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, 2009
 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 ̈Nox.
 
 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 Company x
 
 (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 o 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 $41.4
million.                     .
 
 There
were issued and outstanding 10,439,870 shares of the registrant’s common stock
as of December 17, 2009.
 
 Documents
Incorporated by Reference
 Portions
of 2009 Annual Report to Stockholders (Part II).
 Portions
of the Definitive Proxy Statement for the 2010 Annual Meeting of Stockholders
(Part III).
  
  INDEX
 
 Page No.PART
      IItem
      1.
                      Business
                      
                      3Item
      1A.
                      Risk
      Factors
                      
                      35Item
      1B.
                      Unresolved
      Staff Comments
                      
                      45Item
      2.
                      Properties
                      
                      45Item
      3.
                      Legal
      Proceedings
                      
                      46Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      
                      46PART
      IIItem
      5.
                      Market
      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                      
                      47Item
      6.
                      Selected
      Financial Data
                      
                      48Item
      7.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      48Item
      7A.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      
                      48Item
      8.
                      Financial
      Statements and Supplementary Data
                      
                      48Item
      9.
                      Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                      
                      48Item
      9A.
                      Controls
      and Procedures
                      
                      48Item
      9B.
                      Other
      Information
                      
                      49PART
      IIIItem
      10.
                      Directors,
      Executive Officers and Corporate Governance
                      
                      50Item
      11.
                      Executive
      Compensation
                      
                      50Item
      12.
                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                      
                      51Item
      13.
                      Certain
      Relationships, Related Transactions and Director
    Independence
                      
                      52Item
      14.
                      Principal
      Accountant Fees and Services
                      
                      52PART
      IVItem
      15.
                      Exhibits
      and Financial Statement Schedules
                      
                      53SIGNATURES
                      
                      56
  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 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 five 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 one-to four-family residential
mortgage loans, residential construction loans, home equity lines of credit,
multi-family and commercial real estate and commercial and industrial loans
principally within its lending market.
 
 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 metropolitan area.  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.
  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, 2009, which is the most recent date for which data is available
from the Federal Deposit Insurance Corporation (the “FDIC”), we held
approximately 1.7% of the deposits in the St. Louis, Missouri-Illinois
Metropolitan Statistical Area, which was the tenth largest market share out
of 144 financial institutions with offices in this metropolitan statistical
area.  Banks owned by large bank holding companies, such as US
Bancorp, Bank of America Corporation and Regions Financial Corp., 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
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 year ended September 30, 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 extremely credit-worthy borrowers.  However, the
current underwriting guidelines are more stringent due to the current adverse
economic environment.  At September 30, 2009, the Company had $71.5
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, 2009, the Company performed approximately 36% 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.
  Construction and Development
Loans.  We originate real estate construction and development
loans that consist of 1-4 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 title company 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 is 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 from commercial borrowers.  Due to the downturn in local and
national economic conditions, we significantly de-emphasized this type of
lending during the year ended September 30, 2009.
  Commercial Real Estate
Loans.  We engage in commercial real estate lending, typically
through direct originations.  We have expanded our commercial real
estate portfolio 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.  Our legal lending limit to any one borrower is 15% of the
Bank’s unimpaired capital plus reserves, or approximately $21 million at
September 30, 2009.  However, our maximum exposure to any one borrower
did not exceed $17 million.
  5
  Commercial and Industrial
Loans.  We originate commercial and industrial loans that are
secured by property such as inventory, equipment and finished
goods.  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 from loan to 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.
  Home Equity Lines of
Credit.  Home equity lines of credit are secured with a deed of
trust 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, 2009, the balance of home
equity loans with combined loan-to-value ratios equal to 100% or greater, based
on the original appraisals, totaled approximately $5.6
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 better rates given to borrowers with
more equity.  Home equity lines of credit, because they adjust monthly
with fluctuations in the prime interest rate, 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 year ended September 30,
2009.
 
 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 our loan officers, as well as through 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 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 three 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.
  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.
  6
  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 changing 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 would those 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.  There is little additional
credit support provided by the borrower for most of these loans and 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 for 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 30,2009
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006
                          
                          
                          2005Amount
                          
                          
                          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
                          
                          $
                          249,009
                          
                          
                          
                          21.67
                          %
                          
                          $
                          248,886
                          
                          
                          
                          22.58
                          %
                          
                          $
                          226,467
                          
                          
                          
                          23.47
                          %
                          
                          $
                          226,454
                          
                          
                          
                          28.37
                          %
                          
                          $
                          217,537
                          
                          
                          
                          33.73
                          %Residential
      second mortgage and other junior liens
                          
                          
                          71,451
                          
                          
                          
                          6.22
                          %
                          
                          
                          90,595
                          
                          
                          
                          8.22
                          %
                          
                          
                          105,739
                          
                          
                          
                          10.95
                          %
                          
                          
                          88,292
                          
                          
                          
                          11.06
                          %
                          
                          
                          38,192
                          
                          
                          
                          5.92
                          %Home
      equity lines of credit
                          
                          
                          227,142
                          
                          
                          
                          19.77
                          %
                          
                          
                          225,357
                          
                          
                          
                          20.44
                          %
                          
                          
                          219,539
                          
                          
                          
                          22.73
                          %
                          
                          
                          207,153
                          
                          
                          
                          25.95
                          %
                          
                          
                          195,647
                          
                          
                          
                          30.34
                          %Multi-family
      residential
                          
                          
                          35,199
                          
                          
                          
                          3.06
                          %
                          
                          
                          32,546
                          
                          
                          
                          2.95
                          %
                          
                          
                          30,219
                          
                          
                          
                          3.13
                          %
                          
                          
                          13,629
                          
                          
                          
                          1.71
                          %
                          
                          
                          13,994
                          
                          
                          
                          2.17
                          %Commercial
      real estate
                          
                          
                          239,059
                          
                          
                          
                          20.80
                          %
                          
                          
                          183,577
                          
                          
                          
                          16.65
                          %
                          
                          
                          132,519
                          
                          
                          
                          13.72
                          %
                          
                          
                          104,523
                          
                          
                          
                          13.09
                          %
                          
                          
                          72,146
                          
                          
                          
                          11.18
                          %Land
      acquisition and development
                          
                          
                          77,600
                          
                          
                          
                          6.75
                          %
                          
                          
                          77,590
                          
                          
                          
                          7.04
                          %
                          
                          
                          67,687
                          
                          
                          
                          7.01
                          %
                          
                          
                          46,005
                          
                          
                          
                          5.76
                          %
                          
                          
                          32,555
                          
                          
                          
                          5.05
                          %Real
      estate construction
                          
                          
                          85,958
                          
                          
                          
                          7.48
                          %
                          
                          
                          99,382
                          
                          
                          
                          9.01
                          %
                          
                          
                          98,921
                          
                          
                          
                          10.24
                          %
                          
                          
                          57,195
                          
                          
                          
                          7.16
                          %
                          
                          
                          45,022
                          
                          
                          
                          6.98
                          %Commercial
      and industrial
                          
                          
                          159,364
                          
                          
                          
                          13.87
                          %
                          
                          
                          137,688
                          
                          
                          
                          12.49
                          %
                          
                          
                          77,642
                          
                          
                          
                          8.04
                          %
                          
                          
                          48,785
                          
                          
                          
                          6.11
                          %
                          
                          
                          26,306
                          
                          
                          
                          4.08
                          %Consumer
      and other:Automobile
                          
                          
                          1,513
                          
                          
                          
                          0.13
                          %
                          
                          
                          2,334
                          
                          
                          
                          0.21
                          %
                          
                          
                          2,647
                          
                          
                          
                          0.27
                          %
                          
                          
                          2,123
                          
                          
                          
                          0.27
                          %
                          
                          
                          1,838
                          
                          
                          
                          0.28
                          %Other
                          
                          
                          2,823
                          
                          
                          
                          0.25
                          %
                          
                          
                          4,562
                          
                          
                          
                          0.41
                          %
                          
                          
                          4,271
                          
                          
                          
                          0.44
                          %
                          
                          
                          4,154
                          
                          
                          
                          0.52
                          %
                          
                          
                          1,676
                          
                          
                          
                          0.27
                          %Total
      loans
                          
                          
                          1,149,118
                          
                          
                          
                          100.00
                          %
                          
                          
                          1,102,517
                          
                          
                          
                          100.00
                          %
                          
                          
                          965,651
                          
                          
                          
                          100.00
                          %
                          
                          
                          798,313
                          
                          
                          
                          100.00
                          %
                          
                          
                          644,913
                          
                          
                          
                          100.00
                          %Add
      (less):Unamortized
      loan origination costs, net of loan fees
                          
                          
                          4,369
                          
                          
                          
                          
                          
                          
                          
                          5,205
                          
                          
                          
                          
                          
                          
                          
                          5,163
                          
                          
                          
                          
                          
                          
                          
                          4,879
                          
                          
                          
                          
                          
                          
                          
                          3,931Loans
      in process
                          
                          
                          (813
                          )
                          
                          
                          
                          
                          
                          
                          (6,223
                          )
                          
                          
                          
                          
                          
                          
                          (10,567
                          )
                          
                          
                          
                          
                          
                          
                          (10,176
                          )
                          
                          
                          
                          
                          
                          
                          (8,843
                          )Allowance
      for loan losses
                          
                          
                          (20,579
                          )
                          
                          
                          
                          
                          
                          
                          (12,762
                          )
                          
                          
                          
                          
                          
                          
                          (10,421
                          )
                          
                          
                          
                          
                          
                          
                          (7,817
                          )
                          
                          
                          
                          
                          
                          
                          (6,806
                          )Total
      loans receivable, net
                          
                          $
                          1,132,095
                          
                          
                          
                          
                          
                          
                          $
                          1,088,737
                          
                          
                          
                          
                          
                          
                          $
                          949,826
                          
                          
                          
                          
                          
                          
                          $
                          785,199
                          
                          
                          
                          
                          
                          
                          $
                          633,195
  8
 
 TABLE
      2:  Loan Maturities and Re-pricing (1)At
      September 30, 2009Due
      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
                    
                    $
                    99,691
                    
                    
                    $
                    109,136
                    
                    
                    $
                    40,182
                    
                    
                    $
                    249,009Residential
      second mortgage and other junior liens
                    
                    
                    8,207
                    
                    
                    
                    4,044
                    
                    
                    
                    59,200
                    
                    
                    
                    71,451Home
      equity lines of credit
                    
                    
                    218,851
                    
                    
                    
                    8,145
                    
                    
                    
                    146
                    
                    
                    
                    227,142Multi-family
      residential
                    
                    
                    16,875
                    
                    
                    
                    16,174
                    
                    
                    
                    2,150
                    
                    
                    
                    35,199Commercial
      real estate
                    
                    
                    133,482
                    
                    
                    
                    102,529
                    
                    
                    
                    3,048
                    
                    
                    
                    239,059Land
      acquisition and development
                    
                    
                    68,224
                    
                    
                    
                    9,053
                    
                    
                    
                    323
                    
                    
                    
                    77,600Real
      estate construction
                    
                    
                    75,372
                    
                    
                    
                    9,924
                    
                    
                    
                    662
                    
                    
                    
                    85,958Commercial
      and industrial
                    
                    
                    104,928
                    
                    
                    
                    23,080
                    
                    
                    
                    31,356
                    
                    
                    
                    159,364Consumer
      and other
                    
                    
                    2,230
                    
                    
                    
                    2,014
                    
                    
                    
                    92
                    
                    
                    
                    4,336Total
      loans
                    
                    $
                    727,860
                    
                    
                    $
                    284,099
                    
                    
                    $
                    137,159
                    
                    
                    $
                    1,149,118
  
 (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 LoansLoans due or re-pricing after
                      September 30, 2010Fixed
                      Rate
                    
                    
                    Adjustable
                      Rate(In
      thousands)Real
      estate mortgage:Residential
      first mortgage
                    
                    $
                    50,115
                    
                    
                    $
                    99,203Residential
      second mortgage and other junior liens
                    
                    
                    63,133
                    
                    
                    
                    111Home
      equity lines of credit
                    
                    
                    65
                    
                    
                    
                    8,226Multi-family
      residential
                    
                    
                    17,650
                    
                    
                    
                    674Commercial
      real estate
                    
                    
                    104,788
                    
                    
                    
                    789Land
      acquisition and development
                    
                    
                    9,233
                    
                    
                    
                    143Real
      estate construction
                    
                    
                    10,586
                    
                    
                    
                    –Commercial
      and industrial
                    
                    
                    54,436
                    
                    
                    
                    –Consumer
      and other
                    
                    
                    2,106
                    
                    
                    
                    –Total
                    
                    $
                    312,112
                    
                    
                    $
                    109,146
 
 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.To manage our interest rate risk position, we
generally sell the fixed-rate residential first mortgage loans that we
originate.  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 30,2009
                                            
                                            
                                            2008
                                            
                                            
                                            2007(In
      thousands)Total
      gross loans, including loans held for sale, at beginning of
      period
                                            
                                            $
                                            1,173,657
                                            
                                            
                                            $
                                            1,024,584
                                            
                                            
                                            $
                                            859,472Loans
      originated:Residential
      real estate
                                            
                                            
                                            2,127,312
                                            
                                            
                                            
                                            1,454,363
                                            
                                            
                                            
                                            1,483,847Multi-family
      real estate
                                            
                                            
                                            7,394
                                            
                                            
                                            
                                            8,278
                                            
                                            
                                            
                                            16,468Commercial
      real estate
                                            
                                            
                                            65,748
                                            
                                            
                                            
                                            88,037
                                            
                                            
                                            
                                            55,290Land
      acquisition and development
                                            
                                            
                                            16,786
                                            
                                            
                                            
                                            22,944
                                            
                                            
                                            
                                            52,104Real
      estate construction and development
                                            
                                            
                                            53,190
                                            
                                            
                                            
                                            66,825
                                            
                                            
                                            
                                            104,946Commercial
      and industrial
                                            
                                            
                                            297,273
                                            
                                            
                                            
                                            302,280
                                            
                                            
                                            
                                            172,946Consumer
      and other
                                            
                                            
                                            1,565
                                            
                                            
                                            
                                            3,057
                                            
                                            
                                            
                                            3,101Total
      loans originated
                                            
                                            
                                            2,569,268
                                            
                                            
                                            
                                            1,945,784
                                            
                                            
                                            
                                            1,888,702Net
      increase in home equity lines of credit
                                            
                                            
                                            1,785
                                            
                                            
                                            
                                            5,818
                                            
                                            
                                            
                                            12,386Loans
      purchased:Residential
      real estate
                                            
                                            
                                            546
                                            
                                            
                                            
                                            1,475
                                            
                                            
                                            
                                            513Commercial
      real estate
                                            
                                            
                                            15,502
                                            
                                            
                                            
                                            27,627
                                            
                                            
                                            
                                            16,020Loans
      soldResidential
      real estate
                                            
                                            
                                            (2,004,736
                                            )
                                            
                                            
                                            (1,327,263
                                            )
                                            
                                            
                                            (1,331,839
                                            )Commercial
      real estate
                                            
                                            
                                            (22,787
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Loans
      principal repayments, charge offs, and foreclosures
                                            
                                            
                                            (467,106
                                            )
                                            
                                            
                                            (504,368
                                            )
                                            
                                            
                                            (420,670
                                            )Net
      loan activity
                                            
                                            
                                            92,472
                                            
                                            
                                            
                                            149,073
                                            
                                            
                                            
                                            165,112Total
      gross loans, including loans held for sale, at end of
    period
                                            
                                            $
                                            1,266,129
                                            
                                            
                                            $
                                            1,173,657
                                            
                                            
                                            $
                                            1,024,584
  10
  Non-performing
Assets and Delinquencies
 
 The following is a summary of
non-performing assets at the dates indicated.
 
 TABLE
      5:  Non-performing AssetsAt
      September 30,2009
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005(Dollars
      in thousands)Loans
      accounted for on a non-accrual basis:Residential
      real estate first mortgage.
                        
                        $
                        7,093
                        
                        
                        $
                        5,904
                        
                        
                        $
                        1,780
                        
                        
                        $
                        736
                        
                        
                        $
                        142Residential
      real estate second mortgage
                        
                        
                        629
                        
                        
                        
                        752
                        
                        
                        
                        302
                        
                        
                        
                        58
                        
                        
                        
                        -Home
      equity lines of credit
                        
                        
                        3,086
                        
                        
                        
                        1,695
                        
                        
                        
                        554
                        
                        
                        
                        119
                        
                        
                        
                        -Commercial
      and multi-family real estate
                        
                        
                        2,595
                        
                        
                        
                        924
                        
                        
                        
                        3,492
                        
                        
                        
                        -
                        
                        
                        
                        -Land
      acquisition and development
                        
                        
                        2,193
                        
                        
                        
                        201
                        
                        
                        
                        216
                        
                        
                        
                        -
                        
                        
                        
                        -Real
      estate-construction and development
                        
                        
                        7,455
                        
                        
                        
                        133
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Commercial
      and industrial
                        
                        
                        703
                        
                        
                        
                        341
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Consumer
      and other
                        
                        
                        220
                        
                        
                        
                        160
                        
                        
                        
                        105
                        
                        
                        
                        27
                        
                        
                        
                        24Total
                        
                        
                        23,974
                        
                        
                        
                        10,110
                        
                        
                        
                        6,449
                        
                        
                        
                        940
                        
                        
                        
                        166Accruing
      loans which are contractually past due 90 days or more:Residential
      real estate first mortgage.
                        
                        
                        1
                        
                        
                        
                        2,543
                        
                        
                        
                        2,212
                        
                        
                        
                        3,614
                        
                        
                        
                        4,742Residential
      real estate second mortgage
                        
                        
                        27
                        
                        
                        
                        -
                        
                        
                        
                        352
                        
                        
                        
                        370
                        
                        
                        
                        -Home
      equity lines of credit
                        
                        
                        43
                        
                        
                        
                        1,468
                        
                        
                        
                        1,064
                        
                        
                        
                        1,456
                        
                        
                        
                        618Commercial
      and multi-family real estate
                        
                        
                        -
                        
                        
                        
                        169
                        
                        
                        
                        -
                        
                        
                        
                        62
                        
                        
                        
                        -Land
      acquisition and development
                        
                        
                        316
                        
                        
                        
                        62
                        
                        
                        
                        44
                        
                        
                        
                        63
                        
                        
                        
                        -Real
      estate-construction and development
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        440Consumer
      and other
                        
                        
                        -
                        
                        
                        
                        7
                        
                        
                        
                        150
                        
                        
                        
                        21
                        
                        
                        
                        17Total
                        
                        
                        387
                        
                        
                        
                        4,249
                        
                        
                        
                        3,822
                        
                        
                        
                        5,586
                        
                        
                        
                        5,817Troubled
      debt restructurings:Current
      under restructured terms:Residential
      real estate first mortgage
                        
                        
                        17,785
                        
                        
                        
                        3,801
                        
                        
                        
                        209
                        
                        
                        
                        220
                        
                        
                        
                        13Residential
      real estate second mortgage
                        
                        
                        2,062
                        
                        
                        
                        659
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Home
      equity lines of credit
                        
                        
                        1,695
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Land
      acquisition and development
                        
                        
                        107
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Real
      estate-construction and development
                        
                        
                        100
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Commercial
      and industrial
                        
                        
                        787
                        
                        
                        
                        537
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Consumer
      and other
                        
                        
                        93
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
                        
                        
                        22,629
                        
                        
                        
                        4,997
                        
                        
                        
                        209
                        
                        
                        
                        220
                        
                        
                        
                        13Past
      due under restructured terms:Residential
      real estate first mortgage
                        
                        
                        2,788
                        
                        
                        
                        1,184
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Residential
      real estate second mortgage
                        
                        
                        746
                        
                        
                        
                        11
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Home
      equity lines of credit
                        
                        
                        150
                        
                        
                        
                        112
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Commercial
      and multi-family real estate
                        
                        
                        7,831
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Land
      acquisition and development
                        
                        
                        57
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Commercial
      and industrial
                        
                        
                        777
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
                        
                        
                        12,349
                        
                        
                        
                        1,307
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
      restructured loans
                        
                        
                        34,978
                        
                        
                        
                        6,304
                        
                        
                        
                        209
                        
                        
                        
                        220
                        
                        
                        
                        13Total
      non-performing loans (1)
                        
                        
                        59,339
                        
                        
                        
                        20,663
                        
                        
                        
                        10,480
                        
                        
                        
                        6,746
                        
                        
                        
                        5,996Real
      estate owned (net)
                        
                        
                        8,454
                        
                        
                        
                        3,519
                        
                        
                        
                        3,090
                        
                        
                        
                        2,764
                        
                        
                        
                        754Other
      non-performing assets
                        
                        
                        -
                        
                        
                        
                        237
                        
                        
                        
                        43
                        
                        
                        
                        43
                        
                        
                        
                        -Total
      non-performing assets
                        
                        $
                        67,793
                        
                        
                        $
                        24,419
                        
                        
                        $
                        13,613
                        
                        
                        $
                        9,553
                        
                        
                        $
                        6,750
  11
 
 TABLE
5:  Non-performing Assets, Continued
 At
      September 30,2009
                                                
                                                
                                                2008
                                                
                                                
                                                2007
                                                
                                                
                                                2006
                                                
                                                
                                                2005Total
      non-performing loans as a percentage of net loans
    receivable
                                                
                                                
                                                5.16
                                                %
                                                
                                                
                                                1.88
                                                %
                                                
                                                
                                                1.09
                                                %
                                                
                                                
                                                0.85
                                                %
                                                
                                                
                                                0.94
                                                %Total
      non-performing loans as a percentage of total assets
                                                
                                                
                                                4.22
                                                %
                                                
                                                
                                                1.58
                                                %
                                                
                                                
                                                0.93
                                                %
                                                
                                                
                                                0.70
                                                %
                                                
                                                
                                                0.76
                                                %Total
      non-performing assets as a percentage of total assets
                                                
                                                
                                                4.82
                                                %
                                                
                                                
                                                1.87
                                                %
                                                
                                                
                                                1.20
                                                %
                                                
                                                
                                                0.99
                                                %
                                                
                                                
                                                0.86
                                                %Non-performing
      loans excluding current troubled debt restructurings as a percentage of
      total loans
                                                
                                                
                                                3.19
                                                %
                                                
                                                
                                                1.42
                                                %
                                                
                                                
                                                1.07
                                                %
                                                
                                                
                                                0.82
                                                %
                                                
                                                
                                                0.93
                                                %Non-performing
      assets excluding current troubled debt restructurings as a percentage of
      total assets
                                                
                                                
                                                3.21
                                                %
                                                
                                                
                                                1.49
                                                %
                                                
                                                
                                                1.18
                                                %
                                                
                                                
                                                0.97
                                                %
                                                
                                                
                                                0.86
                                                %Allowance
      for loan losses as a percent of non-performing loans excluding current
      troubled debt restructurings and related allowances for loan
      losses
                                                
                                                
                                                55.94
                                                %
                                                
                                                
                                                81.24
                                                %
                                                
                                                
                                                101.47
                                                %
                                                
                                                
                                                119.79
                                                %
                                                
                                                
                                                113.76
                                                %
  
 (1)
              Includes
      $201,000, $221,000, $696,000, $667,000, and $663,000 of FHA/VA loans at
      September 30, 2009, 2008, 2007, 2006 and 2005, respectively, the principal
      and interest payments on which are fully
  insured.
 
 Interest income recognized on
non-accrual loans was approximately $2.3 million, $369,000 and $347,000 for the
years ended September 30, 2009, 2008 and 2007, 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 $3.4 million, $814,000 and $634,000 for the years
ended September 30, 2009, 2008 and 2007, 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 $4.9 million
from $3.5 million at September 30, 2008 to $8.5 million at September 30,
2009.  The balance at September 30, 2009 consists of thirty-three
residential properties, six residential construction properties and four
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 meets monthly 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, 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, 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.  A
loan classified as a troubled debt restructuring will retain such classification
until the borrower demonstrates the ability to pay under the terms of the
restructured note through a sustained period of repayment performance, which is
generally one year.  Interest income on restructured loans is accrued
at the reduced rate once the borrower demonstrates the ability to pay under the
terms of the restructured note through a sustained period of repayment
performance, which is generally three months for loans that were less than 30
days past due at the time of restructuring and six months for loans that were 30
days or more past due at the time of restructuring.  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 monthly (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 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 establishes
specific allowances for loan losses for the full amount of the portion of the
asset classified as loss.  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, 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
  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 charged-off loans
are charged to the allowance for loan losses and all recoveries are credited to
it.  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:
 
 Homogeneous
residential mortgage loans are given one of five standard risk ratings at the
time of origination.  The risk ratings are assigned through the use of
a credit-scoring model, which assesses credit risk determinants from the
borrower’s credit history, the loan-to-value ratio, affordability ratios and
other personal history.  Recent historical loss rates and industry
data for each credit rating are used as a starting point to determine the
appropriate allocation percentage for each loan grade.  Management
then adjusts these rates 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.
 
 Commercial
real estate loans are individually reviewed and assigned a credit risk rating
periodically by the internal loan committee.  Consumer and home equity
loans are assigned standard risk weightings that determine the allocation
percentage.
  15




When
commercial real estate loans are over 30 days delinquent or residential,
consumer and home equity loans are over 90 days past due, they are evaluated
individually for impairment.  Additionally, loans that demonstrate
credit weaknesses that may impact the borrower’s ability to repay are also
reviewed individually for impairment.  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.  If a
loan is impaired, we record a loss valuation equal to the excess of the loan’s
carrying value over the present value of estimated future cash flows or the fair
value of collateral if the loan is collateral dependent.





Our
methodology includes factors that allow us to adjust our estimates of losses
based on the most recent information available.  Historical charge-off
experience generally provides a reasonable starting point for an institution’s
analysis of probable losses on groups of homogeneous loans, but should not be
the sole determining factor. We have traditionally relied on our five-year
average charge-off history as this starting point.  However,
consistent with the decline in local and national credit market conditions, our
charge-off levels increased significantly during fiscal 2008 and 2009 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, 2009.  Therefore, we relied most heavily on the actual
charge-off experience for the year ended September 30, 2009 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, 2009.  Any material increase in non-performing loans
will adversely affect our financial condition and results of
operations.





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.




16




TABLE
7:  Allowance for Loan Losses





Year
      Ended September 30,2009
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006
                          
                          
                          2005(Dollars
      in thousands)Allowance
      at beginning of period
                          
                          $
                          12,762
                          
                          
                          $
                          10,421
                          
                          
                          $
                          7,817
                          
                          
                          $
                          6,806
                          
                          
                          $
                          5,579Allowance
      of acquired institution
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          282
                          
                          
                          
                          -Provision
      charged to expense
                          
                          
                          23,030
                          
                          
                          
                          7,735
                          
                          
                          
                          3,855
                          
                          
                          
                          1,501
                          
                          
                          
                          1,634Charge-offs:Residential
      real estate first mortgage
                          
                          
                          3,809
                          
                          
                          
                          940
                          
                          
                          
                          193
                          
                          
                          
                          409
                          
                          
                          
                          49Residential
      real estate second mortgage
                          
                          
                          1,434
                          
                          
                          
                          1,600
                          
                          
                          
                          521
                          
                          
                          
                          88
                          
                          
                          
                          74Home
      equity lines of credit
                          
                          
                          2,724
                          
                          
                          
                          1,674
                          
                          
                          
                          296
                          
                          
                          
                          88
                          
                          
                          
                          10Commercial
      and multi-family real estate
                          
                          
                          69
                          
                          
                          
                          374
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          86Land
      acquisition and development
                          
                          
                          4,231
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Real
      estate construction and development
                          
                          
                          2,425
                          
                          
                          
                          455
                          
                          
                          
                          119
                          
                          
                          
                          -
                          
                          
                          
                          -Commercial
      and industrial
                          
                          
                          533
                          
                          
                          
                          355
                          
                          
                          
                          -
                          
                          
                          
                          7
                          
                          
                          
                          -Consumer
      and other
                          
                          
                          159
                          
                          
                          
                          233
                          
                          
                          
                          164
                          
                          
                          
                          190
                          
                          
                          
                          197Total
      charge-offs
                          
                          
                          15,384
                          
                          
                          
                          5,631
                          
                          
                          
                          1,293
                          
                          
                          
                          782
                          
                          
                          
                          416RecoveriesResidential
      real estate first mortgage
                          
                          
                          47
                          
                          
                          
                          2
                          
                          
                          
                          -
                          
                          
                          
                          3
                          
                          
                          
                          2Residential
      real estate second mortgage
                          
                          
                          3
                          
                          
                          
                          1
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          3Home
      equity lines of credit
                          
                          
                          70
                          
                          
                          
                          224
                          
                          
                          
                          17
                          
                          
                          
                          3
                          
                          
                          
                          -Commercial
      and multi-family real estate
                          
                          
                          32
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Commercial
      and industrial
                          
                          
                          3
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Consumer
      and other
                          
                          
                          16
                          
                          
                          
                          10
                          
                          
                          
                          25
                          
                          
                          
                          4
                          
                          
                          
                          4Total
      recoveries
                          
                          
                          171
                          
                          
                          
                          237
                          
                          
                          
                          42
                          
                          
                          
                          10
                          
                          
                          
                          9Net
      charge-offs
                          
                          
                          15,213
                          
                          
                          
                          5,394
                          
                          
                          
                          1,251
                          
                          
                          
                          772
                          
                          
                          
                          407Allowance
      at end of period
                          
                          $
                          20,579
                          
                          
                          $
                          12,762
                          
                          
                          $
                          10,421
                          
                          
                          $
                          7,817
                          
                          
                          $
                          6,806Ratio
      of allowance to total loans outstanding at the end of the
      period
                          
                          
                          1.79
                          %
                          
                          
                          1.16
                          %
                          
                          
                          1.09
                          %
                          
                          
                          0.99
                          %
                          
                          
                          1.06
                          %Ratio
      of net charge-offs to average loansoutstanding
      during the period
                          
                          
                          1.31
                          %
                          
                          
                          0.52
                          %
                          
                          
                          0.14
                          %
                          
                          
                          0.10
                          %
                          
                          
                          0.06
                          %Allowance
      for loan losses to non-performing loans
                          
                          
                          34.68
                          %
                          
                          
                          61.76
                          %
                          
                          
                          99.44
                          %
                          
                          
                          115.89
                          %
                          
                          
                          113.51
                          %




17




TABLE
      8: Allocation of Allowance for Loan LossesAt September 30,2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005Amount
                    
                    
                    Percent
                      of Loansin EachCategoryto TotalLoans
                    
                    
                    Amount
                    
                    
                    Percent
                      of Loansin EachCategoryto TotalLoans
                    
                    
                    Amount
                    
                    
                    Percent
                      of Loansin EachCategoryto TotalLoans
                    
                    
                    Amount
                    
                    
                    Percent
                      of Loansin EachCategoryto TotalLoans
                    
                    
                    Amount
                    
                    
                    Percent
                      of Loansin EachCategoryto TotalLoans(Dollars
      in thousands)Residential
      real estate first and second mortgage
                    
                    $
                    5,717
                    
                    
                    
                    27.89
                    %
                    
                    $
                    4,034
                    
                    
                    
                    30.79
                    %
                    
                    $
                    3,561
                    
                    
                    
                    34.42
                    %
                    
                    $
                    3,462
                    
                    
                    
                    39.43
                    %
                    
                    $
                    2,584
                    
                    
                    
                    39.65
                    %Home
      equity lines of credit
                    
                    
                    1,910
                    
                    
                    
                    19.77
                    
                    
                    
                    1,753
                    
                    
                    
                    20.44
                    
                    
                    
                    1,396
                    
                    
                    
                    22.73
                    
                    
                    
                    1,428
                    
                    
                    
                    25.95
                    
                    
                    
                    2,107
                    
                    
                    
                    30.34Commercial,
      multi-family real estate and land
                    
                    
                    7,143
                    
                    
                    
                    30.62
                    
                    
                    
                    3,824
                    
                    
                    
                    26.64
                    
                    
                    
                    3,045
                    
                    
                    
                    23.86
                    
                    
                    
                    1,611
                    
                    
                    
                    20.56
                    
                    
                    
                    1,063
                    
                    
                    
                    18.40Real
      estate construction and development
                    
                    
                    1,169
                    
                    
                    
                    7.48
                    
                    
                    
                    1,067
                    
                    
                    
                    9.01
                    
                    
                    
                    1,028
                    
                    
                    
                    10.24
                    
                    
                    
                    521
                    
                    
                    
                    7.16
                    
                    
                    
                    517
                    
                    
                    
                    6.98Commercial
      and industrial
                    
                    
                    4,367
                    
                    
                    
                    13.87
                    
                    
                    
                    1,827
                    
                    
                    
                    12.49
                    
                    
                    
                    1,054
                    
                    
                    
                    8.04
                    
                    
                    
                    533
                    
                    
                    
                    6.11
                    
                    
                    
                    273
                    
                    
                    
                    4.08Consumer
      and other
                    
                    
                    273
                    
                    
                    
                    0.37
                    
                    
                    
                    257
                    
                    
                    
                    0.63
                    
                    
                    
                    337
                    
                    
                    
                    0.71
                    
                    
                    
                    262
                    
                    
                    
                    0.79
                    
                    
                    
                    262
                    
                    
                    
                    0.55Total
      allowance for loan losses
                    
                    $
                    20,579
                    
                    
                    
                    100.00
                    %
                    
                    $
                    12,762
                    
                    
                    
                    100.00
                    %
                    
                    $
                    10,421
                    
                    
                    
                    100.00
                    %
                    
                    $
                    7,817
                    
                    
                    
                    100.00
                    %
                    
                    $
                    6,806
                    
                    
                    
                    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 primarily 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, 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, 2009 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 SecuritiesYears Ended September 30,2009
                    
                    
                    2008
                    
                    
                    2007(In thousands)Held
      to maturity, at amortized cost:Investment
      securities -U.S.
      Treasury and Agency Obligations
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    5,980Mortgage-backed
      securities:Freddie
      Mac
                    
                    $
                    -
                    
                    
                    $
                    4
                    
                    
                    $
                    12Ginnie
      Mae
                    
                    
                    219
                    
                    
                    
                    283
                    
                    
                    
                    327Fannie
      Mae
                    
                    
                    11,840
                    
                    
                    
                    15,434
                    
                    
                    
                    -Total
                    
                    $
                    12,059
                    
                    
                    $
                    15,721
                    
                    
                    $
                    339Collateralized
      mortgage obligations – Freddie Mac
                    
                    $
                    19
                    
                    
                    $
                    23
                    
                    
                    $
                    32Available
      for sale, at fair value:Investment
      securities -U.S.
      Treasury and agency obligations
                    
                    $
                    1,997
                    
                    
                    $
                    -
                    
                    
                    $
                    7,043Mortgage-backed
      securities:Ginnie
      Mae
                    
                    $
                    544
                    
                    
                    $
                    280
                    
                    
                    $
                    322Fannie
      Mae
                    
                    
                    1,302
                    
                    
                    
                    1,943
                    
                    
                    
                    2,333Total
                    
                    $
                    1,846
                    
                    
                    $
                    2,223
                    
                    
                    $
                    2,655Collateralized
      mortgage obligations:Freddie
      Mac
                    
                    $
                    1,556
                    
                    
                    $
                    -
                    
                    
                    $
                    -Ginnie
      Mae
                    
                    
                    7,462
                    
                    
                    
                    7,958
                    
                    
                    
                    -Fannie
      Mae
                    
                    
                    5,223
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    14,241
                    
                    
                    $
                    7,958
                    
                    
                    $
                    -Equity
      securities
                    
                    $
                    589
                    
                    
                    $
                    733
                    
                    
                    $
                    3,965




20




TABLE
      10: Maturities and YieldsAt September 30, 2009Due in
                        Less Than One Year
                      
                      
                      Due in
                        One to Five Years
                      
                      
                      Due in
                        Five to Ten Years
                      
                      
                      Due in
                        Over Ten Years
                      
                      
                      TotalAmount
                      
                      
                      WeightedAverageYield
                      
                      
                      Amount
                      
                      
                      WeightedAverageYield
                      
                      
                      Amount
                      
                      
                      WeightedAverageYield
                      
                      
                      Amount
                      
                      
                      WeightedAverageYield
                      
                      
                      Amount
                      
                      
                      WeightedAverageYield(Dollars
      in thousands)Held
      to maturity:Mortgage-backed
      securities:Mortgage-backed
      securities
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      219
                      
                      
                      
                      9.32
                      %
                      
                      $
                      11,840
                      
                      
                      
                      4.30
                      %
                      
                      $
                      12,059
                      
                      
                      
                      4.39
                      %CMOs
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      19
                      
                      
                      
                      1.21
                      %
                      
                      
                      19
                      
                      
                      
                      1.21
                      %Total
      mortgage-backed and related securities
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      219
                      
                      
                      
                      9.32
                      %
                      
                      $
                      11,859
                      
                      
                      
                      4.30
                      %
                      
                      $
                      12,078
                      
                      
                      
                      4.39
                      %Available
      for sale:Investment
      securities:U.S.
      Treasury and agency obligations
                      
                      $
                      1,997
                      
                      
                      
                      0.16
                      %
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      1,997
                      
                      
                      
                      0.16
                      %Mortgage-backed
      securities:Mortgage-backed
      securities
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      1,302
                      
                      
                      
                      3.82
                      %
                      
                      $
                      -
                      
                      
                      
                      -
                      %
                      
                      $
                      544
                      
                      
                      
                      5.44
                      %
                      
                      $
                      1,846
                      
                      
                      
                      4.30
                      %CMOs
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,779
                      
                      
                      
                      4.09
                      %
                      
                      
                      7,462
                      
                      
                      
                      4.15
                      %
                      
                      
                      14,241
                      
                      
                      
                      4.12
                      %Total
      mortgage-backed and related securities
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      1,302
                      
                      
                      
                      3.82
                      %
                      
                      $
                      6,779
                      
                      
                      
                      4.09
                      %
                      
                      $
                      8,006
                      
                      
                      
                      4.23
                      %
                      
                      $
                      16,087
                      
                      
                      
                      4.14
                      %





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,
2009, 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.  We supplement our retail deposits
through brokered certificates of deposit and municipal deposits.





TABLE
      11:  DepositsAt September 30,2009
                
                
                2008
                
                
                2007Amount
                
                
                Percent
                  of Total
                
                
                Amount
                
                
                Percent
                  of Total
                
                
                Amount
                
                
                Percent
                  of Total(Dollars
      in thousands)Demand
      deposits:Non-interest-bearing
      checking
                
                $
                103,3984
                
                
                
                8.68
                %
                
                $
                76,404
                
                
                
                8.35
                %
                
                $
                57,005
                
                
                
                6.82
                %Interest-bearing
      checking
                
                
                263,020
                
                
                
                22.07
                
                
                
                178,698
                
                
                
                19.52
                
                
                
                57,816
                
                
                
                6.92Passbook
      savings accounts
                
                
                28,874
                
                
                
                2.42
                
                
                
                25,829
                
                
                
                2.82
                
                
                
                28,909
                
                
                
                3.46Money
      market
                
                
                253,996
                
                
                
                21.32
                
                
                
                149,141
                
                
                
                16.29
                
                
                
                173,950
                
                
                
                20.82Total
      demand deposits
                
                
                649,288
                
                
                
                54.49
                
                
                
                430,072
                
                
                
                46.98
                
                
                
                317,680
                
                
                
                38.02Certificates
      of deposit which mature:Within
      1 year
                
                
                361,638
                
                
                
                30.35
                
                
                
                420,766
                
                
                
                45.98
                
                
                
                360,188
                
                
                
                43.11After
      1 year, but within 3 years
                
                
                178,017
                
                
                
                14.94
                
                
                
                53,176
                
                
                
                5.81
                
                
                
                108,324
                
                
                
                12.97Thereafter
                
                
                2,686
                
                
                
                0.22
                
                
                
                11,297
                
                
                
                1.23
                
                
                
                49,297
                
                
                
                5.90Total
      certificates of deposit
                
                
                542,341
                
                
                
                45.51
                
                
                
                485,239
                
                
                
                53.02
                
                
                
                517,809
                
                
                
                61.98Total
      deposits
                
                $
                1,191,629
                
                
                
                100.00
                %
                
                $
                915,311
                
                
                
                100.00
                %
                
                $
                835,489
                
                
                
                100.00
                %





Included
in certificates of deposit at September 30, 2009, were brokered time deposits
totaling $75.0 million and $8.5 million that were scheduled to mature
during the years ended September 30, 2010 and 2012, respectively.




22




At
September 30, 2009, 2008 and 2007, certificates of deposit with a minimum
principal amount of $100,000 totaled $317.7 million, $221.2 million, and $278.6
million, respectively.  At September 30, 2009, such deposits were
scheduled to mature as follows:





TABLE
      12: Certificates of Deposit with Minimum Balances of
      $100,000Maturity
      Period
                  
                  Amount as of September30, 2009(In
      thousands)Three
      months or less
                  
                  $
                  135,167Over
      3 through 6 months
                  
                  
                  57,600Over
      6 through 12 months
                  
                  
                  42,536Over
      12 months
                  
                  
                  82,422Total
                  
                  $
                  317,725





TABLE
      13: Certificates of Deposits by RatesAt September 30,2009
                  
                  
                  2008
                  
                  
                  2007(In thousands)0.00
      – 1.99%
                  
                  $
                  248,591
                  
                  
                  $
                  21,468
                  
                  
                  $
                  2,5362.00
      – 2.99%
                  
                  
                  128,241
                  
                  
                  
                  183,702
                  
                  
                  
                  3,8053.00
      – 3.99%
                  
                  
                  135,166
                  
                  
                  
                  196,728
                  
                  
                  
                  39,3934.00
      – 4.99%
                  
                  
                  11,190
                  
                  
                  
                  17,265
                  
                  
                  
                  31,6775.00
      – 5.99%
                  
                  
                  18,667
                  
                  
                  
                  65,627
                  
                  
                  
                  439,99110.00
      - 10.99%
                  
                  
                  486
                  
                  
                  
                  449
                  
                  
                  
                  407Total
                  
                  $
                  542,341
                  
                  
                  $
                  485,239
                  
                  
                  $
                  517,809





TABLE
      14: Certificates of Deposits by MaturitiesAmount Due as of September 30, 2009Within
                  One Year
                
                
                After
                  1 Year
                  But Within
                  Two Years
                
                
                After
                  2 Years
                  But Within
                  Three Years
                
                
                After
                  3 Years
                  But Within
                  Four Years
                
                
                Thereafter
                
                
                Total(In
      thousands)0.00  -
      1.99%
                
                $
                238,271
                
                
                $
                10,210
                
                
                $
                110
                
                
                $
                -
                
                
                $
                -
                
                
                $
                248,5912.00  -
      2.99%
                
                
                55,889
                
                
                
                68,689
                
                
                
                3,117
                
                
                
                275
                
                
                
                271
                
                
                
                128,2413.00  -
      3.99%
                
                
                53,208
                
                
                
                42,561
                
                
                
                38,866
                
                
                
                531
                
                
                
                -
                
                
                
                135,1664.00  -
      4.99%
                
                
                3,635
                
                
                
                5,802
                
                
                
                143
                
                
                
                1,001
                
                
                
                609
                
                
                
                11,1905.00  -
      5.99%
                
                
                10,149
                
                
                
                80
                
                
                
                8,438
                
                
                
                -
                
                
                
                -
                
                
                
                18,66710.00  -
      10.99%
                
                
                486
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                486Total
                
                $
                361,638
                
                
                $
                127,342
                
                
                $
                50,674
                
                
                $
                1,807
                
                
                $
                880
                
                
                $
                542,341




23




TABLE
      15:  Deposit ActivityYears Ended September 30,2009
                  
                  
                  2008
                  
                  
                  2007(In thousands)Beginning
      balance
                  
                  $
                  915,311
                  
                  
                  $
                  835,489
                  
                  
                  $
                  655,577Net
      increase excluding interest credited
                  
                  
                  263,658
                  
                  
                  
                  60,998
                  
                  
                  
                  160,598Interest
      credited
                  
                  
                  12,660
                  
                  
                  
                  18,824
                  
                  
                  
                  19,314Net
      increase in deposits
                  
                  
                  276,318
                  
                  
                  
                  79,822
                  
                  
                  
                  179,912Ending
      balance
                  
                  $
                  1,191,629
                  
                  
                  $
                  915,311
                  
                  
                  $
                  835,489





TABLE
16:  Average Balances and Rates Paid on Deposits





Years Ended September 30,2009
                  
                  
                  2008
                  
                  
                  2007AverageBalance
                  
                  
                  AverageRate
                    Paid
                  
                  
                  AverageBalance
                  
                  
                  AverageRate
                    Paid
                  
                  
                  AverageBalance
                  
                  
                  AverageRate
                    Paid(Dollars
      in thousands)Non-interest-bearing
      checking
                  
                  $
                  99,1267
                  
                  
                  
                  -
                  %
                  
                  $
                  63,325
                  
                  
                  
                  -
                  %
                  
                  $
                  47,982
                  
                  
                  
                  -
                  %Interest-bearing
      checking
                  
                  
                  221,164
                  
                  
                  
                  1.58
                  
                  
                  
                  106,009
                  
                  
                  
                  1.97
                  
                  
                  
                  60,996
                  
                  
                  
                  1.85Passbook
      savings
                  
                  
                  26,845
                  
                  
                  
                  0.21
                  
                  
                  
                  27,727
                  
                  
                  
                  0.33
                  
                  
                  
                  30,170
                  
                  
                  
                  0.35Money
      market
                  
                  
                  159,196
                  
                  
                  
                  1.05
                  
                  
                  
                  183,957
                  
                  
                  
                  2.88
                  
                  
                  
                  155,261
                  
                  
                  
                  4.24Certificates
      of deposit
                  
                  
                  569,530
                  
                  
                  
                  2.86
                  
                  
                  
                  466,094
                  
                  
                  
                  4.28
                  
                  
                  
                  466,248
                  
                  
                  
                  5.05Total
                  
                  $
                  1,075,861
                  
                  
                  
                  2.00
                  %
                  
                  $
                  847,112
                  
                  
                  
                  3.24
                  %
                  
                  $
                  760,657
                  
                  
                  
                  4.12
                  %





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 AdvancesYears Ended September 30,2009
                
                
                2008
                
                
                2007(Dollars in thousands)Maximum
      balance at any month end during the period
                
                $
                245,000
                
                
                $
                265,500
                
                
                $
                203,500Average
      balance during the period
                
                
                120,288
                
                
                
                224,460
                
                
                
                168,476Period-end
      balance
                
                
                61,000
                
                
                
                210,600
                
                
                
                158,400Weighted-average
      interest rate:At
      end of period
                
                
                3.37
                %
                
                
                2.67
                %
                
                
                4.81
                %During
      the period
                
                
                2.92
                %
                
                
                3.54
                %
                
                
                5.20
                %





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, 2009, $201.8 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 BorrowingsYears Ended September 30,2009
                
                
                2008
                
                
                2007(Dollars in thousands)Maximum
      balance at any month end during the period
                
                $
                143,000
                
                
                $
                112,000
                
                
                $
                -Average
      balance during the period
                
                
                71,690
                
                
                
                34,093
                
                
                
                1Period-end
      balance
                
                
                -
                
                
                
                40,000
                
                
                
                -Weighted-average
      interest rate:At
      end of period
                
                
                -
                
                
                
                2.25
                %
                
                
                -During
      the period
                
                
                0.45
                %
                
                
                2.28
                %
                
                
                6.25
                %





We issued
subordinated debentures from two separate special purpose trusts that are
wholly-owned subsidiaries of the Company.  At September 30, 2009, 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 seven
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, 2009, the Bank’s equity investment in its
subsidiary was $226,391 or 0.02% of the Bank’s assets.





Personnel





As of
September 30, 2009, we had 465 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
                
                58
                
                President
      and Chief Executive Officer of Pulaski Financial Corp. and Chairman and
      Chief Executive Officer of the BankW.
      Thomas Reeves
                
                55
                
                President
      of Pulaski BankPaul
      J. Milano
                
                53
                
                Chief
      Financial Officer, Treasurer and Secretary of Pulaski Financial Corp. and
      Pulaski BankMatthew
      A. Locke
                
                40
                
                President
      of Mortgage Lending Division of Pulaski BankBrian
      J. Björkman
                
                38
                
                President
      of Commercial Lending Division of Pulaski BankCheri
      G. Bliefernich
                
                41
                
                Executive
      Vice President of Banking Operations of Pulaski
  Bank





(1)
            As
      of September 30, 2009.





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.





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.




26




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.





Matthew A. Lockejoined the
Bank in 1997 and currently serves as the President of the Mortgage
Division.  Prior to assuming his current position, he served the Bank
as Senior Vice President and Kansas City Lending Manager. Mr. Locke holds a BBA
from Pittsburg State University and a MBA from Webster University in St.
Louis.





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




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
required to file certain reports with, and otherwise 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.





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 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.





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.





A savings
institution that fails the QTL test is subject to certain operating restrictions
and may be required to convert to a bank charter.  As of September 30,
2009, the Bank met the QTL test.  Recent legislation has expanded the
extent to which education loans, credit card loans and small business loans may
be considered “qualified thrift investments.”




28




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.





On May
22, 2009, the FDIC adopted a final rule imposing a 5 basis point special
assessment on each insured depository institution’s assets minus Tier 1 capital
as of June 30, 2009.  The special assessment was paid on September 30,
2009. The FDIC may impose an additional special assessment if the FDIC estimates
that the Deposit Insurance Fund reserve ratio will fall to a level that the FDIC
believes would adversely affect public confidence or to a level that will be
close to or below zero.  Any future special assessments will increase
insurance premium expense on deposits if and when they become
effective.





On
November 12, 2009, the FDIC adopted a final rule requiring insured depository
institutions to prepay their estimated quarterly risk-based assessments for the
fourth quarter of 2009, and for all of 2010, 2011, and 2012, on December 30,
2009, along with each institution's risk-based deposit insurance assessment for
the third quarter of 2009.  For most institutions, the amount paid on
December 30, 2009 will be substantially higher than typical quarterly deposit
insurance assessments.  The amount of the assessment related to future
periods will initially be recorded as a prepaid asset and will be charged to
expense during the periods to which it relates.





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.




29




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.





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.





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.




30




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.





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.  Due to losses incurred by the
Deposit Insurance Fund in 2008 as a result of failed institutions, the Federal
Deposit Insurance Corporation implemented an industry-wide seven basis point
increase in the assessment range for the first quarter of 2009.  The
Federal Deposit Insurance Corporation implemented further refinements to its
risk-based assessment that were effective April 1, 2009 and made the range
eight to 77-1/2 basis points.  The Federal Deposit Insurance
Corporation may adjust rates uniformly from one quarter to the next, except that
no single adjustment can exceed three basis points.  No institution
may pay a dividend if in default of the FDIC assessment.




31







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 funds.  That payment is
established quarterly and for the year ended September 30, 2009 averaged 1.02
basis points of assessable deposits.





The
Federal Deposit Insurance Corporation 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 Federal Deposit Insurance Corporation 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 Federal
Deposit Insurance Corporation or the Office of Thrift Supervision.  We
do not know of any practice, condition or violation that might lead to
termination of deposit insurance.





The Bank
elected to participate in the FDIC’s Transaction Account Guarantee Program
beginning in the quarter ended March 31, 2009.  This program provides
full FDIC insurance coverage for non interest-bearing transaction accounts and
qualifying NOW accounts, regardless of the dollar amount, and is in addition to
the standard FDIC insurance that was temporarily increased to $250,000 per
depositor through December 31, 2013.  The Transaction Account
Guarantee Program was originally scheduled to expire on December 31,
2009.  However, the FDIC adopted an optional six-month extension of
the program, until June 30, 2010, and the Bank elected to participate in the
extension.





On May
22, 2009, the FDIC adopted a final rule imposing a 5 basis point special
assessment on each insured depository institution’s assets minus Tier 1 capital
as of June 30, 2009.  The special assessment was paid on September 30,
2009. The FDIC may impose an additional special assessment if the FDIC estimates
that the Deposit Insurance Fund reserve ratio will fall to a level that the
Board believes would adversely affect public confidence or to a level that will
be close to or below zero.  Any future special assessments will
increase insurance premium expense on deposits if and when they become
effective.





On
November 12, 2009, the FDIC adopted a final rule requiring insured depository
institutions to prepay their estimated quarterly risk-based assessments for the
fourth quarter of 2009, and for all of 2010, 2011, and 2012, on December 30,
2009, along with each institution's risk-based deposit insurance assessment for
the third quarter of 2009.  For most institutions, the amount paid on
December 30, 2009 will be substantially higher than typical quarterly deposit
insurance assessments.  The amount of the assessment related to future
periods will initially be recorded as a prepaid asset and will be charged to
expense during the periods to which it relates.





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
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.


32





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 2009, reserves be maintained against aggregate
transaction accounts as follows:  a 3% reserve ratio is assessed on
net transaction accounts up to and including $44.4 million; a 10% reserve ratio
is applied over $44.4 million.  The first $10.3 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 2010, the FRB has set the 3% reserve limit at $55.2
million and the exemption at $10.7 million.





Regulatory
Restructuring Legislation.  The Obama Administration has
proposed, and the House of Representatives and Senate are currently considering,
legislation that would restructure the regulation of depository
institutions.  Proposals range from just the merger of the Office of
Thrift Supervision with the Office of the Comptroller of the Currency, which
regulates national banks, to the creation of an independent federal agency that
would assume the regulatory responsibilities of the Office of Thrift
Supervision, Federal Deposit Insurance Corporation, Office of the Comptroller of
the Currency and Federal Reserve Board.  The federal savings
association charter would be eliminated under some proposals, although others
would grandfather existing charters such as that of the Bank.  Another
possibility is the elimination of the separate regulatory scheme for savings and
loan holding companies, which would require the Company to become a bank holding
company.  Also proposed is the creation of a new federal agency to
administer and enforce consumer and fair lending laws, a function that is now
performed by the depository institution regulators.  The federal
preemption of state laws currently accorded federally chartered depository
institutions would be reduced under certain proposals as well.





Enactment
of any of these proposals would revise the regulatory structure imposed on the
Bank and Company, which could result in more stringent regulation.  At
this time, management has no way of predicting the contents of any final
legislation, or whether any legislation will be enacted at all.





Holding
Company Regulation





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.


33





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.





Although
savings and loan holding companies are not currently subject to specific capital
requirements or specific restrictions on the payment of dividends or other
capital distributions, federal regulations do prescribe such restrictions on
subsidiary savings institutions, as described previously.  The Bank
must notify the OTS 30 days before declaring any dividend to the
Company.  In addition, the financial impact of a holding company on
its subsidiary institution is a matter that is evaluated by the OTS and the
agency has authority to order cessation of activities or divestiture of
subsidiaries deemed to pose a threat to the safety and soundness of the
institution.





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.


34


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 the past fiscal year
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, 2009, we recorded a provision for loan losses of $23.0
million.  We also recorded net loan charge-offs of $15.2
million.  Our non-performing assets increased significantly in fiscal
2009 from $24.4 million, or 1.87% of total assets at September 30, 2008 to $67.8
million, or 4.82% of total assets at September 30, 2009.  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.





In
evaluating the adequacy of our allowance for loan losses, we consider numerous
quantitative factors, including our historical charge-off experience, growth of
our loan portfolio, changes in the composition of our loan portfolio and the
volume of delinquent and classified loans.  In addition, we use
information about specific borrower situations, including their financial
position and estimated collateral values, to estimate the risk and amount of
loss for those borrowers.  Finally, we also consider many qualitative
factors, including general and economic business conditions, anticipated
duration of the current business cycle, current general market collateral
valuations, trends apparent in any of the factors we take into account and other
matters, which are, by nature, more subjective and fluid.  Our
estimates of the risk of loss and amount of loss on any loan are complicated by
the significant uncertainties surrounding our borrowers’ abilities to
successfully execute their business models through changing economic
environments, competitive challenges and other factors.  Because of
the degree of uncertainty and susceptibility of these factors to change, our
actual losses may vary from our current estimates.




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.


35


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 mortgage 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, 2009, approximately $44.7 million of second
mortgage loans, or 13.9% of our $320.5 million residential mortgage loan
portfolio, had original combined loan-to-value ratios in excess of
90%.  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, 2009, we held $12.8
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
increased $66.4 million, or 12.5%, to $597.2 million at September 30, 2009 from
$530.8 million at September 30, 2008, and increased $575.7 million from
$21.4 million at September 30, 2003, the year we began our commercial
lending operation.  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.





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.


36




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 the State of Missouri 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 be very aggressive in responding to concerns
and trends identified in examinations, including the expected 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.





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.


37




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.





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.




Changes
in the level of interest rates also may negatively affect our ability to
originate real estate loans, the value of our assets and our ability to realize
gains from the sale of our assets, all of which ultimately affect our
earnings.


38




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, 2009, 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 $102.3 million, or 7.8%, from $1.30 billion at
September 30, 2008 to $1.41 billion at September 30, 2009, primarily
due to increases in commercial loans held in our portfolio and 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.





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.  We intend to redeem the preferred stock prior to the
increase in the dividend rate to 9%.  Such redemption will require us
to raise additional capital.


39





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.




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, 2009, we had $61.0 million of FHLB
advances outstanding with an additional $191.3 million available borrowing
capacity, no borrowings from the Federal Reserve Bank outstanding with an
additional $131.1 million available borrowing capacity and $83.5 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.


40





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.




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.




The
exercise of the warrant by the U. S. Treasury Department will dilute existing
stockowners’ ownership interest and may make it 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.




41




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 operation, which may
adversely affect the market price of our common stock.




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 has 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 is due 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 will be required to make a
payment of approximately $7.3 million to the FDIC on December 30,
2009.  We will record this payment as a prepaid expense and amortize
the expense over the three year assessment period.




42


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.




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.  In recent years, several new
financial institutions have formed in the St. Louis area.  These de
novo banks may price their loans and deposits aggressively in order to attract
customers.  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.


43




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.




Our
ability to service our debt, pay dividends and otherwise pay our obligations as
they come due is substantially dependent on capital distributions from Pulaski
Bank, and these distributions are subject to regulatory limits and other
restrictions.




A
substantial source of our income from which we service our debt, pay our
obligations and from which we can pay dividends is the receipt of dividends from
Pulaski Bank.  The availability of dividends from Pulaski Bank is
limited by various statutes and regulations.  It is possible,
depending upon the financial condition of Pulaski Bank, and other factors, that
the applicable regulatory authorities could assert that payment of dividends or
other payments is an unsafe or unsound practice.  In the event that
Pulaski Bank is unable to pay dividends to us, we may not be able to service our
debt, pay our obligations or pay dividends on our common stock.  The
inability to receive dividends from Pulaski Bank would adversely affect our
business, financial condition, results of operations and
prospects.


44


Item 1B. Unresolved Staff
Comments





None.





Item 2.
Properties





The Bank
conducts its business through twelve full-service banking offices and five loan
production offices.  The following table sets forth information on
those offices as of September 30, 2009.





Location
              
              Year
                Opened
              
              Net
      Book
                Value
      (1)
              
              Owned/
                Leased
              
              Approximate
                Square
      Footage(Dollars
      in thousands)Main
      Office:12300
      Olive Boulevard
                Creve
      Coeur, Missouri   63141
              
              1978
              
              $
              2,950
              
              Owned
              
              
              32,300Full-Service
      Bank Offices:11550
      New Halls Ferry Road
                Florissant,
      Missouri  63033
              
              1998
              
              
              1,064
              
              Owned/
                Leased
      (2)
              
              
              1,9003760
      South Grand Avenue
                St.
      Louis, Missouri   63118
              
              1967
              
              
              535
              
              Owned
              
              
              3,5004226
      Bayless Avenue
                St.
      Louis, Missouri   63123
              
              2001
              
              
              716
              
              Owned
              
              
              3,2001928
      Zumbehl Road
                St.
      Charles, Missouri   63303
              
              2000
              
              
              819
              
              Owned
              
              
              2,8001700
      O’Fallon RoadSt.
      Charles, Missouri   63304
              
              2003
              
              
              1,124
              
              Owned
              
              
              4,00017701
      Edison Avenue
                Chesterfield,
      Missouri   63005
              
              2005
              
              
              1,541
              
              Owned
              
              
              3,800415
      DeBaliviere Avenue
                St.
      Louis, Missouri   63112
              
              2006
              
              
              1,461
              
              Owned
              
              
              25,00010
      Maryland Plaza
                St.
      Louis, Missouri   63108
              
              2006
              
              
              26
              
              Leased
      (3)
              
              
              1,7006510
      Clayton Road
                Richmond
      Heights, Missouri 63117
              
              2007
              
              
              2,830
              
              Owned
              
              
              2,700900
      Olive Street
                St.
      Louis, Missouri 63101
              
              2007
              
              
              860
              
              Leased
      (4)
              
              
              3,700175
      Carondelet Plaza
                Clayton,
      Missouri 63105
              
              2007
              
              
              830
              
              Leased
      (5)
              
              
              4,100Other
      Offices:One
      Pulaski Center Drive
                St.
      Louis, Missouri   63141
              
              2003
              
              
              3,886
              
              Owned
      (10)
              
              
              27,0002724A
      Grovelin Street
                Godfrey,
      Illinois  62035
              
              2006
              
              
              13
              
              Leased
      (7)
              
              
              1,400




45





Location
              
              Year
                Opened
              
              Net Book
                Value (1)
              
              Owned/
                Leased
              
              Approximate
                Square Footage6600
      College Boulevard
                Overland
      Park, Kansas   66211
              
              2002
              
              
              186
              
              Leased
      (6)
              
              
              12,7008413
      Clint Drive
                Belton,
      Missouri   64012
              
              2007
              
              
              42
              
              Leased
      (8)
              
              
              900821
      NE Columbus
                Lee’s
      Summit, Missouri 64063
              
              2008
              
              
              79
              
              Leased
      (9)
              
              
              1,900





(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, which expires on October 31,
  2010.


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


(4)
            Lease
      expires on August 31, 2017.


(5)
            Lease
      expires on September 30, 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,
  2010.


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


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





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. Submission of
Matters to a Vote of Security Holders





None.


46


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
                                  Numberof
                                  Shares (or
                                  Units)
                                  Purchased
                                
                                
                                (b)
                                  Average
                                  PricePaid per
                                  Share
                                  (or Unit)
                                
                                
                                (c)
                                  Total Number of
                                  Shares (or Units)
                                  Purchased as Part
                                  ofPublicly
                                  AnnouncedPlans
                                  or Programs(1)
                                
                                
                                (d)
                                  Maximum Number (or
                                  approximate
                                  Dollar Value) of Shares
                                  (orUnits) that May Yet
                                  BePurchased Under the
                                  Plansor Programs (1)July
      1, 2009through
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                
                                -
                                
                                
                                
                                380,619July
      31, 2009August
      1, 2009through
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                380,619August
      31, 2009September
      1, 2009Through
                                
                                
                                3,426
                                
                                
                                
                                7.82
                                
                                
                                
                                -
                                
                                
                                
                                380,619September
      30, 2009 (2)Total
                                
                                
                                3,426
                                
                                
                                $
                                7.82
                                
                                
                                
                                -





(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 increase its quarterly cash dividend
      above $0.095 per share or repurchase any shares of its common stock,
      without the prior approval of the
Treasury.





(2)
            Total
      number of shares purchased represents shares surrendered by employees to
      satisfy tax withholding requirements upon vesting of stock
      awards.


47





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 2009 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 2009 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 2009 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, 2009 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 35 in the 2009
Annual Report to Stockholders.





KPMG LLP’s attestation report on the
Company’s internal control over financial reporting is incorporated by reference
to page 36 in the 2009 Annual Report to Stockholders.


48





Item 9B.  Other
Information





None


49





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” 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.


50





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, 2009.





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
                
                
                916,806
                
                
                $
                9.89
                
                
                
                475,200Equity
      compensation plans not approved by security holders (1)
                
                
                13,500
                
                
                
                5.13
                
                
                
                —Total
                
                
                930,306
                
                
                $
                9.82
                
                
                
                475,200





(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.


51





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.


52


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, 2009 and
2008


Consolidated
      Statements of Income and Comprehensive Income for the Years Ended
      September 30, 2009, 2008 and
2007


Consolidated
      Statements of Stockholders’ Equity for the Years Ended September 30, 2009,
      2008 and 2007


Consolidated
      Statements of Cash Flows for the Years Ended September 30, 2009, 2008 and
      2007


Notes
      to Consolidated Financial Statements for the Years ended September 30,
      2009, 2008 and 2007





Such
financial statements are incorporated herein by reference to the Consolidated
Financial Statements and Notes thereto included in the 2009 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




53





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


54





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,
      200913.1
              
              2009
      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.




55


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
      18, 2009Gary
      W. Douglass
            
            (principal
      executive officer)/s/ Paul J. Milano
            
            Chief
      Financial Officer
            
            December
      18, 2009Paul
      J. Milano
            
            (principal
      accounting and financialofficer)/s/ Stanley J. Bradshaw
            
            Chairman
      of the Board
            
            December
      18, 2009Stanley
      J. Bradshaw/s/ Lee S. Wielansky
            
            Vice-Chairman
      of the Board
            
            December
      18, 2009Lee
      S. Wielansky/s/ Kathryn S. Bader
            
            Director
            
            December
      18, 2009Kathryn
      S. Bader/s/ William M. Corrigan,
Jr.
            
            Director
            
            December
      18, 2009William
      M. Corrigan, Jr./s/ William A. Donius
            
            Director
            
            December
      18, 2009William
      A. Donius/s/ Leon A. Felman
            
            Director
            
            December
      18, 2009Leon
      A. Felman/s/ Michael R. Hogan
            
            Director
            
            December
      18, 2009Michael
      R. Hogan/s/ Timothy K. Reeves
            
            Director
            
            December
      18, 2009Timothy
      K. Reeves/s/ Steven C. Roberts
            
            Director
            
            December
      18, 2009Steven
      C. Roberts


56