Eureka Financial Corp. - FORM 10-Q

Eureka Financial Corp. - FORM 10-Q - August 13, 2014

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-54238

EUREKA FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Maryland

27-3671639

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


3455 Forbes Avenue, Pittsburgh, Pennsylvania		15213
(Address of principal executive offices)		(Zip Code)

(412) 681-8400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of August 11, 2014, there were 1,226,517 shares of the registrant’s common stock outstanding.

EUREKA FINANCIAL CORP.

Table of Contents


		Page Number
PART I - FINANCIAL INFORMATION

Item 1:	Financial Statements		3

	Consolidated Balance Sheets as of June 30, 2014 and September 30, 2013 (unaudited)		3

	Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2014 and 2013 (unaudited)		4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2014 and 2013 (unaudited)		5

	Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended June 30, 2014 (unaudited)		6

	Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2014 and 2013 (unaudited)		7

	Notes to Consolidated Financial Statements (unaudited)		8

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3:	Quantitative and Qualitative Disclosures About Market Risk		36

Item 4:	Controls and Procedures		36

PART II - OTHER INFORMATION

Item 1:	Legal Proceedings		36

Item 1A:	Risk Factors		36

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		36

Item 3:	Defaults Upon Senior Securities		37

Item 4:	Mine Safety Disclosures		37

Item 5:	Other Information		37

Item 6:	Exhibits		37

SIGNATURES			38

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Balance Sheets

(unaudited)


	June 30,			September 30,
	2014			2013
Assets:
Cash and due from banks	$	584,619		$	587,444
Interest-bearing deposits in other banks		11,239,988			6,593,625

Cash and cash equivalents		11,824,607			7,181,069
Investment securities available for sale		6,867,456			6,291,877
Investment securities held to maturity (fair value of $2,704,688 and $2,586,765, respectively)		2,772,110			2,776,027
Mortgage-backed securities available for sale		6,272			8,834
Federal Home Loan Bank (“FHLB”) stock, at cost		499,200			237,400
Loans receivable, net of allowance for loan losses of $1,349,038 and $1,299,038, respectively		126,616,899			121,446,463
Premises and equipment, net		1,103,142			1,168,235
Deferred tax asset, net		848,434			941,624
Accrued interest receivable and other assets		1,333,325			898,472

Total Assets	$	151,871,445		$	140,950,001

Liabilities and Stockholders’ Equity:
Deposits:
Non-interest bearing	$	5,345,578		$	5,010,755
Interest bearing		117,177,152			112,446,667

Total deposits		122,522,730			117,457,422
FHLB advances		4,500,000			—
Advances from borrowers for taxes and insurance		637,971			477,035
Accrued interest payable and other liabilities		1,277,493			1,029,344

Total Liabilities		128,938,194			118,963,801

Stockholders’ Equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 1,246,843 shares outstanding at June 30, 2014; 1,255,819 shares outstanding at September 30, 2013		12,468			12,558
Paid-in capital		10,596,346			10,647,396
Retained earnings—substantially restricted		12,886,288			12,147,028
Accumulated other comprehensive loss		(145,281	)		(361,394	)
Unearned ESOP shares		(416,570	)		(459,388	)

Total Stockholders’ Equity		22,933,251			21,986,200

Total Liabilities and Stockholders’ Equity	$	151,871,445		$	140,950,001

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Income

(unaudited)


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Interest Income
Loans, including fees	$	1,627,134	$	1,631,859	$	4,853,910	$	4,823,744
Investment securities and other interest-earning assets:
Taxable		58,673		40,354		148,684		190,434
Tax exempt		22,198		20,372		67,308		55,984
Mortgage-backed securities		90		211		359		694

Total Interest Income		1,708,095		1,692,796		5,070,261		5,070,856

Interest Expense
Deposits		205,465		274,522		653,207		879,834
FHLB advances		3,531		—		10,147		—

Total Interest Expense		208,996		274,522		663,354		879,834

Net Interest Income		1,499,099		1,418,274		4,406,907		4,191,022
Provision for Loan Losses		25,000		40,000		50,000		122,000

Net Interest Income after Provision for Loan Losses		1,474,099		1,378,274		4,356,907		4,069,022

Non-Interest Income
Fees on deposit accounts		8,452		9,728		24,198		27,787
Other income		37,814		16,467		62,734		51,211

Total Non-Interest Income		46,266		26,195		86,932		78,998

Non-Interest Expense
Salaries and benefits		547,466		499,141		1,609,654		1,485,514
Occupancy		84,694		87,948		264,398		280,453
Data processing		68,708		63,796		202,397		187,763
Professional fees		90,665		75,491		250,044		216,125
FDIC insurance premiums		18,150		17,835		51,700		50,243
Other		102,271		108,540		351,627		356,959

Total Non-Interest Expenses		911,954		852,751		2,729,820		2,577,057

Income Before Income Tax Provision		608,411		551,718		1,714,019		1,570,963
Income Tax Provision		206,017		202,901		599,878		548,627

Net Income	$	402,394	$	348,817	$	1,114,141	$	1,022,336

Earnings per Common Share—Basic and Diluted	$	0.34	$	0.29	$	0.93	$	0.83

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statement of Comprehensive Income

(unaudited)


	For the Three Months Ended						For the Nine Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Net income	$	402,394		$	348,817		$	1,114,141		$	1,022,336
Other comprehensive income (loss):
Decrease (increase) in unrealized losses on available for sale securities		140,279			(117,055	)		327,443			(124,807	)
Income tax effect		(47,695	)		39,798			(111,330	)		42,434

Other comprehensive income (loss), net of tax:		92,584			(77,257	)		216,113			(82,373	)

Total comprehensive income	$	494,978		$	271,560		$	1,330,254		$	939,963

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity

For the Nine Months Ended June 30, 2014

(unaudited)


	Common Stock Shares Outstanding			Par Value			Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Unearned ESOP Shares			Total
Balance, September 30, 2013		1,255,819		$	12,558		$	10,647,396		$	12,147,028		$	(361,394	)	$	(459,388	)	$	21,986,200
Net income		—			—			—			1,114,141			—			—			1,114,141
Other comprehensive income		—			—			—			—			216,113			—			216,113
Compensation expense related to restricted stock		—			—			59,346			—			—			—			59,346
Compensation expense related to stock options		—			—			13,005			—			—			—			13,005
Compensation expense on ESOP		—			—			37,335			—			—			42,818			80,153
Retirement of common stock		(8,976	)		(90	)		(160,736	)		—			—			—			(160,826	)
Dividends on common stock ($.30 per share)		—			—			—			(374,881	)		—			—			(374,881	)

Balance, June 30, 2014		1,246,843		$	12,468		$	10,596,346		$	12,886,288		$	(145,281	)	$	(416,570	)	$	22,933,251

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended
	June 30,
	2014			2013
OPERATING ACTIVITIES
Net income	$	1,114,141		$	1,022,336
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		112,449			85,277
Provision for loan losses		50,000			122,000
Net accretion/amortization of discounts and premiums on securities and unamortized loan fees and costs		1,050			(2,474	)
Compensation expense for ESOP, restricted stock, and stock options		152,504			139,771
(Increase) decrease in deferred income taxes		(18,140	)		201,733
Decrease in accrued interest receivable		29,801			90,461
Decrease in accrued interest payable		(1,646	)		(860	)
(Decrease) increase in retirement fund obligation		(33,957	)		179,500
(Increase) decrease in accrued federal income tax		(218,982	)		177,726
Other, net		13,861			(39,085	)

Net cash provided by operating activities		1,201,081			1,976,385

INVESTING ACTIVITIES
Proceeds from maturities and redemptions of investment securities available for sale		1,500,000			—
Proceeds from maturities and redemptions of investment securities held to maturity		5,000			12,450,000
Purchase of investment securities available for sale		(1,750,000	)		(7,000,000	)
Purchase of investment securities held to maturity		—			(1,190,000	)
Net paydowns in mortgage-backed securities		2,294			3,896
Purchase of FHLB stock		(361,800	)		—
Redemption of FHLB stock		100,000			243,100
Net increase in loans		(1,263,194	)		(1,302,954	)
Commercial leases purchased		(3,957,242	)		(7,601,142	)
Premises and equipment expenditures		(47,356	)		(70,460	)

Net cash used for investing activities		(5,772,298	)		(4,467,560	)

FINANCING ACTIVITIES
Net increase in deposit accounts		5,065,308			3,265,975
Proceeds from FHLB borrowings		8,000,000			—
Repayment of FHLB borrowings		(3,500,000	)		—
Net increase (decrease) in advances from borrowers for taxes and insurance		160,937			(11,420	)
Retirement of common stock		(160,827	)		(1,018,315	)
Payment of dividends		(350,663	)		(209,247	)

Net cash provided by financing activities		9,214,755			2,026,993

Net increase (decrease) in cash and cash equivalents		4,643,538			(464,182	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		7,181,069			8,109,594

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	11,824,607		$	7,645,412

SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Interest paid	$	667,618		$	880,694
Income taxes paid	$	787,000		$	255,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

Note 1 — Nature of Operations and Significant Accounting Policies

Eureka Financial Corp., a Maryland corporation (the “Company”), and its wholly-owned subsidiary, Eureka Bank (the “Bank”), provide a variety of financial services to individuals and corporate customers through its main office and branch located in Southwestern Pennsylvania. The Bank’s primary deposit products are interest-bearing checking accounts, savings accounts and certificates of deposits. Its primary lending products are single-family residential loans, multi-family and commercial real estate loans, and commercial leases.

Unaudited Interim Financial Statements

The accompanying unaudited consolidated financial statements were prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim information. The accompanying unaudited consolidated financial statements for the interim periods include all adjustments, consisting of normal recurring accruals, which are necessary, in the opinion of management, to fairly reflect Eureka Financial Corp.’s consolidated financial position and results of operations. Additionally, these consolidated financial statements for the interim periods have been prepared in accordance with the instructions to the SEC’s Form 10-Q and Article 10 of Regulation S-X and therefore do not include all information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended September 30, 2013, as contained in the Company’s Annual Report on Form 10-K filed with the SEC on December 20, 2013.

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, valuation of deferred tax assets and other-than-temporary impairment of investment securities. The results of operations for the interim quarterly or year to date periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period.

Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing net income by weighted-average shares outstanding. Unallocated shares held by the Bank’s employee stock ownership plan are not deemed outstanding for earnings per share calculations. Diluted earnings per share is computed by dividing net income by weighted-average shares outstanding plus potential common stock resulting from dilutive stock options. Common shares that have been repurchased are not deemed outstanding for earnings per share calculations.

The following is a reconciliation of the numerator and denominator of the basic and dilutive earnings per share computations for net income for the three and nine months ended June 30, 2014 and 2013.


	For the Three Months Ended						For the Nine Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Weighted average common shares outstanding		1,247,236			1,285,086			1,251,337			1,306,542
Average unearned ESOP shares		(40,236	)		(46,344	)		(41,768	)		(47,876	)
Average unearned nonvested shares		(15,437	)		(20,347	)		(16,741	)		(21,746	)

Weighted average common shares and common stock equivalents used to calculate basic and diluted earnings per share		1,191,563			1,218,395			1,192,828			1,236,920

Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share		938			1,802			—			—
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		2,425			—			1,797			—

Weighted average common shares and common common stock equivalents used to calculate basic and diluted earnings per share		1,194,926			1,220,197			1,194,625			1,236,920

Basic and diluted earnings per share	$	0.34		$	0.29		$	0.93		$	0.83

During the three and nine month periods ended June 30, 2014, options to purchase 64,907 shares of common stock at a price of $15.24 per share were outstanding during the period and were included in the computation of diluted earnings per share.

Options to purchase 64,907 shares of common stock at a price of $15.24 per share were outstanding during the period ended June 30, 2013. For the three months ended June 30, 2013, all of the options were considered dilutive based on the weighted average market value exceeding the weighted average stock price. For the nine months ended June 30, 2013, no shares were included in the computation of diluted earnings per share because doing so would have been anti-dilutive as the weighted average exercise price was in excess of the weighted average market value.

Reclassifications

Certain comparative amounts from the prior year period have been reclassified to conform to current period classifications. Such reclassifications had no effect on net income and stockholders’ equity.

Note 2 — Accumulated Other Comprehensive Income

The following table presents the changes in accumulated comprehensive income by component net of tax for the three and nine month periods ended June 30, 2014:


	Unrealized Losses on Available for Sale Securities				Unrealized Losses on Available for Sale Securities
Balance as of March 31, 2014	$	(237,865	)	Balance as of September 30, 2013	$	(361,394	)
Other comprehensive income before reclassification		92,584		Other comprehensive income before reclassification		216,113
Total other comprehensive income		92,584		Total other comprehensive income		216,113

Balance as of June 30, 2014	$	(145,281	)	Balance as of June 30, 2014	$	(145,281	)

Note 3 — Investment Securities

Investment securities available for sale consisted of the following at June 30, 2014 and September 30, 2013:


	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of states and political subdivisions	$	591,599	$	547	$	(10,440	)	$	581,706
U.S. government agency securities		6,494,934		—		(210,684	)		6,285,750

	$	7,086,533	$	547	$	(221,124	)	$	6,867,456


	September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of states and political subdivisions	$	592,346	$	—	$	(43,894	)	$	548,452
U.S. government agency securities		6,247,825		—		(504,400	)		5,743,425

	$	6,840,171	$	—	$	(548,294	)	$	6,291,877

U.S. government agency securities with carrying values of $5,786,300 and $450,850 at June 30, 2014 and September 30, 2013, respectively, were pledged to secure public deposits held by the Company.

There were no sales of available for sale investment securities during the three or nine months ended June 30, 2014 or 2013.

The amortized cost and fair value of securities available for sale at June 30, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers might have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2014
	Amortized Cost		Fair Value
Due after one year through five years	$	291,599	$	292,146
Due after ten years		6,794,934		6,575,310

	$	7,086,533	$	6,867,456

Investment securities held to maturity consisted of the following at June 30, 2014 and September 30, 2013:


	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of states and political subdivisions	$	2,022,110	$	68,776	$	(43,198	)	$	2,047,688
U.S. government agency securities		750,000		—		(93,000	)		657,000

Total	$	2,772,110	$	68,776	$	(136,198	)	$	2,704,688


	September 30, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Obligations of states and political subdivisions	$	2,026,027	$	50,094	$	(113,206	)	$	1,962,915
U.S. government agency securities		750,000		—		(126,150	)		623,850

Total	$	2,776,027	$	50,094	$	(239,356	)	$	2,586,765

U.S. government agency securities with carrying values of $657,000 and $623,850 at June 30, 2014 and September 30, 2013, respectively, were pledged to secure public deposits held by the Company.

The amortized cost and fair value of securities held to maturity at June 30, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers might have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2014
	Amortized		Fair
	Cost		Value
Due after five years through ten years	$	488,241	$	548,898
Due after ten years		2,283,869		2,155,790

Total	$	2,772,110	$	2,704,688

Temporarily impaired investments consisted of the following at June 30, 2014 and September 30, 2013:


	June 30, 2014
	Less than 12 Months					More than 12 Months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of states and political subdivisions	$	880,380	$	(14,612	)	$	604,520	$	(39,026	)	$	1,484,900	$	(53,638	)
U.S. government agency securities		2,906,875		(91,650	)		2,785,875		(212,034	)		5,692,750		(303,684	)

	$	3,787,255	$	(106,262	)	$	3,390,395	$	(251,060	)	$	7,177,650	$	(357,322	)


	September 30, 2013
	Less than 12 Months					More than 12 Months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of states and political subdivisions	$	1,376,627	$	(157,100	)	$	—	$	—		$	1,376,627	$	(157,100	)
U.S. government agency securities		6,367,275		(630,550	)		—		—			6,367,275		(630,550	)

	$	7,743,902	$	(787,650	)	$	—	$	—		$	7,743,902	$	(787,650	)

The Company reviews its position quarterly and has asserted that at June 30, 2014, the declines outlined in the above table represent temporary declines. The Company does not intend to sell and does not believe they will be required to sell these securities before recovery of their cost basis, which may be at maturity. All investments are interest rate sensitive. These investments earn interest at fixed and adjustable rates. The adjustable rate instruments are generally linked to an index, such as the three-month LIBOR rate, plus or minus a variable. The value of these instruments fluctuates with interest rates.

The Company had 14 securities in an unrealized loss position at June 30, 2014. The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes or sector credit ratings changes that are not expected to result in the non-collection of principal and interest during the period. The Company’s current intention is not to sell any impaired securities and it is more likely than not it will not be required to sell these securities before the recovery of its amortized cost basis.

Note 4 — Mortgage-Backed Securities

The amortized cost and fair values of mortgage-backed securities, all of which are government-sponsored entities secured by residential real estate and are available for sale, are summarized as follows:


	June 30, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Freddie Mac Certificates	$	924	$	40	$	—	$	964
Fannie Mae Certificates		4,893		415		—		5,308

	$	5,817	$	455	$	—	$	6,272


	September 30, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Freddie Mac Certificates	$	1,183	$	91	$	—	$	1,274
Fannie Mae Certificates		6,923		637		—		7,560

	$	8,106	$	728	$	—	$	8,834

There were no sales of mortgage-backed securities during the nine months ended June 30, 2014 and 2013 and there were no temporarily impaired mortgage-backed securities at June 30, 2014 or September 30, 2013. In addition, the Company had no securities in an unrealized loss position at June 30, 2014 or September 30, 2013.

The amortized cost and fair values of mortgage-backed securities at June 30, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers have the right to repay obligations without penalty.


	June 30, 2014
	Amortized		Fair
	Cost		Value
Due after one year through five years	$	4,256	$	4,551
Due after five years through ten years		472		493
Due after ten years		1,089		1,228

	$	5,817	$	6,272

Note 5 — Loans

Major classifications of loans are as follows at June 30, 2014 and September 30, 2013:


	June 30			September 30,
	2014			2013
One-to four-family real estate—owner occupied	$	20,693,176		$	20,484,626
One-to four-family real estate—non-owner occupied		37,802,125			32,747,845
Construction		2,401,917			3,847,052
Multi-family real estate		19,010,236			17,707,984
Commercial real estate		23,140,603			22,682,578
Home equity and second mortgages		1,848,912			1,235,098
Secured loans		164,560			188,561
Commercial leases and loans		18,556,827			20,074,035
Commercial lines of credit		4,654,291			4,029,645

		128,272,647			122,997,424
Plus:
Unamortized loan premiums		12,577			13,813
Less:
Unamortized loan fees and costs, net		(319,287	)		(265,736	)
Allowance for loan losses		(1,349,038	)		(1,299,038	)

	$	126,616,899		$	121,446,463

Loan Portfolio Composition

The loan and lease receivable portfolio is broken down into the following categories: (1) one- to four-family real estate loans – owner occupied and non-owner occupied; (2) construction loans; (3) multi-family real estate loans; (4) commercial real estate loans; (5) home equity and second mortgage loans; (6) secured loans; (7) commercial loans and leases; and (8) commercial lines of credit.

One- to four-family real estate loans include residential first mortgage loans originated by the Bank in the greater Pittsburgh metropolitan area. We currently originate fully amortizing loans with maturities up to 30 years. These loans have a maximum loan-to-value ratio of 80%, unless they fall into our first-time homebuyer program in our CRA Assessment Area, and then the maximum loan-to-value ratio can extend up to 95%. Due to our stringent underwriting, historical losses, and location of the majority of the portfolio, the Bank’s risk on this segment of the portfolio is considered minimal.

Construction loans include dwelling and land loans where funds are being held by the Bank until the construction has been completed. Dwelling construction consists of new construction and upgrades to existing dwellings. The normal construction period is six months. Construction loans on land are originated for developments where the land is being prepared for future home building. On-site inspections are performed as per the draw schedule for all construction loans. The risk associated with the construction loans is considered low as the Bank makes only a small number of these loans at any given time and adheres to the draw schedule to ensure work is being completed in a timely and professional manner.

Multi-family real estate loans include five or more unit dwellings. These loans could pose a higher risk to the Bank than the one- to four-family real estate loans and therefore are originated with a term of up to 20 years and a maximum loan-to-value ratio of 75%. Different risk factors are taken into consideration when originating these loans such as whether the property is owner or non-owner occupied, location, the strength of the borrower, rent rolls and total lending relationship with the borrower(s).

Commercial real estate loans consist of loans that are originated where a commercial property is being used as collateral. These loans also produce a higher risk to the Bank and have the same maximum terms and loan-to-value ratios as the multi-family loans. The risks associated with these loans are affected by economic conditions, location, strength of the borrower, rent rolls and potential resale value should foreclosure become necessary.

Home equity and second mortgages include loans as first or second liens to any applicant who maintains an owner occupied or single family dwelling. These loans also include home equity lines of credit. The maximum loan amount is $100,000. The first and second lien combined cannot exceed 80% of the appraised value of the property. The risk to the Bank depends on whether we hold the first and/or second lien. We rely heavily on the appraised value to ensure equity is available, as well as the strength of the borrower. These loans are not considered to be more than moderate risk.

Secured loans are made to applicants who maintain deposit accounts at the Bank. The Bank will originate these loans up to a term of five years or to maturity date whichever comes first. These loans pose no risk to the Bank as the loan amount will never exceed the collateral that is securing the loan.

Unsecured improvement loans consist of loans that have no or very little useful collateral and therefore pose a greater risk to the Bank. These loans generally have a higher interest rate assigned to them and a maximum term of up to five years. Well documented underwriting is in place to ensure that the borrower has the ability to repay the debt. While the Bank does not originate a significant amount of these types of loans, they are considered to be moderate to high risk due to the unsecured nature of the loan.

Commercial leases consist of loans that typically are collateralized by either equipment or vehicles. Forms under the Uniform Commercial Code are filed on all collateral to ensure the Bank has the ability to take possession should the loan go into default. The maximum term is up to seven years but typically fall in the three- to five-year range which gives the Bank a quicker repayment of the debt. Based on the collateral alone, the value of which is sometimes difficult to ascertain and can fluctuate as the market and economic climate change, these loans have a higher risk assigned to them. However, our historical loss has been negligible over the last ten years, which is also taken into consideration when the loans are originated and before they are assigned a risk weighting.

Commercial lines of credit consist of lines where residential property is used as collateral. These loans are made to individuals as well as companies, and are collateralized by commercial property, equipment or receivables. The loan amount is determined by the borrower’s financial strength as well as the collateral. The lines are based on the collateral and the ability of the borrower(s) to repay the debt. The lines are closely monitored and limits adjusted accordingly based on updated tax returns and/or other changes to the financial wellbeing of the borrower(s). Subsequently, risk is controlled but considered moderate based on the collateral and nature of the loan.

Credit Quality

The Bank’s risk rating system is made up of five loan grades (1, 2, 3, 4 and 5). A description of the general characteristics of the risk grades follows:

Rating 1 – Pass

Rating 1 has asset risks ranging from excellent low risk to acceptable. This rating considers a customer’s history of earnings, cash flow, liquidity, leverage, capitalization, consistency of debt service coverage, the nature and extent of customer relationship and other relevant specific business factors such as the stability of the industry or market area, changes to management, litigation or unexpected events that could have an impact on risks.

Rating 2 – Special Mention

A special mention asset has a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The special mention classification is a transitory one and is the first classification that requires an action plan to resolve the weaknesses inherent to the credit. These relationships will be reviewed at least quarterly.

Rating 3 – Substandard

Substandard assets are assets that are inadequately protected by the sound worth or paying capacity of the borrower or of the collateral pledged. These assets have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard. The loans may have a delinquent history or combination of weak collateral, weak guarantor strength or income statement losses. These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies. These relationships will be reviewed at least quarterly.

Rating 4 – Doubtful

Doubtful assets have many of the same characteristics of substandard assets with the exception that the Bank has determined that loss is not only possible but is probable and the risk is close to certain that loss will occur. When a loan is assigned to this category the Bank will identify the probable loss and it will receive allocation in the loan loss reserve analysis. These relationships will be reviewed at least quarterly.

Rating 5 – Loss

Once an asset is identified as a definite loss to the Bank, it will receive the classification of “loss.” There may be some future potential recovery; however it is more practical to write off the loan at the time of classification. Losses will be taken in the period in which they are determined to be uncollectable. Credit quality indicators as of June 30, 2014 were as follows:


	Pass		Special Mention		Substandard		Doubtful		Loss		Total
One-to four-family real estate non-owner occupied	$	37,802,125	$	—	$	—	$	—	$	—	$	37,802,125
Construction		2,401,917		—		—		—		—		2,401,917
Multi-family real estate		19,010,236		—		—		—		—		19,010,236
Commercial real estate		22,710,614		—		—		—		—		22,710,614
Commercial leases and loans		18,556,827		—		429,989		—		—		18,986,816
Commercial lines of credit		4,066,617		163,757		423,917		—		—		4,654,291

	$	104,548,336	$	163,757	$	853,906	$	—	$	—	$	105,565,999

Credit quality indicators as of September 30, 2013 were as follows:


	Pass		Special Mention		Substandard		Doubtful		Loss		Total
One-to four-family real estate non-owner occupied	$	31,654,257	$	18,224	$	—	$	—	$	—	$	31,672,481
Construction		3,847,052		—		—		—		—		3,847,052
Multi-family real estate		17,707,984		—		—		—		—		17,707,984
Commercial real estate		22,682,578		—		—		—		—		22,682,578
Commercial leases and loans		19,880,846		193,189		—		—		—		20,074,035
Commercial lines of credit		3,441,048		164,680		423,917		—		—		4,029,645

	$	99,213,765	$	376,093	$	423,917	$	—	$	—	$	100,013,775

The following table presents performing and non-performing residential real estate and consumer loans based on payment activity as of June 30, 2014 and September 30, 2013. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be non-performing when they become 90 days past due.


	June 30, 2014
	Nonperforming Loans		Performing Loans		Total
One-to four-family real estate—owner occupied	$	—	$	20,693,176	$	20,693,176
Home equity and second mortgages		—		1,848,912		1,848,912
Secured loans		—		164,560		164,560

	$	—	$	22,706,648	$	22,706,648


	September 30, 2013
	Nonperforming Loans		Performing Loans		Total
One-to four-family real estate—owner occupied	$	—	$	20,484,626	$	20,484,626
Home equity and second mortgages		—		1,235,098		1,235,098
Secured loans		—		188,561		188,561

	$	—	$	21,908,285	$	21,908,285

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. There were two impaired loans as of June 30, 2014, with no related allowance. The Company did not recognize any interest income from these loans for the three and nine month period ended June 30, 2014. There were two impaired loans at September 30, 2013.


	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
June 30, 2014
Commercial leases and loans	$	—	$	—	$	429,989	$	429,989	$	429,989	$	436,242	$	—
Commercial lines of credit		—		—		423,917		423,917		423,917		423,917		—

	$	—	$	—	$	853,906	$	853,906	$	853,906	$	860,159	$	—


	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
September 30, 2013
Commercial leases and loans	$	—	$	—	$	442,494	$	442,494	$	442,494	$	453,946	$	7,447
Commercial lines of credit		—		—		423,917		423,917		423,917		423,917		—

	$	—	$	—	$	866,411	$	866,411	$	866,411	$	877,863	$	7,447

The Bank did not modify any loans that resulted in a TDR in the period ended June 30, 2014. The Bank had one loan, as of the year ended September 30, 2013, that defaulted during the nine months ended June 30, 2014 and became a TDR.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of June 30, 2014:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Nonaccrual Loans
One-to four-family real estate owner occupied	$	259,316	$	—	$	—	$	259,316	$	20,433,860	$	20,693,176	$	—
One-to four family real estate non-owner occupied		—		—		—		—		37,802,125		37,802,125		—
Construction		—		—		—		—		2,401,917		2,401,917		—
Multi-family real estate		—		—		—		—		19,010,236		19,010,236		—
Commercial real estate		—		—		—		—		23,140,603		23,140,603		—
Home equity and second mortgages		—		—		—		—		1,848,912		1,848,912		—
Secured loans		—		—		—		—		164,560		164,560		—
Commercial leases and loans		—		—		429,989		429,989		18,126,838		18,556,827		429,989
Commercial lines of credit		—		—		423,917		423,917		4,230,374		4,654,291		423,917

	$	259,316	$	—	$	853,906	$	1,113,222	$	127,159,425	$	128,272,647	$	853,906

The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2013:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Nonaccrual Loans
One-to four-family real estate owner occupied	$	116,259	$	60,242	$	—	$	176,501	$	20,308,125	$	20,484,626	$	—
One-to four family real estate non-owner occupied		—		—		—		—		32,747,845		32,747,845		—
Construction		—		—		—		—		3,847,052		3,847,052		—
Multi-family real estate		—		—		—		—		17,707,984		17,707,984		—
Commercial real estate		—		—		—		—		22,682,578		22,682,578		—
Home equity and second mortgages		—		18,987		—		18,987		1,216,111		1,235,098		—
Secured loans		—		—		—		—		188,561		188,561		—
Commercial leases and loans		193,190		—		—		193,190		19,880,845		20,074,035		442,494
Commercial lines of credit		—		—		423,917		423,917		3,605,728		4,029,645		423,917

	$	309,449	$	79,229	$	423,917	$	812,595	$	122,184,829	$	122,997,424	$	866,411

Eureka Bank primarily grants loans to customers throughout Southwestern Pennsylvania. Eureka Bank maintains a diversified loan portfolio and the ability of its debtors to honor their obligations is not substantially dependent on any particular economic business sector. Loans on non-accrual at June 30, 2014 and September 30, 2013 were approximately $854,000 and $866,000, respectively. The foregone interest on non-accrual loans was approximately $11,491 and $31,783 for the three months ended June 30, 2014 and 2013, respectively and $38,145 and $38,142 for the nine months ended June 30, 2014 and 2013, respectively. As of June 30, 2014 and September 30, 2013, there were no loans that were 90 days or more delinquent and still accruing interest.

The following tables detail the allowance for loan losses and loan receivable balances at June 30, 2014 and September 30, 2013. An allocation of the allowance to one category of loans does not prevent the Company’s ability to utilize the allowance to absorb losses in a different category. The loans receivable are disaggregated on the basis of the Company’s impairment methodology.


	One-to four- family real estate -owner occupied			One-to four-family real estate -non-owner occupied			Construction			Multi- family real estate		Commercial real estate			Home equity and second mortgages		Secured loans		Commercial leases and loans			Commercial lines of credit			Non-allocated			Total
Allowance for credit losses:
Beginning balance 4/1/2014	$	148,305		$	284,327		$	41,187		$	143,351	$	313,838		$	8,869	$	—	$	264,564		$	49,274		$	70,323		$	1,324,038
Charge-offs		—			—			—			—		—			—		—		—			—			—			—
Recoveries		—			—			—			—		—			—		—		—			—			—			—
Provisions (credits)		2,593			12,850			(3,957	)		349		(52,092	)		779		—		3,444			4,343			56,691			25,000

Ending balance 6/30/14	$	150,898		$	297,177		$	37,230		$	143,700	$	261,746		$	9,648	$	—	$	268,008		$	53,617		$	127,014		$	1,349,038

Beginning balance 10/1/2013	$	156,975		$	267,895		$	19,435		$	141,683	$	269,940		$	7,471	$	—	$	246,978		$	46,381		$	142,280		$	1,299,038
Charge-offs		—			—			—			—		—			—		—		—			—			—			—
Recoveries		—			—			—			—		—			—		—		—			—			—			—
Provisions (credits)		(6,077	)		29,282			17,795			2,017		(8,194	)		2,177		—		21,030			7,236			(15,266	)		50,000

Ending balance 6/30/14	$	150,898		$	297,177		$	37,230		$	143,700	$	261,746		$	9,648	$	—	$	268,008		$	53,617		$	127,014		$	1,349,038

Beginning balance 4/1/2013	$	169,106		$	242,657		$	14,858		$	116,651	$	268,081		$	7,179	$	—	$	253,757		$	69,306		$	82,443		$	1,224,038
Charge-offs		—			—			—			—		—			—		—		—			—			—			—
Recoveries		—			—			—			—		—			—		—		—			—			—			—
Provisions (credits)		(3,837	)		14,110			707			19,817		(5,611	)		670		—		(489	)		(3,997	)		18,630			40,000

Ending balance 6/30/13	$	165,269		$	256,767		$	15,565		$	136,468	$	262,470		$	7,849	$	—	$	253,268		$	65,309		$	101,073		$	1,264,038

Beginning balance 10/1/2012	$	114,206		$	306,078		$	4,482		$	127,624	$	240,503		$	6,938	$	—	$	242,641		$	60,760		$	38,806		$	1,142,038
Charge-offs		—			—			—			—		—			—		—		—			—			—			—
Recoveries		—			—			—			—		—			—		—		—			—			—			—
Provisions (credits)		51,063			(49,311	)		11,083			8,844		21,967			911		—		10,627			4,549			62,267			122,000

Ending balance 6/30/13	$	165,269		$	256,767		$	15,565		$	136,468	$	262,470		$	7,849	$	—	$	253,268		$	65,309		$	101,073		$	1,264,038

Allowance for credit losses:
Ending balance 6/30/2014	$	150,898		$	297,177		$	37,230		$	143,700	$	261,746		$	9,648	$	—	$	268,008		$	53,617		$	127,014		$	1,349,038

Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	150,898		$	297,177		$	37,230		$	143,700	$	261,746		$	9,648	$	—	$	268,008		$	53,617		$	127,014		$	1,349,038


Loans receivables:
Ending balance 6/30/2014	$	20,693,176	$	37,802,125	$	2,401,917	$	19,010,236	$	23,140,603	$	1,848,912	$	164,560	$	18,556,827	$	4,654,291	$	—	$	128,272,647

Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	429,989	$	423,917	$	—	$	853,906

Ending balance: collectively evaluated for impairment	$	20,693,176	$	37,802,125	$	2,401,917	$	19,010,236	$	23,140,603	$	1,848,912	$	164,560	$	18,126,838	$	4,230,374	$	—	$	127,418,741

Allowance for credit losses:
Ending balance 9/30/2013	$	156,975	$	267,895	$	19,435	$	141,683	$	269,940	$	7,471	$	—	$	246,978	$	46,381	$	142,280	$	1,299,038
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Ending balance: collectively evaluated for impairment	$	156,975	$	267,895	$	19,435	$	141,683	$	269,940	$	7,471	$	—	$	246,978	$	46,381	$	142,280	$	1,299,038

Loans receivables:
Ending balance 9/30/2013	$	20,484,626	$	32,747,845	$	3,847,052	$	17,707,984	$	22,682,578	$	1,235,098	$	188,561	$	20,074,035	$	4,029,645	$	—	$	122,997,424

Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	442,494	$	423,917	$	—	$	866,411

Ending balance: collectively evaluated for impairment	$	20,484,626	$	32,747,845	$	3,847,052	$	17,707,984	$	22,682,578	$	1,235,098	$	188,561	$	19,631,541	$	3,605,728	$	—	$	122,131,013

Note 6 — Commitments

The Company’s maximum exposure to credit loss for loan and lease commitments (unfunded loans and leases) at June 30, 2014 and September 30, 2013 was approximately $14,501,259 and $10,726,000, respectively, with interest rates from 1.20% to 6.75%. Fixed rate loan commitments at June 30, 2014 and September 30, 2013 were approximately $7,694,000 and $3,256,000, respectively, with fixed rates of interest ranging from 1.20% to 6.75% and 3.75% to 6.75%, respectively.

In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit which are not reflected in the accompanying consolidated financial statements. These commitments involve, to varying degrees, elements of credit risk in excess of amounts recognized in the consolidated balance sheets.

Loan commitments are made to accommodate the financial needs of the Company’s customers. These arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit policies and loan underwriting standards. Collateral is obtained based on management’s credit assessment of the customer. Management currently expects no loss from these activities.

Note 7 — Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The Company follows a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2014 and September 30, 2013 are as follows:


	June 30, 2014
	Level I		Level II		Level III		Total
Description
Mortgage-backed securities available for sale	$	—	$	6,272	$	—	$	6,272
Obligations of states and political subdivisions available for sale		—		581,706		—		581,706
U.S. government agency securities available for sale		—		6,285,750		—		6,285,750

Total	$	—	$	6,873,728	$	—	$	6,873,728


	September 30, 2013
	Level I		Level II		Level III		Total
Description
Mortgage-backed securities available for sale	$	—	$	8,834	$	—	$	8,834
Obligations of states and political subdivisions available for sale		—		548,452		—		548,452
U.S. government agency securities available for sale		—		5,743,425		—		5,743,425

	$	—	$	6,300,711	$	—	$	6,300,711

The following table presents the financial assets measured at fair value on a recurring basis as of June 30, 2014 and September 30, 2013 by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include: quoted market prices for identical assets classified as Level I inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques include inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.


	June 30, 2014
	Level I		Level II		Level III		Total
Description
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	853,906	$	853,906


	September 30, 2013
	Level I		Level II		Level III		Total
Description
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	866,411	$	866,411

The following tables present additional quantitative information about level III assets measured at fair value on a nonrecurring basis as of June 30, 2014 and September 30, 2013 and for which the Bank uses Level III inputs to determine fair value:

June 30, 2014

Fair Value

Valuation
Technique

Unobservable
Inputs

Range
(Weighted
Average)

Impaired Loans

429,989

Discounted

Probability of

—

cash flow

default

423,917

Fair Value

Appraisal

of collateral (1)

adjustments (2)

853,906

September 30, 2013

Fair Value

Valuation
Technique

Unobservable
Inputs

Range
(Weighted
Average)

Impaired Loans

442,494

Discounted

Probability of

—

cash flow

default

423,917

Fair Value

Appraisal

of collateral (1)

adjustments (2)

866,411

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various Level III inputs which are not identifiable.

(2)	Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions that are presented below the following table were used to estimate fair values of the Company’s financial instruments at June 30, 2014 and September 30, 2013:


	June 30, 2014
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
Financial assets:
Cash and cash equivalents	$	11,824,607	$	11,824,607	$	—	$	—	$	11,824,607
Investment securities available for sale		6,867,456		—		6,867,456		—		6,867,456
Investment securities held to maturity		2,772,110		—		2,704,688		—		2,704,688
Mortgage-backed securities available for sale		6,272		—		6,272		—		6,272
FHLB stock		499,200		499,200		—		—		499,200
Loans receivable, net		126,616,899		—		—		133,282,000		133,282,000
Accrued interest receivable		491,812		491,812		—		—		491,812
Financial liabilities:
Deposits	$	122,522,730	$	53,940,626	$	—	$	68,659,000	$	122,599,626
FHLB advances		4,500,000		—		4,500,000		—		4,500,000
Advances from borrowers for taxes and insurance		637,971		637,971		—		—		637,971
Accrued interest payable		82,001		82,001		—		—		82,001


	September 30, 2013
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
Financial assets:
Cash and cash equivalents	$	7,181,069	$	7,181,069	$	—	$	—	$	7,181,069
Investment securities available for sale		6,291,877		—		6,291,877		—		6,291,877
Investment securities held to maturity		2,776,027		—		2,586,765		—		2,586,765
Mortgage-backed securities available for sale		8,834		—		8,834		—		8,834
FHLB stock		237,400		237,400		—		—		237,400
Loans receivable, net		121,446,463		—		—		127,426,461		127,426,461
Accrued interest receivable		521,613		521,613		—		—		521,613
Financial liabilities:
Deposits	$	117,457,422	$	49,726,623	$	—	$	67,762,800	$	117,489,423
Advances from borrowers for taxes and insurance		477,035		477,035		—		—		477,035
Accrued interest payable		83,646		83,646		—		—		83,646

Cash and Cash Equivalents

The carrying amount is a reasonable estimate of fair value.

Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidy and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.

FHLB Stock

The carrying value of the FHLB stock is a reasonable estimate of fair value due to restrictions on the securities.

Loans Receivable

The fair values for one-to four-family residential loans are estimated using discounted cash flow analysis using fields from similar products in the secondary markets. The carrying amount of construction loans approximated its fair value given their short-term nature. The fair values of consumer and commercial loans are estimated using discounted cash flow analysis, using interest rates reported in various government releases and the Company’s own product pricing schedule for loans with terms similar to the Company’s. The fair values of multi-family and nonresidential mortgages are estimated using discounted cash flow analysis, using interest rates based on a national survey of similar loans.

Accrued Interest Receivable

The carrying amount is a reasonable estimate of fair value.

Deposit Liabilities

The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the repricing date (i.e., their carrying amounts). Fair values of certificates of deposits are estimated using a discounted cash flow calculation that applies a comparable FHLB advance rate to the aggregated weighted average maturity on time deposits.

Advances from Borrowers for Taxes and Insurance

The fair value of advances from borrowers for taxes and insurance is the amount payable on demand at the reporting date.

FHLB Advances

All FHLB advances are overnight borrowings. The carrying amount is a reasonable estimate of fair value.

Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value.

Off-Balance Sheet Commitments

The values of off-balance sheet commitments are based on their carrying value, taking into account the remaining terms and conditions of the agreement.

Note 8 — Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

The Bank may not declare or pay a cash dividend if the effect thereof would cause its net worth to be reduced below either the amounts required for the liquidation account established in connection with the Bank’s “second-step” conversion or the regulatory capital requirements imposed by federal and state regulations.

The most recent notification from the Office of the Comptroller of the Currency 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, core and tangible ratios as set forth in the accompanying table. There are no conditions or events since the notification that management believed has changed the institution’s category. The following shows the Bank’s compliance with regulatory capital standards at June 30, 2014 and September 30, 2013:


	Actual						For Capital Adequacy Purposes						To be well Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio				Amount		Ratio				Amount		Ratio
	(in thousands)
As of June 30, 2014
Total capital (to risk-weighted assets)	$	23,620		24.24	%	>	$	7,795		>8.00	%	>	$	9,744		>10.00	%
Tier 1 capital (to risk-weighted assets)		22,402		22.99	%	>		3,898		>4.00	%	>		5,846		>6.00	%
Core (Tier 1) capital (to adjusted total assets)		22,402		14.60	%	>		6,136		>4.00	%	>		7,670		>5.00	%
As of September 30, 2013
Total capital (to risk-weighted assets)	$	22,351		23.80	%	>	$	7,513		>8.00	%	>	$	9,391		>10.00	%
Tier 1 capital (to risk-weighted assets)		21,176		22.55	%	>		3,756		>4.00	%	>		5,634		>6.00	%
Core (Tier 1) capital (to adjusted total assets)		21,176		14.91	%	>		5,682		>4.00	%	>		7,102		>5.00	%

The following is a reconciliation of the Bank’s equity under accounting principles generally accepted in the United States of America to regulatory capital as of June 30, 2014 and September 30, 2013:


	June 30, 2014		September 30, 2013
	(in thousands)		(in thousands)
Total equity	$	22,257	$	20,815
Unrealized loss on securities available-for-sale		145		361

Tier 1 capital	$	22,402		21,176
Allowable allowances for loan and lease losses		1,218		1,175

Total risk-based capital	$	23,620	$	22,351

Note 9 — Recent Accounting Pronouncements

In June 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-08, Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The amendments do all of the following: (1) change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment company; (2) require an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting; and (3) require the following additional disclosures: (a) the fact that the entity is an investment company and is applying the guidance in Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. The amendments in this Update are effective for an entity’s interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited. This Update is not expected to have a material impact on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. This Update is not expected to have a material impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This Update is not expected to have a material impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update is not expected to have a material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This Update is not expected to have a material impact on the Company’s financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a material impact on the Company’s financial statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Safe Harbor Statement for Forward-Looking Statements

This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on the Company’s current expectations regarding its business strategies and its intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; real estate values in our market area; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed in the Company’s in the Company’s Annual Report on Form 10-K, as filed with the SEC on December 20, 2013, under the section titled “Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

The discussion and analysis of Eureka Financial Corp.’s financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level representing management’s best estimate of known and inherent losses in the loan portfolio, based on management’s evaluation of the portfolio’s collectability. The allowance is established through the provision for loan losses, which is charged against income. Management estimates the allowance balance required using loss experience in particular segments of the portfolio, the size and composition of the loan portfolio, trends and absolute levels of non-performing loans, classified and criticized loans and delinquent loans, trends in risk ratings, trends in industry charge-offs by particular segments and changes in existing general economic and business conditions affecting our lending areas and the national economy. Additionally, for loans identified by management as impaired, management will provide a specific provision for loan losses based on the expected discounted cash flows of the loan, or for loans determined to be collateral dependent, a specific provision for loan losses is established based on appraised value less costs to sell. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if actual conditions differ substantially from the assumptions used in making the evaluation. Further, current economic conditions have increased the uncertainty inherent in these estimates and assumptions. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future tax rates and taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax asset.

Valuation of Other-Than-Temporary Impairment of Investment Securities. We evaluate our investment securities portfolio on a quarterly basis for indicators of other-than-temporary impairment, which requires significant judgment. We assess whether other-than-temporary impairment has occurred when the fair value of a debt security is less than the amortized cost basis at the balance sheet date. Under these circumstances, other-than-temporary impairment is considered to have occurred: (1) if we intend to sell the security; (2) if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. For securities that we do not expect to sell or that we are not more likely than not to be required to sell, the other-than-temporary impairment is separated into credit and non-credit components. The credit-related other-than-temporary impairment, represented by the expected loss in principal, is recognized in non-interest income, while noncredit-related other-than-temporary impairment is recognized in other comprehensive income (loss). Noncredit-related other-than-temporary impairment results from other factors, including increased liquidity spreads and extension of the security. For securities which we do expect to sell, all other-than-temporary impairment is recognized in earnings. Other-than-temporary impairment is presented in the income statement on a gross basis with a reduction for the amount of other-than-temporary impairment recognized in other comprehensive income (loss). Once an other-than-temporary impairment is recorded, when future cash flows can be reasonably estimated, future cash flows are re-allocated between interest and principal cash flows to provide for a level-yield on the security.

Comparison of Financial Condition at June 30, 2014 and September 30, 2013

Assets increased $10.9 million, or 7.7%, to $151.9 million at June 30, 2014 from $141.0 million at September 30, 2013, primarily due to a $5.2 million increase in loans receivable, a $4.6 million increase in cash and cash equivalents, a $576,000 increase in investment securities available for sale, a $442,000 increase in accrued interest receivable and other assets and a $262,000 increase in FHLB stock, offset by $93,000 decrease in deferred tax asset, and a $65,000 decrease in premises and equipment.

The increase in loans was primarily due to a $5.3 million increase in one-to four-family real estate loans, a $1.3 million increase in multi-family loans, a $625,000 increase in commercial lines of credit, a $614,000 increase in home equity and second mortgages, a $458,000 increase in commercial real estate loans, and, offset by a $1.5 million decrease in commercial leases and loans, and a $1.5 million decrease in construction loans. The increases were primarily the result of our continued offering of competitive rates, strong customer service and borrowings by long-standing and new lending relationships. The increase in cash and cash equivalents was the result of deposits received through the CDARS program. The increase in investment securities reflected the purchase of additional U.S. government agency securities with excess liquidity.

Eureka Financial Corp. actively manages credit risk through its underwriting practices and collection operations and it does not offer nor has it historically offered loans to subprime or Alt-A borrowers. There were two non-accrual loans at June 30, 2014 totaling $854,000, or 0.67% of total loans, compared to two loans totaling $866,000, or 0.70% of total loans, at September 30, 2013. The non-accrual loan total for June 30, 2014 consisted of a $424,000 commercial line of credit, and a commercial lease totaling $430,000. The non-accrual loans at September 30, 2013 were a commercial line of credit totaling $424,000 and a commercial lease totaling $442,000.

Total liabilities increased by $9.9 million, or 8.4%, to $128.9 million at June 30, 2014 from $119.0 million at September 30, 2013. This increase was primarily attributable to an increase in deposits of $5.0 million, an increase of $4.5 million in FHLB advances that were used to fund loan originations, a $248,000 increase in accrued interest payable and other liabilities, and a $161,000 increase in advances from borrowers for taxes and insurance. The increase in deposits was primarily due to a $6.4 million increase in CDARS deposits, a $1.7 million increase in savings deposits, a $2.5 million increase in NOW and money market accounts, offset by a $5.6 million decrease in certificates of deposit. The increase in core deposits was received from established customer relationships. The increase in CDARS deposits is the result of the Bank’s participation in the CDARS one-way buy program. This program allows the Bank to attract term deposits at lower cost compared to the Bank’s internal offering rates and FHLB borrowing rates.

Stockholders’ equity increased $947,000 to $22.9 million at June 30, 2014 from $22.0 million at September 30, 2013. The increase was primarily the result of net income totaling $1.1 million, a $216,000 decrease in accumulated other comprehensive loss, $80,000 related to the allocation of ESOP shares and $72,000 related to stock benefit plans, offset by dividends totaling $375,000, and the retirement of 8,976 shares at a cost of $161,000 during the period.

Results of Operations for the Three and Nine Months Ended June 30, 2014 and 2013

Overview.


	For the Three Months Ended June 30,
	2014			2013
	(Dollars in thousands, except
	per share amounts)
Net income	$	402		$	349
Basic and diluted earnings per share		0.34			0.29
Average equity to average assets		15.29	%		15.85	%

	For the Nine Months Ended June 30,
	2014			2013
	(Dollars in thousands, except
	per share amounts)
Net income	$	1,114		$	1,022
Basic and diluted earnings per share		0.93			0.83
Average equity to average assets		15.31	%		16.10	%

The increase in net income for the three months ended June 30, 2014 was primarily attributable to a $15,000 increase in interest income, a $66,000 decrease in interest expense, a $15,000 decrease in the provision for loan losses, and a $20,000 increase in non-interest income, offset by a $59,000 increase in non-interest expense. The increase in net income for the nine months period ended June 30, 2014 was primarily attributable to a $217,000 decrease in interest expense and a $72,000 decrease in the provision for loan losses, offset by a $153,000 increase in non-interest expense and a $51,000 increase in income taxes.

Net Interest Income. Net interest income increased $81,000 to $1.5 million for the three months ended June 30, 2014 compared to the same period of the prior year. For the nine months ended June 30, 2014, net interest income increased $216,000 to $4.4 million compared to the same period in the prior year. For the three months ended June 30, 2014, higher net interest income was the result of a $15,000 increase in interest income, a $69,000 decrease in deposit interest expense, and a $4,000 increase in FHLB borrowing expense. For the nine months ended June 30, 2014, higher net interest income was the result of a $1,000 decrease in interest income and a $227,000 decrease in deposit interest expense and a $10,000 increase in FHLB borrowing expense.

For the three months ended June 30, 2014, the increase in interest income resulted from a $5.8 million increase in the average balance of loans, a $2.5 million increase in the average balance of investment securities offset by a six basis point decrease in the average yield of interest earning assets and a seven basis point decrease in the average cost of interest bearing liabilities. The decrease in total interest expense for the three month period ended June 30, 2014 was primarily attributable to a $5.4 million decrease in the average balance of certificates of deposits and a nine basis point decrease in their average cost.

For the nine months ended June 30, 2014, the increase in interest income resulted from a $7.4 million increase in the average balance of loans, offset by a $1.5 million decrease in the average balance of investment securities along with a 15 basis point decrease in the average yield of interest earning assets and a 22 basis point decrease in the average cost of interest bearing liabilities. The decrease in total interest expense for the nine month period ended June 30, 2014 was primarily attributable to a $5.7 million decrease in the average balance of certificates of deposits and a 24 basis point decrease in their average cost.

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by current volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of these tables, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.


	Three Months Ended
	June 30, 2014
	Compared to
	Three Months Ended
	June 30, 2013
	Increase (Decrease) Due to
	Rate			Volume			Net
	(In thousands)
Interest Income:
Loans receivable	$	(82	)	$	77		$	(5	)
Investment securities		11			9			20

Total interest-earning assets		(71	)		86			15

Interest Expense:
NOW and money market accounts		3			—			3
Passbook and club accounts		(1	)		1			—
IRA accounts		(7	)		(3	)		(10	)
Certificates of deposit		(46	)		(18	)		(64	)
CDARS		(2	)		3			1
FHLB advances		2			2			4

		(51	)		(15	)		(66	)

Net change in net interest income	$	(20	)	$	101		$	81


	Nine Months Ended
	June 30, 2014
	Compared to
	Nine Months Ended
	June 30, 2013
	Increase (Decrease) Due to
	Rate			Volume			Net
	(In thousands)
Interest Income:
Loans receivable	$	(265	)	$	295		$	30
Investment securities		(13	)		(18	)		(31	)

Total interest-earning assets		(278	)		277			(1	)

Interest Expense:
NOW and money market accounts		(2	)		4			2
Passbook and club accounts		(4	)		2			(2	)
IRA accounts		(21	)		(7	)		(28	)
Certificates of deposit		(135	)		(64	)		(199	)
CDARS		(4	)		4			—
FHLB advances		5			5			10

		(161	)		(56	)		(217	)

Net change in net interest income	$	(117	)	$	333		$	216

Provision for Loan Losses. The provision for loan losses for the three and nine month periods ended June 30, 2014 was $25,000 and $50,000, respectively compared to $40,000 and $122,000, respectively for the comparable 2013 periods. The decrease in the provision in the 2014 periods was based on methodology used to determine an adequate level of allowance for loan losses which management believes should approximate 1.05% of total loans considering the level of non-performing loans and the absence of charge-offs.

There was $854,000 in non-accruing loans at June 30, 2014 compared to $866,000 at September 30, 2013. There were no net charge-offs for the nine months ended June 30, 2014 and 2013.

Non-Interest Income. The following tables show the components of non-interest income and the percentage changes for the three and nine month periods ended June 30, 2014 and 2013.


	Three Months Ended June 30,
	2014		2013		$ Change			% Change
Fees on deposit accounts	$	8,452	$	9,728	$	(1,276	)		(13.1	)%
Other income		37,814		16,467		21,347			129.6	%

Total non-interest income	$	46,266	$	26,195	$	20,071			76.6	%

The increase in other income was the result of a $29,000 increase in the cash surrender value of company owned life insurance policies.


	Nine Months Ended June 30,
	2014		2013		$ Change			% Change
Fees on deposit accounts	$	24,198	$	27,787	$	(3,589	)		(12.9	)%
Other income		62,734		51,211		11,523			22.5	%

Total non-interest income	$	86,932	$	78,998	$	7,934			10.0	%

Non-interest Expense. The following tables show the components of non-interest expense and the percentage changes for the three and nine month periods ended June 30, 2014 and 2013.


	Three Months Ended June 30,
	2014		2013		$ Change			% Change
Salaries and benefits	$	547,466	$	499,141	$	48,325			9.7	%
Occupancy		84,694		87,948		(3,254	)		(3.7	)%
Data processing		68,708		63,796		4,912			7.7	%
Professional fees		90,665		75,491		15,174			20.1	%
FDIC insurance premiums		18,150		17,835		315			1.8	%
Other		102,271		108,540		(6,269	)		(5.8	)%

Total non-interest expense	$	911,954	$	852,751	$	59,203			6.9	%

Salaries and benefits expense increased $48,325 for the three months ended June 30, 2014 due primarily to a $24,000 increase in retirement fund contributions and a $26,000 increase in salary and benefits expense resulting from an increase in staffing, annual raises and benefit expenses. Professional fees increased $15,174 due to additional regulatory compliance requirements. Other expense decreased $6,269 due primarily to stock-related expenses.


	Nine Months Ended June 30,
	2014		2013		$ Change			% Change
Salaries and benefits	$	1,609,654	$	1,485,514	$	124,140			8.4	%
Occupancy		264,398		280,453		(16,055	)		(5.7	)%
Data processing		202,397		187,763		14,634			7.8	%
Professional fees		250,044		216,125		33,919			15.7	%
FDIC insurance premiums		51,700		50,243		1,457			2.9	%
Other		351,627		356,959		(5,332	)		(1.5	)%

Total non-interest expense	$	2,729,820	$	2,577,057	$	152,763			5.9	%

Salaries and benefits expense increased $124,140 for the nine months ended June 30, 2014 due primarily to a $56,000 increase in retirement fund contributions, a $55,000 increase in salary and benefits expense resulting from an increase in staffing, annual raises and benefit expenses, and a $13,000 increase related to the ESOP. Occupancy expense decreased $16,055 due to lower furniture and fixtures expense. Data processing expense increased $14,634 due to an increase in vendor costs. Professional fees increased $33,919 due to additional regulatory compliance requirements.

Income Taxes. Income tax expense was $206,000 and $600,000 for the three and nine months ended June 30, 2014 compared to $203,000 and $549,000 for the comparable period in 2013. The increase in income tax expense in the 2014 period was primarily the result of an increase in pre-tax income as the effective tax rate was comparable throughout the periods at 35%.

Liquidity and Capital Resources

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, FHLB advances, loan repayments and maturities of investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents. The level of these assets depends on our operating, financing, lending and investing activities during any given period. At June 30, 2014, cash and cash equivalents totaled $11.8 million. In addition, at June 30, 2014, we had the ability to borrow a total of approximately $67.0 million from the Federal Home Loan Bank of Pittsburgh. At June 30, 2014, we had $4.5 million in FHLB advances outstanding.

At June 30, 2014, we had $14.5 million in loan commitments outstanding, which consisted of commitments to grant $2.0 million in loans, $2.4 million in commercial leases and $50,000 in lines of credit. At June 30, 2014, we had $5.6 million in undisbursed lines of credit, $3.3 million in undisbursed construction loans and $485,000 in undisbursed loans in process.

Certificates of deposit due within one year of June 30, 2014 totaled $29.7 million, representing 49.7% of certificates of deposit, and 24.3% of total deposits at June 30, 2014. We believe, based on past experience, that we will retain a significant portion of these deposits at maturity. However, if these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2015.

The Company is a separate legal entity from the Bank and provides for its own liquidity to pay its operating expenses and other financial obligations. At June 30, 2014, the Company had $496,000 in liquid assets.

Capital Management. The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

The Bank is required to maintain specific amounts of capital pursuant to Office of the Comptroller of the Currency regulatory requirements. As of June 30, 2014, the Bank was in compliance with all regulatory capital requirements, which were effective as of such date, with total risk-based capital, Tier 1 risk-based capital and core capital ratios of 24.24%, 22.99% and 14.60%, respectively. The regulatory requirements at that date were 8.0%, 4.0% and 4.0%, respectively. At June 30, 2014, the Bank was considered “well-capitalized” under applicable regulatory guidelines.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit and letters of credit. For information about our loan commitments, unused lines of credit and letters of credit, see note 5 to the consolidated financial statements included in this Form 10-Q and in the Company’s audited consolidated financial statements for the year ended September 30, 2013.

For the nine months ended June 30, 2014, the Bank did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Bank’s financial condition, results of operations or cash flows.

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

This item is not applicable as the Company is a smaller reporting company.

Item 4.

Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

The Company is not involved in any pending legal proceedings. The Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. The Bank’s management believes that such routine legal proceedings, in the aggregate, are immaterial to the Bank’s financial condition and results of operations.

Item 1A.

Risk Factors

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended September 30, 2013, as filed with the SEC on December 20, 2013. As of June 30, 2014, the risk factors of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


Period	(a) Total Number of Shares Purchased		(b) Average Price Paid Per Share		(c) Total Number of Shares as Part of Publically Announced Plans or Programs		(d) Maximum Number of Shares Yet To Be Purchased Under the Plans or Programs (1)
April 1 through April 28		—		—		—		40,717
May 1 through May 31		627	$	18.00		627		40,090
June 1 through June 30		—		—		—		40,090

Total		627				627

(1)

On February 22, 2012, the Board of Directors of the Company authorized the repurchase of up to 131,470 shares of the Company’s outstanding common stock, from time to time, depending on market conditions. The stock repurchase program will expire upon the purchase of the maximum number of shares authorized under the program, unless the board of directors terminates the program earlier.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits


3.1		Articles of Incorporation of Eureka Financial Corp. (1)

3.2		Bylaws of Eureka Financial Corp. (1)

4.0		Form of Stock Certificate of Eureka Financial Corp. (1)

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.0		Section 1350 Certification

101.0		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

(1)	Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1 (File No. 333-169767), as amended, initially filed with the Securities and Exchange Commission on October 5, 2010.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	EUREKA FINANCIAL CORP.

Dated: August 13, 2014	By:	/s/ Edward F. Seserko
		Edward F. Seserko
		President and Chief Executive Officer
		(principal executive officer)

Dated: August 13, 2014	By:	/s/ Gary B. Pepper
		Gary B. Pepper
		Executive Vice President and Chief Financial Officer
		(principal accounting and financial officer)

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