UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from to
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Commission file number: 000-50234
Eureka Financial Corp.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
United States 75-3098403
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
3455 Forbes Avenue at McKee Place, Pittsburgh, Pennsylvania 15213
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(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (412) 681-8400
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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As of February 10, 2004, there were issued and outstanding 1,226,538 shares of
the registrant's Common Stock.
Transitional Small Business Disclosure Format (check one): Yes No X
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EUREKA FINANCIAL CORP.
INDEX
Page
Number
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31, 2003
(Unaudited), and September 30, 2003 3
Consolidated Statements of Income (Unaudited) for the
Three Months ended December 31, 2003 and 2002 4
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months ended December 31, 2003 and 2002 5
Notes to Consolidated Financial Statement (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Item 3. Controls and Procedures 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures
2
BALANCE SHEET
EUREKA FINANCIAL CORP.
December 31, September 30,
2003 2003
------------ ------------
ASSETS (Unaudited)
Cash and due from banks $ 670,616 $ 496,589
Interest-bearing deposits in banks 4,998,249 8,340,784
Securities available-for-sale 11,999,588 11,877,487
Securities held-to-maturity
(Market values of $7,425,670 and
$5,865,608 respectively) 7,209,580 5,629,750
Mortgage-backed securities, available-for-sale 1,074,888 1,364,782
Federal Home Loan Bank stock, at cost 301,400 332,600
Loans receivable, net 55,740,213 53,288,111
Premises and equipment, net 1,232,383 1,241,032
Other assets 866,270 750,066
------------ ------------
Total Assets $ 84,093,187 $ 83,321,201
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposit accounts
Non-interest bearing $ 1,365,887 $ 1,887,906
Interest bearing 60,788,308 59,952,093
------------ ------------
Total deposit accounts 62,154,195 61,839,999
Advances from borrowers for taxes & insurance 511,441 334,252
Other liabilities 1,209,269 1,035,752
FHLB advances 1,000,000 1,000,000
Guarantee of employee stock ownership plan (ESOP) debt 23,771 40,258
------------ ------------
Total liabilities 64,898,676 64,250,261
Stockholders' Equity
Common Stock ($0.10 par value)
4,000,000 shares authorized, 1,377,810 shares issued, 1,226,538 shares
outstanding as of December 31, 2003 and September 30, 2003,
respectively 137,781 137,781
Additional paid-in-capital 6,283,368 6,234,226
Retained earnings-substantially rstricted 13,190,670 13,213,697
Unearned employee stock ownership plan
(ESOP) shares (23,771) (40,258)
Unearned compensation-restricted stock plan (58,515) (67,733)
Accumulated other comprehensive income net of
applicable income taxes of $660,648 and
$623,686, respectively 1,282,435 1,210,684
Treasury stock (151,272 shares at cost) (1,617,457) (1,617,457)
------------ ------------
Total stockholders' equity 19,194,511 19,070,940
Total Liabilities and Stockholders' Equity $ 84,093,187 $ 83,321,201
============ ============
3
STATEMENTS OF INCOME
EUREKA FINANCIAL CORP.
Three Months Ended December 31,
(Unaudited)
2003 2002
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Interest Income
Loans $ 880,436 $ 939,868
Investment securities 258,293 215,148
Mortgage-backed securities 20,309 38,877
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Total interest income 1,159,038 1,193,893
Interest Expense
Deposits 373,609 425,901
FHLB advances 14,209 14,209
Other 406 1,937
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Total interest expense 388,224 442,047
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Net Interest Income 770,814 751,846
Provision for Loan Losses 15,000 0
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Net Interest Income after
Provision for Loan Losses 755,814 751,846
Other Income 36,911 31,792
Other Expenses
Salaries and benefits 299,350 267,310
Occupancy expense 51,284 49,294
Computer expense 25,721 25,833
Legal and accounting 32,147 43,632
ESOP Contribution 46,163 36,700
Other 81,760 79,457
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Total other expenses 536,425 502,226
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Income Before Income Taxes 256,300 281,412
Provision for Income Taxes 47,118 66,000
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Net Income $ 209,182 $ 215,412
========== ==========
Basic Earnings Per Share $ 0.17 $ 0.17
========== ==========
Diluted Earnings Per Share $ 0.17 $ 0.17
========== ==========
4
STATEMENTS OF CASH FLOWS
EUREKA FINANCIAL CORP.
Three Months Ended December 31,
(Unaudited)
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 209,182 $ 215,412
Adjustments to reconcile net cash from operating activities:
Unearned ESOP shares 65,629 49,079
Compensation expense related to RSOP 9,218 19,281
Depreciation 26,478 26,907
Provision for loan loss 15,000 0
Net accretion/amortization of discounts and premiums on
mortgage-backed and investment securities (2,046) (14,884)
Unamortized loan fees and costs (2,486) (14,570)
Increase/(decrease) in cash due to changes in assets and liabilities:
Other assets (116,204) (9,646)
Other liabilities 136,554 106,652
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Net Cash from Operating Activities 341,325 378,231
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and redemption of securities
held-to-maturity 0 0
Proceeds from redemption of FHLB stock 31,200 144,700
Purchase of securities held-to-maturity (1,580,012) (750,000)
Net increase in loans made to customers (758,091) (58,454)
Net commercial leases (originated)/repaid (1,706,525) 213,590
Net paydowns in mortgage-backed securities 278,734 335,463
Premises and equipment expenditures (17,829) 0
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Net Cash Used by Investing Activities (3,752,523) (114,701)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 314,197 (1,892,941)
Net increase in advances from borrowers for
taxes and insurance 177,189 202,412
Repayment of ESOP loan (16,487) (16,526)
Reissuance of treasury stock 0 14,781
Payment of dividends (232,209) (219,142)
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Net Cash from Financing Activities 242,690 (1,911,416)
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Net Change in Cash and Cash Equivalents (3,168,508) (1,647,886)
Cash and Cash Equivalents at Beginning of Period 8,837,373 8,648,435
----------- -----------
Cash and Cash Equivalents at End of Period $ 5,668,865 $ 7,000,549
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the period for:
Interest on deposits and borrowings $ 387,996 $ 436,955
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Income taxes $ 0 $ 55,265
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5
EUREKA FINANCIAL CORP.
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, 2003, are not necessarily indicative of the
results to be expected for the year ended September 30, 2004 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 Financial's Corp. (the "Company") Annual Report on
Form 10-KSB for the fiscal year ended September 30, 2003.
Prior period accounts were reclassified to conform to current period
classifications.
NOTE B - COMPREHENSIVE INCOME
For the three months ended December 31, 2003 and 2002, comprehensive income
totaled $280,933 and $343,750, respectively.
NOTE C -AVAILABLE FOR SALE SECURITIES
The securities available for sale consisted of the following:
December 31, 2003
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Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- --------- -------- ----------
FHLMC preferred
Stock 8,584,339 128,911 (475,000) 8,238,250
FNMA preferred
Stock 1,500,000 -- (196,500) 1,303,500
FHLMC voting
common Stock 41,266 2,416,572 -- 2,457,838
---------- --------- -------- ----------
Totals: 10,125,605 2,545,483 (671,500) 11,999,588
========== ========= ======== ==========
6
The mortgage-backed securities available for sale consisted of the following:
December 31, 2003
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Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- --------- -------- ----------
GNMA certificates 2,063 70 -- 2,133
FHLMC certificates 152,311 13,617 -- 165,928
FNMA certificates 851,414 55,413 -- 906,827
--------- ------ ------- ---------
Totals: 1,005,788 69,100 -- 1,074,888
========= ====== ======= =========
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, 2003, and 2002, were 1,222,763 and 1,223,663, respectively. For
these periods, such shares do not include 2,378 and 14,527 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".
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", "anticipates", "contemplates", "expects", and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
ability to control costs and expenses, and general economic conditions. Eureka
Financial Corporation undertakes no obligation to publicly release the results
of any revisions to those forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Eureka Financial Corp. (the "Company") is in the mutual holding ("MHC")
form of organization. The Company has outstanding 1,226,538 shares of common
stock, of which 496,299 are owned by public stockholders and the remainder of
which are held by the mutual holding company. The Company's business is
conducted primarily through its wholly-owned subsidiary, Eureka Bank ("the
Bank"). All references to the Company refer collectively to the Company and the
Bank.
CHANGES IN FINANCIAL CONDITION
At December 31 2003, the Company's assets increased $772,000 to
$84,093,000 from $83,321,000 at September 30, 2003. At December 31, 2003,
interest-bearing deposits in banks decreased by $3,343,000 and mortgage-backed
securities decreased by $290,000 from the comparable classifications at
September 30, 2003. These decreases at December 31, 2003, were partially offset
by an increase of $1,580,000 in securities held to maturity, an increase of
$123,000 in securities available-for-sale and an increase of $2,452,000 in loans
receivable, net since September 30, 2003, as interest-bearing deposits in banks
and loan payments were used to fund the investment portfolio and loan portfolio.
At December 31, 2003, the Company's total liabilities increased by a
total of $649,000 from September 30, 2003. This increase was primarily
attributed to a $314,000 growth in deposit accounts, an increase of $177,000 in
escrow accounts and an increase of $173,000 in other liabilities, which was
partially offset by a $16,000 decrease in the ESOP debt.
At December 31, 2003, stockholders' equity increased $124,000 to
$19,195,000 from $19,071,000 at September 30, 2003. The increase was primarily
reflected by an increase of $71,000 in accumulated other comprehensive income,
an increase of $49,000 in additional paid in capital, a decrease of $16,000 in
the unearned ESOP shares and a decrease of $9,000 in unearned compensation
related to the restricted stock plan. These increases in total stockholders
equity were offset by a $23,000 decrease in retained earnings. The increase of
$71,000 in accumulated other comprehensive income resulted from the fluctuation
in market value of the Bank's investment in available for sale securities and
mortgage-backed securities. Because of interest rate volatility, accumulated
other comprehensive income and stockholders' equity could materially fluctuate
for each interim period and year-end period. See Note C to the financial
statements.
8
RESULTS OF OPERATIONS
Net Income. Net income decreased slightly by $6,000 to $209,000 for the three
months ended December 31, 2003, from $215,000 for the comparable 2002 period.
Earnings per share remained at $0.17. The decrease in net income was primarily
attributable to increases in other expenses and the provision for loan losses
partially offset by an increase in net interest income, a decrease in interest
expense and a decrease in the provision for income taxes over the three-month
period.
Net Interest Income. Net interest income increased $19,000 to $771,000 for the
three months ended December 31, 2003, from $752,000 for the comparable 2002
period. Higher net interest income was primarily due to a decrease in interest
expense partially offset by a decrease in total interest income.
Interest Income. Total interest income decreased $35,000 to $1,159,000 for the
three months ended December 31, 2003 from $1,194,000 for the comparable 2002
period. The decline in total interest income was primarily due to a decline in
the average yield on interest-earning assets even though the average balance on
interest-earning assets increased. See "Average Balance Sheets" on page 10.
Interest Expense. Total interest expense decreased $54,000 to $388,000 for the
three months ended December 31, 2003, from $442,000 for the comparable 2002
period. The decrease in total interest expense was primarily related to a
reduction in the average cost of funds despite an increase in the average
balance on deposits. See "Average Balance Sheets" on page 10.
Provision for Loan Losses. The provision for loan losses for the three months
ended December 31, 2003, was $15,000 compared to $0 for the comparable 2002
period. Management regularly performs an analysis to identify the inherent risks
of loss in its loan portfolio. This analysis includes evaluations of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio (including loans being specifically
monitored by management), estimated fair value of underlying collateral, loan
commitments outstanding, delinquencies and other information available at such
time. However, there is no assurance that further additions will not be made to
the allowance and that such losses will not exceed the estimated amounts.
Other Expense. Total non-interest expense increased by $34,000 to $536,000 for
the three months ended December 31, 2003, from $502,000 for the comparable 2002
period. ESOP contribution expense increased $9,000 to $46,000 for the three
months ended December 31, 2003, from $37,000 for the comparable 2002 period due
to a higher market value of the stock. Salaries and benefits increased $32,000
to $299,000 for the three months ended December 31, 2003, from $267,000 for the
comparable 2002 period, due to contributions to the pension plan and expenses
related to normal salary increases and increased expenses associated with
benefit plans. Legal and accounting expenses decreased $12,000 to $32,000 for
the three months ended December 31, 2003, from $44,000 for the comparable 2002
periods. This decrease can be attributed primarily to the costs associated with
the mid-tier holding company reorganization which existed in the prior
comparable 2002 period.
9
EUREKA FINANCIAL CORP.
AVERAGE BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
For the Three Months Ended December 31,
----------------------------------------------------------------
At December 31, 2003 2003 2002
------------------------ ---------------------------- -----------------------------------
Actual Average Average
Actual Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost
------------- --------- --------- -------- -------- ------------ -------- ---------
(Dollars in thousands)
Interest-earning assets:
Loans receivable $55,740 6.31% $54,816 $880 6.42% $52,027 $940 7.23%
Investments securities 25,584 4.36% 26,793 279 4.17% 24,621 254 4.13%
-------------- ------------------- -----------------------
Total interest-earning assets 81,324 5.70% 81,609 1,159 5.68% 76,648 1,194 6.23%
--------- -----------
Non-interest earning assets 2,769 2,302 2,069
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Total Assets $84,093 $83,911 $78,717
============== ========== ============
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts $5,402 1.25% $4,015 12 1.20% $4,537 17 1.50%
Passbook and club accts 18,745 1.77% 19,787 87 1.76% 17,655 94 2.13%
IRA accounts 2,738 4.07% 2,737 29 4.24% 2,375 29 4.88%
Certificates of deposit 33,903 2.84% 33,915 245 2.89% 30,274 286 3.78%
Other liabilities 1,024 5.53% 1,034 15 5.80% 1,156 16 5.54%
-------------- ------------------- -----------------------
Total interest-bearing
liabilities 61,812 2.48% 61,488 388 2.52% 55,997 442 3.16%
--------- ----------
Non-interest-bearing liabilities 3,087 3,270 3,465
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Total Liabilities 64,899 64,758 59,462
Retained earnings 19,194 19,153 19,255
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Total Liabilities and
Retained Earnings $84,093 $83,911 $78,717
============== ========== ============
Net interest income $771 $752
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Interest rate spread 3.16% 3.07%
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Net yield on interest-earning assets 3.78% 3.92%
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Ratio of average interest-earning assets to
average interest-bearing liabilities 132.72% 136.88%
======== =======
10
EUREKA FINANCIAL CORP.
RATE VOLUME ANALYSIS
DECEMBER 31, 2003 AND 2002
Three-Month Period Ended December 31,
2003 vs. 2002
Increase (Decrease)
Due to
Volume Rate Rate/Volume Total
------ ---- ----------- -----
(In thousands)
Interest Income:
Loans receivable 50 (105) (5) (60)
Investment securities 23 2 0 25
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Total interest-earning assets 73 (103) (5) (35)
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Interest Expense:
NOW accounts (2) (3) 0 (5)
Passbook & club accounts 11 (16) (2) (7)
Money market accounts 5 (4) (1) 0
Certificates of deposit 34 (67) (8) (41)
Other liabilities (1) 0 0 (1)
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Total interest-bearing liabilities 47 (90) (11) (54)
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Net change in interest income 26 (13) 6 19
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11
THE COMPANY EXCEEDED ALL OF ITS CAPITAL REQUIREMENTS AT DECEMBER 31, 2003.
THE COMPANY HAD THE FOLLOWING CAPITAL RATIOS AT DECEMBER 31, 2003:
For Capital Categorized as
Actual Adequacy Purposes "Well Capitalized"
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 2003:
Total Capital
(To risk weighted
assets) $19,485 34.91% $4,408 8.00% $5,510 10.00%
Tier I Capital
(To risk weighted
assets) $17,901 32.49% $2,204 4.00% $3,306 6.00%
Tier I Capital
(To total assets) $17,901 21.79% $2,464 3.00% $4,107 5.00%
Tangible Capital
(To total assets) $17,901 21.79% $1,232 1.50% $4,107 5.00%
CONTROLS AND PROCEDURES
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(a) Evaluation of disclosure controls and procedures. Based on their evaluation
------------------------------------------------
of the Company's disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), the
Company's principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Quarterly Report on
Form 10-QSB such disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in internal controls. During the quarter under report, there was no
----------------------------
change in the Company's internal control over financial reporting that has
materially affected, or is reasonable likely to materially affect, the Company's
internal control over financial reporting.
12
Part II OTHER INFORMATION
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Item 1. Legal Proceedings
From time to time, the Company may be a party to various legal
proceedings incident to its business. At December 31, 2003, there were
no legal proceedings to which the Company was a party, or to which any
of their property was subject, which were expected by management to
result in a material loss.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Articles of Incorporation*
3(ii) Bylaws*
10(ii) Eureka Financial Corp. 1999 Stock Option Plan **
10(ii) Eureka Bank 1999 Restricted Stock Plan **
31 Section 302 Certifications
32 Section 906 Certification
(1) Reports on Form 8-K
(i) A Form 8-K was filed on November 4, 2003 pursuant to
items 7 and 12 announcing earnings for the year ended
September 30, 2003.
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* Incorporated by reference to the identically numbered Exhibit on Form
8-K12G3 filed on April 1, 2003
** Incorporated by reference from Registration Statement on Form S-8 filed
June 24, 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, thereunto duly authorized.
EUREKA FINANCIAL CORP.
Date: February 10, 2004 By: /s/Edward F. Seserko
----------------------------------
Edward F. Seserko
President and Chief Executive Officer
Date: February 10, 2004 By: /s/Gary B. Pepper
----------------------------------
Gary B. Pepper
Executive Vice President and Chief
Financial Officer