Pulaski Financial (PULB) 10-Q 2008 Q2 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 March 31, 2008

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 incorporation or organization)	(I.R.S. Employer 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    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 May 7, 2008
Common Stock, par value $.01 per share	10,150,612 shares

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

FORM 10-Q

MARCH 31, 2008

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at March 31, 2008 and September 30, 2007 (Unaudited)	1
	Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended March 31, 2008 and 2007 (Unaudited)	2
	Consolidated Statement of Stockholders’ Equity for the Six Months Ended March 31, 2008 (Unaudited)	3
	Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2008 and 2007 (Unaudited)	4
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	26
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
Item 5.	Other Information	30
Item 6.	Exhibits	31
	Signatures

PART I - FINANCIAL INFORMATION

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2008 AND SEPTEMBER 30, 2007 (UNAUDITED)

	March 31, 2008			September 30, 2007
ASSETS
Cash and amounts due from depository institutions	$	21,072,521		$	20,438,008
Federal funds sold and overnight deposits		1,602,455			3,236,735
Total cash and cash equivalents		22,674,976			23,674,743
Equity securities available for sale, at fair value		12,654,465			3,964,629
Debt securities available for sale, at fair value		—			7,043,172
Debt securities held to maturity, at amortized cost (fair value, $16,065,253 and $5,979,231 at March 31, 2008 and September 30, 2007, respectively)		16,065,439			5,979,878
Mortgage-backed and related securities held to maturity, at amortized cost (fair value,
$386,079 and $399,629 at March 31, 2008 and September 30, 2007, respectively)		347,579			371,480
Mortgage-backed securities available for sale, at fair value		2,530,008			2,655,202
Capital stock of Federal Home Loan Bank, at cost		13,519,300			8,305,500
Loans receivable held for sale, at lower of cost or market		80,300,529			58,536,280
Loans receivable, net of allowance for loan losses of $11,115,858 and $10,421,304 at
March 31, 2008 and September 30, 2007, respectively		1,035,457,172			949,826,147
Real estate acquired in settlement of loans, net of allowance for losses of $132,000 and $74,035 at March 31, 2008 and September 30, 2007, respectively		6,620,220			3,089,656
Premises and equipment, net		20,129,949			20,389,445
Bank-owned life insurance		26,997,468			25,059,509
Accrued interest receivable		5,978,836			6,605,153
Goodwill		3,938,524			3,938,524
Core deposit intangible		428,737			500,668
Deferred tax asset		5,230,795			5,050,795
Other assets		6,833,646			6,474,126
Total assets	$	1,259,707,643		$	1,131,464,907
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	855,761,605		$	835,488,696
Advances from Federal Home Loan Bank of Des Moines		265,000,000			158,400,000
Note payable		5,810,000			2,980,000
Subordinated debentures		19,589,000			19,589,000
Advance payments by borrowers for taxes and insurance		1,545,316			2,957,793
Accrued interest payable		1,551,720			2,530,722
Due to other banks		17,384,575			17,484,741
Other liabilities		7,917,940			11,229,464
Total liabilities		1,174,560,156			1,050,660,416
Stockholders' Equity:
Preferred stock - $.01 par value per share, authorized 1,000,000 shares; none issued or outstanding		—			—
Common stock - $.01 par value per share, authorized 18,000,000 shares; 13,068,618 shares issued at March 31, 2008 and September 30, 2007		130,687			130,687
Treasury stock - at cost; 2,974,878 and 3,133,228 shares at March 31, 2008 and September 30, 2007, respectively		(16,741,368	)		(17,040,449	)
Treasury stock - equity trust - at cost; 237,212 and 230,225 shares at March 31, 2008 and September 30, 2007, respectively		(2,995,181	)		(3,030,198	)
Additional paid-in capital		51,326,230			50,560,264
Accumulated other comprehensive loss		(294,099	)		(66,283	)
Retained earnings		53,721,218			50,250,470
Total stockholders’ equity		85,147,487			80,804,491
Total liabilities and stockholders’ equity	$	1,259,707,643		$	1,131,464,907

See accompanying notes to the unaudited consolidated financial statements.

- 1 -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

THREE AND SIX MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)

	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2007			2008			2007
Interest and Dividend Income:
Loans receivable	$	18,401,922		$	16,539,482		$	37,343,577		$	32,489,702
Debt and equity securities		391,280			248,656			609,832			470,193
Mortgage-backed securities		33,567			40,536			68,984			82,854
Capital stock of the Federal Home Loan Bank of Des Moines		138,429			87,241			269,130			185,584
Other		23,645			45,045			67,467			107,863
Total interest and dividend income		18,988,843			16,960,960			38,358,990			33,336,196
Interest Expense:
Deposits		7,666,839			7,583,237			15,868,576			14,319,435
Advances from Federal Home Loan Bank of Des Moines		2,062,933			1,967,703			4,588,300			4,258,957
Subordinated debentures		341,042			373,007			734,602			755,614
Note payable		54,207			57,191			102,197			115,904
Total interest expense		10,125,021			9,981,138			21,293,675			19,449,910
Net interest income		8,863,822			6,979,822			17,065,315			13,886,286
Provision for loan losses		1,728,140			573,482			2,760,691			1,255,035
Net interest income after provision for loan losses		7,135,682			6,406,340			14,304,624			12,631,251
Non-Interest Income:
Retail banking fees		932,155			754,965			1,960,653			1,537,196
Mortgage revenues		2,126,439			1,419,272			3,457,304			2,490,256
Investment brokerage revenues		355,659			133,202			570,669			375,656
Gain on the sales of securities		262,768			—			316,693			143,720
Bank-owned life insurance income		172,569			253,468			437,959			511,065
Other		253,905			319,158			501,471			482,382
Total non-interest income		4,103,495			2,880,065			7,244,749			5,540,275
Non-Interest Expense:
Salaries and employee benefits		3,199,356			3,018,458			6,219,913			5,450,053
Occupancy, equipment and data processing expense		1,856,210			1,431,241			3,453,134			2,681,911
Advertising		294,262			371,617			634,429			618,883
Professional services		424,586			399,038			707,802			660,962
FDIC deposit insurance premium expense		157,540			20,457			390,291			40,058
Loss (gain) on derivative instruments		57,925			(141,355	)		(64,322	)		(313,670	)
Data processing termination expense		—			—			—			219,534
Real estate foreclosure losses and expense, net		154,881			173,563			383,441			320,592
Other		1,032,394			789,333			1,895,210			1,468,695
Total non-interest expense		7,177,154			6,062,352			13,619,898			11,147,018
Income before income taxes		4,062,023			3,224,053			7,929,475			7,024,508
Income tax expense		1,513,742			1,019,761			2,649,042			2,333,771
Net income	$	2,548,281		$	2,204,292		$	5,280,433		$	4,690,737
Other comprehensive loss		(294,099	)		(42,986	)		(227,816	)		(30,053	)
Comprehensive income	$	2,254,182		$	2,161,306		$	5,052,617		$	4,660,684
Per Share Amounts:
Basic earnings per share	$	0.26		$	0.22		$	0.54		$	0.48
Weighted average common shares outstanding - basic		9,854,302			9,829,899			9,817,014			9,826,841
Diluted earnings per share	$	0.25		$	0.21		$	0.52		$	0.46
Weighted average common shares outstanding - diluted		10,209,176			10,265,321			10,197,921			10,267,214

See accompanying notes to the unaudited consolidated financial statements.

- 2 -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED MARCH 31, 2008 (UNAUDITED)

	Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance, September 30, 2007	$	130,687	$	(20,070,647	)	$	50,560,264		$	(66,283	)	$	50,250,470		$	80,804,491
Comprehensive income:
Net income		—		—			—			—			5,280,433			5,280,433
Change in unrealized loss on investment securities, net of tax		—		—			—			(31,466	)		—			(31,466	)
Realized gain on sales of investment securities included in net income, net of tax		—		—			—			(196,350	)		—			(196,350	)
Comprehensive income		—		—			—			(227,816	)		5,280,433			5,052,617
Dividends ($0.09 per share)		—		—			—			—			(1,809,685	)		(1,809,685	)
Stock options exercised (158,906)				648,495			152,427			—			—			800,922
Stock option and award expense		—		—			231,835			—			—			231,835
Stock issued under dividend reinvestment plan (31,817 shares)		—		129,845			207,504			—			—			337,349
Stock repurchased (46,184 shares)		—		(535,622	)		—			—			—			(535,622	)
Treasury stock issued (13,811 shares)		—		56,363			135,472			—			—			191,835
Purchase of equity trust shares		—		(110,000	)		—			—			—			(110,000	)
Release of equity trust shares (10,013 shares)		—		145,017			(145,017	)		—			—			—
Forfeiture of equity trust shares (60,878 shares)		—		—			(364,103	)		—			—			(364,103	)
Amortization of equity trust expense		—		—			487,045			—			—			487,045
Excess tax benefit from stock-based compensation		—		—			60,803			—			—			60,803
Balance, March 31, 2008	$	130,687	$	(19,736,549	)	$	51,326,230		$	(294,099	)	$	53,721,218		$	85,147,487

See accompanying notes to the unaudited consolidated financial statements.

- 3 -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR SIX MONTHS

ENDED MARCH 31, 2008 AND MARCH 31, 2007 (UNAUDITED)

	Six Months Ended March 31,
	2008			2007
Cash Flows From Operating Activities:
Net income	$	5,280,433		$	4,690,737
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amortization and accretion:
Premises and equipment		853,576			733,047
Net deferred loan costs		1,423,525			1,554,734
Net amortization of debt and equity securities premiums and discounts		(228,966	)		(316,746	)
Broker fees financed under interest-rate swap agreements		345,874			98,466
Equity trust expense, net		122,942			375,125
Stock option and award expense		231,835			152,360
Provision for loan losses		2,760,691			1,255,035
Provision for losses on real estate acquired in settlement of loans		152,000			84,535
Losses on sales of real estate acquired in settlement of loans		81,044			120,411
Originations of loans held for sale		(708,060,249	)		(608,279,674	)
Proceeds from sales of loans held for sale		689,163,917			594,002,715
Gain on sales of loans held for sale		(2,867,917	)		(1,909,715	)
Gain on sales of equity securities available for sale		—			(143,720	)
Gain on sales of debt securities available for sale		(316,693	)		—
Gain on sale of investment in joint venture		(30,755	)		—
Gain on derivative instruments		(64,322	)		(313,670	)
Increase in cash value of bank-owned life insurance		(437,959	)		(511,065	)
Increase (decrease) in accrued expenses		530,598			(426,583	)
Excess tax benefit from stock-based compensation		(60,803	)		(205,189	)
Changes in other assets and liabilities		(4,021,256	)		940,462
Net adjustments		(20,422,918	)		(12,789,472	)
Net cash used in operating activities		(15,142,485	)		(8,098,735	)
Cash Flows From Investing Activities:
Proceeds from sales of debt securities available for sale		24,798,746			—
Proceeds from sales of equity securities available for sale		—			772,648
Proceeds from maturities of investment in time deposits		—			693,000
Proceeds from maturities of debt securities available for sale		7,000,000			—
Proceeds from maturities of debt securities held to maturity		29,000,000			21,000,000
Proceeds from redemption of FHLB stock		7,089,000			7,462,700
Purchase of bank-owned life insurance		(1,500,000	)		—
Purchases of debt securities available for sale		(24,426,102	)		—
Purchases of equity securities available for sale		(9,159,029	)		(48,899	)
Purchases of debt securities held to maturity		(38,861,190	)		(26,684,644	)
Purchases of FHLB stock		(12,302,800	)		(6,127,800	)
Principal payments received on mortgage-backed securities		239,318			338,942
Net increase in loans		(95,264,406	)		(77,357,058	)
Proceeds from sales of real estate acquired in settlement of loans receivable		1,682,249			2,948,400
Proceeds from sale of investment in joint venture		49,375			—
Proceeds from disposal of equipment		8,125			637
Cash paid for equity in joint venture		(233,691	)		—
Purchases of premises and equipment		(602,205	)		(1,251,945	)
Net cash used in investing activities	$	(112,482,610	)	$	(78,254,019	)

See accompanying notes to the unaudited consolidated financial statements.

- 4 -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR SIX MONTHS ENDED

ENDED MARCH 31, 2008 AND MARCH 31, 2007 (UNAUDITED)

	Six Months Ended March 31,
	2008			2007
Cash Flows From Financing Activities:
Net increase in deposits	$	19,772,369		$	112,859,387
Proceeds from (repayment of) Federal Home Loan Bank advances, net		106,600,000			(12,300,000	)
Proceeds from note payable		3,000,000			—
Payment on note payable		(170,000	)		(170,000	)
Net decrease in due to other banks		(100,166	)		(3,945,666	)
Net decrease in advance payments by borrowers for taxes and insurance		(1,412,477	)		(1,356,858	)
Treasury stock issued for purchase of equity in joint venture		191,835			—
Proceeds from cash received in dividend reinvestment plan		337,349			157,677
Purchase of equity trust shares		(110,000	)		(100,000	)
Excess tax benefit for stock based compensation		60,803			205,189
Treasury stock issued for stock options exercised		800,922			352,804
Dividends paid on common stock		(1,809,685	)		(1,694,468	)
Stock repurchases		(535,622	)		(639,491	)
Net cash provided by financing activities		126,625,328			93,368,574
Net (decrease) increase in cash and cash equivalents		(999,767	)		7,015,820
Cash and cash equivalents at beginning of period		23,674,743			22,123,258
Cash and cash equivalents at end of period	$	22,674,976		$	29,139,078
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest on deposits	$	16,815,115		$	13,974,400
Interest on advances from FHLB		4,603,478			4,265,577
Interest on subordinated debentures		752,692			753,843
Interest on notes payable		101,392			115,291
Cash paid during period for interest		22,272,677			19,109,111
Income taxes, net		4,569,532			1,390,077
Noncash Investing Activities:
Real estate acquired in settlement of loans receivable	$	5,449,165		$	2,651,770

See accompanying notes to the unaudited consolidated financial statements.

- 5 -

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

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

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of March 31, 2008 and September 30, 2007 and its results of operations for the three- and six-month periods ended March 31, 2008 and 2007. The results of operations for the three- and six-month periods ended March 31, 2008 are not necessarily indicative of the operating results that may be expected for the entire fiscal year. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended September 30, 2007 contained in the Company’s 2007 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, 2007.

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 2007 amounts to conform to the 2008 presentation. In accordance with Statement of Financial Accounting Standards No, 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases,” the Company reclassified certain direct fees and costs associated with the origination and sale of loans held for sale during the three- and six-month periods ended March 31, 2007 into mortgage revenues to conform to the 2008 presentation in the Company’s consolidated statements of income and comprehensive income. The net effect of these reclassifications decreased appraisal revenues, title policy revenues and salaries and benefits expense $195,000, $187,000 and $220,000, respectively and increased mortgage revenues $162,000 during the three months ended March 31, 2007. For the six months ended March 31, 2007, the net effect of these reclassifications decreased appraisal revenues, title policy revenues and salaries and benefits expense $382,000, $359,000 and $428,000, respectively and increased mortgage revenues $314,000.

2. EARNINGS PER SHARE

Basic earnings per 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.

- 6 -

	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
Weighted average shares outstanding - basic		9,854,302		9,829,899		9,817,014		9,826,841
Treasury stock - equity trust		177,556		122,428		177,560		122,047
Equivalent shares - employee stock options and awards		177,318		312,994		203,347		318,326
Weighted average shares outstanding - diluted		10,209,176		10,265,321		10,197,921		10,267,214
Net income per share - basic	$	0.26	$	0.22	$	0.54	$	0.48
Net income per share - diluted	$	0.25	$	0.21	$	0.52	$	0.46

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.

The following options to purchase shares during the three- and six-month periods ended March 31, 2008 and 2007 were not included in the respective computations of diluted earnings per share because the exercise price of the options, when combined with the effect of the unamortized compensation expense, was greater than the average market price of the common shares and were considered anti-dilutive. These options expire in various periods from 2014 thru 2018, respectively.

	Three Months Ended March 31,		Six Months Ended March 31,
	2008	2007	2008	2007
Number of option shares	385,503	126,392	362,471	125,639
Equivalent anti-dilutive shares	160,370	31,337	142,940	32,380

3. 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 six months ended March 31, 2008 were granted with an exercise price equal to the market value of the Company’s shares at the date of grant and vest over a period of two to five years. The exercise period for stock options generally may not exceed 10 years from the date of grant. Generally, option and share awards provide for accelerated vesting if there is a change in control (as defined in the plans). On December 19, 2007, the Company granted 20,300 stock option awards to non-employee directors with exercise prices equal to market value of the Company’s shares at the date of grant. These stock option awards were immediately vested on the date of grant and are exercisable for a period of five years from the date of grant. The Company recorded compensation expense during the quarter ended December 31, 2007 totaling $48,000 in connection with these awards.

- 7 -

A summary of the Company’s stock option program as of March 31, 2008 and changes during the six-month period then ended, is presented below:

	Number Of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)		Weighted- Average Remaining Contractual Life (years)
Outstanding at October 1, 2007	780,008		$	8.51
Granted	167,050			10.72
Exercised	(158,906	)		5.04
Expired	(3,100	)		12.38
Forfeited	(43,463	)		14.30
Outstanding at March 31, 2008	741,589		$	9.40	$	2.1	5.6
Exercisable at March 31, 2008	476,836		$	7.60	$	2.0	3.8

The total intrinsic value of stock options exercised during the six months ended March 31, 2008 and 2007 was $2.0 million and $537,000, respectively. The weighted average grant-date fair value of options granted during the six months ended March 31, 2008 was $2.78. As of March 31, 2008, the total unrecognized compensation expense related to non-vested stock options and awards was $918,000 and the related weighted average period over which it is expected to be recognized is 3.2 years.

The fair value of stock options granted during the six-month periods ended March 31, 2008 and 2007 is estimated on the date of grant using the Black-Scholes option pricing model with the following average assumptions:

	Six Months Ended March 31,
	2008		2007
Risk free interest rate	4.22	%	4.56	%
Expected volatility	27.83	%	27.50	%
Expected life in years	5.5		5.7
Dividend yield	2.62	%	2.13	%
Expected forfeiture rate	1.28	%	1.24	%

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. Currently, none of the Company’s executive officers participate in the plan. The plan allows the recipients to defer a percentage of commissions earned, which is 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 the purchase of Company shares in the open market. Should the participants voluntarily leave the Company, they forgo any unvested accrued benefits. At March 31, 2008, there were 237,212 total shares in the plan totaling $3.0 million classified as treasury stock – equity trust in the Company’s consolidated financial statements, of which 169,611 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. Since the majority of the Company’s loans originated are sold on a servicing-released basis, most of the deferred expense is recorded as a reduction of the mortgage revenue realized upon sale. Excess tax benefits associated with all share based payments totaled approximately $61,000 for the six months ended March 31, 2008.

- 8 -

4. INCOME TAXES

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“Interpretation No. 48”), on October 1, 2007. At October 1, 2007, the Company had $120,000 of unrecognized tax benefits, $108,000 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 March 31, 2008, the Company had approximately $12,000 accrued for the payment of interest and penalties. The tax years ended September 30, 2004 through 2006 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Pursuant to recent Securities Exchange Commission guidance, the Company did not provide the tabular reconciliation disclosures required by FIN 48. The Company will provide all required FIN 48 disclosures in its 2008 Annual Report on Form 10-K.

5. LOANS RECEIVABLE

Loans receivable at March 31, 2008 and September 30, 2007 are summarized as follows:

	March 31, 2008			September 30, 2007
Real estate mortgage:
One- to four-family residential	$	323,942,024		$	332,205,536
Multi-family residential		33,666,205			30,219,199
Commercial real estate		242,225,886			200,205,837
Real estate construction and development:
Residential		46,825,519			45,427,668
Multi-family		13,869,729			13,899,603
Commercial		47,694,773			39,594,005
Commercial and industrial		111,473,937			77,641,815
Equity lines		222,844,299			219,539,073
Consumer and installment		7,313,672			6,918,612
		1,049,856,044			965,651,348
Add (less):
Deferred loan costs		5,144,835			5,162,991
Loans in process		(8,427,849	)		(10,566,888	)
Allowance for loan losses		(11,115,858	)		(10,421,304	)
Total	$	1,035,457,172		$	949,826,147
Weighted average interest rate at end of period		6.38	%		7.44	%

- 9 -

6. DEPOSITS

Deposits at March 31, 2008 and September 30, 2007 are summarized as follows:

	March 31, 2008				September 30, 2007
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Transaction accounts:
Non-interest-bearing checking	$	63,961,729	—		$	57,004,801	—
Interest-bearing checking		93,263,604	1.38	%		57,815,627	1.79	%
Passbook savings accounts		28,342,840	0.28	%		28,908,862	0.29	%
Money market		198,609,276	2.33	%		173,949,915	4.05	%
Total transaction accounts		384,177,449	1.56	%		317,679,205	2.57	%
Certificates of deposit:
Less than $100,000		222,462,385	4.07	%		239,400,859	5.45	%
$100,000 and greater		249,121,771	4.28	%		278,408,632	4.73	%
Total certificates of deposit		471,584,156	4.18	%		517,809,491	5.06	%
Total deposits	$	855,761,605	3.01	%	$	835,488,696	4.11	%

7. SUBSEQUENT EVENT

On April 12, 2008, William A. Donius, President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank, resigned, effective as of April 30, 2008. Also on April 12, 2008, Gary W. Douglass was appointed to serve as President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank, effective May 1, 2008. In connection with Mr. Donius’ resignation, the Company and Mr. Donius entered into a Separation and Release Agreement, pursuant to which Mr. Donius’ employment agreements with the Company and the Bank were each terminated. Under the Separation and Release Agreement, Mr. Donius will receive a lump sum cash payment of $1,450,000 and the continuation of health, life and disability insurance for a period of 36 months. The agreement further provides that Mr. Donius will be appointed as Chairman of the Board of the Bank through April 30, 2009 and be a consultant to the Company for a period of 36 months, for which he will receive $100,000 for each 12-month period of service. The agreement provides Mr. Donius with the ability to exercise his vested stock options through the period ending ninety days after the end of his consultancy period. The agreement also provides that Mr. Donius and his affiliates and associates will not take certain actions in opposition of management or seek a business combination, exchange offer, tender offer, merger or other corporate transaction for the Company for a 36-month period.

In connection with Mr. Douglass’ appointment, the Company and the Bank entered into an employment agreement with Mr. Douglass, effective as of May 1, 2008. The agreement provides for an initial term of three years. However, beginning on the first anniversary of the effective date of the agreement, the term of the agreement shall be extended by one day each day so that the remaining term shall be two years unless Mr. Douglass or the Board of Directors elects not to extend the term. The initial annual base salary under the employment agreement is $325,000. The employment agreement also provides for participation in employee benefit plans and programs maintained by the Company and the Bank for the benefit of their employees, including discretionary bonuses, participation in medical, dental, pension, disability, retirement and stock-based compensation plans and certain fringe benefits described in the agreements. The agreement also provides for the payment of dues for one civic and/or social club. Also, under the agreement, Mr. Douglass was granted 100,000 options, which will vest in five equal annual installments beginning on the first anniversary of the date of grant. The Company expects to record compensation expense over the five-year vesting period totaling approximately $335,000 in connection with these awards.

- 10 -

MANAGEMENT’S DISCUSSIONAND ANALYSISOF

FINANCIAL CONDITIONAND RESULTSOF 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 which could affect actual results include interest rate trends, the general economic climate in the market area in which Pulaski Financial Corp. operates, as well as nationwide, Pulaski Financial Corp.’s ability to control costs and expenses, competitive products and pricing, loan delinquency rates 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, 2007, 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. Subject to applicable law and regulation, Pulaski Financial Corp. assumes no obligation to update any forward-looking statements.

GENERAL

Pulaski Financial Corp. is a community-based, financial institution holding company headquartered in St. Louis, Missouri. It conducts operations primarily through Pulaski Bank (the “Bank”), a federally chartered savings bank with $1.26 billion in assets. Pulaski Bank provides an array of financial products and services for businesses and consumers primarily through its twelve full-service offices in the St. Louis metropolitan area and three loan production offices in Kansas City and the Illinois portion of the St. Louis metroplex.

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 opened its twelfth full-service bank location in October 2007. The Company’s goal is to become St. Louis’ leading community bank and 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.

OVERVIEW OF RESULTS

During the three- and six-month periods ended March 31, 2008, Pulaski Financial Corp. experienced strong results in many areas of its business. Net income increased 15.6% in the March 2008 quarter compared to last year’s quarter, driven by a 27.0% increase in net interest income and a 42.5% increase in non-interest income. For the six-month period, net income increased 12.6% in 2008 compared to last year’s period, driven by a 22.9% increase in net interest income and a 30.8% increase in non-interest income. Also significantly affecting net income in 2008 were substantial increases in the provision for loan losses. The growth in non-interest income was bolstered by strong growth in mortgage revenues and retail banking fees. Driving these results were strong lending volumes and robust core deposit growth, which resulted in significant balance sheet growth during the six-month period. SeeResults of Operations.

The Company’s strategic plan centers on continued growth as a premier St. Louis community bank and is focused on growth in each of the Company’s core products: commercial, residential and home equity loans and checking and money market deposit accounts. Total assets increased $128.2 million, or 11.3%, to $1.26 billion at March 31, 2008 from $1.13

- 11 -

billion at September 30, 2007. Substantially all of this growth came during the Company’s first 2008 fiscal quarter, as total assets at March 31, 2008 increased only $8.8 million, or 0.7% when compared to December 31, 2007. The growth in total assets was primarily due to $85.6 million of growth in loans receivable and $21.8 million of growth in loans held for sale during the six months ended March 31, 2008. The growth in loans receivable stemmed almost entirely from growth in the commercial portfolio, as mortgage loans secured by commercial real estate increased $42.0 million to $242.2 million, total real estate construction and development loans increased $9.5 million to $108.4 million, and commercial and industrial loans increased $33.8 million to $111.5 million at March 31, 2008, respectively. These increases were consistent with the Company’s continued focus on growing these core loan products and were bolstered by the Company’s new banking locations and additional lending staff.

Core deposits, which consist of checking, money market and passbook savings accounts, have been a key component of the Company’s growth and their growth is the primary focus of the Company’s strategic plan. Primarily as the result of increased commercial relationships, successful marketing efforts and new branch locations, core deposits increased 20.9%, or $66.5 million, to $384.2 million at March 31, 2008 from $317.7 million at September 30, 2007. This growth included a $42.4 million increase in checking account balances to $157.2 million and a $24.7 million increase in money market deposit accounts to $198.6 million at March 31, 2008. Certificates of deposit decreased $46.2 million to $471.6 million at March 31, 2008, primarily as the result of a $32.7 million decrease in brokered certificates of deposit to $157.8 million. Total deposits increased $20.3 million, or 2.4%, to $855.8 million at March 31, 2008 from $835.5 million at September 30, 2007.

The Company has expanded its physical footprint over the last few years to better serve the key business centers of the St. Louis metropolitan area. Since 2005, the Company has opened or acquired six new full-service bank locations in the central corridor of St. Louis, including three new locations opened in calendar year 2007. Many of the area’s key business districts are located in this central corridor. The addition of these new bank locations combined with strong marketing efforts and focused talent acquisition has resulted in rapid growth in the Company’s balance sheet. The three banking locations opened in 2007, Richmond Heights, Clayton and downtown St. Louis, saw combined deposit growth of $33.6 million during the six months ended March 31, 2008 and had combined total deposits of $48.6 million at March 31, 2008.

- 12 -

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
	March 31, 2008							March 31, 2007
	Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable:(1)
Real estate and commercial	$	813,251		$	13,615	6.69	%	$	645,177		$	11,469	7.11	%
Consumer		4,240			62	5.89	%		3,865			63	6.52	%
Home equity		224,071			3,708	6.62	%		205,923			4,181	8.12	%
Total loans receivable		1,041,562			17,385	6.68	%		854,965			15,713	7.35	%
Loans available for sale		81,205			1,017	5.01	%		55,720			826	5.93	%
Debt securities, net		15,902			131	3.29	%		17,615			211	4.79	%
Equity securities, net		11,836			261	8.81	%		3,784			38	4.01	%
FHLB stock		12,385			138	4.47	%		8,308			87	4.20	%
Mortgage-backed securities		2,889			34	4.65	%		3,416			41	4.75	%
Other		2,842			23	3.33	%		3,503			45	5.14	%
Total interest-earning assets		1,168,621			18,989	6.50	%		947,311			16,961	7.16	%
Non-interest-earning assets		81,106							74,666
Total assets	$	1,249,727						$	1,021,977
Interest-bearing liabilities:
Demand deposit	$	86,672		$	388	1.79	%	$	65,786		$	345	2.10	%
Savings		27,852			21	0.30	%		29,996			28	0.38	%
Money market		198,302			1,518	3.06	%		152,990			1,601	4.18	%
Time deposits		505,383			5,740	4.54	%		452,341			5,609	4.96	%
Total interest-bearing deposits		818,209			7,667	3.75	%		701,113			7,583	4.33	%
FHLB advances		240,107			2,063	3.44	%		153,613			1,968	5.12	%
Note payable		4,817			54	4.50	%		3,233			57	7.08	%
Subordinated debentures		19,589			341	6.96	%		19,589			373
Total interest-bearing liabilities		1,082,722			10,125	3.74	%		877,548			9,981	4.55	%
Non-interest bearing liabilities:
Non-interest bearing deposits		61,653							46,125
Other non-interest bearing liabilities		19,342							17,984
Total non-interest-bearing liabilities		80,995							64,109
Stockholders’ equity		86,010							80,320
Total liabilities and stockholders’ equity	$	1,249,727						$	1,021,977
Net interest income				$	8,864						$	6,980
Interest rate spread (2)						2.76	%						2.61	%
Net interest margin (3)						3.03	%						2.95	%
Ratio of average interest-earning assets to average interest-bearing liabilities		107.93	%						107.95	%

⁽¹⁾ Includes non-accrual loans with an average balance of $6.5 million and $750,000 for the three months ended March 31, 2008 and 2007, respectively.

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

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

- 13 -

	Six Months Ended
	March 31, 2008							March 31, 2007
	Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable:(1)
Real estate and commercial	$	791,349		$	27,582	6.97	%	$	624,424		$	22,334	7.16	%
Consumer		4,300			118	5.49	%		3,884			127	6.55	%
Home equity		222,215			7,900	7.11	%		206,160			8,439	8.19	%
Total loans receivable		1,017,864			35,600	6.99	%		834,468			30,900	7.41	%
Loans available for sale		66,276			1,744	5.26	%		53,460			1,589	5.95	%
Debt securities, net		15,885			311	3.91	%		16,141			386	4.79	%
Equity securities, net		8,643			299	6.92	%		4,155			84	4.04	%
FHLB stock		11,684			269	4.61	%		8,747			186	4.24	%
Mortgage-backed securities		2,935			69	4.70	%		3,485			83	4.75	%
Other		3,419			67	3.95	%		4,211			108	5.12	%
Total interest-earning assets		1,126,706			38,359	6.81	%		924,667			33,336	7.21	%
Non-interest-earning assets		78,703							72,693
Total assets	$	1,205,409						$	997,360
Interest-bearing liabilities:
Demand deposit	$	74,334		$	639	1.72	%	$	60,090		$	577	1.92	%
Savings		28,320			47	0.34	%		30,646			57	0.37	%
Money market		190,125			3,322	3.49	%		150,891			3,173	4.21	%
Time deposits		497,397			11,861	4.77	%		425,118			10,512	4.95	%
Total interest-bearing deposits		790,176			15,869	4.02	%		666,745			14,319	4.30	%
FHLB advances		225,470			4,588	4.07	%		165,041			4,259	5.16	%
Note payable		3,899			102	5.24	%		3,275			116	7.08	%
Subordinated debentures		19,589			735	7.50	%		19,589			756	7.71	%
Total interest-bearing liabilities		1,039,134			21,294	4.10	%		854,650			19,450	4.55	%
Non-interest bearing liabilities:
Non-interest bearing deposits		60,666							45,042
Other non-interest bearing liabilities		20,183							18,009
Total non-interest-bearing liabilities		80,849							63,051
Stockholders’ equity		85,426							79,659
Total liabilities and stockholders’ equity	$	1,205,409						$	997,360
Net interest income				$	17,065						$	13,886
Interest rate spread (2)						2.71	%						2.66	%
Net interest margin (3)						3.03	%						3.00	%
Ratio of average interest-earning assets to average interest-bearing liabilities		108.43	%						108.19	%

⁽¹⁾ Includes non-accrual loans with an average balance of $6.5 million and $832,000 for the six months ended March 31, 2008 and 2007, respectively.

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

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

- 14 -

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 March 31, 2008 vs 2007									Six Months Ended March 31, 2008 vs 2007
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)									(In thousands)
Interest-earning assets:
Loans receivable:
Real estate and commercial	$	6,110		$	(3,964	)	$	2,146		$	7,104		$	(1,856	)	$	5,248
Consumer		24			(25	)		(1	)		29			(38	)		(9	)
Home Equity		1,843			(2,316	)		(473	)		1,454			(1,993	)		(539	)
Total loans receivable		7,977			(6,305	)		1,672			8,587			(3,887	)		4,700
Loans available for sale		909			(718	)		191			602			(447	)		155
Debt securities, net		(19	)		(61	)		(80	)		(6	)		(69	)		(75	)
Equity securities, net		143			80			223			129			86			215
FHLB stock		45			6			51			66			17			83
Mortgage-backed securities		(6	)		(1	)		(7	)		(13	)		(1	)		(14	)
Other		(8	)		(14	)		(22	)		(18	)		(23	)		(41	)
Net change in income on interest earning assets		9,041			(7,013	)		2,028			9,347			(4,324	)		5,023
Interest-bearing liabilities:
Demand deposits		308			(265	)		43			210			(148	)		62
Savings		(2	)		(5	)		(7	)		(5	)		(5	)		(10	)
Money market		1,755			(1,838	)		(83	)		1,400			(1,251	)		149
Time deposits		2,283			(2,152	)		131			2,372			(1,023	)		1,349
Total interest-bearing deposits		4,344			(4,260	)		84			3,977			(2,427	)		1,550
FHLB advances		3,321			(3,226	)		95			2,490			(2,161	)		329
Note payable		94			(97	)		(3	)		45			(59	)		(14	)
Subordinated debentures		—			(32	)		(32	)		—			(21	)		(21	)
Net change in expense on interest bearing liabilities		7,759			(7,615	)		144			6,512			(4,668	)		1,844
Change in net interest income	$	1,282		$	602		$	1,884		$	2,835		$	344		$	3,179

- 15 -

RESULTS OF OPERATIONS

Net incomefor the quarter ended March 31, 2008 was $2.5 million, or $0.25 per diluted share on 10.2 million average diluted shares outstanding, compared with net income of $2.2 million, or $0.21 per diluted share on 10.3 million average diluted shares outstanding, during the same quarter last year. For the six months ended March 31, 2008, net income was $5.3 million, or $0.52 per diluted share on 10.2 million average diluted shares outstanding, compared with $4.7 million, or $0.46 per diluted share on a 10.3 million average diluted shares outstanding, for the same period a year ago.

Net Interest Income

Net interest income rose 27.0%, or $1.9 million, to $8.9 million for the quarter ended March 31, 2008 compared with $7.0 million for the same period last year. For the six months ended March 31, 2008, net interest income rose to $17.1 million compared with $13.9 million for the same six-month period last year. The increases were fueled by strong growth in the average balance of loans receivable combined with improvement in the Company’s net interest margin, which increased to 3.03% during the quarter ended March 31, 2008 from 2.95% for the quarter ended March 31, 2007. For the six month period, the net interest margin increased to 3.03% in 2008 compared with 3.00% in 2007. The increased net interest margin was due primarily to an increase in core deposits, which are typically the Company’s lowest cost of funds, combined with lower wholesale funding costs.

Total interest income increased $2.0 million, or 12.0%, to $19.0 million for the quarter ended March 31, 2008 compared with $17.0 million for the comparable 2007 quarter. The increase was primarily due to an increase in the average balance of loans receivable, which increased $186.6 million to $1.04 billion for the March 2008 quarter partially offset by a decrease in the average yield on loans receivable from 7.35% during the quarter ended March 31, 2007 to 6.68% during the quarter ended March 31, 2008. For the six months ended March 31, 2008, total interest income increased $5.0 million, or 15.1%, to $38.4 million compared with $33.3 million for the same six-month period last year. The average balance of loans receivable increased to $1.02 billion during the six months ended March 31, 2008 compared with $834.5 million during the six months ended March 31, 2007. The average yield on loans receivable for the six-month periods decreased from 7.41% during 2007 to 6.99% during 2008. The decrease in the average yield was due to lower market interest rates during the 2008 periods.

Total interest expenseremained almost unchanged at $10.1 million during the quarter ended March 31, 2008 compared with $10.0 million during the quarter ended March 31, 2007 and increased $1.8 million to $21.3 million during the six months ended March 31, 2008 compared with $19.4 million during the same six-month period last year as the result of increases in the average balance of interest-bearing liabilities offset by decreases in the average cost of funds. The average balance of interest-bearing liabilities increased to $1.08 billion for the quarter ended March 31, 2008 from $877.5 million for the quarter ended March 31, 2007 while the average cost of funds decreased from 4.55% to 3.74% during the same periods, respectively. For the six-month periods, the average balance of interest-bearing liabilities increased to $1.04 billion during 2008 from $854.7 million during 2007 while the average cost of funds decreased from 4.55% to 4.10% during the same periods, respectively.

The increased average balances resulted from increases in deposits and advances from the Federal Home Loan Bank which were used to fund asset growth during the periods. The decreased average costs were the result of lower market interest rates during the periods, 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, which are typically the Company’s lowest-cost funding source. This funding source is supplemented with wholesale funds consisting primarily of borrowings from the Federal Home Loan Bank of Des Moines (“FHLB”) and time deposits from national brokers. Management actively chooses between these two wholesale funding sources depending on their relative costs and the Company’s overall borrowing capacity at the Federal Home Loan Bank. As a result of the 250 basis point decline in the Federal Reserve Board’s target federal funds rate during the six months ended March 31, 2008 combined with increased national demand for brokered time deposits, the Company had the ability to secure borrowings from the FHLB at rates substantially lower than those available for brokered time deposits. During the six months ended March 31, 2008, management shifted $32.7 million in maturing brokered time deposits into lower-cost FHLB borrowings.

Interest expense on depositsremained almost unchanged at $7.7 million during the quarter ended March 31, 2008 compared with $7.6 million for the quarter ended March 31, 2007 and increased $1.5 million to $15.9 million during the six

- 16 -

months ended March 31, 2008 compared with $14.3 million for the same six-month period last year as the result of increases in the average balance offset by decreases in the average cost. The average balance of interest-bearing deposits increased to $818.2 million for the quarter ended March 31, 2008 from $701.1 million for the quarter ended March 31, 2007 while the average cost of deposits decreased from 4.33% to 3.75% during the same periods, respectively. For the six-month periods, the average balance of interest-bearing deposits increased to $790.2 million during 2008 from $666.7 million during 2007 while the average cost decreased from 4.30% to 4.02% during the same periods, respectively. Growth in total deposits during the 2008 periods was the result of core deposit growth partially offset by a decline in the balance of brokered time deposits. This change in the mix of deposits combined with lower market interest rates resulted in lower average costs during the 2008 periods.

Interest expense on advances from the Federal Home Loan Bankremained almost unchanged at $2.1 million during the quarter ended March 31, 2008 compared with $2.0 million for the quarter ended March 31, 2007 and was $4.6 million during the six months ended March 31, 2008 compared with $4.3 million for the same six-month period last year as the result of increases in the average balance almost entirely offset by decreases in the average cost. The average balance increased to $240.1 million for the quarter ended March 31, 2008 from $153.6 million for the quarter ended March 31, 2007 while the average cost decreased from 5.12% to 3.44% during the same periods, respectively. For the six-month periods, the average balance increased to $225.5 million during 2008 from $165.0 million during 2007 while the average cost decreased from 5.16% to 4.07% during the same periods, respectively. The increased average balances resulted from additional borrowings, which were used to fund asset growth and higher-cost maturing brokered certificates of deposit. The decreased average costs were the result of lower market interest rates during the 2008 periods.

Provision for Loan Losses

Theprovision for loan lossesfor the three and six months ended March 31, 2008 were $1.7 million and $2.8 million respectively, compared with $573,000 and $1.3 million, respectively for the same periods a year ago. The provision for loan losses in the current-year periods related primarily to substantial growth in performing commercial loans, which carry a higher level of inherent risk than residential loans, charge-offs and an increase in the level of non-performing loans. The ratio of nonperforming loans to total loans increased from 1.03% at September 30, 2007 to 1.16% at March 31, 2008. The balance of nonperforming loans increased $2.6 million to $13.1 million at March 31, 2008 from $10.5 million at September 30, 2007. SeeNon-Performing Assets.

Non-Interest Income

Total non-interest incomeincreased $1.2 million to $4.1 million for the quarter ended March 31, 2008 compared with $2.9 million for the same period in the prior year. For the six months ended March 31, 2008, total non-interest income increased $1.7 million to $7.2 million compared with $5.5 million for the same six-month period last year. The increases were primarily the result of increases in mortgage revenues, retail banking fees, investment brokerage revenues and gain on sales of securities.

Mortgage revenues increased 49.8% to $2.1 million during the quarter ended March 31, 2008 on loan sales of $404.2 million, compared with mortgage revenues of $1.4 million during the quarter ended March 31, 2007 on loan sales of $308.6 million. For the six months ended March 31, 2008, mortgage revenues increased to $3.5 million on loan sales of $689.2 million compared with $2.5 million on loan sales of $594.0 million for the same six-month period last year. The Company realized higher gross revenue margins during the 2008 periods due to reduced market competition. Also contributing to the increase in mortgage revenues were lower overhead costs within the mortgage division, primarily lower compensation costs resulting from reduced staffing levels.

Retail banking fees increased 23.5% to $932,000 during the quarter ended March 31, 2008 from $755,000 during the same 2007 quarter. For the six months ended March 31, 2008, retail banking fees increased to $2.0 million compared with $1.5 million for the same six-month period last year. The increases were primarily the result of the increase in core deposits and a change in the Company’s policy on account overdraft fees.

Investment brokerage revenuestotaled $356,000 and $571,000 for the three and six months ended March 31, 2008, respectively, compared with $133,000 and $376,000, respectively for the same periods a year ago. The Company operates

- 17 -

an investment brokerage division whose operations consist principally of brokering bonds from wholesale brokerage houses to bank, municipal and individual investors. Revenues are generated on trading spreads and fluctuate with changes in trading volumes and market interest rates. The increased revenues in the 2008 periods were the result of successful sales efforts to new customers combined with an improved bond sales environment caused by the steepened interest rate yield curve.

Gain on sales of securities totaled $263,000 for the three months ended March 31, 2008 and resulted from the sale of $19.6 million of debt securities classified as available for sale compared to no gain on sales for the same period a year ago. Gain on sales of securities totaled $317,000 for the six months ended March 31, 2008 and resulted from sales of $24.8 million of debt securities classified as available for sale compared with a $144,000 gain for the six months ended March 31, 2007 on sales of $773,000 of available-for-sale equity securities.

Non-Interest Expense

Salaries and employee benefits expenseincreased $181,000 to $3.2 million for the quarter ended March 31, 2008 compared with $3.0 million for the quarter ended March 31, 2007 and increased $770,000 to $6.2 million for the six months ended March 31, 2008 compared with $5.5 million for the six months ended March 31, 2007. The increases resulted from the additional employees at the new Richmond Heights, Clayton and downtown St. Louis bank locations and staff expansion necessary to support increased commercial lending activity.

Occupancy, equipment and data processing expense increased $425,000 to $1.9 million for the three-month period ended March 31, 2008 compared with $1.4 million for the three-month period ended March 31, 2007 and increased to $3.5 million for the six months ended March 31, 2008 compared with $2.7 million for the six months ended March 31, 2007. The increases were primarily due to the three new bank locations opened in calendar year 2007, two additional lending offices opened in Illinois and increased data processing costs related to increased loan and deposit activity.

FDIC deposit insurance premium expenseincreased $137,000 to $158,000 for the quarter ended March 31, 2008 compared with the same 2007 quarter and increased to $390,000 for the six months ended March 31, 2008 compared with $40,000 for the six months ended March 31, 2007. The increase was a result of the final utilization, during the quarter ended December 31, 2007, of the one-time assessment credit which was provided to eligible insured depository institutions under the Federal Deposit Insurance Reform Act of 2005. Management expects future quarterly FDIC insurance premium expense to be consistent with the amount recorded in the quarter ended March 31, 2008.

Loss on derivative instrumentswas $58,000 for the quarter ended March 31, 2008 compared with a gain of $141,000 for the quarter ended March 31, 2007. Gains on derivative instruments were $64,000 and $314,000 for the six-month periods ended March 31, 2008 and 2007, respectively. The Company entered into interest rate swap agreements during November 2004 which were designed to convert the fixed rates paid on certain brokered certificates of deposits into variable, LIBOR-based rates. The Company uses long-haul, fair-value, hedge accounting. Under this method, any hedge ineffectiveness was deemed not material and the impact was recognized as a charge or credit to earnings during the period in which the change occurred.

Data processing termination expensetotaled $220,000 for the six months ended March 31, 2007 due to the write off, during December 2007, of capitalized expenses related to the termination of a contract to convert the Company’s core data processing system. There was no such expense in the current fiscal year.

Real estate foreclosure losses and expense, netincreased $63,000 to $383,000 for the six-month period ended March 31, 2008 compared with $321,000 for the same six-month period last year. The increase was due to the increase in real estate acquired in settlement of loans. SeeNon-Performing Assets.

Income Taxes

Theprovision for income taxes was $1.5 million and $2.6 million for the three and six months ended March 31, 2008, respectively, compared with $1.0 million and $2.3 million for the three and six months ended March 31, 2007, respectively. The effective tax rate for the six months ended March 31, 2008 was 33.4% compared with 33.2% for the same 2007 period.

- 18 -

NON-PERFORMING ASSETS

Non-performing assets at March 31, 2008 and September 30, 2007 are summarized as follows:

	March 31, 2008			September 30, 2007
	(Dollars in thousands)
Non-accrual loans:
Residential real estate	$	2,732		$	2,082
Commercial		1,152			3,708
Real estate construction and development		439			—
Commercial and industrial		240			—
Home equity		726			554
Other		186			105
Total non-accrual loans		5,475			6,449
Accruing loans past due 90 days or more:
Residential real estate		3,193			2,564
Commercial		457			44
Home equity		1,955			1,064
Other		5			150
Total accruing loans past due 90 days or more		5,610			3,822
Restructured loans		2,016			209
Total non-performing loans		13,101			10,480
Real estate acquired in settlement of loans		6,620			3,090
Other nonperforming assets		43			43
Total non-performing assets	$	19,764		$	13,613
Ratio of non-performing loans to total loans		1.16	%		1.03	%
Ratio of non-performing assets to totals assets		1.57	%		1.20	%

Total non-performing assets increased from $13.6 million at September 30, 2007 to $19.8 million at March 31, 2008. Non-accrual loans decreased from $6.4 million to $5.5 million during the six-month period ended March 31, 2008 primarily as a result of the foreclosure on a $2.2 million loan secured by commercial real estate during January 2008. Non-accrual residential real estate loans at March 31, 2008 consisted of 32 individual loans totaling $2.7 million. Non-accrual commercial loans at March 31, 2008 consisted of five loans secured by commercial real estate totaling $1.2 million.

Accruing loans greater than 90 days past due increased from $3.8 million at September 30, 2007 to $5.6 million at March 31, 2008, primarily as the result of the weakened economic environment. The major components of the increase included an $892,000 increase in home equity loans and a $629,000 increase in loans secured by residential real estate. 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.

Restructured loans increased to $2.0 million at March 31, 2008 compared with $209,000 at September 30, 2007. The balance at March 31, 2008 consisted of 21 loans to eight borrowers, which were secured by residential real estate properties. The restructured terms of the loans included a reduction of the interest rates and the addition of past due interest to the principal balance of the loans. All loans were performing according to the restructured terms at March 31. 2008. Management believes the loans are adequately secured and properly valued at March 31, 2008.

- 19 -

Real estate acquired in settlement of loans increased to $6.6 million at March 31, 2008 compared with $3.1 million at September 30, 2007. The balance at March 31, 2008 consisted of 26 residential real estate properties and three commercial real estate properties. The Company’s largest real estate acquired in settlement of loans was a $2.2 million commercial property secured by an office building in St. Louis County, Missouri. The property was acquired through foreclosure in January 2008 and lease payments have been paid as agreed. Management believes that the property is properly valued at March 31, 2008.

The total balance of impaired loans at March 31, 2008 and September 30, 2007 was $7.9 million and $6.7 million, respectively. Impaired loans with specific allowance for loan losses totaled $1.9 million and $847,000 at March 31, 2008 and September 30, 2007, respectively, and the specific allowance for loan losses related to these loans totaled $902,000 and $493,000 at March 31, 2008 and September 30, 2007, respectively. Impaired loans with no specific allowance for loan losses totaled $6.1 million and $5.9 million at March 31, 2008 and September 30, 2007, respectively.

The following table is a summary of the activity in the allowance for loan losses for the periods indicated:

	Six Months Ended March 31,
	2008			2007
	(Dollars In Thousands)
Balance, beginning of period	$	10,421		$	7,817
Provision charged to expense		2,761			1,255
Recoveries		109			14
Charge-offs:
Residential real estate - first liens		(241	)		(150	)
Residential real estate - second and other liens		(652	)		(248	)
Home equity		(738	)		(99	)
Commercial and multi-family real estate		(374	)		—
Consumer and other		(170	)		(79	)
Total charge-offs		(2,175	)		(576	)
Balance, end of period	$	11,116		$	8,510
	March 31, 2008			September 30, 2007
Specific loan loss reserves related to non-performing loans	$	902		$	493
Balance of non-performing loans with no specific loan loss reserves	$	11,212		$	9,633
Ratio of allowance to total loans outstanding		0.99	%		1.02	%
Ratio of allowance to nonperforming loans		84.85	%		99.44	%

Net charge-offs for the six months ended March 31, 2008 totaled $2.2 million, or 0.38% of average loans on an annualized basis, compared with $562,000, or 0.13% of average loans on an annualized basis, for the same period a year ago. 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 and, as a result, while charge-offs in the 2008 period increased, the Company’s five-year average annual historical charge-off experience has been low, totaling only $565,000, or 0.06% of average loans. The Company was historically a lender of only 1-4 family conforming residential loans. Today, the Company has expanded its loan portfolio to include higher-risk home equity, commercial and construction loans. Because the Company’s loan portfolio is typically 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 2008. The Company has not engaged in sub-prime lending activities.

The provision for loan losses is determined by management as the amount necessary to bring the allowance for loan losses to a level that is considered adequate to absorb probable losses in the loan portfolio. The allowance for loan losses is a

- 20 -

critical accounting estimate reported within the consolidated financial statements. The allowance is based upon quarterly management estimates of probable losses inherent in the loan portfolio. Management’s estimates are determined by quantifying certain risks in the portfolio that are affected primarily by changes in the nature and volume of the portfolio combined with an analysis of past-due and classified loans, but 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, 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 ratio, the affordability ratios or other personal history. Five-year historical loss rates and industry data for each credit rating are used to determine the appropriate allocation percentage for each loan grade. Commercial real estate loans are individually reviewed and assigned a credit risk rating on an annual basis by the internal loan committee. Consumer and home equity loans are assigned standard risk weightings that determine the allocation percentage.

Generally, when commercial real estate loans are over 30 days delinquent or residential, consumer or 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 impaired, the Company records a loss valuation equal to the excess of the loan’s carrying value over the present value of estimated future cash flows or the fair value of collateral if the loan is collateral dependent.

The Company’s methodology includes factors that allow the Company to adjust its estimates of losses based on the most recent information available. Historic loss rates used to determine the allowance are adjusted to reflect the impact of current conditions, including actual collection and charge-off experience. Any material increase in non-performing loans will adversely affect our financial condition and results of operation.

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

FINANCIAL CONDITION

Equity securities available for saleincreased $8.7 million to $12.7 million at March 31, 2008 from $4.0 million at September 30, 2007 largely resulting from the purchase of $9.0 million of Freddie Mac and Fannie Mae preferred stock during the 2008 period.

Debt securities held to maturityincreased $10.1 million to $16.1 million at March 31, 2008 from $6.0 million at September 30, 2007 whiledebt securities available for sale decreased $7.0 million during the six-month period ended March 31, 2008. Debt 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.

- 21 -

Stock in the Federal Home Loan Bank of Des Moinesincreased $5.2 million to $13.5 million at March 31, 2008 from $8.3 million at September 30, 2007. The increase was due to the increase in the balance of advances from the FHLB, as the Bank is generally required to hold stock equal to 5% of its total FHLB borrowings.

Advances from the Federal Home Loan Bank of Des Moinesincreased $106.6 million to $265.0 million at March 31, 2008 from $158.4 million at September 30, 2007. The Company supplements its primary funding source, retail deposits, with wholesale funding sources consisting of borrowings from the FHLB and brokered certificates of deposit acquired on a national level. Management actively chooses between these two wholesale funding sources depending on their price differential. The increased balance was used to fund asset growth and replace maturing brokered certificates of deposit. SeeNet Interest Income.

Note payableincreased $2.8 million to $5.8 million at March 31, 2008 compared with $3.0 million at September 30, 2007. SeeLiquidity and Capital Resources.

Advance payments by borrowers for taxes and insurancerepresent insurance and real estate tax payments collected from borrowers on loans serviced by the Bank. The balance decreased $1.4 million to $1.5 million at March 31, 2008 compared with $3.0 million at September 30, 2007 as the result of the remittance of real estate tax payments to the various taxing authorities prior to December 31, 2007.

Accrued interest payable decreased $979,000 to $1.6 million at March 31, 2008 compared with $2.5 million at September 30, 2007 due primarily to a reduction in the balance of brokered time deposits during the period, which pay interest at maturity.

Total stockholders’ equity at March 31, 2008 was $85.1 million, an increase of $4.3 million from $80.8 million at September 30, 2007. The increase was primarily attributable to net income totaling $5.3 million and the exercise of 158,906 stock options for $801,000, partially offset by dividend payments of $1.8 million and the repurchase of 46,184 shares of the Company’s common stock at a total cost of $536,000.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2008, the Bank had outstanding commitments to originate loans totaling $139.7 million and commitments to sell loans totaling $155.8 million. At March 31, 2008, certificates of deposit totaling $390.5 million 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.

If the Bank or the Company require funds beyond their ability to generate them internally, the Bank has the ability to borrow funds from the FHLB and to raise certificates of deposit on a national level through broker relationships. The borrowings from the FHLB are obtained under a blanket agreement, which assigns all investments in FHLB stock, qualifying first residential mortgage loans, residential loans held for sale and home equity loans with a 90% or greater 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 March 31, 2008, the Bank had approximately $41.6 million in additional borrowing authority under the arrangement with the FHLB in addition to the $265.0 million in advances outstanding at that date. The Bank also had approximately $167.9 million of additional available borrowing capacity under a line of credit with the Federal Reserve Bank. At March 31, 2008, there were no outstanding borrowings under this arrangement. The Bank had approximately $223.9 million of commercial loans pledged as collateral under this agreement. In addition, at March 31, 2008, the Company had the following borrowings with a correspondent bank:

	Total Amount Authorized		Amount Outstanding
	(In Millions)
Revolving line of credit with no maturity	$	10.0	$	—
Term note maturing May 20, 2010		2.8		2.8
Term note maturing June 11, 2008		7.0		3.0
	$	19.8	$	5.8

- 22 -

SOURCES AND USES OF CASH

The Company is a large originator of residential mortgage loans with more than 90% of such loans sold in the secondary residential mortgage market. Consequently, theprimary source and use of cash in operations is the origination and subsequent sale of loans held for sale. During the six months ended March 31, 2008, the origination of loans held for sale used $708.1 million of cash and the sales of such loans provided cash totaling $689.2 million.

The primary use of cash frominvesting activities is the investment in loans receivable originated for the portfolio. During the six months ended March 31, 2008, the Company had a net increase in loans receivable of $95.3 million compared with an increase of $77.4 million for the six months ended March 31, 2007. In addition, the Company purchased $63.3 million in debt securities and $9.2 million in equity securities during the six months ended March 31, 2008 compared with purchases of $26.7 million in debt securities and $49,000 in equity securities during the six months ended March 31, 2007. Sources of cash from investing activities also included sales and maturities of debt securities totaling $24.8 million and $36.0 million, respectively, during the six months ended March 31, 2008 compared to sales and maturities of debt securities totaling $0 and $21.0 million, respectively, during the six months ended March 31, 2007.

The Company’s primary sources of funds fromfinancing activitiesduring the six months ended March 31, 2008 included a $19.8 million increase in deposits compared with a $112.9 million increase for the six months ended March 31, 2007 and a $106.6 million increase in advances from the Federal Home Loan Bank compared with a $12.3 million decrease during the same period last year.

The following table presents the maturity structure of time deposits and other maturing liabilities at March 31, 2008:

	March 31, 2008
	Certificates of deposit		FHLB Borrowings		Note Payable		Due to Other Banks		Subordinated Debentures
	(In thousands)
Maturing in:
Three months or less	$	207,934	$	144,000	$	3,000	$	17,385	$	—
Over three months through six months		86,406		4,900		—		—		—
Over six months through twelve months		96,186		5,000		—		—		—
Over twelve months		81,058		111,100		2,810		—		19,589
Total	$	471,584	$	265,000	$	5,810	$	17,385	$	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 March 31, 2008 are as follows:

Less than one year		$	590,195
Over 1 year but less than 5 years			2,026,494
Over 5 years	��		1,739,535
Total		$	4,356,224

REGULATORY CAPITAL

The Bank is required to maintain specific amounts of capital pursuant to Office of Thrift Supervision (“OTS”) regulations on minimum capital standards. The OTS’ 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

- 23 -

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%).

The following table illustrates the Bank’s actual regulatory capital levels compared with its regulatory capital requirements at March 31, 2008 and September 30, 2007.

	Actual				Regulatory Capital Requirements
					For Capital Adequacy Purposes				To be Categorized as "Well Capitalized" Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of March 31, 2008
Tangible capital (to total assets)	$	104,856	8.35	%	$	18,827	1.50	%		N/A	N/A
Total risk-based capital (to risk- weighted assets)		115,069	10.71	%		85,949	8.00	%	$	107,437	10.00	%
Tier I risk-based capital (to risk- weighted assets)		104,856	9.76	%		53,718	5.00	%		64,462	6.00	%
Tier I leverage capital (to average assets)		104,856	8.35	%		50,205	4.00	%		62,757	5.00	%
As of September 30, 2007
Tangible capital (to total assets)	$	98,974	8.79	%	$	16,892	1.50	%		N/A	N/A
Total risk-based capital (to risk- weighted assets)		108,751	11.18	%		77,790	8.00	%	$	97,237	10.00	%
Tier I risk-based capital (to risk- weighted assets)		98,974	11.18	%		48,618	5.00	%		58,342	6.00	%
Tier I leverage capital (to average assets)		98,974	8.79	%		45,045	4.00	%		56,307	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 March 31, 2008 from that disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2007.

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

For the six months ended March 31, 2008, 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, forward contracts to sell mortgage-backed securities and interest rate swaps. Derivative financial instruments originated by the

- 24 -

Company consist of interest rate lock commitments to originate residential loans. Commitments to originate loans consist primarily of residential real estate loans. At March 31, 2008, the Company had issued $139.7 million of unexpired interest rate lock commitments to loan customers compared with $144.7 million of unexpired commitments at September 30, 2007.

The Company typically economically hedges these derivative commitments through one of two means – either by obtaining a corresponding best-efforts lock commitment with an investor to sell the loan at an agreed upon price, or by forward sales of mortgage-backed securities, which is a means of matching a corresponding derivative asset that has similar characteristics as the bank-issued commitment but changes directly opposite in fair value from market movements. Loans hedged through forward sales of mortgage-backed securities are sold individually or in pools on a mandatory delivery basis to investors, whereas the best efforts sales are locked on a loan-by-loan basis shortly after issuing the rate lock commitments to customers. The Company had outstanding forward commitments to sell mortgage-backed securities totaling $15.0 million in notional value at September 30, 2007. These hedges were matched against $15.3 million of interest rate lock commitments at September 30, 2007 that were to be sold through the mandatory delivery of loan pool sales. The carrying value of the interest rate lock commitment liabilities included in the consolidated balance sheets was a credit balance totaling $125,000 at September 30, 2007. The carrying value of the forward sales commitment assets included in the consolidated balance sheets was a credit balance totaling $25,000 at September 30, 2007. There were no such forward commitments outstanding at March 31, 2008.

The Company entered into interest rate swap agreements during November 2004 which were designed to convert the fixed rates paid on certain brokered certificates of deposit into variable, LIBOR-based rates. The effect of the swap agreements result in the counterparty paying the fixed rate to the Company while the Company pays the variable LIBOR-based rate to the counterparty. Effective January 1, 2006, the Company designated $80.0 million of interest rate swaps as fair value hedges of $80.0 million of the fixed-rate, brokered certificates of deposit under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Financial Instruments and Hedging Activities” (“SFAS No. 133”) using long-haul, fair-value, hedge accounting. At March 31, 2008, these fair value hedges were considered to be highly effective. Any hedge ineffectiveness was deemed not material and the impact was recognized as a charge or credit to earnings, as appropriate, during the period in which the change occurred. The notional amounts of the liabilities being hedged were $50.0 million and $80.0 million at March 31, 2008 and September 30, 2007, respectively. At March 31, 2008, there were swaps in a net settlement receivable position totaling $47,000 and no swaps in a net settlement payable position. At September 30, 2007, there were no swaps in a net settlement receivable position and swaps in a net settlement payable position totaled $864,000. A net loss of $58,000 and a net gain of $64,000 were recognized on fair value hedges during the three and six months ended March 31, 2008, respectively, compared with net gains of $141,000 and $314,000 during the three and six months ended March 31, 2007, respectively.

The maturity date, notional amounts, interest rates paid and received and fair value of the Company’s interest rate swap agreements as of March 31, 2008 and September 30, 2007 were as follows:

			March 31, 2008								September 30, 2007
Maturity Date	Notional Amount		Interest Rate Paid		Interest Rate Received		Estimated Fair Value Of Liability		Notional Amount		Interest Rate Paid		Interest Rate Received		Estimated Fair Value Of Liability
October 20, 2008	$	10,000,000	3.07	%	4.30	%	$	7,882	$	10,000,000	5.50	%	4.30	%	$	(55,664	)
November 19, 2009		—	—		—			—		10,000,000	5.52	%	3.50	%		(26,557	)
November 23, 2009		10,000,000	3.10	%	3.75	%		16,352		10,000,000	5.46	%	3.75	%		(72,534	)
November 26, 2010		10,000,000	3.10	%	4.13	%		5,912		10,000,000	5.49	%	4.13	%		(205,111	)
November 26, 2010		5,000,000	3.09	%	4.13	%		3,063		5,000,000	5.48	%	4.13	%		(101,518	)
November 26, 2010		5,000,000	3.08	%	4.13	%		3,169		5,000,000	5.47	%	4.13	%		(100,482	)
January 24, 2010		—	—		—			—		10,000,000	5.44	%	3.70	%		(43,702	)
January 28, 2011		10,000,000	3.09	%	4.30	%		10,145		10,000,000	5.47	%	4.30	%		(178,348	)
February 25, 2011		—	—		—			—		5,000,000	5.47	%	4.80	%		(48,365	)
September 14, 2012		—	—		—			—		5,000,000	5.58	%	4.25	%		(31,931	)
Total	$	50,000,000					$	46,523	$	80,000,000					$	(864,212	)

- 25 -

The gross amounts of interest paid to and received from the counterparty under the swap agreements and the related average interest rates during the three and six months ended March 31, 2008 and 2007 are as follows:

	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2007			2008			2007
Interest paid (variable rate):
Total amount (000s)	$	614.4		$	1,053.5		$	1,577.0		$	2,127.0
Average interest rate		4.10	%		5.27	%		4.62	%		5.32	%
Interest received (fixed rate):
Total amount (000s)	$	700.4		$	713.6		$	1,599.0		$	1,612.0
Average interest rate		4.67	%		3.57	%		4.68	%		4.03	%

CONTROLS AND PROCEDURES

Pulaski Financial 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 Pulaski Financial 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 Pulaski Financial’s management including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2008, Pulaski Financial’s management, including Pulaski Financial’s principal executive officer and principal financial officer, evaluated the effectiveness of Pulaski Financial’s disclosure controls and procedures as of March 31, 2008, and concluded that Pulaski Financial’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 March 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial Assets, an Amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No. 156”), which requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable and permits the entities to elect either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of SFAS No. 140 for subsequent measurement. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS No. 156 was effective for the Company beginning October 1, 2006. The Company elected to use the amortization method for subsequent measurement of separately recognized servicing assets and servicing liabilities. The adoption of SFAS No. 156 did not have a material effect on the Company’s financial condition or results of operations.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting standards, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In March 2008, the FASB issued Staff Position No. FAS 157-2 (“FSP No. 157-2”), which delays the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years and interim periods beginning after November 15, 2008. Management has evaluated the

- 26 -

requirements of SFAS No. 157 and believes it will not have a material effect on the Company’s financial condition or results of operations.

In September 2006, the FASB issued Statement No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS No. 158”), which requires balance sheet recognition of the funded status of pension and other postretirement benefits with the offset to accumulated other comprehensive income. Employers will recognize actuarial gains and losses, prior service cost, and any remaining transition amounts when recognizing a plan’s funded status. SFAS No. 158 was effective for the Company beginning October 1, 2007. The adoption of SFAS No. 158 did not have a material effect on the Company’s financial condition or results of operations.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at estimated fair value. Most of the provisions of SFAS No. 159 are elective; however, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities that own trading and available-for-sale securities. The fair value option created by SFAS No. 159 permits an entity to measure eligible items at fair value as of specified election dates. The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new election date occurs, and (c) must be applied to the entire instrument and not to only a portion of the instrument. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of the fiscal year, has not yet issued financial statements for any interim period of such year, and also elects to apply the provisions of SFAS No. 157. Management has evaluated the requirements of SFAS No. 159 and believes it will not have a material effect on the Company’s financial condition or results of operations.

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

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Management is currently evaluating the impact of SFAS 161 on Company’s consolidated financial statements.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of SFAS No. 109, “Accounting for Income Taxes” (“Interpretation No. 48”), which clarifies the accounting for uncertainty in income taxes in financial statements and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation No. 48 was effective for the Company beginning October 1, 2007. The adoption of Interpretation No. 48 did not have a material effect on the Company’s financial condition or results of operations.

In September 2006, the Emerging Issues Task Force Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” was ratified. This EITF Issue addresses accounting for separate agreements which split life insurance policy benefits between an employer and employee. The Issue requires the employer to recognize a liability for future benefits payable to the employee under these agreements. The effects of applying this Issue must be recognized through either a change in accounting principle through an adjustment

- 27 -

to equity or through the retrospective application to all prior periods. The consensus in this Issue is effective for fiscal years beginning after December 15, 2007, with earlier application permitted. Management has evaluated the requirements of the Issue and believes it will not have a material effect on the Company’s financial condition or results of operations.

In November 2007, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value through Earnings” (“SAB No. 109”). SAB No. 109 provides revised guidance on the valuation of written loan commitments accounted for at fair value through earnings. Former guidance under SAB No. 105, “Application of Accounting Principles to Loan Commitments,” indicated that the expected net future cash flows related to the associated servicing of the loan should not be incorporated into the measurement of the fair value of a derivative loan commitment. The new guidance under SAB No. 109 requires these cash flows to be included in the fair value measurement. The SAB requires this view to be applied on a prospective basis to derivative loan commitments issued or modified in the first quarter of 2008. The Company’s application of SAB No. 109 in 2008 did not have a material effect on its consolidated financial statements.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings:

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

Item 1A. Risk Factors:

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2007, 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.

- 28 -

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 March 31, 2008.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs (1)
January 1, 2008 through January 31, 2008	2,242	$	10.08	2,242	400,805
February 1, 2008 through February 29, 2008	—		—	—	400,805
March 1, 2008 through March 31, 2008	11,025	$	10.79	11,025	389,780
Total	13,267	$	10.67	13,267

(1) In February 2007, the Company announced a repurchase program under which it would repurchase up to 497,000 shares of the Company’s common stock. The repurchase program will continue until it is completed or terminated by the Board of Directors.

Item 3. Defaults Upon Senior Securities: Not applicable

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

The Annual Meeting of the Stockholders of the Company was held on February 7, 2008. The results of the vote were as follows:

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

	VOTES FOR	VOTES WITHHELD
William A. Donius	9,223,720	491,569
Leon A. Felman	9,391,786	323,503
Steven C. Roberts	9,470,539	244,750

2. The appointment of KPMG LLP as independent auditors of Pulaski Financial Corp. for the fiscal year ended September 30, 2008 was ratified by the stockholders by the following vote:

FOR	AGAINST	ABSTAIN
9,269,169	34,980	17,454

- 29 -

Item 5. Other Information: Not applicable

Item 6. Exhibits:

3.1	Articles of Incorporation of Pulaski Financial Corp.*
3.2	Certificate of Amendment to Articles of Incorporation of Pulaski Financial Corp.**
3.3	Bylaws of Pulaski Financial Corp.***
4.0	Form of Certificate for Common Stock****
10.1	Employment Agreement, by and among, Pulaski Financial Corp., Pulaski Bank and Gary W. Douglass
10.2	Separation and Release Agreement, by and between, Pulaski Financial Corp. and William A. Donius
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

* 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.

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

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

**** 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.

- 30 -

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: May 12, 2008	/s/ Gary W. Douglass
	Gary W. Douglass
	President and Chief Executive Officer
Date: May 12, 2008	/s/ Ramsey K. Hamadi
	Ramsey K. Hamadi
	Chief Financial Officer