Eureka Financial 10-Q 2013 Q2 Quarterly report

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 March 31, 2013

OR

¨ 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):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

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 May 13, 2013, there were 1,291,448 shares of the registrant’s common stock outstanding.

EUREKA FINANCIAL CORP.

Table of Contents

	Page Number
PART I—FINANCIAL INFORMATION
Item 1: Financial Statements		1
Consolidated Balance Sheets as of March 31, 2013 and September 30, 2012 (unaudited)		1
Consolidated Statements of Income for the Three and Six Months Ended March 31, 2013 and 2012 (unaudited)		2
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2013 and 2012 (unaudited)		3
Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended March 31, 2013 (unaudited)		4
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2013 and 2012 (unaudited)		5
Notes to Consolidated Financial Statements (unaudited)		6
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3: Quantitative and Qualitative Disclosures About Market Risk		29
Item 4: Controls and Procedures		29
PART II—OTHER INFORMATION
Item 1: Legal Proceedings		30
Item 1A: Risk Factors		30
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 3: Defaults Upon Senior Securities		31
Item 4: Mine Safety Disclosures		31
Item 5: Other Information		31
Item 6: Exhibits		31
SIGNATURES		32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Balance Sheets

(unaudited)

	March 31, 2013			September 30, 2012
Assets:
Cash and due from banks	$	635,904		$	583,633
Interest-bearing deposits in other banks		9,556,932			7,525,961
Cash and Cash Equivalents		10,192,836			8,109,594
Investment securities available for sale		2,240,776			—
Investment securities held to maturity (fair value of $5,094,473 and $13,975,782, respectively)		5,025,306			13,873,592
Mortgage-backed securities available for sale		13,433			15,813
Federal Home Loan Bank stock, at cost		372,500			502,600
Loans receivable, net of allowance for loan losses of $1,224,038 and $1,142,038, respectively		118,252,639			112,440,299
Premises and equipment, net		1,211,481			1,214,909
Deferred tax asset, net		995,413			994,070
Accrued interest receivable and other assets		1,443,655			1,338,283
Total Assets	$	139,748,039		$	138,489,160
Liabilities and Stockholders’ Equity:
Deposits:
Non-interest bearing	$	4,280,160		$	4,107,787
Interest bearing		111,090,789			110,388,759
Total deposits		115,370,949			114,496,546
Advances from borrowers for taxes and insurance		429,293			517,517
Accrued interest payable and other liabilities		1,378,118			1,089,109
Total Liabilities		117,178,360			116,103,172
Stockholders’ Equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 1,297,697 and 1,325,397 shares outstanding		12,976			13,452
Paid-in capital		11,315,333			11,717,129
Retained earnings—substantially restricted		11,732,796			11,164,708
Accumulated other comprehensive (loss) income		(4,097	)		1,019
Unearned ESOP shares		(487,329	)		(510,320	)
Total Stockholders’ Equity		22,569,679			22,385,988
Total Liabilities and Stockholders’ Equity	$	139,748,039		$	138,489,160

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

1

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Income

(unaudited)

	Three Months Ended March 31,				Six Months Ended March 31,
	2013		2012		2013		2012
Interest Income
Loans, including fees	$	1,614,933	$	1,569,751	$	3,191,885	$	3,121,960
Investment securities and other interest-earning assets:
Taxable		60,285		176,891		150,080		340,784
Tax exempt		19,397		7,296		35,612		17,614
Mortgage-backed securities		234		244		483		714
Total Interest Income		1,694,849		1,754,182		3,378,060		3,481,072
Interest Expense
Deposits		293,493		327,471		605,313		670,626
Total Interest Expense		293,493		327,471		605,313		670,626
Net Interest Income		1,401,356		1,426,711		2,772,747		2,810,446
Provision for Loan Losses		42,000		30,000		82,000		50,000
Net Interest Income after Provision for Loan Losses		1,359,356		1,396,711		2,690,747		2,760,446
Non-Interest Income
Fees on deposit accounts		8,226		8,810		18,059		17,611
Other income		8,332		10,063		34,746		21,644
Total Non-Interest Income		16,558		18,873		52,805		39,255
Non-Interest Expense
Salaries and benefits		511,913		475,243		986,373		910,447
Occupancy		86,023		93,163		192,505		182,360
Data processing		61,795		63,065		123,967		109,066
Professional fees		71,701		68,489		140,635		131,632
FDIC insurance premiums		15,510		13,710		32,408		27,183
Other		116,005		77,211		248,419		185,263
Total Non-Interest Expense		862,947		790,881		1,724,307		1,545,951
Income Before Income Tax Provision		512,967		624,703		1,019,245		1,253,750
Income Tax Provision		172,563		234,477		345,726		475,277
Net Income	$	340,404	$	390,226	$	673,519	$	778,473
Earnings per Common Share—Basic and Diluted	$	0.28	$	0.31	$	0.54	$	0.62

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

2

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EUREKA FINANCIAL CORP. AND SUBSIDIARY

Statements of Comprehensive Income

(unaudited)

	For the Three Months Ended						For the Six Months Ended
	March 31,						March 31,
	2013			2012			2013			2012
Net income	$	340,404		$	390,226		$	673,519		$	778,473
Other comprehensive loss:
(Decrease) in unrealized gains on available for sale securities		(7,610	)		(75	)		(7,752	)		(489	)
Income tax effect		2,588			25			2,636			166
Other comprehensive loss, net of tax:		(5,022	)		(50	)		(5,116	)		(323	)
Total comprehensive income	$	335,382		$	390,176		$	668,403		$	778,150

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

3

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity

For the Six Months Ended March 31, 2013

(unaudited)

	Shares Outstanding			Common Stock			Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned ESOP Shares			Total
Balance, September 30, 2012		1,325,397		$	13,452		$	11,717,129		$	11,164,708		$	1,019		$	(510,320	)	$	22,385,988
Net income		—			—			—			673,519			—			—			673,519
Other comprehensive income		—			—			—			—			(5,116	)		—			(5,116	)
Compensation expense related to restricted stock		—			—			39,564			—			—			—			39,564
Compensation expense related to stock options		—			—			8,670			—			—			—			8,670
ESOP shares earned		—			—			19,744			—			—			22,991			42,735
Purchase and retirement of common stock		(27,700	)		(476	)		(469,774	)		—			—			—			(470,250	)
Dividends paid		—			—			—			(105,431	)		—			—			(105,431	)
Balance, March 31, 2013		1,297,697		$	12,976		$	11,315,333		$	11,732,796		$	(4,097	)	$	(487,329	)	$	22,569,679

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

4

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended
	March 31,
	2013			2012
OPERATING ACTIVITIES
Net income	$	673,519		$	778,473
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		47,729			83,830
Provision for loan losses		82,000			50,000
Net accretion/amortization of discounts and premiums on securities and unamortized loan fees and costs		512			(29,271	)
Compensation expense for ESOP, restricted stock, and stock options		90,969			48,849
Deferred tax expense		1,293			302,887
Decrease in accrued interest receivable		102,764			10,171
Increase other assets		(208,136	)		(50,085	)
Decrease in accrued interest payable		(13,952	)		(49,804	)
Increase in other liabilities		302,961			137,812
Net cash provided by operating activities		1,079,659			1,282,862
INVESTING ACTIVITIES
Proceeds from maturities and redemptions of investment securities held to maturity		10,200,000			10,505,000
Purchase of investment securities available for sale		(2,250,000	)		—
Purchase of investment securities held to maturity		(1,350,000	)		(9,450,000	)
Net paydowns in mortgage-backed securities		1,626			7,708
Redemption of FHLB stock		130,100			63,300
Net increase in loans		(1,320,000	)		(4,015,443	)
Commercial leases purchased		(4,574,340	)		(1,074,104	)
Premises and equipment expenditures		(44,301	)		(143,290	)
Net cash provided by (used for) investing activities		793,085			(4,106,829	)
FINANCING ACTIVITIES
Net increase in deposit accounts		874,403			166,845
Net (decrease) increase in advances from borrowers for taxes and insurance		(88,224	)		72,173
Purchase and retirement of common stock		(470,250	)		(46,997	)
Payment of dividends		(105,431	)		(92,030	)
Net cash provided by financing activities		210,498			99,991
Net increase (decrease) in cash and cash equivalents		2,083,242			(2,723,976	)
CASH AND CASH EQUIVILENTS AT BEGINNING OF YEAR		8,109,594			11,347,761
CASH AND CASH EQUIVILENTS AT END OF OF PERIOD	$	10,192,836		$	8,623,785
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Interest paid	$	619,265		$	702,430
Income taxes paid	$	155,000		$	—

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

5

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, 2012, as contained in the Company’s Annual Report on Form 10-K filed with the SEC on December 28, 2012.

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.

6

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 months ended March 31, 2013 and 2012.

	For the Three Months Ended						For the Six Months Ended
	March 31,						March 31,
	2013			2012			2013			2012
Net Income	$	340,404		$	390,226		$	673,519		$	778,473
Weighted average common shares outstanding		1,310,961			1,259,689			1,317,270			1,259,632
Average unearned ESOP shares		(47,871	)		(18,730	)		(56,042	)		(54,981	)
Average unearned restricted shares		(21,646	)		—			(22,446	)		—
Weighted average common shares used to calculate basic earnings per share		1,234,044			1,259,539			1,238,789			1,259,632
Additional common stock equivilents used to calculate diluted earnings per share		3,212			—			668			—
Weighted average common shares used to calculate basic and diluted earnings per share		1,237,256			1,259,539			1,239,449			1,259,632
Basic and diluted earnings per share	$	0.28		$	0.31		$	0.54		$	0.62

Options to purchase 64,907 shares of common stock at a price of $15.24 per share were outstanding during the periods ended March 31, 2013 and 2012 but were not included in the computation of diluted earnings per share because doing so would be anti-dilutive as the weighted average exercise prices were in excess of the weighted average market value for the periods presented.

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—Investment Securities

Investment securities available for sale consisted of the following at March 31, 2013. There were no securities available for sale at September 30, 2012:

	March 31, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(unaudited)
U.S. Government agency securities	$	2,247,769	$	—	$	(6,993	)	$	2,240,776

The amortized cost and fair value of securities available for sale at March 31, 2013 is 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.

7

	March 31, 2013
	Amortized		Fair
	Cost		Value
	(unaudited)
Due after ten years	$	2,247,769	$	2,240,776

Investment securities held to maturity consisted of the following at March 31, 2013 and September 30, 2012:

	March 31, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(unaudited)
Obligations of states and political subdivisions	$	2,025,306	$	88,115	$	(12,423	)	$	2,100,998
U.S. Government agency securities		3,000,000		—		(6,525	)		2,993,475
Total	$	5,025,306	$	88,115	$	(18,948	)	$	5,094,473

	September 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Obligations of states and political subdivisions	$	1,425,468	$	28,878	$	(2,029	)	$	1,452,317
U.S. Government agency securities		12,448,124		78,029		(2,688	)		12,523,465
Total	$	13,873,592	$	106,907	$	(4,717	)	$	13,975,782

The amortized cost and fair value of securities held to maturity at March 31, 2013 and September 30, 2012, 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.

	March 31, 2013
	Amortized		Fair
	Cost		Value
Due from five to ten years	$	492,983	$	560,588
Due after ten years		4,532,323		4,533,885
	$	5,025,306	$	5,094,473

U.S. government agency securities with carrying values of $3,747,769 and $1,499,278, at March 31, 2013 and September 30, 2012, respectively, were pledged to secure public deposits held by the Company.

8

Temporarily impaired investments consisted of the following at March 31, 2013 and September 30, 2012:

	March 31, 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	$	583,440	$	(12,423	)	$	—	$	—	$	583,440	$	(12,423	)
U.S Government agency securities		2,984,251		(13,518	)		—		—		2,984,251		(13,518	)
Total	$	3,567,691	$	(25,941	)	$	—	$	—	$	3,567,691	$	(25,941	)

	September 30, 2012
	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	$	588,930	$	(2,029	)	$	—	$	—	$	588,930	$	(2,029	)
U.S Government agency securities		1,997,125		(2,688	)		—		—		1,997,125		(2,688	)
Total	$	2,586,055	$	(4,717	)	$	—	$	—	$	2,586,055	$	(4,717	)

The Company reviews its position quarterly and has asserted that at March 31, 2013, 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.

Eureka Financial Corp. had six securities in an unrealized loss position at March 31, 2013. 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.

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Note 3—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:

	March 31, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Freddie Mac Certificates	$	1,336	$	51	$	—	$	1,387
Fannie Mae Certificates		11,312		734		—		12,046
	$	12,648	$	785	$	—	$	13,433

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Freddie Mac Certificates	$	1,552	$	106	$	—	$	1,658
Fannie Mae Certificates		12,717		1,438		—		14,155
	$	14,269	$	1,544	$	—	$	15,813

The amortized cost and fair values of mortgage-backed securities at March 31, 2013 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers have the right to repay obligations without penalty.

	March 31, 2013
	Amortized		Fair
	Cost		Value
Due after one year through five years	$	7,907	$	8,177
Due after five years through ten years		4,741		5,256
	$	12,648	$	13,433

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Note 4—Loans

Major classifications of loans are as follows at March 31, 2013 and September 30, 2012:

	March 31,			September 30,
	2013			2012
One-to-four family real estate—owner occupied	$	22,511,847		$	22,841,158
One-to-four family real estate—non-owner occupied		30,287,292			29,150,275
Construction		1,411,779			448,170
Multi-family real estate		14,579,436			14,180,454
Commercial real estate		23,290,458			20,913,333
Home equity and second mortgages		1,186,918			1,261,447
Share loans		203,454			269,520
Commercial leases and loans		20,185,971			19,411,283
Commercial lines of credit		6,021,389			5,283,445
		119,678,544			113,759,085
Plus:
Unamortized loan premiums		14,663			15,534
Less:
Unamortized loan fees and costs, net		(216,530	)		(192,282	)
Allowance for loan losses		(1,224,038	)		(1,142,038	)
	$	118,252,639		$	112,440,299

Loan Portfolio Composition

Loans which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balance, adjusted for any allowance for loan losses and any deferred loan fees or costs. Interest income on loans is accrued at the contractual rate on the principal amount outstanding and includes the amortization of deferred loan fees and costs. Deferred loan fees and costs are netted and amortized to income over the life of the loan.

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) share 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 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, the location of the property, the strength of borrower, rent rolls and total lending relationship with the borrower(s).

11

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, the location of the property, strength of 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.

Share 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 customer 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.

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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 March 31, 2013 were as follows:

	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Non-owner-occupied one-to-four-family real estate	$	30,287,292	$	—	$	—	$	—	$	—	$	30,287,292
Construction		1,411,779		—		—		—		—		1,411,779
Multi-family		14,579,436		—		—		—		—		14,579,436
Commercial real estate		23,290,458		—		—		—		—		23,290,458
Commercial leases and loans		19,748,157		—		437,814		—		—		20,185,971
Commercial lines of credit		5,597,472		—		423,917		—		—		6,021,389
	$	94,914,594	$	—	$	861,731	$	—	$	—	$	95,776,325

Credit quality indicators as of September 30, 2012 were as follows:

	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Non-owner-occupied one-to-four-family real estate	$	28,934,037	$	216,238	$	—	$	—	$	—	$	29,150,275
Construction		448,170		—		—		—		—		448,170
Multi-family		14,180,454		—		—		—		—		14,180,454
Commercial real estate		20,913,333		—		—		—		—		20,913,333
Commercial leases and loans		19,411,283		—		—		—		—		19,411,283
Commercial lines of credit		4,766,142		93,386		423,917		—		—		5,283,445
	$	88,653,419	$	309,624	$	423,917	$	—	$	—	$	89,386,960

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The following tables present performing and non-performing residential real estate and consumer loans based on payment activity as of March 31, 2013 and September 30, 2012. 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.

March 31, 2013	Non- Performing Loans		Performing Loans		Total
One-to-four family real estate—owner occupied	$	—	$	22,511,847	$	22,511,847
Home equity and second mortgages		—		1,186,918		1,186,918
Secured loans		—		203,454		203,454
	$	—	$	23,902,219	$	23,902,219

September 30, 2012	Non- Performing Loans		Performing Loans		Total
One-to-four family real estate—owner occupied	$	660,078	$	21,181,080	$	22,841,158
Home equity and second mortgages		—		1,261,447		1,261,447
Secured loans		—		269,520		269,520
	$	660,078	$	22,712,047	$	24,372,125

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. Two commercial leases with balances totaling $197,636 and a commercial line of credit with a balance totaling $423,917 were considered impaired loans at March 31, 2013, with no related allowance. The Company did not recognize any interest income from these loans for the three month period ended March 31, 2013. There were no impaired loans at September 30, 2012.

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 March 31, 2013:

	30-59		60-89		Greater than
	Days		Days		90 Days		Total						Nonaccrual
	Past Due		Past Due		Past Due		Past Due		Current		Total Loans		Loans
One-to-four family real estate—owner occupied	$	178,362	$	37,665	$	—	$	216,027	$	22,295,820	$	22,511,847	$	—
One-to-four family real estate—non-owner occupied		35,996		—		—		35,996		30,251,296		30,287,292		—
Construction		—		—		—		—		1,411,779		1,411,779		—
Multi-family real estate		76,136		—		—		76,136		14,503,300		14,579,436		—
Commercial real estate		—		—		—		—		23,290,458		23,290,458		—
Home equity and second mortgages		—		—		—		—		1,186,918		1,186,918		—
Secured loans		—		—		—		—		203,454		203,454		—
Commercial leases and loans		—		240,178		197,636		437,814		19,748,157		20,185,971		197,636
Commercial lines of credit		—		—		423,917		423,917		5,597,472		6,021,389		423,917
	$	290,494	$	277,843	$	621,553	$	1,189,890	$	118,488,654	$	119,678,544	$	621,553

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The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2012:

	30-59		60-89		Greater than
	Days		Days		90 Days		Total						Nonaccrual
	Past Due		Past Due		Past Due		Past Due		Current		Total Loans		Loans
One-to-four family real estate—owner occupied	$	133,533	$	—	$	660,078	$	793,611	$	22,047,547	$	22,841,158	$	660,078
One-to-four family real estate—non-owner occupied		124,963		91,276		—		216,239		28,934,036		29,150,275		—
Construction		—		—		—		—		448,170		448,170		—
Multi-family real estate		—		—		—		—		14,180,454		14,180,454		—
Commercial real estate		—		—		—		—		20,913,333		20,913,333		—
Home equity and second mortgages		—		—		—		—		1,261,447		1,261,447		—
Secured loans		—		—		—		—		269,520		269,520		—
Commercial leases and loans		—		—		—		—		19,411,283		19,411,283		—
Commercial lines of credit		423,917		—		—		423,917		4,859,528		5,283,445		—
	$	682,413	$	91,276	$	660,078	$	1,433,767	$	112,325,318	$	113,759,085	$	660,078

Eureka Financial Corp. primarily grants loans to customers throughout Southwestern Pennsylvania. Eureka Financial Corp. 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 March 31, 2013 and September 30, 2012 were $621,553 and $660,078, respectively. The foregone interest on non-accrual loans was $6,359 and $0 for the three months ended March 31, 2013 and 2012, respectively and $19,359 and $0 for the six month periods ended March 31, 2013 and 2012, respectively. As of March 31, 2013 and September 30, 2012, there were no loans that were 90 days or more delinquent and still accruing interest.

Accrual of interest is discontinued when the loan becomes 91 days delinquent. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Amortization of any net deferred fees is discontinued when a loan is placed on nonaccrual status. Interest on nonaccrual loans is accounted for on the cash basis, until qualifying for return to nonaccrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonable assured.

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The following table details the allowance for loan losses and loan receivable balances for the three and six month periods ended March 31, 2013 and 2012. 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		Commercial lines of credit		Non-allocated		Total
Allowance for credit losses:
Beginning balance 1/1/2013	$	114,135		$	309,379		$	4,096	$	133,300		$	245,634	$	6,755	$	—	$	250,076	$	68,876	$	49,787	$	1,182,038
Charge-offs		—						—		—			—		—		—		—		—				—
Recoveries		—						—		—			—		—		—		—		—				—
Provisions (credits)		54,971			(66,722	)		10,762		(16,649	)		22,447		424		—		3,681		430		32,656		42,000
Ending balance 3/31/13	$	169,106		$	242,657		$	14,858	$	116,651		$	268,081	$	7,179	$	—	$	253,757	$	69,306	$	82,443	$	1,224,038
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)		54,900			(63,421	)		10,376		(10,973	)		27,578		241		—		11,116		8,546		43,637		82,000
Ending balance 3/31/13	$	169,106		$	242,657		$	14,858	$	116,651		$	268,081	$	7,179	$	—	$	253,757	$	69,306	$	82,443	$	1,224,038
Beginning balance 1/1/2012	$	308,028		$	—		$	2,615	$	121,452		$	284,883	$	7,049	$	—	$	216,894	$	—	$	59,117	$	1,000,038
Charge-offs		—						—		—			—		—		—		—		—				—
Recoveries		—						—		—			—		—		—		—		—				—
Provisions (credits)		(138,646	)		—			1,249		(14,059	)		96,240		5,664		—		93,988		—		5,564		50,000
Ending balance 3/31/12	$	169,382		$	—		$	3,864	$	107,393		$	381,123	$	12,713	$	—	$	310,882	$	—	$	64,681	$	1,050,038
Beginning balance 10/1/2011	$	115,299		$	192,729		$	2,615	$	121,452		$	284,883	$	7,049	$	—	$	216,894	$	—	$	59,117	$	1,000,038
Charge-offs		—						—		—			—		—		—		—		—				—
Recoveries		—						—		—			—		—		—		—		—				—
Provisions (credits)		54,083			(192,729	)		1,249		(14,059	)		96,240		5,664		—		93,988		—		5,564		50,000
Ending balance 3/31/12	$	169,382		$	—		$	3,864	$	107,393		$	381,123	$	12,713	$	—	$	310,882	$	—	$	64,681	$	1,050,038
Allowance for credit losses:
Ending balance 3/31/2013	$	169,106		$	242,657		$	14,858	$	116,651		$	268,081	$	7,179	$	—	$	253,757	$	69,306	$	82,443	$	1,224,038
Ending balance: individually evaluated for impairment	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	2,484	$	4,879	$	—	$	7,363
Ending balance: collectively evaluated for impairment	$	169,106		$	242,657		$	14,858	$	116,651		$	268,081	$	7,179	$	—	$	251,273	$	64,427	$	82,443	$	1,216,675
Loans receivables:
Ending balance 3/31/2013	$	22,511,847		$	30,287,292		$	1,411,779	$	14,579,436		$	23,290,458	$	1,186,918	$	203,454	$	20,185,971	$	6,021,389	$	—	$	119,678,544
Ending balance: individually evaluated for impairment	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	197,636	$	423,917	$	—	$	621,553
Ending balance: collectively evaluated for impairment	$	22,511,847		$	30,287,292		$	1,411,779	$	14,579,436		$	23,290,458	$	1,186,918	$	203,454	$	19,988,335	$	5,597,472	$	—	$	119,056,991
Allowance for credit losses:
Ending balance 9/30/2012	$	114,206		$	306,078		$	4,482	$	127,624		$	240,503	$	6,938	$	—	$	242,641	$	60,760	$	38,806	$	1,142,038
Ending balance: individually evaluated for impairment	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	114,206		$	306,078		$	4,482	$	127,624		$	240,503	$	6,938	$	—	$	242,641	$	60,760	$	38,806	$	1,142,038
Loans receivables:
Ending balance 9/30/2012	$	22,841,158		$	29,150,275		$	448,170	$	14,180,454		$	20,913,333	$	1,261,447	$	269,520	$	19,411,283	$	5,283,445	$	—	$	113,759,085
Ending balance: individually evaluated for impairment	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	22,841,158		$	29,150,275		$	448,170	$	14,180,454		$	20,913,333	$	1,261,447	$	269,520	$	19,411,283	$	5,283,445	$	—	$	113,759,085

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Note 5—Commitments

The Company’s maximum exposure to credit loss for loan and lease commitments (unfunded loans and leases) at March 31, 2013 and September 30, 2012 was approximately $10,824,186 and $9,506,000, respectively, with interest rates from 2.25% to 6.75% and 2.25% to 6.75%, respectively. Fixed rate loan commitments at March 31, 2013 and September 30, 2012 were approximately $3,798,369 and $4,293,000, respectively, with fixed rates of interest ranging from 3.50% to 6.75% and 4.00% 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 6—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.

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For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and September 30, 2012 are as follows:

	March 31, 2013
Description	Level I		Level II		Level III		Total
Mortgage-backed securities available for sale	$	—	$	13,433	$	—	$	13,433
U.S. Government agency securities available for sale		—		2,240,776		—		2,240,776
		$ —	$	2,254,209	$	—	$	2,254,209
	September 30, 2012
Description	Level I		Level II		Level III		Total
Mortgage-backed securities available for sale	$	—	$	15,813	$	—	$	15,813

The following table presents the financial assets measured at fair value on a nonrecurring basis as of March 31, 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; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management 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.

	March 31, 2013
Description	Level I		Level II		Level III		Total
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	614,190	$	614,190

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Bank uses Level III inputs to determine fair value:

	Quantitative Information about Level III Fair Value  Measurements
					Range
			Valuation	Unobservable	(Weighted
	Fair Value		Technique	Inputs	Average)
Impaired loans	$	614,190	Discounted	Probability of	1.15 – 1.25
			cash flow	default	(1.20)

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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 March 31, 2013 and September 30, 2012:

	March 31, 2013
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
Financial assets:
Cash and cash equivalents	$	10,192,836	$	10,192,836	$	—	$	—	$	10,192,836
Investment securities available for sale		2,240,776		—		2,240,776		—		2,240,776
Investment securities held to maturity		5,025,306		—		5,094,473		—		5,094,473
Mortgage-backed securities available for sale		13,433		—		13,433		—		13,433
Federal Home Loan Bank stock		372,500		372,500		—		—		372,500
Loans receivable, net		118,252,639		—		—		125,387,000		125,387,000
Accrued interest receivable		516,118		516,118		—		—		516,118
Financial liabilities:
Deposits	$	115,370,949		46,493	$	—	$	70,040	$	116,533.00
Advances from borrowers for taxes and insurance		429,293		429,293		—		—		429,293
Accrued interest payable		86,124		86,124		—		—		86,124
	September 30, 2012
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
Financial assets:
Cash and cash equivalents	$	8,109,594	$	8,109,594	$	—	$	—	$	8,109,594
Investment securities held to maturity		13,873,592		—		13,975,783		—		13,975,783
Mortgage-backed securities available for sale		15,813		—		15,813		—		15,813
Federal Home Loan Bank stock		502,600		502,600		—		—		502,600
Loans receivable, net		112,440,299		—		—		118,443,000		118,443,000
Accrued interest receivable		606,633		606,633		—		—		606,633
Financial liabilities:
Deposits	$	114,496,546		42,749,831	$	—	$	73,138,169	$	115,888,000.00
Advances from borrowers for taxes and insurance		517,517		517,517		—		—		517,517
Accrued interest payable		100,076		100,076		—		—		100,076

19

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 illiquidity 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.

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

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.

Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value.

20

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 7—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 discussed below 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 March 31, 2013 and September 30, 2012:

						For Capital Adequacy					To be well Capitalized under Prompt Corrective Action
	Actual					Purposes					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(in thousands)					(in thousands)					(in thousands)
As of March 31, 2013
Total capital (to risk-weighted assets)	$	21,398		22.34	% >	$	7,663		>8.00	% >		9,578		>10.00	%
Tier 1 capital (to risk-weighted assets)		21,402		22.34	% >		3,831		>4.00	% >		5,747		>6.00	%
Core (Tier 1) capital (to adjusted total assets)		21,402		15.28	% >		5,604		>4.00	% >		7,006		>5.00	%
As of September 30, 2012
Total capital (to risk-weighted assets)	$	20,672		22.60	% >	$	7,319		>8.00	% >	$	9,149		>10.00	%
Tier 1 capital (to risk-weighted assets)		20,620		22.54	% >		3,659		>4.00	% >		5,489		>6.00	%
Core (Tier 1) capital (to adjusted total assets)		20,620		14.85	% >		5,528		>4.00	% >		6,909		>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 March 31, 2013 and September 30, 2012:

	March 31,		September 30,
	2012		2012
	(in thousands)		(in thousands)
Total equity	$	21,398	$	20,672
Unrealized loss (gain) on securities available-for-sale		4		(1	)
Deferred tax asset—disallowed portion		—		(51	)
Tier 1 capital		21,402		20,620
Allowable allowances for loan and lease losses		1,166		1,125
Total	$	22,568	$	21,745

21

Note 8—Changes in Accumulated Other Comprehensive Income by Component

The following table presents the changes in accumulated other comprehensive income by component net of tax for the three months ended March 31, 2013:

	Unrealized Gains (losses)
	on Available for Sale
	Securities (a)
Balance as of December 31, 2012	$	925
Other comprehensive loss before reclassification		(5,022	)
Amount reclassified from accumulated other comprehensive income		—
Total other comprehensive loss		(5,022	)
Balance as of March 31, 2013	$	(4,097	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

The following table presents the changes in accumulated other comprehensive income by component net of tax for the six months ended March 31, 2013:

	Unrealized Gains (losses)
	on Available for Sale
	Securities (a)
Balance as of September 30, 2012	$	1,019
Other comprehensive loss before reclassification		(5,116	)
Amount reclassified from accumulated other comprehensive income		—
Total other comprehensive loss		(5,116	)
Balance as of March 31, 2013	$	(4,097	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

Note 9—Recent Accounting Pronouncements

In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815,Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of Update 2011-11. This ASU is not expected to have a significant impact on the Company’s financial statements.

In February 2013, the FASB issued ASU 2013-02,Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company has provided the necessary disclosures in Note 8.

22

In February 2013, the FASB issued ASU 2013-04,Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The objective of the amendments in this Update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP). Examples of obligations within the scope of this Update include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. U.S. GAAP does not include specific guidance on accounting for such obligations with joint and several liability, which has resulted in diversity in practice. Some entities record the entire amount under the joint and several liability arrangement on the basis of the concept of a liability and the guidance that must be met to extinguish a liability. Other entities record less than the total amount of the obligation, such as an amount allocated, an amount corresponding to the proceeds received, or the portion of the amount the entity agreed to pay among its co-obligors, on the basis of the guidance for contingent liabilities. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. This ASU is not expected to have a significant impact on the Company’s financial statements.

Note 10—Stock Based Compensation

In 2012, the Company’s stockholders approved the 2012 Equity Incentive Plan (the “2012 Plan”). The purpose of the 2012 Plan is to provide directors, officers and employees with additional incentives to promote growth and performance of Eureka Financial Corp. The 2012 Plan authorizes the granting of options to purchase shares of the Company’s stock, which may be nonqualified stock options or incentive stock options, and restricted stock which is subject to vesting conditions and other restrictions. The 2012 Plan reserved an aggregate number of 106,908 shares of which 76,363 may be issued in connection with the exercise of stock options and 30,545 may be issued as restricted stock.

On May 21, 2012, certain directors and officers of the Company were awarded an aggregate of 64,907 options to purchase shares of common stock and 25,961 restricted shares of common stock. The awards vest equally over five years and the stock options have a ten-year contractual life from the date of grant. The Company recognizes expense associated with the awards over the five-year vesting period.

During the three and six months ended March 31, 2013, the Company recorded approximately $4,335 and $8,670, respectively, in compensation expense related to our stock option awards that are expected to vest in 2013. As of March 31, 2013, there was approximately $71,000 of unrecognized compensation cost related to unvested stock option awards granted. That cost is expected to be recognized over the next four years.

During the three and six months ended March 31, 2013, the Company recorded approximately $19,782 and $39,564, respectively, in compensation expense related to our restricted stock awards that are expected to vest in 2013. As of March 31, 2013, there was approximately $323,000 of unrecognized compensation cost related to unvested restricted stock awards granted. That cost is expected to be recognized over the next four years.

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; 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 28, 2012, 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.

23

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.

24

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 March 31, 2013 and September 30, 2012

Assets increased approximately $1.2 million, or .9%, to $139.7 million at March 31, 2013 from $138.5 million at September 30, 2012, primarily due to a $5.8 million increase in loans receivable, a $2.2 million increase in investment securities available for sale, a $2.1 million increase cash and cash equivalents, offset by an $8.8 million decrease in investment securities held to maturity. The increase in loans was primarily due to a $2.3 million increase in commercial real estate loans, a $1.1 million increase in one-to-four family non-owner occupied loans, a $900,000 increase in construction loans, an $800,000 increase in commercial leases and loans, and a $700,000 increase in commercial lines of credit loans. The increases were primarily the result of our continued offering of competitive rates and strong customer service. The decrease in investment securities held to maturity was due to $10.2 million in high yield securities being called. The proceeds from these maturing securities were invested in investment securities available for sale and cash and cash equivalents in order to increase the Bank’s liquidity position and to provide the ability to sell securities if interest rates rise.

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 three non-accrual loans at March 31, 2013 totaling $621,553 or 0.5% of total loans, compared to one loan totaling $660,078, or 0.6% of total net loans, at September 30, 2012. The non-accrual loan total for March 31, 2013 consisted of a $423,917 commercial line of credit and two commercial leases totaling $197,636. The non-accrual loan for September 30, 2012 was a one-to-four-family real estate loan.

Total liabilities increased by $1.1 million, or 1.0%, to $117.2 million at March 31, 2013 from $116.1 million at September 30, 2012. This increase was primarily attributable to an increase in deposits of $900,000 or .8%, and an increase of $200,000 in other liabilities. The increase in deposits consisted of a $2.5 million increase in NOW and money market accounts, a $1.3 million increase in savings accounts, offset by a $2.9 million decrease in certificate accounts.

Stockholders’ equity increased $200,000 to $22.6 million at March 31, 2013 from $22.4 million at September 30, 2012. The increase was primarily the result of net income totaling $674,000, offset by the repurchase of $470,000 of Company stock and dividends paid of $105,000.

25

Results of Operations for the Three and Six Months Ended March 31, 2013 and 2012

Overview.

	Three Months Ended
	March 31,
	2013			2012
	(Dollars in thousands, except
	per share amounts)
Net income	$	340		$	390
Basic and diluted earnings per share		0.28			0.31
Average equity to average assets		16.24	%		15.92	%
	Six Months Ended
	March 31,
	2013			2012
	(Dollars in thousands, except
	per share amounts)
Net income	$	674		$	778
Basic and diluted earnings per share		0.54			0.62
Average equity to average assets		16.25	%		15.88	%

The decrease in net income for the three months ended March 31, 2013 was primarily attributable to a $59,000 decrease in interest income, a $12,000 increase in the provision for loan losses and a $72,000 increase in non-interest expenses, offset by a $3,000 decrease in non-interest income, a $34,000 decrease in interest expense and a $62,000 decrease in income tax expense.

The decrease in net income for the six months ended March 31, 2013 was primarily attributable to a $103,000 decrease in interest income, a $32,000 increase in the provision for loan losses and a $179,000 increase in non-interest expenses, offset by a $14,000 increase in non-interest income, a $65,000 decrease in interest expense and a $130,000 decrease in income tax expense.

Net Interest Income. Net interest income decreased $26,000 to $1.4 million for the three months ended March 31, 2013. For the six months ended March 31, 2013, net interest income decreased $38,000 to $2.8 million. For the three and six month periods ended March 31, 2013, respectively, lower net interest income was the result of a $59,000 and $103,000 decrease in interest income, respectively, offset by a $34,000 and $65,000 decrease in interest expense over the comparable 2012 periods, respectively. The total interest income decreases were primarily due to decreases in the yield earned on loans and securities and a decrease in the average balance of investment securities.

The decrease in total interest expense for the three and six month periods ended March 31, 2013 was primarily attributable to decreases in deposit interest expense due to lower interest rates.

Rate/Volume Analysis. The following tables set 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
	March 31, 2013
	Compared to
	Three Months Ended
	March 31, 2012
	Increase (Decrease) Due to
	Rate			Volume			Net
	(In thousands)
Interest Income
Loans receivable	$	(80	)	$	125		$	45
Investment securities		(53	)		(51	)		(104	)
Total interest-earning assets		(133	)		74			(59	)
Interest Expense:
NOW money market accounts		(2	)		(2	)	$	(4	)
Passbook and club accounts		(2	)		—			(2	)
IRA accounts		(14	)		1			(13	)
Certificates of deposit		(17	)		1			(16	)
CDARS		1			—			1
Other Borrowings		—			—			—
		(34	)		—			(34	)
Net change in net interest income	$	(99	)	$	74		$	(25	)

26

	Six Months Ended
	March 31, 2013
	Compared to
	Six Months Ended
	March 31, 2012
	Increase (Decrease) Due to
	Rate			Volume			Net
	(In thousands)
Interest Income
Loans receivable	$	(217	)	$	287		$	70
Investment securities		(63	)		(110	)		(173	)
Total interest-earning assets		(280	)		177			(103	)
Interest Expense:
NOW money market accounts		(4	)		(3	)	$	(7	)
Passbook and club accounts		(3	)		1			(2	)
IRA accounts		(33	)		—			(33	)
Certificates of deposit		(26	)		6			(20	)
CDARS		(4	)		1			(3	)
		(70	)		5			(65	)
Net change in net interest income	$	(210	)	$	172		$	(38	)

Provision for Loan Losses.The provision for loan losses for the three and six months ended March 31, 2013 was $42,000 and $82,000, respectively compared to $30,000 and $50,000, respectively for the comparable 2012 periods. The increased provision in the 2013 period reflects growth in the loan portfolio with consideration given to the absence of charge-offs.

There was $621,553 in non-performing loans at March 31, 2013 compared to $660,078 in non-performing loans at September 30, 2012. There were no net charge-offs for the three months ended March 31, 2013 and 2012.

Non-Interest Income. The following tables show the components of non-interest income and the percentage changes for the three and six month periods ended March 31, 2013 and 2012.

	Three Months Ended
	March 31,
	2013		2012		$ Change			% Change
Fees on deposit accounts	$	8,226	$	8,810	$	(584	)		(6.6	)%
Other income		8,332		10,063		(1,731	)		(17.2	)%
Total non-interest income	$	16,558	$	18,873	$	(2,315	)		(12.3	)%

	Six Months Ended
	March 31,
	2013		2012		$ Change		% Change
Fees on deposit accounts	$	18,059	$	17,611	$	448		2.5	%
Other income		34,746		21,644		13,102		60.5	%
Total non-interest income	$	52,805	$	39,255	$	13,550		34.5	%

Non-interest Expense. The following tables show the components of non-interest expense and the percentage changes for the three and six month periods ended March 31, 2013 and 2012.

27

	Three Months Ended
	March 31,
	2013		2012		$ Change			% Change
Salary and Benefits	$	511,913	$	475,243	$	36,670			7.7	%
Occupancy		86,023		93,163		(7,140	)		(7.7	)%
Data Processing		61,795		63,065		(1,270	)		(2.0	)%
Professional fees		71,701		68,489		3,212			4.7	%
FDIC insurance premiums		15,510		13,710		1,800			13.1	%
Other		116,005		77,211		38,794			50.2	%
Total non-interest expense	$	862,947	$	790,881	$	72,066			9.1	%

Salaries and benefits expense increased $36,670 for the three months ended March 31, 2013 due primarily to a $43,000 increase in salary and benefits expense, a $5,000 increase in ESOP and restricted stock plan expense, offset by an $11,000 decrease in retirement fund contributions. Occupancy expense decreased $7,140 due to a $10,000 decrease in furniture and fixtures expense. Other expense increased $38,794 due primarily to a $17,000 increase in stock-related expenses, a $9,000 increase in donation expense related to the state education tax credit program, and a $5,000 increase in public relations expense.

	Six Months Ended
	March 31,
	2013		2012		$ Change		% Change
Salary and Benefits	$	986,373	$	910,447	$	75,926		8.3	%
Occupancy		192,505		182,360		10,145		5.6	%
Data Processing		123,967		109,066		14,901		13.7	%
Professional fees		140,635		131,632		9,003		6.8	%
FDIC insurance premiums		32,408		27,183		5,225		19.2	%
Other		248,419		185,263		63,156		34.1	%
Total non-interest expense	$	1,724,307	$	1,545,951	$	178,356		11.5	%

Salaries and benefits expense increased $75,926 for the six months ended March 31, 2013 due primarily to a $52,000 increase in salary and benefits expense, a $42,000 increase in ESOP and restricted stock plan expense, offset by an $18,000 decrease in retirement fund contributions. Other expense increased $63,156 due primarily to a $31,000 increase in donation expense and a $23,000 increase in stock-related expenses.

Income Taxes.Income tax expense was $173,000 and $346,000 for the three and six month periods ended March 31, 2013 compared to $234,000 and $475,000 for the comparable periods in 2012. The decrease in income tax expense in the 2013 period was primarily the result of a decrease in income from the investment portfolio and a higher level of non-interest expense. The effective tax rate was 34% for the three and six month periods ended March 31, 2013 compared to 38% for the comparable periods in 2012.

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, 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 March 31, 2013, cash and cash equivalents totaled $10.2 million. In addition, at March 31, 2013, we had the ability to borrow a total of approximately $68.0 million from the Federal Home Loan Bank of Pittsburgh. At March 31, 2013, we had no Federal Home Loan Bank advances outstanding.

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At March 31, 2013, we had $10.8 million in loan commitments outstanding, which consisted of commitments to grant $2.0 million in loans and $825,000 in commercial leases. At March 31, 2013, we had $4.8 million in undisbursed lines of credit, $1.9 million in undisbursed construction loans and $1.3 million in undisbursed loans in process.

Certificates of deposit due within one year of March 31, 2013 totaled $36.4 million, representing 54.5% of certificates of deposit, and 31.5% of total deposits at March 31, 2013. 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 March 31, 2014.

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 March 31, 2013, the Company had $1.0 million 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 March 31, 2013, 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 22.34%, 22.34% and 15.28%, respectively. The regulatory requirements at that date were 8.0%, 4.0% and 4.0%, respectively. At March 31, 2013, 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 6 to the consolidated financial statements included in this Form 10-Q and in the Bank’s audited consolidated financial statements for the year ended September 30, 2012.

For the three months ended March 31, 2013, 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 March 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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, 2012, as filed with the SEC on December 28, 2012. As of March 31, 2013, 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

					(c) Total		(d) Maximum
					Number		Number
					of Shares		of Shares
					as Part of		Yet To Be
	(a) Total		(b) Average		Publically		Purchased
	Number		Price		Announced		Under the
	of Shares		Paid		Plans or		Plans or
Period	Purchased		Per Share		Programs		Programs (1)
January 1 through January 31, 2013		—	$	—		—		104,117
February 1 through February 28, 2013		10,200		17.50		10,200		93,917
March 1 through March 31, 2013		10,000		17.43		10,000		83,917
Total		20,200				20,200

(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.

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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 March 31, 2013, 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.

* Furnished, not filed.

(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.

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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: May 14, 2013	By:	/s/ Edward F. Seserko
		Edward F. Seserko
		President and Chief Executive Officer
		(principal executive officer)
Dated: May 14, 2013	By:	/s/ Gary B. Pepper
		Gary B. Pepper
		Executive Vice President and Chief Financial Officer
		(principal accounting and financial officer)

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