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 30,2009





OR





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





For the
transition period from ___________________ to
______________________





0-24571


Commission
File Number





Pulaski Financial
Corp.


(Exact
name of registrant as specified in its charter)




Missouri
                        
                        43-1816913(State or other jurisdiction of
                        
                        (I.R.S. Employerincorporation or organization)
                        
                        Identification Number)12300 Olive BoulevardSt. Louis, Missouri
                        
                        63141-6434(Address of principal executive offices)
                        
                        (Zip Code)





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





Not
Applicable


(Former
name, address and former fiscal year, if changed since last report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.


Yes    
xNo     ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes o     No
o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large accelerated filer
             ̈
            Accelerated filer
            xNon-accelerated filer
             ̈
            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 atAugust7,2009Common Stock, par value $.01 per share
                
                10,367,351 shares





PULASKI
FINANCIAL CORP. AND SUBSIDIARIES




FORM
10-Q




JUNE
30, 2009




TABLE
OF CONTENTS




PagePART I
                                            FINANCIAL
      INFORMATIONItem 1.
                                            Financial
      StatementsConsolidated
      Balance Sheets at June 30, 2009 and September 30, 2008
      (Unaudited)
                                            1Consolidated
      Statements of Income and Comprehensive Income for the Three and Nine
      Months Ended June 30, 2009 and 2008 (Unaudited)
                                            2Consolidated
      Statement of Stockholders’ Equity for the Nine Months Ended June 30, 2009
      (Unaudited)
                                            3Consolidated
      Statements of Cash Flows for the Nine Months Ended June 30, 2009 and 2008
      (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
                                            42Item 4.
                                            Controls
      and Procedures
                                            43PART II
                                            OTHER
      INFORMATIONItem 1.
                                            Legal
      Proceedings
                                            47Item 1A.
                                            Risk
      Factors
                                            47Item 2.
                                            Unregistered
      Sales of Equity Securities and Use of Proceeds
                                            47Item 3.
                                            Defaults
      Upon Senior Securities
                                            48Item 4.
                                            Submission
      of Matters to a Vote of Security Holders
                                            48Item 5.
                                            Other
      Information
                                            48Item 6.
                                            Exhibits
                                            48Signatures









PART
I - FINANCIAL INFORMATION


PULASKI
FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEETS


JUNE
30, 2009 AND SEPTEMBER 30, 2008 (UNAUDITED)





June
      30,
                                    
                                    
                                    September
      30,2009
                                    
                                    
                                    2008ASSETSCash
      and amounts due from depository institutions
                                    
                                    $
                                    24,913,214
                                    
                                    
                                    $
                                    28,430,409Federal
      funds sold and overnight deposits
                                    
                                    
                                    25,245,565
                                    
                                    
                                    
                                    647,453Total
      cash and cash equivalents
                                    
                                    
                                    50,158,779
                                    
                                    
                                    
                                    29,077,862Equity
      securities available for sale, at fair value
                                    
                                    
                                    810,379
                                    
                                    
                                    
                                    733,000Debt
      securities available for sale, at fair value
                                    
                                    
                                    6,989,412
                                    
                                    
                                    
                                    -Mortgage-backed
      and related securities held to maturity, at amortized cost (fair
      value,$13,403,851
      and $15,607,652 at June 30, 2009 and September 30, 2008,
      respectively)
                                    
                                    
                                    13,239,796
                                    
                                    
                                    
                                    15,744,497Mortgage-backed
      securities available for sale, at fair value
                                    
                                    
                                    16,481,735
                                    
                                    
                                    
                                    10,180,666Capital
      stock of Federal Home Loan Bank, at cost
                                    
                                    
                                    11,649,800
                                    
                                    
                                    
                                    10,896,100Loans
      held for sale, at lower of cost or market
                                    
                                    
                                    175,855,644
                                    
                                    
                                    
                                    71,966,443Loans
      receivable, net of allowance for loan losses of $20,743,470 and
      $12,761,532 atJune
      30, 2009 and September 30, 2008, respectively
                                    
                                    
                                    1,158,384,055
                                    
                                    
                                    
                                    1,088,736,516Real
      estate acquired in settlement of loans, net of allowance for
      lossesof
      $154,976 and $417,773 at June 30, 2009 and September 30, 2008,
      respectively
                                    
                                    
                                    2,303,283
                                    
                                    
                                    
                                    3,518,806Premises
      and equipment, net
                                    
                                    
                                    19,256,217
                                    
                                    
                                    
                                    19,853,426Bank-owned
      life insurance
                                    
                                    
                                    28,400,977
                                    
                                    
                                    
                                    27,591,986Accrued
      interest receivable
                                    
                                    
                                    5,039,594
                                    
                                    
                                    
                                    5,614,887Goodwill
                                    
                                    
                                    3,938,524
                                    
                                    
                                    
                                    3,938,524Core
      deposit intangible
                                    
                                    
                                    270,643
                                    
                                    
                                    
                                    361,591Deferred
      tax asset
                                    
                                    
                                    6,013,867
                                    
                                    
                                    
                                    8,062,641Prepaid
      expenses, accounts receivable and other assets
                                    
                                    
                                    10,093,729
                                    
                                    
                                    
                                    7,873,515Total
      assets
                                    
                                    $
                                    1,508,886,434
                                    
                                    
                                    $
                                    1,304,150,460LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits
                                    
                                    $
                                    1,159,612,612
                                    
                                    
                                    $
                                    915,311,365Advances
      from Federal Home Loan Bank of Des Moines
                                    
                                    
                                    66,100,000
                                    
                                    
                                    
                                    210,600,000Borrowings
      from the Federal Reserve Bank of St. Louis
                                    
                                    
                                    130,000,000
                                    
                                    
                                    
                                    40,000,000Note
      payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7,640,000Subordinated
      debentures
                                    
                                    
                                    19,589,000
                                    
                                    
                                    
                                    19,589,000Advance
      payments by borrowers for taxes and insurance
                                    
                                    
                                    4,046,026
                                    
                                    
                                    
                                    3,667,014Accrued
      interest payable
                                    
                                    
                                    836,977
                                    
                                    
                                    
                                    1,505,949Due
      to other banks
                                    
                                    
                                    -
                                    
                                    
                                    
                                    14,377,831Other
      liabilities
                                    
                                    
                                    11,457,423
                                    
                                    
                                    
                                    9,098,795Total
      liabilities
                                    
                                    
                                    1,391,642,038
                                    
                                    
                                    
                                    1,221,789,954Stockholders'
      Equity:Preferred
      stock - $.01 par value per share, authorized 1,000,000 shares; 32,538
      sharesissued
      at June 30, 2009, $1,000 per share liquidation value, net of
      discount
                                    
                                    
                                    30,547,756
                                    
                                    
                                    
                                    -Common
      stock - $.01 par value per share, authorized 18,000,000
      shares;13,068,618
      shares issued at June 30, 2009 and September 30, 2008
                                    
                                    
                                    130,687
                                    
                                    
                                    
                                    130,687Additional
      paid-in capital from common stock
                                    
                                    
                                    54,946,379
                                    
                                    
                                    
                                    51,987,198Treasury
      stock, at cost; 2,970,730 and 3,080,070 shares at June 30, 2009
      andSeptember
      30, 2008, respectively
                                    
                                    
                                    (18,550,908
                                    )
                                    
                                    
                                    (19,050,498
                                    )Accumulated
      other comprehensive income (loss)
                                    
                                    
                                    113,257
                                    
                                    
                                    
                                    (97,394
                                    )Retained
      earnings
                                    
                                    
                                    50,057,225
                                    
                                    
                                    
                                    49,390,513Total
      stockholders’ equity
                                    
                                    
                                    117,244,396
                                    
                                    
                                    
                                    82,360,506Total
      liabilities and stockholders’ equity
                                    
                                    $
                                    1,508,886,434
                                    
                                    
                                    $
                                    1,304,150,460





See
accompanying notes to the unaudited consolidated financial
statements.




- 1
-


PULASKI
FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


THREE
AND NINE MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)





Three Months Ended
                  June30,
                
                
                Nine Months Ended
                  June30,2009
                
                
                2008
                
                
                2009
                
                
                2008Interest
      and Dividend Income:Loans
      receivable
                
                $
                15,074,193
                
                
                $
                16,044,890
                
                
                $
                45,312,363
                
                
                $
                51,644,661Loans
      held for sale
                
                
                2,047,308
                
                
                
                950,362
                
                
                
                4,470,530
                
                
                
                2,694,168Securities
      and other
                
                
                373,725
                
                
                
                681,257
                
                
                
                1,204,073
                
                
                
                1,696,670Total
      interest and dividend income
                
                
                17,495,226
                
                
                
                17,676,509
                
                
                
                50,986,966
                
                
                
                56,035,499Interest
      Expense:Deposits
                
                
                4,999,929
                
                
                
                5,663,501
                
                
                
                16,435,551
                
                
                
                21,532,078Advances
      from Federal Home Loan Bank of Des Moines
                
                
                841,363
                
                
                
                1,798,663
                
                
                
                2,927,411
                
                
                
                6,386,963Borrowings
      from the Federal Reserve Bank of St. Louis
                
                
                80,151
                
                
                
                389,740
                
                
                
                295,082
                
                
                
                406,370Subordinated
      debentures
                
                
                171,367
                
                
                
                250,398
                
                
                
                617,981
                
                
                
                985,000Notes
      payable
                
                
                -
                
                
                
                66,225
                
                
                
                113,353
                
                
                
                151,792Total
      interest expense
                
                
                6,092,810
                
                
                
                8,168,527
                
                
                
                20,389,378
                
                
                
                29,462,203Net
      interest income
                
                
                11,402,416
                
                
                
                9,507,982
                
                
                
                30,597,588
                
                
                
                26,573,296Provision
      for loan losses
                
                
                6,154,000
                
                
                
                2,140,974
                
                
                
                16,509,985
                
                
                
                4,901,665Net
      interest income after provision for loan losses
                
                
                5,248,416
                
                
                
                7,367,008
                
                
                
                14,087,603
                
                
                
                21,671,631Non-Interest
      Income:Mortgage
      revenues
                
                
                4,437,660
                
                
                
                1,526,651
                
                
                
                10,300,303
                
                
                
                4,481,122Retail
      banking fees
                
                
                979,827
                
                
                
                960,784
                
                
                
                2,882,459
                
                
                
                2,921,437Investment
      brokerage revenues
                
                
                364,508
                
                
                
                266,032
                
                
                
                1,005,199
                
                
                
                836,701Gain
      on the sales of securities
                
                
                -
                
                
                
                7,848
                
                
                
                243,386
                
                
                
                324,540Other
                
                
                321,559
                
                
                
                493,341
                
                
                
                757,370
                
                
                
                1,511,951Total
      non-interest income
                
                
                6,103,554
                
                
                
                3,254,656
                
                
                
                15,188,717
                
                
                
                10,075,751Non-Interest
      Expense:Salaries
      and employee benefits
                
                
                3,619,605
                
                
                
                4,511,077
                
                
                
                10,554,881
                
                
                
                10,730,990Occupancy,
      equipment and data processing expense
                
                
                2,045,677
                
                
                
                1,884,114
                
                
                
                5,979,118
                
                
                
                5,542,234Advertising
                
                
                249,056
                
                
                
                292,520
                
                
                
                744,341
                
                
                
                926,949Professional
      services
                
                
                401,687
                
                
                
                435,395
                
                
                
                1,034,105
                
                
                
                1,143,197FDIC
      deposit insurance premuim expense
                
                
                463,476
                
                
                
                181,600
                
                
                
                1,073,288
                
                
                
                571,890FDIC
      special deposit insurance assessment
                
                
                700,000
                
                
                
                -
                
                
                
                700,000
                
                
                
                -Gain
      on derivative instruments
                
                
                -
                
                
                
                (266,238
                )
                
                
                -
                
                
                
                (330,560
                )Recovery
      of data processing termination expense
                
                
                -
                
                
                
                (180,000
                )
                
                
                -
                
                
                
                (180,000
                )Real
      estate foreclosure losses and expense, net
                
                
                313,527
                
                
                
                677,274
                
                
                
                1,064,529
                
                
                
                1,060,716Other
                
                
                768,531
                
                
                
                741,366
                
                
                
                1,938,021
                
                
                
                2,007,934Total
      non-interest expense
                
                
                8,561,559
                
                
                
                8,277,108
                
                
                
                23,088,283
                
                
                
                21,473,350Income
      before income taxes
                
                
                2,790,411
                
                
                
                2,344,556
                
                
                
                6,188,037
                
                
                
                10,274,032Income
      tax expense
                
                
                775,624
                
                
                
                685,260
                
                
                
                1,834,390
                
                
                
                3,334,302Net
      income
                
                $
                2,014,787
                
                
                $
                1,659,296
                
                
                $
                4,353,647
                
                
                $
                6,939,730Other
      comprehensive income (loss)
                
                
                39,511
                
                
                
                (343,651
                )
                
                
                210,651
                
                
                
                (571,467
                )Comprehensive
      income
                
                $
                2,054,298
                
                
                $
                1,315,645
                
                
                $
                4,564,298
                
                
                $
                6,368,263Income
      available to common shares
                
                $
                1,501,133
                
                
                $
                1,659,296
                
                
                $
                3,602,383
                
                
                $
                6,939,730Per
      Share Amounts:Basic
      earnings per common share
                
                $
                0.15
                
                
                $
                0.17
                
                
                $
                0.35
                
                
                $
                0.70Weighted
      average common shares outstanding - basic
                
                
                10,200,321
                
                
                
                9,983,506
                
                
                
                10,155,874
                
                
                
                9,872,309Diluted
      earnings per common share
                
                $
                0.14
                
                
                $
                0.16
                
                
                $
                0.35
                
                
                $
                0.68Weighted
      average common shares outstanding - diluted
                
                
                10,395,653
                
                
                
                10,271,469
                
                
                
                10,348,468
                
                
                
                10,222,348




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, 2009 (UNAUDITED)





Preferred
                                  
                                  
                                  
                                  
                                  
                                  Additional
                                  
                                  
                                  
                                  
                                  
                                  AccumulatedStock,
                                  
                                  
                                  
                                  
                                  
                                  Paid-In
                                  
                                  
                                  
                                  
                                  
                                  OtherNet of
                                  
                                  
                                  Common
                                  
                                  
                                  Capital
                                  
                                  
                                  Treasury
                                  
                                  
                                  Comprehensive
                                  
                                  
                                  RetainedDiscount
                                  
                                  
                                  Stock
                                  
                                  
                                  Common
                                  
                                  
                                  Stock
                                  
                                  
                                  Income (Loss)
                                  
                                  
                                  Earnings
                                  
                                  
                                  TotalBalance,
      September 30, 2008
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  130,687
                                  
                                  
                                  $
                                  51,987,198
                                  
                                  
                                  $
                                  (19,050,498
                                  )
                                  
                                  $
                                  (97,394
                                  )
                                  
                                  $
                                  49,390,513
                                  
                                  
                                  $
                                  82,360,506Comprehensive
      income:Net
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,353,647
                                  
                                  
                                  
                                  4,353,647Change
      in unrealized gain (loss)on
      investment securities, net of tax
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  361,551
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  361,551Realized
      gain on sales of investment securitiesincluded
      in net income, net of tax
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (150,900
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (150,900
                                  )Comprehensive
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  210,651
                                  
                                  
                                  
                                  4,353,647
                                  
                                  
                                  
                                  4,564,298Preferred
      stock and common stock warrant issued
                                  
                                  
                                  30,334,273
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,167,495
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  32,501,768Common
      stock dividends  ($0.095 per share)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,935,671
                                  )
                                  
                                  
                                  (2,935,671
                                  )Preferred
      stock dividends
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (537,781
                                  )
                                  
                                  
                                  (537,781
                                  )Amortization
      of discount on preferred stock
                                  
                                  
                                  213,483
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (213,483
                                  )
                                  
                                  
                                  -Stock
      options exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  9,824
                                  
                                  
                                  
                                  93,949
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  103,773Stock
      option and award expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  357,944
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  357,944Commmon
      stock issued under dividendreinvestment
      plan (100,860 shares)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  148,803
                                  
                                  
                                  
                                  411,610
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  560,413Restricted
      common stock issued (24,327 shares)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (99,278
                                  )
                                  
                                  
                                  99,278
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      stock surrendered to satisfy tax withholdingobligations
      of stock-based compensation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (28,181
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (28,181
                                  )Purchase
      of equity trust shares (31,315 shares)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (211,358
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (211,358
                                  )Distribution
      of equity trust shares (9,504 shares)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (134,292
                                  )
                                  
                                  
                                  134,292
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Amortization
      of equity trust expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  495,170
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  495,170Excess
      tax benefit from stock-based compensation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,515
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,515Balance,
      June 30, 2009
                                  
                                  $
                                  30,547,756
                                  
                                  
                                  $
                                  130,687
                                  
                                  
                                  $
                                  54,946,379
                                  
                                  
                                  $
                                  (18,550,908
                                  )
                                  
                                  $
                                  113,257
                                  
                                  
                                  $
                                  50,057,225
                                  
                                  
                                  $
                                  117,244,396


- 3
-




PULASKI
FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR NINE MONTHS


ENDED
JUNE 30, 2009 AND JUNE 30, 2008 (UNAUDITED)





Nine Months EndedJune 30,2009
                    
                    
                    2008Cash
      Flows From Operating Activities:Net
      income
                    
                    $
                    4,353,647
                    
                    
                    $
                    6,939,730Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation,
      amortization and accretion:Premises
      and equipment
                    
                    
                    1,409,024
                    
                    
                    
                    1,293,554Net
      deferred loan costs
                    
                    
                    2,070,332
                    
                    
                    
                    2,067,365Debt
      and equity securities premiums and discounts, net
                    
                    
                    117,353
                    
                    
                    
                    (292,468
                    )Broker
      fees financed under interest-rate swap agreements
                    
                    
                    -
                    
                    
                    
                    464,751Equity
      trust expense, net
                    
                    
                    495,170
                    
                    
                    
                    337,186Stock
      option and award expense
                    
                    
                    357,944
                    
                    
                    
                    342,682Provision
      for loan losses
                    
                    
                    16,509,985
                    
                    
                    
                    4,901,665Provision
      for losses on real estate acquired in settlement of loans
                    
                    
                    503,302
                    
                    
                    
                    352,000Losses
      on sales of real estate acquired in settlement of loans
                    
                    
                    146,483
                    
                    
                    
                    459,137Originations
      of loans held for sale
                    
                    
                    (1,637,934,201
                    )
                    
                    
                    (1,037,872,467
                    )Proceeds
      from sales of loans held for sale
                    
                    
                    1,543,779,588
                    
                    
                    
                    1,022,323,551Gain
      on sales of loans held for sale
                    
                    
                    (9,734,588
                    )
                    
                    
                    (4,284,735
                    )Loss
      (gain) on equity securities available for sale
                    
                    
                    155,500
                    
                    
                    
                    (70,027
                    )Gain
      on sales of debt securities available for sale
                    
                    
                    (398,886
                    )
                    
                    
                    (254,513
                    )Gain
      on sale of investment in joint venture
                    
                    
                    -
                    
                    
                    
                    (30,755
                    )Gain
      on derivative instruments
                    
                    
                    -
                    
                    
                    
                    (330,560
                    )Increase
      in cash value of  bank-owned life insurance
                    
                    
                    (808,991
                    )
                    
                    
                    (745,286
                    )Decrease
      (increase) in deferred tax asset
                    
                    
                    2,048,774
                    
                    
                    
                    (374,364
                    )Excess
      tax benefit from stock-based compensation
                    
                    
                    (13,515
                    )
                    
                    
                    (70,315
                    )Increase
      in accrued expenses
                    
                    
                    804,787
                    
                    
                    
                    230,675Decrease
      in current income taxes payable
                    
                    
                    (624,182
                    )
                    
                    
                    (2,410,006
                    )Changes
      in other assets and liabilities
                    
                    
                    (481,222
                    )
                    
                    
                    (2,076,230
                    )Net
      adjustments
                    
                    
                    (81,597,343
                    )
                    
                    
                    (16,039,160
                    )Net
      cash used in operating activities
                    
                    
                    (77,243,696
                    )
                    
                    
                    (9,099,430
                    )Cash
      Flows From Investing Activities:Proceeds
      from:Maturities
      of time deposits in other banks
                    
                    
                    99,000
                    
                    
                    
                    -Maturities
      of debt securities held to maturity
                    
                    
                    -
                    
                    
                    
                    45,100,000Maturities
      of debt securities available for sale
                    
                    
                    4,000,000
                    
                    
                    
                    7,000,000Sales
      of debt securities available for sale
                    
                    
                    51,050,500
                    
                    
                    
                    45,664,024Sales
      of equity securities available for sale
                    
                    
                    -
                    
                    
                    
                    425,985Redemption
      of FHLB stock
                    
                    
                    4,571,500
                    
                    
                    
                    10,521,800Sales
      of real estate acquired in settlement of loans receivable
                    
                    
                    6,093,225
                    
                    
                    
                    3,772,649Sales
      of equipment
                    
                    
                    12,150
                    
                    
                    
                    9,856Sale
      of investment in joint venture
                    
                    
                    -
                    
                    
                    
                    49,375Purchases
      of:Debt
      securities held to maturity
                    
                    
                    -
                    
                    
                    
                    (38,861,190
                    )Debt
      securities available for sale
                    
                    
                    (61,707,758
                    )
                    
                    
                    (46,319,632
                    )Mortgage-backed
      securities available for sale
                    
                    
                    (7,003,443
                    )
                    
                    
                    -Equity
      securities available for sale
                    
                    
                    -
                    
                    
                    
                    (9,334,113
                    )FHLB
      stock
                    
                    
                    (5,325,200
                    )
                    
                    
                    (13,977,300
                    )Bank-owned
      life insurance
                    
                    
                    -
                    
                    
                    
                    (1,500,000
                    )Premises
      and equipment
                    
                    
                    (823,965
                    )
                    
                    
                    (848,466
                    )Principal
      payments received on mortgage-backed securities
                    
                    
                    3,485,042
                    
                    
                    
                    603,499Net
      increase in loans receivable
                    
                    
                    (93,755,344
                    )
                    
                    
                    (139,916,933
                    )Cash
      paid for equity in joint venture
                    
                    
                    -
                    
                    
                    
                    (233,691
                    )Net
      cash used in investing activities
                    
                    $
                    (99,304,293
                    )
                    
                    $
                    (137,844,137
                    )





Continued
on next page.


- 4
-


PULASKI
FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR NINE MONTHS


ENDED
JUNE 30, 2009 AND JUNE 30, 2008, CONTINUED (UNAUDITED)





Nine Months EndedJune30,2009
                    
                    
                    2008Cash
      Flows From Financing Activities:Net
      increase (decrease) in deposits
                    
                    $
                    244,301,247
                    
                    
                    $
                    (2,182,008
                    )Proceeds
      from (repayment of) Federal Home Loan Bank advances, net
                    
                    
                    (144,500,000
                    )
                    
                    
                    64,600,000Proceeds
      from Federal Reserve Bank borrowings, net
                    
                    
                    90,000,000
                    
                    
                    
                    95,000,000Proceeds
      from notes payable
                    
                    
                    -
                    
                    
                    
                    5,000,000Payment
      on notes payable
                    
                    
                    (7,640,000
                    )
                    
                    
                    (255,000
                    )Net
      decrease in due to other banks
                    
                    
                    (14,377,831
                    )
                    
                    
                    (3,832,905
                    )Net
      increase (decrease) in advance payments by borrowers for taxes and
      insurance
                    
                    
                    379,012
                    
                    
                    
                    (57,253
                    )Treasury
      stock issued for purchase of equity in joint venture
                    
                    
                    -
                    
                    
                    
                    191,835Proceeds
      from cash received in dividend reinvestment plan
                    
                    
                    560,413
                    
                    
                    
                    535,059Proceeds
      from issuance of preferred stock and common stock warrants
                    
                    
                    32,501,768
                    
                    
                    
                    -Proceeds
      from stock options exercised
                    
                    
                    103,773
                    
                    
                    
                    1,153,622Purchase
      of equity trust shares
                    
                    
                    (211,358
                    )
                    
                    
                    (110,000
                    )Excess
      tax benefit for stock based compensation
                    
                    
                    13,515
                    
                    
                    
                    70,315Dividends
      paid on common stock
                    
                    
                    (2,935,671
                    )
                    
                    
                    (2,778,449
                    )Dividends
      paid on preferred stock
                    
                    
                    (537,781
                    )
                    
                    
                    -Common
      stock surrendered to satisfy tax withholdingobligations
      of stock-based compensation
                    
                    
                    (28,181
                    )
                    
                    
                    (185,861
                    )Common
      stock repurchased
                    
                    
                    -
                    
                    
                    
                    (388,750
                    )Net
      cash provided by financing activities
                    
                    
                    197,628,906
                    
                    
                    
                    156,760,605Net
      increase in cash and cash equivalents
                    
                    
                    21,080,917
                    
                    
                    
                    9,817,038Cash
      and cash equivalents at beginning of period
                    
                    
                    29,077,862
                    
                    
                    
                    23,773,743Cash
      and cash equivalents at end of period
                    
                    $
                    50,158,779
                    
                    
                    $
                    33,590,781Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the period for:Interest
      on deposits
                    
                    $
                    17,048,687
                    
                    
                    $
                    22,969,430Interest
      on advances from FHLB
                    
                    
                    2,951,560
                    
                    
                    
                    6,397,822Interest
      on other borrowings
                    
                    
                    307,822
                    
                    
                    
                    377,089Interest
      on subordinated debentures
                    
                    
                    635,958
                    
                    
                    
                    1,004,560Interest
      on notes payable
                    
                    
                    114,323
                    
                    
                    
                    150,811Cash
      paid during the period for interest
                    
                    
                    21,058,350
                    
                    
                    
                    30,899,712Income
      taxes, net
                    
                    
                    501,000
                    
                    
                    
                    5,454,933Noncash
      Investing Activities:Real
      estate acquired in settlement of loans receivable
                    
                    
                    5,527,487
                    
                    
                    
                    6,276,664Loans
      securitized into mortgage-backed securities
                    
                    
                    -
                    
                    
                    
                    16,264,184


- 5
-


PULASKI
FINANCIAL CORP. AND SUBSIDIARIES




NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1.
            BASIS
      OF PRESENTATION




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




In the
opinion of management, the unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial condition of the Company as of June 30, 2009
and September 30, 2008 and its results of operations for the three- and
nine-month periods ended June 30, 2009 and 2008.  The results of
operations for the three- and nine-month periods ended June 30, 2009 are not
necessarily indicative of the operating results that may be expected for the
entire fiscal year.  These unaudited consolidated financial statements
should be read in conjunction with the Company’s audited consolidated financial
statements for the year ended September 30, 2008 contained in the Company’s 2008
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, 2008.




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 2008 amounts to conform to the fiscal
2009 presentation.





The
Company has evaluated all subsequent events through August 7, 2009, which
represents the filing date of this document, to ensure that the accompanying
financial statements include the effects of any subsequent events that should be
recognized in such financial statements as of June 30, 2009, and the appropriate
disclosure of any subsequent events that were not recognized in the financial
statements.





2.
            PREFERRED
      STOCK




On
January 16, 2009, as part of the U.S. Department of Treasury’s Capital Purchase
Program, the Company issued 32,538 shares of Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, $1,000 per share liquidation preference, 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
warrants.  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 amortized using the level yield method over
a five-year period through a charge to retained earnings.  Such
amortization will not reduce net income, but will reduce income available for
common shares.


- 6
-





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





The
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 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 EndedJune30,
                  
                  
                  June30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      income
                  
                  $
                  2,014,787
                  
                  
                  $
                  1,659,296
                  
                  
                  $
                  4,353,647
                  
                  
                  $
                  6,939,730Less:Preferred
      dividends declared
                  
                  
                  (406,725
                  )
                  
                  
                  -
                  
                  
                  
                  (537,781
                  )
                  
                  
                  -Amortization
      of discount on preferred stock
                  
                  
                  (106,929
                  )
                  
                  
                  -
                  
                  
                  
                  (213,483
                  )
                  
                  
                  -Income
      available for common shares
                  
                  $
                  1,501,133
                  
                  
                  $
                  1,659,296
                  
                  
                  $
                  3,602,383
                  
                  
                  $
                  6,939,730Weighted
      average common shares outstanding - basic
                  
                  
                  10,200,321
                  
                  
                  
                  9,983,506
                  
                  
                  
                  10,155,874
                  
                  
                  
                  9,872,309Weighted
      average unvested common shares held in equity trust
                  
                  
                  96,968
                  
                  
                  
                  169,391
                  
                  
                  
                  95,657
                  
                  
                  
                  174,847Equivalent
      shares - employee  stock options and awards
                  
                  
                  52,715
                  
                  
                  
                  118,572
                  
                  
                  
                  51,409
                  
                  
                  
                  175,192Equivalent
      shares - common stock warrant
                  
                  
                  45,649
                  
                  
                  
                  -
                  
                  
                  
                  45,528
                  
                  
                  
                  -Weighted
      average common shares outstanding - diluted
                  
                  
                  10,395,653
                  
                  
                  
                  10,271,469
                  
                  
                  
                  10,348,468
                  
                  
                  
                  10,222,348Earnings
      per common share:Basic
                  
                  $
                  0.15
                  
                  
                  $
                  0.17
                  
                  
                  $
                  0.35
                  
                  
                  $
                  0.70Diluted
                  
                  $
                  0.14
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.35
                  
                  
                  $
                  0.68




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 periods ended June 30, 2009 and 2008 were not included in the
respective computations of diluted earnings per share because the exercise price
of the options, when combined with the effect of the unamortized compensation
expense, and the exercise price of the warrants were greater than the average
market price of the common shares and were considered
anti-dilutive.  The options expire in various periods from 2012
through 2019, respectively, and the warrants expire in 2019.





Three Months Ended
                  
                  
                  Nine Months EndedJune 30,
                  
                  
                  June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Number
      of option shares
                  
                  
                  723,958
                  
                  
                  
                  478,898
                  
                  
                  
                  705,902
                  
                  
                  
                  401,139Equivalent
      anti-dilutive shares
                  
                  
                  665,729
                  
                  
                  
                  166,909
                  
                  
                  
                  686,929
                  
                  
                  
                  150,821Number
      of warrant shares
                  
                  
                  778,421
                  
                  
                  
                  -
                  
                  
                  
                  778,421
                  
                  
                  
                  -Equivalent
      anti-dilutive shares
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -




4.
            STOCK-BASED
      COMPENSATION




The
Company’s shareholder-approved, stock-based incentive plans permit the grant of
awards in the form of options intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code, options that do not so qualify
(non-statutory stock options,) and grants of restricted shares of common
stock.  All employees, non-employee directors and consultants of the
Company and its affiliates are eligible to receive awards under the
plans.  Except as described below, all stock option awards issued
during the nine months ended June 30, 2009 were granted with an exercise price
equal to the market value of the Company’s shares at the date of grant and vest
over a period of two to five years.  In November 2008, options for
32,000 shares of the Company’s common stock were awarded to directors with terms
providing for immediate vesting and exercise prices equal to the market value of
the Company’s shares at the date of grant. 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).





- 8
-




A summary
of the Company’s stock option program as of June 30, 2009 and changes during the
nine-month period then ended, is presented below:


Weighted-Weighted
                          
                          
                          
                          AverageAverage
                          
                          Aggregate
                          
                          RemainingNumber
                          
                          
                          Exercise
                          
                          Intrinsic
                          
                          ContractualOfShares
                          
                          
                          Price
                          
                          Value
                          
                          Life(years)Outstanding
      at October 1, 2008
                          
                          
                          788,233
                          
                          
                          $
                          10.38Granted
                          
                          
                          184,350
                          
                          
                          
                          7.22Exercised
                          
                          
                          (23,021
                          )
                          
                          
                          4.51Expired
                          
                          
                          (16,334
                          )
                          
                          
                          12.49Forfeited
                          
                          
                          (16,666
                          )
                          
                          
                          10.44Outstanding
      at June 30, 2009
                          
                          
                          916,562
                          
                          
                          $
                          9.85
                          
                          $      413,769
                          
                          6.6Exercisable
      at June 30, 2009
                          
                          
                          481,699
                          
                          
                          $
                          9.24
                          
                          $      389,899
                          
                          4.7





The
weighted-average grant-date fair value of options granted during the nine months
ended June 30, 2009 was $1.81 per share.  As of June 30, 2009, the
total unrecognized compensation expense related to non-vested stock options and
awards was $1.1 million and the related weighted average period over which it is
expected to be recognized is 2.8 years.





The fair
value of stock options granted during the nine-month periods ended June 30, 2009
and 2008 is estimated on the date of grant using the Black-Scholes option
pricing model with the following average assumptions:





2009
                  
                  
                  2008Risk
      free interest rate
                  
                  
                  4.30
                  %
                  
                  
                  4.22
                  %Expected
      volatility
                  
                  
                  35.53
                  %
                  
                  
                  27.83
                  %Expected
      life in years
                  
                  
                  5.4
                  
                  
                  
                  5.5Dividend
      yield
                  
                  
                  4.27
                  %
                  
                  
                  2.62
                  %Expected
      forfeiture rate
                  
                  
                  3.37
                  %
                  
                  
                  1.28
                  %





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, 2009, there were 262,413 shares in the plan
with an aggregate value of $2.8 million, which were included in treasury stock
in the Company’s consolidated financial statements, of which 86,909 shares 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.  Excess tax benefits associated with all
stock-based compensation totaled approximately $13,515 for the nine months ended
June 30, 2009.





5.
            INCOME
      TAXES




The
Company has adopted the provisions of Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109” (“Interpretation No.
48”).  At June 30, 2009, the Company had $180,000 of unrecognized tax
benefits, $139,000 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, 2009, the
Company had approximately $41,000 accrued for the payment of interest and
penalties.  The tax years ended September 30, 2005 through 2008 remain
open to examination by the taxing jurisdictions to which the Company is
subject.


- 9
-





6.
              DEBT
      AND EQUITY SECURITIES




The
amortized cost and estimated fair value of debt and equity securities available
for sale at June 30, 2009 and September 30, 2008 are summarized as
follows:




Gross
                  
                  
                  Gross
                  
                  
                  EstimatedAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueJune
      30, 2009:Available
      for Sale:Equity
      securities
                  
                  $
                  811,060
                  
                  
                  $
                  236
                  
                  
                  $
                  (917
                  )
                  
                  $
                  810,379Debt
      securities
                  
                  
                  6,998,993
                  
                  
                  
                  -
                  
                  
                  
                  (9,581
                  )
                  
                  
                  6,989,412Total
                  
                  $
                  7,810,053
                  
                  
                  $
                  236
                  
                  
                  $
                  (10,498
                  )
                  
                  $
                  7,799,791Weighted
      average rate at end of period
                  
                  
                  0.37
                  %September
      30, 2008:Available
      for Sale - equity securities
                  
                  $
                  744,500
                  
                  
                  $
                  -
                  
                  
                  $
                  (11,500
                  )
                  
                  $
                  733,000




The
summary below displays the length of time the securities available for sale were
in a continuous unrealized loss position as of June 30, 2009 and September 30,
2008.  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.




LengthofTimeinContinuousUnrealizedLossPositionatJune30,2009Lessthan12months
                      
                      
                      12monthsormore
                      
                      
                      TotalEstimated
                      
                      
                      Unrealized
                      
                      
                      Estimated
                      
                      
                      Unrealized
                      
                      
                      Estimated
                      
                      
                      UnrealizedFairValue
                      
                      
                      Losses
                      
                      
                      FairValue
                      
                      
                      Losses
                      
                      
                      FairValue
                      
                      
                      LossesAvailable
      for Sale:Equity
      securities
                      
                      $
                      197,575
                      
                      
                      $
                      917
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      197,575
                      
                      
                      $
                      917Debt
      obligations ofgovernment
      sponsored entities
                      
                      
                      6,989,412
                      
                      
                      
                      9,581
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,989,412
                      
                      
                      
                      9,581Total
                      
                      $
                      7,186,987
                      
                      
                      $
                      10,498
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      7,186,987
                      
                      
                      $
                      10,498


Length of Time in Continuous Unrealized Loss Position at September30, 2008Less than 12 months
                                                                                            
                                                                                            
                                                                                            12 months or more
                                                                                            
                                                                                            
                                                                                            TotalEstimated
                                                                                            
                                                                                            
                                                                                            Unrealized
                                                                                            
                                                                                            
                                                                                            Estimated
                                                                                            
                                                                                            
                                                                                            Unrealized
                                                                                            
                                                                                            
                                                                                            Estimated
                                                                                            
                                                                                            
                                                                                            UnrealizedFair Value
                                                                                            
                                                                                            
                                                                                            Losses
                                                                                            
                                                                                            
                                                                                            Fair Value
                                                                                            
                                                                                            
                                                                                            Losses
                                                                                            
                                                                                            
                                                                                            Fair Value
                                                                                            
                                                                                            
                                                                                            LossesAvailable
      for Sale - equity securities
                                                                                            
                                                                                            $
                                                                                            144,000
                                                                                            
                                                                                            
                                                                                            $
                                                                                            11,500
                                                                                            
                                                                                            
                                                                                            $
                                                                                            -
                                                                                            
                                                                                            
                                                                                            $
                                                                                            -
                                                                                            
                                                                                            
                                                                                            $
                                                                                            144,000
                                                                                            
                                                                                            
                                                                                            $
                                                                                            11,500




- 10
-




7.
              MORTGAGE-BACKED
      SECURITIES




Mortgage-backed
securities held to maturity and available for sale at June 30, 2009 and
September 30, 2008 are summarized as follows:




June30,2009Gross
                  
                  
                  Gross
                  
                  
                  EstimatedAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueHeld
      to Maturity:Mortgage-backed
      securities:Freddie
      Mac
                  
                  $
                  499
                  
                  
                  $
                  19
                  
                  
                  $
                  (5
                  )
                  
                  $
                  513Ginnie
      Mae
                  
                  
                  229,463
                  
                  
                  
                  20,639
                  
                  
                  
                  -
                  
                  
                  
                  250,102Fannie
      Mae
                  
                  
                  12,988,383
                  
                  
                  
                  178,571
                  
                  
                  
                  (35,290
                  )
                  
                  
                  13,131,664Total
      mortgage-backed securities
                  
                  
                  13,218,345
                  
                  
                  
                  199,229
                  
                  
                  
                  (35,295
                  )
                  
                  
                  13,382,279Collateralized
      mortgage obligations -Freddie
      Mac
                  
                  
                  21,451
                  
                  
                  
                  121
                  
                  
                  
                  -
                  
                  
                  
                  21,572Total
      held to maturity
                  
                  $
                  13,239,796
                  
                  
                  $
                  199,350
                  
                  
                  $
                  (35,295
                  )
                  
                  $
                  13,403,851Weighted
      average rate at end of period
                  
                  
                  4.63
                  %Available
      for Sale:Mortgage-backed
      securities:Ginnie
      Mae
                  
                  $
                  544,581
                  
                  
                  $
                  22,078
                  
                  
                  $
                  -
                  
                  
                  $
                  566,659Fannie
      Mae
                  
                  
                  1,513,585
                  
                  
                  
                  46,236
                  
                  
                  
                  -
                  
                  
                  
                  1,559,821Total
      mortgage-backed securities
                  
                  
                  2,058,166
                  
                  
                  
                  68,314
                  
                  
                  
                  -
                  
                  
                  
                  2,126,480Collateralized
      mortgage obligations:Freddie
      Mac
                  
                  
                  1,514,063
                  
                  
                  
                  32,407
                  
                  
                  
                  -
                  
                  
                  
                  1,546,470Ginnie
      Mae
                  
                  
                  7,552,896
                  
                  
                  
                  92,388
                  
                  
                  
                  -
                  
                  
                  
                  7,645,284Fannie
      Mae
                  
                  
                  5,163,673
                  
                  
                  
                  -
                  
                  
                  
                  (172
                  )
                  
                  
                  5,163,501Total
      collateralized mortgage obligations
                  
                  
                  14,230,632
                  
                  
                  
                  124,795
                  
                  
                  
                  (172
                  )
                  
                  
                  14,355,255Total
      available for sale
                  
                  $
                  16,288,798
                  
                  
                  $
                  193,109
                  
                  
                  $
                  (172
                  )
                  
                  $
                  16,481,735Weighted
      average rate at end of period
                  
                  
                  4.12
                  %




- 11
-





September30,2008Gross
                  
                  
                  Gross
                  
                  
                  EstimatedAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueHeld
      to Maturity:Mortgage-backed
      securities:Freddie
      Mac
                  
                  $
                  3,556
                  
                  
                  $
                  376
                  
                  
                  $
                  (3
                  )
                  
                  $
                  3,929Ginnie
      Mae
                  
                  
                  282,820
                  
                  
                  
                  29,312
                  
                  
                  
                  (308
                  )
                  
                  
                  311,824Fannie
      Mae
                  
                  
                  15,434,529
                  
                  
                  
                  48,119
                  
                  
                  
                  (214,043
                  )
                  
                  
                  15,268,605Total
      mortgage-backed securities
                  
                  
                  15,720,905
                  
                  
                  
                  77,807
                  
                  
                  
                  (214,354
                  )
                  
                  
                  15,584,358Collateralized
      mortgage obligations -Freddie
      Mac
                  
                  
                  23,592
                  
                  
                  
                  -
                  
                  
                  
                  (298
                  )
                  
                  
                  23,294Total
      held to maturity
                  
                  $
                  15,744,497
                  
                  
                  $
                  77,807
                  
                  
                  $
                  (214,652
                  )
                  
                  $
                  15,607,652Weighted
      average rate at end of period
                  
                  
                  4.91
                  %Available
      for Sale:Mortgage-backed
      securities:Ginnie
      Mae
                  
                  $
                  263,833
                  
                  
                  $
                  15,657
                  
                  
                  $
                  -
                  
                  
                  $
                  279,490Fannie
      Mae
                  
                  
                  1,957,014
                  
                  
                  
                  -
                  
                  
                  
                  (14,006
                  )
                  
                  
                  1,943,008Total
      mortgage-backed securities
                  
                  
                  2,220,847
                  
                  
                  
                  15,657
                  
                  
                  
                  (14,006
                  )
                  
                  
                  2,222,498Collateralized
      mortgage obligations: -Ginnie
      Mae
                  
                  
                  8,105,406
                  
                  
                  
                  -
                  
                  
                  
                  (147,238
                  )
                  
                  
                  7,958,168Total
      available for sale
                  
                  $
                  10,326,253
                  
                  
                  $
                  15,657
                  
                  
                  $
                  (161,244
                  )
                  
                  $
                  10,180,666Weighted
      average rate at end of period
                  
                  
                  4.16
                  %





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, 2009 and September 30, 2008.  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, 2009Less than 12 months
                  
                  
                  12 months or more
                  
                  
                  TotalAmortized
                  
                  
                  Unrealized
                  
                  Amortized
                  
                  
                  Unrealized
                  
                  Amortized
                  
                  
                  UnrealizedCost
                  
                  
                  Losses
                  
                  
                  Cost
                  
                  
                  Losses
                  
                  
                  Cost
                  
                  
                  LossesHeld
      to Maturity:Mortgage-backed
      securities
                  
                  $
                  1,590,442
                  
                  
                  $
                  24,886
                  
                  
                  $
                  1,921,914
                  
                  
                  $
                  10,409
                  
                  
                  $
                  3,512,356
                  
                  
                  $
                  35,295Total
      held to maturity
                  
                  
                  1,590,442
                  
                  
                  
                  24,886
                  
                  
                  
                  1,921,914
                  
                  
                  
                  10,409
                  
                  
                  
                  3,512,356
                  
                  
                  
                  35,295





Estimated
                    
                    
                    Unrealized
                    
                    
                    Estimated
                    
                    
                    Unrealized
                    
                    
                    Estimated
                    
                    
                    UnrealizedFairValue
                    
                    
                    Losses
                    
                    
                    FairValue
                    
                    
                    Losses
                    
                    
                    FairValue
                    
                    
                    LossesAvailable
      for Sale:Collateralized
      mortgage obligations
                    
                    
                    5,163,501
                    
                    
                    
                    172
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,163,501
                    
                    
                    
                    172Total
      available for sale
                    
                    
                    5,163,501
                    
                    
                    
                    172
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,163,501
                    
                    
                    
                    172Total
      at June 30, 2009
                    
                    $
                    6,753,943
                    
                    
                    $
                    25,058
                    
                    
                    $
                    1,921,914
                    
                    
                    $
                    10,409
                    
                    
                    $
                    8,675,857
                    
                    
                    $
                    35,467Percent
      of total
                    
                    
                    77.8
                    %
                    
                    
                    70.7
                    %
                    
                    
                    22.2
                    %
                    
                    
                    29.3
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %




- 12
-





LENGTH
      OF TIME IN CONTINUOUS UNREALIZED LOSS POSITION AT SEPTEMBER 30,
      2008Lessthan12months
                      
                      
                      12monthsormore
                      
                      
                      TotalAmortized
                      
                      
                      Unrealized
                      
                      Amortized
                      
                      
                      Unrealized
                      
                      Amortized
                      
                      
                      UnrealizedCost
                      
                      
                      Losses
                      
                      
                      Cost
                      
                      
                      Losses
                      
                      
                      Cost
                      
                      
                      LossesHeld
      to Maturity:Mortgage-backed
      securities
                      
                      $
                      10,201,656
                      
                      
                      $
                      214,354
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      10,201,656
                      
                      
                      $
                      214,354Collateralized
      mortgage obligations
                      
                      
                      23,592
                      
                      
                      
                      298
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      23,592
                      
                      
                      
                      298Total
      held to maturity
                      
                      
                      10,225,248
                      
                      
                      
                      214,652
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      10,225,248
                      
                      
                      
                      214,652
  Estimated
                            
                            
                            Unrealized
                            
                            
                            Estimated
                            
                            
                            Unrealized
                            
                            
                            Estimated
                            
                            
                            UnrealizedFairValue
                            
                            
                            Losses
                            
                            
                            FairValue
                            
                            
                            Losses
                            
                            
                            FairValue
                            
                            
                            LossesAvailable
      for Sale:Mortgage-backed
      securities
                            
                            
                            1,943,008
                            
                            
                            
                            14,006
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,943,008
                            
                            
                            
                            14,006Collateralized
      mortgage obligations
                            
                            
                            7,958,168
                            
                            
                            
                            147,238
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            7,958,168
                            
                            
                            
                            147,238Total
      available for sale
                            
                            
                            9,901,176
                            
                            
                            
                            161,244
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            9,901,176
                            
                            
                            
                            161,244Total
      at September 30, 2008
                            
                            $
                            20,126,424
                            
                            
                            $
                            375,896
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            20,126,424
                            
                            
                            $
                            375,896Percent
      of total
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %




- 13
-




8.
              LOANS
      RECEIVABLE




Loans
receivable at June 30, 2009 and September 30, 2008 are summarized as
follows:




June 30,
                                      
                                      
                                      September 30,2009
                                      
                                      
                                      2008Real
      estate mortgage:Residential
      first mortgage
                                      
                                      $
                                      256,910,813
                                      
                                      
                                      $
                                      253,132,315Residential
      second mortgage
                                      
                                      
                                      69,830,621
                                      
                                      
                                      
                                      86,348,973Home
      equity lines of credit
                                      
                                      
                                      231,393,479
                                      
                                      
                                      
                                      225,357,406Multi-family
      residential
                                      
                                      
                                      35,849,887
                                      
                                      
                                      
                                      32,546,370Commercial
      real estate
                                      
                                      
                                      307,522,449
                                      
                                      
                                      
                                      261,166,327Real
      estate construction and development:Residential
                                      
                                      
                                      25,768,648
                                      
                                      
                                      
                                      34,511,026Multi-family
                                      
                                      
                                      6,565,357
                                      
                                      
                                      
                                      9,607,101Commercial
                                      
                                      
                                      68,890,502
                                      
                                      
                                      
                                      55,263,607Commercial
      and industrial
                                      
                                      
                                      167,915,523
                                      
                                      
                                      
                                      137,688,076Consumer
      and installment
                                      
                                      
                                      5,471,002
                                      
                                      
                                      
                                      6,895,4791,176,118,281
                                      
                                      
                                      
                                      1,102,516,680Add
      (less):Deferred
      loan costs
                                      
                                      
                                      4,590,936
                                      
                                      
                                      
                                      5,204,730Loans
      in process
                                      
                                      
                                      (1,581,692
                                      )
                                      
                                      
                                      (6,223,362
                                      )Allowance
      for loan losses
                                      
                                      
                                      (20,743,470
                                      )
                                      
                                      
                                      (12,761,532
                                      )Total
                                      
                                      $
                                      1,158,384,055
                                      
                                      
                                      $
                                      1,088,736,516Weighted
      average interest rate at end of period
                                      
                                      
                                      5.29
                                      %
                                      
                                      
                                      6.02
                                      %Specific
      loan loss allowance on impaired loansdetermined
      in accordance with SFAS 114
                                      
                                      $
                                      5,457,871
                                      
                                      
                                      $
                                      807,630Balance
      of impaired loans with specific allowance
                                      
                                      
                                      19,878,225
                                      
                                      
                                      
                                      2,958,768Balance
      of impaired loans with no specific allowance
                                      
                                      
                                      39,565,567
                                      
                                      
                                      
                                      13,694,276




The
following table summarizes the activity in the allowance for loan losses for the
nine months ended June 30, 2009 and 2008:




2009
                        
                        
                        2008Balance,
      beginning of period
                        
                        $
                        12,761,532
                        
                        
                        $
                        10,421,304Provision
      charged to expense
                        
                        
                        16,509,985
                        
                        
                        
                        4,901,665Charge-offs
                        
                        
                        (8,579,247
                        )
                        
                        
                        (3,530,094
                        )Recoveries
                        
                        
                        51,200
                        
                        
                        
                        116,354Net
      charge-offs
                        
                        
                        (8,528,047
                        )
                        
                        
                        (3,413,740
                        )Balance,
      end of period
                        
                        $
                        20,743,470
                        
                        
                        $
                        11,909,229




- 14
-




9.
            DEPOSITS




Deposits
at June 30, 2009 and September 30, 2008 are summarized as
follows:




June30,2009
                          
                          
                          September30,2008Weighted
                          
                          
                          
                          
                          
                          WeightedAverage
                          
                          
                          
                          
                          
                          AverageInterest
                          
                          
                          
                          
                          
                          InterestAmount
                          
                          
                          Rate
                          
                          
                          Amount
                          
                          
                          RateTransaction
      accounts:Non-interest-bearing
      checking
                          
                          $
                          113,381,218
                          
                          
                          
                          -
                          
                          
                          $
                          76,404,474
                          
                          
                          
                          -Interest-bearing
      checking
                          
                          
                          266,147,290
                          
                          
                          
                          1.28%
                          
                          
                          
                          178,697,883
                          
                          
                          
                          2.51%Passbook
      savings accounts
                          
                          
                          28,202,294
                          
                          
                          
                          0.21%
                          
                          
                          
                          25,828,504
                          
                          
                          
                          0.32%Money
      market
                          
                          
                          159,089,375
                          
                          
                          
                          0.82%
                          
                          
                          
                          149,141,121
                          
                          
                          
                          2.12%Total
      transaction accounts
                          
                          
                          566,820,177
                          
                          
                          
                          0.84%
                          
                          
                          
                          430,071,982
                          
                          
                          
                          1.80%Certificates
      of deposit:Retail
                          
                          
                          325,012,751
                          
                          
                          
                          2.87%
                          
                          
                          
                          232,369,917
                          
                          
                          
                          3.50%CDARS
                          
                          
                          151,207,684
                          
                          
                          
                          1.70%
                          
                          
                          
                          123,932,466
                          
                          
                          
                          2.79%Brokered
                          
                          
                          116,572,000
                          
                          
                          
                          2.14%
                          
                          
                          
                          128,937,000
                          
                          
                          
                          3.85%Total
      certificates of deposit
                          
                          
                          592,792,435
                          
                          
                          
                          2.43%
                          
                          
                          
                          485,239,383
                          
                          
                          
                          3.41%Total
      deposits
                          
                          $
                          1,159,612,612
                          
                          
                          
                          1.65%
                          
                          
                          $
                          915,311,365
                          
                          
                          
                          2.65%




- 15
-




10.
            FAIR
      VALUE MEASUREMENTS




Effective
October 1, 2008, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”),
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 under SFAS 157 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.  Under SFAS 157, 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 nonperformance.




SFAS 157
specifies a three-level hierarchy for valuation techniques 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.




In April
2009, the Financial Accounting Standards Board issued Staff Position No. FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly” (“FSP FAS 157-4”), which provides additional guidance on
determining fair value when the volume and level of activity for the asset or
liability has significantly decreased.  The FSP also includes guidance
on identifying circumstances when a transaction may not be considered
orderly.  The adoption of this FSP during the quarter ended June 30,
2009 did not have a material effect on the Company’s financial
statements.




The
following disclosures exclude certain non-financial assets and liabilities,
which are deferred under the provisions of Financial Accounting Standards Board
Staff Position No. FAS 157-2, “Effective Date of FASB Staff Position No. 157”
(“FSP No. 157-2”).  Such non-financial assets include foreclosed real
estate, long-lived assets and goodwill, which are written down to fair value if
considered impaired.  The deferral of these disclosures is intended to
allow additional time to consider the effect of various implementation issues
relating to these non-financial assets and liabilities, and defers disclosures
required by SFAS No. 157 until the Company’s fiscal year beginning October 1,
2009.  The Company does not expect the adoption of the remaining
provisions of this FSP to have a material effect on its financial
statements.




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 loans held for sale, loans held for investment and certain other
assets.  These nonrecurring fair value adjustments typically involve
application of lower-of-cost-or-market accounting or impairment write-downs of
individual assets.  The following is a general description of the
methods used to value such assets.




Equity Securities Available for
Sale.  The fair values of equity securities available for sale
are generally based on quoted market prices or market prices for similar
assets.  However, nonpublic investments are initially valued at
transaction price and subsequently adjusted when evidence is available to
support such adjustments.


- 16
-


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 of interest rate swap assets and
liabilities are generally based on the income approach to value using observable
Level II market expectations at measurement date and standard quantitative
valuation techniques to convert future amounts to a single present amount
(discounted) assuming that participants are motivated, but not compelled to
transact.  Level II inputs for the swap valuations are limited to
quoted prices for similar assets or liabilities in active markets (specifically
futures contracts on LIBOR for the first two years) and inputs other than quoted
prices that are observable for the asset or liability (specifically LIBOR cash
and swap rates, LIBOR basis spreads, volatilities, and credit risk at commonly
quoted intervals). Mid-market pricing is used as a practical expedient for fair
value measurements.




Loans Held for
Sale.  The fair values of loans held for sale are generally
based on quoted market prices or market prices for similar assets.




Impaired
Loans.  The fair values of impaired loans are generally based
on market prices for similar assets.




Assets
and liabilities that were recorded at fair value on a recurring basis at June
30, 2009 and the level of inputs used to determine their fair values are
summarized below:
  Carrying Value at June 30, 2009Fair Value Measurements UsingTotal
              
              
              Level 1
              
              
              Level 2
              
              
              Level 3(In thousands)Assets:Equity
      securities available for sale
              
              $
              810
              
              
              $
              -
              
              
              $
              810
              
              
              $
              -Debt
      securities available for sale
              
              
              6,989
              
              
              
              -
              
              
              
              6,989
              
              
              
              -Mortage-backed
      securities available for sale
              
              
              16,482
              
              
              
              -
              
              
              
              16,482
              
              
              
              -Interest-rate
      swap
              
              
              943
              
              
              
              -
              
              
              
              943
              
              
              
              -Total
      assets
              
              $
              25,224
              
              
              $
              -
              
              
              $
              25,224
              
              
              $
              -Liabilities:Interest-rate
      swap
              
              
              943
              
              
              
              -
              
              
              
              943
              
              
              
              -Total
      liabilities
              
              $
              943
              
              
              $
              -
              
              
              $
              943
              
              
              $
              -




- 17
-




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




Total LossesRecognized inCarrying Value at June 30, 2009
                
                Quarter EndedFair Value Measurements Using
                
                
                June 30,Total
                
                
                Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                2009(In
      thousands)Assets:Loans
      held for sale
                
                $
                12,242
                
                
                $
                -
                
                
                $
                12,242
                
                
                $
                -
                
                
                $
                77Impaired
      loans
                
                
                19,878
                
                
                
                -
                
                
                
                19,878
                
                
                
                -
                
                
                
                1,520Total
      assets
                
                $
                32,120
                
                
                $
                -
                
                
                $
                32,120
                
                
                $
                -
                
                
                $
                1,597




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, 2009 and September 30, 2008.  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, 2009 and September 30, 2008 are
summarized as follows:




June 30, 2009
                  
                  
                  September 30, 2008Estimated
                  
                  
                  
                  
                  
                  EstimatedCarrying
                  
                  
                  Fair
                  
                  
                  Carrying
                  
                  
                  FairValue
                  
                  
                  Value
                  
                  
                  Value
                  
                  
                  Value(In Thousands)ASSETS:Cash
      and cash equivalents
                  
                  $
                  50,159
                  
                  
                  $
                  50,159
                  
                  
                  $
                  29,078
                  
                  
                  $
                  29,078Debt
      securities - AFS
                  
                  
                  6,989
                  
                  
                  
                  6,989
                  
                  
                  
                  -
                  
                  
                  
                  -Equity
      securities - AFS
                  
                  
                  810
                  
                  
                  
                  810
                  
                  
                  
                  733
                  
                  
                  
                  733Capital
      stock of FHLB
                  
                  
                  11,650
                  
                  
                  
                  11,650
                  
                  
                  
                  10,896
                  
                  
                  
                  10,896Mortgage-backed  securities
      - HTM
                  
                  
                  13,240
                  
                  
                  
                  13,404
                  
                  
                  
                  15,744
                  
                  
                  
                  15,608Mortgage-backed  securities
      - AFS
                  
                  
                  16,482
                  
                  
                  
                  16,482
                  
                  
                  
                  10,181
                  
                  
                  
                  10,181Loans
      receivable held for sale
                  
                  
                  175,856
                  
                  
                  
                  178,838
                  
                  
                  
                  71,966
                  
                  
                  
                  73,189Loans
      receivable
                  
                  
                  1,158,384
                  
                  
                  
                  1,181,251
                  
                  
                  
                  1,088,737
                  
                  
                  
                  1,102,715Accrued
      interest receivable
                  
                  
                  5,040
                  
                  
                  
                  5,040
                  
                  
                  
                  5,615
                  
                  
                  
                  5,615Interest-rate
      swap assets
                  
                  
                  943
                  
                  
                  
                  943
                  
                  
                  
                  70
                  
                  
                  
                  70LIABILITIES:Deposit
      transaction accounts
                  
                  
                  566,820
                  
                  
                  
                  566,820
                  
                  
                  
                  430,072
                  
                  
                  
                  430,072Certificate
      of deposits
                  
                  
                  592,792
                  
                  
                  
                  599,709
                  
                  
                  
                  485,239
                  
                  
                  
                  485,413Advances
      from the FHLB
                  
                  
                  66,100
                  
                  
                  
                  67,837
                  
                  
                  
                  210,600
                  
                  
                  
                  210,600Borrowings
      from the Federal Reserve Bank
                  
                  
                  130,000
                  
                  
                  
                  130,000
                  
                  
                  
                  40,000
                  
                  
                  
                  40,000Note
      payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,640
                  
                  
                  
                  7,640Subordinated
      debentures
                  
                  
                  19,589
                  
                  
                  
                  19,588
                  
                  
                  
                  19,589
                  
                  
                  
                  17,051Accrued
      interest payable
                  
                  
                  837
                  
                  
                  
                  837
                  
                  
                  
                  1,506
                  
                  
                  
                  1,506Due
      to other banks
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  14,378
                  
                  
                  
                  14,378Interest-rate
      swap liabilities
                  
                  
                  943
                  
                  
                  
                  943
                  
                  
                  
                  70
                  
                  
                  
                  70





June 30, 2009
                        
                        
                        September 30, 2008Contract
                        
                        
                        Estimated
                        
                        
                        Contract
                        
                        
                        Estimatedor Notional
                        
                        
                        Fair
                        
                        
                        or Notional
                        
                        
                        FairAmount
                        
                        
                        Value
                        
                        
                        Amount
                        
                        
                        Value(In Thousands)OFF
      BALANCE SHEET FINANCIAL INSTRUMENTS:Commitments
      to originatefirst
      and second mortgage loans
                        
                        $
                        148,621
                        
                        
                        $
                        -
                        
                        
                        $
                        113,697
                        
                        
                        $
                        -Commitments
      to originatenon-mortgage
      loans
                        
                        
                        13,699
                        
                        
                        
                        -
                        
                        
                        
                        23,733
                        
                        
                        
                        -Unused
      lines of credit
                        
                        
                        252,669
                        
                        
                        
                        -
                        
                        
                        
                        290,018
                        
                        
                        
                        -




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, 2009 and December 31, 2008.




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




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




Loans Receivable- The fair value of loans receivable is estimated for various groups of
loans segregated by type of loan, fixed versus adjustable interest terms and
performing versus non-performing status.  The fair value of performing
loans is calculated by discounting all expected future cash flows. Cash flows
include all principal and interest to be received, taking embedded optionality
such as the customer’s right to prepay into account. Discount rates are computed
for each loan category using implied forward market rates adjusted to recognize
each loan’s approximate credit risk.  Fair value of impaired loans
approximates their carrying value because such loans are recorded at the
appraised or estimated recoverable value of the collateral or the underlying
cash flow.




- 19
-




Accrued Interest
Receivable- The carrying value approximates fair value.




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.




Borrowings from
the Federal Reserve Bank-The carrying value
approximates fair value since the balance at June 30, 2009 matured in three days
and the balance at September 30, 2008 matured in eight days.




Note
Payable-The carrying value
approximates fair value since it is a variable rate obligation.




Due to Other
Banks-The carrying value
approximates fair value since the amounts are generally settled in cash on the
next business day.




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.




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 treatment under SFAS No.
133.  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 30,2009
                                            
                                            
                                            2008Fair
      value recorded in other assets
                                            
                                            $
                                            943,000
                                            
                                            
                                            $
                                            70,000Fair
      value recorded in other liabilities
                                            
                                            
                                            943,000
                                            
                                            
                                            
                                            70,000




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 periods ended June 30, 2009 and 2008 are summarized as
follows:




Three Months Ended
                              
                              
                              Nine Months EndedJune 30,
                              
                              
                              June 30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008(in thousands)Gross
      (gains) losses on derivativefinancial
      assets
                              
                              $
                              619,000
                              
                              
                              $
                              -
                              
                              
                              $
                              (873,000
                              )
                              
                              $
                              -Gross
      (gains) losses on derivativefinancial
      liabilities
                              
                              
                              (619,000
                              )
                              
                              
                              -
                              
                              
                              
                              873,000
                              
                              
                              
                              -Net
      loss (gain)
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -




13.
            GOODWILL




Goodwill
totaled $3.9 million at June 30, 2009 and September 30, 2008,
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, 2009, the Company reviewed
goodwill for impairment as of June 30, 2009 in addition to its annual review at
September 30, 2008.  No impairment losses were recognized during
fiscal year 2008 or the nine months ended June 30, 2009.




- 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 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, 2008, 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. 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 $1.5 billion in assets at June 30, 2009.  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 three 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 experienced a 21% increase in net income during the three months ended
June 30, 2009 compared with the same 2008 period, but experienced a 37% decrease
in net income during the nine-month period ended June 30, 2009 compared with the
same 2008 period largely as the result of an increase in the provisions for loan
losses.  See Results
of Operations.  Execution of its community banking strategy
produced strong performance in each of its three primary business lines,
commercial banking services, retail mortgage lending and retail banking
services, resulting in meaningful growth in loans receivable, core deposits,
total assets, net interest income and mortgage revenues.  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.




- 22
-




Commercial Banking
Services




The
Company’s commercial banking services are centered on serving small- to
medium-sized businesses and the Company’s growth in the St. Louis market
continues to be driven by its staff of experienced commercial bankers and the
commercial banking relationships they generate.  Total assets grew
$204.7 million, or 15.7%, from $1.30 billion at September 30, 2008 to
$1.51 billion at June 30, 2009, largely as the result of a $69.6 million
increase in loans receivable and a $103.9 million increase in loans held for
sale.  Commercial loans accounted for substantially all of the growth
in loans receivable and, although loan growth slowed during the June 2009
quarter, the Company continued to originate commercial loans to its most
credit-worthy customers under tightened credit standards.  During the
nine-month period, mortgage loans secured by commercial real estate increased
$46.4 million to $307.5 million, commercial and industrial loans increased $30.2
million to $167.9 million and commercial real estate construction and
development loans increased $13.6 million to $68.9 million at June 30, 2009,
respectively.  Commercial loan originations totaled $98.9 million and
$333.7 million during the three and nine months ended June 30, 2009,
respectively, compared with $126.9 million and $399.2 million during the
same periods last year.




The
Company’s commercial loan customers are also among the best sources of core
deposit accounts.  Commercial checking account balances increased
$79.4 million to $248.2 million at June 30, 2009 compared with $168.8 million at
September 30, 2008.




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.  To a lesser extent, the
Company originates adjustable-rate, first-mortgage loans and home equity lines
of credit, which are retained in its portfolio.




The
Federal Reserve’s actions taken to lower market interest rates and stimulate
mortgage lending activity resulted in a dramatic increase in mortgage
refinancing volume beginning in late November 2008.  The Company was
able to capture a meaningful share of this increased activity without
significantly adding fixed costs to its infrastructure.  During the
three and nine months ended June 30, 2009, the Company originated residential
mortgage loans for sale to investors totaling $723.8 million and $1.64 billion,
respectively, compared with $329.8 million and $1.04 billion during the same
2008 periods, respectively. Residential loans sold to investors for the three
months ended June 30, 2009 totaled $672.7 million, which generated mortgage
revenues totaling $4.4 million, compared with $331.7 million of loans sold and
$1.5 million in revenues for the three months ended June 30,
2008.  Residential loans sold to investors for the nine months ended
June 30, 2009 totaled $1.53 billion, which generated mortgage revenues totaling
$10.3 million, compared with $1.00 billion of loans sold and $4.5 million in
revenues for the nine months ended June 30, 2008.  The Company
experienced a market-driven decline in gross profit margins on loans sold during
the 2009 periods as the result of tighter pricing in a market dominated by
refinancing activity.  However, because of increased efficiencies, the
Company’s net profit margins on loans sold increased to 0.66% and 0.67% during
the three and nine months ended June 30, 2009, respectively, compared with 0.46%
and 0.44% during the same 2008 periods, respectively.  Loans held for
sale increased $103.9 million to $175.9 million at June 30, 2009 from $72.0
million at September 30, 2008.




- 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.  Core deposits increased $136.7 million, or
32%, to $566.8 million at June 30, 2009 from $430.1 million at
September 30, 2008.  Checking accounts, which represent the
cornerstone product in a customer relationship, increased $124.4 million to
$379.5 million at June 30, 2009 from $255.1 million at September 30,
2008.  The increase was primarily the result of a $79.4 million
increase in commercial checking accounts, a $14.5 million increase in retail
checking accounts and a $30.5 million increase in non-interest bearing checking
accounts related to the Company’s outstanding official checks, which it began
clearing internally during the quarter ended December 31, 2008.  Also
enhancing its ability to attract core deposits, the Bank elected to participate
in the FDIC’s Transaction Account Guarantee Program during the quarter ended
March 31, 2009.  This program provides full FDIC insurance coverage
for non interest-bearing transaction accounts and qualifying NOW accounts,
regardless of the dollar amount, and is in addition to the standard FDIC
insurance that was temporarily increased to $250,000 per
depositor.  Both FDIC limits will be in effect through December 31,
2013.  Money market accounts increased $9.9 million to $159.1 million
at June 30, 2009 from $149.1 million at September 30, 2008 primarily as the
result of the introduction of a new product during March 2009 that offers the
Bank’s customers the ability to receive FDIC insurance on certain money market
deposits up to $12.5 million.  Money market and interest-bearing
checking accounts carry adjustable interest rates that make them an ideal
funding source for the Company’s prime-adjusting commercial and home equity
loans.  Primarily as the result of declining market interest rates,
the weighted-average costs of interest-bearing checking accounts and money
market accounts decreased to 1.28% and 0.82%, respectively, at June 30, 2009
compared with 2.51% and 2.12% at September 30, 2008.




Certificates
of deposit increased $107.6 million to $592.8 million at June 30, 2009 from
$485.2 million at September 30, 2008, primarily as the result of a
$92.6 million increase in retail certificates of deposit to $325.0 million
and a $27.3 million increase in CDARS time deposits to $151.2
million.  CDARS deposits, which are generally offered to in-market
retail and commercial customers, offer the bank’s customers the ability to
receive FDIC insurance on deposits up to $50 million.  Brokered time
deposits decreased $12.4 million to $116.6 million at June 30, 2009 compared
with $128.9 million at September 30, 2008, as the Company repaid certain
maturing brokered deposits with increases in retail deposits.  Total
deposits increased $244.3 million, or 26.7%, to $1.16 billion at June 30, 2009
from $915.3 million at September 30, 2008.




Retail
banking fees, which include fees charged to customers who have overdrawn their
checking accounts and service charges on other retail banking products, were
$980,000 for the three months ended June 30, 2009 compared with $961,000 for the
same 2008 period.  Retail banking fees were $2.9 million for the nine
months ended June 30, 2009 and 2008, respectively.  While the Bank’s
checking accounts grew significantly during the nine months ended June 30, 2009,
the volume of overdrawn checking accounts did not increase proportionately,
primarily as the result of tightened consumer spending in the current difficult
economic environment.




- 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.




- 25
-




Three Months EndedJune 30, 2009
                                        
                                        
                                        June 30, 2008Interest
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        InterestAverage
                                        
                                        
                                        and
                                        
                                        
                                        Yield/
                                        
                                        
                                        Average
                                        
                                        
                                        and
                                        
                                        
                                        Yield/Balance
                                        
                                        
                                        Dividends
                                        
                                        
                                        Cost
                                        
                                        
                                        Balance
                                        
                                        
                                        Dividends
                                        
                                        
                                        CostInterest-earning
      assets:
                                        
                                        (Dollars
      in thousands)Loans
      receivable: (1)Real
      estate
                                        
                                        $
                                        322,564
                                        
                                        
                                        $
                                        5,023
                                        
                                        
                                        
                                        6.23%
                                        
                                        
                                        $
                                        328,559
                                        
                                        
                                        $
                                        5,665
                                        
                                        
                                        
                                        6.90%Commercial
                                        
                                        
                                        627,216
                                        
                                        
                                        
                                        7,834
                                        
                                        
                                        
                                        5.00%
                                        
                                        
                                        
                                        496,466
                                        
                                        
                                        
                                        7,243
                                        
                                        
                                        
                                        5.84%Home
      equity lines of credit
                                        
                                        
                                        233,008
                                        
                                        
                                        
                                        2,171
                                        
                                        
                                        
                                        3.73%
                                        
                                        
                                        
                                        223,781
                                        
                                        
                                        
                                        3,073
                                        
                                        
                                        
                                        5.49%Consumer
                                        
                                        
                                        3,635
                                        
                                        
                                        
                                        46
                                        
                                        
                                        
                                        5.20%
                                        
                                        
                                        
                                        4,003
                                        
                                        
                                        
                                        64
                                        
                                        
                                        
                                        6.35%Total
      loans receivable
                                        
                                        
                                        1,186,423
                                        
                                        
                                        
                                        15,074
                                        
                                        
                                        
                                        5.08%
                                        
                                        
                                        
                                        1,052,809
                                        
                                        
                                        
                                        16,045
                                        
                                        
                                        
                                        6.10%Loans
      held for sale
                                        
                                        
                                        174,728
                                        
                                        
                                        
                                        2,047
                                        
                                        
                                        
                                        4.69%
                                        
                                        
                                        
                                        68,290
                                        
                                        
                                        
                                        950
                                        
                                        
                                        
                                        5.57%Securities
      and other
                                        
                                        
                                        53,270
                                        
                                        
                                        
                                        374
                                        
                                        
                                        
                                        2.81%
                                        
                                        
                                        
                                        56,574
                                        
                                        
                                        
                                        682
                                        
                                        
                                        
                                        4.82%Total
      interest-earning assets
                                        
                                        
                                        1,414,421
                                        
                                        
                                        
                                        17,495
                                        
                                        
                                        
                                        4.95%
                                        
                                        
                                        
                                        1,177,673
                                        
                                        
                                        
                                        17,677
                                        
                                        
                                        
                                        6.00%Non-interest-earning
      assets
                                        
                                        
                                        69,329
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        85,238Total
      assets
                                        
                                        $
                                        1,483,750
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        1,262,911Interest-bearing
      liabilities:Interest-bearing
      checking
                                        
                                        $
                                        225,110
                                        
                                        
                                        
                                        781
                                        
                                        
                                        
                                        1.39%
                                        
                                        
                                        $
                                        112,716
                                        
                                        
                                        
                                        491
                                        
                                        
                                        
                                        1.74%Passbook
      savings
                                        
                                        
                                        27,092
                                        
                                        
                                        
                                        13
                                        
                                        
                                        
                                        0.20%
                                        
                                        
                                        
                                        27,444
                                        
                                        
                                        
                                        23
                                        
                                        
                                        
                                        0.33%Money
      market
                                        
                                        
                                        154,305
                                        
                                        
                                        
                                        318
                                        
                                        
                                        
                                        0.82%
                                        
                                        
                                        
                                        193,162
                                        
                                        
                                        
                                        1,085
                                        
                                        
                                        
                                        2.25%Certificates
      of deposit
                                        
                                        
                                        594,676
                                        
                                        
                                        
                                        3,888
                                        
                                        
                                        
                                        2.61%
                                        
                                        
                                        
                                        415,005
                                        
                                        
                                        
                                        4,065
                                        
                                        
                                        
                                        3.92%Total
      interest-bearing deposits
                                        
                                        
                                        1,001,183
                                        
                                        
                                        
                                        5,000
                                        
                                        
                                        
                                        2.00%
                                        
                                        
                                        
                                        748,327
                                        
                                        
                                        
                                        5,664
                                        
                                        
                                        
                                        3.03%FHLB
      advances
                                        
                                        
                                        103,711
                                        
                                        
                                        
                                        841
                                        
                                        
                                        
                                        3.25%
                                        
                                        
                                        
                                        249,422
                                        
                                        
                                        
                                        1,799
                                        
                                        
                                        
                                        2.88%Federal
      Reserve borrowings
                                        
                                        
                                        118,297
                                        
                                        
                                        
                                        80
                                        
                                        
                                        
                                        0.27%
                                        
                                        
                                        
                                        69,923
                                        
                                        
                                        
                                        390
                                        
                                        
                                        
                                        2.23%Note
      payable
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,831
                                        
                                        
                                        
                                        66
                                        
                                        
                                        
                                        4.54%Subordinated
      debentures
                                        
                                        
                                        19,589
                                        
                                        
                                        
                                        172
                                        
                                        
                                        
                                        3.50%
                                        
                                        
                                        
                                        19,589
                                        
                                        
                                        
                                        250
                                        
                                        
                                        
                                        5.11%Total
      interest-bearing liabilities
                                        
                                        
                                        1,242,780
                                        
                                        
                                        
                                        6,093
                                        
                                        
                                        
                                        1.96%
                                        
                                        
                                        
                                        1,093,092
                                        
                                        
                                        
                                        8,169
                                        
                                        
                                        
                                        2.99%Non-interest
      bearing liabilities:Non-interest
      bearing deposits
                                        
                                        
                                        106,258
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        63,872Other
      non-interest bearing liabilities
                                        
                                        
                                        14,422
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        18,590Total
      non-interest-bearing liabilities
                                        
                                        
                                        120,680
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        82,462Stockholders'
      equity
                                        
                                        
                                        120,290
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        87,357Total
      liabilities and stockholders' equity
                                        
                                        $
                                        1,483,750
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        1,262,911Net
      interest income
                                        
                                        
                                        
                                        
                                        
                                        $
                                        11,402
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        9,508Interest rate
      spread(2)
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        2.99%
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3.01%Net interest
      margin(3)
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3.22%
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3.23%Ratio
      of average interest-earning assets toaverage
      interest-bearing liabilities
                                        
                                        
                                        113.81
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        107.74
                                        %







(1)
            Includes
      non-accrual loans with an average balance of $20.3 million and $5.4
      million for the three months ended June 30, 2009 and 2008,
      respectively.


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


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




- 26
-




Nine Months EndedJune 30, 2009
                                                
                                                
                                                June 30, 2008Interest
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                InterestAverage
                                                
                                                
                                                and
                                                
                                                
                                                Yield/
                                                
                                                
                                                Average
                                                
                                                
                                                and
                                                
                                                
                                                Yield/Balance
                                                
                                                
                                                Dividends
                                                
                                                
                                                Cost
                                                
                                                
                                                Balance
                                                
                                                
                                                Dividends
                                                
                                                
                                                CostInterest-earning assets:
                                                
                                                (Dollars in thousands)Loans receivable: (1)Real
      estate
                                                
                                                $
                                                334,224
                                                
                                                
                                                $
                                                16,096
                                                
                                                
                                                
                                                6.42%
                                                
                                                
                                                $
                                                337,743
                                                
                                                
                                                $
                                                17,851
                                                
                                                
                                                
                                                7.05%Commercial
                                                
                                                
                                                589,361
                                                
                                                
                                                
                                                22,022
                                                
                                                
                                                
                                                4.98%
                                                
                                                
                                                
                                                464,790
                                                
                                                
                                                
                                                22,639
                                                
                                                
                                                
                                                6.49%Home
      equity lines of credit
                                                
                                                
                                                230,569
                                                
                                                
                                                
                                                7,040
                                                
                                                
                                                
                                                4.07%
                                                
                                                
                                                
                                                222,735
                                                
                                                
                                                
                                                10,973
                                                
                                                
                                                
                                                6.57%Consumer
                                                
                                                
                                                3,656
                                                
                                                
                                                
                                                154
                                                
                                                
                                                
                                                5.62%
                                                
                                                
                                                
                                                4,202
                                                
                                                
                                                
                                                182
                                                
                                                
                                                
                                                5.76%Total
      loans receivable
                                                
                                                
                                                1,157,810
                                                
                                                
                                                
                                                45,312
                                                
                                                
                                                
                                                5.22%
                                                
                                                
                                                
                                                1,029,470
                                                
                                                
                                                
                                                51,645
                                                
                                                
                                                
                                                6.69%Loans
      held for sale
                                                
                                                
                                                125,844
                                                
                                                
                                                
                                                4,471
                                                
                                                
                                                
                                                4.74%
                                                
                                                
                                                
                                                66,945
                                                
                                                
                                                
                                                2,694
                                                
                                                
                                                
                                                5.37%Securities
      and other
                                                
                                                
                                                55,585
                                                
                                                
                                                
                                                1,204
                                                
                                                
                                                
                                                2.89%
                                                
                                                
                                                
                                                47,218
                                                
                                                
                                                
                                                1,696
                                                
                                                
                                                
                                                4.79%Total
      interest-earning assets
                                                
                                                
                                                1,339,239
                                                
                                                
                                                
                                                50,987
                                                
                                                
                                                
                                                5.08%
                                                
                                                
                                                
                                                1,143,633
                                                
                                                
                                                
                                                56,035
                                                
                                                
                                                
                                                6.53%Non-interest-earning
      assets
                                                
                                                
                                                74,498
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                80,874Total
      assets
                                                
                                                $
                                                1,413,737
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                1,224,507Interest-bearing
      liabilities:Interest-bearing
      checking
                                                
                                                $
                                                206,822
                                                
                                                
                                                
                                                2,649
                                                
                                                
                                                
                                                1.71%
                                                
                                                
                                                $
                                                87,081
                                                
                                                
                                                
                                                1,130
                                                
                                                
                                                
                                                1.73%Passbook
      savings
                                                
                                                
                                                26,116
                                                
                                                
                                                
                                                38
                                                
                                                
                                                
                                                0.20%
                                                
                                                
                                                
                                                28,029
                                                
                                                
                                                
                                                70
                                                
                                                
                                                
                                                0.33%Money
      market
                                                
                                                
                                                143,365
                                                
                                                
                                                
                                                1,151
                                                
                                                
                                                
                                                1.07%
                                                
                                                
                                                
                                                191,134
                                                
                                                
                                                
                                                4,407
                                                
                                                
                                                
                                                3.07%Certificates
      of deposit
                                                
                                                
                                                566,524
                                                
                                                
                                                
                                                12,598
                                                
                                                
                                                
                                                2.96%
                                                
                                                
                                                
                                                470,034
                                                
                                                
                                                
                                                15,925
                                                
                                                
                                                
                                                4.52%Total
      interest-bearing deposits
                                                
                                                
                                                942,827
                                                
                                                
                                                
                                                16,436
                                                
                                                
                                                
                                                2.32%
                                                
                                                
                                                
                                                776,278
                                                
                                                
                                                
                                                21,532
                                                
                                                
                                                
                                                3.70%FHLB
      advances
                                                
                                                
                                                138,088
                                                
                                                
                                                
                                                2,927
                                                
                                                
                                                
                                                2.83%
                                                
                                                
                                                
                                                233,425
                                                
                                                
                                                
                                                6,387
                                                
                                                
                                                
                                                3.65%Federal
      Reserve borrowings
                                                
                                                
                                                89,125
                                                
                                                
                                                
                                                295
                                                
                                                
                                                
                                                0.44%
                                                
                                                
                                                
                                                23,854
                                                
                                                
                                                
                                                406
                                                
                                                
                                                
                                                2.27%Note
      payable
                                                
                                                
                                                3,106
                                                
                                                
                                                
                                                113
                                                
                                                
                                                
                                                4.87%
                                                
                                                
                                                
                                                3,908
                                                
                                                
                                                
                                                152
                                                
                                                
                                                
                                                5.18%Subordinated
      debentures
                                                
                                                
                                                19,589
                                                
                                                
                                                
                                                618
                                                
                                                
                                                
                                                4.21%
                                                
                                                
                                                
                                                19,589
                                                
                                                
                                                
                                                985
                                                
                                                
                                                
                                                6.70%Total
      interest-bearing liabilities
                                                
                                                
                                                1,192,735
                                                
                                                
                                                
                                                20,389
                                                
                                                
                                                
                                                2.28%
                                                
                                                
                                                
                                                1,057,054
                                                
                                                
                                                
                                                29,462
                                                
                                                
                                                
                                                3.72%Non-interest
      bearing liabilities:Non-interest
      bearing deposits
                                                
                                                
                                                100,781
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                61,730Other
      non-interest bearing liabilities
                                                
                                                
                                                14,234
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                19,656Total
      non-interest-bearing liabilities
                                                
                                                
                                                115,015
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                81,386Stockholders'
      equity
                                                
                                                
                                                105,987
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                86,067Total
      liabilities and stockholders' equity
                                                
                                                $
                                                1,413,737
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                1,224,507Net
      interest income
                                                
                                                
                                                
                                                
                                                
                                                $
                                                30,598
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                26,573Interest rate
      spread(2)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                2.80%
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                2.81%Net interest
      margin(3)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                3.05%
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                3.10%Ratio
      of average interest-earning assets toaverage
      interest-bearing liabilities
                                                
                                                
                                                112.28
                                                %
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                108.19
                                                %







(1)
            Includes
      non-accrual loans with an average balance of $15.3 million and $6.2
      million for the nine months ended June 30, 2009 and
      2008,  respectively.


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


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




- 27
-




RATE
VOLUME ANALYSIS




The
following table sets forth the effects of changing rates and volumes on net
interest income for the periods indicated. The total change for each category of
interest-earning asset and interest-bearing liability is segmented into the
change attributable to variations in volume (change in volume multiplied by
prior period rate) and the change attributable to variations in interest rates
(changes in rates multiplied by prior period volume).  Changes in
interest income and expense attributed to both changes in volume and changes in
rate are allocated proportionately to rate and volume.





Three Months Ended
                                  
                                  
                                  Nine Months EndedJune 30, 2009 vs 2008
                                  
                                  
                                  June 30, 2009 vs 2008Volume
                                  
                                  
                                  Rate
                                  
                                  
                                  Net
                                  
                                  
                                  Volume
                                  
                                  
                                  Rate
                                  
                                  
                                  Net(In
      thousands)Interest-earning
      assets:Loans
      receivable:Real
      estate
                                  
                                  $
                                  (102
                                  )
                                  
                                  $
                                  (540
                                  )
                                  
                                  $
                                  (642
                                  )
                                  
                                  $
                                  (183
                                  )
                                  
                                  $
                                  (1,572
                                  )
                                  
                                  $
                                  (1,755
                                  )Commercial
                                  
                                  
                                  5,777
                                  
                                  
                                  
                                  (5,186
                                  )
                                  
                                  
                                  591
                                  
                                  
                                  
                                  7,184
                                  
                                  
                                  
                                  (7,801
                                  )
                                  
                                  
                                  (617
                                  )Home
      equity lines of credit
                                  
                                  
                                  795
                                  
                                  
                                  
                                  (1,697
                                  )
                                  
                                  
                                  (902
                                  )
                                  
                                  
                                  610
                                  
                                  
                                  
                                  (4,543
                                  )
                                  
                                  
                                  (3,933
                                  )Consumer
                                  
                                  
                                  (5
                                  )
                                  
                                  
                                  (13
                                  )
                                  
                                  
                                  (18
                                  )
                                  
                                  
                                  (23
                                  )
                                  
                                  
                                  (5
                                  )
                                  
                                  
                                  (28
                                  )Total
      loans receivable
                                  
                                  
                                  6,465
                                  
                                  
                                  
                                  (7,436
                                  )
                                  
                                  
                                  (971
                                  )
                                  
                                  
                                  7,588
                                  
                                  
                                  
                                  (13,921
                                  )
                                  
                                  
                                  (6,333
                                  )Loans
      held for sale
                                  
                                  
                                  2,087
                                  
                                  
                                  
                                  (990
                                  )
                                  
                                  
                                  1,097
                                  
                                  
                                  
                                  2,312
                                  
                                  
                                  
                                  (535
                                  )
                                  
                                  
                                  1,777Securities
      and other
                                  
                                  
                                  493
                                  
                                  
                                  
                                  (801
                                  )
                                  
                                  
                                  (308
                                  )
                                  
                                  
                                  444
                                  
                                  
                                  
                                  (936
                                  )
                                  
                                  
                                  (492
                                  )Net
      change in income oninterest
      earning assets
                                  
                                  
                                  9,045
                                  
                                  
                                  
                                  (9,227
                                  )
                                  
                                  
                                  (182
                                  )
                                  
                                  
                                  10,344
                                  
                                  
                                  
                                  (15,392
                                  )
                                  
                                  
                                  (5,048
                                  )Interest-bearing
      liabilities:Interest-bearing
      checking
                                  
                                  
                                  899
                                  
                                  
                                  
                                  (609
                                  )
                                  
                                  
                                  290
                                  
                                  
                                  
                                  1,540
                                  
                                  
                                  
                                  (21
                                  )
                                  
                                  
                                  1,519Passbook
      savings
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (10
                                  )
                                  
                                  
                                  (10
                                  )
                                  
                                  
                                  (5
                                  )
                                  
                                  
                                  (27
                                  )
                                  
                                  
                                  (32
                                  )Money
      market
                                  
                                  
                                  (184
                                  )
                                  
                                  
                                  (583
                                  )
                                  
                                  
                                  (767
                                  )
                                  
                                  
                                  (902
                                  )
                                  
                                  
                                  (2,354
                                  )
                                  
                                  
                                  (3,256
                                  )Certificates
      of deposit
                                  
                                  
                                  6,037
                                  
                                  
                                  
                                  (6,214
                                  )
                                  
                                  
                                  (177
                                  )
                                  
                                  
                                  4,228
                                  
                                  
                                  
                                  (7,555
                                  )
                                  
                                  
                                  (3,327
                                  )Total
      interest-bearing deposits
                                  
                                  
                                  6,752
                                  
                                  
                                  
                                  (7,416
                                  )
                                  
                                  
                                  (664
                                  )
                                  
                                  
                                  4,861
                                  
                                  
                                  
                                  (9,957
                                  )
                                  
                                  
                                  (5,096
                                  )FHLB
      advances
                                  
                                  
                                  (2,298
                                  )
                                  
                                  
                                  1,340
                                  
                                  
                                  
                                  (958
                                  )
                                  
                                  
                                  (2,232
                                  )
                                  
                                  
                                  (1,228
                                  )
                                  
                                  
                                  (3,460
                                  )Federal
      Reserve borrowings
                                  
                                  
                                  1,071
                                  
                                  
                                  
                                  (1,381
                                  )
                                  
                                  
                                  (310
                                  )
                                  
                                  
                                  589
                                  
                                  
                                  
                                  (700
                                  )
                                  
                                  
                                  (111
                                  )Note
      payable
                                  
                                  
                                  (33
                                  )
                                  
                                  
                                  (33
                                  )
                                  
                                  
                                  (66
                                  )
                                  
                                  
                                  (30
                                  )
                                  
                                  
                                  (9
                                  )
                                  
                                  
                                  (39
                                  )Subordinated
      debentures
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (78
                                  )
                                  
                                  
                                  (78
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (367
                                  )
                                  
                                  
                                  (367
                                  )Net
      change in expense oninterest
      bearing liabilities
                                  
                                  
                                  5,492
                                  
                                  
                                  
                                  (7,568
                                  )
                                  
                                  
                                  (2,076
                                  )
                                  
                                  
                                  3,188
                                  
                                  
                                  
                                  (12,261
                                  )
                                  
                                  
                                  (9,073
                                  )Change
      in net interest income
                                  
                                  $
                                  3,553
                                  
                                  
                                  $
                                  (1,659
                                  )
                                  
                                  $
                                  1,894
                                  
                                  
                                  $
                                  7,156
                                  
                                  
                                  $
                                  (3,131
                                  )
                                  
                                  $
                                  4,025




- 28
-




RESULTS OF
OPERATIONS





Net income
for the quarter ended June 30, 2009 was $2.0 million, or $0.14 per diluted
common share on 10.4 million average diluted shares outstanding, compared with
net income of $1.7 million, or $0.16 per diluted common share on
10.3 million average diluted shares outstanding, during the same quarter
last year.  For the nine months ended June 30, 2009, net income was
$4.4 million, or $0.35 per diluted common share on 10.3 million average diluted
shares outstanding, compared with $6.9 million, or $0.68 per diluted common
share on a 10.2 million average diluted shares outstanding, for the same period
a year ago.  Net income for the three and nine months ended June 30,
2009 was negatively impacted by a $6.2 million and $16.5 million provision for
loan losses, respectively, compared with $2.1 million and $4.9 million for same
periods in 2008, respectively, and by a $700,000 pretax charge to earnings in
June 2009 for an industry-wide FDIC special deposit insurance
assessment.  Also reducing income available to common shares for the
three and nine months ended June 30, 2009 were dividends and discount
amortization on the Company’s preferred stock, issued as part of the U.S.
Treasury’s TARP Capital Purchase Plan, totaling $514,000, or $0.05 per diluted
common share, and $751,000, or $0.07 per diluted common share,
respectively.  Results for the three- and nine-month periods ended
June 30, 2008 included an after-tax charge of $989,000, or $0.10 per diluted
share, for a separation payment and other expenses related to the resignation of
the Company’s former chief executive officer on May 1, 2008.





Net interest
income rose 19.9%, or $1.9 million, to $11.4 million for the quarter
ended June 30, 2009 compared with $9.5 million for the same period last
quarter. For the nine months ended June 30, 2009, net interest income rose to
$30.6 million compared with $26.6 million for the same nine-month period
last year. The increases were fueled by growth in the average balances of loans
receivable and loans held for sale combined with lower costs on deposits and
wholesale funding sources.




The net
interest margin was 3.22% during the quarter ended June 30, 2009 compared with
2.93% for the quarter ended March 31, 2009 and 3.23% for the quarter ended June
30, 2008.  The yield on loans receivable increased during the June
2009 quarter compared with the linked-quarter, resulting primarily from
continued price improvement on new commercial loan originations and renewals,
including interest-rate floors on adjustable-rate loans.   In
addition, the Company benefited from a market-driven decline in the cost of its
deposits and wholesale borrowings.




The net
interest margin was 3.05% for the nine months ended June 30, 2009 compared with
3.10% for the nine months ended June 30, 2008.  The Company
experienced declines in interest rates on its prime-adjusting commercial and
home equity loans and on its short-term wholesale borrowings following
reductions in the prime interest rate during the December 2008
quarter.  Conversely, interest rates paid on its retail deposits did
not fall as quickly due to competition for deposits and, accordingly, the
Company experienced compression in its net interest margin during the nine
months ended June 30, 2009.




Total interest
and dividend income decreased $181,000, or 1.0%, to $17.5 million for the
quarter ended June 30, 2009 compared with $17.7 million for the same 2008
quarter.  For the nine months ended June 30, 2009, total interest and
dividend income was $51.0 million compared with $56.0 million for the same
period a year ago.  The decreases were primarily due to decreases in
the average yields on loans receivable and loans held for sale, partially offset
by increases in the average balances of such loans.




The
average balance of loans receivable increased to $1.19 billion and $1.16 billion
during the three and nine months ended June 30, 2009, respectively, compared
with $1.05 billion and $1.03 billion during the same 2008 periods, respectively,
primarily as the result of commercial loan growth.  As the result of
declining market interest rates, the average yield on loans receivable decreased
to 5.08% and 5.22% during the three and nine months ended June 30, 2009,
respectively, compared with 6.10% and 6.69% during the same 2008 periods,
respectively.  However, primarily as the result of improved pricing on
commercial loans, the average yield on loans receivable increased during the
quarter ended June 30, 2009 from 4.99% during the quarter ended March 31,
2009.  See Community
Banking Strategy Produces Meaningful Growth In Key Business Lines – Commercial
Banking Services.




- 29
-




The
average balance of loans held for sale increased to $174.7 million and $125.8
million during the three and nine months ended June 30, 2009, respectively,
compared with $68.3 million and $66.9 million during the same 2008 periods,
respectively, primarily as the result of the increased refinancing activity and,
to a lesser extent, an increase in loans made to first-time home buyers during
the quarter ended June 30, 2009.  As the result of declining market
interest rates, the average yield on loans held for sale decreased to 4.69% and
4.74% during the three and nine months ended June 30, 2009, respectively,
compared with 5.57% and 5.37% during the same 2008 periods,
respectively.  See Community Banking Strategy Produces
Meaningful Growth In Key Business Lines – Retail Mortgage
Lending.




Total interest
expense decreased $2.1 million, or 25.4%, to $6.1 million for the quarter
ended June 30, 2009 compared with $8.2 million for the quarter ended June 30,
2008 and decreased $9.1 million to $20.4 million during the nine months ended
June 30, 2009 compared with $29.5 million during the same nine-month period last
year.  The lower expense was the result of decreases in the average
cost of funds partially offset by increases in the average balance of
interest-bearing liabilities.  The average cost of funds decreased
from 2.99% for the quarter ended June 30, 2008 to 1.96% for the quarter ended
June 30, 2009 while the average balance of interest-bearing liabilities
increased from $1.09 billion to $1.24 billion during the same periods,
respectively.  For the nine-month period, the average balance of
interest-bearing liabilities increased from $1.06 billion in 2008 to $1.19
billion in 2009 while the average cost of funds decreased from 3.72% to 2.28%
during the same periods, respectively.  The increased average balances
in interest-bearing liabilities, which were used to fund asset growth during the
periods, resulted primarily from increases in the average balances of deposits
(mainly checking accounts and certificates of deposit) and, to a lesser extent,
an increase in borrowings from the Federal Reserve Bank of St. Louis (“Federal
Reserve Bank”), offset by a decrease in the average balance of advances from the
Federal Home Loan Bank of Des Moines (“FHLB”).  The decreased average
costs were the result of lower market interest rates during the period, 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 $664,000, or 11.7%, to $5.0 million during the
quarter ended June 30, 2009 compared with $5.7 million for the quarter ended
June 30, 2008.  For the nine months ended June 30, 2009, interest
expense on deposits was $16.4 million compared with $21.5 million for the same
period a year ago.  The decrease in interest expense was the result of
a decrease in the average cost partially offset by an increase in the average
balance.  The average balance of interest-bearing deposits increased
to $1.00 billion for the quarter ended June 30, 2009 from $748.3 million
for the quarter ended June 30, 2008 while the average cost decreased from 3.03%
to 2.00% during the same periods, respectively.  For the nine-month
periods, the average balance of interest-bearing deposits increased to $942.8
million from $776.3 million while the average cost of deposits decreased from
3.70% to 2.32% during the same periods, respectively.  Growth in
average total deposits during the fiscal 2009 periods was the result of growth
in core deposits, CDARS time deposits and retail time deposits.  The
growth in core deposits combined with lower market interest rates resulted in
lower average costs during the fiscal 2009 periods.  See Community Banking Strategy Produces
Meaningful Growth In Key Business Lines –Retail Banking
Services.




- 30
-




Interest expense
on advances from the Federal Home Loan Bank decreased $957,000, or 53.2%,
to $841,000 during the quarter ended June 30, 2009 compared with
$1.8 million for the quarter ended June 30, 2008 and decreased to
$2.9 million during the nine months ended June 30, 2009 compared with $6.4
million for the same nine-month period last year primarily as the result of a
decrease in the average balances.  The average balance decreased to
$103.7 million for the quarter ended June 30, 2009 from $249.4 million for
the quarter ended June 30, 2008 and the average cost increased from 2.88% to
3.25% during the same periods, respectively.  For the nine-month
periods, the average balance decreased to $138.1 million during 2009 from
$233.4 million during 2008 and the average cost decreased from 3.65% to 2.83%
during the same periods, respectively.  The decreased average balances
resulted from management’s decision to shift a portion of these short-term
borrowings to less costly short-term borrowings at the Federal Reserve Bank and
to pay down such borrowings with proceeds from the growth in
deposits.  The decrease in the average cost for the nine-month period
was the result of lower market interest rates during the 2009 period, while the
increase in the average cost for the three-month period was the result of the
repayment of certain short-term borrowings, which carried lower interest rates
than the remaining longer-term borrowings.




Interest expense
on borrowings from the Federal Reserve Bank decreased to $80,000 during
the quarter ended June 30, 2009 compared with $390,000 for the quarter ended
June 30, 2008, and for the nine month periods, decreased to $295,000 during 2009
compared with $406,000 for 2008.  The decreases were primarily the
result of a decrease in the average cost partially offset by an increase in the
average balance.  The average balance increased to $118.3 million
for the quarter ended June 30, 2009 from $69.9 million for the quarter ended
June 30, 2008 while the average costs of these borrowings decreased to 0.27%
from 2.23% during the same periods, respectively.  The average balance
increased to $89.1 million during the nine months ended June 30, 2009 from $23.9
million during the same period in 2008 while the average cost decreased from
2.27% to 0.44% for the same periods, respectively.  The decrease in
the average cost was the result of the Federal Reserve’s actions taken to lower
interest rates on its short-term borrowing programs.




Provision
for Loan Losses




The provision for
loan losses for the three and nine months ended June 30, 2009 was $6.2
million and $16.5 million respectively, compared with $2.1 million and $4.9
million, respectively for the same periods a year ago.  The increase
in the provision was due to the increase in non-performing loans and net
charge-offs as the result of the difficult economic climate, and to loan growth,
particularly in commercial loans.  See Non-Performing AssetsandAllowance for Loan
Losses.




Non-Interest
Income




Total
non-interest income increased 87.5% to $6.1 million for the quarter ended
June 30, 2009 compared with $3.3 million for the same period last year and
increased $5.1 million to $15.2 million for the nine months ended June 30, 2009
compared with $10.1 million for the same nine-month period last
year.  The increases were primarily the result of strong growth in
mortgage revenues.  See Community Banking Strategy Produces
Meaningful Growth In Key Business Lines – Retail Mortgage
Lending.





Gain on sales of
securities totaled $8,000 for the three months ended June 30, 2008 on
sales of $20.9 million of debt securities classified as available for sale
and $426,000 of equity securities available for sale.  There were no
such sales during the three months ended June 30, 2009.  For the
nine-month periods, gain on sales of securities totaled $243,000 in 2009 on
sales of $51.1 million of debt securities classified as available for sale
compared with $325,000 in 2008 on sales of $45.7 million of available-for-sale
debt securities and $426,000 in equity securities available for
sale.  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.




- 31
-




Investment
brokerage revenuestotaled $365,000 and
$1.0 million for the three and nine months ended June 30, 2009, respectively
compared with $266,000 and $837,000, 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 bank,
municipal and individual investors.  Revenues are generated on trading
spreads and fluctuate with changes in trading volumes and market interest
rates.  The Company saw an increase in sales volumes as many of its
customers shifted funds from loan originations to lower-risk bonds because of
the current economic environment.




Other
non-interest income totaled $322,000 and $757,000 for the three and nine
months ended June 30, 2009, respectively, compared with $493,000 and $1.5
million for the same 2008 periods.  The decreases were primarily the
result of a decrease in fees received from a correspondent bank related to the
Bank’s official check clearing process and a decrease in commission income
received for annuities due to decreased sales activity.  Subsequent to
September 30, 2008, the Bank began clearing its official checks internally,
allowing the Bank the use of the float related to these outstanding
checks.  This process was previously performed by a correspondent bank
that paid the Bank fees for the use of the float.  Also contributing
to the decrease during the nine-month period were $237,000 of impairment charges
recognized in the December 2008 and March 2009 quarters for certain investments
that were previously carried at historical cost.




Non-Interest
Expense




Total
non-interest expense increased $284,000 to $8.6 million for the quarter
ended June 30, 2009 compared with $8.3 million for the same period a year
ago.  For the nine months ended June 30, 2009, total non-interest
expense increased $1.6 million to $23.1 million compared with $21.5 million for
the same nine-month period last year.




Salaries and
employee benefits expensedecreased $891,000 to $3.6 million for the
quarter ended June 30, 2009 compared with $4.5 million for the quarter ended
June 30, 2008 and decreased $176,000 to $10.6 million for the nine months ended
June 30, 2009 compared with $10.7 million for the nine months ended June 30,
2008.  Included in salaries and employee benefits expense for the
three and nine months ended June 30, 2008 was $1.5 million of expense associated
with the separation payment made to the Company’s former chief executive officer
on May 1, 2008.  Excluding this amount, salaries and employee benefits
expense increased $580,000 and $1.3 million during the three- and nine-month
periods ended June 30, 2009, respectively, compared with the same 2008
periods.  The increases were primarily the result of the payment of
incentives related to the increased mortgage and commercial lending volumes,
which did not qualify as capitalized loan origination expenses, and also to the
reversal, in March 2008, of $364,000 in accrued performance-based incentives
related to the separation of several employees.




Occupancy,
equipment and data processing expense increased $162,000 to $2.0 million
for the three months ended June 30, 2009 compared with $1.9 million for the
three months period June 30, 2008 and increased $437,000 to $6.0 million
for the nine months ended June 30, 2009 compared with $5.5 million for the nine
months ended June 30, 2008.   The increase was largely related to
an increase in expense related to the use of an independent security company to
provide security guards at certain of the Bank’s branch offices, enhancement of
certain capabilities of the Bank’s data processing systems and increased data
processing and other expenses related to the increased level of loan and deposit
activity.





Advertising
expense decreased $43,000 to $249,000 for the three months ended June 30,
2009 compared with $293,000 for the three months ended June 30, 2008 and
decreased $183,000 to $744,000 for the nine months ended June 30, 2009 compared
with $927,000 for the nine months ended June 30, 2008.  The decreases
were generally due to a reduction in the overall level of advertising during the
2009 periods and a more focused effort to control such expenses.




- 32
-




FDIC deposit
insurance premium expenseincreased $282,000 to
$463,000 for the three months ended June 30, 2009 compared with $182,000 for the
same period in 2008 and increased $501,000 to $1.1 million for the nine months
ended June 30, 2009 compared with $572,000 for the nine months ended June 30,
2008.  The increases were the result of deposit growth and an
industry-wide increase in FDIC insurance rates.





FDIC special
deposit insurance assessment expense for the three and nine months ended
June 30, 2009 totaled $700,000.  On May 22, 2009, the FDIC adopted a
final rule imposing a 5 basis point special assessment on each insured
depository institution’s assets minus Tier 1 capital as of June 30,
2009.  The special assessment will be paid on September 30, 2009. The
FDIC may impose an additional special assessment if the FDIC estimates that the
Deposit Insurance Fund reserve ratio will fall to a level that the Board
believes would adversely affect public confidence or to a level that will be
close to or below zero.  The FDIC has disclosed that an additional
special assessment of up to 5 basis points later in 2009 is probable, but the
amount is uncertain.  Any future special assessments will increase
insurance premium expense on deposits if and when they become
effective.





Gain on
derivative instrumentstotaled $266,000 for the
quarter ended June 30, 2008 and $331,000 for the nine-month period ended June
30, 2008.  Such gains related to interest rate swap agreements with
notional values totaling $80 million, which were designed to convert the
fixed rates paid on certain brokered certificates of deposits into variable,
LIBOR-based rates.  The Company used long-haul, fair-value, hedge
accounting.  Under this method, any hedge ineffectiveness was deemed
not material and the impact was recognized as a charge or credit to earnings
during the period in which the ineffectiveness occurred.  All of such
interest-rate swap agreements were called by the counterparties during the year
ended September 30, 2008 due to the declining interest-rate
environment.  In addition, the Company entered into two $14 million
notional value interest-rate swap agreements during 2008 that placed the Company
in equal, but opposite positions with the counterparties resulting in no net
effect on non-interest expense.  See Qualitative and Quantitative
Disclosures About Market Risk and Off-Balance Sheet
Arrangements.





Recovery of data
processing termination expense totaled $180,000 for the three and nine
months ended June 30, 2008.  Such amount represents the recovery of
expenses that were incurred in a prior period as the result of the termination
of a contract to convert the Company’s core data processing system.




Real estate
foreclosure losses and expense, netincludes realized losses
on the final disposition of foreclosed properties, additional write-downs for
declines in the fair market values of properties which occur subsequent to
foreclosure and expenses incurred in connection with maintaining the properties
until they are sold.  Real estate foreclosure losses and expense, net
decreased $364,000 to $314,000 for the quarter ended June 30, 2009 compared with
$677,000 for the same period last year and increased $4,000 for the nine-month
period ended June 30, 2009 compared with the same period a year
ago.   The fluctuations were generally due to the overall changes
in foreclosure activity.  See Non-Performing Assets and Allowance
for Loan Losses.




Income
Taxes




The provision for
income taxes was $776,000 and $1.8 million for the three and nine months
ended June 30, 2009, respectively, compared with $685,000 and $3.3 million for
the three and nine months ended June 30, 2008, respectively.  The
effective tax rates for the three and nine months ended June 30, 2009 were 27.8%
and 29.6%, respectively, compared with 29.2% and 32.5% for the same 2008
periods.  The lower effective tax rates in the 2009 periods were
primarily the result of a higher percentage of non-taxable income to total
pre-tax income related to bank-owned life insurance and non-taxable interest
income.





- 33
-




NON-PERFORMING
ASSETS AND ALLOWANCE FOR LOAN LOSSES
  Non-performing
assets at June 30, 2009, March 31, 2009 and September 30, 2008 are summarized as
follows:


June
      30,
                          
                          
                          March
      31,
                          
                          
                          September
      30,2009
                          
                          
                          2009
                          
                          
                          2008Non-accrual
      loans:Residential
      real estate:First
      mortgage
                          
                          $
                          7,479,603
                          
                          
                          $
                          4,526,284
                          
                          
                          $
                          5,903,709Second
      mortgage
                          
                          
                          1,041,315
                          
                          
                          
                          824,154
                          
                          
                          
                          752,245Home
      equity
                          
                          
                          3,256,544
                          
                          
                          
                          2,342,883
                          
                          
                          
                          1,695,073Commercial
      and multi-family real estate
                          
                          
                          1,477,939
                          
                          
                          
                          1,479,067
                          
                          
                          
                          923,897Land
      acquisition and development
                          
                          
                          9,895,895
                          
                          
                          
                          4,304,048
                          
                          
                          
                          201,220Real
      estate construction and development
                          
                          
                          751,655
                          
                          
                          
                          372,998
                          
                          
                          
                          133,108Commercial
      and industrial
                          
                          
                          4,349,378
                          
                          
                          
                          3,644,934
                          
                          
                          
                          341,250Consumer
      and other
                          
                          
                          151,951
                          
                          
                          
                          142,392
                          
                          
                          
                          159,727Total
      non-accrual loans
                          
                          
                          28,404,280
                          
                          
                          
                          17,636,760
                          
                          
                          
                          10,110,229Accruing
      loans past due 90 days or more:Residential
      real estate:First
      mortgage
                          
                          
                          138,040
                          
                          
                          
                          2,644,940
                          
                          
                          
                          2,542,770Second
      mortgage
                          
                          
                          -
                          
                          
                          
                          109,535
                          
                          
                          
                          -Home
      equity
                          
                          
                          238,998
                          
                          
                          
                          647,822
                          
                          
                          
                          1,467,606Commercial
      and multi-family real estate
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          169,349Land
      acquisition and development
                          
                          
                          -
                          
                          
                          
                          14,213
                          
                          
                          
                          61,496Real
      estate construction and development
                          
                          
                          -
                          
                          
                          
                          557,435
                          
                          
                          
                          -Consumer
      and other
                          
                          
                          27,373
                          
                          
                          
                          39,771
                          
                          
                          
                          7,349Total
      accruing loans past due 90 days or more
                          
                          
                          404,411
                          
                          
                          
                          4,013,716
                          
                          
                          
                          4,248,570Troubled
      debt restructurings:Current
      under restructured terms:Residential
      real estate:First
      mortgage
                          
                          
                          15,532,958
                          
                          
                          
                          12,023,658
                          
                          
                          
                          3,800,747Second
      mortgage
                          
                          
                          1,737,622
                          
                          
                          
                          1,549,511
                          
                          
                          
                          659,033Home
      equity
                          
                          
                          1,170,671
                          
                          
                          
                          1,405,519
                          
                          
                          
                          -Commercial
      and multi-family real estate
                          
                          
                          7,830,991
                          
                          
                          
                          7,830,991
                          
                          
                          
                          -Land
      acquisition and development
                          
                          
                          122,133
                          
                          
                          
                          64,874
                          
                          
                          
                          -Real
      estate construction and development
                          
                          
                          100,404
                          
                          
                          
                          -
                          
                          
                          
                          -Commercial
      and industrial
                          
                          
                          1,015,313
                          
                          
                          
                          1,336,788
                          
                          
                          
                          537,422Consumer
      and other
                          
                          
                          94,246
                          
                          
                          
                          64,287
                          
                          
                          
                          -Total
      current troubled debt restructurings
                          
                          
                          27,604,338
                          
                          
                          
                          24,275,628
                          
                          
                          
                          4,997,202Past
      due under restructured terms:Residential
      real estate:First
      mortgage
                          
                          
                          2,188,071
                          
                          
                          
                          2,619,663
                          
                          
                          
                          1,183,967Second
      mortgage
                          
                          
                          237,808
                          
                          
                          
                          57,591
                          
                          
                          
                          11,371Home
      equity
                          
                          
                          225,657
                          
                          
                          
                          93,449
                          
                          
                          
                          112,081Commercial
      and industrial
                          
                          
                          783,638
                          
                          
                          
                          1,020,252
                          
                          
                          
                          -Total
      past due troubled debt restructurings
                          
                          
                          3,435,174
                          
                          
                          
                          3,790,955
                          
                          
                          
                          1,307,419Total
      troubled debt restructurings
                          
                          
                          31,039,512
                          
                          
                          
                          28,066,583
                          
                          
                          
                          6,304,621Total
      non-performing loans
                          
                          
                          59,848,203
                          
                          
                          
                          49,717,059
                          
                          
                          
                          20,663,420Real
      estate acquired in settlement of loans:Residential
      real estate
                          
                          
                          2,205,383
                          
                          
                          
                          3,896,178
                          
                          
                          
                          3,518,806Commercial
      real estate
                          
                          
                          97,900
                          
                          
                          
                          103,500
                          
                          
                          
                          -Total
      real estate acquired in settlement of loans
                          
                          
                          2,303,283
                          
                          
                          
                          3,999,678
                          
                          
                          
                          3,518,806Other
      nonperforming assets
                          
                          
                          1,846
                          
                          
                          
                          2,500
                          
                          
                          
                          236,690Total
      non-performing assets
                          
                          $
                          62,153,332
                          
                          
                          $
                          53,719,237
                          
                          
                          $
                          24,418,916Ratio
      of non-performing loans to total loans receivable
                          
                          
                          5.08
                          %
                          
                          
                          4.17
                          %
                          
                          
                          1.88
                          %Ratio
      of non-performing assets to totals assets
                          
                          
                          4.12
                          %
                          
                          
                          3.68
                          %
                          
                          
                          1.87
                          %Ratio
      of allowance for loan losses to non-performing loans
                          
                          
                          34.66
                          %
                          
                          
                          37.15
                          %
                          
                          
                          61.76
                          %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
                          
                          
                          2.73
                          %
                          
                          
                          2.14
                          %
                          
                          
                          1.42
                          %Ratio
      of non-performing assets to totals assets
                          
                          
                          2.29
                          %
                          
                          
                          2.01
                          %
                          
                          
                          1.49
                          %Ratio
      of allowance for loan losses to non-performing loans
                          
                          
                          60.50
                          %
                          
                          
                          66.30
                          %
                          
                          
                          81.20
                          %


- 34
-


Non-performing
loans increased to $59.8 million at June 30, 2009 from $49.7 million at March
31, 2009 and $20.7 million at September 30, 2008.  The increase
from March 31, 2009 was primarily the result of a $10.8 million increase in
non-accrual loans, partially offset by a $3.6 million decrease in accruing loans
that were 90 days or more past due during the quarter.  The increase
in non-accrual loans was primarily attributable to the addition of two loans
with principal balances totaling $5.3 million that were secured by residential
building lots under development and raw land.  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.




Also
contributing to the rise in non-performing loans from March 31, 2009 was a
$3.0 million increase in troubled debt restructurings, primarily
residential real estate first mortgage loans, resulting from management’s
decision to proactively modify loan repayment terms with borrowers who were
experiencing financial difficulties in the current economic climate with the
belief that these actions would maximize the Bank’s recoveries on these
loans.  Substantially all of the Company’s residential borrowers live
in the St. Louis and Kansas City communities that the Company serves, which
enabled management to work closely with these troubled borrowers.  The
restructured terms of the loans generally included a reduction of the interest
rates and, if the underlying collateral values supported the resulting carrying
values of the loans, the addition of past due interest to the principal balance
of the loans.  Many of these borrowers were current at the time of the
modification and showed strong intent and ability to repay their obligations
under the modified terms.  At June 30, 2009, $27.6 million, or 89%, of
the total restructured loans were performing as agreed under the modified terms
of the 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 retain such classification
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 one year.  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, which is generally three months for loans that were less than 30
days past due at the time of restructuring and six months for loans that were 30
days or more past due at the time of restructuring.




The ratio
of the allowance for loan losses to loans receivable increased to 1.76% at June
30, 2009 compared with 1.55% at March 31, 2009 and 1.16% at September 30,
2008.  The ratio of the allowance for loan losses to non-performing
loans was 34.66% at June 30, 2009 compared with 37.15% at March 31, 2009 and
61.76% at September 30, 2008.  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 60.5% at June 30, 2009 compared with 66.3% at March 31,
2009 and 81.2% at September 30, 2008.  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 and
residential first mortgage loans.  At June 30, 2009, 42% of total
non-performing loans were residential first mortgage loans, which carry a lower
level of inherent risk than other types of loans in the Company’s portfolio,
especially compared to second mortgage loans and home equity lines of credit
where the Company often does not own or service the first mortgage
loan.




Real
estate acquired in settlement of loans was $2.3 million at June 30, 2009
compared with $4.0 million at March 31, 2009 and $3.5 million at
September 30, 2008.  The balance at June 30, 2009 consisted of 32
residential real estate properties and one commercial real estate property in
the Company’s two primary market areas of St. Louis and Kansas
City.


- 35
-


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




Three
      Months Ended
                
                
                Nine
      Months EndedJune 30,
                
                
                June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Balance,
      beginning of period
                
                $
                18,467,535
                
                
                $
                11,115,858
                
                
                $
                12,761,532
                
                
                $
                10,421,304Provision
      charged to expense
                
                
                6,154,000
                
                
                
                2,140,974
                
                
                
                16,509,985
                
                
                
                4,901,665Charge-offs:Residential
      real estate first mortgage
                
                
                773,507
                
                
                
                341,313
                
                
                
                3,095,717
                
                
                
                495,878Residential
      real estate second mortgage
                
                
                407,461
                
                
                
                570,761
                
                
                
                869,940
                
                
                
                1,308,923Home
      equity lines of credit
                
                
                568,752
                
                
                
                276,207
                
                
                
                1,806,604
                
                
                
                1,014,249Real
      estate construction & development
                
                
                6,788
                
                
                
                121,388
                
                
                
                473,491
                
                
                
                150,088Land
      acquisition and development
                
                
                1,837,175
                
                
                
                -
                
                
                
                1,837,175
                
                
                
                -Commercial
      & multi-family real estate
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                374,000Commercial
      & industrial
                
                
                252,712
                
                
                
                -
                
                
                
                383,684
                
                
                
                -Consumer
      and other
                
                
                37,632
                
                
                
                45,299
                
                
                
                112,636
                
                
                
                186,956Total
      charge-offs
                
                
                3,884,027
                
                
                
                1,354,968
                
                
                
                8,579,247
                
                
                
                3,530,094Recoveries:Residential
      real estate first mortgage
                
                
                1,708
                
                
                
                658
                
                
                
                11,180
                
                
                
                658Residential
      real estate second mortgage
                
                
                1,526
                
                
                
                -
                
                
                
                2,034
                
                
                
                -Home
      equity lines of credit
                
                
                1,485
                
                
                
                77
                
                
                
                13,028
                
                
                
                106,971Commercial
      and multi-family real estate
                
                
                -
                
                
                
                -
                
                
                
                14,283
                
                
                
                -Consumer
      and other
                
                
                1,243
                
                
                
                6,630
                
                
                
                10,675
                
                
                
                8,725Total
      recoveries
                
                
                5,962
                
                
                
                7,365
                
                
                
                51,200
                
                
                
                116,354Net
      charge-offs
                
                
                3,878,065
                
                
                
                1,347,603
                
                
                
                8,528,047
                
                
                
                3,413,740Balance,
      end of period
                
                $
                20,743,470
                
                
                $
                11,909,229
                
                
                $
                20,743,470
                
                
                $
                11,909,229




The
provision for loan losses for the three months ended June 30, 2009 was $6.2
million compared with $5.7 million for the March 2009 quarter and $2.1 million
for the June 2008 quarter.  For the nine-month periods, the provision
for loan losses was $16.5 million in 2009 compared with $4.9 million in 2008.
The increased provision in the fiscal 2009 periods was due to the increase in
the level of non-performing loans and net charge-offs, reflecting the impact of
the adverse economic climate on the Company’s borrowers, and also to growth in
performing commercial loans, which have historically carried a higher level of
inherent risk than residential loans.




Net
charge-offs for the three- and nine-month periods ended June 30, 2009 totaled
$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, respectively,
compared with $1.3 million, or 0.51% of average loans on an annualized basis,
and $3.4 million, or 0.44% of average loans on an annualized basis, for the same
periods a year ago, respectively.  Net charge-offs in the June 2009
quarter included a $1.8 million partial charge-off of a loan secured by
residential building lots under development.  The remaining balance of
the loan has been placed on non-accrual status.  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 2009
periods.  The Company has not engaged in sub-prime lending
activities.




- 36
-




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 real estate 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.  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.




FINANCIAL
CONDITION
  Cash and cash
equivalentsincreased $21.1 million to $50.2 million at June 30, 2009
from $29.1 million at September 30, 2008.  Cash balances included
overnight investments in federal funds, which increased to $25.2 million at June
30, 2009 compared with $647,000 at September 30, 2008, primarily as the result
of the receipt of a large commercial deposit on the last day of the
quarter.




- 37
-


Debt securities
available for sale increased to $7.0 million at June 30,
2009.  There were no such investments at September 30,
2008.  Mortgage-backed
securities available for sale increased to $16.5 million at June 30, 2009
from $10.2 million at September 30, 2008, while mortgage-backed
and related securities held to maturity decreased to $13.2 million at
June 30, 2009 from $15.7 million at September 30, 2008.  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 Moinesincreased $754,000 to $11.6 million
at June 30, 2009 from $10.9 million at September 30, 2008.  The
Bank is generally required to hold stock equal to 5% of its total FHLB
borrowings.  However, effective in December 2008, the FHLB informed
its member banks that it was temporarily suspending redemptions of its stock
when members reduced their outstanding borrowings and that it may increase the
amount of stock it requires its members to hold.




Deferred tax
assetdecreased $2.0 million to $6.0 million at June 30, 2009 from $8.1
million at September 30, 2008 primarily as the result of the utilization of
capital loss carryovers generated by losses on the sale of the Company’s entire
portfolio of Fannie Mae preferred stock during September 2008.  At the
time of sale, such losses were classified as capital losses for federal income
tax purposes and, accordingly, could only be deducted on the Company’s income
tax return to the extent they could be used to offset capital
gains.  On October 3, 2008, the Emergency Economic Stabilization Act
of 2008 was enacted, which provided ordinary loss treatment on such
sales.  However, under Statement of Accounting Standards No. 109,
Accounting for Income Taxes, these losses were treated as capital losses for
financial accounting purposes at September 30, 2008, but were recognized as
ordinary losses during the quarter ended December 31, 2008.




Prepaid expenses,
accounts receivable and other assetsincreased $2.2 million to $10.1
million at June 30, 2009 from $7.9 million at September 30,
2008.  The increase was primarily the result of a $873,000 increase in
the fair value of an interest-rate swap agreement with a notional value of $14
million, which also increased other
liabilities by a like amount, and an increase in accounts
receivable.  See Qualitative and Quantitative
Disclosures About Market Risk and Off-Balance Sheet
Arrangements.




Advances from
the Federal Home Loan
Bank of Des Moinesdecreased $144.5 million to $66.1 million at June 30,
2009 from $210.6 million at September 30, 2008 while borrowings from
the Federal Reserve
Bankincreased $90.0 million to $130.0 million at June 30, 2009 from
$40.0 million at September 30, 2008.  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.  Funds received from retail
deposit growth during the nine months ended June 30, 2009 were used to reduce
the net outstanding balance of these borrowings by
$54.5 million.




Note
payable decreased from $7.6 million at September 30, 2008 to $0 at June
30, 2009 as the Company repaid these borrowings from a correspondent bank using
a portion of the proceeds from the sale of preferred stock to the U.S.
Department of Treasury.  See Note 2 of Notes to Unaudited
Consolidated Financial Statements.




Due to other
banks decreased from $14.4 million at September 30, 2008 to $0 at June
30, 2009.  The balance at September 30, 2008 represented the
Bank’s outstanding official checks that were cleared through a correspondent
bank’s checking account.  Subsequent to September 30, 2008, the
Company began to perform this clearing process internally, resulting in the
decrease in the liability.




- 38
-




Total
stockholders’ equity increased $34.9 million to $117.2 million at June
30, 2009 from $82.4 million at September 30, 2008.  On January
16, 2009, as part of the U.S. Department of Treasury’s Capital Purchase Program,
the Company issued 32,538 shares of Fixed Rate Cumulative Perpetual Preferred
Stock, Series A, $1,000 per share liquidation preference, and a warrant to
purchase up to 778,421 shares of the Company’s common stock at an exercise price
of $6.27 per share in exchange for $32.5 million in cash from the U.S.
Department of Treasury.  See Note 2 of Notes to Unaudited
Consolidated Financial Statements.  Also increasing
stockholders’ equity were net income totaling $4.4 million, common stock issued
under the Company’s dividend reinvestment plan totaling $560,000, the
amortization of equity trust expense of $495,000 and an increase in accumulated
other comprehensive income of $211,000, partially offset by common stock
dividend payments of $2.9 million and preferred stock dividends and
discount amortization of $751,000.




LIQUIDITY
AND CAPITAL RESOURCES




The
Company primarily funds its assets with deposits from its retail and commercial
customers.  If the Bank or the Company require funds beyond their
ability to generate them internally, the Bank has the ability to borrow funds
from the FHLB and the Federal Reserve Bank and to raise certificates of deposit
on a national level through broker relationships.  Management chooses
among these wholesale funding sources depending on their relative costs, the
Company’s overall interest rate risk exposure and the Company’s overall
borrowing capacity at the FHLB and the Federal Reserve Bank.  At June
30, 2009, the combined balance of borrowings from the FHLB, borrowings from the
Federal Reserve Bank and brokered deposits totaled $312.7 million, had a
weighted-average interest rate of 1.66%, a weighted average maturity of
approximately 11 months and represented 20.7% of total assets.  Use of
these funds has given the Company an alternative source to support its asset
growth while avoiding, when necessary, aggressive deposit pricing strategies
used from time to time by some of its competitors in its market.  In
addition, because approximately two-thirds of the Company’s assets are scheduled
to mature or reprice within one year, the use of these wholesale funds has given
management a low-cost means to maximize net interest income and manage
interest-rate risk by providing the Company greater flexibility to control the
interest rates and maturities of these funds, as compared to
deposits.  This increased flexibility has allowed the Company to
better respond to changes in changes in the interest rate environment and demand
for its loan products, especially 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, 2009 allowed the Company to reduce
its use of such wholesale funding from a high during fiscal year 2008 of
approximately 34% of total assets.




The
borrowings from the FHLB are obtained under a blanket agreement, which assigns
all investments in FHLB stock, qualifying first residential mortgage loans,
residential 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, 2009, the Bank
had approximately $260.9 million in additional borrowing authority under
the arrangement with the FHLB in addition to the $66.1 million in advances
outstanding at that date.




The
borrowings from the Federal Reserve Bank consist of short-term borrowings
(generally maturing overnight or within 28 days) borrowed under the Bank’s
primary credit line at the Federal Reserve’s Discount Window and its Term
Auction Facility.  At June 30, 2009, the Company had $130.0 million in
such borrowings outstanding, which were used to fund loans held for
sale.  In addition to the borrowings outstanding, the Bank had
approximately $20.8 million in additional borrowing authority under this
arrangement at June 30, 2009 and had approximately $232.1 million of commercial
loans pledged as collateral under this agreement.




- 39
-




At June
30, 2009, the Bank had outstanding commitments to originate loans totaling
$162.3 million and commitments to sell loans totaling $283.6
million.  Certificates of deposit totaling $442.4 million at June 30,
2009 were scheduled to mature in one year or less.  Based on past
experience, management believes the majority of certificates of deposit maturing
in one year or less will remain with the Bank.




The
Company is a legal entity, separate and distinct from the Bank, which must
provide its own liquidity to meet its operating needs.  In addition to
funding its operating expenses, the Company pays cash dividends to its common
and preferred shareholders and interest and principal on outstanding
debt.  A large portion of the Company’s liquidity is obtained from the
Bank in the form of dividends.  OTS regulations impose limitations
upon payment of capital distributions from the Bank to the
Company.  Under the regulations, the prior approval of the OTS is
required prior to any capital distribution if the total capital distributions
for the calendar year exceed net income for that year plus the amount of
retained net income for the preceding two years or if the Bank would be
undercapitalized following the distribution.  The Company believes
that this restriction will not have a material adverse impact on the Company’s
ability to meet its ongoing cash obligations.





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
loans held for sale.  During the nine months ended June 30, 2009, the
origination of loans held for sale used $1.64 billion of cash and the sales of
such loans provided cash totaling $1.54 billion compared with originations and
sales totaling $1.04 billion and $1.02 billion, respectively, during the nine
months ended June 30, 2008.




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, 2009, the Company
had a net increase in loans receivable of $93.8 million compared with an
increase of $139.9 million for the nine months ended June 30,
2008.  In addition, the Company purchased $61.7 million in debt
securities and $7.0 million in mortgage-backed securities during the nine months
ended June 30, 2009 compared with purchases of $85.2 million in debt securities
and $9.3 million in equity securities during the nine months ended June 30,
2008.  Sources of cash from investing activities also included sales
and maturities of debt securities totaling $51.1 million and $4.0 million,
during the nine months ended June 30, 2009 compared with sales and maturities of
debt securities totaling $45.7 million and $52.1 million, respectively, during
the nine months ended June 30, 2008.




The
Company’s primary sources and uses of funds from financing
activities during the nine months ended June 30, 2009 included a
$244.3 million increase in deposits compared with a $2.2 million decrease
for the nine months ended June 30, 2008, a $90.0 million increase in borrowings
from the Federal Reserve Bank during the nine months ended June 30, 2009
compared with a $95.0 million increase during the same period last year, a
$144.5 million decrease in advances from the Federal Home Loan Bank compared
with a $64.6 million increase during the same period last year, and proceeds
from the issuance of preferred stock totaling $32.5 million during January
2009.




- 40
-




The
following table presents the maturity structure of time deposits and other
maturing liabilities at June 30, 2009:




June 30, 2009FederalCertificates
                                      
                                      
                                      FHLB
                                      
                                      
                                      Reserve
                                      
                                      
                                      Subordinatedof Deposit
                                      
                                      
                                      Borrowings
                                      
                                      
                                      Borrowings
                                      
                                      
                                      Debentures(In
      thousands)Maturing
      in:Three
      months or less
                                      
                                      $
                                      212,596
                                      
                                      
                                      $
                                      5,100
                                      
                                      
                                      $
                                      130,000
                                      
                                      
                                      $
                                      -Over
      three months through six months
                                      
                                      
                                      153,568
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Over
      six months through twelve months
                                      
                                      
                                      76,236
                                      
                                      
                                      
                                      32,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Over
      twelve months
                                      
                                      
                                      150,392
                                      
                                      
                                      
                                      29,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      19,589Total
                                      
                                      $
                                      592,792
                                      
                                      
                                      $
                                      66,100
                                      
                                      
                                      $
                                      130,000
                                      
                                      
                                      $
                                      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, 2009 are as follows:




Less
      than one year
                  
                  $
                  669,217Over
      1 year through 3 years
                  
                  
                  1,206,883Over
      3 years through 5 years
                  
                  
                  1,025,753Over
      5 years
                  
                  
                  1,187,081Total
                  
                  $
                  4,088,934





REGULATORY
CAPITAL




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




- 41
-




The
following table illustrates the Bank’s actual regulatory capital levels compared
with its regulatory capital requirements at June 30, 2009 and September 30,
2008.




Regulatory Capital
    RequirementsTo
      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, 2009:Tangible
      capital (to total assets)
                                        
                                        $
                                        128,058
                                        
                                        
                                        
                                        8.52
                                        %
                                        
                                        $
                                        22,539
                                        
                                        
                                        
                                        1.50
                                        %
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/ATotal
      risk-based capital (to risk- weighted assets)
                                        
                                        
                                        143,159
                                        
                                        
                                        
                                        11.85
                                        
                                        
                                        
                                        96,634
                                        
                                        
                                        
                                        8.00
                                        
                                        
                                        $
                                        120,793
                                        
                                        
                                        
                                        10.00
                                        %Tier
      I risk-based capital (to risk- weighted assets)
                                        
                                        
                                        128,058
                                        
                                        
                                        
                                        10.60
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        72,476
                                        
                                        
                                        
                                        6.00Tier
      I leverage capital (to average assets)
                                        
                                        
                                        128,058
                                        
                                        
                                        
                                        8.52
                                        
                                        
                                        
                                        60,105
                                        
                                        
                                        
                                        4.00
                                        
                                        
                                        
                                        75,131
                                        
                                        
                                        
                                        5.00As
      of September 30, 2008:Tangible
      capital (to total assets)
                                        
                                        $
                                        102,884
                                        
                                        
                                        
                                        7.93
                                        %
                                        
                                        $
                                        19,471
                                        
                                        
                                        
                                        1.50
                                        %
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/ATotal
      risk-based capital (to risk- weighted assets)
                                        
                                        
                                        114,838
                                        
                                        
                                        
                                        10.59
                                        
                                        
                                        
                                        86,769
                                        
                                        
                                        
                                        8.00
                                        
                                        
                                        $
                                        108,462
                                        
                                        
                                        
                                        10.00
                                        %Tier
      I risk-based capital (to risk- weighted assets)
                                        
                                        
                                        102,884
                                        
                                        
                                        
                                        9.49
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        65,077
                                        
                                        
                                        
                                        6.00Tier
      I leverage capital (to average assets)
                                        
                                        
                                        102,884
                                        
                                        
                                        
                                        7.93
                                        
                                        
                                        
                                        51,923
                                        
                                        
                                        
                                        4.00
                                        
                                        
                                        
                                        64,904
                                        
                                        
                                        
                                        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, 2009 from those
disclosed in the Company's Annual Report on Form 10-K for the year ended
September 30, 2008.




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.




- 42
-





For the
three and nine months ended June 30, 2009, 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 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,
2009, the Company had issued $162.3 million of unexpired interest rate lock
commitments to loan customers compared with $137.4 million of unexpired
commitments at September 30, 2008.





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 treatment underSFAS No. 133.  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, 2009.  The fair values of these derivative
instruments recorded in other assets and other liabilities in the Company’s
financial statements at June 30, 2009 and September 30, 2008 were $943,000 and
$70,000, 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, 2009, 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, 2009, 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, 2009 that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting.




IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS




In
September 2006, the Financial Accounting Standards Board issued Statement No.
157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting standards, and expands disclosures about fair value measurements.
SFAS No. 157 was effective for the Company beginning October 1,
2008.  In March 2008, the FASB issued Staff Position No. FAS 157-2
(“FSP No. 157-2”), which delays the effective date of SFAS No. 157 for
non-financial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), to the Company’s fiscal year beginning October 1,
2009.  The adoption of SFAS No. 157 did not have a material effect on
the Company’s financial condition or results of operations.




- 43
-





In April
2009, the FASB issued Staff Position (“FSP”) No. FAS 157-4, “Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP
FAS 157-4”).  SFAS No. 157 defines fair value as the price that would
be received to sell the asset or transfer the liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
market participants at the measurement date under current market
conditions.  FSP FAS 157-4 provides additional guidance on determining
when the volume and level of activity for the asset or liability has
significantly decreased.  The FSP also includes guidance on
identifying circumstances when a transaction may not be considered orderly and
provides that a transaction price not associated with an orderly transaction is
given little, if any, weight when estimating fair value.  This FSP is
effective for interim and annual reporting periods ending after June 15, 2009,
with early adoption permitted for periods ending after March 15,
2009.  An entity early adopting FSP FAS 157-4 must also early adopt
FSP FAS 115-2 and FAS 124-2 (as defined below).  The adoption of FSP
FAS 157-4 during the quarter ended June 30, 2009 did not have a material effect
on the Company’s financial condition or results of operations.





In April
2009, the FASB issued Staff Position No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS
124-2”).  FSP FAS 115-2 and FAS 124-2 clarifies the interaction of the
factors that should be considered when determining whether a debt security is
other-than-temporarily impaired.  For debt securities, management must
assess whether (a) it has the intent to sell the security and (b) it is more
likely than not that it will be required to sell the security prior to its
anticipated recovery.  These steps are performed before assessing
whether the entity will recover the cost basis of the
investment.  Previously, this assessment required management to assert
it has both the intent and the ability to hold a security for a period of time
sufficient to allow for an anticipated recovery in fair value to avoid
recognizing an other-than-temporary impairment.  This change does not
affect the need to forecast recovery of the value of the security through either
cash flows or market price.  In instances when a determination is made
that an other-then-temporary impairment exists but the investor does not intend
to sell the debt security and it is not more likely than not that it will be
required to sell the debt security prior to its anticipated recovery, FSP FAS
115-2 and FAS 124-2 changes the presentation and amount of the
other-than-temporary impairment recognized in the income
statement.  The other-than-temporary impairment is separated into (a)
the amount of the total other-than-temporary impairment related to a decrease in
cash flows expected to be collected from the debt security (the credit loss) and
(b) the amount of the total other-than-temporary impairment related to all other
factors.  The amount of the total other-than-temporary impairment
related to the credit loss is recognized in earnings.  The amount of
the total other-than-temporary impairment related to all other factors is
recognized in other comprehensive income.  The adoption of FSP FAS
115-2 and FAS 124-2 during the quarter ended June 30, 2009 did not have a
material effect on the Company’s financial condition or results of
operations.





In April
2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB
28-1”).  FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures
about Fair Value of Financial Instruments,” to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements.  This FSP also
amends APB Opinion No. 28, “Interim Financial Reporting”, to require those
disclosures in summarized financial information at interim reporting
periods.  The adoption of FSP FAS 107-1 and APB 28-1 during the
quarter ended June 30, 2009 did not have a material effect on the Company’s
financial condition or results of operations.




- 44
-





In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115” (“SFAS No. 159”).  SFAS No. 159 provides companies
with an option to report selected financial assets and liabilities at estimated
fair value. Most of the provisions of SFAS No. 159 are elective; however, the
amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and
Equity Securities,” applies to all entities that own trading and
available-for-sale securities.  The fair value option created by SFAS
No. 159 permits an entity to measure eligible items at fair value as of
specified election dates.  The fair value option (a) may generally be
applied instrument by instrument, (b) is irrevocable unless a new election date
occurs, and (c) must be applied to the entire instrument and not to only a
portion of the instrument.  SFAS No. 159 was effective for the Company
beginning October 1, 2008.  The adoption of SFAS No. 159 did not have
a material effect on the Company’s financial condition or results of
operations.





In
December 2007, the FASB issued Statement No. 141 (revised 2007), “Business
Combinations - A Replacement of FASB Statement No. 141” (“SFAS 141(R)”) and
Statement No. 160, “Noncontrolling Interests in Consolidated Financial
Statements - An Amendment of ARB No. 51” (“SFAS 160”).  SFAS 141(R)
establishes principles and requirements for how an acquirer recognizes and
measures certain items in a business combination, as well as disclosures about
the nature and financial effects of a business combination.  SFAS 160
establishes accounting and reporting standards surrounding noncontrolling
interests, or minority interests, which are the portions of equity in a
subsidiary not attributable, directly or indirectly, to a parent.  The
pronouncements are effective for fiscal years beginning on or after December 15,
2008 and apply prospectively to business combinations.  Presentation
and disclosure requirements related to noncontrolling interests must be
retrospectively applied.  Management is currently evaluating the
impact of SFAS 141(R) on its accounting for future acquisitions and the impact
of SFAS 160 on the Company’s consolidated financial statements.





In March
2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - An Amendment of FASB Statement No. 133”
(“SFAS 161”). SFAS 161 requires enhanced qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements.  SFAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15,
2008.  The adoption of SFAS 161 did not have a material effect on the
Company’s financial condition or results of operations.





In
September 2006, the Emerging Issues Task Force Issue 06-4, “Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements,” was ratified.  This EITF
Issue addresses accounting for separate agreements that split life insurance
policy benefits between an employer and employee.  The Issue requires
the employer to recognize a liability for future benefits payable to the
employee under these agreements.  The effects of applying this Issue
must be recognized through either a change in accounting principle through an
adjustment to equity or through the retrospective application to all prior
periods.   The consensus in this Issue is effective for fiscal
years beginning after December 15, 2007, with earlier application
permitted.  The application of this Issue did not have a material
effect on the Company’s financial condition or results of
operations.





In
September 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment
Transactions Are Participating Securities.”  The guidance applies to
the calculation of earnings per share under
SFAS No. 128, “Earnings per Share,” for share-based payment awards with rights
to dividends or dividend equivalents.  Unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents
(whether paid or unpaid) are participating securities, according to the FSP, and
should be included when
computing earnings per share following the two-class method.  The FSP
is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those years.  The adoption of the FSP is not expected to have a
material effect on the Company’s financial condition or results of
operations.




- 45
-





In May
2009, the FASB issued Statement No. 165, “Subsequent Events,” (“SFAS No. 165”),
which provides guidance on management’s assessment of subsequent
events.  SFAS No. 165 is not expected to significantly change practice
because its guidance is similar to that in American Institute of Certified
Public Accountants Professional Standards U.S. Auditing Standards Section 560,
“Subsequent Events,” with some modifications. This statement became effective
for the Company on June 15, 2009. The adoption of this statement did not have a
material effect on the Company’s financial statements.





In July
2009, the FASB issued Statement No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles,”
(the “Codification”).  The Codification will be the single source of
authoritative U.S. generally accepted accounting principles.  The
Codification does not change generally accepted accounting principles, but is
intended to make it easier to find and research issues.  The
Codification introduces a new structure that organizes accounting pronouncements
into approximately 90 accounting topics.  The Codification is
effective for interim and fiscal years ending after September 15, 2009. The
Company adopted the Codification on July 1, 2009.  The adoption of
this statement did not have a material effect on the Company’s financial
statements but will change how it makes reference to generally accepted
accounting principles beginning in the third quarter of 2009.


- 46
-


PART
II - OTHER INFORMATION




Item1.
            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.




Item1A.
              Risk
      Factors:




In
      addition to the other information set forth in this report, you should
      carefully consider the factors discussed in Part I, “Item 1A. Risk
      Factors” in our Annual Report on Form 10-K for the year ended September
      30, 2008, which could materially affect our business, financial condition
      or future results. The risks described in our Annual Report on Form 10-K
      are not the only risks that we face. Additional risks and uncertainties
      not currently known to us or that we currently deem to be immaterial also
      may materially adversely affect our business, financial condition and/or
      operating results.




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




The
following table provides information regarding the Company’s purchases of its
equity securities during the three months ended June 30, 2009.




ISSUER
PURCHASES OF EQUITY SECURITIES





Period
                              
                              (a)
                                Total
                                Number
                                of Shares
                                (or Units)
                                Purchased
                              
                              
                              (b)
                                Average
                                Price
                                Paid per
                                Share
                                (or Unit)
                              
                              
                              (c)
                                Total Number of
                                Shares (or Units)
                                Purchased as
                                Part of Publicly
                                Announced Plans
                                or Programs
                              
                              
                              (d)
                                Maximum Number
                                (or Approximate
                                Dollar Value) of
                                Shares (or Units)
                                That May Yet Be
                                Purchased Under the
                                Plans or Programs (1)April
      1, 2009 through April 30, 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              380,619May
      1, 2009 through May 31, 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              380,619June
      1, 2009 through June 30, 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              380,619Total
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              `
  - 47
-





(1)
            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. The
      repurchase program will continue until it is completed or terminated by
      the Board of Directors.  However, as part of the Company’s
      participation in the Capital Repurchase Program of the U.S. Department of
      Treasury’s Troubled Asset Repurchase 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.




Item
      3.
            Defaults
      Upon Senior Securities: Not
applicable




Item
      4.
            Submission
      of Matters to a Vote of Security Holders:
None




Item
      5.
            Other
      Information: Not applicable




Item
      6.
            Exhibits:




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




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




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)




10.1
            Compensation
      Arrangement with Matthew Locke




10.2
            Compensation
      Arrangement with Brian Bjorkman




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.
  - 48
-
  (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.




- 49
-




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 7,
      2009
                    /s/ Gary W. DouglassGary
      W. DouglassPresident
      and Chief Executive OfficerDate:
      August 7,
      2009
                    /s/ Paul J. MilanoPaul
      J. MilanoChief
      Financial
Officer