Pulaski Financial (PULB) in St. Louis hopes to use a big bank acquisition to replace revenue lost to waning mortgage activity.

Pulaski is taking a serious look at M&A opportunities, Gary Douglass, the $1.3 billion-asset company's chief executive, said during a recent conference call to discuss quarterly results.

"Fully realizing the importance of restoring revenue growth to drive shareholder value, we will opportunistically review and evaluate shareholder beneficial, in-market acquisition opportunities and possible niche loan production activities," Douglass said.

The company's fiscal first-quarter earnings fell 19% from a year earlier, to $2.2 million, largely because of a 65% decline in mortgage revenues, which totaled $1 million. A refinancing drop-off was offset, however, by a massive decline in credit expenses. The company's loan-loss provision was $200,000 in the quarter that ended Dec. 31, compared to roughly $2 million a year earlier.

Pulaski has traditionally increased its assets organically. Its last acquisition was in 2006, when it bought the $45 million-asset CWE Bancorp in St. Louis for $7.6 million.

Given the newfound interest in acquisitions, Douglass said during his prepared remarks that he knew the disclosure would trigger several questions.

"Let me go ahead and address some of the likely ones by sharing the following information," he said. "Our acquisition criteria is banks ranging from approximately $400 million to $1 billion in asset size. We expect any transaction we do to be immediately and meaningfully accretive to earnings per share and only modestly dilutive, if at all, to tangible book value with a reasonably short, market-acceptable earn-back period."

Those expectations are largely in-line with most banks looking at acquisitions. Additionally, the market has rewarded those who have been able to promise upfront earnings accretion with limited tangible book value dilution and reasonable earn-back periods.

Pulaski has had great success in growing its loans organically, Andrew Liesch, an analyst at Sandler O'Neill, wrote in a note to clients, adding that he is optimistic that some of the mortgage revenue could be restored during this year's "home buying season" and showing up in earnings for the fiscal third and fourth quarters. Still, he wrote that acquisitions could be a good way for the company to gain scale if it can find a seller.

"Management indicated the bid-ask spread is still wide but that it hopes to find reasonably priced deals, as potential sellers could benefit from the gains and liquidity," Liesch wrote. "Notably, any deal is likely to be in-market, as this would offer the best cost saves and add critical mass.

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