SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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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.
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(Exact name of registrant as specified in its charter)
0-24571
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Commission File Number
Delaware 43-1816913
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12300 Olive Boulevard
St. Louis, Missouri 63141-6434
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(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
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Indicate the number of shares outstanding of the registrant's classes of common
stock, as of the latest practicable date.
Class Outstanding at August 10, 2001
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Common Stock, par value $.01 per share 2,913,040 shares
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 2001
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2001(Unaudited) and September 30, 2000 1
Consolidated Statements of Income and Comprehensive Income (Loss) for
the Three and Nine Months Ended June 30, 2001 and June 30, 2000 (Unaudited) 2
Consolidated Statement of Stockholders' Equity for the Nine Months Ended
June 30, 2001 (Unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 2001 and June 30, 2000 (Unaudited) 4-5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-13
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
Signatures 15
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 (UNAUDITED) AND SEPTEMBER 30, 2000
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June 30, September 30,
ASSETS 2001 2000
Cash and amounts due from depository institutions $ 7,857,631 $ 3,762,265
Federal funds sold and overnight deposits 10,325,000 3,800,000
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Total cash and cash equivalents 18,182,631 7,562,265
Investment securities available for sale, at market value 2,839,746 5,493,159
Equity securities available for sale 1,368,425 --
Investment securities held to maturity, at amortized cost (market value,
$ 1,721,923 and $13,615,012, at June 30, 2001 and September 30, 2000,
respectively) 1,717,069 13,634,391
Mortgage-backed and related securities held to maturity, at amortized cost
(market value, $2,779,323 and $3,237,467 at June 30, 2001 and
September 30, 2000, respectively) 2,621,114 3,133,691
Mortgage-backed and related securities available for sale, at market value 9,505,584 19,470,455
Loans receivable held for sale, at lower of cost or market 42,935,202 14,374,186
Loans receivable, net of allowance for loan losses of $1,610,489 and
$1,365,776 at June 30, 2001 and September 30, 2000, respectively 202,060,770 209,919,196
Federal Home Loan Bank stock - at cost 3,960,000 3,580,000
Real estate acquired in settlement of loans, net of allowance for losses
of $0 and $2,108 at June 30, 2001 and September 30, 2000, respectively 39,241 28,008
Premises and equipment - net 3,539,658 2,933,683
Accrued interest receivable:
Investment securities 50,204 116,206
Mortgage-backed securities 72,731 135,482
Loans 1,376,852 1,336,852
Other 1,003 1,383
Other assets 1,843,571 1,400,995
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TOTAL $ 292,113,800 $ 283,119,952
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 192,794,013 $ 168,412,670
Advances from Federal Home Loan Bank of Des Moines 55,000,000 66,100,000
Advance payments by borrowers for taxes and insurance 2,041,943 2,786,928
Accrued interest payable 72,943 212,509
Dividends payable 218,722 --
Other borrowed money -- 12,500,000
Other liabilities 10,971,546 1,908,178
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Total liabilities 261,099,167 251,920,285
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value per share, authorized 10,000,000 shares;
none issued or outstanding
Common stock - $.01 par value per share, authorized 25,000,000 shares;
3,972,885 shares issued at June 30, 2001 and September 30, 2000,
respectively 39,729 39,729
Treasury stock - at cost (1,056,588 and 815,791 shares, respectively) (11,883,619) (9,396,438)
Additional paid-in capital 23,938,924 23,933,327
Unearned MRDP shares (653,794) (728,812)
Unearned ESOP shares (unreleased shares, 112,418 and 119,301 respectively) (1,124,180) (1,193,007)
Accumulated other comprehensive loss 251,618 (241,347)
Retained earnings 20,445,955 18,786,215
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Total stockholders' equity 31,014,632 31,199,667
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TOTAL $ 292,113,800 $ 283,119,952
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-1-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
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Three Months Ended Nine Months Ended
June 30, June 30,
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2001 2000 2001 2000
INTEREST INCOME:
Loans receivable $ 4,604,276 $ 3,971,259 $ 13,827,312 $ 11,134,820
Investment securities 65,350 169,296 263,854 516,571
Mortgage-backed and related securities 225,551 425,539 928,235 1,304,952
Other 107,025 81,481 279,063 262,382
------------ ------------ ------------ ------------
Total interest income 5,002,201 4,647,575 15,298,463 13,218,725
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits 1,928,865 1,619,647 5,663,182 4,807,613
Advances from Federal Home Loan Bank 931,752 800,587 3,172,671 1,746,679
Other 0 0 37,500 0
------------ ------------ ------------ ------------
Total interest expense 2,860,617 2,420,234 8,873,353 6,554,292
------------ ------------ ------------ ------------
NET INTEREST INCOME 2,141,584 2,227,341 6,425,110 6,664,433
PROVISION FOR LOAN LOSSES 193,399 164,783 473,703 363,425
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,948,185 2,062,558 5,951,407 6,301,008
------------ ------------ ------------ ------------
OTHER INCOME:
Retail banking fees 310,534 257,686 914,031 625,580
Mortgage revenues 1,075,425 487,388 2,442,546 982,373
Insurance commissions 56,565 48,774 275,949 255,959
Gain on sale of securities 436,478 0 540,488 0
Other 54,948 60,669 260,091 156,750
------------ ------------ ------------ ------------
Total other income 1,933,950 854,517 4,433,106 2,020,662
------------ ------------ ------------ ------------
OTHER EXPENSES:
Salaries and employee benefits 1,078,386 1,050,900 3,694,169 4,322,433
Occupancy, equipment and data processing expense 447,800 419,086 1,293,438 1,317,020
Advertising 118,873 109,522 349,775 294,443
Professional services 178,328 96,713 468,034 366,501
Other 296,518 204,167 801,659 744,201
------------ ------------ ------------ ------------
Total other expenses 2,119,905 1,880,388 6,607,075 7,044,598
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,762,230 1,036,687 3,777,438 1,277,072
INCOME TAXES 676,366 366,557 1,445,200 786,134
------------ ------------ ------------ ------------
NET INCOME 1,085,864 670,130 2,332,238 490,938
OTHER COMPREHENSIVE (LOSS) GAIN ITEMS (126,872) 100,147 492,964 (154,457)
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 958,992 $ 770,277 $ 2,825,202 $ 336,481
============ ============ ============ ============
NET INCOME PER COMMON SHARE - BASIC $ 0.38 $ 0.21 $ 0.81 $ 0.15
============ ============ ============ ============
NET INCOME PER COMMON SHARE - DILUTED $ 0.37 $ 0.21 $ 0.79 $ 0.15
============ ============ ============ ============
See accompanying notes to the unaudited consolidated financial statements.
-2-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
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Unearned
Management Accumulated
Additional Recognition and Other Unearned
Common Treasury Paid-In Development Comprehensive ESOP Retained
Stock Stock Capital Plan Shares Income (Loss) Shares Earnings Total
BALANCE,
September 30, 2000 $39,729 $(9,396,438) $23,933,327 $(728,812) $ (241,347) $(1,193,007) $18,786,215 $31,199,667
-----------
Comprehensive income: 2,332,238 2,332,238
-----------
Net income
Change in net unreal-
ized gain (losses) on
securities 492,965 (492,965)
-----------
Total comprehen-
sive income 2,825,203
-----------
Dividends declared (585,275) (585,275)
Stock options exercised and 169,628 (53,635) 115,993
related stock benefit
Stock repurchase (2,708,893) (2,708,893)
Release of ESOP shares 5,597 68,827 74,424
Amortization of Manage-
ment Recognition and
Development Plan shares 131,127 131,127
Management Recognition
and Development Plan
shares issued 52,084 (56,110) (33,588) (37,614)
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BALANCE,
June 30, 2001 $39,729 $(11,883,619) $23,938,924 $(653,794) $251,618 $(1,124,180) $20,445,955 $31,014,632
======= ============ =========== ========= ======== =========== =========== ===========
See accompanying notes to the unaudited consolidated financial statements.
-3-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
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2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,332,238 $ 490,938
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation, amortization and accretion:
Premises and equipment 342,966 373,600
Management recognition and development plan stock awards 131,127 138,430
ESOP shares committed to be released 74,425 1,050,357
Loan fees, discounts and premiums - net 191,290 122,053
Deferred income taxes 0 245,271
Provision for loan losses 473,703 363,425
Provision for losses on real estate acquired in settlement of loans (2,108) 4,679
Losses on sale of real estate acquired in settlement of loans (5,391) 12,137
Gain on sale of investments 0 0
Gains on sales of loans (2,210,023) (814,990)
Originations of loans receivable for sale to correspondent lenders (302,506,016) (97,378,342)
Proceeds from sales of loans to correspondent lenders 276,155,023 91,450,990
Changes in other assets and liabilities 8,528,121 180,978
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Net adjustments (18,826,883) (4,251,412)
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Net cash (used in) provided by operating activities (16,494,645) (3,760,474)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of investment securities 25,716,673 8,523,143
Purchases of investment securities and FHLB stock (3,544,159) (8,509,929)
Gain on sale of investments (540,488) 0
Principal payments received on mortgage-backed and related securities 2,487,871 1,939,002
Purchases of mortgage - backed and related securities 0 0
Loan originations - net 7,018,085 (25,364,350)
Proceeds from sales of real estate acquired in settlement of
loans receivable 105,400 257,500
Proceeds from disposal of equipment 29,606 0
Net additions to premises and equipment (978,547) (1,120,566)
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Net cash (used in) provided by investing activities 30,294,441 (24,275,200)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits 24,381,343 (1,706,784)
Federal Home Loan Bank advances - net (11,100,000) 39,000,000
Retire other debt (12,500,000) 0
Net decrease in advance payments by borrowers for taxes and
insurance (744,985) (481,481)
Dividends paid on common stock (585,275) (870,020)
Common stock issued under stock option plan 115,993 159,008
Stock repurchases (2,708,893) (7,560,571)
New MRDP stock issued (37,613)
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Net cash (used in) provided by financing activities (3,179,430) 28,540,152
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-4-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
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2001 2000
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 10,620,366 $ 504,478
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 7,562,265 8,886,957
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CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 18,182,631 $ 9,391,435
============ ============
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits $ 5,325,791 $ 4,988,075
Interest on advances from the Federal Home Loan Bank
of Des Moines 3,172,671 1,746,679
Income taxes 1,987,084 684,397
NONCASH INVESTING ACTIVITIES:
Write-down of real estate owned (2,108) 4,679
Real estate acquired in settlement of loans 109,134 105,917
Decrease in investments for changes in unrealized
gains and losses 782,484 (245,171)
NONCASH FINANCING ACTIVITIES:
Dividends declared 218,722 13,295,105
(Concluded)
See accompanying notes to the unaudited consolidated financial statements.
-5-
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. FINANCIAL STATEMENTS
The consolidated interim financial statements as of June 30, 2001 and for
the periods then ended include the accounts of Pulaski Financial Corp.
(the "Company") and its wholly-owned subsidiaries, Pulaski Bank (the
"Bank") and Pulaski Service Corp. (the "Subsidiary"). This report has been
prepared by the Company without audit.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation are reflected in the
June 30, 2001 interim financial statements. The results of operations for
the period ended June 30, 2001 are not necessarily indicative of the
operating results that may be expected for the full year. The consolidated
interim financial statements as of June 30, 2001 should be read in
conjunction with the Company's audited consolidated financial statements
as of September 30, 2000 and for the year then ended included in the
Company's 2000 Annual Report to Shareholders. The significant accounting
policies followed in the preparation of the quarterly financial statements
are the same as disclosed in the 2000 Annual Report to Shareholders to
which reference is made.
2. EARNINGS PER SHARE
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
Weighted average shares
outstanding - basic 2,826,699 3,218,301 2,890,761 3,358,453
Common stock equivalent 102,226 41,198 77,056 25,890
--------- --------- --------- ---------
Weighted average shares
outstanding - diluted 2,928,925 3,259,499 2,967,817 3,384,343
========= ========= ========= =========
Anti-dilutive shares 8,516 16,940 14,132 84,048
========= ========= ========= =========
Under the Treasury Stock method, outstanding stock options are dilutive
when the average market price of the Company's common stock 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. Anti-dilutive shares are those option
shares with exercise prices in excess of the current market value.
3. RECLASSIFICATIONS
Certain reclassifications have been made to 2000 amounts to conform to the
2001 presentation.
* * * * * *
-6-
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, intended results and 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 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 June 30, 2001 were $292.1 million, an increase of $9.0 million
from $283.1 million at September 30, 2000. The increase in total assets was
primarily attributable to increases in loans held for sale and cash equivalents,
offset by decreases in investment securities, mortgage-backed securities, and
loans receivable.
Loans held for sale increased $28.5 million from $14.4 million at September 30,
2000 to $42.9 million at June 30, 2001. The increase was attributable to the
origination of over $146 million in first mortgage loans during the quarter
ended June 30, 2001. The volume of loan originations increased as a result of
lower fixed rates available to borrowers purchasing or refinancing residential
properties. The great majority of the loans originated are pre-committed for
sale to investors on a servicing-released basis. As a result of the large
volume, delays were experienced in the consummation of the sales transactions
and subsequently a larger unfunded balance resulted.
Cash and cash equivalents increased from $7.6 million at September 30, 2000 to
$18.2 million at June 30, 2001, as a result of higher compensating balance
requirements at the Federal Home Loan Bank (the FHLB) and increased investment
in overnight deposits to provide greater liquidity to fund increased loan
production. The increased compensating balance requirements at the FHLB are a
result of higher retail banking activity clearing through the FHLB.
-7-
Investments and debt securities declined from $19.1 million at September 30,
2000 to $5.9 million at June 30, 2001. The decline in investments was primarily
attributable to the use of maturing investments to repay the $12.5 million of
other borrowings used to fund the payment of a special cash dividend.
Mortgage-backed securities decreased from $22.6 million at September 30, 2000 to
$12.1 million at June 30, 2001. The $10.5 million decline was due primarily to
the sale of approximately $8.8 million of mortgage-backed securities to provide
additional funding for the increased level of loan originations.
Loans Receivable declined $7.8 million from $209.9 million at September 30, 2000
to $202.1 million at June 30, 2001. The decrease is primarily attributed to an
$11.2 million reduction in portfolio mortgages, a drop of $7.9 million in
consumer loans, offset by a gain of $10.3 million in home equity lines of credit
loans. Portfolio mortgages and consumer loans declined as a result of
prepayment, amortizations, and borrower refinancing. Home equity loans are
approved for qualifying borrowers in conjunction with the first mortgage loan
applications. The growth in prime-based adjustable home equity loans has been
established as a strategic objective, and the large volume of mortgage loans
originated during the year has provided greater opportunities to cross-sell this
product to customers.
Total liabilities at June 30, 2001 were $261.1 million, an increase of $9.2
million from $251.9 million at September 30, 2000. The increase in total
liabilities was primarily attributable to an increase in deposits from $168.4
million at September 30, 2000 to $192.8 million at June 30, 2001. During the
nine-month period ending June 30, 2001, the balance of the Bank's money market
accounts grew from $15.8 million to $36.7 million as a result of marketing
efforts and increased rates to generate funds to finance mortgage originations.
The deposit growth is thought to reflect the return to depository institutions
of customers who have experienced declines in stock market investments.
Borrowings decreased $11.1 million, from $66.1 million at September 30, 2000 to
$55.0 million at June 30, 2001, as excess cash flows were used to retire
maturing advances.
Total stockholders' equity at June 30, 2001 was $31.0 million, a decrease of
$200,000 from the $31.2 million at September 30, 2000. The decrease was
primarily attributable to the repurchase of 255,258 shares of common stock for
$2.7 million and the payment of $585,000 of cash dividends, offset by the
increase in the amount of unrealized gains on securities held for sale of
$493,000 and net income for the nine months ended June 30, 2001 of $2.3 million.
NON-PERFORMING ASSETS AND DELINQUENCIES
Non-accrual loans amounted to $508,000 at June 30, 2001 as compared to $413,000
at September 30, 2000. The non-accrual loans consisted primarily of
single-family residential loans and consumer loans. Accruing loans that were
contractually past due 90 days or more at June 30, 2001 amounted to $1.8
million, of which $574,000 were FHA/VA government-insured loans, compared to
$1.5 million of accruing loans past 90 days delinquent at September 30, 2000, of
which $444,000 were FHA/VA loans. Real estate acquired in settlement of loans,
net of allowance for losses increased to $39,000 at June 30, 2001 from $28,000
at September 30, 2000, and consisted of single-family residences. The allowance
for loan losses was $1.6 million at June 30, 2001, or .66% of total loans and
70% of non-performing loans (non-accrual loans and accruing loans past due 90
days or more), compared to $1.4 million at September 30, 2000 or .61% of total
loans and 71% of non-performing loans.
-8-
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED JUNE 30,
2001 AND 2000:
All trends and reasons for increases and decreases for the three months ended
June 30, 2001 and 2000 are reflective of the trends and reasons for increases
and decreases for the nine month periods ended June 30, 2001 and 2000, in all
material respects, unless otherwise noted.
GENERAL
Net income for the three months ended June 30, 2001 was $1.1 million , compared
to $670,000 for the three months ended June 30, 2000. Net income for the nine
months ended June 30, 2001 was $2.3 million compared to $491,000 for the
nine-month period ended June 30, 2000. The prior year's results were impacted by
a one-time non-recurring recognition of compensation expense totaling $1.4
million associated with the Company's $4.00 per share special dividend declared
in March 2000, and its effect on restricted stock awards under the Company's
2000 Stock-Based Incentive Plan and on the Employee Stock Ownership Plan.
Adjusting for these one time non-recurring expenses, the net income for the nine
months ended June 30, 2000 was $1.7 million.
INTEREST INCOME
Interest income increased $355,000 or 8% for the three months ended June 30,
2001, compared to the three months ended June 30, 2000. The increase resulted
primarily from an increase in interest on loans of $633,000, offset by a
decrease in interest on investment securities of $104,000, and decreased income
on mortgage-backed securities of $200,000.
The increase in interest income on loans resulted from an increase in the
average balance of loans outstanding for the three months ended June 30, 2001
from $209.6 million to $245.0 million. The weighted average yield on loans
decreased slightly from 7.58% to 7.52% over the same time period. The decline in
yield for the quarter was due in part to the volume of payoffs, refinancing of
loans, the increased volume of loans held for sale which carries a lower average
coupon yield than the Company's retained loan portfolio and the general
declining rate environment. Prepayment of loans causes reduction in interest
income, as deferred origination expenses intended to be amortized over the life
of the loans, are immediately absorbed. For the nine-month period ended June 30,
2001 the average balance of loans was $235.5 million up from $197.3 million for
the like period ended June 30, 2000. The weighted average rate on loans
increased from 7.53% to 7.83%, despite decreasing for the most recent quarter.
This increase resulted from higher coupon yield on portfolio loans.
The decrease in income from investment securities was due to a decline in the
average balance from $11.1 million for the three months ended June 30, 2000 to
$4.6 million for the three months ended June 30, 2001, as maturing securities
were used to fund lending activity. The weighted average yield on investment
securities changed from 6.11% for the quarter ended June 30, 2000 to 5.68% for
the three-month period ended June 30, 2001. The weighted average yield for the
nine-months ended June 30, 2001 was 5.93% compared to 5.75% for the nine-month
period ended June 30, 2000. Interest income on overnight deposits increased
$26,000 as the average balance of overnight deposits increased from $5.3 million
for the June 2000 quarter to $10.2 million for the June 2001 quarter, as funds
were accumulated to fund increased lending activity. The weighted average yield
on overnight deposits declined from 6.16% for the June 2000 quarter, to 4.18%
for the June 2001 quarter as a result of lower market interest rates.
The decrease in interest income from mortgage-backed securities resulted
primarily from a decrease in the average balance from $23.5 million for the
three months ended June 30, 2000 to $12.7 million for the quarter ended June 30,
2001, and by a reduction in the weighted average yield from 7.26% for the June
2000 quarter
-9-
to 7.13% for the June 2001 quarter. For the nine-month period ended June 30th,
the weighted average rate on mortgage-backed securities rose slightly from 7.07%
in fiscal 2000 to 7.14% in fiscal 2001.
The decrease in the average balance reflects the amortization and prepayment of
older higher rate securities, and the sale of approximately $8.8 million of the
available-for-sale securities to help fund the increased level of lending.
INTEREST EXPENSE
Interest expense increased $440,000, or 18% for the three months ended June 30,
2001 compared to the same period last year. The additional quarterly expense
resulted primarily from increased interest expense of $309,000 on deposits. The
average balance of interest-bearing deposits increased from $156.9 million for
the quarter ended June 30, 2000 to $184.6 million for the June 2001 quarter, and
the weighted average rate paid on deposits increased slightly from 4.13% to
4.18%. For the nine-month period ended June 30, 2001, interest expense increased
$2.3 million, or 35% primarily as a result of increased borrowing costs. The
average balance of borrowings increased from $37.7 million for the nine months
ended June 30, 2000 to $67.4 million for the similar period ended June 30, 2001.
The increase in the average balance was attributable to the use of advances to
fund loan originations. The weighted average rate on Federal Home Loan Bank of
Des Moines (the "FHLB") borrowings decreased from 6.38% for the quarter ended
June 30, 2000 to 6.09% for the quarter ended June 30, 2001 as a result of lower
short-term interest rates in effect, but for the year to date the weighted
average rate has increased from 6.18% to 6.35%. Other interest expense of
$37,500 for the nine months ended June 30, 2001 related to the short-term
borrowings of $12.5 million at September 30, 2000, which was repaid in October
of 2000.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $193,000 for the three months ended June 30,
2001 compared to $165,000 for the three months ended June 30, 2000. The increase
in provision reflects the overall increase in the loan portfolio, but was
primarily in response to charge-offs, which increased for the nine months ended
June 30, 2001 to $227,000 compared to charge-offs of $118,000 for the nine
months ended June 30, 2000. Charge-offs for the three months ended June 30, 2001
and June 30, 2000 were relatively unchanged at $93,000 and $90,000,
respectively. The losses were primarily attributed to consumer loans (autos).
After achieving its investment objective, the Bank discontinued significant
investment in auto loans in June of 1999, and decided to emphasize home equity
lines of credit, which are prime-based adjustable loans. As a result of
recording $193,000 in loan loss provision, the ratio of loan loss allowance to
non-performing loans was 70.21%, compared to 70.89% at September 30, 2000. The
ratio of total loan loss allowance to total loans was .66% as of June 30, 2001,
compared to .61% as of September 30, 2000.
The provision for loan losses is determined by management as the amount that
must 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. The determination of the
appropriate level of loan loss allowance is based upon the quarterly evaluation
of eleven specific criteria. Additionally, senior management and the collection
department personnel meet quarterly and review all conventional mortgages and
all consumer loans which are over 90 days delinquent. Loan loss allowances are
provided when it is determined that loss is probable and the asset is impaired.
In addition to specific evaluations, management also reviews concentrations of
credit, lending volume, the general level of delinquencies, current trends in
charge-offs, current economic conditions, historical loss experience, and the
reasonableness of previous estimates in relation to payment performance on new
loan products. In the assessment of these and other characteristics, estimates
are made for the inherent loan losses associated with these products. Because
management adheres to specific loan underwriting guidelines focusing on mortgage
loans secured by one- to-
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four-family residences, the Bank's historical loan loss experience has been low.
Management believes that, based on the information at June 30, 2001, the
Company's allowance for loan losses was sufficient to cover losses inherent in
its loan portfolio at that time. However, no assurances can be given that the
Company's level of allowance for loan losses will be sufficient to cover future
loan losses incurred by the Company or that future adjustments to the allowance
for loan losses will not be necessary if the conditions used by management to
determine the current level of the allowance for loan losses should change.
NON-INTEREST INCOME
Non-interest income increased $1.1 million from $855,000 for the three months
ended June 30, 2000, to $1.9 million for the quarter ended June 30, 2001. The
increase in other income was the result of a 121% increase in mortgage revenues
of $588,000, gains on the sale of securities of $436,000, an increase in retail
banking fees of $53,000 and increased commissions on sales of insurance products
of $8,000, offset by reduced other income of $6,000.
Mortgage revenues increased $588,000, from $487,000 in the June 2000 quarter to
$1.1 million for the quarter ended June 30, 2001. The revenue was generated
primarily from increased sales of loans to investors, with servicing released.
The volume of loans sold for the three months ended June 30,2001 increased 201%
over the same quarter of the prior year. The higher volume of sales was the
result of increased production that resulted from both greater originations and
more refinanced loans. Interest rate reductions by the Federal Reserve Board
contributed to lower mortgage rates and more refinancings to lower fixed-rate
loans. It is the Bank's policy to sell the majority of fixed-rate loans in an
effort to better manage interest rate risk, and consequently sales increased
significantly.
During the June 2001 quarter, the Company sold its equity investment in another
financial institution, and recorded profits of $436,000.
Retail banking fees rose 21% from $258,000 in the June 2000 quarter to $311,000
for the June 2001 quarter as a result of growth in the number of checking
accounts.
Other income decreased for the quarter primarily as a result of loss of rental
income at the home office. Expansion of the Bank's lending activities has
resulted in complete utilization of its office space, and loss of rental income
from tenants. For the nine months ended June 30, 2001 other income increased
$103,000, from $157,000 at June 30, 2000 to $260,000 at June 30, 2001. The
income growth was attributable to increased dividends received on greater FHLB
stock holdings, which are required to support additional borrowings from the
FHLB, and from income earned on demand deposit balances maintained at the
FHLB.
NON-INTEREST EXPENSE
Non-interest expenses increased $240,000, from $1.9 million for the June 2000
quarter, to $2.1 million for the three months ended June 30, 2001. The increase
was primarily due to increased professional services expenses of $82,000 and
other expenses of $92,000. Approximately $50,000 of the $82,000 increase in
professional services was attributed to increased tax and advisory services
relating to the special $4.00 per share return of capital dividend paid in
September 2000. Other expenses increased primarily as a result of higher lending
volume. Non-deferrable loan origination expenses increased $46,000 and losses on
bad checks increased $23,000 over the June 2000 quarter. Compensation expense of
$1.1 million was up only $27,000 from the quarter ended June 30, 2001, primarily
as the result of deferral of higher amounts of origination expense associated
with higher lending volume. Direct origination expenses, including salary
expenses, are capitalized and deferred to future periods where they are
recognized as reductions in the yield, pursuant to generally accepted accounting
principles. For the nine months ended June 30, 2001 compensation expense
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was down $628,000 despite paying increased bonuses for lending volume because of
a non-recurring $1.4 million compensation expense in March of 2000. The
non-recurring expense resulted from the $4.00 return of capital, which
accelerated additional shares being released from the Company's employee stock
ownership program.
Advertising expense increased $9,000, from $110,000 for the three months ended
June 30, 2000 to $119,000 for the June 30, 2001 quarter. For the nine-month
period, advertising increased $55,000, from $295,000 to $350,000 as a result of
the additional use of radio advertising directed to attract money market
accounts.
INCOME TAXES
The provision for income taxes increased $309,000 to $676,000 for the three
months ended June 30, 2001 from $367,000 for the three months ended June 30,
2000. The increase was primarily attributable to increased net operating income.
The effective tax rate for three and nine months 2001 was approximately 38%,
which was unchanged from the three months ended June 30, 2000. However, the tax
rate for the nine months ended June 30, 2000 was increased by the one-time
non-deductible compensation expense associated with the recording of the $4.00
dividend. Excluding this one time transaction, the tax rate is approximately the
same.
LIQUIDITY AND CAPITAL RESOURCES
The Bank attempts to maintain liquidity at levels it considers appropriate to
ensure the availability of funds to satisfy loan commitments and deposit
withdrawals. Maintaining levels of liquidity acts, in part, to reduce the
Company's balance sheet exposure to interest rate risk.
At June 30, 2001 the Bank had outstanding commitments to originate loans of $3.9
million, and commitments to sell loans on a best-efforts basis of $46.3 million.
At the same date, certificates of deposit that are scheduled to mature in one
year or less totaled $81.5 million. Management anticipates that it will have
sufficient funds available to meet these commitments. 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 or the Company requires funds beyond its
ability to generate them internally, the Bank has the ability to borrow funds
from the FHLB under a blanket agreement which assigns all investments in FHLB
stock as well as qualifying first mortgage loans equal to 125% of the
outstanding advances as collateral to secure the amounts borrowed. Total
borrowings from the FHLB are subject to limitations based upon the asset size of
the Bank, and credit evaluations by the FHLB. At June 30, 2001, the Bank had $55
million in advances from the FHLB of a total available borrowing line of $116
million under the above-mentioned arrangement. The Company has also made
financing arrangements with a commercial bank, to provide up to $10 million of
additional short-term, prime rate-based funds as an additional source of funding
if the need arises.
The Bank is required to maintain specific amounts of capital pursuant to Office
of Thrift Supervision (the "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, 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 provide 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
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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 June 30, 2001.
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 June 30, 2001:
Tangible capital (to
total assets) $28,224 9.75 % $ 4,340 1.50 % N/A N/A
Core capital (to total
assets) 28,224 9.75 % 8,674 3.00 % N/A N/A
Total risk-based capital
(to risk-weighted assets) 29,834 12.66 % 18,846 8.00 % $23,557 10.00 %
Tier I risk-based capital
(to risk-weighted assets) 28,224 11.98 % 11,779 5.00 % 14,134 6.00 %
Tier I leverage capital (to
average assets) 28,224 9.73 % 11,602 4.00 % 14,502 5.00 %
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 June 30, 2001 from
that disclosed in the Company's Annual Report on Form 10-K for the year ended
September 30, 2000.
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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: 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:
A. Exhibits
3.1 Certificate of Incorporation of Pulaski Financial Corp.*
3.2 Bylaws of Pulaski Financial Corp.*
4.0 Form of Certificate for Common Stock*
B. Reports on Form 8-K: None
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* Incorporated by reference from the Form S-1 (Registration No.
333-56465), as amended, as filed on June 9, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PULASKI FINANCIAL CORP.
Date: August 13, 2001 /S/William A. Donius
------------------------- -------------------------------------
William A. Donius
Chairman and Chief Executive Officer
Date: August 13, 2001 /S/Ramsey K. Hamadi
------------------------- -------------------------------------
Ramsey K. Hamadi
Chief Financial Officer/Treasurer
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