UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C.  20549




FORM
10-Q




(Mark
One)





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





For
      the quarterly period ended
              December 31,2009





OR





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





For the
transition period from ___________________ to
______________________





0-24571Commission
      File Number





Pulaski Financial
      Corp.(Exact
      name of registrant as specified in its
charter)




Missouri
                
                43-1816913(State
      or other jurisdiction of
                
                (I.R.S.
      Employerincorporation
      or organization)
                
                Identification
      Number)





12300
      Olive BoulevardSt. Louis, Missouri
                  
                  63141-6434(Address
      of principal executive offices)
                  
                  (Zip
      Code)





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





Not
Applicable


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





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


Yes 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  ̈     No
 ̈




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




Large
accelerated filer   ̈                              Accelerated
filer                      ̈


Non-accelerated
filer     ̈                              Smaller
reporting company  x


(Do not check if a smaller reporting
company.)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes  ̈    No  x





Indicate
the number of shares outstanding of the registrant’s classes of common stock, as
of the latest practicable date.





Class
                
                Outstanding atFebruary 12, 2010Common
      Stock, par value $.01 per share
                
                10,544,883
      shares





PULASKI
FINANCIAL CORP. AND SUBSIDIARIES




FORM
10-Q




DECEMBER
31, 2009




TABLE
OF CONTENTS




PagePART
      I
                      FINANCIAL
      INFORMATIONItem
      1.
                      Financial
      StatementsConsolidated
      Balance Sheets at December 31, 2009 andSeptember
      30, 2009 (Unaudited)
                      1Consolidated
      Statements of Income and Comprehensive Income forthe
      Three Months Ended December 31, 2009 and 2008 (Unaudited)
                      2Consolidated
      Statement of Stockholders’ Equity for the Three Months
    EndedDecember
      31, 2009 (Unaudited)
                      3Consolidated
      Statements of Cash Flows for the Three Months EndedDecember
      31, 2009 and 2008 (Unaudited)
                      4Notes
      to Unaudited Consolidated Financial Statements
                      6Item
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      21Item
      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      36Item
      4.
                      Controls
      and Procedures
                      37PART
      II
                      OTHER
      INFORMATIONItem
      1.
                      Legal
      Proceedings
                      40Item
      1A.
                      Risk
      Factors
                      40Item
      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      41Item
      3.
                      Defaults
      Upon Senior Securities
                      41Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      41Item
      5.
                      Other
      Information
                      42Item
      6.
                      Exhibits
                      42Signatures









PART
I - FINANCIAL INFORMATION


PULASKI
      FINANCIAL CORP. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSDECEMBER
      31, 2009 AND SEPTEMBER 30, 2009
(UNAUDITED)





December
      31,
                        
                        
                        September
      30,2009
                        
                        
                        2009ASSETSCash
      and amounts due from depository institutions
                        
                        $
                        5,528,500
                        
                        
                        $
                        3,911,448Federal
      funds sold and overnight interest-bearing deposits
                        
                        
                        13,198,889
                        
                        
                        
                        33,539,216Total
      cash and cash equivalents
                        
                        
                        18,727,389
                        
                        
                        
                        37,450,664Equity
      securities available for sale, at fair value
                        
                        
                        589,000
                        
                        
                        
                        589,000Debt
      securities available for sale, at fair value
                        
                        
                        4,997,763
                        
                        
                        
                        1,997,396Mortgage-backed
      securities held to maturity, at amortized cost (fair value of $11,864,797
      and $12,374,966 at December 31, 2009 and September 30, 2009,
      respectively)
                        
                        
                        11,583,157
                        
                        
                        
                        12,077,794Mortgage-backed
      securities available for sale, at fair value
                        
                        
                        15,453,202
                        
                        
                        
                        16,087,148Capital
      stock of Federal Home Loan Bank - at cost
                        
                        
                        7,454,400
                        
                        
                        
                        11,649,800Loans
      held for sale, at lower of cost or market
                        
                        
                        151,195,342
                        
                        
                        
                        109,129,721Loans
      receivable (net of allowance for loan losses of $22,922,608 and
      $20,579,170 at December 31, 2009 and September 30, 2009,
      respectively
                        
                        
                        1,126,374,800
                        
                        
                        
                        1,132,094,844Real
      estate acquired in settlement of loans (net of allowance for losses of
      $187,800 and $274,076 at December 31, 2009 and September 30, 2009,
      respectively)
                        
                        
                        15,718,133
                        
                        
                        
                        8,454,610Premises
      and equipment, net
                        
                        
                        18,648,322
                        
                        
                        
                        18,962,001Goodwill
                        
                        
                        3,938,524
                        
                        
                        
                        3,938,524Core
      deposit intangible
                        
                        
                        217,018
                        
                        
                        
                        243,100Accrued
      interest receivable
                        
                        
                        4,618,955
                        
                        
                        
                        4,906,919Bank-owned
      life insurance
                        
                        
                        28,954,301
                        
                        
                        
                        28,678,679Deferred
      tax asset
                        
                        
                        9,372,904
                        
                        
                        
                        9,296,234Prepaid
      expenses, accounts receivable and other assets
                        
                        
                        16,239,781
                        
                        
                        
                        10,869,438Total
      assets
                        
                        $
                        1,434,082,991
                        
                        
                        $
                        1,406,425,872LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits
                        
                        $
                        1,155,580,263
                        
                        
                        $
                        1,191,629,239Advances
      from Federal Home Loan Bank
                        
                        
                        123,800,000
                        
                        
                        
                        61,000,000Borrowings
      from the Federal Reserve Bank of St. Louis
                        
                        
                        4,700,000
                        
                        
                        
                        -Subordinated
      debentures
                        
                        
                        19,589,000
                        
                        
                        
                        19,589,000Advance
      payments by borrowers for taxes and insurance
                        
                        
                        2,024,747
                        
                        
                        
                        4,655,867Accrued
      interest payable
                        
                        
                        722,044
                        
                        
                        
                        1,034,896Other
      liabilities
                        
                        
                        10,495,581
                        
                        
                        
                        11,555,500Total
      liabilities
                        
                        
                        1,316,911,635
                        
                        
                        
                        1,289,464,502Stockholders'
      Equity:Preferred
      stock - $.01 par value per share, 1,000,000 shares authorized; 32,538
      shares issued at December 31, 2009 and September 30, 2009, $1,000 per
      share liquidation value, net of discount
                        
                        
                        30,762,741
                        
                        
                        
                        30,655,060Common
      stock - $.01 par value per share, 18,000,000 shares authorized;13,068,618
      shares issued at December 31, 2009 and September 30, 2009
                        
                        
                        130,687
                        
                        
                        
                        130,687Treasury
      stock-at cost; (2,888,822 and 2,963,817 shares at December 31, 2009 and
      September 30, 2009, respectively)
                        
                        
                        (18,168,156
                        )
                        
                        
                        (18,544,173
                        )Additional
      paid-in capital from common stock
                        
                        
                        55,280,195
                        
                        
                        
                        55,247,464Accumulated
      other comprehensive income, net
                        
                        
                        144,472
                        
                        
                        
                        192,773Retained
      earnings
                        
                        
                        49,021,417
                        
                        
                        
                        49,279,559Total
      stockholders’ equity
                        
                        
                        117,171,356
                        
                        
                        
                        116,961,370Total
      liabilities and stockholders’ equity
                        
                        $
                        1,434,082,991
                        
                        
                        $
                        1,406,425,872





See
accompanying notes to the unaudited consolidated financial
statements.


- 1
-




PULASKI
      FINANCIAL CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOMETHREE
      MONTHS ENDED DECEMBER 31, 2009 AND 2008
  (UNAUDITED)





Three
      Months EndedDecember
      31,2009
                                
                                
                                2008Interest
      and Dividend Income:Loans
      receivable
                                
                                $
                                14,858,809
                                
                                
                                $
                                15,685,231Loans
      held for sale
                                
                                
                                1,620,008
                                
                                
                                
                                665,691Securities
      and other
                                
                                
                                362,071
                                
                                
                                
                                483,790Total
      interest and dividend income
                                
                                
                                16,840,888
                                
                                
                                
                                16,834,712Interest
      Expense:Deposits
                                
                                
                                4,626,768
                                
                                
                                
                                6,123,294Advances
      from Federal Home Loan Bank
                                
                                
                                557,242
                                
                                
                                
                                1,170,653Borrowings
      from the Federal Reserve Bank
                                
                                
                                64
                                
                                
                                
                                79,767Subordinated
      debentures
                                
                                
                                127,492
                                
                                
                                
                                246,423Note
      payable
                                
                                
                                -
                                
                                
                                
                                101,120Total
      interest expense
                                
                                
                                5,311,566
                                
                                
                                
                                7,721,257Net
      interest income
                                
                                
                                11,529,322
                                
                                
                                
                                9,113,455Provision
      for loan losses
                                
                                
                                6,074,000
                                
                                
                                
                                4,691,578Net
      interest income after provision for loan losses
                                
                                
                                5,455,322
                                
                                
                                
                                4,421,877Non-Interest
      Income:Mortgage
      revenues
                                
                                
                                2,701,486
                                
                                
                                
                                1,549,630Retail
      banking fees
                                
                                
                                932,161
                                
                                
                                
                                967,034Investment
      brokerage revenues
                                
                                
                                424,044
                                
                                
                                
                                261,464Gain
      on the sales of securities
                                
                                
                                -
                                
                                
                                
                                243,386Bank-owned
      life insurance
                                
                                
                                275,622
                                
                                
                                
                                293,209Other
                                
                                
                                110,321
                                
                                
                                
                                66,637Total
      non-interest income
                                
                                
                                4,443,634
                                
                                
                                
                                3,381,360Non-Interest
      Expense:Salaries
      and employee benefits
                                
                                
                                3,896,579
                                
                                
                                
                                3,342,002Occupancy,
      equipment and data processing expense
                                
                                
                                2,004,913
                                
                                
                                
                                1,880,289Advertising
                                
                                
                                146,858
                                
                                
                                
                                285,999Professional
      services
                                
                                
                                517,449
                                
                                
                                
                                261,470FDIC
      deposit insurance premuim expense
                                
                                
                                491,858
                                
                                
                                
                                199,219Real
      estate foreclosure losses and expense, net
                                
                                
                                436,203
                                
                                
                                
                                341,564Other
                                
                                
                                688,540
                                
                                
                                
                                629,981Total
      non-interest expense
                                
                                
                                8,182,400
                                
                                
                                
                                6,940,524Income
      before income taxes
                                
                                
                                1,716,556
                                
                                
                                
                                862,713Income
      tax expense
                                
                                
                                466,121
                                
                                
                                
                                296,856Net
      income
                                
                                $
                                1,250,435
                                
                                
                                $
                                565,857Other
      comprehensive (loss) income
                                
                                
                                (48,301
                                )
                                
                                
                                112,196Comprehensive
      income
                                
                                $
                                1,202,134
                                
                                
                                $
                                678,053Income
      available to common shares
                                
                                $
                                736,029
                                
                                
                                $
                                565,857Per
      Common Share Amounts:Basic
      earnings per common share
                                
                                $
                                0.07
                                
                                
                                $
                                0.06Weighted
      average common shares outstanding - basic
                                
                                
                                10,274,066
                                
                                
                                
                                10,114,506Diluted
      earnings per common share
                                
                                $
                                0.07
                                
                                
                                $
                                0.06Weighted
      average common shares outstanding - diluted
                                
                                
                                10,483,880
                                
                                
                                
                                10,274,626





See
accompanying notes to the unaudited consolidated financial
statements.


- 2
-





PULASKI
      FINANCIAL CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITYTHREE
      MONTHS ENDED DECEMBER 31, 2009
(UNAUDITED)





Preferred
                                
                                
                                
                                
                                
                                
                                
                                
                                Additional
                                
                                
                                AccumulatedStock,
                                
                                
                                
                                
                                
                                
                                
                                
                                Paid-In
                                
                                
                                OtherNet
      of
                                
                                
                                Common
                                
                                
                                Treasury
                                
                                
                                Capital
      From
                                
                                
                                Comprehensive
                                
                                
                                RetainedDiscount
                                
                                
                                Stock
                                
                                
                                Stock
                                
                                
                                Common
      Stock
                                
                                
                                Income
      (Loss),
      Net
                                
                                
                                Earnings
                                
                                
                                TotalBalance,
      September 30, 2009
                                
                                $
                                30,655,060
                                
                                
                                $
                                130,687
                                
                                
                                $
                                (18,544,173
                                )
                                
                                $
                                55,247,464
                                
                                
                                $
                                192,773
                                
                                
                                $
                                49,279,559
                                
                                
                                $
                                116,961,370Comprehensive
      income:Net
      income
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,250,435
                                
                                
                                
                                1,250,435Change
      in unrealized gain (loss)on
      investment securities, net of tax
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (48,301
                                )
                                
                                
                                -
                                
                                
                                
                                (48,301
                                )Realized
      gain on sales of investment securitiesincluded
      in net income, net of tax
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Comprehensive
      income
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (48,301
                                )
                                
                                
                                1,250,435
                                
                                
                                
                                1,202,134Common
      stock dividends ($0.095 per share)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (994,171
                                )
                                
                                
                                (994,171
                                )Preferred
      stock dividends
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (406,725
                                )
                                
                                
                                (406,725
                                )Accretion
      of discount on preferred stock
                                
                                
                                107,681
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (107,681
                                )
                                
                                
                                -Stock
      option and award expense
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                179,227
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                179,227Commmon
      stock issued under dividendreinvestment
      plan (31,677 shares)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                129,274
                                
                                
                                
                                77,182
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                206,456Restricted
      common stock issued (49,012 shares)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                200,018
                                
                                
                                
                                (200,018
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Common
      stock surrendered to satisfy tax withholdingobligations
      of stock-based compensation (4,452 shares)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (30,593
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (30,593
                                )Purchase
      of equity trust shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (70,635
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (70,635
                                )Distribution
      of equity trust shares (12,161 shares)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                147,953
                                
                                
                                
                                (147,953
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Amortization
      of equity trust expense
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                147,238
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                147,238Tax
      expense from release of equity shares
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (25,667
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (25,667
                                )Excess
      tax benefit from stock-based compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,722
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,722Balance,
      December 31, 2009
                                
                                $
                                30,762,741
                                
                                
                                $
                                130,687
                                
                                
                                $
                                (18,168,156
                                )
                                
                                $
                                55,280,195
                                
                                
                                $
                                144,472
                                
                                
                                $
                                49,021,417
                                
                                
                                $
                                117,171,356





See
accompanying  notes to the unaudited consolidated financial
statements.


- 3
-




PULASKI
      FINANCIAL CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THREE MONTHSENDED
      DECEMBER 31, 2009 AND DECEMBER 31, 2008
  (UNAUDITED)





Three
      Months EndedDecember
      31,2009
                      
                      
                      2008Cash
      Flows From Operating Activities:Net
      income
                      
                      $
                      1,250,435
                      
                      
                      $
                      565,857Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation,
      amortization and accretion:Premises
      and equipment
                      
                      
                      471,743
                      
                      
                      
                      451,830Net
      deferred loan costs
                      
                      
                      554,924
                      
                      
                      
                      596,425Debt
      and equity securities premiums and discounts, net
                      
                      
                      16,950
                      
                      
                      
                      54,603Equity
      trust expense, net
                      
                      
                      147,238
                      
                      
                      
                      163,694Stock
      option and award expense
                      
                      
                      179,227
                      
                      
                      
                      132,505Provision
      for loan losses
                      
                      
                      6,074,000
                      
                      
                      
                      4,691,578Provision
      for losses on real estate acquired in settlement of loans
                      
                      
                      278,600
                      
                      
                      
                      56,500Losses
      on sales of real estate acquired in settlement of loans
                      
                      
                      43,203
                      
                      
                      
                      129,270Originations
      of loans held for sale
                      
                      
                      (455,782,621
                      )
                      
                      
                      (248,266,432
                      )Proceeds
      from sales of loans held for sale
                      
                      
                      416,191,188
                      
                      
                      
                      242,232,138Gain
      on sales of loans held for sale
                      
                      
                      (2,474,188
                      )
                      
                      
                      (1,301,138
                      )Loss
      on equity securities available for sale
                      
                      
                      -
                      
                      
                      
                      155,500Gain
      on sales of debt securities available for sale
                      
                      
                      -
                      
                      
                      
                      (398,886
                      )Increase
      in cash value of  bank-owned life insurance
                      
                      
                      (275,622
                      )
                      
                      
                      (293,209
                      )(Decrease)
      increase in deferred tax asset
                      
                      
                      (76,670
                      )
                      
                      
                      30,960Excess
      tax benefit from stock-based compensation
                      
                      
                      (2,722
                      )
                      
                      
                      -Tax
      expense for release of equity trust shares
                      
                      
                      25,667
                      
                      
                      
                      -Decrease
      in accrued expenses
                      
                      
                      (1,072,253
                      )
                      
                      
                      (721,987
                      )Increase
      in current income taxes payable
                      
                      
                      309,134
                      
                      
                      
                      133,662Changes
      in other assets and liabilities
                      
                      
                      (5,659,292
                      )
                      
                      
                      (779,429
                      )Net
      adjustments
                      
                      
                      (41,051,494
                      )
                      
                      
                      (2,932,416
                      )Net
      cash used in operating activities
                      
                      
                      (39,801,059
                      )
                      
                      
                      (2,366,559
                      )Cash
      Flows From Investing Activities:Proceeds
      from:Maturities
      of debt securities available for sale
                      
                      
                      5,000,000
                      
                      
                      
                      -Sales
      of debt securities available for sale
                      
                      
                      -
                      
                      
                      
                      51,050,500Principal
      payments on mortgage-backed securities
                      
                      
                      1,032,058
                      
                      
                      
                      849,764Redemption
      of Federal Home Loan Bank stock
                      
                      
                      6,601,800
                      
                      
                      
                      4,571,500Sales
      of real estate acquired in settlement of loans receivable
                      
                      
                      882,201
                      
                      
                      
                      1,950,650Purchases
      of:Debt
      securities available for sale
                      
                      
                      (7,998,695
                      )
                      
                      
                      (54,714,020
                      )Mortgage-backed
      securities available for sale
                      
                      
                      -
                      
                      
                      
                      (1,831,568
                      )Federal
      Home Loan Bank stock
                      
                      
                      (2,406,400
                      )
                      
                      
                      (3,536,300
                      )Premises
      and equipment
                      
                      
                      (158,064
                      )
                      
                      
                      (315,236
                      )Net
      increase in loans receivable
                      
                      
                      (9,376,407
                      )
                      
                      
                      (59,107,153
                      )Net
      cash used in investing activities
                      
                      $
                      (6,423,507
                      )
                      
                      $
                      (61,081,863
                      )





Continued
on next page.


- 4
-




PULASKI
      FINANCIAL CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THREE MONTHSENDED
      DECEMBER 31, 2009 AND DECEMBER 31, 2008, CONTINUED
    (UNAUDITED)





Three
      Months EndedDecember
      31,2009
                  
                  
                  2008Cash
      Flows From Financing Activities:Net
      (decrease) increase in deposits
                  
                  $
                  (36,048,976
                  )
                  
                  $
                  86,623,144Proceeds
      from (repayment of) Federal Home Loan Bank advances, net
                  
                  
                  62,800,000
                  
                  
                  
                  (114,200,000
                  )Proceeds
      from Federal Reserve Bank borrowings, net
                  
                  
                  4,700,000
                  
                  
                  
                  103,000,000Net
      decrease in due to other banks
                  
                  
                  -
                  
                  
                  
                  (14,377,831
                  )Net
      decrease in advance payments by borrowers for taxes and
      insurance
                  
                  
                  (2,631,120
                  )
                  
                  
                  (1,875,042
                  )Proceeds
      from cash received in dividend reinvestment plan
                  
                  
                  206,456
                  
                  
                  
                  163,116Purchase
      of equity trust shares
                  
                  
                  (70,635
                  )
                  
                  
                  (44,200
                  )Excess
      tax benefit for stock based compensation
                  
                  
                  2,722
                  
                  
                  
                  -Tax
      expense for release of equity trust shares
                  
                  
                  (25,667
                  )
                  
                  
                  -Dividends
      paid on common stock
                  
                  
                  (994,170
                  )
                  
                  
                  (972,586
                  )Dividends
      paid on preferred stock
                  
                  
                  (406,725
                  )
                  
                  
                  -Common
      stock surrendered to satisfy tax withholding obligations of stock-based
      compensation
                  
                  
                  (30,593
                  )
                  
                  
                  (28,181
                  )Net
      cash provided by financing activities
                  
                  
                  27,501,292
                  
                  
                  
                  58,288,420Net
      decrease in cash and cash equivalents
                  
                  
                  (18,723,275
                  )
                  
                  
                  (5,160,002
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  37,450,664
                  
                  
                  
                  29,077,862Cash
      and cash equivalents at end of period
                  
                  $
                  18,727,389
                  
                  
                  $
                  23,917,860Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the period for:Interest
      on deposits
                  
                  $
                  3,008,700
                  
                  
                  $
                  6,912,177Interest
      on advances from FHLB
                  
                  
                  556,719
                  
                  
                  
                  1,194,530Interest
      on other borrowings
                  
                  
                  -
                  
                  
                  
                  94,521Interest
      on subordinated debentures
                  
                  
                  147,127
                  
                  
                  
                  251,319Interest
      on note payable
                  
                  
                  -
                  
                  
                  
                  101,254Cash
      paid during the period for interest
                  
                  
                  3,712,546
                  
                  
                  
                  8,553,801Income
      taxes, net
                  
                  
                  227,000
                  
                  
                  
                  201,000Noncash
      Investing Activities:Real
      estate acquired in settlement of loans receivable
                  
                  
                  8,467,527
                  
                  
                  
                  1,226,945





See
accompanying notes to the unaudited consolidated financial
statements.


- 5
-


PULASKI
FINANCIAL CORP. AND SUBSIDIARIES




NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS




1.
            BASIS
      OF PRESENTATION




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




In the
opinion of management, the unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial condition of the Company as of December 31,
2009 and September 30, 2009 and its results of operations for the three-month
periods ended December 31, 2009 and 2008.  The results of
operations for the three-month period ended December 31, 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, 2009 contained in the Company’s 2009
Annual Report to Stockholders, which was filed as an exhibit to the Company’s
Annual Report on Form 10-K for the year ended September 30, 2009.




The
preparation of these consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements that affect the reported amounts of revenues and
expenses during the reported periods.  Actual results could differ
from those estimates.  The allowance for loan losses and fair values
of financial instruments are significant estimates reported within the
consolidated financial statements.




Certain
reclassifications have been made to fiscal 2009 amounts to conform to the fiscal
2010 presentation.





The
Company has evaluated all subsequent events through February 12, 2010, 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 December 31, 2009, and the
appropriate disclosure of any subsequent events that were not recognized in the
financial statements.





2.
            PREFERRED
      STOCK




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





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


- 6
-





The
preferred stock pays cumulative dividends of 5% per year for the first five
years and 9% per year thereafter.  The Company may, at its option,
redeem the preferred stock at its liquidation preference plus accrued and unpaid
dividends.  The securities purchase agreement between the Company and
the U.S. Treasury limits, for three years, the rate of dividend payments on the
Company’s common stock to the amount of its last quarterly cash dividend prior
to participation in the program 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 EndedDecember
      31,2009
                  
                  
                  2008Net
      income
                  
                  $
                  1,250,435
                  
                  
                  $
                  565,857Less:Preferred
      dividends declared
                  
                  
                  (406,725
                  )
                  
                  
                  -Accretion
      of discount on preferred stock
                  
                  
                  (107,681
                  )
                  
                  
                  -Income
      available for common shares
                  
                  $
                  736,029
                  
                  
                  $
                  565,857Weighted
      average common shares outstanding - basic
                  
                  
                  10,274,066
                  
                  
                  
                  10,114,506Effect
      of dilutive securities:Treasury
      stock held in equity trust - unvested shares
                  
                  
                  98,263
                  
                  
                  
                  101,863Equivalent
      shares - employee stock options and awards
                  
                  
                  19,586
                  
                  
                  
                  58,257Equivalent
      shares - common stock warrant
                  
                  
                  91,965
                  
                  
                  
                  -Weighted
      average common shares outstanding - diluted
                  
                  
                  10,483,880
                  
                  
                  
                  10,274,626Earnings
      per common share:Basic
                  
                  $
                  0.07
                  
                  
                  $
                  0.06Diluted
                  
                  $
                  0.07
                  
                  
                  $
                  0.06




Under the
treasury stock method, outstanding stock options are dilutive when the average
market price of the Company’s common stock, combined with the effect of any
unamortized compensation expense, exceeds the option price during a
period.  In addition, proceeds from the assumed exercise of dilutive
options along with the related tax benefit are assumed to be used to repurchase
common shares at the average market price of such stock during the
period.  Similarly, outstanding warrants are dilutive when the average
market price of the Company’s common stock exceeds the exercise price during a
period.  Proceeds from the assumed exercise of dilutive warrants are
assumed to be used to repurchase common shares at the average market price of
such stock during the period.




- 7
-




The
following options and warrants to purchase common shares during the three-month
period ended December 31, 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 2013 through 2019, respectively, and the
warrant expires in 2019.





Three
      Months EndedDecember 31,2009
                  
                  
                  2008Number
      of option shares excluded
                  
                  
                  671,195
                  
                  
                  
                  654,771Equivalent
      anti-dilutive shares
                  
                  
                  1,216,365
                  
                  
                  
                  1,260,975Number
      of warrant shares excluded
                  
                  
                  -
                  
                  
                  
                  -Equivalent
      anti-dilutive shares
                  
                  
                  -
                  
                  
                  
                  -




4.
            STOCK-BASED
      COMPENSATION




The
Company’s shareholder-approved, stock-based incentive plans permit the grant of
awards in the form of options intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code, options that do not so qualify
(non-statutory stock options,) and grants of restricted shares of common
stock.  All employees, non-employee directors and consultants of the
Company and its affiliates are eligible to receive awards under the
plans.  Except as described below, all stock option awards issued
during the three months ended December 31, 2009 were granted with an exercise
price equal to the market value of the Company’s shares at the date of grant and
all stock option and stock grant awards vest over a period of two to five
years.  In October 2009, stock grants for 11,016 shares of the
Company’s common stock were awarded to directors with terms providing for
vesting of 5,508 shares immediately and 5,508 shares in twelve
months.  The exercise period for stock options generally may not
exceed 10 years from the date of grant.  Option and share awards
provide for accelerated vesting if there is a change in control (as defined in
the plans).





A summary
of the Company’s stock option program as of December 31, 2009 and changes during
the three-month period then ended, is presented below:




Weighted-Weighted
              
              
              
              
              AverageAverage
              
              Aggregate
              
              
              RemainingNumber
              
              Exercise
              
              Intrinsic
              
              
              ContractualOf
      Shares
              
              Price
              
              Value
              
              
              Life
      (years)Outstanding
      at October 1, 2009
              
              
              930,306
              
              $
              9.82Granted
              
              
              15,000
              
              
              7.25Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (800
              )
              
              13.61Outstanding
      at December 31, 2009
              
              
              944,506
              
              $
              9.78
              
              $
              435,681
              
              
              
              6.2Exercisable
      at December 31, 2009
              
              
              552,002
              
              $
              9.32
              
              $
              409,666
              
              
              
              4.6




The
weighted-average grant-date fair value of options granted during the three
months ended December 31, 2009 was $1.79 per share.  As of December
31, 2009, the total unrecognized compensation expense related to non-vested
stock options and awards was $1.2 million and the related weighted average
period over which it is expected to be recognized is 2.5
years.





The fair
value of stock options granted during the three-month period ended December 31,
2009 and 2008 is estimated on the date of grant using the Black-Scholes option
pricing model with the following average assumptions:


- 8
-





Three
      Months EndedDecember 31,2009
                  
                  
                  2008Risk
      free interest rate
                  
                  
                  2.44
                  %
                  
                  
                  4.30
                  %Expected
      volatility
                  
                  
                  38.59
                  %
                  
                  
                  35.53
                  %Expected
      life in years
                  
                  
                  5.6
                  
                  
                  
                  5.4Dividend
      yield
                  
                  
                  4.37
                  %
                  
                  
                  4.27
                  %Expected
      forfeiture rate
                  
                  
                  3.37
                  %
                  
                  
                  3.37
                  %





The
Company maintains an Equity Trust Plan for the benefit of key loan officers and
sales staff.  The plan is designed to recruit, retain and motivate
top-performing loan officers and other key revenue-producing employees who are
instrumental to the Company’s success.  The plan allows the recipients
to defer a percentage of commissions earned, which might be partially matched by
the Company and paid into a rabbi trust for the benefit of the
participants.  The assets of the trust are limited to Company shares
purchased in the open market and cash.  Should the participants
voluntarily leave the Company, they forego any unvested accrued
benefits.





At
December 31, 2009, there were 285,400 shares in the plan with an aggregate value
of $3.4 million, which were included in treasury stock in the Company’s
consolidated financial statements, including 90,309 shares that were not yet
vested.  Vested shares in the plan are treated as issued and
outstanding when computing basic and diluted earnings per share, whereas
unvested shares are treated as issued and outstanding only when computing
diluted earnings per share.





5.
            INCOME
      TAXES




At
December 31, 2009, the Company had $167,000 of unrecognized tax benefits,
$134,000 of which would affect the effective tax rate if
recognized.  The Company recognizes interest related to uncertain tax
positions in income tax expense and classifies such interest and penalties in
the liability for unrecognized tax benefits.  As of December 31, 2009,
the Company had approximately $33,000 accrued for the payment of interest and
penalties.  The tax years ended September 30, 2006 through 2009 remain
open to examination by the taxing jurisdictions to which the Company is
subject.


- 9
-


6.
              DEBT
      AND EQUITY SECURITIES




The
amortized cost and estimated fair value of debt and equity securities available
for sale at December 31, 2009 and September 30, 2009 are summarized as
follows:




Gross
                  
                  
                  Gross
                  
                  
                  EstimatedAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueDecember
      31, 2009:Available
      for Sale:Equity
      securities
                  
                  $
                  589,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  589,000Debt
      securities
                  
                  
                  4,999,801
                  
                  
                  
                  -
                  
                  
                  
                  (2,038
                  )
                  
                  
                  4,997,763Total
                  
                  $
                  5,588,801
                  
                  
                  $
                  -
                  
                  
                  $
                  (2,038
                  )
                  
                  $
                  5,586,763Weighted
      average rate at end of period
                  
                  
                  0.10
                  %September
      30, 2009:Available
      for Sale:Equity
      securities
                  
                  $
                  589,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  589,000Debt
      securities
                  
                  
                  1,999,590
                  
                  
                  
                  -
                  
                  
                  
                  (2,194
                  )
                  
                  
                  1,997,396Total
                  
                  $
                  2,588,590
                  
                  
                  $
                  -
                  
                  
                  $
                  (2,194
                  )
                  
                  $
                  2,586,396Weighted
      average rate on debt securities at end of period
                  
                  
                  0.16
                  %




The
summary below displays the length of time the securities available for sale were
in a continuous unrealized loss position as of December 31, 2009 and September
30, 2009.  The unrealized losses were not deemed to be
other-than-temporary. The Company does not have the intent to dispose of these
investments and it is not more likely than not that the Company will be required
to sell these investments prior to recovery of the unrealized
losses.  Further, the Company believes the deterioration in value is
attributable to changes in market interest rates and not the credit quality of
the issuer.




Length of Time in Continuous Unrealized Loss
      Position at December 31, 2009Less than 12 months
                  
                  
                  12 months or more
                  
                  
                  TotalFair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  UnrealizedValue
                  
                  
                  Losses
                  
                  
                  Value
                  
                  
                  Losses
                  
                  
                  Value
                  
                  
                  LossesAvailable
      for Sale:Debt
      obligations of government-sponsored entities
                  
                  $
                  4,997,763
                  
                  
                  $
                  2,038
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  4,997,763
                  
                  
                  $
                  2,038Percent
      of total
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %





Length of Time in Continuous Unrealized Loss
      Position at September 30, 2009Less than 12 months
                  
                  
                  12 months or more
                  
                  
                  TotalFair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  UnrealizedValue
                  
                  
                  Losses
                  
                  
                  Value
                  
                  
                  Losses
                  
                  
                  Value
                  
                  
                  LossesAvailable
      for Sale:Debt
      obligations of government-sponsored entities
                  
                  $
                  1,997,396
                  
                  
                  $
                  2,194
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,997,396
                  
                  
                  $
                  2,194Percent
      of total
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %




- 10
-




7.
              MORTGAGE-BACKED
      SECURITIES




Mortgage-backed
securities held to maturity and available for sale at December 31, 2009 and
September 30, 2009 are summarized as follows:




December 31, 2009Gross
                
                
                GrossAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueHeld
      to Maturity:Mortgage-backed
      securities:Freddie
      Mac
                
                $
                121
                
                
                $
                1
                
                
                $
                (2
                )
                
                $
                120Ginnie
      Mae
                
                
                213,082
                
                
                
                25,044
                
                
                
                -
                
                
                
                238,126Fannie
      Mae
                
                
                11,351,440
                
                
                
                262,567
                
                
                
                (5,969
                )
                
                
                11,608,038Total
      mortgage-backed securities
                
                
                11,564,643
                
                
                
                287,612
                
                
                
                (5,971
                )
                
                
                11,846,284Collateralized
      mortgage obligations:Freddie
      Mac
                
                
                18,514
                
                
                
                -
                
                
                
                (1
                )
                
                
                18,513Total
      held to maturity
                
                $
                11,583,157
                
                
                $
                287,612
                
                
                $
                (5,972
                )
                
                $
                11,864,797Weighted
      average rate at end of period
                
                
                4.31
                %Available
      for Sale:Mortgage-backed
      securities:Ginnie
      Mae
                
                $
                490,393
                
                
                $
                32,344
                
                
                $
                -
                
                
                $
                522,737Fannie
      Mae
                
                
                1,100,400
                
                
                
                9,915
                
                
                
                -
                
                
                
                1,110,315Total
      mortgage-backed securities
                
                
                1,590,793
                
                
                
                42,259
                
                
                
                -
                
                
                
                1,633,052Collateralized
      mortgage obligations:Freddie
      Mac
                
                
                1,451,848
                
                
                
                40,349
                
                
                
                -
                
                
                
                1,492,197Ginnie
      Mae
                
                
                7,021,442
                
                
                
                102,661
                
                
                
                -
                
                
                
                7,124,103Fannie
      Mae
                
                
                5,154,060
                
                
                
                49,790
                
                
                
                -
                
                
                
                5,203,850Total
      collateralized mortgage obligations
                
                
                13,627,350
                
                
                
                192,800
                
                
                
                -
                
                
                
                13,820,150Total
      available for sale
                
                $
                15,218,143
                
                
                $
                235,059
                
                
                $
                -
                
                
                $
                15,453,202Weighted
      average rate at end of period
                
                
                4.14
                %




- 11
-





September 30, 2009Gross
                  
                  
                  GrossAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueHeld
      To Maturity:Mortgage-backed
      securities:Freddie
      Mac
                  
                  $
                  231
                  
                  
                  $
                  6
                  
                  
                  $
                  -
                  
                  
                  $
                  237Ginnie
      Mae
                  
                  
                  219,247
                  
                  
                  
                  24,025
                  
                  
                  
                  -
                  
                  
                  
                  243,272Fannie
      Mae
                  
                  
                  11,839,470
                  
                  
                  
                  276,050
                  
                  
                  
                  (2,856
                  )
                  
                  
                  12,112,664Total
                  
                  
                  12,058,948
                  
                  
                  
                  300,081
                  
                  
                  
                  (2,856
                  )
                  
                  
                  12,356,173Collateralized
      mortgage obligations:Freddie
      Mac
                  
                  
                  18,846
                  
                  
                  
                  -
                  
                  
                  
                  (53
                  )
                  
                  
                  18,793Total
                  
                  
                  18,846
                  
                  
                  
                  -
                  
                  
                  
                  (53
                  )
                  
                  
                  18,793Total
      held to maturity
                  
                  $
                  12,077,794
                  
                  
                  $
                  300,081
                  
                  
                  $
                  (2,909
                  )
                  
                  $
                  12,374,966Weighted
      average rate at end of year
                  
                  
                  4.39
                  %Available
      For Sale:Mortgage-backed
      securities:Ginnie
      Mae
                  
                  $
                  514,944
                  
                  
                  $
                  28,716
                  
                  
                  $
                  -
                  
                  
                  $
                  543,660Fannie
      Mae
                  
                  
                  1,292,870
                  
                  
                  
                  9,659
                  
                  
                  
                  -
                  
                  
                  
                  1,302,529Total
                  
                  
                  1,807,814
                  
                  
                  
                  38,375
                  
                  
                  
                  -
                  
                  
                  
                  1,846,189Collateralized
      mortgage obligations:Freddie
      Mac
                  
                  
                  1,503,822
                  
                  
                  
                  52,233
                  
                  
                  
                  -
                  
                  
                  
                  1,556,055Ginnie
      Mae
                  
                  
                  7,303,502
                  
                  
                  
                  158,052
                  
                  
                  
                  -
                  
                  
                  
                  7,461,554Fannie
      Mae
                  
                  
                  5,158,890
                  
                  
                  
                  64,460
                  
                  
                  
                  -
                  
                  
                  
                  5,223,350Total
                  
                  
                  13,966,214
                  
                  
                  
                  274,745
                  
                  
                  
                  -
                  
                  
                  
                  14,240,959Total
      available for sale
                  
                  $
                  15,774,028
                  
                  
                  $
                  313,120
                  
                  
                  $
                  -
                  
                  
                  $
                  16,087,148Weighted
      average rate at end of year
                  
                  
                  4.14
                  %





The
summary below displays the length of time mortgage-backed securities held to
maturity and available for sale were in a continuous unrealized loss position as
of December 31, 2009 and September 30, 2009.  The unrealized losses were not deemed
to be other-than-temporary. The Company does not have the intent to dispose of
these investments and it is not more likely than not that the Company will be
required to sell these investments prior to recovery of the unrealized
losses.  Further, the Company believes the deterioration in value is
attributable to changes in market interest rates and not the credit quality of
the issuer.


- 12
-





Length of Time in Continuous Unrealized Loss
      Position at December 31, 2009Less than 12 months
                
                
                12 months or more
                
                
                TotalAmortized
                
                
                Unrealized
                
                
                Amortized
                
                
                Unrealized
                
                
                Amortized
                
                
                UnrealizedCost
                
                
                Losses
                
                
                Cost
                
                
                Losses
                
                
                Cost
                
                
                LossesHeld
      To Maturity:Mortgage-backed
      securities
                
                $
                1,241,767
                
                
                $
                5,972
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,241,767
                
                
                $
                5,972Percent
      of total
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                -
                
                
                
                -
                
                
                
                100.0
                %
                
                
                100.0
                %





Length of Time in Continuous Unrealized Loss
      Position at September 30, 2009Less than 12 months
                
                
                12 months or more
                
                
                TotalAmortized
                
                
                Unrealized
                
                
                Amortized
                
                
                Unrealized
                
                
                Amortized
                
                
                UnrealizedCost
                
                
                Losses
                
                
                Cost
                
                
                Losses
                
                
                Cost
                
                
                LossesHeld
      To Maturity:Mortgage-backed
      securities
                
                $
                1,580,173
                
                
                $
                2,856
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,580,173
                
                
                $
                2,856Collateralized
      mortgage
      obligations
                
                
                18,846
                
                
                
                53
                
                
                
                -
                
                
                
                -
                
                
                
                18,846
                
                
                
                53Total held to maturity
                
                $
                1,599,019
                
                
                $
                2,909
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,599,019
                
                
                $
                2,909Percent
      of total
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                -
                
                
                
                -
                
                
                
                100.0
                %
                
                
                100.0
                %




- 13
-





8.
              LOANS
      RECEIVABLE




Loans
receivable at December 31, 2009 and September 30, 2009 are summarized as
follows:




December
      31,
                          
                          
                          September
      30,2009
                          
                          
                          2009Real
      estate mortgage:Residential
      first mortgage
                          
                          $
                          253,242,928
                          
                          
                          $
                          248,798,923Residential
      second mortgage
                          
                          
                          69,786,987
                          
                          
                          
                          72,083,535Home
      equity lines of credit
                          
                          
                          222,172,814
                          
                          
                          
                          227,141,590Multi-family
      residential
                          
                          
                          43,262,461
                          
                          
                          
                          44,462,990Commercial
      real estate
                          
                          
                          264,643,237
                          
                          
                          
                          231,270,107Land
      acquisition and development
                          
                          
                          81,137,209
                          
                          
                          
                          80,258,931Real
      estate construction and development:Residential
                          
                          
                          14,040,369
                          
                          
                          
                          19,664,258Multi-family
                          
                          
                          5,920,504
                          
                          
                          
                          6,864,072Commercial
                          
                          
                          30,206,118
                          
                          
                          
                          59,429,776Commercial
      and industrial
                          
                          
                          157,240,347
                          
                          
                          
                          154,972,793Consumer
      and installment
                          
                          
                          3,911,927
                          
                          
                          
                          4,170,8631,145,564,901
                          
                          
                          
                          1,149,117,838Add
      (less):Deferred
      loan costs
                          
                          
                          4,207,812
                          
                          
                          
                          4,369,122Loans
      in process
                          
                          
                          (475,305
                          )
                          
                          
                          (812,946
                          )Allowance
      for loan losses
                          
                          
                          (22,922,608
                          )
                          
                          
                          (20,579,170
                          )Total
                          
                          $
                          1,126,374,800
                          
                          
                          $
                          1,132,094,844Weighted
      average interest rate at end of period
                          
                          
                          5.39
                          %
                          
                          
                          5.33
                          %Specific loan loss allowance on
      impaired loansdetermined in accordance with
      SFAS 114
                          
                          $
                          8,451,210
                          
                          
                          $
                          6,822,942Balance
      of impaired loans with specific allowance
                          
                          
                          23,779,649
                          
                          
                          
                          19,753,191Balance
      of impaired loans with no specific allowance
                          
                          
                          39,347,148
                          
                          
                          
                          39,198,182Ratio
      of allowance to total outstanding loans
                          
                          
                          2.00
                          %
                          
                          
                          1.79
                          %




The
following table summarizes the activity in the allowance for loan losses for the
three months ended December 31, 2009 and 2008:




2009
                          
                          
                          2008Balance,
      beginning of period
                          
                          $
                          20,579,170
                          
                          
                          $
                          12,761,532Provision
      charged to expense
                          
                          
                          6,074,000
                          
                          
                          
                          4,691,578Charge-offs
                          
                          
                          (3,754,083
                          )
                          
                          
                          (1,823,653
                          )Recoveries
                          
                          
                          23,521
                          
                          
                          
                          34,501Net
      charge-offs
                          
                          
                          (3,730,562
                          )
                          
                          
                          (1,789,152
                          )Balance,
      end of period
                          
                          $
                          22,922,608
                          
                          
                          $
                          15,663,958




Included
in non-performing assets at December 31, 2009 and September 30, 2009 were $45.0
million and $35.0 million, respectively, of loans that were modified in
troubled debt restructurings because of the borrowers’ financial
difficulties.  The restructured terms of the loans generally included
a reduction of the interest rates and the addition of past due interest to the
principal balance of the loans.  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.  At December 31, 2009, $30.9 million,
or 68.6%, of these borrowers were performing as agreed under the modified terms
of the loans compared with $22.6 million, or 64.7%, at September 30,
2009.


- 14
-


9.
            DEPOSITS




Deposits
at December 31, 2009 and September 30, 2009 are summarized as
follows:




December 31, 2009
                  
                  
                  September 30, 2009Weighted
                  
                  
                  
                  
                  
                  WeightedAverage
                  
                  
                  
                  
                  
                  AverageInterest
                  
                  
                  
                  
                  
                  InterestAmount
                  
                  
                  Rate
                  
                  
                  Amount
                  
                  
                  RateTransaction
      accounts:Non-interest-bearing
      checking
                  
                  $
                  98,533,688
                  
                  
                  
                  -
                  
                  
                  $
                  103,398,563
                  
                  
                  
                  -Interest-bearing
      checking
                  
                  
                  323,354,000
                  
                  
                  
                  1.24
                  %
                  
                  
                  263,019,571
                  
                  
                  
                  1.25
                  %Passbook
      savings accounts
                  
                  
                  28,541,937
                  
                  
                  
                  0.26
                  %
                  
                  
                  28,874,588
                  
                  
                  
                  0.24
                  %Money
      market
                  
                  
                  240,298,105
                  
                  
                  
                  0.65
                  %
                  
                  
                  253,995,786
                  
                  
                  
                  0.76
                  %Total
      transaction accounts
                  
                  
                  690,727,730
                  
                  
                  
                  0.82
                  %
                  
                  
                  649,288,508
                  
                  
                  
                  0.81
                  %Certificates
      of deposit:Retail
                  
                  
                  346,688,515
                  
                  
                  
                  2.55
                  %
                  
                  
                  348,622,361
                  
                  
                  
                  2.63
                  %CDARS
                  
                  
                  79,686,018
                  
                  
                  
                  1.18
                  %
                  
                  
                  110,240,370
                  
                  
                  
                  1.54
                  %Brokered
                  
                  
                  38,478,000
                  
                  
                  
                  2.86
                  %
                  
                  
                  83,478,000
                  
                  
                  
                  2.67
                  %Total
      certificates of deposit
                  
                  
                  464,852,533
                  
                  
                  
                  2.34
                  %
                  
                  
                  542,340,731
                  
                  
                  
                  2.42
                  %Total
      deposits
                  
                  $
                  1,155,580,263
                  
                  
                  
                  1.43
                  %
                  
                  $
                  1,191,629,239
                  
                  
                  
                  1.54
                  %


- 15
-




10.
            FAIR
      VALUE MEASUREMENTS




Effective
October 1, 2008, the Company adopted the provisions of Accounting Standards
Codification TM (“ASC”) Topic 820, Fair Value Measurements and
Disclosures, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements.  Fair value is defined as
the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date.  A fair value measurement should reflect all of the
assumptions that market participants would use in pricing the asset or
liability, including assumptions about the risk inherent in a particular
valuation technique, the effect of a restriction on the sale or use of an asset,
and the risk of non-performance.




A
three-level hierarchy for valuation techniques is used to measure financial
assets and financial liabilities at fair value.  This hierarchy is
based on whether the valuation inputs are observable or unobservable. Financial
instrument valuations are considered Level 1 when they are based on quoted
prices in active markets for identical assets or liabilities.  Level 2
financial instrument valuations use quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that
are observable or can be corroborated by observable market
data.  Financial instrument valuations are considered Level 3 when
they are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is
unobservable, and when determination of the fair value requires significant
management judgment or estimation.  ASC Topic 820 also provides
guidance on determining fair value when the volume and level of activity for the
asset or liability has significantly decreased and on identifying circumstances
when a transaction may not be considered orderly.




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, non-public investments are initially valued at
transaction price and subsequently adjusted when evidence is available to
support such adjustments.




Mortgage-Backed Securities Held to
Maturity.  The fair values of mortgage-backed securities held
to maturity are generally based on quoted market prices or market prices for
similar assets.




Debt and Mortgage-Backed Securities
Available for Sale.  The fair values of debt and
mortgage-backed securities available for sale are generally based on quoted
market prices or market prices for similar assets.




Interest Rate Swap Assets and
Liabilities.  The fair values 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 commitment sales prices
obtained from the Company’s investors.




Impaired
Loans.  The fair values of impaired loans are generally based
on market prices for similar assets determined through independent appraisals
(Level 2 valuations) or discounted values of independent appraisals or brokers’
opinions of value (Level 3 valuations).


- 16
-




Real Estate Acquired in Settlement
of Loans consists of loan collateral which has been repossessed through
foreclosure or obtained by deed in lieu of foreclosure. This collateral is
comprised of commercial and residential real estate. Such assets are recorded as
held for sale initially at the lower of the loan balance or fair value of the
collateral less estimated selling costs. Fair values are generally obtained
through external appraisals and assessment of property values by the Company’s
internal staff.  Subsequent to foreclosure, valuations are updated
periodically, and the assets may be written down to reflect a new cost basis.
Because many of these inputs are not observable, the measurements are classified
as Level 3.




Intangible Assets and Goodwillare reviewed annually in the fourth quarter and/or when circumstances or
other events indicate that impairment may have occurred.  Because of
the decline in the market value of the Company’s common stock during the three
months ended December 31, 2009, the Company reviewed goodwill for impairment as
of December 31, 2009 in addition to its annual review at September 30,
2009.  No impairment losses were recognized during fiscal year 2009 or
the three months ended December 31, 2009.




Assets
and liabilities that were recorded at fair value on a recurring basis at
December 31, 2009 and the level of inputs used to determine their fair values
are summarized below:




Carrying Value at December 31,
      2009Fair Value Measurements
    UsingTotal
                  
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3(In
      thousands)Assets:Equity
      securities available for sale
                  
                  $
                  589
                  
                  
                  $
                  -
                  
                  
                  $
                  589
                  
                  
                  $
                  -Debt
      securities available for sale
                  
                  
                  4,998
                  
                  
                  
                  -
                  
                  
                  
                  4,998
                  
                  
                  
                  -Mortgage-backed
      securities available for sale
                  
                  
                  15,453
                  
                  
                  
                  -
                  
                  
                  
                  15,453
                  
                  
                  
                  -Interest-rate
      swap
                  
                  
                  925
                  
                  
                  
                  -
                  
                  
                  
                  925
                  
                  
                  
                  -Total
      assets
                  
                  $
                  21,965
                  
                  
                  $
                  -
                  
                  
                  $
                  21,965
                  
                  
                  $
                  -Liabilities:Interest-rate
      swap
                  
                  $
                  925
                  
                  
                  $
                  -
                  
                  
                  $
                  925
                  
                  
                  $
                  -Total
      liabilities
                  
                  $
                  925
                  
                  
                  $
                  -
                  
                  
                  $
                  925
                  
                  
                  $
                  -




Assets
that were recorded at fair value on a non-recurring basis at December 31, 2009
and the level of inputs used to determine their fair values are summarized
below:




Total
      LossesRecognized
      inCarrying Value at December 31,
      2009
                  
                  the
      Quarter EndedFair Value Measurements
    Using
                  
                  
                  December
      31,Total
                  
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  2009(In
      thousands)Assets:Loans
      held for sale
                  
                  $
                  2,798
                  
                  
                  $
                  -
                  
                  
                  $
                  2,798
                  
                  
                  $
                  -
                  
                  
                  $
                  -Impaired
      loans
                  
                  
                  63,127
                  
                  
                  
                  -
                  
                  
                  
                  20,278
                  
                  
                  
                  42,849
                  
                  
                  
                  1,646Real
      estate acquired in settlement of loans
                  
                  
                  15,718
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,718
                  
                  
                  
                  2,614Core
      deposit intangible
                  
                  
                  217
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  217
                  
                  
                  
                  -Goodwill
                  
                  
                  3,939
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,939
                  
                  
                  
                  -Total
      assets
                  
                  $
                  85,799
                  
                  
                  $
                  -
                  
                  
                  $
                  23,076
                  
                  
                  $
                  62,723
                  
                  
                  $
                  4,260




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.


- 17
-




The fair
value estimates presented herein are based on pertinent information available to
management as of December 31, 2009 and September 30,
2009.  Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
that date.  Therefore, current estimates of fair value may differ
significantly from the amounts presented herein.




Carrying
values and estimated fair values at December 31, 2009 and September 30, 2009 are
summarized as follows:




December 31, 2009
                                    
                                    
                                    September 30, 2009Estimated
                                    
                                    
                                    
                                    
                                    
                                    EstimatedCarrying
                                    
                                    
                                    Fair
                                    
                                    
                                    Carrying
                                    
                                    
                                    FairValue
                                    
                                    
                                    Value
                                    
                                    
                                    Value
                                    
                                    
                                    Value(In
      Thousands)ASSETS:Cash
      and cash equivalents
                                    
                                    $
                                    18,728
                                    
                                    
                                    $
                                    18,728
                                    
                                    
                                    $
                                    37,451
                                    
                                    
                                    $
                                    37,451Debt
      securities - AFS
                                    
                                    
                                    4,998
                                    
                                    
                                    
                                    4,998
                                    
                                    
                                    
                                    1,997
                                    
                                    
                                    
                                    1,997Equity
      securities - AFS
                                    
                                    
                                    589
                                    
                                    
                                    
                                    589
                                    
                                    
                                    
                                    589
                                    
                                    
                                    
                                    589Capital
      stock of FHLB
                                    
                                    
                                    7,454
                                    
                                    
                                    
                                    7,454
                                    
                                    
                                    
                                    11,650
                                    
                                    
                                    
                                    11,650Mortgage-backed  securities
      - HTM
                                    
                                    
                                    11,583
                                    
                                    
                                    
                                    11,865
                                    
                                    
                                    
                                    12,078
                                    
                                    
                                    
                                    12,375Mortgage-backed  securities
      - AFS
                                    
                                    
                                    15,453
                                    
                                    
                                    
                                    15,453
                                    
                                    
                                    
                                    16,087
                                    
                                    
                                    
                                    16,087Loans
      receivable held for sale
                                    
                                    
                                    151,195
                                    
                                    
                                    
                                    154,253
                                    
                                    
                                    
                                    109,130
                                    
                                    
                                    
                                    111,247Loans
      receivable
                                    
                                    
                                    1,126,375
                                    
                                    
                                    
                                    1,150,967
                                    
                                    
                                    
                                    1,132,095
                                    
                                    
                                    
                                    1,158,721Accrued
      interest receivable
                                    
                                    
                                    4,619
                                    
                                    
                                    
                                    4,619
                                    
                                    
                                    
                                    4,907
                                    
                                    
                                    
                                    4,907Interest-rate
      swap assets
                                    
                                    
                                    925
                                    
                                    
                                    
                                    925
                                    
                                    
                                    
                                    1,170
                                    
                                    
                                    
                                    1,170LIABILITIES:Deposit
      transaction accounts
                                    
                                    
                                    690,728
                                    
                                    
                                    
                                    690,728
                                    
                                    
                                    
                                    649,289
                                    
                                    
                                    
                                    649,289Certificate
      of deposits
                                    
                                    
                                    464,853
                                    
                                    
                                    
                                    471,528
                                    
                                    
                                    
                                    542,341
                                    
                                    
                                    
                                    550,175Advances
      from the FHLB
                                    
                                    
                                    123,800
                                    
                                    
                                    
                                    125,013
                                    
                                    
                                    
                                    61,000
                                    
                                    
                                    
                                    62,759Borrowings
      from the Federal Reserve Bank
                                    
                                    
                                    4,700
                                    
                                    
                                    
                                    4,700
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Subordinated
      debentures
                                    
                                    
                                    19,589
                                    
                                    
                                    
                                    19,583
                                    
                                    
                                    
                                    19,589
                                    
                                    
                                    
                                    19,591Accrued
      interest payable
                                    
                                    
                                    722
                                    
                                    
                                    
                                    722
                                    
                                    
                                    
                                    1,035
                                    
                                    
                                    
                                    1,035Interest-rate
      swap liabilities
                                    
                                    
                                    925
                                    
                                    
                                    
                                    925
                                    
                                    
                                    
                                    1,170
                                    
                                    
                                    
                                    1,170





December 31, 2009
                            
                            
                            September 30, 2009Contract
                            
                            
                            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
                            
                            $
                            81,941
                            
                            
                            $
                            -
                            
                            
                            $
                            105,157
                            
                            
                            $
                            -Commitments
      to originate commercial mortgage loans
                            
                            
                            23,989
                            
                            
                            
                            -
                            
                            
                            
                            41,027
                            
                            
                            
                            -Commitments
      to originate non-mortgage loans
                            
                            
                            1,796
                            
                            
                            
                            -
                            
                            
                            
                            1,600
                            
                            
                            
                            -Unused
      lines of credit
                            
                            
                            231,747
                            
                            
                            
                            -
                            
                            
                            
                            258,249
                            
                            
                            
                            -




In
addition to the methods described in Note 10 above, the following methods and
assumptions were used to estimate the fair value of the financial instruments
that were recorded at historical cost in the Company’s financial statements at
December 31, 2009 and September 30, 2009.




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




Equity securities- Estimated fair values are based on stock market prices for publicly
quoted stocks.




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


- 18
-


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




Accrued Interest
Receivable- The carrying value approximates fair value.




Interest-Rate
Swap Assets- The fair value is based on quoted market prices by an
independent valuation service.




Deposits - The estimated fair value of
demand deposits and savings accounts is the amount payable on demand at the
reporting date. The estimated fair value of fixed-maturity certificates of
deposit is estimated by discounting the future cash flows of existing deposits
using rates currently available on advances from the Federal Home Loan Bank
having similar characteristics.




Advances from
Federal Home Loan Bank- The estimated fair value of advances from Federal Home Loan Bank is
determined by discounting the future cash flows of existing advances using rates
currently available on advances from Federal Home Loan Bank having similar
characteristics.




Borrowings from
the Federal Reserve Bank-The carrying value
approximates fair valuesince the
balance at December 31, 2009 matured in four days.




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




Subordinated
Debentures-The estimated fair
values of subordinated debentures are determined by discounting the estimated
future cash flows using rates currently available on debentures having similar
characteristics.




Accrued Interest
Payable- The carrying value approximates fair value.




Interest-Rate
Swap Liabilities- The fair value is based on quoted market prices by an
independent valuation service.




Off-Balance-Sheet
Items-The estimated fair
value of commitments to originate or purchase loans is based on the fees
currently charged to enter into similar agreements and the difference between
current levels of interest rates and the committed rates. The Company believes
such commitments have been made on terms that are competitive in the markets in
which it operates; however, no premium or discount is offered thereon, and
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.




12.
            INTEREST-RATE
      SWAPS




The
Company entered into two $14 million notional value interest-rate swap contracts
during 2008 totaling $28 million notional value.  These contracts
supported a $14 million, variable-rate, commercial loan relationship and were
used to allow the commercial loan customer to pay a fixed interest rate to the
Bank, while the Bank, in turn, charged the customer a floating interest rate on
the loan.  Under the terms of the swap contract between the Bank and
the loan customer, the customer pays the Bank a fixed interest rate of 6.58%,
while the Bank pays the customer a variable interest rate of one-month LIBOR
plus 2.30%.  Under the terms of a similar but separate swap contract
between the Bank and a major securities broker, the Bank pays the broker a fixed
interest rate of 6.58%, while the broker pays the Bank a variable interest rate
of one-month LIBOR plus 2.30%.  The two contracts have identical terms
and are scheduled to mature on May 15, 2015.  While these two swap
derivatives generally work together as an interest-rate hedge, the Company has
not designated them for hedge accounting treatment.  Consequently,
both derivatives are marked to fair value through either a charge or credit to
current earnings.


- 19
-


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




December
      31,
                  
                  
                  September
      30,2009
                  
                  
                  2009Fair
      value recorded in other assets
                  
                  $
                  925,000
                  
                  
                  $
                  1,170,000Fair
      value recorded in other liabilities
                  
                  
                  925,000
                  
                  
                  
                  1,170,000




The gross
gains and losses on these contracts recorded in non-interest expense in the
consolidated statements of income and comprehensive income for the three-month
period ended December 31, 2009 and 2008 are summarized as follows:




Three
      Months EndedDecember 31,2009
                  
                  
                  2008(in
      thousands)Gross
      (gains) losses on derivative financial assets
                  
                  $
                  245,000
                  
                  
                  $
                  (1,466,000
                  )Gross
      (gains) losses on derivative financial liabilities
                  
                  
                  (245,000
                  )
                  
                  
                  1,466,000Net
      loss (gain)
                  
                  $
                  -
                  
                  
                  $
                  -




13.
            GOODWILL




Goodwill
totaled $3.9 million at December 31, 2009 and September 30, 2009,
respectively.  Goodwill represents the amount of acquisition cost over the
fair value of net assets acquired in the purchase of another financial
institution.  The Company reviews goodwill for impairment at least annually
or more frequently if events or changes in circumstances indicate the carrying
value of the asset might be impaired.  Impairment is determined by
comparing the implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill.  If the carrying amount of the
reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess.  Any
such adjustments are reflected in the results of operations in the periods in
which they become known.  After a goodwill impairment loss is
recognized, the adjusted carrying amount of goodwill becomes its new accounting
basis.  Because of the decline in the market value of the Company’s
common stock during the three months ended December 31, 2009, the Company
reviewed goodwill for impairment as of December 31, 2009 in addition to its
annual review at September 30, 2009.  No impairment losses were
recognized during fiscal year 2009 or the three months ended December 31,
2009.


- 20
-




Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations




FORWARD-LOOKING
STATEMENTS




This
report contains certain “forward-looking statements” within the meaning of the
federal securities laws, which are made in good faith pursuant to the “safe
harbor” provisions of the Private Securities Litigation Reform Act of
1995.  These statements are not historical facts; 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, 2009, including
the Risk Factors section of that report.  The Company’s
forward-looking statements may also be subject to other risks and uncertainties,
including those that it may discuss elsewhere in this report or in its other
filings with the SEC. These factors should be considered in evaluating the
forward-looking statements and undue reliance should not be placed on such
statements.  Pulaski Financial Corp. assumes no obligation to update
any forward-looking statements to reflect events or circumstances after the date
of the statements or to reflect the occurrence of anticipated or unanticipated
events.




GENERAL




Pulaski
Financial Corp., operating in its eighty-eighth year, is a community-based,
financial institution holding company headquartered in St. Louis,
Missouri.  It conducts operations primarily through Pulaski Bank (the
“Bank”), a federally chartered savings bank with $1.4 billion in assets at
December 31, 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 five loan production
offices in the St. Louis and Kansas City metropolitan areas.




The
Company has primarily grown its assets and deposits internally by building its
residential and commercial lending operations, by opening de novo branches, and
by hiring experienced bankers with existing customer relationships in its
market.  The Company’s goal is to continue to deliver value to its
shareholders and enhance its franchise value and earnings through controlled
growth in its banking operations, while maintaining the personal,
community-oriented customer service that has characterized its success to
date.




RESULTS
OF COMMUNITY BANKING STRATEGY




The
Company experienced a 121% increase in net income during the three months ended
December 31, 2009 compared with the same 2008 period, largely as the result of
an increase in mortgage revenues and net interest income, partially offset by an
increase in the provision for loan losses and non-interest
expense.  The Company’s community banking strategy emphasizes
high-quality, responsive, and personalized customer service.  The
Company has been successful in distinguishing itself from the larger regional
banks operating in its market areas by offering quicker decision making in the
delivery of banking products and services, offering customized products where
needed, and providing customers access to senior decision
makers.  Crucial to this strategy is growth in the Company’s three
primary business lines:  commercial banking services, retail mortgage
lending and retail banking services.


- 21
-


Commercial Banking
Services




The
Company’s commercial banking services are centered on serving small- to
medium-sized businesses and the Company’s operations in the St. Louis market
continue to be driven by its staff of experienced commercial bankers and the
commercial banking relationships they generate.  Commercial loan
originations totaled $96.6 million during the three months ended December
31, 2009 compared with $143.4 million during the same period last
year.  Although origination activity slowed during the December 2009
quarter compared with the prior-year quarter as the result of the distressed
local and national economic climate, the Company continued to originate
commercial loans to its most credit-worthy customers under tightened credit
standards.  During the December 2009 quarter, the Company’s commercial
loan portfolio increased $5.2 million to $577.3 million at December 31,
2009.  Commercial real estate loans increased $33.4 million while
commercial and multi-family construction and development loans decreased $30.2
million, primarily as the result of the conversion of certain maturing
construction loans to permanent financing.  Commercial and industrial
loans increased $2.3 million, as the Company continued to emphasize this type of
lending.




The
Company’s commercial loan customers are also among the best sources of core
deposit accounts.  Commercial checking account balances increased
$20.2 million to $325.5 million at December 31, 2009 compared with $305.2
million at September 30, 2009.




Retail Mortgage
Lending




The
Company is a conforming, residential mortgage lender that originates loans
directly through commission-based sales staffs in the St. Louis and Kansas City
metropolitan areas.  The Company is a leading mortgage originator in
these two markets, as it has successfully leveraged its reputation for strength
and quality customer service with its staff of experienced mortgage loan
officers who have strong community relationships.  Substantially all
of the loans originated in the retail mortgage division are one- to four-family
residential loans that are sold to investors on a servicing-released
basis.  Such sales generate mortgage revenues, which is the Company’s
largest source of non-interest income.  In addition, loans that are
closed and are held pending their sale to investors provide a valuable source of
interest income until they are delivered.




Residential
mortgage loans originated for sale to investors totaled $455.8 million during
the three months ended December 31, 2009 compared with $248.3 million
during the December 2008 quarter.  The increased origination activity
was primarily due to the historically-low interest rate environment that existed
during most of 2009.  Residential loans sold to investors for the
three months ended December 31, 2009 totaled $413.7 million, which generated
mortgage revenues totaling $2.7 million, compared with $240.9 million of loans
sold and $1.5 million in revenues for the three months ended December 31,
2008.  Loans originated for sale during the quarter exceeded loans
sold, resulting in a $42.1 million, or 39%, increase in loans held for sale to
$151.2 million at December 31, 2009 from $109.1 million at September 30,
2009.




Retail Banking
Services




Core
deposits, which include checking, money market and passbook accounts, provide a
stable funding source for the Company’s asset growth and produce valuable fee
income.  Their growth continues to be one of the Company’s primary
strategic objectives, resulting in an increase of $41.4 million, or 6%, to
$690.7 million at December 31, 2009 from $649.3 million at September
30, 2009.  Checking accounts, which represent the cornerstone product
in a customer relationship, increased $55.5 million to $421.9 million at
December 31, 2009 from $366.4 million at September 30, 2009 primarily as the
result of growth in deposits from public entities and retail customers, and
movement of money market accounts and maturing CDARs time deposits into checking
accounts.  Also enhancing its ability to attract core deposits, the
Bank elected to participate in the FDIC’s Transaction Account Guarantee Program,
which provides full FDIC insurance coverage for non interest-bearing transaction
accounts and qualifying NOW accounts, regardless of the dollar amount, and is in
addition to the standard FDIC insurance that was temporarily increased to
$250,000 per depositor.  Both FDIC limits will be in effect through
December 31, 2013.  Money market accounts decreased $13.7 million to
$240.3 million at December 31, 2009 from $254.0 million at September 30,
2009. 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 1.24%
and 0.65%, respectively, at December 31, 2009 compared with 1.25% and 0.76% at
September 30, 2009.


- 22
-




Certificates
of deposit decreased $77.5 million to $464.9 million at December 31, 2009
from $542.3 million at September 30, 2009, primarily as the result of a
$45.0 million decrease in brokered time deposits to $38.5 million, and a
$30.6 million decrease in CDARS time deposits to $79.7 million.  CDARS
deposits, which are generally offered to in-market retail and commercial
customers and to public entities, offer the Bank’s customers the ability to
receive FDIC insurance on deposits up to $50 million.  Total deposits
decreased $36.0 million, or 3.03%, to $1.16 billion at December 31, 2009 from
$1.19 billion at September 30, 2009.




Retail
banking fees, which include fees charged to customers who have overdrawn their
checking accounts and service charges on other retail banking products, were
$932,000 for the three months ended December 31, 2009 compared with $967,000 for
December 31, 2008.  While the Bank’s checking accounts grew
significantly during the three months ended December 31, 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.


- 23
-


AVERAGE
BALANCE SHEETS




The
following table sets forth information regarding average daily balances of
assets and liabilities as well as the total dollar amounts of interest income
from average interest-earning assets and interest expense on average
interest-bearing liabilities, resultant yields, interest rate spread, net
interest margin, and ratio of average interest-earning assets to average
interest-bearing liabilities for the periods indicated.




Three Months
      EndedDecember 31,
      2009
            
            
            December 31,
      2008Average
            
            
            Interest
              and
            
            
            Yield/
            
            
            Average
            
            
            Interestand
            
            
            Yield/Balance
            
            
            Dividends
            
            
            Cost
            
            
            Balance
            
            
            Dividends
            
            
            Cost(Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable: (1)Real
      estate
            
            $
            303,648
            
            
            $
            4,772
            
            
            
            6.29
            %
            
            $
            344,040
            
            
            $
            5,756
            
            
            
            6.69
            %Commercial
            
            
            617,011
            
            
            
            7,791
            
            
            
            5.05
            %
            
            
            547,288
            
            
            
            7,175
            
            
            
            5.24
            %Home
      equity lines of credit
            
            
            224,570
            
            
            
            2,253
            
            
            
            4.01
            %
            
            
            226,781
            
            
            
            2,701
            
            
            
            4.76
            %Consumer
            
            
            3,578
            
            
            
            43
            
            
            
            4.77
            %
            
            
            3,729
            
            
            
            53
            
            
            
            5.71
            %Total
      loans receivable
            
            
            1,148,807
            
            
            
            14,859
            
            
            
            5.17
            %
            
            
            1,121,838
            
            
            
            15,685
            
            
            
            5.59
            %Loans
      held for sale
            
            
            134,745
            
            
            
            1,620
            
            
            
            4.81
            %
            
            
            50,739
            
            
            
            666
            
            
            
            5.25
            %Securities
      and other
            
            
            64,192
            
            
            
            362
            
            
            
            2.26
            %
            
            
            60,361
            
            
            
            484
            
            
            
            3.21
            %Total
      interest-earning assets
            
            
            1,347,744
            
            
            
            16,841
            
            
            
            5.00
            %
            
            
            1,232,938
            
            
            
            16,835
            
            
            
            5.46
            %Non-interest-earning
      assets
            
            
            65,944
            
            
            
            
            
            
            
            
            
            
            
            80,320Total
      assets
            
            $
            1,413,688
            
            
            
            
            
            
            
            
            
            
            $
            1,313,258Interest-bearing
      liabilities:Interest-bearing
      checking
            
            $
            291,480
            
            
            
            920
            
            
            
            1.26
            %
            
            $
            188,156
            
            
            
            1,058
            
            
            
            2.25
            %Passbook
      savings
            
            
            28,724
            
            
            
            18
            
            
            
            0.25
            %
            
            
            25,810
            
            
            
            13
            
            
            
            0.20
            %Money
      market
            
            
            252,419
            
            
            
            705
            
            
            
            1.12
            %
            
            
            140,106
            
            
            
            567
            
            
            
            1.62
            %Certificates
      of deposit
            
            
            488,691
            
            
            
            2,984
            
            
            
            2.44
            %
            
            
            518,897
            
            
            
            4,485
            
            
            
            3.46
            %Total
      interest-bearing deposits
            
            
            1,061,314
            
            
            
            4,627
            
            
            
            1.74
            %
            
            
            872,969
            
            
            
            6,123
            
            
            
            2.81
            %FHLB
      advances
            
            
            99,282
            
            
            
            558
            
            
            
            2.25
            %
            
            
            200,156
            
            
            
            1,171
            
            
            
            2.34
            %Federal
      Reserve borrowings
            
            
            51
            
            
            
            -
            
            
            
            0.50
            %
            
            
            27,207
            
            
            
            80
            
            
            
            1.17
            %Note
      payable
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            7,640
            
            
            
            102
            
            
            
            5.29
            %Subordinated
      debentures
            
            
            19,589
            
            
            
            127
            
            
            
            2.60
            %
            
            
            19,589
            
            
            
            246
            
            
            
            5.03
            %Total
      interest-bearing liabilities
            
            
            1,180,236
            
            
            
            5,312
            
            
            
            1.80
            %
            
            
            1,127,561
            
            
            
            7,722
            
            
            
            2.74
            %Non-interest
      bearing liabilities:Non-interest
      bearing deposits
            
            
            97,538
            
            
            
            
            
            
            
            
            
            
            
            87,028Other
      non-interest bearing liabilities
            
            
            16,450
            
            
            
            
            
            
            
            
            
            
            
            13,520Total
      non-interest-bearing liabilities
            
            
            113,988
            
            
            
            
            
            
            
            
            
            
            
            100,548Stockholders'
      equity
            
            
            119,464
            
            
            
            
            
            
            
            
            
            
            
            85,149Total
      liabilities and stockholders' equity
            
            $
            1,413,688
            
            
            
            
            
            
            
            
            
            
            $
            1,313,258Net
      interest income
            
            
            
            
            
            $
            11,529
            
            
            
            
            
            
            
            
            
            
            $
            9,113Interest rate
      spread(2)
            
            
            
            
            
            
            
            
            
            
            3.20
            %
            
            
            
            
            
            
            
            
            
            
            2.72
            %Net interest
      margin(3)
            
            
            
            
            
            
            
            
            
            
            3.42
            %
            
            
            
            
            
            
            
            
            
            
            2.96
            %Ratio
      of average interest-earning assets toaverage
      interest-bearing liabilities
            
            
            114.19
            %
            
            
            
            
            
            
            
            
            
            
            109.35
            %




(1)
            Includes
      non-accrual loans with an average balance of $22.5 million and $11.1
      million for the three months ended December 31, 2009 and2008,
      respectively.


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


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


- 24
-


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 EndedDecember
      31, 2009 vs 2008Volume
                                    
                                    
                                    Rate
                                    
                                    
                                    Net(In
      thousands)Interest-earning
      assets:Loans
      receivable:Real
      estate
                                    
                                    $
                                    (652
                                    )
                                    
                                    $
                                    (332
                                    )
                                    
                                    $
                                    (984
                                    )Commercial
                                    
                                    
                                    2,099
                                    
                                    
                                    
                                    (1,483
                                    )
                                    
                                    
                                    616Home
      equity lines of credit
                                    
                                    
                                    (26
                                    )
                                    
                                    
                                    (422
                                    )
                                    
                                    
                                    (448
                                    )Consumer
                                    
                                    
                                    (2
                                    )
                                    
                                    
                                    (8
                                    )
                                    
                                    
                                    (10
                                    )Total
      loans receivable
                                    
                                    
                                    1,419
                                    
                                    
                                    
                                    (2,245
                                    )
                                    
                                    
                                    (826
                                    )Loans
      held for sale
                                    
                                    
                                    1,333
                                    
                                    
                                    
                                    (379
                                    )
                                    
                                    
                                    954Securities
      and other
                                    
                                    
                                    57
                                    
                                    
                                    
                                    (179
                                    )
                                    
                                    
                                    (122
                                    )Net
      change in income on interest earning assets
                                    
                                    
                                    2,809
                                    
                                    
                                    
                                    (2,803
                                    )
                                    
                                    
                                    6Interest-bearing
      liabilities:Interest-bearing
      checking
                                    
                                    
                                    1,992
                                    
                                    
                                    
                                    (2,130
                                    )
                                    
                                    
                                    (138
                                    )Passbook
      savings
                                    
                                    
                                    2
                                    
                                    
                                    
                                    3
                                    
                                    
                                    
                                    5Money
      market
                                    
                                    
                                    1,112
                                    
                                    
                                    
                                    (974
                                    )
                                    
                                    
                                    138Certificates
      of deposit
                                    
                                    
                                    (247
                                    )
                                    
                                    
                                    (1,254
                                    )
                                    
                                    
                                    (1,501
                                    )Total
      interest-bearing deposits
                                    
                                    
                                    2,859
                                    
                                    
                                    
                                    (4,355
                                    )
                                    
                                    
                                    (1,496
                                    )FHLB
      advances
                                    
                                    
                                    (570
                                    )
                                    
                                    
                                    (43
                                    )
                                    
                                    
                                    (613
                                    )Federal
      Reserve borrowings
                                    
                                    
                                    (51
                                    )
                                    
                                    
                                    (29
                                    )
                                    
                                    
                                    (80
                                    )Note
      payable
                                    
                                    
                                    (51
                                    )
                                    
                                    
                                    (51
                                    )
                                    
                                    
                                    (102
                                    )Subordinated
      debentures
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (119
                                    )
                                    
                                    
                                    (119
                                    )Net
      change in expense on interest bearing liabilities
                                    
                                    
                                    2,187
                                    
                                    
                                    
                                    (4,597
                                    )
                                    
                                    
                                    (2,410
                                    )Change
      in net interest income
                                    
                                    $
                                    622
                                    
                                    
                                    $
                                    1,794
                                    
                                    
                                    $
                                    2,416


- 25
-




RESULTS OF
OPERATIONS





Net income
for the quarter ended December 31, 2009 was $1.3 million compared with net
income of $566,000 during the same quarter last year. Net income
available to common shares for the quarter ended December 31, 2009 was
$736,000, or $0.07 per diluted common share on 10.5 million average diluted
shares outstanding, compared with $566,000, or $0.06 per diluted common share on
10.3 million average diluted shares outstanding, during the same quarter
last year. Results for the three months ended December 31, 2009 were negatively
impacted by a $6.1 million provision for loan losses compared with $4.7 million
for same period in 2008.  Also reducing income available to common
shares for the three months ended December 31, 2009 were dividends and discount
accretion on the Company’s preferred stock, issued during January 2009 as part
of the U.S. Treasury’s TARP Capital Purchase Plan, totaling $514,000, or $0.05
per diluted common share.





Net interest
income rose 26.5%, or $2.4 million, to $11.5 million for the quarter
ended December 31, 2009 compared with $9.1 million for the same period last
year. The increase was 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 3.42% during the quarter ended December 31, 2009 compared
with 2.96% for the quarter ended December 31, 2008.  The net interest
margin benefited from a market-driven decline in the cost of deposits and
wholesale borrowings, an increase in core deposits, a decrease in brokered
deposits and an increase in the average balance of loans held for sale, which
was funded with low-cost, short-term borrowings.




Total interest
and dividend income was $16.8 million for each of the quarters ended
December 31, 2009 and 2008.  The average balance of loans
receivable increased to $1.15 billion during the three months ended December 31,
2009, compared with $1.12 billion during the same 2008 period primarily as the
result of growth in the average balance of commercial loans.  The
average yield on loans receivable decreased to 5.17% during the three months
ended December 31, 2009 compared with 5.59% during the same 2008 period as the
result of declining market interest rates.




The
average balance of loans held for sale increased to $134.7 million during the
three months ended December 31, 2009 compared with $50.7 million during the same
2008 period as the result of increased origination activity.  The
average yield on loans held for sale decreased to 4.81% during the three months
ended December 31, 2009 compared with 5.25% during the same 2008 period as the
result of declining market interest rates.  See Results of Community Banking
Strategy – Retail Mortgage Lending.




Total interest
expense decreased $2.4 million, or 31.2%, to $5.3 million for the quarter
ended December 31, 2009 compared with $7.7 million for the quarter ended
December 31, 2008.  The lower expense was the result of a decrease in
the average cost of funds partially offset by an increase in the average balance
of interest-bearing liabilities.  The average cost of funds decreased
from 2.74% for the quarter ended December 31, 2008 to 1.80% for the quarter
ended December 31, 2009 while the average balance of interest-bearing
liabilities increased from $1.13 billion to $1.18 billion during the same
periods, respectively.  The increase in the average balance of
interest-bearing liabilities resulted primarily from an increase in the average
balance of deposits partially offset by decreases in the average balances of
borrowings from the Federal Reserve Bank of St. Louis (“Federal Reserve Bank”)
and advances from the Federal Home Loan Bank of Des Moines
(“FHLB”).  The decreased average cost was 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 $1.5 million, or 24.4%, to $4.6 million during the
quarter ended December 31, 2009 compared with $6.1 million for the quarter ended
December 31, 2008, primarily as 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 $1.06 billion for the quarter
ended December 31, 2009 from $873.0 million for the quarter ended December
31, 2008 while the average cost decreased from 2.81% to 1.74% during the same
periods, respectively.  Growth in average total deposits during the
fiscal 2010 period was the result of growth in core deposits.  The
growth in core deposits combined with lower market interest rates resulted in
lower average costs during the fiscal 2010 period.  See Results of Community Banking
Strategy – Retail Banking Services.


- 26
-




Interest expense
on advances from the Federal Home Loan Bank decreased $613,000, or 52.4%,
to $557,000 during the quarter ended December 31, 2009 compared with
$1.2 million for the quarter ended December 31, 2008 primarily as the
result of a decrease in the average balance.  The average balance
decreased to $99.3 million for the quarter ended December 31, 2009
from $200.2 million for the quarter ended December 31, 2008 and the average cost
decreased from 2.34% to 2.25% during the same periods,
respectively.  The decreased average balance resulted from the
repayment of such borrowings with proceeds from the growth in
deposits.  The decrease in the average cost was the result of lower
market interest rates during the 2009 period.




Provision
for Loan Losses




The provision for
loan losses for the three months ended December 31, 2009 was $6.1 million
compared with $4.7 million for the same period a year ago.  The
increase in the provision was due to increases in the levels of net charge-offs
and non-performing loans, reflecting the impact of the adverse economic climate
on the Company’s borrowers.  See Non-Performing AssetsandAllowance for Loan
Losses.




Non-Interest
Income




Total
non-interest income increased 31.4% to $4.4 million for the quarter ended
December 31, 2009 compared with $3.4 million for the same period last
year.  The increase was primarily the result of strong growth in
mortgage revenues.  See Results of Community Banking
Strategy – Retail Mortgage Lending.





Gain on sales of
securities totaled $244,000 for the three months ended December 31, 2008
on sales of $51.1 million of debt securities classified as available for
sale.  There were no such sales during the three months ended December
31, 2009.   Debt securities are primarily held as collateral to
secure large commercial and municipal deposits.  The total balance
held in these securities is adjusted to reflect fluctuations in the balances of
the deposits they are securing.




Investment
brokerage revenuestotaled $424,000 for the
three months ended December 31, 2009 compared with $261,000 for the same period
a year ago. The Company operates an investment brokerage division whose
operations consist principally of brokering bonds from wholesale brokerage
houses to 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
during the December 2009 quarter as many of its customers shifted funds from
loan originations to lower-risk bonds because of the current economic
environment.




Non-Interest
Expense




Total
non-interest expense increased $1.2 million to $8.2 million for the
quarter ended December 31, 2009 compared with $6.9 million for the same
period a year ago. The increase was primarily due to increases in salaries and
employee benefits expense, occupancy, equipment and data processing expense,
professional services expense and FDIC deposit insurance premium expense,
partially offset by a decrease in advertising expense.




Salaries and
employee benefits expenseincreased $555,000 to $3.9 million for the
quarter ended December 31, 2009 compared with $3.3 million for the quarter ended
December 31, 2008.  The increase was primarily the result of
additional expense for temporary employees and the payment of incentives related
to the increased mortgage lending volumes, which did not qualify as capitalized
loan origination expenses, and the addition of other key personnel to support
the Company’s expanded operations.




Occupancy,
equipment and data processing expense increased $125,000 to $2.0 million
for the three months ended December 31, 2009 compared with $1.9 million for the
three months period December 31, 2008.  The increase was largely
related to an increase in expense related to the 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
activity.


- 27
-





Advertising
expense decreased $139,000 to $147,000 for the three months ended
December 31, 2009 compared with $286,000 for the three months ended December 31,
2008.  The decrease was generally due to a reduction in the overall
level of advertising during the 2009 period and a more focused effort to control
such expenses.




Professional
fees increased $256,000 to $517,000 for the quarter ended December 31,
2009 compared with $261,000 for the quarter ended December 31,
2008.  The increase was primarily due to increased expenses related to
regulatory compliance and increased loan collection activity resulting from the
depressed economic environment.





FDIC deposit
insurance premium expenseincreased $293,000 to
$492,000 for the three months ended December 31, 2009 compared with $199,000 for
the same period in 2008.  The increase was the result of higher
average deposit balances and an industry-wide increase in FDIC deposit insurance
premiums during 2009.





Real estate
foreclosure losses and expense, netincludes realized losses
on the final disposition of foreclosed properties, additional write-downs for
declines in the fair market values of properties that occur subsequent to
foreclosure, and expenses incurred in connection with maintaining the properties
until they are sold.  Real estate foreclosure losses and expense, net
increased $95,000 to $436,000 for the quarter ended December 31, 2009 compared
with $342,000 for the same period last year.  The fluctuations were
generally due to the overall increase in foreclosure activity.  See
Non-Performing Assets and
Allowance for Loan Losses.




Income
Taxes




The provision for
income taxes was $466,000 for the three months ended December 31, 2009
compared with $297,000 for the three months ended December 31,
2008.  The effective tax rate for the three months ended December 31,
2009 was 27.2% compared with 34.4% for the same 2008 period.  The
lower effective tax rate in the 2009 period was primarily the result of a higher
level of federal tax exempt interest on loans.


- 28
-




NON-PERFORMING
ASSETS AND ALLOWANCE FOR LOAN LOSSES




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




December
      31,
                              
                              
                              September
      30,2009
                              
                              
                              2009Non-accrual
      loans:Residential
      real estate:First
      mortgage
                              
                              $
                              6,715,585
                              
                              
                              $
                              7,093,095Second
      mortgage
                              
                              
                              1,171,605
                              
                              
                              
                              629,183Home
      equity
                              
                              
                              3,608,166
                              
                              
                              
                              3,086,013Commercial
      and multi-family real estate
                              
                              
                              1,885,970
                              
                              
                              
                              2,594,526Land
      acquisition and development
                              
                              
                              1,315,004
                              
                              
                              
                              2,193,457Real
      estate construction and development
                              
                              
                              1,760,288
                              
                              
                              
                              7,454,604Commercial
      and industrial
                              
                              
                              1,502,896
                              
                              
                              
                              702,999Consumer
      and other
                              
                              
                              148,902
                              
                              
                              
                              219,849Total
      non-accrual loans
                              
                              
                              18,108,416
                              
                              
                              
                              23,973,726Accruing
      loans past due 90 days or more:Residential
      real estate:First
      mortgage
                              
                              
                              -
                              
                              
                              
                              1,394Second
      mortgage
                              
                              
                              -
                              
                              
                              
                              27,531Home
      equity
                              
                              
                              95,765
                              
                              
                              
                              42,720Land
      acquisition and development
                              
                              
                              -
                              
                              
                              
                              315,589Real
      estate construction and development
                              
                              
                              76,180
                              
                              
                              
                              -Consumer
      and other
                              
                              
                              21,424
                              
                              
                              
                              -Total
      accruing loans past due 90 days or more
                              
                              
                              193,369
                              
                              
                              
                              387,234Troubled
      debt restructurings:Current
      under restructured terms:Residential
      real estate:First
      mortgage
                              
                              
                              21,884,237
                              
                              
                              
                              17,785,408Second
      mortgage
                              
                              
                              1,811,827
                              
                              
                              
                              2,062,096Home
      equity
                              
                              
                              2,199,455
                              
                              
                              
                              1,694,670Commercial
      and multi-family real estate
                              
                              
                              164,564
                              
                              
                              
                              -Land
      acquisition and development
                              
                              
                              107,041
                              
                              
                              
                              107,041Real
      estate construction and development
                              
                              
                              4,469,367
                              
                              
                              
                              100,404Commercial
      and industrial
                              
                              
                              157,900
                              
                              
                              
                              787,485Consumer
      and other
                              
                              
                              89,667
                              
                              
                              
                              91,967Total
      current troubled debt restructurings
                              
                              
                              30,884,058
                              
                              
                              
                              22,629,071Past
      due under restructured terms:Residential
      real estate:First
      mortgage
                              
                              
                              4,006,536
                              
                              
                              
                              2,787,514Second
      mortgage
                              
                              
                              1,274,969
                              
                              
                              
                              745,704Home
      equity
                              
                              
                              176,325
                              
                              
                              
                              150,153Commercial
      and multi-family real estate
                              
                              
                              7,499,951
                              
                              
                              
                              7,830,991Land
      acquisition and development
                              
                              
                              57,112
                              
                              
                              
                              57,277Real
      estate construction and development
                              
                              
                              100,404
                              
                              
                              
                              -Commercial
      and industrial
                              
                              
                              1,019,026
                              
                              
                              
                              776,938Total
      past due troubled debt restructurings
                              
                              
                              14,134,323
                              
                              
                              
                              12,348,577Total
      troubled debt restructurings
                              
                              
                              45,018,381
                              
                              
                              
                              34,977,648Total
      non-performing loans
                              
                              
                              63,320,166
                              
                              
                              
                              59,338,608Real
      estate acquired in settlement of loans:Residential
      real estate
                              
                              
                              3,405,871
                              
                              
                              
                              3,386,106Commercial
      real estate
                              
                              
                              12,312,262
                              
                              
                              
                              5,068,504Total
      real estate acquired in settlement of loans
                              
                              
                              15,718,133
                              
                              
                              
                              8,454,610Other
      nonperforming assets
                              
                              
                              2,900
                              
                              
                              
                              -Total
      non-performing assets
                              
                              $
                              79,041,199
                              
                              
                              $
                              67,793,218Ratio
      of non-performing loans to total loans receivable
                              
                              
                              5.53
                              %
                              
                              
                              5.16
                              %Ratio
      of non-performing assets to totals assets
                              
                              
                              5.51
                              %
                              
                              
                              4.82
                              %Ratio
      of allowance for loan losses to non-performing loans
                              
                              
                              36.20
                              %
                              
                              
                              34.68
                              %Excluding
      troubled debt restructurings that are current underrestructured
      terms and related allowance for loan losses:Ratio
      of non-performing loans to total loans receivable
                              
                              
                              2.83
                              %
                              
                              
                              3.19
                              %Ratio
      of non-performing assets to totals assets
                              
                              
                              3.36
                              %
                              
                              
                              3.21
                              %Ratio
      of allowance for loan losses to non-performing loans
                              
                              
                              70.48
                              %
                              
                              
                              55.94
                              %


- 29
-




Non-performing
assets increased to $79.0 million at December 31, 2009 from $67.8 million at
September 30, 2009. The increase was primarily the result of a $10.0 million
increase in troubled debt restructurings and a $7.3 million increase in real
estate acquired in settlement of loans, partially offset by a $5.9 million
decrease in non-accrual loans.




Real
estate acquired in settlement of loans increased to $15.7 million at December
31, 2009 compared with $8.5 million at September 30, 2009. During the December
2009 quarter, the Company foreclosed on a commercial loan secured by a retail
strip shopping center in the St. Louis metropolitan area resulting in a $1.4
million charge-off and a $7.2 million increase in real estate acquired in
settlement of loans. Real estate acquired in settlement of loans at December 31,
2009 and September 30, 2009 also included residential building lots under
development and raw land in the St. Louis area with aggregate carrying values of
$6.0 million and $5.9 million, respectively, that were acquired through the
foreclosure on loans to two commercial customers during the quarter ended
September 30, 2009. Real estate foreclosure losses and expense was $436,000 for
the quarter ended December 31, 2009 compared with $342,000 for the quarter ended
December 31, 2008. Real estate foreclosure losses and expense includes realized
losses on the final disposition of foreclosed properties, additional write-downs
for declines in the fair market values of properties subsequent to foreclosure,
and expenses incurred in connection with maintaining the properties until they
are sold. The higher expense was generally the result of increased foreclosure
activity in the 2009 period.




The
increase in troubled debt restructurings was primarily due to management’s
continued efforts to proactively modify loan repayment terms with residential
borrowers who are experiencing financial difficulties in the current economic
climate with the belief that these actions will maximize the Company’s ultimate
recoveries on these loans. The restructured terms of the loans generally
included a reduction of the interest rates and the addition of past due interest
to the principal balance of the loans. Many of these borrowers were current at
the time of their modifications and showed strong intent and ability to repay
their obligations under the modified terms. During the quarter ended December
31, 2009, the Company restructured approximately $9.7 million of loans to
residential borrowers and returned approximately $1.7 million of previously
restructured residential loans to performing status as the result of the
borrowers’ favorable performance history since restructuring. At December 31,
2009, $31.4 million, or 69.6% of total restructured loans, related to
residential borrowers compared with $25.2 million, or 72.1% of total
restructured loans, at September 30, 2009. At December 31, 2009, 82.6% of these
residential borrowers were performing as agreed under the modified terms of the
loans compared with 85.4% at September 30, 2009.




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. 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.




Also
contributing to the increase in troubled debt restructurings and the decrease in
non-accrual loans was the restructuring of a commercial relationship secured by
a high-rise, residential condominium development in the St. Louis metropolitan
area. The loan was restructured during the December 2009 quarter because of the
borrower’s weakened financial condition. The terms of the restructuring
primarily included an extension of the maturity date of the loan. The balance of
the loan at September 30, 2009 was $5.4 million, which was included in
non-accrual loans. At December 31, 2009, the balance of the loan was paid down
to $4.5 million and was included in troubled debt restructurings on a
non-accrual basis. Troubled debt restructurings also included a commercial loan
restructured during December 2008 with a principal balance of $7.5 million and
$7.8 million at December 31, 2009 and September 30, 2009, respectively. The
loan, which was made to a St. Louis-based customer and collateralized by a strip
shopping center in Naples, Florida, became past due under its restructured terms
during the quarter ended September 30, 2009. At December 31, 2009, $13.6 million
of troubled debt restructurings related to commercial borrowers compared with
$9.7 million at September 30, 2009.




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.


- 30
-




The ratio
of the allowance for loan losses to loans receivable increased to 2.00% at
December 31, 2009 compared with 1.79% at September 30, 2009.  The
ratio of the allowance for loan losses to non-performing loans was 36.20% at
December 31, 2009 compared with 34.68% at September 30,
2009.  Excluding restructured loans that were performing under their
restructured terms and the related allowance for loan losses, the ratio of the
allowance for loan losses to the remaining non-performing loans was 70.48% at
December 31, 2009 compared with 55.94% at September 30,
2009.  Management believes the changes in this coverage ratio are
appropriate due to a change in the mix of non-performing loans during the
period, specifically increased troubled debt restructurings that were performing
under their restructured terms.





The
following table summarizes the activity in the allowance for loan losses for the
three months ended December 31, 2009 and 2008:


2009
                    
                    
                    2008Balance,
      beginning of year
                    
                    $
                    20,579,170
                    
                    
                    $
                    12,761,532Provision
      charged to expense
                    
                    
                    6,074,000
                    
                    
                    
                    4,691,578Charge-offs:Residential
      real estate first mortgage
                    
                    
                    930,913
                    
                    
                    
                    667,104Residential
      real estate second mortgage
                    
                    
                    185,937
                    
                    
                    
                    470,859Home
      equity lines of credit
                    
                    
                    725,649
                    
                    
                    
                    610,327Land
      acquisition & development
                    
                    
                    326,590
                    
                    
                    
                    -Real
      estate construction & development
                    
                    
                    1,436,313
                    
                    
                    
                    8,303Commercial
      & industrial
                    
                    
                    73,222
                    
                    
                    
                    23,577Consumer
      and other
                    
                    
                    75,459
                    
                    
                    
                    43,483Total
      charge-offs
                    
                    
                    3,754,083
                    
                    
                    
                    1,823,653Recoveries:Residential
      real estate first mortgage
                    
                    
                    986
                    
                    
                    
                    1,281Residential
      real estate second mortgage
                    
                    
                    1,092
                    
                    
                    
                    323Home
      equity lines of credit
                    
                    
                    3,506
                    
                    
                    
                    12,662Commercial
      and multi-family real estate
                    
                    
                    5,253
                    
                    
                    
                    14,283Commercial
      & industrial
                    
                    
                    10,571
                    
                    
                    
                    -Consumer
      and other
                    
                    
                    2,113
                    
                    
                    
                    5,952Total
      recoveries
                    
                    
                    23,521
                    
                    
                    
                    34,501Balance,
      end of year
                    
                    $
                    22,922,608
                    
                    
                    $
                    15,663,958




The
provision for loan losses for the three months ended December 31, 2009 was $6.1
million compared with $6.5 million for the September 2009 quarter and $4.7
million for the December 2008 quarter.  The increased provision over
the prior-year quarter was due to increased charge-offs and the increase in the
level of non-performing loans reflecting the impact of the adverse economic
climate on the Company’s borrowers.




Net
charge-offs for the three months ended December 31, 2009 totaled $3.7 million,
or 1.30% of average loans on an annualized basis, compared with $1.8 million, or
0.64% of average loans on an annualized basis, for the same period last
year.  Net charge-offs in the December 2009 quarter included
$1.8 million of charge-offs on commercial loans (primarily related to the
foreclosure on one commercial loan, which is discussed above), $1.1 million of
charge-offs on first and second mortgage residential loans and $722,000 of
charge-offs on home equity lines of credit.  Management adheres to
specific loan underwriting guidelines focusing primarily on residential and
commercial real estate and home equity loans secured by one- to four-family and
commercial properties within its primary market areas.  Because a
large portion of the Company’s loan portfolio is collateralized by real estate,
losses occur more frequently when property values are declining and borrowers
are losing equity in the underlying collateral.  Recent declines in
residential real estate values in the Company’s market areas, as well as
nationally, contributed to the increased charge-offs in the 2009
period.




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.


- 31
-


The
following assessments are performed quarterly in accordance with the Company’s
allowance for loan losses methodology:




Homogeneous
residential mortgage loans are given one of five standard risk ratings at the
time of origination.  The risk ratings are assigned through the use of a
credit scoring model, which assesses credit risk determinants from the
borrower’s credit history, the loan-to-value, debt-to-income ratios or other
personal history.  The Company’s historical loss rates and industry data
for each credit rating, adjusted as described below, are used to determine the
appropriate allocation percentage for each loan grade.  Commercial real
estate, consumer and home equity loans are assigned standard risk weightings
that determine the allocation percentage.




When
commercial loans are over 30 days delinquent or residential, consumer and home
equity loans are over 90 days past due, they are evaluated individually for
impairment.  Additionally, loans that demonstrate credit weaknesses that
may impact the borrower’s ability to repay or the value of the collateral are
also reviewed individually for impairment.  The Company considers a loan to
be impaired when management believes it will be unable to collect all principal
and interest due according to the contractual terms of the loan.  If a loan
is determined to be impaired, the Company establishes an allowance for loan
losses equal to the excess of the loan’s carrying value over the present value
of estimated future cash flows or the fair value of collateral if the loan is
collateral dependent.




The
Company’s methodology includes factors that allow the Company to adjust its
estimates of losses based on the most recent information available. 
Historical loss rates used to determine the allowance are adjusted to reflect
the impact of current conditions, including actual collection and charge-off
experience.




Management
believes that the amount maintained in the allowance will be adequate to absorb
probable losses inherent in the portfolio.  Although management believes
that it uses the best information available to make such determinations, future
adjustments to the allowance for loan losses may be necessary and results of
operations could be significantly and adversely affected if circumstances differ
substantially from the assumptions used in making the determinations. 
While management believes it has established the allowance for loan losses in
accordance with U.S. generally accepted accounting principles, there can be no
assurance that the Bank’s regulators, in reviewing the Bank’s loan portfolio,
will not request the Bank to increase its allowance for loan losses.  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
equivalentsdecreased to $18.7 million at December 31, 2009 from $37.5
million at September 30, 2009.  Federal funds sold and overnight
interest-bearing deposit accounts decreased to $13.2 million at December 31,
2009 compared with $33.5 million at September 30, 2009, primarily as the result
of a decrease in overnight Fed funds used to fund growth in loans held for
sale.




- 32
-




Debt securities
available for sale increased to $5.0 million at December 31, 2009 from
$2.0 million at September 30, 2009.  Mortgage-backed
securities available for sale decreased to $15.5 million at December 31,
2009 from $16.1 million at September 30, 2009, while mortgage-backed
and related securities held to maturity decreased to $11.6 million at
December 31, 2009 from $12.1 million at September 30, 2009.  Such
securities are primarily held as collateral to secure large commercial and
municipal deposits.  The total balance held in these securities is adjusted
as individual securities mature to reflect fluctuations in the balances of the
deposits they are securing.




Stock in the
Federal Home Loan Bank of Des Moinesdecreased $4.2 million to $7.5
million at December 31, 2009 from $11.6 million at September 30,
2009.  The Bank is generally required to hold stock equal to 5% of its
total FHLB borrowings.  However, effective in December 2008, the FHLB
informed its member banks that it was temporarily suspending redemptions of its
stock when members reduced their outstanding borrowings.  The FHLB informed
its members that it was resuming the redemptions of excess stock in December
2009.




Prepaid expenses,
accounts receivable and other assetsincreased $5.3 million to $16.2
million at December 31, 2009 from $10.9 million at September 30, 2009 primarily
as the result of the prepayment of FDIC deposit insurance premiums.  On
November 12, 2009, the FDIC adopted a final rule requiring insured depository
institutions to prepay their estimated quarterly risk-based assessments for the
fourth quarter of 2009, and for all of 2010, 2011 and 2012, on December 30,
2009, along with each institution's risk-based deposit insurance assessment for
the third quarter of 2009.  The amount paid on December 30, which totaled
$7.3 million, was recorded as a prepaid asset and will be charged to expense
during the future periods to which it relates.




Advances from
the Federal Home Loan
Bank of Des Moinesincreased to $123.8 million at December 31, 2009 from
$61.0 million at September 30, 2009 and borrowings from
the Federal Reserve
Bankincreased to $4.7 million at December 31, 2009 from $0 at September
30, 2009.  The increases were used to fund growth in loans held for
sale.  The Company supplements its primary funding source, retail deposits,
with wholesale funding sources consisting of borrowings from the FHLB,
short-term borrowings from the Federal Reserve Bank of St. Louis and brokered
certificates of deposit acquired on a national level.  Management chooses
between these wholesale funding sources depending on their relative costs. 
See Liquidity and Capital
Resources.




Advance
paymentsby borrowers for
taxes and insurance represent insurance and real estate tax payments
collected from borrowers on loans serviced by the Bank.  The balance
decreased $2.6 million to $2.0 million at December 31, 2009 compared with $4.7
million at September 30, 2009 due to the payment by the Bank of borrowers’ real
estate taxes prior to their due date on December 31, 2009.




LIQUIDITY
AND CAPITAL RESOURCES




The
Company primarily funds its assets with deposits from its retail and commercial
customers.  If the Bank or the Company requires funds beyond their ability
to generate them internally, the Bank has the ability to borrow funds from the
FHLB and the Federal Reserve Bank and to raise certificates of deposit on a
national level through broker relationships.  Management chooses among
these wholesale funding sources depending on their relative costs, the Company’s
overall interest rate risk exposure and the Company’s overall borrowing capacity
at the FHLB and the Federal Reserve Bank.  At December 31, 2009, the
combined balance of borrowings from the FHLB, borrowings from the Federal
Reserve Bank and brokered deposits totaled $167.0 million, had a
weighted-average interest rate of 2.02%, a weighted average maturity of
approximately 15 months and represented 11.6% of total assets.  At
September 30, 2009, these combined balances totaled $144.5 million, had a
weighted-average interest rate of 2.97%, a weighted average maturity of
approximately 20 months and represented 10% of total assets.  Use of these
funds has given the Company an alternative source to support its asset growth
while avoiding, when necessary, aggressive deposit pricing strategies used from
time to time by some of its competitors in its market.  In addition,
because approximately two-thirds of the Company’s assets are scheduled to mature
or reprice within one year, the use of these wholesale funds has given
management a low-cost means to maximize net interest income and manage
interest-rate risk by providing the Company greater flexibility to control the
interest rates and maturities of these funds, as compared to deposits. 
This increased flexibility has allowed the Company to better respond to
fluctuations in the interest rate environment and demand for its loan products,
especially 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
three months ended December 31, 2009 allowed the Company to reduce its use of
such wholesale funding from a high during fiscal year 2009 of approximately 27%
of total assets.




- 33
-




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 December 31, 2009, the Bank had approximately
$135.6 million in additional borrowing authority under the arrangement with
the FHLB in addition to the $123.8 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 December 31, 2009, the Company had $4.7 million in
such borrowings outstanding, which were used to fund loans held for sale. 
In addition to the borrowings outstanding, the Bank had approximately
$105.0 million in additional borrowing authority under this arrangement at
December 31, 2009 and had approximately $184.1 million of commercial loans
pledged as collateral under this agreement.




At
December 31, 2009, the Bank had outstanding commitments to originate loans
totaling $107.7 million and commitments to sell loans totaling $242.8
million.  Certificates of deposit totaling $311.6 million at December 31,
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.




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 three months ended December 31, 2009, the
origination of loans heldforsale used $455.8
million of cash and the sales of such loans provided cash totaling $416.2
million compared with originations and sales totaling $248.3 million and $242.2
million, respectively, during the three months ended December 31,
2008.




The
primary use of cash frominvesting
activities is the origination of loans receivable which are held in
portfolio.  During the three months ended December 31, 2009, the Company
had a net increase in loans receivable of $9.4 million compared with an increase
of $59.1 million for the three months ended December 31, 2008.  In
addition, the Company purchased $8.0 million in debt securities during the
three months ended December 31, 2009 compared with purchases of $54.7 million in
debt securities and $1.8 million in mortgage-backed securities during the three
months ended December 31, 2008.  Sources of cash from investing activities
also included maturities of debt securities totaling $5.0 million during
the three months ended December 31, 2009 compared with sales of debt securities
of $51.1 million during the three months ended December 31, 2008.




The
Company’s primary sources and uses of funds from financing
activities during the three months ended December 31, 2009 included a
$36.0 million decrease in deposits compared with a $86.6 million increase
for the three months ended December 31, 2008, a $4.7 million increase in
borrowings from the Federal Reserve Bank during the three months ended December
31, 2009 compared with a $103.0 million increase during the same period last
year, and a $62.8 million increase in advances from the Federal Home Loan Bank
during the three months ended December 31, 2009 compared with a
$114.2 million decrease during the same period last year.




- 34
-




The
following table presents the maturity structure of time deposits and other
maturing liabilities at December 31, 2009:




December 31, 2009FederalCertificates
                      
                      
                      FHLB
                      
                      
                      Reserve
                      
                      
                      Subordinatedof Deposit
                      
                      
                      Borrowings
                      
                      
                      Borrowings
                      
                      
                      Debentures(In
      thousands)Maturing
      in:Three
      months or less
                      
                      $
                      128,408
                      
                      
                      $
                      64,300
                      
                      
                      $
                      4,700
                      
                      
                      $
                      -Over
      three months through six months
                      
                      
                      91,688
                      
                      
                      
                      30,500
                      
                      
                      
                      -
                      
                      
                      
                      -Over
      six months through twelve months
                      
                      
                      91,472
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Over
      twelve months
                      
                      
                      153,285
                      
                      
                      
                      29,000
                      
                      
                      
                      -
                      
                      
                      
                      19,589Total
                      
                      $
                      464,853
                      
                      
                      $
                      123,800
                      
                      
                      $
                      4,700
                      
                      
                      $
                      19,589




CONTRACTUAL
OBLIGATIONS




In
addition to its owned banking facilities, the Company has entered into long-term
operating leases to support ongoing activities.  The required payments
under such commitments at December 31, 2009 are as follows:




Less
      than one year
                  
                  $
                  595,848Over
      1 year through 3 years
                  
                  
                  1,162,737Over
      3 years through 5 years
                  
                  
                  1,176,047Over
      5 years
                  
                  
                  1,930,846Total
                  
                  $
                  4,865,478





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%).




- 35
-




The
following table illustrates the Bank’s actual regulatory capital levels compared
with its regulatory capital requirements at December 31, 2009 and September 30,
2009.




To be Categorized as"Well Capitalized"Under PromptFor Capital
                                        
                                        
                                        Corrective ActionActual
                                        
                                        
                                        Adequacy Purposes
                                        
                                        
                                        ProvisionsAmount
                                        
                                        
                                        Ratio
                                        
                                        
                                        Amount
                                        
                                        
                                        Ratio
                                        
                                        
                                        Amount
                                        
                                        
                                        Ratio(Dollars in thousands)As
      of December 31, 2009:Tangible capital (to total assets)
                                        
                                        $
                                        130,045
                                        
                                        
                                        
                                        9.11
                                        %
                                        
                                        $
                                        21,422
                                        
                                        
                                        
                                        1.50
                                        %
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/ATotal risk-based capital (to risk-weighted assets)
                                        
                                        
                                        144,516
                                        
                                        
                                        
                                        12.11
                                        %
                                        
                                        
                                        95,486
                                        
                                        
                                        
                                        8.00
                                        %
                                        
                                        $
                                        119,358
                                        
                                        
                                        
                                        10.00
                                        %Tier I risk-based capital (to risk-weighted assets)
                                        
                                        
                                        130,045
                                        
                                        
                                        
                                        10.90
                                        %
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        71,615
                                        
                                        
                                        
                                        6.00
                                        %Tier I leverage capital (to averageassets)
                                        
                                        
                                        130,045
                                        
                                        
                                        
                                        9.11
                                        %
                                        
                                        
                                        57,125
                                        
                                        
                                        
                                        4.00
                                        %
                                        
                                        
                                        71,407
                                        
                                        
                                        
                                        5.00
                                        %As
      of September 30, 2009:Tangible capital (to total assets)
                                        
                                        $
                                        128,750
                                        
                                        
                                        
                                        9.19
                                        %
                                        
                                        $
                                        21,004
                                        
                                        
                                        
                                        1.50
                                        %
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/ATotal risk-based capital (to risk-weighted assets)
                                        
                                        
                                        143,297
                                        
                                        
                                        
                                        12.33
                                        %
                                        
                                        
                                        92,943
                                        
                                        
                                        
                                        8.00
                                        %
                                        
                                        $
                                        116,179
                                        
                                        
                                        
                                        10.00
                                        %Tier I risk-based capital (to risk-weighted assets)
                                        
                                        
                                        128,750
                                        
                                        
                                        
                                        11.08
                                        %
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        69,707
                                        
                                        
                                        
                                        6.00
                                        %Tier I leverage capital (to averageassets)
                                        
                                        
                                        128,750
                                        
                                        
                                        
                                        9.19
                                        %
                                        
                                        
                                        56,010
                                        
                                        
                                        
                                        4.00
                                        %
                                        
                                        
                                        70,012
                                        
                                        
                                        
                                        5.00
                                        %




EFFECTS
OF INFLATION




Changes
in interest rates may have a significant impact on a bank’s performance because
virtually all assets and liabilities of banks are monetary in nature. 
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.  Inflation does have an
impact on the growth of total assets in the banking industry, often resulting in
a need to increase equity capital at higher than normal rates to maintain an
appropriate equity to asset ratio.  The Company’s operations are not
currently impacted by inflation.




QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND
OFF-BALANCE SHEET ARRANGEMENTS




There
have been no material changes in the Company's quantitative or qualitative
aspects of market risk during the quarter ended December 31, 2009 from those
disclosed in the Company's Annual Report on Form 10-K for the year ended
September 30, 2009.




In the
normal course of operations, the Company engages in a variety of financial
transactions that, in accordance with generally accepted accounting principles,
are not recorded in its financial statements. These transactions involve, to
varying degrees, elements of credit, interest rate and liquidity risk. 
Such transactions are used primarily to manage customers’ requests for funding
and take the form of loan commitments and lines of credit.  Additionally,
the Company engages in certain hedging activities, which are described in
greater detail below.





For the
three months ended December 31, 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 December 31,
2009, the Company had issued $107.7 million of unexpired interest rate lock
commitments to loan customers compared with $147.8 million of unexpired
commitments at September 30, 2009.


- 36
-





The
Company entered into two $14 million notional value interest-rate swap contracts
during 2008.  These contracts supported a $14 million, variable-rate,
commercial loan relationship and were used to allow the commercial loan customer
to pay a fixed interest rate to the Bank, while the Bank, in turn, charged the
customer a floating interest rate on the loan.  Under the terms of the swap
contract between the Bank and the loan customer, the customer pays the Bank a
fixed interest rate of 6.58%, while the Bank pays the customer a variable
interest rate of one-month LIBOR plus 2.30%.  Under the terms of a similar
but separate swap contract between the Bank and a major securities broker, the
Bank pays the broker a fixed interest rate of 6.58%, while the broker pays the
Bank a variable interest rate of one-month LIBOR plus 2.30%.  The two
contracts have identical terms and are scheduled to mature on May 15,
2015.  While these two swap derivatives generally work together as an
interest-rate hedge, the Company has not designated them for hedge accounting
treatment.  Consequently, both derivatives are marked to fair value through
either a charge or credit to current earnings, the net effect of which offset
one another during the three months ended December 31, 2009.  The fair
values of these derivative instruments recorded in other assets and other
liabilities in the Company’s financial statements at December 31, 2009 and
September 30, 2009 were $925,000 and $1.2 million, respectively.




CONTROLS
AND PROCEDURES




The Companymaintains
“disclosure controls and procedures” as such term is defined in Rule 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), that are designed to ensure that the information required
to be disclosed in the reports that the Companyfiles or submits
under the Exchange Act with the Securities and Exchange Commission (the “SEC”)
(1) is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (2) is accumulated and communicated
to the Company’s
management including its principal executive and principal financial officers as
appropriate to allow timely decisions regarding required
disclosure.




During
the quarter ended December 31, 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 December 31, 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 December 31, 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
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Business Combinations, which
was subsequently incorporated into Accounting Standards Codification TM (“ASC”)
Topic 805, Business
Combinations, significantly changing how entities apply the acquisition
method to business combinations. The most significant changes affecting how
entities account for business combinations under ASC Topic 805 include: (a) the
acquisition date is the date the acquirer obtains control; (b) all (and only)
identifiable assets acquired, liabilities assumed, and non-controlling interests
in the acquiree are stated at fair value on the acquisition date; (c) assets or
liabilities arising from non-contractual contingencies are measured at their
acquisition date fair value only if it is more likely than not that they meet
the definition of an asset or liability on the acquisition date; (d) adjustments
subsequently made to the provisional amounts recorded on the acquisition date
are made retroactively during a measurement period not to exceed one year; (e)
acquisition-related restructuring costs that do not meet the criteria in SFAS
No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which was subsequently
incorporated into ASC Topic 420, Exit or Disposal Cost
Obligations, are expensed as incurred; (f) transaction costs are expensed
as incurred; (g) reversals of deferred income tax valuation allowances and
income tax contingencies are recognized in earnings subsequent to the
measurement period; and (h) the allowance for loan losses of an acquiree is not
permitted to be recognized by the acquirer. Additionally, ASC Topic 805 requires
new and modified disclosures surrounding subsequent changes to
acquisition-related contingencies, contingent consideration, non-controlling
interests, acquisition-related transaction costs, fair values and cash flows not
expected to be collected for acquired loans, and an enhanced goodwill
rollforward. ASC Topic 805 is effective for all business combinations completed
on or after January 1, 2009. For business combinations in which the acquisition
date was before the effective date, the provisions of ASC Topic 805 apply to the
subsequent accounting for deferred income tax valuation allowances and income
tax contingencies and will require any changes in those amounts to be recorded
in earnings. The adoption of ASC Topic 805 did not have a material impact on the
Company’s financial condition, results of operations or the disclosures that are
presented in its consolidated financial statements.


- 37
-





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51, which was
subsequently incorporated into ASC Topic 810, Consolidation. ASC Topic 810
establishes new accounting and reporting standards for noncontrolling interests
in a subsidiary and for the deconsolidation of a subsidiary. ASC Topic 810
requires entities to classify noncontrolling interests as a component of
stockholders’ equity and requires subsequent changes in ownership interests in a
subsidiary to be accounted for as an equity transaction. Additionally, ASC Topic
810 requires entities to recognize a gain or loss upon the loss of control of a
subsidiary and to remeasure any ownership interest retained at fair value on
that date. ASC Topic 810 also requires expanded disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. ASC Topic 810 is effective on a prospective basis
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, except for the presentation and disclosure
requirements, which are required to be applied retrospectively. The
implementation of ASC Topic 810 did not have a material impact on the Company’s
financial condition or results of operations.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was subsequently incorporated
into ASC Topic 815, Derivatives and Hedging. ASC
Topic 815 requires entities to provide greater transparency about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under ASC Topic 815 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, results of operations and cash flows. To
meet those objectives, ASC Topic 815 requires (1) qualitative disclosures about
objectives for using derivatives by primary underlying risk exposure and by
purpose or strategy (fair value hedge, cash flow hedge, and non-hedges), (2)
information about the volume of derivative activity in a flexible format that
the preparer believes is the most relevant and practicable, (3) tabular
disclosures about balance sheet location and gross fair value amounts of
derivative instruments, income statement and other comprehensive income location
of gain and loss amounts on derivative instruments by type of contract, and (4)
disclosures about credit-risk related contingent features in derivative
agreements. ASC Topic 815 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The
implementation of ASC Topic 815 did not have a material impact on the Company’s
financial condition or results of operations.





In April
2009, the FASB issued FASB Staff Position (“FSP”) SFAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, which was
subsequently incorporated into ASC Topic 820, Fair Value Measurements and
Disclosures. ASC Topic 820 affirms that the definition of fair value,
when the market for an asset is not active, is the price that would be received
to sell the asset in an orderly transaction, and clarifies and includes
additional factors for determining whether there has been a significant decrease
in market activity for an asset when the market for that asset is not active.
ASC Topic 820 requires an entity to base its conclusion about whether a
transaction was not orderly on the weight of the evidence. ASC Topic 820 also
amended existing accounting guidance to expand certain disclosure requirements.
ASC Topic 820 is effective for interim and annual periods ending after June 15,
2009 and is applied prospectively. The adoption of the provisions of ASC Topic
820 during the quarter ended June 30, 2009 did not have a material impact on the
Company’s financial condition or results of operations.





In April
2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, which was subsequently incorporated
into ASC Topic 320, Investments – Debt and Equity
Securities. This ASC Topic (i) changes existing guidance for determining
whether an impairment is other than temporary to debt securities and (ii)
replaces the existing requirement that the entity’s management assert it has
both the intent and ability to hold an impaired security until recovery with a
requirement that management assert: (a) it does not have the intent to sell the
security; and (b) it is more likely than not it will not have to sell the
security before recovery of its cost basis. Under ASC Topic 320, declines in the
fair value of held-to-maturity and available-for-sale securities below their
cost that are deemed to be other than temporary are reflected in earnings as
realized losses to the extent the impairment is related to credit losses. The
amount of the impairment related to other factors is recognized in other
comprehensive income. The provisions of ASC Topic 320 are effective for interim
and annual periods ending after June 15, 2009 and are applied prospectively. The
adoption of the provisions of ASC Topic 320 did not have a material impact on
the Company’s financial condition or results of operations.




- 38
-


In April
2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board Opinion
28-1, Interim Disclosures
about Fair Value of Financial Instruments, which were subsequently
incorporated into ASC Topic 825, Financial Instruments. This
ASC Topic amends the existing guidance to require an entity to provide
disclosures about fair value of financial instruments in interim financial
information and to require those disclosures in summarized financial information
at interim reporting periods. Under ASC Topic 825, a publicly traded company
shall include disclosures about the fair value of its financial instruments
whenever it issues summarized financial information for interim reporting
periods. In addition, entities must disclose, in the body or in the accompanying
notes of its summarized financial information for interim reporting periods and
in its financial statements for annual reporting periods, the fair value of all
financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position, as
required by ASC Topic 825. ASC Topic 825 is effective for interim periods ending
after June 15, 2009 and is applied prospectively. The adoption of the provisions
of ASC Topic 825 did not have a material impact on the Company’s financial
condition or results of operations.





In May
2009, the FASB issued SFAS No. 165, Subsequent Events, which was
subsequently incorporated into ASC Topic 855, Subsequent Events. ASC Topic
855 incorporates accounting and disclosure requirements related to subsequent
events into U.S. generally accepted accounting principles (“GAAP) making
management directly responsible for subsequent-events accounting and disclosure.
ASC Topic 855 sets forth: (a) the period after the balance sheet date during
which management shall evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; (b) the
circumstances under which an entity shall recognize events or transactions
occurring after the balance sheet date in its financial statements; and (c) the
disclosures that an entity shall make about events or transactions that occurred
after the balance sheet date. The requirements for subsequent-events accounting
and disclosure are not significantly different from those in auditing standards.
ASC Topic 855 is effective for interim and annual periods ending after June 15,
2009. The adoption of the provisions of ASC Topic 855 did not have a material
impact on the Company’s financial condition or results of
operations.





In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an Amendment of SFAS No. 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
was subsequently incorporated into ASC Topic 860, Transfers and Servicing. SFAS
No. 166 amends ASC Topic 860 and requires more information about transfers of
financial assets, including securitization transactions and where companies have
continuing exposure to the risks related to transferred financial assets. It
eliminates the concept of a “qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets and requires additional
disclosures. SFAS No. 166 is effective for the annual period beginning after
November 15, 2009 and for interim periods within the first annual reporting
period, and must be applied to transfers occurring on or after the effective
date. The adoption of the provisions of this Topic are not expected to have a
material impact on the Company’s financial condition or results of
operations.





In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R). SFAS No. 167 amends FIN 46(R), Consolidation of Variable Interest
Entities, which was subsequently incorporated into ASC Topic 810, Consolidation, to change how
a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated, and
requires additional disclosures about involvement with variable interest
entities, any significant changes in risk exposure due to that involvement and
how that involvement affects the company’s financial statements. The
determination of whether a company is required to consolidate an entity is based
on, among other things, an entity’s purpose and design and a company’s ability
to direct the activities of the entity that most significantly impact the
entity’s economic performance. The provisions of this Topic are effective for
the annual period beginning after November 15, 2009 and for interim periods
within the first annual reporting period. Management is currently evaluating the
requirements of this Topic, which are not expected to have a material impact on
the Company’s financial condition or results of operations.





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-




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




PART
II - OTHER INFORMATION




Item
      1.
            Legal
      Proceedings:




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




Item
      1A.
              Risk
      Factors:




In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the year ended September 30, 2009, which could
materially affect our business, financial condition or future results. The risks
described in our Annual Report on Form 10-K are not the only risks that we face.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.




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-


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




The
following table provides information regarding the Company’s purchases of its
equity securities during the three months ended December 31, 2009.




ISSUER PURCHASES OF EQUITY SECURITIES




(d)(c)
                              
                              
                              Maximum Number(b)
                              
                              
                              Total Number of
                              
                              
                              (or Approximate(a)
                              
                              
                              Average
                              
                              
                              Shares (or Units)
                              
                              
                              Dollar Value) ofTotal Number
                              
                              
                              Price
                              
                              
                              Purchased as
                              
                              
                              Shares (or Units)of Shares
                              
                              
                              Paid per
                              
                              
                              Part of Publicly
                              
                              
                              That May Yet Be(or
      Units)
                              
                              
                              Share
                              
                              
                              Announced
      Plans
                              
                              
                              Purchased
      Under thePeriod
                              
                              Purchased (1)
                              
                              
                              (or Unit)
                              
                              
                              or Programs (2)
                              
                              
                              Plans or Programs (2)October
      1, 2009
                              
                              
                              1,196
                              
                              
                              $
                              8.01
                              
                              
                              
                              -
                              
                              
                              
                              375,997through
      October 31, 2009November
      1, 2009
                              
                              
                              726
                              
                              
                              
                              6.99
                              
                              
                              
                              -
                              
                              
                              
                              375,271through
      November 30, 2009December
      1, 2009
                              
                              
                              2,530
                              
                              
                              
                              6.30
                              
                              
                              
                              -
                              
                              
                              
                              372,741through
      December 31, 2009Total
                              
                              
                              4,452
                              
                              
                              $
                              6.87
                              
                              
                              
                              -





(1)
            Total
      number of shares purchased represents shares surrendered by employees to
      satisfy tax withholding requirements upon vesting of stock
      awards.




(2)
            In
      February 2007, the Company announced a repurchase program under which it
      would repurchase up to 497,000 shares of the Company’s common stock and
      that the repurchase program would continue until it is completed or
      terminated by the Board of Directors.  However, as part of the
      Company’s participation in the Capital Purchase Program of the U.S.
      Department of Treasury’s Troubled Asset Relief Program, prior to the
      earlier of January 16, 2012 or the date on which the preferred stock
      issued in that transaction has been redeemed in full or the Treasury has
      transferred its shares to non-affiliates, the Company cannot increase its
      quarterly cash dividend above $0.095 per share or repurchase any shares of
      its common stock, without the prior approval of the Treasury. 
      Accordingly, no shares of common stock were repurchased under this program
      during the three months ended December 31,
2009.




Item
      3.
            Defaults
      Upon Senior Securities: Not
applicable




Item
      4.
            Submission
      of Matters to a Vote of Security
Holders:




The
Annual Meeting of the Stockholders of the Company was held on February 3,
2010.  The results of the vote were as follows:





1.
            The
      following individuals were elected as directors, each for a three-year
      term:





VOTES FOR
                            
                            
                            VOTES WITHHELDStanley
      J .Bradshaw
                            
                            
                            5,927,617
                            
                            
                            
                            536,482William
      M. Corrigan, Jr.
                            
                            
                            4,922,998
                            
                            
                            
                            1,541,101Gary
      W. Douglass
                            
                            
                            5,924,667
                            
                            
                            
                            539,432




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-




2.
            The
      appointment of KPMG LLP as independent auditors of Pulaski Financial Corp.
      for the fiscal year ended September 30, 2010 was ratified by the
      stockholders by the following vote:





FOR
                        
                        AGAINST
                        
                        ABSTAIN8,939,356
                        
                        121,693
                        
                        15,363




3.
              A
      non-binding resolution to approve the compensation of the Company’s named
      executive officers was ratified by the stockholders by the following
      vote:





FOR
                        
                        AGAINST
                        
                        ABSTAIN7,007,368
                        
                        1,911,568
                        
                        157,526




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)31.1
                Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer31.2
                Rule
      13a-14(a)/15d-14(a) Certification of the Chief Financial
      Officer32.1
                Section
      1350 Certification of Chief Executive Officer32.2
                Section
      1350 Certification of Chief Financial
Officer


(1)
                      Incorporated
      by reference into this document from the Exhibits to the 2003 proxy
      statement as filed with the Securities and Exchange Commission on December
      27, 2002.(2)
                      Incorporated
      by reference into this document from the Form 10-Q, as filed with the
      Securities and Exchange Commission on February 17,
2004.(3)
                      Incorporated
      herein by reference into this document from the Form 8-K, as filed with
      the Securities and Exchange Commission on January 16,
  2009.(4)
                      Incorporated
      herein by reference from the Form 8-K, as filed with the Securities and
      Exchange Commission on December 21, 2007.(5)
                      Incorporated
      by reference from the Form S-1 (Registration No. 333-56465), as amended,
      as filed with the Securities and Exchange Commission on June 9,
      1998.




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-


SIGNATURES




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




PULASKI
      FINANCIAL CORP.Date: 
      February 12,
      2010
                  /s/ Gary W. DouglassGary
      W. DouglassPresident
      and Chief Executive OfficerDate:
      February 12,
      2010
                  /s/ Paul J. MilanoPaul
      J. MilanoChief
      Financial Officer