Pulaski Financial (PULB) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2010

OR

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

For the transition period from ___________________ to ______________________

0-24571

Commission File Number

Pulaski Financial Corp.

(Exact name of registrant as specified in its charter)

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

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

Not Applicable

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

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

Yes x No ¨

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨
(Do not check if a smaller reporting company.)

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

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

Class	Outstanding at August 11, 2010
Common Stock, par value $.01 per share	10,819,478 shares

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

FORM 10-Q

JUNE 30, 2010

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at June 30, 2010 and September 30, 2009 (Unaudited)	1
	Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended June 30, 2010 and 2009 (Unaudited)	2
	Consolidated Statement of Stockholders’ Equity for the Nine Months Ended June 30, 2010 (Unaudited)	3
	Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2010 and 2009 (Unaudited)	4
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	[Reserved]	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
	Signatures

PART I - FINANCIAL INFORMATION

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

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

See accompanying notes to the unaudited consolidated financial statements.

- 1 - -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)

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

See accompanying notes to the unaudited consolidated financial statements.

- 2 - -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED JUNE 30, 2010 (UNAUDITED)

	Preferred							Additional			Accumulated
	Stock,							Paid-In			Other
	Net of		Common		Treasury			Capital From			Comprehensive			Retained
	Discount		Stock		Stock			Common Stock			Income (Loss), Net			Earnings			Total
Balance, September 30, 2009	$	30,655,060	$	130,687	$	(18,544,173	)	$	55,247,464		$	192,773		$	49,279,559		$	116,961,370
Comprehensive income:
Net income		-		-		-			-			-			105,701			105,701
Change in unrealized loss  on investment securities, net of tax		-		-		-			-			(126,382	)		-			(126,382	)
Comprehensive income (loss)		-		-		-			-			(126,382	)		105,701			(20,681	)
Common stock dividends ($0.095 per share)		-		-		-			-			-			(3,024,092	)		(3,024,092	)
Preferred stock dividends		-		-		-			-			-			(1,220,175	)		(1,220,175	)
Accretion of discount on preferred stock		324,180		-		-			-			-			(324,180	)		-
Stock options excercised		-		-		297,504			(100,675	)		-			-			196,829
Stock option and award expense		-		-		-			432,793			-			-			432,793
Commmon stock issued under dividend reinvestment plan (102,498 shares)		-		-		402,798			254,596			-			-			657,394
Common stock issued under equity trust plan (194,320 shares)		-		-		(444,686	)		444,686			-			-			-
Restricted stock awards issued, net (48,400 shares)		-		-		197,520			(197,520	)		-			-			-
Common stock surrendered to satisfy tax withholding obligations of stock-based compensation (11,655 shares)		-		-		(78,374	)		-			-			-			(78,374	)
Purchase of equity trust shares		-		-		(219,785	)		-			-			-			(219,785	)
Distribution of equity trust shares (33,742 shares)		-		-		401,524			(401,524	)		-			-			-
Equity trust expense		-		-		-			501,313			-			-			501,313
Tax expense from release of equity shares		-		-		-			(66,224	)		-			-			(66,224	)
Excess tax benefit from stock-based compensation		-		-		-			2,722			-			-			2,722
Balance, June 30, 2010	$	30,979,240	$	130,687	$	(17,987,672	)	$	56,117,631		$	66,391		$	44,816,813		$	114,123,090

- 3 - -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR NINE MONTHS

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

	Nine Months Ended
	June 30,
	2010			2009
Cash Flows From Operating Activities:
Net income	$	105,701		$	4,353,647
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amortization and accretion:
Premises and equipment		1,379,282			1,409,024
Net deferred loan costs		1,628,422			2,070,332
Debt and equity securities premiums and discounts, net		95,345			117,353
Equity trust expense, net		501,313			495,170
Stock option and award expense		432,793			357,944
Provision for loan losses		21,814,000			16,509,985
Provision for losses on real estate acquired in settlement of loans		1,564,700			503,302
(Gains) losses on sales of real estate acquired in settlement of loans		(47,620	)		146,483
Originations of mortgage loans held for sale		(1,228,484,966	)		(1,637,934,201	)
Proceeds from sales of mortgage loans held for sale		1,182,300,432			1,543,779,588
Gain on sales of mortgage loans held for sale		(5,763,432	)		(9,734,588	)
Loss on equity securities available for sale		-			155,500
Gain on sales of debt securities available for sale		-			(398,886	)
Increase in cash value of bank-owned life insurance		(820,810	)		(808,991	)
(Increase) decrease in deferred tax asset		(2,381,535	)		2,048,774
Excess tax benefit from stock-based compensation Excess tax benefit from stock-based compensation		(2,722	)		(13,515	)
Tax expense for release of equity trust shares		66,224			-
(Decrease) increase in accrued expenses		(652,113	)		804,787
Decrease in current income taxes payable		(1,250,278	)		(624,182	)
Changes in other assets and liabilities		(3,478,936	)		(481,222	)
Net adjustments		(33,099,901	)		(81,597,343	)
Net cash used in operating activities		(32,994,200	)		(77,243,696	)
Cash Flows From Investing Activities:
Proceeds from:
Maturities of time deposits in other banks		-			99,000
Maturities of debt securities available for sale		16,500,000			4,000,000
Sales of debt securities available for sale		-			51,050,500
Principal payments on mortgage-backed securities		5,197,952			3,485,042
Redemption of Federal Home Loan Bank stock		12,205,600			4,571,500
Sales of real estate acquired in settlement of loans receivable		7,242,956			6,093,225
Purchases of:
Debt securities available for sale		(19,007,933	)		(61,707,758	)
Mortgage-backed securities available for sale		-			(7,003,443	)
Federal Home Loan Bank stock		(6,441,100	)		(5,325,200	)
Premises and equipment		(1,219,751	)		(811,815	)
Net decrease (increase) in loans receivable		24,841,379			(93,755,344	)
Net cash provided by (used in) investing activities	$	39,319,103		$	(99,304,293	)

Continued on next page.

- 4 - -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR NINE MONTHS

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

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

See accompanying notes to the unaudited consolidated financial statements.

- 5 - -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

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

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of June 30, 2010 and September 30, 2009 and its results of operations for the three- and nine-month periods ended June 30, 2010 and 2009.  The results of operations for the three- and nine-month periods ended June 30, 2010 are not necessarily indicative of the operating results that may be expected for the entire fiscal year or for any other period.  These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended September 30, 2009 contained in the Company’s 2009 Annual Report to Stockholders, which was filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended September 30, 2009.

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

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

The Company has evaluated all subsequent events to ensure that the accompanying financial statements include the effects of any subsequent events that should be recognized in such financial statements as of June 30, 2010, and the appropriate disclosure of any subsequent events that were not recognized in the financial statements.

2. PREFERRED STOCK

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

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

- 6 - -

The preferred stock pays cumulative dividends of 5% per year for the first five years and 9% per year thereafter.  The Company may, at its option, redeem the preferred stock at its liquidation preference plus accrued and unpaid dividends.  The securities purchase agreement between the Company and the U.S. Treasury limits, for three years, the rate of dividend payments on the Company’s common stock to the amount of its last quarterly cash dividend prior to participation in the program, which as was of $0.095 per share, unless an increase is approved by the Treasury, limits the Company’s ability to repurchase its common stock for three years, and subjects the Company to certain executive compensation limitations included in the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009.

3. EARNINGS PER SHARE

Basic earnings per common share is computed using the weighted average number of common shares outstanding.  The dilutive effect of potential common shares outstanding is included in diluted earnings per share.  The computations of basic and diluted earnings per share are presented in the following table.

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net income	$	3,177,154		$	2,014,787		$	105,701		$	4,353,647
Less:
Preferred dividends declared		(406,725	)		(406,725	)		(1,220,175	)		(537,781	)
Accretion of discount on preferred stock		(108,439	)		(106,929	)		(324,180	)		(213,483	)
Income (loss) available to common shares	$	2,661,990		$	1,501,133		$	(1,438,654	)	$	3,602,383
Weighted average common shares outstanding - basic		10,418,153			10,200,321			10,351,930			10,155,874
Effect of dilutive securities:
Treasury stock held in equity trust - unvested shares		137,330			96,968			-			95,657
Equivalent shares - employee stock options and awards		8,118			52,715			-			51,409
Equivalent shares - common stock warrant		58,554			45,649			-			45,528
Weighted average common shares outstanding - diluted		10,622,155			10,395,653			10,351,930			10,348,468
Earnings (loss) per common share:
Basic	$	0.26		$	0.15		$	(0.14	)	$	0.35
Diluted	$	0.25		$	0.14		$	(0.14	)	$	0.35

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

- 7 - -

The following options and warrants to purchase common shares during the three- and nine-month period ended June 30, 2010 and 2009 were not included in the respective computations of diluted earnings per share since they were considered anti-dilutive because there was either a net loss for the period or the exercise price of the options, when combined with the effect of the unamortized compensation expense, and the exercise price of the warrants were greater than the average market price of the common shares.  The options expire in various periods from 2013 through 2020, respectively, and the warrant expires in 2019.

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

4.      STOCK-BASED COMPENSATION

The Company’s shareholder-approved, stock-based incentive plans permit the grant of awards in the form of options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code, options that do not so qualify (non-statutory stock options,) and grants of restricted shares of common stock.  All employees, non-employee directors and consultants of the Company and its affiliates are eligible to receive awards under the plans.  Except as described below, all stock option awards issued during the nine months ended June 30, 2010 were granted with an exercise price equal to the market value of the Company’s shares at the date of grant and all stock option and stock grant awards vest over a period of two to five years.  In October 2009, stock grants for 11,016 shares of the Company’s common stock were awarded to directors with terms providing for vesting of 5,508 shares immediately and 5,508 shares in twelve months.  The exercise period for stock options generally may not exceed 10 years from the date of grant.  Option and share awards provide for accelerated vesting if there is a change in control (as defined in the plans).  As a participant in the U.S. Department of Treasury’s Capital Purchase Program, certain employees are prohibited from receiving golden parachute payments while the Company has any outstanding funds related to the program.  Under the Treasury’s guidelines, golden parachute payments are defined to include any payment resulting from a change in control of the Company, which includes the acceleration of vesting in stock-based incentive plans.  Accordingly, the affected employees have signed agreements to forfeit the right to accelerated vesting while any funds related to the Treasury’s program are outstanding.

A summary of the Company’s stock option program as of June 30, 2010 and changes during the nine-month period then ended, is presented below:

								Weighted-
				Weighted				Average
				Average		Aggregate		Remaining
	Number			Exercise		Intrinsic		Contractual
	Of Shares			Price		Value		Life (years)
Outstanding at October 1, 2009		930,306		$	9.82
Granted		15,000			7.25
Exercised		(72,900	)		2.70
Forfeited		(18,900	)		10.07
Outstanding at June 30, 2010		853,506		$	10.38	$	98,734		6.2
Exercisable at June 30, 2010		550,627		$	10.52	$	89,427		5.2

- 8 - -

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

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

	Nine Months Ended
	June 30,
	2010			2009
Risk free interest rate		2.44	%		4.30	%
Expected volatility		38.59	%		35.53	%
Expected life in years		5.6			5.4
Dividend yield		4.37	%		4.27	%
Expected forfeiture rate		3.37	%		3.37	%

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

At June 30, 2010, there were 488,289 shares in the plan with an aggregate value of $4.5 million, which were included in treasury stock in the Company’s consolidated financial statements, including 274,570 shares that were not yet vested.  Vested shares in the plan are treated as issued and outstanding when computing basic and diluted earnings per share, whereas unvested shares are treated as issued and outstanding only when computing diluted earnings per share.

5.      INCOME TAXES

Deferred tax assets totaled $11.7 million and $9.3 million at June 30, 2010 and September 30, 2009, respectively, and resulted primarily from the temporary differences related to the allowance for loan losses.  Deferred tax assets are recognized only to the extent that they are expected to be used to reduce amounts that have been paid or will be paid to tax authorities.  Management believes, based on all positive and negative evidence, that the realization of the deferred tax asset at June 30, 2010 is more likely than not, and accordingly, no valuation allowance has been recorded.  The ultimate outcome of future facts and circumstances could require a valuation allowance and any charges to establish such valuation allowance could have a material adverse effect on the Company’s results of operations and financial position.

At June 30, 2010, the Company had $167,000 of unrecognized tax benefits, $134,000 of which would affect the effective tax rate if recognized.  The Company recognizes interest related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for unrecognized tax benefits.  As of June 30, 2010, the Company had approximately $33,000 accrued for the payment of interest and penalties.  The tax years ended September 30, 2006 through 2009 remain open to examination by the taxing jurisdictions to which the Company is subject.

- 9 - -

6.      DEBT SECURITIES

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

				Gross		Gross			Estimated
	Amortized			Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
June 30, 2010:
Available for Sale:
Debt securities	$	4,505,569		$	1,729	$	-		$	4,507,298
Weighted average rate at end of period		0.30	%
September 30, 2009:
Available for Sale:
Debt securities	$	1,999,590		$	-	$	(2,194	)	$	1,997,396
Weighted average rate at end of period		0.16	%

The summary below displays the length of time the securities available for sale were in a continuous unrealized loss position as of June 30, 2010 and September 30, 2009.  The unrealized losses were not deemed to be other-than-temporary. The Company does not have the intent to dispose of these investments and it is not more likely than not that the Company will be required to sell these investments prior to recovery of the unrealized losses.  Further, the Company believes the deterioration in value is attributable to changes in market interest rates and not the credit quality of the issuer.

Length of Time in Continuous Unrealized Loss Position at June 30, 2010

Less than 12 months

12 months or more

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Available for Sale:

Debt obligations of government-sponsored entities

$

-

$

-

$

-

$

-

$

-

$

-

Percent of total

-

-

$

-

$

-

-

-

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

- 10 - -

7.      MORTGAGE-BACKED SECURITIES

Mortgage-backed securities held to maturity and available for sale at June 30, 2010 and September 30, 2009 are summarized as follows:

	June 30, 2010
				Gross		Gross
	Amortized			Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
Held to Maturity:
Mortgage-backed securities:
Freddie Mac	$	33		$	-	$	(2	)	$	31
Ginnie Mae		198,902			23,886		-			222,788
Fannie Mae		10,829,842			501,671		-			11,331,513
Total mortgage-backed securities		11,028,777			525,557		(2	)		11,554,332
Collateralized mortgage obligations:
Freddie Mac		14,015			3		-			14,018
Total held to maturity	$	11,042,792		$	525,560	$	(2	)	$	11,568,350
Weighted average rate at end of period		4.15	%
Available for Sale:
Mortgage-backed securities:
Ginnie Mae	$	446,911		$	34,491	$	-		$	481,402
Fannie Mae		787,148			3,018		-			790,166
Total mortgage-backed securities		1,234,059			37,509		-			1,271,568
Collateralized mortgage obligations:
Freddie Mac		1,009,676			21,738		-			1,031,414
Ginnie Mae		4,532,727			8,922		-			4,541,649
Fannie Mae		4,741,227			37,184		-			4,778,411
Total collateralized mortgage obligations		10,283,630			67,844		-			10,351,474
Total available for sale	$	11,517,689		$	105,353	$	-		$	11,623,042
Weighted average rate at end of period		4.14	%

- 11 - -

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

The summary below displays the length of time mortgage-backed securities held to maturity and available for sale were in a continuous unrealized loss position as of June 30, 2010 and September 30, 2009.  The unrealized losses were not deemed to be other-than-temporary. The Company does not have the intent to dispose of these investments and it is not more likely than not that the Company will be required to sell these investments prior to recovery of the unrealized losses.  Further, the Company believes the deterioration in value is attributable to changes in market interest rates and not the credit quality of the issuer.

- 12 - -

	Length of Time in Continuous Unrealized Loss Position at June 30, 2010
	Less than 12 months						12 months or more				Total
	Amortized			Unrealized			Amortized		Unrealized		Amortized			Unrealized
	Cost			Losses			Cost		Losses		Cost			Losses
Held To Maturity:
Mortgage-backed securities	$	24		$	2		$	-	$	-	$	24		$	2
Percent of total		100.0	%		100.0	%		-		-		100.0	%		100.0	%

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

- 13 - -

8. LOANS RECEIVABLE

Loans receivable at June 30, 2010 and September 30, 2009 are summarized as follows:

	June 30,			September 30,
	2010			2009
Real estate mortgage:
Residential first mortgage	$	254,425,449		$	248,798,923
Residential second mortgage		64,936,826			72,083,535
Home equity lines of credit		209,350,549			227,141,590
Multi-family residential		44,666,185			44,462,990
Commercial real estate		258,259,961			231,270,107
Land acquisition and development		76,588,457			80,258,931
Real estate construction and development:
Residential		8,340,653			19,664,258
Multi-family		4,181,475			6,864,072
Commercial		20,071,539			59,429,776
Commercial and industrial		146,205,364			154,972,793
Consumer and installment		3,802,669			4,170,863
		1,090,829,127			1,149,117,838
Add (less):
Deferred loan costs		4,027,564			4,369,122
Loans in process		(570,786	)		(812,946	)
Allowance for loan losses		(26,820,596	)		(20,579,170	)
Total	$	1,067,465,309		$	1,132,094,844
Weighted average interest rate at end of period		5.39	%		5.33	%
Specific loan loss allowance on impaired loans	$	5,857,544		$	6,822,942
Balance of impaired loans with specific allowance		15,418,869			19,753,191
Balance of impaired loans with no specific allowance		42,912,688			39,198,182
Ratio of allowance to total outstanding loans		2.46	%		1.79	%

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

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

Included in non-performing assets at June 30, 2010 and September 30, 2009 were $33.3 million and $35.0 million, respectively, of loans that were modified and are classified as troubled debt restructurings because of the borrowers’ financial difficulties.  The restructured terms of the loans generally included a reduction of the interest rates and the addition of past due interest to the principal balance of the loans.  At June 30, 2010, $26.2 million, or 78.7%, of these loans were performing as agreed under the modified terms of the loans compared with $22.6 million, or 64.7%, at September 30, 2009.  A loan classified as a troubled debt restructuring will remain on non-accrual and will be included in non-performing assets until the borrower demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally six months.  Accordingly, excluded from non-performing assets at June 30, 2010 and March 31, 2010 were $8.0 million and $6.2 million, respectively, of loans that were modified in troubled debt restructurings but were no longer classified as non-performing because of the borrowers’ favorable performance histories.

- 14 - -

9. DEPOSITS

Deposits at June 30, 2010 and September 30, 2009 are summarized as follows:

	June 30, 2010					September 30, 2009
			Weighted					Weighted
			Average					Average
			Interest					Interest
	Amount		Rate			Amount		Rate
Transaction accounts:
Non-interest-bearing checking	$	127,389,290		-		$	103,398,563		-
Interest-bearing checking		361,430,625		0.91	%		263,019,571		1.25	%
Passbook savings accounts		30,806,028		0.17	%		28,874,588		0.24	%
Money market		214,917,624		0.48	%		253,995,786		0.76	%
Total transaction accounts		734,543,567		0.60	%		649,288,508		0.81	%
Certificates of deposit:
Retail		330,422,229		2.34	%		348,622,361		2.63	%
CDARS		72,591,741		0.68	%		110,240,370		1.54	%
Brokered		8,405,832		5.23	%		83,478,000		2.67	%
Total certificates of deposit		411,419,802		2.10	%		542,340,731		2.42	%
Total deposits	$	1,145,963,369		1.14	%	$	1,191,629,239		1.54	%

10. FAIR VALUE MEASUREMENTS

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

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

- 15 - -

The Company records securities available for sale and derivative financial instruments at their fair values on a recurring basis.  Additionally, the Company records other assets at their fair values on a nonrecurring basis, such as mortgage loans held for sale, loans held for investment and certain other assets.  These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or impairment write-downs of individual assets.  The following is a general description of the methods used to value such assets.

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

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

Interest Rate Swap Assets and Liabilities.  The fair values are based on quoted market prices by an independent valuation service.

Mortgage Loans Held for Sale.  The fair values of mortgage loans held for sale are generally based on commitment sales prices obtained from the Company’s investors.

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

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

Intangible Assets and Goodwill are reviewed annually in the fourth fiscal quarter and/or when circumstances or other events indicate that impairment may have occurred.  Because of the decline in the market value of the Company’s common stock during the nine months ended June 30, 2010, the Company reviewed goodwill for impairment as of June 30, 2010 in addition to its annual review at September 30, 2009.  No impairment losses were recognized during fiscal year 2009 or the nine months ended June 30, 2010.

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

- 16 - -

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

	Carrying Value at June 30, 2010
			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Debt securities available for sale	$	4,507	$	-	$	4,507	$	-
Mortgage-backed securities available for sale		11,623		-		11,623		-
Interest-rate swap		1,543		-		1,543		-
Total assets	$	17,673	$	-	$	17,673	$	-
Liabilities:
Interest-rate swap	$	1,543	$	-	$	1,543	$	-
Total liabilities	$	1,543	$	-	$	1,543	$	-

	Carrying Value at September 30, 2009
			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Debt securities available for sale	$	1,997	$	-	$	1,997	$	-
Mortgage-backed securities available for sale		16,087		-		16,087		-
Interest-rate swap		1,170		-		1,170		-
Total assets	$	19,254	$	-	$	19,254	$	-
Liabilities:
Interest-rate swap	$	1,170	$	-	$	1,170	$	-
Total liabilities	$	1,170	$	-	$	1,170	$	-

- 17 - -

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

									Total Losses
									Recognized in
	Carrying Value at June 30, 2010								the Quarter
			Fair Value Measurements Using						Ended June 30,
	Total		Level 1		Level 2		Level 3		2010
	(In thousands)
Assets:
Mortgage loans held for sale	$	210	$	-	$	210	$	-	$	-
Impaired loans, net		9,561		-		3,311		6,250		370
Real estate acquired in settlement of loans		16,040		-		-		16,040		2,152
Total assets	$	25,811	$	-	$	3,521	$	22,290	$	2,522

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

11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following fair values of financial instruments have been estimated by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data used to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company might realize in a current market exchange.  The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts.

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2010 and September 30, 2009.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date.  Therefore, current estimates of fair value may differ significantly from the amounts presented herein.

- 18 - -

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

	June 30, 2010				September 30, 2009
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
	(In Thousands)
ASSETS:
Cash and cash equivalents	$	25,630	$	25,630	$	37,451	$	37,451
Debt securities – AFS		4,507		4,507		1,997		1,997
Capital stock of FHLB		5,885		5,885		11,650		11,650
Mortgage-backed  securities - HTM		11,043		11,568		12,078		12,375
Mortgage-backed  securities - AFS		11,623		11,623		16,087		16,087
Loans receivable held for sale		161,078		164,445		109,130		111,247
Loans receivable		1,067,465		1,104,178		1,132,095		1,158,721
Accrued interest receivable		4,615		4,615		4,907		4,907
Interest-rate swap assets		1,543		1,543		1,170		1,170
LIABILITIES:
Deposit transaction accounts		734,544		734,544		649,289		649,289
Certificate of deposits		411,420		416,847		542,341		550,175
Advances from the FHLB		92,900		94,377		61,000		62,759
Subordinated debentures		19,589		19,583		19,589		19,591
Accrued interest payable		850		850		1,035		1,035
Interest-rate swap liabilities		1,543		1,543		1,170		1,170

	June 30, 2010				September 30, 2009
	Contract		Estimated		Contract		Estimated
	or Notional		Fair		or Notional		Fair
	Amount		Value		Amount		Value
	(In Thousands)
OFF BALANCE SHEET FINANCIAL INSTRUMENTS:
Commitments to originate first and second mortgage loans	$	90,384	$	-	$	105,157	$	-
Commitments to originate commercial mortgage loans		20,162		-		41,027		-
Commitments to originate non-mortgage loans		16,134		-		1,600		-
Unused lines of credit		204,805		-		258,249		-

In addition to the methods described in Note 10 above, the following methods and assumptions were used to estimate the fair value of the financial instruments that were recorded at historical cost in the Company’s financial statements at June 30, 2010 and September 30, 2009.

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

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

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

- 19 - -

Accrued Interest Receivable - The carrying value approximates fair value.

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

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

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

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

Accrued Interest Payable - The carrying value approximates fair value.

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

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

12. INTEREST-RATE SWAPS

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

- 20 - -

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

	June 30,		September 30,
	2010		2009
Fair value recorded in other assets	$	1,543,000	$	1,170,000
Fair value recorded in other liabilities		1,543,000		1,170,000

The gross gains and losses on these contracts recorded in non-interest expense in the consolidated statements of income and comprehensive income for the three- and nine-month period ended June 30, 2010 and 2009 are summarized as follows:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(in thousands)
Gross (gains) losses on derivative financial assets	$	(440,000	)	$	619,000		$	(373,000	)	$	(873,000	)
Gross (gains) losses on derivative financial liabilities		440,000			(619,000	)		373,000			873,000
Net loss (gain)	$	-		$	-		$	-		$	-

13. GOODWILL

Goodwill totaled $3.9 million at June 30, 2010 and September 30, 2009, respectively.  Goodwill represents the amount of acquisition cost over the fair value of net assets acquired in the purchase of another financial institution.  The Company reviews goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate the carrying value of the asset might be impaired.  Impairment is determined by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.  If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.  Any such adjustments are reflected in the results of operations in the periods in which they become known.  After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill becomes its new accounting basis.  Because of the decline in the market value of the Company’s common stock during the nine months ended June 30, 2010, the Company reviewed goodwill for impairment as of June 30, 2010 in addition to its annual review at September 30, 2009.  No impairment losses were recognized during fiscal year 2009 or the nine months ended June 30, 2010.

- 21 - -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

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

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

GENERAL

Pulaski Financial Corp., operating in its eighty-eighth year, is a community-based, financial institution holding company headquartered in St. Louis, Missouri.  It conducts operations primarily through Pulaski Bank (the “Bank”), a federally chartered savings bank with $1.39 billion in assets at June 30, 2010.  Pulaski Bank provides an array of financial products and services for businesses and consumers primarily through its twelve full-service offices in the St. Louis metropolitan area and five loan production offices in the St. Louis and Kansas City metropolitan areas.

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

RESULTS OF COMMUNITY BANKING STRATEGY

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

- 22 - -

Commercial Banking Services

The Company’s commercial banking services are centered on serving small- to medium-sized businesses primarily in the St. Louis metropolitan area and the Company’s operations continue to be driven by its staff of experienced commercial bankers and the commercial banking relationships they generate. Commercial loan originations totaled $93.8 million and $278.7 million during the three and nine months ended June 30, 2010, respectively, compared with $98.9 million and $333.7 million during the same periods last year.  Although origination activity slowed during the 2010 periods compared with the prior year as the result of the distressed local and national economic climate, the Company continued to originate commercial loans to its most credit-worthy customers under tightened credit standards.  However, as the result of the weakened market demand for the Company’s loan products and the Company’s tightened underwriting standards, the commercial loan portfolio decreased $38.6 million during the nine-month period to $558.3 million at June 30, 2010.  In addition, during the nine months ended June 30, 2010, management decided to decrease the Company’s exposure to construction lending because of the weakened national and local economic conditions.  Commercial and multi-family construction and development loans decreased $42.0 million while commercial real estate loans increased $27.0 million primarily as the result of the conversion of certain maturing construction loans to permanent financing.  In addition, construction and development loans secured by residential properties decreased $11.3 million, land acquisition and development loans decreased $3.7 million and commercial and industrial loans decreased $8.8 million.

The Company’s commercial loan customers are also among the best sources of core deposit accounts.  Commercial checking account balances were $303.1 million at June 30, 2010 compared with $305.2 million at September 30, 2009.

Retail Mortgage Lending

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

Residential mortgage loans originated for sale to investors totaled $456.0 million and $1.23 billion during the three and nine months ended June 30, 2010 compared with $728.9 million and $1.64 billion during the same 2009 periods, respectively.  The origination activity the Company experienced in the 2009 periods represented historically high levels driven by consumer demand for mortgage refinancings that resulted from the low interest rate environment existing during most of 2009.  The reduced activity during the 2010 periods reflected softening market demand.  Mortgage loan refinancing activity represented approximately 40% of total loan originations during the nine months ended June 30, 2010 compared with 55% during the same 2009 period.

Residential loans sold to investors for the three months ended June 30, 2010 totaled $382.2 million, which generated mortgage revenues totaling $1.8 million, compared with $672.7 million of loans sold and $4.4 million in revenues for the three months ended June 30, 2009.  Residential loans sold to investors for the nine months ended June 30, 2010 totaled $1.18 billion, which generated mortgage revenues totaling $6.1 million, compared with $1.54 billion of loans sold and $10.3 million in revenues for the nine months ended June 30, 2009.  The net profit margin on loans sold decreased to 0.46% and 0.52% for the three and nine months ended June 30, 2010, respectively, compared with 0.66% and 0.67% for the same 2009 periods, respectively.  The Company was able to absorb the increased loan origination and sales volumes that it experienced in the 2009 periods without significantly adding direct, fixed costs to its infrastructure resulting in higher profit margins.  Accordingly, such fixed costs did not decline in proportion to the decreased activity in the 2010 periods, resulting in lower net profit margins.  Loans originated for sale during the nine months ended June 30, 2010 exceeded loans sold, resulting in a $51.9 million, or 48%, increase in mortgage loans held for sale to $161.1 million at June 30, 2010 from $109.1 million at September 30, 2009.

- 23 - -

Retail Banking Services

Core deposits, which include checking, money market and passbook accounts, provide a stable funding source for the Company’s asset growth and produce valuable fee income.  Their growth continues to be one of the Company’s primary strategic objectives, resulting in an increase of $85.3 million, or 13%, to $734.5 million at June 30, 2010 from $649.3 million at September 30, 2009.  Checking accounts, which represent the cornerstone product in a customer relationship, increased $122.4 million to $488.8 million at June 30, 2010 from $366.4 million at September 30, 2009 primarily as the result of growth in deposits from commercial and retail customers, and movement of money market accounts and maturing CDARS time deposits into checking accounts.  Also enhancing its ability to attract core deposits, the Bank participates in the FDIC’s Transaction Account Guarantee Program, which provides full FDIC insurance coverage for non interest-bearing transaction accounts and qualifying NOW accounts, regardless of the dollar amount, and is in addition to the standard FDIC insurance that was temporarily increased to $250,000 per depositor.  Both FDIC limits will be in effect through December 31, 2013.  Money market accounts decreased $39.1 million to $214.9 million at June 30, 2010 from $254.0 million at September 30, 2009 primarily as the result of a shift in such deposits into interest-bearing checking accounts.  Primarily as the result of declining market interest rates, the weighted-average costs of interest-bearing checking accounts and money market accounts decreased to 0.91% and 0.48%, respectively, at June 30, 2010 compared with 1.25% and 0.76% at September 30, 2009.

Certificates of deposit decreased $130.9 million to $411.4 million at June 30, 2010 from $542.3 million at September 30, 2009, primarily as the result of a $75.0 million decrease in brokered time deposits to $8.4 million, and a $37.6 million decrease in CDARS time deposits to $72.6 million.  CDARS deposits, which are generally offered to in-market retail and commercial customers and to public entities, offer the Bank’s customers the ability to receive FDIC insurance on deposits up to $50 million.  Higher-cost, maturing brokered time deposits were repaid with proceeds from the increase in core deposits and the proceeds from lower-cost borrowings from the Federal Home Loan Bank.  Total deposits decreased $45.7 million, or 3.83%, to $1.15 billion at June 30, 2010 from $1.19 billion at September 30, 2009 primarily as the result of the decrease in brokered time deposits.  Excluding the decrease in brokered time deposits, total deposits increased $29.4 million, or 2.65%.

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

- 24 - -

AVERAGE BALANCE SHEETS

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

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

(1) Includes non-accrual loans with an average balance of $19.0 million and $20.3 million for the three months ended June 30, 2010 and 2009, respectively.

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

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

- 25 - -

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

(1) Includes non-accrual loans with an average balance of $20.2 million and $15.3 million for the nine months ended June 30, 2010 and 2009, respectively.

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

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

- 26 - -

RATE VOLUME ANALYSIS

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

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

- 27 - -

RESULTS OF OPERATIONS

The Company reported net income for the quarter ended June 30, 2010 of $3.2 million compared with net income of $2.0 million during the same quarter last year.  For the nine months ended June 30, 2010, the Company reported net income of $106,000 compared with net income of $4.4 million during the same period last year.  The Company reported net income available to common shares for the quarter ended June 30, 2010 of $2.7 million, or $0.25 per diluted common share on 10.6 million average diluted shares outstanding, compared with net income available to common shares of $1.5 million, or $0.14 per diluted common share on 10.4 million average diluted shares outstanding, during the same quarter last year. For the nine months ended June 30, 2010, the Company reported a net loss available to common shares of $1.4 million, or $0.14 per diluted common share on 10.4 million average diluted shares outstanding, compared with net income available to common shares of $3.6 million, or $0.35 per diluted common share on a 10.3 million average diluted shares outstanding, for the same period a year ago. Results for the three and nine months ended June 30, 2010 were negatively impacted by provisions for loan losses totaling $4.5 million and $21.8 million, respectively, compared with $6.2 million and $16.5 million, respectively, for the same periods in 2009.  Also reducing income available to common shares for the three and nine months ended June 30, 2010 were dividends and discount accretion on the Company’s preferred stock, issued during January 2009 as part of the U.S. Treasury’s TARP Capital Purchase Plan, totaling $515,000, or $0.05 per diluted common share, and $1.5 million, or $0.15 per diluted common share, respectively, compared with $514,000, or $0.05 per diluted common share, and $751,000 or $0.07 per diluted common share, in the comparable 2009 periods, respectively.

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

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

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

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

- 28 - -

For the nine-month periods, interest income on loans receivabledecreased 3.5% to $43.7 million for the 2010 period, compared with $45.3 million for the 2009 period.  The average balance of loans receivable was $1.13 billion for the nine month period ended June 30, 2010 compared with $1.16 billion during the same 2009 period while the average yield on loans receivable decreased to 5.17% during the nine months ended June 30, 2010 from 5.22% for the same period a year ago primarily as the result of market-driven declines in the average yields on residential mortgage and home equity loans partially offset by an increase in the average yield on commercial loans.

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

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

Total interest expense decreased $1.9 million, or 30.7%, to $4.2 million for the quarter ended June 30, 2010 compared with $6.1 million for the quarter ended June 30, 2009 and decreased $5.9 million, or 28.9%, to $14.5 million for the nine months ended June 30, 2010 compared with $20.4 million for the same nine-month period last year. The lower expense was primarily the result of a decrease in the average cost of funds.  The average cost of funds decreased from 1.96% for the quarter ended June 30, 2009 to 1.50% for the quarter ended June 30, 2010 and the average balance of interest-bearing liabilities decreased from $1.24 billion to $1.12 billion during the same periods, respectively.  The decrease in the average balance of interest-bearing liabilities resulted primarily from a decrease in the average balance of borrowings from the Federal Reserve Bank of St. Louis (“Federal Reserve Bank”) and advances from the Federal Home Loan Bank of Des Moines (“FHLB”) partially offset by an increase in the average balance of deposits.  For the nine months ended June 30, 2010, the average cost of funds decreased to 1.68% from 2.28% for the same nine-month period last year and the average balance of interest-bearing liabilities decreased to $1.15 billion for the nine-month period ended June 30, 2010 compared to $1.19 billion for the same period a year ago.  The decreased average cost during the three- and nine-month periods was the result of lower market interest rates, growth in core deposits and a shift in the mix of wholesale funding sources.  The Company primarily funds its assets with savings deposits from its retail and commercial customers.  This funding source is supplemented with wholesale funds consisting primarily of borrowings from the FHLB, short-term borrowings from the Federal Reserve Bank and time deposits from national brokers.  Management actively chooses among these wholesale funding sources depending on their relative costs, the Company’s overall interest rate risk exposure and the Company’s overall borrowing capacity at the FHLB and the Federal Reserve Bank.

Interest expense on deposits decreased $1.2 million, or 24.9%, to $3.8 million during the quarter ended June 30, 2010 compared with $5.0 million for the quarter ended June 30, 2009.  For the nine months ended June 30, 2010, interest expense on deposits was $12.7 million compared with $16.4 million for the same period a year ago.  The decreases were primarily the result of market-driven decreases in the average cost partially offset by increases in the average balance.  The average cost decreased to 1.45% for the quarter ended June 30, 2010 from 2.00% for the quarter ended June 30, 2009 while the average balance increased to $1.03 billion from $1.00 billion during the same periods, respectively.  For the nine-month periods, the average cost decreased to 1.61% in 2010 from 2.32% in 2009 while the average balance increased to $1.05 billion from $942.8 million during the same periods, respectively.  See Results of Community Banking Strategy – Retail Banking Services.

Interest expense on advances from the Federal Home Loan Bank decreased $501,000, or 59.5%, to $341,000 during the quarter ended June 30, 2010 compared with $841,000 for the quarter ended June 30, 2009 and decreased to $1.4 million during the nine months ended June 30, 2010 compared with $2.9 million for the same nine-month period last year primarily as the result of decreases in the average balance and average cost.  The average balance decreased to $69.5 million for the quarter ended June 30, 2010 from $103.7 million for the quarter ended June 30, 2009 and the average cost decreased from 3.25% to 1.96% during the same periods, respectively.  For the nine-month periods, the average balance decreased to $79.7 million during 2010 from $138.1 million during 2009 and the average cost decreased from 2.83% to 2.35% during the same periods, respectively.  The decreased average balance resulted from the repayment of such borrowings with proceeds from growth in deposits and sales of mortgage loans held for sale.  The decrease in the average cost was the result of lower market interest rates during the 2010 periods.

- 29 - -

Provision for Loan Losses

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

Non-Interest Income

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

Investment brokerage revenuestotaled $610,000 and $1.4 million for the three and nine months ended June 30, 2010, respectively, compared with $365,000 and $1.0 million, respectively, for the same periods a year ago. The Company operates an investment brokerage division whose operations consist principally of brokering bonds from wholesale brokerage houses to other banks, municipalities and individual investors.  Revenues are generated on trading spreads and fluctuate with changes in customer demand, trading volumes and market interest rates.  The Company saw an increase in sales volumes during the June 2010 periods compared with the prior-year periods as a result of stronger market demand for fixed-income investment products in the midst of a favorable interest rate environment and weakened loan demand by the Company’s investment customers.

Gain on sales of securities totaled $244,000 for the nine months ended June 30, 2009 on sales of $51.1 million of debt securities classified as available for sale.  There were no such sales during the nine months ended June 30, 2010. Debt securities are primarily held as collateral to secure large commercial and municipal deposits.  The total balance held in these securities is adjusted to reflect fluctuations in the balances of the deposits they are securing.

Other non-interest income totaled $84,000 and $412,000 for the three and nine months ended June 30, 2010, respectively, compared with $70,000 and $185,000 for the same 2009 periods.  The increase for the nine-month period was primarily the result of a gain on the sale of the Company’s equity interest in a small-bank fund during January 2010.

Non-Interest Expense

Total non-interest expense decreased $1.2 million to $7.3 million for the quarter ended June 30, 2010 compared with $8.6 million for the same period a year ago.  For the nine months ended June 30, 2010, total non-interest expense increased $621,000 to $23.9 million compared with $23.3 million for the same nine-month period last year.

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

- 30 - -

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

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

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

Income Taxes

��

The provision for income taxes decreased $366,000 to $410,000, or an effective rate of 11.42%, for the quarter ended June 30, 2010, compared with $776,000, or an effective rate of 27.80%, for the three months ended June 30, 2009.  For the nine months ended June 30, 2010, the provision for income taxes decreased $1.8 million to $6,000, or an effective rate of 5.49%, compared with $1.8 million, or an effective rate of 29.64%, for the same nine-month period last year.  The lower effective tax rates in the 2010 periods was primarily the result of a higher ratio of tax-exempt income on bank owned life insurance and tax-exempt interest on loans to total pre-tax income that resulted from the lower level of pre-tax income.

- 31 - -

NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES

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

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

- 32 - -

Non-performing assets decreased $4.3 million to $66.3 million at June 30, 2010 compared with $70.7 million at March 31, 2010 primarily the result of a $2.7 million decrease in non-accrual loans and a $3.8 million decrease in troubled debt restructurings, partially offset by a $2.1 million increase in real estate acquired through foreclosure.  For the nine-month period, non-performing assets decreased $1.5 million from $67.8 million at September 30, 2009, primarily as the result of a $6.9 million decrease in non-accrual loans and a $1.7 million decrease in troubled debt restructurings partially offset by a $7.6 million increase in real estate acquired in settlement of loans.

A loan is classified as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider.  A loan classified as a troubled debt restructuring will be included in non-performing assets until the borrower demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally six months.  Interest income on restructured loans is accrued at the reduced rate once the borrower demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance.

Restructured residential loans totaled $27.4 million at June 30, 2010 compared with $28.4 million at March 31, 2010 and $25.2 million at September 30, 2009. Management continued its efforts to proactively modify loan repayment terms with residential borrowers who were experiencing financial difficulties in the current economic climate with the belief that these actions would maximize the Bank’s ultimate recoveries on these loans.  The restructured terms of the loans generally included a reduction of the interest rates and the addition of past due interest to the principal balance of the loans.  Many of these borrowers were current at the time of their modifications and showed strong intent and ability to repay their obligations under the modified terms.  During the three and nine months ended June 30, 2010, the Company restructured approximately $4.0 million and $17.9 million, respectively, of loans to troubled residential borrowers and returned approximately $4.6 million and $12.5 million, respectively, of previously restructured residential loans to performing status as the result of the borrowers’ favorable performance history since restructuring.  At June 30, 2010, $27.4 million, or 82% of total restructured loans, related to residential borrowers compared with $28.4 million, or 77% of total restructured loans, at March 31, 2010 and $25.2 million, or 72% of total restructured loans, at September 30, 2009.  At June 30, 2010, 74% of these residential borrowers were performing as agreed under the modified terms of the loans compared with 65% at March 31, 2010 and 85% at September 30, 2009.  The fluctuations in the percentage of restructured residential loans that were performing under their modified terms were primarily the result of returning a portion of such loans to performing status during the three- and nine-months ended June 30, 2010.

Restructured commercial loans totaled $5.8 million at June 30, 2010 compared with $8.6 million at March 31, 2010 and $9.7 million at September 30, 2009.  Contributing to the decrease in commercial troubled debt restructurings during the nine month period ended June 30, 2010 was the foreclosure on and sale of the property securing the Company’s largest non-performing asset, a commercial real estate loan secured by a strip shopping center in Naples, Florida.  Although the Company’s lending practices generally limit lending outside of its two primary market areas, St. Louis and Kansas City, the loan was made to one of the Company’s St. Louis-based customers who had historically demonstrated successful performance.  The carrying value of the loan, which was included in past-due troubled debt restructurings, was $3.2 million and $7.8 million at March 31, 2010 and September 30, 2009.  The Company recorded a $3.2 million partial charge-off during the March 2010 quarter and subsequently sold the property for cash during May 2010.

Also contributing to the fluctuations in troubled debt restructurings and non-accrual loans during the nine-month period was the restructuring of a commercial relationship secured by a high-rise, residential condominium development in the St. Louis metropolitan area.  The loan was restructured during the December 2009 quarter because of the borrower’s weakened financial condition.  The terms of the restructuring primarily included an extension of the maturity date of the loan.  The balance of the loan at September 30, 2009 was $5.4 million, which was included in non-accrual loans.  The balance of the loan had paid down to $3.6 million and $4.7 million at June 30, 2010 and March 31, 2010, respectively, and was included in troubled debt restructurings on a non-accrual basis.

Loans are placed on non-accrual status when, in the opinion of management, there is reasonable doubt as to the collectability of interest or principal. Management considers many factors before placing a loan on non-accrual, including the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral.

- 33 - -

Non-accrual loans totaled $17.0 million at June 30, 2010 compared with $19.7 million at March 31, 2010 and $24.0 million at September 30, 2009.  The decrease during the three-month period was primarily due to a $6.5 million decrease in non-accrual commercial loans resulting primarily from the pay down, foreclosure or charge-off of such loans, partially offset by a $3.8 million increase in non-accrual residential loans.  The decrease during the nine-month period was primarily the result of the restructuring of the commercial loan discussed above that was secured by a high-rise, residential condominium development.  The restructuring resulted in a decrease in non-accrual loans and a corresponding increase in troubled debt restructurings.

Real estate acquired in settlement of loans increased to $16.0 million at June 30, 2010 compared with $8.5 million at September 30, 2009, and increased from $13.9 million at March 31, 2010.  Contributing to the increase during the nine-month period was the foreclosure, during the December 2009 quarter, on a commercial loan secured by a retail strip shopping center in the St. Louis metropolitan area resulting in a $1.8 million charge-off and a $6.8 million increase in real estate acquired in settlement of loans.

Real estate foreclosure losses and expense was $550,000 and $1.9 million for the three and nine months ended June 30, 2010, respectively, compared with $314,000 and $1.1 million for the same 2009 periods, respectively.  Real estate foreclosure losses and expense includes realized losses on the final disposition of foreclosed properties, additional write-downs for declines in the fair market values of properties subsequent to foreclosure, and expenses incurred in connection with maintaining the properties until they are sold.  The increased expense for the nine months ended June 30, 2010 was primarily the result of an $826,000 write-down in the March 2010 quarter of a parcel of raw ground, which was acquired through foreclosure in a prior period, due to an estimated decline in its fair market value based upon a new appraisal.

- 34 - -

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

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

The provision for loan losses for the three and nine months ended June 30, 2010 was $4.5 million and $21.8 million, respectively, compared with $6.2 million and $16.5 million in the same 2009 periods, respectively.  The increased nine-month provision over the prior-year amount was primarily due to increased charge-offs, reflecting the impact of the adverse economic climate on the Company’s borrowers, and the increase in certain loss factors in the Company’s general valuation allowance model, reflecting the risks in the Company’s loan portfolio resulting from decreases in real estate values in certain geographic regions where the Bank has originated loans, the continued elevated level of unemployment, the level of non-performing loans and the increase in loan charge-offs.  The decreased three-month provision was generally due to the decline in non-performing assets and the overall shrinkage in the Company’s performing loan portfolio, partially offset by an increase in net charge-offs.

Net charge-offs for the three- and nine-month periods ended June 30, 2010 totaled $4.2 million, or 1.51% of average loans on an annualized basis, and $15.6 million, or 1.84% of average loans on an annualized basis, respectively, compared with $3.9 million, or 1.31% of average loans on an annualized basis, and $8.5 million, or 0.98% of average loans on an annualized basis, for the same periods a year ago, respectively.  Net charge-offs in the June 2010 quarter included $1.3 million of charge-offs on commercial loans, $2.0 million of charge-offs on first and second mortgage residential loans and $853,000 of charge-offs on home equity lines of credit.  Management adheres to specific loan underwriting guidelines focusing primarily on residential and commercial real estate and home equity loans secured by one- to four-family and commercial properties within its primary market areas.  Because a large portion of the Company’s loan portfolio is collateralized by real estate, losses occur more frequently when property values are declining and borrowers are losing equity in the underlying collateral.  Recent declines in residential real estate values in the Company’s market areas, as well as nationally, contributed to the increased charge-offs in the 2010 period.

- 35 - -

The ratio of the allowance for loan losses to loans receivable was 2.46% at June 30, 2010 compared with 2.39% at March 31, 2010 and 1.79% at September 30, 2009.  The ratio of the allowance for loan losses to non-performing loans was 53.33% at June 30, 2010 compared with 46.68% at March 31, 2010 and 34.68% at September 30, 2009.  Excluding restructured loans that were performing under their restructured terms and the related allowance for loan losses, the ratio of the allowance for loan losses to the remaining non-performing loans was 108.89% at June 30, 2010 compared with 79.59% at March 31, 2010 and 55.94% at September 30, 2009.  Management believes the changes in this coverage ratio are appropriate due to a change in the mix of non-performing loans during the period, specifically increased troubled debt restructurings that were performing under their restructured terms.

The Company maintains the allowance for loan losses to absorb probable losses in the Company’s loan portfolio.   Loan losses are charged against and recoveries are credited to the allowance.  Provisions for loan losses are charged to income and credited to the allowance in an amount necessary to maintain an appropriate allowance given risks identified in the portfolio.  The allowance is based upon management’s quarterly estimates of probable losses inherent in the loan portfolio.  Management’s estimates are determined through a method of quantifying certain risks in the portfolio that are affected primarily by changes in the composition and size of the portfolio combined with an analysis of past due and classified loans, and can also be affected by the following factors:  changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices, changes in national and local economic conditions and developments, assessment of collateral values based on independent appraisals, and changes in the experience, ability, and depth of lending management staff.

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

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

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

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

Management believes that the amount maintained in the allowance will be adequate to absorb probable losses inherent in the portfolio.  Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations.  While management believes it has established the allowance for loan losses in accordance with U.S. generally accepted accounting principles, there can be no assurance that the Bank’s regulators, in reviewing the Bank’s loan portfolio, will not request the Bank to increase its allowance for loan losses or downgrade the risk classifications of additional loans, which could result in a higher provision for loan losses for such loans.  In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that a substantial increase will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above.  Any material increase in the allowance for loan losses could adversely affect the Company’s financial condition and results of operations.

- 36 - -

FINANCIAL CONDITION

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

Debt securities available for sale increased to $4.5 million at June 30, 2010 from $2.0 million at September 30, 2009.  Mortgage-backed securities available for sale decreased to $11.6 million at June 30, 2010 from $16.1 million at September 30, 2009 and mortgage-backed and related securities held to maturity decreased to $11.0 million at June 30, 2010 from $12.1 million at September 30, 2009.  Such securities are primarily held as collateral to secure large commercial and municipal deposits.  The total balance held in these securities is adjusted as individual securities mature to reflect fluctuations in the balances of the deposits they are securing.

Stock in the Federal Home Loan Bank of Des Moines decreased $5.8 million to $5.9 million at June 30, 2010 from $11.6 million at September 30, 2009.  The Bank is generally required to hold stock equal to 5% of its total FHLB borrowings.  However, effective in December 2008, the FHLB temporarily suspended redemptions of its stock when members reduced their outstanding borrowings.  The FHLB subsequently resumed the redemptions of excess stock in December 2009.

Prepaid expenses, accounts receivable and other assets increased $4.6 million to $16.0 million at June 30, 2010 from $11.5 million at September 30, 2009 primarily as the result of the prepayment of FDIC deposit insurance premiums.  On November 12, 2009, the FDIC adopted a final rule requiring insured depository institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012, on December 30, 2009, along with each institution's risk-based deposit insurance assessment for the third quarter of 2009.  The amount paid on December 30, which totaled $7.3 million, was recorded as a prepaid asset and will be charged to expense during the future periods to which it relates.

Advances from the Federal Home Loan Bank of Des Moines increased to $92.9 million at June 30, 2010 from $61.0 million at September 30, 2009.  The Company supplements its primary funding source, retail deposits, with wholesale funding sources consisting of borrowings from the FHLB, short-term borrowings from the Federal Reserve Bank of St. Louis and brokered certificates of deposit acquired on a national level.  Management chooses between these wholesale funding sources depending on their relative costs.  See Liquidity and Capital Resources.

Advance payments by borrowers for taxes and insurance represent insurance and real estate tax payments collected from borrowers on loans serviced by the Bank.  The balance decreased $628,000 to $4.0 million at June 30, 2010 compared with $4.7 million at September 30, 2009 due to the payment of real estate taxes in December 2009.

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

- 37 - -

LIQUIDITY AND CAPITAL RESOURCES

The Company primarily funds its assets with deposits from its retail and commercial customers.  If the Bank or the Company requires funds beyond their ability to generate them internally, the Bank has the ability to borrow funds from the FHLB and the Federal Reserve Bank and, subject to regulatory restrictions discussed below, to raise certificates of deposit on a national level through broker relationships.  Management chooses among these wholesale funding sources depending on their relative costs, the Company’s overall interest rate risk exposure and the Company’s overall borrowing capacity at the FHLB and the Federal Reserve Bank.  At June 30, 2010, the combined balance of borrowings from the FHLB, borrowings from the Federal Reserve Bank and brokered deposits totaled $101.3 million, had a weighted-average interest rate of 1.51%, a weighted average maturity of approximately 21 months and represented 7% of total assets.  At September 30, 2009, these combined balances totaled $144.5 million, had a weighted-average interest rate of 2.97%, a weighted average maturity of approximately 20 months and represented 10% of total assets.  Use of these funds has given the Company alternative sources to support its asset growth while avoiding, when necessary, aggressive deposit pricing strategies used from time to time by some of its competitors in its market.  In addition, because approximately two-thirds of the Company’s assets are scheduled to mature or reprice within one year, the use of these wholesale funds has given management a low-cost means to maximize net interest income and manage interest-rate risk by providing the Company greater flexibility to control the interest rates and maturities of these funds, as compared to deposits.  This increased flexibility has allowed the Company to better respond to fluctuations in the interest rate environment and demand for its loan products, especially mortgage loans held for sale that are awaiting final settlement (generally within 30 days) with Company’s investors.  While the Company effectively utilized wholesale funding to support its asset growth in recent years, controlled growth in core deposits and retail certificates of deposit during the nine months ended June 30, 2010 allowed the Company to reduce its use of such wholesale funding from a high during fiscal year 2009 of approximately 27% of total assets.

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

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

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

At June 30, 2010, the Bank had outstanding commitments to originate loans totaling $126.7 million and commitments to sell loans totaling $252.5 million.  Certificates of deposit totaling $289.8 million at June 30, 2010 were scheduled to mature in one year or less.  Based on past experience, management believes the majority of certificates of deposit maturing in one year or less will remain with the Bank.

The Company is a legal entity, separate and distinct from the Bank, which must provide its own liquidity to meet its operating needs.  In addition to funding its operating expenses, the Company pays cash dividends to its common and preferred shareholders and interest and principal on outstanding debt.  A large portion of the Company’s liquidity is obtained from the Bank in the form of dividends.  OTS regulations impose limitations upon payment of capital distributions from the Bank to the Company.  Under the regulations, the prior approval of the OTS is required prior to any capital distribution.

- 38 - -

SOURCES AND USES OF CASH

The Company is a large originator of residential mortgage loans with substantially all of such loans sold in the secondary residential mortgage market.  Consequently, the primary source and use of cash in operations is the origination and subsequent sale of mortgage loans held for sale.  During the nine months ended June 30, 2010, the origination of mortgage loans held for sale used $1.23 billion of cash and the sales of such loans provided cash totaling $1.18 billion compared with originations and sales totaling $1.64 billion and $1.54 billion, respectively, during the nine months ended June 30, 2009.

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

The Company’s primary sources and uses of funds from financing activities during the nine months ended June 30, 2010 included a $45.7 million decrease in deposits compared with a $244.3 million increase for the nine months ended June 30, 2009, and a $31.9 million increase in advances from the Federal Home Loan Bank during the nine months ended June 30, 2010 compared with a $144.5 million decrease during the same period last year.  Other significant sources and uses of cash from financing activities for the nine months ended June 30, 2009 included a $90.0 million increase in borrowings from the Federal Reserve, a $7.6 million decrease in notes payable, and a $14.4 million decrease in due to other banks.  A significant source of funds from financing activities for the nine months ended June 30, 2009 were proceeds from the issuance of preferred stock totaling $32.5 million.

The following table presents the maturity structure of time deposits and other maturing liabilities at June 30, 2010:

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

CONTRACTUAL OBLIGATIONS

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

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

REGULATORY CAPITAL

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

- 39 - -

The following table illustrates the Bank’s actual regulatory capital levels compared with its regulatory capital requirements at June 30, 2010 and September 30, 2009.

											To be Categorized as
											"Well Capitalized"
											Under Prompt
						For Capital					Corrective Action
	Actual					Adequacy Purposes					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in thousands)
As of June 30, 2010:
Tangible capital (to total assets)	$	128,777		9.31	%	$	20,746		1.50	%		N/A		N/A
Total risk-based capital (to risk-weighted assets)		143,146		12.52	%		91,434		8.00	%	$	114,293		10.00	%
Tier I risk-based capital (to risk-weighted assets)		128,777		11.27	%		N/A		N/A			68,576		6.00	%
Tier I leverage capital (to average assets)		128,777		9.31	%		55,323		4.00	%		69,154		5.00	%
As of September 30, 2009:
Tangible capital (to total assets)	$	128,750		9.19	%	$	21,004		1.50	%		N/A		N/A
Total risk-based capital (to risk- weighted assets)		143,297		12.33	%		92,943		8.00	%	$	116,179		10.00	%
Tier I risk-based capital (to risk- weighted assets)		128,750		11.08	%		N/A		N/A			69,707		6.00	%
Tier I leverage capital (to average assets)		128,750		9.19	%		56,010		4.00	%		70,012		5.00	%

EFFECTS OF INFLATION

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

AND OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes in the Company's quantitative or qualitative aspects of market risk during the quarter ended June 30, 2010 from those disclosed in the Company's Annual Report on Form 10-K for the year ended September 30, 2009.

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

- 40 - -

For the three and nine months ended June 30, 2010, the Company did not engage in any off-balance-sheet transactions reasonably likely to have a material effect on its financial condition, results of operations or cash flows.

The Company originates and purchases derivative financial instruments, including interest rate lock commitments and, in prior periods, interest rate swaps. Derivative financial instruments originated by the Company consist of interest rate lock commitments to originate residential real estate loans.  At June 30, 2010, the Company had issued $126.7 million of unexpired interest rate lock commitments to loan customers compared with $147.8 million of unexpired commitments at September 30, 2009.

The Company entered into two $14 million notional value interest-rate swap contracts during 2008.  These contracts supported a $14 million, variable-rate, commercial loan relationship and were used to allow the commercial loan customer to pay a fixed interest rate to the Bank, while the Bank, in turn, charged the customer a floating interest rate on the loan.  Under the terms of the swap contract between the Bank and the loan customer, the customer pays the Bank a fixed interest rate of 6.58%, while the Bank pays the customer a variable interest rate of one-month LIBOR plus 2.30%.  Under the terms of a similar but separate swap contract between the Bank and a major securities broker, the Bank pays the broker a fixed interest rate of 6.58%, while the broker pays the Bank a variable interest rate of one-month LIBOR plus 2.30%.  The two contracts have identical terms and are scheduled to mature on May 15, 2015.  While these two swap derivatives generally work together as an interest-rate hedge, the Company has not designated them for hedge accounting treatment.  Consequently, both derivatives are marked to fair value through either a charge or credit to current earnings, the net effect of which offset one another during the nine months ended June 30, 2010.  The fair values of these derivative instruments recorded in other assets and other liabilities in the Company’s financial statements at June 30, 2010 and September 30, 2009 were $1.5 million and $1.2 million, respectively.

CONTROLS AND PROCEDURES

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

During the quarter ended June 30, 2010, the Company’s management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2010, and concluded that the Company ’s disclosure controls and procedures were effective as of such date.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) SFAS No. 165, Subsequent Events, which was subsequently incorporated into Accounting Standards Codification (“ASC”) ASC Topic 855, Subsequent Events. ASC Topic 855 incorporates accounting and disclosure requirements related to subsequent events into U.S. generally accepted accounting principles (“GAAP”) making management directly responsible for subsequent-events accounting and disclosure. The requirements for subsequent-events accounting and disclosure are not significantly different from those in auditing standards. ASC Topic 855 is effective for interim and annual periods ending after June 15, 2009. The adoption of the provisions of ASC Topic 855 did not have a material impact on the Company’s financial condition or results of operations.

In February 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09, Amendments to Certain Recognition and Disclosure Requirements, as an amendment to ASC Topic 855.  As a result of ASU 2010-09, SEC registrants will not disclose the date through which management evaluated subsequent events in financial statements.  ASU 2010-09 is effective immediately for all financial statements that have not yet been issued or have not yet become available to be issued, or March 31, 2010 for the Company.  The adoption of ASU 2010-09 is for disclosure purposes only and did not have any effect on the Company’s financial position or results of operations.

- 41 - -

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

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

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

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

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

- 42 - -

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings:

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

Item 1A.  Risk Factors:

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

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

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

- 43 - -

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

The following table provides information regarding the Company’s purchases of its equity securities during the three months ended June 30, 2010.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares (or Units) Purchased (1)		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as  Part of Publicly Announced Plans or Programs (2)		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units)  That May Yet Be Purchased Under the Plans or Programs (2)
April 1, 2010		-		-		-		371,488
through April 30, 2010
May 1, 2010		5,950	$	6.69		-		371,488
through May 31, 2010
June 1, 2010		-		-		-		371,488
through June 30, 2010
Total		5,950	$	6.69		-

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

(2) In February 2007, the Company announced a repurchase program under which it would repurchase up to 497,000 shares of the Company’s common stock and that the repurchase program would continue until it is completed or terminated by the Board of Directors.  However, as part of the Company’s participation in the Capital Purchase Program of the U.S. Department of Treasury’s Troubled Asset Relief Program, prior to the earlier of January 16, 2012 or the date on which the preferred stock issued in that transaction has been redeemed in full or the Treasury has transferred its shares to non-affiliates, the Company cannot increase its quarterly cash dividend above $0.095 per share or repurchase any shares of its common stock, without the prior approval of the Treasury.  Accordingly, no shares of common stock were repurchased under this program during the three months ended June 30, 2010.

Item 3.   Defaults Upon Senior Securities: Not applicable

Item 4.   Submission of Matters to a Vote of Security Holders: Not applicable

Item 5.  Other Information: Not applicable

- 44 - -

Item 6.  Exhibits:

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

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

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

3.4 Bylaws of Pulaski Financial Corp. (4)

4.1  Form of Certificate for Common Stock(5)

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

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

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

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

32.1 Section 1350 Certification of Chief Executive Officer

32.2 Section 1350 Certification of Chief Financial Officer

(1) Incorporated by reference into this document from the Exhibits to the 2003 proxy statement as filed with the Securities and Exchange Commission on December 27, 2002.

(2) Incorporated by reference into this document from the Form 10-Q, as filed with the Securities and Exchange Commission on February 17, 2004.

(3) Incorporated herein by reference into this document from the Form 8-K, as filed with the Securities and Exchange Commission on January 16, 2009.

(4) Incorporated herein by reference from the Form 8-K, as filed with the Securities and Exchange Commission on December 21, 2007.

(5)  Incorporated by reference from the Form S-1 (Registration No. 333-56465), as amended, as filed with the Securities and Exchange Commission on June 9, 1998.

- 45 - -

SIGNATURES

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

		PULASKI FINANCIAL CORP.
Date:	August 12, 2010	/s/ Gary W. Douglass
		Gary W. Douglass
		President and Chief Executive Officer
Date:	August 12, 2010	/s/ Paul J. Milano
		Paul J. Milano
		Chief Financial Officer