UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-K





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


For the
fiscal year ended September 30, 2010


OR





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


For the
transition period from __________ to ____________





Commission
File No.: 0-24571





PULASKI
FINANCIAL CORP.


(Exact name of registrant as specified
in its charter)


Missouri
                
                43-1816913(State
      or other jurisdiction
                  of
      incorporation or organization)
                
                (IRS
      Employer Identification
No.)





12300 Olive Boulevard, St.
Louis, Missouri  63141


(Address of principal executive
offices)





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


Securities registered pursuant to
Section 12(b) of the Act:





Common Stock, par value $0.01 per
      share
              
              The Nasdaq Stock Market
  LLC(Title
      of Each Class)
              
              (Name
      of Each Exchange on Which
Registered)





Securities
registered pursuant to Section 12(g) of the Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes   ̈  No  x.





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes   ̈  No  x.





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.  Yes  x  No
 ̈.





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) 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 disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   o.





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





Large Accelerated
      Filer ̈
                Accelerated
      Filer ̈Non-accelerated
      Filer ̈
                Smaller Reporting
      Companyx





(Do not
check if smaller reporting company)





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





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of the last business day of the registrant’s most recently
completed second fiscal quarter was $56.9
million.                     .





There
were issued and outstanding 10,867,717shares
of the registrant’s common stock as of December 17, 2010.





Documents
Incorporated by Reference


Portions
of 2010 Annual Report to Stockholders (Part II).


Portions
of the Definitive Proxy Statement for the 2011 Annual Meeting of Stockholders
(Part III).





INDEX





Page No.PART
      IItem
      1.
                                    Business
                                    3Item
      1A.
                                    Risk
      Factors
                                    36Item
      1B.
                                    Unresolved
      Staff Comments
                                    46Item
      2.
                                    Properties
                                    46Item
      3.
                                    Legal
      Proceedings
                                    47Item
      4.
                                    [Removed
      and reserved]
                                    47PART
      IIItem
      5.
                                    Market
      for the Registrant’s Common Equity, Related StockholderMatters
      and Issuer Purchases of Equity Securities
                                    48Item
      6.
                                    Selected
      Financial Data
                                    49Item
      7.
                                    Management’s
      Discussion and Analysis of FinancialCondition
      and Results of Operations
                                    49Item
      7A.
                                    Quantitative
      and Qualitative Disclosures About Market Risk
                                    49Item
      8.
                                    Financial
      Statements and Supplementary Data
                                    49Item
      9.
                                    Changes
      in and Disagreements with Accountants onAccounting
      and Financial Disclosure
                                    49Item
      9A.
                                    Controls
      and Procedures
                                    49Item
      9B.
                                    Other
      Information
                                    50PART
      IIIItem
      10.
                                    Directors,
      Executive Officers and Corporate Governance
                                    51Item
      11.
                                    Executive
      Compensation
                                    51Item
      12.
                                    Security
      Ownership of Certain Beneficial Ownersand
      Management and Related Stockholder Matters
                                    52Item
      13.
                                    Certain
      Relationships, Related Transactions and Director
    Independence
                                    53Item
      14.
                                    Principal
      Accountant Fees and Services
                                    53PART
      IVItem
      15.
                                    Exhibits
      and Financial Statement Schedules
                                    54SIGNATURES
                                    57


2


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 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 which could cause actual results to
differ from anticipated results include interest rate trends, the general
economic climate 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 delinquency rates, demand for
loans and deposits, changes in the quality or composition of our loan portfolio,
changes in federal and state legislation and regulation and changes in
accounting principles. Additional factors that may affect our results are
discussed in “Item 1A – Risk Factors” and in other reports filed with the
Securities and Exchange Commission.  These factors should be
considered in evaluating the forward-looking statements and undue reliance
should not be placed on such statements.  Subject to applicable law
and regulation, Pulaski Financial Corp. assumes no obligation to update any
forward-looking statements.





Unless
the context indicates otherwise, all references in this annual report on Form
10-K to the “Company,” “we,” “us” and “our” refer to Pulaski Financial Corp. and
its subsidiaries.





PART
I





Item 1.
Business





General





Pulaski
Financial Corp. (the “Company”) is the holding company for Pulaski Bank (the
“Bank”). The Company’s primary assets are its investment in the Bank and
cash.  The Company also maintains two special-purpose subsidiaries
that issue preferred securities. Management of the Company and the Bank are
substantially similar and the Company neither owns nor leases any property, but
instead uses the office properties and equipment of the
Bank.  Accordingly, the information set forth in this annual report on
Form 10-K, including the consolidated financial statements and related financial
data, relates primarily to the Bank.




Pulaski
Bank provides an array of financial products and services for businesses and
retail customers primarily through its twelve full-service offices in the St.
Louis metropolitan area and six loan production offices in the St. Louis,
and Kansas City metropolitan areas.  Pulaski Bank is primarily engaged
in attracting deposits from individuals and businesses and using these deposits,
together with borrowed funds, to originate primarily one-to four-family
residential mortgage loans, home equity lines of credit, commercial real estate
and commercial and industrial loans principally within its St. Louis lending
market.  In addition, the Bank originates one-to four-family
residential mortgage loans in its Kansas City and Wichita markets.





Available
Information





We
maintain an Internet website at http://www.pulaskibankstl.com.  We
make available our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to such reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934,
as amended, and other information related to us, free of charge, on this site as
soon as reasonably practicable after we electronically file those documents
with, or otherwise furnish them to, the Securities and Exchange
Commission.  Our Internet website and the information contained
therein or connected thereto are not intended to be incorporated into this
annual report on Form 10-K.


3


Market
Area





We
currently conduct our business in the St. Louis metropolitan area and, to a
lesser extent, in the Kansas City and Wichita metropolitan areas.  In
the St. Louis metropolitan area, we conduct operations out of our twelve
full-service branch offices and two loan production offices.  In the
Kansas City metropolitan area, we operate out of three mortgage lending offices
in Lee’s Summit and Belton, Missouri and Overland Park Kansas.  In the
Wichita, Kansas metropolitan area, we operate out of one mortgage lending
office.




Competition





We face
intense competition when attracting savings deposits (our primary source of
lendable funds) and originating loans.  Direct competition for savings
deposits has historically come from commercial banks, other thrift institutions
and credit unions located in our market area.  We have faced
additional significant competition for investors’ funds from short-term money
market securities and other corporate and government securities.




At
June 30, 2010, which is the most recent date for which data is available
from the Federal Deposit Insurance Corporation (the “FDIC”), we held
approximately 1.62% of the deposits in our primary market area, which is the
St. Louis, Missouri-Illinois Metropolitan Statistical Area.  This
represents the twelfth largest market share out of 145 financial
institutions with offices in this metropolitan statistical
area.  Banks owned by large bank holding companies, such as US
Bancorp, Bank of America Corporation, Regions Financial Corp. and the PNC
Financial Group, operate in our market area.  These institutions are
significantly larger than us and, therefore, have significantly greater
resources that could allow them to offer a wider variety of products and
services.




Our
competition for loans comes principally from other financial institutions,
mortgage banking companies and mortgage brokers.  We expect
competition for our products to increase in the future as a result of
legislative, regulatory and technological changes.  Technological
advances, for example, have lowered barriers to market entry, allowed banks to
expand their geographic reach by providing services over the Internet and made
it possible for non-depository institutions to offer products and services that
traditionally have been provided by banks.  The Gramm-Leach-Bliley
Act, which permits affiliation among banks, securities firms and insurance
companies, also has changed the competitive environment as several
non-traditional banking companies have begun collecting deposits in the St.
Louis metropolitan area.





Lending
Activities





Residential Mortgage
Lending.  Substantially all of our residential first mortgage
loan production is sold on a servicing-released, best-efforts, flow basis to a
number of regional and national secondary market investors. This strategy
enables us to have a much larger lending capacity, provide a much more
comprehensive product offering and reduce the interest-rate, prepayment and
credit risks associated with residential lending.  This strategy also
allows us to offer more competitive interest rates.  Loans originated
for sale are closed in our name and held in “warehouse” until they are sold to
the investors, typically within 30 to 60 days.  The loans held in
warehouse provide an attractive asset yield during the short time we hold them
pending their sale, because we are able to fund these longer-term assets
(typically 30 year mortgages) with low-cost, short-term funds.  Loan
sale activity is our largest source of non-interest income.




We are a
direct endorsement lender with the Federal Housing Administration (“FHA”).
Consequently, our FHA-approved, direct endorsement underwriters are authorized
to approve or reject FHA-insured loans up to maximum amounts established by
FHA.  We are also an automatic lender with the Veterans’
Administration (“VA”), which enables our designated qualified personnel to
approve or reject loans on behalf of the VA.


4


We offer
a variety of adjustable-rate mortgage (“ARM”) loans.  These ARM loans
may be sold in the secondary market or originated for portfolio
investment.  The loan fees charged, interest rates and other
provisions of our ARM loans are determined by us on the basis of our own pricing
criteria, the composition and interest rate risk of our current loan portfolio
and market conditions.  Interest rates and payments on our ARM loans
generally are adjusted periodically to a rate typically equal to 2.00% to 3.75%
above the one-year constant maturity U.S. Treasury index.  The
periodic interest rate cap (the maximum amount by which the interest rate may be
increased or decreased in a given period) on our ARM loans is generally
2% per adjustment period and the lifetime interest rate cap is generally 6%
over the initial interest rate of the loan. We qualify the borrower based on the
borrower’s ability to repay the ARM loan based on the maximum interest rate at
the first adjustment in the case of one-year ARM loans, and based on the initial
interest rate in the case of ARM loans that adjust after two or more
years.  We do not originate negative amortization loans for portfolio
investment.  We believe that the periodic adjustment feature of our
ARM loans provides us the flexibility to offer initial interest rates that are
competitive while limiting our long-term exposure to interest-rate
risk.





Borrower
demand for ARM loans versus fixed-rate mortgage loans is a function of current
and expected market interest rates and the difference between the initial
interest rates and fees charged for each type of loan.  The relative
amount of fixed-rate mortgage loans and ARM loans that can be originated at any
time is largely determined by the demand for each.  As the result of
the low interest rate environment during the years ended September 30, 2010 and
2009, we experienced an increased demand for our fixed-rate mortgage loan
products and almost no demand for ARM loans.  If the current low level
of interest rates continues, we expect this lack of demand for ARM loans to
continue.




We
require title insurance insuring the status of our lien on all of our
residential mortgage loans and also require that fire and extended coverage
casualty insurance (and, if appropriate, flood insurance) be maintained in an
amount equal to the greater of the outstanding loan balance or the full
replacement cost of the dwelling.




Our
lending policies generally limit the maximum loan-to-value ratio on first
mortgage loans secured by owner-occupied properties to 80% of the lesser of the
appraised value or the purchase price.  We will make loans in excess
of that limit provided the borrower obtains mortgage insurance.  Prior
to 2008, the Company offered second mortgage loans that exceeded 80% combined
loan-to-value ratios, which were priced with enhanced yields.  The
Company still offers second mortgage loans up to 80% of the collateral values on
an exception basis to credit-worthy borrowers.  However, the current
underwriting guidelines are more stringent due to the current adverse economic
environment.  At September 30, 2010, the Company had $60.3 million of
second mortgage loans.




We obtain
appraisals on our real estate loans from our in-house staff of licensed
appraisers and independent appraisers.  During the year ended
September 30, 2010, the Company performed approximately 29% of its appraisals
through the in-house staff.  By using in-house staff to perform the
appraisal services, management has improved the quality of the appraisal process
as loan officers no longer have the ability to control the assignment of the
appraisal services.




Home Equity Lines of
Credit.  Home equity lines of credit are secured with a deed of
trust on residential real estate and are issued in an amount up to 80% of the
appraised value of the property securing the line of credit, less the
outstanding balance on the first mortgage.  The Bank’s credit
underwriting standards for home equity loans have generally followed conforming
loan guidelines.  This type of loan is generally originated in
conjunction with the origination of first mortgage loans eligible for sale in
the secondary market.  In prior periods, the Company originated
certain home equity loans with available lines up to 100% of the appraised value
of the home when combined with the balance of the first mortgage
loans.  At September 30, 2010, the balance of home equity loans with
combined loan-to-value ratios equal to 100% or greater, based on the original
appraisals, totaled approximately $7.4 million.  Interest rates on
home equity lines of credit are adjustable and are tied to the prime interest
rate.  This rate is obtained from the Wall Street Journal and adjusts
on a monthly basis.  The rate at the date of origination is also the
floor rate for the life of the loan.  Interest rates are based upon
the loan-to-value ratio of the property, with lower rates given to borrowers
with lower loan-to-value ratios.  Because home equity lines of credit
adjust monthly with fluctuations in the prime interest rate, they present less
interest-rate risk to us.  However, lending up to 100% of the value of
the property and the potential for increased payments due to increased interest
rates present greater credit risk to us.  Due to the downturn in local
and national economic conditions and the significant level of our existing loan
balances, we de-emphasized home equity lending during the years ended
September 30, 2010 and 2009.


5


Construction and Development
Loans.  We originate real estate construction and development
loans that consist of one-to-four family residential construction loans made to
retail mortgage customers and builders, loans for the development of land to be
used for residential or commercial real estate construction, and loans for the
construction of multi-family and commercial properties.  Loan
disbursements are closely monitored by management to ensure that funds are being
used strictly for the purposes agreed upon in the loan covenants.  We
employ both internal staff and external experts to ensure that loan
disbursements are substantiated by regular inspections and
review.  Construction and development loans are underwritten according
to the adequacy of the borrower’s repayment sources at the time of approval.
Unlike conventional residential lending, signs of deterioration in the
customer’s ability to repay the loan are measured throughout the life of the
loan and not just at origination or when the loan becomes past
due.  In most instances, loan amounts are limited to 80% of the “as
completed” appraised value of the construction project and the borrowers are
generally required to infuse equity into the project.  Personal
guarantees are generally obtained.  Due to the downturn in local and
economic conditions, we significantly de-emphasized this type of lending during
the year ended September 30, 2010.




Commercial Real Estate
Loans.  We engage in commercial real estate lending, typically
through direct originations.  We have expanded our commercial real
estate portfolio, which includes owner-occupied properties, to provide
diversification and to generate assets that are sensitive to fluctuations in
interest rates.  Commercial real estate loans are generally
prime-based, floating-rate loans, or short-term (one to five year), fixed-rate
loans.  Personal guarantees are generally obtained.




Commercial and Industrial
Loans.  We originate commercial and industrial loans that are
secured by property such as inventory, equipment, finished goods and accounts
receivable.  All commercial borrowers are evaluated for the adequacy
of repayment sources at the time of approval and are regularly reviewed for any
possible deterioration in their ability to repay the loan.  In most
instances, collateral is required to provide an additional source of repayment
in the event of default by the borrower.  The structure of the
collateral varies for each loan depending on the financial strength of the
borrower, the amount and terms of the loan, and the collateral available to be
pledged.  Personal guarantees are generally obtained.




Consumer and Other
Loans.  We originate consumer loans to residents of the
metropolitan areas of St. Louis and Kansas City, including automobile loans and
other secured consumer goods loans.  These loans are generally offered
to our customers as a convenience and are not considered to be among our primary
products.  Automobile loans currently in the portfolio consist of
fixed-rate loans secured by both new and used cars and light
trucks.  New cars are financed for a period of up to 72 months while
used cars are financed for 60 months or less depending on the year and
model.  Collision and comprehensive insurance coverage is required on
all automobile loans.





Loan Marketing and
Processing.  Loan applicants come through direct marketing
efforts by the Bank’s loan officers, loan officers employed by three 50%-owned
joint ventures with local realtors in St. Louis and Kansas City, referrals by
realtors, financial planners, previous and present customers and, to a far
lesser extent, through television, radio, internet and print advertising
promotions.  Residential loans may be originated in any of our
offices, while commercial loans are originated only from our St. Louis
offices.  Loans we retain in our portfolio are serviced from our main
office.  Loans sold into the secondary mortgage market are generally
sold on a “servicing released” basis and are serviced by the
purchaser.  Mortgage loan officers are compensated for their loan
production based upon the dollar volume closed, as well as the gain on the sale
produced.




Upon
receipt of a loan application from a prospective borrower, a credit report and
other data are obtained to verify specific information relating to the loan
applicant’s employment, income and credit standing.  An appraisal of
the real estate offered as collateral is performed by one of our in-house
licensed appraisers or an appraiser generally approved by the board of directors
and licensed or certified by the State of Missouri.




The board
of directors has granted loan approval authority to certain officers up to
prescribed limits, depending on their experience and tenure.  The CEO
or the President may approve secured loans up to $1.0 million and unsecured
loans up to $250,000.  An internal loan committee, consisting of five
senior officers and two non-management directors approves secured loans up to
$10.0 million and unsecured loans up to $2.0 million.  All loans above
these levels are approved by the full board of directors.


6





Loan
applicants are promptly notified of our decision.  Interest rates are
subject to change if the approved loan is not closed within the time of the
commitment, which usually is 45 to 60 days for residential loans and 30 days for
commercial loans.





Loan
Underwriting Risks.




Adjustable-Rate Residential Mortgage
Loans.  The retention of ARM loans in our loan portfolio helps
reduce our exposure to changes in interest rates.  There are, however,
credit risks resulting from the potential of increased amounts to be paid by the
customer due to increasing interest rates.  During periods of rising
interest rates, the risk of default on ARM loans increases as a result of
repricing and the increased payments required from the borrower. Furthermore,
because the ARM loans we originate generally provide initial rates of interest
below the fully-indexed rates, these loans are subject to increased risks of
default, delinquency, or prepayment as the rates adjust upward to the
fully-indexed rates.





Residential Second Mortgage Loans
and Home Equity Lines of Credit.  Second mortgage loans and
home equity lines of credit generally involve greater credit risk than first
mortgage loans because they are secured by mortgages that are subordinate to the
first mortgage on the property.  This means that if the borrower is
forced into foreclosure, we will receive no proceeds from the sale of the
property until the first mortgage has been completely repaid.  Second
mortgage loans and home equity lines of credit often have high loan-to-value
ratios when combined with the first mortgage on the property.  Loans
with high combined loan-to-value ratios will be more sensitive to declining
property values than loans with lower combined loan-to-value ratios and,
therefore, may experience a higher incidence of default and severity of
losses.




Construction and Development
Loans.  Construction and development loans involve greater
credit risks than residential or commercial real estate lending.  Our
risk of loss on these types of loans is dependent largely upon the accuracy of
the initial estimate of the property’s value at completion of construction or
development and the estimated cost (including interest) of the
construction.  If the estimate of construction costs is inaccurate, we
may be required to advance additional funds to complete the
development.  If, upon completion of the project, the estimate of the
marketability of the property is inaccurate, the borrower may be unable to sell
the completed project in a timely manner or obtain adequate proceeds to repay
the loan.  Delays in completing the project may arise from inclement
weather, labor problems, material shortages and other unpredictable
contingencies.  Construction lending also typically involves higher
loan principal amounts and is often concentrated with a small number of
builders.  In some instances where the collateral value supports a
further increase in the outstanding loan amount, no payment from the borrower is
required during the term of a construction loan since the accumulated interest
is added to the principal of the loan.  Construction loans often
involve the disbursement of substantial funds with repayment substantially
dependent on the success of the ultimate project and the ability of the borrower
to sell or lease the property or obtain permanent take-out financing, rather
than the ability of the borrower or guarantor to repay principal and
interest.  Furthermore, if our estimate of value of a completed
project is inaccurate, then we may be confronted with, at or prior to the
maturity of the loan, a project with a value that is insufficient to assure full
repayment and we may incur a loss.  We generally obtain personal
guarantees from builders and commercial borrowers.




Commercial Real Estate
Loans.  Loans secured by commercial real estate generally have
larger loan balances and involve greater risks than one- to four-family
residential mortgage loans because the properties securing these loans often
have unpredictable cash flows and are more difficult to evaluate and
monitor.  Payments on loans secured by such properties are often
dependent on successful management and operation of the
properties.  Repayment of such loans may be affected, to a greater
extent, by adverse conditions in the real estate market or the
economy.  If the cash flows from the property are reduced (for
example, if leases are not obtained or renewed) the borrower’s ability to repay
the loan and the value of the property securing the loan may be
impaired.  We seek to minimize these risks in a variety of ways,
including limiting the size of such loans, reviewing the financial condition of
the borrower, verifying the quality of the collateral and scrutinizing the
management of the property securing the loan.  We also generally
obtain loan guarantees from financially capable parties.  Our lending
personnel or one of our agents inspects all of the properties securing our
commercial real estate loans before the loan is made.


7





Commercial and Industrial
Loans.  Unlike residential mortgage loans, which generally are
made on the basis of a borrower’s ability to make repayment from his or her
employment or other income, and which are secured by real property whose value
tends to be more easily ascertainable, commercial and industrial loans are of
higher risk and typically are made on the basis of the borrower’s ability to
make repayment from the cash flows of the borrower’s business, including, in the
case of loans secured by accounts receivable, the ability of the borrower to
collect amounts due from its customers.  The secondary source of
repayment is based almost solely on the liquidation of the pledged collateral
and the ability to collect on personal guarantees, if any.  As a
result, the availability of funds for the repayment of commercial loans may
depend substantially on the success of the business itself, which may be subject
to adverse conditions in the economy.  Further, any collateral
securing such loans may depreciate over time, be difficult to appraise,
fluctuate in value and provide an insufficient source of repayment.




Consumer
Loans.  Consumer loans entail greater risk than residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
secured by rapidly depreciating assets such as automobiles. In such cases, any
repossessed collateral obtained from a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation.  The remaining
deficiency often does not warrant further collection efforts against the
borrower beyond obtaining a deficiency judgment.  In addition,
consumer loan repayments are dependent on the borrower’s continuing financial
stability, and thus are more likely to be adversely affected by loss of
employment, divorce, illness or personal bankruptcy.  Furthermore, the
application of various Federal and state laws, including Federal and state
bankruptcy and insolvency laws, may limit the amount that can be recovered on
such loans.





TABLE
1:  Loans Receivable





At September 30,2010
                                                                                    
                                                                                    
                                                                                    2009
                                                                                    
                                                                                    
                                                                                    2008
                                                                                    
                                                                                    
                                                                                    2007
                                                                                    
                                                                                    
                                                                                    2006Amount
                                                                                    
                                                                                    
                                                                                    Percent
                                                                                      of
      Total
                                                                                    
                                                                                    
                                                                                    Amount
                                                                                    
                                                                                    
                                                                                    Percent
                                                                                      of
      Total
                                                                                    
                                                                                    
                                                                                    Amount
                                                                                    
                                                                                    
                                                                                    Percent
                                                                                      of
      Total
                                                                                    
                                                                                    
                                                                                    Amount
                                                                                    
                                                                                    
                                                                                    Percent
                                                                                      of
      Total
                                                                                    
                                                                                    
                                                                                    Amount
                                                                                    
                                                                                    
                                                                                    Percent
                                                                                      of
      Total(Dollars
      in thousands)Real
      estate mortgage:Residential
      first mortgage
                                                                                    
                                                                                    $
                                                                                    243,649
                                                                                    
                                                                                    
                                                                                    
                                                                                    22.75
                                                                                    %
                                                                                    
                                                                                    $
                                                                                    248,799
                                                                                    
                                                                                    
                                                                                    
                                                                                    21.65
                                                                                    %
                                                                                    
                                                                                    $
                                                                                    248,886
                                                                                    
                                                                                    
                                                                                    
                                                                                    22.58
                                                                                    %
                                                                                    
                                                                                    $
                                                                                    226,467
                                                                                    
                                                                                    
                                                                                    
                                                                                    23.47
                                                                                    %
                                                                                    
                                                                                    $
                                                                                    226,454
                                                                                    
                                                                                    
                                                                                    
                                                                                    28.37
                                                                                    %Residential
      second mortgage and other junior liens
                                                                                    
                                                                                    
                                                                                    60,281
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.63
                                                                                    %
                                                                                    
                                                                                    
                                                                                    72,084
                                                                                    
                                                                                    
                                                                                    
                                                                                    6.27
                                                                                    %
                                                                                    
                                                                                    
                                                                                    90,595
                                                                                    
                                                                                    
                                                                                    
                                                                                    8.22
                                                                                    %
                                                                                    
                                                                                    
                                                                                    105,739
                                                                                    
                                                                                    
                                                                                    
                                                                                    10.95
                                                                                    %
                                                                                    
                                                                                    
                                                                                    88,292
                                                                                    
                                                                                    
                                                                                    
                                                                                    11.06
                                                                                    %Home
      equity lines of credit
                                                                                    
                                                                                    
                                                                                    201,922
                                                                                    
                                                                                    
                                                                                    
                                                                                    18.86
                                                                                    %
                                                                                    
                                                                                    
                                                                                    227,142
                                                                                    
                                                                                    
                                                                                    
                                                                                    19.77
                                                                                    %
                                                                                    
                                                                                    
                                                                                    225,357
                                                                                    
                                                                                    
                                                                                    
                                                                                    20.44
                                                                                    %
                                                                                    
                                                                                    
                                                                                    219,539
                                                                                    
                                                                                    
                                                                                    
                                                                                    22.73
                                                                                    %
                                                                                    
                                                                                    
                                                                                    207,153
                                                                                    
                                                                                    
                                                                                    
                                                                                    25.95
                                                                                    %Multi-family
      residential
                                                                                    
                                                                                    
                                                                                    43,736
                                                                                    
                                                                                    
                                                                                    
                                                                                    4.09
                                                                                    %
                                                                                    
                                                                                    
                                                                                    44,463
                                                                                    
                                                                                    
                                                                                    
                                                                                    3.87
                                                                                    %
                                                                                    
                                                                                    
                                                                                    32,546
                                                                                    
                                                                                    
                                                                                    
                                                                                    2.95
                                                                                    %
                                                                                    
                                                                                    
                                                                                    30,219
                                                                                    
                                                                                    
                                                                                    
                                                                                    3.13
                                                                                    %
                                                                                    
                                                                                    
                                                                                    13,629
                                                                                    
                                                                                    
                                                                                    
                                                                                    1.71
                                                                                    %Commercial
      real estate
                                                                                    
                                                                                    
                                                                                    256,224
                                                                                    
                                                                                    
                                                                                    
                                                                                    23.94
                                                                                    %
                                                                                    
                                                                                    
                                                                                    231,270
                                                                                    
                                                                                    
                                                                                    
                                                                                    20.13
                                                                                    %
                                                                                    
                                                                                    
                                                                                    183,577
                                                                                    
                                                                                    
                                                                                    
                                                                                    16.65
                                                                                    %
                                                                                    
                                                                                    
                                                                                    132,519
                                                                                    
                                                                                    
                                                                                    
                                                                                    13.72
                                                                                    %
                                                                                    
                                                                                    
                                                                                    104,523
                                                                                    
                                                                                    
                                                                                    
                                                                                    13.09
                                                                                    %Land
      acquisition and development
                                                                                    
                                                                                    
                                                                                    74,790
                                                                                    
                                                                                    
                                                                                    
                                                                                    6.99
                                                                                    %
                                                                                    
                                                                                    
                                                                                    80,259
                                                                                    
                                                                                    
                                                                                    
                                                                                    6.98
                                                                                    %
                                                                                    
                                                                                    
                                                                                    77,590
                                                                                    
                                                                                    
                                                                                    
                                                                                    7.04
                                                                                    %
                                                                                    
                                                                                    
                                                                                    67,687
                                                                                    
                                                                                    
                                                                                    
                                                                                    7.01
                                                                                    %
                                                                                    
                                                                                    
                                                                                    46,005
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.76
                                                                                    %Real
      estate construction
                                                                                    
                                                                                    
                                                                                    31,071
                                                                                    
                                                                                    
                                                                                    
                                                                                    2.90
                                                                                    %
                                                                                    
                                                                                    
                                                                                    85,958
                                                                                    
                                                                                    
                                                                                    
                                                                                    7.48
                                                                                    %
                                                                                    
                                                                                    
                                                                                    99,382
                                                                                    
                                                                                    
                                                                                    
                                                                                    9.01
                                                                                    %
                                                                                    
                                                                                    
                                                                                    98,921
                                                                                    
                                                                                    
                                                                                    
                                                                                    10.24
                                                                                    %
                                                                                    
                                                                                    
                                                                                    57,195
                                                                                    
                                                                                    
                                                                                    
                                                                                    7.16
                                                                                    %Commercial
      and industrial
                                                                                    
                                                                                    
                                                                                    155,294
                                                                                    
                                                                                    
                                                                                    
                                                                                    14.51
                                                                                    %
                                                                                    
                                                                                    
                                                                                    154,973
                                                                                    
                                                                                    
                                                                                    
                                                                                    13.49
                                                                                    %
                                                                                    
                                                                                    
                                                                                    137,688
                                                                                    
                                                                                    
                                                                                    
                                                                                    12.49
                                                                                    %
                                                                                    
                                                                                    
                                                                                    77,642
                                                                                    
                                                                                    
                                                                                    
                                                                                    8.04
                                                                                    %
                                                                                    
                                                                                    
                                                                                    48,785
                                                                                    
                                                                                    
                                                                                    
                                                                                    6.11
                                                                                    %Consumer
      and other:Automobile
                                                                                    
                                                                                    
                                                                                    845
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.08
                                                                                    %
                                                                                    
                                                                                    
                                                                                    1,513
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.13
                                                                                    %
                                                                                    
                                                                                    
                                                                                    2,334
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.21
                                                                                    %
                                                                                    
                                                                                    
                                                                                    2,647
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.27
                                                                                    %
                                                                                    
                                                                                    
                                                                                    2,123
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.27
                                                                                    %Other
                                                                                    
                                                                                    
                                                                                    2,668
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.25
                                                                                    %
                                                                                    
                                                                                    
                                                                                    2,657
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.23
                                                                                    %
                                                                                    
                                                                                    
                                                                                    4,562
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.41
                                                                                    %
                                                                                    
                                                                                    
                                                                                    4,271
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.44
                                                                                    %
                                                                                    
                                                                                    
                                                                                    4,154
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.52
                                                                                    %Total
      loans
                                                                                    
                                                                                    
                                                                                    1,070,480
                                                                                    
                                                                                    
                                                                                    
                                                                                    100.00
                                                                                    %
                                                                                    
                                                                                    
                                                                                    1,149,118
                                                                                    
                                                                                    
                                                                                    
                                                                                    100.00
                                                                                    %
                                                                                    
                                                                                    
                                                                                    1,102,517
                                                                                    
                                                                                    
                                                                                    
                                                                                    100.00
                                                                                    %
                                                                                    
                                                                                    
                                                                                    965,651
                                                                                    
                                                                                    
                                                                                    
                                                                                    100.00
                                                                                    %
                                                                                    
                                                                                    
                                                                                    798,313
                                                                                    
                                                                                    
                                                                                    
                                                                                    100.00
                                                                                    %Add
      (less):Unamortized
      loan origination costs, net of loan fees
                                                                                    
                                                                                    
                                                                                    3,884
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,369
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    5,205
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    5,163
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,879Loans
      in process
                                                                                    
                                                                                    
                                                                                    (1,115
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (813
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (6,223
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (10,567
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (10,176
                                                                                    )Allowance
      for loan losses
                                                                                    
                                                                                    
                                                                                    (26,976
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (20,579
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (12,762
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (10,421
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (7,817
                                                                                    )Total
      loans receivable, net
                                                                                    
                                                                                    $
                                                                                    1,046,273
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    $
                                                                                    1,132,095
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    $
                                                                                    1,088,737
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    $
                                                                                    949,826
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    $
                                                                                    785,199


8





TABLE
2:  Loan Maturities and Re-pricing (1)





At September 30, 2010Due Or
                    Re-pricing
                    Within One
                    Year
                  
                  
                  Due Or
                    Re-pricing
                    After One Year
                    Through Five
                    Years
                  
                  
                  Due Or
                    Re-pricing
                    Beyond Five
                    Years
                  
                  
                  Total(In thousands)Real
      estate mortgage:Residential
      first mortgage.
                  
                  $
                  110,414
                  
                  
                  $
                  90,497
                  
                  
                  $
                  42,738
                  
                  
                  $
                  243,649Residential
      second mortgage and other junior liens
                  
                  
                  7,224
                  
                  
                  
                  7,097
                  
                  
                  
                  45,960
                  
                  
                  
                  60,281Home
      equity lines of credit
                  
                  
                  201,555
                  
                  
                  
                  287
                  
                  
                  
                  80
                  
                  
                  
                  201,922Multi-family
      residential
                  
                  
                  17,604
                  
                  
                  
                  20,843
                  
                  
                  
                  5,289
                  
                  
                  
                  43,736Commercial
      real estate
                  
                  
                  157,536
                  
                  
                  
                  98,561
                  
                  
                  
                  127
                  
                  
                  
                  256,224Land
      acquisition and development
                  
                  
                  62,674
                  
                  
                  
                  11,797
                  
                  
                  
                  319
                  
                  
                  
                  74,790Real
      estate construction
                  
                  
                  29,180
                  
                  
                  
                  1,891
                  
                  
                  
                  -
                  
                  
                  
                  31,071Commercial
      and industrial
                  
                  
                  91,274
                  
                  
                  
                  23,284
                  
                  
                  
                  40,736
                  
                  
                  
                  155,294Consumer
      and other
                  
                  
                  2,367
                  
                  
                  
                  1,004
                  
                  
                  
                  142
                  
                  
                  
                  3,513Total
      loans
                  
                  $
                  679,828
                  
                  
                  $
                  255,261
                  
                  
                  $
                  135,391
                  
                  
                  $
                  1,070,480








(1)
              Demand
      loans, loans having no stated schedule of repayments and no stated
      maturity, and overdrafts are reported as due in one year or
      less.   Mortgage loans that have adjustable rates are shown
      as maturing at their next re-pricing
date.





TABLE
3:  Fixed and Adjustable Rate Loans





Loans due or re-pricing after
                    September 30, 2011Fixed
                    Rate
                  
                  
                  Adjustable
                    Rate(In thousands)Real
      estate mortgage:Residential
      first mortgage
                  
                  $
                  54,373
                  
                  
                  $
                  78,862Residential
      second mortgage and other junior liens
                  
                  
                  52,983
                  
                  
                  
                  74Home
      equity lines of credit
                  
                  
                  –
                  
                  
                  
                  367Multi-family
      residential
                  
                  
                  25,470
                  
                  
                  
                  662Commercial
      real estate
                  
                  
                  96,608
                  
                  
                  
                  2,080Land
      acquisition and development
                  
                  
                  11,710
                  
                  
                  
                  406Real
      estate construction
                  
                  
                  1,891
                  
                  
                  
                  –Commercial
      and industrial
                  
                  
                  64,020
                  
                  
                  
                  –Consumer
      and other
                  
                  
                  1,146
                  
                  
                  
                  –Total
                  
                  $
                  308,201
                  
                  
                  $
                  82,451





Scheduled
contractual principal repayments of loans generally do not reflect the actual
life of such assets.  The average life of loans is substantially less
than their contractual terms because of principal prepayments.  In
addition, due-on-sale clauses on loans generally give us the right to declare
loans immediately due and payable if, among other things, the borrower sells the
property subject to the mortgage and the loan is not repaid.  The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decreases when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.


9





Loan Originations, Sales and
Purchases.We generally sell the fixed-rate residential first
mortgage loans that we originate, which helps us minimize our interest rate risk
position.  The sale of such loans in the secondary mortgage market
reduces our risk that the interest rates paid on short-term deposits (maturities
generally less than three years) will increase while we hold long-term,
fixed-rate loans in our portfolio.  It also allows us to continue to
fund loans when deposit flows decline or funds are not otherwise
available.  Residential mortgage loans are generally sold with
servicing released.  Gains, net of direct origination expense, from
the sale of such loans are recorded at the time of sale.  Generally a
loan is committed to be sold and a price for the loan is determined at the same
time the interest rate on the loan is locked with the customer, which may be at
the time the applicant applies for the loan or any time up to the date of
closing.  This eliminates the risk to us that a rise in market
interest rates will reduce the value of a mortgage before it can be
sold.





Additionally,
we generally negotiate a best-efforts delivery to the investor, which minimizes
any exposure from loans that do not close.  Our issuance of
interest-rate commitments is considered a derivative instrument and changes in
its market value are reported in our consolidated balance sheet and statement of
income and comprehensive income.





TABLE
4:  Loan Activity





Years Ended September 30,2010
                  
                  
                  2009
                  
                  
                  2008(In thousands)Total
      gross loans, including loans held for sale, at beginning of
      period
                  
                  $
                  1,266,129
                  
                  
                  $
                  1,173,657
                  
                  
                  $
                  1,024,584Loans
      originated:Residential
      real estate - held to maturity
                  
                  
                  40,088
                  
                  
                  
                  66,217
                  
                  
                  
                  125,202Residential
      real estate - held for sale
                  
                  
                  1,860,597
                  
                  
                  
                  2,061,095
                  
                  
                  
                  1,329,161Multi-family
      real estate
                  
                  
                  2,497
                  
                  
                  
                  7,394
                  
                  
                  
                  8,278Commercial
      real estate
                  
                  
                  60,588
                  
                  
                  
                  65,748
                  
                  
                  
                  88,037Land
      acquisition and development
                  
                  
                  14,773
                  
                  
                  
                  16,786
                  
                  
                  
                  22,944Real
      estate construction and development
                  
                  
                  20,678
                  
                  
                  
                  53,190
                  
                  
                  
                  66,825Commercial
      and industrial
                  
                  
                  238,734
                  
                  
                  
                  297,273
                  
                  
                  
                  302,280Consumer
      and other
                  
                  
                  1,486
                  
                  
                  
                  1,565
                  
                  
                  
                  3,057Total
      loans originated
                  
                  
                  2,239,441
                  
                  
                  
                  2,569,268
                  
                  
                  
                  1,945,784Net
      (decrease)/increase in home equity lines of credit..
                  
                  
                  (25,219
                  )
                  
                  
                  1,785
                  
                  
                  
                  5,818Loans
      purchased:Residential
      real estate
                  
                  
                  1,387
                  
                  
                  
                  546
                  
                  
                  
                  1,475Commercial
      real estate
                  
                  
                  8,357
                  
                  
                  
                  15,502
                  
                  
                  
                  27,627Loans
      soldResidential
      real estate
                  
                  
                  (1,665,041
                  )
                  
                  
                  (2,004,736
                  )
                  
                  
                  (1,327,263
                  )Commercial
      real estate
                  
                  
                  (13,031
                  )
                  
                  
                  (22,787
                  )
                  
                  
                  -Loans
      principal repayments, charge offs, and foreclosures
                  
                  
                  (452,305
                  )
                  
                  
                  (467,106
                  )
                  
                  
                  (504,368
                  )Net
      loan activity
                  
                  
                  93,589
                  
                  
                  
                  92,472
                  
                  
                  
                  149,073Total
      gross loans, including loans held for sale, at end of
    period
                  
                  $
                  1,359,718
                  
                  
                  $
                  1,266,129
                  
                  
                  $
                  1,173,657


10


Non-performing
Assets and Delinquencies





The following is a summary of
non-performing assets at the dates indicated.





TABLE
5:  Non-performing Assets





At September 30,2010
                
                
                2009
                
                
                2008
                
                
                2007
                
                
                2006(In
      thousands)Loans
      accounted for on a non-accrual basis:Residential
      real estate first mortgage
                
                $
                6,727
                
                
                $
                7,093
                
                
                $
                5,904
                
                
                $
                1,780
                
                
                $
                736Residential
      real estate second mortgage
                
                
                1,522
                
                
                
                629
                
                
                
                752
                
                
                
                302
                
                
                
                58Home
      equity lines of credit
                
                
                2,206
                
                
                
                3,086
                
                
                
                1,695
                
                
                
                554
                
                
                
                119Commercial
      and multi-family real estate
                
                
                5,539
                
                
                
                2,595
                
                
                
                924
                
                
                
                3,492
                
                
                
                -Land
      acquisition and development
                
                
                8,796
                
                
                
                2,193
                
                
                
                201
                
                
                
                216
                
                
                
                -Real
      estate-construction and development.
                
                
                1,189
                
                
                
                7,455
                
                
                
                133
                
                
                
                -
                
                
                
                -Commercial
      and industrial
                
                
                417
                
                
                
                703
                
                
                
                341
                
                
                
                -
                
                
                
                -Consumer
      and other
                
                
                100
                
                
                
                220
                
                
                
                160
                
                
                
                105
                
                
                
                27Total
                
                
                26,496
                
                
                
                23,974
                
                
                
                10,110
                
                
                
                6,449
                
                
                
                940Accruing
      loans which are contractually past due 90 days or more:Residential
      real estate first mortgage.
                
                
                -
                
                
                
                1
                
                
                
                2,543
                
                
                
                2,212
                
                
                
                3,614Residential
      real estate second mortgage
                
                
                -
                
                
                
                27
                
                
                
                -
                
                
                
                352
                
                
                
                370Home
      equity lines of credit
                
                
                -
                
                
                
                43
                
                
                
                1,468
                
                
                
                1,064
                
                
                
                1,456Commercial
      and multi-family real estate
                
                
                -
                
                
                
                -
                
                
                
                169
                
                
                
                -
                
                
                
                62Land
      acquisition and development
                
                
                -
                
                
                
                316
                
                
                
                62
                
                
                
                44
                
                
                
                63Real
      estate-construction and development
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Consumer
      and other
                
                
                -
                
                
                
                -
                
                
                
                7
                
                
                
                150
                
                
                
                21Total
                
                
                -
                
                
                
                387
                
                
                
                4,249
                
                
                
                3,822
                
                
                
                5,586Troubled
      debt restructurings: (1)Current
      under restructured terms:Residential
      real estate first mortgage
                
                
                16,093
                
                
                
                17,785
                
                
                
                3,801
                
                
                
                209
                
                
                
                220Residential
      real estate second mortgage
                
                
                2,186
                
                
                
                2,062
                
                
                
                659
                
                
                
                -
                
                
                
                -Home
      equity lines of credit
                
                
                1,050
                
                
                
                1,695
                
                
                
                -
                
                
                
                -
                
                
                
                -Land
      acquisition and development
                
                
                184
                
                
                
                107
                
                
                
                -
                
                
                
                -
                
                
                
                -Commercial
      and multi-family real estate
                
                
                426
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Real
      estate-construction and development
                
                
                3,306
                
                
                
                100
                
                
                
                -
                
                
                
                -
                
                
                
                -Commercial
      and industrial
                
                
                1,355
                
                
                
                787
                
                
                
                537
                
                
                
                -
                
                
                
                -Consumer
      and other
                
                
                83
                
                
                
                93
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                
                24,683
                
                
                
                22,629
                
                
                
                4,997
                
                
                
                209
                
                
                
                220Past
      due under restructured terms:Residential
      real estate first mortgage
                
                
                7,251
                
                
                
                2,788
                
                
                
                1,184
                
                
                
                -
                
                
                
                -Residential
      real estate second mortgage
                
                
                339
                
                
                
                746
                
                
                
                11
                
                
                
                -
                
                
                
                -Home
      equity lines of credit
                
                
                728
                
                
                
                150
                
                
                
                112
                
                
                
                -
                
                
                
                -Commercial
      and multi-family real estate
                
                
                -
                
                
                
                7,831
                
                
                
                -
                
                
                
                -
                
                
                
                -Land
      acquisition and development
                
                
                65
                
                
                
                57
                
                
                
                -
                
                
                
                -
                
                
                
                -Commercial
      and industrial
                
                
                -
                
                
                
                777
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                
                8,383
                
                
                
                12,349
                
                
                
                1,307
                
                
                
                -
                
                
                
                -Total
      restructured loans
                
                
                33,066
                
                
                
                34,978
                
                
                
                6,304
                
                
                
                209
                
                
                
                220Total
      non-performing loans (1)
                
                
                59,562
                
                
                
                59,339
                
                
                
                20,663
                
                
                
                10,480
                
                
                
                6,746Real
      estate owned (net)
                
                
                14,900
                
                
                
                8,454
                
                
                
                3,519
                
                
                
                3,090
                
                
                
                2,764Other
      non-performing assets
                
                
                -
                
                
                
                -
                
                
                
                237
                
                
                
                43
                
                
                
                43Total
      non-performing assets
                
                $
                74,462
                
                
                $
                67,793
                
                
                $
                24,419
                
                
                $
                13,613
                
                
                $
                9,553(1)
      Non-accrual loans included in troubled debt restructurings
                
                $
                32.927
                
                
                $
                27.657
                
                
                $
                241
                
                
                $
                -
                
                
                $
                -


11





TABLE
5:  Non-performing Assets, Continued





At
      September 30,2010
                              
                              
                              2009
                              
                              
                              2008
                              
                              
                              2007
                              
                              
                              2006Total
      non-performing loans as a percentage of net loans
    receivable
                              
                              
                              5.56
                              %
                              
                              
                              5.16
                              %
                              
                              
                              1.88
                              %
                              
                              
                              1.09
                              %
                              
                              
                              0.85
                              %Total
      non-performing loans as a percentage of total assets
                              
                              
                              4.10
                              %
                              
                              
                              4.22
                              %
                              
                              
                              1.58
                              %
                              
                              
                              0.93
                              %
                              
                              
                              0.70
                              %Total
      non-performing assets as a percentage of total assets
                              
                              
                              5.13
                              %
                              
                              
                              4.82
                              %
                              
                              
                              1.87
                              %
                              
                              
                              1.20
                              %
                              
                              
                              0.99
                              %Non-performing
      loans excluding current troubled debt restructurings as a percentage of
      total loans
                              
                              
                              3.26
                              %
                              
                              
                              3.19
                              %
                              
                              
                              1.42
                              %
                              
                              
                              1.07
                              %
                              
                              
                              0.82
                              %Non-performing
      assets excluding current troubled debt restructurings as a percentage of
      total assets
                              
                              
                              3.43
                              %
                              
                              
                              3.21
                              %
                              
                              
                              1.49
                              %
                              
                              
                              1.18
                              %
                              
                              
                              0.97
                              %Allowance
      for loan losses as a percent of non-performing loans
                              
                              
                              45.29
                              %
                              
                              
                              34.68
                              %
                              
                              
                              61.76
                              %
                              
                              
                              99.44
                              %
                              
                              
                              115.89
                              %Allowance
      for loan losses as a percent of non-performing loans excluding current
      troubled debt restructurings and related allowances for loan
      losses
                              
                              
                              75.47
                              %
                              
                              
                              55.94
                              %
                              
                              
                              81.24
                              %
                              
                              
                              101.47
                              %
                              
                              
                              119.79
                              %





(1)
            Includes
      $615,000, $201,000, $221,000, $696,000, and $667,000 of FHA/VA loans at
      September 30, 2010, 2009, 2008, 2007 and 2006, respectively, the principal
      and interest payments on which are fully
  insured.





Interest income recognized on
non-accrual loans was approximately $2.6 million, $2.3 million and $369,000 for
the years ended September 30, 2010, 2009 and 2008, respectively.  The
gross interest income that would have been recorded in such periods if the loans
had been current in accordance with their terms and had been outstanding
throughout the periods was $3.5 million, $3.4 million and $814,000 for the years
ended September 30, 2010, 2009 and 2008, respectively.Impaired loans continuing
to accrue interest are loans that are more than 90 days past due; however, the
loans are well secured and remain in process of collection.





Real Estate
Acquired in Settlement of Loans.  Real estate acquired as a
result of foreclosure or by deed-in-lieu of foreclosure is initially recorded at
the lower of its cost, which is the unpaid principal balance of the related loan
plus foreclosure costs, or fair value less estimated selling
costs.  Fair value is generally determined through a new appraisal or
market analysis.  Any write down to fair value at the time the
property is acquired is recorded as a charge-off to the allowance for loan
losses.  Any decline in the fair value of the property subsequent to
acquisition is recorded as a charge to non-interest expense.  The
balance of real estate acquired in settlement of loans increased $6.4 million
from $8.5 million at September 30, 2009 to $14.9 million at September 30,
2010.  The balance at September 30, 2010 consists of thirty-two
residential properties, one residential construction property and eight
commercial properties acquired in settlement of debts outstanding.





Credit Monitoring
and Asset Classification.  The Bank’s Risk Management Committee
has the overall responsibility for the proper identification and classification
of troubled assets, the continued monitoring of such assets, the establishment
of the appropriate level of loss reserves, the charge-off of uncollectible loans
and the implementation of action plans for significant classified or watch list
loans.  The committee consists of the President of the Bank, the
President of the commercial lending division, the President of the mortgage
lending division, the Chief Financial Officer, the manager of mortgage loan
servicing, the manager of commercial loan servicing and various other loan
collection personnel.  The Director of Internal Audit also attends the
meetings as an independent observer.





The
committee generally meets twice quarterly or more frequently if circumstances
dictate, and reviews all problem and potential problem assets, consisting
primarily of loans receivable.  The status of significant classified
and watch list loans, including workout plans, and emerging trends are discussed
in detail.  Following the meetings, the list of classified assets is
updated, the appropriate level of loss reserves is recorded (quarterly),
significant loan charge-offs are recorded and classified asset action plans are
updated.  Troubled assets are subject to continuous monitoring between
meetings.  In addition to oversight by the committee, the board of
directors reviews delinquent loans, classified assets and watch list loans, the
level of the allowance for loan losses, portfolio mix and the status of workout
efforts for large commercial credits at its regular monthly
meetings.  Management’s loan reviews and classifications are subject
to independent quarterly reviews by a regional accounting firm specializing in
asset reviews.


12





Residential Real Estate
Loans.  The Bank has a staff of full-time collectors who are
responsible for following up on all past due residential
loans.  Residential borrowers are contacted almost immediately after a
loan payment becomes past due.  The first notice is mailed to the
borrower eight days after the payment due date.  Attempts to contact
the borrower by telephone generally begin approximately 17 days after the
payment due date.  On the 30th day after the due date, a 30-day past
due letter is sent.  If a satisfactory response is not obtained,
continuous follow-up contacts are attempted until the loan has been brought
current. On the 45th day after the due date, a 45-day past due notice is
sent.  Before the 60th day of delinquency, attempts to interview the
borrower, preferably in person, are made to establish:  (1) the cause
of the delinquency; (2) whether the cause is temporary; (3) the attitude of the
borrower toward the debt; and (4) a mutually satisfactory arrangement for curing
the default.  Also, in the case of second mortgage loans, after the
60th day of delinquency: (1) the status and unpaid principal balance of each
superior lien is determined; (2) whether any mortgage constituting a superior
lien has been sold to any investor; and (3) whether the borrower is also
delinquent under a superior lien and what the affected lien holder intends to do
to resolve the delinquency.





If the
borrower cannot be reached and does not respond to collection efforts, a
personal collection visit or property inspection is made and a photograph of the
exterior of the property is taken.  The physical condition and
occupancy status of the property is determined before recommending further
action.  Such inspection normally takes place on or about the 45th day
of delinquency.  At 45 days into the delinquency procedure, the Bank
notifies the borrower that home ownership counseling is available for eligible
homeowners.  If by the 91st day of delinquency, or sooner if the
borrower is chronically delinquent and all reasonable means of obtaining payment
on time have been exhausted, foreclosure, according to the terms of the security
instrument and applicable law, is initiated.





All
residential loans that are past due 60 days or more are reviewed during weekly
meetings between management and the collectors.  These meetings allow
management to understand the collectors’ perspective and opinions about the
credits, review collection methods and make suggestions for alternative
solutions to problems inherent with certain past-due
customers.  Individual action plans are often formulated during these
meetings, such as foreclosures, charge-offs, troubled debt restructurings, skip
tracing, litigation, or forbearance plans.  These meetings are
critical to the identification of troubled loans and allow management to take
proactive steps to either resolve a problem or prepare for further
action.





Management
has proactively modified loan repayment terms with borrowers who were
experiencing financial difficulties in the current economic climate with the
belief that these actions would maximize the Company’s recoveries on these
loans.  These modifications are generally targeted at residential
mortgage loan customers.  Substantially all of the Company’s
residential borrowers live in the St. Louis and Kansas City communities that the
Company serves, which has enabled management to work closely with these troubled
borrowers.  The restructured terms of the loans generally include 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.





Identification
of restructuring candidates is a combined effort of the collection staff,
management, and loan origination personnel.  Restructuring candidates
are referred to the restructuring staff and counseled on available
options.  Each applicant is required to submit a loan application,
provide proof of income, and a hardship letter describing their deteriorating
financial condition.  Once completed, the loan is evaluated on its own
merit, including a new appraisal and, if appropriate, a workout plan is drafted
and a modification to the note and deed, if necessary, is
executed.  The restructured terms are entered onto the Bank’s loan
system and the loan is flagged for future reporting and
tracking.  Occasionally, restructuring applicants are
denied.  These denials stem from borrowers who do not have enough
income to sustain payments under the modified terms or have not adequately
demonstrated their intent to repay.





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.  This
usually includes a modification of loan terms (such as a reduction of the rate
to below market terms, adding past-due interest to the loan balance or extending
the maturity date) and possibly a partial forgiveness of debt. A loan classified
as a troubled debt restructuring will generally retain such classification until
the loan is paid in full. However, a restructured one-to-four-family residential
mortgage loan that yields a market rate and demonstrates the ability to pay
under the terms of the restructured note through a sustained period of repayment
performance, which is generally one year, is removed from the troubled debt
restructuring classification. Interest income on restructured loans is accrued
at the reduced rate and the loan is returned to performing status once the
borrower demonstrates the ability to pay under the terms of the restructured
note through a sustained period of repayment performance, which is generally six
months.  A report is prepared each month to track the portfolio of
restructured loans.


13





Commercial
Loans.  Unlike residential loan monitoring, which is largely
based on the past due status of the loan, effective monitoring of a commercial
portfolio must be much more proactive.  Early identification of
problem assets is essential to managing and controlling
risk.  Troubled assets are closely tracked by senior management and
are formally reviewed monthly by the Risk Management
Committee.  Senior management has recognized that the originating loan
officers usually have the closest relationship with the Bank’s borrowers and are
generally in the best position to identify potential problems in a timely
manner.  Therefore, in addition to their traditional business
development responsibilities, senior management has refocused the Bank’s
commercial loan officers to remain in close contact with existing borrowers so
they can better monitor their financial health on an on-going
basis.  When a borrower’s problems are identified early, the Bank
often has the opportunity to be “first in line” to secure additional collateral
before the borrower’s financial condition deteriorates into a severe
condition.





Each
commercial loan officer meets quarterly (or more frequently if required by
specific circumstances) with the President of the Bank, the President of the
commercial lending division and the senior loan underwriter to review their
entire portfolio.  The meetings address the status of all identified
problem or classified credits and any other credits that might potentially
become a problem if conditions do not improve.  This procedure has
been an effective tool in keeping senior management abreast of changes within
the Bank’s commercial loan portfolio and has identified loans that warrant
additional monitoring by placement on the Bank’s watch list.





The Bank
also utilizes various sources of real estate market data, including quarterly
analyses of subdivision and residential building lot inventories in the St.
Louis region, to monitor potential problems within the loan
portfolio.





Consumer
Loans.  When a consumer loan borrower fails to make a required
payment, the Bank institutes collection procedures.  The first notice
is mailed to the borrower eight days following the payment due
date.  The Bank receives a computer-generated collection report
daily.  The customer is contacted by telephone to ascertain the nature
of the delinquency.  If by the 45th day
following the payment due date, no progress has been made, a written notice is
mailed informing the borrowers of their right to cure the delinquency within 20
days and of the Bank’s intent to begin legal action if the delinquency is not
corrected.  Depending on the type of property held as collateral, the
Bank either obtains a judgment in small claims court or takes action to
repossess the collateral or may collect under the existing note, whatever is
most economically efficient.





Non-Accrued
Interest.  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.  Non-accrual loans are returned to accrual
status when, in the opinion of management, the financial position of the
borrower indicates there is no longer any reasonable doubt as to the timely
collectability of interest or principal.





Classification of Troubled
Assets.The Bank has adopted the Uniform Credit Classification
Policy issued by the Federal Financial Institutions Examination Council, which
was subsequently adopted by the Office of Thrift Supervision (“OTS”), the Bank’s
primary regulator.  The regulations require that each insured
institution regularly review and classify its assets based on asset
quality.  In addition, OTS examiners have authority to identify
problem assets in connection with examinations of insured institutions and, if
appropriate, require them to be classified.  There are three
classifications for problem assets:  substandard, doubtful and
loss.  Substandard assets must have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, questionable resulting in a high
possibility of loss.  An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the
institution without establishment of a specific reserve is not
warranted.  If an asset or portion thereof is classified as loss, the
insured institution generally charges off the loan.  A portion of
general loan loss allowances established to cover probable losses related to
classified assets may be included in determining an institution’s regulatory
capital, while specific valuation allowances for loan losses generally do not
qualify as regulatory capital.  OTS regulations also require that
assets that do not currently expose an institution to a sufficient degree of
risk to warrant classification as substandard, doubtful or loss but do possess
credit deficiencies or potential weakness deserving management’s close attention
shall be designated “special mention” by either the institution or its
examiners.


14





TABLE
6:  Classified Loans





At
      September 30, 2010Loss
                
                
                Doubtful
                
                
                Substandard
                
                
                Special
      MentionNumber
                
                
                Amount
                
                
                Number
                
                
                Amount
                
                
                Number
                
                
                Amount
                
                
                Number
                
                
                Amount(Dollars
      in thousands)Residential
      real estate first mortgage
                
                
                -
                
                
                $
                -
                
                
                
                3
                
                
                $
                281
                
                
                
                242
                
                
                $
                34,013
                
                
                
                -
                
                
                $
                -Residential
      real estate second mortgage and other junior liens
                
                
                -
                
                
                
                -
                
                
                
                5
                
                
                
                231
                
                
                
                105
                
                
                
                4,954
                
                
                
                -
                
                
                
                -Home
      equity lines of credit.
                
                
                -
                
                
                
                -
                
                
                
                8
                
                
                
                280
                
                
                
                159
                
                
                
                7,736
                
                
                
                -
                
                
                
                -Commercial
      and multi-family real estate
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                32
                
                
                
                24,084
                
                
                
                7
                
                
                
                8,601Land
      acquisition and development
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4
                
                
                
                9,190
                
                
                
                1
                
                
                
                6,281Real
      estate construction and development
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1
                
                
                
                3,306
                
                
                
                -
                
                
                
                -Commercial
      and industrial
                
                
                -
                
                
                
                -
                
                
                
                2
                
                
                
                1,279
                
                
                
                41
                
                
                
                12,162
                
                
                
                7
                
                
                
                6,410Consumer
      and other
                
                
                1
                
                
                
                2
                
                
                
                1
                
                
                
                2
                
                
                
                22
                
                
                
                361
                
                
                
                -
                
                
                
                -Total
      classified loans
                
                
                1
                
                
                
                2
                
                
                
                19
                
                
                
                2,073
                
                
                
                606
                
                
                
                95,806
                
                
                
                15
                
                
                
                21,292Less
      specific allowance for loan losses
                
                
                -
                
                
                
                (2
                )
                
                
                -
                
                
                
                (914
                )
                
                
                -
                
                
                
                (7,459
                )
                
                
                -
                
                
                
                -Total
      classified loans, net of specific allowance
                
                
                1
                
                
                $
                -
                
                
                
                19
                
                
                $
                1,159
                
                
                
                606
                
                
                $
                88,347
                
                
                
                15
                
                
                $
                21,292





At
      September 30, 2009Loss
                  
                  
                  Doubtful
                  
                  
                  Substandard
                  
                  
                  Special
      MentionNumber
                  
                  
                  Amount
                  
                  
                  Number
                  
                  
                  Amount
                  
                  
                  Number
                  
                  
                  Amount
                  
                  
                  Number
                  
                  
                  Amount(Dollars
      in thousands)Residential
      real estate first mortgage
                  
                  
                  1
                  
                  
                  $
                  95
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  246
                  
                  
                  $
                  32,012
                  
                  
                  
                  -
                  
                  
                  $
                  -Residential
      real estate second mortgage and other junior liens
                  
                  
                  4
                  
                  
                  
                  89
                  
                  
                  
                  2
                  
                  
                  
                  88
                  
                  
                  
                  102
                  
                  
                  
                  3,790
                  
                  
                  
                  -
                  
                  
                  
                  -Home
      equity lines of credit.
                  
                  
                  8
                  
                  
                  
                  185
                  
                  
                  
                  2
                  
                  
                  
                  110
                  
                  
                  
                  128
                  
                  
                  
                  6,380
                  
                  
                  
                  1
                  
                  
                  
                  194Commercial
      and multi-family real estate
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  7,831
                  
                  
                  
                  23
                  
                  
                  
                  17,776
                  
                  
                  
                  1
                  
                  
                  
                  95Land
      acquisition and development
                  
                  
                  1
                  
                  
                  
                  119
                  
                  
                  
                  2
                  
                  
                  
                  1,679
                  
                  
                  
                  16
                  
                  
                  
                  5,283
                  
                  
                  
                  1
                  
                  
                  
                  192Real
      estate construction and development
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  18
                  
                  
                  
                  9,506
                  
                  
                  
                  -
                  
                  
                  
                  -Commercial
      and industrial
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7
                  
                  
                  
                  2,728
                  
                  
                  
                  33
                  
                  
                  
                  16,215
                  
                  
                  
                  1
                  
                  
                  
                  750Consumer
      and other
                  
                  
                  2
                  
                  
                  
                  49
                  
                  
                  
                  4
                  
                  
                  
                  32
                  
                  
                  
                  20
                  
                  
                  
                  410
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      classified loans
                  
                  
                  16
                  
                  
                  
                  537
                  
                  
                  
                  18
                  
                  
                  
                  12,468
                  
                  
                  
                  586
                  
                  
                  
                  91,372
                  
                  
                  
                  4
                  
                  
                  
                  1,231Less
      specific allowance for loan losses
                  
                  
                  -
                  
                  
                  
                  (520
                  )
                  
                  
                  -
                  
                  
                  
                  (3,131
                  )
                  
                  
                  -
                  
                  
                  
                  (391
                  )
                  
                  
                  -
                  
                  
                  
                  -Total
      classified loans, net of specific allowance
                  
                  
                  16
                  
                  
                  $
                  17
                  
                  
                  
                  18
                  
                  
                  $
                  9,337
                  
                  
                  
                  586
                  
                  
                  $
                  90,981
                  
                  
                  
                  4
                  
                  
                  $
                  1,231


15





Other
than as disclosed in the table above, there are no other loans at September 30,
2010 that management has serious doubts about the ability of the borrowers to
comply with the present loan repayment terms.





Allowance for
Loan Losses.  In originating loans, the Company recognizes that
losses will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over
the term of the loan, general economic conditions and, in the case of a secured
loan, the quality of the security for the loan.  All loan charge-offs
are charged to the allowance for loan losses and all recoveries are credited to
the allowance.  The allowance for loan losses is established through a
provision for loan losses charged to the Company’s income.  The
allowance for loan losses is based on management’s periodic evaluation of the
Company’s past loan loss experience, known and inherent risks in the portfolio,
the size and composition of the loan portfolio, adverse situations which may
affect the borrower’s ability to repay, the estimated value of any underlying
collateral and current economic conditions. The Company periodically recognizes
losses on loans, which have active collection efforts through the use of
specific valuation allowances in order to reduce loan balances to the estimated
value of the collateral.





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





We
consider 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.  Loans considered for individual impairment analysis include
loans that are past due, loans that have been placed on nonaccrual status, loans
that have been restructured in troubled debt restructurings or loans that
management has knowledge of or concerns about the borrower’s inability to pay
under the contractual terms of the note.  Residential loans to be
evaluated for impairment are generally identified through a review of loan
delinquency reports and discussions with the Bank’s loan
collectors.  Commercial loans evaluated for impairment are generally
identified through a review of loan delinquency reports, discussions with loan
officers, discussions with borrowers, periodic individual loan reviews and local
media reports indicating problems with a particular project or
borrower.  Commercial loans are individually reviewed and assigned a
credit risk rating periodically by the internal loan committee.





When a
loan is identified as impaired, the amount of impairment is measured based on
the present value of expected future cash flows, discounted at the loan’s
effective interest rate, except when the sole remaining source of repayment for
the loan is the operation or liquidation of the collateral.  In these
cases, observable market prices or the current fair value of the collateral,
less selling costs when foreclosure is probable, are used instead of discounted
cash flows.  If the value of the impaired loan is determined to be
less than the recorded investment in the loan (net of previous charge-offs,
deferred loan fees or costs and unamortized premium or discount), an impairment
charge is recognized through a provision for loan losses.





All loans
that are not evaluated individually for impairment and any individually
evaluated loans determined not to be impaired are segmented into groups based on
similar risk characteristics or internally assigned credit risk
ratings.  Our methodology includes factors that allow us to adjust our
estimates of losses based on the most recent information
available.  Historical loss rates for each risk group are used as the
starting point to determine allowance provisions.  These rates are
then adjusted to reflect actual changes and anticipated changes in national and
local economic conditions and developments, assessment of collateral values
based on independent appraisals, changes in lending policies and procedures,
including underwriting standards and collections, charge-off and recovery
practices, and changes in the experience, ability, and depth of lending
management staff.





We have
traditionally relied on our five-year average charge-off history as the starting
point for this estimate.  However, consistent with the decline in
local and national credit market conditions, our charge-off levels increased
significantly during fiscal 2009 and 2010 when compared to the trailing
five-year period making the five-year trailing average a less reliable indicator
of probable losses existing in the portfolio at September 30,
2010.  Therefore, we relied most heavily on the actual charge-off
experience for the year ended September 30, 2010 as our starting point, coupled
with our expectations of the trends in these rates over the next twelve months
when arriving at the level of allowance for loan losses at September 30,
2010.  Any material increase in non-performing loans will adversely
affect our financial condition and results of operations.


16





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 we believe we have established our
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 significantly
its allowance for loan losses.  In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
a substantial increase will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above.  Any material
increase in the allowance for loan losses will adversely affect our financial
condition and results of operations.





TABLE
7:  Allowance for Loan Losses





Year Ended September 30,2010
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006(Dollars
      in thousands)Allowance
      at beginning of period
                        
                        $
                        20,579
                        
                        
                        $
                        12,762
                        
                        
                        $
                        10,421
                        
                        
                        $
                        7,817
                        
                        
                        $
                        6,806Allowance
      of acquired institution
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        282Provision
      charged to expense
                        
                        
                        26,064
                        
                        
                        
                        23,030
                        
                        
                        
                        7,735
                        
                        
                        
                        3,855
                        
                        
                        
                        1,501Charge-offs:Residential
      real estate first mortgage
                        
                        
                        3,774
                        
                        
                        
                        3,809
                        
                        
                        
                        940
                        
                        
                        
                        193
                        
                        
                        
                        409Residential
      real estate second mortgage
                        
                        
                        2,099
                        
                        
                        
                        1,434
                        
                        
                        
                        1,600
                        
                        
                        
                        521
                        
                        
                        
                        88Home
      equity lines of credit
                        
                        
                        4,165
                        
                        
                        
                        2,724
                        
                        
                        
                        1,674
                        
                        
                        
                        296
                        
                        
                        
                        88Commercial
      and multi-family real estate
                        
                        
                        4,323
                        
                        
                        
                        69
                        
                        
                        
                        374
                        
                        
                        
                        -
                        
                        
                        
                        -Land
      acquisition and development
                        
                        
                        1,145
                        
                        
                        
                        4,231
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Real
      estate construction and development
                        
                        
                        2,254
                        
                        
                        
                        2,425
                        
                        
                        
                        455
                        
                        
                        
                        119
                        
                        
                        
                        -Commercial
      and industrial
                        
                        
                        2,540
                        
                        
                        
                        533
                        
                        
                        
                        355
                        
                        
                        
                        -
                        
                        
                        
                        7Consumer
      and other
                        
                        
                        174
                        
                        
                        
                        159
                        
                        
                        
                        233
                        
                        
                        
                        164
                        
                        
                        
                        190Total
      charge-offs
                        
                        
                        20,474
                        
                        
                        
                        15,384
                        
                        
                        
                        5,631
                        
                        
                        
                        1,293
                        
                        
                        
                        782RecoveriesResidential
      real estate first mortgage
                        
                        
                        384
                        
                        
                        
                        47
                        
                        
                        
                        2
                        
                        
                        
                        -
                        
                        
                        
                        3Residential
      real estate second mortgage
                        
                        
                        76
                        
                        
                        
                        3
                        
                        
                        
                        1
                        
                        
                        
                        -
                        
                        
                        
                        -Home
      equity lines of credit
                        
                        
                        23
                        
                        
                        
                        70
                        
                        
                        
                        224
                        
                        
                        
                        17
                        
                        
                        
                        3Commercial
      and multi-family real estate
                        
                        
                        88
                        
                        
                        
                        32
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Real
      estate construction and development
                        
                        
                        5
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Commercial
      and industrial
                        
                        
                        223
                        
                        
                        
                        3
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Consumer
      and other
                        
                        
                        8
                        
                        
                        
                        16
                        
                        
                        
                        10
                        
                        
                        
                        25
                        
                        
                        
                        4Total
      recoveries
                        
                        
                        807
                        
                        
                        
                        171
                        
                        
                        
                        237
                        
                        
                        
                        42
                        
                        
                        
                        10Net
      charge-offs
                        
                        
                        19,667
                        
                        
                        
                        15,213
                        
                        
                        
                        5,394
                        
                        
                        
                        1,251
                        
                        
                        
                        772Allowance
      at end of period
                        
                        $
                        26,976
                        
                        
                        $
                        20,579
                        
                        
                        $
                        12,762
                        
                        
                        $
                        10,421
                        
                        
                        $
                        7,817Ratio
      of allowance to total loans outstanding    at the end
      of the period
                        
                        
                        2.52
                        %
                        
                        
                        1.79
                        %
                        
                        
                        1.16
                        %
                        
                        
                        1.09
                        %
                        
                        
                        0.99
                        %Ratio
      of net charge-offs to average loans outstanding during the
      period
                        
                        
                        1.76
                        %
                        
                        
                        1.31
                        %
                        
                        
                        0.52
                        %
                        
                        
                        0.14
                        %
                        
                        
                        0.10
                        %Allowance
      for loan losses to non-performing loans
                        
                        
                        45.29
                        %
                        
                        
                        34.68
                        %
                        
                        
                        61.76
                        %
                        
                        
                        99.44
                        %
                        
                        
                        115.89
                        %


17


TABLE
8:  Allocation of Allowance for Loan Losses





At September 30,2010
                
                
                2009
                
                
                2008
                
                
                2007
                
                
                2006Amount
                
                
                Percent
                  of Loans
                  in Each
                  Category
                  to Total
                  Loans
                
                
                Amount
                
                
                Percent
                  of Loans
                  in Each
                  Category
                  to Total
                  Loans
                
                
                Amount
                
                
                Percent
                  of Loans
                  in Each
                  Category
                  to Total
                  Loans
                
                
                Amount
                
                
                Percent
                  of Loans
                  in Each
                  Category
                  to Total
                  Loans
                
                
                Amount
                
                
                Percent
                  of Loans
                  in Each
                  Category
                  to Total
                  Loans(Dollars in thousands)Residential
      real estate first mortgage
                
                $
                4,773
                
                
                
                22.76
                %
                
                $
                3,804
                
                
                
                22.15
                %
                
                $
                2,815
                
                
                
                22.96
                %
                
                $
                2,853
                
                
                
                28.56
                %
                
                $
                2,856
                
                
                
                33.36
                %Residential
      real estate second mortgage
                
                
                2,269
                
                
                
                5.63
                
                
                
                1,913
                
                
                
                5.74
                
                
                
                1,219
                
                
                
                7.83
                
                
                
                708
                
                
                
                5.86
                
                
                
                606
                
                
                
                6.07Home
      equity lines of credit
                
                
                4,366
                
                
                
                18.86
                
                
                
                1,910
                
                
                
                19.77
                
                
                
                1,753
                
                
                
                20.44
                
                
                
                1,396
                
                
                
                22.73
                
                
                
                1,428
                
                
                
                25.95Commercial,
      multi-family real estate and land
                
                
                11,579
                
                
                
                35.01
                
                
                
                7,143
                
                
                
                30.62
                
                
                
                3,824
                
                
                
                26.64
                
                
                
                3,045
                
                
                
                23.86
                
                
                
                1,611
                
                
                
                20.56Real
      estate construction and development
                
                
                1,079
                
                
                
                2.90
                
                
                
                1,169
                
                
                
                7.48
                
                
                
                1,067
                
                
                
                9.01
                
                
                
                1,028
                
                
                
                10.24
                
                
                
                521
                
                
                
                7.16Commercial
      and industrial
                
                
                2,760
                
                
                
                14.51
                
                
                
                4,367
                
                
                
                13.87
                
                
                
                1,827
                
                
                
                12.49
                
                
                
                1,054
                
                
                
                8.04
                
                
                
                533
                
                
                
                6.11Consumer
      and other
                
                
                150
                
                
                
                0.33
                
                
                
                273
                
                
                
                0.37
                
                
                
                257
                
                
                
                0.63
                
                
                
                337
                
                
                
                0.71
                
                
                
                262
                
                
                
                0.79Total
      allowance for loan losses
                
                $
                26,976
                
                
                
                100.00
                %
                
                $
                20,579
                
                
                
                100.00
                %
                
                $
                12,762
                
                
                
                100.00
                %
                
                $
                10,421
                
                
                
                100.00
                %
                
                $
                7,817
                
                
                
                100.00
                %




18




Investment
Activities





The Bank
is permitted, under applicable law, to invest in various types of liquid assets,
including U.S. Treasury obligations, securities of various federal agencies and
state and municipal governments, deposits at the Federal Home Loan Bank (“FHLB”)
of Des Moines, certificates of deposit of federally insured institutions,
certain bankers’ acceptances and federal funds.  Subject to various
restrictions, savings institutions may also invest a portion of their assets in
commercial paper, corporate debt securities, equity securities and mutual
funds.  Savings institutions like the Bank are also required to
maintain an investment in FHLB stock and a minimum level of liquid
assets.




We
maintain a portfolio of U.S. Treasury obligations and investment grade
mortgage-backed securities in the form of Ginnie Mae, Freddie Mac and Fannie Mae
participation certificates and collateralized mortgage
obligations.  Ginnie Mae certificates are guaranteed as to principal
and interest by the full faith and credit of the United States, while Freddie
Mac and Fannie Mae certificates are guaranteed by the respective agencies.
Mortgage-backed securities generally entitle us to receive a pro rata portion of
the cash flows from an identified pool of mortgages. Collateralized mortgage
obligations are types of debt securities issued by a special purpose entity that
aggregates pools of mortgages and mortgage-backed securities and creates
different classes of securities with varying maturities and amortization
schedules, as well as a residual interest, with each class possessing different
risk characteristics.  The cash flows from the underlying collateral
are generally divided into “tranches” or classes that have descending priorities
with respect to the distribution of principal and interest cash
flows.




The Asset
Liability Management Committee, which includes our Chief Executive Officer and
our Chief Financial Officer, determines appropriate investments in accordance
with the board of directors’ approved investment policies and
procedures.  Investments are made following certain considerations,
which include our liquidity position and anticipated cash needs and sources,
which in turn include outstanding commitments, upcoming maturities of
securities, estimated deposits and anticipated loan amortization and repayments.
Further, the effect that the proposed investment would have on our credit and
interest rate risk, and risk-based capital is considered.  The
interest rate, yield, settlement date and maturity are also
reviewed.




All of
our debt securities and mortgage-backed securities carry market risk insofar as
increases in market interest rates would generally cause a decline in their
market value.  They also carry prepayment risk insofar as they may be
called or repaid before their stated maturity during times of low market
interest rates, so that we may have to reinvest the funds at a lower interest
rate.





Our
investment securities portfolio at September 30, 2010 did not contain securities
of any issuer with an aggregate book value and aggregate market value in excess
of 10% of stockholders’ equity, excluding those issued by the United States
government or its agencies.


19





TABLE
9:  Investment and Mortgage-Backed Securities





At September 30,2010
                
                
                2009
                
                
                2008(In
      thousands)Held
      to maturity, at amortized cost:Mortgage-backed
      securities:Freddie
      Mac
                
                $
                -
                
                
                $
                -
                
                
                $
                4Ginnie
      Mae
                
                
                160
                
                
                
                219
                
                
                
                283Fannie
      Mae
                
                
                10,129
                
                
                
                11,840
                
                
                
                15,434Total
                
                $
                10,289
                
                
                $
                12,059
                
                
                $
                15,721Collateralized
      mortgage obligations – Freddie Mac
                
                $
                8
                
                
                $
                19
                
                
                $
                23Available
      for sale, at fair value:Investment
      securities -U.S.
      Treasury and agency obligations
                
                $
                8,001
                
                
                $
                1,997
                
                
                $
                -Mortgage-backed
      securities:Ginnie
      Mae
                
                $
                472
                
                
                $
                544
                
                
                $
                280Fannie
      Mae
                
                
                27
                
                
                
                1,302
                
                
                
                1,943Total
                
                $
                499
                
                
                $
                1,846
                
                
                $
                2,223Collateralized
      mortgage obligations:Freddie
      Mac
                
                $
                808
                
                
                $
                1,556
                
                
                $
                -Ginnie
      Mae
                
                
                3,477
                
                
                
                7,462
                
                
                
                7,958Fannie
      Mae
                
                
                4,062
                
                
                
                5,223
                
                
                
                -Total
                
                $
                8,347
                
                
                $
                14,241
                
                
                $
                7,958


20


TABLE
10:  Maturities and Yields





At
      September 30, 2010Due
      in
                  Less
      Than One Year
                
                
                Due
      in
                  One
      to Five Years
                
                
                Due
      in
                  Five
      to Ten Years
                
                
                Due
      in
                  Over
      Ten Years
                
                
                TotalAmount
                
                
                Weighted
                  Average
                  Yield
                
                
                Amount
                
                
                Weighted
                  Average
                  Yield
                
                
                Amount
                
                
                Weighted
                  Average
                  Yield
                
                
                Amount
                
                
                Weighted
                  Average
                  Yield
                
                
                Amount
                
                
                Weighted
                  Average
                  Yield(Dollars
      in thousands)Held
      to maturity:Mortgage-backed
      securities:Mortgage-backed
      securities
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                1,043
                
                
                
                4.64
                %
                
                $
                9,246
                
                
                
                3.95
                %
                
                $
                10,289
                
                
                
                4.02
                %CMOs
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                8
                
                
                
                1.21
                %
                
                
                8
                
                
                
                1.21
                %Total
      mortgage-backed and related securities
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                1,043
                
                
                
                4.64
                %
                
                $
                9,254
                
                
                
                3.96
                %
                
                $
                10,297
                
                
                
                4.02
                %Available
      for sale:Investment
      securities:U.S.
      Treasury and agency obligations
                
                $
                6,999
                
                
                
                0.19
                %
                
                $
                1,002
                
                
                
                0.68
                %
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                8,001
                
                
                
                0.25
                %Mortgage-backed
      securities:Mortgage-backed
      securities
                
                $
                27
                
                
                
                3.83
                %
                
                $
                -
                
                
                
                -
                
                
                $
                251
                
                
                
                4.09
                %
                
                $
                221
                
                
                
                7.14
                %
                
                $
                499
                
                
                
                5.41
                %CMOs
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,870
                
                
                
                4.06
                %
                
                
                3,477
                
                
                
                4.13
                %
                
                
                8,347
                
                
                
                4.09
                %Total
      mortgage-backed and related securities
                
                $
                27
                
                
                
                3.83
                %
                
                $
                -
                
                
                
                -
                
                
                $
                5,121
                
                
                
                4.06
                %
                
                $
                3,698
                
                
                
                4.31
                %
                
                $
                8,846
                
                
                
                4.16
                %





The above table is presented based
upon contractual maturities.  Expected maturities of mortgage-backed
securities and CMOs will differ from contractual maturities due to scheduled
repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.  At September 30,
2010, the Company’s portfolio did not include any callable
securities.  This table does not take into consideration the effects
of scheduled repayments or the effects of possible prepayments.


21


Sources
of Funds





General.  Deposits
(including brokered deposits), loan repayments, loan sales, FHLB borrowings and
borrowings from the Federal Reserve Bank are the major sources of our funds for
lending and other investment purposes.  Scheduled loan repayments are
a relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by the level of market interest
rates.  Borrowings from the FHLB of Des Moines and borrowings from the
Federal Reserve Bank may be used to compensate for reductions in the
availability of funds from these other sources.  Management chooses
among these wholesale funding sources depending on their relative costs, our
overall interest rate risk exposure and our overall borrowing capacity at the
FHLB and the Federal Reserve.





Deposit
Accounts.Our depositors reside predominately in the St. Louis
metropolitan area.  Deposits are attracted from within our market area
through the offering of a broad selection of commercial and retail deposit
instruments, including checking accounts, negotiable order of withdrawal (“NOW”)
accounts, money market deposit accounts, regular savings accounts, certificates
of deposit, retirement savings plans and treasury management
services.  Deposit account terms vary according to the minimum balance
required, the time periods the funds must remain on deposit, and the interest
rate, among other factors.  In determining the terms of our deposit
accounts, we consider current market interest rates, the pricing of competitors,
our profitability, the Company’s overall interest rate risk profile, the
Company’s liquidity needs and our customer preferences and
concerns.  Our Asset Liability Management Committee regularly reviews
our deposit mix and pricing.





TABLE
11:  Deposits





At September 30,2010
                
                
                2009
                
                
                2008Amount
                
                
                Percent
                  of Total
                
                
                Amount
                
                
                Percent
                  of Total
                
                
                Amount
                
                
                Percent
                  of Total(Dollars in thousands)Demand
      deposits:Non-interest-bearing
      checking
                
                $
                149,186
                
                
                
                13.38
                %
                
                $
                103,398
                
                
                
                8.68
                %
                
                $
                76,404
                
                
                
                8.35
                %Interest-bearing
      checking
                
                
                345,013
                
                
                
                30.94
                
                
                
                263,020
                
                
                
                22.07
                
                
                
                178,698
                
                
                
                19.52Passbook
      savings accounts
                
                
                30,296
                
                
                
                2.72
                
                
                
                28,874
                
                
                
                2.42
                
                
                
                25,829
                
                
                
                2.82Money
      market
                
                
                189,851
                
                
                
                17.02
                
                
                
                253,996
                
                
                
                21.32
                
                
                
                149,141
                
                
                
                16.29Total
      demand deposits
                
                
                714,346
                
                
                
                64.06
                
                
                
                649,288
                
                
                
                54.49
                
                
                
                430,072
                
                
                
                46.98Certificates
      of deposit which mature:Within
      1 year
                
                
                276,165
                
                
                
                24.76
                
                
                
                361,638
                
                
                
                30.35
                
                
                
                420,766
                
                
                
                45.98After
      1 year, but within 3 years
                
                
                122,930
                
                
                
                11.02
                
                
                
                178,017
                
                
                
                14.94
                
                
                
                53,176
                
                
                
                5.81Thereafter
                
                
                1,762
                
                
                
                0.16
                
                
                
                2,686
                
                
                
                0.22
                
                
                
                11,297
                
                
                
                1.23Total
      certificates of deposit
                
                
                400,857
                
                
                
                35.94
                
                
                
                542,341
                
                
                
                45.51
                
                
                
                485,239
                
                
                
                53.02Total
      deposits
                
                $
                1,115,203
                
                
                
                100.00
                %
                
                $
                1,191,629
                
                
                
                100.00
                %
                
                $
                915,311
                
                
                
                100.00
                %





Included
in certificates of deposit at September 30, 2010, were brokered time deposits
totaling $8.4 million that were scheduled to mature during the year ending
September 30, 2012.


22


At
September 30, 2010, 2009 and 2008, certificates of deposit with a minimum
principal amount of $100,000 totaled $218.8 million, $317.7 million, and $221.2
million, respectively.  At September 30, 2010, such deposits were
scheduled to mature as follows:





TABLE
12:  Certificates of Deposit with Minimum Balances of
$100,000





Maturity Period
                  
                  Amount as of September
                    30, 2010(In thousands)Three
      months or less
                  
                  $
                  61,642Over
      3 through 6 months
                  
                  
                  37,271Over
      6 through 12 months
                  
                  
                  58,453Over
      12 months
                  
                  
                  61,434Total
                  
                  $
                  218,800





TABLE
13:  Certificates of Deposits by Rates





At September 30,2010
                  
                  
                  2009
                  
                  
                  2008(In
      thousands)0.00
      – 1.99%
                  
                  $
                  214,814
                  
                  
                  $
                  248,591
                  
                  
                  $
                  21,4682.00
      – 2.99%
                  
                  
                  89,282
                  
                  
                  
                  128,241
                  
                  
                  
                  183,7023.00
      – 3.99%
                  
                  
                  80,638
                  
                  
                  
                  135,166
                  
                  
                  
                  196,7284.00
      – 4.99%
                  
                  
                  7,581
                  
                  
                  
                  11,190
                  
                  
                  
                  17,2655.00
      – 5.99%
                  
                  
                  8,542
                  
                  
                  
                  18,667
                  
                  
                  
                  65,62710.00
      -  10.99%
                  
                  
                  -
                  
                  
                  
                  486
                  
                  
                  
                  449Total
                  
                  $
                  400,857
                  
                  
                  $
                  542,341
                  
                  
                  $
                  485,239




Amount Due as of September 30, 2010Within
                    One Year
                  
                  
                  After
                    1 Year
                    But Within
                    Two Years
                  
                  
                  After
                    2Years
                    ButWithin
                    Three Years
                  
                  
                  After
                    3Years
                    ButWithin
                    FourYears
                  
                  
                  Thereafter
                  
                  
                  Total(In thousands)0.00  -
      1.99%
                  
                  $
                  159,439
                  
                  
                  $
                  39,804
                  
                  
                  $
                  15,416
                  
                  
                  $
                  155
                  
                  
                  $
                  -
                  
                  
                  $
                  214,8142.00  -
      2.99%
                  
                  
                  70,315
                  
                  
                  
                  17,138
                  
                  
                  
                  856
                  
                  
                  
                  260
                  
                  
                  
                  713
                  
                  
                  
                  89,2823.00  -
      3.99%
                  
                  
                  40,560
                  
                  
                  
                  39,548
                  
                  
                  
                  530
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  80,6384.00  -
      4.99%
                  
                  
                  5,771
                  
                  
                  
                  148
                  
                  
                  
                  1,028
                  
                  
                  
                  634
                  
                  
                  
                  -
                  
                  
                  
                  7,5815.00  -
      5.99%
                  
                  
                  80
                  
                  
                  
                  8,462
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,54210.00  -
      10.99%
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  276,165
                  
                  
                  $
                  105.100
                  
                  
                  $
                  17,830
                  
                  
                  $
                  1,049
                  
                  
                  $
                  713
                  
                  
                  $
                  400,857




23




TABLE
15:  Deposit Activity





Years Ended September 30,2010
                  
                  
                  2009
                  
                  
                  2008(In
      thousands)Beginning
      balance
                  
                  $
                  1,191,629
                  
                  
                  $
                  915,311
                  
                  
                  $
                  835,489Net
      (decrease) increase excluding interest credited
                  
                  
                  (85,411
                  )
                  
                  
                  263,658
                  
                  
                  
                  60,998Interest
      credited
                  
                  
                  8,985
                  
                  
                  
                  12,660
                  
                  
                  
                  18,824Net
      (decrease) increase in deposits
                  
                  
                  (76,426
                  )
                  
                  
                  276,318
                  
                  
                  
                  79,822Ending
      balance
                  
                  $
                  1,115,203
                  
                  
                  $
                  1,191,629
                  
                  
                  $
                  915,311





TABLE
16:  Average Balances and Rates Paid on Deposits





Years Ended September 30,2010
                
                
                2009
                
                
                2008Average
                  Balance
                
                
                Average
                  Rate
                  Paid
                
                
                Average
                  Balance
                
                
                Average
                  Rate
                  Paid
                
                
                Average
                  Balance
                
                
                Average
                  Rate
                  Paid(Dollars in thousands)Non-interest-bearing
      checking
                
                $
                108,188
                
                
                
                -
                %
                
                $
                99,126
                
                
                
                -
                %
                
                $
                63,325
                
                
                
                -
                %Interest-bearing
      checking
                
                
                330,815
                
                
                
                1.11
                
                
                
                221,164
                
                
                
                1.58
                
                
                
                106,009
                
                
                
                1.97Passbook
      savings
                
                
                29,714
                
                
                
                0.20
                
                
                
                26,845
                
                
                
                0.21
                
                
                
                27,727
                
                
                
                0.33Money
      market
                
                
                230,634
                
                
                
                0.93
                
                
                
                159,196
                
                
                
                1.05
                
                
                
                183,957
                
                
                
                2.88Certificates
      of deposit
                
                
                444,926
                
                
                
                2.31
                
                
                
                569,530
                
                
                
                2.86
                
                
                
                466,094
                
                
                
                4.28Total
                
                $
                1,144,277
                
                
                
                1.41
                %
                
                $
                1,075,861
                
                
                
                2.00
                %
                
                $
                847,112
                
                
                
                3.24
                %





Borrowings.  We use
advances from the FHLB of Des Moines and borrowings from the Federal Reserve
Bank to supplement our supply of lendable funds and to meet deposit withdrawal
requirements.  The FHLB of Des Moines functions as a central reserve
bank providing credit for savings associations and certain other member
financial institutions.  As a member, we are required to own capital
stock in the FHLB of Des Moines and we are authorized to apply for advances on
the security of such stock and certain of our mortgage loans and other assets
(principally securities which are obligations of, or guaranteed by, the U.S.
Government) provided certain creditworthiness standards have been
met.  Advances are made pursuant to several different credit
programs.  Each credit program has its own interest rate and range of
maturities.  Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit.  The line of
credit is subject to available collateral of one- to four-family residential
loans, home equity loans and loans held for sale.  Periodically, the
FHLB performs collateral audits in order to review the quality of the
collateral, which could result in reduced borrowing capacity.


24





TABLE
17:  FHLB Advances





Years Ended September 30,2010
                
                
                2009
                
                
                2008(Dollars
      in thousands)Maximum
      balance at any month end during the period
                
                $
                181,000
                
                
                $
                245,000
                
                
                $
                265,500Average
      balance during the period
                
                
                96,948
                
                
                
                120,288
                
                
                
                224,460Period-end
      balance
                
                
                181,000
                
                
                
                61,000
                
                
                
                210,600Weighted-average
      interest rate:At
      end of period
                
                
                0.72
                %
                
                
                3.37
                %
                
                
                2.67
                %During
      the period
                
                
                1.80
                %
                
                
                2.92
                %
                
                
                3.54
                %





We have
the ability to borrow funds from the Federal Reserve under an agreement which
assigns certain qualifying loans as collateral to secure the amounts
borrowed.  These borrowings represent short-term borrowings from the
Federal Reserve Bank of St. Louis’ discount window and are typically extended
for periods of 28 days or less.  At September 30, 2010, there were no
borrowings outstanding under this arrangement and $153.0 million of commercial
loans were assigned under this arrangement.  The assets underlying
these borrowings are under the Bank’s physical control.





TABLE
18:  Federal Reserve Borrowings





Years Ended September 30,2010
                
                
                2009
                
                
                2008(Dollars
      in thousands)Maximum
      balance at any month end during the period
                
                $
                4,700
                
                
                $
                143,000
                
                
                $
                112,000Average
      balance during the period
                
                
                82
                
                
                
                71,690
                
                
                
                34,093Period-end
      balance
                
                
                -
                
                
                
                -
                
                
                
                40,000Weighted-average
      interest rate:At
      end of period
                
                
                -
                
                
                
                -
                
                
                
                2.25
                %During
      the period
                
                
                0.59
                %
                
                
                0.45
                %
                
                
                2.28
                %





We issued
subordinated debentures from two separate special purpose trusts that are
wholly-owned subsidiaries of the Company.  At September 30, 2010, we
had outstanding subordinated debentures totaling $19.6
million.  Payments of the principal and interest on the subordinated
debentures of these special purpose trusts are unconditionally guaranteed by the
Company.  Further, the accompanying junior subordinated debentures we
issued to the special purpose trusts are senior to our shares of common
stock.





Non-Banking
Operations





We have a
title insurance business, which is a division of the Bank’s wholly-owned
subsidiary, Pulaski Service Corp.  The division provides traditional
title insurance services and products, including owner’s policies of insurance,
lender’s policies of insurance and miscellaneous title information products
(e.g., letter reports).  The policies are issued primarily on
residential transactions; however, the division also issues policies on certain
commercial transactions.Customers of the title division consist primarily of the Bank’s
residential mortgage loan customers and also include others that have been
referred to the title division.





We
operate a residential appraisal division consisting of five
appraisers.  The business consists primarily of providing appraisal
services to the Bank’s mortgage loan customers.  All appraisers are
either certified or licensed in the states of Missouri, Kansas or
both.


25





We
operate a fixed-income securities sales division consisting of six management
and sales personnel.  The business consists primarily of buying and
selling bonds for community bank and public entity investment portfolio managers
in Missouri, Illinois and surrounding states. The business does not include
maintaining a trading portfolio for the Company.





The
Bank’s subsidiary, Pulaski Service Corp., sells insurance products and
annuities.  Federal savings associations generally may invest up to 3%
of their assets in service corporations, provided that any amount in excess of
2% is used primarily for community, inner city and community development
projects.  At September 30, 2010, the Bank’s equity investment in its
subsidiary was $737,000 or 0.05% of the Bank’s assets.





Personnel





As of
September 30, 2010, we had 457 full-time equivalent
employees.  The employees are not represented by a collective
bargaining unit, and we believe our relationship with our employees is
good.





Executive
Officers of the Registrant





The
following table sets forth certain information regarding the executive officers
of the Company and the Bank.





Name
              
              Age
      (1)
              
              PositionGary
      W. Douglass
              
              59
              
              President
      and Chief Executive Officer of Pulaski Financial Corp. and Chairman and
      Chief Executive Officer of Pulaski BankW.
      Thomas Reeves
              
              56
              
              President
      of Pulaski BankPaul
      J. Milano
              
              54
              
              Executive
      Vice President, Chief Financial Officer, Treasurer and Secretary of
      Pulaski Financial Corp. and Pulaski BankBrian
      C. Boyles
              
              39
              
              President
      of Mortgage Lending Division of Pulaski BankBrian
      J. Björkman
              
              39
              
              President
      of Commercial Lending Division of Pulaski BankCheri
      G. Bliefernich
              
              42
              
              Executive
      Vice President of Banking Operations of Pulaski BankMatthew
      A. Locke
              
              41
              
              President
      of Kansas City Mortgage Division of Pulaski BankJames
      K. Sullivan
              
              54
              
              Executive
      Vice President of Corporate Development and Chief Financial Officer of the
      Mortgage Division of Pulaski
Bank


(1) As
of September 30, 2010.





Biographical
Information





Set forth
below is certain information regarding the executive officers of the Company and
the Bank.  There are no family relationships among the executive
officers.


26





Gary W. Douglasswas named
President and Chief Executive Officer of the Company and Chief Executive Officer
of the Bank on May 1, 2008 and was named Chairman of the Bank on May 1,
2009.  Before joining Pulaski, Mr. Douglass was Executive Vice
President, Finance and Chief Financial Officer of CPI Corp. (NYSE: CPI), a
leading portrait studio operator in North America, headquartered in St.
Louis.  Mr. Douglass previously held the position of Executive Vice
President and Chief Financial Officer of Roosevelt Financial Group, Inc., parent
of Roosevelt Bank, before its merger with Mercantile Bancorporation, Inc. in
1997.  Mr. Douglass is a certified public accountant and a former
partner with Deloitte and Touche LLP, where he headed that firm’s accounting and
auditing practice and its financial institutions practice in St.
Louis.





W. Thomas Reeves has served
as President of the Bank since March 2006.  Prior to joining Pulaski,
Mr. Reeves served as Executive Director of Downtown Now!, a not-for-profit
organization dedicated to generating investment in, and development of, the
downtown St. Louis area from October 1999 to March 2006. Mr. Reeves also served
as Senior Vice President and Chief Lending Officer of Mercantile Bank of
St. Louis, where he oversaw all middle market and real estate lending
activity in five states. He was Senior Vice President and Chief Lending officer
and served in various executive and board positions with Mark Twain Bancshares
Inc. and its affiliates. He also served as a bank regulator with the Missouri
Division of Finance.





Paul J. Milano, CPA was
appointed Chief Financial Officer on April 1, 2009.  He joined Pulaski
Bank in January 2006 and had served as Secretary, Treasurer and
Controller.  He previously served as a director and consultant for
Premier Bancshares, Inc., a $148 million bank holding company headquartered in
Dallas, Texas.  Before joining Premier, he served as Senior Vice
President, Secretary, Treasurer and Chief Financial Officer of Jefferson Savings
Bancorp, Inc., a $2 billion publicly traded thrift, until it was merged into
Union Planters Bank in 2002 following its purchase.  He was a director
of Jefferson’s subsidiary, First Federal Savings Bank, from 1995 to
1999.  Mr. Milano also served nine years with the public accounting
firm of KPMG LLP, leaving in 1990 as Senior Manager to join Jefferson
Savings.  Mr. Milano is a member of the American Institute of
Certified Public Accountants, the Missouri Society of Certified Public
Accountants and the Financial Managers Society.





Brian C. Boyleswas named
President of the Mortgage Division of the Company on November 15,
2010.  Before joining Pulaski, Mr. Boyles was Senior Vice President of
Corporate Business Development for Mortgage Services III, a leading national
mortgage banker originating over $3.6 billion in mortgage volume
annually.  Mr. Boyles previously held the position of President of
Real Estate Lending for two Midwest based banks spanning a 12 year
period.  Mr. Boyles is a graduate of the University of Northern Iowa
and has over 17 years of mortgage leadership experience.





Brian J. Björkmanjoined the
Bank in 2003 and currently serves as the President of the Commercial
Division.  Prior to joining the Bank, Mr. Björkman was President of
Commercial Lending at Founders Bank in Chesterfield, Missouri prior to its
acquisition by Bank Midwest.  Mr. Björkman is a graduate of Drake
University.





Cheri G. Bliefernichjoined
the Bank in 2004 and has served as Executive Vice President of Banking
Operations since October 2008.  Prior to assuming the current
position, Mrs. Bliefernich served as Senior Vice President, Banking since
January 2007 and Vice President, Retail Banking since November
2004.  She has also served as Senior Vice President of Retail Banking
at Royal Banks and Vice President of Retail Banking at Founders
Bank.  Mrs. Bliefernich has been in the banking industry for over 16
years.


27





Matthew A. Lockejoined the
Bank in 1997 and currently serves as the President of the Kansas City Mortgage
Division.  Prior to assuming his current position, he served the Bank
in numerous management roles including Consumer Lending and Loan
Servicing.  Mr. Locke holds a BBA from Pittsburg State University and
an MBA from Webster University.  He is the past Chairman of Mortgage
Bankers Association of Missouri.





James K. Sullivanjoined the
Bank in 2009 and has served as Executive Vice President of Corporate Development
and Chief Financial Officer of the Mortgage Division of Pulaski Bank since June
2010.  Prior  to assuming the current position, Mr. Sullivan
served as Senior Vice President of Financial Planning and Analysis. He also
served as Chief Financial Officer of two St. Louis-based community bank holding
companies: Reliance Bancshares, Inc. and Midwest BankCentre,
Inc.  Earlier in his career, he started the corporate finance
consulting practice for PriceWaterhouse in St. Louis.  Mr. Sullivan is
a graduate of Georgetown University, the University of Chicago Graduate School
of Business and has over 30 years of banking and corporate finance
experience.





REGULATION





General





Pulaski
Bank is subject to extensive regulation, examination and supervision by the OTS,
as its chartering agency, and the FDIC, as the deposit insurer.  The
Bank is a member of the FHLB System and its deposit accounts are insured up to
applicable limits by the Deposit Insurance Fund managed by the
FDIC.  The Bank must file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions.  There are periodic
examinations by the OTS and the FDIC to test the Bank’s safety and soundness and
compliance with various laws and regulatory requirements.  This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors.  The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes.  Any change in
such regulatory requirements and policies, whether by the OTS, the FDIC or
through legislation, could have a material adverse impact on our
operations.  The Company, as a savings and loan holding company, is
subject to examination by the OTS and is required to file certain reports with,
and otherwise must comply with the rules and regulations of the OTS under
federal laws.  Certain of the regulatory requirements applicable to
the Bank and to the Company are referred to below or elsewhere
herein.





Regulatory
Reform





The
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the
“Dodd-Frank Act”) made extensive changes in the regulation of financial
institutions and their holding companies.  The Dodd-Frank Act requires
various federal agencies to adopt a broad range of new implementing rules and
regulations, and to prepare numerous studies and reports for Congress. The
federal agencies are given significant discretion in drafting the implementing
rules and regulations, and consequently, many of the details and much of the
impact of the Dodd-Frank Act may not be known for many months or
years.


28





Certain
provisions of the Dodd-Frank Act are expected to have a near term impact on the
Company and the Bank.  For example, the OTS will be
eliminated.  Responsibility for the supervision and regulation of
federal savings banks will be transferred to the Office of the Comptroller of
the Currency, which is the agency that is currently primarily responsible for
the regulation and supervision of national banks.  The Office of the
Comptroller of the Currency will assume responsibility for implementing and
enforcing many of the laws and regulations applicable to federal savings banks.
The Board of Governors of the Federal Reserve System will supervise and regulate
all savings and loan holding companies that were formerly regulated by the OTS,
including the Company.  The transfer of regulatory functions will take
place over a transition period of up to one year from the enactment date of July
21, 2010 (subject to a possible six month extension).





Additionally,
the Dodd-Frank Act creates a new Consumer Financial Protection Bureau as an
independent bureau of the Federal Reserve Board.  The Consumer
Financial Protection Bureau will assume responsibility for the implementation of
the federal financial consumer protection and fair lending laws and regulations,
a function currently assigned to prudential regulators, and will have authority
to impose new requirements.  However, institutions of less than $10
billion in assets, such as the Bank, will continue to be examined for compliance
with consumer protection and fair lending laws and regulations by, and be
subject to the enforcement authority of, their prudential regulator, although
the Consumer Financial Protection Bureau will have back-up authority to examine
and enforce consumer protection laws against all institutions, including
institutions with less than $10 billion in assets.





Effective
one year after the date of enactment is a provision of the Dodd-Frank Act that
eliminates the federal prohibitions on paying interest on demand deposits, thus
allowing businesses to have interest-bearing checking accounts. Depending on
competitive responses, this change to existing law could have an adverse impact
on the Bank’s interest expense.





The
description of statutory provisions and regulations set forth in this document
does not purport to be a complete description of such statutes and regulations
and their effects on the Company and the Bank and is qualified in its entirety
by reference to the actual statutes and regulations.





Federal
Savings Institution Regulation





Business
Activities.  The activities of federal savings institutions,
such as the Bank, are governed by federal laws and regulations.  These
laws and regulations delineate the nature and extent of the activities in which
federal associations may engage.  In particular, many types of lending
authority for federal associations, e.g., commercial, non-residential real
property and consumer loans, are limited to a specified percentage of the
institution’s capital or assets.





Loans to One
Borrower.  Federal laws provide that savings institutions are
generally subject to the national bank limits on loans to one
borrower.  A savings institution may generally not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of the
Bank’s unimpaired capital and surplus.  An additional amount may be
loaned, equal to 10% of unimpaired capital and surplus, if secured by
readily-marketable collateral.  Our legal lending limit was
approximately $22 million at September 30, 2010.  However, our maximum
exposure to any one borrower did not exceed $19 million at September 30,
2010.





Qualified Thrift
Lender Test.  Federal law requires savings institutions to meet
a qualified thrift lender (“QTL”) test.  Under the test, a savings
bank is required to either be a “domestic building and loan association” within
the definition of the Internal Revenue Code of 1986, as amended (the “Code”), or
maintain at least 65% of its “portfolio assets” (total assets less (i) specified
liquid assets up to 20% of total assets, (ii) intangibles, including goodwill,
and (iii) the value of property used to conduct business) in certain “qualified
thrift investments” (primarily residential mortgages and related investments,
including certain mortgage-backed  securities) on a monthly basis in 9
out of every 12 months.


29





A savings
institution that fails the QTL test is subject to certain operating
restrictions.  The Dodd-Frank Act subjects violations of the QTL test
requirements to possible enforcement action for a violation of
law.  As of September 30, 2010, the Bank met the QTL
test.





Limitation on
Capital Distributions.  OTS regulations impose limitations upon
all capital distributions by a savings institution, such as cash dividends,
payments to repurchase its shares and payments to shareholders of another
institution in a cash-out merger.  Under the regulations, an
application to and the prior approval of the OTS is required prior to any
capital distribution if the institution does not meet the criteria for
“expedited treatment” of applications under OTS regulations (i.e., generally examination
ratings in the top two categories), 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, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with the OTS.  If an application is
not required, the institution must still provide prior notice to the OTS of the
capital distribution since it is a subsidiary of the holding
company.  If the Bank’s capital fell below its regulatory requirements
or the OTS notified it that it was in need of more than normal supervision, the
Bank’s ability to make capital distributions could be restricted.  In
addition, the OTS could prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice.





Assessments.  Savings
institutions are required to pay assessments to the OTS to fund the agency’s
operations.  The general assessment, paid on a semi-annual basis, is
based on the savings institution’s total assets, including consolidated
subsidiaries, as reported in the latest quarterly thrift financial report,
financial condition and the complexity of its portfolio.  The Office
of the Comptroller of Currency, which will succeed the OTS as the Bank’s primary
regulator, also assesses its regulated institutions to fund its
operations.





Branching.  The
OTS regulations authorize federally chartered savings associations to branch
nationwide to the extent allowed by federal statute.  This permits
federal savings associations with interstate networks to more easily diversify
their loan portfolios and lines of business geographically.  OTS
regulations preempt any state law purporting to regulate branching by federal
savings institutions.





Community
Reinvestment Act.  Under the Community Reinvestment Act
(“CRA”), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods.  The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution’s discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA.  The CRA requires the OTS, in connection with its examination
of a savings institution, to assess the institution’s record of meeting the
credit needs of its community and to take such record into account in its
evaluation of certain applications by such institution.  The CRA also
requires all institutions to make public disclosure of their CRA
ratings.  The Bank received a “Satisfactory” CRA rating in its most
recent examination.





Transactions with
Related Parties.  The Bank’s authority to engage in certain
transactions with “affiliates” (i.e., any company that controls or is under
common control with an institution, including the Company and any non-savings
institution subsidiaries) is limited by federal law.  The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution.  The aggregate
amount of covered transactions with all affiliates is limited to 20% of the
savings institution’s capital and surplus.  Certain transactions with
affiliates are required to be secured by collateral in an amount and of a type
described in federal law.  The purchase of low-quality assets from
affiliates is generally prohibited.  Transactions with affiliates must
be on terms and under circumstances that are at least as favorable as those
prevailing at the time for comparable transactions with non-affiliated
companies.  In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary.


30





The
Bank’s authority to extend credit to executive officers, directors and 10%
shareholders (“insiders”), as well as entities controlled by such persons, is
also governed by federal law.  Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
may not involve more than the normal risk of repayment.  An exception
exists for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees.  The law limits both the
individual and aggregate amount of loans the Bank may make to insiders based, in
part, on the Bank’s capital position and requires certain board approval
procedures to be followed. There are additional restrictions on extensions of
credit to executive officers.





Enforcement.  The
OTS has primary enforcement responsibility over savings institutions and has the
authority to bring actions against the institution and all
institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured
institution.  Formal enforcement action may include the issuance of a
capital directive or cease and desist order, removal of officers and/or
directors, institution of receivership, conservatorship, or termination of
deposit insurance.  Civil penalties cover a wide range of violations
and can amount to $25,000 per day, or even $1 million per day in especially
egregious cases.  The FDIC has the authority to recommend to the
Director of the OTS that an enforcement action be taken with respect to a
particular savings institution.  If action is not taken by the
Director, the FDIC has the authority to take such action under certain
circumstances.  Federal law also establishes criminal penalties for
certain violations.  The Office of the Comptroller of the Currency
will assume the OTS’ enforcement authority under the regulatory restructuring
required by the Dodd-Frank Act.





Standards for
Safety and Soundness.  The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness.  The guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes
impaired.  If the OTS determines that an institution fails to meet any
standard prescribed by the guidelines, the OTS may require the institution to
submit an acceptable plan to achieve compliance with the standard.





Capital
Requirements.  The OTS capital regulations require savings
institutions to meet three minimum capital standards:  a 1.5% tangible
capital ratio, a 4% leverage ratio (3% for institutions receiving the highest
rating on the CAMELS financial institution rating system), and an 8% risk-based
capital ratio.  In addition, the prompt corrective action standards
discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage capital ratio (3% for institutions receiving the highest
rating in the CAMELS financial institution rating system) and, together with the
risk-based capital standard itself, a 4% Tier I risk-based capital
standard.  The OTS regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.





The
risk-based capital standard for savings institutions requires the maintenance of
Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to risk weighted assets of 4% and 8%,
respectively.  In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet assets, recourse obligations and
direct credit substitutes are multiplied by a risk-weight of 0% to 100%, as
assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset.  Core capital is defined as common
stockholders’ equity (including retained earnings), certain non-cumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships.  The
components of supplementary capital include capital instruments such as
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock. The
allowance for loan and lease losses is includable in supplementary capital up to
1.25% of risk-weighted assets. Up to 45% of unrealized gains in
available-for-sale securities with readily determinable fair values is also
includable as supplementary capital. Overall, the amount of supplementary
capital included as part of total capital cannot exceed 100% of core
capital.


31





The OTS
also has authority to establish individual minimum capital requirements in
appropriate cases upon a determination that an institution’s capital level is or
may become inadequate in light of the particular circumstances.





Prompt Corrective
Regulatory Action.  The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution’s degree of
under-capitalization.  Generally, a savings institution that has a
ratio of total capital to risk-weighted assets of less than 8%, a ratio of Tier
I (core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be
“under-capitalized.”  A savings institution that has a total
risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or
a leverage ratio that is less than 3% is considered to be “significantly
undercapitalized” and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be “critically
undercapitalized.”  Subject to a narrow exception, the OTS is required
to appoint a receiver or conservator for an institution that is “critically
undercapitalized.”  The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date a savings
institution receives notice that it is “undercapitalized,” “significantly
undercapitalized” or “critically undercapitalized.”  Compliance with
the plan must be guaranteed by any parent holding company in an amount of up to
the lesser of 5% of the savings association’s total assets when it was deemed to
be undercapitalized, or the amount necessary to achieve compliance with
applicable capital requirements. In addition, numerous mandatory supervisory
actions become immediately applicable to an undercapitalized institution,
including, but not limited to, increased monitoring by regulators and
restrictions on growth, capital distributions and expansion. The OTS could also
take any one of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.  Significantly and critically undercapitalized
institutions are subject to additional mandatory and discretionary
measures.





Insurance of
Deposit Accounts.The Bank’s deposits are insured up to applicable limits
by the Deposit Insurance Fund of the Federal Deposit Insurance
Corporation.  The Deposit Insurance Fund is the successor to the Bank
Insurance Fund and the Savings Association Insurance Fund, which were merged in
2006.  Under the Federal Deposit Insurance Corporation’s risk-based
assessment system, insured institutions are assigned to one of four risk
categories based on supervisory evaluations, regulatory capital levels and
certain other factors, with less risky institutions paying lower
assessments.  An institution’s assessment rate depends upon the
category to which it is assigned.  Effective April 1, 2009, assessment
rates range from seven to 77.5 basis points. The Dodd-Frank Act requires the
FDIC to amend its procedures to base assessments on total assets less tangible
equity rather than deposits.  The FDIC has recently issued a proposed
rule that would implement that directive.  No institution may pay a
dividend if in default of the federal deposit insurance assessment.





The FDIC
imposed on all insured institutions a special emergency assessment of five basis
points of total assets minus Tier 1 capital, as of June 30, 2009 (capped at ten
basis points of an institution’s deposit assessment base), in order to cover
losses to the Deposit Insurance Fund. That special assessment was collected on
September 30, 2009. The FDIC provided for similar assessments during the final
two quarters of 2009, if deemed necessary. However, in lieu of further special
assessments, the FDIC required insured institutions to prepay estimated
quarterly risk-based assessments for the fourth quarter of 2009 through the
fourth quarter of 2012. The estimated assessments, which include an assumed
annual assessment base increase of 5%, were recorded as a prepaid expense asset
as of December 31, 2009. As of December 31, 2009, and each quarter thereafter, a
charge to earnings will be recorded for each regular assessment with an
offsetting credit to the prepaid asset.


32





Due to
the recent difficult economic conditions, deposit insurance per account owner
has been raised to $250,000 for all types of accounts. That coverage was made
permanent by the Dodd-Frank Act.  In addition, the FDIC adopted an
optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest
bearing transaction accounts would receive unlimited insurance coverage until
June 30, 2010, subsequently extended to December 31, 2010, and certain senior
unsecured debt issued by institutions and their holding companies between
October 13, 2008 and December 31, 2009 would be guaranteed by the FDIC through
June 30, 2012, or in some cases, December 31, 2012.  The Bank
participates in the unlimited noninterest bearing transaction account
coverage.  The Bank and the Company opted not to participate in the
unsecured debt guarantee program.  The Dodd-Frank Act extended the
unlimited coverage for certain noninterest bearing transactions accounts through
December 31, 2012.





In
addition to the assessment for deposit insurance, institutions are required to
make payments on bonds issued in the late 1980s by the Financing Corporation to
recapitalize a predecessor deposit insurance fund. That payment is established
quarterly and during the four quarters ended September 30, 2010 averaged 1.04
basis points of assessable deposits.





The
Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from
1.15% of estimated insured deposits to 1.35% of estimated insured
deposits.  The FDIC must seek to achieve the 1.35% ratio by September
30, 2020.  Insured institutions with assets of $10 billion or more are
supposed to fund the increase.  The Dodd-Frank Act eliminated the 1.5%
maximum fund ratio, instead leaving it to the discretion of the
FDIC.





The FDIC
has authority to increase insurance assessments. A significant increase in
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Bank. Management cannot predict what insurance
assessment rates will be in the future.





Insurance
of deposits may be terminated by the FDIC upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC or the OTS.  The management of
the Bank does not know of any practice, condition or violation that might lead
to termination of deposit insurance.





Federal Home Loan
Bank System.The Bank is a member of
the FHLB System, which consists of 12 regional FHLBs.  The FHLB
provides a central credit facility primarily for member
institutions.  The Bank, as a member of the FHLB, is required to
acquire and hold shares of capital stock in that FHLB.





The FHLBs
are required to provide funds for the resolution of insolvent thrifts and to
contribute funds for affordable housing programs.  These requirements
or general economic conditions could reduce the amount of dividends that the
FHLBs pay to their members and could also result in the FHLBs imposing a higher
rate of interest on advances to their members.  If dividends were
reduced or interest on future FHLB advances increased, the Bank’s net interest
income would likely also be reduced.  The FHLB reduced the amount of
dividends paid to their members in 2010 and 2009.


33





Federal Reserve
System.  The FRB regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts).  The regulations
generally require that for 2010, reserves be maintained against aggregate
transaction accounts as follows:  a 3% reserve ratio is assessed on
net transaction accounts up to and including $55.2 million; a 10% reserve ratio
is applied over $55.2 million.  The first $10.7 million of otherwise
reservable balances (subject to adjustments by the FRB) were exempted from the
reserve requirements.  The Bank has complied with the foregoing
requirements.  For 2011, the FRB has set the 3% reserve limit at $58.8
million and the exemption at $10.7 million.





Holding
Company Regulation





The
Company is registered with the OTS and is subject to OTS regulations,
examinations, supervision, reporting requirements and regulations. In addition,
the OTS will have enforcement authority over the Company and its non-savings
institution subsidiaries. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
Bank.





The
Company is a non-diversified unitary savings and loan holding company within the
meaning of federal law.  The Gramm-Leach-Bliley Act of 1999 provides
that no company may acquire control of a savings association after May 4, 1999
unless it engages only in the financial activities permitted for financial
holding companies under the law or for multiple savings and loan holding
companies as described below.  Further, the Gramm-Leach-Bliley Act
specifies that, subject to a grandfather provision, existing savings and loan
holding companies may only engage in such activities.  The Company
qualifies for the grandfathering and is therefore not restricted in terms of its
activities.  Upon any non-supervisory acquisition by the Company of
another savings association as a separate subsidiary, the Company would become a
multiple savings and loan holding company and would be limited to activities
permitted multiple holding companies by OTS regulation, such as lending and real
estate investments. OTS has issued an interpretation concluding that multiple
savings holding companies may also engage in activities permitted for financial
holding companies, including insurance activities and underwriting, and
investment banking.





A savings
and loan holding company is prohibited from, directly or indirectly, acquiring
more than 5% of the voting stock of another savings institution or savings and
loan holding company without prior written approval of the OTS, and from
acquiring or retaining control of a depository institution that is not insured
by the FDIC.  In evaluating applications by holding companies to
acquire savings institutions, the OTS considers among other things, the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the Deposit
Insurance Fund, the convenience and needs of the community and competitive
factors.





The OTS
may not approve any acquisition that would result in a multiple savings and loan
holding company controlling savings institutions in more than one state, subject
to two exceptions; (i) the approval of interstate supervisory acquisitions by
savings and loan holding companies and (ii) the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit such acquisitions.  The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.





Savings
and loan holding companies are not currently subject to specific regulatory
capital requirements.  The Dodd-Frank Act, however, requires the
Federal Reserve Board to promulgate consolidated capital requirements for
depository institution holding companies that are no less stringent, both
quantitatively and in terms of components of capital, than those applicable to
institutions themselves.  There is a five year transition period
before the capital requirements will apply to savings and loan holding
companies.  The Dodd-Frank Act also extends the “source of strength”
doctrine to include savings and loan holding companies.  The federal
regulatory agencies are required to issue joint rules within two years of
enactment requiring all bank and savings and loan holding companies to serve as
a source of strength for depository institution subsidiaries by providing
support in times of financial distress.


34





Acquisition of
the Company.Under the Federal Change
in Bank Control Act (“CIBCA”), a notice must be submitted to the OTS if any
person (including a company), or a group acting in concert, seeks to acquire 10%
or more of the Company’s outstanding voting stock, unless the OTS has found that
the acquisition will not result in a change in control of the
Company.  Under the CIBCA, the OTS generally has 60 days from the
filing of a complete notice to act, taking into consideration certain factors,
including the financial and managerial resources of the acquirer and the
anti-trust effect of the acquisition.  Any company that so acquires
control would then be subject to regulation as a savings and loan holding
company.





Participation in
the U.S. Department of Treasury’s Capital Purchase Program.  On January 16,
2009, as part of the Capital Purchase Program under the U.S. Department of
Treasury’s Troubled Asset Relief 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 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.


35


Item 1A. Risk
Factors





An
investment in shares of our common stock involves various
risks.  Before deciding to invest in our common stock, you should
carefully consider the risks described below in conjunction with the other
information in this annual report on Form 10-K and information incorporated by
reference into this annual report on Form 10-K, including our consolidated
financial statements and related notes.  Our business, financial
condition and results of operations could be harmed by any of the following
risks or by other risks that have not been identified or that we may believe are
immaterial or unlikely.  The value or market price of our common stock
could decline due to any of these risks, and you may lose all or part of your
investment. The risks discussed below also include forward-looking statements,
and our actual results may differ substantially from those discussed in these
forward-looking statements.




Our
provision for loan losses increased substantially during each of the past two
fiscal years and we may be required to make further increases in our provision
for loan losses and to charge-off additional loans in the future, especially due
to our level of non-performing assets.  Further, our allowance for
loan losses may prove to be insufficient to absorb losses in our loan
portfolio.




For the
year ended September 30, 2010, we recorded a provision for loan losses of $26.1
million and net loan charge-offs of $19.7 million.  Our non-performing
assets increased from $67.8 million, or 4.82% of total assets at September 30,
2009 to $74.5 million, or 5.13% of total assets at September 30,
2010.  The increase was primarily due to the weakened economy and the
softening real estate market.  If the economy and/or the real estate
market continues to weaken these assets may not perform according to their terms
and the value of the collateral may be insufficient to pay any remaining loan
balance.  If this occurs, we may experience losses, which could have a
negative effect on our results of operations.  Like all financial
institutions, we maintain an allowance for loan losses to provide for loans in
our portfolio that may not be repaid in their entirety.  We believe
that our allowance for loan losses is maintained at a level adequate to absorb
probable losses inherent in our loan portfolio as of the corresponding balance
sheet date.  However, our allowance for loan losses may not be
sufficient to cover actual loan losses, and future provisions for loan losses
could materially adversely affect our operating results.





Federal
regulators, as an integral part of their examination process, periodically
review our allowance for loan losses and may require us to increase our
allowance for loan losses by recognizing additional provisions for loan losses
charged to expense, or to decrease our allowance for loan losses by recognizing
loan charge-offs.  Any such additional provisions for loan losses or
charge-offs, as required by these regulatory agencies, could have a material
adverse effect on our financial condition and results of
operations.




Our
commercial lending exposes us to lending risks.




At
September 30, 2010, $561.1 million, or 52.4%, of our loan portfolio consisted of
multi-family, commercial and certain residential real estate and commercial
industrial loans.  We intend to continue to emphasize these types of
lending.  Commercial loans generally expose a lender to greater risk
of non-payment and loss than one- to four-family residential mortgage loans
because repayment of the loans often depends on the successful operation of the
business and the income stream of the borrowers.  Such loans typically
involve larger loan balances to single borrowers or groups of related borrowers
compared to one- to four-family residential mortgage loans.  Also,
many of our commercial borrowers have more than one loan outstanding with
us.  Consequently, an adverse development with respect to one loan or
one credit relationship can expose us to a significantly greater risk of loss
compared to an adverse development with respect to a one- to four-family
residential mortgage loan.


36




Our
emphasis on residential mortgage loans and home equity loans exposes us to
lending risks.




At
September 30, 2010, $243.6 million, or 22.8%, of our loan portfolio consisted of
one- to four-family residential first mortgage loans, $60.3 million, or 5.6%, of
our loan portfolio consisted of one- four-family residential second mortgage
loans and $201.9 million, or 18.9%, of our loan portfolio consisted of home
equity lines of credit.  Recent declines in the housing market have
resulted in declines in real estate values in our market areas.  These
declines in real estate values could cause some of our mortgage and home equity
loans to be inadequately collateralized, which would expose us to a greater risk
of loss if we seek to recover on defaulted loans by selling the real estate
collateral.




High
loan-to-value ratios on a significant portion of our residential mortgage and
home equity line of credit portfolios expose us to greater risk of
loss.




Many of
our residential mortgage loans are secured by liens on properties in which the
borrowers have little or no equity because we originated a first mortgage with
an 80% loan-to-value ratio at the time of purchase and a concurrent second
mortgage with a combined loan-to-value ratio of up to 100%.  At
September 30, 2010, approximately $31.3 million of second mortgage loans, or
10.3% of our $303.8 million residential mortgage loan portfolio, had
original combined loan-to-value ratios in excess of 90%, based on appraisals
obtained at the time of origination.  In addition, our home equity
lines of credit may have, when added to existing senior lien balances, a
combined loan-to-value ratio at the date of origination based upon the
fully-disbursed amount, of up to 100% of the value of the home securing the
loan. At September 30, 2010, we held $9.6 million of uninsured home equity lines
of credit with a combined loan-to-value ratio in excess of 90%. Our average
loan-to-value ratio in our home equity line of credit portfolio is below 80%.
These loan-to-value ratios are based on values at the time of
origination.  Subsequent declines in real estate values have likely
resulted in an increase in such ratios.  Residential loans with high
combined loan-to-value ratios will be more sensitive to declining property
values than would those with lower combined loan-to-value ratios and, therefore,
may experience a higher incidence of default and severity of losses. In
addition, if the borrowers sell their homes, such borrowers may be unable to
repay their loans in full from the proceeds of the sale.




The
unseasoned nature of many loans in our commercial loan portfolio may result in
errors in judging their collectability, which may lead to additional provisions
for loan losses and/or charge-offs, which would reduce our profits.




Our
commercial loan portfolio, which includes loans secured by commercial,
multi-family and residential real estate as well as business assets, has
decreased $35.8 million, or 6.0%, to $561.1 million at September 30, 2010 from
$596.9 million at September 30, 2009, but increased $291.0 million from
$270.1 million at September 30, 2006.  A large portion of our
commercial loan portfolio is unseasoned and does not provide us with a
significant payment history pattern from which to judge future collectability.
As a result, it is difficult to predict the future performance of this part of
our loan portfolio. These loans may have delinquency or charge-off levels above
our historical experience, which could adversely affect our future performance.
Further, commercial loans generally have larger balances and involve a greater
risk than one- to four-family residential mortgage loans. Accordingly, if we
make any errors in judgment in the collectability of our commercial loans, any
resulting charge-offs may be larger on a per-loan basis than those incurred with
our residential mortgage loan portfolio.


37




Our
earnings could be negatively affected if the level of our non-performing assets
increases further.




During
the last three fiscal years, due primarily to the economic environment, our
total non-performing assets increased from $13.6 million at September 30, 2007
to $74.5 million at September 30, 2010.  Our non-performing assets
adversely affect our net income in various ways.  We do not record
interest income on non-accrual loans or real estate acquired through
foreclosure, which has a negative impact on our net interest
margin.  An increase in non-performing assets might require additions
to our allowance for loan losses through provisions for loan losses, which are
recorded as a charge to income. From time to time, we may record write downs of
the value of properties that we previously acquired through foreclosure to
reflect changing market values, which are also recorded as a charge to
income.  There are legal fees associated with the resolution of
problem assets as well as carrying costs such as taxes, insurance and
maintenance related to foreclosed properties.





If
the value of real estate in the St. Louis and Kansas City metropolitan areas
were to continue to decline, a significant portion of our loan portfolio could
become under-collateralized, which could have a material adverse effect on
us.




The St.
Louis and Kansas City metropolitan areas have experienced declines in home
prices over the past two years.  A further decline in local economic
conditions could have an additional adverse affect on the value of the real
estate collateral securing our loans. A continued decline in property values
would diminish our ability to recover on defaulted loans by selling the real
estate collateral, making it more likely that we would suffer losses on
defaulted loans. Additionally, a decrease in asset quality could require
additions to our allowance for loan losses through increased provisions for loan
losses, which would reduce our profits. Also, a decline in local economic
conditions may have a greater effect on our earnings and capital than on the
earnings and capital of larger financial institutions whose real estate loan
portfolios are more geographically diverse. Real estate values are affected by
various factors in addition to local economic conditions, including, among other
things, changes in general or regional economic conditions, governmental rules
or policies and natural disasters.




Our
business is subject to the success of the local economy in which we
operate.




Since the
latter half of 2007, depressed economic conditions have existed throughout the
United States, including our market area.  Our market area has
experienced home price declines, increased foreclosures and increased
unemployment rates.  Continued deterioration of economic conditions in
our market area could reduce our growth rate, affect the ability of our
customers to repay their loans and generally affect our financial condition and
results of operations.  Conditions such as inflation, recession,
unemployment, high interest rates, short money supply, scarce natural resources,
international disorders, terrorism and other factors beyond our control may
adversely affect our profitability.  We are less able than a larger
institution to spread the risks of unfavorable local economic conditions across
a large number of diversified economies.  Any sustained period of
increased loan delinquencies, foreclosures or losses caused by adverse market or
economic conditions in our market areas in Missouri and Kansas could adversely
affect our results of operations and financial condition. Moreover, we cannot
give any assurance we will benefit from any market growth or favorable economic
conditions in our primary market areas if they do occur.




Recent
negative developments in the financial industry and the domestic and
international credit markets may adversely affect our operations and our stock
price.




As a
result of the general economic downturn and uncertainty in the financial
markets, commercial as well as consumer loan portfolio performances have
deteriorated at many institutions and the competition for deposits and quality
loans has increased significantly. In addition, the values of real estate
collateral supporting many commercial loans and home mortgages have declined and
may continue to decline. Bank and bank holding company stock prices have been
negatively affected, as has the ability of banks and bank holding companies to
raise capital or borrow in the debt markets compared to recent years. As a
result, there is a potential for new federal or state laws and regulations
regarding lending and funding practices and liquidity standards, and bank
regulatory agencies are expected to continue to be very aggressive in responding
to concerns and trends identified in examinations, including the issuance of
many formal enforcement orders.  Negative developments in the
financial industry and the domestic and international credit markets, and the
impact of new legislation in response to those developments, may negatively
impact our operations by restricting our business operations, including our
ability to originate or sell loans, and adversely impact our financial
performance or our stock price.


38




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




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




The
Company’s ability to pay dividends and meet its interest obligations are subject
to the ability of the Bank to make capital distributions to the
Company.




The
Company’s ongoing liquidity needs include funding its general operating
expenses, paying dividends on its common and preferred stock and paying interest
on its subordinated debentures.  The Company is dependent on the
receipt of dividends from the Bank to satisfy these obligations. Under OTS
regulations as they currently apply to the Bank, the Bank is required to obtain
prior approval from the OTS before it can make a capital distribution to the
Company.  If the Bank cannot obtain such approval and is unable to
make a capital distribution to the Company, the Company would need to find other
sources of liquidity or reduce its obligations, which would require it to reduce
or eliminate its dividend to common shareholders and/or suspend its dividend
payments on its preferred stock and its interest payments on its subordinated
debentures.





An
increase in interest rates may reduce our mortgage revenues, which would
negatively impact our non-interest income.
  Our
mortgage banking operations provide a significant portion of our non-interest
income. We generate mortgage revenues primarily from gains on the sale of loans
to investors on a servicing-released basis. In a rising or higher interest rate
environment, our originations of mortgage loans may decrease, resulting in fewer
loans that are available to be sold to investors. This would result in a
decrease in mortgage revenues and a corresponding decrease in non-interest
income. In addition, our results of operations are affected by the amount of
non-interest expenses associated with mortgage banking activities, such as
salaries and employee benefits, occupancy, equipment and data processing expense
and other operating costs. During periods of reduced loan demand, our results of
operations may be adversely affected to the extent that we are unable to reduce
expenses commensurate with the decline in loan originations.
 
 In
addition, we generally sell these loans to investors on a “best efforts” basis
whereby we obtain commitments from our investors to purchase these loans 30 to
60 days in the future for a fixed price at or near the time we issue a
commitment to our borrowers to originate the loans, thus locking in the profit
on the ultimate sale.  During periods of rising interest rates, if we
cannot deliver these loans to our investors during the specified commitment
period because we are unable to satisfy all prerequisites required by them to
purchase such loans, we may lose the ability to deliver the loans to them at the
commitment price, resulting in a reduction of our mortgage revenues and a
compression of the profit margin on loans sold.


39




Secondary
mortgage market conditions could have a material impact on our financial
condition and results of operations.




In
addition to being affected by interest rates, the secondary mortgage markets are
also subject to investor demand for residential mortgage loans and increased
investor yield requirements for those loans.  These conditions may
fluctuate or even worsen in the future.  In light of current
conditions, there is a higher risk to retaining a larger portion of mortgage
loans than we would in other environments until they are sold to
investors.  We believe our ability to retain fixed-rate residential
mortgage loans is limited.  As a result, a prolonged period of
secondary market illiquidity may reduce our loan production volumes and could
have a material adverse effect on our financial condition and results of
operation.




If
we are required to repurchase mortgage loans that we have previously sold, it
would negatively affect our earnings.




One of
our primary business operations is our mortgage banking operations, under which
we sell residential mortgage loans in the secondary market under agreements that
contain representations and warranties related to, among other things, the
origination and characteristics of the mortgage loans.  We may be
required to repurchase mortgage loans that we have sold in cases of breaches of
these representations and warranties.  We have experienced and
continue to experience increasing repurchase demands from and disputes with
these buyers.  If we are required to repurchase mortgage loans or
provide indemnification or other recourse, this could significantly increase our
costs and thereby affect our future earnings.





Fluctuations
in interest rates could reduce our profitability and affect the value of our
assets.




Like
other financial institutions, we are subject to interest rate
risk.  Our primary source of income is net interest income, which is
the difference between interest earned on loans and investments and the interest
paid on deposits and borrowings.  We expect that we will periodically
experience imbalances in the interest rate sensitivities of our assets and
liabilities and the relationships of various interest rates to each
other.  Over any defined period of time, our interest-earning assets
may be more sensitive to changes in market interest rates than our
interest-bearing liabilities, or vice versa.  In addition, the
individual market interest rates underlying our loan and deposit products (e.g., the prime rate) may not
change to the same degree over a given time period.  In any event, if
market interest rates should move contrary to our position, our earnings may be
negatively affected.  In addition, loan volume and quality and deposit
volume and mix can be affected by market interest rates.  Changes in
levels of market interest rates could materially adversely affect our net
interest spread, asset quality, origination volume and overall
profitability.




We
principally manage interest-rate risk by managing our volume and mix of our
earning assets and funding liabilities.  In a changing interest rate
environment, we may not be able to manage this risk effectively.  If
we are unable to manage interest rate risk effectively, our business, financial
condition and results of operations could be materially harmed.


40




If
the goodwill that we recorded in connection with a business acquisition becomes
impaired, it could have a negative impact on our profitability.




Goodwill
represents the amount of acquisition cost over the fair value of net assets we
acquired in the purchase of another financial institution.  We review
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.  We determine impairment 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 our results of operations in the periods in which they become
known.  At September 30, 2010, our goodwill totaled $3.9
million.  While we have recorded no such impairment charges since we
initially recorded the goodwill, there can be no assurance that our future
evaluations of goodwill will not result in findings of impairment and related
write-downs, which may have a material adverse effect on our financial condition
and results of operations.





Our
business strategy includes the continuation of moderate growth plans, and our
financial condition and results of operations could be negatively affected if we
fail to grow or fail to manage our growth effectively.




Our
assets increased $45.7 million, or 3.3%, from $1.41 billion at
September 30, 2009 to $1.45 billion at September 30, 2010, primarily
due to increases in residential real estate loans held for sale.  We
expect to continue to experience growth in the amount of our assets, the level
of our deposits and the scale of our operations.  Achieving our growth
targets requires us to attract customers that currently bank at other financial
institutions in our market, thereby increasing our share of the
market.  Our ability to successfully grow will depend on a variety of
factors, including our ability to attract and retain experienced bankers, the
continued availability of desirable business opportunities, the competitive
responses from other financial institutions in our market areas and our ability
to manage our growth.  While we believe we have the management
resources and internal systems in place to successfully manage our future
growth, there can be no assurance growth opportunities will be available or that
we will successfully manage our growth.  If we do not manage our
growth effectively, we may not be able to achieve our business plan, and our
business and prospects could be harmed.




Our
continued pace of growth may require us to raise additional capital in the
future, but that capital may not be available when it is needed.




We are
required by federal regulatory authorities to maintain adequate levels of
capital to support our operations.  We anticipate that we have
sufficient capital resources to satisfy our capital requirements for the
foreseeable future.  We may at some point, however, need to raise
additional capital to support our continued growth.  If we raise
capital through the issuance of additional shares of our common stock or other
securities, it would dilute the ownership interests of existing shareholders and
may dilute the per share book value of our common stock.  New
investors may also have rights, preferences and privileges senior to our current
shareholders which may adversely impact our current shareholders.





Our
ability to raise additional capital, if needed, will depend on conditions in the
capital markets at that time, which are outside of our control, and on our
financial performance.  Accordingly, we may not be able to raise
additional capital, if needed, on terms acceptable to us.  If we
cannot raise additional capital when needed, our ability to further expand our
operations through internal growth and acquisitions could be materially
impaired.


41





Our
wholesale funding sources may prove insufficient to replace deposits at maturity
and support our future growth.




We must
maintain sufficient funds to respond to the needs of depositors and
borrowers.  As a part of our liquidity management, we use a number of
funding sources in addition to deposit growth and repayments and maturities of
loans and investments.  As we continue to grow, we may become more
dependent on these sources, which include FHLB advances, borrowings from the
Federal Reserve Bank, proceeds from the sale of loans, and brokered certificates
of deposit.  At September 30, 2010, we had $181.0 million of FHLB
advances outstanding with an additional $175.0 million available borrowing
capacity, no borrowings from the Federal Reserve Bank outstanding with $153.0
million of available borrowing capacity and $8.4 million in brokered
certificates of deposit.  If we were to become less than “well
capitalized,” as defined by applicable OTS regulations, it would materially
restrict our ability to acquire and retain brokered certificates of deposit and
could reduce the maximum borrowing limits we currently have available through
the FHLB and the Federal Reserve Bank.  Additionally, adverse
operating results or changes in industry conditions could lead to difficulty or
an inability to access these additional funding sources.  Our
financial flexibility will be severely constrained if we are unable to maintain
our access to funding or if adequate financing is not available to accommodate
future growth at acceptable interest rates.  Finally, if we are
required to rely more heavily on more expensive funding sources to support
future growth, our revenues may not increase proportionately to cover our
costs.  In this case, our operating margins and profitability would be
adversely affected.





The
building of market share through our branching strategy could cause our expenses
to increase faster than revenues.




We may
continue to build market share in the St. Louis metropolitan area through our
branching strategy.  We opened three new branches during calendar year
2007.  There are considerable costs involved in opening branches and
new branches generally require a period of time to generate sufficient revenues
to offset their costs, especially in areas in which we do not have an
established presence.  Accordingly, any new branch can be expected to
negatively impact our earnings for some period of time until the branch reaches
certain economies of scale.  We have no assurance our new branches
will be successful even after they have been established.





We
are dependent upon the services of our management team.




Our
future success and profitability is substantially dependent upon the management
and banking abilities of our senior executives.  We believe that our
future results will also depend, in part, upon our attracting and retaining
highly skilled and qualified management.  We are especially dependent
on a limited number of key management personnel, none of whom has an employment
agreement with us, except for our chief executive officer.  The loss
of the chief executive officer and other senior executive officers could have a
material adverse impact on our operations because other officers may not have
the experience and expertise to readily replace these
individuals.  Competition for such personnel is intense, and we cannot
assure you that we will be successful in attracting or retaining such
personnel.  Changes in key personnel and their responsibilities may be
disruptive to our business and could have a material adverse effect on our
business, financial condition and results of operations.





Our
failure to continue to recruit and retain qualified loan originators could
adversely affect our ability to compete successfully and affect our
profitability.




Our
continued success and future growth depend heavily on our ability to attract and
retain highly skilled and motivated loan originators and other banking
professionals.  We compete against many institutions with greater
financial resources both within our industry and in other industries to attract
these qualified individuals.  Our failure to recruit and retain
adequate talent could reduce our ability to compete successfully and adversely
affect our business and profitability.


42




The
limitations on dividends and repurchases imposed through our participation in
the Capital Purchase Program may make our common stock a less attractive
investment.




On
January 16, 2009, the United States Department of the Treasury purchased newly
issued shares of our preferred stock as part of the Troubled Asset Relief
Program’s Capital Purchase Program.  As part of this transaction, we
agreed to not increase the dividend paid on our common stock and to not
repurchase shares of our common stock for a period of three
years.  These capital management devices contribute to the
attractiveness of our common stock and limitations and prohibitions on such
activities may make our common stock less attractive to investors.




The
limitations on executive compensation imposed through our participation in the
Capital Purchase Program may restrict our ability to attract, retain and
motivate key employees, which could adversely affect our
operations.




As part
of our participation in the Capital Purchase Program, we agreed to be bound by
certain executive compensation restrictions, including limitations on severance
payments and the clawback of any bonus and incentive compensation that were
based on materially inaccurate financial statements or any other materially
inaccurate performance metric criteria.  The American Recovery and
Reinvestment Act of 2009 provides more stringent limitations on severance pay
and the payment of bonuses to certain officers and highly compensated
employees.  To the extent that any of these compensation restrictions
limit our ability to provide a comprehensive compensation package to our key
employees that is competitive in our market area, we may have difficulty in
attracting, retaining and motivating our key employees, which could have an
adverse effect on our results of operations.




It
the U. S. Treasury Department chooses to exercise the warrant, existing
stockowners’ ownership interests will be diluted and it could become more
difficult for us to take certain actions that may be in the best interests of
shareholders.




In
addition to the issuance of preferred shares, we also granted the U.S. Treasury
Department a warrant to purchase 778,421 common shares at a price of $6.27 per
share.  If the U.S. Treasury Department exercises the entire warrant,
it would result in a significant dilution to the ownership interest of our
existing stockholders and dilute the earnings per share value of our common
stock.  Further, if the U.S. Treasury Department exercises the entire
warrant, it will become the second largest shareholder of the
Company.  The U.S. Treasury Department has agreed that it will not
exercise voting power with regard to the shares that it acquires by exercising
the warrant.  However, U.S. Treasury Department’s abstention from
voting may make it more difficult for us to obtain shareholder approval for
those matters that require a majority of total shares outstanding, such as a
business combination involving the Company.




The
terms governing the issuance of the preferred stock to Treasury may be changed,
the effect of which may have an adverse effect on our operations.




The
Securities Purchase Agreement that we entered into with the U.S. Treasury
Department provides that it may unilaterally amend any provision of the
agreement to the extent required to comply with any changes in applicable
federal statutes that may occur in the future.  The American Recovery
and Reinvestment Act of 2009 placed more stringent limits on executive
compensation for participants in the TARP Capital Purchase Program and
established a requirement that compensation paid to executives be presented to
shareholders for a “non-binding” vote.  Further changes in the terms
of the transaction may occur in the future.  Such changes may place
further restrictions on our business or results of operations, which may
adversely affect the market price of our common stock.


43




Increased
and/or special FDIC assessments will hurt our earnings.




Beginning
in late 2008, the economic environment caused higher levels of bank failures,
which dramatically increased FDIC resolution costs and led to a significant
reduction in the Deposit Insurance Fund. As a result, the FDIC has significantly
increased the initial base assessment rates paid by financial institutions for
deposit insurance.  These increases in the base assessment rate have
increased our deposit insurance costs and negatively impacted our
earnings.  In addition, in May 2009, the FDIC imposed a special
assessment on all insured institutions due to recent bank and savings
association failures.  Our special assessment, which was reflected in
earnings for the quarter ended June 30, 2009, was $700,000.




In lieu
of imposing an additional special assessment, the FDIC adopted a rule requiring
that all institutions prepay their assessments for the fourth quarter of 2009
and all of 2010, 2011 and 2012.  This pre-payment was on December 30,
2009.  Under the rule, the assessment rate for the fourth quarter of
2009 and for 2010 is based on each institution’s total base assessment rate for
the third quarter of 2009, modified to assume that the assessment rate in effect
on September 30, 2009 had been in effect for the entire third quarter, and the
assessment rate for 2011 and 2012 will be equal to the modified third quarter
assessment rate plus an additional 3 basis points.  In addition, each
institution’s base assessment rate for each period will be calculated using its
third quarter assessment base, adjusted quarterly for an estimated 5% annual
growth rate in the assessment base through the end of 2012.  Under
this rule, we were required to make a payment of approximately $7.3 million to
the FDIC on December 30, 2009.  We recorded this payment as a prepaid
expense and are amortizing the expense over the three year assessment
period.





We
operate in a highly regulated environment and we may be adversely affected by
changes in laws and regulations.




Pulaski
Bank is subject to extensive regulation, supervision and examination by the OTS,
its chartering authority, and by the FDIC, as insurer of its
deposits.  The Company is subject to regulation and supervision by the
OTS.  Such regulation and supervision govern the activities in which
an institution and its holding company may engage, and are intended primarily
for the protection of the FDIC insurance fund and for the depositors and
borrowers of Pulaski Bank.  The regulation and supervision by the OTS
and the FDIC are not intended to protect the interests of investors in our
common stock.  Regulatory authorities have extensive discretion in
their supervisory and enforcement activities, including the imposition of
restrictions on our operations, the adverse classification of our assets and
determination of the level of our allowance for loan losses.  Any
change in such regulation and oversight, whether in the form of regulatory
policy, regulations, legislation or supervisory action, may have a material
impact on our operations.  In addition, the Sarbanes-Oxley Act of
2002, and the related rules and regulations promulgated by the Securities and
Exchange Commission and Nasdaq that are applicable to us, have, in recent years,
increased the scope, complexity and cost of corporate governance, reporting and
disclosure practices, including the costs of completing our audit and
maintaining our internal controls.




We
are subject to security and operational risks relating to our use of technology
that could damage our reputation and our business.




Security
breaches in our internet banking activities could expose us to possible
liability and damage our reputation.  Any compromise of our security
also could deter customers from using our internet banking services that involve
the transmission of confidential information.  We rely on standard
internet security systems to provide the security and authentication necessary
to effect secure transmission of data.  These precautions may not
protect our systems from compromises or breaches of our security measures that
could result in damage to our reputation and our
business.  Additionally, we outsource our data processing to a third
party.  If our third party provider encounters difficulties or if we
have difficulty in communicating with such third party, it will significantly
affect our ability to adequately process and account for customer transactions,
which would significantly affect our business operations.


44





Competition
from financial institutions and other financial service providers may adversely
affect our growth and profitability.




The
banking business is highly competitive and we experience competition from many
other financial institutions.  We compete with commercial banks,
credit unions, savings and loan associations, mortgage banking firms, consumer
finance companies, securities brokerage firms, insurance companies, money market
funds, and other mutual funds, as well as other super-regional, national and
international financial institutions that operate offices in our primary market
areas.




We
compete with these institutions both in attracting deposits and in making
loans.  This competition has made it more difficult for us to make new
loans and has occasionally forced us to offer higher deposit
rates.  Price competition for loans and deposits might result in us
earning less on our loans and paying more on our deposits, which reduces net
interest income.  Many of our competitors are larger financial
institutions. While we believe we can and do successfully compete with these
other financial institutions in our primary markets, we may face a competitive
disadvantage as a result of our smaller size, smaller resources and smaller
lending limits, lack of geographic diversification and inability to spread our
marketing costs across a broader market.  Although we compete by
concentrating our marketing efforts in our primary markets with local
advertisements, personal contacts and greater flexibility and responsiveness in
working with local customers, we can give no assurance this strategy will be
successful.




We
may have fewer resources than many of our competitors to invest in technological
improvements.




The
financial services industry is undergoing rapid technological changes, with
frequent introductions of new technology-driven products and
services.  The effective use of technology increases efficiency and
enables financial institutions to better serve customers and to reduce
costs.  Our future success will depend, in part, upon our ability to
address the needs of our customers by using technology to provide products and
services that will satisfy customer demands for convenience, as well as to
create additional efficiencies in our operations.  Many of our
competitors have substantially greater resources to invest in technological
improvements.  We may not be able to effectively implement new
technology-driven products and services or be successful in marketing these
products and services to our customers.


45


Item 1B. Unresolved Staff
Comments





None.





Item 2.
Properties





The Bank
conducts its business through twelve full-service banking offices and six loan
production offices.  The following table sets forth information on
those offices as of September 30, 2010.





Location
                                      
                                      Year
                                        Opened
                                      
                                      Net Book
                                        Value (1)
                                      
                                      Owned/
                                        Leased
                                      
                                      Approximate
                                        Square FootageMain
      Office:
                                      
                                      
                                      
                                      (Dollars in
      thousands)12300
      Olive Boulevard
                                        Creve
      Coeur, Missouri   63141
                                      
                                      1978
                                      
                                      $
                                      3,219
                                      
                                      Owned
                                      
                                      
                                      32,300Full-Service
      Bank Offices:11550
      New Halls Ferry Road
                                        Florissant,
      Missouri  63033
                                      
                                      1998
                                      
                                      
                                      961
                                      
                                      Owned/
                                        Leased
      (2)
                                      
                                      
                                      1,9003760
      South Grand Avenue
                                        St.
      Louis, Missouri   63118
                                      
                                      1967
                                      
                                      
                                      527
                                      
                                      Owned
                                      
                                      
                                      3,5004226
      Bayless Avenue
                                        St.
      Louis, Missouri   63123
                                      
                                      2001
                                      
                                      
                                      680
                                      
                                      Owned
                                      
                                      
                                      3,2001928
      Zumbehl Road
                                        St.
      Charles, Missouri   63303
                                      
                                      2000
                                      
                                      
                                      787
                                      
                                      Owned
                                      
                                      
                                      2,8001700
      O’Fallon RoadSt.
      Charles, Missouri   63304
                                      
                                      2003
                                      
                                      
                                      1,046
                                      
                                      Owned
                                      
                                      
                                      4,00017701
      Edison Avenue
                                        Chesterfield,
      Missouri   63005
                                      
                                      2005
                                      
                                      
                                      1,476
                                      
                                      Owned
                                      
                                      
                                      3,800415
      DeBaliviere Avenue
                                        St.
      Louis, Missouri   63112
                                      
                                      2006
                                      
                                      
                                      1,429
                                      
                                      Owned
                                      
                                      
                                      25,00010
      Maryland Plaza
                                        St.
      Louis, Missouri   63108
                                      
                                      2006
                                      
                                      
                                      29
                                      
                                      Leased
      (3)
                                      
                                      
                                      1,7006510
      Clayton Road
                                        Richmond
      Heights, Missouri 63117
                                      
                                      2007
                                      
                                      
                                      2,769
                                      
                                      Owned
                                      
                                      
                                      2,700900
      Olive Street
                                        St.
      Louis, Missouri 63101
                                      
                                      2007
                                      
                                      
                                      765
                                      
                                      Leased
      (4)
                                      
                                      
                                      3,700175
      Carondelet Plaza
                                        Clayton,
      Missouri 63105
                                      
                                      2007
                                      
                                      
                                      716
                                      
                                      Leased
      (5)
                                      
                                      
                                      4,100Other
      Offices:One
      Pulaski Center Drive
                                        St.
      Louis, Missouri   63141
                                      
                                      2003
                                      
                                      
                                      4,076
                                      
                                      Owned (10)
                                      
                                      
                                      27,0002724A
      Grovelin Street
                                        Godfrey,
      Illinois  62035
                                      
                                      2006
                                      
                                      
                                      7
                                      
                                      Leased
      (7)
                                      
                                      
                                      1,400


46





6600
      College Boulevard
                      Overland
      Park, Kansas   66211
                    
                    2002
                    
                    
                    182
                    
                    Leased
      (6)
                    
                    
                    12,7008413
      Clint Drive
                      Belton,
      Missouri   64012
                    
                    2007
                    
                    
                    34
                    
                    Leased
      (8)
                    
                    
                    900821
      NE Columbus
                      Lee’s
      Summit, Missouri 64063
                    
                    2008
                    
                    
                    61
                    
                    Leased
      (9)
                    
                    
                    1,900515
      S Main Street, Suite 102
                      Wichita,
      Kansas 67202
                    
                    2010
                    
                    
                    -
                    
                    Leased (11)
                    
                    
                    1,570





(1)
              Represents
      the net book value of land, buildings, furniture, fixtures and equipment
      owned by the Bank.


(2)
            The
      Bank owns the land where the branch is located.  The building on
      site is being leased on a month-to-month
basis.


(3)
            The
      lease expires on April 30, 2014.


(4)
            Lease
      expires on August 31, 2017.


(5)
            Lease
      expires on October 31, 2017.


(6)
            Houses
      loan production office.  Lease expires on October 31,
      2013.


(7)
            Houses
      loan production office.  Lease expires on December 14,
      2012.


(8)
              Houses
      loan production office. Lease expires on April 30,
  2012.


(9)
              Houses
      loan production office.  Lease expires on October 15,
      2011.


(10)
            Houses
      the mortgage lending, appraisal and title
  divisions.


(11)
            Houses
      loan production office.  Lease expires on June 30,
      2016.





Item 3. Legal
Proceedings





The
Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business which, in the
aggregate, involve amounts which are believed by management to be immaterial to
the financial condition and results of operations of the Company.





Item 4. [Removed and
Reserved]


47


PART
II





Item 5.  Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities





The
market for the registrant’s common equity and related stockholders matters
required by this item is incorporated herein by reference to the section
captioned “Common Stock Information” in the Annual Report to
Stockholders.





For a
description of restrictions on the Bank’s ability to pay cash dividends to
Pulaski Financial Corp., see “Regulation – Federal Savings Institution
Regulation – Limitations on Capital Distributions” and “Regulation – Holding
Company Regulation – Participation in the U.S. Department of Treasury’s Capital
Purchase Program” in this annual report on Form 10-K.





ISSUER PURCHASES OF EQUITY SECURITIES





Period
                        
                        (a)
                          Total
                          Number of
                          Shares (or
                          Units)
                          Purchased
                        
                        
                        (b)
                          Average
                          Price Paid per
                          Share
                          (or Unit)
                        
                        
                        (c)
                          Total Number of
                          Shares (or Units)
                          Purchased as Part
                          of Publicly
                          Announced Plans
                          or Programs (1)
                        
                        
                        (d)
                          Maximum Number (or
                          approximate
                          Dollar Value) of Shares
                          (or Units) that May Yet
                          Be Purchased Under the
                          Plans or Programs (1)July
      1, 2010 through  July 31, 2010
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        -
                        
                        
                        
                        365,538August
      1, 2010 through  August 31, 2010
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        365,538September
      1, 2010 through September 30, 2010
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        365,538Total





(1)
            In
      February 2007, the Company announced a repurchase program under which it
      could repurchase up to 497,000 shares of the Company’s common
      stock.  The repurchase
      program will continue until it is completed or terminated by the Board of
      Directors.  However, as part of the Company’s participation in
      the Capital Repurchase Program of the U.S. Department of Treasury’s
      Troubled Asset 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 repurchase any shares of its common
      stock, without the prior approval of the
  Treasury.


48





Item 6. Selected Financial
Data





The
information required by this item is incorporated herein by reference to the
section captioned “Selected Consolidated Financial Information” in the Annual
Report to Stockholders.





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





The
information required by this item is incorporated herein by reference to the
section captioned “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in the 2010 Annual Report to
Stockholders.





Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk





The
information required by this item is incorporated herein by reference to the
section captioned “Management’s Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk Analysis” in the 2010 Annual Report to
Stockholders.





Item 8.  Financial
Statements and Supplementary Data





The
financial statements required by this item are incorporated herein by reference
to the audited consolidated financial statements and notes thereto included in
the 2010 Annual Report to Stockholders.





Item 9.  Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure





None.





Item 9A.  Controls
and Procedures





The Company’s management, including the
Company’s principal executive officer and principal financial officer, have
evaluated the effectiveness of the Company’s “disclosure controls and
procedures,” as such term is defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended, (the “Exchange
Act”).  Based upon their evaluation, the principal executive officer
and principal financial officer concluded that, as of the end of the period
covered by this report, the Company’s disclosure controls and procedures were
effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the “SEC”)  is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and 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.  In addition, based on that evaluation, no change in the
Company’s internal control over financial reporting occurred during the quarter
ended September 30, 2010 that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial
reporting.





Management’s report on internal control
over financial reporting is incorporated by reference to page 34 in the 2010
Annual Report to Stockholders.





KPMG LLP’s attestation report on the
Company’s internal control over financial reporting is incorporated by reference
to page 35 in the 2010 Annual Report to Stockholders.





49




Item 9B.  Other
Information





None


50




PART
III





Item 10. Directors and
Executive Officers of the Registrant





Directors





For
information concerning the Board of Directors of the Company, the information
contained under the section captioned “Proposal 1 - Election of Directors” in
the Proxy Statement is incorporated herein by reference.





Executive
Officers





For
information concerning officers of the Company, see Part I, Item I, “Business –
Executive Officers of the Registrant.”





Compliance
with Section 16(a) of the Exchange Act





Reference
is made to the cover page of this Form 10-K and to the section captioned
“Compliance with Section 16(a) of the Exchange Act” in the Proxy Statement for
information regarding compliance with Section 16(a) of the Exchange
Act.





Code
of Ethics





We have
adopted a written code of ethics, which applies to our senior financial
officers.  We intend to disclose any changes or waivers from our Code
of Ethics applicable to any senior financial officers on our website at
http://www.pulaskibankstl.com or in a report on Form 8-K.  A copy of
the Code of Ethics is available, without charge, upon written request to Paul
Milano, Corporate Secretary, Pulaski Financial Corp., 12300 Olive Blvd, St.
Louis, MO, 63141.





Corporate
Governance





For
information regarding the audit committee and its composition and the audit
committee expert, the section captioned “Corporate Governance – Meetings and
Committees of the Board of Directors – Audit Committee” in the Proxy Statement
is incorporated herein by reference.





Item 11. Executive
Compensation





Executive
Compensation





The
information contained under the sections captioned “Compensation Discussion and
Analysis,” “Executive Compensation” and “Corporate Governance – Director
Compensation” in the Proxy Statement is incorporated herein by
reference.





Corporate
Governance





For
information regarding the compensation committee report, the section captioned
“Compensation Committee Report” in the Proxy Statement is incorporated herein by
reference.


51





Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters





(a)
              Security
      Ownership of Certain Beneficial
Owners




Information
required by this item is incorporated herein by reference to the section
captioned “Stock Ownership” in the Proxy Statement.




(b)
              Security
      Ownership of Management




The
information required by this item is incorporated herein by reference to the
sections captioned “Stock Ownership” in the Proxy Statement.




(c)
            Changes
      in Control




The
Company is not aware of any arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the Company.




(d)
              Equity
      Compensation Plan Information





The
following table sets forth information about Company common stock that may be
issued upon exercise of options, warrants and rights under all of the Company’s
equity compensation plans as of September 30, 2010.





Plan category
                      
                      Number of
                        securities
                        to be issued upon
                        exercise of
                        outstanding options,
                        warrants and rights
                        (a)
                      
                      
                      Weighted-average
                        exercise price of
                        outstanding
                        options,
                        warrants and rights
                        (b)
                      
                      
                      Number of securities
                        remaining available for future
                        issuance under equity
                        compensation plans
                        (excluding securities reflected
                        in column (a))
                        (c)Equity
      compensation plans approved by security holders
                      
                      
                      836,340
                      
                      
                      $
                      10.49
                      
                      
                      
                      432,166Equity
      compensation plans not approved by security holders (1)
                      
                      
                      13,500
                      
                      
                      
                      5.13
                      
                      
                      
                      —Total
                      
                      
                      849,840
                      
                      
                      $
                      10.40
                      
                      
                      
                      432,166





(1)
            Consists
      of non-statutory stock options granted in 2001 outside of the Company’s
      stock option plans.  Each of the options was granted at a price
      equal to the fair market value of the Company common stock on the date of
      grant.  All of the options vest ratably over a five-year period
      beginning on the first anniversary date of grant and expire ten years from
      date of grant.  However, in the event of a change in control (as
      defined in the Company’s 2000 Stock-Based Incentive Plan) all options will
      become exercisable until the expiration of the term of the option,
      regardless of termination of
employment.


52





Item 13. Certain
Relationships, and Director Independence Related
Transactions





The
information set forth under the sections captioned “Corporate Governance –
Independent Directors,” “- Policy and Procedures Governing Related Party
Transactions,” and “Transactions with Management” in the Proxy Statement is
incorporated by reference.





Item 14. Principal
Accountant Fees and Services





The
information set forth under the section captioned “Proposal 3—Ratification of
Independent Registered Public Accounting Firm” in the Proxy Statement is
incorporated by reference.


53


PART
IV





Item 15. Exhibits and
Financial Statement Schedules





The
following documents are filed as part of this report:





1.      Financial
Statements





Report of
Independent Registered Public Accounting Firm


Consolidated
Balance Sheets at September 30, 2010 and 2009


Consolidated
Statements of Income and Comprehensive Income for the Years Ended September 30,
2010, 2009 and 2008


Consolidated
Statements of Stockholders’ Equity for the Years Ended September 30, 2010, 2009
and 2008


Consolidated
Statements of Cash Flows for the Years Ended September 30, 2010, 2009 and
2008


Notes to
Consolidated Financial Statements for the Years ended September 30, 2010, 2009
and 2008





Such
financial statements are incorporated herein by reference to the Consolidated
Financial Statements and Notes thereto included in the 2010 Annual Report to
Stockholders.





2.      Financial
Statement Schedules





None.





3.  Exhibits





The
exhibits listed below are filed as part of this report or are incorporated by
reference herein.





Exhibit
                          No.
                        
                        Description
                        
                        Incorporated by
                          Reference to3.1
                        
                        Articles
      of Incorporation of Pulaski Financial Corp.
                        
                        Definitive
      Proxy Statement as filed on December 27, 20023.2
                        
                        Certificate
      of Amendment to Articles of Incorporation of Pulaski Financial
      Corp.
                        
                        Form
      10-Q for the quarterly period ended December 31, 2003, as filed on
      February 17, 20043.3
                        
                        Certificate
      of Designations establishing Fixed Rate Cumulative Perpetual Preferred
      Stock, Series A
                        
                        Form
      8-K, as filed on January 16, 20093.4
                        
                        Bylaws
      of Pulaski Financial Corp.
                        
                        Form
      8-K, as filed on December 21, 20074.1
                        
                        Form
      of Certificate for Common Stock
                        
                        Form
      S-1 (Registration No. 333-56465), as amended, as filed on June 9,
      1998




54





4.2
              
              Form
      of stock certificate for Fixed Rate Cumulative Perpetual Preferred Stock,
      Series A
              
              Form
      8-K, as filed on January 16, 20094.3
              
              Warrant
      to Purchase 778,421 shares of common stock of Pulaski Financial
      Corp.
              
              Form
      8-K, as filed on January 16, 20094.4
              
              No
      long-term debt instrument issued by the Registrant exceeds 10% of
      consolidated assets or is registered.  In accordance with
      paragraph 4(iii) of Item 601(b) of Regulation S-K, the Registrant will
      furnish the Securities and Exchange Commission copies of long-term debt
      instruments and related agreements upon request.10.1*
              
              Employment
      Agreement by and among Pulaski Bank, Pulaski Financial Corp. and Gary W.
      Douglass
              
              Form
      10-Q for the quarterly period ended March 31, 2008, as filed on May 12,
      200810.2*
              
              Pulaski
      Financial Corp. 2002 Stock Option Plan.
              
              Definitive
      Proxy Statement as filed on December 27, 200110.3*
              
              Pulaski
      Financial Corp. 2000 Stock-Based Incentive Plan
              
              Definitive
      Proxy Statement as filed on December 16, 199910.4*
              
              Amendment
      to Pulaski Financial Corp. 2002 Stock Option Plan
              
              Form
      10-Q for the quarterly period ended March 31, 2004, as filed on May 14,
      200410.5*
              
              Pulaski
      Financial Corp. Deferred Compensation Plan (“Equity Trust
      Plan”)
              
              Form
      10-K for the year ended September 30, 2003, as filed on December 29,
      200310.6*
              
              Separation
      and Release Agreement between Pulaski Financial Corp. and William A.
      Donius
              
              Form
      10-Q for the quarterly period ended March 31, 2008, as filed on May 12,
      200810.7*
              
              Form
      of Stock Option Agreement
              
              Form
      10-Q for the year period ended March 31, 2005, as filed on May 10,
      200510.8*
              
              Pulaski
      Financial Corp. Cash-Based Deferred Compensation Plan, as amended and
      restated
              
              Form
      10-Q for the quarterly period ended March 31, 2009, as filed on May 8,
      200910.9*
              
              Pulaski
      Financial Corp. Stock-Based Deferred Compensation Plan, as amended and
      restated
              
              Form
      10-Q for the quarterly period ended March 31, 2009, as filed on May 8,
      200910.10*
              
              Form
      of Pulaski Financial Corp. Cash-Based Deferred Compensation Plan Election
      Form
              
              Definitive
      Proxy Statement as filed on December 13, 200510.11*
              
              Form
      of Pulaski Financial Corp. Stock-Based Deferred Compensation Plan Election
      Form
              
              Form
      10-K for the year ended September 30, 2005, as filed on December 30,
      2005


55





10.12*
              
              Pulaski
      Financial Corp. 2006 Long-Term Incentive Plan
              
              Definitive
      Proxy Statement for the 2006 Annual Meeting of
  Stockholders10.13*
              
              Form
      of Non-Solicitation and Confidentiality Agreement between Pulaski
      Financial Corp. and each of Paul J. Milano, W. Thomas Reeves, Matthew A.
      Locke and Brian J. Bjorkman
              
              Form
      10-K for the year ended September 30, 2008, as filed on December 12,
      200810.14*
              
              Compensation
      arrangement with Matthew A. Locke
              
              Form
      10-Q for the quarterly period ended June 30, 2009, as filed on August 7,
      200910.15*
              
              Compensation
      arrangement with Brian J. Bjorkman
              
              Form
      10-Q for the quarterly period ended June 30, 2009, as filed on August 7,
      200913.0
              
              2010
      Annual Report to Stockholders21.1
              
              Subsidiaries
      of Pulaski Financial Corp.23.1
              
              Consent
      of KPMG LLP31.1
              
              Rule
      13a-14(a) 15d-14(a) Certification of Chief Executive
    Officer31.2
              
              Rule
      13a-14(a) 15d-14(a) Certification of Chief Financial
    Officer32.1
              
              Chief
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
              
              Chief
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200299.1
              
              Chief
      Executive Officer Certification regarding TARP99.2
              
              Chief
      Financial Officer Certification regarding TARP





*
Management contract or compensatory plan or arrangement filed pursuant to Item
15(a) of this Report.


56


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.(Registrant)/s/ Gary W. DouglassGary
      W. DouglassPresident
      and Chief Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





NAME
                
                TITLE
                
                DATE/s/ Gary W. Douglass
                
                President
      and Chief Executive Officer
                
                December
      17, 2010Gary
      W. Douglass
                
                (principal
      executive officer)/s/ Paul J. Milano
                
                Chief
      Financial Officer
                
                December
      17, 2010Paul
      J. Milano
                
                (principal
      accounting and financialofficer)/s/ Stanley J. Bradshaw
                
                Chairman
      of the Board
                
                December
      17, 2010Stanley
      J. Bradshaw/s/ Lee S. Wielansky
                
                Vice-Chairman
      of the Board
                
                December
      17, 2010Lee
      S. Wielansky/s/ William M. Corrigan,
Jr.
                
                Director
                
                December
      17, 2010William
      M. Corrigan, Jr./s/ William A. Donius
                
                Director
                
                December
      17, 2010William
      A. Donius/s/ Leon A. Felman
                
                Director
                
                December
      17, 2010Leon
      A. Felman/s/ Michael R. Hogan
                
                Director
                
                December
      17, 2010Michael
      R. Hogan/s/ Timothy K. Reeves
                
                Director
                
                December
      17, 2010Timothy
      K. Reeves/s/ Steven C. Roberts
                
                Director
                
                December
      17, 2010Steven
      C. Roberts


57