<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 of the
Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 1998
Commission File No.: 0-24571
PULASKI FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 43-1816913
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
12300 Olive Boulevard, St. Louis, Missouri 63141
(Address of principal executive offices)
Registrant's telephone number, including area code: (314) 878-2210
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $0.01 per share
(Title of class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of the shares of Registrant's common stock held
by non-affiliates of the Registrant was $37,672,279 as of December 18, 1998
based on the closing price on that date. Solely for the purpose of this
computation, it has been assumed that executive officers and directors of the
Registrant are "affiliates."
There were issued and outstanding 3,965,503 shares of the Registrant's
Common Stock as of December 18, 1998.
Documents Incorporated by Reference
Portions of 1998 Annual Report to Stockholders (Part II).
Portions of Definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders (Part III).
<PAGE>
INDEX
PART I
Page No.
--------
Item 1. Business ..................................................... 1
Item 2. Properties ................................................... 28
Item 3. Legal Proceedings ............................................ 28
Item 4. Submission of Matters to a Vote of Security Holders .......... 28
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters ............................. 29
Item 6. Selected Financial Data ..................................... 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 29
Item 7A. Quantitative and Qualitative Disclosure About
Market Risk ................................................ 29
Item 8. Financial Statements and Supplementary Data ................. 29
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ......................... 29
PART III
Item 10. Directors and Executive Officers of the Registrant .......... 29
Item 11. Executive Compensation ...................................... 31
Item 12. Security Ownership of Certain Beneficial Owners
and Management .............................................. 31
Item 13. Certain Relationships and Related Transactions .............. 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ................................................. 31
SIGNATURES ............................................................... 33
<PAGE>
This report contains certain "forward-looking statements" concerning
the future operations of Pulaski Financial Corp. Forward-looking statements are
used to describe future plans and strategies, including expectations of future
financial results. 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, changes in federal and state
legislation and regulation, and the impact of Year 2000 issues. These factors
should be considered in evaluating the forward-looking statements and undue
reliance should not be placed on such statements.
PART I
Item 1. Business.
- -----------------
General
Pulaski Financial Corp. ("Company" or "Registrant") was incorporated
under Delaware law in May 1998. The Company was organized for the purpose of
becoming the holding company for Pulaski Bank, A Federal Savings Bank ("Bank")
upon the Bank's reorganization as a wholly owned subsidiary of the Company
resulting from the conversion of Pulaski Bancshares, M.H.C. ("MHC"), from a
federal mutual holding company to a stock holding company ("Conversion and
Reorganization"). In connection with the Conversion and Reorganization, which
was completed on December 2, 1998, the Company sold 2,909,500 shares of its
common stock to the public at $10 per share in a public offering ("Offering")
and issued 1,056,003 shares in exchange for the outstanding shares of the Bank
held by the Bank's stockholders other than the MHC. 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 Bank is regulated by the Office of Thrift Supervision ("OTS"),
its primary regulator, and by the Federal Deposit Insurance Corporation
("FDIC"), the insurer of its deposits. The Bank's deposits are insured by the
FDIC up to applicable legal limits under the Savings Association Insurance Fund
("SAIF"). The Bank has been a member of the Federal Home Loan Bank ("FHLB")
System since 1946.
The Bank is a community oriented financial institution offering
traditional financial services out of its five offices in the greater St. Louis
metropolitan area. The Bank's business consists principally of attracting retail
deposits from the general public and using them to originate mortgage loans
secured by one- to four-family residences.
Market Area
The Bank conducts operations out of its main office and four branch
offices. The main office and three of the branch offices are located in St.
Louis County. The other branch office is located in the City of St. Louis. Most
of the Bank's depositors live in the areas surrounding its branches and most of
the Bank's loans are made to persons in St. Louis, Missouri, St. Charles,
Franklin, Jefferson and St. Louis Counties, Missouri and Jersey, St. Clair,
Monroe and Madison Counties, Illinois. Several major corporations are
headquartered in the Bank's area.
The Bank faces intense competition for deposits and loan originations
from the many financial institutions conducting business within its market area.
See "--Competition."
<PAGE>
Lending Activities
General. At September 30, 1998, the Company's total loans receivable
portfolio totaled $141.8 million, which was 73.4% of total assets. At such date,
loans held for sale totaled $13.4 million. The principal lending activity of the
Bank is the origination and sale of mortgage loans for the purpose of purchasing
or refinancing one- to four-family residential property. To a significantly
lesser extent, the Bank also originates mortgage loans secured by commercial and
multi-family real estate and consumer loans. Most of the Bank's borrowers and
the properties securing its loans are located in the greater St. Louis
metropolitan area.
Loan Portfolio Analysis. The following table sets forth the composition of
the Bank's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------------------------
1998 1997 1996 1995
------------------- ------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
Conventional - residential and
multi-family (1) ............. $118,501 83.45% $114,300 87.34% $117,584 87.42% $128,854 86.44%
FHA and VA - residential and
multi-family (1) ............. 8,767 6.17 10,745 8.21 11,845 8.81 14,912 10.00
Commercial .................... 553 0.39 1,779 1.36 3,452 2.57 3,561 2.39
-------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans ...... 127,821 90.01 126,824 96.91 132,881 98.79 147,327 98.83
Consumer and Other Loans:
Automobile loans .............. 12,946 9.12 3,352 2.56 1,115 0.83 1,205 0.81
Loans on savings accounts ..... 582 0.41 538 0.41 513 0.38 541 0.36
Other ......................... 651 0.46 161 0.12 -- -- -- --
-------- ------ -------- ------ -------- ------ -------- ------
Total consumer and other
loans ....................... 14,179 9.99 4,051 3.09 1,628 1.21 1,746 1.17
-------- ------ -------- ------ -------- ------ -------- ------
Total loans .................. 142,000 100.00% 130,875 100.00% 134,509 100.00% 149,073 100.00%
====== ====== ====== ======
Less:
Loans in process ................ 115 47 27 48
Unamortized loan origination fees
(charges), net of direct costs (647) (143) (41) 21
Unearned discounts .............. -- -- -- 34
Allowance for loan losses ....... 763 613 479 419
-------- -------- -------- --------
Total loans receivable, net .. $141,769 $130,358 $134,044 $148,551
======== ======== ======== ========
</TABLE>
At September 30,
--------------------
1994
--------------------
Amount Percent
-------- ---------
(Dollars in thousands)
Real Estate Loans:
Conventional - residential and
multi-family (1) ............. $136,520 86.19%
FHA and VA - residential and
multi-family (1) ............. 16,031 10.12
Commercial .................... 4,222 2.67
-------- ------
Total real estate loans ...... 156,773 98.98
Consumer and Other Loans:
Automobile loans .............. 1,166 0.73
Loans on savings accounts ..... 452 0.29
Other ......................... -- --
-------- ------
Total consumer and other
loans ....................... 1,618 1.02
-------- ------
Total loans .................. 158,391 100.00%
======
Less:
Loans in process ................ 43
Unamortized loan origination fees
(charges), net of direct costs 109
Unearned discounts .............. 38
Allowance for loan losses ....... 477
--------
Total loans receivable, net .. $157,724
========
- --------------------------------------
(1) Aggregate conventional and FHA and VA multi-family loan balances were $1.5
million, $1.1 million, $1.4 million, $2.6 million and $2.7 million at
September 30, 1998, 1997, 1996, 1995 and 1994, respectively.
Residential Real Estate Lending. The primary lending activity of the Bank
is the origination of mortgage loans to enable borrowers to purchase existing
homes or to refinance existing mortgage loans. To a much lesser extent, the Bank
also originates loans secured by multi-family residential property (five units
or more). At September 30, 1998, $118.5 million, or 83.5%, of the Bank's total
loan portfolio consisted of loans secured by residential and multi-family real
estate. Of this amount, $1.5 million was secured by multi-family real estate. At
September 30, 1998, 65.2% of the Bank's residential real estate loans were
subject to periodic interest rate adjustments and 34.8% were fixed-rate loans.
The Bank is a direct endorsement lender with Federal Housing Administration
("FHA"). Consequently, the Bank's FHA approved direct endorsement underwriters
are authorized to approve or reject FHA insured loans up to maximum amounts
established by FHA. The Bank is also an automatic lender with the Veteran's
Administration ("VA"), which enables designated qualified Bank personnel to
approve or reject loans on behalf of VA. At September 30, 1998, the Bank had
$8.8 million of FHA- or VA-insured loans. The Bank also participates in programs
to provide financing for low income housing through the Missouri Housing
Development Commission ("MHDC").
2
<PAGE>
The Bank offers a variety of adjustable-rate mortgage ("ARM") loan
products at rates and terms competitive with market conditions. The loan fees
charged, interest rates and other provisions of the Bank's ARM loans are
determined by the Bank on the basis of its own pricing criteria and market
conditions. Interest rates and payments on the Bank's ARM loans generally are
adjusted annually to a rate typically equal to 2.00% to 2.875% above the
one-year constant maturity U.S. Treasury index. The Bank currently offers ARM
loans with initial rates below those which would prevail under the foregoing
computations, determined by the Bank based on market factors and competitive
rates for loans having similar features offered by other lenders for such
initial periods. The periodic interest rate cap (the maximum amount by which the
interest rate may be increased or decreased in a given period) on the Bank's ARM
loans is generally 2% per adjustment period and the lifetime interest rate cap
is generally 6% over the initial interest rate of the loan. The Bank qualifies
the borrower based on the borrower's ability to repay the ARM loan based on the
maximum interest rate at the first adjustment, in the case of one-year ARM
loans, and based on the initial interest rate in the case of ARM loans that
adjust after two or more years. The Bank does not originate negative
amortization loans. The terms and conditions of the ARM loans offered by the
Bank, including the index for interest rates, may vary from time to time. The
Bank believes that the annual adjustment feature of its ARM loans also provides
flexibility to meet competitive conditions as to initial rate concessions while
preserving the Bank's return on equity objectives by limiting the duration of
the initial rate concession.
The Bank also originates conventional fixed-rate mortgage loans on
one- to four- family residential properties. All fixed-rate products are
generally underwritten according to Freddie Mac and Fannie Mae standards so as
to qualify for sale in the secondary mortgage market. In recent years, as part
of its asset/liability management, the Bank has originated fixed-rate mortgage
loans and sells these loans through its correspondent relationships. If the
Bank's future portfolio needs change, the Bank may choose to retain more loans
for its portfolio and/or retaining servicing rights. Retaining fixed-rate loans
in its portfolio would subject the Bank to a higher degree of interest rate
risk.
Occasionally, the Bank originates residential mortgage loans that do
not meet the standards for sale in the secondary market for retention in its
portfolio. The Bank generally charges a higher interest rate to compensate for
their non-conforming features. At September 30, 1998, the Bank had approximately
$7.0 million of such loans. The Bank also offers fixed-rate second mortgage
loans for terms of up to 15 years.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of market interest rates, the expectations of changes in
the level of market interest rates and the difference between the initial
interest rates and fees charged for each type of loan. The relative amount of
fixed-rate mortgage loans and ARM loans that can be originated at any time is
largely determined by the demand for each in a competitive environment.
The retention of ARM loans in the Bank's loan portfolio helps reduce
the Bank's exposure to changes in the interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during periods
of rising interest rates, the risk of default on ARM loans may increase as a
result of repricing and the increased costs to the borrower. Furthermore,
because the ARM loans originated by the Bank generally provide, as a marketing
incentive, for initial rates of interest below the rates which would apply were
the adjustment index used for pricing initially (discounting), these loans are
subject to increased risks of default or delinquency. Another consideration is
that although ARM loans allow the Bank to increase the sensitivity of its asset
base to changes in interest rates, the extent of this interest sensitivity is
limited by the periodic and lifetime interest rate adjustment limits. Because of
these considerations, the Bank has no assurance that yields on ARM loans will be
sufficient to offset increases in the Bank's cost of funds.
While fixed-rate single-family residential real estate loans are
normally originated with 15- or 30-year terms, and the Bank occasionally permits
its ARM loans to be assumed by qualified borrowers, such loans typically remain
outstanding for substantially shorter periods. This is because borrowers often
prepay their loans in full upon sale of the property pledged as security or upon
refinancing the original loan. In addition, substantially all mortgage loans in
the Bank's loan portfolio contain due-on-sale clauses providing that the Bank
may declare the unpaid amount due and payable upon the sale of the property
securing the loan. The Bank enforces these due-on-sale clauses to the extent
permitted by law and as business judgment dictates. Thus, average loan maturity
is a function of, among other factors, the level of purchase and sale activity
in the real estate market, prevailing interest rates and the interest rates
payable on outstanding loans.
3
<PAGE>
The Bank requires title insurance insuring the status of its lien on
all of its real estate secured loans and also requires that the fire and
extended coverage casualty insurance (and, if appropriate, flood insurance) be
maintained in an amount at least equal to the outstanding loan balance.
The Bank's lending policies generally limit the maximum loan-to-value
ratio on first mortgage loans secured by owner-occupied properties to 80% of the
lesser of the appraisal value or the purchase price, with the condition that
mortgage insurance is required on loans with loan-to-value ratios greater than
80%. In the cases of loans guaranteed by FHA or VA, the Bank offers loans on
loan-to-value ratios of up to 97% and 100%, respectively.
The maximum financing on refinance loans is limited to 90% of the
appraised value and such loans require mortgage insurance above 80%
loan-to-value.
The Bank obtains appraisals on all its real estate loans from outside
appraisers, but, in limited instances (i.e. loan amounts less than $100,000 or
loan-to-value ratios less than 55%), may waive its outside appraisal
requirement.
Commercial Real Estate Loans. The Bank engages in a limited amount of
commercial real estate lending. At September 30, 1998, commercial real estate
loans in the Bank's portfolio totaled $553,000 and consisted of seven loans.
Loans secured by commercial real estate generally are larger and
involve greater risks than one- to four- family residential mortgage loans.
Payments on loans secured by such properties are often dependent on successful
operation or management of the properties. Repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
the economy. The Bank seeks to minimize these risks in a variety of ways,
including limiting the size of such loans and strictly scrutinizing the
financial condition of the borrower, the quality of the collateral and the
management of the property securing the loan. The Bank also obtains loan
guarantees from financially capable parties. Substantially all of the properties
securing the Bank's commercial real estate loans are inspected by the Bank's
lending personnel before the loan is made. The Bank also obtains appraisals on
each property in accordance with applicable regulations.
Consumer and Other Loans. Historically, the Bank offered consumer
loans only as an accommodation to existing customers. In the second quarter of
fiscal 1997, the Bank formed a consumer loan department in order to increase its
consumer lending activities. The Bank determined to increase its consumer
lending in order to better serve its customers and because consumer loans
generally have shorter-terms to maturity or repricing and higher interest rates
than mortgage loans.
At September 30, 1998, the Bank's consumer and other loans totaled
approximately $14.2 million, or 10.0% of the Bank's total loans. The Bank's
consumer and other loans consist primarily of automobile loans and, to a lesser
degree, savings account loans. In early 1997, the Bank initiated relationships
with automobile dealers, piano dealers and other large purchase retailers
located primarily in the Bank's market area as a means of attracting consumer
loans. The Bank expanded its line of consumer loans by offering home equity
lines of credit in the third calendar quarter of 1998.
The Bank originates automobile loans primarily through dealer
referrals. All automobile loans, however, are made on a direct basis (i.e.,
originated by the Bank). Automobile loans are secured by both new and used cars
and light trucks made to the purchase price or wholesale value as published by
National Automobile Research "Black Book," if pre-owned. New cars are financed
for a period of up to 72 months while pre-owned cars are financed for 60 months
or less depending on the year and model. Collision and comprehensive insurance
coverage is required on all automobile loans. At September 30, 1998, automobile
loans amounted to $12.9 million, or 9.1% of the Bank's total loans.
The Bank may make savings account loans for up to 100% of the
depositor's account balance. The interest rate is normally 2.0% above the rate
paid on the certificate of deposit account, and the account must be pledged as
collateral to secure the loan. Savings account loans are payable in monthly
payments of principal and interest or in a single payment. At September 30,
1998, loans on savings accounts amounted to $582,000, or 0.4% of the Bank's
total loans.
Consumer loans entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by rapidly depreciating assets such as automobiles. In such cases, any
repossessed
4
<PAGE>
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various Federal and state laws, including
Federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. Such loans may also give rise to claims and defenses
by a consumer loan borrower against an assignee of such loans such as the Bank,
and a borrower may be able to assert against such assignee claims and defenses
that it has against the seller of the underlying collateral. At September 30,
1998, the aggregate amount of consumer loans 90 days or more past due was
$64,000, which represents 0.04% of total consumer loans.
Loan Maturity and Repricing. The following table sets forth certain
information at September 30, 1998 regarding the dollar amount of loans maturing
in the Bank's portfolio based on their contractual terms to maturity, but does
not include scheduled payments or potential prepayments. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less. Mortgage loans that have adjustable
rates are shown as maturing at their next repricing date. Loan balances are net
of loans-in-process.
<TABLE>
<CAPTION>
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
---------- ---------- --------- ---------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate ............ $ 57,202 $ 7,591 $ 12,552 $ 28,627 $ 21,182 $127,154
Commercial real estate ............. 328 -- 225 -- -- 553
Consumer and other ................. 658 2,313 9,735 1,473 -- 14,179
-------- -------- -------- -------- -------- --------
Total ................... $ 58,188 $ 9,904 $ 22,512 $ 30,100 $ 21,182 $141,886
======== ======== ======== ======== ======== ========
</TABLE>
The following table sets forth, as of September 30, 1998, the dollar amount
of all loans due or repricing after September 30, 1999, which have fixed
interest rates and have floating or adjustable interest rates.
Floating or
Adjustable
Fixed-Rates Rates
------------- -------------
(In thousands)
Residential real estate ................... $32,464 $37,488
Commercial real estate .................... 225 --
Consumer and other ........................ 13,521 --
------- -------
Total .......................... $46,210 $37,488
======= =======
Scheduled contractual principal repayments of loans and mortgage-backed
securities do not reflect the actual life of such assets. The average life of
loans and mortgage-backed securities is substantially less than their
contractual terms because of prepayments. In addition, due-on-sale clauses on
loans generally give the Bank the right to declare loans immediately due and
payable in the event, among other things, that the borrower sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage loans tends to increase, however, when current mortgage loan market
rates are substantially higher than rates on existing mortgage loans and,
conversely, decreases when rates on existing mortgage loans are substantially
higher than current mortgage loan market rates.
Loan Solicitation and Processing. Loan applicants come through direct
solicitation by eight commissioned and two salaried loan representatives of the
Bank, as well as through referrals by realtors, financial planners, previous and
present customers and, to a far lesser extent, through print advertising
promotions. All types of loans may be originated in any of the Bank's offices,
though most loans are closed at the Bank's main office. Loans are serviced from
the Bank's main office.
5
<PAGE>
Upon receipt of a loan application from a prospective borrower, a
credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate offered as collateral generally is undertaken by a
fee appraiser approved by the Bank and licensed or certified by the State of
Missouri.
Loans in the amount of $400,000 or less may be approved by any one
member of the Bank's Loan Committee, which consists of the Bank's President,
Chief Financial Officer/Treasurer and Chief Lending Officer, and the
underwriting staff. Loans in excess of $400,000 must be approved by the Bank's
Executive Committee.
Loan applicants are promptly notified of the decision of the Bank.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment, which usually is 60 to 90 days.
Loan Originations, Sales and Purchases. During the years ended
September 30, 1998, 1997 and 1996, the Bank's total gross loan originations were
$180.4 million, $95.7 million, and $74.9 million, respectively.
In an effort to manage its interest rate risk position, the Bank
generally sells the fixed-rate mortgage loans that it originates. The sale of
loans in the secondary mortgage market reduces the Bank's risk that the interest
rates paid to depositors will increase while the Bank holds long-term,
fixed-rate loans in its portfolio. It also allows the Bank to continue to fund
loans when savings flows decline or funds are not otherwise available. Mortgage
loans generally have been sold with servicing released. Gains, net of
origination expense, from the sale of such loans are recorded at the time of
sale. Generally a loan is committed to be sold and a price for the loan is fixed
at the time the interest rate on the loan is fixed, which may be at the time the
Bank issues a loan commitment or at the time the loan closes. This eliminates
the risk to the Bank that a rise in market interest rates will reduce the value
of a mortgage before it can be sold. Additionally, the Bank negotiates a best
efforts delivery, which minimizes any exposure from loans that do not close.
During the year ended September 30, 1998, the Bank sold $115.5
million of residential mortgage loans to correspondent lenders, servicing
released, compared to $53.3 million in fiscal 1997. The Bank also securitized
and sold $9.1 million of "first time home buyer" loans to the MHDC, with
servicing retained, during the year ended September 30, 1998. For fiscal year
1997, loan sales to the MHDC totaled $10.2 million. Loan sales increased as a
result of low mortgage interest rates that stimulated both the purchase money
and refinance markets.
The Bank occasionally purchases real estate loans in the secondary
market subject to the Bank's underwriting standards. During the year ended
September 30, 1998, the Bank did not purchase any loans. The Bank purchased
$305,000 of loans during fiscal year 1997. Loans and participations purchased
and serviced by others were approximately $2.9 million at September 30, 1998.
The Bank's purchases in the secondary market are dependent upon the demand for
mortgage credit in the local market area and the inflow of funds from deposits.
At September 30, 1998, the Bank was servicing loans for others
(Government National Mortgage Association ("GNMA") and MHDC) amounting to
approximately $34.1 million. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing payments
to investors and foreclosure processing. Loan servicing income is recorded on
the accrual basis and includes servicing fees from investors. In April 1998, the
Bank discontinued its historical practice of retaining servicing on loans sold
to MHDC due to a change in servicing policy by MHDC.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
6
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------------------------
1998 1997 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Total gross loans, including loans held for sale, ................... $ 145,189 $ 142,316 $ 152,323
at beginning of period
Loans originated:
Residential real estate .................................. 166,438 91,536 73,856
Commercial real estate ................................... -- 395 --
Consumer and other ....................................... 13,923 3,748 1,027
--------- --------- ---------
Total loans originated ......................... 180,361 95,679 74,883
--------- --------- ---------
Loans purchased:
Residential real estate .................................. -- 305 1,015
--------- --------- ---------
Loans sold:
Total whole loans sold ................................... (115,479) (53,307) (49,691)
Loans securitized and sold ............................... (9,106) (10,189) (6,255)
--------- --------- ---------
Mortgage loan principal repayments .................................. (30,231) (24,308) (22,210)
Consumer loan repayments and all other .............................. (15,347) (5,307) (7,749)
--------- --------- ---------
Net loan activity ................................................... 10,198 2,873 (10,007)
--------- --------- ---------
Total gross loans, including loans held .............................
for sale, at end of period $ 155,387 $ 145,189 $ 142,316
========= ========= =========
</TABLE>
Loan Commitments. The Bank issues commitments for fixed- and
adjustable-rate one- to four-family residential mortgage loans conditioned upon
the occurrence of certain events. Such commitments are made in writing on
specified terms and conditions and are honored for up to 60 to 90 days from the
date of loan approval. The Bank had outstanding loan commitments of
approximately $9.9 million at September 30, 1998, $7.7 million and $2.2 million
of which were at fixed and variable rates, respectively. See Note 15 of Notes to
Consolidated Financial Statements.
Loan Origination and Other Fees. The Bank, in some instances,
receives loan origination fees and discount "points." Loan fees and points are a
percentage of the principal amount of the mortgage loan which are charged to the
borrower for funding the loan. The amount of points charged by the Bank varies,
though the range generally is between 0% and 2%. Current accounting standards
require fees received (net of certain loan origination costs) for originating
loans to be deferred and amortized into interest income over the contractual
life of the loan. Net deferred fees or charges associated with loans that are
prepaid are recognized as income adjustments at the time of prepayment. The Bank
had $647,000 of net deferred mortgage loan charges at September 30, 1998.
Nonperforming Assets and Delinquencies. When a mortgage loan borrower
fails to make a required payment when due, the Bank institutes collection
procedures. The first notice is mailed to the borrower 18 days after the payment
due date and, if necessary, a second written notice follows within 15 days
thereafter. Attempts to contact the borrower by telephone generally begin
approximately 20 days after the payment due date. If a satisfactory response is
not obtained, continuous follow-up contacts are attempted until the loan has
been brought current. Before the 60th day of delinquency, attempts to interview
the borrower, preferably in person, are made to establish (i) the cause of the
delinquency, (ii) whether the cause is temporary, (iii) the attitude of the
borrower toward the debt, and (iv) a mutually satisfactory arrangement for
curing the default. Also, in the case of second mortgage loans, before the 60th
day of delinquency, all superior lienholders are contacted to determine (a) the
status and unpaid principal balance of each superior lien, (b) whether any
mortgage constituting a superior lien has been sold to any investor, and (c)
whether the borrower is also delinquent under a superior lien and what the
affected lienholder intends to do to resolve the delinquency.
7
<PAGE>
If the borrower cannot be reached and does not respond to collection
efforts, a personal collection visit or property inspection is made and a
photograph of the exterior is taken. The physical condition and occupancy status
of the property is determined before recommending further servicing action. Such
inspection normally takes place on or about the 45th day of delinquency.
Generally, after 60 days into the delinquency procedure, the Bank notifies the
borrower that home ownership counseling is available for eligible homeowners. In
most cases, delinquencies are cured promptly; however, if by the 91st day of
delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Bank institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. A computer-generated collection report is received by the Bank
daily. The customer is contacted by telephone to ascertain the nature of the
delinquency. In most cases, delinquencies are cured promptly; however, if, by
the 45th day following the grace period of delinquency no progress has been
made, a written notice is mailed informing the borrowers of their right to cure
the delinquency within 20 days and of the Bank's intent to begin legal action if
the delinquency is not corrected. Depending on the type of property held as
collateral, the Bank either obtains a judgment in small claims court or takes
action to repossess the collateral.
Loans are placed on nonaccrual status when, in the opinion of
management, there is reasonable doubt as to the timely collectibility of
interest or principal. Nonaccrual loans are returned to accrual status when, in
the opinion of management, the financial position of the borrower indicates
there is no longer any reasonable doubt as to the timely collectibility of
interest or principal.
The Bank's Board of Directors is informed on a monthly basis as to
the status of all mortgage and consumer loans that are delinquent 30 days or
more, the status on all loans currently in foreclosure, and the status of all
foreclosed and repossessed property owned by the Bank.
8
<PAGE>
The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------
1998 1997 1996 1995 1994
------ ------- ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Residential real estate .............................. $ 519 $ 214 $ 51 $ 214 $ 60
Commercial real estate ............................... 224 -- -- -- 1,303
Consumer and other ................................... 10 3 -- -- --
------ ------ ------ ------ ------
Total ...................................... 753 217 51 214 1,363
------ ------ ------ ------ ------
Accruing loans which are contractually past due 90 days or more:
Residential real estate .............................. 369 708 547 520 357
Commercial real estate ............................... -- 236 -- -- --
Consumer and other ................................... 54 20 22 14 --
------ ------ ------ ------ ------
Total ...................................... 423 964 569 534 357
------ ------ ------ ------ ------
Troubled debt restructurings .................................... -- 69 85 100 120
------ ------ ------ ------ ------
Nonperforming loans(1) .......................................... 1,176 1,250 705 848 1,840
Real estate owned (net) ......................................... 106 -- 133 337 124
Other nonperforming assets ...................................... 7 -- -- -- --
------ ------ ------ ------ ------
Total nonperforming loans ............................ $1,289 $1,250 $ 838 $1,185 $1,964
====== ====== ====== ====== ======
Total loans delinquent 90 days or more
to net loans ................................................. 0.27% 0.67% 0.40% 0.36% 0.22%
Total loans delinquent 90 days or more
to total assets .............................................. 0.22% 0.54% 0.32% 0.29% 0.19%
Total nonperforming assets
to total assets .............................................. 0.67% 0.70% 0.47% 0.65% 1.03%
</TABLE>
- ---------------------------------
(1) Includes $207,000, $219,000 and $210,000 of FHA/VA loans at September 30,
1998, 1997 and 1996, respectively, the principal and interest payments on
which are fully insured.
Interest income that would have been recorded for the years ended
September 30, 1998 and 1997 had nonaccruing and restructured loans been current
in accordance with their original terms and the amount of interest included in
interest income on such loans during such periods was not significant.
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the lower of its
cost, which is the unpaid principal balance of the related loan plus foreclosure
costs, or fair market value. Subsequent to foreclosure, the property is carried
at the lower of the foreclosed amount or fair value. Upon receipt of a new
appraisal and market analysis, the carrying value is written down through a
charge to income, if appropriate. At September 30, 1998, the Bank had $106,000
of real estate owned (net), which consisted of three single family properties.
Asset Classification. The OTS has adopted various regulations
regarding problem assets of savings institutions. The regulations require that
each insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets must have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. Doubtful assets
have
9
<PAGE>
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution without
establishment of a specific reserve is not warranted. If an asset or portion
thereof is classified loss, the insured institution establishes specific
allowances for loan losses for the full amount of the portion of the asset
classified loss. A portion of general loan loss allowances established to cover
possible losses related to assets classified substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. OTS regulations also require that assets that do not currently expose
an institution to a sufficient degree of risk to warrant classification as loss,
doubtful or substandard but do possess credit deficiencies or potential weakness
deserving management's close attention shall be designated "special mention" by
either the institution or its examiners.
The Bank's Chief Financial Officer/Treasurer, Executive Vice
President/Chief Operating Officer and collection department personnel meet
monthly to review all classified assets, to approve action plans developed to
resolve the problems associated with the assets and to review recommendations
for new classifications, any changes in classifications and recommendations for
reserves.
At September 30, 1998 and 1997, the aggregate amounts of the Bank's
classified assets were as follows:
<TABLE>
<CAPTION>
At September 30, 1998 At September 30, 1997
-------------------------------- ---------------------------------
Real Estate Real Estate
Owned Loans Owned Loans
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Loss ................. $-- $ 3 $-- $ 4
Doubtful ............. -- -- -- --
Substandard .......... -- 1,124 -- 921
</TABLE>
At September 30, 1998, substandard assets consisted of 827,000 single
family mortgage loans, 224,000 commercial loans and 73,000 consumer loans. At
September 30, 1998, the Bank had no assets designated "special mention."
Allowance for Loan Losses. In originating loans, the Bank recognizes
that losses will be experienced and that the risk of loss will vary with, among
other things, the type of loan being made, the creditworthiness of the borrower
over the term of the loan, general economic conditions and, in the case of a
secured loan, the quality of the security for the loan. The allowance method is
used in providing for loan losses: all loan losses are charged to the allowance
and all recoveries are credited to it. The allowance for loan losses is
established through a provision for loan losses charged to the Bank's income.
The provision for loan losses is based on management's periodic evaluation of
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations which may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current economic conditions.
At September 30, 1998, the Bank had an allowance for loan losses of
$763,000, which represented 0.49% of total loans. Management believes that the
amount maintained in the allowances will be adequate to absorb 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 the Bank believes it has
established its existing allowance for loan losses in accordance with GAAP,
there can be no assurance that the Bank's regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to increase significantly its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
substantial increases 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 may adversely affect the Bank's financial
condition and results of operations.
The following table sets forth an analysis of the Bank's allowance
for loan losses for the periods indicated.
10
<PAGE>
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period ............................. $613 $479 $419 $477 $245
Provision for loan losses .................................... 209 169 65 152 274
Charge-offs:
Residential real estate ........................... 63 38 17 92 42
Commercial real estate ............................ -- -- -- 166 2
Consumer and other ................................ 3 5 -- -- --
---- ---- ---- ---- ----
Total charge-offs ....................... 66 43 17 258 44
Recoveries ................................................... 7 8 12 48 2
---- ---- ---- ---- ----
Net charge-offs .............................................. 59 35 5 210 42
---- ---- ---- ---- ----
Allowance at end of period ........................ $763 $613 $479 $419 $477
==== ==== ==== ==== ====
Ratio of allowance to total loans
outstanding at the end of the period ...................... 0.49% 0.42% 0.34% 0.28% 0.30%
Ratio of net charge-offs to average loans
outstanding during the period ............................. 0.04% 0.02% --% 0.13% 0.03%
Allowance for loan losses to
nonperforming loans ....................................... 64.88% 49.04% 67.93% 49.44% 25.93%
</TABLE>
11
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ------------------ ------------------ ------------------- -----------------
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
In Each In Each In Each In Each In Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate loans .... $124 89.62% $ 98 95.54% $ 62 96.22% $ 78 96.42% $ 41 96.31%
Commercial real estate loans ..... 34 0.39 37 1.36 -- 2.58 -- 2.40 197 2.67
Consumer and other loans ......... 11 9.99 1 3.10 6 1.20 8 1.18 6 1.02
Unallocated ...................... 594 -- 477 -- 411 -- 333 -- 233 --
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total allowance for loan losses. $763 100.00% $613 100.00% $479 100.00% $419 100.00% $477 100.00%
==== ====== ==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
12
<PAGE>
Investment Activities
The Bank is permitted under applicable law to invest in various types
of liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the
FHLB-Des Moines, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various restrictions,
savings institutions may also invest a portion of their assets in commercial
paper, corporate debt securities and mutual funds. Savings institutions like the
Bank are also required to maintain an investment in FHLB stock and a minimum
level of liquid assets.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
The Bank does not currently use or maintain a trading account. Debt and equity
securities not classified as either "held to maturity" or "trading securities"
are classified as "available for sale." Such securities are reported at fair
value, and unrealized gains and losses on such securities are excluded from
earnings and reported as a net amount in a separate component of equity.
The Bank maintains a portfolio of mortgage-backed and related
securities in the form of GNMA and Freddie Mac participation certificates. GNMA
certificates are guaranteed as to principal and interest by the full faith and
credit of the United States, while Freddie Mac certificates are guaranteed by
Freddie Mac. Mortgage-backed securities generally entitle the Bank to receive a
pro rata portion of the cash flows from an identified pool of mortgages. The
Bank has also invested in collateralized mortgage obligations ("CMOs"), which
are securities issued by special purpose entities generally collateralized by
pools of mortgage-backed securities. The cash flows from such pools are
segmented and paid in accordance with a predetermined priority to various
classes of securities issued by the entity. The Bank's CMOs are short-maturity
tranches.
The Investment Committee, comprised of the Bank's President and Chief
Financial Officer/Treasurer, determines appropriate investments in accordance
with the Board of Directors' approved investment policies and procedures.
Investments are made following certain considerations, which include the Bank's
liquidity position and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments). Further, the effect that the proposed
investment would have on the Bank's credit and interest rate risk, and
risk-based capital is given consideration during the evaluation. The interest
rate, yield, settlement date and maturity are also reviewed. The Bank purchases
investment securities to provide necessary liquidity for day-to-day operations.
The Bank has not purchased any mortgage-backed securities or CMOs for several
years.
13
<PAGE>
The following table sets forth the Bank's investment and
mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Held to maturity:
Investment securities:
U.S. Treasury and agency obligations ........................... $18,923 $16,068 $14,521
Bankers acceptances ............................................ -- -- 491
------- ------- -------
Total investment securities .......................... $18,923 $16,068 $15,012
======= ======= =======
Mortgage-backed and related securities:
GNMA ........................................................... $ 3,713 $ 4,308 $ 4,682
Freddie Mac .................................................... 762 998 1,232
CMOs ........................................................... 937 1,056 1,498
Other .......................................................... -- -- 12
------- ------- -------
Total mortgage-backed and related
securities......................................... $ 5,412 $ 6,362 $ 7,424
======= ======= =======
FHLB stock ................................................................ $ 1,423 $ 1,638 $ 1,638
======= ======= =======
Available for sale:
Investment securities:
U.S. Treasury and agency obligations ........................... $ 2,229 $ -- $ --
Mortgage-backed and related securities:
Fannie Mae ..................................................... $ 1,473 -- --
</TABLE>
The following table sets forth the maturities and weighted average
yields of the securities in the Bank's investment and mortgage-backed securities
portfolios at September 30, 1998. Expected maturities of mortgage-backed
securities will differ from contractual maturities due to scheduled repayments
and because borrowers may have the right to call or prepay obligations with or
without prepayment penalties. At September 30, 1998, the Bank's portfolio
included $7.1 million of callable securities with a weighted average rate of
5.83%. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments.
14
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1998
-------------------------------------------------------------------------------------------
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
----------------------- ----------------------- ----------------------- -------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
Investment securities:
U.S. Treasury and agency
obligations.................. $10,224 5.49% $8,699 5.83% $ -- --% $ -- --%
Mortgage-backed and related
securities:
GNMA........................... -- -- -- -- -- -- -- --
Freddie Mac.................... -- -- 8 11.00 -- -- 3,705 8.31
CMOs........................... -- -- 41 9.13 280 8.56 441 1025
Other.......................... -- -- -- -- -- -- 937 6.48
------- ------ ---- ------
Total mortgage-backed
and related securities....... $10,224 $8,748 $280 $5,083
======= ====== ==== ======
Available for sale:
Investment securities:
U.S. Treasury and agency
obligations.................. $979 5.45% $1,250 5.60% $ -- --% $ -- --%
Mortgage-backed and related
securities:
Fannie Mae..................... -- -- -- -- 1,473 6.00 -- --
</TABLE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the
Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings from FHLB-Des Moines may be used
to compensate for reductions in the availability of funds from other sources.
The Bank had no other borrowing arrangements at September 30, 1998.
Deposit Accounts. Substantially all of the Bank's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Bank's market area through the offering of a broad selection of deposit
instruments, including checking accounts, negotiable order of withdrawal ("NOW")
accounts, money market deposit accounts, regular savings accounts, certificates
of deposit and retirement savings plans. Deposit account terms vary according to
the minimum balance required, the time periods the funds must remain on deposit
and the interest rate, among other factors. In determining the terms of its
deposit accounts, the Bank considers current market interest rates,
profitability to the Bank, matching deposit and loan products and its customer
preferences and concerns. The Bank generally reviews its deposit mix and pricing
weekly.
In the unlikely event the Bank is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the Bank.
The following table sets forth information concerning the Bank's time
deposits and other interest-bearing deposits at September 30, 1998.
15
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
--% None Noninterest-bearing $100 $1,704 1.09%
1.75 None NOW accounts 100 11,355 7.27
3.84 None Money Market deposit accounts 2,500 12,657 8.10
2.50 None Savings accounts 100 25,669 16.43
Certificates of Deposit
-----------------------
4.03 3 months Fixed term, fixed rate 2,500 281 0.18
5.10 6 months Fixed term, fixed rate 2,500 8,252 5.28
5.26 9 months Fixed term, fixed rate 2,500 9,420 6.03
5.06 12 months Fixed term, fixed rate 500 9,339 5.98
5.41 15 months Fixed term, fixed rate 500 6,822 4.37
5.59 18 months Fixed term, fixed rate 500 10,943 7.00
5.40 24 months Fixed term, fixed rate 500 4,297 2.75
5.82 30 months Fixed term, fixed rate 500 12,863 8.23
5.30 36 months Fixed term, fixed rate 500 2,674 1.71
5.50 48 months Fixed term, fixed rate 500 4,864 3.11
6.10 60 months Fixed term, fixed rate 500 15,337 9.82
5.50 IRA 18 months Fixed term, fixed rate 1,000 3,620 2.32
5.29 IRA 36 months Fixed term, fixed rate 1,000 232 0.15
6.01 IRA 60 months Fixed term, fixed rate 1,000 3,655 2.34
4.99 IRA 12 months Fixed term, adjustable rate 500 6,938 4.44
Various Various Jumbo certificates 100,000 5,313 3.40
-------- -------
$156,235 100.00%
======== =======
</TABLE>
16
<PAGE>
Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) of deposits in the various types of accounts offered by the
Bank at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------------
Percent Increase Percent Increase Percent
Amount of Total (Decrease) Amount of Total (Decrease) Amount of Total
-------- ---------- ------------ -------- ---------- ------------ --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing ................. $ 1,704 1.09% $ 688 $ 1,016 0.68% $ 567 $ 449 0.30%
NOW checking ........................ 11,355 7.27 2,783 8,572 5.77 (41) 8,613 5.83
Regular savings ..................... 25,669 16.43 (314) 25,983 17.48 (1,890) 27,873 18.86
Money market deposit ................ 12,657 8.10 2,963 9,694 6.52 952 8,742 5.91
Certificates which mature(1):
Within 1 year ..................... 71,266 45.61 8,203 63,063 42.42 4,924 58,139 39.33
After 1 year, but within 3 years .. 26,835 17.18 (9,538) 36,373 24.47 3,799 32,574 22.04
Certificate maturing thereafter ... 6,749 4.32 2,778 3,971 2.67 (7,463) 11,434 7.73
-------- ------ -------- -------- ------ -------- -------- ------
Total ........................... $156,235 100.00% $ 7,563 $148,672 100.00% $ 848 $147,824 100.00%
======== ====== ======== ======== ====== ======== ======== ======
</TABLE>
- -------------------------------
(1) At September 30, 1998, 1997 and 1996, jumbo certificates amounted to $5.3
million, $5.0 million and $4.7 million, respectively.
17
<PAGE>
The following table indicates the amount of the Bank's jumbo certificates
of deposit by time remaining until maturity as of September 30, 1998. Jumbo
certificates of deposit represent minimum deposits of $100,000 and are not
issued at premium interest rates.
Maturity Period Amount
------------------------------------ ----------------------
(Dollars in thousands)
Three months or less ............... $2,198
Over 3 through 6 months ............ 1,264
Over 6 through 12 months ........... 734
Over 12 months ..................... 1,117
------
Total ................... $5,313
======
Time Deposits by Rates. The following table sets forth the certificates of
deposits in the Bank classified by rates at the dates indicated.
Year Ended September 30,
------------------------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
3.00 - 3.99% ............ $ 471 $ 578 $ 888
4.00 - 4.99% ............ 11,345 7,062 10,839
5.00 - 5.99% ............ 77,007 81,184 72,103
6.00 - 6.99% ............ 11,192 9,795 13,371
7.00 - 7.99% ............ 4,835 4,788 4,930
8.00 - 8.99% ............ -- -- 16
-------- -------- --------
Total ........ $104,850 $103,407 $102,147
======== ======== ========
Time Deposits by Maturities. The following table sets forth the amount and
maturities of time deposits at September 30, 1998.
<TABLE>
<CAPTION>
Amount Due
----------------------------------------------------------------------------------------
After After After
1 Year 2 Years 3 Years
Within But Within But Within But Within
One Year 2 Years 3 Years 4 Years Thereafter Total
---------- ------------ ------------ ------------ ------------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
3.00 - 3.99% ........ $ 471 $ -- $ -- $ -- $ -- $ 471
4.00 - 4.99% ........ 11,305 40 -- -- -- 11,345
5.00 - 5.99% ........ 56,956 9,502 3,991 2,137 4,421 77,007
6.00 - 6.99% ........ 2,527 8,457 148 12 48 11,192
7.00 - 7.99% ........ 7 4,621 76 -- 131 4,835
------- ------- ------ ------ ------ --------
Total .... $71,266 $22,620 $4,215 $2,149 $4,600 $104,850
======= ======= ====== ====== ====== ========
</TABLE>
18
<PAGE>
Deposit Activity. The following table sets forth the deposit activities of
the Bank for the periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Beginning balance .................................. $148,672 $147,824 $151,505
-------- -------- --------
Net increase (decrease) before interest credited ... 2,386 (4,226) (8,712)
Interest credited 5,177 5,074 5,031
-------- -------- --------
Net increase (decrease) in deposits ................ 7,563 848 (3,681)
-------- -------- --------
Ending balance ..................................... $156,235 $148,672 $147,824
======== ======== ========
</TABLE>
The Bank, like many thrift institutions in the relatively low interest rate
environment, has had to compete for depositors' funds with non-traditional
deposit vehicles, such as annuities, mutual funds, municipal bonds and other
obligations. During the year ended September 30, 1997, the Bank used proceeds
from maturing investment securities, principal payments from mortgage-backed and
related securities as well as Federal funds sold and overnight deposits, rather
than deposits and other borrowings, in order to fund loans. Should further
disintermediation occur, management believes that the Bank's borrowing capacity
with the FHLB-Des Moines at rates comparable to those associated with the
outflow of funds should preclude any significant negative impact on earnings.
Borrowings. The Bank has the ability to use advances from the FHLB-Des
Moines to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings and loan associations and certain other member financial
institutions. As a member, the Bank is required to own capital stock in the
FHLB-Des Moines and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
which are obligations of, or guaranteed by, the U.S. Government) provided
certain creditworthiness standards have been met. Advances are made pursuant to
several different credit programs. Each credit program has its own interest rate
and range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At September 30, 1998, the
Bank had a borrowing capacity of $79.4 million based on available collateral.
The following table sets forth certain information regarding the Bank's use
of FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------------------------
1998 1997 1996
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum balance at any month end ........ $2,200 $3,000 $3,500
Average balance ......................... 2,049 2,597 3,057
Period end balance ...................... 1,900 2,200 3,000
Weighted average interest rate:
At end of period .................... 6.32% 6.22% 6.00%
During the period ................... 6.35 6.20 6.08
</TABLE>
Competition
The Bank faces intense competition in the attraction of savings
deposits (its primary source of lendable funds) and in the origination of loans.
Its most direct competition for savings deposits has historically come from
other thrift institutions, credit unions and from commercial banks located in
its market area. The Bank has faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities.
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The Bank's competition for loans comes principally from other thrift
institutions, commercial banks, mortgage banking companies and mortgage brokers.
Personnel
As of September 30, 1998, the Bank had 78 full-time and 20 part-time
employees and seven commissioned loan representatives. The employees are not
represented by a collective bargaining unit and the Bank believes its
relationship with its employees is good.
Subsidiary Activities
The Bank has one subsidiary, Pulaski Service Corporation, which sells
insurance products and annuities. Federal savings associations generally may
invest up to 3% of their assets in service corporations, provided that any
amount in excess of 2% is used primarily for community, inner-city and community
development projects. At September 30, 1998, the Bank's equity investment in its
subsidiary was $564,000.
REGULATION
General
The Bank is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by the
Home Owners' Loan Act, as amended ("HOLA") and, in certain respects, the Federal
Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and the
FDIC to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Bank's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Bank's mortgage documents. The Bank must file reports
with the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to review
the Bank's compliance with various regulatory requirements. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have a
material adverse impact on the Bank and its operations.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department
of the Treasury subject to the general oversight of the Secretary of the
Treasury. The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12
FHLBs, is under the jurisdiction of the Federal Housing Finance Board ("FHFB").
The designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. The Bank, as a member
of the FHLB-Des Moines, is required to acquire and hold shares of capital stock
in the FHLB-Des Moines in an amount equal to the greater of (i) 1.0% of the
aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Des Moines. The Bank
is in compliance with this requirement with an investment in FHLB-Des Moines
stock of $1.4 million at September 30, 1998. Among other benefits, the FHLB-Des
Moines provides a central credit facility primarily for member institutions. It
is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes advances to members in accordance with
policies and procedures established by the FHFB and the Board of Directors of
the FHLB-Des Moines.
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Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the BIF and the SAIF. As insurer of the Bank's deposits, the FDIC has
examination, supervisory and enforcement authority over the Bank.
The Bank's accounts are insured by the SAIF to the maximum extent
permitted by law. The Bank pays deposit insurance premiums based on a risk-based
assessment system established by the FDIC. Under applicable regulations,
institutions are assigned to one of three capital groups that are based solely
on the level of an institution's capital -"well capitalized," "adequately
capitalized," and "undercapitalized" -- which are defined in the same manner as
the regulations establishing the prompt corrective action system, as discussed
below. These three groups are then divided into three subgroups which reflect
varying levels of supervisory concern, from those which are considered to be
healthy to those which are considered to be of substantial supervisory concern.
The matrix so created results in nine assessment risk classifications, with
rates that until September 30, 1996 ranged from 0.23% for well capitalized,
financially sound institutions with only a few minor weaknesses to 0.31% for
undercapitalized institutions that pose a substantial risk of loss to the SAIF
unless effective corrective action is taken.
Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was
enacted on September 30, 1996, the FDIC imposed a special assessment on each
depository institution with SAIF-assessable deposits which resulted in the SAIF
achieving its designated reserve ratio. In connection therewith, the FDIC
reduced the assessment schedule for SAIF members, effective January 1, 1997, to
a range of 0% to 0.27%, with most institutions, including the Bank, paying 0%.
This assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of 0.065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately 0.013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Bank.
The FDIC may terminate the deposit insurance of any insured
depository institution if it determines after a hearing that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the institution
at the time of termination, less subsequent withdrawals, shall continue to be
insured for a period of six months to two years, as determined by the FDIC.
Management is aware of no existing circumstances that could result in
termination of the deposit insurance of the Bank.
Liquidity Requirements. Under OTS regulations, each savings
institution is required to maintain an average daily balance of liquid assets
(cash, certain time deposits and savings accounts, bankers' acceptances, and
specified U.S. Government, state or federal agency obligations and certain other
investments) equal to a monthly average of not less than a specified percentage
(currently 4.0%) of its net withdrawable accounts plus short-term borrowings.
Monetary penalties may be imposed for failure to meet liquidity requirements. At
September 30, 1998, the Bank's liquidity ratio was 22.65%.
Prompt Corrective Action. Under the FDIA, each federal banking agency
is required to implement a system of prompt corrective action for institutions
that it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I
risk-based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more
and is not subject to specified requirements to meet and maintain a specific
capital level for any capital measure; (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital
ratio of 4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based
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capital ratio that is less than 8.0%, has a Tier I risk-based capital ratio that
is less than 4.0% or has a leverage ratio that is less than 4.0% (3.0% under
certain circumstances); (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, has a Tier I risk-based capital
ratio that is less than 3.0% or has a leverage ratio that is less than 3.0%; and
(v) "critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At September 30, 1998, the Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Bank fails to
meet any standard prescribed by the Guidelines, the agency may require the Bank
to submit to the agency an acceptable plan to achieve compliance with the
standard. OTS regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required
to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the Bank may not make any new investment or
engage in activities that would not be permissible for national banks; (ii) the
Bank may not establish any new branch office where a national bank located in
the savings institution's home state would not be able to establish a branch
office; (iii) the Bank shall be ineligible to obtain new advances from any FHLB;
and (iv) the payment of dividends by the Bank shall be subject to the rules
regarding the statutory and regulatory dividend restrictions applicable to
national banks. Also, beginning three years after the date on which the savings
institution ceases to be a QTL, the savings institution would be prohibited from
retaining any investment or engaging in any activity not permissible for a
national bank and would be required to repay any outstanding advances to any
FHLB. In addition, within one year of the date on which a savings association
controlled by a company ceases to be a QTL, the company must register as a bank
holding company and become subject to the rules applicable to such companies. A
savings institution may requalify as a QTL if it thereafter complies with the
QTL test.
Currently, the QTL test requires that either an institution qualify
as a domestic building and loan association under the Internal Revenue Code or
that 65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At
September 30, 1998, the Bank was in compliance with the QTL test.
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Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in order
to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and non-includable subsidiaries. Institutions that
fail to meet the core capital requirement would be required to file with the OTS
a capital plan that details the steps they will take to reach compliance. In
addition, the OTS's prompt corrective action regulation provides that a savings
institution that has a leverage ratio of less than 4% (3% for institutions
receiving the highest CAMEL examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "-- Federal
Regulation of Savings Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets. "Tangible capital" is defined, generally, as core
capital minus any "intangible assets" other than purchased mortgage servicing
rights.
Savings associations must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totaled to arrive at total risk-weighted assets.
Off-balance sheet items are included in risk-weighted assets by converting them
to an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
Bank's assets, as calculated in accordance with guidelines set forth by the OTS.
A savings association whose measured interest rate risk exposure exceeds 2% must
deduct an interest rate risk component in calculating its total capital under
the risk-based capital rule. The interest rate risk component is an amount equal
to one-half of the difference between the institution's measured interest rate
risk and 2%, multiplied by the estimated economic value of the Bank's assets.
That dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement. Under the rule,
there is a two quarter lag between the reporting date of an institution's
financial data and the effective date for the new capital requirement based on
that data. A savings association with assets of less than $300 million and
risk-based capital ratios in excess of 12% is not subject to the interest rate
risk component, unless the OTS determines otherwise. The rule also provides that
the Director of the OTS may waive or defer an association's interest rate risk
component on a case-by-case basis. Under certain circumstances, a
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savings association may request an adjustment to its interest rate risk
component if it believes that the OTS-calculated interest rate risk component
overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital.
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Bank to give the OTS 30 days'
advance notice of any proposed declaration of dividends, and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends. The
regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its capital
requirement (both before and after the proposed capital distribution). A Tier 1
savings association may make (without application but upon prior notice to, and
no objection made by, the OTS) capital distributions during a calendar year up
to 100% of its net income to date during the calendar year plus one-half its
surplus capital ratio (i.e., the amount of capital in excess of its requirement)
at the beginning of the calendar year or the amount authorized for a Tier 2
association. Capital distributions in excess of such amount require advance
notice to the OTS. A Tier 2 savings association has capital equal to or in
excess of its minimum capital requirement but below its requirement (both before
and after the proposed capital distribution). Such an association may make
(without application) capital distributions up to an amount equal to 75% of its
net income during the previous four quarters depending on how close the Bank is
to meeting its capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
The Bank currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Bank's unimpaired capital and surplus, plus
an additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. The OTS by regulation has amended the loans to one
borrower rule to permit savings associations meeting certain requirements,
including capital requirements, to extend loans to one borrower in additional
amounts under circumstances limited essentially to loans to develop or complete
residential housing units. At September 30, 1998, the Bank's regulatory limit on
loans to one borrower was $3.8 million. At September 30, 1998, the Bank's
largest aggregate amount of loans to one borrower was $541,000.
Activities of Associations and their Subsidiaries. A savings
association may establish operating subsidiaries to engage in any activity that
the savings association may conduct directly and may establish service
corporation subsidiaries to engage in certain preapproved activities or, with
approval of the OTS, other activities reasonably related to the activities of
financial institutions. When a savings association establishes or acquires a
subsidiary or elects to conduct any new activity through a subsidiary that the
Bank controls, the savings association must notify the FDIC and the OTS 30 days
in advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association
of its ownership control of, or its relationship to, the subsidiary constitutes
a serious risk to the safety, soundness or stability of the Bank or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
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Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions. Any loan or extension
of credit by the Bank to an affiliate must be secured by collateral in
accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all
FDIC-insured banks.
The Bank's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Bank may make to such persons based, in part, on the Bank's
capital position, and requires certain board approval procedures to be followed.
The OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
Community Reinvestment Act. Savings associations are also subject to
the provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the saving association's record
in meeting the credit needs of the community serviced by the savings
association, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, such assessment is required of any savings association which
has applied, among other things, to establish a new branch office that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions under the
HOLA. If the Company acquires control of another savings association as a
separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more restrictions
on the activities of a multiple savings and loan holding company than on those
of a unitary savings and loan holding company. The HOLA provides that, among
other things, no multiple savings and loan holding company or subsidiary thereof
which is not an insured association shall commence or continue for more than two
years after becoming a multiple savings and loan association holding company or
subsidiary thereof, any business activity other than: (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple
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holding companies or (vii) those activities authorized by the Federal Reserve
Board as permissible for bank holding companies, unless the OTS by regulation,
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above also must be approved by the OTS prior
to being engaged in by a multiple savings and loan holding company.
Qualified Thrift Lender Test. The HOLA provides that any savings and
loan holding company that controls a savings association that fails the QTL
test, as explained under "-- Federal Regulation of Savings Associations --
Qualified Thrift Lender Test," must, within one year after the date on which the
Bank ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Company and the Bank report their income on a fiscal
year basis using the accrual method of accounting and are subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. For additional information regarding income taxes, see Note
11 of Notes to Consolidated Financial Statements.
Bad Debt Reserve. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrift") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted additions to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
The thrift bad debt rules were revised by Congress in 1996. The new
rules eliminated the percentage of taxable income method for deducting additions
to the tax bad debt reserves for all thrifts for tax years beginning after
December 31, 1995. These rules also required that all institutions recapture all
or a portion of their bad debt reserves added since the base year (last taxable
year beginning before January 1, 1988). For taxable years beginning after
December 31, 1995, the Bank's bad debt deduction must be determined under the
experience method using a formula based on actual bad debt experience over a
period of years or, if the Bank is a "large" association (assets in excess of
$500 million) on the basis of net charge-offs during the taxable year. The new
rules allowed an institution to suspend bad debt reserve recapture for the 1996
and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institutions average mortgage lending activity for
the six taxable years preceding 1996 adjusted for inflation. For this purpose,
only home purchase or home improvement loans are included and the institution
can elect to have the tax years with the highest and lowest lending activity
removed from the average calculation. If an institution is permitted to postpone
the reserve recapture, it must begin its six year recapture no later than the
1998 tax year. The unrecaptured base year reserves will not be subject to
recapture as long as the institution continues to carry on the business of
banking. In addition, the balance of the pre-1988 bad debt reserves continues to
be subject to provisions of present law referred to below that require recapture
of the pre-1988 bad debt reserve in the case of certain excess distributions to
shareholders.
Distributions. To the extent that the Bank makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Bank's loan portfolio decreased since December
31, 1987) and then from the supplemental reserve for losses on loans ("Excess
Distributions"), and an amount based on the Excess Distributions will be
included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserve. The amount of additional taxable income created from an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
conversion, the Bank makes a "nondividend distribution," then approximately one
and one-half times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34%
26
<PAGE>
corporate income tax rate (exclusive of state and local taxes). See "REGULATION"
for limits on the payment of dividends by the Bank. The Bank does not intend to
pay dividends that would result in a recapture of any portion of its tax bad
debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes
a tax on alternative minimum taxable income ("AMTI") at a rate of 20%. The
excess of the tax bad debt reserve deduction using the percentage of taxable
income method over the deduction that would have been allowable under the
experience method is treated as a preference item for purposes of computing the
AMTI. In addition, only 90% of AMTI can be offset by net operating loss
carryovers. AMTI is increased by an amount equal to 75% of the amount by which
the Bank's adjusted current earnings exceeds its AMTI (determined without regard
to this preference and prior to reduction for net operating losses). For taxable
years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of 0.12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including the Bank, whether or not
an Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Company may exclude from its income
100% of dividends received from the Bank as a member of the same affiliated
group of corporations. The corporate dividends-received deduction is generally
70% in the case of dividends received from unaffiliated corporations with which
the Company and the Bank will not file a consolidated tax return, except that if
the Company or the Bank owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be deducted.
Audits. The Bank's federal income tax returns have been audited
through the tax year ended September 30, 1994 without material adjustment.
State Taxation
Missouri Taxation. Missouri-based thrift institutions, such as the
Bank, are subject to a special financial institutions tax, based on net income
without regard to net operating loss carryforwards, at the rate of 7% of net
income. This tax is in lieu of certain other state taxes on thrift institutions,
on their property, capital or income, except taxes on tangible personal property
owned by the Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales taxes and use taxes. In addition, the Bank is
entitled to credit against this tax all taxes paid to the State of Missouri or
any political subdivision, except taxes on tangible personal property owned by
the Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales and use taxes, and taxes imposed by the Missouri
Financial Institutions Tax Law. Missouri thrift institutions are not subject to
the regular corporate income tax.
The Bank's state income tax returns have not been audited for the
past five years.
Delaware. As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax, but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
27
<PAGE>
Item 2. Properties.
- -------------------
The Bank currently conducts its business through five full service
banking offices. The following table sets forth information on the Bank's
offices as of September 30, 1998.
<TABLE>
<CAPTION>
Year Net Book Owned/ Approximate
Location Opened Value(1) Leased Square Footage
- -------------------------------- -------- ---------- -------- ----------------
<S> <C> <C> <C> <C>
Main Office: (Dollars in thousands)
12300 Olive Boulevard 1978 $1,146 Owned 29,000(4)
St. Louis, Missouri 63141-6434
Branch Offices:
6955 Parker Road at Hwy 367 1968 88 Leased(2) 2,000
Florissant, Missouri 63033-5398
3760 South Grand Avenue 1967 661 Owned 3,500
St. Louis, Missouri 63118-3487
4225 Bayless Road 1971 77 Leased(3) 2,000
St. Louis, Missouri 63123-7500
10756 Sunset Hills Plaza 1996 133 Leased(5) 2,400
St. Louis, Missouri 63127-1207
</TABLE>
- ---------------------------
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by the Bank.
(2) Lease expires on November 30, 1998. Note: Relocated to 199 Jamestown Mall
in October 1998.
(3) Lease expires on May 31, 2002.
(4) 3,656 square feet of which is leased to outside tenants.
(5) Lease expires on July 9, 2001.
Item 3. Legal Proceedings.
- --------------------------
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involve amounts which are believed by management to be immaterial
to the financial condition and results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
None.
28
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
- -------------------------------------------------------------------------
Matters.
--------
The information required by this item is incorporated herein by reference
to the section captioned "Common Stock Information" in the Annual Report to
Stockholders.
Item 6. Selected Financial Data.
- --------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Selected Consolidated Financial Information" in the
Annual Report to Stockholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations.
--------------
The information required by this item is incorporated herein by reference
to the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations- Market Risk Analysis" in the Annual Report
to Stockholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- ---------------------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Market Risk Analysis" in the
Annual Report to Stockholders."
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
The financial statements listed in the index to Consolidated Financial
Statements at Item 14 of this Form 10-K are incorporated by reference into this
Item 8 of Part II of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure.
- ---------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
Executive Officers
The following table sets forth certain information regarding the executive
officers of the Company.
Name Age (1) Position
- ---- --------- -----------
William A. Donius .......... 40 President and Chief Executive Officer
Michael J. Donius .......... 39 Executive Vice President, Chief
Operating Officer and Secretary
Thomas F. Hack ............. 54 Chief Financial Officer and Treasurer
29
<PAGE>
The following table sets forth certain information regarding executive
officers of the Bank
Name Age (1) Position
---- ------- --------
William A. Donius 40 President, Chief Executive
Officer and Director
Michael J. Donius 39 Executive Vice President,
Chief Operating Officer
and Director
Thomas F. Hack 54 Chief Financial Officer,
Treasurer and Director
Beverly M. Kelley 57 Senior Vice President
Michael G. Flaton 50 Vice President
Victoria A. Konopka (2) 53 Vice President
M. Brad Condon 49 Chief Lending Officer
- --------------
(1) As of September 30, 1998.
(2) Ms. Konopka retired in the fall of 1998. A successor has been identified to
assume her responsibilities.
Biographical Information
Set forth below is certain information regarding the executive officers of
the Company and the Bank. Unless otherwise stated, each executive officer has
held his or her current occupation for the last five years. There are no family
relationships among the executive officers except that William and Michael
Donius are brothers.
William A. Donius has served as President of the Bank since December 1,
1997. He previously served as Senior Vice President from February 1997 to
December 1997, as Vice President from April 1995 to February 1997, and as
Director of Marketing from July 1992 to April 1995.
Michael J. Donius joined the Bank in 1988 and has served as Executive Vice
President and Chief Operating Officer since 1993 and as Secretary since 1994.
Prior to assuming his current positions, Mr. Donius served the Bank in various
capacities, including Vice President in charge of compliance and CRA.
Thomas F. Hack joined the Bank in 1967 and has served as the Treasurer
since 1974 and as the Chief Financial Officer since 1993.
Beverly M. Kelley joined the Bank in 1966 and became Senior Vice President
in 1977.
Michael G. Flaton joined the Bank in 1975 and has served as Vice President
of Savings since 1985.
Victoria A. Konopka joined the Bank in 1969 and has served as Vice
President of Human Resources since 1994.
M. Brad Condon joined the Bank in 1998 as Chief Lending Officer. From 1985
until joining the Bank, he served as Senior Vice President of Magna Group, Inc.
The information contained under the section captioned "Proposal I--Election
of Directors" contained in the Company's Proxy Statement is incorporated herein
by reference. Reference is made to the cover page of this report for information
regarding compliance with Section 16(a) of the Exchange Act.
30
<PAGE>
Item 11. Executive Compensation.
- --------------------------------
The information contained under the sections captioned "Executive
Compensation" and "Directors' Compensation" in the Proxy Statement is
incorporated herein by reference.
PART IV
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the section captioned "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.
(b) Security Ownership of Management
The information required by this item is incorporated herein by
reference to the sections captioned "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any pledge by
any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The information set forth under the section captioned "Transactions with
Management" in the Proxy Statement is incorporated by reference.
PART V
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements
Independent Auditors' Report
Consolidated Statements of Financial Condition at September 30, 1998
and 1997
Consolidated Statements of Income and Comprehensive Income for the
Years Ended September 30, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended September
30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Such financial statements are incorporated herein by reference to the
Consolidated Financial Statements and Notes thereto included in the
Annual Report to Stockholders.
2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not
applicable or the required information is presented in the Consolidated
Financial Statements or notes thereto.
31
<PAGE>
3. Exhibits
The exhibits listed below are filed as part of this report or are
incorporated by reference herein.
Exhibit
Number
------
3.1 Certificate of Incorporation of Pulaski Financial Corp.*
3.2 Bylaws of Pulaski Financial Corp.*
4.0 Form of Certificate for Common Stock*
10.1 Employment Agreement with William A. Donius
10.2 Employment Agreement with Thomas F. Hack
10.3 Employment Agreement with Michael J. Donius
10.4 Severance Agreement with M. Brad Condon
10.5 Severance Agreement with Beverly M. Kelley
13.0 Annual Report to Stockholders
21.0 Subsidiaries of Pulaski Financial Corp.
27.0 Financial Data Schedule
---------------
* Incorporated by reference from the Form S-1 (Registration No.
333-56465), as amended, as filed on June 9, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1998.
32
<PAGE>
Conformed Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Pulaski Financial Corp.
(Registrant)
/s/ William A. Donius
----------------------------------------
William A. Donius
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ William A. Donius President and Chief Executive December 29, 1998
- ---------------------------- Officer
William A. Donius (principal executive officer)
/s/ Thomas F. Hack Chief Financial Officer, December 29, 1998
- ---------------------------- Treasurer and Director
Thomas F. Hack (principal financial and accounting
officer)
/s/ Michael J. Donius Executive Vice President, Chief December 29, 1998
- ---------------------------- Operating Officer, Secretary and
Michael J. Donius Director
/s/ Robert A. Ebel Director December 29, 1998
- ----------------------------
Robert A. Ebel
/s/ E. Douglas Britt Director December 29, 1998
- ----------------------------
E. Douglas Britt
/s/ Garland A. Dorn Director December 29, 1998
- ----------------------------
Garland A. Dorn
/s/ Dr. Edward J. Howenstein Director December 29, 1998
- ----------------------------
Dr. Edward J. Howenstein
</TABLE>
33
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT WITH WILLIAM A. DONIUS
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of December 2, 1998, by and between
PULASKI BANK (the "BANK"), PULASKI FINANCIAL CORP. (the "COMPANY"), a Delaware
corporation; and WILLIAM A. DONIUS ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
President and Chief Executive Officer of the BANK. During said period,
EXECUTIVE also agrees to serve, if elected, as an officer and director of the
COMPANY or any subsidiary or affiliate of the COMPANY or the BANK. Executive
shall render administrative and management duties to the BANK such as are
customarily performed by persons situated in a similar executive capacity.
Specifically, EXECUTIVE shall perform all duties which are commonly
incident to the office of President and Chief Executive Officer including, but
not limited to, (i) managing the day-to-day operations of the BANK, (ii)
oversight of the BANK's compliance with applicable laws and regulations, (iii)
marketing of the BANK and its services, (iv) supervising the BANK's employees,
(v) reporting to the Board on the activities and condition of the BANK, and (vi)
making recommendations to the Board concerning the strategies, capital
structure, tactics and general operations of the BANK.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
BANK (the "Board") may extend the Agreement for an additional year. Prior to
the extension of the Agreement as provided herein, the Board of Directors of the
BANK will conduct a formal performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
<PAGE>
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
EXECUTIVE may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the BANK,
or materially affect the performance of EXECUTIVE's duties pursuant to this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $135,000 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the BANK. During the period of this Agreement, EXECUTIVE's
Base Salary shall be reviewed at least annually; the first such review will be
made no later than one year from the date of this Agreement. Such review shall
be conducted by a Committee designated by the Board, and the Board may increase
EXECUTIVE's Base Salary. In addition to the Base Salary provided in this
Section 3(a), the BANK shall provide EXECUTIVE at no cost to EXECUTIVE with all
such other benefits as are provided uniformly to permanent full-time employees
of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this
2
<PAGE>
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's
resignation from the BANK's employ, upon (A) unless consented to by EXECUTIVE, a
material change in EXECUTIVE's function, duties, or responsibilities, which
change would cause EXECUTIVE's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Sections 1 and 2, above (any such material change shall be deemed a continuing
breach of this Agreement), (B) a relocation of EXECUTIVE's principal place of
employment by more than 25 miles from its location at the effective date of this
Agreement, or a material reduction in the benefits and perquisites to EXECUTIVE
from those being provided as of the effective date of this Agreement, (C) the
liquidation or dissolution of the BANK, or (D) any material breach of this
Agreement by the BANK. Upon the occurrence of any event described in clauses
(A), (B), (C) or (D), above, EXECUTIVE shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within a reasonable period of time
not to exceed, except in case of a continuing breach, four (4) calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made
pursuant to this Section 4(b) shall be paid in substantially equal monthly
installments over the remaining term of this Agreement following EXECUTIVE's
termination; provided, however, that if the remaining term of the Agreement is
less than one (1) year (determined as of EXECUTIVE's Date of Termination), such
payments and benefits shall be paid to EXECUTIVE in a lump sum within thirty
(30) days of the Date of Termination. Notwithstanding anything herein to the
contrary, any payments made or benefits provided to Executive pursuant to this
Section 4(b) or Section 4(c) shall not exceed
3
<PAGE>
applicable Office of Thrift Supervision limits. In the event a reduction of
payments or benefits is necessary, Executive may determine the allocation of the
reduction.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining term
of this Agreement.
(d) The provisions of this Section 4 shall be subject to Sections 8 and 9
of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the COMPANY or the BANK representing twenty-five percent (25%)
or more of the combined voting power of the COMPANY's or the BANK's then
outstanding securities, (c) the membership of the board of directors of the
COMPANY or the BANK changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this
Agreement) do not constitute a majority of the Board at the end of such period,
or (d) shareholders of the COMPANY or the BANK approve a merger, consolidation,
sale or disposition of all or substantially all of the COMPANY's or the BANK's
assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has occurred,
EXECUTIVE shall be entitled to the benefits provided in paragraphs (c), (d) and
(e) of this Section 5 upon his subsequent involuntary termination following the
effective date of a Change in Control (or voluntary termination within twelve
(12) months of the effective date of a Change in Control following any material
demotion, loss of title, office or significant authority, material reduction in
his annual compensation or benefits (other than a reduction affecting the BANK's
personnel generally), or the relocation of his principal place of employment by
more than 25 miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
(c) Subject to Section 5(b), the BANK shall pay EXECUTIVE, or in the event
of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
2.99 times EXECUTIVE's "base amount," within the
4
<PAGE>
meaning of (S)280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as
amended. Such payment shall be made in a lump sum paid within ten (10) days of
EXECUTIVE's Date of Termination.
(d) Subject to Section 5(b), the BANK will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions that
would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of thirty-six (36) months.
(e) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE made prior to his date of termination,
(i) such payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under (S)280G(b)(3) of the Code or (ii) the payments
or benefits to be provided under this Section 5 shall be reduced to the extent
necessary to avoid treatment as an excess parachute payment with the allocation
of the reduction among such payments and benefits to be determined by EXECUTIVE.
(f) The provisions of this Section 5 shall be subject to Sections 8 and 9
of this Agreement.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount,
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if any, paid to EXECUTIVE under any plan of the BANK providing disability
benefits to EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
(e) The provisions of this Section 6 shall be subject to Sections 9 of this
Agreement.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to him.
Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be entitled to
all benefits under any retirement plan of the BANK or the COMPANY and other
plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE during the
term of this Agreement, the BANK shall pay to EXECUTIVE's estate the
compensation due to EXECUTIVE through the last day of the calendar month in
which his death occurred. Upon the voluntary resignation of EXECUTIVE during
the term of this Agreement, other than in connection with an Event of
Termination, the BANK shall pay to EXECUTIVE the compensation due to EXECUTIVE
through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the members of the Board at a meeting of the Board called and held
for that purpose finding that in the good faith opinion of the Board, EXECUTIVE
was guilty of conduct justifying termination for Cause and specifying the
reasons thereof. EXECUTIVE shall not have
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the right to receive compensation or other benefits for any period after
termination for Cause. Any stock options granted to EXECUTIVE under any stock
option plan or any unvested awards granted under any other stock benefit plan of
the BANK, the COMPANY, or any subsidiary or affiliate thereof, shall become null
and void effective upon EXECUTIVE's receipt of Notice of Termination for Cause
pursuant to Section 10 hereof, and shall not be exercisable by EXECUTIVE at any
time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
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(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's Termination for Cause, the Date of Termination shall be the same as
the date of the Notice of Termination.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies
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available to the BANK and/or the COMPANY for such breach or threatened breach,
including the recovery of damages from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. EXECUTIVE will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, EXECUTIVE may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the BANK. In the
event of a breach or threatened breach by EXECUTIVE of the provisions of this
Section, the BANK will be entitled to an injunction restraining EXECUTIVE from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the BANK from
pursuing any other remedies available to the BANK for such breach or threatened
breach, including the recovery of damages from EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY. The BANK,
however, shall not be responsible for any compensation payable to EXECUTIVE with
respect to services provided by EXECUTIVE to the COMPANY or with respect to any
action of the company with respect to EXECUTIVE.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
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14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Missouri,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, the provisions of such law or regulation shall prevail.
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19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
21. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
BANK (whether or not he continues to be a directors or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements. The provisions of 12 C.F.R. 545.121 shall
apply to the BANK's obligations under this Section 21.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
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IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the 2/nd/ day of December, 1998.
ATTEST: PULASKI BANK
/s/ Michael J. Donius BY:/s/ William A. Donius
- ------------------------ ---------------------------
[SEAL]
ATTEST: PULASKI FINANCIAL CORP.
/s/ Michael J. Donius BY:/s/ William A. Donius
- ------------------------ ---------------------------
[SEAL]
WITNESS:
/s/ Tammy Athanas /s/ William A. Donius
- ------------------------ ------------------------------
William A. Donius
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT WITH THOMAS F. HACK
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of December 2, 1998, by and between
PULASKI BANK (the "BANK"), PULASKI FINANCIAL CORP. (the "COMPANY"), a Delaware
corporation; and THOMAS F. HACK ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
Chief Financial Officer of the BANK. During said period, EXECUTIVE also agrees
to serve, if elected, as an officer and director of the COMPANY or any
subsidiary or affiliate of the COMPANY or the BANK. Executive shall render
administrative and management duties to the BANK such as are customarily
performed by persons situated in a similar executive capacity.
Specifically, EXECUTIVE shall perform all duties which are commonly
incident to the office of Chief Financial Officer of the BANK including the
direction of all financial operations of the BANK including accounting,
budgeting, investment management, cash management and the presentation of
financial information to management and such other tasks related to the
operations of the BANK as may be assigned to EXECUTIVE by the Chief Executive
Officer of the BANK.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
BANK (the "Board") may extend the Agreement for an additional year. Prior to
the extension of the Agreement as provided herein, the Board of Directors of the
BANK will conduct a formal performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance
<PAGE>
of his duties hereunder including activities and services related to the
organization, operation and management of the BANK; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, EXECUTIVE may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the BANK, or materially affect the performance of EXECUTIVE's
duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $105,000 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the BANK. During the period of this Agreement, EXECUTIVE's
Base Salary shall be reviewed at least annually; the first such review will be
made no later than one year from the date of this Agreement. Such review shall
be conducted by a Committee designated by the Board, and the Board may increase
EXECUTIVE's Base Salary. In addition to the Base Salary provided in this
Section 3(a), the BANK shall provide EXECUTIVE at no cost to EXECUTIVE with all
such other benefits as are provided uniformly to permanent full-time employees
of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
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4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's
resignation from the BANK's employ, upon (A) unless consented to by EXECUTIVE, a
material change in EXECUTIVE's function, duties, or responsibilities, which
change would cause EXECUTIVE's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Sections 1 and 2, above (any such material change shall be deemed a continuing
breach of this Agreement), (B) a relocation of EXECUTIVE's principal place of
employment by more than 25 miles from its location at the effective date of this
Agreement, or a material reduction in the benefits and perquisites to EXECUTIVE
from those being provided as of the effective date of this Agreement, (C) the
liquidation or dissolution of the BANK, or (D) any material breach of this
Agreement by the BANK. Upon the occurrence of any event described in clauses
(A), (B), (C) or (D), above, EXECUTIVE shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within a reasonable period of time
not to exceed, except in case of a continuing breach, four (4) calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made
pursuant to this Section 4(b) shall be paid in substantially equal monthly
installments over the remaining term of this Agreement following EXECUTIVE's
termination; provided, however, that if the remaining term of the Agreement is
less than one (1) year (determined as of EXECUTIVE's Date of Termination), such
payments and benefits shall be paid to EXECUTIVE in a lump sum within thirty
(30) days of the Date of Termination. Notwithstanding anything herein to the
contrary, any payments made or benefits provided to Executive pursuant to this
Section 4(b) or Section 4(c) shall not exceed applicable Office of Thrift
Supervision limits. In the event a reduction of payments or benefits is
necessary, Executive may determine the allocation of the reduction.
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(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
(d) The provisions of this Section 4 shall be subject to Sections 8 and 9
of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the COMPANY or the BANK representing twenty-five percent (25%)
or more of the combined voting power of the COMPANY's or the BANK's then
outstanding securities, (c) the membership of the board of directors of the
COMPANY or the BANK changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this
Agreement) do not constitute a majority of the Board at the end of such period,
or (d) shareholders of the COMPANY or the BANK approve a merger, consolidation,
sale or disposition of all or substantially all of the COMPANY's or the BANK's
assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has occurred,
EXECUTIVE shall be entitled to the benefits provided in paragraphs (c), (d) and
(e) of this Section 5 upon his subsequent involuntary termination following the
effective date of a Change in Control (or voluntary termination within twelve
(12) months of the effective date of a Change in Control following any material
demotion, loss of title, office or significant authority, material reduction in
his annual compensation or benefits (other than a reduction affecting the BANK's
personnel generally), or the relocation of his principal place of employment by
more than 25 miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
(c) Subject to Section 5(b), the BANK shall pay EXECUTIVE, or in the event
of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
2.99 times EXECUTIVE's "base amount," within the meaning of (S)280G(b)(3) of
the Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be
made in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
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(d) Subject to Section 5(b), the BANK will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions that
would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of thirty-six (36) months.
(e) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE made prior to his date of termination,
(i) such payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under (S)280G(b)(3) of the Code or (ii) the payments
or benefits to be provided under this Section 5 shall be reduced to the extent
necessary to avoid treatment as an excess parachute payment with the allocation
of the reduction among such payments and benefits to be determined by EXECUTIVE.
(f) The provisions of this Section 5 shall be subject to Sections 8 and 9
of this Agreement.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
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(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
(e) The provisions of this Section 6 shall be subject to Sections 9 of this
Agreement.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to him.
Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be entitled to
all benefits under any retirement plan of the BANK or the COMPANY and other
plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE during the
term of this Agreement, the BANK shall pay to EXECUTIVE's estate the
compensation due to EXECUTIVE through the last day of the calendar month in
which his death occurred. Upon the voluntary resignation of EXECUTIVE during
the term of this Agreement, other than in connection with an Event of
Termination, the BANK shall pay to EXECUTIVE the compensation due to EXECUTIVE
through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the members of the Board at a meeting of the Board called and held
for that purpose finding that in the good faith opinion of the Board, EXECUTIVE
was guilty of conduct justifying termination for Cause and specifying the
reasons thereof. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after termination for Cause. Any stock options
granted to EXECUTIVE under any stock option plan or any unvested awards granted
under any other stock benefit plan of the BANK, the COMPANY, or any subsidiary
or affiliate
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thereof, shall become null and void effective upon EXECUTIVE's receipt of Notice
of Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
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10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's Termination for Cause, the Date of Termination shall be the same as
the date of the Notice of Termination.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies available to the BANK and/or the
COMPANY for such breach or threatened breach, including the recovery of damages
from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from
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time to time, is a valuable, special and unique asset of the business of the
BANK. EXECUTIVE will not, during or after the term of his employment, disclose
any knowledge of the past, present, planned or considered business activities of
the BANK or affiliates thereof to any person, firm, corporation, or other entity
for any reason or purpose whatsoever. Notwithstanding the foregoing, EXECUTIVE
may disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the BANK. In the event of a breach or threatened breach
by EXECUTIVE of the provisions of this Section, the BANK will be entitled to an
injunction restraining EXECUTIVE from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
BANK or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the BANK from pursuing any other remedies available to the BANK for
such breach or threatened breach, including the recovery of damages from
EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY. The BANK,
however, shall not be responsible for any compensation payable to EXECUTIVE with
respect to services provided by EXECUTIVE to the COMPANY or with respect to any
action of the company with respect to EXECUTIVE.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
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(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Missouri,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, the provisions of such law or regulation shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
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20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
21. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
BANK (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements. The provisions of 12 C.F.R. 545.121 shall
apply to the BANK's obligations under this Section 21.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
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IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the 2/nd/ day of December, 1998.
ATTEST: PULASKI BANK
/s/ Michael J. Donius BY: /s/ William A. Donius
- -------------------------------- ---------------------------------
[SEAL]
ATTEST: PULASKI FINANCIAL CORP.
/s/ William A. Donius BY:/s/ Michael J. Donius
------------------------------- ---------------------------------
[SEAL]
WITNESS:
/s/ Tammy Athanas /s/ Thomas F. Hack
- -------------------------------- ------------------------------------
Thomas F. Hack
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT WITH MICHAEL J. DONIUS
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of December 2, 1998, by and between
PULASKI BANK (the "BANK"), PULASKI FINANCIAL CORP. (the "COMPANY"), a Delaware
corporation; and MICHAEL J. DONIUS ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
Executive Vice President and Chief Operating Officer of the BANK. During said
period, EXECUTIVE also agrees to serve, if elected, as an officer and director
of the COMPANY or any subsidiary or affiliate of the COMPANY or the BANK.
Executive shall render administrative and management duties to the BANK such as
are customarily performed by persons situated in a similar executive capacity.
Specifically, EXECUTIVE shall perform all duties which are commonly
incident to the officer of Executive Vice President and Chief Operating Officer
of the BANK including the direction of the BANK's retail operations, oversight
and direction of branch operations and property, oversight and direction of
human resources and such other tasks related to the operations of the BANK as
may be assigned to EXECUTIVE by the Chief Executive Officer of the Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
BANK (the "Board") may extend the Agreement for an additional year. Prior to
the extension of the Agreement as provided herein, the Board of Directors of the
BANK will conduct a formal performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance
<PAGE>
of his duties hereunder including activities and services related to the
organization, operation and management of the BANK; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, EXECUTIVE may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the BANK, or materially affect the performance of EXECUTIVE's
duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $107,000 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the BANK. During the period of this Agreement, EXECUTIVE's
Base Salary shall be reviewed at least annually; the first such review will be
made no later than one year from the date of this Agreement. Such review shall
be conducted by a Committee designated by the Board, and the Board may increase
EXECUTIVE's Base Salary. In addition to the Base Salary provided in this
Section 3(a), the BANK shall provide EXECUTIVE at no cost to EXECUTIVE with all
such other benefits as are provided uniformly to permanent full-time employees
of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
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4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's
resignation from the BANK's employ, upon (A) unless consented to by EXECUTIVE, a
material change in EXECUTIVE's function, duties, or responsibilities, which
change would cause EXECUTIVE's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Sections 1 and 2, above (any such material change shall be deemed a continuing
breach of this Agreement), (B) a relocation of EXECUTIVE's principal place of
employment by more than 25 miles from its location at the effective date of this
Agreement, or a material reduction in the benefits and perquisites to EXECUTIVE
from those being provided as of the effective date of this Agreement, (C) the
liquidation or dissolution of the BANK, or (D) any material breach of this
Agreement by the BANK. Upon the occurrence of any event described in clauses
(A), (B), (C) or (D), above, EXECUTIVE shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within a reasonable period of time
not to exceed, except in case of a continuing breach, four (4) calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made
pursuant to this Section 4(b) shall be paid in substantially equal monthly
installments over the remaining term of this Agreement following EXECUTIVE's
termination; provided, however, that if the remaining term of the Agreement is
less than one (1) year (determined as of EXECUTIVE's Date of Termination), such
payments and benefits shall be paid to EXECUTIVE in a lump sum within thirty
(30) days of the Date of Termination. Notwithstanding anything herein to the
contrary, any payments made or benefits provided to Executive pursuant to this
Section 4(b) or Section 4(c) shall not exceed applicable Office of Thrift
Supervision limits. In the event a reduction of payments or benefits is
necessary, Executive may determine the allocation of the reduction.
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(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
(d) The provisions of this Section 4 shall be subject to Sections 8 and 9
of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the COMPANY or the BANK representing twenty-five percent (25%)
or more of the combined voting power of the COMPANY's or the BANK's then
outstanding securities, (c) the membership of the board of directors of the
COMPANY or the BANK changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this
Agreement) do not constitute a majority of the Board at the end of such period,
or (d) shareholders of the COMPANY or the BANK approve a merger, consolidation,
sale or disposition of all or substantially all of the COMPANY's or the BANK's
assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has occurred,
EXECUTIVE shall be entitled to the benefits provided in paragraphs (c), (d) and
(e) of this Section 5 upon his subsequent involuntary termination following the
effective date of a Change in Control (or voluntary termination within twelve
(12) months of the effective date of a Change in Control following any material
demotion, loss of title, office or significant authority, material reduction in
his annual compensation or benefits (other than a reduction affecting the BANK's
personnel generally), or the relocation of his principal place of employment by
more than 25 miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
(c) Subject to Section 5(b), the BANK shall pay EXECUTIVE, or in the event
of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
2.99 times EXECUTIVE's "base amount," within the meaning of (S)280G(b)(3) of
the Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be
made in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
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(d) Subject to Section 5(b), the BANK will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions that
would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of thirty-six (36) months.
(e) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE made prior to his date of termination,
(i) such payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under (S)280G(b)(3) of the Code or (ii) the payments
or benefits to be provided under this Section 5 shall be reduced to the extent
necessary to avoid treatment as an excess parachute payment with the allocation
of the reduction among such payments and benefits to be determined by EXECUTIVE.
(f) The provisions of this Section 5 shall be subject to Sections 8 and 9
of this Agreement.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
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(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
(e) The provisions of this Section 6 shall be subject to Sections 9 of this
Agreement.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to him.
Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be entitled to
all benefits under any retirement plan of the BANK or the COMPANY and other
plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE during the
term of this Agreement, the BANK shall pay to EXECUTIVE's estate the
compensation due to EXECUTIVE through the last day of the calendar month in
which his death occurred. Upon the voluntary resignation of EXECUTIVE during
the term of this Agreement, other than in connection with an Event of
Termination, the BANK shall pay to EXECUTIVE the compensation due to EXECUTIVE
through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the members of the Board at a meeting of the Board called and held
for that purpose finding that in the good faith opinion of the Board, EXECUTIVE
was guilty of conduct justifying termination for Cause and specifying the
reasons thereof. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after termination for Cause. Any stock options
granted to EXECUTIVE under any stock option plan or any unvested awards granted
under any other stock benefit plan of the BANK, the COMPANY, or any subsidiary
or affiliate
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thereof, shall become null and void effective upon EXECUTIVE's receipt of Notice
of Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
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10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's Termination for Cause, the Date of Termination shall be the same as
the date of the Notice of Termination.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies available to the BANK and/or the
COMPANY for such breach or threatened breach, including the recovery of damages
from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from
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time to time, is a valuable, special and unique asset of the business of the
BANK. EXECUTIVE will not, during or after the term of his employment, disclose
any knowledge of the past, present, planned or considered business activities of
the BANK or affiliates thereof to any person, firm, corporation, or other entity
for any reason or purpose whatsoever. Notwithstanding the foregoing, EXECUTIVE
may disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the BANK. In the event of a breach or threatened breach
by EXECUTIVE of the provisions of this Section, the BANK will be entitled to an
injunction restraining EXECUTIVE from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
BANK or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the BANK from pursuing any other remedies available to the BANK for
such breach or threatened breach, including the recovery of damages from
EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY. The BANK,
however, shall not be responsible for any compensation payable to EXECUTIVE with
respect to services provided by EXECUTIVE to the COMPANY or with respect to any
action of the company with respect to EXECUTIVE.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
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(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Missouri,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, the provisions of such law or regulation shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
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20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
21. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
BANK (whether or not he continues to be a directors or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements. The provisions of 12 C.F.R. 545.121 shall
apply to the BANK's obligations under this Section 21.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
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IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the 2/nd/ day of December, 1998.
ATTEST: PULASKI BANK
/s/ Rosalie C. Sullivan BY: /s/ William A. Donius
- ------------------------ -------------------------
[SEAL]
ATTEST: PULASKI FINANCIAL CORP.
/s/ Rosalie C. Sullivan BY: /s/ William A. Donius
- ------------------------ -------------------------
[SEAL]
WITNESS:
/s/ Tammy Athanas /s/ Michael J. Donius
- -------------------------- ----------------------------
Michael J. Donius
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EXHIBIT 10.4
SEVERANCE AGREEMENT WITH M. BRAD CONDON
<PAGE>
EXHIBIT 10.4
AGREEMENT
This AGREEMENT is made effective as of December 2, 1998 by and between
PULASKI BANK (the "BANK"); PULASKI FINANCIAL CORP. ("COMPANY"), a Delaware
corporation; and M. BRAD CONDON ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other terms
and conditions hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of twenty-four (24) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the BANK ("Board") may extend the Agreement for an additional year.
The Board will conduct a performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as herein defined) followed
within twelve (12) months of the effective date of the Change in Control by the
voluntary or involuntary termination of EXECUTIVE's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. For purposes of this Agreement, "voluntary termination" shall be limited
to the circumstances in which EXECUTIVE elects to voluntarily terminate his
employment within twelve (12) months of the effective date of a Change in
Control following any material demotion, loss of title, office or significant
authority, material reduction in his annual compensation or benefits (other than
a reduction affecting the Bank's personnel generally), or the relocation of his
principal place of employment by more than 25 miles from its location
immediately prior to the Change in Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the COMPANY or the BANK representing twenty-five percent (25%) or
more of the combined voting power of the COMPANY's or the BANK's then
outstanding securities, (c) the membership of the board of directors of the
COMPANY or the BANK changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this
Agreement) do
<PAGE>
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the COMPANY or the BANK approve a merger, consolidation, sale or
disposition of all or substantially all of the COMPANY's or the BANK's assets,
or a plan of partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of EXECUTIVE's intentional failure to
perform stated duties, personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses) or
final cease and desist order, or any material breach of any material provision
of this Agreement. In determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the savings institution
industry. Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
a majority the members of the Board at a meeting of the Board called and held
for that purpose, finding that in the good faith opinion of the Board, EXECUTIVE
was guilty of conduct justifying Termination for Cause and specifying the
particulars thereof in detail. EXECUTIVE shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
3. TERMINATION
(a) Upon the occurrence of a Change in Control, followed within twelve (12)
months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to two (2) times Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall mean
and include all wages, salary, bonus, and other compensation, if any, paid
(including accrued amounts) by the Company or the Bank as consideration for
EXECUTIVE's service during the twelve (12) month period ending on the last day
of the month preceding the effective date of a Change in Control. Such amount
shall be paid to EXECUTIVE in a lump sum no later than thirty (30) days after
the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed within
twelve (12) months of the effective date of a Change in Control by EXECUTIVE's
voluntary or involuntary termination of employment, other than Termination for
Cause, the BANK shall cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the BANK for
EXECUTIVE prior to his severance. Such coverage and payments shall cease upon
expiration of twelve (12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of
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the Code, then, at the election of EXECUTIVE, (i) such payments or benefits
shall be payable or provided to EXECUTIVE over the minimum period necessary to
reduce the present value of such payments or benefits to an amount which is one
dollar ($1.00) less than three (3) times EXECUTIVE's "base amount" under
(S)280G(b)(3) of the Code or (ii) the payments or benefits to be provided under
this Section 3 shall be reduced to the extent necessary to avoid treatment as an
excess parachute payment with the allocation of the reduction among such
payments and benefits to be determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
4. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the BANK and EXECUTIVE, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to EXECUTIVE of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that EXECUTIVE is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
5. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
6. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be an estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
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7. REQUIRED PROVISIONS
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the BANK under the authority contained in Section 13(c) of the
FDIA and (ii) by the Director, or his or her designee at the time the Director
or such designee approves a supervisory merger to resolve problems related to
operation of the BANK or when the BANK is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
8. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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9. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
10. GOVERNING LAW
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Missouri, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect.
11. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to a
legal judgment, arbitration or settlement.
13. SUCCESSOR TO THE BANK OR THE COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
5
<PAGE>
14. SIGNATURES
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the 2/nd/ day of December, 1998.
ATTEST: PULASKI BANK
/s/ Michael J. Donius BY: /s/ William A. Donius
- --------------------------- ----------------------------
[SEAL]
ATTEST: PULASKI FINANCIAL CORP.
/s/ Michael J. Donius BY: /s/ William A. Donius
- --------------------------- ----------------------------
[SEAL]
WITNESS:
/s/ Tammy Athanas /s/ M. Brad Condon
- --------------------------- ---------------------------------
M. Brad Condon
6
<PAGE>
EXHIBIT 10.5
SEVERANCE AGREEMENT WITH BEVERLY M. KELLEY
<PAGE>
EXHIBIT 10.5
AGREEMENT
This AGREEMENT is made effective as of December 2, 1998 by and between
PULASKI BANK (the "BANK"); PULASKI FINANCIAL CORP. ("COMPANY"), a Delaware
corporation; and BEVERLY M. KELLEY ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect her position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other terms
and conditions hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of twenty-four (24) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the BANK ("Board") may extend the Agreement for an additional year.
The Board will conduct a performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as herein defined) followed
within twelve (12) months of the effective date of the Change in Control by the
voluntary or involuntary termination of EXECUTIVE's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. For purposes of this Agreement, "voluntary termination" shall be limited
to the circumstances in which EXECUTIVE elects to voluntarily terminate her
employment within twelve (12) months of the effective date of a Change in
Control following any material demotion, loss of title, office or significant
authority, material reduction in her annual compensation or benefits (other than
a reduction affecting the Bank's personnel generally), or the relocation of her
principal place of employment by more than 25 miles from its location
immediately prior to the Change in Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the COMPANY or the BANK representing twenty-five percent (25%) or
more of the combined voting power of the COMPANY's or the BANK's then
outstanding securities, (c) the membership of the board of directors of the
COMPANY or the BANK changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this
Agreement) do
<PAGE>
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the COMPANY or the BANK approve a merger, consolidation, sale or
disposition of all or substantially all of the COMPANY's or the BANK's assets,
or a plan of partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of EXECUTIVE's intentional failure to
perform stated duties, personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses) or
final cease and desist order, or any material breach of any material provision
of this Agreement. In determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the savings institution
industry. Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
a majority the members of the Board at a meeting of the Board called and held
for that purpose, finding that in the good faith opinion of the Board, EXECUTIVE
was guilty of conduct justifying Termination for Cause and specifying the
particulars thereof in detail. EXECUTIVE shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
3. TERMINATION
(a) Upon the occurrence of a Change in Control, followed within twelve (12)
months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of her
subsequent death, her beneficiary or beneficiaries, or her estate, as the case
may be, as severance pay, a sum equal to two (2) times Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall mean
and include all wages, salary, bonus, and other compensation, if any, paid
(including accrued amounts) by the Company or the Bank as consideration for
EXECUTIVE's service during the twelve (12) month period ending on the last day
of the month preceding the effective date of a Change in Control. Such amount
shall be paid to EXECUTIVE in a lump sum no later than thirty (30) days after
the date of her termination.
(b) Upon the occurrence of a Change in Control of the BANK followed within
twelve (12) months of the effective date of a Change in Control by EXECUTIVE's
voluntary or involuntary termination of employment, other than Termination for
Cause, the BANK shall cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the BANK for
EXECUTIVE prior to her severance. Such coverage and payments shall cease upon
expiration of twelve (12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of
2
<PAGE>
the Code, then, at the election of EXECUTIVE, (i) such payments or benefits
shall be payable or provided to EXECUTIVE over the minimum period necessary to
reduce the present value of such payments or benefits to an amount which is one
dollar ($1.00) less than three (3) times EXECUTIVE's "base amount" under
(S)280G(b)(3) of the Code or (ii) the payments or benefits to be provided under
this Section 3 shall be reduced to the extent necessary to avoid treatment as an
excess parachute payment with the allocation of the reduction among such
payments and benefits to be determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
4. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the BANK and EXECUTIVE, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to EXECUTIVE of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that EXECUTIVE is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
5. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
6. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be an estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
3
<PAGE>
7. REQUIRED PROVISIONS
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the BANK under the authority contained in Section 13(c) of the
FDIA and (ii) by the Director, or his or her designee at the time the Director
or such designee approves a supervisory merger to resolve problems related to
operation of the BANK or when the BANK is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
8. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full exte nt consistent with
law continue in full force and effect.
4
<PAGE>
9. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
10. GOVERNING LAW
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Missouri, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect.
11. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to a
legal judgment, arbitration or settlement.
13. SUCCESSOR TO THE BANK OR THE COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
5
<PAGE>
14. SIGNATURES
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the 2/nd/ day of December, 1998.
ATTEST: PULASKI BANK
/s/ Michael J. Donius BY: /s/ William A. Donius
- -------------------------- ----------------------------
[SEAL]
ATTEST: PULASKI FINANCIAL CORP.
/s/ Michael J. Donius BY: /s/ William A. Donius
- -------------------------- ---------------------------
[SEAL]
WITNESS:
/s/ Michael J. Donius /s/ Beverly M. Kelley
- -------------------------- -------------------------------
Beverly M. Kelley
6
<PAGE>
PULASKI FINANCIAL CORP.
1998 Annual Report
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- ----------------------------------------------------------------------------------------------
PAGE
<S> <C>
Business of the Company 1
Selected Consolidated Financial Information 2-3
Management's Discussion and Analysis of Financial Condition and Results of Operations 4-18
Independent Auditors' Report 19
Consolidated Financial Statements 20-24
Notes to Consolidated Financial Statements 25-44
Common Stock Information 45
Directors and Officers 46
Corporate Information 47
Annual Meeting 47
</TABLE>
<PAGE>
BUSINESS OF THE COMPANY
Pulaski Financial Corp. ("Company") was incorporated under Delaware law in May
1998. The Company was organized for the purpose of becoming the holding company
for Pulaski Bank, A Federal Savings Bank ("Bank") upon the Bank's reorganization
as a wholly owned subsidiary of the Company resulting from the conversion of
Pulaski Bancshares, M.H.C. ("MHC"), from a federal mutual holding company to a
stock holding company ("Conversion and Reorganization"). In connection with the
Conversion and Reorganization, which was completed on December 2, 1998, the
Company sold 2,909,500 shares of its common stock to the public at $10 per share
in a public offering ("Offering") and issued 1,056,016 shares in exchange for
the outstanding shares of the Bank held by the Bank's stockholders other than
the MHC. 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.
On May 11, 1994, the Bank reorganized into the mutual holding company structure.
The Bank issued 2,070,000 shares of its common stock of which 1,470,000 shares
were issued to the MHC and the remaining 600,000 shares were issued to
depositors and borrowers of the Bank.
The Bank is regulated by the Office of Thrift Supervision ("OTS"), its primary
federal regulator, and the Federal Deposit Insurance Corporation ("FDIC"), the
insurer of its deposits. The Bank's deposits are federally insured by the FDIC
under the Savings Association Insurance Fund ("SAIF"). The Bank is a member of
the Federal Home Loan Bank ("FHLB") System. At September 30, 1998, the Bank had
total assets of $193.2 million, total deposits of $156.2 million and
stockholders' equity of $25.2 million, or 13.04% of total assets, on a
consolidated basis.
The Bank is a community oriented financial institution that provides traditional
financial services within the City and County of St. Louis, St. Charles County,
Franklin and Jefferson Counties. The Bank is engaged primarily in the business
of attracting deposits from the general public and using these and other funds
to originate one- to four-family residential mortgage loans within the Bank's
lending market area. The Bank is an approved lender/servicer for the Federal
Housing Administration ("FHA") and the Veterans Administration ("VA"), as well
as for the Missouri Housing Development Commission (a government agency
established to provide home buying opportunities for lower income first time
home buyers) ("MHDC"). The Bank is also an approved seller/servicer for the
Government National Mortgage Association ("GNMA"). Occasionally, the Bank
originates commercial and multi-family real estate loans and construction loans,
it currently is not actively originating such loans.
-1-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the consolidated
financial position, consolidated data from operations and performance ratios for
the Bank at the dates and for the years indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
FINANCIAL CONDITION DATA (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets $193,208 $179,419 $178,812 $183,095 $190,701
Loans receivable, net 141,769 130,359 134,044 148,551 157,724
Loans held for sale 13,442 14,384 7,210 3,263 2,509
Bankers Acceptances, investment securities and
Federal Home Loan Bank stock 22,581 17,706 16,650 7,094 8,446
Mortgage-backed and related securities 6,900 6,362 7,424 9,443 11,680
Cash and cash equivalents 3,047 6,248 9,022 10,882 6,937
Deposits 156,235 148,672 147,824 151,505 152,828
Advances from Federal Home Loan Bank of Des Moines 1,900 2,200 3,000 5,000 12,000
Stockholders' equity 25,213 23,858 22,504 22,096 21,328
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
OPERATING DATA (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income $ 13,707 $ 13,498 $ 13,329 $ 12,823 $ 12,010
Interest expense 7,142 6,985 7,071 6,882 6,034
-------- -------- -------- -------- --------
Net interest income 6,565 6,513 6,258 5,941 5,976
Provision for loan losses 209 169 65 151 274
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 6,356 6,344 6,193 5,790 5,702
Other income 1,590 887 729 815 736
SAIF premium assessment 1,010
Other expense 5,111 4,284 4,659 4,766 4,588
-------- -------- -------- -------- --------
Income before income taxes and cumulative effect of
a change in accounting principle 2,835 2,947 1,253 1,839 1,850
Income taxes 990 1,024 370 614 584
Cumulative effect of change in accounting principle - income taxes 40
-------- -------- -------- -------- --------
Net income $ 1,845 $ 1,923 $ 883 $ 1,225 $ 1,306
======== ======== ======== ======== ========
Net income per common share - Basic $0.88 $0.92 $0.42 $0.59 $0.63
======== ======== ======== ======== ========
Net income per common share - Diluted $0.87 $0.91 $0.42 $0.59 $0.63
======== ======== ======== ======== ========
(Continued)
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------------------
OTHER DATA 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Number of:
Real estate loans outstanding 2,729 2,921 3,031 3,228 3,409
Deposit accounts 18,581 16,047 16,316 17,155 17,831
Full service offices 5 5 5 4 5
<CAPTION>
AT OR FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------------------
KEY OPERATING RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Return on average assets (net income divided by average assets) 1.00% 1.08% 0.49% 0.66% 0.70%
Return on average equity (net income divided by average equity) 7.49% 8.28% 3.90% 5.66% 7.46%
Average equity to average assets 13.35% 12.98% 12.60% 11.71% 9.37%
Interest rate spread (difference between average yield on interest-
earning assets and average cost of interest-bearing liabilities) 3.02% 3.07% 2.97% 2.79% 2.95%
Net interest margin (net interest income as a percentage of
average interest-earning assets) 3.66% 3.72% 3.57% 3.30% 3.29%
Dividend payout ratio (dividends declared and paid to minority
stockholders per share divided by net income per share) 37.67% 33.27% 60.04% 40.27% 6.91% (1)
Other expense to average assets 2.77% 2.39% 3.17% 2.60% 2.38%
Average interest-earning assets to average interest-bearing liabilities 116.13% 116.26% 114.96% 113.31% 110.27%
Allowance for loan losses to total loans at end of period 0.49% 0.42% 0.36% 0.28% 0.30%
Allowance for loan losses to nonperforming loans 64.88% 49.04% 67.93% 49.44% 25.93%
Net charge-offs to average outstanding loans during the period 0.04% 0.02% 0.003% 0.13% 0.03%
Nonperforming assets to total assets 0.67% 0.70% 0.47% 0.65% 1.03%
(1) Only one dividend was declared and paid during 1994 because the Bank's stock conversion was completed on May 11, 1994.
(Concluded)
</TABLE>
-3-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 consolidated financial statements and
accompanying notes thereto.
Certain statements throughout Management's Discussion and Analysis of Financial
Condition and Results of Operations are "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and involve
known and unknown risk, uncertainties and other factors that may cause the
Company's actual results, performance or achievements to be materially different
from the results, performance or achievements expressed or implied by the
forward looking statement. Factors that impact such forward looking statements
include, among others, changes in general economic conditions, changes in
interest rates and competition.
OPERATING STRATEGY
The business of the Company consists principally of attracting deposits from the
general public and using them to purchase and originate mortgage loans secured
by one- to four-family residences. The Company's net income is primarily
dependent on net interest income, which is the difference between the income
earned on its interest earning assets, such as loans and investments, and the
cost of its interest bearing liabilities, primarily deposits and advances from
the Federal Home Loan Bank ("FHLB") of Des Moines. However, the Company's net
income is also affected to a lesser extent by provisions for loan losses and
other operating income and expenses. General economic conditions, particularly
changes in the market interest rates, government legislation, monetary policies,
and attendant actions of the regulatory authorities are the external influences
affecting many of the factors of the Company's net income.
The Company's management, in guiding the operations of the Bank, has implemented
various strategies designed to enhance its profitability while still maintaining
its safety and soundness. These strategies include reducing its exposure to
interest rate risk by emphasizing originations of adjustable rate mortgage loans
for its portfolio, selling fixed rate mortgage loans to correspondent lenders,
selling insurance and providing other fee based services to its customers.
During periods of low interest rates when demand for adjustable rate loans is
generally low, the Bank concentrates on originating consumer loans (primarily
auto loans) and adjustable rate mortgage (ARM) loans that have initial rate
adjustment dates between 2 to 10 years. The Company limits the Bank's
investment portfolio and mortgage-backed and related securities portfolio to
investments in U.S. Government and Agency securities and mortgage-backed and
related securities collateralized primarily by U.S. Government and Agency
securities.
Management of the Company intends for the Bank to remain a retail financial
institution dedicated to financing home ownership and other consumer needs, and
to provide quality service to its customers located in the City of St. Louis,
St. Charles, Franklin, Jefferson and St. Louis Counties.
-4-
<PAGE>
FINANCIAL CONDITION
Total assets at September 30, 1998 were $193.2 million, an increase of $13.8
million from $179.4 million at September 30, 1997. The increase in total assets
is primarily attributable to a $11.4 million increase in loans receivable, and
an increase in investment securities of $5.1 million. These increases were
offset by decreases in cash equivalents of $3.2 million and loans held-for-sale
of $1 million.
Consumer loans (primarily auto loans) increased approximately $10.1 million from
$4 million at September 30, 1997 to $14.1 million at September 30, 1998. With
little demand for adjustable rate loans, the Bank focused on portfolio
origination of mortgages with 10 year repricing intervals and/or 15 year full
amortizations. In November 1998, the Bank began offering adjustable-rate home
equity loans in an effort to obtain more rate-sensitive assets.
Investment securities increased $5.1 million from $16.1 million at September 30,
1997 to $21.2 million at September 30, 1998. The increase is attributable to
management opting to invest overnight funds into government and agency
securities in response to falling interest rates. During the quarter ended
September 30, 1998, $3.0 million of callable securities were purchased. At
September 30, 1998, total callable securities totaled $7.1 million of total
investment securities.
Cash equivalents decreased $3.2 million from $6.2 million at September 30, 1997
to $3.0 million at September 30, 1998. The decrease is a result of management
reinvesting overnight funds in loan products or investment securities.
The decrease of $1 million in the balance of loans held-for-sale from $14.4
million at September 30, 1997 to $13.4 million at September 30, 1998 is a result
of timing differences.
Total liabilities at September 30, 1998 were $168.0 million, an increase of
$12.4 million from $155.6 million at September 30, 1998. The increase is due
primarily to the $5.1 million of stock subscriptions, as well as a growth in
deposits of $7.5 million from $148.7 million at September 30, 1997 to $156.2
million at September 30, 1998. Management attributes growth in deposits to the
implementation of the high performance checking program. The program involves
frequent direct mail advertisements and gifts for new checking account
customers. This promotion has been designed to last 3 years. The goals of the
promotion are (i) to increase the percentage of transaction accounts to total
deposits, thereby decreasing the Company's cost of funds, (ii) to increase other
income through insufficient funds charges, service charges, and fees levied on
checking accounts and (iii) to add new customer relationships to the Company.
The number of new checking accounts has increased almost 65% since September 30,
1997. The Company also believes that it has benefited from the mergers and
consolidations in the St. Louis market. Customers have left larger banks to
come to smaller, more personal financial institutions.
Total stockholders' equity at September 30, 1998 was $25.2 million, an increase
of $1.3 million over $23.9 million at September 30, 1997. The increase is
attributable to net income of $1,845,000, offset by dividends declared and paid
to minority stockholders of $697,000. During the year ended September 30, 1998,
stock options were exercised which resulted in additional capital contributions
of approximately $137,000.
NON-PERFORMING ASSETS AND DELINQUENCIES
Loans accounted for on a non-accrual basis and renegotiated loans amounted to
$753,000 at September 30, 1998 compared to $217,000 at September 30, 1997. The
largest non-accrual loan is a participation in a commercial real estate loan
that is in bankruptcy for a total of $224,000. The borrower is paying in
accordance with the terms of the bankruptcy, and the interest rate has been
increased to 11.625% during the period of delinquency. Interest is being
recorded only upon the receipt of payments. The remainder of non-
-5-
<PAGE>
accrual and renegotiated loans consists primarily of single family loans.
Accruing loans that were contractually past due 90 days or more at September 30,
1998 amounted to $423,000, of which $207,000 were FHA/VA insured loans. The
allowance for loan losses was $763,000 at September 30, 1998 or .49% of total
loans.
Real estate acquired in settlement of loans, net of allowance, increased to
$106,000 at September 30, 1998 from $-0- at September 30, 1997 and consisted of
single-family residences.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997:
GENERAL
Net income for the year ended September 30, 1998 was $1.8 million compared to
$1.9 million for the year ended September 30, 1997. The decrease of $78,000 is
attributable to higher non-interest expense, partially offset by gains on sale
of loans. Advertising expense increased from $57,000 for the year ended
September 30, 1997 to $300,000 for the year ended September 30, 1998.
Compensation expense increased $231,000 over the same period. These expense
increases were partially offset by an increase in gain on sale of loans of
$443,000 over the prior year.
INTEREST INCOME
Interest income increased $209,000 from $13.5 million in 1997 to $13.7 million
in 1998. The increase is due primarily to an increase in interest on loans of
$163,000, and interest on overnight investments increased $219,000. Offsetting
these increases were a decrease of $111,000 on income from investments and FHLB
stock and a decrease of $63,000 in income from mortgage-backed securities.
The increase in interest from overnight investments resulted from an increase in
the average balance from $8.9 million in 1997 to $12.6 million in 1998. The
weighted average rate increased from 5.32% to 5.47% over the same period of
time. Excess cash flows were invested in overnight deposits during the year,
but by the end of the year, all overnight funds had been deployed into loans.
The increase in the interest on loans resulted from an increase in the average
balance of loans, from $140.8 million in 1997 to $143.8 million in 1998. The
weighted average rate decreased from 8.07% in 1997 to 8.01% in 1998.
The decrease in interest income from investment securities is a result of the
decline in the average balance from $18.5 million for the year ended September
30, 1997 to $16.8 million for the year ended September 30, 1998. The average
yield decreased slightly from 5.93% to 5.89% over the same period of time.
Proceeds from maturing securities were used to fund loan growth.
The decrease in interest income on mortgage-backed and related securities
resulted primarily from a decrease in the average balance from $6.9 million in
1997 to $6.2 million in 1998. The average rate changed from 8.30% in 1997 to
8.17% in 1998. During the year, higher rate mortgage-backed securities
experienced greater prepayments. Purchases of mortgage-backed securities were
$1.5 million for the fiscal year ended September 30, 1998.
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<PAGE>
INTEREST EXPENSE
Interest expense increased $157,000, from $7.0 million in 1997 to $7.1 million
in 1998. The increase resulted primarily from increased interest on interest-
bearing deposits of $187,000, offset by reduced expense on borrowings from the
FHLB of Des Moines of $30,000.
The increase in interest expense on deposits was the result of an increase of
the average balance of deposits, from $148.0 million in 1997 to $152.4 million
in 1998. The increase in deposits is the result of the implementation of the
"high performance checking" program which involves frequent direct mailings and
gifts for new accounts. The Company also believes it has benefited from an
influx of new depositors as a result of the consolidation of financial
institutions in the St. Louis market. The average yield decreased slightly from
4.61% at September 30, 1997 to 4.60% at September 30, 1998.
The decrease in interest on FHLB of Des Moines advances of $30,000 is the result
of the scheduled repayments.
PROVISION FOR LOAN LOSSES
The provision for loan losses is determined by management as the amount to be
added to the allowance for loan losses after net chargeoffs have been deducted
to bring the allowance to a level which is considered adequate to absorb losses
inherent in the loan portfolio. Because the Company's loan portfolio is
composed primarily of owner-occupied 1 to 4 family residences, the Company has
experienced very low loan losses. No assurances, however, can be given as to
future loan loss levels.
The provision for loan losses increased $40,000, from $169,000 in 1997 to
$209,000 in 1998. The increase is attributed primarily to higher volume of
consumer loans, which are inherently subject to higher risk of default, as well
as the increase in non-performing assets. Management believes that credit risk
is being adequately mitigated by more stringent collection efforts and
additional monitoring activities. Management believes that the current level of
allowance for loan losses is adequate to absorb estimated losses inherent in the
loan portfolio.
OTHER INCOME
Other income increased $689,000, from $901,000 in 1997 to $1.6 million in 1998.
The increase is due primarily to an increase in the gains on sales of loans,
which were $408,000 in 1997, and $851,000 in 1998. Sales of loans for the
fiscal year ended September 30, 1998 were approximately 116% above the previous
year.
Service charges on deposits increased $93,000 over the fiscal year ended
September 30, 1997 as a result of the growth in checking accounts.
Insurance commissions have increased from $130,000 for the year ended September
30, 1997 to $255,000 for the year ended September 30, 1998 primarily as a result
of increased sales of annuities.
Miscellaneous other income increased $27,000 as a result of increased late
charges, and service charges on loans.
-7-
<PAGE>
OTHER EXPENSES
Other expenses increased from $4.3 million to $5.1 million. The increase was
primarily due to increases in advertising expenses of $243,000, compensation
expense of $231,000, professional services of $119,000, outside data processing
expenses of $72,000, and miscellaneous expenses of $141,000.
Advertising expense for the year ended September 30, 1998 was $300,000, an
increase of $243,000 from $57,000 for the year ended September 30, 1997.
Advertising expense consisted of $20,000 of expense related to the celebration
of the Bank's 75th anniversary, and $208,000 associated with the commencement of
the high performance checking account program.
Compensation expense increased from $2.5 million for the year ended September
30, 1997 to $2.8 million for the year ended September 30, 1998. Fringe benefit
costs relating to the Company's payroll increased approximately $62,000 during
the year. Increased incentive programs and commissions were up $62,000 and
salary increases and additional staffing costs accounted for approximately
$80,000.
Professional services increased from $176,000 for the year ended September 30,
1997 to $294,000 for the year ended September 30, 1998. The increase is
attributable to certain consultative services provided to Company management,
including fees related to the high performance checking program. Other
consulting services include fees for re-engineering the Company's compensation
plan to a performance-based system as well as fees for development of strategic
business and management development programs.
Outside data processing increased from $225,000 for the fiscal year 1997 to
$298,000 for the fiscal year 1998. Included in this increase is approximately
$52,000 of expense related to year 2000 compliance.
Other miscellaneous expenses increased from $624,000 for the year ended
September 30, 1997 to $765,000 for the year ended September 30, 1998. The
increase was due primarily to $34,000 in increased equipment costs, $31,000 in
increased stationery and supply costs, and other increases in postage and
insurance expenses of approximately $43,000.
INCOME TAXES
The provision for income taxes in 1998 decreased $35,000 as the result of less
taxable income. The effective tax rate remained consistent.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996:
GENERAL
Net income for the year ended September 30, 1997 was $1,923,000 compared to
$883,000 for the year ended September 30, 1996. The increase was primarily due
to a $1.2 million decrease in FDIC insurance premiums. On September 30, 1996,
the FDIC imposed a special one-time assessment on each depository institution
with SAIF-assessable deposits to recapitalize the SAIF to a level commensurate
with the Bank Insurance Fund. The special assessment of approximately $1.0
million was accrued by the Bank at September 30, 1996.
-8-
<PAGE>
INTEREST INCOME
Interest income increased $169,000 from $13.3 million in 1996 to $13.5 million
in 1997. The increase is due primarily to an increase in interest on
investments of $391,000, offset by a decrease of $123,000 of interest on loans,
and a $104,000 decline in interest on mortgage-backed securities.
The increase in interest on investment securities resulted from an increase in
the average balance from $12.2 million in 1996 to $18.5 million in 1997. The
average yield increased from 5.80% to 5.93% over the same period of time.
The decrease in the interest on loans resulted from a decrease in the average
balance of loans, from $146.0 million in 1996 to $140.8 million in 1997. The
weighted average rate increased from 7.86% in 1996 to 8.07% in 1997.
The higher average yield on loans is the result of repricing on adjustable rate
loans. The reduced average balances of loans outstanding is due primarily to an
increase in principal repayments, including payoff of the Bank's largest loan,
and refinancing of loans into lower fixed rates. As part of the Bank's interest
rate risk policy, the majority of fixed rate loans are sold with servicing
released.
The decrease in interest income on mortgage-backed and related securities
resulted primarily from a decrease in the average balance from $8.3 million in
1996 to $6.9 million in 1997. The average rate changed from 8.12% in 1996 to
8.30% in 1997. The average balance of mortgage-backed and related securities
declined as principal repayments were received. The average yield increased due
to repayment and/or amortization of lower-rate securities.
INTEREST EXPENSE
Interest expense decreased $87,000, from $7.1 million in 1996 to $7.0 million in
1997. The reduction resulted primarily from reduced interest expense on
interest-bearing deposits of $61,000, and reduced expense on borrowing from the
FHLB of $25,000.
The decrease in interest expense on deposits was the result of the decline of
the average balance of deposits, from $149.4 million in 1996 to $148.0 million
in 1997. The average yield remained the same at 4.61%.
The reduced deposit volume has resulted primarily from increased withdrawals and
competition for funds from other financial intermediaries.
The decrease in interest on FHLB advances is the result of a decline in the
average balance, which was $3.0 million in 1996 compared to $2.6 million in
1997. The balance declined as a result of scheduled principal payments. The
average rate increased from 6.08% in 1996 to 6.20% in 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses is determined by management as the amount to be
added to the allowance for loan losses after net chargeoffs have been deducted
to bring the allowance to a level which is considered adequate to absorb losses
inherent in the loan portfolio. Because the Bank's management believes it
adheres to strict loan underwriting guidelines focusing on mortgage loans
secured by 1 to 4 family residences, the Bank has experienced very low loan
losses. No assurances, however, can be given as to future loan loss levels.
-9-
<PAGE>
The provision for loan losses increased $104,000, from $65,000 in 1996 to
$169,000 in 1997. Management deemed the increase in the loan loss provision
necessary as a result of an increase in non-performing as well as an increase in
consumer credit lines which are inherently riskier than 1 to 4 family mortgage
loans. Consumer loans increased $2.4 million in 1997.
OTHER INCOME
Other income increased $205,000, from $696,000 in 1996 to $901,000 in 1997. The
increase is due primarily to an increase in the gains on sales of loans, which
were $214,000 in 1996, and $408,000 in 1997. These additional gains were the
result of a slight increase in volume and the recording of mortgage servicing
rights in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 122 (see Note 1 in Notes to Consolidated Financial Statements) for $10.2
million of loans securitized and sold with servicing rights retained.
OTHER EXPENSES
Other expenses decreased from $5.7 million to $4.3 million. The reduction was
due primarily to a decrease in the Federal Deposit Insurance expense of $1.2
million. In 1996, the FDIC imposed a special premium on the thrift industry to
recapitalize the SAIF. The Bank's share of the special premium amounted to $1.0
million.
Compensation expense decreased $133,000 in 1997 compared to 1996. In June of
1996 the Board of Directors approved a supplemental non-qualified retirement
plan for the Bank's former president.
Offsetting these decreased expenses was an increase in office occupancy expense
of $85,000, up from $445,000 in 1996 to $530,000 in 1997. The increase is due
to higher depreciation expense, as a result of capital improvements, and higher
lease expense as a result of the opening of the Sunset Hills branch office in
August 1996.
INCOME TAXES
The provision for income taxes in 1997 increased $655,000 as the result of
additional taxable income. The effective tax rate increased from 29.5% to 34.8%
as the result of changes in investment portfolio mix and related taxable versus
nontaxable investment yields.
MARKET RISK ANALYSIS
QUANTITATIVE ASPECTS OF MARKET RISK The Company does not maintain a trading
account for any class of financial instrument nor does the Company engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
the Company is not subject to foreign currency exchange rate risk or commodity
price risk.
-10-
<PAGE>
The following table presents the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair values at September 30, 1998. Expected maturities use
certain assumptions based on historical experience and other data available to
management.
<TABLE>
<CAPTION>
ONE YEAR AFTER THREE AFTER FIVE CARRYING
AVERAGE WITHIN ONE TO YEARS TO FIVE YEARS TO BEYOND VALUE FAIR
INTEREST SENSITIVE ASSETS RATE YEAR THREE YEARS YEARS TEN YEARS TEN YEARS TOTAL VALUE
------- -------- ----------- ------------ ---------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable - net 7.98 % $ 58,188 $ 9,904 $22,512 $30,100 $21,065 $141,769 $143,913
Loans held for sale - net 6.87 % 13,442 13,442 13,617
Mortgage backed securities - HTM 8.18 % 9 103 2,202 2,161 937 5,412 5,684
Mortgage backed securities - AFS 6.00 % 1,473 1,473 1,488
Investments-HTM 5.64 % 10,224 8,699 18,923 19,026
Investments - AFS 5.53 % 979 1,250 2,229 2,235
-------- ------- ------- ---------- ------- -------- --------
Total interest sensitive assets $ 82,842 $19,956 $24,714 $32,261 $23,475 $183,248 $185,963
======== ======= ======= ========== ======= ======== ========
INTEREST SENSITIVE LIABILITIES
Checking accounts and money market 2.66 % $ 25,716 $ - $ - $ - $ - $ 25,716 $ 25,716
Savings accounts 2.50 % 25,669 25,669 25,669
Certificate accounts 5.50 % 71,266 26,835 6,618 131 104,850 105,703
Borrowings 6.32 % 300 600 1,000 1,900 1,964
-------- ------- ------- ---------- ------- -------- --------
Total interest sensitive liabilities $122,951 $27,435 $ 7,618 $ 131 $ - $158,135 $159,052
======== ======= ======= ========== ======= ======== ========
OFF BALANCE SHEET ITEMS
Commitments to extend credit 6.95 % 31,928 (1)
(1) Includes commitments to sell loans of $22,014.
</TABLE>
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<PAGE>
QUALITATIVE ASPECTS OF MARKET RISK -- The Company's principal financial
objective is to achieve long-term profitability while reducing its exposure to
fluctuating market interest rates. The Company has sought to reduce the exposure
of its earnings to changes in market interest rates by attempting to manage the
mismatch between asset and liability maturities and interest rates. In order to
reduce the exposure to interest rate fluctuations, the Company has developed
strategies to manage its liquidity, shorten its effective maturities of certain
interest-earning assets and increase the interest rate sensitivity of its asset
base. Management has sought to decrease the average maturity of its assets by
emphasizing the origination of adjustable-rate residential mortgage loans and
consumer loans, all of which are retained by the Company for its portfolio. In
addition, long-term, fixed-rate single-family residential mortgage loans are
underwritten according to the guidelines of Fannie Mae and Freddie Mac and
usually sold for cash in the secondary market. The retention of ARM loans,
which reprice at regular intervals, helps to ensure that the yield on the
Company's loan portfolio will be sufficient to offset increases in the Company's
cost of funds. However, periodic and lifetime interest rate adjustment limits
may prevent ARM loans from repricing to market interest rates during periods of
rapidly rising interest rates. The Company does not use any hedging techniques
to manage the exposure of its assets to fluctuating market interest rates. The
Company relies on retail deposits as its primary source of funds. Management
believes retail deposits, compared to brokered deposits, reduce the effects of
interest rate fluctuations because they generally represent a more stable source
of funds.
The Company uses interest rate sensitivity analysis to measure its interest rate
risk by computing changes in NPV (net portfolio value) of its cash flows from
assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. NPV represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities, with adjustments made for off-balance sheet items. This
analysis assesses the risk of loss in market risk sensitive instruments in the
event of a sudden and sustained 100 to 400 basis point increase or decrease in
market interest rates with no effect given to any steps that management might
take to counter the effect of that interest rate movement (see table below).
Using data compiled by the OTS, the Company receives a report which measures
interest rate risk by modeling the change in NPV (net portfolio value) over a
variety of interest rate scenarios. This procedure for measuring interest rate
risk was developed by the OTS to replace the "gap" analysis (the difference
between interest-earning assets and interest-bearing liabilities that mature or
reprice within a specific time period).
<TABLE>
<CAPTION>
ESTIMATED CHANGE
IN NET PORTFOLIO
VALUE
CHANGE IN INTEREST RATES (IN THOUSANDS)
<S> <C>
400 basis point rise (4,027)
300 basis point rise (2,167)
200 basis point rise (799)
100 basis point rise (164)
Base scenario -
100 basis point decline (38)
200 basis point decline 387
300 basis point decline 1,367
400 basis point decline 2,429
</TABLE>
The preceding table indicates that at September 30, 1998, in the event of a
sudden and sustained increase in prevailing market interest rates, the Company's
NPV would be expected to decrease, and in the event of a sudden and sustained
decrease in prevailing market interest rates, the Company's NPV would be
expected to increase.
Certain assumptions utilized by the OTS in assessing the interest rate risk of
savings associations within its region were utilized in preparing the preceding
table. These assumptions relate to interest rates, loan
-12-
<PAGE>
prepayment rates, deposit decay rates, and the market values of certain assets
under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are proceeds from maturities of
investment securities, principal payments received on mortgage-backed and
related securities, loan repayments and deposits.
The primary investing activities of the Company are originating and purchasing
loans, purchasing investments, mortgage-backed and related securities. Proceeds
from maturities of investment securities and principal payments received on
mortgage-backed and related securities provided $20.7 million of liquidity for
the year ended September 30, 1998.
Typically, the Company's most significant financing activities are deposits
accounts, FHLB of Des Moines borrowings, taxes and insurance on behalf of
borrowers, and the payment of dividends. The repayment of FHLB of Des Moines
borrowings of $300,000 and dividend payments totaling $697,000 were the primary
uses of cash during 1998. These cash outflows were offset by net increases in
deposits and escrow balances totaling $7.6 million during 1998.
On December 2, 1998, the Conversion and Reorganization was completed. The
Company raised gross proceeds of $29,095,000, subject to final expenses, which
will provide the Company with a larger capital base which will enhance its
ability to pursue lending and investment opportunities, as well as opportunities
for growth and expansion.
Federal regulations require the Company 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 Company 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. At September 30, 1998, the Company's liquidity
ratio (liquid assets as a percentage of net withdrawable savings deposit and
short-term borrowings) was 22.65%.
The Company must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments and deposit withdrawals. At
September 30, 1998, the Company had outstanding commitments to originate loans
of $9.9 million and commitments to sell loans of $22 million. At the same time,
certificates of deposit which are scheduled to mature in one year or less
totaled $71.3 million. Based upon historical experience, management believes
the majority of maturing certificates of deposit will remain with the Company.
Management believes its ability to generate funds internally will satisfy its
liquidity requirements. If the Company requires funds beyond its ability to
generate them internally, it has the ability to borrow funds from the FHLB of
Des Moines under a blanket agreement which assigns all investments in FHLB Stock
as well as
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<PAGE>
qualifying first mortgage loans equal to 150% of the outstanding advances as
collateral to secure the amounts borrowed. At September 30, 1998 the Company had
approximately $79.4 million available to it under the above-mentioned borrowing
arrangement. At September 30, 1998, the Company had $1.9 million in advances
from the FHLB of Des Moines.
The Company's ability to pay dividends depends primarily on the Bank's ability
to pay dividends to the Company. Under federal regulations the Bank cannot pay
cash dividends in excess of the higher of (i) net income to date during the
calendar year plus one-half of surplus capital over regulatory capital or
amounts which would result in the Bank not maintaining adequate capital
requirements imposed by the OTS or (ii) 75% of net income over the most recent
four quarter period.
The Company is not subject to any separate regulatory capital requirements. The
Bank is required to maintain specific minimum amounts of capital pursuant to OTS
regulations. 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 risked-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
4.0% of adjusted 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-weighing assets the Bank multiplies the value of each
asset on its balance sheet by a defined risk-weighing factor (e.g., one- to
four-family conventional residential loans carry a risk-weighted factor of 50%).
At September 30, 1998, the Bank's tangible capital totaled $25.1 million, or
13.01% of adjusted total assets, which exceeded the minimum 1.5% requirement by
$22.2 million, or 11.5%. The Bank's core capital at September 30, 1998 totaled
$25.1 million or 13.01% of adjusted total assets, which was approximately $17.4
million, or 9.01% above the minimum requirement of 4.0%. The Bank's risk-based
capital at that date totaled $25.9 million, or 22.43% of risk-weighted assets,
which is $16.7 million, or 14.4% above the 8.0% fully phased-in requirement.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars,
without considering the change in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Company's operations. Unlike most industrial companies, virtually
all the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on
a financial institution's performance than do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
YEAR 2000
The Company is a user of computers, computer software and equipment utilizing
embedded microprocessors that will be affected by the year 2000 issue. The year
2000 issue exists because many computer systems and applications use two-digit
date fields to designate a year. As the century date change occurs, date-
sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the
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<PAGE>
year 2000 may cause erroneous results, ranging from system malfunctions to
incorrect or incomplete processing.
The Company established a year 2000 committee in 1997 headed by the Senior Vice
President. Other members are President, Executive Vice President, and an
outside Board member. The committee provides periodic reports to the Board of
Directors in order to assist the directors in their year 2000 readiness
oversight role. The plan is comprised of the following phases:
1. Awareness - Educational initiatives on year 2000 issues and concerns. This
phase is ongoing, especially as it relates to informing customers of the
Company's year 2000 preparedness.
2. Assessment - Inventory of all technology assets and identification of third-
party vendors and service providers. This phase has been completed.
3. Renovation - Review of vendor and service providers responses to the
Company's year 2000 inquiries and development of a follow-up plan and time
line. This phase has been completed.
4. Validation - Testing all systems and third-party vendors for year 2000
compliance. The Company is currently in this phase of its plan. A third-
party service bureau processes all customer transactions and has completed
upgrades to its systems to be year 2000 compliant.
The Company's third-party service bureau provided access to their system on
November 8, 1998 for the Company to test its upgraded hardware and Local
Area Network, and to test all applications the service bureau provides to
the Company. The testing of equipment and Local Area Network went extremely
well and the Company was able to roll the date on the file server and sign
on the Host System that was dated January 3, 2000.
The Company processed transactions for all applications, Savings,
Certificates of Deposit, Mortgage Loans, Consumer Loan, Individual
Retirement Accounts, etc. The General Ledger system was also tested and the
Company received a file containing all the transactions that were processed
during the test. This file was entered into the General Ledger system which
posted and merged in the General Ledger balance.
The Company's item processor will be conducting a test with their service
bureau. The Company is also participating in Proxy Testing with their ATM
Processor. This testing is scheduled to be complete by March 31, 1999. Other
third-party vendors have indicated their compliance. Where it is possible,
the Company plans to test third-party vendors for compliance. Where testing
is not possible, the Company will rely on certifications from vendors.
Testing is scheduled to be completed by March 31, 1999. In the event that
testing reveals that the third-party systems are not year 2000 compliant,
the Company's service bureau intends to either transfer the Company to other
systems that are year 2000 compliant or provide additional resources to
resolve the year 2000 issues. Where it is possible to do so, the Company has
scheduled testing with these third parties. Where testing is not possible,
the Company will rely on certifications from vendors and service providers.
5. Implementation - Replacement or repair of non-compliant technology. As the
Company progresses through the validation phase, the Company expects to
determine necessary remedial actions and provide for their implementation.
The Company has already implemented a new year 2000 compliant computerized
teller system and has verified the year 2000 compliance of its computer
hardware and other equipment containing embedded microprocessors.
The Company estimates its total cost to replace computer equipment, software
programs or other equipment containing embedded microprocessors that were not
year 2000 compliant to be approximately $150,000. For year ended September 30,
1998, approximately $58,000 of this amount has been incurred. System
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<PAGE>
maintenance or modification costs are being expensed as incurred, including the
cost of new hardware, software or other equipment. The Company does not
separately track the internal costs and time that its own employees spend on
year 2000 issues. Such costs are principally payroll costs.
Because the Company is substantially dependent on its computer systems and the
computer systems of third parties, the failure of these systems to be year 2000
compliant could cause substantial disruption of the Company's business and could
have a material adverse financial impact on the Company. Failure to resolve
year 2000 issues presents the following risks to the Company: (1) the Company
could lose customers to other financial institutions, resulting in a loss of
revenue, if the Company's third-party service bureau is unable to properly
process customer transactions; (2) governmental agencies, such as the Federal
Home Loan Bank, and correspondent banks could fail to provide funds to the
Company, which could materially impair the Company's liquidity and affect the
Company's ability to fund loans and deposit withdrawals; (3) concern on the part
of depositors that year 2000 issues could impair access to their deposit account
balances could result in the Company experiencing deposit outflows prior to
December 31, 1999; and (4) the Company could incur increased personnel costs if
additional staff is required to perform functions that inoperative systems would
have otherwise performed. Management believes that it is not possible to
estimate the potential lost revenue due to the year 2000 issue, as the extent
and longevity of any potential problem cannot be predicted. Because
substantially all of the Company's loan portfolio consists of residential
mortgage and consumer loans, management believes that year 2000 issues will not
impair the ability of the Company's borrowers to repay their debt.
There can be no assurances that the Company's year 2000 plan will effectively
address the year 2000 issue, that the Company's estimates of the timing and
costs of completing the plan will ultimately be accurate or that the impact of
any failure of the Company or its third-party vendors and service providers to
be year 2000 compliant will not have a material adverse affect on the Company's
business, financial condition or results of operations.
YIELDS EARNED AND RATES PAID
The following table sets forth for the three years ended September 30, 1998,
1997 and 1996 and at September 30, 1998 and 1997, the weighted average yields
earned on the Company's assets, the weighted average interest rates paid on the
Company's liabilities, together with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------- --------------------------
1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Weighted average yield on loans 8.01 % 8.07 % 7.86 % 7.98 % 8.34 %
Weighted average yield on investment securities 5.89 % 5.93 % 5.80 % 5.63 % 5.88 %
Weighted average yield on mortgage-backed 8.17 % 8.30 % 8.12 % 7.72 % 8.24 %
securities
Weighted average yield on Federal funds sold and
overnight deposits 5.47 % 5.32 % 5.38 % 5.44 %
Weighted average yield on all interest-earning 7.64 % 7.71 % 7.61 % 7.64 % 7.93 %
assets
Weighted average rate paid on savings deposits 4.60 % 4.61 % 4.61 % 4.54 % 4.64 %
Weighted average rate paid on FHLB advances (1) 6.34 % 6.20 % 6.08 % 6.32 % 6.22 %
Weighted average rate paid on all interest-bearing
liabilities (1) 4.62 % 4.64 % 4.64 % 4.61 % 4.69 %
Interest rate spread (spread between weighted average
rate on all interest-earning assets and all
interest-bearing liabilities) (1) 3.02 % 3.07 % 2.97 % 3.03 % 3.24 %
Net interest margin (net interest income as a
percentage of average interest-earning assets) (1) 3.66 % 3.72 % 3.57 % N/A N/A
</TABLE>
(1) Data for 1998 does not include the stock subscription balance of $5.1
million. Accrued interest on these stock subscriptions is considered
immaterial.
-16-
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth information regarding average 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. Average balances have been calculated using average
of month-end balances.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1998 1997
--------------------------------------- -----------------------------------
INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (1) $143,795 $ 11,520 8.01 % $140,827 $ 11,357 8.07 %
Investment securities 16,776 988 5.89 % 18,520 1,098 5.93 %
Mortgage-backed and related securities 6,216 508 8.17 % 6,876 571 8.30 %
Federal funds sold and overnight deposits 12,640 691 5.47 % 8,868 472 5.32 %
-------- -------- -------- --------
Total interest-earning assets 179,427 13,707 7.64 % 175,091 13,498 7.71 %
Non-interest-earning assets 5,035 3,728
-------- --------
Total assets $184,462 $178,819
======== ========
Interest-bearing liabilities (5):
Total deposits (2) $152,451 7,011 4.60 % $148,006 6,824 4.61 %
FHLB advances 2,049 130 6.34 % 2,597 161 6.20 %
-------- -------- -------- --------
Total interest-bearing liabilities 154,500 7,141 4.62 % 150,603 6,985 4.64 %
-------- --------
Non-interest bearing liabilities 5,335 5,003
Retained earnings 24,627 23,213
-------- --------
Total liabilities and retained $184,462 $178,819
earnings ======== ========
Net interest income $ 6,566 $ 6,513
======== ========
Interest rate spread (3) 3.02 % 3.07 %
Net interest margin (4) 3.66 % 3.72 %
Ratio of average interest-earning assets to
average interest-bearing liabilities 116.13 % 116.26 %
======== ========
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1996
-----------------------------
INTEREST
AVERAGE AND YIELD/
BALANCE DIVIDENDS COST
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Net loans (1) $146,012 $11,480 7.86 %
Investment securities 12,217 708 5.80 %
Mortgage-backed and related securities 8,316 675 8.12 %
Federal funds sold and overnight deposits 8,663 466 5.38 %
-------- -------
Total interest-earning assets 175,208 13,329 7.61 %
Non-interest-earning assets 4,263
--------
Total assets $179,471
========
Interest-bearing liabilities (5):
Total deposits (2) $149,355 6,885 4.61 %
FHLB advances 3,057 187 6.08 %
-------- -------
Total interest-bearing liabilities 152,412 7,072 4.64 %
-------
Non-interest bearing liabilities 4,438
Retained earnings 22,621
--------
Total liabilities and retained $179,471
earnings ========
Net interest income $ 6,257
=======
Interest rate spread (3) 2.97 %
Net interest margin (4) 3.57 %
Ratio of average interest-earning assets to
average interest-bearing liabilities 114.96 %
=======
</TABLE>
- -----------
(1) Includes nonaccrual loans with a average balance of $477,000, $160,000 and
$111,000 at September 30, 1998, 1997 and 1996, respectively.
(2) Includes non-interest-bearing deposits with an average balance of $1.3
million, $759,000 and $457,000 during 1998, 1997 and 1996, respectively.
(3) Yield on interest-earning assets less cost of interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
(5) Data for 1998 does not include the stock subscription balance of $5.1
million.
-17-
<PAGE>
RATE VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on net
interest income for the periods indicated. Information is provided with respect
to (i) effects on interest income attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects on interest income attributable
to changes in rate (changes in rate multiplied by prior volume); (iii) changes
in rate/volume (change in rate multiplied by change in volume); and (iv) the net
change (the sum of the prior columns).
<TABLE>
<CAPTION>
1998 COMPARED TO 1997 1997 COMPARED TO 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------------- ------------------------------------
RATE/ RATE/
RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Total net loans $(75) $ 239 $(2) $ 162 $296 $(409) $(11) $(124)
Investment securities (8) (103) 1 (110) 17 364 9 390
Mortgage-backed and related securities (9) (55) 1 (63) 16 (117) (3) (104)
Federal funds sold and overnight deposits 13 201 5 219 (5) 11 6
---- ----- --- ----- ---- ----- ---- -----
Total net change in income on
interest-earning assets (79) 282 5 208 324 (151) (5) 168
Interest-bearing liabilities (1):
Interest-bearing deposits (18) 205 (1) 186 1 (62) (61)
FHLB advances 4 (34) - (30) 3 (28) (1) (26)
---- ----- --- ----- ---- ----- ---- -----
Total net change in expense on
interest-bearing liabilities (14) 171 (1) 156 4 (90) (1) (87)
---- ----- --- ----- ---- ----- ---- -----
Net change in net interest income $(65) $ 111 $ 6 $ 52 $320 $ (61) $ (4) $ 255
==== ===== === ===== ==== ===== ==== =====
<CAPTION>
1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO
----------------------------------------------
RATE/
RATE VOLUME VOLUME NET
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Total net loans $1,067 $(738) $(70) $ 259
Investment securities 4 290 3 297
Mortgage-backed and related securities 19 (179) (4) (164)
Federal funds sold and overnight deposits (23) 147 (10) 114
------ ----- ---- -----
Total net change in income on
interest-earning assets 1,067 (480) (81) 506
Interest-bearing liabilities (1):
Interest-bearing deposits 557 (78) (7) 472
FHLB advances 6 (285) (3) (282)
------ ----- ---- -----
Total net change in expense on
interest-bearing liabilities 563 (363) (10) 190
------ ----- ---- -----
Net change in net interest income $ 504 $(117) $(71) $ 316
====== ===== ==== =====
</TABLE>
(1) Data does not consider the stock subscription balance at September 30, 1998
of $5.1 million.
-18-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pulaski Bank, A Federal Savings Bank:
We have audited the accompanying consolidated balance sheets of Pulaski Bank, A
Federal Savings Bank and subsidiaries (the "Bank") as of September 30, 1998 and
1997, and the related consolidated statements of income and comprehensive
income, stockholders' equity and cash flows for each of the three years in the
period ended September 30, 1998. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Bank as of September 30, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Bank
changed its method of accounting for mortgage servicing rights, effective
October 1, 1996, to conform with Statement of Financial Accounting Standards No.
122, later superseded by Financial Accounting Standards No. 125.
DELOITTE & TOUCHE LLP
December 4, 1998
-19-
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Cash and amounts due from depository institutions $ 3,047,328 $ 1,248,294
Federal funds sold and overnight deposits 5,000,000
------------ ------------
Total cash and cash equivalents 3,047,328 6,248,294
Investment securities available for sale, at market value 2,235,133
Investment securities held to maturity, at cost (market value
$19,026,432 and $16,071,484 in 1998 and 1997, respectively) 18,923,006 16,068,191
Mortgage-backed and related securities held to maturity, at cost
(market value $5,683,829 and $6,647,107 in 1998 and 1997, respectively) 5,412,117 6,361,708
Mortgage-backed and related securities available for sale, at market value 1,488,267
Loans receivable held for sale, at lower of cost or market 13,442,421 14,384,480
Loans receivable, net of allowance for loan losses of $762,688 and
$612,852 in 1998 and 1997, respectively 141,769,058 130,358,537
Federal Home Loan Bank stock - at cost 1,423,000 1,638,000
Real estate acquired in settlement of loans, net of allowance for
losses of $18,640 105,628
Premises and equipment, net 2,105,293 1,808,809
Accrued interest receivable:
Investment securities 224,513 140,225
Mortgage-backed securities 48,584 49,468
Loans receivable 907,695 925,708
Other 882
Other assets 2,076,332 1,434,430
------------ ------------
TOTAL $193,208,375 $179,418,732
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $156,235,348 $148,672,221
Stock subscriptions 5,129,497
Advances from Federal Home Loan Bank of Des Moines 1,900,000 2,200,000
Advance payments by borrowers for taxes and insurance 3,185,605 3,113,093
Accrued interest payable 262,600 262,833
Other liabilities 1,282,666 1,312,695
------------ ------------
Total liabilities 167,995,716 155,560,842
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $1.00 par value per share, authorized 10,000,000
shares; none issued or outstanding
Common stock - $1.00 par value per share, authorized 20,000,000
shares; 2,105,840 shares and 2,094,800 shares issued and
outstanding at September 30, 1998 and 1997, respectively 2,105,840 2,094,800
Additional paid-in capital 5,258,418 5,132,238
Unearned MRDP shares (73,600) (128,800)
Accumulated other comprehensive income 14,520
Retained earnings, substantially restricted 17,907,481 16,759,652
------------ ------------
Total stockholders' equity 25,212,659 23,857,890
------------ ------------
TOTAL $193,208,375 $179,418,732
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
-20-
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable $11,520,314 $11,356,782 $11,480,242
Investment securities 987,863 1,098,553 708,208
Mortgage-backed and related securities 507,604 570,691 674,999
Other 690,764 471,697 465,887
----------- ----------- -----------
Total interest income 13,706,545 13,497,723 13,329,336
----------- ----------- -----------
INTEREST EXPENSE:
Deposits 7,011,403 6,824,171 6,885,279
Advances from Federal Home Loan Bank 130,302 160,594 186,490
----------- ----------- -----------
Total interest expense 7,141,705 6,984,765 7,071,769
----------- ----------- -----------
NET INTEREST INCOME 6,564,840 6,512,958 6,257,567
PROVISION FOR LOAN LOSSES 209,277 169,176 64,700
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,355,563 6,343,782 6,192,867
----------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 168,596 75,929 78,210
Gains on sales of loans 851,293 408,180 214,054
Insurance commissions 255,251 130,417 125,255
Other 315,038 286,759 278,763
----------- ----------- -----------
Total other income 1,590,178 901,285 696,282
----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits 2,775,166 2,543,703 2,676,998
Occupancy and equipment expense 581,914 529,605 444,570
Advertising 299,663 56,781 89,947
Federal insurance premiums 97,319 142,034 355,935
SAIF premium assessment 1,010,105
Outside data processing 297,622 225,492 215,231
Professional services 294,428 175,875 193,362
Other 765,007 624,100 649,200
----------- ----------- -----------
Total other expenses 5,111,119 4,297,590 5,635,348
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,834,622 2,947,477 1,253,801
INCOME TAXES 989,827 1,024,586 370,339
----------- ----------- -----------
NET INCOME 1,844,795 1,922,891 883,462
OTHER COMPREHENSIVE INCOME - Unrealized gain (loss)
on securities available-for-sale (net of tax of $7,481) 14,520
----------- ----------- -----------
COMPREHENSIVE INCOME $ 1,859,315 $ 1,922,891 $ 883,462
=========== =========== ===========
NET INCOME PER COMMON SHARE - BASIC $0.88 $0.92 $0.42
=========== =========== ===========
NET INCOME PER COMMON SHARE - DILUTED $0.87 $0.91 $0.42
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
-21-
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNEARNED
MANAGEMENT
RECOGNITION ACCUMULATED
NUMBER OF ADDITIONAL AND OTHER
SHARES COMMON PAID-IN DEVELOPMENT COMPREHENSIVE RETAINED
OUTSTANDING STOCK CAPITAL PLAN SHARES INCOME EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
OCTOBER 1, 1996 2,094,000 $2,094,000 $5,117,826 $(239,200) $ - $15,123,519 $22,096,145
Amortization of Management
Recognition and Develop-
ment Plan shares 55,200 55,200
Dividends ($0.85 per share)* (530,400) (530,400)
Net income 883,462 883,462
----------- ----------- ----------- ----------- --------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1996 2,094,000 2,094,000 5,117,826 (184,000) - 15,476,581 22,504,407
Common stock issued under
Stock Option Plan and
related tax benefit 800 800 14,412 15,212
Amortization of Management
Recognition and Development
Plan shares 55,200 55,200
Dividends ($1.03 per share)* (639,820) (639,820)
Net income 1,922,891 1,922,891
----------- ----------- ----------- ----------- --------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1997 2,094,800 2,094,800 5,132,238 (128,800) - 16,759,652 23,857,890
Amortization of Management
Recognition and Development
Plan shares 55,200 55,200
Dividends ($1.10 per share)* (696,966) (696,966)
Stock options exercised 11,040 11,040 126,180 137,220
-----------
Comprehensive income:
Net income 1,844,795 1,844,795
Net unrealized gains on
securities 14,520 14,520
-----------
Total comprehensive
income 1,859,315
----------- ----------- ----------- ----------- --------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1998 2,105,840 $2,105,840 $5,258,418 $ (73,600) $14,520 $17,907,481 $25,212,659
=========== =========== =========== =========== ========= ============ ===========
</TABLE>
*Pulaski Bancshares, M.H.C. ("MHC"), which owned 1,470,000 shares of stock in
the Bank, waived receipt thereby reducing the actual dividend payment to the
amounts shown above.
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,844,795 $ 1,922,891 $ 883,462
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and accretion:
Premises and equipment 289,842 270,254 206,205
Management Recognition and Development Plan
stock awards 55,200 55,200 55,200
Loan fees, discounts and premiums - net (119,700) (228,781) (236,288)
Provision for loan losses 209,277 169,176 64,700
Provision for losses on real estate acquired in
settlement of loans 33,513 14,653 50,023
Gains on sales of real estate acquired in
settlement of loans 6,819 (4,694) (44,447)
Originations of loans receivable for sale to
correspondent lenders (123,642,457) (70,365,167) (59,795,458)
Proceeds from sales of loans to correspondent lenders 125,435,810 63,598,438 56,063,054
Gains on sales of loans (851,293) (408,181) (214,054)
Deferred income taxes (56,124) 435,066 (562,061)
Changes in other assets and liabilities (688,030) (1,231,160) 1,132,706
------------- ------------ ------------
Net adjustments 672,857 (7,695,196) (3,280,420)
------------- ------------ ------------
Net cash provided by (used in) operating activities 2,517,652 (5,772,305) (2,396,958)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 19,760,000 13,500,000 5,997,700
Purchases of investment securities and Federal Home
Loan Bank stock (24,426,158) (14,333,318) (15,320,866)
Purchases of mortgage-backed and related securities (1,486,654)
Principal payments received on mortgage-backed and
related securities 965,951 1,070,115 2,022,252
Loan (originations) repayments - net (11,941,823) 3,511,481 14,164,754
Proceeds from sales of real estate acquired in
settlement of loans receivable 91,001 126,436 475,479
Additions to premises and equipment (586,325) (378,999) (392,410)
------------- ------------ ------------
Net cash (used in) provided by investing activities (17,624,008) 3,495,715 6,946,909
------------- ------------ ------------
(Continued)
</TABLE>
-23-
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $ 7,563,127 $ 847,891 $(3,680,444)
Repayment of Federal Home Loan Bank advances (300,000) (800,000) (2,000,000)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 72,512 79,442 (198,698)
Proceeds from stock subscriptions 5,129,497
Common stock issued under Stock Option Plan 137,220 15,213
Dividends declared on common stock (696,966) (639,820) (530,400)
----------- ----------- -----------
Net cash provided by (used in) financing activities 11,905,390 (497,274) (6,409,542)
----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,200,966) (2,773,864) (1,859,591)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,248,294 9,022,158 10,881,749
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,047,328 $ 6,248,294 $ 9,022,158
=========== =========== ===========
ADDITIONAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest on deposits $ 7,011,635 $ 6,822,800 $ 6,884,066
Interest on advances from the Federal Home Loan Bank 130,302 160,594 187,239
Income taxes 1,185,814 486,190 930,000
NONCASH INVESTING ACTIVITIES:
Real estate acquired in settlement of loans receivable 236,961 2,959 277,590
Loans receivable securitized 9,105,517 10,188,257 6,220,945
</TABLE>
See accompanying notes to the consolidated financial statements. (Concluded)
-24-
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pulaski Bank, A Federal Savings Bank (the "Bank") was founded in 1922 as a
Missouri chartered savings and loan association and is headquartered in St.
Louis County, Missouri. Pursuant to a Plan of Reorganization and Stock
Issuance in Connection with Formation of a Mutual Holding Company adopted by
the Bank's Board of Directors on November 17, 1993, and subsequently amended,
the Bank reorganized as the Missouri chartered capital stock savings and loan
association subsidiary of Pulaski Bancshares, M.H.C. ("Holding Company"), a
Federally-chartered mutual holding company ("Reorganization"). The
Reorganization was completed on May 11, 1994 through the issuance by the Bank
of 2,070,000 shares of common stock, of which 1,470,000 shares were issued to
the Holding Company and 600,000 shares were issued to depositors and
borrowers of the Bank. (See Note 2).
On May 10, 1995, the Bank received conditional approval from the Office of
Thrift Supervision ("OTS") to convert from a Missouri-chartered stock savings
and loan association to a Federally-chartered stock savings bank. The
charter conversion was conditioned upon the approval of the Bank's minority
stockholders (other than Pulaski Bancshares, M.H.C.). At a special meeting
of Stockholders held June 19, 1995, the charter conversion was approved by
the stockholders and became effective. The Bank changed its name to "Pulaski
Bank, A Federal Savings Bank" as part of the charter conversion.
The accounting and reporting policies and practices of the Bank and
subsidiaries conform to generally accepted accounting principles and to
prevailing practices within the thrift industry. A summary of the Bank's
significant accounting policies follows:
NATURE OF OPERATIONS - The Bank is a community-oriented financial institution
that provides traditional financial services through the operation of five
full service branches within St. Louis City and County. The Bank is engaged
primarily in the business of attracting deposits from the general public and
using these and other funds to originate one- to four-family residential
mortgage loans within the Bank's lending market area. The Bank is an
approved lender/servicer for the Federal Housing Administration ("FHA") and
the Veterans Administration ("VA"), as well as for the Missouri Housing
Development Commission (a government agency established to provide home
buying opportunities for lower income first time home buyers) ("MHDC"). The
Bank is also an approved seller/servicer for the Government National Mortgage
Association ("GNMA").
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Pulaski Bank, A Federal Savings Bank, its
wholly-owned subsidiary Pulaski Service Corporation and Pulaski Service
Corporation's wholly-owned subsidiary Pulaski Real Estate Co. All
significant intercompany balances and transactions have been eliminated.
Pulaski Real Estate Co. was liquidated and dissolved during the year ended
September 30, 1997. This transaction did not have a significant impact on
the consolidated financial statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation
of financial statements in conformity with generally accepted accounting
principles 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 and that
affect the reported amounts of revenues and
-25-
<PAGE>
expenses during the reporting period. Actual results could differ from those
estimates. The provision for loan losses is a significant estimate reported
within the financial statements.
CASH EQUIVALENTS - For purposes of reporting cash flows, cash and cash
equivalents include cash and amounts due from depository institutions,
federal funds sold, and overnight deposits. Generally, federal funds are
sold for a one-day period.
The Bank is required by regulation to maintain liquid assets in the form of
cash and securities approved by federal regulations, at a quarterly average
of not less than 4% of customer deposits and short-term borrowings.
INVESTMENT SECURITIES AND MORTGAGE-RELATED SECURITIES, HELD-TO-MATURITY -
Investment securities and mortgage-related securities held-to-maturity are
stated at cost, adjusted for amortization of premium and discount which are
recognized as adjustments to interest income over the life of the securities
using the level-yield method.
To the extent management determines a decline in value in an investment or
mortgage-related security held-to-maturity to be other than temporary, the
Bank will adjust the carrying value and include such expense in the
consolidated statements of income.
INVESTMENT SECURITIES AND MORTGAGE-RELATED SECURITIES, AVAILABLE-FOR-SALE -
Investment securities and mortgage-related securities available-for-sale are
recorded at their current fair value. Unrealized gains or losses on
securities available-for-sale are included in a separate component of equity,
net of deferred income taxes. Gains or losses on the disposition of
securities available-for-sale, are recognized using the specific
identification method.
LOANS HELD FOR SALE - Loans held for sale are covered by investor commitments
and generally sold servicing released. Accordingly, market values for such
loans are based on commitment prices. Gains or losses on loan sales are
recognized at the time of sale and are determined by the difference between
net sales proceeds and the principal balance of the loans sold, adjusted for
net deferred loan fees. Loan origination and commitment fees, net of certain
direct loan origination costs, are deferred until the sale of the loan.
LOANS - Loans are stated at the principal amounts outstanding adjusted for
premiums and discounts. Premiums and discounts are amortized and accreted
using the level yield method.
Interest on loans is accrued based upon the principal amounts outstanding.
The Bank's policy is to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Non-accrual loans are
returned to accrual status when, in the opinion of management, the financial
position of the borrower indicates there is no longer any reasonable doubt as
to the timely collectibility of interest or principal.
Loan origination and commitment fees, net of certain direct loan origination
costs, are deferred and amortized to interest income using the level yield
method.
PROVISION FOR LOAN LOSSES - The Bank considers a loan to be impaired when
management believes it is probable that 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 Bank records a loss valuation equal to the excess
of the loan's carrying value over the present value of the estimated future
cash flows discounted at the loan's effective rate based on the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. One-to-four family residential loans and consumer
loans are collectively evaluated
-26-
<PAGE>
for impairment. Loans on residential properties with greater than four units
and loans on construction and development and commercial properties are
evaluated for impairment on a loan by loan basis. The allowance for loan
losses is increased by charges to income and decreased by charge-offs (net of
recoveries). Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS - Real estate acquired in
settlement of loans represents foreclosed assets held for sale and is
recorded at fair value as of the date of foreclosure less estimated disposal
costs (the new basis) and is subsequently carried at the lower of the new
basis or fair value less selling costs on the current measurement date.
Adjustments for estimated losses are charged to operations when any
significant decline reduces the fair value to less than carrying value.
Costs and expenses related to major additions and improvements are
capitalized while maintenance and repairs which do not improve or extend the
lives of the respective assets are expensed currently. Gains on the sale of
real estate acquired in settlement of loans are recognized upon disposition
of the property to the extent allowable considering the adequacy of the down
payment and other requirements.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation charged to operations is primarily
computed utilizing the straight-line method over the estimated useful lives
of the related assets. Estimated lives range from 3 to 45 years for
buildings and improvements and 5 to l0 years for furniture and equipment.
INCOME TAXES - Deferred income taxes are determined using an asset or
liability approach that requires the recognition of deferred tax assets or
liabilities based upon temporary differences in the tax basis of an asset or
liability and its related financial statement balance. The deferred tax
asset or liability is calculated using the enacted tax rates expected to
apply in the period in which the deferred asset or liability is expected to
be settled or realized.
EARNINGS PER SHARE - Basic earnings per share for the years ended September
30, 1998, 1997 and 1996 are determined by dividing net income for the year by
the weighted average number of common shares. The weighted average number of
shares used in computing earnings per share was 2,101,686, 2,094,092, and
2,094,000 in 1998, 1997 and 1996, respectively.
Diluted earnings per share considers the potential dilutive effects of the
exercise of the outstanding stock options under the Bank's stock option plan.
Applying the treasury stock method to the outstanding stock options results
in an additional 15,037, 27,677, and 8,874 shares to be used in the diluted
earnings per share calculation for the years ended September 30, 1998, 1997
and 1996, respectively.
MORTGAGE SERVICING RIGHTS - On October 1, 1996, the Bank adopted the
provisions of Statement of Financial Accounting Standards No. 122, Accounting
for Mortgage Servicing Rights ("SFAS 122"). Effective December 31, 1996,
SFAS 122 was superseded by Statement of Financial Accounting Standards No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities ("SFAS 125"). SFAS 125 did not materially
change the accounting of mortgage servicing rights under SFAS 122 but
provided a broader umbrella on the accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities.
During the years ended September 30, 1998 and 1997, $155,000 and $194,000 of
mortgage servicing rights were capitalized, respectively. The fair value of
the mortgage servicing rights were based upon the present value of estimated
expected future cash flows valuation technique and in some instances fair
value. The discount rate utilized was commensurate with the risks inherent
in the portfolio and the
-27-
<PAGE>
average portfolio life was based upon relative industry statistics and the
Bank's historic prepayment rate. The cost of mortgage servicing rights is
amortized in proportion to, and over the period of estimated net servicing
revenues. Amortization of mortgage servicing rights was $20,367 and $5,461
for the years ended September 30, 1998 and 1997, respectively. Impairment of
mortgage servicing rights is assessed based on the fair value of the rights.
A valuation allowance has not been established at September 30, 1998 as the
amortized cost approximates fair value.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS - During 1998, the Bank adopted
Financial Accounting Standards Board ("FASB") Statement No. 128, Earnings Per
Share and FASB Statement No. 129, Disclosures of Information about Capital
Structure. Statement No. 128 established standards for computing and
presenting earnings per share. It replaced the presentation of primary EPS
with a presentation of basic EPS as well as requires dual presentation of
basic and diluted EPS on the face of the income statement. A reconciliation
between the numerator and denominator of basic EPS and the numerator and
denominator of diluted EPS is also now presented. Statement No. 129
established standards for disclosing information about an entity's capital
structure.
The Bank also elected to early adopt FASB Statement No. 130, Reporting
Comprehensive Income. Statement No. 130 established standards for reporting
and presenting comprehensive income.
RECLASSIFICATIONS - Certain amounts included in the 1997 and 1996
consolidated financial statements have been reclassified to conform to the
1998 presentation.
2. PLAN OF CONVERSION AND STOCK ISSUANCE
On April 15, 1998 the Boards of Directors of the MHC and the Bank each
adopted a Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan of Reorganization") to convert the MHC from a federal mutual holding
company to a Delaware corporation to become the parent company of the Bank.
The new Delaware corporation known as Pulaski Financial Corp. ("Holding
Company") will exchange certain shares of its common stock for the
outstanding common stock of the Bank and will issue and offer for sale
certain additional shares of its common stock. The additional shares of
common stock of the new Delaware corporation will be offered to eligible
account holders of the Bank as of March 31, 1997, who will receive
nontransferable subscription rights to purchase these shares, as well as
certain other persons as provided in the Plan.
In connection with the proposed transaction, an application for conversion
was filed by Pulaski Bancshares, M.H.C. on June 9, 1998 with the Office of
Thrift Supervision (the "OTS"), and a registration statement on Form S-1 was
filed on the same date by the Holding Company with the U.S. Securities and
Exchange Commission (the "SEC") with respect to the common stock to be issued
in the reorganization. The application was subsequently approved by the OTS,
and the registration statement declared effective on October 30, 1998. Costs
related to the conversion are deferred and, upon conversion, such costs and
any additional costs will be charged against the proceeds from the sale of
stock. As of September 30, 1998, deferred costs relating to the conversion
totaled approximately $424,000.
3. SUBSEQUENT EVENT
On December 2, 1998 the Bank completed the transactions contemplated by the
Plan (see Note 2). Accordingly, the Holding Company issued 2,909,500 shares
of common stock for gross offering proceeds of $29,095,000, subject to final
expenses. In addition, the Holding Company issued 1,056,016 shares of common
stock in exchange for the outstanding shares of the Bank held by the Bank's
stockholders other than the MHC.
-28-
<PAGE>
4. INVESTMENT SECURITIES
Investment securities at September 30, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD TO MATURITY COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Government and Agency debt
obligations $18,923,006 $ 103,426 $ - $ 19,026,432
=========== ============== ============= =================
Weighted average rate at end of
period 5.64 %
======
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Government and Agency debt
obligations $16,068,191 $ 27,288 $ (23,995) $ 16,071,484
=========== ========== ========== ==============
Weighted average rate at end of
period 5.88 %
=====
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Government and Agency debt
obligations $2,228,769 $ 6,364 $ - $2,235,133
========== ========== ========= ==============
Weighted average rate at end of
period 5.53 %
======
</TABLE>
There were no sales of available for sale securities during 1998.
The amortized cost and market values of held to maturity and available for
sale investment securities at September 30, 1998, by contractual maturity,
are shown below.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------------------- --------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
TERM TO MATURITY COST VALUE COST VALUE
<S> <C> <C> <C> <C>
One year or less $10,224,258 $10,256,691 $ 978,769 $ 979,744
One year through five years 8,698,748 8,769,741 1,250,000 1,255,389
----------- ----------- ---------- ----------
Tota1 $18,923,006 $19,026,432 $2,228,769 $2,235,133
=========== =========== ========== ==========
</TABLE>
-29-
<PAGE>
5. MORTGAGE-BACKED AND RELATED SECURITIES
Mortgage-backed and related securities at September 30, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD TO MATURITY COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $ 761,787 $ 51,668 $ $ 813,455
Government National Mortgage
Association pass-through
securities 3,713,353 208,283 3,921,636
Collateralized mortgage obligations:
Federal Home Loan Mortgage Corporation 896,547 11,909 908,456
Private issues 40,430 148 40,282
---------- -------- --------- ----------
Total $5,412,117 $271,860 $148 $5,683,829
========== ======== ========= ==========
Weighted average rate at end of period 8.18 %
==========
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD TO MATURITY COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $ 997,968 $ 63,756 $ - $1,061,724
Government National Mortgage
Association pass-through
securities 4,308,192 193,812 4,502,004
Collateralized mortgage obligations:
Federal Home Loan Mortgage
Corporation 1,000,000 28,125 1,028,125
Private issues 55,548 294 55,254
---------- -------- ---------- ----------
Total $6,361,708 $285,693 $294 $6,647,107
========== ======== ========== ==========
Weighted average rate at end of period 8.24 %
==========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $1,472,630 $15,637 - $ $1,488,267
========== ============= =========== ===============
Weighted average rate at end of period 6.00 %
==========
</TABLE>
-30-
<PAGE>
There were no sales of available-for-sale securities during 1998.
At September 30, 1998, the Federal Home Loan Mortgage Corporation pass-
through certificates were all fixed rate with a weighted average yield of
9.57%. The Government National Mortgage Association (GNMA) pass-through
securities consisted of $3,169,495 at fixed rates and $543,858 at variable
rates with a weighted average yield of 8.33%. The collateralized mortgage
obligations consisted of $936,977 at variable rates with a weighted average
yield of 6.47% with weighted average lives of 3.73 years.
At September 30, 1997, the Federal Home Loan Mortgage Corporation pass-
through certificates were all fixed rate with a weighted average yield of
9.56%. The Government National Mortgage Association pass-through securities
consisted of $3,680,893 at fixed rates and $627,298 at variable rates with a
weighted average yield of 8.35%. The collateralized mortgage obligations
consisted of $1,055,548 at variable rates with a weighted average yield of
6.53% with weighted average lives of 5.22 years.
The amortized cost and estimated market value of held to maturity and
available for sale mortgage-backed and related securities at September 30,
1998, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
------------------------------ ---------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
TERM TO MATURITY COST VALUE COST VALUE
<S> <C> <C> <C> <C>
One year or less $ - $ - $ - $ -
One year through five years 49,039 51,002
Five years through ten years 279,660 291,646 1,472,630 1,488,267
Ten years or more 5,083,418 5,341,181
---------- ---------- --------------- ---------------
Tota1 $5,412,117 $5,683,829 $1,472,630 $1,488,267
========== ========== =============== ===============
</TABLE>
Actual maturities may differ from contractual maturities as borrowers have
the right to call or prepay certain obligations sometimes without penalties.
-31-
<PAGE>
6. LOANS RECEIVABLE
Loans receivable at September 30, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Loans secured by residential real estate:
Conventional $118,500,839 $113,959,269
FHA/VA 8,766,654 10,745,031
------------ ------------
127,267,493 124,704,300
Commercial real estate loans 552,968 2,120,129
Consumer loans 14,178,749 4,051,414
------------ ------------
141,999,210 130,875,843
Less:
Deferred loan (costs) fees (647,045) (142,768)
Loans-in-process 114,509 47,222
Allowance for loan losses 762,688 612,852
------------ ------------
Total $141,769,058 $130,358,537
============ ============
Weighted average rate at end of period 7.98 % 8.34 %
============ ============
</TABLE>
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the one year Constant Maturity U.S. Treasury rate.
Future market factors may affect the correlation of the interest rate
adjustment with the rates the Bank pays on the short-term deposits that have
been primarily utilized to fund these loans.
The Bank is subject to numerous lending-related regulations. Under FIRREA,
the Bank may not make real estate loans to one borrower in excess of the
greater of 15% of its unimpaired capital and surplus or $500,000, whichever
is greater. As of September 30, 1998, the Bank is in compliance with this
limitation.
The Bank has granted loans to officers and directors. Changes in loans to
officers and directors for the three years ended September 30, 1998 are
summarized as follows:
<TABLE>
<S> <C>
Balance, September 30, 1996 $ 70,909
Additions 239,106
Repayments and reclassifications (1,494)
---------
Balance, September 30, 1997 308,521
Additions 234,753
Repayments and reclassifications (289,060)
---------
Balance, September 30, 1998 $ 254,214
=========
</TABLE>
-32-
<PAGE>
Activity in the allowance for loan losses for the years ended September 30,
1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $612,852 $478,804 $418,968
Provision charged to expense 209,277 169,176 64,700
Charge-offs (66,305) (43,915) (17,057)
Recoveries 6,864 8,787 12,193
-------- -------- --------
Balance, end of year $762,688 $612,852 $478,804
======== ======== ========
</TABLE>
The Bank did not engage in any troubled debt restructurings during the years
ended September 30, 1998, 1997 and 1996. No loans were considered impaired
during the years ended September 30, 1998, 1997 and 1996.
Nonaccrual loans totaled approximately $753,000, $217,000 and $51,000 at
September 30, 1998, 1997 and 1996, respectively. Interest income recognized
on impaired loans was not significant for the years ended September 30, 1998,
1997 and 1996. Similarly, the difference between interest that would have
been recognized under the original terms of nonaccrual and renegotiated loans
and interest actually recognized on such loans were not significant for the
years ended September 30, 1998, 1997 and 1996.
At September 30, 1998, 1997 and 1996, the Bank was servicing loans for others
amounting to approximately $34,050,000, $28,972,000 and $20,659,000,
respectively. Servicing loans for others generally consists of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to
investors and foreclosure processing. Loan servicing income is recorded on
the accrual basis and includes servicing fees from investors and certain
charges collected from borrowers. In connection with these loans serviced
for others, the Bank held borrowers' escrow balances of $428,000, $394,000
and $294,000 at September 30, 1998, 1997 and 1996, respectively.
The Bank originates certain loans for resale to correspondent lenders.
During 1998, 1997 and 1996, the Bank sold whole loans to correspondent
lenders totaling $115.4 million, $53.4 million and $49.8 million,
respectively. The Bank also originates loans for sale to the MHDC. These
loans are then pooled and securitized as GNMA mortgaged-backed securities and
sold to MHDC. Subsequent to September 30, 1998 the Bank retains servicing of
these loans. During 1998, 1997 and 1996, the Bank securitized and sold loans
to MHDC totaling $9.1 million, $10.2 million and $6.3 million.
During the year ended September 30, 1998, the Bank issued 3 GNMA loan pools
with security proceeds of $6,455,414. Additionally, the Bank was servicing
GNMA loan pools with an outstanding security balance of $32,689,355 at
September 30, 1998.
7. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans at September 30, 1998 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Acquired in settlement of loans $124,268 $ -
Allowance for losses (18,640)
-------- ------------
Total $105,628 $ -
======== ============
</TABLE>
-33-
<PAGE>
Activity in the allowance for losses on real estate owned for the years ended
September 30, 1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $ - $ 38,725 $ 59,453
Provision charged to expense 33,513 14,653 50,023
Charge-offs (14,873) (53,378) (70,751)
-------- -------- --------
Balance, end of year $ 18,640 $ - $ 38,725
======== ======== ========
</TABLE>
8. PREMISES AND EQUIPMENT
Premises and equipment at September 30, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 439,886 $ 439,886
Office buildings and improvements 2,408,428 2,358,188
Furniture and equipment 1,609,470 1,311,090
----------- -----------
4,457,784 4,109,164
Less accumulated depreciation (2,352,491) (2,300,355)
----------- -----------
Total $ 2,105,293 $ 1,808,809
=========== ===========
</TABLE>
-34-
<PAGE>
9. DEPOSITS
Deposits at September 30, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
Transaction accounts:
Noninterest-bearing checking $ 1,703,686 - % $ 1,015,942 - %
Interest-bearing checking 11,355,044 1.75 8,571,965 2.00
Money market 12,657,188 3.84 9,693,561 3.78
------------ ------------
Total transaction accounts 25,715,918 2.66 19,281,468 2.79
------------ ------------
Passbook savings account 25,669,105 2.50 25,983,346 2.50
------------ ------------
Certificates of deposit:
3.00% to 3.99% 470,673 3.94 577,558 3.94
4.00% to 4.99% 11,344,743 4.96 7,062,476 4.78
5.00% to 5.99% 77,007,223 5.40 81,184,023 5.43
6.00% to 6.99% 11,192,667 6.22 9,794,905 6.26
7.00% to 7.99% 4,835,019 7.03 4,788,445 7.03
------------ ------------
Total certificates of deposit 104,850,325 5.50 103,407,407 5.53
------------ ------------
Total $156,235,348 4.54 $148,672,221 4.64
============ ============
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
principal amount of $100,000 was approximately $5,313,000 and $4,974,000 at
September 30, 1998 and 1997, respectively.
At September 30, 1998, the scheduled maturities of certificates of deposit
were as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
MATURE WITHIN FISCAL YEAR: AMOUNT RATE
<S> <C> <C>
1999 $ 71,266,290 5.34%
2000 22,619,593 5.98
2001 4,215,113 5.47
2002 2,149,515 5.54
2003 4,468,260 5.66
Thereafter 131,554 6.30
------------
Total $104,850,325 5.50 %
============
</TABLE>
-35-
<PAGE>
A summary of interest expense on deposits for the years ended September 30,
1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Transaction accounts $ 640,535 $ 514,021 $ 563,623
Savings and certificates of deposit accounts 6,370,868 6,310,150 6,321,656
---------- ---------- ----------
$7,011,403 $6,824,171 $6,885,279
========== ========== ==========
</TABLE>
10. ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES
Advances from the Federal Home Loan Bank ("FHLB") of Des Moines at September
30, 1998 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- -----------------------------
INTEREST INTEREST
MATURITY DATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
March 31, 1998 $ - - $ 300,000 5.60
March 31, 1999 300,000 5.93 300,000 5.93
March 31, 2000 300,000 6.15 300,000 6.15
March 30, 2001 300,000 6.35 300,000 6.35
March 29, 2002 500,000 6.40 500,000 6.40
March 31, 2003 500,000 6.57 500,000 6.57
---------- ----------
$1,900,000 $2,200,000
========== ==========
</TABLE>
The Bank has the ability to borrow funds from the FHLB of Des Moines under a
blanket agreement which assigns all investments in FHLB of Des Moines stock
as well as qualifying first mortgage loans equal to 150% of the outstanding
balance as collateral to secure the amounts borrowed. At September 30, 1998,
the Bank had approximately $79,395,000 in borrowing capacity available to it
under the above-mentioned borrowing arrangement.
11. INCOME TAXES
Income tax (benefits) expense for the years ended September 30, 1998, 1997
and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current $1,045,951 $ 589,520 $ 932,035
Deferred (56,124) 435,066 (562,061)
---------- ---------- ---------
Total $ 989,827 $1,024,586 $ 369,974
========== ========== =========
</TABLE>
-36-
<PAGE>
Income tax expense for the years ended September 30, 1998, 1997 and 1996
differs from that computed at the Federal statutory rate of 34 percent as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- ----------------------------- -----------------------------
AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory Federal
income tax rate $963,771 34.0 % $1,002,142 34.0 % $426,168 34.0 %
Increase (decrease)
resulting from:
State taxes 44,858 1.6 94,606 3.2 29,462 2.4
Other (18,802) (0.7) (72,162) (2.4) (85,656) (6.9)
-------- ----- ---------- ----- -------- -----
Total $989,827 34.9 % $1,024,586 34.8 % $369,974 29.5 %
======== ===== ========== ===== ======== =====
</TABLE>
The components of deferred tax assets and liabilities at September 30, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Bad debt reserve $341,728 $223,756
Deferred loan fees 34,693 61,732
Premises and equipment 302,453 312,269
Management Recognition and Development Plan stock awards 37,720 37,720
Supplemental retirement plan 106,328 103,412
Other 36,740 31,130
-------- --------
Total deferred tax assets 859,662 770,019
Deferred tax liabilities:
FHLB stock dividends 144,587 166,432
Mortgage servicing rights 132,616 77,252
-------- --------
Total deferred tax liabilities 277,203 243,684
-------- --------
Net deferred tax assets $582,459 $526,335
======== ========
</TABLE>
12. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures that have been established by regulation to ensure
capital adequacy require the Bank to maintain minimum capital amounts and
ratios (set forth in the table below). The Bank's primary regulatory agency,
the OTS, requires that the Bank maintain minimum ratios of tangible capital
(as defined in the regulations) of 1.5%, core capital (as defined) of 4%, and
total risk-based capital (as
-37-
<PAGE>
defined) of 8%. The Bank is also subject to prompt corrective action capital
requirement regulations set forth by the FDIC. The FDIC requires the Bank to
maintain minimum of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of September 30, 1998,
that the Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 1998 and 1997, the most recent notification from the OTS
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized" the Bank
must maintain minimum total risk-based, Tier I risk-based, Tier I leverage
ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed the Bank's category.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998:
Tangible capital (to total assets) $25,133 13.01% $2,898 1.50% N/A N/A
Core capital (to total assets) 25,133 13.01% 7,725 4.00% N/A N/A
Total risk-based capital (to risk-
weighted assets) 25,893 22.43% 9,235 8.00% 11,544 10.00%
Tier I risk-based capital (to risk-
weighted assets) 25,133 21.77% N/A N/A 6,926 6.00%
Tier I leverage capital (to average
assets) 25,133 13.63% N/A N/A 9,223 5.00%
As of September 30, 1997:
Tangible capital (to total assets) $23,839 13.29% $2,691 1.50% N/A N/A
Core capital (to total assets) 23,839 13.29% 5,382 3.00% N/A N/A
Total risk-based capital (to risk-
weighted assets) 24,448 28.74% 6,804 8.00% $ 8,506 10.00%
Tier I risk-based capital (to risk-
weighted assets) 23,839 28.03% N/A N/A 5,103 6.00%
Tier I leverage capital (to average
assets) 23,839 13.33% N/A N/A 8,941 5.00%
</TABLE>
A reconciliation, at September 30, 1998 and 1997, of stockholders' equity and
regulatory risk-based capital follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Stockholders' equity $25,213 $23,858
Less disallowed mortgage servicing rights (65) (19)
Less: Unrealized gains on available for sale securities (15)
------- -------
Tangible capital 25,133 23,839
General valuation allowances 760 609
------- -------
Regulatory risk-based capital $25,893 $24,448
======= =======
</TABLE>
The Bank cannot pay cash dividends in excess of the higher of (i) net income
to date during the calendar year plus one-half of surplus capital over
regulatory capital or amounts which would result in the Bank
-38-
<PAGE>
not maintaining adequate capital requirements imposed by the OTS or (ii) 75%
of net income over the most recent four-quarter period. In addition, the Bank
is prohibited from paying cash dividends if the effect thereof would be to
reduce the regulatory capital of the Bank below the amount required for the
liquidation account that the Bank established in connection with the
consummation with the Plan of Conversion and Reorganization on December 2,
1998.
On September 30, 1996, the Deposit Insurance Fund Act ("DIF Act") was enacted
into law. Among other things, the DIF Act authorizes the FDIC to impose a
special one-time assessment on each depository institution with SAIF-
assessable deposits so that the SAIF may achieve its designated reserve
ratio. The Bank's assessment was $1,010,105 on a pre-tax basis and is
reflected in the accompanying statement of income for the year ended
September 30, 1996. In addition, the DIF Act provides for the merger of the
BIF and the SAIF on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates
the development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter
may take and what effect, if any, the adoption of a new charter would have on
the financial condition or results of operations of the Bank.
13. EMPLOYEE BENEFITS
The 1994 Management Recognition and Development Plan ("MRDP") was adopted on
January 18, 1995. The MRDP is administered by the Board of Directors of the
Bank. Collectively, the Board reserved 24,000 shares of the Bank's common
stock for award pursuant to the MRDP, all of which have been awarded and will
vest over a five-year period beginning on January 18, 1995. The value of the
common stock contributed to the MRDP is being amortized to compensation
expense over the vesting period. Such compensation expense amounted to
$55,200, $55,200 and $55,200 during the years ended September 30, 1998, 1997
and 1996, respectively.
During 1996, the Bank executed a Supplemental Retirement Benefit agreement
for its then chief executive officer. Under the terms of the agreement, the
officer is to receive $2,473 monthly, commencing upon retirement, for a total
of 15 years. The net present value of these payments is reflected in other
liabilities and totaled $259,000 and $252,000 at September 30, 1998 and 1997,
respectively. Compensation expense under this plan totaled $29,400, $18,200
and $234,000 for the years ended September 30, 1998, 1997 and 1996,
respectively.
Substantially all full-time salaried employees are included in a trusteed,
defined benefit pension plan. The benefits contemplated by the plan are
funded through payments to the Financial Institutions Retirement Fund, which
operates as a multiemployer plan. Statement of Financial Accounting
Standards No. 87 ("SFAS 87") Employers Accounting for Pensions requires that
an employer participating in a multiemployer plan recognize as net pension
cost the amount of the required contribution for the period and as a
liability the amount of any contributions which are due and unpaid. During
the years ended September 30, 1998, 1997 and 1996, the Bank was not required
to make any contributions to the plan because it was fully funded and
accordingly, no pension expense was required to be recorded. At September
30, 1998, the Bank had no liability for contributions due and unpaid.
Effective July 1, 1995, the Bank established a 401(k) savings plan for
eligible employees. In 1998 and 1997, the Bank matched 50% of each
participant's contribution up to a maximum of 4%. The Bank's contributions
to this plan were approximately $42,900, $37,500 and $36,700 for the years
ended September 30, 1998, 1997 and 1996, respectively.
-39-
<PAGE>
The Bank has entered into three year employment agreements with certain
members of management. Under the agreements, the Bank will pay the members
their initial base salaries which may be increased at the discretion of the
Board of Directors. Additionally, the agreements provide for severance
payments if employment is terminated following a change in control. These
payments will be equal to 2.99 times their average annual compensation paid
during the five years immediately preceding the change in control.
Effective October 1, 1996, the Bank adopted Statement of Financial Accounting
Standard No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). As
permitted by the standard, the Bank has elected to continue following the
guidance of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, for measurement and recognition of stock-based
transactions with employees.
On January 18, 1995, the Board of Directors established the Stock Option Plan
(the "Plan") and reserved 60,000 shares of the Bank's common stock to be
awarded under the Plan. On January 25, 1995, the Board granted 49,800 shares
to certain officers, employees and directors at an exercise price of $11.88
per share. The remaining 10,200 shares were granted during 1998 to certain
officers and directors at an exercise price of $25.63 per share. These
options vest 20% each year from the date of grant and expire no later than
ten years from the date of grant.
The pro forma effects of applying the fair value approach in accordance with
SFAS 123 is required for those entities which elect to continue following the
guidance of Accounting Principles Board Opinion No. 25, and is applicable for
awards granted subsequent to October 1, 1995. Consequently, pro forma
results are not required for the shares granted on January 25, 1995. The pro
forma effects on net income and earnings per share for the shares granted
during 1998 are not material.
A summary of the status of the Bank's stock option plan for the years ended
September 30, follows:
<TABLE>
<CAPTION>
REMAINING
EXERCISE CONTRACTUAL EXERCISABLE OUTSTANDING
PRICE LIFE SHARES SHARES
<S> <C> <C> <C> <C>
September 30, 1996 11.88 9.33 49,800
Granted -
Exercised -
-------
September 30, 1997 11.88 8.33 9,960 49,800
Granted -
Exercised 11.88 (800)
-------
September 30, 1998 11.88 7.33 19,120 49,000
Granted 10,200
Exercised (11,040)
-------
48,160
=======
</TABLE>
14. CONTINGENCIES
The Bank is a defendant in legal actions arising from normal business
activities. Management, after consultation with general counsel, believes
that the resolution of these actions will not have any material adverse
effect on the Bank's consolidated financial statements.
-40-
<PAGE>
Legislation is proposed periodically providing for a comprehensive reform of
the banking and thrift industries, and has included provisions that would (i)
require federal savings associations to convert to a national bank or a
state-chartered bank or thrift, (ii) require all savings and loan holding
companies to become bank holding companies and (iii) abolish the OTS.
Included in such proposed legislation may be provisions imposing material
limitations on the non-banking activities of federal savings associations.
It is uncertain when or if any of this type of legislation will be passed,
and, if passed, in what form the legislation would be passed. As a result,
management cannot accurately predict the possible impact of such legislation
on the Bank.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers in
the way of commitments to extend credit. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. The Bank evaluates each customer's creditworthiness on a case-by-case
basis.
At September 30, 1998 and 1997, the Bank had commitments net of noncash
portion of refinanced loans to originate loans of approximately $9,914,000
and $4,982,000, respectively, of which approximately $7,690,000 and
$2,772,000 were at fixed rates.
At September 30, 1998 and 1997, the Bank had commitments to sell loans of
$22,014,000 and $18,200,000, respectively, which includes $13,442,421 and
$14,384,480, respectively, recorded in the financial statements as loans held
for sale.
Substantially all of the Bank's loans are to borrowers located in St. Louis,
Missouri and the surrounding counties.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, Disclosures
About Fair Value of Financial Instruments. The estimated fair value amounts
have been determined by the Bank using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
-41-
<PAGE>
Approximate carrying values and estimated fair values at September 30, 1998
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- --------------------------------------
APPROXIMATE ESTIMATED APPROXIMATE ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,047,000 $ 3,047,000 $ 6,284,000 $ 6,284,000
Investment securities - HTM 18,923,000 19,026,000 16,068,000 16,071,000
Investment securities - AFS 2,229,000 2,235,000
Mortgage-backed and related securities - HTM 5,412,000 5,684,000 6,362,000 6,647,000
Mortgaged-backed and related securities - AFS 1,473,000 1,488,000
Loans:
Loans held for sale 13,442,000 13,617,000 14,384,000 14,559,000
Loans receivable (net of allowance for loan
losses of $762,688 and $612,852 in 1998
and 1997, respectively) 141,769,000 143,913,000 130,359,000 133,476,000
Mortgage servicing rights 323,500 323,500 188,000 188,000
LIABILITIES:
Transaction accounts 25,716,000 25,716,000 19,281,000 19,281,000
Passbook savings accounts 25,669,000 25,669,000 25,983,000 25,983,000
Certificates of deposit 104,850,000 105,703,000 103,407,000 103,232,000
Advances from Federal Home Loan Bank 1,900,000 1,964,000 2,200,000 2,188,000
</TABLE>
Cash and cash equivalents, bankers acceptances, mortgage servicing rights,
transaction accounts and passbook savings are shown at their face value.
The fair value of investment and mortgage-backed and related securities is
based on quoted market prices and prices obtained from independent pricing
services. The fair value of loans and advances from Federal Home Loan Bank
is estimated based on present values using applicable risk-adjusted spreads
to the U.S. Treasury curve to approximate current interest rates applicable
to each category of such financial instruments. The fair value of loans held
for sale is estimated using current investor commitment prices.
No adjustment was made to the interest rates for changes in credit of
performing loans for there are no known credit concerns. Management
segregates loans in appropriate risk categories. Management believes that
the risk factor embedded in the interest rates along with the general
reserves applicable to the performing loan portfolio results in a fair
valuation of such loans.
The fair value estimates presented herein are based on pertinent information
available to management as of September 30, 1998. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.
17. PROSPECTIVE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". The Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
-42-
<PAGE>
major customers. The Statement is effective for the Bank's financial
statements for the fiscal year ending September 30, 1999. The Bank is
prepared to comply with the additional reporting requirements of this
Statement and does not anticipate that the implementation of this Statement
will have a material impact on the consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". The Statement revises
employers' disclosures about pensions and other post-retirement benefit
plans. The Statement does not change the measurement or recognition of those
plans. The Statement is effective for the Bank's financial statements for
the fiscal year ending September 30, 1999. The Bank is prepared to comply
with the additional reporting requirements of this Statement and does not
anticipate that the implementation of this Statement will have a material
impact on the consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting
and reporting standards for derivative instruments including certain
derivative instruments embedded in other contracts (collectively referred to
as derivatives) and hedging activities. The Statement requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
Statement is effective for the Bank's financial statements for the fiscal
year ending September 30, 2000. The adoption of this Statement is not
expected to have a material impact on the Bank's consolidated financial
statements.
In October 1998, FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise". The Statement changes the way mortgage
banking firms account for certain securities and other interests they retain
after securitizing mortgage loans that were held for sale. The Statement is
effective for the Bank's financial statements as of January 1, 1999. The
Bank does not anticipate that the implementation of this Statement will have
a material impact on the consolidated financial statements.
-43-
<PAGE>
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
SEPTEMBER 30, 1998 QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Interest income $3,454,588 $3,393,608 $3,399,483 $3,458,865
Interest expense 1,781,174 1,764,803 1,785,816 1,809,911
Net interest income 1,673,414 1,628,805 1,613,667 1,648,954
Provision for loan losses 79,897 (10,374) 63,538 76,216
Net interest income after
loan loss provision 1,593,517 1,639,179 1,550,129 1,572,738
Non interest income 240,327 346,855 411,964 591,032
Non interest expense 1,104,972 1,204,419 1,167,534 1,634,195
Income before taxes 728,872 781,615 794,559 529,575
Income taxes 255,509 278,425 295,817 160,076
Net income 473,363 503,190 498,742 369,499
Basic earnings per share $0.23 $0.24 $0.24 $0.18
Weighted average shares
outstanding 2,095,416 2,099,649 2,105,840 2,105,840
SEPTEMBER 30, 1997
Interest income $3,327,878 $3,301,374 $3,395,758 $3,472,836
Interest expense 1,748,110 1,724,589 1,747,972 1,764,095
Net interest income 1,579,768 1,576,785 1,647,786 1,708,741
Provision for loan losses 18,481 15,204 135,491
Net interest income after
loan loss provision 1,561,287 1,576,785 1,632,582 1,573,250
Non interest income 236,988 151,511 230,933 277,544
Non interest expense 1,079,922 1,089,403 1,033,674 1,090,404
Income before taxes 718,353 638,893 829,841 760,390
Income taxes 237,654 225,179 295,644 266,109
Net income 480,699 413,714 534,197 494,281
Basic earnings per share $0.23 $0.20 $0.26 $0.24
Weighted average shares
outstanding 2,094,000 2,094,000 2,094,000 2,094,365
</TABLE>
* * * * * *
-44-
<PAGE>
COMMON STOCK INFORMATION
The common stock of the Company trades on the Nasdaq National Market under the
symbol "PULBD". Prior to December 2, 1998, the common stock of the Bank traded
on the Nasdaq Small Cap Market under the symbol "PULB". There are approximately
1,884 stockholders of record of the Company, including brokers.
The following table sets forth market price and dividend information for the
Bank's Common Stock for fiscal years 1998 and 1997.
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW DIVIDEND
<S> <C> <C> <C>
First Quarter $33.00 $27.00 $ .275/per share
Second Quarter $51.00 $31.00 $ .275/per share
Third Quarter $48.00 $37.00 $ .275/per share
Fourth Quarter $39.00 $21.00 $ .275/per share
<CAPTION>
FISCAL 1997 HIGH LOW DIVIDEND
<S> <C> <C> <C>
First Quarter $14.75 $13.75 $ .25/per share
Second Quarter $20.00 $14.00 $ .25/per share
Third Quarter $19.63 $17.38 $ .25/per share
Fourth Quarter $27.88 $24.75 $.275/per share
</TABLE>
The ability of the Company to pay dividends depends primarily on the Bank's
ability to pay dividends. For a discussion of the restrictions on the Bank's
ability to pay dividends, see Note 12 in Notes to Consolidated Financial
Statements.
-45-
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
<S> <C>
William A. Donius William A. Donius
President and Chief Executive Officer President and Chief Executive Officer
Michael J. Donius Michael J. Donius
Executive Vice President, Chief Operating Officer Executive Vice President, Chief Operating Officer and
and Secretary Secretary
E. Douglas Britt Thomas F. Hack
Retired Thrift Executive Chief Financial Officer and Treasurer
Garland A. Dorn M. Brad Condon
President and Chief Executive Officer of Diagnostic Chief Lending Officer
Rehabilitation Systems, Inc.
Robert A. Ebel Beverly M. Kelley
President, Chief Executive Officer and Majority Senior Vice President
Stockholder of Universal Printing Co.
Thomas F. Hack Michael G. Flaton
Chief Financial Officer and Treasurer Vice President
Dr. Edward Howenstein Vicky Konopka
Retired Dentist Vice President
EMERITUS DIRECTOR
Walter A. Donius
Chairman Emeritus
</TABLE>
-46-
<PAGE>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
12300 Olive Boulevard
St. Louis, Missouri
INDEPENDENT AUDITORS
Deloitte & Touche LLP
St. Louis, Missouri
GENERAL COUNSEL
Kappel, Neill and Wolff LLC
St. Louis, Missouri
SPECIAL SECURITIES COUNSEL
Muldoon, Murphy & Faucette
Washington, D.C.
ANNUAL MEETING
The annual meeting of the stockholders will be held Wednesday, February 17, 1999
at 2:30 p.m., Central Time, at the Bank's main office at 12300 Olive Boulevard,
St. Louis, Missouri.
-47-
<PAGE>
Exhibit 21.0
Subsidiaries of Pulaski Financial Corp.
Registrant
- ----------
Pulaski Financial Corp.
<TABLE>
<CAPTION>
Subsidiaries(1) Percentage of Ownership Jurisdiction or State of Incorporation
- --------------- ----------------------- --------------------------------------
<S> <C> <C>
Pulaski Bank, A Federal Savings Bank 100% United States
Pulaski Service Corporation (2) 100% Missouri
</TABLE>
- ----------------
(1) The operations of the subsidiaries of the Registrant are included in the
Registrant's Consolidated Financial Statements contained in the Annual
Report to Stockholders.
(2) Wholly-owned by Pulaski Bank, A Federal Savings Bank.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statement which ended September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,047
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,723
<INVESTMENTS-CARRYING> 24,335
<INVESTMENTS-MARKET> 24,710
<LOANS> 155,211
<ALLOWANCE> 763
<TOTAL-ASSETS> 193,208
<DEPOSITS> 156,235
<SHORT-TERM> 1,900
<LIABILITIES-OTHER> 9,860
<LONG-TERM> 0
0
0
<COMMON> 2,106
<OTHER-SE> 23,107
<TOTAL-LIABILITIES-AND-EQUITY> 193,208
<INTEREST-LOAN> 11,520
<INTEREST-INVEST> 1,495
<INTEREST-OTHER> 691
<INTEREST-TOTAL> 13,706
<INTEREST-DEPOSIT> 7,011
<INTEREST-EXPENSE> 7,142
<INTEREST-INCOME-NET> 6,565
<LOAN-LOSSES> 209
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,111
<INCOME-PRETAX> 2,835
<INCOME-PRE-EXTRAORDINARY> 2,835
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,845
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 7.64
<LOANS-NON> 753
<LOANS-PAST> 423
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 613
<CHARGE-OFFS> 66
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 763
<ALLOWANCE-DOMESTIC> 169
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 594
</TABLE>
