-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PDwdN9XATR4KgiDMmpHRqffgibXlRR5WA9GMb+Ba83/yy5PkeUWz8+/XAKV32o+s kvEtGflXnClL1Ad7zlygjQ== 0000946275-03-000276.txt : 20030425 0000946275-03-000276.hdr.sgml : 20030425 20030425133110 ACCESSION NUMBER: 0000946275-03-000276 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EUREKA FINANCIAL CORP CENTRAL INDEX KEY: 0001224549 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 753098403 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-50234 FILM NUMBER: 03664216 BUSINESS ADDRESS: STREET 1: 5455 FORBES AVENUE AT MCKEE PLACE CITY: PITTSBURGH STATE: PA ZIP: 15213 BUSINESS PHONE: 4126818400 MAIL ADDRESS: STREET 1: 9455 FORBES AVE OAT MCKEE PLACE CITY: PITTSBURGH STATE: PA ZIP: 15213 8-K/A 1 f8ka_043003-0244.txt FORM UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) March 31, 2003 Eureka Financial Corp. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its Charter) United States 000-50234 75-3098403 - ---------------------------- ------------------------ ------------------------ (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification Number) 3455 Forbes Avenue at McKee Place, Pittsburgh, Pennsylvania 15213 - --------------------------------------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 681-8400 -------------- Not Applicable - ------------------------------------------------------------------------------- (Former name or former address, if changed since last Report) EUREKA FINANCIAL CORP. INFORMATION TO BE INCLUDED IN REPORT ------------------------------------ Item 2. Acquisition or Disposition of Assets - ------- ------------------------------------ On March 31, 2003, Eureka Bank, a federally chartered savings bank ("Bank") , completed its stock holding company reorganization, whereby the Bank became the wholly owned subsidiary of Eureka Financial Corp., a federally chartered stock holding company (the "Registrant"). The Registrant is majority owned by Eureka Bancorp, MHC, a federal mutual holding company. On April 1, 2003, the registrant filed a Form 8-K12G3 as successor Issuer to the Bank. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits - ------- ------------------------------------------------------------------ (a) Financial Statements, Pro Forma Financial Information and Exhibits. (a)(1) Financial Statements of Business Acquired Independent Auditor's Report Balance Sheets for the years ended September 30, 2002 and 2001 Statements of Income for the years ended September 30, 2002 and 2001 Statements of Changes in Stockholders' Equity for the years ended September 30, 2002 and 2001 Statements of Cash Flows for the years ended September 30, 2002 and 2001 Notes to Financial Statements for the Years ended September 30, 2002 and 2001 Balance Sheets as of December 31, 2002 (unaudited) and September 30, 2002 Statements of Income (unaudited) for the three months ended December 31, 2002 and 2001 Statements of Cash Flows (unaudited) for the three months ended December 31, 2002 and 2001 Notes to unaudited Financial Statements (b) Pro Forma Financial Information Prior to the consummation of the holding company reorganization, the Registrant did not have any material assets or liabilities. Accordingly, no financial statements of the Registrant are included and the pro forma consolidated financial statements of the Registrant would reflect no material differences from the financial statements of the Bank. FINACIAL STATEMENTS EUREKA BANK September 30, 2002 and 2001 CONTENTS PAGE Independent Auditors' Report................................................ 1 Balance Sheets.............................................................. 2 Statements of Income........................................................ 3 Statements of Changes in Stockholders' Equity................................4 Statements of Cash Flows.................................................... 5 Notes to Financial Statements............................................... 7 INDEPENDENT AUDITORS' REPORT To the Board of Directors Eureka Bank Pittsburgh, Pennsylvania We have audited the accompanying balance sheets of Eureka Bank (the "Bank"), as of September 30, 2002 and 2001 and the related statements of income, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Eureka Bank as of September 30, 2002 and 2001 and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/Edwards Sauer & Owens Pittsburgh, Pennsylvania November 22, 2002 -1- BALANCE SHEETS EUREKA BANK
September 30, ---------------------------- 2002 2001 ------------ ------------ ASSETS Cash and due from banks $ 720,601 $ 492,118 Interest-bearing deposits in other banks 7,927,834 6,619,535 Securities available for sale 8,454,099 7,673,320 Securities held to maturity (Market values of $5,541,372 and $5,667,826 respectively) 5,144,112 5,516,138 Mortgage-backed securities, available for sale 2,583,390 3,742,466 Federal Home Loan Bank stock, at cost 382,900 313,300 Loans receivable, net 52,142,231 47,736,727 Premises and equipment, net 1,207,622 1,275,607 Other assets 703,166 682,096 ------------ ------------ Total Assets $ 79,265,955 $ 74,051,307 ============ ============ LIABILITIES AND STOCKHOLERS' EQUITY Liabilities Deposit accounts Non-interest bearing 1,466,297 1,421,531 Interest bearing 55,942,741 51,221,253 ------------ ------------ Total deposit accounts 57,409,038 52,642,784 Advances from borrowers for taxes and insurance 297,678 240,731 FHLB advances 1,000,000 1,000,000 Guarantee of employee stock ownership plan (ESOP) debt 161,802 258,205 Other liabilities 1,256,555 1,299,020 ------------ ------------ Total liabilities 60,125,073 55,440,740 Stockholders' Equity Common Stock ($.10 par value, 4,000,000 shares authorized, 1,377,810 shares issued, and 1,239,318 shares outstanding 137,781 137,781 Additional paid-in capital 6,037,703 5,930,919 Retained earnings-substantially restricted 12,891,928 12,435,203 Unearned employee stock ownership plan (ESOP) shares (161,802) (258,205) Unearned compensation-restricted stock plan (107,294) (146,568) Accumulated other comprehensive income 1,652,676 1,821,547 ------------ ------------ 20,450,992 19,920,677 Less: Treasury stock, 138,492 shares at cost (1,310,110) (1,310,110) ------------ ------------ Total stockholders' equity 19,140,882 18,610,567 ------------ ------------ Total Liabilities and Stockholders' Equity $ 79,265,955 $ 74,051,307 ============ ============
The accompanying notes are an integral part of these financial statements. -2- STATEMENTS OF INCOME EUREKA BANK
Years Ended September 30, ------------------------------ 2002 2001 ---------- ---------- Interest Income Loans $3,865,264 3,442,367 Investment securities 734,840 1,020,497 Mortgage-backed securities 210,706 281,805 ---------- ---------- Total interest income 4,810,810 4,744,669 Interest Expense Deposits 1,872,235 2,169,329 FHLB advances 56,372 57,777 Other 11,277 26,946 ---------- ---------- Total interest expense 1,939,884 2,254,052 ---------- ---------- Net Interest Income 2,870,926 2,490,617 Provision for Loan Losses 60,000 72,000 ---------- ---------- Net Interest Income after Provision for Loan Losses 2,810,926 2,418,617 Other Income Fees on Now Accounts 52,837 41,695 Other income 45,474 41,986 ---------- ---------- Total other income 98,311 83,681 Other Expenses Salaries and benefits 923,668 824,648 Occupancy expense 198,069 214,429 Computer expense 97,690 73,275 Legal and accounting 139,208 112,002 ESOP Contribution 155,113 102,034 Other 322,996 234,048 ---------- ---------- Total other expenses 1,836,744 1,560,436 ---------- ---------- Income Before Income Taxes 1,072,493 941,862 Provision for Income Taxes 237,996 221,174 ---------- ---------- Net Income $ 834,497 $ 720,688 ========== ========== Earnings per common share - BASIC $ .68 $ .59 ========== ========== Earnings per common share - DILUTED $ .66 $ .58 ========== ==========
The accompanying notes are an integral part of these financial statements. -3- STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY EUREKA BANK Years Ended September 30, 2002 and 2001
Accumulated Other Additional Unearned Unearned Compre- Common Paid-in Retained ESOP Compensation hensive Treasury Stock Capital Earnings Shares RSP Income Stock Total -------- ---------- ----------- ---------- ------------ ------------ ----------- --------- BALANCE AT September 30, 2000 $137,781 $5,916,166 $11,967,066 $ (354,670) $(186,198) $1,229,674 $ (885,095) $17,824,724 Comprehensive Income Net income 720,688 720,688 Other comprehensive income: Changes in unrealized gains on securities, net of deferred income tax of $304,905 591,873 591,873 ---------- Total Comprehensive Income 1,312,561 ---------- ESOP Shares allocated 5,569 96,465 102,034 Amortization of restricted stock plan 9,184 39,630 48,814 Dividends on common stock (252,551) (252,551) Purchase of treasury stock (425,015) (425,015) -------- ---------- ----------- --------- --------- ---------- ----------- ----------- BALANCE AT September 30, 2001 137,781 5,930,919 12,435,203 (258,205) (146,568) 1,821,547 (1,310,110) 18,610,567 Comprehensive Income Net Income 834,497 834,497 Other comprehensive income: Change in unrealized losses on securities, net of deferred income tax benefit of $86,994 (168,871) (168,871) ---------- Total Comprehensive Income 665,626 ---------- ESOP Shares allocated 58,710 96,403 155,113 Amortization of restricted stock plan 48,074 39,274 87,348 Dividends on common stock (377,772) (377,772) Purchase of Treasury Stock - - -------- ---------- ----------- --------- --------- ---------- ----------- ----------- BALANCE AT September 30, 2002 $137,781 $6,037,703 $12,891,928 $(161,802) $(107,294) $1,652,676 $(1,310,110) $19,140,882 ======== ========== =========== ========= ========= ========== =========== ===========
The accompanying notes are an integral part of these financial statements. -4- STATEMENTS OF CASH FLOWS EUREKA BANK
Years Ended September 30, -------------------------- 2002 2001 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 834,497 $ 720,688 Adjustments to reconcile net cash from operating activities: Unearned ESOP shares 155,113 102,034 Compensation expense related to RSP 87,348 48,814 Depreciation 104,846 101,052 Provision for loan loss 60,000 72,000 Net accretion/amortization of discounts and premiums on mortgage-backed securities, investment securities and loans (40,372) (23,834) Unamortized loan fees (4,091) (10,903) Increase (decrease) in cash due to changes in assets and liabilities: Other assets (21,070) 45,274 Other liabilities 44,529 (61,432) ----------- ----------- Net Cash from Operating Activities 1,220,800 993,693 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale and maturity of securities available for sale 500,000 750,000 Proceeds from maturities and redemptions of securities held to maturity 2,420,000 3,885,000 Purchase of securities available for sale (1,480,000) (2,517,613) Purchase of securities held to maturity (2,047,102) (375,000) Purchase of FHLB stock (69,600) (20,800) Net loans made to customers (4,873,201) (6,127,036) Net decrease (increase) in commercial leases 411,788 (571,464) Net paydowns in mortgage-backed securities 1,141,931 898,990 Premises and equipment expenditures (36,861) (39,968) ----------- ----------- Net Cash Used by Investing Activities (4,033,045) (4,117,891) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposit accounts 4,766,255 7,777,801 Net increase in advances from borrowers for taxes and insurance 56,947 23,124 Payment of dividends (377,772) (252,551) Repayment of ESOP loan (96,403) (96,465) Purchase of Treasury Stock -- (425,015) ----------- ----------- Net Cash From Financing Activities 4,349,027 7,026,894 ----------- ----------- Net Change in Cash and Cash Equivalents 1,536,782 3,902,696 Cash and Cash Equivalents at Beginning of Year 7,111,653 3,208,957 ----------- ----------- Cash and Cash Equivalents at End of Year $ 8,648,435 $ 7,111,653 =========== ===========
The accompanying notes are an integral part of these financial statements. -5- STATEMENTS OF CASH FLOWS (CONTINUED) EUREKA BANK Years Ended September 30, --------------------------- 2002 2001 ---------- ---------- SUPPLEMENTAL DISCLOSURE Cash payments for: Interest $1,893,409 $2,171,192 Income taxes $ 169,405 $ 284,600 NON-CASH TRANSACTIONS Recorded unrealized holding gains on securities available for sale September 30, 2002 and 2001 $2,504,054 $2,759,920 Deferred income tax on recorded unrealized gains on securities available for sale at September 30, 2002 and 2001 $ 851,378 $ 938,373 The accompanying notes are an integral part of these financial statements. -6- NOTES TO FINANCIAL STATEMENTS EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Nature of Operation: The Bank provides a variety of financial services to individuals and corporate customers through its main office located in Southwestern Pennsylvania. The Bank's primary deposit products are interest-bearing checking accounts, savings accounts and certificates of deposit. Its primary lending products are single-family residential loans, multi-family residential loans and commercial leases. Conversion to Mutual Holding Company Form of Ownership: On January 6, 1999, the Bank converted to a Mutual Holding Company form of organization. In connection with the conversion, the Bank issued and sold 647,571 shares of common stock at a price of $10 per share for a total net proceeds of $6,081,919 after conversion expenses of $393,791. The remaining 730,239 shares of common stock were issued to Eureka Bancorp, the newly formed Mutual Holding company. At the time of conversion, the Bank established a liquidation account in an amount equal to its retained income as reflected in the latest balance sheet used in the final conversion prospectus. The liquidation account is maintained for the benefit of eligible account holders who continue to maintain their deposit accounts in the Bank after conversion. In the event of a complete liquidation of the Bank (and only in such an event), eligible depositors who continue to maintain accounts shall be entitled to receive a distribution from the liquidation account before any liquidation may be made with respect to common stock. 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 discussed below or the regulatory capital requirements imposed by federal and state regulations. Restricted Cash: Under terms of a sweep account agreement with another bank, the Bank is required to maintain a minimum balance as part of the demand deposit account, to offset fees charged. As of September 30, 2002 and 2001, cash and due from banks includes cash restricted for this purpose of $175,000. Investment Securities: All investments in debt and equity securities are to be classified into three categories. Securities which management has positive intent and ability to hold until maturity are classified as held to maturity. Securities held to maturity are stated at cost, adjusted for amortization of premium and accretion of discount which are realized using the straight line method. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. All other securities are classified as available-for-sale securities. Unrealized holding gains and losses for trading securities are included in earnings. Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported net of income taxes as a separate component of stockholders' equity until realized. Interest and dividends on securities are reported as interest income. Gains and losses realized on sales of securities represent the differences between net proceeds and carrying values determined by the specific identification method. Mortgage-Backed Securities: The carrying amount of mortgage-backed securities is market value with unrealized gains and losses excluded from earnings and reported net of income taxes as a separate component of stockholders' equity. Should any be sold, gains and losses will be recognized based on the specific identification method. Amortization of premiums and accretion of discounts are realized using the level yield method. -7- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loans and Allowance for Loan Losses: Loans are stated at their unpaid principal balance less any undisbursed portion of loans, unamortized loan fees and allowances for losses. Allowances for losses on loans are established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when the loan balance exceeds the estimated net realizable value or when, in the opinion of management, current economic conditions or other factors warrant such charges. Amortization of premiums on loans are realized using the straight line method. Provisions are made for uncollected interest on loans which are delinquent in excess of ninety days. Loan origination fees, as well as certain direct origination costs, are deferred and recognized over the contractual life of the loan as an adjustment of yield (interest income). Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is generally computed on both the straight-line and accelerated methods over the estimated useful lives of the assets. Costs for maintenance and repairs are expensed currently. Costs of major additions or improvements are capitalized. Other Real Estate Owned (REO): Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of the Bank's carrying amount or fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Income Taxes: The Bank uses an asset and liability approach to financial accounting and reporting income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties. -8- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Advertising Costs: Advertising costs are expensed as incurred. Advertising expense totaled $25,056 and $29,527 for the years ended September 30, 2002 and 2001, respectively. Earnings Per Share: Basic EPS excludes dilution and is computed by dividing net income by weighted-average shares outstanding. Diluted EPS is computed by dividing net income by weighted-average shares outstanding plus potential common stock resulting from dilutive stock options and Restricted Stock Plan (RSP) shares that have not yet vested. For purposes of computing weighted-average shares outstanding, unallocated shares under the Bank's employee stock ownership plan are not considered outstanding until they are committed to be released for allocation. The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for income from continuing operations for the years ended September 30, 2002 and 2001: September 30, 2002 -------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS $ 834,497 1,218,539 $ .68 Effect of dilutive securities - 42,152 (.02) ---------- --------- -------- Diluted EPS $ 834,497 1,260,691 $ .66 ========== ========= ======== September 30, 2001 -------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS $ 720,688 1,219,032 $ .59 Effect of dilutive securities - 18,610 (.01) ---------- --------- -------- Diluted EPS $ 720,688 1,237,642 $ .58 ========== ========= ======== -9- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Equivalents: For purposes of the Statements of Cash Flows, the Bank considers all cash and amounts due from banks, interest bearing deposits in other Banks, federal funds sold, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. NOTE B - INVESTMENT SECURITIES Securities available for sale consist of the following:
September 30, 2002 ------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- FHLMC preferred stock $ 6,049,137 $ 152,862 $ (103,750) $ 6,098,249 FHLMC voting common stock 41,266 2,314,584 -- 2,355,850 ----------- ----------- ----------- ----------- $ 6,090,403 $ 2,467,446 $ (103,750) $ 8,454,099 =========== =========== =========== ===========
September 30, 2001 ------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- FHLMC preferred stock $ 5,033,356 $ 21,544 $ (120,940) $ 4,933,960 FHLMC voting common stock 41,266 2,698,094 -- 2,739,360 ----------- ----------- ----------- ----------- $ 5,074,622 $ 2,719,638 $ (120,940) $ 7,673,320 =========== =========== =========== ===========
-10- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE B - INVESTMENT SECURITIES (CONTINUED) Securities held to maturity consist of the following:
September 30, 2002 ------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- Obligations of states and political subdivisions $2,894,112 $ 206,525 $ -- $3,100,637 Government agency debentures 2,250,000 190,735 -- 2,440,735 ---------- ---------- ---------- ---------- $5,144,112 $ 397,260 $ -- $5,541,372 ========== ========== ========== ==========
September 30, 2001 ------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- Obligations of states and political subdivisions $3,416,138 $ 100,457 $ -- $3,516,595 Government agency debentures 2,100,000 51,231 -- 2,151,231 ---------- ---------- ---------- ---------- $5,516,138 $ 151,688 $ -- $5,667,826 ========== ========== ========== ==========
At September 30, 2002, all government agency debentures were pledged as security for public monies held by the Bank. The amortized cost and estimated market value of securities held to maturity at September 30, 2002, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Market Cost Value ---- ----- Due in one year or less $ -- $ -- Due after one year through five years 50,313 53,187 Due after five years through ten years 1,178,373 1,322,490 Due after ten years 3,915,426 4,165,695 ---------- ---------- $5,144,112 $5,541,372 ========== ========== Proceeds from the sales and maturities of available-for-sale and the maturities and calls of held-to-maturity securities during the years ended September 30, 2002 and 2001 were $2,920,000 and $4,635,000, with realized gains of $0 for the years ended September 30, 2002 and 2001. -11- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE C - MORTGAGE-BACKED SECURITIES The amortized cost and market values of mortgage-backed securities are summarized as follows: September 30, 2002 - Available for Sale ------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- ---------- ---------- ---------- GNMA certificates $ 4,320 $ 1,086 $ -- $ 5,406 FHLMC certificates 407,960 32,023 -- 439,983 FNMA certificates 2,030,752 107,249 -- 2,138,001 ---------- ---------- ---------- ---------- $2,443,032 $ 140,358 $ -- $2,583,390 ========== ========== ========== ========== September 30, 2001 - Available for Sale ------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- ---------- ---------- ---------- GNMA certificates $ 10,895 $ 527 $ -- $ 11,422 FHLMC certificates 592,749 41,140 -- 633,890 FNMA certificates 2,977,600 119,555 -- 3,097,154 ---------- ---------- ---------- ---------- $3,581,244 $ 161,222 $ -- $3,742,466 ========== ========== ========== ========== At September 30, 2002, all mortgage-backed securities were pledged as security for public monies held by the Bank. The amortized cost and estimated market values of mortgage-backed securities at September 30, 2002, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers have the right to repay obligations without penalty. Amounts have been rounded to the nearest dollar. Amortized Market Cost Value ---------- ---------- Due in one year or less $ -- $ -- Due after one year through five years 316,102 334,376 Due after five years through ten years 1,288,695 1,362,775 Due after ten years 838,235 886,239 ---------- ---------- $2,443,032 $2,583,390 ========== ========== -12- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE D - LOANS Major classifications of loans are as follows: September 30, ------------------------- 2002 2001 ----------- ----------- 1-4 family real estate $24,612,281 $22,346,727 Multi-family real estate 10,997,785 10,130,065 Commercial real estate 4,527,401 4,708,765 Home equity loans and second mortgages 1,367,033 1,489,407 Share loans 417,405 333,541 Unsecured improvement loans 158,089 65,494 Commercial leases 8,285,184 8,696,972 Commercial lines of credit 4,445,750 3,002,250 ----------- ----------- 54,810,928 50,773,221 Less: Undisbursed portion of loans 2,104,435 2,540,434 Unamortized loan fees 78,893 74,803 Allowance for loan losses 485,369 421,257 ----------- ----------- $52,142,231 $47,736,727 =========== =========== Changes in the allowance for loan losses were as follows: Years Ended September 30, ------------------------------ 2002 2001 --------- --------- Balance, beginning of year $ 421,257 $ 374,363 Provision charged to operations 60,000 72,000 Net recoveries / (charge-offs) 4,112 (25,106) --------- --------- Balance, end of year $ 485,369 $ 421,257 ========= ========= The Bank primarily grants loans to customers throughout Southwestern Pennsylvania. The 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 status at September 30, 2002 and 2001 approximated $293,000 and $109,000, respectively. There were no loans determined to be impaired as of September 30, 2002 and 2001 in accordance with SFAS Nos. 114 and 118. -13- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE E - PREMISES AND EQUIPMENT Premises and equipment, which are stated at cost, are as follows: September 30, ------------------------------- 2002 2001 ---------- ---------- Land, building and improvements $1,614,048 $1,614,048 Furniture and fixtures 365,242 328,381 ---------- ---------- 1,979,290 1,942,429 Less: Accumulated depreciation 771,668 666,822 ---------- ---------- $1,207,622 $1,275,607 ========== ========== Depreciation expense was $104,846 and $101,052 for the years ended September 30, 2002 and 2001, respectively. During the year ended September 30, 2001 the bank wrote-off approximately $326,000 of fully depreciated items that were no longer deemed to be in-service. NOTE F - FHLB STOCK AND ADVANCES The Bank is required to purchase common stock of the Federal Home Loan Bank (FHLB) based on a percentage of net residential mortgage loans outstanding and advances made to the Bank by FHLB, as of December 31, of each year. The amount of common stock owned was $382,900 and $313,300 at September 30, 2002 and 2001, respectively. The Bank had $1,000,000 in advances from FHLB at September 30, 2002 and 2001, respectively. The Bank pledged approximately 125% of the amount of the advances out of their general asset pool as collateral for the advances. As these advances become due, the amounts are automatically transferred from the Bank's demand deposit account placed with FHLB. The scheduled due date and the interest rate charged on the advance at September 30, 2002 is as follows: Due Date Interest Rate Amount -------- ------------- ------ November 17, 2010 5.56% $ 1,000,000 =========== -14- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE G - DEPOSIT ACCOUNTS Interest-bearing deposit accounts consisted of the following at September 30, 2002 and 2001:
Weighted September 30, Average Rate at ----------------------------------------------------- September 30, 2002 2002 2001 ------------------ ------------------------- ------------------------ Regular Passbook Savings and Christmas Club 2.29% $17,635,182 31.5% $16,995,520 33.2% NOW accounts 1.54% 4,760,801 8.5% 3,127,445 6.1% Certificate Accounts: 6 month 2.45% 10,409,551 18.6% 8,888,692 17.4% 1 year 3.19% 10,484,546 18.7% 10,059,331 19.6% 2 years 4.33% 1,412,905 2.6% 1,349,575 2.7% 3 years 5.58% 3,863,180 6.9% 3,706,585 7.2% 4 years 5.59% 972,390 1.7% 895,424 1.7% 6 years 5.93% 1,550,838 2.8% 1,584,984 3.1% 8 years 6.49% 2,593,222 4.6% 2,705,667 5.3% ---------- ----- ----------- ---- 31,286,632 55.9% 29,190,258 57.0% Individual retirement accounts 5.00% 2,260,126 4.1% 1,908,030 3.7% ----------- --- ----------- ---- Total Interest-Bearing Deposits $55,942,741 100% $51,221,253 100% =========== === =========== ===
Certificate Accounts and Individual Retirement Accounts maturing in years ending September 30, as of September 30, 2002 are summarized as follows: 2003 $25,500,694 2004 3,872,714 2005 1,696,284 2006 975,410 2007 843,196 2008 and thereafter 658,460 ----------- $33,546,758 =========== The Bank held related party deposits of approximately $110,000 and $135,000 September 30, 2002 and 2001 respectively. At September 30, 2002 and 2001, deposit accounts exceeding $100,000 amounted to $14,518,677 and $11,458,426, respectively. Deposits in excess of $100,000 are not insured by the Savings Association Insurance Fund, (reference note B and C regarding public monies). The Bank had no brokered deposits for either period presented. Interest expense on deposits consists of: Years Ended September 30, ---------------------------- 2002 2001 ---------- ---------- Regular passbook savings and Christmas Club $ 403,251 $ 450,759 NOW accounts 76,500 65,711 Certificate accounts 1,281,142 1,542,466 Individual Retirement accounts 111,342 110,393 ---------- ---------- $1,872,235 $2,169,329 ========== ========== -15- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE H - PENSION PLAN The Bank is a participant in the Financial Institutions Retirement Fund (FIRF). FIRF is a multi-employer defined benefit retirement program, which has as its participating employers thrift institutions such as the Bank. The plan covers substantially all employees. FIRF utilizes a common trust fund wherein separate valuations are not made for each participating employer, nor are assets, liabilities or costs segregated by employer. As a result, disclosure of the accumulated benefit obligations, plan assets and the components of annual pension expense attributable to the Bank, required by Statement of Financial Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS 132)" are not reported. For the year ended September 30, 2001, their were no pension contributions charged to operating expenses, as the Bank was advised that there was no accumulated underfunded pension liability. The Bank has since been informed that as of June 30, 2003, (the plan year end for the retirement plan), the Bank's portion of an accumulated underfunded pension liability is projected to be approximately $60,000. In anticipation of a projected underfunded liability, for the year ended September 30, 2002, the Bank has charged a pension contribution of $12,500 to operating expenses, representing the first quarter charge of the projected underfunded liability. NOTE I - RETIREMENT SAVINGS PLAN The Bank has established the Eureka Bank (formerly Eureka Federal) Retirement Savings Plan which covers substantially all of its employees. The plan is a qualified 401 (k) Salary Reduction Plan that permits participants to contribute up to ten percent (10%) of their salary to the plan. Additionally, the Bank provided matching contributions of 125% of the first 6% contributed through the period ended December 31, 1998 at which time contributions were suspended indefinitely. During the years ended September 30, 2002 and 2001, there were no contributions by the Bank to the plan. These funds were invested at the Bank until December 31, 1998, at which time they were used to purchase stock in the Bank. All earnings on the stock are invested at the Bank. NOTE J - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) An Employee Stock Ownership Plan (ESOP) exists for all employees who have completed one year of service and have attained the age of 21. The ESOP borrowed $518,060 from a third party lender with the Bank guaranteeing repayment and used the funds to purchase 51,806 shares of common stock of the Bank issued in the offering. The loan will be repaid principally from the Bank's contributions to the ESOP over a period of 10 years. On September 30, 2002, the loan had an outstanding balance of $161,802 and an interest rate of 4.75%. The loan obligation of the ESOP is considered unearned compensation and, as such, recorded as a reduction of the Bank's stockholders' equity. Both the loan obligation and the unearned compensation are reduced by the amount of the loan repayments made by the ESOP. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants on the basis of compensation in the year of allocation. Benefits become fully vested at the end of 5 years of service under the terms of the ESOP Plan. Benefits may be payable upon retirement, death, disability, or separation from service. Since the Bank's annual contributions are discretionary, benefits payable under the ESOP cannot be estimated. -16- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE J - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) (CONTINUED) Minimum annual principal payments due on the ESOP loan are as follows: Year Ended September 30, Amount ------------------------ ------ 2003 $ 51,806 2004 51,806 2005 51,806 2006 6,384 -------- Total $161,802 ======== At September 30, 2002 and 2001, 28,045 and 18,482 ESOP shares, respectively, were allocated to the participating employees. The Bank is recognizing as compensation expense the fair market value of the Bank's common stock scheduled to be allocated to participating employees. Compensation expense recognized by the Bank during the years ended September 30, 2002 and 2001 was $155,113 and $102,034, respectively. NOTE K - STOCK OPTION PLAN In July 1999, the Bank approved a stock option plan (the "Option Plan") whereby 64,757 authorized shares are reserved for issuance by the Bank upon exercise of stock options granted to officers, directors, and employees of the Bank from time to time. Options constitute both incentive stock options and nonqualified stock options. Options awarded are exercisable at a rate of 20% annually with the first 20% excercisable on the one-year anniversary of the date of grant. Any shares subject to an award which expires or is terminated unexercised will again be available for issuance. The Option Plan has a term of ten years, unless sooner terminated. The exercise price for the purchase of shares subject to an incentive stock option may not be less than 100 percent of the fair market value of the common stock on the date of grant of such option. The exercise price per share for nonqualified stock options shall be the price as determined by an option committee, but not less than the fair market value of the common stock on the date of the grant. Stock option activity is a follows: Year ended September 30, --------------------------- 2002 2001 ------------- ------------ Options outstanding at beginning of year 64,757 64,757 Options granted - - Options exercised - - Options canceled - - ------------- ----------- Options outstanding at end of year 64,757 64,757 ============= =========== Options exercisable at end of year 32,372 21,362 ============= =========== -17- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE K - STOCK OPTION PLAN (CONTINUED) Weighted-average option prices per share: Options outstanding at beginning of year $ 8.50 $ 8.50 Options granted during the year - - Options exercised during the year - - Options canceled during the year - - Options outstanding at end of year $ 8.50 $ 8.50 The options outstanding at September 30, 2002 had a weighted-average contractual maturity of 6.80 years and an exercise price of $8.50. The per share weighted-average fair value of stock options granted with an exercise price equal to market for the year ended September 30, 2002 was $6.18, using the Black Scholes option pricing model with the following weighted-average assumptions for 2002: expected life of 3.75 years, expected annual dividend rate of 7.85%, risk-free interest rate of 3.86%, and an expected volatility of 24%. The Bank applies Accounting Principles Board Opinion No. 25 in accounting for stock options. Had the Bank determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Bank's net income would have been reduced to the pro forma amounts indicated below: Year ended September 30, -------------------------------- 2002 2001 ------------ ------------- Net income: As reported $ 834,497 $ 720,688 Pro Forma $ 702,458 $ 671,341 Net income per share: As reported: Basic $ 0.68 $ 0.59 Diluted $ 0.66 $ 0.58 Pro Forma: Basic $ 0.58 $ 0.55 Diluted $ 0.56 $ 0.54 -18- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE L- RESTRICTED STOCK PLAN In July 1999, the Bank established a Restricted Stock Plan ("RSP"). Under the terms of the RSP, a total of 25,900 shares of the Bank's common stock is available for the granting of awards to officers, directors and employees during a period of five years, unless sooner terminated. Stock awarded is earned at a rate of 20% annually with the first 20% earned on the one-year anniversary of the date of grant. The market value of the common stock at the date of award is included as a reduction of stockholders' equity in the balance sheet and is recorded as compensation expense using the straight-line method over the vesting period of the awards. The awards vest pro rata over five years at each anniversary of the award. On July 19, 1999, 25,900 shares of the Bank's common stock were awarded under the RSP. The fair market value of the Bank's stock on July 19, 1999, was $8.50 per share. Aggregate compensation expense with respect to the foregoing awards was approximately $87,000 and $48,000 for the years ended September 30, 2002 and 2001, respectively. Summary information regarding outstanding RSP awards at September 30, 2002 is presented below: Period in which Market Value Shares Subject Vesting Awards granted at award date to award period -------------- ------------- -------------- ------ Year ended September 30, 1999 $ 8.50 25,900 5 Years NOTE M - DEFERRED COMPENSATION ARRANGEMENTS The Bank has in place a non-qualified deferred compensation arrangement with participating members of management under which future defined benefits are funded principally by individual life insurance policies. An actuarially determined charge, which is included in other operating expense, is made each year based on the future benefits to be paid under the plan. The amounts accrued during the years ended September 30, 2002 and 2001, were approximately $14,000 and $13,000, respectively. NOTE N - COMMITMENTS In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit. These commitments involve, to varying degrees, elements of credit risk in excess of amounts recognized in the balance sheets. Loan commitments are made to accommodate the financial needs of the Bank's customers. These arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Bank'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. The Bank's maximum exposure to credit loss for loan and lease commitments (unfunded loans and leases) at September 30, 2002 and 2001, was approximately $4,307,000 and $6,520,000 respectively with fixed rates of interest ranging from 6% to 8 1/2% and 6 7/8% to 8 1/4%, respectively. There were no commitments to purchase investment securities at September 30, 2002 and 2001. -19- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE O - INCOME TAXES The provision for income taxes consist of: Years Ended September 30, ------------------------- 2002 2001 --------- --------- Federal currently payable $ 238,417 $ 184,288 State currently payable 27,000 51,000 Deferred tax benefit (27,421) (14,114) --------- --------- Total $ 237,996 $ 221,174 ========= ========= State tax liabilities reflect tax credits recovered by the bank for participating in the Educational Improvement Tax Credit Program.
Years Ended September 30, ---------------------------------------------------- 2002 2001 ---------------------- ---------------------- Reconciliation of federal effective rate % of % of Pretax Pretax Amount Income Amount Income -------- --------- -------- --------- Provision at statutory rate $355,467 34.00 % $302,893 34.00 % Effect of tax free income (73,827) (7.06)% (74,314) (8.34)% Dividends received deduction (74,858) (7.16)% (64,654) (7.26)% Other 4,214 .40 % 6,249 .70 % -------- --------- -------- --------- Actual tax expense and effective rate $210,996 20.18 % $170,174 19.10 % ======== ========= ======== =========
The deferred tax assets and deferred tax liabilities recorded on the balance sheet are as follows: September 30, 2002 September 30, 2001 ----------------------- --------------------- Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Provision for loan losses $115,903 $ $ 95,504 $ - Depreciation 9,846 12,896 - Deferred loan fees 55,988 47,713 - Other 38,727 29,139 - Deferred loan costs 20,916 - 13,261 SFAS 115 851,378 - 938,373 -------- -------- -------- -------- $220,464 $872,294 $185,252 $951,634 ======== ======== ======== ======== The Bank is permitted a special bad debt deduction for federal income tax purposes which is limited generally in the current year to an amount calculated under the experience method as defined in Section 585 of the Internal Revenue Code. With the passage of the Small Business Jobs Protection Act of 1996, thrift institutions are no longer permitted to use the percentage of taxable income method of computing additions to their bad debt reserves as provided for in Code Section 593. In addition, the excess of the thrift's bad debt reserves over those permitted, as defined under the provisions of the new act, are required to be recaptured into income for federal income tax purposes beginning in calendar years after 1995 over a six year period. Excess reserves are those reserves in excess of the base year reserves generally defined as the balance of reserves as of December 31, 1987. In accordance with SFAS 109, "Accounting for Income Taxes", a deferred liability has not been established for the tax bad debt base year reserves of the bank, as described in the preceding paragraph. The Bank determined that it had no excess reserves for which recapture income was required to be reported in its federal income tax return for calendar year 1996 and future years. -20- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE P - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and cash equivalents: The carrying amount is a reasonable estimate of fair value. Investment securities: The fair value of securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Federal Home Loan Bank Stock: The carrying value of the FHLB stock is a reasonable estimate of fair value due to restrictions on the securities. Loans receivable: For certain homogeneous categories of loans, fair value is estimated using the quoted market prices for securities backed by similar loans adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers for the same remaining maturities. Deposit liabilities: The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair market of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. 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. Federal Home Loan Bank Advances and ESOP Loan: The fair value of FHLB advances was determined using the FHLB pricing table as of 9/30/02, while the ESOP loan was valued using a discounted cash flow analysis based on current rates for advances with similar maturities. The estimated fair value of the Bank's financial instruments are as follows: September 30, 2002 -------------------------- Carrying Fair Amount Value ------ ----- Financial assets: Cash and cash equivalents $ 8,648,436 $ 8,648,436 Investments and mortgage backed securities $16,181,601 $16,578,861 Federal Home Loan Bank stock $ 382,900 $ 382,900 Loans receivable, net $52,142,231 $54,983,000 Financial liabilities: Deposits $57,409,038 $58,078,000 Advances from borrowers for taxes and insurance $ 297,678 $ 297,678 FHLB advances and ESOP loan $ 1,161,802 $ 1,320,000 The market values of investments, which are based upon quoted market prices are contained in Note B. -21- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE Q - CONCENTRATION OF CREDIT The Bank primarily grants loans to customers in Southwestern Pennsylvania, and maintains a diversified loan portfolio and the ability of its debtors to honor their contracts is not substantially dependent on any particular economic business sector. A substantial portion of the Bank's investments in municipal securities are obligations of state or political subdivisions located within Pennsylvania. As a whole, the Bank's loan and investment portfolios could be affected by the general economic conditions of Pennsylvania. In addition, as of September 30, 2002 and 2001, a significant portion of the Bank's "due from banks" was maintained with large financial institutions located in Southwestern Pennsylvania. The Bank maintains cash balances with financial institutions that exceed the $100,000 amount that is insured by the FDIC. Amounts in excess of insured limits, per the institution's records, were approximately $8,327,000 and $6,337,000 at September 30, 2002 and 2001, respectively. Of those amounts, approximately $1,287,000 and $1,404,000 were on deposit at the FHLB at September 30, 2002 and 2001, respectively. NOTE R - CAPITAL REQUIREMENTS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet maximum 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 judgements by the regulators about components, risk weightings and other factors. As of July 2, 2001, the most recent notification from the Office of Thrift Supervision (OTS) categorized the Bank as " well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Bank must maintain minimum total risk based, 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: -22- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE R - CAPITAL REQUIREMENTS (CONTINUED) September 30, 2002 ----------------------------------- Percent of Adjusted Amount Total Assets ------ ------------ (thousands of dollars) GAAP capital $ 19,141 24.89% =============== ========= Tangible capital 17,581 22.86% Tangible capital requirement 2,301 3.00% --------------- --------- Excess $ 15,280 19.86% =============== ========= Core capital $ 17,581 22.86% Core capital requirement 2,301 3.00% --------------- --------- Excess $ 15,280 19.86% =============== ========= Risk-based capital $ 19,130 40.56% Minimum risk-based capital requirement 3,773 8.00% --------------- --------- Excess $ 15,357 32.56% =============== ========= Risk-based capital at September 30, 2002 includes supplementary capital of $485,000, representing the general valuation portion of the allowance for loan losses. The 40.56% above represents risk-based capital as a percentage of total risk-weighted assets and not adjusted total assets. NOTE S - RECENT ACCOUNTING PRONOUNCEMENTS In April 2002, the FASB issued FASB 145, a recission of FASB statements 4, 44 and 64 and an amendment of FASB 13. This statement requires that all debt extinquishments be evaluated for proper presentation using the criteria establish in APB 30. In FASB 4 (amended by FASB 64), all debt extinquishments were tested as extraordinary items on the income statement. In addition, requirements under FASB 13 are expanded to include all lease modifications that have a similar economic impact as sales-lease back transactions. This statement is effective for all statements issued on or after May 15, 2002. This statement has no current impact on the Bank. In June 2002, the FASB issued FASB 146, which clarifies conflicting guidance in EITF (Emerging Issues Task Force) 94-3 and FASB Concepts Statement No. 6, Elements of Financial Statements. FASB 146 requires that costs associated with exit or disposal activities be recognized only when the liability associated with those costs is incurred, in keeping with FASB Concepts Statement No. 6. EITF 94-3 stated that costs associated with exit or disposal activities could be recognized at a plan or commitment date. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. This statement has no current impact on the Bank. -23- NOTES TO FINANCIAL STATEMENTS (CONTINUED) EUREKA BANK Years Ended September 30, 2002 and 2001 NOTE S - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) In October 2002, the FASB issued FASB 147, which amends FASB's 72 and 144 and FASB Interpretation No. 9. FASB 147 states that the unidentifiable asset that is required to be reorganized under FASB 72 is goodwill and should be accounted for using the guidance provided in FASB 142. In addition, this statement expands FASB 144 to include in its scope long-term customer relationship intangible assets of financial institutions such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. All portions of this statement are effective for transactions initiated after October 1, 2002. The Bank has not yet determined the impact of FASB 147. -24- BALANCE SHEET EUREKA BANK
December 31, September 30, 2002 2002 ----------- ----------- ASSETS (Unaudited) Cash and due from banks $550,073 $720,601 Interest-bearing deposits in banks 6,450,476 7,927,834 Securities available-for-sale 8,666,603 8,454,099 Securities held-to-maturity (Market values of $6,130,597 and $5,541,372 respectively) 5,894,272 5,144,112 Mortgage-backed securities, available-for-sale 2,244,600 2,583,390 Federal Home Loan Bank stock, at cost 238,200 382,900 Loans receivable, net 52,001,666 52,142,231 Premises and equipment, net 1,180,715 1,207,622 Other assets 712,812 703,166 ----------- ----------- Total Assets $77,939,417 $79,265,955 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposit accounts Non-interest bearing $1,294,586 $1,466,297 Interest bearing 54,221,511 55,942,741 ----------- ----------- Total deposit accounts 55,516,097 57,409,038 Advances from borrowers for taxes & insurance 500,090 297,678 Other liabilities 1,449,026 1,256,555 FHLB advances 1,000,000 1,000,000 Guarantee of employee stock ownership plan (ESOP) debt 145,276 161,802 ----------- ----------- Total liabilities 58,610,489 60,125,073 Stockholders' Equity Common Stock ($0.10 par value) 4,000,000 shares authorized, 1,377,810 shares issued, 1,240,983 and 1,239,318 shares outstanding as of December 31, 2002 and September 30, 2002, respectively. 137,781 137,781 Additional paid-in-capital 6,060,616 6,037,703 Retained earnings-substantially rstricted 12,888,198 12,891,928 Unearned employee stock ownership plan (ESOP) shares (145,276) (161,802) Unearned compensation-restricted stock plan (98,076) (107,294) Accumulated other comprehensive income net of applicable income taxes of $917,492 and $851,378, respectively. 1,781,014 1,652,676 Treasury stock (136,827 and 138,492 shares at cost) (1,295,329) (1,310,110) ----------- ----------- Total stockholders' equity 19,328,928 19,140,882 Total Liabilities and Stockholders' Equity $77,939,417 $79,265,955 =========== ===========
1 STATEMENTS OF INCOME EUREKA BANK Three Months Ended December 31, (Unaudited) 2002 2001 ---------- ---------- Interest Income Loans $ 939,868 $ 961,173 Investment securities 215,148 192,276 Mortgage-backed securities 38,877 60,794 ---------- ---------- Total interest income 1,193,893 1,214,243 Interest Expense Deposits 425,901 518,337 FHLB advances 14,209 14,209 Other 1,937 4,200 ---------- ---------- Total interest expense 442,047 536,746 ---------- ---------- Net Interest Income 751,846 677,497 Provision for Loan Losses 0 11,000 ---------- ---------- Net Interest Income after Provision for Loan Losses 751,846 666,497 Other Income 31,792 25,066 Other Expenses Salaries and benefits 267,310 216,847 Occupancy expense 49,294 47,390 Computer expense 25,833 20,855 Legal and accounting 43,632 31,194 ESOP Contribution 36,700 65,062 Other 79,457 59,270 ---------- ---------- Total other expenses 502,226 440,618 ---------- ---------- Income Before Income Taxes 281,412 250,945 Provision for Income Taxes 66,000 63,567 ---------- ---------- Net Income $ 215,412 $ 187,378 ========== ========== Basic Earnings Per Share $ 0.17 $ 0.15 ========== ========== Diluted Earnings Per Share $ 0.17 $ 0.15 ========== ========== 2 STATEMENTS OF CASH FLOWS EUREKA BANK
Three Months Ended December 31, (Unaudited) 2002 2001 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 215,412 $ 187,378 Adjustments to reconcile net cash from operating activities: Unearned ESOP shares 49,079 58,397 Compensation expense related to RSOP 19,281 20,704 Depreciation 26,907 26,617 Provision for loan loss 0 11,000 Net accretion/amortization of discounts and premiums on mortgage-backed and investment securities (14,884) (17,428) Unamortized loan fees and costs (14,570) (10,217) Increase/(decrease) in cash due to changes in assets and liabilities: Other assets (9,646) 7,779 Other liabilities 106,652 95,189 ----------- ----------- Net Cash from Operating Activities 378,231 379,419 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities and redemption of securities held-to-maturity 0 1,000,000 Proceeds from redemption of FHLB stock 144,700 0 Purchase of securities held-to-maturity (750,000) 0 Net increase in loans made to customers (58,454) (2,844,960) Net commercial leases (originated)/repaid 213,590 (1,016,411) Net paydowns in mortgage-backed securities 335,463 289,450 Premises and equipment expenditures 0 (10,763) ----------- ----------- Net Cash Used by Investing Activities (114,701) (2,582,684) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposit accounts (1,892,941) 1,223,038 Net increase in advances from borrowers for taxes and insurance 202,412 217,169 Repayment of ESOP loan (16,526) (42,450) Reissuance of treasury stock 14,781 0 Payment of dividends (219,142) (159,378) ----------- ----------- Net Cash from Financing Activities (1,911,416) 1,238,379 ----------- ----------- Net Change in Cash and Cash Equivalents (1,647,886) (964,886) Cash and Cash Equivalents at Beginning of Period 8,648,435 7,111,653 ----------- ----------- Cash and Cash Equivalents at End of Period $ 7,000,549 $ 6,146,767 =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the period for: Interest on deposits and borrowings $ 436,955 $ 527,701 =========== =========== Income taxes $ 55,265 $ 17,635 =========== ===========
3 EUREKA BANK NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and, therefore, do not necessarily include all information that would be included in audited financial statements. The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations. All such adjustments are of a normal recurring nature. The results of operations for the three months ended December 31, 2002, are not necessarily indicative of the results to be expected for the year ending September 30, 2003 or any other interim period. The interim financial statements and the following discussion should be read in conjunction with the financial statements and footnotes thereto included in Eureka Bank's (the "Bank") Annual Report on Form 10-KSB for the fiscal year ended September 30, 2002. Prior period accounts were reclassified to conform to current period classifications. NOTE B - COMPREHENSIVE INCOME For the three months ended December 31, 2002 and 2001, comprehensive income totaled $343,750 and $200,445, respectively. NOTE C -AVAILABLE FOR SALE SECURITIES The securities available for sale consisted of the following: December 31, 2002 ----------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- --------- ------- --------- FHLMC preferred Stock 6,063,082 204,918 (90,000) 6,178,000 FHLMC voting common Stock 41,266 2,447,337 -- 2,488,603 --------- --------- ------- --------- Totals: 6,104,348 2,652,255 (90,000) 8,666,603 ========= ========= ======= ========= 4 The mortgage-backed securities available for sale consisted of the following: December 31, 2002 ----------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- --------- ------- --------- GNMA certificates 4,160 195 -- 4,355 FHLMC certificates 376,683 32,313 -- 408,996 FNMA certificates 1,727,506 103,743 -- 1,831,249 --------- ------- ------- --------- Totals: 2,108,349 136,251 -- 2,244,600 ========= ======= ======= ========= NOTE D - EARNINGS PER SHARE Earnings per share are computed by dividing net income by the weighted average number of common shares and common stock equivalents outstanding during the period. Weighted average shares outstanding for the three month periods ended December 31, 2002, and 2001, were 1,223,663 and 1,214,443, respectively. For these periods, such shares do not include 14,527 and 21,576 shares, respectively, of Bank Common Stock purchased and held by the Bank's employee stock ownership plan ("ESOP") that were unallocated during those periods in accordance with SOP 93-6 "Employers Accounting for Employee Stock Ownership Plans" and SFAS 128 "Earnings Per Share". NOTE E - SUBSEQUENT EVENTS Agreement and Plan of Reorganization. At the Annual Meeting of Stockholders on January 27, 2003, the Bank's Stockholders approved an Agreement and Plan of Reorganization (the Plan or Reorganization), providing for the establishment of a mid-tier stock holding company. The Plan provided for the establishment of Eureka Financial Corp. (the Mid-Tier Stock Holding Company) as a stock holding company parent of the Bank; the Mid-Tier Stock Holding Company will be a majority owned subsidiary of Eureka Bancorp, MHC, the Bank's mutual holding company. The former holders of the common stock of the Bank will become stockholders of the Mid-Tier Stock Holding Company and each outstanding share of common stock (par value $.10 per share) of the Bank will be converted into shares of common stock of the Mid-Tier Stock Holding Company on a one-for-one basis. The Reorganization, which has received regulatory approval, is expected to be completed near the end of the first quarter of 2003. 5 (c) Exhibits 2.0 Agreement and Plan of Reorganization* 3.1 Federal Stock Charter* 3.2 Bylaws* 4.0 Form of Stock Certificate* 99 Press Release dated April 1, 2003* ---------------------------------------------------- * Incorporated by reference to the identically numbered exhibit on Form 8-K filed with the Commission on April 1, 2003. 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, hereunto duly authorized. Eureka Financial Corp. Date: April 24, 2003 By: /s/Edward F. Seserko ------------------------------------- Edward F. Seserko President and Chief Executive Officer (Duly Authorized Officer) -----END PRIVACY-ENHANCED MESSAGE-----