PULB Update: Mortgage Momentum Expected to Continue in Second Half of Fiscal 2015 – Maintain Rating

“Market Perform” / $14 Price Target / St. Louis, MO / $160 Mil. Mkt. Cap.

PULB Fiscal 2Q15 EPS Review

We are maintaining our “Market Perform” rating. Our $14 Price Target reflects 12x our FY 2016 EPS or 140% of one year forward Tangible Book Value.

We are increasing our FY 2015 by a penny to $1.08 reflect this quarters beat and maintaining our FY 2016 EPS at $1.13. We remain comfortable with our EPS. Admittedly, mortgage revenues are likely to remain somewhat volatile though we believe management will continue to manage the expense side appropriately. Further, credit leverage exists which is another lever management can pull if needed.  EPS growth in 2016 is expected to be in the 5% range vs. 20% in FY 2015.

Outlook:  Fiscal 2Q15 results were better than expected due to increased mortgage revenues which are typically seasonally weak in the March quarter. The recent drop in rates lead to a mini refinance boom which accelerated mortgage activity / revenues.  Looking forward, we are optimistic earnings momentum can build over the balance of Fiscal 2015 driven by continued strengthening of mortgage related revenues, a restart of commercial/residential loan growth and continued credit leverage.  Expenses are expected to remain mostly stable at Fiscal 1Q15 levels.  Recent strength in mortgage and a continuation in the near term allow management time to continue building out the C&I Platform and SBA initiative.

Management is encouraged with the level of purchase activity they are beginning to see as they enter the spring selling season. For the months of March and April to date, home purchases accounted for 61% and 57%, respectively of interest rates locks.  In addition, the total dollar volume of lock activity for the month of April to date is as strong or in some cases stronger than the preceding months of the March quarter.  Said another way, the increases in purchase percentages is not coming at the expense of a lower overall dollar level of lock activity.

Mortgage Warehouse activity (HFS) is expected to remain healthy in the near term with period end  balances exceeding average balances by more than $20 Mil. in Fiscal 2Q15. The warehouse growth contributes to net interest income as warehouse loans earn a mortgage rate while they are awaiting delivery/sale to the end investor.