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Pulaski raids rival for new division
By Jack Naudi of the Post-Dispatch
St. Louis Post-Dispatch (MO)
November 2, 2004
Section: Business

Following a formula that has worked in the past, Pulaski Financial Corp. of Creve Coeur has created an investment division by hiring employees from competitors. In this case, it's a single competitor. Pulaski expects to announce today the formation of a new division, which is staffed by five former employees of Southwest Bank. The division will invest in fixed-income securities, such as bonds and treasuries, mainly for banks in Missouri, Illinois and neighboring states.

The division will be led by Kevin Kane, a former fixed-income trader who left Southwest Bank in recent months. Daniel Ray, Charles Lisciandrello and David Clay, who handle the division's sales, quit their jobs Monday at Southwest Bank. Cheryl Margherio, who also previously worked at Southwest, will be assistant vice president. "They are all well-experienced, top-notch, talented salespeople," said William Donius, chairman and chief executive of Pulaski. Donius said it was too soon to estimate revenue for the new division. Joseph Stieven, director of financial-institutions research for the Stifel Nicolaus & Co. brokerage, said investors, buoyed by a doubling of Pulaski's stock price in two years, probably would support the initiative. "If you have the right people, there should be no reason it shouldn't be successful," he said. Pulaski has had a long association with Southwest and, until now, had used Southwest for its fixed-income investments. Donius said "it's been a common theme" for employees to leave small banks that have been purchased by larger ones. Southwest was bought by Marshall & Ilsley Corp. of Milwaukee in 2002.

"Inevitably, things do change, and the employees oftentimes grow disenchanted," he said.

Stieven said, too, that bank acquisitions typically lead to turnover. "I would say it is not uncommon to see small groups of people move from institution to institution."

Pulaski created a mortgage business, in part, by luring key former employees of Mercantile Bank, which was bought in 1999 by Firstar, now U.S. Bancorp.

In addition, Pulaski largely built its commercial-lending and title-company operations by plucking employees from competitors.

"We have made a business strategy of hiring top-notch people into the company," Donius said. "We have been aggregators of talent."

Donius has followed that strategy largely because Pulaski has not succeeded in efforts to buy other financial institutions. "I have looked at 17 different banks," he said. "We've lost in 16 of those 17 to the highest bidder."

Last year, Pulaski expanded into Kansas City after buying a branch from First Federal Bank.

Pulaski's new division leaves Southwest with only two employees in its five-person investment division. Denny Niedringhaus, a senior vice president in charge of that division, said Southwest remains committed to the investment-services business.

"We are still in business as usual, and we'll continue to cover our customer base as we have in the past," Niedringhaus said.

In fact, he said, Southwest has been planning to expand the division. "That was in place before the exodus," he said.

Southwest has hired one salesperson, who is expected to start soon. Beyond that, Niedringhaus said, no decision has been made on replacing the other employees. * * * * *

Pulaski Financial Corp.

Chief business: Commercial lending, mortgages, retail banking and investments through Pulaski Bank Chief executive, chairman: William Donius Founded: 1922 as Pulaski Building and Loan Association Headquarters: 12300 Olive Boulevard, Creve Coeur Branches: Six in the St. Louis area, two in Kansas City Employees: 290 Assets: $637 million, up 59 percent in last year Revenue: $25 million in 2004 Source: Pulaski Financial Corp.

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PULASKI BANK'S SMALL STATURE BELIES BIG EARNINGS FOR INVESTORS
By Jim Gallagher of The Post-Dispatch
St. Louis Post-Dispatch
November 23, 2001

Investors who want an excuse to kick themselves might consider this: They could have bought stock in Pulaski Bank.

The stock has increased 62 percent this year, when the overall stock market has dropped about 9 percent. Pulaski is a tiny savings bank, akin to a savings-and-loan outfit. The company's $290 million in assets make it a pygmy beside Bank of America or Firstar Bank in St. Louis. Its share of the deposit market is about 1 percent.

So, how does a banking pygmy make the big banks look like slackers in regard to investor profits?

Part of the reason is earnings. Pulaski's profit per share increased 40 percent in the third quarter, when most companies saw falling profit. Pulaski's profit per share rose 55 percent in the fiscal year ended in September, excluding one-time items.

The bank earned $1.14 for every $100 in loans and securities in the third quarter, placing it a little ahead of the pack. The average savings bank earned $1.05 in the second quarter, according to federal regulators.

"They're a stable company with excellent asset quality," said analyst Jared Shaw of Friedman Billings Ramsey in Virginia.

Small-bank and savings-bank stocks have been faring well in general, Shaw said, with the Nasdaq bank index up 6 percent.

Falling interest rates and booming mortgage refinances helped to boost profits at savings-and-loan outfits. Size also protected them: Most were too small to take on the big, risky commercial loans that are causing headaches at larger banks today.

Failed buyout?

Pulaski's leap in stock price had other explanations, including a massive stock-buyback program. It has repurchased one-third of its shares since 1998, and it's still buying.

Investors also might have noticed the $500,000 profit coup that Pulaski reaped by putting the squeeze on fellow bankers in Evansville, Ind.

Pulaski made what amounted to a hostile takeover offer for First Bancorp of Indiana in January. In effect, First Bancorp paid Pulaski to go away, buying back the stock at a higher price.

It smacked a bit of "greenmail," the tactic made infamous by 1980s corporate raiders. They'd buy a stake in a company and then harass management or make takeover threats, hoping that management would make a special deal to buy out their stock.

Was the First Bancorp deal greenmail? Perish the thought, said Pulaski's chief executive, Bill Donius. Pulaski wanted to buy First Bancorp, he said.

Donius wanted the Indiana bank to follow Pulaski's pattern: buying back stock and making a bigger grab for market share in Evansville. First Bancorp's management wanted to enter the indirect auto-lending business, which Donius believed was too risky.

Pulaski made a public offer to buy the company at a fat premium, saying First Bancorp's management was off course. First Bancorp responded by offering to buy back Pulaski's and Bradshaw's stock, also at a fat premium.

Mortgages grow

Though owned by stockholders, Pulaski is a bit of a family heritage. Donius, 43, took over the top job from his father in 1997, and his grandfather was among the founders in 1922.

As a savings bank, Pulaski is shackled by federal regulations to the mortgage business. Most of its assets must be invested in housing-related loans. The rule is designed to keep savings banks out of the riskier business lending that helped to sink many savings-and-loan outfits in the 1980s.

Pulaski began the past decade as a rather puny player in the St. Louis mortgage business. It made $20 million in mortgage loans in 1992. It had a respectable name in the mortgage business, but the customers weren't coming in.

Donius was a mortgage officer at the time. The problem came home to him as he helped a young couple to get a mortgage.

"It came out in the application process that (the wife's) mother had gone to school with my mother," Donius said.

And the wife's mother got her mortgage through Pulaski.

"The problem was that the parents didn't say to the kid, 'Go to Pulaski because they did a great job for us,'" Donius said. "The fact that we did a good job in the past wasn't helping us."

Recruiting officers

The recommendation came from the couple's real estate agent. So, the company set out to recruit mortgage officers with good ties to real estate agents.

Mortgage officers live by commissions on the loans they make. Good officers earn $100,000 to $250,000 a year.

They like to work for companies that make the loans efficiently. And they like the commissions sweet.

That's why Donius set up a commission scale in which officers with the biggest loan volume got higher commissions. He hired about 20 mortgage lenders, and the loans started pouring in.

By last year, Pulaski was the second-biggest mortgage lender in St. Louis, after Firstar Bank. Pulaski lent $500 million in mortgages, 25 times its volume of eight years earlier.

Pulaski began the 1990s as a mutual savings bank, which is owned, in theory, by its customers. It sold stock to the public in 1994 but kept 70 percent of the company in mutual ownership.

The ownership structure resulted in federal restrictions on its dividend payments, and that limited its stock price. So, the company went 100 percent public in 1998.

The odd federal rules for such a conversion made Pulaski raise much more capital from its stock sale than it needed. At one point, capital equaled nearly 25 percent of assets. An efficient bank runs at closer to 8 percent capital.

With so much money around, Donius looked for other banks to buy. But he found himself outbid by the competition.

So, in an unusual move, the bank returned capital to its shareholders in a tax-free special dividend. It also began buying back shares, a move that increases earnings per share and usually lifts the stock price.

Looking for a deal

Like many executives of smaller banks, Donius believes that he's benefiting from the wave of bank buyouts that swept St. Louis in the late 1990s. The new banks changed lending rules and transferred bank officers, and the moves sent many customers looking for a new bank.

Now, however, he's shopping for an acquisition. More than 110 banks and savings-and-loan outfits operate in the St. Louis area. The count surpasses 200 if credit unions are included.

"The metropolitan area doesn't need 110 banks," Donius said.

Most of the tiny banks have private shareholders, and they're not happy, he said.

Banks went for high prices during the buyout boom last decade. But prices are lower now, and Donius believes that shareholders are getting frustrated. Sooner or later, they'll want their money out, and they'll force management to sell.

"I've personally contacted each of 24 banks that are smaller than us and told them we're interested in talking," he said.

For more information

* Pulaski Bank issues automobile, home-equity and home-mortgage loans. To find out more about Pulaski Bank, go to www.pulaskibankkc.com

* An unrelated bank with a similar name in Little Rock, Ark., issues low-interest credit cards to some consumers. To find out more about the cards, go to www.pulaskibank.com

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WILLIAM DONIUS KEEPS PULASKI ON SOLID FOOTING
By David Nicklaus of The Post-Dispatch
St. Louis Post-Dispatch
April 25, 2001

William Donius seems an unlikely steward for one of the last remnants of the old savings and loan industry here.

To be sure, he's a grandson of one of the Polish immigrants who founded Pulaski Bank in 1922. But plenty of thrift institutions with equally impressive family continuity either failed in the savings and loan crisis of the 1980s, or went public and eventually sold out to bigger banks.
St. Louis and St. Louis County had more than 30 locally owned savings and loans in 1980, but are down to three now: Pulaski, Central West End Bank and Heartland Bank. (They put "bank" in their names after "savings and loan" became synonymous with "broke" in many people's minds.) The Metro East area has a half-dozen or so remaining S&Ls, all small.

Donius, 42, worked summers as a teller during high school. But he didn't think the sleepy S&L business was the career he wanted. After college, he spent 12 years in California working in retailing, healthcare, television production and public relations.

In 1992 -- tired of the traffic and pollution, he says -- he returned to St. Louis and the family S&L. He succeeded his father, Walter Donius, as chief executive in 1997.

Relying on a conservative management philosophy and a loyal customer base, Walter Donius had amassed enough reserves to weather the years when almost every S&L lost money, and he avoided the risky real-estate ventures that sank many of his competitors.

But his son saw that Pulaski needed to change. Pulaski had sold stock to the public in 1994, and ultimately, he knew, the stock market was going to demand a competitive return. If the earnings weren't there, a Donius probably wouldn't remain at the helm, and there might not even be a Pulaski for long.

Donius' recipe is one part business school textbook, one part Hollywood marketing and one part "It's a Wonderful Life" traditionalism.

Managing investors' expectations hasn't been easy. In 1998, Pulaski announced that it would become 100 percent stockholder-owned, up from 30 percent. Some people smelled a takeover bid in the offing, and the stock nearly tripled, only to plummet just as quickly.

Donius says Pulaski was forced into that stock sale by regulatory changes that made its old structure - owned partly by depositors and partly by stockholders - untenable. Afterward, the bank actually had more capital than it could profitably, and prudently, put to work for shareholders.

Since then, Pulaski has returned some of the money to shareholders in a tax-free dividend, and has used some of it to buy back shares. "They're doing the right things for investors," said Joe Stieven, a bank-stock anal yst at Stifel Nicolaus & Co.

Pulaski still needs to put the remaining money to work. Its return on equity more than doubled in the January-March quarter, but remains below average at 9 percent.

Acquisitions may be one use for Pulaski's money. Pulaski has made takeover overtures to several smaller St. Louis banks, Donius said, and was rebuffed recently in a takeover bid for a small Indiana bank.

Pulaski is small, with $294 million in assets and less than 0.5 percent of the bank deposits in the St. Louis area. But Donius thinks it can distinguish itself at a few consumer-banking products: Mortgages, home equity loans, checking accounts and money-market accounts.

"I think I'm much like my father and grandfather in that I respect the tradition and I really enjoy taking care of customers," Donius says. "The main difference with my father is I'm much more competitive. I don't mind putting in the extra time and effort to make sure we're winning in each of our categories."

Pulaski ranked No. 2 last year among mortgage companies in St. Louis, and it's gaining ground in the other categories. The number of checking accounts has tripled since Pulaski began offering free checking in 1998.

Visitors to the bank's lobby can't miss the stacks of Pyrex dishes and 51-piece tool sets that are given away to new checking-account customers. And Donius himself tells St. Louis television viewers about the deal. "The irony is, when I was in TV in California, the last thing I wanted to do was anything on-camera," he says. "Now I'm starring in a low-budget TV commercial."