %
                    
                    $
                    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.




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 nine months ended June 30, 2010, the Company reviewed
goodwill for impairment as of June 30, 2010 in addition to its annual review at
September 30, 2009.  No impairment losses were recognized during
fiscal year 2009 or the nine months ended June 30, 2010.




The
following disclosures for September 30, 2009 exclude certain non-financial
assets and liabilities, which were deferred under the provisions of ASC Topic
820.  Such non-financial assets include foreclosed real estate,
long-lived assets and goodwill, which are written down to fair value if
considered impaired.


- 16
-


Assets
and liabilities that were recorded at fair value on a recurring basis at June
30, 2010 and September 30, 2009 and the level of inputs used to determine their
fair values are summarized below:




CarryingValueatJune30,2010FairValueMeasurementsUsingTotal
                  
                  
                  Level1
                  
                  
                  Level2
                  
                  
                  Level3(In thousands)Assets:Debt
      securities available for sale
                  
                  $
                  4,507
                  
                  
                  $
                  -
                  
                  
                  $
                  4,507
                  
                  
                  $
                  -Mortgage-backed
      securities available for sale
                  
                  
                  11,623
                  
                  
                  
                  -
                  
                  
                  
                  11,623
                  
                  
                  
                  -Interest-rate
      swap
                  
                  
                  1,543
                  
                  
                  
                  -
                  
                  
                  
                  1,543
                  
                  
                  
                  -Total
      assets
                  
                  $
                  17,673
                  
                  
                  $
                  -
                  
                  
                  $
                  17,673
                  
                  
                  $
                  -Liabilities:Interest-rate
      swap
                  
                  $
                  1,543
                  
                  
                  $
                  -
                  
                  
                  $
                  1,543
                  
                  
                  $
                  -Total
      liabilities
                  
                  $
                  1,543
                  
                  
                  $
                  -
                  
                  
                  $
                  1,543
                  
                  
                  $
                  -




CarryingValueatSeptember30,2009FairValueMeasurementsUsingTotal
                  
                  
                  Level1
                  
                  
                  Level2
                  
                  
                  Level3(In thousands)Assets:Debt
      securities available for sale
                  
                  $
                  1,997
                  
                  
                  $
                  -
                  
                  
                  $
                  1,997
                  
                  
                  $
                  -Mortgage-backed
      securities available for sale
                  
                  
                  16,087
                  
                  
                  
                  -
                  
                  
                  
                  16,087
                  
                  
                  
                  -Interest-rate
      swap
                  
                  
                  1,170
                  
                  
                  
                  -
                  
                  
                  
                  1,170
                  
                  
                  
                  -Total
      assets
                  
                  $
                  19,254
                  
                  
                  $
                  -
                  
                  
                  $
                  19,254
                  
                  
                  $
                  -Liabilities:Interest-rate
      swap
                  
                  $
                  1,170
                  
                  
                  $
                  -
                  
                  
                  $
                  1,170
                  
                  
                  $
                  -Total
      liabilities
                  
                  $
                  1,170
                  
                  
                  $
                  -
                  
                  
                  $
                  1,170
                  
                  
                  $
                  -


- 17
-





Assets
that were recorded at fair value on a non-recurring basis at June 30, 2010 and
September 30, 2009 and the level of inputs used to determine their fair values
are summarized below:




Total LossesRecognized inCarryingValueatJune30,2010
                      
                      the QuarterFairValueMeasurementsUsing
                      
                      
                      Ended June 30,Total
                      
                      
                      Level1
                      
                      
                      Level2
                      
                      
                      Level3
                      
                      
                      2010(In thousands)Assets:Mortgage
      loans held for sale
                      
                      $
                      210
                      
                      
                      $
                      -
                      
                      
                      $
                      210
                      
                      
                      $
                      -
                      
                      
                      $
                      -Impaired
      loans, net
                      
                      
                      9,561
                      
                      
                      
                      -
                      
                      
                      
                      3,311
                      
                      
                      
                      6,250
                      
                      
                      
                      370Real
      estate acquired in settlement of loans
                      
                      
                      16,040
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      16,040
                      
                      
                      
                      2,152Total
      assets
                      
                      $
                      25,811
                      
                      
                      $
                      -
                      
                      
                      $
                      3,521
                      
                      
                      $
                      22,290
                      
                      
                      $
                      2,522





Total LossesRecognized inCarrying Value at September 30, 2009
                    
                    
                    the Year EndedFair Value Measurements Using
                    
                    
                    September 30,Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3
                    
                    
                    2009(In thousands)Assets:Loans
      held for sale
                    
                    $
                    2,096
                    
                    
                    $
                    -
                    
                    
                    $
                    2,096
                    
                    
                    $
                    -
                    
                    
                    $
                    -Impaired
      loans, net
                    
                    
                    9,888
                    
                    
                    
                    -
                    
                    
                    
                    9,003
                    
                    
                    
                    885
                    
                    
                    
                    6,015Total
      assets
                    
                    $
                    11,984
                    
                    
                    $
                    -
                    
                    
                    $
                    11,099
                    
                    
                    $
                    885
                    
                    
                    $
                    6,015




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 June 30, 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.


- 18
-


Carrying
values and estimated fair values at June 30, 2010 and September 30, 2009 are
summarized as follows:




June30,2010
                  
                  
                  September30,2009Estimated
                  
                  
                  
                  
                  
                  EstimatedCarrying
                  
                  
                  Fair
                  
                  
                  Carrying
                  
                  
                  FairValue
                  
                  
                  Value
                  
                  
                  Value
                  
                  
                  Value(In Thousands)ASSETS:Cash
      and cash equivalents
                  
                  $
                  25,630
                  
                  
                  $
                  25,630
                  
                  
                  $
                  37,451
                  
                  
                  $
                  37,451Debt
      securities – AFS
                  
                  
                  4,507
                  
                  
                  
                  4,507
                  
                  
                  
                  1,997
                  
                  
                  
                  1,997Capital
      stock of FHLB
                  
                  
                  5,885
                  
                  
                  
                  5,885
                  
                  
                  
                  11,650
                  
                  
                  
                  11,650Mortgage-backed  securities
      - HTM
                  
                  
                  11,043
                  
                  
                  
                  11,568
                  
                  
                  
                  12,078
                  
                  
                  
                  12,375Mortgage-backed  securities
      - AFS
                  
                  
                  11,623
                  
                  
                  
                  11,623
                  
                  
                  
                  16,087
                  
                  
                  
                  16,087Loans
      receivable held for sale
                  
                  
                  161,078
                  
                  
                  
                  164,445
                  
                  
                  
                  109,130
                  
                  
                  
                  111,247Loans
      receivable
                  
                  
                  1,067,465
                  
                  
                  
                  1,104,178
                  
                  
                  
                  1,132,095
                  
                  
                  
                  1,158,721Accrued
      interest receivable
                  
                  
                  4,615
                  
                  
                  
                  4,615
                  
                  
                  
                  4,907
                  
                  
                  
                  4,907Interest-rate
      swap assets
                  
                  
                  1,543
                  
                  
                  
                  1,543
                  
                  
                  
                  1,170
                  
                  
                  
                  1,170LIABILITIES:Deposit
      transaction accounts
                  
                  
                  734,544
                  
                  
                  
                  734,544
                  
                  
                  
                  649,289
                  
                  
                  
                  649,289Certificate
      of deposits
                  
                  
                  411,420
                  
                  
                  
                  416,847
                  
                  
                  
                  542,341
                  
                  
                  
                  550,175Advances
      from the FHLB
                  
                  
                  92,900
                  
                  
                  
                  94,377
                  
                  
                  
                  61,000
                  
                  
                  
                  62,759Subordinated
      debentures
                  
                  
                  19,589
                  
                  
                  
                  19,583
                  
                  
                  
                  19,589
                  
                  
                  
                  19,591Accrued
      interest payable
                  
                  
                  850
                  
                  
                  
                  850
                  
                  
                  
                  1,035
                  
                  
                  
                  1,035Interest-rate
      swap liabilities
                  
                  
                  1,543
                  
                  
                  
                  1,543
                  
                  
                  
                  1,170
                  
                  
                  
                  1,170





June30,2010
                  
                  
                  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
                  
                  $
                  90,384
                  
                  
                  $
                  -
                  
                  
                  $
                  105,157
                  
                  
                  $
                  -Commitments
      to originate commercial mortgage loans
                  
                  
                  20,162
                  
                  
                  
                  -
                  
                  
                  
                  41,027
                  
                  
                  
                  -Commitments
      to originate non-mortgage loans
                  
                  
                  16,134
                  
                  
                  
                  -
                  
                  
                  
                  1,600
                  
                  
                  
                  -Unused
      lines of credit
                  
                  
                  204,805
                  
                  
                  
                  -
                  
                  
                  
                  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
June 30, 2010 and September 30, 2009.




Cash and Cash
Equivalents -The carrying amount approximates fair value.




Capital Stock of
the Federal Home Loan Bank- The carrying amount represents redemption
value, which approximates fair value.




Loans Receivable- The fair value of loans receivable is estimated based on present values
using applicable risk-adjusted spreads to the U. S. Treasury curve to
approximate current interest rates applicable to each category of such financial
instruments. No adjustment was made to the interest rates for changes in credit
risk of performing loans where there are no known credit concerns. Management
segregates loans in appropriate risk categories. Management believes that the
risk factor embedded in the interest rates along with the allowance for loan
losses applicable to the performing loan portfolio results in a fair valuation
of such loans.  The fair values of impaired loans are generally based
on market prices for similar assets determined through independent appraisals or
discounted values of independent appraisals and brokers’ opinions of
value.  This method of estimating fair value does not incorporate the
exit-price concept of fair value prescribed by ASC Topic 820.


- 19
-


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.




- 20
-




The fair
values of these contracts recorded in the consolidated balance sheets are
summarized as follows:




June 30,
                      
                      
                      September 30,2010
                      
                      
                      2009Fair
      value recorded in other assets
                      
                      $
                      1,543,000
                      
                      
                      $
                      1,170,000Fair
      value recorded in other liabilities
                      
                      
                      1,543,000
                      
                      
                      
                      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
nine-month period ended June 30, 2010 and 2009 are summarized as
follows:




Three Months Ended
                  
                  
                  Nine Months EndedJune30,
                  
                  
                  June30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(in thousands)Gross
      (gains) losses on derivative financial assets
                  
                  $
                  (440,000
                  )
                  
                  $
                  619,000
                  
                  
                  $
                  (373,000
                  )
                  
                  $
                  (873,000
                  )Gross
      (gains) losses on derivative financial liabilities
                  
                  
                  440,000
                  
                  
                  
                  (619,000
                  )
                  
                  
                  373,000
                  
                  
                  
                  873,000Net
      loss (gain)
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -




13.
            GOODWILL




Goodwill
totaled $3.9 million at June 30, 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 nine months ended June 30, 2010, the Company reviewed
goodwill for impairment as of June 30, 2010 in addition to its annual review at
September 30, 2009.  No impairment losses were recognized during
fiscal year 2009 or the nine months ended June 30, 2010.


- 21
-




Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations




FORWARD-LOOKING
STATEMENTS




This
report contains certain “forward-looking statements” within the meaning of the
federal securities laws, which are made in good faith pursuant to the “safe
harbor” provisions of the Private Securities Litigation Reform Act of
1995.  These statements are not historical facts; rather they are
statements based on Pulaski Financial Corp.’s (the “Company”) current
expectations regarding its business strategies, intended results and future
performance.  Forward-looking statements are generally preceded by
terms such as “expects,” “believes,” “anticipates,” “intends” and similar
expressions.




Management’s
ability to predict results or the effect of future plans or strategies is
inherently uncertain.  Factors that could affect actual results
include interest rate trends, the economy in the market area in which Pulaski
Financial Corp. operates, as well as nationwide, Pulaski Financial Corp.’s
ability to control costs and expenses, competitive products and pricing, loan
demand, loan delinquency rates, changes in accounting policies and changes in
federal and state legislation and regulation.  The Company provides
greater detail regarding some of these factors in its Form 10-K for the year
ended September 30, 2009, including the Risk Factors section of that
report.  The Company’s forward-looking statements may also be subject
to other risks and uncertainties, including those that it may discuss elsewhere
in this report or in its other filings with the SEC. These factors should
be considered in evaluating the forward-looking statements and undue reliance
should not be placed on such statements.  Pulaski Financial Corp.
assumes no obligation to update any forward-looking statements to reflect events
or circumstances after the date of the statements or to reflect the occurrence
of anticipated or unanticipated events.




GENERAL




Pulaski
Financial Corp., operating in its eighty-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 $1.39 billion in assets at June
30, 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
OF COMMUNITY BANKING STRATEGY




The
Company’s community banking strategy emphasizes high-quality, responsive, and
personalized customer service.  The Company has been successful in
distinguishing itself from the larger regional banks operating in its market
areas by offering quicker decision making in the delivery of banking products
and services, offering customized products where needed, and providing customers
access to senior decision makers.  Crucial to this strategy is growth
in the Company’s three primary business lines:  commercial banking
services, retail mortgage lending and retail banking services.


- 22
-


Commercial Banking
Services




The Company’s
commercial banking services are centered on serving small- to medium-sized
businesses primarily in the St. Louis metropolitan area and the Company’s
operations continue to be driven by its staff of experienced commercial bankers
and the commercial banking relationships they generate. Commercial loan
originations totaled $93.8 million and $278.7 million during the three and
nine months ended June 30, 2010, respectively, compared with $98.9 million and
$333.7 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 $38.6
million during the nine-month period to $558.3 million at June 30,
2010.  In addition, during the nine months ended June 30, 2010,
management decided to decrease the Company’s exposure to construction lending
because of the weakened national and local economic
conditions.  Commercial and multi-family construction and development
loans decreased $42.0 million while commercial real estate loans increased
$27.0 million primarily as the result of the conversion of certain maturing
construction loans to permanent financing.  In addition, construction
and development loans secured by residential properties decreased $11.3 million,
land acquisition and development loans decreased $3.7 million and commercial and
industrial loans decreased $8.8 million.




The
Company’s commercial loan customers are also among the best sources of core
deposit accounts.  Commercial checking account balances were $303.1
million at June 30, 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 $456.0 million and $1.23
billion during the three and nine months ended June 30, 2010 compared with
$728.9 million and $1.64 billion 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 40% of total loan originations during the
nine months ended June 30, 2010 compared with 55% during the same 2009
period.




Residential
loans sold to investors for the three months ended June 30, 2010 totaled
$382.2 million, which generated mortgage revenues totaling $1.8 million,
compared with $672.7 million of loans sold and $4.4 million in revenues for the
three months ended June 30, 2009.  Residential loans sold to investors
for the nine months ended June 30, 2010 totaled $1.18 billion, which generated
mortgage revenues totaling $6.1 million, compared with $1.54 billion of loans
sold and $10.3 million in revenues for the nine months ended June 30,
2009.  The net profit margin on loans sold decreased to 0.46% and
0.52% for the three and nine months ended June 30, 2010, respectively, compared
with 0.66% and 0.67% 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 originated for sale during the nine months ended June
30, 2010 exceeded loans sold, resulting in a $51.9 million, or 48%,
increase in mortgage loans held for sale to $161.1 million at June 30, 2010 from
$109.1 million at September 30, 2009.


- 23
-


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 $85.3 million, or 13%, to
$734.5 million at June 30, 2010 from $649.3 million at September 30,
2009.  Checking accounts, which represent the cornerstone product in a
customer relationship, increased $122.4 million to $488.8 million at June 30,
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 participates in the FDIC’s Transaction Account Guarantee Program, which
provides full FDIC insurance coverage for non interest-bearing transaction
accounts and qualifying NOW accounts, regardless of the dollar amount, and is in
addition to the standard FDIC insurance that was temporarily increased to
$250,000 per depositor.  Both FDIC limits will be in effect through
December 31, 2013.  Money market accounts decreased $39.1 million to
$214.9 million at June 30, 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 0.91% and 0.48%, respectively, at June
30, 2010 compared with 1.25% and 0.76% at September 30, 2009.




Certificates
of deposit decreased $130.9 million to $411.4 million at June 30, 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
$37.6 million decrease in CDARS time deposits to $72.6 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 time deposits were repaid with proceeds from the increase in
core deposits and the proceeds from lower-cost borrowings from the Federal Home
Loan Bank.  Total deposits decreased $45.7 million, or 3.83%, to $1.15
billion at June 30, 2010 from $1.19 billion at September 30, 2009 primarily
as the result of the decrease in brokered time deposits.  Excluding
the decrease in brokered time deposits, total deposits increased
$29.4 million, or 2.65%.




Retail
banking fees, which include fees charged to customers who have overdrawn their
checking accounts and service charges on other retail banking products, were
$1.0 million and $2.8 million for the three and nine months ended June 30, 2010,
respectively, compared with $980,000 and $2.9 million for the same 2009 periods,
respectively.  The increase in retail banking fees during the June
2010 quarter resulted from a change in deposit fee structure.


- 24
-


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.




ThreeMonthsEndedJune30,2010
                    
                    
                    June30,2009Interest
                    
                    
                    
                    
                    
                    
                    
                    
                    InterestAverage
                    
                    
                    and
                    
                    
                    Yield/
                    
                    
                    Average
                    
                    
                    and
                    
                    
                    Yield/Balance
                    
                    
                    Dividends
                    
                    
                    Cost
                    
                    
                    Balance
                    
                    
                    Dividends
                    
                    
                    Cost(Dollars in thousands)Interest-earning
      assets:Loans receivable:
      (1)Real
      estate
                    
                    $
                    295,509
                    
                    
                    $
                    4,378
                    
                    
                    
                    5.93
                    %
                    
                    $
                    322,564
                    
                    
                    $
                    5,023
                    
                    
                    
                    6.23
                    %Commercial
                    
                    
                    590,971
                    
                    
                    
                    7,698
                    
                    
                    
                    5.21
                    %
                    
                    
                    627,216
                    
                    
                    
                    7,834
                    
                    
                    
                    5.00
                    %Home
      equity lines of credit
                    
                    
                    213,409
                    
                    
                    
                    2,103
                    
                    
                    
                    3.94
                    %
                    
                    
                    233,008
                    
                    
                    
                    2,171
                    
                    
                    
                    3.73
                    %Consumer
                    
                    
                    3,486
                    
                    
                    
                    37
                    
                    
                    
                    4.17
                    %
                    
                    
                    3,635
                    
                    
                    
                    46
                    
                    
                    
                    5.20
                    %Total
      loans receivable
                    
                    
                    1,103,375
                    
                    
                    
                    14,216
                    
                    
                    
                    5.15
                    %
                    
                    
                    1,186,423
                    
                    
                    
                    15,074
                    
                    
                    
                    5.08
                    %Mortgage
      loans held for sale
                    
                    
                    120,875
                    
                    
                    
                    1,437
                    
                    
                    
                    4.75
                    %
                    
                    
                    174,728
                    
                    
                    
                    2,047
                    
                    
                    
                    4.69
                    %Securities
      and other
                    
                    
                    58,249
                    
                    
                    
                    269
                    
                    
                    
                    1.85
                    %
                    
                    
                    56,537
                    
                    
                    
                    374
                    
                    
                    
                    2.65
                    %Total
      interest-earning assets
                    
                    
                    1,282,499
                    
                    
                    
                    15,922
                    
                    
                    
                    4.97
                    %
                    
                    
                    1,417,688
                    
                    
                    
                    17,495
                    
                    
                    
                    4.94
                    %Non-interest-earning
      assets
                    
                    
                    79,052
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    66,062Total
      assets
                    
                    $
                    1,361,551
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    1,483,750Interest-bearing
      liabilities:Interest-bearing
      checking
                    
                    $
                    350,924
                    
                    
                    
                    867
                    
                    
                    
                    0.99
                    %
                    
                    $
                    225,110
                    
                    
                    
                    781
                    
                    
                    
                    1.39
                    %Passbook
      savings
                    
                    
                    30,541
                    
                    
                    
                    12
                    
                    
                    
                    0.16
                    %
                    
                    
                    27,092
                    
                    
                    
                    13
                    
                    
                    
                    0.20
                    %Money
      market
                    
                    
                    226,950
                    
                    
                    
                    467
                    
                    
                    
                    0.82
                    %
                    
                    
                    154,305
                    
                    
                    
                    318
                    
                    
                    
                    0.82
                    %Certificates
      of deposit
                    
                    
                    424,384
                    
                    
                    
                    2,407
                    
                    
                    
                    2.27
                    %
                    
                    
                    594,676
                    
                    
                    
                    3,888
                    
                    
                    
                    2.61
                    %Total
      interest-bearing deposits
                    
                    
                    1,032,799
                    
                    
                    
                    3,753
                    
                    
                    
                    1.45
                    %
                    
                    
                    1,001,183
                    
                    
                    
                    5,000
                    
                    
                    
                    2.00
                    %FHLB
      advances
                    
                    
                    69,484
                    
                    
                    
                    341
                    
                    
                    
                    1.96
                    %
                    
                    
                    103,711
                    
                    
                    
                    841
                    
                    
                    
                    3.25
                    %Federal
      Reserve borrowings
                    
                    
                    121
                    
                    
                    
                    -
                    
                    
                    
                    0.75
                    %
                    
                    
                    118,297
                    
                    
                    
                    80
                    
                    
                    
                    0.27
                    %Subordinated
      debentures
                    
                    
                    19,589
                    
                    
                    
                    127
                    
                    
                    
                    2.59
                    %
                    
                    
                    19,589
                    
                    
                    
                    172
                    
                    
                    
                    3.50
                    %Total
      interest-bearing liabilities
                    
                    
                    1,121,993
                    
                    
                    
                    4,221
                    
                    
                    
                    1.50
                    %
                    
                    
                    1,242,780
                    
                    
                    
                    6,093
                    
                    
                    
                    1.96
                    %Non-interest
      bearing liabilities:Non-interest
      bearing deposits
                    
                    
                    112,279
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    106,258Other
      non-interest bearing liabilities
                    
                    
                    11,930
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    14,422Total
      non-interest-bearing liabilities
                    
                    
                    124,209
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    120,680Stockholders'
      equity
                    
                    
                    115,349
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    120,290Total
      liabilities and stockholders' equity
                    
                    $
                    1,361,551
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    1,483,750Net
      interest income
                    
                    
                    
                    
                    
                    $
                    11,701
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    11,402Interest rate
      spread(2)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3.47
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2.98
                    %Net interest
      margin(3)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3.65
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3.22
                    %Ratio
      of average interest-earning assets to average interest-bearing
      liabilities
                    
                    
                    114.31
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    114.07
                    %





(1) Includes non-accrual loans
with an average balance of $19.0 million and $20.3 million for the three months
ended June 30, 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
-




NineMonthsEndedJune30,2010
                                      
                                      
                                      June30,2009Interest
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      InterestAverage
                                      
                                      
                                      and
                                      
                                      
                                      Yield/
                                      
                                      
                                      Average
                                      
                                      
                                      and
                                      
                                      
                                      Yield/Balance
                                      
                                      
                                      Dividends
                                      
                                      
                                      Cost
                                      
                                      
                                      Balance
                                      
                                      
                                      Dividends
                                      
                                      
                                      Cost(Dollars in thousands)Interest-earning assets:Loans
      receivable:  (1)Real
      estate
                                      
                                      $
                                      299,745
                                      
                                      
                                      $
                                      13,754
                                      
                                      
                                      
                                      6.12
                                      %
                                      
                                      $
                                      334,224
                                      
                                      
                                      $
                                      16,096
                                      
                                      
                                      
                                      6.42
                                      %Commercial
                                      
                                      
                                      605,994
                                      
                                      
                                      
                                      23,315
                                      
                                      
                                      
                                      5.13
                                      %
                                      
                                      
                                      589,361
                                      
                                      
                                      
                                      22,022
                                      
                                      
                                      
                                      4.98
                                      %Home
      equity lines of credit
                                      
                                      
                                      219,412
                                      
                                      
                                      
                                      6,540
                                      
                                      
                                      
                                      3.97
                                      %
                                      
                                      
                                      230,569
                                      
                                      
                                      
                                      7,040
                                      
                                      
                                      
                                      4.07
                                      %Consumer
                                      
                                      
                                      3,560
                                      
                                      
                                      
                                      119
                                      
                                      
                                      
                                      4.47
                                      %
                                      
                                      
                                      3,656
                                      
                                      
                                      
                                      154
                                      
                                      
                                      
                                      5.62
                                      %Total
      loans receivable
                                      
                                      
                                      1,128,711
                                      
                                      
                                      
                                      43,728
                                      
                                      
                                      
                                      5.17
                                      %
                                      
                                      
                                      1,157,810
                                      
                                      
                                      
                                      45,312
                                      
                                      
                                      
                                      5.22
                                      %Mortgage
      loans held for sale
                                      
                                      
                                      116,968
                                      
                                      
                                      
                                      4,150
                                      
                                      
                                      
                                      4.73
                                      %
                                      
                                      
                                      125,844
                                      
                                      
                                      
                                      4,471
                                      
                                      
                                      
                                      4.74
                                      %Securities
      and other
                                      
                                      
                                      69,003
                                      
                                      
                                      
                                      939
                                      
                                      
                                      
                                      1.81
                                      %
                                      
                                      
                                      58,923
                                      
                                      
                                      
                                      1,204
                                      
                                      
                                      
                                      2.72
                                      %Total
      interest-earning assets
                                      
                                      
                                      1,314,682
                                      
                                      
                                      
                                      48,817
                                      
                                      
                                      
                                      4.95
                                      %
                                      
                                      
                                      1,342,577
                                      
                                      
                                      
                                      50,987
                                      
                                      
                                      
                                      5.06
                                      %Non-interest-earning
      assets
                                      
                                      
                                      73,776
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      71,160Total
      assets
                                      
                                      $
                                      1,388,458
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      1,413,737Interest-bearing
      liabilities:Interest-bearing
      checking
                                      
                                      $
                                      324,441
                                      
                                      
                                      
                                      2,781
                                      
                                      
                                      
                                      1.14
                                      %
                                      
                                      $
                                      206,822
                                      
                                      
                                      
                                      2,649
                                      
                                      
                                      
                                      1.71
                                      %Passbook
      savings
                                      
                                      
                                      29,359
                                      
                                      
                                      
                                      46
                                      
                                      
                                      
                                      0.21
                                      %
                                      
                                      
                                      26,116
                                      
                                      
                                      
                                      38
                                      
                                      
                                      
                                      0.20
                                      %Money
      market
                                      
                                      
                                      241,552
                                      
                                      
                                      
                                      1,805
                                      
                                      
                                      
                                      1.00
                                      %
                                      
                                      
                                      143,365
                                      
                                      
                                      
                                      1,151
                                      
                                      
                                      
                                      1.07
                                      %Certificates
      of deposit
                                      
                                      
                                      458,571
                                      
                                      
                                      
                                      8,087
                                      
                                      
                                      
                                      2.35
                                      %
                                      
                                      
                                      566,524
                                      
                                      
                                      
                                      12,598
                                      
                                      
                                      
                                      2.96
                                      %Total
      interest-bearing deposits
                                      
                                      
                                      1,053,923
                                      
                                      
                                      
                                      12,719
                                      
                                      
                                      
                                      1.61
                                      %
                                      
                                      
                                      942,827
                                      
                                      
                                      
                                      16,436
                                      
                                      
                                      
                                      2.32
                                      %FHLB
      advances
                                      
                                      
                                      79,660
                                      
                                      
                                      
                                      1,404
                                      
                                      
                                      
                                      2.35
                                      %
                                      
                                      
                                      138,088
                                      
                                      
                                      
                                      2,927
                                      
                                      
                                      
                                      2.83
                                      %Federal
      Reserve borrowings
                                      
                                      
                                      109
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      0.59
                                      %
                                      
                                      
                                      89,125
                                      
                                      
                                      
                                      295
                                      
                                      
                                      
                                      0.44
                                      %Note
      payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,106
                                      
                                      
                                      
                                      113
                                      
                                      
                                      
                                      4.87
                                      %Subordinated
      debentures
                                      
                                      
                                      19,589
                                      
                                      
                                      
                                      378
                                      
                                      
                                      
                                      2.57
                                      %
                                      
                                      
                                      19,589
                                      
                                      
                                      
                                      618
                                      
                                      
                                      
                                      4.21
                                      %Total
      interest-bearing liabilities
                                      
                                      
                                      1,153,281
                                      
                                      
                                      
                                      14,501
                                      
                                      
                                      
                                      1.68
                                      %
                                      
                                      
                                      1,192,735
                                      
                                      
                                      
                                      20,389
                                      
                                      
                                      
                                      2.28
                                      %Non-interest
      bearing liabilities:Non-interest
      bearing deposits
                                      
                                      
                                      104,044
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      100,781Other
      non-interest bearing liabilities
                                      
                                      
                                      13,135
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      14,234Total
      non-interest-bearing liabilities
                                      
                                      
                                      117,179
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      115,015Stockholders'
      equity
                                      
                                      
                                      117,998
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      105,987Total
      liabilities and stockholders' equity
                                      
                                      $
                                      1,388,458
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      1,413,737Net
      interest income
                                      
                                      
                                      
                                      
                                      
                                      $
                                      34,316
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      30,598Interest rate
      spread(2)
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      3.27
                                      %
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      2.78
                                      %Net interest
      margin(3)
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      3.48
                                      %
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      3.04
                                      %Ratio
      of average interest-earning assets to average interest-bearing
      liabilities
                                      
                                      
                                      113.99
                                      %
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      112.56
                                      %





(1) Includes non-accrual loans
with an average balance of $20.2 million and $15.3 million for the nine months
ended June 30, 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.


- 26
-


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
                  
                  
                  Nine Months EndedJune 30, 2010 vs 2009
                  
                  
                  June 30, 2010 vs 2009Volume
                  
                  
                  Rate
                  
                  
                  Net
                  
                  
                  Volume
                  
                  
                  Rate
                  
                  
                  Net(In thousands)Interest-earning
      assets:Loans
      receivable:Real
      estate
                  
                  $
                  (409
                  )
                  
                  $
                  (236
                  )
                  
                  $
                  (645
                  )
                  
                  $
                  (1,612
                  )
                  
                  $
                  (730
                  )
                  
                  $
                  (2,342
                  )Commercial
                  
                  
                  (1,604
                  )
                  
                  
                  1,468
                  
                  
                  
                  (136
                  )
                  
                  
                  625
                  
                  
                  
                  668
                  
                  
                  
                  1,293Home
      equity lines of credit
                  
                  
                  (626
                  )
                  
                  
                  558
                  
                  
                  
                  (68
                  )
                  
                  
                  (332
                  )
                  
                  
                  (168
                  )
                  
                  
                  (500
                  )Consumer
                  
                  
                  (2
                  )
                  
                  
                  (7
                  )
                  
                  
                  (9
                  )
                  
                  
                  (4
                  )
                  
                  
                  (31
                  )
                  
                  
                  (35
                  )Total
      loans receivable
                  
                  
                  (2,641
                  )
                  
                  
                  1,783
                  
                  
                  
                  (858
                  )
                  
                  
                  (1,323
                  )
                  
                  
                  (261
                  )
                  
                  
                  (1,584
                  )Mortgage
      loans held for sale
                  
                  
                  (788
                  )
                  
                  
                  178
                  
                  
                  
                  (610
                  )
                  
                  
                  (310
                  )
                  
                  
                  (11
                  )
                  
                  
                  (321
                  )Securities
      and other
                  
                  
                  (150
                  )
                  
                  
                  45
                  
                  
                  
                  (105
                  )
                  
                  
                  (163
                  )
                  
                  
                  (102
                  )
                  
                  
                  (265
                  )Net
      change in income on interest earning assets
                  
                  
                  (3,579
                  )
                  
                  
                  2,006
                  
                  
                  
                  (1,573
                  )
                  
                  
                  (1,796
                  )
                  
                  
                  (374
                  )
                  
                  
                  (2,170
                  )Interest-bearing
      liabilities:Interest-bearing
      checking
                  
                  
                  1,245
                  
                  
                  
                  (1,159
                  )
                  
                  
                  86
                  
                  
                  
                  1,570
                  
                  
                  
                  (1,438
                  )
                  
                  
                  132Passbook
      savings
                  
                  
                  8
                  
                  
                  
                  (9
                  )
                  
                  
                  (1
                  )
                  
                  
                  5
                  
                  
                  
                  3
                  
                  
                  
                  8Money
      market
                  
                  
                  149
                  
                  
                  
                  -
                  
                  
                  
                  149
                  
                  
                  
                  779
                  
                  
                  
                  (125
                  )
                  
                  
                  654Certificates
      of deposit
                  
                  
                  (1,018
                  )
                  
                  
                  (463
                  )
                  
                  
                  (1,481
                  )
                  
                  
                  (2,167
                  )
                  
                  
                  (2,344
                  )
                  
                  
                  (4,511
                  )Total
      interest-bearing deposits
                  
                  
                  384
                  
                  
                  
                  (1,631
                  )
                  
                  
                  (1,247
                  )
                  
                  
                  187
                  
                  
                  
                  (3,904
                  )
                  
                  
                  (3,717
                  )FHLB
      advances
                  
                  
                  (227
                  )
                  
                  
                  (273
                  )
                  
                  
                  (500
                  )
                  
                  
                  (1,088
                  )
                  
                  
                  (435
                  )
                  
                  
                  (1,523
                  )Federal
      Reserve borrowings
                  
                  
                  (437
                  )
                  
                  
                  357
                  
                  
                  
                  (80
                  )
                  
                  
                  (419
                  )
                  
                  
                  124
                  
                  
                  
                  (295
                  )Note
      payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (57
                  )
                  
                  
                  (56
                  )
                  
                  
                  (113
                  )Subordinated
      debentures
                  
                  
                  -
                  
                  
                  
                  (45
                  )
                  
                  
                  (45
                  )
                  
                  
                  -
                  
                  
                  
                  (240
                  )
                  
                  
                  (240
                  )Net
      change in expense on interest bearing liabilities
                  
                  
                  (280
                  )
                  
                  
                  (1,592
                  )
                  
                  
                  (1,872
                  )
                  
                  
                  (1,377
                  )
                  
                  
                  (4,511
                  )
                  
                  
                  (5,888
                  )Change
      in net interest income
                  
                  $
                  (3,299
                  )
                  
                  $
                  3,598
                  
                  
                  $
                  299
                  
                  
                  $
                  (419
                  )
                  
                  $
                  4,137
                  
                  
                  $
                  3,718


- 27
-


RESULTS
OF OPERATIONS





The
Company reported net income
for the quarter ended June 30, 2010 of $3.2 million compared with net income of
$2.0 million during the same quarter last year.  For the nine
months ended June 30, 2010, the Company reported net income of $106,000 compared
with net income of $4.4 million during the same period last
year.  The Company reported net income
available to common shares for the quarter ended June 30, 2010 of $2.7
million, or $0.25 per diluted common share on 10.6 million average diluted
shares outstanding, compared with net income available to common shares of
$1.5 million, or $0.14 per diluted common share on 10.4 million
average diluted shares outstanding, during the same quarter last year. For the
nine months ended June 30, 2010, the Company reported a net loss available to
common shares of $1.4 million, or $0.14 per diluted common share on 10.4 million
average diluted shares outstanding, compared with net income available to common
shares of $3.6 million, or $0.35 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 nine months ended June 30, 2010 were negatively impacted by
provisions for loan losses totaling $4.5 million and $21.8 million,
respectively, compared with $6.2 million and $16.5 million, respectively,
for the same periods in 2009.  Also reducing income available to
common shares for the three and nine months ended June 30, 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 $1.5 million, or $0.15 per
diluted common share, respectively, compared with $514,000, or $0.05 per diluted
common share, and $751,000 or $0.07 per diluted common share, in the comparable
2009 periods, respectively.





Net interest
income rose 3.0%, or $299,000, to $11.7 million for the quarter ended
June 30, 2010 compared with $11.4 million for the same period last year
primarily as the result of an increase in the net interest margin, largely
offset by a decrease in the average balance of interest-earning
assets.  The net interest margin increased to 3.65% for the quarter
ended June 30, 2010 compared with 3.22% for the quarter ended June 30, 2009
primarily as the result of a market-driven decline in the cost of deposits and
wholesale borrowings.  The average balance of interest-earning assets
decreased to $1.28 billion for the quarter ended June 30, 2010 compared
with $1.42 billion for the quarter ended June 30, 2009 primarily at the result
of declines in the average balances of loans receivable and mortgage loans held
for sale.




For the
nine months ended June 30, 2010, net interest income rose to $34.3 million
compared with $30.6 million for the same nine-month period last year primarily
as the result of an increase in the net interest margin to 3.48% for the nine
months ended June 30, 2010 compared with 3.04% for the 2009
period.  The net interest margin during the nine-month period also
benefited from a market-driven decline in the cost of deposits and wholesale
borrowings.  The average balance of interest-earning assets decreased
to $1.31 billion for the nine months ended June 30, 2010 compared with
$1.34 billion for the nine months ended June 30, 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.




Total interest
and dividend income decreased 9.0% to $15.9 million for the quarter ended
June 30, 2010, compared with $17.5 million for the same quarter last year
and decreased 4.3% to $48.8 million for the nine months ended June 30, 2010
compared with $51.0 million for the same period a year ago primarily as the
result of decreases in interest income on loans receivable and mortgage loans
held for sale.




Interest income
on loans receivable decreased 5.7% to $14.2 million for the quarter ended
June 30, 2010, compared with $15.1 million for the same quarter last year
as the result of a decrease in the average balance partially offset by an
increase in the average yield.  The average balance of loans
receivable decreased to $1.10 billion during the three months ended
June 30, 2010, compared with $1.19 billion during the same 2009 period
primarily as the result of weakened market demand for the Company’s loan
products and the Company’s tightened underwriting standards.  The
average yield on loans receivable increased to 5.15% during the three months
ended June 30, 2010 compared with 5.08% during the same 2009 period primarily as
the result of an 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 home equity loans benefitted from decreased amortization of deferred
origination costs as the Bank began passing through such costs to its
customers.  The yield on commercial loans benefitted from the
implementation of interest-rate floors on new and renewing
loans.


- 28
-


For the
nine-month periods, interest income on loans receivabledecreased
3.5% to $43.7 million for the 2010 period, compared with $45.3 million for
the 2009 period.  The average balance of loans receivable was $1.13
billion for the nine month period ended June 30, 2010 compared with $1.16
billion during the same 2009 period while the average yield on loans receivable
decreased to 5.17% during the nine months ended June 30, 2010 from 5.22% 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 partially offset by
an increase in the average yield on commercial loans.




Interest income
on mortgage loans held for saledecreased 29.8% to $1.4 million for the
quarter ended June 30, 2010, compared with $2.0 million for the same
quarter last year as the result of a decrease in the average balance, partially
offset by a market-driven, six-basis point increase in the average
yield.  The average balance of mortgage loans held for sale decreased
to $120.9 million during the three months ended June 30, 2010 compared with
$174.7 million during the same 2009 period as the result of decreased
origination activity.  The average yield on mortgage loans held for
sale was 4.75% during the three months ended June 30, 2010 compared with 4.69%
during the same 2009 period. See Results of Community Banking
Strategy – Retail Mortgage Lending.




For the
nine month periods, interest income on mortgage loans held for sale decreased
7.2% to $4.2 million for the 2010 period, compared with $4.5 million for
the same period last year primarily as the result of a decrease in the average
balance.  The average balance of mortgage loans held for sale
decreased to $117.0 million during the nine months ended June 30, 2010
compared with $125.8 million during the same 2009 period as the result of
increased origination activity.  The average yield on mortgage loans
held for sale was 4.73% for the nine months ended June 30, 2010 compared with
4.74% for the nine months ended June 30, 2009.




Total interest
expense decreased $1.9 million, or 30.7%, to $4.2 million for the quarter
ended June 30, 2010 compared with $6.1 million for the quarter ended June 30,
2009 and decreased $5.9 million, or 28.9%, to $14.5 million for the nine months
ended June 30, 2010 compared with $20.4 million for the same nine-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 1.96%
for the quarter ended June 30, 2009 to 1.50% for the quarter ended June 30, 2010
and the average balance of interest-bearing liabilities decreased from $1.24
billion to $1.12 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 nine months ended June 30, 2010,
the average cost of funds decreased to 1.68% from 2.28% for the same nine-month
period last year and the average balance of interest-bearing liabilities
decreased to $1.15 billion for the nine-month period ended June 30, 2010
compared to $1.19 billion for the same period a year ago.  The
decreased average cost during the three- and nine-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 $1.2 million, or 24.9%, to $3.8 million during the
quarter ended June 30, 2010 compared with $5.0 million for the quarter ended
June 30, 2009.  For the nine months ended June 30, 2010, interest
expense on deposits was $12.7 million compared with $16.4 million for the same
period a year ago.  The decreases were primarily the result of
market-driven decreases in the average cost partially offset by increases in the
average balance.  The average cost decreased to 1.45% for the quarter
ended June 30, 2010 from 2.00% for the quarter ended June 30, 2009 while the
average balance increased to $1.03 billion from $1.00 billion during the same
periods, respectively.  For the nine-month periods, the average cost
decreased to 1.61% in 2010 from 2.32% in 2009 while the average balance
increased to $1.05 billion from $942.8 million during the same periods,
respectively.  See Results of Community Banking
Strategy – Retail Banking Services.




Interest expense
on advances from the Federal Home Loan Bank decreased $501,000, or 59.5%,
to $341,000 during the quarter ended June 30, 2010 compared with $841,000 for
the quarter ended June 30, 2009 and decreased to $1.4 million during the nine
months ended June 30, 2010 compared with $2.9 million for the same nine-month
period last year primarily as the result of decreases in the average balance and
average cost.  The average balance decreased to $69.5 million for
the quarter ended June 30, 2010 from $103.7 million for the quarter ended
June 30, 2009 and the average cost decreased from 3.25% to 1.96% during the same
periods, respectively.  For the nine-month periods, the average
balance decreased to $79.7 million during 2010 from $138.1 million during 2009
and the average cost decreased from 2.83% to 2.35% 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 periods.




- 29
-




Provision
for Loan Losses




The provision for
loan losses for the three and nine months ended June 30, 2010 was $4.5
million and $21.8 million respectively, compared with $6.2 million and $16.5
million, respectively, for the same periods a year ago.  The changes
in the provision for the three- and nine-month periods were primarily due to a
changes in the levels of net charge-offs and the balance of non-performing
loans.  See Non-Performing AssetsandAllowance for Loan
Losses.




Non-Interest
Income




Total
non-interest income decreased 38.9% to $3.7 million for the quarter ended
June 30, 2010 compared with $6.1 million for the same period last
year.  For the nine months ended June 30, 2010, total non-interest
income decreased $3.9 million to $11.6 million compared with $15.4 million for
the same nine-month period last year.  The decreases were primarily
the result of lower mortgage revenues.  See Results of Community Banking
Strategy – Retail Mortgage Lending.




Investment
brokerage revenuestotaled $610,000 and
$1.4 million for the three and nine months ended June 30, 2010, respectively,
compared with $365,000 and $1.0 million, respectively, for the same periods 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 June
2010 periods compared with the prior-year periods as a result of stronger market
demand for fixed-income investment products in the midst of a favorable interest
rate environment and weakened loan demand by the Company’s investment
customers.




Gain on sales of
securities totaled $244,000 for the nine months ended June 30, 2009
on sales of $51.1 million of debt securities classified as available for
sale.  There were no such sales during the nine months ended June 30,
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.




Other
non-interest income totaled $84,000 and $412,000 for the three and nine
months ended June 30, 2010, respectively, compared with $70,000 and $185,000 for
the same 2009 periods.  The increase for the nine-month period 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 expense decreased $1.2 million to $7.3 million for the
quarter ended June 30, 2010 compared with $8.6 million for the same period
a year ago.  For the nine months ended June 30, 2010, total
non-interest expense increased $621,000 to $23.9 million compared with
$23.3 million for the same nine-month period last year.




Salaries and
employee benefits expense decreased $467,000 to $3.2 million for the
quarter ended June 30, 2010 compared with $3.6 million for the quarter ended
June 30, 2009 but increased $149,000 to $10.7 million for the nine months ended
June 30, 2010 compared with $10.6 million for the nine months ended June 30,
2009.  The decrease from the prior-year quarter was primarily the
result of a higher level of direct, fixed compensation costs deferred against
mortgage loans originated. The increase for the nine months ended June 30,
2010 was primarily the result of additional expense for temporary employees
related to the increased mortgage lending volumes and the addition of other
key personnel to support the Company’s expanded operations.




- 30
-


Advertising
expense decreased $114,000 to $135,000 for the three months ended June
30, 2010 compared with $249,000 for the three months ended June 30, 2009 and
decreased $368,000 to $377,000 for the nine months ended June 30, 2010 compared
with $744,000 for the nine months ended June 30, 2009.  The decreases
were generally due to a reduction in the overall level of advertising during the
2010 periods resulting from a more focused effort to control such
expenses.




Professional
fees decreased $111,000 to $290,000 for the quarter ended June 30, 2010
compared with $402,000 for the quarter ended June 30, 2009.  The
decrease was primarily the result of lower expenses associated with loan
collection activity during the June 2010 quarter.  For the nine months
ended June 30, 2010, professional fees increased $322,000 to $1.4 million
compared with $1.0 million for the same nine-month period last
year.  The increase was generally due to increased expenses related to
regulatory compliance and increased loan collection activity during the nine
months ended June 30, 2010 that resulted from the depressed economic
environment.





FDIC deposit
insurance premiumexpensedecreased
$671,000 to $493,000 for the three months ended June 30, 2010 compared with
$1.2 million for the same period in 2009 and decreased $295,000 to $1.5 million
for the nine months ended June 30, 2010 compared with $1.8 million for the nine
months ended June 30, 2009.  The decrease for the three-month period
was due to a $700,000 charge for an industry-wide FDIC special assessment in the
June 2009 quarter.  No such assessment was incurred in the 2010
period.  The decrease for the nine-month period was due to the absence
of the special assessment in 2010, partially offset by industry-wide increases
in FDIC deposit insurance rates and deposit growth during the nine months ended
June 30, 2010.




Income
Taxes




The provision for
income taxes decreased $366,000 to $410,000, or an effective rate of
11.42%, for the quarter ended June 30, 2010, compared with $776,000, or an
effective rate of 27.80%, for the three months ended June 30,
2009.  For the nine months ended June 30, 2010, the provision for
income taxes decreased $1.8 million to $6,000, or an effective rate of 5.49%,
compared with $1.8 million, or an effective rate of 29.64%, for the same
nine-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.


- 31
-




NON-PERFORMING
ASSETS AND ALLOWANCE FOR LOAN LOSSES




Non-performing
assets at June 30, 2010, March 31, 2010, and September 30, 2009 are summarized
as follows:




June 30,
                
                
                March 31,
                
                
                September 30,2010
                
                
                2010
                
                
                2009Non-accrual
      loans:Residential
      real estate:First
      mortgage
                
                $
                8,341,267
                
                
                $
                5,662,202
                
                
                $
                7,093,095Second
      mortgage
                
                
                1,685,222
                
                
                
                777,938
                
                
                
                629,183Home
      equity
                
                
                2,994,953
                
                
                
                2,761,159
                
                
                
                3,086,013Commercial
      and multi-family real estate
                
                
                2,104,247
                
                
                
                3,108,588
                
                
                
                2,594,526Land
      acquisition and development
                
                
                768,920
                
                
                
                3,106,038
                
                
                
                2,193,457Real
      estate construction and development
                
                
                875,607
                
                
                
                1,465,644
                
                
                
                7,454,604Commercial
      and industrial
                
                
                151,363
                
                
                
                2,735,634
                
                
                
                702,999Consumer
      and other
                
                
                112,480
                
                
                
                98,476
                
                
                
                219,849Total
      non-accrual loans
                
                
                17,034,059
                
                
                
                19,715,679
                
                
                
                23,973,726Accruing
      loans past due 90 days or more:Residential
      real estate:First
      mortgage
                
                
                -
                
                
                
                -
                
                
                
                1,394Second
      mortgage
                
                
                -
                
                
                
                -
                
                
                
                27,531Home
      equity
                
                
                -
                
                
                
                -
                
                
                
                42,720Land
      acquisition and development
                
                
                -
                
                
                
                -
                
                
                
                315,589Total
      accruing loans past due 90 days or more
                
                
                -
                
                
                
                -
                
                
                
                387,234Troubled
      debt restructurings:Current
      under restructured terms:Residential
      real estate:First
      mortgage
                
                
                17,321,098
                
                
                
                15,169,737
                
                
                
                17,785,408Second
      mortgage
                
                
                1,619,570
                
                
                
                1,639,419
                
                
                
                2,062,096Home
      equity
                
                
                1,421,528
                
                
                
                1,631,132
                
                
                
                1,694,670Commercial
      and multi-family real estate
                
                
                164,564
                
                
                
                164,564
                
                
                
                -Land
      acquisition and development  Land acquisition and
      development
                
                
                121,465
                
                
                
                -
                
                
                
                107,041Real
      estate construction and development
                
                
                3,577,880
                
                
                
                4,674,305
                
                
                
                100,404Commercial
      and industrial
                
                
                1,856,200
                
                
                
                119,186
                
                
                
                787,485Consumer
      and other
                
                
                85,000
                
                
                
                87,345
                
                
                
                91,967Total
      current troubled debt restructurings
                
                
                26,167,305
                
                
                
                23,485,688
                
                
                
                22,629,071Past
      due under restructured terms:Residential
      real estate:First
      mortgage
                
                
                5,278,251
                
                
                
                8,125,665
                
                
                
                2,787,514Second
      mortgage
                
                
                1,249,066
                
                
                
                1,468,413
                
                
                
                745,704Home
      equity
                
                
                463,603
                
                
                
                321,189
                
                
                
                150,153Commercial
      and multi-family real estate
                
                
                -
                
                
                
                3,234,950
                
                
                
                7,830,991Land
      acquisition and development Land acquisition and
    development
                
                
                -
                
                
                
                121,718
                
                
                
                57,277Real
      estate construction and development
                
                
                100,404
                
                
                
                100,404
                
                
                
                -Commercial
      and industrial
                
                
                -
                
                
                
                177,958
                
                
                
                776,938Total
      past due troubled debt restructurings
                
                
                7,091,324
                
                
                
                13,550,297
                
                
                
                12,348,577Total
      troubled debt restructurings
                
                
                33,258,629
                
                
                
                37,035,985
                
                
                
                34,977,648Total
      non-performing loans
                
                
                50,292,688
                
                
                
                56,751,664
                
                
                
                59,338,608Real
      estate acquired in settlement of loans:Residential
      real estate
                
                
                4,038,452
                
                
                
                3,133,915
                
                
                
                3,386,106Commercial
      real estate
                
                
                12,001,856
                
                
                
                10,765,629
                
                
                
                5,068,504Total
      real estate acquired in settlement of loans
                
                
                16,040,308
                
                
                
                13,899,544
                
                
                
                8,454,610Other
      nonperforming assets
                
                
                -
                
                
                
                -
                
                
                
                -Total
      non-performing assets
                
                $
                66,332,996
                
                
                $
                70,651,208
                
                
                $
                67,793,218Ratio
      of non-performing loans to total loans receivable
                
                
                4.61
                %
                
                
                5.11
                %
                
                
                5.16
                %Ratio
      of non-performing assets to totals assets
                
                
                4.78
                %
                
                
                5.16
                %
                
                
                4.82
                %Ratio
      of allowance for loan losses to non-performing loans
                
                
                53.33
                %
                
                
                46.68
                %
                
                
                34.68
                %Excluding
      troubled debt restructurings that are current under restructured terms and
      related allowance for loan losses:Ratio
      of non-performing loans to total loans receivable
                
                
                2.21
                %
                
                
                3.00
                %
                
                
                3.19
                %Ratio
      of non-performing assets to totals assets
                
                
                2.89
                %
                
                
                3.45
                %
                
                
                3.21
                %Ratio
      of allowance for loan losses to non-performing loans
                
                
                108.89
                %
                
                
                79.59
                %
                
                
                55.94
                %


- 32
-


Non-performing
assets decreased $4.3 million to $66.3 million at June 30, 2010 compared with
$70.7 million at March 31, 2010 primarily the result of a $2.7 million decrease
in non-accrual loans and a $3.8 million decrease in troubled debt
restructurings, partially offset by a $2.1 million increase in real estate
acquired through foreclosure.  For the nine-month period,
non-performing assets decreased $1.5 million from $67.8 million at September 30,
2009, primarily as the result of a $6.9 million decrease in non-accrual loans
and a $1.7 million decrease in troubled debt restructurings partially offset
by a $7.6 million increase in real estate acquired in settlement of
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 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.  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 $27.4 million at June 30, 2010 compared with $28.4
million at March 31, 2010 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
the Bank’s ultimate recoveries on these loans.  The restructured terms
of the loans generally included a reduction of the interest rates and the
addition of past due interest to the principal balance of the
loans.  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 nine months ended June
30, 2010, the Company restructured approximately $4.0 million and $17.9 million,
respectively, of loans to troubled residential borrowers and returned
approximately $4.6 million and $12.5 million, respectively, of previously
restructured residential loans to performing status as the result of the
borrowers’ favorable performance history since restructuring.  At June
30, 2010, $27.4 million, or 82% of total restructured loans, related to
residential borrowers compared with $28.4 million, or 77% of total restructured
loans, at March 31, 2010 and $25.2 million, or 72% of total restructured loans,
at September 30, 2009.  At June 30, 2010, 74% of these residential
borrowers were performing as agreed under the modified terms of the loans
compared with 65% at March 31, 2010 and 85% at September 30,
2009.  The fluctuations in the percentage of restructured residential
loans that were performing under their modified terms were primarily the result
of returning a portion of such loans to performing status during the three- and
nine-months ended June 30, 2010.




Restructured
commercial loans totaled $5.8 million at June 30, 2010 compared with $8.6
million at March 31, 2010 and $9.7 million at September 30,
2009.  Contributing to the decrease in commercial troubled debt
restructurings during the nine month period ended June 30, 2010 was the
foreclosure on and sale of the property securing 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 carrying value of the loan, which was included in
past-due troubled debt restructurings, was $3.2 million and $7.8 million at
March 31, 2010 and September 30, 2009.  The Company recorded a
$3.2 million partial charge-off during the March 2010 quarter and
subsequently sold the property for cash during May 2010.




Also
contributing to the fluctuations in troubled debt restructurings and non-accrual
loans during the nine-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 $3.6 million and $4.7
million at June 30, 2010 and March 31, 2010, 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.




- 33
-


Non-accrual
loans totaled $17.0 million at June 30, 2010 compared with $19.7 million at
March 31, 2010 and $24.0 million at September 30, 2009.  The
decrease during the three-month period was primarily due to a $6.5 million
decrease in non-accrual commercial loans resulting primarily from the pay down,
foreclosure or charge-off of such loans, partially offset by a $3.8 million
increase in non-accrual residential loans.  The decrease during the
nine-month period was primarily the result of the restructuring of the
commercial loan discussed above that was secured 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 loans increased to $16.0 million at June
30, 2010 compared with $8.5 million at September 30, 2009, and increased from
$13.9 million at March 31, 2010.  Contributing to the increase during
the nine-month period was the foreclosure, during the December 2009 quarter, on
a commercial loan secured by a retail strip shopping center in the
St. Louis metropolitan area resulting in a $1.8 million charge-off and a
$6.8 million increase in real estate acquired in settlement of
loans.




Real
estate foreclosure losses and expense was $550,000 and $1.9 million for the
three and nine months ended June 30, 2010, respectively, compared with
$314,000 and $1.1 million for the same 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.  The increased expense for the nine months ended
June 30, 2010 was primarily the result of an $826,000 write-down in the March
2010 quarter 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
upon a new appraisal.




- 34
-


The
following table summarizes the activity in the allowance for loan losses for the
period indicated.





Three Months Ended
                  
                  
                  Nine Months EndedJune 30,
                  
                  
                  June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Balance,
      beginning of period
                  
                  $
                  26,493,763
                  
                  
                  $
                  18,467,535
                  
                  
                  $
                  20,579,170
                  
                  
                  $
                  12,761,532Provision
      charged to expense
                  
                  
                  4,500,000
                  
                  
                  
                  6,154,000
                  
                  
                  
                  21,814,000
                  
                  
                  
                  16,509,985Charge-offs:Residential
      real estate first mortgage
                  
                  
                  1,515,444
                  
                  
                  
                  773,507
                  
                  
                  
                  2,774,856
                  
                  
                  
                  3,095,717Residential
      real estate second mortgage
                  
                  
                  493,979
                  
                  
                  
                  407,461
                  
                  
                  
                  984,783
                  
                  
                  
                  869,940Home
      equity lines of credit
                  
                  
                  864,029
                  
                  
                  
                  568,752
                  
                  
                  
                  2,258,307
                  
                  
                  
                  1,806,604Land
      acquisition and development
                  
                  
                  818,100
                  
                  
                  
                  1,837,175
                  
                  
                  
                  1,144,690
                  
                  
                  
                  1,837,175Real
      estate construction & development
                  
                  
                  299,531
                  
                  
                  
                  6,788
                  
                  
                  
                  2,180,373
                  
                  
                  
                  473,491Commercial
      & multi-family real estate
                  
                  
                  385,178
                  
                  
                  
                  -
                  
                  
                  
                  4,323,493
                  
                  
                  
                  -Commercial
      & industrial
                  
                  
                  67,958
                  
                  
                  
                  252,712
                  
                  
                  
                  2,198,222
                  
                  
                  
                  383,684Consumer
      and other
                  
                  
                  37,618
                  
                  
                  
                  37,632
                  
                  
                  
                  145,175
                  
                  
                  
                  112,637Total
      charge-offs
                  
                  
                  4,481,837
                  
                  
                  
                  3,884,027
                  
                  
                  
                  16,009,899
                  
                  
                  
                  8,579,248Recoveries:Residential
      real estate first mortgage
                  
                  
                  49,846
                  
                  
                  
                  1,708
                  
                  
                  
                  103,575
                  
                  
                  
                  11,180Residential
      real estate second mortgage
                  
                  
                  1,193
                  
                  
                  
                  1,526
                  
                  
                  
                  31,058
                  
                  
                  
                  2,034Home
      equity lines of credit
                  
                  
                  10,730
                  
                  
                  
                  1,485
                  
                  
                  
                  17,544
                  
                  
                  
                  13,028Real
      estate construction & development
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,000
                  
                  
                  
                  -Commercial
      and multi-family real estate
                  
                  
                  49,512
                  
                  
                  
                  -
                  
                  
                  
                  59,766
                  
                  
                  
                  14,283Commercial
      & industrial
                  
                  
                  196,517
                  
                  
                  
                  -
                  
                  
                  
                  212,321
                  
                  
                  
                  -Consumer
      and other
                  
                  
                  872
                  
                  
                  
                  1,243
                  
                  
                  
                  8,061
                  
                  
                  
                  10,676Total
      recoveries
                  
                  
                  308,670
                  
                  
                  
                  5,962
                  
                  
                  
                  437,325
                  
                  
                  
                  51,201Net
      charge-offs
                  
                  
                  4,173,167
                  
                  
                  
                  3,878,065
                  
                  
                  
                  15,572,574
                  
                  
                  
                  8,528,047Balance,
      end of period
                  
                  $
                  26,820,596
                  
                  
                  $
                  20,743,470
                  
                  
                  $
                  26,820,596
                  
                  
                  $
                  20,743,470





The
provision for loan losses for the three and nine months ended June 30, 2010 was
$4.5 million and $21.8 million, respectively, compared with $6.2 million and
$16.5 million in the same 2009 periods, respectively.  The increased
nine-month provision over the prior-year amount was 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.  The decreased three-month provision was generally due to
the decline in non-performing assets and the overall shrinkage in the Company’s
performing loan portfolio, partially offset by an increase in net
charge-offs.




Net
charge-offs for the three- and nine-month periods ended June 30, 2010 totaled
$4.2 million, or 1.51% of average loans on an annualized basis, and $15.6
million, or 1.84% of average loans on an annualized basis, respectively,
compared with $3.9 million, or 1.31% of average loans on an annualized basis,
and $8.5 million, or 0.98% of average loans on an annualized basis, for the same
periods a year ago, respectively.  Net charge-offs in the June 2010
quarter included $1.3 million of charge-offs on commercial loans, $2.0
million of charge-offs on first and second mortgage residential loans and
$853,000 of charge-offs on home equity lines of credit.  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.




- 35
-


The ratio
of the allowance for loan losses to loans receivable was 2.46% at June 30,
2010 compared with 2.39% at March 31, 2010 and 1.79% at September 30,
2009.  The ratio of the allowance for loan losses to non-performing
loans was 53.33% at June 30, 2010 compared with 46.68% at March 31, 2010 and
34.68% 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 loans was 108.89% at June 30, 2010 compared with 79.59% at March
31, 2010 and 55.94% 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.




- 36
-


FINANCIAL
CONDITION




Cash and cash
equivalentsdecreased to $25.6 million at June 30, 2010 from $37.5
million at September 30, 2009.  Federal funds sold and overnight
interest-bearing deposit accounts decreased to $22.0 million at June 30, 2010
compared with $33.5 million at September 30, 2009 primarily as the result
of a decrease in overnight Fed funds, which was used to fund growth in loans
held for sale.




Debt securities
available for sale increased to $4.5 million at June 30, 2010 from $2.0
million at September 30, 2009.  Mortgage-backed
securities available for sale decreased to $11.6 million at June 30, 2010
from $16.1 million at September 30, 2009 and mortgage-backed
and related securities held to maturity decreased to $11.0 million at
June 30, 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 $5.8 million to $5.9
million at June 30, 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 $4.6 million to $16.0
million at June 30, 2010 from $11.5 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 Moinesincreased to $92.9 million at June 30, 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 insurance represent insurance and real estate tax payments
collected from borrowers on loans serviced by the Bank.  The balance
decreased $628,000 to $4.0 million at June 30, 2010 compared with $4.7 million
at September 30, 2009 due to the payment of real estate taxes in December
2009.




Total
stockholders’ equity decreased $2.8 million to $114.1 million at June 30,
2010 from $117.0 million at September 30, 2009 primarily as the result of
common stock dividend payments of $3.0 million and preferred stock
dividends of $1.2 million, partially offset by net income of $106,000,
common stock issued under the Company’s dividend reinvestment plan totaling
$657,000, the amortization of equity trust expense of $501,000 and the
amortization of stock option and award expense of $433,000.




- 37
-




LIQUIDITY
AND CAPITAL RESOURCES




The
Company primarily funds its assets with deposits from its retail and commercial
customers.  If the Bank or the Company requires funds beyond their
ability to generate them internally, the Bank has the ability to borrow funds
from the FHLB and the Federal Reserve Bank and, subject to regulatory
restrictions discussed below, to raise certificates of deposit on a national
level through broker relationships.  Management chooses among these
wholesale funding sources depending on their relative costs, the Company’s
overall interest rate risk exposure and the Company’s overall borrowing capacity
at the FHLB and the Federal Reserve Bank.  At June 30, 2010, the
combined balance of borrowings from the FHLB, borrowings from the Federal
Reserve Bank and brokered deposits totaled $101.3 million, had a
weighted-average interest rate of 1.51%, a weighted average maturity of
approximately 21 months and represented 7% 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 alternative sources to support its asset
growth while avoiding, when necessary, aggressive deposit pricing strategies
used from time to time by some of its competitors in its market.  In
addition, because approximately two-thirds of the Company’s assets are scheduled
to mature or reprice within one year, the use of these wholesale funds has given
management a low-cost means to maximize net interest income and manage
interest-rate risk by providing the Company greater flexibility to control the
interest rates and maturities of these funds, as compared to
deposits.  This increased flexibility has allowed the Company to
better respond to fluctuations in the interest rate environment and demand for
its loan products, especially mortgage loans held for sale that are awaiting
final settlement (generally within 30 days) with 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 nine months ended June 30, 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.




Subsequent
to June 30, 2010, the Company agreed to comply with a request from its primary
regulator, the Office of Thrift Supervision (“OTS”), not to increase the
aggregate level of national brokered certificates of deposit, CDARS time
deposits and certain other similar reciprocal deposits above the level that
existed at July 2, 2010, which was $178.5 million.  During the nine
months ended June 30, 2010, the Company had already begun reducing the level of
these types deposits with funds received from the increased levels of core
deposits and retail certificates of deposit resulting in a four-year low of such
deposits.  Management does not anticipate that this restriction will
have a significant impact on the Company’s financial condition, results of
operations or liquidity position.




The
borrowings from the FHLB are obtained under a blanket agreement, which assigns
all investments in FHLB stock, qualifying first residential mortgage loans,
residential mortgage loans held for sale and home equity loans with a 90% or
less loan-to-value ratio as collateral to secure the amounts
borrowed.  Total borrowings from the FHLB are subject to limitations
based upon a risk assessment of the Bank.  At June 30, 2010, the Bank
had approximately $192.4 million in additional borrowing authority under
the arrangement with the FHLB in addition to the $92.9 million in advances
outstanding at that date.




The
Company has the ability to borrow funds on a short-term basis under the Bank’s
primary credit line at the Federal Reserve’s Discount Window.  At June
30, 2010, the Company had approximately $87.9 million in total borrowing
authority under this arrangement with no borrowings outstanding and had
approximately $146.5 million of commercial loans pledged as collateral under
this agreement.




At June
30, 2010, the Bank had outstanding commitments to originate loans totaling
$126.7 million and commitments to sell loans totaling $252.5
million.  Certificates of deposit totaling $289.8 million at June 30,
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.




- 38
-


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 nine months ended June 30,
2010, the origination of mortgage loans held for sale used $1.23 billion of cash
and the sales of such loans provided cash totaling $1.18 billion compared with
originations and sales totaling $1.64 billion and $1.54 billion, respectively,
during the nine months ended June 30, 2009.




The
primary use of cash frominvesting
activities is the origination of loans receivable which are held in
portfolio.  During the nine months ended June 30, 2010, the Company
had a net decrease in loans receivable of $24.8 million compared with an
increase of $93.8 million for the nine months ended June 30, 2009.  In
addition, the Company purchased $19.0 million in debt securities during the nine
months ended June 30, 2010 compared with purchases of $61.7 million in debt
securities and $7.0 million in mortgage-backed securities during the nine months
ended June 30, 2009.  Sources of cash from investing activities also
included maturities of debt securities totaling $16.5 million during the
nine months ended June 30, 2010 compared with maturities and sales of debt
securities of $4.0 million and $51.1 million, respectively, during the nine
months ended June 30, 2009.




The
Company’s primary sources and uses of funds from financing
activities during the nine months ended June 30, 2010 included a
$45.7 million decrease in deposits compared with a $244.3 million increase
for the nine months ended June 30, 2009, and a $31.9 million increase in
advances from the Federal Home Loan Bank during the nine months ended June 30,
2010 compared with a $144.5 million decrease during the same period last
year.  Other significant sources and uses of cash from financing
activities for the nine months ended June 30, 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 nine months ended
June 30, 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 June 30, 2010:




June 30, 2010FederalCertificates
                    
                    
                    FHLB
                    
                    
                    Reserve
                    
                    
                    Subordinatedof Deposit
                    
                    
                    Borrowings
                    
                    
                    Borrowings
                    
                    
                    Debentures(In
      thousands)Maturing
      in:Three
      months or less
                    
                    $
                    100,844
                    
                    
                    $
                    63,900
                    
                    
                    $
                    -
                    
                    
                    $
                    -Over
      three months through six months
                    
                    
                    83,091
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Over
      six months through twelve months
                    
                    
                    105,837
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Over
      twelve months
                    
                    
                    121,648
                    
                    
                    
                    29,000
                    
                    
                    
                    -
                    
                    
                    
                    19,589Total
                    
                    $
                    411,420
                    
                    
                    $
                    92,900
                    
                    
                    $
                    -
                    
                    
                    $
                    19,589




CONTRACTUAL
OBLIGATIONS




In
addition to its owned banking facilities, the Company has entered into long-term
operating leases to support ongoing activities.  The required payments
under such commitments at June 30, 2010 are as follows:




Less
      than one year
                    
                    $
                    596,137Over
      1 year through 3 years
                    
                    
                    1,188,648Over
      3 years through 5 years
                    
                    
                    1,178,266Over
      5 years
                    
                    
                    1,655,201Total
                    
                    $
                    4,618,252




REGULATORY
CAPITAL




The Bank
is required to maintain specific amounts of capital pursuant to OTS regulations
on minimum capital standards.  The OTS’s minimum capital standards
generally require the maintenance of regulatory capital sufficient to meet each
of three tests, hereinafter described as the tangible capital requirement, the
Tier I (core) capital requirement and the risk-based capital
requirement.  The tangible capital requirement provides for minimum
tangible capital (defined as stockholders’ equity less all intangible assets)
equal to 1.5% of adjusted total assets.  The Tier I capital
requirement provides for minimum core capital (tangible capital plus certain
forms of supervisory goodwill and other qualifying intangible assets) equal to
4.0% of adjusted total assets.  The risk-based capital requirement
provides for the maintenance of core capital plus a portion of unallocated loss
allowances equal to 8.0% of risk-weighted assets.  In computing
risk-weighted assets, the Bank multiplies the value of each asset on its balance
sheet by a defined risk-weighting factor (e.g., one-to four-family conventional
residential loans carry a risk-weighting factor of 50%).




- 39
-




The
following table illustrates the Bank’s actual regulatory capital levels compared
with its regulatory capital requirements at June 30, 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 June 30, 2010:Tangible
      capital (to total assets)
                  
                  $
                  128,777
                  
                  
                  
                  9.31
                  %
                  
                  $
                  20,746
                  
                  
                  
                  1.50
                  %
                  
                  
                  N/A
                  
                  
                  
                  N/ATotal
      risk-based capital (to risk-weighted assets)
                  
                  
                  143,146
                  
                  
                  
                  12.52
                  %
                  
                  
                  91,434
                  
                  
                  
                  8.00
                  %
                  
                  $
                  114,293
                  
                  
                  
                  10.00
                  %Tier
      I risk-based capital (to risk-weighted assets)
                  
                  
                  128,777
                  
                  
                  
                  11.27
                  %
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  68,576
                  
                  
                  
                  6.00
                  %Tier
      I leverage capital (to average assets)
                  
                  
                  128,777
                  
                  
                  
                  9.31
                  %
                  
                  
                  55,323
                  
                  
                  
                  4.00
                  %
                  
                  
                  69,154
                  
                  
                  
                  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 average assets)
                  
                  
                  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 June 30, 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.


- 40
-




For the
three and nine months ended June 30, 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 June 30,
2010, the Company had issued $126.7 million of unexpired interest rate lock
commitments to loan customers compared with $147.8 million of unexpired
commitments at September 30, 2009.





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 nine months ended June 30,
2010.  The fair values of these derivative instruments recorded in
other assets and other liabilities in the Company’s financial statements at June
30, 2010 and September 30, 2009 were $1.5 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 June 30, 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 June 30, 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 June 30, 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 May
2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) SFAS
No. 165, Subsequent
Events, which was subsequently incorporated into Accounting Standards
Codification (“ASC”) 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 Accounting Standards Update (“ASU”) 2010-09,
Amendments to Certain
Recognition and Disclosure Requirements, as an amendment to ASC Topic
855.  As a result of ASU 2010-09, SEC registrants will not disclose
the date through which management evaluated subsequent events in financial
statements.  ASU 2010-09 is effective immediately for all financial
statements that have not yet been issued or have not yet become available to be
issued, or March 31, 2010 for the Company.  The adoption of ASU
2010-09 is for disclosure purposes only and did not have any effect on the
Company’s financial position or results of operations.


- 41
-


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.





In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification TM
and the Hierarchy of Generally
Accepted Accounting Principles, a Replacement of SFAS No. 162 – The Hierarchy of
Generally Accepted Accounting Principles, which was subsequently
incorporated into ASC Topic 105, Generally Accepted Accounting
Principles. The ASC establishes the source of authoritative GAAP
recognized by the FASB to be applied by non-governmental entities. Rules and
interpretive releases of the United States Securities and Exchange Commission
(“SEC”) under authority of federal securities laws, are also sources of
authoritative GAAP for SEC registrants. The ASC supersedes all then-existing
non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the ASC will become non-authoritative. ASC
Topic 105 is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The implementation of the ASC did not
have a material impact on the Company’s financial condition or results of
operations.





In
January 2010, the FASB issued ASU No. 2010-06 which amends ASC Topic 820, Fair Value Measurements and
Disclosures. This update will provide more robust disclosures about (a)
the different classes of assets and liabilities measured at fair value, (b) the
valuation techniques and inputs used, (c) the activity in Level 3 fair value
measurements, and (d) the transfers between Levels 1, 2, and 3. This is
effective for financial statements issued for interim and annual periods ending
after December 15, 2009.  The interim disclosures required by this
update are reported in the notes to the Company’s consolidated financial
statements.





In July
2010, the FASB issued ASU No. 2010-20, Receivables (ASC Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses. This ASU requires expanded credit risk disclosures
intended to provide investors with greater transparency regarding the allowance
for credit losses and the credit quality of financing receivables. Under this
ASU, companies will be required to provide more information about the credit
quality of their financing receivables in the disclosures to financial
statements, such as aging information, credit quality indicators, changes in the
allowance for credit losses, and the nature and extent of troubled debt
restructurings and their effect on the allowance for credit losses. Both new and
existing disclosures must be disaggregated by portfolio segment or class based
on the level of disaggregation that management uses when assessing its allowance
for credit losses and managing its credit exposure. The disclosures as of the
end of a reporting period will be effective for interim and annual periods
ending on or after December 15, 2010. The disclosures about activity that occurs
during a reporting period will be effective for interim and annual reporting
periods beginning on or after December 15, 2010. Management is currently
evaluating the disclosure requirements under this ASU and the impact on the
Company’s consolidated financial statements and the disclosures presented in the
consolidated financial statements.


- 42
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PART
II - OTHER INFORMATION




Item
1.   Legal Proceedings:




Periodically,
there have been various claims and lawsuits involving the Bank, such as claims
to enforce liens, condemnation proceedings on properties in which the Bank holds
security interests, claims involving the making and servicing of real property
loans and other issues incident to the Bank’s business.  Neither the
Bank nor the Company is a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Company.




Item
1A.  Risk Factors:




Recently enacted regulatory reform
may have a material impact on our operations.




On
      July 21, 2010, the President signed into law The Dodd-Frank Wall Street
      Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The
      Dodd-Frank Act restructures the regulation of depository
      institutions.  Under the Dodd-Frank Act, the Office of Thrift
      Supervision will be merged into the Office of the Comptroller of the
      Currency, which regulates national banks.  Savings and loan
      holding companies will be regulated by the Federal Reserve
      Board.  The Dodd-Frank Act contains various provisions designed
      to enhance the regulation of depository institutions and prevent the
      recurrence of a financial crisis such as occurred in
      2008-2009.  Also included is the creation of a new federal
      agency to administer and enforce consumer and fair lending laws, a
      function that is now performed by the depository institution
      regulators.  The federal preemption of state laws currently
      accorded federally chartered depository institutions will be reduced as
      well.  The Dodd-Frank Act also will impose consolidated capital
      requirements on savings and loan holding companies effective in five
      years, which will limit our ability to borrow at the holding company and
      invest the proceeds from such borrowings as capital in Pulaski Bank that
      could be leveraged to support additional growth.  The full
      impact of the Dodd-Frank Act on our business and operations will not be
      known for years until regulations implementing the statute are written and
      adopted.  The Dodd-Frank Act may have a material impact on our
      operations, particularly through increased compliance costs resulting from
      possible future consumer and fair lending
  regulations.




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 June 30, 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)April
      1, 2010
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              371,488through
      April 30, 2010May
      1, 2010
                                                              
                                                              
                                                              5,950
                                                              
                                                              
                                                              $
                                                              6.69
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              371,488through
      May 31, 2010June
      1, 2010
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              371,488through
      June 30, 2010Total
                                                              
                                                              
                                                              5,950
                                                              
                                                              
                                                              $
                                                              6.69
                                                              
                                                              
                                                              
                                                              -





(1)
            Total
      number of shares purchased represents shares surrendered by employees to
      satisfy tax withholding requirements upon vesting of stock
      awards.  These shares are not included in the total number of
      shares purchased as part of publicly announced
  plans.




(2)
            In
      February 2007, the Company announced a repurchase program under which it
      would repurchase up to 497,000 shares of the Company’s common stock and
      that the repurchase program would continue until it is completed or
      terminated by the Board of Directors.  However, as part of the
      Company’s participation in the Capital Purchase Program of the U.S.
      Department of Treasury’s Troubled Asset Relief Program, prior to the
      earlier of January 16, 2012 or the date on which the preferred stock
      issued in that transaction has been redeemed in full or the Treasury has
      transferred its shares to non-affiliates, the Company cannot increase its
      quarterly cash dividend above $0.095 per share or repurchase any shares of
      its common stock, without the prior approval of the
      Treasury.  Accordingly, no shares of common stock were
      repurchased under this program during the three months ended June 30,
      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




- 44
-


Item
6.  Exhibits:




3.1
              Articles
      of Incorporation of Pulaski Financial Corp. (1)




3.2
              Certificate
      of Amendment to Articles of Incorporation of Pulaski Financial Corp. (2)




3.3
              Certificate
      of Designations establishing Fixed Rate Cumulative Perpetual Preferred
      Stock, Series A, of Pulaski Financial Corp. (3)




3.4
              Bylaws
      of Pulaski Financial Corp.(4)




4.1
              Form
      of Certificate for Common Stock(5)




4.2
            Form
      of stock certificate for Fixed Rate Cumulative Perpetual Preferred Stock,
      Series A(3)




4.3
            Warrant
      to Purchase 778,421 Shares of Common Stock of Pulaski Financial
      Corp.(3)




31.1
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer




31.2
            Rule
      13a-14(a)/15d-14(a) Certification of the Chief Financial
      Officer




32.1
            Section
      1350 Certification of Chief Executive
Officer




32.2
            Section
      1350 Certification of Chief Financial
Officer





(1)
                Incorporated
      by reference into this document from the Exhibits to the 2003 proxy
      statement as filed with the Securities and Exchange Commission on December
      27, 2002.
  (2)
                Incorporated
      by reference into this document from the Form 10-Q, as filed with the
      Securities and Exchange Commission on February 17, 2004.
  (3)
                Incorporated
      herein by reference into this document from the Form 8-K, as filed with
      the Securities and Exchange Commission on January 16, 2009.
  (4)
                Incorporated
      herein by reference from the Form 8-K, as filed with the Securities and
      Exchange Commission on December 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:
                  August 12, 2010
                  
                  /s/ Gary W. DouglassGary
      W. DouglassPresident
      and Chief Executive OfficerDate:
                  August 12, 2010
                  
                  /s/ Paul J. MilanoPaul
      J. MilanoChief
      Financial
Officer