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Eureka Homestead Bancorp (ERKH)

Filed: 10 May 22, 12:34pm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

          Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2022

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 No. 000-56071

Eureka Homestead Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland

83-4051300

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

1922 Veterans Memorial Boulevard

Metairie, Louisiana

70005

(Address of Principal Executive Offices)

(Zip Code)

(504) 834-0242

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

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 requirements for the past 90 days.

YES      NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

YES      NO

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES NO 

As of May 9, 2022, 1,072,127 shares of the Company’s common stock, par value $0.01 per share, were issued and outstanding.

Eureka Homestead Bancorp, Inc.

Form 10-Q

Index

    

    

Page

Part I. Financial Information

Item 1.

Consolidated Financial Statements

Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 (unaudited)

3

Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021 (unaudited)

4

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021 (unaudited)

5

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited)

6

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited)

7

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

Part II. Other Information

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

Signature Page

34

Part I. – Financial Information

Item 1.

Consolidated Financial Statements

EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

MARCH 31, 2022 AND DECEMBER 31, 2021

(in thousands)

March 31, 

December 31, 

    

2022

    

2021

ASSETS

Cash and Cash Equivalents

$

3,755

$

7,316

Interest-Bearing Deposits in Banks

 

7,486

 

7,742

Investment Securities

 

4,591

 

5,329

Loans Receivable, Net

 

76,782

 

75,943

Loans Held-for-Sale

 

1,203

 

401

Accrued Interest Receivable

 

394

 

421

Federal Home Loan Bank Stock

 

1,450

 

1,448

Premises and Equipment, Net

 

617

 

626

Cash Surrender Value of Life Insurance

 

4,246

 

4,225

Deferred Tax Asset

 

23

 

Prepaid Expenses and Other Assets

 

154

 

144

Total Assets

$

100,701

$

103,595

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Deposits

$

59,905

$

60,963

Advances from Federal Home Loan Bank

 

18,225

 

18,218

Advance Payments by Borrowers for Taxes and Insurance

 

1,076

 

1,902

Deferred Tax Liability

7

Accrued Expenses and Other Liabilities

 

1,525

 

659

Total Liabilities

 

80,731

 

81,749

Commitments and Contingencies (Note 7)

 

  

 

  

Stockholders' Equity:

 

  

 

  

Preferred Stock, $0.01 Par Value, 1,000,000 Shares Authorized, NaN Shares Issued

Common Stock, $0.01 Par Value, 9,000,000 Shares Authorized, 1,072,127 and 1,191,627 Shares Issued and Outstanding on March 31, 2022 and December 31, 2021, Respectively

11

12

Additional Paid-in Capital

8,736

10,498

Unallocated Common Stock Held by:

Employee Stock Ownership Plan (ESOP)

(995)

(1,006)

Recognition and Retention Plan (RRP)

Retained Earnings

 

12,303

 

12,317

Accumulated Other Comprehensive (Loss) Income

 

(85)

 

25

Total Stockholders' Equity

 

19,970

 

21,846

Total Liabilities and Stockholders' Equity

$

100,701

$

103,595

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

3

EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (Unaudited)

(in thousands except for Earnings Per Share )

Three Months Ended March 31, 

    

2022

    

2021

Interest Income:

  

 

  

Loans Receivable

$

672

$

706

Investment Securities

 

13

 

14

Interest-Bearing Deposits in Banks

 

6

 

5

Total Interest Income

 

691

 

725

Interest Expense:

 

  

 

  

Deposits

 

161

 

200

Advances from Federal Home Loan Bank

 

103

 

116

Total Interest Expense

 

264

 

316

Net Interest Income

 

427

 

409

Provision for Loan Losses

 

 

8

Net Interest Income After Provision for Loan Losses

 

427

 

401

Non-Interest Income:

 

  

 

  

Service Charges and Other Income

 

9

 

28

Fees on Loans Sold

 

179

 

222

Income from Life Insurance

 

21

 

22

Total Non-Interest Income

 

209

 

272

Non-Interest Expenses:

 

  

 

  

Salaries and Employee Benefits

 

402

 

393

Occupancy Expense

 

52

 

51

FDIC Deposit Insurance Premium and Examination Fees

 

17

 

17

Data Processing

 

18

 

20

Accounting and Consulting

 

59

 

38

Insurance

 

24

 

21

Legal fees

15

12

Other

 

63

 

41

Total Non-Interest Expenses

 

650

 

593

(Loss) Income Before Income Tax Expense

 

(14)

 

80

Income Tax Expense

 

 

Net (Loss) Income

$

(14)

$

80

(Loss) Earnings Per Share: Basic

$

(0.01)

$

0.07

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

4

EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (Unaudited)

(in thousands)

Three Months Ended March 31, 

    

2022

    

2021

Net (Loss) Income

$

(14)

$

80

Other Comprehensive (Loss):

 

  

 

  

Unrealized (Losses) on Investment Securities

 

(139)

 

(5)

Other Comprehensive (Loss) Before Income Taxes

(139)

(5)

Income Tax Effect

 

29

 

1

Other Comprehensive (Loss), Net of Income Taxes

 

(110)

 

(4)

Comprehensive (Loss) Income

$

(124)

$

76

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

5

EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (Unaudited)

(in thousands)

Accumulated

Additional

Unallocated

Other

Common

Paid-in

ESOP

Retained

Comprehensive

    

Stock

    

Capital

    

Shares

    

Earnings

    

Income/(Loss)

    

Total

Balance, January 1, 2021

$

12

$

10,765

$

(1,052)

$

12,171

$

44

$

21,940

ESOP Shares Earned

4

11

15

Stock Shares Repurchased

(280)

(280)

Net Income

 

 

 

 

80

 

 

80

Other Comprehensive Loss

 

 

 

 

 

(4)

 

(4)

Balance, March 31, 2021

$

12

$

10,489

$

(1,041)

$

12,251

$

40

$

21,751

Balance, January 1, 2022

$

12

$

10,498

$

(1,006)

$

12,317

$

25

$

21,846

ESOP Shares Earned

9

11

20

Stock Shares Repurchased

(1)

(1,771)

(1,772)

Net Loss

 

 

 

 

(14)

 

 

(14)

Other Comprehensive Loss

 

 

 

 

 

(110)

 

(110)

Balance, March 31, 2022

$

11

$

8,736

$

(995)

$

12,303

$

(85)

$

19,970

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

6

EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (Unaudited)

(in thousands)

    

Three Months Ended March 31, 

    

2022

    

2021

Cash Flows from Operating Activities:

 

  

 

  

Net (Loss) Income

$

(14)

$

80

Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities:

 

  

 

  

Cash Provided by (Used in) Operating Activities:

Provision for Loan Losses

 

 

8

Depreciation Expense

 

9

 

10

Amortization of FHLB Advance Prepayment Penalty

 

7

 

6

Net (Accretion) Amortization of Discount/Premium on Mortgage-Backed Securities

 

(2)

 

9

Stock Dividend on Federal Home Loan Bank Stock

 

(2)

 

(2)

Non-cash Compensation for ESOP

20

15

Net (Increase) Decrease in Loans Held-for-Sale

 

(802)

 

1,815

Changes in Assets and Liabilities:

 

  

 

  

Decrease (Increase) in Accrued Interest Receivable

 

27

 

(9)

(Increase) in CSV of Life Insurance

 

(21)

 

(22)

(Increase) Decrease in Prepaid Expenses and Other Assets

 

(10)

 

52

Increase (Decrease) in Accrued Expenses and Other Liabilities

 

866

 

(88)

Net Cash Provided by Operating Activities

 

78

 

1,874

Cash Flows from Investing Activities:

 

  

 

  

Net (Increase) in Loans

 

(839)

 

(6,269)

Proceeds from Maturities of Interest-Bearing Deposits in Banks

3,995

6,741

Purchases of Interest-Bearing Deposits in Banks

 

(3,739)

 

(750)

Proceeds from Sales, Calls and Principal Repayments of Investment Securities

 

600

 

218

Net Cash Provided by (Used in) Investing Activities

 

17

 

(60)

Cash Flows from Financing Activities:

 

  

 

  

Net (Decrease) Increase in Deposits

 

(1,058)

 

3,029

Shares Repurchased

(1,772)

(280)

Net (Decrease) in Advance Payments by Borrowers for Taxes and Insurance

 

(826)

 

(676)

Net Cash (Used in) Provided by Financing Activities

 

(3,656)

 

2,073

Net (Decrease) Increase in Cash and Cash Equivalents

 

(3,561)

 

3,887

Cash and Cash Equivalents at Beginning of Period

 

7,316

 

3,952

Cash and Cash Equivalents at End of Period

$

3,755

$

7,839

Supplemental Disclosures for Cash Flow Information:

 

  

 

  

Cash Paid for:

 

  

 

  

Interest

$

277

$

316

Supplemental Schedule for Noncash Investing and Financing Activities:

 

  

 

  

Change in the Unrealized Gain/Loss on Investment Securities

$

(139)

$

(5)

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

7

Eureka Homestead Bancorp, Inc.

Form 10-Q

EUREKA HOMESTEAD BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 (Unaudited)

Note 1 – Basis of Presentation -

The accompanying unaudited consolidated financial statements of Eureka Homestead Bancorp, Inc. (the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three-month period ended March 31, 2022 are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the Financial Statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission (“SEC”). Reference is made to the accounting policies of the Company described in the Notes to the Financial Statements contained in the Annual Report.

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Note 2 Recent Accounting Pronouncements -

Emerging Growth Company Status

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company is an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies. An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the company is first required to file a registration statement. The Company has elected to use the extended transition period described above and intends to maintain its emerging growth company status as allowed under the JOBS Act.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), Conforming Amendments Related to Leases. This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the balance sheet and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.

8

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held to maturity securities), including certain off-balance sheet financial instruments (e.g., commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The CECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the CECL. The ASU also amends the current available-for-sale security impairment model for debt securities whereby credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. For an emerging growth company, the amendments in this update, as amended through more recent related ASUs, are effective for fiscal years beginning after December 15, 2022, and interim periods within fiscal years beginning after December 15, 2023. The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to assess the impact this ASU will have on the Company’s Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. The amendments did not have a material impact on the Company’s Consolidated Financial Statements.

In March 2020the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, issued an update ASU 2021-01The ASUs provide optional guidance for a limited period of time to ease the potential burden in accounting for (or derecognizing the effects of) reference rate reform on financial reporting. Specifically, the amendments provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These relate only to those contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASUs became effective March 12, 2020 and can be adopted anytime during the period of January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of this guidance. There is only one investment security relationship that has LIBOR pricing with a maturity date beyond December 31, 2022The documentation for the relationship contains language for an alternative pricing index when LIBOR is no longer available.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosures. This ASU eliminates the troubled debt restructuring (“TDR”) accounting model for creditors that have already adopted Topic 326, which is commonly referred to as the current expected credit loss (“CECL”) model. In lieu of the TDR accounting model, creditors now will apply the general loan modification guidance in Subtopic 310-20 to all loan modifications, including modifications made for borrowers experiencing financial difficulty. Under the general loan modification guidance, a modification is treated as a new loan only if the terms of the new loan are at least as favorable to the lender as the terms for comparable loans to other customers with similar collection risks, and modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as the continuation of the old loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate. In addition, this ASU requires the disclosure of gross charge-offs recorded in the current period for financing receivables by origination year. For an emerging growth company, that has not adopted Topic 326, ASU 2022-02 takes effect in reporting periods when Topic 326 is adopted, with early adoption permitted. The Company is currently assessing the impact of this ASU on the Company’s Consolidated Financial Statements.

9

Note 3 – (Loss) Earnings Per Share -

Basic earnings per share (“EPS”) represents income available or loss attributable to common stockholders divided by the weighted average number of common shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

(Loss) earnings per common share were computed based on the following:

Three Months Ended March 31, 

(in thousands, except per share data)

2022

2021

Numerator:

Net (loss) income available to common stockholders

$

(14)

$

80

Denominator:

 

 

Weighted average common shares outstanding

 

1,180

 

1,190

Less: Average unallocated ESOP shares

100

103

Weighted average shares

1,080

1,087

Basic (loss) earnings per common share

$

(0.01)

$

0.07

Note 4 – Investment Securities -

The amortized cost and fair values of investment securities available-for-sale were as follows:

Gross

Gross

March 31, 2022:

Amortized

Unrealized

Unrealized

Fair

(in thousands)

    

Cost

    

Gains

    

(Losses)

    

Value

Mortgage-Backed Securities:

 

  

 

  

 

  

 

  

FHLMC

$

2,558

$

$

(132)

$

2,426

SBA 7a Pools

 

2,140

 

25

 

 

2,165

Total Investment Securities Available-for-Sale

$

4,698

$

25

$

(132)

$

4,591

Gross

Gross

December 31, 2021:

Amortized

Unrealized

Unrealized

Fair

(in thousands)

    

Cost

    

Gains

    

(Losses)

    

Value

Mortgage-Backed Securities:

 

  

 

  

 

  

 

  

FHLMC

$

2,766

$

1

$

$

2,767

SBA 7a Pools

 

2,531

 

31

 

 

2,562

Total Investment Securities Available-for-Sale

$

5,297

$

32

$

$

5,329

All investment securities held on March 31, 2022 and December 31, 2021, were government-sponsored mortgage-backed or SBA pool securities.

The amortized cost and fair values of the investment securities available-for-sale at March 31, 2022, by contractual maturity, are shown below. For mortgage-backed securities and SBA 7a pools, expected maturities will differ from

10

contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Available-for-Sale

March 31, 2022

Amortized

Fair

(in thousands)

    

Cost

    

Value

Amounts Maturing:

 

  

 

  

After One Year through Five Years

$

$

After Five Years through Ten Years

 

1,920

 

1,931

After Ten Years

 

2,778

 

2,660

$

4,698

$

4,591

NaN investment securities were pledged to secure advances from the FHLB at March 31, 2022 and December 31, 2021.

There were 0 sales or calls of available-for-sale investment securities for the three months ended March 31, 2022 and the year ended December 31, 2021.

Gross unrealized losses in investment securities at March 31, 2022 and December 31, 2021, existing for continuous periods of less than 12 months and for continuous periods of 12 months or more, are as follows:

March 31, 2022

(in thousands)

Less Than 12 Months

12 Months or More

Totals

Security

Unrealized

Unrealized

Unrealized

Description

    

Fair Value

    

(Losses)

    

Fair Value

    

(Losses)

    

Fair Value

    

(Losses)

Mortgage-Backed

 

  

 

  

 

  

 

  

 

  

 

  

FHLMC

$

2,558

$

(132)

$

$

$

2,558

$

(132)

SBA 7a Pools

 

 

 

 

 

 

$

2,558

$

(132)

$

$

$

2,558

$

(132)

December 31, 2021

(in thousands)

Less Than 12 Months

12 Months or More

Totals

Security

Unrealized

Unrealized

Unrealized

Description

    

Fair Value

    

(Losses)

    

Fair Value

    

(Losses)

    

Fair Value

    

(Losses)

Mortgage-Backed

 

  

 

  

 

  

 

  

 

  

 

  

FHLMC

$

1,415

$

$

$

$

1,415

$

SBA 7a Pools

 

 

 

 

 

 

$

1,415

$

$

$

$

1,415

$

Management evaluates securities for other-than temporary impairment on a periodic and regular basis, as well as when economic or market concerns warrant such evaluation. NaN declines at March 31, 2022 and December 31, 2021, were deemed to be other-than-temporary.

In analyzing an issuer’s financial condition, management considers whether the federal government or its agencies issued the securities, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial statements.

11

Note 5 – Loans Receivable and the Allowance for Loan Losses -

Loans receivable at March 31, 2022 and December 31, 2021 are summarized as follows:

March 31, 

December 31, 

(in thousands)

    

2022

    

2021

Mortgage Loans

 

  

 

  

1-4 Family

$

65,686

$

66,356

Multifamily

 

2,390

 

2,780

Construction and Land

 

6,499

 

4,576

Commercial Real Estate

1,468

 

1,480

Consumer Loans

 

230

 

239

 

76,273

 

75,431

Plus (Less):

 

  

 

  

Unamortized Loan Fees/Costs

 

1,367

 

1,370

Allowance for Loan Losses

 

(858)

 

(858)

Net Loans Receivable

$

76,782

$

75,943

The performing mortgage loans are pledged, under a blanket lien, as collateral securing advances from the FHLB at March 31, 2022 and December 31, 2021.

Management evaluates the allowance for loan losses to assess the risk of loss in the loan portfolio and to determine the adequacy of the allowance for loan losses. For purposes of this evaluation, loans are aggregated into pools based on various characteristics. Some of those characteristics include payment status, concentrations, and loan to collateral value and the financial status of borrowers. The allowance allocated to each of these pools is based on historical charge-off rates, adjusted for changes in the credit risk characteristics within these pools, as determined from current information and analyses. In determining the appropriate level of the allowance, management also ensures that the overall allowance appropriately reflects current macroeconomic conditions, industry exposure and a margin for the imprecision inherent in most estimates of expected credit losses. In addition to these factors, management also considers the following for each segment of the loan portfolio when determining the allowance:

Residential mortgages - This category consists of loans secured by first and junior liens on residential real estate. The performance of these loans may be adversely affected by unemployment rates, local residential real estate market conditions and the interest rate environment.

Commercial real estate - This category consists of loans primarily secured by office buildings, and retail shopping facilities. The performance of commercial real estate loans may be adversely affected by conditions specific to the relevant industry, the real estate market for the property type and geographic region where the property or borrower is located.

Construction and land - This category consists of loans to finance the ground-up construction and/or improvement of construction of residential and commercial properties and loans secured by land. The performance of construction and land loans is generally dependent upon the successful completion of improvements and/or land development for the end user, the sale of the property to a third party, or a secondary source of cash flow from the owners. The successful completion of planned improvements and development maybe adversely affected by changes in the estimated property value upon completion of construction, projected costs and other conditions leading to project delays.

Multi-family residential - This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. The performance of multi-family loans is generally dependent on the receipt of rental income from the tenants who occupy the subject property. The occupancy rate of the subject property and the ability of the tenants to pay rent may be adversely affected by the location of the subject property and local economic conditions.

12

Consumer - This category consists of loans to individuals for household, family and other personal use. The performance of these loans may be adversely affected by national and local economic conditions, unemployment rates and other factors affecting the borrower's income available to service the debt. All of our consumer loans are secured by our customers’ savings accounts and/or certificates of deposit.

As a result of the uncertainties inherent in the estimation process, management’s estimate of loan losses and the related allowance could change in the near term.

Based on management’s periodic evaluation of the allowance for loan losses, a provision for loan losses is charged to operations if additions to the allowance are required. Actual loan charge-offs are deducted from the allowance and subsequent recoveries of previously charged-off loans are added to the allowance.

The following tables set forth, as of March 31 2022 and December 31, 2021, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

Allowance for Loan Losses and Recorded Investment in Loans Receivable
March 31, 2022 (in thousands)

Mortgage-

Mortgage-

Mortgage-

Mortgage-

Construction

Commercial

    

1-4 Family

    

Multifamily

    

and Land

    

Real Estate

    

Consumer

    

Total

Allowance for Loan Losses:

 

 

  

 

  

 

  

 

  

 

  

Beginning Balance

$

752

$

21

$

63

$

22

$

$

858

Charge-Offs

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

Provision (Credit)

 

4

 

(3)

 

(1)

 

 

 

Ending Balance

$

756

$

18

$

62

$

22

$

$

858

Ending Balance:

 

  

 

  

 

  

 

  

 

  

 

  

Individually Evaluated for Impairment

$

$

$

$

$

$

Collectively Evaluated for Impairment

$

756

$

18

$

62

$

22

$

$

858

Loans Receivable:

 

  

 

  

 

  

 

  

 

  

Ending Balance

$

65,686

$

2,390

$

6,499

$

1,468

$

230

$

76,273

Ending Balance:

 

  

 

  

 

  

 

  

 

  

 

  

Individually Evaluated for Impairment

$

$

$

$

$

$

Collectively Evaluated for Impairment

$

65,686

$

2,390

$

6,499

$

1,468

$

230

$

76,273

The allowance for loan losses for Mortgage 1-4 Family Loans of $756,000 includes an unallocated portion of $481,000 as of March 31 2022.

13

Allowance for Loan Losses and Recorded Investment in Loans Receivable
December 31, 2021 (in thousands)

    

    

    

    

Mortgage-

    

Mortgage-

    

    

    

    

Mortgage-

Mortgage-

Construction

Commercial

1-4 Family

Multifamily

and Land

Real Estate

Consumer

Total

Allowance for Loan Losses:

  

Beginning Balance

$

818

$

22

$

6

$

4

$

$

850

Charge-Offs

 

 

 

 

 

 

Recoveries

 

8

 

 

 

 

 

8

Provision (Credit)

 

(74)

 

(1)

 

57

 

18

 

 

Ending Balance

$

752

$

21

$

63

$

22

$

$

858

Ending Balance:

 

  

 

  

 

  

 

  

 

  

 

  

Individually Evaluated for Impairment

$

$

$

$

$

$

Collectively Evaluated for Impairment

$

752

$

21

$

63

$

22

$

$

858

Loans Receivable:

 

  

 

  

 

  

 

  

 

  

Ending Balance

$

66,356

$

2,780

$

4,576

$

1,480

$

239

$

75,431

Ending Balance:

 

  

 

  

 

  

 

  

 

  

 

  

Individually Evaluated for Impairment

$

$

$

$

$

$

Collectively Evaluated for Impairment

$

66,356

$

2,780

$

4,576

$

1,480

$

239

$

75,431

The allowance for loan losses for Mortgage 1-4 Family Loans of $752,000 includes an unallocated portion of $477,000 as of December 31, 2021.

Management further disaggregates the loan portfolio segments into classes of loans, which are based on the initial measurement of the loan, risk characteristics of the loan and the method for monitoring and assessing the credit risk of the loan.

Loan Grades / Classification

The primary purpose of grading loans is to assess credit quality and assist in identifying potential problem loans. Every loan in the portfolio is assigned a loan grade based on quality and level of risk. Loan grades are updated as events occur that bear on the collectability of the loan, such as change in payment flow or status of the obligor or collateral. Changes in loan grades are reported to the Board Loan Committee.

Each credit reviewed is assigned a loan grade based on the following system:

Loan Grade 1Pass – Good

Loans with no identified problems and do not require more than normal attention. The repayment source is well defined and the borrower/guarantor exhibits no inability of repaying the loan as agreed. The financial information is acceptable and the loan meets credit and policy requirements and exhibits no unusual elements of risk. The collateral is acceptable and adequate.

Loan Grade 2Pass – Fair

These are performing owner-occupied loans that exhibit diminished borrower capacity, such as sufficiently-aged Troubled Debt Restructurings or loans that are frequently delinquent more than 30 days but less than 60 days. Also included are performing investor loans with a good payment record but lack updated financial information but are judged from alternate sources to have satisfactory cash flows and a sufficiently strong guarantor.

14

Loan Grade 3Watch

Owner-occupied loans that are well-secured but are occasionally delinquent more than 60 days but less than 90. Also included are performing investor loans lacking required current financial information or that demonstrate diminished guarantor capacity and an estimated stressed debt service coverage ratio of less than 1.20.

Loan Grade 4Special Mention (For investment loans only.)

Investment loans that have potential or identified weaknesses that deserve management’s close attention. If left uncorrected, these may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. These loans are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification. Default is not imminent.

Adverse Classifications

Loan Grade 5Substandard

A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledge, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company 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 substandard.

Loan Grade 6Doubtful

A loan that has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

Credit Quality Indicators - Credit Risk Profile Based on Loan Grades at March 31, 2022 (in thousands)

    

    

    

Special

    

    

    

Pass

Watch

Mention

Substandard

Doubtful

Total

Mortgage Loans:

 

  

 

  

 

  

 

  

 

  

 

  

1 to 4 Family

$

65,686

$

$

$

$

$

65,686

Multifamily

 

2,390

 

 

 

 

 

2,390

Construction and Land

6,499

6,499

Commercial Real Estate

 

1,468

 

 

 

 

 

1,468

Non-Mortgage Loans:

 

 

 

 

 

  

 

  

Consumer

 

230

 

 

 

 

 

230

Total

$

76,273

$

$

$

$

$

76,273

Credit Quality Indicators - Credit Risk Profile Based on Loan Grades at December 31, 2021 (in thousands)

    

    

    

Special

    

    

    

Pass

Watch

Mention

Substandard

Doubtful

Total

Mortgage Loans:

 

  

 

  

 

  

 

  

 

  

 

  

1 to 4 Family

$

66,356

$

$

$

$

$

66,356

Multifamily

 

2,780

 

 

 

 

 

2,780

Construction and Land

4,576

4,576

Commercial Real Estate

 

1,480

 

 

 

 

 

1,480

Non-Mortgage Loans:

 

 

 

 

 

  

 

  

Consumer

 

239

 

 

 

 

 

239

Total

$

75,431

$

$

$

$

$

75,431

15

At March 31 2022 and December 31, 2021, loan balances outstanding on non-accrual status amounted to $0 and $0, respectively. The Company considers loans more than 90 days past due and on nonaccrual as nonperforming loans.

At March 31 2022 and December 31, 2021, the credit quality indicators (performing and nonperforming loans), disaggregated by class of loan, are as follows:

Credit Quality Indicators - Credit Risk Profile Based on Payment Activity at March 31 2022 (in thousands)

    

    

Non-

    

Performing

Performing

Total

Mortgage Loans:

 

  

 

  

 

  

1 to 4 Family

$

65,686

$

$

65,686

Multifamily

 

2,390

 

 

2,390

Construction and Land

6,499

6,499

Commercial Real Estate

 

1,468

 

 

1,468

Non-Mortgage Loans:

 

 

  

 

  

Consumer

 

230

 

 

230

Total

$

76,273

$

$

76,273

Credit Quality Indicators - Credit Risk Profile Based on Payment Activity at December 31, 2021 (in thousands)

    

    

Non-

    

Performing

Performing

Total

Mortgage Loans:

 

  

 

  

 

  

1 to 4 Family

$

66,356

$

$

66,356

Multifamily

 

2,780

 

 

2,780

Construction and Land

4,576

4,576

Commercial Real Estate

 

1,480

 

 

1,480

Non-Mortgage Loans:

 

 

  

 

  

Consumer

 

239

 

 

239

Total

$

75,431

$

$

75,431

The following tables reflect certain information with respect to the loan portfolio delinquencies by loan class and amount as of March 31, 2022 and December 31, 2021. There were 0 loans over 90 days past due and still accruing as of March 31, 2022 and December 31, 2021.

Aged Analysis of Past Due Loans Receivable at March 31, 2022 (in thousands)

    

30-59

    

60-89 

    

90 Days or

    

    

    

Total

Days

Days

Greater  

Total

Loans

Past Due

Past Due

Past Due

Past Due

Current

Receivable

Mortgage Loans:

 

 

  

 

  

 

  

 

  

 

  

1 to 4 Family

$

$

$

$

$

65,686

$

65,686

Multifamily

 

 

 

 

 

2,390

 

2,390

Construction and Land

 

 

 

 

6,499

 

6,499

Commercial Real Estate

 

 

 

 

 

1,468

 

1,468

Non-Mortgage Loans:

 

 

  

 

  

 

  

 

  

Consumer

 

 

 

 

 

230

 

230

Total

$

$

$

$

$

76,273

$

76,273

16

Aged Analysis of Past Due Loans Receivable at December 31, 2021 (in thousands)

    

30-59

    

60-89 

    

90 Days or

    

    

    

Total

Days

Days

Greater  

Total

Loans

Past Due

Past Due

Past Due

Past Due

Current

Receivable

Mortgage Loans:

 

 

  

 

  

 

  

 

  

 

  

1 to 4 Family

$

$

$

$

$

66,356

$

66,356

Multifamily

 

 

 

 

 

2,780

 

2,780

Construction and Land

4,576

4,576

Commercial Real Estate

 

 

 

 

 

1,480

 

1,480

Non-Mortgage Loans:

 

 

  

 

  

 

  

 

  

Consumer

 

 

 

 

 

239

 

239

Total

$

$

$

$

$

75,431

$

75,431

The following is a summary of information pertaining to impaired loans as of March 31, 2022 and December 31, 2021.

Impaired Loans

March 31, 2022

(in thousands)

    

    

Unpaid

    

    

Average

    

Interest

Recorded

Principal

Related

Recorded

Income

Investment

Balance

Allowance

Investment

Recognized

Mortgage Loans

$

$

$

$

$

Non-Mortgage Loans

$

$

$

$

$

Impaired Loans

December 31, 2021

(in thousands)

    

    

Unpaid

    

    

Average

    

Interest

Recorded

Principal

Related

Recorded

Income

Investment

Balance

Allowance

Investment

Recognized

 

  

 

  

 

  

 

  

 

  

Mortgage Loans

$

$

$

$

$

Non-Mortgage Loans

$

$

$

$

$

The Company seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines. Once modified in a troubled debt restructuring, a loan is generally considered impaired until its contractual maturity. At the time of the restructuring, the loan is evaluated for an asset-specific allowance for loan losses. The Company continues to specifically reevaluate the loan in subsequent periods, regardless of the borrower’s performance under the modified terms. If a borrower subsequently defaults on the loan after it is restructured, the Company provides an allowance for loan losses for the amount of the loan that exceeds the value of the related collateral.

The Company had 0 troubled debt restructurings as of March 31, 2022 and December 31, 2021 or any that defaulted subsequent to the restructuring through the date the financial statements were issued.

17

Note 6 – Regulatory Matters -

The Bank is subject to various regulatory capital requirements administered by its primary Federal regulator, the Office of the Comptroller of the Currency (OCC). Failure to meet the minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and the financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory reporting requirements. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total capital, tier 1 capital, and common equity tier 1 capital to risk-weighted assets (as defined in the regulations), and leverage capital, which is tier 1 capital to adjusted average total assets (as defined). Management believes, as of March 31, 2022 and December 31, 2021, that the Bank meets all the capital adequacy requirements to which it is subject.

As of March 31, 2022 and December 31, 2021, the most recent notifications from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as well capitalized, the Bank will have to maintain minimum total capital, common equity tier 1 capital, tier 1 capital, and leveraged capital ratios as disclosed in the table below. There are no conditions or events since the most recent notification that management believes have changed the Bank’s category. The Bank’s actual and required capital amounts and ratios are as follows:

To be Well

 

Capitalized Under

 

For Capital

Prompt Corrective

 

March 31, 2022:

Actual

Adequacy Purposes

Action Provisions

 

(dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

Total Capital

 

  

 

  

 

  

 

  

 

  

 

  

(to Risk Weighted Assets)

$

20,152

39.11

%  

$

4,122

8.00

%  

$

5,152

10.00

%

Tier 1 Capital

 

 

 

(to Risk Weighted Assets)

$

19,506

37.86

%  

$

3,091

6.00

%  

$

4,122

8.00

%

Common Equity Tier 1 Capital

 

 

 

(to Risk Weighted Assets)

$

19,506

37.86

%  

$

2,318

4.50

%  

$

3,349

6.50

%

Tier 1 Leverage Capital

 

 

 

(to Adjusted Total Assets)

$

19,506

19.03

%  

$

4,101

4.00

%  

$

5,126

5.00

%

To be Well

 

Capitalized Under

 

For Capital

Prompt Corrective

 

December 31, 2021:

Actual

Adequacy Purposes

Action Provisions

 

(dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

Total Capital

 

  

 

  

 

  

 

  

 

  

 

  

(to Risk Weighted Assets)

$

20,098

39.49

%  

$

4,071

8.00

%  

$

5,089

10.00

%

Tier 1 Capital

 

 

 

(to Risk Weighted Assets)

$

19,460

38.24

%  

$

3,054

6.00

%  

$

4,071

8.00

%

Common Equity Tier 1 Capital

 

 

 

(to Risk Weighted Assets)

$

19,460

38.24

%  

$

2,290

4.50

%  

$

3,308

6.50

%

Tier 1 Leverage Capital

 

 

 

(to Adjusted Total Assets)

$

19,460

18.72

%  

$

4,159

4.00

%  

$

5,198

5.00

%

18

A reconciliation of the Bank’s capital determined under GAAP to Total Capital, Tier 1 Capital, Common Equity Tier 1 Capital and Tier 1 Leverage Capital for March 31, 2022 and December 31, 2021, is as follows:

    

March 31, 

    

December 31, 

(in thousands)

    

2022

    

2021

Total Equity (Bank Only)

$

19,421

$

19,485

Unrealized Losses (Gains) on Securities

 

  

 

  

Available-for-Sale, Net

 

85

 

(25)

Tangible, Tier 1 Capital and Common Equity Tier 1

 

19,506

 

19,460

Allowance for Loan Losses Included in Capital

 

646

 

638

Total Capital

$

20,152

$

20,098

The specific reserves included in the Allowance for Loan Losses were not significant as of March 31, 2022 and December 31, 2021.

Note 7 – Commitments and Contingencies -

In the normal course of business, the Company has outstanding commitments, such as commitments to extend credit, which are not included in the accompanying financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the Balance Sheets.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation.

At March 31, 2022 and December 31, 2021, the Company had $6.8 million and $9.0 million of outstanding commitments to originate loans, respectively, each of which represents the balances of remaining funds to be disbursed on construction loans in process. In recent years we have sold loans on an industry-standard, servicing-released basis. At March 31, 2022, there were mortgage loans sold to investors with limited recourse for certain periods after the date of sale totaling $8.1 million at the sale date. Recourse would apply if the borrower(s) default on any payment within the first four months of the mortgage loan and it remains in default for a period of 90 days, or if the mortgage loan prepays in full within 180 days of the sale date. Should an early payment default occur, Eureka Homestead shall, at its sole discretion, repurchase such mortgage loan from the purchaser at its current amortized balance plus the service release premium received or indemnify the purchaser by paying the service release premium received plus $5,000. Should a mortgage loan prepay in full within 180 days of the sale date, Eureka Homestead shall refund to the purchaser the servicing release premium paid. There have been mortgage loans sold that had an early payment default or that prepaid in full during the recourse period.

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management and counsel, the disposition or ultimate resolution of such proceedings would not have a material adverse effect on the Company's consolidated financial statements.

Note 8 – Fair Values of Financial Instruments -

Fair Value Disclosures

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with FASB ASC 820, Fair Value Measurements, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly

19

transaction between market participants at the measurement date. Fair value is best determined based on quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments.

In cases where quoted market prices are not available, fair values are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value accounting guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques 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 under this guidance are described below.

Level 1 - Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 - Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include the following:

a.Quoted prices for similar assets or liabilities in active markets;
b.Quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers (for example, some brokered markets), or in which little information is released publicly (for example, a principal-to principal market);
c.Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates); and
d.Inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

Level 3 - Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Therefore, unobservable inputs shall reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs shall be developed based on the best information available in the circumstances, which might include the reporting entity’s own data.

However, the reporting entity’s own data used to develop unobservable inputs shall be adjusted if information is reasonably available without undue cost and effort that indicates that market participants would use different assumptions.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Recurring Basis

Fair values of investment securities and mortgage-backed securities were primarily measured using information from a third-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.

20

The following tables present the balances of assets measured on a recurring basis as of March 31, 2022 and December 31, 2021. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

Fair Value at Reporting Date Using

    

    

Quoted Prices

    

    

in Active

Significant

Markets

Other

Significant

for Identical

Observable

Unobservable

March 31, 2022:

Fair

Assets

Inputs

Inputs

(in thousands)

Value

(Level 1)

(Level 2)

(Level 3)

Mortgage-Backed Securities

 

  

 

  

 

  

 

  

FHLMC

$

2,426

$

$

2,426

$

SBA 7a Pools

 

2,165

 

 

2,165

 

Total Investment Securities

$

4,591

$

$

4,591

$

Fair Value at Reporting Date Using

    

    

Quoted Prices

    

    

in Active

Significant

Markets

Other

Significant

for Identical

Observable

Unobservable

December 31, 2021:

Fair

Assets

Inputs

Inputs

(in thousands)

Value

(Level 1)

(Level 2)

(Level 3)

Mortgage-Backed Securities

 

  

 

  

 

  

 

  

FHLMC

$

2,767

$

$

2,767

$

SBA 7a Pools

2,562

 

 

2,562

Total Investment Securities

$

5,329

$

$

5,329

$

Non-recurring Basis

The Company has segregated all financial assets and liabilities that are measured at fair value on a non-recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a non-recurring basis.

The fair value of the impaired loans is measured at the fair value of the collateral for collateral-dependent loans. Impaired loans are Level 2 assets measured using appraisals from external parties of the collateral less any prior liens. Repossessed assets are initially recorded at fair value less estimated costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Company records repossessed assets as Level 2. The Company had no impaired loans or repossessed assets at March 31, 2022 or December 31, 2021.

FASB ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments for which it is practicable to estimate fair value, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The derived fair value estimates cannot be substantiated through comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. FASB ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Further, the disclosures do not include estimated fair values for items which are not financial instruments but which represent significant value to the Company, including core deposit intangibles and other fee-generating operations of the business. Reasonable comparability of fair value estimates between financial institutions may not be possible due to the wide range of permitted valuation techniques and numerous assumptions involved. The aggregate fair value amounts presented do not, and are not intended to, represent an aggregate measure of the underlying fair value of the Company.

21

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 - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Interest-Bearing Deposits in Banks- The carrying amount is a reasonable estimate of fair value.

Investment Securities (including mortgage-backed securities) - For investment securities, including mortgage-backed securities, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans - The fair value of loans is estimated using discounted cash flow analyses, using the interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Loans Held-for-Sale - The loans held-for sale are recorded at the lower of aggregate cost or market value which is a reasonable estimate of fair value.

FHLB Stock - The carrying amount is a reasonable estimate of fair value.

Cash Surrender Value of Life Insurance - The carrying amount is a reasonable estimate of fair value.

Accrued Interest Receivable and Accrued Interest Payable - The carrying amounts of accrued interest receivable and accrued interest payable approximate the fair values.

Deposits - The fair value of savings accounts and certain money market deposits is the amount payable on demand at the reporting date (carrying value). The fair value of fixed maturity certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities.

Advances from the FHLB - The fair values of the Advances from the FHLB are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Loan Commitments - For commitments to extend credit, fair value considers the difference between current levels of interest rates and the committed rates.

22

The estimated fair values of the Company’s financial instruments are as follows as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022

December 31, 2021

    

Carrying

    

Fair

    

Carrying

    

Fair

Amount

Value

Amount

Value

Financial Assets:

 

  

 

  

 

  

 

  

Cash and Cash Equivalents

$

3,755

$

3,755

$

7,316

$

7,316

Interest-Bearing Deposits in Banks

 

7,486

 

7,486

 

7,742

 

7,742

Investment Securities

 

4,591

 

4,591

 

5,329

 

5,329

Loans - Net

 

76,782

 

71,331

 

75,943

 

77,483

Loans Held-for-Sale

 

1,203

 

1,203

 

401

 

401

Accrued Interest Receivable

 

394

 

394

 

421

 

421

FHLB Stock

 

1,450

 

1,450

 

1,448

 

1,448

Cash Surrender Value of Life Insurance

 

4,246

 

4,246

 

4,225

 

4,225

Financial Liabilities:

 

  

 

  

 

  

 

  

Deposits

 

59,905

 

57,751

 

60,963

 

60,756

Advances from FHLB

 

18,225

 

17,908

 

18,218

 

18,622

Accrued Interest Payable

 

37

 

37

 

51

 

51

The carrying amounts in the preceding table are included in the balance sheet under the applicable captions; accrued interest payable is included in accrued expenses and other liabilities in the balance sheet. The contract or notional amounts of the Company’s financial instruments with off balance sheet risk are disclosed in Note 7.

Note 9 – Change in Corporate Form -

On July 9, 2019, Eureka Homestead (the “Bank”) converted to a federal stock savings and loan association and established a stock holding company, Eureka Homestead Bancorp, Inc. (the “Company”), as parent of the Bank.

In connection with the conversion, the Bank issued all of its common stock to the Company, becoming the wholly owned subsidiary of the Company, and the Company issued and sold shares of its capital stock pursuant to an independent valuation appraisal of the Bank and the Company. The stock was priced at $10.00 per share. In addition, the Bank’s board of directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering. The Conversion was completed on July 9, 2019 and resulted in the issuance of 1,429,676 common shares by the Company. The cost of the Conversion and issuing the capital stock totaled $1.2 million and was deducted from the proceeds of the offering.

In accordance with OCC regulations, at the time of the Conversion, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation by the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

The Conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

Note 10 – Employee Stock Ownership Plan -

As part of the stock conversion, shares were purchased by the ESOP with a loan from Eureka Homestead Bancorp, Inc. All employees of the Bank meeting certain tenure requirements are entitled to participate in the ESOP.

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Compensation expense related to the ESOP for the three-month period ended March 31, 2022 was approximately $16,000.

The stock price when issued was $10 per share.  The fair value of the 100,000 unallocated shares was approximately $1.5 million based on the average price of our common stock for the quarter ended March 31, 2022, of $14.68 per share.

Note 11 – Equity Incentive Plan

In August 2020, the Company's stockholders approved the 2020 Eureka Homestead Bancorp, Inc. Equity Incentive Plan (the “2020 Plan” or the “Plan”). No more than 200,154 shares of the Company's common stock may be issued under the Plan, of which a maximum of 142,967 may be issued pursuant to the exercise of stock options and 57,187 may be issued pursuant to restricted stock awards, restricted stock units and unrestricted share awards. Stock options awarded to employees may be incentive stock options or non-qualified stock options. The shares that may be issued may be authorized but unissued shares. The Plan permits the grant of incentive awards in the form of options, stock appreciation rights, restricted share and share unit awards, and performance share awards. The 2020 Plan contains limits on certain types of awards to individual participants.

Awards may vest or become exercisable only upon the achievement of performance measures or based solely on the passage of time after award.  Stock options and restricted stock awards provide for accelerated vesting upon death, disability or if there is an involuntary termination of service following a change in control (as defined in the Plan).

 

On December 21, 2021, the Company made a grant of restricted shares for 3,225 shares, to a member of Management. The award vests over a three-year period.

 

Restricted Shares

 

Restricted shares are accounted for as fixed grants using the fair value of the Company's stock at the time of the grant.  Unvested restricted shares may not be disposed of or transferred during the vesting period.

 

The table below presents the restricted stock award activity for the period shown:

Weighted Average

Restricted

Fair Value at

    

Stock Awards

    

Grant Date

Non-vested at January 1, 2022

3,225

 

$

13.95

Granted

Vested

Forfeited

Non-vested at March 31, 2022

3,225

 

$

13.95

As of March 31, 2022, the Company had $41,000 of unrecognized compensation expense related to restricted shares, having recognized $4,000 of compensation expense for the three months ended March 31, 2022.  The cost of the restricted shares will be amortized in monthly installments over the three-year vesting period.

Note 12 - Subsequent Events -

Management has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued.

24

Item 2.

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

General

Management’s discussion and analysis of the financial condition at March 31, 2022 and results of operations for the three months ended March 31, 2022 and 2021 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

COVID-19 Impacts

The effects of the COVID-19 pandemic and the governmental and societal response to the virus have negatively impacted overall economic conditions.

The Federal and state governments have worked to contain the spread of COVID-19. The result of these containment strategies has had an enormous impact on the economy and has had a negative impact on some borrowers’ ability to make timely loan payments. In recent months, a number of restrictive government initiatives designed to combat the effects of the COVID-19 pandemic have been eased on a national level and in Louisiana, as well as the rollout of three COVID-19 vaccines, allowing businesses to reopen at varying capacity levels, which has bolstered commercial activity and employment to some degree. However, another resurgence in infections and reimplementation of new and/or additional restrictions at the national and local level to combat the COVID-19 pandemic may present additional negative impacts to the economy and our customers. The duration and severity of the COVID-19 pandemic remain impossible to predict. The Federal Reserve Board and other various regulatory agencies have issued joint guidance to financial institutions to work with borrowers affected by the coronavirus. The Company instituted a loan deferment program whereby short-term deferrals of payments were allowed. Deferred payments are due at the time the loan is paid off. As of March 31, 2022 all of the loans modified by us have resumed normal monthly payments. We did not report these loans as delinquent and continued to recognize interest income during the deferral period. No increase in the allowance for loan losses was deemed necessary on these loans. These loans will continue to be monitored to determine collectability and accrual and delinquency status will be updated as deemed appropriate.

Under Section 4013 of the Coronavirus Aid, Relief and Economic Security ("CARES") Act, loans less than 30 days past due as of December 31, 2019 were considered current for COVID-19 modifications. A financial institution could then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (“TDR”), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Financial institutions wishing to utilize this authority were required to make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. Lastly, prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act. Based on this guidance, the Company does not believe that TDRs will significantly change as a result of the modifications granted. The full impact on our lending and other business activities as a result of new government and regulatory policies, programs and guidelines, as well as regulators’ reaction to such activities, remains uncertain.

25

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the asset quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

our ability to manage our operations under the economic conditions in our market area;
adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);
economic and/or policy changes related the COVID-19 pandemic;
significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;
credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;
the use of estimates in determining fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuations;
competition among depository and other financial institutions;
our success in increasing our one- to four-family residential real estate lending, multifamily real estate lending and commercial real estate lending;
our ability to attract and maintain deposits and to grow our core deposits, and our success in introducing new financial products;
our ability to maintain our asset quality even as we continue to grow our loan portfolios;
our reliance in part on funding sources, including out-of-market jumbo deposits and borrowings, other than core deposits to support our operations;

26

changes in interest rates generally, including changes in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;
fluctuations in the demand for loans;
changes in consumer spending, borrowing and savings habits;
declines in the yield on our assets resulting from the current low interest rate environment;
risks related to a high concentration of loans secured by real estate located in our market area;
the results of examinations by our regulators, including the possibility that our regulators may, among other things, have judgments different than management’s, and we may determine to increase our allowance or write down assets as a result of these regulatory examinations; change our regulatory capital position; limit our ability to borrow funds or maintain or increase deposits; or prohibit us from paying dividends, which could adversely affect our dividends and earnings;
changes in the level of government support of housing finance;
our ability to enter new markets successfully and capitalize on growth opportunities;
changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, particularly the new capital regulations, and the resources we have available to address such changes;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;
changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;
loan delinquencies and changes in the underlying cash flows of our borrowers;
our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;
the failure or security breaches of computer systems on which we depend;
the ability of key third-party service providers to perform their obligations to us;
changes in the financial condition or future prospects of issuers of securities that we own; and
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

27

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in Eureka Homestead Bancorp, Inc.’s Annual Report in Form 10-K as filed with the Securities and Exchange Commission on March 23, 2022.

Comparison of Financial Condition at March 31, 2022 and December 31, 2021

Total Assets. Total assets decreased $2.9 million, or 2.8%, to $100.7 million at March 31, 2022 from $103.6 million at December 31, 2021. The decrease was due to decreases in cash and cash equivalents of $3.6 million, in interest-bearing deposits in banks of $256,000 and in investment securities available-for-sale of $738,000, offset, in part, by increases in net loans of $839,000, in loans held-for-sale of $802,000 and in other assets of $20,000.

Net Loans. Net loans increased $839,000, or 1.1%, to $76.8 million at March 31, 2022 from $75.9 million at December 31, 2021. One- to four-family residential real estate loans decreased $670,000, or 1.0%, to $65.7 million at March 31, 2022 from $66.4 million at December 31, 2021, multifamily loans decreased $390,000, or 14.0%, to $2.4 million at March 31, 2022 from $2.8 million at December 31, 2021, construction and land loans increased $1.9 million, or 42.0% to $6.5 million at March 31, 2022 from $4.6 million at December 31, 2021, commercial real estate loans decreased $12,000, or 0.8%, to $1.5 million at March 31, 2022 from $1.5 million at December 31, 2021 and consumer loans decreased $9,000, or 3.8%, to $230,000 at March 31, 2022 from $239,000 at December 31, 2021.

The increase in net loans was due primarily to an increase in construction loans earning higher interest rates than similar conforming loans, which are generally sold. The decreases in all other loans were due to normal repayments.

Cash and Cash Equivalents. Cash and cash equivalents decreased $3.6 million, or 48.7%, to $3.8 million at March 31, 2022 from $7.3 million at December 31, 2021.

Interest-Bearing Deposits in Banks. Interest-bearing deposits in banks decreased $256,000, or 3.3%, to $7.5 million at March 31, 2022 from $7.7 million at December 31, 2021.

The net of these two balance sheet line items was a decrease of $3.8 million principally due to the increase in loans, decrease in deposits and the repurchase of $1.8 million of shares of common stock.

Securities Available-for-Sale. Investment securities available-for-sale, consisting of government-sponsored mortgage-backed securities and SBA 7a pools backed by equipment and mortgage loans, decreased $738,000, or 13.8%, to $4.6 million at March 31, 2022 from $5.3 million at December 31, 2021 as a result of normal repayments.

Deposits. Deposits decreased $1.1 million, or 1.7%, to $59.9 million at March 31, 2022 from $61.0 million at December 31, 2021, principally due to a decrease of $1.2 million in certificates of deposit, or 2.1%, to $55.6 million at March 31, 2022 from $56.8 million at December 31, 2021, offset, in part, by an increase of $125,000 in savings accounts, or 3.6% to $3.6 million at March 31, 2022 from $3.4 million at December 31, 2021. The decrease in certificates of deposit resulted primarily from decreases in local retail certificates of deposit and certificates of deposit from municipalities. Depending on market conditions, at times we have utilized non-retail funding sources to fund our loan origination and growth and to replace Federal Home Loan Bank advances, as well as in order to get longer-term funding not always available in the local market in to help reduce interest rate risk.

Total Equity. Total equity decreased $1.9 million, or 8.6%, to $20.0 million at March 31, 2022 from $21.8 million at December 31, 2021. The decrease resulted primarily from the repurchase of $1.8 million of shares of common stock and an increase in accumulated other comprehensive loss of $110,000.

Comparison of Operating Results for the Three Months Ended March 31, 2022 and 2021

General. We had a net loss of $14,000 for the three months ended March 31, 2022, compared to a net income of $80,000 for the three months ended March 31, 2021, a decrease of $94,000. The decrease in net loss This decrease

28

resulted from a decrease in noninterest income of $63,000 and an increase in noninterest expense of $57,000, offset, in part, by an increase in net interest income of $18,000 and a decrease of $8,000 in provision for loan losses.

Interest Income. Interest income decreased $34,000, or 4.7%, to $691,000 for the three months ended March 31, 2022 from $725,000 for the three months ended March 31, 2021. This decrease was principally attributable to a decrease in interest on loans receivable of $34,000, or 4.8%. The average balance of loans increased $1.7 million, or 2.3%, to $77.0 million for the three months ended March 31, 2022 from $75.3 million for the three months ended March 31, 2021, and the average yield on loans decreased 26 basis points to 3.49% for the three months ended March 31, 2022 from 3.75% for the three months ended March 31, 2021. The average balance of investment securities decreased $821,000, or 13.8%, to $5.1 million for the three months ended March 31, 2022 from $5.9 million for the three months ended March 31, 2021, while the average yield on investment securities increased 8 basis points to 1.02% for the three months ended March 31, 2022 from 0.94% for the three months ended March 31, 2021. The average balance of other interest-earning assets increased $34,000, or 0.3%, to $12.8 million for the three months ended March 31, 2022 from $12.8 million for the three months ended March 31, 2021, and the average yield on other interest-earning assets increased 3 basis points to 0.19% for the three months ended March 31, 2022 from 0.16% for the three months ended March 31, 2021.

Interest Expense. Total interest expense decreased $52,000, or 16.5%, to $264,000 for the three months ended March 31, 2022 from $316,000 for the three months ended March 31, 2021. The decrease was due to decreases of $39,000, or 19.5%, in interest expense on deposits and $13,000, or 11.2%, in interest expense on advances from the FHLB. The average balance of interest-bearing deposits increased $1.4 million, or 2.4%, to $60.3 million for the three months ended March 31, 2022 from $58.9 million for the three months ended March 31, 2021, and the average cost of interest-bearing deposits in banks decreased 29 basis points to 1.07% for the three months ended March 31, 2022 from 1.36% for the three months ended March 31, 2021, resulting from lower market interest rates period to period. The average balance of FHLB advances decreased $1.2 million, or 6.3%, to $18.2 million for the three months ended March 31, 2022 from $19.4 million for the three months ended March 31, 2021. The average cost of these advances decreased 13 basis points to 2.26% for the three months ended March 31, 2022 from 2.39% for the three months ended March 31, 2021.

Net Interest Income. Net interest income increased $18,000, or 4.4%, to $427,000 for the three months ended March 31, 2022 from $409,000 for the three months ended March 31, 2021. Average net interest-earning assets increased $741,000 period to period. This increase was due primarily to an increase in loans receivable, offset, in part, by a decrease in investment securities. Our interest rate spread increased 9 basis points to 1.56% for the three months ended March 31, 2022 from 1.47% for the three months ended March 31, 2021, and our net interest margin increased 6 basis points to 1.80% for the three months ended March 31, 2022 from 1.74% for the three months ended March 31, 2021. The increases in interest rate spread and interest rate margin were primarily the result of interest rates on average interest-bearing assets rising more than interest rates on interest-earning liabilities during the three months ended March 31, 2022 versus the three months ended March 31, 2021.

Provision for Loan Losses. There was no provision for loan losses for the three months ended March 31, 2022 compared to a provision for loan losses of $8,000 for the three months ended March 31, 2021. The allowance for loan losses was $858,000, or 1.12% of total loans, at March 31, 2022, compared to $858,000, or 1.14% of total loans, at December 31, 2021, and $850,000, or 1.13%, of total loans, at March 31, 2021. Classified (substandard, doubtful and loss) loans decreased to $0 at March 31, 2022 and at December 31, 2021 from $610,000 at March 31, 2021. There were no non-performing loans at March 31, 2022, December 31, 2021 or March 31, 2021. There were no charge-offs or recoveries for the three months ended March 31, 2022 or for the three months ended March 31, 2021.

Effective January 1, 2023, we will adopt the CECL standard for determining the amount of our allowance for credit losses, which we expect will increase our allowance for loan and lease losses upon adoption and cause our historic allowance for loan and lease losses not to be indicative of how we will maintain our allowance for credit losses beginning January 1, 2023. Please see Note 2 – Recent Accounting Pronouncements in the notes to our unaudited financial statements contained herein

29

Noninterest IncomeNoninterest income decreased $63,000, or 23.2%, to $209,000 for the three months ended March 31, 2022 from $272,000 for the three months ended March 31, 2021. The decrease was principally due to decreases of $43,000, or 19.4%, in fees on loans sold, $19,000, or 67.9%, in service charges and other income and $1,000, or 4.5%, in income from life insurance.

Noninterest Expense. Noninterest expense increased $57,000, or 9.6%, to $650,000 for the three months ended March 31, 2022 from $593,000 for the three months ended March 31, 2021. The increase was primarily due to an increase of $9,000, or 2.3%, in salaries and employee benefits, resulting primarily from an increase in commissions and related expenses on higher loan volume period to period, as well as increases of $1,000, or 2.0%, in occupancy expense, $21,000, or 55.3%, in accounting and consulting expense, $3,000, or 14.3%, in insurance expense, $3,000, or 25.0%, in legal expense and $22,000, or 53.7%, in other expenses. The increases were offset, in part, by a decrease of $2,000, or 10.0%, in data processing expense.

In future periods, if we make additional grants of awards under our equity incentive plan which was approved by our stockholders, we would expect our noninterest expense to increase due to increased compensation expenses.

Income Tax Expense. There was no income tax expense for the three months ended March 31, 2022 or for the three months ended March 31, 2021, principally due to net operating loss tax carryforwards from prior years. The effective tax rate was 0.00% for the three months ended March 31, 2022 and 0.00% for the same quarter in 2021.

To provide financial assistance and liquidity to taxpayers during the COVID-19 pandemic, the CARES Act amended the federal income tax rules with regard to the usage of net operating losses (“NOLs”) for corporate taxpayers. The CARES Act allows for the carryback of losses arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to be carried back to each of the five taxable years preceding the taxable year of the loss.  The CARES Act also temporarily repeals the 80% limitation for NOLs arising in tax years beginning after December 31, 2017 and beginning before January 1, 2021 and carried to another tax year. These NOLs are now permitted to fully offset the loss corporation’s pre-2021 taxable income.

Liquidity and Capital Resources. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from the sale of loans. We also have the ability to borrow from the FHLB. At March 31, 2022, we had $18.2 million outstanding in advances from the FHLB, and had the capacity to borrow approximately an additional $18.0 million from the FHLB and an additional $6.6 million on a line of credit with First National Bankers’ Bank, Baton Rouge, Louisiana at this date.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing deposits in banks. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $77,000 and $1.9 million for the three months ended March 31, 2022 and 2021, respectively. Net cash provided by (used in) investing activities, which consists primarily of net change in loans receivable, net change in interest-bearing deposits in banks and net change in investment securities, was $17,000 and ($60,000) for the three months ended March 31, 2022 and 2021, respectively. Net cash (used in) provided by financing activities, consisting primarily of activity in deposit accounts, advances from Federal Home Loan Bank, advance payments by borrowers for taxes and insurance, and repurchases of common stock, was ($3.7 million) and $2.1 million for the three months ended March 31, 2022 and 2021, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

30

At March 31, 2022, the Bank exceeded all regulatory capital requirements with a Tier 1 leverage capital level of $19.5 million, or 19.03% of adjusted average total assets, which is above the well-capitalized required level of $5.1 million, or 5.0%; and total risk-based capital of $20.2 million, or 39.11% of risk-weighted assets, which is above the well-capitalized required level of $5.2 million, or 10.0%; and common equity Tier 1 capital of $19.5 million or, 37.86% of risk weighted assets, which is above the well-capitalized required level of $3.3 million, or 6.5% of risk weighted assets. Accordingly, Eureka Homestead was categorized as well capitalized at March 31, 2022. Management is not aware of any conditions or events since the most recent notification that would change our category.

Off-Balance Sheet Commitments. Information about our off-balance sheet commitments may be found in Item 1 of this report in Note 7 to the Consolidated Financial Statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Registrant is a smaller reporting company.

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2022. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended March 31, 2022, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

31

Part II – Other Information

Item 1.

Legal Proceedings

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

Item 1A.

Risk Factors

Not applicable, as the Registrant is a smaller reporting company.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a)

There were no sales of unregistered securities during the period covered by this Report.

(b)

Not applicable.

(c)

The Company’s purchases of its common stock made during the quarter consisted of stock repurchases under the Company’s approved plans and are set forth in the following table.

Total Number of

Maximum Number

Total

Shares Purchased

of Shares that May

Number of

Average Price

as Part of Publicly

Yet be Purchased

Shares

Paid Per

Announced Plans

Under the Plan or

Period

    

Purchased

    

Share

    

or Programs

    

Programs (1)

January 1 through
January 31, 2022

 

$

 

 

187,094

February 1 through
February 28, 2022

 

2,500

$

14.55

 

2,500

 

184,594

March 1 through
March 31, 2022

 

117,000

$

14.83

 

117,000

 

67,594

Total

 

119,500

$

14.83

 

119,500

 

67,594

(1)On August 31, 2020, the Board of Directors of the Company authorized a stock repurchase program under which it may repurchase up to 71,483 shares, or 5.0%, of the Company’s then-outstanding common stock. On September 16, 2020, the Board of Directors of the Company authorized the repurchase of an additional 108,655 shares or 8.0%, of the Company’s then-outstanding common stock. On December 4, 2020, the Board of Directors authorized the repurchase of an additional 129,390 shares or 10%, of the Company’s then-outstanding common stock. On November 22, 2021, the Board of Directors authorized the repurchase of an additional 118,840 shares or 10%, of the Company’s then-outstanding common stock. These repurchase programs will continue until they are completed or terminated by the Company’s Board of Directors.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

32

Item 6.

Exhibits

3.1

    

Articles of Incorporation (1)

3.2

Bylaws (1)

4

Form of Common Stock Certificate (1)

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

104

Inline XBRL Cover Page Interactive Data File

(1)Incorporated by reference to the Registration Statement on Form S-1 (file no. 333-230193), filed on March 11, 2019

33

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 HOMESTEAD BANCORP, INC.

Date:  May 10, 2022

/s/ Alan T. Heintzen

Alan T. Heintzen

Chief Executive Officer

Date:  May 10, 2022

/s/ Cecil A. Haskins, Jr.

Cecil A. Haskins, Jr.

President and Chief Financial Officer

34