Eureka Homestead Bancorp, Inc. - FORM 10-Q

Attached files

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EX-32 - EX-32 - Eureka Homestead Bancorp, Inc.	ehb-20200930xex32.htm
EX-31.2 - EX-31.2 - Eureka Homestead Bancorp, Inc.	ehb-20200930ex31266bb24.htm
EX-31.1 - EX-31.1 - Eureka Homestead Bancorp, Inc.	ehb-20200930ex31198edb5.htm

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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 September 30, 2020

◻ 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 November 13, 2020, 1,315,302 shares of the Company’s common stock, par value $0.01 per share, were issued and outstanding.

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Eureka Homestead Bancorp, Inc.

Form 10-Q

Index


		Page
	Part I. Financial Information

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 (audited)	3

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	5

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	6

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (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	33

Item 4.	Controls and Procedures	33

	Part II. Other Information

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

	Signature Page	36

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Part I. – Financial Information

Item 1.

Consolidated Financial Statements

EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

(in thousands)


	September 30,		December 31,
	2020		2019
	(Unaudited)		(Audited)

ASSETS

Cash and Cash Equivalents	$	5,736	$	11,875
Interest-Bearing Deposits in Banks		13,233		1,740
Investment Securities		6,266		5,320
Loans Receivable, Net		68,633		78,785
Loans Held-for-Sale		2,581		1,637
Accrued Interest Receivable		476		321
Federal Home Loan Bank Stock		1,437		1,418
Premises and Equipment, Net		674		704
Cash Surrender Value of Life Insurance		4,114		4,044
Deferred Tax Asset		—		5
Prepaid Expenses and Other Assets		287		155
Total Assets	$	103,437	$	106,004

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Deposits	$	55,563	$	58,045
Advances from Federal Home Loan Bank		21,766		21,581
Advance Payments by Borrowers for Taxes and Insurance		1,203		1,425
Deferred Tax Liability		13		—
Accrued Expenses and Other Liabilities		1,714		669
Total Liabilities		80,259		81,720

Commitments and Contingencies (Note 7)

Shareholders' Equity:
Preferred Stock, $0.01 Par Value, 1,000,000 Shares Authorized, No Shares Issued		—		—
Common Stock, $0.01 Par Value, 9,000,000 Shares Authorized, 1,315,302 and 1,429,676 Shares Issued and Outstanding on September 30, 2020 and December 31, 2019		13		14
Additional Paid-in Capital		12,016		13,112
Unallocated Common Stock Held by:
Employee Stock Ownership Plan (ESOP)		(1,063)		(1,098)
Retained Earnings		12,163		12,274
Accumulated Other Comprehensive Income (Loss)		49		(18)
Total Shareholders' Equity		23,178		24,284
Total Liabilities and Shareholders' Equity	$	103,437	$	106,004

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

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EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (Unaudited)

(in thousands except for Earnings Per Share )


	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Interest Income:
Loans Receivable	$	645	$	865	$	2,171	$	2,622
Investment Securities		14		45		61		123
Interest-Bearing Deposits in Banks		11		69		75		105
Total Interest Income		670		979		2,307		2,850
Interest Expense:
Deposits		240		333		793		944
Advances from Federal Home Loan Bank		142		167		459		519
Total Interest Expense		382		500		1,252		1,463
Net Interest Income		288		479		1,055		1,387

Provision (Credit) for Loan Losses		—		—		—		(9)
Net Interest Income After Provision (Credit) for Loan Losses		288		479		1,055		1,396

Non-Interest Income:
Service Charges and Other Income		20		28		53		74
Fees on Loans Sold		228		236		565		405
Income from Life Insurance		23		23		70		71
Total Non-Interest Income		271		287		688		550

Non-Interest Expenses:
Salaries and Employee Benefits		375		475		1,178		1,162
Occupancy Expense		56		60		158		195
FDIC Deposit Insurance Premium and Examination Fees		17		5		49		42
Data Processing		30		34		86		94
Accounting and Consulting		29		50		141		98
Insurance		21		20		61		57
Legal fees		24		8		56		9
Other		75		53		187		155
Total Non-Interest Expenses		627		705		1,916		1,812
(Loss) Income Before Income Tax (Benefit) Expense		(68)		61		(173)		134
Income Tax (Benefit) Expense		—		8		(62)		14
Net (Loss) Income	$	(68)	$	53	$	(111)	$	120

Earnings Per Share: Basic	$	(0.06)	$	0.04	$	(0.08)	$	0.09

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

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EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (Unaudited)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30
	2020		2019		2020		2019
Net (Loss) Income	$	(68)	$	53	$	(111)	$	120
Other Comprehensive Income:
Unrealized Gains on Investment Securities		8		2		85		119
Income Tax Effect		(2)		(1)		(18)		(25)
Other Comprehensive Income, Net of Income Taxes		6		1		67		94
Comprehensive (Loss) Income	$	(62)	$	54	$	(44)	$	214

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

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EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (Unaudited)

(in thousands)


									Accumulated
			Additional		Unallocated				Other
	Common		Paid-in		ESOP		Retained		Comprehensive
	Stock		Capital		Shares		Earnings		Income/(Loss)		Total
Balance, January 1, 2019	$	—	$	—	$	—	$	12,335	$	(96)	$	12,239
Proceeds from Issuance of Common Stock		14		13,102		(1,144)		—		—		11,972
ESOP Shares Earned		—		13		28		—		—		41
Net Income		—		—		—		120		—		120
Other Comprehensive Income		—		—		—		—		94		94
Balance, September 30, 2019	$	14	$	13,115	$	(1,116)	$	12,455	$	(2)	$	24,466

Balance, January 1, 2020	$	14	$	13,112	$	(1,098)	$	12,274	$	(18)	$	24,284
ESOP Shares Earned		—				35		—		—		35
Stock Shares Repurchased		(1)		(1,096)		—		—		—		(1,097)
Net Loss		—		—		—		(111)		—		(111)
Other Comprehensive Income		—		—		—		—		67		67
Balance, September 30, 2020	$	13	$	12,016	$	(1,063)	$	12,163	$	49	$	23,178

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

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EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (Unaudited)

(in thousands)


	Nine Months Ended September 30
	2020		2019
Cash Flows from Operating Activities:
Net (Loss) Income	$	(111)	$	120
Adjustments to Reconcile Net (Loss) Income to Net Cash (Used in) Operating Activities:
Cash (Used in) Provided by Operating Activities:
Provision (Credit) for Loan Losses		—		(9)
Depreciation Expense		43		64
Amortization of FHLB Advance Prepayment Penalty		49		54
Provision for Deferred Income Taxes		—		55
Net (Accretion) Amortization of Premium/Discount on Mortgage-Backed Securities		(6)		10
Stock Dividend on Federal Home Loan Bank Stock		(19)		(32)
Non-cash Compensation for ESOP		35		41
Net Decrease in Loans Held-for-Sale		(944)		(2,169)
Changes in Assets and Liabilities:
(Increase) in Accrued Interest Receivable		(155)		—
(Increase) in CSV of Life Insurance		(70)		(70)
(Increase) in Prepaid Expenses and Other Assets		(132)		(101)
Increase (Decrease) in Accrued Expenses and Other Liabilities		1,045		(1,416)
Net Cash (Used in) Operating Activities		(265)		(3,453)

Cash Flows from Investing Activities:
Net Decrease in Loans		10,152		552
Proceeds from Maturities of Interest-Bearing Deposits in Banks		6,482		500
Purchases of Interest-Bearing Deposits in Banks		(17,975)		(1,748)
Purchases of Investment Securities		(1,919)		(1,991)
Proceeds from Sales, Calls and Principal Repayments of Investment Securities		1,064		1,061
Purchases of Premises and Equipment		(13)		(19)
Net Cash (Used in) Investing Activities		(2,209)		(1,645)

Cash Flows from Financing Activities:
Net (Decrease) Increase in Deposits		(2,482)		2,157
Proceeds from Stock Offering		—		13,116
Shares Repurchased		(1,097)		—
Loan to ESOP for Purchase of Stock		—		(1,144)
Advances from Federal Home Loan Bank		4,000		5,000
Payments on Advances from Federal Home Loan Bank		(3,864)		(7,500)
Net (Decrease) in Advance Payments by Borrowers for Taxes and Insurance		(222)		—
Net Cash (Used in) Provided by Financing Activities		(3,665)		11,629

Net (Decrease) Increase in Cash and Cash Equivalents		(6,139)		6,531

Cash and Cash Equivalents at Beginning of Period		11,875		3,090
Cash and Cash Equivalents at End of Period	$	5,736	$	9,621

Supplemental Disclosures for Cash Flow Information:
Cash Paid for:
Interest	$	1,311	$	1,450

Supplemental Schedule for Noncash Investing and Financing Activities:
Change in the Unrealized Gain/Loss on Investment Securities	$	85	$	119

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

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Eureka Homestead Bancorp, Inc.

Form 10-Q

EUREKA HOMESTEAD BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 (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 and nine month periods ended September 30, 2020 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, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 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.

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In September 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 September 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company is currently assessing the amendments but does not anticipate they will have a material impact 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 with those fiscal years, beginning after December 15, 2020, with early adopting permitted. The Company is currently assessing the impact of the adoption of this standard on the Company’s consolidated financial position.

Note 3 – Earnings Per Share -

Basic earnings per share (“EPS”) represents income (loss) available to common shareholders 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.

Earnings (loss) per common share were computed based on the following:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(in thousands, except per share data)	2020		2020
Numerator:
Net (loss) available to common shareholders	$	(68)	$	(111)

Denominator:
Weighted average common shares outstanding		1,341		1,420
Less: Average unallocated ESOP shares		108		109
Weighted average shares		1,233		1,311

Basic (loss) per common share	$	(0.06)	$	(0.08)

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Note 4 – Investment Securities -

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


			Gross		Gross
September 30, 2020:	Amortized		Unrealized		Unrealized		Fair
(in thousands)	Cost		Gains		(Losses)		Value
Mortgage-Backed Securities:
FHLMC	$	2,948	$	69	$	—	$	3,017
SBA 7a Pools		3,256		1		(8)		3,249
Total Investment Securities Available-for-Sale	$	6,204	$	70	$	(8)	$	6,266


			Gross		Gross
December 31, 2019:	Amortized		Unrealized		Unrealized		Fair
(in thousands)	Cost		Gains		(Losses)		Value
Mortgage-Backed Securities:
FHLMC	$	2,664	$	—	$	(19)	$	2,645
SBA 7a Pools		2,678		5		(8)		2,675
Total Investment Securities Available-for-Sale	$	5,342	$	5	$	(27)	$	5,320

All investment securities held on September 30, 2020 and December 31, 2019, were government-sponsored mortgage-backed or SBA pool securities.

The amortized cost and fair values of the investment securities available-for-sale at September 30, 2020, by contractual maturity, are shown below. For mortgage-backed securities and SBA 7a pools, expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available-for-Sale
September 30, 2020	Amortized		Fair
(in thousands)	Cost		Value
Amounts Maturing:
After One Year through Five Years	$	—	$	—
After Five Years through Ten Years		3,327		3,319
After Ten Years		2,877		2,947
	$	6,204	$	6,266

No investment securities were pledged to secure advances from the FHLB at September 30, 2020 and December 31, 2019.

Gross unrealized losses in investment securities at September 30, 2020 and December 31, 2019, existing for continuous periods of less than 12 months and for continuous periods of 12 months or more, are as follows:


September 30, 2020
(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	$	—	$	—	$	—	$	—	$	—	$	—
SBA 7a Pools		912		(8)		—		—		912		(8)
	$	912	$	(8)	$	—	$	—	$	912	$	(8)

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December 31, 2019
(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	$	655	$	(4)	$	1,990	$	(15)	$	2,645	$	(19)
SBA 7a Pools		—		—		1,692		(8)		1,692		(8)
	$	655	$	(4)	$	3,682	$	(23)	$	4,337	$	(27)

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. No declines at September 30, 2020 and December 31, 2019, 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.

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

Loans receivable at September 30, 2020 and December 31, 2019 are summarized as follows:


	September 30,		December 31,
(in thousands)	2020		2019
Mortgage Loans
1-4 Family	$	64,306	$	73,591
Multifamily		3,184		3,567
Commercial real estate		762		1,117
Consumer Loans		210		209
		68,462		78,484
Plus (Less):
Unamortized Loan Fees/Costs		1,021		1,151
Allowance for Loan Losses		(850)		(850)
Net Loans Receivable	$	68,633	$	78,785

The performing mortgage loans are pledged, under a blanket lien, as collateral securing advances from the FHLB at September 30, 2020 and December 31, 2019.

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

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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.

• 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 September 30, 2020 and December 31, 2019, 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.

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Allowance for Loan Losses and Recorded Investment in Loans Receivable
September 30, 2020 (in thousands)


					Mortgage-
	Mortgage-		Mortgage-		Commercial
	1-4 Family		Multifamily		Real Estate		Consumer		Total
Allowance for Loan Losses:
Beginning Balance	$	812	$	27	$	11	$	—	$	850
Charge-Offs		—		—		—		—		—
Recoveries		—		—		—		—		—
Provision		1		3		(4)		—		—
Ending Balance	$	813	$	30	$	7	$	—	$	850

Ending Balance:
Individually Evaluated for Impairment	$	—	$	—	$	—	$	—	$	—

Collectively Evaluated for Impairment	$	813	$	30	$	7	$	—	$	850

Loans Receivable:
Ending Balance	$	64,306	$	3,184	$	762	$	210	$	68,462

Ending Balance:
Individually Evaluated for Impairment	$	—	$	—	$	—	$	—	$	—

Collectively Evaluated for Impairment	$	64,306	$	3,184	$	762	$	210	$	68,462

The allowance for loan losses for Mortgage 1-4 Family Loans of $813,000 includes an unallocated portion of $477,000 as of September 30, 2020.

Allowance for Loan Losses and Recorded Investment in Loans Receivable
December 31, 2019 (in thousands)


					Mortgage-
	Mortgage-		Mortgage-		Commercial
	1-4 Family		Multifamily		Real Estate		Consumer		Total
Allowance for Loan Losses:
Beginning Balance	$	807	$	31	$	12	$	—	$	850
Charge-Offs		—		—		—		—		—
Recoveries		9		—		—		—		9
Provision		(4)		(4)		(1)		—		(9)
Ending Balance	$	812	$	27	$	11	$	—	$	850

Ending Balance:
Individually Evaluated for Impairment	$	—	$	—	$	—	$	—	$	—

Collectively Evaluated for Impairment	$	812	$	27	$	11	$	—	$	850

Loans Receivable:
Ending Balance	$	73,591	$	3,567	$	1,117	$	209	$	78,484

Ending Balance:
Individually Evaluated for Impairment	$	—	$	—	$	—	$	—	$	—

Collectively Evaluated for Impairment	$	73,591	$	3,567	$	1,117	$	209	$	78,484

The allowance for loan losses for Mortgage 1-4 Family Loans of $812,000 includes an unallocated portion of $437,000 as of December 31, 2019.

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.

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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.

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.

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Credit Quality Indicators - Credit Risk Profile Based on Loan Grades at September 30, 2020 (in thousands)


					Special
	Pass		Watch		Mention		Substandard		Doubtful		Total
Mortgage Loans:
1 to 4 Family	$	63,659	$	30	$	55	$	562	$	—	$	64,306
Multifamily		3,184		—		—		—		—		3,184
Commercial real estate		762		—		—		—		—		762
Non-Mortgage Loans:
Consumer		210		—		—		—		—		210
Total	$	67,815	$	30	$	55	$	562	$	—	$	68,462

Credit Quality Indicators - Credit Risk Profile Based on Loan Grades at December 31, 2019 (in thousands)


					Special
	Pass		Watch		Mention		Substandard		Doubtful		Total
Mortgage Loans:
1 to 4 Family	$	72,937	$	87	$	—	$	567	$	—	$	73,591
Multifamily		3,567		—		—		—		—		3,567
Commercial real estate		1,117		—		—		—		—		1,117
Non-Mortgage Loans:
Consumer		209		—		—		—		—		209
Total	$	77,830	$	87	$	—	$	567	$	—	$	78,484

At September 30, 2020 and December 31, 2019, 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 September 30, 2020 and December 31, 2019, 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 September 30, 2020 (in thousands)


			Non-
	Performing		Performing		Total
Mortgage Loans:
1 to 4 Family	$	64,306	$	—	$	64,306
Multifamily		3,184		—		3,184
Commercial real estate		762		—		762
Non-Mortgage Loans:
Consumer		210		—		210
Total	$	68,462	$	—	$	68,462

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Credit Quality Indicators - Credit Risk Profile Based on Payment Activity at December 31, 2019 (in thousands)


			Non-
	Performing		Performing		Total
Mortgage Loans:
1 to 4 Family	$	73,591	$	—	$	73,591
Multifamily		3,567		—		3,567
Commercial real estate		1,117		—		1,117
Non-Mortgage Loans:
Consumer		209		—		209
Total	$	78,484	$	—	$	78,484

The following tables reflect certain information with respect to the loan portfolio delinquencies by loan class and amount as of September 30, 2020 and December 31, 2019. There were no loans over 90 days past due and still accruing as of September 30, 2020 and December 31, 2019.

Aged Analysis of Past Due Loans Receivable at September 30, 2020 (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	$	—	$	87	$	—	$	87	$	64,219	$	64,306
Multifamily		—		—		—		—		3,184		3,184
Commercial real estate		—		—		—		—		762		762
Non-Mortgage Loans:
Consumer		—		—		—		—		210		210
Total	$	—	$	87	$	—	$	87	$	68,375	$	68,462

Aged Analysis of Past Due Loans Receivable at December 31, 2019 (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	$	—	$	89	$	—	$	89	$	73,502	$	73,591
Multifamily		—		—		—		—		3,567		3,567
Commercial real estate		—		—		—		—		1,117		1,117
Non-Mortgage Loans:
Consumer		—		—		—		—		209		209
Total	$	—	$	89	$	—	$	89	$	78,395	$	78,484

The following is a summary of information pertaining to impaired loans as of September 30, 2020 and December 31, 2019.

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Impaired Loans

September 30, 2020

(in thousands)

Unpaid

Average

Interest

Recorded

Principal

Related

Recorded

Income

Investment

Balance

Allowance

Investment

Recognized

Mortgage Loans

—

Non-Mortgage Loans

—

Impaired Loans

December 31, 2019

(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 credit 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 credit losses for the amount of the loan that exceeds the value of the related collateral.

The Company had no troubled debt restructurings as of September 30, 2020 and December 31, 2019 or any that defaulted subsequent to the restructuring through the date the financial statements were issued.

During the nine months ended September 30, 2020, the Company modified 71 mortgage loans, with an aggregate balance of $15.3 million, in each case related to a hardship caused by the COVID-19 pandemic and responses thereto. The Company is working with borrowers and providing modifications in the form of principal, interest and escrow deferral, in each case, for initial periods of up to 90 days. The deferred payments will be collected at the original maturity date or at the time the loan is ultimately paid off. As necessary, the Company is making available a second 90 day principal, interest and escrow deferral bringing the total potential deferral period to six months. Modifications are structured in a manner to best address each individual customer's current situation. These modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. Modified loans will be considered current and will continue to accrue interest during the deferral period.

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Detail of COVID-19 modifications on the Company’s loan portfolio during the nine months ended September 30, 2020 follows.


			Number of	Total
	Total		Contracts	Balance		Percent
	Balance		Modified	Modified		Modified
Modifications as of September 30, 2020
(in thousands)
Mortgage Loans
1-4 Family	$	66,186	6	$	2,138	3.2%
Multifamily		3,204	2		848	26.5%
Commercial Real Estate		1,086	—		—	0.0%
Total Loans	$	70,476	8	$	2,986	4.2%

As of October 31, 2020, all but 1 of the modified loans aggregating $430,000 have resumed normal monthly payments. The Company has received no requests for additional deferrals. Loans which have had multiple COVID-19 modifications though October 31, 2020 are detailed below.


		Total
	Number of	Balance
Modifications as of October 31, 2020	Contracts	Multiple
(in thousands)	Modified	Modifications
Mortgage Loans
1-4 Family	1	$	430
Multifamily	—		—
Commercial Real Estate	—		—
Total Loans	1	$	430

The Company is closely monitoring all loans that received deferrals. As additional information becomes available, management will continue to evaluate these loans to ensure appropriate risk classification.

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 September 30, 2020 and December 31, 2019, that the Bank meets all the capital adequacy requirements to which it is subject.

As of September 30, 2020 and December 31, 2019, 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

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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
September 30, 2020:	Actual				Adequacy Purposes				Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital
(to Risk Weighted Assets)	$	19,586	43.76	%	$	3,581	8.00	%	$	4,476	10.00	%
Tier 1 Capital
(to Risk Weighted Assets)	$	19,023	42.50	%	$	2,686	6.00	%	$	3,581	8.00	%
Common Equity Tier 1 Capital
(to Risk Weighted Assets)	$	19,023	42.50	%	$	2,014	4.50	%	$	2,910	6.50	%
Tier 1 Leverage Capital
(to Adjusted Total Assets)	$	19,023	18.26	%	$	4,166	4.00	%	$	5,208	5.00	%


									To be Well
									Capitalized Under
					For Capital				Prompt Corrective
December 31, 2019:	Actual				Adequacy Purposes				Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital
(to Risk Weighted Assets)	$	19,568	38.94	%	$	4,020	8.00	%	$	5,026	10.00	%
Tier 1 Capital
(to Risk Weighted Assets)	$	18,938	37.68	%	$	3,015	6.00	%	$	4,020	8.00	%
Common Equity Tier 1 Capital
(to Risk Weighted Assets)	$	18,938	37.68	%	$	2,262	4.50	%	$	3,267	6.50	%
Tier 1 Leverage Capital
(to Adjusted Total Assets)	$	18,938	17.47	%	$	4,336	4.00	%	$	5,420	5.00	%

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 September 30, 2020 and December 31, 2019, is as follows:


	September 30,		December 31,
(in thousands)	2020		2019
Total Equity (Bank Only)	$	19,072	$	18,920
Unrealized (Gains) Losses on Securities
Available-for-Sale, Net		(49)		18

Tangible, Tier 1 Capital and Common Equity Tier 1		19,023		18,938
Allowance for Loan Losses Included in Capital		563		630
Total Capital	$	19,586	$	19,568

The specific reserves included in the Allowance for Loan Losses were not significant as of September 30, 2020 and December 31, 2019.

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.

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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 September 30, 2020 and December 31, 2019, the Company had $102,000 and $524,000 of outstanding commitments to originate loans, respectively, all of which represents the balance 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 September 30, 2020, there were mortgage loans sold to investors with limited recourse for certain periods after the date of sale totaling $8.6 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 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:

Quoted prices for similar assets or liabilities in active markets;

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

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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);

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

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.

The following tables present the balances of assets measured on a recurring basis as of September 30, 2020 and December 31, 2019. 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
September 30, 2020:	Fair		Assets		Inputs		Inputs
(in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Mortgage-Backed Securities
FHLMC	$	3,017	$	—	$	3,017	$	—
SBA 7a Pools		3,249		—		3,249		—
Total Investment Securities	$	6,266	$	—	$	6,266	$	—

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	Fair Value at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
			for Identical		Observable		Unobservable
December 31, 2019:	Fair		Assets		Inputs		Inputs
(in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Mortgage-Backed Securities
FHLMC	$	2,645	$	—	$	2,645	$	—
SBA 7a Pools		2,675		—		2,675		—
Total Investment Securities	$	5,320	$	—	$	5,320	$	—

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 September 30. 2020 or December 31, 2019.

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.

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.

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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.

The estimated fair values of the Company’s financial instruments are as follows as of September 30, 2020 and December 31, 2019 (in thousands):


	September 30, 2020				December 31, 2019
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial Assets:
Cash and Cash Equivalents	$	5,736	$	5,736	$	11,875	$	11,875
Interest-Bearing Deposits in Banks		13,233		13,233		1,740		1,740
Investment Securities		6,266		6,266		5,320		5,320
Loans - Net		68,633		71,659		78,785		82,300
Loans Held-for-Sale		2,581		2,581		1,637		1,637
Accrued Interest Receivable		476		476		321		321
FHLB Stock		1,437		1,437		1,418		1,418
Cash Surrender Value of Life Insurance		4,114		4,114		4,044		4,044
Financial Liabilities:
Deposits		55,563		57,337		58,045		59,053
Advances from FHLB		21,766		22,874		21,581		22,007
Accrued Interest Payable		78		78		137		137

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

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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. Compensation expense related to the ESOP for the three and nine month periods ended September 30, 2020 was $21,000 and $62,000, respectively.

The stock price when issued was $10 per share. The fair value of the 108,000 unallocated shares was $1.0 million based on the average price of our common stock for the quarter ended September 30, 2020, of $9.47 per share.

Note 11 - Subsequent Events -

Management has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through November 16, 2020, the date the financial statements were issued.

The outbreak of Coronavirus Disease 2019 (“COVID-19”) has adversely impacted a broad range of industries in which the Company’s customers operate and potentially impaired their ability to fulfill their obligations to the Company. The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The spread of the outbreak has caused disruptions in the U.S. economy and is highly likely to continue to disrupt banking and other financial activity in the areas in which the Company operates and could potentially create widespread business continuity issues for the Company. 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.

In October 2020, the Company repurchased an additional 10,500 of its common shares for $105,000.

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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 September 30, 2020 and results of operations for the three and nine months ended September 30, 2020 and 2019 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.

During the nine-month period ended September 30, 2020, the novel coronavirus (“COVID-19”) had spread world-wide, led to severe unemployment, and is impacting individuals, households and businesses in a multitude of ways. We have been deemed an essential service and exempted from the shutdowns across the country. We continue to operate while keeping the safety and well-being of our employees and customers as our top priority. We continue to meet customers’ needs and have tried to minimize any inconvenience to our customers. Our offices remain open, with drive-thru facilities fully operational, while lobby access is by appointment only.

Across our workforce, approximately 30% transitioned to working remotely starting in March 2020, relying on our technology infrastructure and systems that we have designed for resilience and security. All employees returned to working in their respective offices by mid-June 2020. We have been able to continue serving customers, successfully managing critical functions and keeping our lines of business operating while supporting our employees. We have maintained social distancing measures for our employees working in our offices, have restricted lobby access, and conducted sterilization cleanings of certain of our locations on an as needed basis. We continue to monitor new information from governmental authorities and provide timely communications to our employees.

The Federal and state governments have been diligently working to contain its spread. The result of these containment strategies has had an enormous impact on the economy and will have a negative impact on borrowers’ ability to make timely loan payments as many businesses are forced to temporarily shut down. The Federal Reserve Board along with the other various regulatory agencies have issued joint guidance to financial institutions who are working with borrowers affected by the coronavirus. The Company is working with borrowers, and has instituted a loan deferment program whereby short-term deferral of payments are provided. The deferred payments will be collected at the original maturity date or at the time the loan is ultimately paid off. As of September 30, 2020, we had eight remaining modified loans aggregating $3.0 million, primarily consisting of the deferral of principal, interest and escrow payments for three months. As of October 31, 2020, all but one of the modified loans aggregating $430,000 have resumed normal monthly payments. The remaining loan had payments deferred for an additional three months. We will not report these loans as delinquent and will continue to recognize interest income during the deferral period. We have increased the qualitative factors in our calculation of the allowance for loan losses for loans to borrowers that have taken advantage of the deferment program. No increase in the allowance was deemed necessary at September 30, 2020 due to the increase in the qualitative factors. These loans will be closely 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 will be considered current for COVID-19 modifications. A financial institution can 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 must 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

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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.

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,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

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statements of our goals, intentions and expectations;

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statements regarding our business plans, prospects, growth and operating strategies;

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statements regarding the asset quality of our loan and investment portfolios; and

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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.

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:

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our ability to manage our operations under the economic conditions in our market area;

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adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

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economic and/or policy changes related the COVID-19 pandemic;

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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;

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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;

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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;

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competition among depository and other financial institutions;

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our success in increasing our one- to four-family residential real estate lending;

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our ability to attract and maintain deposits and to grow our core deposits, and our success in introducing new financial products;

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our ability to maintain our asset quality even as we continue to grow our loan portfolios;

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our reliance in part on funding sources, including out-of-market jumbo deposits and borrowings, other than core deposits to support our operations;

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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;

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fluctuations in the demand for loans;

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changes in consumer spending, borrowing and savings habits;

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declines in the yield on our assets resulting from the current low interest rate environment;

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risks related to a high concentration of loans secured by real estate located in our market area;

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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;

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changes in the level of government support of housing finance;

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our ability to enter new markets successfully and capitalize on growth opportunities;

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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;

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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;

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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;

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loan delinquencies and changes in the underlying cash flows of our borrowers;

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our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;

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the failure or security breaches of computer systems on which we depend;

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the ability of key third-party service providers to perform their obligations to us;

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changes in the financial condition or future prospects of issuers of securities that we own; and

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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.

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 30, 2020.

Comparison of Financial Condition at September 30, 2020 and December 31, 2019

Total Assets. Total assets decreased $2.6 million, or 2.4%, to $103.4 million at September 30, 2020 from $106.0 million at December 31, 2019. The decrease was due primarily to decreases in cash and cash equivalents of $6.1 million primarily from a decrease in deposits of $2.5 million and repurchase of $1.1 million of common stock, and in net loans of $10.2 million mainly due to payoffs, offset in part by increases of $11.5 million in interest-bearing deposits in banks resulting primarily from loan payoffs, $946,000 in investment securities available-for-sale, and $944,000 in loans held-for-sale.

Net Loans. Net loans decreased $10.2 million, or 12.9%, to $68.6 million at September 30, 2020 from $78.8 million at December 31, 2019. During the nine months ended September 30, 2020, one- to four-family residential real estate loans decreased $9.3 million, or 12.6%, to $64.3 million from $73.6 million at December 31, 2019, multifamily loans decreased $383,000, or 10.7%, to $3.2 million from $3.6 million at December 31, 2019, commercial real estate loans decreased $356,000, or 31.8%, to $762,000 from $1.1 million at December 31, 2019 and consumer loans increased $1,000, or 0.5%, to $210,000 from $209,000 at December 31, 2019.

The reduction in net loans was due primarily to the large amount of refinance activity in the residential loan portfolio. This activity was stimulated by historically low interest rates available on 30-year fixed- rate home loans. The prevailing rates were such that, at the time, we chose to sell most the refinanced loans rather than keep them in portfolio. The decrease in multifamily loans was principally due to a principal paydown of $300,000 on one loan. The decrease in commercial real estate loans was principally due to the payoff of one $316,000 loan.

Cash and Cash Equivalents. Cash and cash equivalents decreased $6.1 million, or 51.7%, to $5.7 million at September 30, 2020 from $11.9 million at December 31, 2019. The decrease was principally due to a decrease in deposits and the redeployment of funds into interest-bearing deposits.

Interest-Bearing Deposits in Banks. Interest-bearing deposits in banks increased $11.5 million, or 660.5%, to $13.2 million at September 30, 2020 from $1.7 million at December 31, 2019 as a result of net deposit purchases of $11.5 million due to reductions of loans receivable of $9.2 million and cash and cash equivalents of $6.1 million, offset somewhat by purchases, net of paydowns, on investment securities of $946,000, a reduction in deposits of $2.5 million and the repurchase of shares of common stock of $1.1 million during the nine months ended September 30, 2020.

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, increased $946,000, or 17.8%, to $6.3 million at September 30, 2020 from $5.3 million at December 31, 2019 as a result of purchases of $2.0 million offset in part by normal repayments and some prepayments of $1.1 million during the nine months ended September 30, 2020.

Bank-Owned Life Insurance. At September 30, 2020, our investment in bank-owned life insurance was $4.1 million, an increase of $70,000, or 1.7%, from $4.0 million at December 31, 2019. We invest in bank-owned life insurance to provide us with a funding offset for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable.

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Prepaid Expenses and Other Assets. Prepaid expenses and other assets increased $132,000, or 85.2%, to $287,000 at September 30, 2020 from $155,000 at December 31, 2019. The increase resulted principally from an increases of $62,000 in prepaid income taxes, $35,000 in fees receivable on loans sold and $35,000 in prepaid expenses.

Deposits. Deposits decreased $2.5 million, or 4.3%, to $55.6 million at September 30, 2020 from $58.0 million at December 31, 2019, principally due to a $2.6 million decrease in certificates of deposit, or 4.7%, to $52.7 million at September 30, 2020 from $55.2 million at December 31, 2019. The decrease in certificates of deposit resulted primarily from a decreases of $5.6 million in certificates of deposit from municipalities and $496,000 of local retail certificates of deposit, offset in part by an increase in certificates of deposit derived from an online service of $3.5 million. We have sometimes utilized the non-retail funding sources to fund our loan origination and growth and to replace Federal Home Loan Bank advances.

Borrowings. Borrowings, consisting entirely of Federal Home Loan Bank (FHLB) advances, increased $185,000, or 0.9% to $21.8 million at September 30, 2020 from $21.6 million at December 31, 2019, as we secured $4.0 million of new advances to replace $3.8 million of maturing advances to take advantage of historically low 5-year advances to help manage interest rate risk.

Total Equity. Total equity decreased $1.1 million, or 4.6%, to $23.2 million at September 30, 2020 from $24.3 million at December 31, 2019. The decrease resulted primarily from the repurchase of $1.1 million of shares of common stock and the net loss of $111,000 during the nine months ended September 30, 2020, offset in part by an increase in accumulated other comprehensive income of $67,000 and a decrease of $35,000 in unallocated common stock held by our ESOP.

Comparison of Operating Results for the Three Months Ended September 30, 2020 and 2019

General. We had a net loss of $68,000 for the three months ended September 30, 2020, compared to net income of $53,000 for the three months ended September 30, 2019, a decrease of $121,000. The decrease in net income resulted from decreases in net interest income of $191,000 and noninterest income of $16,000, offset, in part, by decreases in noninterest expense of $78,000 and income tax expense of $8,000.

Interest Income. Interest income decreased $309,000, or 31.6%, to $670,000 for the three months ended September 30, 2020 from $979,000 for the three months ended September 30, 2019. This decrease was attributable to decreases in interest on loans receivable of $220,000, interest on investment securities of $31,000 and interest on other interest-earning assets of $58,000. The average balance of loans decreased $10.5 million, or 12.9%, to $70.5 million for the three months ended September 30, 2020 from $81.0 million for the three months ended September 30, 2019, and the average yield on loans decreased 61 basis points to 3.66% for the three months ended September 30, 2020 from 4.27% for the three months ended September 30, 2019. The average balance of investment securities decreased $2.6 million, or 37.0%, to $4.5 million for the three months ended September 30, 2020 from $7.1 million for the three months ended September 30, 2019, while the average yield on investment securities decreased 127 basis points to 1.25% for the three months ended September 30, 2020 from 2.52% for the three months ended September 30, 2019. The average balance of other interest-earning assets increased $7.5 million, or 55.8%, to $20.8 million for the three months ended September 30, 2020 from $13.4 million for the three months ended September 30, 2019, and the average yield on other interest-earning assets decreased 185 basis points to 0.21% for the three months ended September 30, 2020 from 2.06% for the three months ended September 30, 2019.

Interest Expense. Total interest expense decreased $118,000, or 23.6%, to $382,000 for the three months ended September 30, 2020 from $500,000 for the three months ended September 30, 2019. The decrease was due to decreases of $93,000, or 27.9% in interest expense on deposits and $25,000, or 15.0%, in interest expense on advances from the FHLB. The average balance of interest-bearing deposits in banks decreased $7.2 million, or 11.5%, to $55.7 million for the three months ended September 30, 2020 from $63.0 million for the three months ended September 30, 2019, and the average cost of interest-bearing deposits in banks decreased 39 basis points to 1.72% for the three months ended September 30, 2020 from 2.11% for the three months ended September 30, 2019. The average balance of FHLB advances decreased $865,000, or 3.7%, to $22.2 million for the three months ended September 30, 2020 from $23.1

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million for the three months ended September 30, 2019. The average cost of these advances decreased 33 basis points to 2.56% for the three months ended September 30, 2020 from 2.89% for the three months ended September 30, 2019.

Net Interest Income. Net interest income decreased $191,000, or 39.9%, to $288,000 for the three months ended September 30, 2020 from $479,000 for the three months ended September 30, 2019. Average net interest-earning assets increased $2.5 million period to period. This increase was due primarily to an increase in the average balance of cash and cash equivalents period to period. The increase in cash and cash equivalents was principally due to funds received in the stock offering. This increase was offset somewhat by the decreases in loans receivable and investment securities. Our interest rate spread decreased to 0.84% for the three months ended September 30, 2020 from 1.54% for the three months ended September 30, 2019, and our net interest margin decreased to 1.20% for the three months ended September 30, 2020 from 1.89% for the three months ended September 30, 2019. The decreases in interest rate spread and net interest margin were primarily the result of lower interest rates on the increased balance of cash and cash equivalents due to the funds received in the stock conversion not yet utilized to fund loans and the sharp decrease in market interest rates since September 30, 2019.

Provision for Loan Losses. There was no provision for loan losses for the three months ended September 30, 2020 or 2019. The allowance for loan losses was $850,000, or 1.24% of total loans, at September 30, 2020, compared to $850,000, or 1.08% of total loans, at December 31, 2019, and $850,000, or 1.08%, of total loans, at September 30, 2019. Classified (substandard, doubtful and loss) loans decreased to $562,000 at September 30, 2020 from $567,000 at December 31, 2019 and $570,000 at September 30, 2019. There were no non-performing loans at September 30, 2020, December 31, 2019 or September 30, 2019. There were no charge-offs or recoveries for the three months ended September 30, 2020 or the three months ended September 30, 2019.

Noninterest Income. Noninterest income decreased $16,000, or 5.6%, to $271,000 for the three months ended September 30, 2020 from $287,000 for the three months ended September 30, 2019. The increase was to decreases of $8,000 in service charges and other income and $8,000 in fees on loans sold.

Noninterest Expense. Noninterest expense decreased $78,000, or 11.1%, to $627,000 for the three months ended September 30, 2020 from $705,000 for the three months ended September 30, 2019. This decrease was primarily due to a decrease of $100,000, or 21.1%, in salaries and employee benefits. The decrease in salaries and employee benefits resulted primarily from an increase of $75,000 in deferred loan origination costs on higher portfolio loan volume period to period, and decreases of $6,000 in salary expense and $21,000 of expenses recognized for the employee stock ownership plan. There were also decreases of $4,000, or 6.7%, in occupancy expense and $21,000, or 42.0%, in accounting and consulting expense. These decreases were offset in part by an increase of $16,000, or 200.0%, in legal expense due to increased costs of operating as a public company, and increases of $12,000, or 240.0%, in FDIC deposit insurance premiums and OCC assessments and $22,000, or 41.5%, in other expenses.

We expect our noninterest expense to increase in future periods because of the anticipated costs associated with the increased compensation expenses associated with the implementation of the stock-based benefit plan approved by our stockholders.

Income Tax Expense. Income tax expense decreased $8,000 to $0 for the three months ended September 30, 2020 compared to $8,000 for the three months ended September 30, 2019. The decrease resulted from the net loss recorded for the three months ended September 30, 2020. The effective tax rate was 0.00% for the three months ended September 30, 2020 compared to 13.11% for the same quarter in 2019.

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.

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Comparison of Operating Results for the Nine Months Ended September 30, 2020 and 2019

General. We had a net loss of $111,000 for the nine months ended September 30, 2020, compared to net income of $120,000 for the nine months ended September 30, 2019, a decrease of $231,000. The decrease in net income resulted from a decrease in net interest income of $332,000, and an increase in noninterest expense of $104,000, offset, in part, by an increase of $138,000 in noninterest income and a decrease of $76,000 in income tax expense.

Interest Income. Interest income decreased $543,000, or 19.1%, to $2.3 million for the nine months ended September 30, 2020 from $2.8 million for the nine months ended September 30, 2019. This decrease was primarily attributable to decreases in interest on loans receivable of $451,000, interest on investment securities of $62,000 and interest on other interest-earning assets of $30,000. The average balance of loans decreased $6.9 million, or 8.5%, to $73.9 million for the nine months ended September 30, 2020 from $80.8 million for the nine months ended September 30, 2019, and the average yield on loans decreased 41 basis points to 3.92% for the nine months ended September 30, 2020 from 4.33% for the nine months ended September 30, 2019. The average balance of investment securities decreased $1.9 million, or 27.7%, to $4.9 million for the nine months ended September 30, 2020 from $6.7 million for the nine months ended September 30, 2019, while the average yield on investment securities decreased 77 basis points to 1.67% for the nine months ended September 30, 2020 from 2.44% for the nine months ended September 30, 2019. The average balance of other interest-earning assets increased $13.0 million, or 192.7%, to $19.8 million for the nine months ended September 30, 2020 from $6.8 million for the nine months ended September 30, 2019, and the average yield on other interest-earning assets decreased 157 basis points to 0.50% for the nine months ended September 30, 2020 from 2.07% for the nine months ended September 30, 2019.

Interest Expense. Total interest expense decreased $211,000, or 14.4%, to $1.3 million for the nine months ended September 30, 2020 from $1.5 million for the nine months ended September 30, 2019. The decrease was due to decreases of $151,000 or 16.0% in interest expense on deposits and $60,000, or 11.6%, in interest expense on advances from the FHLB. The average balance of interest-bearing deposits in banks decreased $3.4 million, or 5.7%, to $56.3 million for the nine months ended September 30, 2020 from $59.7 million for the nine months ended September 30, 2019, and the average cost of interest-bearing deposits in banks decreased 23 basis points to 1.88% for the nine months ended September 30, 2020 from 2.11% for the nine months ended September 30, 2019. The average balance of FHLB advances decreased $1.2 million, or 4.8%, to $23.0 million for the nine months ended September 30, 2020 from $24.1 million for the nine months ended September 30, 2019. The average cost of these advances decreased 21 basis points to 2.66% for the nine months ended September 30, 2020 from 2.87% for the nine months ended September 30, 2019.

Net Interest Income. Net interest income decreased $332,000, or 23.9%, to $1.1 million for the nine months ended September 30, 2020 from $1.4 million for the nine months ended September 30, 2019. Average net interest-earning assets increased $8.8 million period to period. This increase was due primarily to an increase in the average balance of interest-bearing deposits in banks period to period. The increase in interest-bearing deposits in banks was principally due to funds remaining from the stock offering not yet used to fund loans. Our interest rate spread decreased to 1.02% for the nine months ended September 30, 2020 from 1.70% for the nine months ended September 30, 2019, and our net interest margin decreased to 1.43% for the nine months ended September 30, 2020 from 1.96% for the nine months ended September 30, 2019. The decreases in interest rate spread and net interest margin were primarily the result of lower interest rates on the increased balance of interest-bearing deposits in banks due to the funds received in the stock conversion not yet utilized to fund loans and the sharp decrease in market interest rates since September 30, 2019.

Provision for Loan Losses. There was no provision for loan losses for the nine months ended September 30, 2020 compared to a benefit of $9,000 for the nine months ended September 30, 2019. The allowance for loan losses was $850,000, or 1.24% of total loans, at September 30, 2020, compared to $850,000, or 1.08% of total loans, at December 31, 2019, and $850,000, or 1.08% of total loans, at September 30, 2019. Classified (substandard, doubtful and loss) loans decreased to $562,000 at September 30, 2020 from $567,000 at December 31, 2019 and $570,000 at September 30, 2019. There were no non-performing loans at September 30, 2020, December 31, 2019 or September 30, 2019. There were no charge-offs or recoveries for the nine months ended September 30, 2020. There were net recoveries of $9,000 for the nine months ended September 30, 2019.

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Noninterest Income. Noninterest income increased $138,000, or 25.1%, to $688,000 for the nine months ended September 30, 2020 from $550,000 for the nine months ended September 30, 2019. The increase was primarily due to an increase of $160,000, or 39.7%, in fees on loans sold, offset in part by a decrease in service charges and other income of $21,000, or 28.3%.

Noninterest Expense. Noninterest expense increased $104,000, or 5.7%, to $1.9 million for the nine months ended September 30, 2020 from $1.8 million for the nine months ended September 30, 2019. There were increases of $16,000, or 1.4%, in salaries and employee benefits, $42,000, or 43.3%, in accounting and consulting expense and $47,000, or 526.4%, in legal expense due to increased costs of operating as a public company, as well as increases of $8,000, or 18.7% in FDIC deposit insurance premiums and OCC assessments, $4,000, or 7.2%, in insurance expenses and $32,000, or 20.4%, in other expense. These increases were offset in part by decreases of $37,000, or 19.0%, in occupancy expense and $7,000, or 7.8%, in data processing expense.

Income Tax Expense. Income tax benefit increased $76,000 to a benefit of $62,000 for the nine months ended September 30, 2020 compared to an expense of $14,000 for the nine months ended September 30, 2019. The increase resulted from the recordation of expected refunds from the carryback of tax net operating losses as now allowed by the CARES Act. The effective tax rate was (35.84%) for the nine months ended September 30, 2020 compared to 10.45% for the same period in 2019.

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 September 30, 2020, we had $21.8 million outstanding in advances from the FHLB, and had the capacity to borrow approximately an additional $14.8 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 (used in) operating activities was ($265,000) and ($3.5 million) for the nine months ended September 30, 2020 and 2019, respectively. Net cash (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 ($2.2 million) and ($1.6 million) for the nine months ended September 30, 2020 and 2019, respectively. Net cash (used in) provided by financing activities, consisting primarily of the proceeds from the issuance of common stock due to the conversion, repurchases of common stock, and activity in deposit accounts, FHLB advances and advance payments by borrowers for taxes and insurance, was ($3.7 million) and $11.6 million for the nine months ended September 30, 2020 and 2019, respectively.

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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.

At September 30, 2020, the Bank exceeded all regulatory capital requirements with a Tier 1 leverage capital level of $19.0 million, or 18.26% of adjusted average total assets, which is above the well-capitalized required level of $5.2 million, or 5.0%; and total risk-based capital of $19.6 million, or 43.76% of risk-weighted assets, which is above the well-capitalized required level of $4.5 million, or 10.0%; and common equity Tier 1 capital of $19.0 million or 42.5% of risk weighted assets, which is above the well-capitalized required level of $2.9 million, or 6.5% of risk weighted assets. Accordingly, Eureka Homestead was categorized as well capitalized at September 30, 2020. Management is not aware of any conditions or events since the most recent notification that would change our category.

Off-Balance Sheet Arrangements. At September 30, 2020 and December 31, 2019, the Company had $0 and $524,000 of outstanding commitments to originate loans, respectively, all of which represents the balance of remaining funds to be disbursed on construction loans in process. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2020 total $19.7 million at September 30, 2020. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. In recent years we have sold loans on an industry-standard, servicing-released basis. At September 30, 2020, there were mortgage loans sold to investors with limited recourse for certain periods after the date of sale totaling $8.6 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 no mortgage loans sold that had an early payment default or that prepaid in full during the recourse period.

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 September 30, 2020. 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 September 30, 2020, 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.

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.

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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⁾
July 1 through July 31, 2020	—	$	—	—	—
August 1 through August 31, 2020	—	$	—	—	71,483
September 1 through September 30, 2020	114,374	$	9.59	114,374	65,764

Total	114,374	$	9.59	114,374	65,764

(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 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%. 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.

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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			XBRL Instance Document

101.SCH			XBRL Taxonomy Extension Schema

101.CAL			XBRL Taxonomy Extension Calculation Linkbase

101.DEF			XBRL Taxonomy Extension Definition Linkbase

101.LAB			XBRL Taxonomy Extension Label Linkbase

101.PRE			XBRL Taxonomy Extension Presentation Linkbase

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		EUREKA HOMESTEAD BANCORP, INC.


Date: November 16, 2020		/s/ Alan T. Heintzen

		Alan T. Heintzen
		Chief Executive Officer


Date: November 16, 2020		/s/ Cecil A. Haskins, Jr.

		Cecil A. Haskins, Jr.
		President and Chief Financial Officer

Eureka Homestead Bancorp, Inc. - FORM 10-Q - November 16, 2020

Attached files

Eureka Homestead Bancorp, Inc. Reports