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Pulaski Financial Corp.
2000 Annual Report
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Table of Contents
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Page
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Business of the Company 1
Selected Consolidated Financial Information 2-3
Management's Discussion and Analysis of Financial Condition and Results of Operations 4-20
Independent Auditors' Report 21
Consolidated Financial Statements 22-27
Notes to Consolidated Financial Statements 28-52
Common Stock Information 53
Directors and Officers 54
Corporate Information 55
Annual Meeting 55
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Business of the Company
Pulaski Financial Corp. (the "Company") is the holding company for Pulaski Bank
(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 a community oriented retail banking financial institution that
provides traditional consumer-oriented banking services within the Missouri
counties of St. Louis, St. Charles, Franklin and Jefferson counties and the City
of St. Louis. 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 and home equity loans, within the
Bank's lending market area. Additionally, the Bank has, from time to time,
originated consumer loans, although it is not actively originating such loans at
this time. 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 ("Ginnie Mae").
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, America's Community Bankers (ACB)
and the Mortgage Bankers Association of St. Louis (MBA).
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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 Company at the dates and for the years indicated.
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At September 30,
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2000 1999 1998 1997 1996
(In thousands)
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FINANCIAL CONDITION DATA
Total assets $ 283,120 $ 243,974 $ 193,208 $ 179,419 $ 178,812
Loans receivable, net 209,919 181,533 141,769 130,359 134,044
Loans receivable held for sale 14,374 8,159 13,442 14,384 7,210
Securities 19,128 13,244 21,158 16,068 15,012
Capital stock of Federal Home Loan Bank 3,580 1,501 1,423 1,638 1,638
Mortgage-backed and related securities 22,604 25,353 6,900 6,362 7,424
Cash and cash equivalents 7,562 8,887 3,047 6,248 9,022
Deposits 168,413 161,371 156,235 148,672 147,824
Advances from Federal Home Loan Bank 66,100 28,600 1,900 2,200 3,000
Stockholders' equity (1) 31,200 49,905 25,213 23,858 22,504
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Years Ended September 30,
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2000 1999 1998 1997 1996
(In thousands)
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OPERATING DATA
Interest income $ 18,310 $ 15,258 $ 13,602 $ 13,383 $ 13,329
Interest expense 9,503 7,323 7,142 6,985 7,071
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Net interest income 8,807 7,935 6,460 6,398 6,258
Provision for loan losses 499 265 209 169 65
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Net interest income after provision for loan losses 8,308 7,670 6,251 6,229 6,193
Non-interest income 3,162 2,275 1,691 1,016 696
SAIF premium assessment - - - - 1,010
Compensation expense-special dividend 1,372 - - - -
Non-interest expense 7,812 6,560 5,107 4,298 4,626
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Income before income taxes 2,286 3,385 2,835 2,947 1,253
Income taxes 1,160 1,252 990 1,024 370
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Net income $ 1,126 $ 2,133 $ 1,845 $ 1,923 $ 883
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Net income per common share - Basic (2) $ 0.34 N/M N/M N/M N/M
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Net income per common share - Diluted (2) $ 0.34 N/M N/M N/M N/M
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(1) Reflects $11.5 million related to the cash distribution of $4.00 per
share paid on September 1, 2000.
(2) Not meaningful due to the reorganization from the mutual holding company
format, which took place on December 2, 1998. (Continued)
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At September 30,
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OTHER DATA 2000 1999 1998 1997 1996
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Number of:
Real estate loans outstanding 2,804 2,623 2,729 2,921 3,031
Consumer loans (includes Home Equity) 2,997 2,984 1,251 434 246
Deposit accounts 23,174 21,297 18,581 16,047 16,316
Full service offices 5 4 5 5 5
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At or For the Years Ended September 30,
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KEY OPERATING RATIOS 2000 1999 1998 1997 1996
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Return on average assets (net income divided by average assets) 0.44% 0.96% 1.00% 1.08% 0.49%
Return on average equity (net income divided by average equity) 2.81% 4.52% 7.49% 8.28% 3.90%
Average equity to average assets 15.59% 21.23% 13.35% 12.98% 12.60%
Interest rate spread (difference between average yield on interest-
earning assets and average cost of interest-bearing liabilities) 2.79% 2.76% 3.02% 3.08% 2.97%
Net interest margin (net interest income as a percentage of
average interest-earning assets) 3.57% 3.70% 3.63% 3.69% 3.54%
Dividend payout ratio (1) 98.53% N/M N/M N/M N/M
Non-interest expense to average assets (2) 3.58% 2.97% 2.77% 2.40% 3.16%
Average interest-earning assets to average interest-bearing liabilities 120.31% 127.51% 115.14% 115.17% 113.90%
Allowance for loan losses to total loans at end of period 0.61% 0.52% 0.49% 0.42% 0.34%
Allowance for loan losses to nonperforming loans 70.89% 69.88% 64.88% 49.04% 67.93%
Net charge-offs to average outstanding loans during the period 0.06% 0.02% 0.04% 0.02% 0.003%
Nonperforming assets to total assets 0.69% 0.67% 0.67% 0.70% 0.47%
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(1) For the year ended September 30, 2000, ratio includes special cash
distribution of $4.00 per share paid on September 1, 2000. Ratio is
not considered meaningful for the years ended September 30, 1999,
1998, 1997 and 1996 due to the reorganization from the mutual holding
company form of organization, which took place on December 2, 1998.
(2) Non-interest expense to average assets ratio, if adjusted for one-time
$1.4 million special compensation expense would be 3.04% in 2000.
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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 statements. Factors that impact such forward looking statements
include, among others, changes in general economic conditions, changes in
interest rates and competition.
Operating Strategy
The Company operates as a progressive, community-oriented unitary thrift holding
company. Its business consists primarily in the operation of its wholly owned
subsidiary - Pulaski Bank. The Bank operates with a retail focus in traditional
lines of business by attracting deposits from the general public to finance
primarily one-to-four family residential mortgage loans, home equity and
consumer loans originated by the Bank. Since the Bank became a publicly held
company in 1994, management has implemented strategies designed to enhance the
earnings of the Bank while maintaining its traditional safety and soundness
position. In addition, the Bank strives to provide superior service to its
customers. Management plans to preserve the long-standing hallmarks of quality
customer service.
The current strategy is to lower funding costs, increase fee income, improve
operational efficiencies and add higher yielding assets to the balance sheet
with the goal of growing earnings. The Bank implemented a "High Performance
Checking Account" program in early 1998. The Bank chose the same program that
many banks nationwide chose to successfully expand the number of checking
account households. The goals of the multi-faceted marketing campaign are to:
(1) increase both the number and percentage of transaction accounts to total
deposits, thereby decreasing the Bank's cost of funds, (2) increase fee income
through insufficient funds charges, service charges and miscellaneous fees
levied on checking accounts and (3) add new customer relationships to the Bank,
providing a larger customer base for additional product sales.
The Bank has also taken steps to enhance fee income by structuring its mortgage
lending department to function as both a portfolio lender to meet both its asset
growth and interest income targets, and as a mortgage broker to benefit from the
fee income produced by selling loans into the secondary market. Management plans
to continue to grow its mortgage lending business. In early 1999, the Bank began
to offer a home equity line product that is designed to be offered in
conjunction with the first mortgage loan at the point of sale. The Bank is
attempting to leverage off of the relatively large number of first mortgages it
is originating by offering a second, relationship-oriented product in tandem
with the first mortgage origination. The home equity product is tied to the
prime rate allowing for a higher earning portfolio asset and better interest
rate risk management.
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The Bank has taken steps to increase net interest income by implementing a plan
designed to lower funding costs on deposits. The pricing strategy reduces costs
from renewing certificates of deposits and makes use of a pricing model that
allows the Bank to evaluate all pricing decisions for depository products on a
return on equity basis. The Bank's strategy includes the use of an MCIF (master
customer information file) and a "President's Circle" program to carefully
evaluate customer activities with the objective of both optimizing customer
relationships and minimizing customer withdrawals. The Bank has recently
initiated an advertising campaign to attract retail deposits into money market
accounts. Since loan demand far exceeds our current ability to generate an
equal amount of retail deposits, the Bank has deployed state of the art pricing
models for both deposit and lending pricing. The models assist management in
originating higher loan volumes while meeting targeted returns on equity.
The Bank has upgraded its retail delivery infrastructure to make it is easier
for customers to do business with the Bank as well as attract new customers to
the Bank. These steps include the addition of a new branch office in a more
dynamic growth area in St. Charles County, Missouri, and the expansion of
parking and drive-up facilities at its largest branch in the revitalized South
City section of St. Louis. The Bank has deployed a branch staffing utilization
model to provide for more efficient staffing decisions in the branch offices.
The model integrates historical retail bank transaction levels with industry
specific time and motion studies to predict desired staffing levels in each of
the branches, for each day of the week.
Financial Condition
Total assets at September 30, 2000 were $283.1 million, an increase of $39.1
million, or 16%, from $244.0 million at September 30, 1999. The increase in
total assets was primarily attributable to increases in loans receivable, loans
held for sale, and investment securities, offset by decreases in mortgage-backed
and related securities, cash and cash equivalents.
Loans receivable (excluding loans held for sale) increased $28.4 million, or
16%, from $181.5 at September 30, 1999 to $209.9 million at September 30, 2000.
Consistent with the Bank's asset growth strategies, the increase was largely due
to a greater volume of non-conforming (to secondary market guidelines) loans
originated for portfolio, as well as an increased volume of home equity loans.
The balance of home equity loans increased 188% from $5.0 million at September
30, 1999 to $14.4 million at September 30, 2000. During the past year, consumer
loans (primarily indirect auto loans) have declined from $33.1 million as of
September 30, 1999 to $23.3 million as of September 30, 2000, as the Bank is not
actively originating such loans at this time. Management of the Bank has made
origination of home equity loans a high-priority strategic initiative. Home
equity loans provide greater yields and carry lower interest rate risk as they
adjust monthly based on the prime rate after an initial fixed rate period of six
months.
Loans held for sale increased from $8.2 million at September 30, 1999 to $14.4
million at September 30, 2000. The increased balance was a reflection of the
higher volume of loans originations compared to the prior year. These balances
represent loans closed in the name of the Bank, but are committed in advance of
closing to be sold to investors. Since these loans are pre-sold at a pre-
determined price, the Bank is not subject to changes in the future value to be
received upon delivery of these loans to investors, as a result of changes in
interest rates. The Bank generally receives proceeds from the sale of these
loans to investors within 90 days of loan closing.
Investment in securities increased $5.9 million, from $13.2 million at September
30, 1999 to $19.1 million at September 30, 2000. Investments in securities
include $1,032,000 in equities of other financial institutions. At September 30,
2000 the fair market value of these equities was $1,024,000. Investments were
made in securities with maturities in October 2000, to enable, in part,
repayment of a $12.5 million loan obtained to facilitate the September 1, 2000
payment of the special $4.00 per share return of capital.
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Cash and cash equivalents decreased slightly, from $8.9 million at September 30,
1999 to $7.6 million at September 30, 2000, due primarily to the funding of
loans. Balances are maintained in demand deposits and overnight investments to
meet the needs for loan funding, stock repurchases, withdrawals from deposits,
and general operating needs. Cash and cash equivalents were used to purchase
securities, which were used to repay in full the third-party loan secured to
fund the return of capital.
Mortgage-backed and related securities decreased $2.8 million, from $25.4
million at September 30, 1999 to $22.6 million at September 30, 2000. The
decrease was due to regular amortization and prepayments.
Total liabilities at September 30, 2000 were $251.9 million, an increase of
$57.8 million, or 30% from the $194.1 million at September 30, 1999. The
increase in total liabilities was primarily attributable to the increase in
borrowings from the Federal Home Loan Bank. Borrowings from the FHLB increased
from $28.6 million at September 30, 1999 to $66.1 million at September 30, 2000
and were used primarily to fund loan originations. Other borrowings consisted of
$12.5 million at September 30, 2000 when the Company secured short-term
financing to fund payment of the $4.00 per share return of capital, paid to
shareholders on September 1, 2000. The Company repaid the short-term borrowing
in October 2000.
Deposits increased $7.0 million, or 4% from $161.4 million at September 30, 1999
to $168.4 million at September 30, 2000. Most of the growth in deposits was
attributable to certificates of deposit and transaction accounts, which grew
$5.4 million and $3.6 million, respectively. These gains in deposits were
offset by net withdrawals of $2.0 million in passbook accounts. The number of
checking and money market accounts increased 32% or 2,500 over September 30,
1999. 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, service-oriented financial institutions. The net
withdrawals from passbook accounts are the result of account closures caused by
an aging customer base and transfers made by customers from this lower-yielding
investment into higher-rate products.
Total stockholders' equity at September 30, 2000 was $31.2 million, a decrease
of $18.7 million from $49.9 million at September 30, 1999. The decrease was due
primarily to a net payment of $11.5 million $4.00 per share return of capital to
shareholders. In addition to the return of capital, the Company also paid out
regular quarterly dividends of $1.1 million. During the year, the Company
continued repurchasing its stock, and a total of $8.7 million of stock was
repurchased in fiscal 2000. In the fiscal year ended September 30, 2000, 756,410
shares were repurchased at an average price of $11.50. A total of 712,410 of
these shares were purchased prior to the September 1, 2000 payment date of the
$4.00 per share return of capital.
Non-Performing Assets and Delinquencies
Loans accounted for on a non-accrual basis amounted to $413,000 at September 30,
2000 as compared to $258,000 at September 30, 1999. The non-accrual loans
consist primarily of single-family residential loans.
Accruing loans that were contractually past due 90 days or more at September 30,
2000 amounted to $1.5 million of which $444,000 or 29.6% were FHA/VA government-
insured loans. The allowance for loan loss was $1.4 million at September 30,
2000, or .61% of total loans compared to $986,000 or .52% in 1999. Real estate
acquired in settlement of loans, net of allowance for losses, decreased from
$228,000 at September 30, 1999 to $28,000 at September 30, 2000, and consisted
of a one-to four-family residence.
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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999:
General
Net income for the year ended September 30, 2000 was $1.1 million compared to
$2.1 million for the year ended September 30, 1999. The decrease of $1.0
million was attributable to higher compensation expense due to one-time
compensation expense of $1.4 million associated with the Company's $4.00 per
share special dividend, higher occupancy expense and loan loss provision, offset
by higher net interest income and higher non-interest income. The non-
deductibility for income tax purposes, of $906,000 of the non-recurring
compensation expense also resulted in an abnormally high effective tax rate for
the year.
Interest Income
Interest income increased $3.0 million, from $15.3 million for fiscal 1999 to
$18.3 million for fiscal 2000. The increase resulted primarily from an increase
in interest on loans of $2.7 million and on mortgage-backed and related
securities of $796,000, offset by a decrease in interest on investment
securities of $218,000 and a decrease in interest income from investment in
overnight funds of $184,000.
The increase in interest income on loans resulted from an increase in the
average balance of loans outstanding from $172.0 million for the twelve months
ended September 30, 1999 to $203.8 million for the September 30, 2000 fiscal
year, and an increase in the average yield on these loans from 7.44% in 1999 to
7.59% for 2000. The average balance increased as a result of increased
portfolio lending for both one-to-four family residential mortgages and home
equity loans. Outstanding balances of home equity loans, grew from $5.0 million
at September 30, 1999 to $14.4 million at September 30, 2000. The increased
average interest rate was a reflection of the higher rates associated with home
equity loans and the risk-based pricing methodology on first mortgage loans.
Interest income on mortgage-backed and related securities increased as a result
of the increase in the average balance from $12.7 million in 1999 to $24.0
million in 2000. The average balance for 2000 reflected twelve months of
activity on $20.0 million of mortgage-backed securities purchased in the June
1999 quarter. The decline in weighted average rate from 7.26% in 1999 to 7.17%
for 2000, was a result of the lower rates in effect on those securities
purchased, and amortization and prepayments received on higher-rate mortgage-
backed securities.
The decrease in interest income in securities resulted primarily from a decrease
in the average balance from $17.5 million in 1999 to $12.1 million in 2000, but
was offset by an increase in the average yield from 5.46% for the year ended
September 30, 1999 to 6.11% for the year ended September 30, 2000. The reduced
average balance resulted from utilization of maturing securities for loan
funding. The average yield increased from investment in longer-term higher-rate
instruments during the course of the year.
Interest income from investments in overnight funds decreased $184,000 as a
result of lower average balances offset by higher average rates. The average
balance for the year ended September 30, 1999 was $12.1 million, and the average
balance for the year ended September 30, 2000 was $6.4 million. The average
yield increased from 4.75% to 6.17% over the same period. The decline in average
balance is the result of re-investment of overnight funds into higher earning
assets, primarily loans, and the funding of stock repurchases. The increase in
average yield was the result of higher short-term rates that resulted in
response to monetary policy changes of the federal government made during the
twelve month period ended September 30, 2000.
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Interest Expense
Interest expense increased $2.2 million, from $7.3 million in fiscal 1999 to
$9.5 million for fiscal 2000. The increase was due primarily to higher interest
expense on borrowings from the Federal Home Loan Bank, offset by decreased
interest on deposits.
The average balance of borrowings from the FHLB increased from $10.6 million for
the year ended September 30, 1999 to $46.2 million for the year ended September
30, 2000. The increase in the average balance was attributable primarily to
increased funding of mortgage loans originations. The weighted average cost of
borrowings increased in fiscal 1999 from 5.86% to 6.42% in fiscal 2000, and
reflects the rise in short-term rates during the twelve-month period combined
with higher rates paid for longer-term borrowings. The longer-term borrowings
were used to fund mortgages that will not reprice for periods of 36 to 60
months.
The average balance of interest-bearing deposits increased from $157.5 million
for the 1999 fiscal year to $158.6 million for the 2000 fiscal year. Deposit
gains were in checking accounts and certificates of deposit accounts. The
checking account growth was the result of the continuation of the "High
Performance Checking Account" program. The Bank also believes that it has
benefited from an influx of new depositors as a result of the consolidation of
financial institutions in the St. Louis market. The weighted average cost
decreased from 4.26% to 4.12% over the same period. Management has adopted a
pricing strategy to reduce the overall cost of funds, and began implementing the
strategy in the quarter ended March 31, 1999. In addition, the growth of lower
cost checking accounts contributed to the lower cost of funds rate.
Provision for Loan Losses
The provision for loan losses increased $234,000, from $265,000 for fiscal 1999
to $499,000 for fiscal 2000. Management deemed it necessary to increase the
provision for loan losses after considering the increase in non-performing
loans, charge-offs experienced in the consumer loan portfolio and the increase
in non-conforming mortgage loans, including loans originated up to 100% of the
purchase price. Charge-offs on consumer loans were approximately $122,000 in
fiscal 2000. The Bank, after meeting its investment goals, discontinued
investment in indirect auto loan lending in June of 1999, and focused lending
efforts on mortgage loans, including home equity loans.
The provision for loan losses is determined by management as the amount to bring
the allowance to a level that is considered adequate to absorb losses inherent
in the loan portfolio. Because management believes it adheres to specific loan
underwriting guidelines focusing on mortgage loans secured by one-to four-family
residences, the Bank's historical mortgage loan loss experience has been low. No
assurances, however, can be given as to future loan loss levels. Consumer loans
are generally considered to carry a greater inherent risk of loss than
residential mortgage loans. Accordingly, the Bank may experience higher
delinquency or loss levels in future periods.
Non-Interest Income
Non-interest income increased $887,000, or 39%, from $2.3 million for the year
ended September 30, 1999 to $3.2 million for the year ended September 30, 2000.
The increase in other income was primarily the result of increased mortgage
revenues of $505,000, increased retail banking fees of $420,000 and increased
insurance commissions of $80,000, offset by a decrease in other income of
$119,000.
Mortgage revenues increased 47%, from $1.1 million in fiscal 1999 to $1.6
million in fiscal 2000. These revenues were generated primarily from gains on
the sale of loans to investors on a servicing released basis. The volume of
loans sold for the twelve months ended September 30, 2000 totaled $148.1
million, an 18%
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increase from the $125.9 volume in fiscal 1999. The higher volume of loans sold
was the result of addition of 11 commissioned loan officers and additional
lending staff this year.
Retail banking fees increased 81%, from $516,000 to $936,000. The growth in
revenue was attributed to the increase in checking accounts, which grew from
7,800 accounts at September 30, 1999 to 10,278 at September 30, 2000, or a 32%
gain. Insurance commissions earned by the Bank's subsidiary, Pulaski Service
Corporation, increased 28%, from $283,000 for the year ended September 30, 1999,
to $363,000 for the year ended September 30, 2000. The higher amount of
commission was due primarily to an increase in the sale of annuities.
Other income declined from $398,000 for the September 1999 year, to $279,000 for
the year ended September 30, 2000. In fiscal 1999, the Bank decided to sell
servicing rights on a loan portfolio of $29.8 million and to also sell the
property and casualty insurance operations of the Bank's subsidiary, Pulaski
Service Corporation. The effect of these two sales accounted for $294,000 of
other non-interest income in fiscal 1999.
Non-Interest Expense
Non-interest expense increased from $6.6 million to $9.2 million for the year
ended September 30, 2000. The increase was primarily attributable to increased
compensation expense of $2.2 million and higher occupancy and equipment expense
of $365,000.
Compensation expense was $5.5 million in the year ended September 30, 2000,
contrasted against fiscal 1999 expense of $3.2 million. In fiscal 2000, the
Bank, as a result of the payment of a $4.00 per share return of capital,
recorded $1.4 million of compensation expense resulting from the accelerated
releasing of shares of stock for benefit of the employee stock ownership plan
and dividends paid on unvested shares of restricted stock awards. These expenses
are expected to be non-recurring and are further expected to result in reduced
compensation expense in future periods. The additional compensation expense
increases of approximately $900,000, were due to additional staffing for
mortgage lending, incentive payments, higher health insurance costs, increased
commissions on annuities and increased costs associated with awards of
restricted stock. The base salaries of senior management were frozen for
calendar 1998, 1999, and 2000.
Occupancy and equipment expense increased from $1.4 million for the twelve
months ended September 30, 1999 to $1.8 million for the year ended September 30,
2000. Capital improvements of approximately $1.0 million have been made in
fiscal 2000 to existing offices and to the new branch location in St. Charles,
resulting in higher depreciation costs. Increased rent and real estate taxes
also contributed to the increased expense.
Income Taxes
The provision for income taxes decreased from $1.3 million for the year ended
September 30, 1999 to $1.2 million for the year ended September 30, 2000.
Approximately $906,000 of the $1.4 million special compensation expense recorded
as a result of the special $4.00 per share return of capital dividend was
determined to be non-deductible for income tax purposes. The effect of this non-
deductibility was an abnormally high effective tax rate for the year.
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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998:
General
Net income for the year ended September 30, 1999 was $2.1 million compared to
$1.8 million for the year ended September 30, 1998. The increase of $288,000 was
attributable to higher interest income, higher non-interest income, offset by
higher non-interest expense. Interest income increased as a result of investment
of net proceeds from the reorganization to a full stock company. Non-interest
income increased as a result of higher retail banking fees, and mortgage banking
revenues. Non-interest expenses increased due to higher compensation, occupancy
and equipment expenses, professional services, advertising, and other operating
expenses.
Interest Income
Interest income increased $1.7 million, from $13.6 million for fiscal 1998 to
$15.3 for fiscal 1999. The increase resulted primarily from an increase in
interest on loans of $1.3 million, as well as an increase of $414,000 in
interest on mortgage-backed and related securities, offset by a decrease in
interest on overnight funds of $115,000.
The increase in interest income on consumer loans resulted primarily from an
increase in the average balance of consumer loans outstanding from $7.9 million
for the twelve months ended September 30, 1998 to $27.2 million for the
September 30, 1999 fiscal year, offset by a decrease in the average yield on
these loans from 8.39% in 1998 to 7.34% for 1999. The lower average yield on
consumer loans was the result, primarily of a lower yield curve in early 1999
combined with competitive, aggressive pricing by the Bank to grow the consumer
loan portfolio.
Interest income on mortgage loans decreased $45,000 for the year ended September
30, 1999. The average balance of mortgage loans increased from $135.8 million
for fiscal 1998 to $144.8 million for fiscal 1999, but was offset by a decrease
in the average yield from 7.99% to 7.46%. The lower average yield on mortgage
loans was the result of mortgage loan refinancing payoffs, prepayments of
higher-rate loans, lower rate repricings on adjustable rate loans, and the
origination of lower-rate loans.
Interest income on mortgage-backed securities increased as a result of the $20
million investment made during the June 30, 1999 quarter. The average balance of
mortgage-backed securities increased from $6.2 million for the year ended
September 30, 1998 to $12.7 million for the year ended September 30, 1999. The
average yield declined from 8.17% in fiscal 1998 to 7.26% in fiscal 1999, and
reflects amortization and prepayment of older higher-rate securities, and the
addition of the $20 million in new securities at current, but lower rates.
The increase in interest income on securities, of $72,000, resulted primarily
from an increase in the average balance from $15.2 million in 1998 to $17.5
million in 1999, but was offset by a decrease in the average yield from 5.79%
for the year ended September 30, 1998 to 5.46% for the year ended September 30,
1999. The reduced yield reflects the lower rate environment at the time of
purchase.
Interest income from investments in overnight funds decreased $115,000 as a
result of lower average rates and lower average balance. The average yield
declined from 5.47% to 4.75% over the same period. The reduced average yield
was the result of lower short-term rates in effect in the earlier months of the
fiscal year. The average balance for the September 30, 1998 year was $12.6
million, and the average balance for the year ended September 30, 1999 was $12.1
million. The decline in average balance was the result of re-investment of
overnight funds into higher earning assets, primarily loans.
-10-
<PAGE>
Interest Expense
Interest expense increased $181,000, from $7.1 million in fiscal 1998 to $7.3
million for fiscal 1999. The increase was due primarily to higher interest
expense on borrowings from the FHLB, offset by decreased interest on deposits.
The increase in average balance was attributable to the use of advances to fund
purchase of mortgage-backed and related securities, and to fund loan
originations. The average rate decreased from 6.34% to 5.86% over the twelve-
month period ended September 30, 1999. The average balance of deposits increased
from $152.4 million for the 1998 fiscal year to $157.5 million for the 1999
fiscal year. Deposit gains were in checking accounts and money-market accounts
as the result of the continuation of the "High Performance Checking Account"
program. The Bank also believes that it has benefited from an influx of new
depositors as a result of the consolidation of financial institutions in the St.
Louis market. The weighted average cost decreased from 4.60% to 4.26% over the
same period. Management has adopted a pricing strategy to reduce the overall
cost of funds, and began implementing the strategy in the March 31, 1999
quarter. The average balance of FHLB advances increased from $2.0 million for
the year ended September 30, 1998 to $10.6 million for the year ended September
30, 1999.
Provision for Loan Losses
The provision for loan losses increased $56,000, from $209,000 in fiscal 1998 to
$265,000 in fiscal 1999. Management deemed it necessary to increase the
provision for loan losses after considering the increase in the higher risk
consumer loan portfolio. The provision for loan losses is determined by
management as the amount to be added to the allowance for loan losses after net
charge-offs have been deducted to bring the allowance to a level which is
considered adequate to absorb losses inherent in the loan portfolio. Because
management believes it adheres to specific loan underwriting guidelines focused
on mortgage loans secured by one-to-four-family residences, the Bank's
historical loan loss experience has been low. No assurances, however, can be
given as to future loan loss levels. Consumer loans are generally considered to
carry a greater inherent risk of loss than residential mortgage loans.
Accordingly, the Bank may experience higher delinquency or loss levels in future
periods as a result of the significant growth in the consumer loan portfolio.
Non-Interest Income
Non-interest income increased $622,000, or 37%, from $1.7 million for the year
ended September 30, 1998 to $2.3 million for the year ended September 30, 1999.
The increase was primarily the result of increased fee income from retail
banking, which increased 196% from $174,000 in fiscal 1998 to $516,000 for the
fiscal year ended September 30, 1999. This revenue growth was a result of the
greater volume of checking accounts generated by the Bank's "High Performance
Checking Account" program.
Mortgage revenues decreased $38,000 from $1,117,000 in 1998 to $1,079,000 in
1999. The volume of loan sales for fiscal 1999 was up approximately 9%, but the
profit margin declined over the pricing available in fiscal 1998.
Insurance commissions earned by the Bank's subsidiary increased slightly from
$255,000 for the year ended September 30, 1998, to $283,000 for the year ended
September 30, 1999. During the fiscal year ended September 30, 1999, the Company
elected to sell the book of business relating to sales of property and casualty
insurance and concentrate on sales of annuities and long-term care insurance.
The higher amount of commission was due primarily to higher annuity sales.
-11-
<PAGE>
Non-interest income increased $253,000 primarily as a result of recording
$294,000 of gains on the sale of the property and casualty insurance operations,
and gains on the sale of mortgage servicing rights. The Bank decided to sell
servicing rights on a portfolio of $29.8 million of Ginnie Mae loans. At
September 30, 1999 the Bank's remaining servicing portfolio amounted to
$864,000. The Bank made a strategic decision to exit these two business lines as
the potential for growth was extremely limited.
Non-Interest Expense
Non-interest expense increased from $5.1 million to $6.6 million. The increase
was primarily due to increases in compensation expense of $396,000, increased
other expense of $382,000, increased occupancy, equipment and data processing
expense of $291,000, increased professional fees of $248,000 and increased
marketing expenses of $136,000.
Compensation expense increased from $2.8 million for the year ended September
30, 1998 to $3.2 million for the year ended September 30, 1999. The increase was
the result of additional staffing for mortgage and consumer lending,
compensation increases, incentive payments as a result of implementation of a
performance based compensation system, higher health insurance premiums, higher
corporate liability insurance premiums and the additional expense associated
with an employee stock ownership plan.
Occupancy, equipment and data processing expense increased from $1.1 million for
the year ended September 30, 1998 to $1.4 million for the year ended September
30, 1999, primarily as a result of increased depreciation and operational
expense associated with the purchase and installation of 5 ATMs.
Professional services increased from $241,000 for fiscal 1998 to $489,000 for
fiscal 1999. The increase was the result of higher professional fees and use of
consultants for improved business practices. The Bank expects to benefit from
recommendations received regarding improved business practices in fiscal 2000.
Advertising expenses increased $135,000, from $300,000 for the year ended
September 30, 1998 to $435,000 for the year ended September 30, 1999. The
increase was due to increased use of cable television advertising in addition to
direct mail promotion costs incurred as a result of the Bank's efforts to
increase checking account deposits, and marketing costs related to the re-
location of the North County Branch to Jamestown Mall in Florissant, Missouri.
Other miscellaneous expenses increased from $599,000 in fiscal 1998 to $981,000
in fiscal 1999. The increase was primarily due to increased postage, telephone
and other expenses of $206,000, loan operational costs of $90,000, and franchise
taxes of $82,000.
Income Taxes
The provision for income taxes increased $262,000 from $989,000 for the year
ended September 30, 1998 to $1.3 million for the year ended September 30, 1999.
The increase was primarily attributable to increased levels of taxable income.
The effective tax rate increased from 34.9% to 37.0% resulting principally from
an increase in state taxes.
Market Risk Analysis
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
-12-
<PAGE>
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 ("ARM"), home equity loans and consumer loans. In
addition, the majority of long-term, fixed-rate single-family residential
mortgage loans are underwritten according to the guidelines of Fannie Mae and
Freddie Mac and usually sold in the secondary market. The retention of ARM
loans, which reprice at regular intervals (three to five years), 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 and
FHLB borrowings as its primary source of funds. Management believes retail
deposits reduce the effects of interest rate fluctuations because they generally
represent a more stable source of funds.
Quantitative Aspects of Market Risk - The Company does not maintain a trading
account for any class of financial instruments 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.
-13-
<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, 2000. Expected maturities use
certain assumptions based on historical experience and other data available to
management.
<TABLE>
<CAPTION>
Weighted One Year After Three After Five Carrying
Average Within one to Year 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 (1) 8.07% $ 58,849 $36,983 $59,748 $23,607 $30,732 $209,919 $207,666
Loans held for sale - net 8.04% 3,815 10,559 14,374 14,634
Mortgage related securities - HTM 8.57% 796 12 313 2,013 3,134 3,237
Mortgage related securities - AFS 6.87% 1,031 18,439 19,470 19,470
Securities - HTM 6.37% 12,134 1,500 13,634 13,615
Securities - AFS 6.46% 1,746 1,474 1,249 4,469 4,469
Federal funds/overnight deposits 6.55% 3,800 3,800 3,800
-------- ------- ------- ------- ------- -------- --------
Total interest sensitive assets $ 77,325 $42,298 $61,234 $26,200 $61,743 $268,800 $266,891
======== ======= ======= ======= ======= ======== ========
Interest Sensitive Liabilities
Checking accounts and money
market (2) 2.41% $ 31,446 $ - $ - $ _ $ - $ 31,446 $ 31,446
Savings accounts 1.87% 23,649 23,649 23,649
Certificate accounts 5.50% 83,829 21,346 4,013 109,188 108,166
Borrowings 6.60% 30,200 20,900 15,000 66,100 65,813
Note payable 9.00% 12,500 12,500 12,500
-------- ------- ------- ------- ------- -------- --------
Total interest sensitive liabilities $181,624 $42,246 $19,013 $ - $ - $242,883 $241,574
======== ======= ======= ======= ======= ======== ========
Off Balance Sheet Items
Commitments to extend credit 8.36% $ 5,708
Unused lines of credit - home equity 10,136
</TABLE>
(1) Excludes non-accrual loans of $413,000
(2) Excludes noninterest checking accounts of $4.1 million
-14-
<PAGE>
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 300 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. 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).
Estimated Change
in Net Portfolio Value
Change in Interest Rates (in thousands)
300 basis point rise $ (9,098)
200 basis point rise (5,592)
100 basis point rise (2,492)
Base scenario -
100 basis point decline 1,567
200 basis point decline 2,313
300 basis point decline 2,999
The preceding table indicates that at September 30, 2000, in the event of a
sudden and sustained increase in prevailing market interest rates, the Company's
NPV would be expected to decrease. 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 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 that 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 loan sales,
maturities of securities, principal payments received on mortgage-backed and
related securities, loan repayments, deposits and FHLB borrowings.
The primary investing activities of the Company are originating and purchasing
loans, purchasing investments, mortgage-backed and related securities. Proceeds
from maturities of securities and principal payments received on mortgage-backed
and related securities provided $14.7 million of liquidity for the year
-15-
<PAGE>
ended September 30, 2000. Net loan originations of $29.0 million and purchasing
of securities of $19.8 million offset these sources of cash.
Typically, the Company's most significant financing activities are deposits
accounts, FHLB borrowings, taxes and insurance on behalf of borrowers, and the
payment of dividends. Net borrowings of FHLB advances provided $37.5 million of
funds. Borrowings from commercial banks amounted to $12.5 million. Additionally,
net deposits increased by $7.0 million. Payments to acquire treasury stock of
$8.7 million and dividend payments totaling $1.0 million for regular quarterly
cash dividends, and $11.5 million as a special $4.00 dividend, were the primary
uses of cash during fiscal 2000.
On September 1, 2000, the Company paid a special $4.00 per share cash
distribution. The purpose of the payment was to reduce the excess capital that
resulted from the reorganization from the mutual holding company and related
stock offering. The lower capital base is expected to enable the Company to
provide improved returns on equity.
Federal regulations require the Bank to maintain minimum levels of liquid assets
(i.e., cash and eligible investments). The required percentage has varied from
time to time based upon economic conditions and savings flows and is currently
4% of the average daily balance of its net withdrawable savings deposits and
short-term borrowings. The Bank attempts to maintain levels of liquidity at
levels in excess of those required by regulation. Maintaining levels of
liquidity acts, in part, to reduce the Company's balance sheet exposure to
interest rate risk. At September 30, 2000, the Bank's liquidity ratio (liquid
assets as a percentage of net withdrawable savings deposit and short-term
borrowings) was 23.0%. The Bank's liquidity was subsequently reduced in October,
with the repayment of $12.5 million of borrowings obtained to provide short-term
funding for the payment of the $4.00 per share special distribution.
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, 2000, the Bank had outstanding commitments to originate loans of
$5.7 million, to repurchase loans sold to investors of $441,000, to sell loans
on a best-efforts basis of $19.7 million and to fulfill commitments under unused
home equity lines of credit of $10.1 million. At the same time, certificates of
deposit scheduled to mature in one year or less totaled $83.8 million. Based
upon historical experience, management believes the majority of maturing
certificates of deposit will remain with the Company.
If the Company requires funds beyond its ability to generate them internally, it
has the ability to borrow funds from the FHLB under a blanket agreement which
assigns all investments in FHLB stock as well as qualifying first mortgage loans
equal to 125% of the outstanding advances as collateral to secure the amounts
borrowed. At September 30, 2000 the Company had approximately $62.3 million
available to it under the above-mentioned borrowing arrangement after advances
of $66.1 million from the FHLB.
The Company's ability to pay dividends depends primarily on the Bank's ability
to pay dividends to the Company. Federal regulations limit distributions by the
Bank. In addition, the Bank cannot pay dividends if the effect of the payment
would be to reduce the Bank's capital below the balance of the liquidation
account controlled by the Bank for the benefit of its eligible depositors in
connection with the reorganization from the mutual holding company structure.
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
risk-based capital requirement. The tangible capital requirement provides for
minimum tangible capital (defined as stockholders' equity less all intangible
assets) equal to 1.5% of adjusted total assets. The core capital requirement
provides for
-16-
<PAGE>
minimum core capital (tangible capital plus certain forms of supervisory
goodwill and other qualifying intangible assets) equal to 3.0% of adjusted
assets. The risk-based capital requirement provides for the maintenance of core
capital plus a portion of unallocated loss allowances equal to 8.0% of risk-
weighted assets. In computing risk-weighting assets the Bank multiplies the
value of each asset on its balance sheet by a defined risk-weighting factor
(e.g., one-to-four-family conventional residential loans carry a risk-weighted
factor of 50%).
At September 30, 2000, the Bank's tangible capital totaled $41.4 million, or
14.8% of adjusted total assets, which exceeded the minimum 1.5% requirement by
$37.2 million, or 13.3%. The Bank's core capital at September 30, 2000 totaled
$41.4 million or 14.8% of adjusted total assets, which was approximately $33.0
million, or 11.8% above the minimum requirement of 3.0%. The Bank's risk-based
capital at that date totaled $42.8 million, or 24.3% of risk-weighted assets,
which is $28.7 million, or 16.3% above the 8.0% fully phased-in requirement.
Subsequent to September 30, 2000, the Bank paid $15.5 million in dividends to
its parent, Pulaski Financial Corp., primarily used to repay the short term loan
used to fund the special dividend $4.00 return of capital.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with accounting principles generally
accepted in the United States of America, 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.
-17-
<PAGE>
Yields Earned and Rates Paid
The following table sets forth for the three years ended September 30, 2000,
1999 and 1998 and at September 30, 2000 and 1999, 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,
------------------------------- -----------------------
2000 1999 1998 2000 1999
<S> <C> <C> <C> <C> <C>
Weighted average yield on loans (1) 7.59% 7.44% 8.01% 8.07% 7.52%
Weighted average yield on securities 6.11% 5.46% 5.79% 6.37% 5.29%
Weighted average yield on mortgage-related
securities 7.17% 7.26% 8.17% 6.46% 7.09%
Weighted average yield on federal funds sold and
overnight deposits 6.17% 4.75% 5.47% 6.55% 5.11%
Weighted average yield on all interest-earning assets 7.44% 7.12% 7.64% 7.86% 7.20%
Weighted average rate paid on savings deposits 4.12% 4.26% 4.60% 4.33% 3.94%
Weighted average rate paid on FHLB advances
and other borrowed money 6.42% 5.86% 6.34% 6.60% 5.74%
Weighted average rate paid on all interest-bearing
liabilities 4.64% 4.36% 4.62% 4.97% 4.27%
Interest rate spread (spread between weighted
average rate on all interest-earning assets and all
interest-bearing liabilities) 2.80% 2.76% 3.02% 2.89% 2.93%
Net interest margin (net interest income as a
percentage of average interest-earning assets) 3.58% 3.70% 3.63% N/A N/A
</TABLE>
(1) Includes loans held for sale of $14.3 million and $8.2 million at
September 30, 2000 and 1999 respectively.
-18-
<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.
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------------------------------------------
2000 1999 1998
-------------------------- -------------------------- ---------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (1) $203,774 $15,463 7.59 % $171,990 $12,804 7.44 % $143,795 $11,520 8.01 %
Securities 12,064 737 6.11 % 17,482 955 5.46 % 15,246 883 5.79 %
Mortgage-backed and related securities 23,962 1,718 7.17 % 12,696 922 7.26 % 6,216 508 8.17 %
Federal funds sold and overnight deposits 6,356 392 6.17 % 12,132 576 4.75 % 12,640 691 5.47 %
-------- ------- -------- ------- -------- -------
Total interest-earning assets 246,156 18,310 7.44 % 214,300 15,257 7.12 % 177,897 13,602 7.64 %
Non-interest-earning assets 10,630 8,000 6,565
-------- -------- --------
Total assets $256,786 $222,300 $184,462
======== ======== ========
Interest-bearing liabilities:
Total deposits (2) (5) $158,599 $ 6,538 4.12 % $157,467 6,701 4.26 % $152,451 7,011 4.60 %
FHLB advances/other borrowings 46,178 2,965 6.42 % 10,595 621 5.86 % 2,049 130 6.34 %
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 204,777 9,503 4.64 % 168,062 7,322 4.36 % 154,500 7,141 4.62 %
------- ------- -------
Non-interest bearing liabilities 11,984 7,049 5,335
Retained earnings 40,025 47,189 24,627
-------- -------- --------
Total liabilities and retained earnings $256,786 $222,300 $184,462
======== ======== ========
Net interest income $ 8,807 $ 7,935 $ 6,461
======= ======= =======
Interest rate spread (3) 2.80 % 2.76 % 3.02 %
Net interest margin (4) 3.58 % 3.70 % 3.63 %
Ratio of average interest-earning assets to
average interest-bearing liabilities 120.21 % 127.51 % 115.14 %
======= ======= =======
</TABLE>
______________________________________
(1) Excludes non-accrual loans with a average balance of $251,000, $666,000 and
$477,000 at September 30, 2000, 1999 and 1998, respectively.
(2) Excludes non-interest-bearing deposits with an average balance of $3.7
million, $2.6 million and $1.3 million during 2000, 1999 and 1998,
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.
-19-
<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>
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Due to Increase (Decrease) Due
-------------------------------------- -----------------------------------
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 $ 247 $2,366 $ 46 $2,659 $ (814) $2,259 $(161) $1,284
Securities 113 (296) (35) (218) (50) 129 (7) 72
Mortgage-backed and related securities (12) 818 (10) 796 (57) 530 (59) 414
Federal funds sold and overnight deposits 172 (274) (82) (184) (91) (28) 4 (115)
----- ------ ------ ------ ------- ------ ----- ------
Total net change in income on
interest-earning assets 520 2,614 (81) 3,053 (1,012) 2,890 (223) 1,655
Interest-bearing liabilities:
Interest-bearing deposits (210) 48 (2) (164) (523) 230 (17) (310)
FHLB advances/other borrowed money 59 2,086 199 2,344 (10) 542 (41) 491
----- ------ ------ ------ ------- ------ ----- ------
Total net change in expense on
interest-bearing liabilities (151) 2,134 197 2,180 (533) 772 (58) 181
----- ------ ------ ------ ------- ------ ----- ------
Net change in net interest income $ 671 $ 480 $(278) $ 873 $ (479) $2,118 $(165) $1,474
===== ====== ====== ====== ======= ====== ===== ======
<CAPTION>
1998 Compared to 1997
Increase (Decrease) Due to
---------------------------------------
Rate/
Rate Volume Volume Net
(In thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Total net loans $(76) $239 $(1) $162
Securities (5) (95) 1 (99)
Mortgage-backed and related securities (9) (55) 1 (63)
Federal funds sold and overnight deposits 13 201 5 219
---- ---- --- ----
Total net change in income on
interest-earning assets (77) 290 6 219
Interest-bearing liabilities:
Interest-bearing deposits (18) 205 (1) 186
FHLB advances/other borrowed money 4 (34) - (30)
---- ---- --- ----
Total net change in expense on
interest-bearing liabilities (14) 171 (1) 156
---- ---- --- ----
Net change in net interest income $(63) $119 $ 7 $ 63
==== ==== === ====
</TABLE>
-20-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Pulaski Financial Corp.:
We have audited the accompanying consolidated balance sheets of Pulaski
Financial Corp. and subsidiaries (the "Company") as of September 30, 2000 and
1999, 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, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 Company as of September 30,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
October 31, 2000
(December 11, 2000 as to Note 11)
-21-
<PAGE>
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 2000 1999
<S> <C> <C>
Cash and amounts due from depository institutions $ 3,762,265 $ 3,486,957
Federal funds sold and overnight deposits 3,800,000 5,400,000
------------ ------------
Total cash and cash equivalents 7,562,265 8,886,957
Securities available for sale, at market value 5,493,159 4,234,145
Securities held to maturity, at amortized cost (market value $13,615,012
and $9,002,455 at September 30, 2000 and 1999, respectively) 13,634,391 9,010,427
Mortgage-backed and related securities held to maturity, at amortized cost (market
value $3,237,467 and $4,154,784 at September 30, 2000 and 1999, respectively) 3,133,691 3,996,748
Mortgage-backed and related securities available for sale, at market value 19,470,455 21,356,446
Capital stock of Federal Home Loan Bank - at cost 3,580,000 1,501,200
Loans receivable held for sale, at lower of cost or market 14,374,186 8,159,085
Loans receivable, net of allowance for loan losses of $1,365,776 and $985,773 at
September 30, 2000 and 1999, respectively 209,919,196 181,532,561
Real estate acquired in settlement of loans, net of allowance for losses of $2,108
and $17,161 at September 30, 2000 and 1999, respectively 28,008 228,002
Premises and equipment, net 2,933,683 2,235,412
Accrued interest receivable 1,589,923 1,347,861
Other assets 1,400,995 1,485,537
------------ ------------
TOTAL $283,119,952 $243,974,381
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $168,412,670 $161,370,542
Advances from Federal Home Loan Bank 66,100,000 28,600,000
Advance payments by borrowers for taxes and insurance 2,786,928 2,440,520
Accrued interest payable 212,509 221,881
Note payable 12,500,000
Other liabilities 1,908,178 1,436,595
------------ ------------
Total liabilities 251,920,285 194,069,538
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value per share, 10,000,000 shares authorized; none
issued - -
Common stock - $.01 par value per share, 25,000,000 shares authorized; 3,972,885
shares issued at September 30, 2000 and 1999, respectively 39,729 39,729
Treasury stock - at cost (815,791 and 198,000 shares at September 30, 2000 and
1999, respectively) (9,396,438) (2,322,004)
Additional paid-in capital 23,933,327 35,685,866
Unearned MRDP shares (728,812) (18,400)
Unearned ESOP shares (119,301and 217,242 unreleased shares at September 30, 2000
and 1999) (1,193,007) (2,172,420)
Accumulated other comprehensive loss (241,347) (235,360)
Retained earnings 18,786,215 18,927,432
------------ ------------
Total stockholders' equity 31,199,667 49,904,843
------------ ------------
TOTAL $283,119,952 $243,974,381
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
-22-
<PAGE>
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable $15,463,368 $12,804,360 $11,520,314
Securities 736,809 955,382 883,359
Mortgage-backed and related securities 1,718,317 922,041 507,604
Other 391,740 575,754 690,764
----------- ----------- -----------
Total interest income 18,310,234 15,257,537 13,602,041
----------- ----------- -----------
INTEREST EXPENSE:
Deposits 6,538,336 6,655,420 7,011,403
Advances from Federal Home Loan Bank 2,870,973 621,429 130,302
Other 93,750 46,010
----------- ----------- -----------
Total interest expense 9,503,059 7,322,859 7,141,705
----------- ----------- -----------
NET INTEREST INCOME 8,807,175 7,934,678 6,460,336
PROVISION FOR LOAN LOSSES 499,399 264,936 209,277
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,307,776 7,669,742 6,251,059
----------- ----------- -----------
NON-INTEREST INCOME:
Retail banking fees 935,886 515,810 173,684
Mortgage revenues 1,584,008 1,078,670 1,116,802
Insurance commissions 363,439 283,241 255,251
Other 278,734 397,715 144,934
----------- ----------- -----------
Total other income 3,162,067 2,275,436 1,690,671
----------- ----------- -----------
NON-INTEREST EXPENSE:
Compensation expense-special dividend 1,371,893
Salaries and employee benefits 4,102,967 3,235,893 2,839,610
Occupancy, equipment and data processing expense 1,784,129 1,419,517 1,127,688
Advertising 415,669 435,195 299,663
Professional services 504,300 489,216 241,001
Other 1,005,081 980,965 599,146
----------- ----------- -----------
Total other expenses 9,184,039 6,560,786 5,107,108
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,285,804 3,384,392 2,834,622
INCOME TAXES 1,159,364 1,251,661 989,827
----------- ----------- -----------
NET INCOME 1,126,440 2,132,731 1,844,795
OTHER COMPREHENSIVE (LOSS) INCOME - Unrealized (loss) gain
on securities available-for-sale (net of income taxes in 2000, 1999 and 1998
of $3,516, $145,709, and $7,481, respectively) (5,987) (249,880) 14,520
----------- ----------- -----------
COMPREHENSIVE INCOME $ 1,120,453 $ 1,882,851 $ 1,859,315
=========== =========== ===========
NET INCOME PER COMMON SHARE - BASIC $ 0.34 N/M N/M
=========== =========== ===========
NET INCOME PER COMMON SHARE - DILUTED $ 0.34 N/M N/M
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
-23-
<PAGE>
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unearned
Management
Recognition Accumulated
Additional and Unearned Other
Common Treasury Paid-In Development ESOP Comprehensive
Stock Stock Capital Plan Shares Shares Income(Loss)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1997 $2,094,800 $ - $ 5,132,238 $ (128,800) $ - $ -
Comprehensive income:
Net income
Change in net unrealized loss
on securities 14,520
Total comprehensive income
Amortization of Management
Recognition and Development
Plan shares 55,200
Dividends ($1.10 per share)*
Stock options exercised 11,040 126,180
---------- ----------- ------------ ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1998 2,105,840 - 5,258,418 (73,600) - 14,520
Comprehensive income:
Net income
Change in net unrealized
loss on securities (a) (249,880)
Total comprehensive income
Dividends ($.36 per share)
Issuance and exchange of common
stock as a result of the
conversion reorganization (b) (c) (2,066,181) 30,380,966 (2,327,600)
Assets consolidated from Pulaski
Bancshares, MHC
Stock options exercised 70 44,543
Stock repurchase (198,000 shares) (2,322,004)
Release of ESOP shares 1,939 155,180
Amortization of Management Recognition
and Development Plan shares 55,200
---------- ----------- ------------ ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1999 39,729 (2,322,004) 35,685,866 (18,400) (2,172,420) (235,360)
Comprehensive income:
Net income
Change in net unrealized loss on
securities (5,987)
Total comprehensive income
Dividends ($.36 per share)
Stock options exercised 260,864 7,647
Stock repurchase (756,410 shares) (8,700,132)
Release of ESOP shares 83,200 979,413
Special cash dividend ($4.00 per share) (11,843,386) 357,978
Management Recognition and Development
Plan Shares issued 1,364,834 (1,260,396)
Amortization of Management Recognition
and Development Plan shares 192,006
---------- ----------- ------------ ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 2000 $ 39,729 $ (9,396,438) $ 23,933,327 $ (728,812) $(1,193,007) $(241,347)
========== ============ ============ =========== =========== ============
Retained
Earnings Total
<S> <C> <C>
BALANCE, OCTOBER 1, 1997 $ 16,759,652 $ 23,857,890
Comprehensive income:
Net income 1,844,795 1,844,795
Change in net unrealized loss
on securities 14,520
------------
Total comprehensive income 1,859,315
------------
Amortization of Management
Recognition and Development
Plan shares 55,200
Dividends ($1.10 per share)* (696,966) (696,966)
Stock options exercised 137,220
------------ ------------
BALANCE, SEPTEMBER 30, 1998 17,907,481 25,212,659
Comprehensive income:
Net income 2,132,731 2,132,731
Change in net unrealized
loss on securities (a) (249,880)
------------
Total comprehensive income 1,882,851
------------
Dividends ($.36 per share) (1,329,760) (1,329,760)
Issuance and exchange of common
stock as a result of the
conversion reorganization (b) (c) 25,987,185
Assets consolidated from Pulaski
Bancshares, MHC 216,980 216,980
Stock options exercised 44,613
Stock repurchase (198,000 shares) (2,322,004)
Release of ESOP shares 157,119
Amortization of Management Recognition
and Development
Plan shares 55,200
------------ ------------
BALANCE, SEPTEMBER 30, 1999 18,927,432 49,904,843
Comprehensive income:
Net income 1,126,440 1,126,440
Change in net unrealized loss on
securities (5,987)
------------
Total comprehensive income 1,120,453
------------
Dividends ($.36 per share) (1,061,363) (1,061,363)
Stock options exercised (101,856) 166,655
Stock repurchase (756,410 shares) (8,700,132)
Release of ESOP shares 1,062,613
Special cash dividend ($4.00 per share) (11,485,408)
Management Recognition and Development
Plan Shares issued (104,438) -
Amortization of Management Recognition
and Development
Plan shares 192,006
------------ ------------
BALANCE, SEPTEMBER 30, 2000 $ 18,786,215 $ 31,199,667
============ ============
</TABLE>
-24-
<PAGE>
* Pulaski Bancshares, M.H.C. ("MHC"), which owned $1,470,000 shares of stock
in the Bank, waived receipt in 1997 and 1998, thereby reducing the actual
dividend payment to the amounts shown above.
(a) Includes reduction in unrealized gains of $248,778 and reclassification
adjustment for gains included in income of ($1,102).
(b) Includes 635,840, $1.00 par value, shares of Pulaski Bank outstanding at
December 2, 1998, which were converted into 1,056,003, $.01 par value,
shares of Pulaski Financial Corp. based on 1.6608 exchange ratio;
2,909,500, $.01 par value, shares of Pulaski Financial Corp. sold in the
subscription and community offering; and the cancellation of $1,470,000,
$1.00 par value, shares of Pulaski Bank previously held by Pulaski
Bancshares, M.H.C.
(c) 232,760 shares purchased by the ESOP.
See accompanying notes to the consolidated financial statements.
-25-
<PAGE>
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,126,440 $ 2,132,731 $ 1,844,795
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation, amortization and accretion:
Premises and equipment 492,737 388,088 289,842
Management Recognition and Development Plan
stock awards 192,006 55,200 55,200
ESOP shares committed to be released 1,062,613 157,119
Loan fees, discounts and premiums - net (123,020) (25,516) (119,700)
Provision for loan losses 499,399 264,936 209,277
Provision for losses on real estate acquired in
settlement of loans 4,679 24,983 33,513
Losses (gains) on sales of real estate acquired in
settlement of loans 31,733 (8,573) 6,819
Originations of loans receivable for sale to
correspondent lenders (154,360,101) (120,610,664) (123,642,457)
Proceeds from sales of loans to correspondent lenders 149,510,252 126,727,370 125,435,810
Gains on sales of loans (1,365,252) (833,370) (851,293)
Gain on sale of securities (1,750)
Gain on sales of premises and equipment (14,040)
Deferred income taxes 245,271 (214,308) (56,124)
Changes in other assets and liabilities 62,933 543,448 (688,030)
------------- ------------- -------------
Net adjustments (3,760,790) 6,466,963 672,857
------------- ------------- -------------
Net cash from operating activities (2,634,350) 8,599,694 2,517,652
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities 12,021,000 17,451,750 19,760,000
Purchases of securities and Federal Home
Loan Bank stock (19,788,410) (9,472,442) (24,426,158)
Purchases of mortgage-backed and related securities (20,713,884) (1,486,654)
Principal payments received on mortgage-backed and
related securities 2,722,073 1,890,000 965,951
Loan (originations) repayments - net (29,045,826) (40,702,040) (11,941,823)
Proceeds from sales of real estate acquired in settlement
of loans receivable 269,500 393,627 91,001
Proceeds from sales of premises and equipment 24,800
Net additions to premises and equipment (1,201,767) (518,211) (586,325)
------------- ------------- -------------
Net cash from investing activities (34,998,630) (51,671,200) (17,624,008)
------------- ------------- -------------
</TABLE>
(Continued)
-26-
<PAGE>
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 7,042,128 $ 7,122,709 $ 7,563,127
Federal Home Loan Bank advances - net 37,500,000 26,700,000 (300,000)
Proceeds from other borrowings 12,500,000
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 346,408 (745,085) 72,512
(Refunds of) proceeds from stock over-subscriptions (5,129,497) 5,129,497
Common stock issued under Stock Option Plan 166,655 44,613 137,220
Dividends paid on common stock (1,061,363) (1,329,760) (696,966)
Payments to acquire treasury stock (8,700,132) (2,322,004)
Special return of capital ($4.00 per share) (11,485,408)
Issuance of common stock under reorganization 24,570,159
------------ ------------ ------------
Net cash from financing activities 36,308,288 48,911,135 11,905,390
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,324,692) 5,839,629 (3,200,966)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,886,957 3,047,328 6,248,294
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,562,265 $ 8,886,957 $ 3,047,328
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits $ 6,547,710 $ 6,696,139 $ 7,011,635
Interest on advances from the Federal Home Loan Bank 2,870,973 226,930 130,302
Income taxes 933,062 1,237,500 1,185,814
NONCASH INVESTING ACTIVITIES:
Real estate acquired in settlement of loans receivable 105,917 532,412 236,961
Loans receivable securitized 9,105,517
(Decrease) increase in investments for changes in
unrealized gains and losses (9,503) (395,589) 22,001
NONCASH FINANCING ACTIVITIES:
Issuance of common stock:
Purchase of ESOP 2,327,600
Proceeds received from deposit transfers 1,987,515
</TABLE>
See accompanying notes to the consolidated financial statements. (Concluded)
-27-
<PAGE>
PULASKI FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pulaski Financial Corp, (the "Company") was incorporated under Delaware law
in May 1998. The Company was organized for the purpose of becoming the
holding company for Pulaski Bank, (the "Bank") upon the Bank's reorganization
from the mutual holding company form of organization. (the "Reorganization")
In connection with the 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 its former mutual holding company, Pulaski
Bancshares, M.H.C. The Company has no significant assets, other than 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 in the consolidated
financial statements relates primarily to the Bank.
The accounting and reporting policies and practices of the Company and
subsidiaries conform to accounting principles generally accepted in the
United States of America and to prevailing practices within the banking
industry. A summary of the Company's significant accounting policies follows:
Nature of Operations - The Company through its subsidiary Bank, operates as a
single business segment, that of a community-oriented financial institution
providing traditional financial banking services through the operation of
five full service branches within St. Louis City and County and St. Charles
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 Ginnie Mae, but
discontinued in sales and servicing activities with Ginnie Mae in 1999.
Principles of Consolidation - The consolidated financial statements include
the accounts of Pulaski Financial Corp. and its wholly owned subsidiary,
Pulaski Bank, and its wholly owned subsidiary Pulaski Service Corporation.
All significant intercompany transactions have been eliminated in
consolidation.
Use of Estimates - The preparation of these consolidated financial statements
in conformity with accounting principles generally accepted in the United
States of America 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 expenses during the
reporting periods. Actual results could differ from those estimates. The
provision for loan losses and fair values of financial instruments are
significant estimates reported within the financial statements.
Cash and 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 at the FHLB. Generally, federal
funds are sold for a one-day period.
-28-
<PAGE>
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.
Securities and Mortgage-Backed and Related Securities, Available-for-Sale -
Securities and mortgage-backed and related securities available-for-sale are
recorded at their current fair value. Unrealized gains or losses on
securities and mortgage-backed and related 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 and mortgage-backed and
related securities available-for-sale are recognized using the specific
identification method. Estimated fair values of securities and mortgage-
backed and related securities available for sale are based on quoted market
prices when available. If quoted market prices are not available, fair
values are estimated using quoted market prices for similar instruments.
To the extent management determines a decline in value in a security or
mortgage-backed and related security available for sale to be other than
temporary, the Bank will adjust the carrying value and include such expense
in the consolidated statements of income.
Securities and Mortgage-Backed and Related Securities, Held-to-Maturity -
Securities and mortgage-backed and 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 a security or
mortgage-backed and 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.
Capital Stock of Federal Home Loan Bank - Capital stock of Federal Home Loan
Bank is carried at cost. Dividends received on such stock are reflected as
dividend income in the consolidated statements of income.
Loans Receivable Held for Sale - Loans receivable held for sale consist of
loans that management does not intend to hold until maturity, and are
reflected at the lower of cost or market and 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 Receivable - Loans receivable are stated at the principal amounts
outstanding adjusted for premiums, discounts, deferred loan costs, loans in
process and allowance for loan loss. 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. When a loan is placed on non-accrual status,
previously accrued but unpaid interest is reversed against current income.
Subsequent collections of cash may be applied as reductions to the principal
balance, interest in arrears, or recorded as income depending on management's
assessment of the ultimate collectibility of the loan. 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.
-29-
<PAGE>
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 for impairment. Loans on residential properties
with greater than four units, loans on construction, development and
commercial properties, and loans more than four months delinquent 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. Assessing the adequacy of the
allowance for loan losses is inherently subjective as it requires making
material estimates, including the amount and timing of future cash flows
expected to be received on impaired loans, that may be susceptible to
significant change. In management's opinion, the allowance, when taken as a
whole, is adequate to absorb reasonable estimated loan losses inherent in the
Bank's loan portfolio.
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 that do not improve or extend the lives of the
respective assets are expensed. 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. Maintenance
repairs are charged to expense. Major renewals and improvements are
capitalized. Gains and losses on dispositions are credited or charged to
earnings as incurred.
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.
Revenue Recognition - Interest income, loan fees, checking account
transaction fees, insurance commissions, automated teller and debit card
transaction fees, and other ancillary income related to the Bank's deposits
and lending activities are accrued as earned.
Earnings Per Share - Earnings per share for the years ended September 30,
1999 and 1998 are not presented as such presentation would not be meaningful
due to the Reorganization which was completed on December 2, 1998.
-30-
<PAGE>
Reclassifications - Certain amounts included in the 1999 and 1998
consolidated financial statements have been reclassified to conform to the
2000 presentation.
2. SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
Securities available for sale and held to maturity at September 30, 2000
and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000
----------------------------------------------------------------
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 $ 13,634,391 $ - $ (19,379) $ 13,615,012
============ =========== ========= ============
Weighted average rate at end
of period 6.37%
============
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
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 $ 9,010,427 $ 6,955 $ (14,927) $ 9,002,455
============ =========== ========= ============
Weighted average rate at end
of period 5.25%
============
</TABLE>
<TABLE>
<CAPTION>
2000
----------------------------------------------------------------
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 $ 4,424,833 $ 48,520 $ (4,107) $ 4,469,246
Equity securities 1,032,425 - (8,512) 1,023,913
------------ --------- --------- ------------
Total $ 5,457,258 $ 48,520 $ (12,619) $ 5,493,159
============ ========= ========= ============
Weighted average rate on U.S.
Government and Agency debt
obligations at end of period 6.46%
============
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
1999
------------------------------------------------------
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 $ 4,238,322 $ 5,971 $(10,148) $ 4,234,145
=========== ======== ======== ===========
Weighted average rate at end
of period 5.37 %
====
</TABLE>
There were no sales of available for sale securities during 2000. Proceeds
from sales of available for sale securities for 1999 were $501,750. Realized
gains from those sales were not significant.
The amortized cost and market values of held to maturity and available for
sale debt investment securities at September 30, 2000, 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 $ 12,134,391 $ 12,132,580 $ 1,750,000 $ 1,745,893
One year through five years 1,500,000 1,482,432 2,674,833 2,723,353
------------ ------------ ----------- -----------
Total $ 13,634,391 $ 13,615,012 $ 4,424,833 $ 4,469,246
============ ============ =========== ===========
</TABLE>
3. MORTGAGE-BACKED AND RELATED SECURITIES
Mortgage-backed and related securities held to maturity and available for
sale at September 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Held to Maturity Cost Gains Losses Value
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 3,112,147 $ 103,968 $ - $ 3,216,115
Collateralized mortgage obligations:
Private issues 21,544 (190) 21,354
----------- --------- ------ -----------
Total $ 3,133,691 $ 103,968 $ (190) $ 3,237,469
=========== ========= ====== ===========
Weighted average rate at end of period 8.57%
===========
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Held to Maturity Cost Gains Losses Value
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 3,383,565 $ 149,698 $ (20) $ 3,533,243
Collateralized mortgage obligations:
Freddie Mac 586,655 8,511 595,166
Private issues 26,528 (153) 26,375
----------- ---------- ------ -----------
Total $ 3,996,748 $ 158,209 $ (173) $ 4,154,784
=========== ========== ====== ===========
Weighted average rate at end of period 8.37 %
===========
</TABLE>
<TABLE>
<CAPTION>
2000
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains Losses Value
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 19,889,444 $ - $(418,989) $ 19,470,455
============= ======== ========= ============
Weighted average rate at end
of period 6.87%
=============
</TABLE>
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains Losses Value
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 21,725,857 $ - $ (369,411) $ 21,356,446
============= ======== ========== ============
Weighted average rate at end
of period 6.86%
=============
</TABLE>
There were no sales of available-for-sale securities during 2000 or 1999.
The amortized cost and estimated market value of held to maturity and available
for sale mortgage-backed and related securities at September 30, 2000, 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 $ 796,381 $ 807,052 $ - $ -
One year through five years
Five years through ten years 324,925 333,357 1,064,776 1,031,342
Ten years or more 2,012,385 2,097,060 18,824,668 18,439,113
---------- ------------ ----------- ------------
Tota1 $3,133,691 $ 3,237,469 $19,889,444 $ 19,470,455
========== ============ =========== ============
</TABLE>
-33-
<PAGE>
Actual maturities of mortgage-backed and related securities may differ
from scheduled maturities depending on the repayment characteristics and
experience of the underlying financial instruments, on which borrowers
have the right to call or prepay certain obligations sometimes without
penalties.
4. LOANS RECEIVABLE
Loans receivable at September 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Loans secured by residential real estate
Conventional $ 168,072,682 $ 135,416,425
FHA/VA 6,241,649 7,351,160
--------------- -------------
174,314,331 142,767,585
Commercial real estate loans 411,854 566,963
Now overdrafts 135,846
Home equity lines 14,396,340 5,022,123
Consumer loans 23,297,961 33,112,905
--------------- -------------
212,556,332 181,469,576
Less:
Deferred loan (costs) fees (1,017,017) (1,412,559)
Loans-in-process 2,288,377 363,801
Allowance for loan losses 1,365,776 985,773
--------------- -------------
Total $ 209,919,196 $ 181,532,561
=============== =============
Weighted average rate at end of period 8.07 % 7.50 %
=============== =============
</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 federal law
and regulations, 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, 2000, the Bank was in compliance with
this limitation.
-34-
<PAGE>
The Bank has granted loans to officers and directors. Changes in loans to
officers and directors for the three years ended September 30, are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, September 30, 1998 $ 254,214
Additions 246,650
Repayments and reclassifications (123,136)
------------
Balance, September 30, 1999 377,728
Additions 126,953
Repayments and reclassifications (438,930)
------------
Balance, September 30, 2000 $ 65,751
============
</TABLE>
Activity in the allowance for loan losses for the years ended September 30,
2000, 1999 and 1998 follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Balance, beginning of year $ 985,773 $ 762,688 $ 612,852
Provision charged to expense 499,399 264,936 209,277
Charge-offs (133,545) (52,378) (66,305)
Recoveries 14,149 10,527 6,864
------------- ------------ --------------
Balance, end of year $ 1,365,776 $ 985,773 $ 762,688
============= ============ ==============
</TABLE>
Troubled debt restructuring was minimal in 2000. The Bank did not engage in any
troubled debt restructurings during the years ended September 30, 1999, 1998.
Loans that were considered impaired during the years ended September 30, 2000,
1999 and 1998 were insignificant.
Non-accrual loans totaled approximately $413,000, $258,000 and $753,000 at
September 30, 2000, 1999 and 1998, respectively. Interest income recognized on
impaired loans was not significant for the years ended September 30, 2000, 1999
and 1998. Similarly, the difference between interest that would have been
recognized under the original terms of non-accrual and renegotiated loans and
interest actually recognized on such loans were not significant for the years
ended September 30, 2000, 1999 and 1998.
At September 30, 2000, 1999 and 1998, the Bank was servicing loans for others
amounting to approximately $1,714,000, $864,000 and $34,050,000, 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 $43,000, $33,000 and $428,000 at September 30, 2000, 1999 and 1998,
respectively.
The Bank originates certain loans for resale to correspondent lenders. These
sales include recourse provisions that require the Bank to repurchase the loans
upon certain events of default, generally documentation deficiencies, for
periods up to one year from the date of the loan sale. The Bank has not
historically incurred losses as a result of such loans, nor are any losses
anticipated; however actual losses incurred by the Bank in the future due to
these recourse provisions may vary from the Bank's estimate due to a number of
factors beyond the Bank's control. During 2000, 1999 and 1998, the Bank sold
whole loans to correspondent lenders totaling $148.1 million, $125.9 million and
$115.4 million, respectively. The Bank also originates loans for resale to the
MHDC. A change in the MHDC rules no longer permits servicing to be retained and
all loans are sold at pre-determined prices. During 1998, the
-35-
<PAGE>
Bank securitized and sold loans to MHDC totaling $9.1 million. No loans
were securitized and sold to MHDC in 2000 and 1999. In 2000 the Bank sold
to an out-of-state investor a 90% participation in one-to-four family
residential loans in the amount of $1.0 million. Effective June 30, 1999
the Bank sold all of its servicing rights to its Ginnie Mae servicing
portfolio of approximately $29.8 million. (See Note 12).
5. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans at September 30, 2000 and 1999
is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Acquired in settlement of loans $ 30,116 $ 245,163
Allowance for losses (2,108) (17,161)
----------- -----------
Total $ 28,008 $ 228,002
=========== ===========
</TABLE>
Activity in the allowance for losses on real estate owned for the years ended
September 30, 2000, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Balance, beginning of year $ 17,161 $ 18,640 $ -
Provision charged to expense 4,679 24,983 33,513
Charge-offs (19,732) (26,462) (14,873)
------------- ---------- -----------
Balance, end of year $ 2,108 $ 17,161 $ 18,640
============= ========== ===========
</TABLE>
6. PREMISES AND EQUIPMENT
Premises and equipment at September 30, 2000 and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Land $ 854,456 $ 633,763
Office buildings and improvements 2,917,632 2,486,942
Furniture and equipment 2,175,006 1,855,290
------------- -------------
5,947,094 4,975,995
Less accumulated depreciation (3,013,411) (2,740,583)
------------- -------------
Total $ 2,933,683 $ 2,235,412
============= =============
</TABLE>
-36-
<PAGE>
Certain facilities of the Bank are leased under various operating leases.
Amounts paid for rent expense for the fiscal years ending September 30, 2000,
1999 and 1998 were approximately $229,000, $111,400 and $81,355 respectively.
Future minimum rental commitments under non-cancelable leases are approximately
as follows:
Years ended September 30, Amount
2001 $ 118,592
2002 113,228
2003 102,500
2004 95,417
2005 60,000
Thereafter 170,000
---------
Total $ 659,737
=========
7. DEPOSITS
Deposits at September 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------- --------------------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Transaction accounts:
Noninterest-bearing checking $ 4,128,875 - % $ 2,719,804 - %
Interest-bearing checking 15,664,971 1.15 13,678,795 1.12
Money market 15,781,238 4.28 15,587,411 3.69
------------ -----------
Total transaction accounts 35,575,084 2.41 31,986,010 2.28
------------ -----------
Passbook savings account 23,649,157 1.87 25,619,428 1.86
------------ -----------
Certificates of deposit:
3.00% to 3.99% -- -- 6,292,057 3.97
4.00% to 4.99% 39,031,869 4.32 51,425,914 4.42
5.00% to 5.99% 28,747,038 5.59 32,470,314 5.37
6.00% to 6.99% 32,256,297 6.39 8,572,481 6.24
7.00% to 7.99% 9,153,225 7.09 5,004,338 7.03
------------ -----------
Total certificates of deposit 109,188,429 5.50 103,765,104 4.97
------------ -----------
Total $ 168,412,670 4.33 $ 161,370,542 3.94
============ =============
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum principal
amount of $100,000 was approximately $10,578,000 and $5,846,000 at September 30,
2000 and 1999, respectively.
-37-
<PAGE>
At September 30, 2000, the scheduled maturities of certificates of deposit
were as follows:
<TABLE>
<CAPTION>
Weighted
Average
Mature within fiscal year: Amount Rate
<S> <C> <C>
2001 $ 83,829,427 5.49%
2002 14,251,792 5.79
2003 7,094,728 5.48
2004 2,801,600 4.71
2005 1,210,882 4.87
Thereafter -
--------------
Total $ 109,188,429 5.50%
==============
</TABLE>
A summary of interest expense on deposits for the years ended September 30,
2000, 1999 and 1998 follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Transaction accounts $ 827,510 $ 770,738 $ 640,535
Savings and certificates of deposit accounts 5,710,826 5,884,682 6,370,868
------------ ------------ ------------
$ 6,538,336 $ 6,655,420 $ 7,011,403
============ ============= ============
</TABLE>
8. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank ("FHLB") of Des Moines at
September 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------- -------------------------------
Weighted Weighted
Average Average
Maturing Within Fiscal Year Interest Interest
Ending September 30, Amount Rate Amount Rate
<S> <C> <C> <C> <C>
2000 $ -- -- $ 10,300,000 5.40 %
2001 27,200,000 6.59 % 3,300,000 5.81
2002 12,100,000 6.75 4,500,000 5.99
2003 8,800,000 6.99 500,000 6.57
2004 3,000,000 7.09 -- --
2005 2,000,000 7.48 -- --
2009 (callable in 2004) 10,000,000 5.92 10,000,000 5.92
2010 (callable in 2001) 3,000,000 6.12 -- --
-------------- ----------------
$ 66,100,000 6.60 % $ 28,600,000 5.74 %
============== ================
</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 125% of the outstanding balance
as collateral to secure the amounts borrowed. At September
-38-
<PAGE>
30, 2000, the Bank had approximately $62,289,000 in borrowing capacity
available to it under the above-mentioned borrowing arrangement.
9. NOTE PAYABLE
At September 30, 2000, the Company had a short-term note payable in the
amount of $12,500,000 at a rate of 9% which was obtained to fund the payment
of the $4.00 per share cash distribution (see Note 16). This note was repaid
on October 13, 2000.
10. INCOME TAXES
Income tax (benefits) expense for the years ended September 30, 2000, 1999
and 1998 is summarized as follows:
2000 1999 1998
Current $ 1,334,471 $ 1,428,142 $ 1,045,951
Deferred (175,107) (176,481) (56,124)
------------ ----------- -----------
Total $ 1,159,364 $ 1,251,661 $ 989,827
============ =========== ===========
Income tax expense for the years ended September 30, 2000, 1999 and 1998
differs from that computed at the Federal statutory rate of 34 percent as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------- -------------------- --------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory Federal
income tax rate $ 777,174 34.0 % $ 1,150,693 34.0 % $ 963,771 34.0 %
Increase (decrease)
resulting from:
Esop adjustment 308,167 13.5
State taxes 95,721 4.2 100,505 3.0 44,858 1.6
Other (21,698) (1.0) 463 (18,802) (0.7)
----------- ----- ----------- ----- --------- -----
Total $ 1,159,364 50.7 % $ 1,251,661 37.0 % $ 989,827 34.9 %
=========== ===== =========== ===== ========= =====
</TABLE>
-39-
<PAGE>
The components of deferred tax assets and liabilities, which are included in
other assets in the consolidated balance sheets, at September 30, 2000 and 1999
are as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Deferred tax assets:
Bad debt reserve $ 424,647 $ 446,767
Deferred loan fees - 10,702
Premises and equipment 254,405 272,946
Management Recognition and Development Plan stock awards 93,810 34,040
Supplemental retirement plan 96,297 92,038
Unrealized losses on securities available-for-sale 141,743 138,228
Other 53,084 32,927
------------- -----------
Total deferred tax assets 1,063,986 1,027,648
Deferred tax liabilities:
FHLB stock dividends 144,587 130,481
------------- -----------
Total deferred tax liabilities 144,587 130,481
------------- -----------
Net deferred tax assets $ 919,399 $ 897,167
============= ===========
</TABLE>
11. STOCKHOLDERS' EQUITY
During fiscal 2000, the Company paid quarterly cash dividends on common
stock of $0.09 per share on October 19, 1999, January 18, 2000, April 24,
2000 and July 19, 2000. In addition, a special cash distribution in the
amount of $4.00 per share was paid on September 1, 2000 (see Note 16).
During fiscal 1999, the Company paid quarterly cash dividends on common
stock of $0.09 per share on January 21, 1999, April 20, 1999 and July 20,
1999.
During fiscal 2000, the Company repurchased 756,410 shares of its own
stock with a total value of $8.7 million at the time of repurchases.
Subsequent to September 30, 2000, the Company repurchased 136,758 shares
of its own stock with a total value of $1.4 million through December 11,
2000. During fiscal 1999, 198,000 shares were repurchased with a total
value of $2.3 million at the time of repurchase.
12. OTHER NON-INTEREST INCOME
There were no significant other income items in the year 2000. In 1999,
the Bank sold their property and casualty insurance operations as well as
servicing rights on a portfolio of $29.8 million of Ginnie Mae loans. The
Bank recognized gains of approximately $294,000 in connection with the
transactions which are reflected in the financial statements as other
income.
13. 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
-40-
<PAGE>
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 3% and total
risk-based capital (as 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, 2000, that the Bank meets all capital adequacy requirements to
which it is subject.
As of September 30, 2000 and 1999, 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, 2000:
Tangible capital (to total assets) $ 41,433 14.79% $ 4,203 1.50% N/A N/A
Core capital (to total assets) 41,433 14.79% 8,413 3.00% N/A N/A
Total risk-based capital (to risk-weighted assets) 42,796 24.31% 14,084 8.00% $17,606 10.00%
Tier I risk-based capital (to risk-weighted assets) 41,433 23.53% N/A N/A 10,563 6.00%
Tier I leverage capital (to average assets) 41,433 16.53% N/A N/A 12,533 5.00%
As of September 30, 1999:
Tangible capital (to total assets) $ 39,598 16.94% $ 3,505 1.50% N/A N/A
Core capital (to total assets) 39,598 16.94% 7,018 3.00% N/A N/A
Total risk-based capital (to risk-weighted assets) 40,565 29.07% 11,163 8.00% $13,954 10.00%
Tier I risk-based capital (to risk-weighted assets) 39,598 28.38% N/A N/A 8,372 6.00%
Tier I leverage capital (to average assets) 39,598 18.51% N/A N/A 10,695 5.00%
</TABLE>
-41-
<PAGE>
A reconciliation at September 30, 2000 of the Bank's stockholders' equity
and regulatory risk-based capital follows (dollars in thousands):
Stockholders' equity $ 41,214
Add: Unrealized (gains) losses on available for sale
securities 219
-------
Tangible capital 41,433
General valuation allowances 1,363
-------
Regulatory risk-based capital $ 42,796
=======
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. 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 of the reorganization on December 2, 1998. Subsequent to
fiscal year end September 30, the Bank requested and received regulatory
approval to pay a $15.5 million dividend to the parent holding company,
which was used to repay the short-term note payable (see Note 9) obtained
to fund the $4.00 per share cash distribution (see Note 16).
14. 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 (or 39,859 shares
after conversion) 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 $18,400, $55,200 and $55,200
during the years ended September 30, 2000, 1999 and 1998, respectively. On
January 21, 2000, shareholders approved a Management Recognition and
Development Plan ("MRDP") granting up to 116,380 shares of restricted stock
all of which have been awarded. The restricted stock awards vest over a
five-year period beginning January 21, 2001. The 116,380 shares of stock
were issued from Treasury Stock on the dates of the grants. The Company
recorded one stock award of 109,397 shares at market value ($10.69 per
share), and another 6,983 shares at market value ($13.06) as unearned MRDP
shares in stockholder's equity and will amortize the unearned MRDP shares
to compensation expense over the vesting period. Such compensation expense
was $192,006 for the year ended September 30, 2000.
In addition, as a result of the declaration of a special $4.00 per share
cash dividend (see Note 16), dividends of approximately $465,000 were paid
on unvested shares included in the Company's MRDP, and were accounted for
as compensation expense for the year ended September 30, 2000. Subsequent
to the payment date, unearned MRDP was reduced with a corresponding
adjustment to additional paid-in capital, to reflect the proportionate
reduction in the value of the shares held by the Plan.
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 $235,000 and $249,000 at September 30, 2000
and 1999,
-42-
<PAGE>
respectively. Compensation expense under this plan totaled $18,300, $19,100
and $29,400 for the years ended September 30, 2000, 1999 and 1998,
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 Pentegra Group, 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, 2000, 1999 and 1998, the Bank was not required to make any
contributions to the plan because it was fully funded and accordingly, no
pension expense was recorded. At September 30, 2000, the Bank had no
liability for contributions due and unpaid.
The Bank maintains a 401(k) savings plan for eligible employees. In 2000,
1999 and 1998, the Bank matched 50% of each participant's contribution up to
a maximum of 4%. The Bank's contributions to this plan were approximately
$45,500, $46,800 and $42,900 for the years ended September 30, 2000, 1999 and
1998, respectively.
The Company 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 Company 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 99,648 shares of the Bank's common stock to be
awarded under the Plan. On January 25, 1995, the Board granted 82,708 shares
to certain officers, employees and directors at an exercise price of $5.42
per share (market value at date of grant). The remaining 16,940 shares were
granted during 1998 to certain officers and directors at a current exercise
price of $11.69 per share (market value at date of grant). These options vest
20% each year from the date of grant and expire no later than ten years from
the date of grant. On January 21, 2000, as a result of shareholder approval
on that date of Stock-Based Incentive Plan, the Company granted options to
purchase 258,979 shares of Company stock at an exercise price of $8.10 per
share (market value at date of grant) to officers and directors of the
Company and the Bank. The 2000 year plan options vest 33.3% each year from
the date of grant and expire no later than ten years from the date of grant.
The current exercise prices for all options were adjusted subsequent to the
special $4.00 cash distribution to reflect the proportional change in values
that resulted from the special cash dividend (see Note 16).
-43-
<PAGE>
In connection with the reorganization from the mutual holding company form of
organization, the Company assumed the Plan and all outstanding options and
shares of Pulaski Bank were converted into $.01 par value shares of Pulaski
Financial Corp. based on 1.6608 exchange ratio. A summary of the status of the
Company's stock option plan for the years ended September 30 and reflecting the
Conversion is as follows:
<TABLE>
<CAPTION>
Remaining
Exercise Contractual Exercisable Outstanding
Price Life Shares Shares
<S> <C> <C> <C> <C>
September 30, 1998 $ 5.42 7.33 29,961 81,379
Granted 11.69 6,776 16,940
Exercised 5.42 (18,335)
-------
September 30, 1999 5.42 6.33 39,517 63,044
11.69 6.33 10,164 16,940
Exercised 5.42 (6,985)
-------
September 30, 2000 5.42 5.33 33,820 56,059
11.69 5.33 13,552 16,940
Granted 8.10 9.33 290,950
Exercised 5.42 (22,239)
-------
Total 341,710
=======
</TABLE>
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. During 1999, the
pro forma effects on net income and earnings per share for the shares granted
during 1998 were not material.
The Company applies Accounting Principles Board Opinion ("APB") No. 25 in
accounting for its stock option plan, under which no compensation cost has been
recognized for stock option awards. Had compensation cost for the stock option
plan been determined in accordance with the fair value accounting method
prescribed under SFAS 123, "Accounting for Stock-Based Compensation," the
Company's net income and net income per share on a pro forma basis would have
been as presented in the following table. Dollar amounts are expressed in
thousands, except per share data.
Year Ended September 30,
2000
------------
Net Income:
As reported $ 1,126,440
Pro forma 1,086,258
Basic earnings per share:
As reported 0.34
Pro forma 0.33
Diluted earnings per share:
As reported 0.34
Pro forma 0.33
-44-
<PAGE>
For purposes of computing the pro forma effects of stock option grants
under the fair value accounting method, the fair value of each stock option
grant was estimated on the date of the grant using the Black-Scholes
option-pricing model. The following assumptions for fiscal 2000 were used
for the grants:
2000
Risk free interest rate 5.85%
Expected volatility 48.42%
Expected life 6.5 years
Dividend yield 3.13%
Effective January 1, 1998, the Bank established a tax-deferred stock bonus
plan known as the Employee Stock Ownership Plan (the "ESOP") for all
eligible employees. In connection with the Conversion and Reorganization on
December 2, 1998, 232,760 shares were purchased by the ESOP at $10 a share
through an internal loan from the Company. The shares are allocated on an
annual basis to each participant in an amount that is equivalent to the
ratio of each participant's salary to that of the total payroll for each
year ended December 31. The unallocated shares are released on a quarterly
basis over the 15-year repayment term of the internal ESOP loan. As the
shares are released, compensation expense is recognized equal to the fair
value of the shares. In 2000, compensation expense under the plan was
approximately $1,063,000. At September 30, 2000, the status of the ESOP
shares was as follows:
2000 1999
Allocated shares $ 19,397 $ 3,879
Released shares 94,062 11,637
Unallocated and unreleased shares 119,301 217,244
--------- ---------
Total ESOP shares $ 232,760 $ 232,760
========= =========
15. RECONCILIATION OF BASIC EARNINGS PER SHARE TO DILUTED EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
common shares outstanding. The dilutive effect of potential common shares
outstanding is included in diluted earnings per share. The computations of
basic and diluted earnings per share are presented in the following table.
Dollar amounts are expressed in thousands, except per share data.
Years Ended September 30,
2000 1999 1998
----------- ----- -----
Net income $ 1,126,440 n/m n/m
Weighted average shares outstanding - basic 3,290,833 n/m n/m
Common stock equivalents 33,513 n/m n/m
-----------
Weighted average shares outstanding - diluted 3,324,346 n/m n/m
===========
Earnings per share:
Basic $ 0.34 n/m n/m
Dilutive 0.34 n/m n/m
-45-
<PAGE>
The dilutive impact presented above consist of stock options granted to
employees as incentive stock options under Section 442A of the Internal
Revenue Code as amended (see Note 14). Earnings per share for the years
ended September 30, 1999 and 1998 are not presented as such presentation
would not be meaningful due to the stock reorganization from the mutual
holding company form of organization which was completed on December 2,
1998.
16. DECLARATION OF $4.00 PER SHARE SPECIAL CASH DISTRIBUTION
On March 31, 2000 the Board of Directors declared a special cash
distribution in the amount of $4.00 per share. The dividend was paid on
September 1, 2000. Under NASDAQ stock market rules, the ex-dividend date for
the distribution is September 5, 2000. The portion of the special cash
distribution treated as a return of capital was considered to be a reduction
in the cost basis of each share and non-taxable to shareholders. As a result
of the special cash distribution, it was determined that approximately 50%
of dividends paid during the quarter ended December 31, 1999 would be non-
taxable to shareholders and substantially, all of the dividends paid from
January through September 2000 would be non-taxable.
The total special cash distribution paid on September 1, 2000 amounted to
$12.8 million, of which $853,452 was paid to the ESOP and utilized to pay
down debt by the ESOP and $465,520 was paid on unvested MRDP shares. The
pay-down of ESOP debt and simultaneous release of additional ESOP shares and
the dividends paid on unvested MRDP shares resulted in additional
compensation expense of approximately $1.4 million for the year ended
September 30, 2000.
17. CONTINGENCIES
The Company 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 Company's consolidated financial statements.
18. 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, 2000, the Bank had commitments net of non-cash portion of
refinanced loans to originate loans of approximately $5,708,000, of which
approximately $4,650,000 were committed to be sold. Of the remaining
$1,058,000 to be retained, $251,000 were at fixed rates. At September 30,
1999, the Bank had commitments net of non-cash portion of refinanced loans
to originate loans of approximately $8,933,000, of which approximately
$6,338,000 were committed to be sold. Of the remaining $2,595,000 to be
retained, approximately $430,000 were at fixed rates. Additionally, the Bank
had outstanding commitments to lend to borrowers under unused home equity
lines of credit of $10,136,000 and $3,840,000 at September 30, 2000 and
1999, respectively.
At September 30, 2000 and 1999, the Bank had commitments to sell loans on a
best-efforts basis of $19,698,000 and $14,472,000, respectively, which
includes $13,105,000 and $8,159,000, respectively, recorded in the financial
statements as loans held for sale. Any unrealized loss on these commitment
-46-
<PAGE>
obligations are considered in conjunction with the Bank's lower of cost or
market valuation on its loans receivable held for sale.
Substantially all of the Bank's loans are to borrowers located in St.
Louis, Missouri and the surrounding counties.
19. 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 Company 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 Company 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.
Approximate carrying values and estimated fair values at September 30,
2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------- -------------------------------
Approximate Estimated Approximate Estimated
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 7,562,000 $ 7,562,000 $ 8,887,000 $ 8,887,000
Securities - HTM 13,634,000 13,615,000 9,010,000 9,002,000
Securities - AFS 5,493,000 5,493,000 4,234,000 4,234,000
Capital Stock of Federal Home Loan Bank 3,580,000 3,580,000 1,501,000 1,501,000
Mortgage-backed and related securities - HTM 3,134,000 3,237,000 3,997,000 4,155,000
Mortgage-backed and related securities - AFS 19,470,000 19,470,000 21,356,000 21,356,000
Loans:
Loans receivable held for sale 14,374,000 14,634,000 8,159,000 8,256,000
Loans receivable 209,919,000 207,666,000 181,533,000 179,783,000
Federal funds sold and overnight deposits 3,800,000 3,800,000 5,400,000 5,400,000
LIABILITIES:
Deposits 168,413,000 167,599,000 161,370,000 160,414,000
Advances from Federal Home Loan Bank 66,100,000 65,813,000 28,600,000 28,158,000
Note payable 12,500,000 12,500,000 - -
</TABLE>
<TABLE>
<CAPTION>
2000 1999
------------------------------- -------------------------------
Contract Estimated Contract Estimated
or Unrealized or Unrealized
National Gain National Gain
Amount (Loss) Amount (Loss)
<S> <C> <C> <C> <C>
Off-balance sheet financial instruments:
Commitments to originate and
purchase first and second mortgage
loans $ 5,708 - $ 8,933 -
Commitments to originate
non-mortgage loans 10,136 - 3,840 -
</TABLE>
-47-
<PAGE>
The following methods and assumptions were used to estimate the fair value
of the financial instruments:
Cash and cash equivalents - The carrying amounts are at face value.
Securities and Mortgage backed and Related Securities - Estimated fair
values of securities and mortgage backed and related securities are based on
quoted market prices and prices obtained from independent pricing services.
If quoted market prices are not available, fair values are estimated using
quoted market prices for similar instruments.
Capital Stock of Federal Home Loan Bank - The carrying amount is equivalent
to the face value.
Loans Receivable Held for Sale - The estimated fair value of loans held for
sale is determined based upon recent historic sales premiums.
Loans Receivable - The fair value of loans receivable is estimated based on
present values using applicable risk-adjusted spreads to the U. S. Treasury
curve to approximate current interest rates applicable to each category of
such financial instruments. No adjustment was made to the interest rates for
changes in credit 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.
Deposits - The estimated fair value of demand deposits and savings accounts
is the amount payable on demand at the reporting date. The estimated fair
value of fixed-maturity certificates of deposit is estimated by discounting
the future cash flows of existing advances using rates currently available
on advances from Federal Home Loan Bank having similar characteristics.
Advances from Federal Home Loan Bank - The estimated fair value of advances
from Federal Home Loan Bank is determined by discounting the future cash
flows of existing advances using rates currently available on advances from
Federal Home Loan Bank having similar characteristics.
Off-Balance Sheet Items - The estimated fair value of commitments to
originate or purchase loans is based on the fees currently charged to enter
into similar agreements and the difference between current levels of
interest rates and the committed rates.
The fair value estimates presented herein are based on pertinent information
available to management as of September 30, 2000. 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.
20. PROSPECTIVE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities-an Amendment of FASB
Statement No.133 ("SFAS 138"). In June 1999, the FASB also issued Statement
of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133 ("SFAS 137"). SFAS 137 defers the provisions of Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133") until January 1, 2001. SFAS
133, as
-48-
<PAGE>
amended by SFAS 138, requires, among other things, that all derivatives be
recognized in the consolidated balance sheets as either assets or liabilities
and measured at fair value. The corresponding derivative gains and losses
should be reported based upon the hedge relationship. If such a relationship
exists, changes in the fair value of derivatives that are not designated as
hedges or that do not meet the hedge accounting criteria in SFAS 133 are
required to be reported in income. The adoption of this Statement is not
expected to have a material impact on the Company's consolidated financial
statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying
accounting principles generally accepted in the United States of America to
revenue recognition in financial statements. The Company is required to adopt
SAB 101 as of January 1, 2001. The Company is in the process of quantifying
the impact, if any, of the requirements of SAB 101.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement replaces SFAS No.125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" and rescinds SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125." It revises the standards for accounting for securitizations and
other transfer of financial assets and collateral and requires certain
disclosures, but it carries over the majority of the provisions of SFAS No.
125. This Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components
approach that focuses on control. This Statement is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. This Statement is effective for recognition
and reclassification of collateral and for disclosures relating to
securitzation transactions and collateral for fiscal years ending after
December 15, 2000. The Company does not believe that the implementation of
this Statement will have a material effect on the Company's consolidated
financial statements.
-49-
<PAGE>
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations by quarter for 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
September 30, 2000 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Interest income $ 4,202,418 $ 4,368,732 $ 4,647,575 $ 5,074,620
Interest expense 2,003,260 2,130,798 2,420,234 2,931,878
Net interest income 2,199,158 2,237,934 2,227,341 2,142,742
Provision for loan losses 127,074 71,568 164,783 135,974
Net interest income after
loan loss provision 2,072,084 2,166,366 2,062,558 2,006,768
Non interest income 618,751 547,394 854,517 1,141,405
Non interest expense 1,809,094 3,355,116 1,880,388 2,139,440
Income before taxes 881,741 (641,356) 1,036,687 1,008,733
Income taxes 315,572 104,005 366,557 373,231
Net income 566,169 (745,361) 670,130 635,502
Earnings per share - basic 0.16 (0.22) 0.20 0.20
Earnings per share - diluted 0.16 (0.22) 0.20 0.20
Weighted average shares
outstanding - basic 3,476,880 3,378,878 3,218,301 3,089,418
Weighted average shares
outstanding - diluted 3,495,842 3,396,462 3,259,499 3,145,659
September 30, 1999
Interest income $ 3,624,744 $ 3,695,783 $ 3,855,765 $ 4,081,245
Interest expense 1,856,542 1,701,219 1,759,584 2,005,514
Net interest income 1,768,202 1,994,564 2,096,181 2,075,731
Provision for loan losses 39,582 43,832 60,739 120,783
Net interest income after
loan loss provision 1,728,620 1,950,732 2,035,442 1,954,948
Non interest income 502,634 505,176 519,780 747,846
Non interest expense 1,453,534 1,610,580 1,616,723 1,879,950
Income before taxes 777,720 845,328 938,499 822,845
Income taxes 288,837 315,254 363,607 283,963
Net income 488,883 530,074 574,892 538,882
Earnings per share - basic N/M 0.14 0.15 0.15
Earnings per share - diluted N/M 0.14 0.15 0.15
Weighted average shares
outstanding - basic N/M 3,736,665 3,743,244 3,631,283
Weighted average shares
outstanding - diluted N/M 3,757,902 3,759,960 3,651,035
</TABLE>
-50-
<PAGE>
22. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS.
The following table presents the condensed balance sheets, condensed
statements of income and cash flows of the Company for the years ended
September 30, 2000 and 1999.
<TABLE>
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,008,475 $ 5,603,971
Investment in Bank 41,312,018 39,379,328
Investment and mortgage-backed securities 1,826,611 4,880,556
Other assets 76,622 40,988
-------------- --------------
TOTAL ASSETS $ 44,223,726 $ 49,904,843
============== ==============
LIABILITIES:
Dividends payable $ 205,211 $ -
Other borrowed money 12,500,000
Other liabilities 224,037 -
-------------- --------------
TOTAL LIABILITIES 12,929,248 -
-------------- --------------
STOCKHOLDERS' EQUITY 31,294,478 49,904,843
-------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 44,223,726 $ 49,904,843
============== ==============
Condensed Statements of Income 2000 1999
INTEREST INCOME $ 335,303 $ 491,416
INTEREST EXPENSE 93,750 -
-------------- --------------
NET INTEREST INCOME 241,553 491,416
NONINTEREST EXPENSE 253,674 145,901
-------------- --------------
(Loss) income before income taxes and equity in earnings of
Bank (12,121) 345,515
INCOME TAXES (BENEFIT) PROVISION (4,485) 129,431
-------------- --------------
Net (loss) income before equity in earnings of Bank (7,636) 216,084
EQUITY IN EARNINGS OF BANK 1,134,076 1,916,648
-------------- --------------
NET INCOME $ 1,126,440 $ 2,132,732
============== ==============
</TABLE>
-51-
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows 2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,126,440 $ 2,132,732
Adjustments to reconcile net income to net cash from
operating activities:
Equity in earnings of Bank (1,134,076) (1,916,648)
Net change in other assets and liabilities 393,614 (40,988)
Premium discount amortization (69,698) (54,995)
------------ ------------
Net cash from operating activities 316,280 120,101
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Bank - (12,670,431)
Dividend upstream from Bank 300,000
Purchase of investments (1,751,488) (4,899,769)
Proceeds from maturities of investments 4,750,000
Principal payments on mortgage-backed securities 115,085 48,347
------------ ------------
Net cash from investing activities 3,413,597 (17,521,853)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from other borrowings 12,500,000 -
Payments received from loan to ESOP 923,968
Payment from subsidiary related to MRDP shares 192,006 55,200
Common stock issued under stock option plan 159,008 26,602,287
Special return of capital ($4.00 per share) (12,338,860)
Payments to acquire treasury stock (8,700,132) (2,322,004)
Dividends paid (1,061,363) (1,329,760)
------------ ------------
Net cash from financing activities (8,325,373) 23,005,723
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (4,595,496) 5,603,971
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 5,603,971 -
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,008,475 $ 5,603,971
============ ============
</TABLE>
* * * * * *
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<PAGE>
Common Stock Information
The common stock of the Company trades on the Nasdaq National Market under the
symbol "PULB". There are approximately 1,853 stockholders of record of the
Company, including brokers or other nominees.
The following table sets forth market price and dividend information for the
Company's common stock for fiscal year 2000 and 1999.
Fiscal 2000 High Low Dividend
First Quarter $ 11.50 $ 9.63 $ .09/per share
Second Quarter $ 11.38 $ 9.50 $ .09/per share
Third Quarter $ 12.25 $ 10.88 $ .09/per share
Fourth Quarter $ 14.00 $ 9.44 (1) $4.09/per share
(1) The Company's common stock price experienced its fourth quarter low
subsequent to the $4.00 return of capital on September 1, 2000
Fiscal 1999 High Low Dividend
First Quarter (1) $ 10.84 $ 9.38 $.09/per share
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 13 in Notes to Consolidated Financial
Statements.
(1) The Company's common stock began trading on December 3, 1998.
-53-
<PAGE>
Directors and Officers
<TABLE>
<CAPTION>
Directors Officers
<S> <C>
William A. Donius William A. Donius
Chairman, President and Chief Executive Officer Chairman, President and Chief Executive Office
Thomas F. Hack Thomas F. Hack
Chief Financial Officer Chief Financial Officer
E. Douglas Britt Daniel N. Dean
Retired Thrift Executive Chief Lending Officer
Garland A. Dorn Beverly M. Kelley
President and Chief Executive Officer of Diagnostic Senior Vice President
Rehabilitation Systems, Inc.
Robert A. Ebel Christopher K. Reichert
Chairman of the Board of Universal Printing Co. Senior Vice President
Dr. Edward J. Howenstein
Retired Dentist
Emeritus Director
Walter A. Donius
Advisory Director
Stanley J. Bradshaw
</TABLE>
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<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 LLP
Washington, D.C.
Counsel
Armstrong Teasdale LLP
St.Louis, Missouri
Annual Meeting
The annual meeting of the stockholders will be held Thursday, February 15, 2001
at 2:00 p.m., Central Time, at The Saint Louis Art Museum (rear entrance), 1
Fine Arts Boulevard, Forest Park, St. Louis, Missouri.
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