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