SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Pulaski Financial Corp.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
0-24571
- -------------------------------------------------------------------------------
Commission File Number
Delaware 43-1816913
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12300 Olive Boulevard
St. Louis, Missouri 63141-6434
------------------------------- ----------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (314) 878-2210
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 the number of shares outstanding of the registrant's classes of common
stock, as of the latest practicable date.
Class Outstanding at February 9, 2000
- -------------------------------------- -----------------------------------
Common Stock, par value $.01 per share 3,554,591 shares
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 1999
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1999 and
September 30, 1999 (Unaudited) 1
Consolidated Statements of Income and Comprehensive Income for
the Three Months Ended December 31, 1999 and 1998 (Unaudited) 2
Consolidated Statement of Stockholders' Equity for the Three Months Ended
December 31, 1999 (Unaudited) 3
Consolidated Statements of Cash Flows for the Three Months Ended
December 31, 1999 and 1998 (Unaudited) 4-5
Notes to Unaudited Consolidated Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Operations 8-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security-Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
PART I - FINANCIAL INFORMATION
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
December 31, September 30,
ASSETS 1999 1999
Cash and amounts due from depository institutions $ 4,501,210 $ 3,486,957
Federal funds sold and overnight deposits 5,800,000 5,400,000
------------ ------------
Total cash and cash equivalents 10,301,210 8,886,957
Investment securities available for sale, at market value 4,943,906 4,234,145
Investments in debt securities held to maturity (market value, $7,239,943
and $9,002,455, at December 31 and September 30, 1999, respectively) 7,264,179 9,010,427
Mortgage-backed and related securities held to maturity (market value,
$3,860,783 and $4,154,784 at December 31 and September 30, 1999 respectively) 3,722,136 3,996,748
Mortgage-backed and related securities available for sale, at market value 20,678,453 21,356,446
Loans held for sale 4,088,167 8,159,085
Loans receivable, net of allowance for loan losses of $1,103,697 and
$985,773 at December 31 and September 30, 1999, respectively 186,313,450 181,532,561
Federal Home Loan Bank stock - at cost 1,730,000 1,501,200
Real estate acquired in settlement of loans, net of allowance for losses of
$9,085 and $17,161 at December 31 and September 30, 1999, respectively 120,713 228,002
Premises and equipment - net 2,295,405 2,235,412
Accrued interest receivable:
Investment securities 188,503 153,637
Mortgage-backed securities 147,757 151,903
Loans 1,012,243 1,041,503
Other 620 818
Other assets 1,742,717 1,485,537
------------ ------------
TOTAL $244,549,459 $243,974,381
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $160,057,107 $161,370,542
Advances from Federal Home Loan Bank of Des Moines 34,600,000 28,600,000
Advance payments by borrowers for taxes and insurance 428,663 2,440,520
Accrued interest payable 4,193 221,881
Other liabilities 1,603,823 1,436,595
------------ ------------
Total liabilities 196,693,786 194,069,538
------------ ------------
COMMITMENTS AND CONTINGENCIES
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 25,000,000 shares; 3,972,886 shares
issued at December 31, 1999 39,729 39,729
Treasury stock - at cost (shares, 396,295 and 198,000 respectively) (4,504,511) (2,322,004)
Additional paid-in capital 35,688,472 35,685,866
Unearned MRDP shares (4,600) (18,400)
Unearned ESOP shares (unreleased shares, 213,363 and 217,242 respectively) (2,133,627) (2,172,420)
Accumulated other comprehensive loss (421,747) (235,360)
Retained earnings 19,191,957 18,927,432
------------ ------------
Total stockholders' equity 47,855,673 49,904,843
------------ ------------
TOTAL $244,549,459 $243,974,381
============ ============
See accompanying notes to the consolidated financial statements.
-1-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
1999 1998
INTEREST INCOME:
Loans $3,476,289 $3,085,542
Investment securities 180,972 288,654
Mortgage-backed and related securities 445,527 130,512
Other 99,630 120,036
---------- ----------
Total interest income 4,202,418 3,624,744
---------- ----------
INTEREST EXPENSE:
Deposits 1,591,684 1,741,092
Advances from Federal Home Loan Bank of Des Moines 411,576 69,440
Other 46,010
---------- ----------
Total interest expense 2,003,260 1,856,542
---------- ----------
NET INTEREST INCOME 2,199,158 1,768,202
PROVISION FOR LOAN LOSSES 127,074 39,582
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,072,084 1,728,620
---------- ----------
OTHER INCOME:
Retail banking fees 168,282 84,877
Mortgage revenues 213,838 231,368
Insurance commissions 121,564 70,908
Other 115,066 113,117
---------- ----------
Total other income 618,750 500,270
---------- ----------
OTHER EXPENSES:
Salaries and employee benefits 860,157 796,107
Occupancy, equipment and data processing expense 483,524 325,138
Federal insurance premiums 24,498 23,590
Advertising 77,135 104,590
Professional services 112,232 43,479
Other 251,547 158,266
---------- ----------
Total other expenses 1,809,093 1,451,170
---------- ----------
INCOME BEFORE INCOME TAXES 881,741 777,720
INCOME TAXES 315,572 288,837
---------- ----------
NET INCOME 566,169 488,883
OTHER COMPREHENSIVE LOSS ITEMS (186,387) (3,794)
---------- ----------
COMPREHENSIVE INCOME $ 379,782 $ 485,089
========== ==========
Net income per common share - basic $ 0.16 n/m
========== ==========
Net income per common share - diluted $ 0.16 n/m
========== ==========
See accompanying notes to the consolidated financial statements.
-2-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
- -------------------------------------------------------------------------------
Unearned
Management Accumulated
Additional Recognition and Other Unearned
Common Treasury Paid-In Development Comprehensive ESOP Retained
Stock Stock Capital Plan Shares Loss Shares Earnings
BALANCE,
September 30, 1999 $39,729 $(2,322,004) $35,685,866 $ (18,400) $(235,360) $(2,172,420) $18,927,432
Comprehensive income:
Net income 566,169
Change in net
unrealized
losses on securities (186,387)
Total comprehensive
income
Dividends declared (301,644)
Stock repurchase (2,182,507)
Release of ESOP shares 2,606 38,793
Amortization of
management recognition
and development plan
shares 13,800
-------- ----------- ----------- ---------- ------------ ----------- -----------
BALANCE,
December 31, 1999 $ 39,729 $(4,504,511) $35,688,472 $ (4,600) $ (421,747) $(2,133,627) $19,191,957
======== =========== =========== ========== ============ =========== ===========
Total
BALANCE,
September 30, 1999 $49,904,843
-----------
Comprehensive income:
Net income 566,169
Change in net
unrealized
losses on securities (186,387)
-----------
Total comprehensive
income 379,782
-----------
Dividends declared (301,644)
Stock repurchase (2,182,507)
Release of ESOP shares 41,399
Amortization of
management recognition
and development plan
shares 13,800
-----------
BALANCE,
December 31, 1999 $47,855,673
===========
See accompanying notes to consolidated financial statements.
-3-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 566,169 $ 488,883
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, amortization and accretion:
Premises and equipment 129,900 87,824
Management recognition and development plan stock awards 13,800 13,800
ESOP shares committed to be released 41,399 38,040
Loan fees, discounts and premiums - net (6,851) (29,690)
Deferred taxes 37,827 7,480
Provision for loan losses 127,074 39,582
Provision for losses on real estate acquired in settlement of
loans (2,154)
Losses on sales of real estate acquired in settlement of loans 25,364
Gains on sales of loans (213,838) (231,368)
Originations of loans for sale to correspondent lenders (20,628,082) (39,959,823)
Proceeds from sales of loans to correspondent lenders 24,912,838 35,668,368
Changes in other assets and liabilities (237,260) 302,855
------------ ------------
Net adjustments 4,202,171 (4,065,086)
------------ ------------
Net cash provided by (used in) operating activities 4,768,340 (3,576,203)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of investment securities 3,000,000 3,251,750
Purchases of investment securities (2,165,576) (2,249,818)
Gain on sale of investments (1,750)
Principal payments received on mortgage-backed and related
securities 673,729 503,062
Loan originations - net (4,983,905) (7,104,240)
Proceeds from sales of real estate acquired in settlement of
loans receivable 121,000
Net additions to premises and equipment (189,892) (85,049)
------------ ------------
Net cash used in investing activities (3,544,644) (5,686,045)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (1,313,435) 2,888,779
Federal Home Loan Bank advances - net 6,000,000 3,000,000
Net decrease in advance payments by borrowers for taxes and
insurance (2,011,857) (2,236,965)
Dividends declared on common stock (301,644) (336,296)
Stock repurchase (2,182,507)
Issuance of common stock under conversion/reorganization 19,487,606
------------ ------------
Net cash provided by financing activities 190,557 22,803,124
------------ ------------
(Continued)
-4-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
1999 1998
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 1,414,253 $13,540,876
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30, 1999 8,886,957 3,047,328
----------- -----------
CASH AND CASH EQUIVALENTS AT DECEMBER 31, 1999 $10,301,210 $16,588,204
=========== ===========
ADDITIONAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest on deposits $ 1,809,372 $ 1,996,940
Interest on advances from the Federal Home Loan Bank
of Des Moines 411,576 69,440
Income taxes 28,784
NONCASH INVESTING ACTIVITIES:
Write-down of real estate owned 14,363
Real estate acquired in settlement of loans 39,075
(Decrease) increase in investments for changes in unrealized
gains and losses (295,853) 4,975
NONCASH FINANCING ACTIVITIES:
Issuance of common stock:
Decrease in stock subscriptions 5,129,497
Purchase by ESOP 2,327,600
Proceeds received from deposit transfers 1,987,515
See accompanying notes to the consolidated financial statements. (Concluded)
-5-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements include the accounts of
Pulaski Financial Corp. (the "Company") and its wholly owned subsidiary,
Pulaski Bank, A Federal Savings Bank (the "Bank"), and its wholly owned
subsidiary, Pulaski Service Corporation. All significant intercompany
accounts and transactions have been eliminated.
On December 2, 1998, the conversion of Pulaski Bancshares, M.H.C. from a
federal mutual holding company to a stock holding company was completed,
resulting in the Company becoming the holding company for the Bank. In
connection with the Conversion and Reorganization, the Company sold 2,909,500
shares of its common stock to the public at $10 per share in a public
offering ("Offering"), including 232,760 shares purchased by the Company's
Employee Stock Ownership Plan. In addition, 1,056,003 shares of common stock
of the Company were issued in exchange for shares of stock of the Bank
previously held by public stockholders at an exchange ratio of 1.6608 shares
for each share of Bank common stock resulting in 3,965,503 shares of common
stock of the Company outstanding at the Conversion and Reorganization. The
Company has no significant assets, other than all of the outstanding shares
of the Bank and the portion of the net proceeds from the Offering retained by
the Company, and no significant liabilities. Management of the Company and
the Bank are substantially similar and the Company neither owns nor leases
any property, but instead uses the premises, equipment and furniture of the
Bank. Accordingly, the information set forth in this report, including the
consolidated financial statements and related financial data, relates
primarily to the Bank. The Company operates as a single business segment,
that of providing traditional community banking services through its full
service branch network.
In the opinion of management, the preceding unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial condition of the
Company as of December 31 and September 30, 1999 and the results of its
operations for the three month period ended December 31, 1999 and 1998. The
results of operations for the three month period ended December 31, 1999 are
not necessarily indicative of the results which may be expected for the
entire fiscal year. These unaudited consolidated financial statements should
be read in conjunction with the audited consolidated financial statements of
the Company for the year ended September 30, 1999 contained in the Company's
1999 Annual Report to Stockholders which is filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended September 30, 1999.
2. EARNINGS PER SHARE
Basic earnings per share for the three months ended December 31, 1999 was
determined by dividing net income for the quarter by the weighted average
number of common shares. The weighted average number of shares used in
computing earnings per share was 3,476,880.
Diluted earnings per share consider the potential dilutive effects of the
exercise of the outstanding stock options under the Company's stock option
plan. Applying the treasury stock method to the outstanding stock options
results in an additional 18,962 shares to be used in the diluted earnings per
share calculation for the three months ended December 31, 1999.
-6-
3. RECLASSIFICATIONS
Certain reclassifications have been made to 1998 amounts to conform to the
1999 presentation.
* * * * * *
-7-
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward Looking Statements
This report contains forward-looking statements within the meaning of the
federal securities laws. These statements are not historical facts, rather
statements based on the Company's current expectations regarding its business
strategies and their intended results and its future performance. Forward-
looking statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends," and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause or contribute to the Company's actual
results, performance and achievements to be materially different from those
expressed or implied by the forward-looking statements. Factors that may cause
or contribute to these differences include, without limitation, general economic
conditions, including changes in market interest rates and changes in monetary
and fiscal policies of the federal government; legislative and regulatory
changes; and other factors disclosed periodically in the Company's filings with
the Securities and Exchange Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the unaudited consolidated financial
statements and accompanying notes thereto.
Financial Condition
Total assets at December 31, 1999 were $244.5 million, an increase of $500,000
from $244.0 million at September 30, 1999. The increase in total assets is
primarily attributable to increases in cash and cash equivalents and loans
receivable. The increases are offset by decreases in investment and debt
securities, mortgage-backed securities, and loans held for sale.
Loans receivable increased $4.8 million from $181.5 million at September 30,
1999 to $186.3 million at December 31, 1999. The increase was largely due to a
greater volume of mortgage loans as a result of hiring three new mortgage loan
officers during the quarter. Cash and cash equivalents increased from $8.9
million at September 30, 1999 to $10.3 million at December 31, 1999. This
increase was due to higher levels of vault cash maintained in anticipation of
customer needs regarding the year 2000 date change.
The increase in total assets is partially offset by a decline in investments and
debt securities from $13.2 million at September 30, 1999 to $12.2 million at
December 31, 1999. Approximately $2.0 million of total maturities of $3.0
million were reinvested and the remaining proceeds used primarily to fund loan
originations and withdrawals from savings accounts. Mortgage-backed securities
declined from $25.4 million at September 30, 1999 to $24.4 million at December
31, 1999 due to principal amortization and declines in market values of
securities held available for sale. Loans held for sale were $4.1 million at
December 31, 1999 compared to $8.2 million at September 30, 1999 as a result of
seasonal decline in production.
-8-
Total liabilities at December 31, 1999 were $196.7 million, an increase of $2.6
million from $194.1 million at September 30, 1999. The increase in total
liabilities is primarily attributable to increased borrowings from the Federal
Home Loan Bank of Des Moines, offset by a reduction in total savings deposits,
and disbursement of approximately $2.6 million were made from escrow funds held
on behalf of borrowers.
Borrowings increased $6.0 million, from $28.6 million at September 30, 1999 to
$34.6 million at December 31, 1999, as proceeds were used to fund the borrowers
escrowed real estate taxes of approximately $2.6 million and to fund deposit
outflows of approximately $2.6 million. The decrease in deposits is related
primarily to the closing of one branch office. Management believes that a
portion of the increased withdrawal activity was related to customer concerns
regarding year 2000.
As a result of the continued implementation of the "High Performance Checking
Account" program, 836 new checking or money market accounts were opened during
the quarter and the total of all such accounts has increased 41% over December
31, 1998.
Total stockholders' equity at December 31, 1999 was $47.9 million, a decrease of
$2.0 million from the $49.9 million at September 30, 1999. The decrease is
primarily attributable to the repurchase of 198,295 shares during the quarter,
at an average price of $11.02 per share, payment of dividends of $301,000,
increase in the amount of unrealized losses on securities held for sale of
$186,000, offset by net income for the quarter of $566,000.
Non-Performing Assets and Delinquencies
Loans accounted for on a non-accrual basis amounted to $250,000 at December 31,
1999 as compared to $258,000 at September 30, 1999. The non-accrual loans
consist primarily of single family residential loans. Accruing loans that were
contractually past due 90 days or more at December 31, 1999 amounted to $1.3
million, of which $370,000 were FHA/VA government-insured loans, compared to
$363,000 of FHA/VA loans at September 30, 1999. Real estate acquired in
settlement of loans, net of allowance for losses decreased to $121,000 at
December 31, 1999 from $228,000 at September 30, 1999, and consisted of single-
family residences. The allowance for loan losses was $1.1 million at December
31, 1999, or .58% of total loan and 73% of non-performing loans (non-accrual
loans and accruing loans past due 90 days or more).
Comparison of Operating Results for the Three Months Ended December 31, 1999 and
1998:
General
Net income for the three months ended December 31, 1999 was up 16% to $566,000,
compared to $489,000 for the three months ended December 31, 1998.
Interest Income
Interest income increased $578,000, or 16% for the three months ended December
31, 1999 compared to the three months ended December 31, 1998. The increase
resulted primarily from an increase in interest on loans of $391,000, as well as
an increase of $315,000 in interest on mortgage-backed securities. These
increases are offset by a decrease in interest on investments of $108,000.
The increase in interest income on loans resulted from an increase in the
average balance of loans outstanding from $160.7 million in 1998 to $188.7
million in 1999, which more than offset a decrease in the average yield
-9-
on loans from 7.68% in 1998 to 7.37% in 1999. The lower average yield on loans
is the result of aggressive pricing by the Bank during 1999 to obtain volume and
the lower level of interest rates in effect in the early months of 1999 which
contributed to an overall reduction in portfolio yield.
The increase in interest income in mortgage-backed securities resulted primarily
from an increase in the average balance from $6.6 million for the three months
ended December 31, 1998, to $26.1 million for the quarter ended December 31,
1999, offset by a reduction in the weighted average yield from 7.83% in 1998 to
6.80% in 1999. The decrease in the average yield is a reflection of the
amortization and prepayment of older higher rate securities, and the additional
investment in $20.0 million in new securities, but at the lower rates in effect
at the time of purchase.
The decrease in income from investments was due to a decline in the average
balance, from $20.6 million for the three months ended December 31, 1998 to
$13.3 million for the three months ended December 31, 1999, as maturing
securities were used to fund additional lending activity and stock repurchases.
Interest Expense
Interest expense increased $147,000 for the three months ended December 31, 1999
compared to the same period one year ago. The additional expense resulted
primarily from increased interest expense of $342,000 on borrowings from the
FHLB of Des Moines. The average balance of borrowings increased from $4.9
million for the three months ended December 31, 1998 to $27.9 million for the
quarter ended December 31, 1999. The weighted average rate on FHLB borrowings
increased from 5.64% for the quarter ended December 31, 1998 to 5.90% for the
quarter ended December 31, 1999. The increase in average balance is attributable
primarily to the use of advances in June of 1999 to fund purchases of mortgage-
backed securities. Subsequently, FHLB advances have been used to fund loan
originations and the payment of approximately $3 million of borrowers' funds
escrowed for annual real estate taxes.
Additional interest expense of $46,000 was incurred during the quarter ended
December 31, 1998 as a result of interest payments made on funds received for
stock subscriptions in connection with the Conversion and Reorganization.
Interest on deposits declined $149,000 for the quarter ended December 31, 1999
compared to the same quarter of the prior year. The average balances decreased
from $160.2 million to $158.5 million and the average rates declined from 4.46%
for the three months ended December 31, 1998 to 4.02% for the three months ended
December 31, 1999, as a result of implementation of new pricing strategy adopted
in March of 1999 for deposit products.
Provision for Loan Losses
The provision for loan losses was $127,000 for the three months ended December
31, 1999 compared to $40,000 for the three months ended December 31, 1998.
Management of the Bank deemed it necessary to increase the provision for loan
losses after considering an increase in total nonperforming loans to $1.5
million at December 31, 1999 from $1.4 million at September 30, 1999. As the
Bank's investment in high loan to value residential loans and home equity loans
increase, management believes the additional provision is appropriate and
adequate. Loans up to 100% of the purchase price are made to borrowers having
excellent credit histories and high personal income. To date, the balances in
these high loan to value loans is less than 5% of total outstanding loans. The
Company closely monitors delinquencies on these loans.
The provision for loan losses is determined by management as the amount to be
added to the allowance for loan losses after net charge-offs have been deducted
to bring the allowance to a level which is considered adequate to absorb losses
inherent in the loan portfolio. Because management adheres to specific loan
underwriting guidelines focusing on mortgage loans secured by one-to-four-family
residences, the Bank's
-10-
historical loan loss experience has been low. No assurances, however, can be
given as to future loan loss levels.
Other Income
Other income increased $118,000 for the three months ended December 31, 1999
from $500,000 for the three months ended December 31, 1998, to $619,000 for the
three month period ended December 31, 1999. The increase in other income is
primarily the result of an increase in retail banking fees of $83,000, and a
$51,000 increase in commissions earned on sales of annuity products. Mortgage
revenues declined $17,000 from $231,000 in the December 1998 quarter, to
$214,000 in the December 1999 quarter. The rise in long-term interest rates
reduced the volume of loans sold to investors approximately 30% over the
December 1998 volume.
Retail banking fees rose from $85,000 in the December 1998 quarter, to $168,000
for the December 1999 quarter, which represents a 98% increase over the
corresponding period of the prior year as a result of the growth in checking
accounts.
Insurance commissions have increased 71% from $71,000 for the three months ended
December 31, 1998 to $122,000 for the three months ended December 31, 1999 as a
result of increased sales of annuities.
Other Expenses
Other expenses increased $358,000 to $1.8 million for the three months ended
December 31, 1999. The increase was primarily due to increases in occupancy
expense of $158,000, other miscellaneous expenses of $93,000 and professional
services of $69,000.
Occupancy expense increased due to higher rent, taxes and depreciation expenses.
Other expenses increased from $158,000 for the December 1998 quarter to $251,000
for the December 1999 quarter, as a result of higher franchise taxes and losses
on sales of real estate owned. Increased use of professional service providers
were responsible for the $69,000 change in professional services cost. At
December 31, 1998, those costs were $43,000, and at December 31, 1999 they
amounted to $112,000 for the three-month period. Compensation expense increased
8%, from $796,000 for the three months ended December 31, 1998 to $860,000 for
the three months ended December 31, 1999.
Income Taxes
The provision for income taxes increased to $316,000 for the three months ended
December 31, 1999 from $288,000 for the three months ended December 31, 1998.
The increase is primarily attributable to increased levels of taxable income.
Liquidity and Capital Resources
Federal regulations require the Bank to maintain minimum levels of liquid assets
(i.e., cash and eligible investments). The required percentage has varied from
time to time based upon economic conditions and savings flows and is currently
4% of the average daily balance of its net withdrawable savings deposits and
short-term borrowings. The Bank attempts to maintain levels of liquidity at
levels in excess of those required by regulation. Maintaining levels of
liquidity acts, in part, to reduce the Company's balance sheet exposure to
interest rate risk. For the quarter ended December 31, 1999, the Bank's average
liquidity ratio (liquid assets as a percentage of net withdrawable savings
deposits and short-term borrowings) was 24.61%.
-11-
The Bank must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments and deposit withdrawals. At
December 31, 1999, the Bank had outstanding commitments to originate loans of
$9.0 million, and commitments to sell loans of $9.4 million. At the same date,
certificates of deposit which are scheduled to mature in one year or less
totaled $74.9 million. Based on past experience, management believes the
majority of maturing certificates of deposit will remain with the Bank.
Management believes its ability to generate funds internally will satisfy its
liquidity requirements. If the Bank requires funds beyond its ability to
generate them internally, it has the ability to borrow funds from the FHLB-Des
Moines under a blanket agreement which assigns all investments in FHLB stock as
well as qualifying first mortgage loans equal to 150% of the outstanding
advances as collateral to secure the amounts borrowed. At December 31, 1999,
the Bank had approximately $57.1 million available to it under the above-
mentioned borrowing arrangement. At December 31, 1999, the Bank had $34.6
million in advances from the FHLB-Des Moines.
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 core capital requirement and the risk-based
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 core capital requirement provides for
minimum core capital (tangible capital plus certain forms of supervisory
goodwill and other qualifying intangible assets) equal to 3.0% of adjusted total
assets. The risk-based capital requirements provides for the maintenance of
core capital plus a portion of unallocated loss allowances equal to 8.0% of
risk-weighted assets. In computing risk-weighted assets the Bank multiplies the
value of each asset on its balance sheet by a defined risk-weighting factor
(e.g., one- to four-family conventional residential loans carry a risk-weighted
factor of 50%).
The following table illustrates the Bank's regulatory capital levels compared to
its regulatory capital requirements at December 31, 1999.
To be Categorized as
"Well Capitalized"
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
--------------------- ----------------------- -----------------------
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1999:
Tangible capital (to total assets) $39,825 16.87% $ 3,541 1.50% N/A N/A
Core capital (to total assets) 39,825 16.87% 7,095 3.00% N/A N/A
Total risk-based capital
(to risk-weighted assets) 40,922 28.42% 11,519 8.00% 14,398 10.00%
Tier I risk-based capital
(to risk-weighted assets) 39,825 27.66% N/A N/A 8,639 6.00%
Tier I leverage capital (to
average assets) 39,825 16.91% N/A N/A 11,776 5.00%
Year 2000
While there can be no assurances that the Bank's Year 2000 plan has effectively
addressed the Year 2000 issue, the Bank has not been notified and it is unaware
of any vendor or service provider problems related to Year 2000 and all of the
Bank's systems have performed properly since January 1, 2000. Likewise, the
Bank
-12-
is unaware of any Year 2000 issues that have impaired the ability of its
borrowers to repay their debts. The Bank will continue to monitor Year 2000
issues.
Quantitative and Qualitative Disclosures About Market Risk
There has been no significant change in the Company's quantitative or
qualitative aspects of market risk during the quarter ended December 31, 1999
from that disclosed for the year ended September 30, 1999.
-13-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Periodically, there have been various claims and lawsuits involving
the Bank, such as claims to enforce liens, condemnation proceedings on
properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans and other
issues incident to the Bank's business. The Bank is not a party to any
pending legal proceedings that it believes would have a material
adverse effect on the financial condition or operations of the Bank.
Item 2. Changes in Securities and Use of Proceeds:
a. Changes in Securities: Not applicable
b. Use of Proceeds: Not applicable
Item 3. Defaults Upon Senior Securities: Not applicable
Item 4. Submission of Matters to a Vote of Security-Holders: Not applicable
Item 5. Other Information: Not applicable
Item 6. Exhibits and Reports on Form 8-K: None
-14-
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PULASKI FINANCIAL CORP.
Date: February 9, 2000 /s/ William A. Donius
---------------- ----------------------------------
William A. Donius
President
Date: February 9, 2000 /s/ Thomas F. Hack
---------------- ----------------------------------
Thomas F. Hack
Chief Financial Officer/Treasurer
-15-