UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-54238

EUREKA FINANCIAL CORP.

(Exact name of registrant as specified in its charter)


Maryland		27-3671639
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3455 Forbes Avenue, Pittsburgh, Pennsylvania		15213
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (412) 681-8400

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

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of March 31, 2015 was $26,564,120.

The number of shares outstanding of the registrant’s common stock as of December 18, 2015 was 1,225,735.

DOCUMENTS INCORPORATED BY REFERENCE

None

INDEX


		Page
Part I

Item 1.	Business		1
Item 1A.	Risk Factors		16
Item 1B.	Unresolved Staff Comments		19
Item 2.	Properties		19
Item 3.	Legal Proceedings		19
Item 4.	Mine Safety Disclosures		20

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		20
Item 6.	Selected Financial Data		22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		42
Item 8.	Financial Statements and Supplementary Data		43
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		43
Item 9A.	Controls and Procedures		43
Item 9B.	Other Information		44

Part III

Item 10.	Directors, Executive Officers and Corporate Governance		44
Item 11.	Executive Compensation		46
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		49
Item 13.	Certain Relationships and Related Transactions, and Director Independence		51
Item 14.	Principal Accountant Fees and Services		51

Part IV

Item 15.	Exhibits and Financial Statement Schedules		52

Signatures

This annual report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of Eureka Financial Corp. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. Eureka Financial Corp.’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the operations of Eureka Financial Corp. and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in Eureka Financial Corp.’s market area, changes in real estate market values in Eureka Financial Corp.’s market area, changes in relevant accounting principles and guidelines, disruption of current plans and operations, including the potential impact on third party and customer relationships, caused by the announcement and pendency of the Company’s proposed merger with NexTier, Inc., failure to satisfy conditions to the proposed merger with NexTier, Inc., unanticipated difficulties or expenditures relating to the merger with NexTier, Inc., legal proceedings initiated against the Company and others in connection with the proposed merger with NexTier, Inc. and the inability of third party service providers to perform as intended or contracted. Additional factors that may affect our results are discussed in Item 1A to this Annual Report on Form 10-K titled “Risk Factors” below.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, Eureka Financial Corp. does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Unless the context indicates otherwise, all references in this annual report to “Company,” “we,” “us” and “our” refer to Eureka Financial Corp. and its subsidiary.

PART I

ITEM 1.

BUSINESS

General

Eureka Financial Corp. (the “Company”) was incorporated in September 2010 to be the stock holding company of Eureka Bank (the “Bank”) upon completion of the Bank’s “second-step” conversion from the mutual holding company to the stock holding company form of organization, which occurred on February 28, 2011. The Company is the successor to old Eureka Financial Corp., a federally chartered corporation previously existing as the mid-tier holding company for the Bank. In connection with the Bank’s conversion, 763,635 shares of Company common stock, par value $0.01 per share, were sold in a subscription and community offering for $10.00 per share. In addition, approximately 555,258 additional shares of the Company’s common stock (without taking into consideration cash issued in lieu of fractional shares) were issued in exchange for the outstanding shares of common stock of old Eureka Financial Corp. held by persons other than Eureka Bancorp, MHC, the former mutual holding company of the Bank.

The Company’s principal business activity is the ownership of the outstanding shares of common stock of the Bank. The Company does not own or lease any property but instead uses the premises, equipment and other property of the Bank, with the payment of appropriate rental fees, as required by applicable laws and regulations, under the terms of an expense allocation agreement.

The Bank operates as a community-oriented financial institution offering traditional financial services to consumers and businesses in its market area. The Bank attracts deposits from the general public and uses those funds to originate one- to four-family real estate, multi-family and commercial real estate, commercial loans, leases and lines of credit, construction and consumer loans, which the Bank generally holds for investment, and to purchase commercial leases.

The Company’s website address is www.eurekabancorp.com. Information on our website should not be considered a part of this annual report.

Market Area

We are headquartered in Pittsburgh, Pennsylvania, which is located in Allegheny County. We maintain two offices in the Oakland and Shaler sections in the Pittsburgh metropolitan area, which we consider to be our primary market area. Our market area has a broad range of private employers, and has changed its focus from heavy industry to more specialized industries, including technology, health care, education and finance service providers. Allegheny County, Pennsylvania is the headquarters for several Fortune 500 companies, including H.J. Heinz, US Steel, Dick’s Sporting Goods, and PPG Industries. The largest employers in the Pittsburgh metropolitan area, the population of which was estimated to be approximately 2.4 million in 2014, include the United States government, the Commonwealth of Pennsylvania, the University of Pittsburgh Medical Center and the University of Pittsburgh. Seven colleges and universities are located in the greater Pittsburgh area.

Our market area did not fully benefit from the national economic expansion nor has our market area been as negatively impacted as other parts of the country during the recent economic recession. As a result of the recession, the national unemployment rate increased to over 10% and real estate prices across the country have declined substantially in many markets. Our market area was not insulated from the impact of the economic downturn. While still dramatically higher than a couple of years ago, our market area’s unemployment rates have generally fared slightly better than Pennsylvania and nationally. As of September 2015, U.S. Department of Labor statistics reflected that Allegheny County had an unemployment rate of 4.6% compared to Pennsylvania and national unemployment rates of 5.3% and 5.1%, respectively.

Proposed Merger with NexTier, Inc.

On September 3, 2015, the Company and NexTier, Inc., a Delaware corporation (“NexTier”), entered into an agreement and Plan of Merger (the “Merger Agreement”) pursuant to which NexTier will acquire the Company and the Bank (the “Merger”).

Under the terms of the Merger Agreement, NexTier will acquire all of the Company’s outstanding common stock at a price of $28.50 per share in cash, resulting in a valuation of the acquisition of approximately $35 million. Each outstanding option to acquire shares of Company common stock will be cancelled in exchange for a cash payment equal to the difference, if any, between $28.50 and the exercise price of the option. If the exercise price of an option exceeds $28.50, then such option will be cancelled without any payment. In addition, unvested shares of Company restricted stock will vest in full upon the merger.

Following the merger of NexTier and the Company, the Bank will merge with and into NexTier’s wholly owned subsidiary, NexTier Bank, pursuant to a bank merger agreement with NexTier Bank being the surviving institution and the Bank’s branch offices will become branches of NexTier Bank.

The Merger Agreement contains customary representations and warranties from the Company and NexTier, and each party has agreed to customary covenants, including, among others, covenants relating to (1) the conduct of the Company’s businesses during the interim period between the execution of the Merger Agreement and the closing of the merger, (2) the Company’s obligation to facilitate its stockholders’ consideration of, and voting upon, the Merger Agreement and the merger, (3) the recommendation by the board of directors of the Company in favor of approval of the Merger Agreement and the merger by its stockholders, and (4) the Company’s non-solicitation obligations relating to alternative business combination transactions.

Consummation of the merger is subject to certain conditions, including, among others, approval of the merger by the Company’s stockholders, the receipt of all required regulatory approvals and expiration of applicable waiting periods, accuracy of specified representations and warranties of each party, the performance in all material respects by each party of its obligations under the Merger Agreement, and the absence of any injunctions or other legal restraints. The stockholders of the Company approved the Merger at a special meeting of stockholders held on December 16, 2015.

The Merger Agreement contains termination rights which may be exercised by the Company or NexTier in specific circumstances, such as the following: required regulatory approval has been denied by final, non-appealable action of a governmental entity; the parties are unable to complete the Merger by June 30, 2016; the other party has committed a breach of a representation, warranty or covenant which would prevent a closing condition from being satisfied and the breach is not or cannot be cured within 30 days; or the Company’s stockholders failed to approve the Merger. In addition, the Company may terminate the Merger Agreement to enter into an alternative business combination transaction pursuant to a “superior proposal,” as defined by the Merger Agreement. If the Merger Agreement is terminated under certain circumstances, the Company will be required to pay NexTier a termination fee of $1.4 million. In addition, if the Company terminates the Merger Agreement due to NexTier’s failure to obtain regulatory approval of the merger, NexTier will be required to reimburse the Company’s expenses, up to $350,000, incurred in connection with the transactions contemplated by the Merger Agreement.

Competition

We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the numerous financial institutions operating in our market area and, to a lesser extent, from other financial service companies such as brokerage firms, credit unions and insurance companies. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities. As of June 30, 2015, the most recent date for which information is available, we held 0.14% of the deposits in Allegheny County, which is the 20th largest market share out of 34 financial institutions in the county. In addition, larger banks such as PNC Bank, Citizens Bank, Dollar Bank, First Niagara Bank and First Commonwealth Bank, also operate in our market areas. These institutions are significantly larger than we are and, therefore, have greater resources.

Our competition for loans comes primarily from financial institutions in our market areas, and, to a lesser extent, from other financial service providers such as mortgage companies, mortgage brokers and credit unions. Competition for loans also comes from non-depository financial service companies entering the mortgage and commercial lending markets such as insurance companies, securities companies and specialty finance companies.

We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered the barriers to market entry, allowed banks and other lenders to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit our future growth.

Lending Activities

We generally originate loans for investment. The largest segments of our loan portfolio are one- to four-family residential real estate loans and multi-family and commercial real estate loans. In addition, we regularly purchase commercial leases with shorter maturities than traditional one- to four-family residential loans from an unrelated third party. To a lesser extent, we also offer construction and consumer loans, including home equity loans and lines of credit. We have not originated or targeted subprime loans in our portfolio.

One- to Four-Family Residential Real Estate Loans. The largest segment of our loan portfolio is one- to four-family residential real estate loans, which enable borrowers to purchase or refinance existing homes secured by properties located in our primary market area. A significant percentage of our residential mortgage loans are secured by owner-occupied residences located in our primary market area. However, the majority percentage of our residential mortgage loans are secured by non-owner-occupied residences housing college and graduate students in the immediate area surrounding our Oakland branch office, which is located adjacent to the University of Pittsburgh and Carnegie Mellon University campuses. We offer predominantly fixed-rate one- to four-family residential real estate loans, with terms of up to 30 years for owner-occupied properties and terms of up to 15 years for non-owner-occupied properties. Loan fees, interest rates and other provisions of mortgage loans are determined based on our own pricing criteria and competitive market conditions. We generally retain all of our one- to four-family residential real estate loans and do not sell any such loans into the secondary market.

While one- to four-family residential real estate loans are normally originated with terms of up to 30 years, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.

We generally do not make one- to four-family fixed rate residential loans with loan-to-value ratios exceeding 80% of the lesser of the appraised value or purchase price at the time the loan is originated. However, we have the ability to originate one- to four-family residential loans of up to 95% of the value of properties located in our primary market area for qualified first-time home buyers and do not require private mortgage insurance on these loans. At September 30, 2015, we had no residential loans with a loan-to-value ratio exceeding 95% at the time of origination. We require properties securing mortgage loans to be appraised by an independent appraiser approved by us. In addition, we generally require title insurance on all first mortgage loans. Borrowers must also generally obtain hazard insurance, and flood insurance for loans on properties located in a flood zone, before closing the loan. Our one- to four-family residential mortgage loans also generally include due-on-sale clauses, which permit us to deem a loan immediately due and payable if the borrower transfers ownership of the property securing the loan without our consent.

At September 30, 2015, our largest outstanding one- to four-family residential real estate loan had an outstanding balance of $591,000 and was secured by a single-family dwelling located in the Pittsburgh metropolitan area. This loan was performing in accordance with its contractual terms at September 30, 2015.

Multi-Family and Commercial Real Estate Loans. We purchase participation interests in and, to a lesser extent, originate, fixed-rate and adjustable-rate mortgage loans secured by multi-family and commercial real estate to individuals and small businesses in our primary market area. Our multi-family and commercial real estate loans are generally secured by apartment buildings, as well as office and retail space.

We originate multi-family and commercial real estate loans with terms of up to 20 years. These loans are typically repaid, or their terms are extended, before maturity, in which case a new rate is negotiated to meet market conditions and an extension of the loan is executed for a new term with a new amortization schedule. Loans are secured by first mortgages that generally do not exceed 75% of the property’s appraised value. We require all properties securing multi-family and commercial real estate loans to be appraised by an independent licensed appraiser approved by us. Many multi-family and commercial real estate loans also are supported by personal guarantees.

Interest rates and payments on our adjustable-rate multi-family and commercial real estate loans generally adjust after an initial fixed period of five years with balloon payments due upon maturity. Interest rates and payments on our adjustable-rate loans generally are based on the five-year Treasury Index.

At September 30, 2015, our largest outstanding multi-family or commercial real estate loan was a multi-family loan for $2.1 million secured by an apartment building located in the Pittsburgh metropolitan area. This loan was performing in accordance with its contractual terms at September 30, 2015.

Commercial Leases and Lines of Credit. We purchase, through an unrelated party with whom we have worked for the past fourteen years, commercial leases with adjustable-rate features or fixed-rate loans with shorter maturities than traditional one- to four-family residential mortgage loans. The commercial leases we purchase generally have a two- to seven-year amortization period and the balances on these loans range from $3,000 to $1.4 million. At September 30, 2015, our largest aggregate exposure to one commercial lease borrower was $1.4 million. The commercial leases comprising this relationship were made to a borrower located in the Pittsburgh metropolitan area and are secured by rail cars. These loans were performing in accordance with their contractual terms at September 30, 2015. To a significantly lesser extent, we also originate commercial leases to qualified borrowers. At September 30, 2015, our originated commercial leases totaled $1.3 million. Our purchased commercial leases, which totaled $16.2 million at September 30, 2015, are originated by a leasing corporation that services the loans and remits payments from the borrowers to us. These loans are generally secured by, among other things, equipment, machinery, computers, medical devices and school buses, and some are personally guaranteed by the lessor. We

generally maintain a first lien on the collateral securing the loans. Our commercial leases are primarily made to tool and die companies, hospitals, universities, machine tool shops and schools. These leases generally have higher loan-to-value ratios than residential mortgages and repayment is typically dependent upon the success of the borrower’s business.

We also originate adjustable-rate commercial lines of credit to business customers with interest rates based on the prime rate, as published in the Wall Street Journal. Our commercial lines of credit permit borrowers to make monthly interest-only payments and are generally secured by commercial, investment or residential real estate and accounts receivable. At September 30, 2015, the outstanding balance of our commercial lines of credit was $4.1 million, with $5.8 million remaining in available credit.

Construction Loans. We make construction loans primarily for the construction of one- to four-family residential dwellings and commercial real estate projects in our primary market area. Our construction loans made to developers generally require the payment of interest at fixed rates during the construction period (typically up to two years) and payment of the principal in full at the end of the construction period. Loans made to individual property owners are structured to provide both construction and permanent financing. With respect to these loans, borrowers pay interest-only during the construction period (typically up to six months).

At September 30, 2015, our largest outstanding construction loan had an outstanding balance of $1.9 million and was secured by a retail development located in the Pittsburgh metropolitan area. This loan was performing in accordance with its contractual terms at September 30, 2015.

Consumer Loans. To a lesser extent, we also offer a variety of consumer loans, including home equity loans, lines of credit and home improvement loans. The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount. We offer fixed-rate home equity loans to applicants who maintain owner-occupied or single-family dwellings. Generally, the amount of the home equity loan is based on the total indebtedness of the property and, when combined with the first mortgage loan on the property, will not exceed 80% of the appraised value of the property. We also offer home equity lines of credit with maximum line amounts of $100,000 and minimum line amounts of $10,000. In addition, we offer unsecured improvement and share and passbook loans to qualifying borrowers. At September 30, 2015, we had $593,000 in unsecured consumer loans.

Loan Underwriting Risks

Multi-Family and Commercial Real Estate Loans. Loans secured by multi-family and commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in multi-family and commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the property. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we generally require borrowers and loan guarantors to provide annual financial statements and/or tax returns. In reaching a decision on whether to make a multi-family or commercial real estate loan, we consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of not less than 1.05x. Environmental screens, surveys and inspections are obtained when circumstances suggest the possibility of the presence of hazardous materials. Further, in connection with our ongoing monitoring of the loan, we typically will review the property, the underlying loan and guarantors annually.

In addition, because we offer adjustable-rate multi-family and commercial real estate loans, the increased payments required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability and collateral value of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans help make our loan portfolio more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.

Commercial Leases and Lines of Credit. Due to their generally shorter terms, commercial leases produce high yields and enhance our asset/liability management program by reducing our exposure to interest rate risk changes. However, these loans may entail significant additional credit risk compared to owner-occupied residential mortgage lending since repayment is generally contingent upon the success of the borrower’s business. In addition, it is generally more difficult to repossess and ascertain the value of collateral securing commercial leases than it is to repossess and ascertain the value of real estate securing residential mortgage loans.

Construction Loans. Construction lending is generally considered to involve a higher level of credit risk than one- to four-family residential lending since the risk of loss on construction loans is dependent largely upon the accuracy of the initial estimate of the individual property’s value upon completion of the project and the estimated cost (including interest) of the project. If the cost estimate proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project.

Consumer Loans. Consumer loans that are not secured by real estate may entail greater risk than residential mortgage loans. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections depend on the borrower’s continuing financial stability and, therefore, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Loan Originations, Sales and Participations. Loan originations come from a number of sources. The primary source of loan originations is existing customers, walk-in traffic, advertising, referrals from customers and loans originated by our commercial relationship managers.

At September 30, 2015, we were a participating lender on 11 loan relationships with one local financial institution totaling $7.3 million, which are secured primarily by commercial real estate. These loans are being serviced by the lead lender. We expect to continue to purchase similar participation interests when such opportunities meet our investment returns and risk parameters. On these participation interests, we generally perform our own underwriting analysis before purchasing such loans and therefore believe there should not be a greater risk of default on these obligations. However, in a purchased participation loan, we do not service the loan and thus are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings. In assessing whether to participate, we require a review of all of the documentation relating to any loan in which we participate, including any annual financial statements provided by a borrower. Additionally, we require periodic updates on the loan from the lead lender.

From time to time, we will also sell participation interests in loans where we are the lead lender and servicer. At September 30, 2015, we were the lead lender on two loan relationships totaling $4.4 million, of which we owned $2.4 million and serviced $2.0 million for other banks. We expect in the future that we will continue to sell participation interests to local financial institutions, primarily with respect to commercial real estate loans that approach or exceed our lending limits.

Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of directors and management. Our President and Chief Executive Officer generally has the authority to approve all commercial and residential real estate loans and commercial leases of up to $250,000. Our Board of Directors or our loan committee, which consists of our President and Chief Executive Officer and two members of our Board of Directors, ratifies all loans made by our President and Chief Executive Officer. Our loan committee or Board of Directors approves all loans over the $250,000 limit.

Loans to One Borrower. The maximum amount we may lend to one borrower and the borrower’s related entities generally is limited by regulation to 15% of our stated capital and reserves. At September 30, 2015, our general regulatory limit on loans to one borrower was approximately $3.6 million. At that date, our largest lending relationship consisted of 19 loans totaling $3.1 million, which were primarily secured by multi-family properties. These loans were performing in accordance with their contractual terms at September 30, 2015.

Loan Commitments. We issue commitments for mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Generally, our mortgage loan commitments expire within 60 days.

Investment Activities

The Board of Directors reviews and approves our investment policy annually. Our investment policy is structured to provide management with the criteria for maintaining our investment portfolio, as well as satisfying applicable regulatory requirements, and is designed to allow investment in securities that will bring an acceptable rate of return while at the same time minimizing credit and interest rate risk. The Board of Directors reviews investment transactions and monitors the composition and performance of our investment portfolio on a quarterly basis.

We have authority to invest in various types of liquid assets, including U.S. Treasury obligations, mortgage-backed securities, mortgage derivative securities and stocks, municipal bonds, mutual funds and debentures which are backed by government related agencies. However, we had no investments in mortgage derivative securities at September 30, 2015 and currently have no intention of purchasing these types of securities. We also are required to maintain an investment in Federal Home Loan Bank of Pittsburgh stock.

At September 30, 2015, our investment portfolio had an amortized cost of $8.7 million and a fair value of $8.7 million and consisted primarily of government agency debentures.

Deposit Activities and Other Sources of Funds

Deposits, borrowings and loan repayments are the major sources of our funds for lending and other investment purposes. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions.

Deposit Accounts. Substantially all of our depositors are residents of the Commonwealth of Pennsylvania. We attract deposits in our primary market area through advertising and through the offering of a broad selection of deposit instruments, including non-interest-bearing demand accounts (such as checking accounts), interest-bearing accounts (such as NOW and money market accounts), regular savings accounts and certificates of deposit. During 2015, we continued participating in the Certificate of Deposit Account Registry Service (“CDARS”) one-way buy deposit program. This program helps the Bank obtain large blocks of funding and diversify its wholesale funding options. The Company is able to obtain one-way buy deposits up to a maximum amount of 15% of total assets. The deposits obtained through the one-way buy program are considered brokered deposits. At September 30, 2015, we had $17.9 million in CDARS one-way buy deposits. We also offer our in-market retail and commercial customers’ access to a CDARS program, which provides them the ability to receive Federal Deposit Insurance Corporation insurance on deposits up to $50.0 million. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability to us, matching deposit and loan products and customer preferences. We generally review our deposit mix and pricing on a monthly basis. Our current strategy is to offer competitive rates and to be in the middle to top third of the market for rates on a variety of retail and business deposit products.

Borrowings. We periodically utilize borrowings from the Federal Home Loan Bank of Pittsburgh to provide additional liquidity, aside from deposits, to fund our loans and investments. As of September 30, 2015, we had no outstanding borrowings with the Federal Home Loan Bank of Pittsburgh.

The Federal Home Loan Bank functions as a central reserve bank providing credit for its member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our whole first mortgage loans and other assets (principally mortgage related securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs,

each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness.

Executive Officers

Our executive officers are elected by the board of directors and serve at the board’s discretion. The following individuals currently serve as executive officers.


Name		Position
Edward F. Seserko		President and Chief Executive Officer of the Company and the Bank

Gary B. Pepper		Executive Vice President and Chief Financial Officer of the Company and the Bank

Below is information regarding our executive officer who is not also a director. Age is as of September 30, 2015.

Gary B. Pepper is Executive Vice President and Chief Financial Officer of the Company and the Bank. Mr. Pepper has been employed by the Bank since 1991 and has served in various positions with the Bank since that time. He is also the President of the Financial Security Officers Association of Western Pennsylvania. Age 57.

Personnel

As of September 30, 2015, we had 18 full-time employees and two part-time employees. We believe our relationship with our employees is good.

Regulation and Supervision

The Bank is subject to extensive regulation, examination and supervision by the Office of the Comptroller of the Currency, as its primary federal regulator, and the Federal Deposit Insurance Corporation, as the deposit insurer. The Bank is a member of the Federal Home Loan Bank System and its deposit accounts are insured up to applicable limits by the Deposit Insurance Fund managed by the Federal Deposit Insurance Corporation. The Bank must file reports with the Office of the Comptroller of the Currency concerning its activities and financial condition in addition to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the Office of the Comptroller of the Currency to evaluate the Bank’s safety and soundness and compliance with various laws and regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation or through legislation, could have a material adverse impact on our operations.

Certain of the regulatory requirements applicable to the Bank and to the Company are referred to below or elsewhere herein. To the extent statutory or regulatory provisions are described in this section, such descriptions are not intended to be a complete explanation of such statutes and regulations and their effects on the Company and the Bank.

Regulatory Reform

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made extensive changes in the regulation of financial institutions and their holding companies. Under the Dodd-Frank Act, the Office of Thrift Supervision was eliminated and the responsibility for the supervision and regulation of federal savings banks was transferred to the Office of the Comptroller of the Currency on June 21, 2011. On the same date, responsibility for the regulation and supervision of savings and loan holding companies was transferred to the Board of Governors of the Federal Reserve System.

Additionally, the Dodd-Frank Act created a Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as the Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the enforcement authority of, their prudential regulator.

Federal Savings Institution Regulation

Business Activities. The activities of federal savings institutions, such as the Bank, are governed by federal laws and regulations. These laws and regulations delineate the nature and extent of the activities in which federal associations may engage. In particular, certain types of lending authority for federal associations, e.g., commercial, non-residential real property and consumer loans, are limited to a specified percentage of the institution’s capital or assets.

Loans to One Borrower. Federal law provides that savings institutions are generally subject to the national bank limits on loans to one borrower. A savings institution may generally not make a loan or extend credit to a single or related group of borrowers in excess of 15% of the Bank’s unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if secured by readily-marketable collateral.

Qualified Thrift Lender Test. Federal law requires savings institutions to meet a qualified thrift lender (“QTL”) test. Under the test, a savings bank is required to either qualify as a “domestic building and loan association” under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less (i) specified liquid assets up to 20% of total assets, (ii) intangibles, including goodwill, and (iii) the value of property used to conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed securities but also including education, credit card and small business loans) on a monthly basis in 9 out of every 12 months.

A savings institution that fails the QTL test is subject to certain operating restrictions. The Dodd-Frank Act subjects violations of the QTL test requirements to possible enforcement action for a violation of law and could impose dividend limitations. As of September 30, 2015, the Bank met the QTL test.

Limitations on Capital Distributions. Federal regulations restrict capital distributions by a savings institution, such as cash dividends, stock repurchases and other transactions charged to the capital account of a savings institution. Under the regulations, an application to and the prior approval of the Federal Reserve Board is required prior to any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under applicable regulations (i.e., generally examination ratings in the top two categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the Office of the Comptroller of the Currency. If an application is not required, the institution must still provide prior notice to the Federal Reserve Board of the capital distribution since it is a subsidiary of the holding company. Notice must also be provided to the OCC. If the Bank’s capital fell below its regulatory requirements or the Office of the Comptroller of the Currency notified it that it was in need of increased supervision, the Bank’s ability to make capital distributions could be restricted. In addition, the Office of the Comptroller of the Currency could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the Office of the Comptroller of the Currency determines that such distribution would constitute an unsafe or unsound practice.

Assessments. Savings institutions are required to pay assessments to the Office of the Comptroller of the Currency to fund the agency’s operations. The general assessment, paid on a semi-annual basis, is based on the savings institution’s total assets, including consolidated subsidiaries, as reported in the latest quarterly call report, financial condition and the complexity of its portfolio.

Community Reinvestment Act. The Community Reinvestment Act requires the Office of the Comptroller of the Currency, in connection with its examination of a savings institution, to assess the institution’s record of meeting the credit needs of its community, including low- and moderate-income neighborhoods, and to take such record into account in its evaluation of certain applications by such institution. An institution’s failure to satisfactorily comply with the provisions of the Community Reinvestment Act could result in denials of regulatory applications. The Bank received a “satisfactory” Community Reinvestment Act rating in its most recent examination.

Transactions with Related Parties. The Bank’s authority to engage in certain transactions with “affiliates” (i.e., any company that controls or is under common control with an institution, including the Company and any non-savings institution subsidiaries) is limited by federal law. The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law. The purchase of low quality assets from affiliates is generally prohibited. Transactions with affiliates must be on terms and under circumstances that are at least as favorable as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.

The Sarbanes-Oxley Act generally prohibits loans by the Bank to its executive officers and directors. However, the law maintains a specific exemption for loans by a depository institution to its executive officers and directors in compliance with federal banking laws. The Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities controlled by such persons, is limited. The laws limit both the individual and aggregate amount of loans that the Bank may make to insiders based, in part, on the Bank’s capital level and requires that certain board procedures be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and may not involve more than the normal risk of repayment. An exception exists for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. The law limits both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position and requires certain board approval procedures to be followed. There are additional restrictions on extensions of credit to executive officers.

Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may include the issuance of a capital directive or cease and desist order, removal of officers and/or directors, institution of receivership, conservatorship, or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The Federal Deposit Insurance Corporation has the authority to recommend to the Office of the Comptroller of the Currency that an enforcement action be taken with respect to a particular savings institution. If action is not taken by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation has the authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.

Capital Requirements. The applicable capital regulations require savings associations to meet four Basel III minimum capital standards: a 1.5% tangible capital to total assets ratio, a 4% Tier 1 capital to total assets leverage ratio (3% for institutions receiving the highest rating on the CAMELS examination rating system), an 8% risk-based capital ratio and a 4.5% common equity Tier 1 capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The regulations also require that, in meeting the tangible, leverage and risk- based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for a national bank.

The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor assigned by the capital regulation based on the risks believed inherent in the type of asset. Tier 1 (core) capital is generally defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital (Tier 2 capital) include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible debt securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses is includable in supplementary capital up to 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The Office of the Comptroller of the Currency also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances. At September 30, 2015 the Bank met each of its capital requirements.

Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies, including savings and loan holding companies, that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. In early July 2013, the Federal Reserve Board and the Office of the Comptroller of the Currency approved revisions to their capital adequacy guidelines and prompt corrective action rules that implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The rules include new risk-based capital and leverage ratios, which became effective on January 1, 2015, and revise the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company and the Bank will be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The rules eliminate the inclusion of certain instruments, such as trust preferred securities, from Tier 1 capital. Instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. The rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.

Prompt Corrective Regulatory Action. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept broker deposits. The Office of the Comptroller of the Currency is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The Office of the Comptroller of the

Currency could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.

Insurance of Deposit Accounts. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. Deposit insurance per account owner is currently $250,000. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned a risk category based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned, and certain adjustments specified by Federal Deposit Insurance Corporation regulations. Institutions deemed less risky pay lower assessments. The Federal Deposit Insurance Corporation may adjust the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment. No institution may pay a dividend if in default of the federal deposit insurance assessment.

The Dodd-Frank Act required the Federal Deposit Insurance Corporation to revise its procedures to base its assessments upon each insured institution’s total assets less tangible equity instead of deposits. The Federal Deposit Insurance Corporation finalized a rule, effective April 1, 2011, that set the assessment range at 2.5 to 45 basis points of total assets less tangible equity.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what insurance assessment rates will be in the future.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. The Bank, as a member of the FHLB, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. The Bank was in compliance with this requirement with an investment in Federal Home Loan Bank stock at September 30, 2015 of $131,900.

Federal Reserve System. The Federal Reserve Board regulations require savings institutions to maintain non-interest-earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The regulations generally require that, effective January 1, 2015, reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $103.6 million; a 10% reserve ratio is applied over $103.6 million. The first $14.5 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) were exempted from the reserve requirements. The Bank has complied with the foregoing requirements.

Other Regulations. The Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:

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Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

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Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services;

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Truth in Savings Act;

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Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

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Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

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Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

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Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and

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Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of the Bank also are subject to the:

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Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

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Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

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Check Clearing for the 21^st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

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The USA PATRIOT Act, which requires banks and savings institutions to, among other things, establish broadened anti-money laundering compliance programs and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement pre-existing compliance requirements that apply to financial institutions under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

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The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties and requires all financial institutions offering products or services to retail customers to provide such customers with the financial institution’s privacy policy and allow such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

As a savings and loan holding company, the Company is subject to Federal Reserve Board regulations, examinations, supervision, and reporting requirements. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the Bank.

Pursuant to federal law and regulations and policy, a savings and loan holding company such as the Company may generally engage in the activities permitted for financial holding companies under Section 4(k) of the Bank Holding Company Act and certain other activities that have been authorized for savings and loan holding companies by regulation.

Federal law prohibits a savings and loan holding company from, directly or indirectly or through one or more subsidiaries, acquiring more than 5% of the voting stock of another savings association, or savings and loan holding company thereof, without prior written approval of the Federal Reserve Board or from acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary holding company or savings association. A savings and loan holding company is also prohibited from acquiring more than 5% of a company engaged in activities other than those authorized by federal law or acquiring or retaining control of a depository institution that is not insured by the Federal Deposit Insurance Corporation. In evaluating applications by holding companies to acquire savings associations, the Federal Reserve Board must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.

The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings associations in more than one state, except: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings association in another state if the laws of the state of the target savings association specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Capital Requirements. Savings and loan holding companies historically have not been subject to consolidated regulatory capital requirements. However, in July 2013, the Federal Reserve Board approved a new rule that implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The final rule established consolidated capital requirements for many savings and loan holding companies, including the Company. See “Regulatory and Supervision – Federal Savings Institution Regulation – Capital Requirements.”

Source of Strength. The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must promulgate regulations implementing the “source of strength” policy that holding companies act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Dividends and Stock Repurchases. The Federal Reserve Board has the power to prohibit dividends by savings and loan holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which also applies to savings and loan holding companies and which expresses the Federal Reserve Board’s view that a holding company should pay cash dividends only to the extent that the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve Board also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends. Under the prompt corrective action regulations, the Federal Reserve Board may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.”

Federal Reserve Board policy also provides that a holding company should inform the Federal Reserve Board supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weakness or if the repurchase or redemption would result in a net reduction, as of the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred.

Acquisition of the Company. Under the Federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company or savings association. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the outstanding voting stock of the company or institution, unless the Federal Reserve Board has found that the acquisition will not result in a change of control. Under the Change in Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that acquires control would then be subject to regulation as a savings and loan holding company.

Federal Taxation

We report our income on a calendar year basis using the accrual method of accounting. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns have been either audited or closed under the statute of limitations for years before 2011. We report our income on a fiscal year basis ending in September using the accrual method of accounting. The maximum federal income tax rate is 34%.

The Company and the Bank have entered into a tax allocation agreement. Because the Company owns 100% of the issued and outstanding capital stock of the Bank, the Company and the Bank are members of an affiliated group within the meaning of Section 1504(a) of the Internal Revenue Code, of which group the Company is the common parent corporation. As a result of this affiliation, the Bank may be included in the filing of a consolidated federal income tax return with the Company and, if a decision to file a consolidated tax return is made, the parties agree to compensate each other for their individual share of the consolidated tax liability and/or any tax benefits provided by them in the filing of the consolidated federal income tax return.

Bad Debt Reserves. For fiscal years beginning before 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and required savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves. Approximately $1 million of the Bank’s accumulated bad debt reserves would not be recaptured into taxable income unless the Bank makes a “non-dividend distribution” to the Company as described below.

Distributions. If the Bank makes “non-dividend distributions” to the Company, the distributions will be considered to have been made from the Bank’s unrecaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the “non-dividend distributions,” and then from the Bank’s supplemental reserve for losses on loans, to the extent of those reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in the Bank’s taxable income. Non-dividend distributions include distributions in excess of the Bank’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of the Bank’s current or accumulated earnings and profits will not be so included in the Bank’s taxable income.

The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if the Bank makes a non-dividend distribution to the Company, approximately one and one-half times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. The Bank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

State Taxation

The Company is subject to the Pennsylvania Corporation Net Income Tax and Capital Stock and Franchise Tax. The state Corporate Net Income Tax rate for fiscal years ended 2015 and 2014 was 9.99% and was imposed on the Bank’s unconsolidated taxable income for federal purposes with certain adjustments. In general, the Capital Stock Tax is a property tax imposed at the rate of 0.289% of a corporation’s capital stock value, which is determined in accordance with a fixed formula.

ITEM 1A.

RISK FACTORS

Risks Relating to the Merger

We will be subject to business uncertainties while the Merger is pending, which could adversely affect our business.

Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on us, and, consequently, the combined company. Although we intend to take steps to reduce any adverse effects, these uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is consummated and for a period of time thereafter, and could cause customers and others that deal with us to seek to change their existing business relationships with us. Our employee retention may be particularly challenging during the pendency of the Merger, as employees may experience uncertainty about their roles with the combined company following the Merger.

Completion of the Merger is subject to certain conditions, and if these conditions are not satisfied or waived, the Merger will not be completed.

The obligations of NexTier and us to complete the merger are subject to satisfaction or waiver (if permitted) of a number of conditions. The satisfaction of all the required conditions could delay the completion of the Merger for a significant period of time or prevent it from occurring. Any delay in completing the Merger could cause the combined company not to realize some or all of the benefits that the combined company expects to achieve if the Merger is successfully completed within its expected timeframe. Further, there can be no assurance that the conditions to the closing of the Merger will be satisfied or waived or that the Merger will be completed.

Failure to complete the Merger could negatively impact our stock price and our future business and financial results.

If the Merger is not completed for any reason, including as a result of our stockholders failing to approve the Merger or other transactions contemplated by the Merger Agreement, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Merger, we would be subject to a number of risks, including the following:

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We may be required, under certain circumstances, to pay a termination fee to NexTier;

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We are subject to certain restrictions on the conduct of our business prior to completing the Merger, which may adversely affect our abilities to execute certain of our business strategies;

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We may experience negative reactions from the financial markets, including negative impacts on our stock prices or from our customers, regulators, and employees;

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We have incurred and will continue to incur certain costs and fees associated with the Merger and other transactions contemplated by the Merger Agreement;

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Matters relating to the Merger (including integration planning) may require substantial commitments of time and resources by our management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company.

In addition, we could be subject to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. If the Merger is not completed, these risks may materialize and may adversely affect our business, financial condition, financial results and stock price.

Risks Relating to the Company

A return to recessionary conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.

Although economic conditions have improved since the end of the economic recession in June 2009, economic growth has been slow and uneven, unemployment remains high and concerns still exist over the federal deficit and government spending, which have all contributed to diminished expectations for the economy. A return of recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Further declines in real estate values and sales volumes and continued high unemployment levels may result in higher than expected loan delinquencies, increases in our levels of non-performing and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.

Our emphasis on multi-family and commercial lending may expose us to increased lending risks.

At September 30, 2015, $65.6 million, or 48.0%, of our loan portfolio consisted of multi-family and commercial real estate loans, commercial leases and commercial lines of credit. Commercial lending is an important part of our business strategy and we expect this portion of our loan portfolio to continue to grow. Commercial loans generally expose a lender to greater risk of non-payment and loss and require a commensurately higher loan loss allowance than residential mortgage loans because repayment of the loans often depends on the successful operation of the business and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential mortgage loans. Also, many of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a residential mortgage loan. Further, unlike residential mortgage loans or multi-family and commercial real estate loans, commercial leases and lines of credit may be secured by collateral other than real estate the value of which may be more difficult to appraise and may be more susceptible to fluctuation in value.

Changes in interest rates could have a material adverse effect on our earnings.

Our net interest income is the interest we earn on loans and investments less the interest we pay on our deposits. Our net interest spread is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates—up or down—could adversely affect our net interest margin and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the yield catches up. This contraction could be more severe following a prolonged period of lower interest rates, as a larger proportion of our fixed-rate residential loan portfolio will have been originated at those lower rates and borrowers may be more reluctant or unable to sell their homes in a higher interest rate environment. Changes in the slope of the “yield curve”—or the spread between short-term and long-term interest rates—could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets.

In addition, loan volumes are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations. An increase in the general level of interest rates may also adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations. Accordingly, changes in levels of market interest rates could materially adversely affect our asset quality, loan origination volume and overall profitability. In addition, our deposits are subject to increases in interest rates and as interest rates rise we may lose these deposits if we do not pay competitive interest rates, which may affect our liquidity and profits.

Our emphasis on residential mortgage loans exposes us to lending risks.

At September 30, 2015, $64.3 million, or 47.0%, of our loan portfolio consisted of residential mortgage loans, and $2.0 million, or 1.4%, of our loan portfolio consisted of home equity loans and second mortgage loans. Recent declines in the housing market have resulted in declines in real estate values in our market areas. These declines in real estate values could cause some of our mortgage loans to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral.

Legislative financial reforms and future regulatory reforms required by such legislation could have a significant impact on our business, financial condition and results of operations.

The Dodd-Frank Act, which was signed into law on July 21, 2010, will have a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. Under the Dodd-Frank Act, the Office of Thrift Supervision was merged into the Office of the Comptroller of the Currency. Savings and loan holding companies, including the Company, became regulated by the Federal Reserve Board.

Although savings and loan holding companies are not currently subject to specific regulatory capital requirements, the Dodd-Frank Act requires the Federal Reserve Board to promulgate consolidated capital requirements for all depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. In addition, the Dodd-Frank Act codifies the Federal Reserve Board’s existing “source of strength” policy that holding companies act as a source of strength to their insured institution subsidiaries by providing capital, liquidity and other support in times of distress. The Dodd-Frank Act also provides for the creation of a new agency, the Consumer Financial Protection Bureau, to assure the implementation of federal consumer financial protection and fair lending laws for the depository institution regulators. Furthermore, the Dodd-Frank Act repealed payment of interest on commercial demand deposits, forced originators of securitized loans to retain a percentage of the risk for the transferred loans, required regulatory rate-setting for certain debit card interchange fees and contained a number of reforms related to mortgage origination. In response to the changing regulatory environment, we have made enhancements to people, processes, and controls to ensure we are complying with new regulations. It is unclear what impact the Dodd-Frank Act will have on our business in the future as many of the regulations under the act are still being developed. However, we expect that we will need to continue to make additional investments in people, systems and outside consulting and legal resources to comply with the new regulations.

While it is difficult to predict at this time what specific impact the Dodd-Frank Act and the related yet to be written implementing rules and regulations will have on us, we expect that, at a minimum, our operating and compliance costs will increase, and our interest expense could increase, as a result of these new rules and regulations.

In addition to the enactment of the Dodd-Frank Act, the federal regulatory agencies recently have begun to take stronger supervisory actions against financial institutions that have experienced increased loan losses and other weaknesses as a result of the recent economic crisis. The actions include the entering into of written agreements and cease and desist orders that place certain limitations on their operations. Federal bank regulators recently have also been using with more frequency their ability to impose individual minimal capital requirements on banks, which requirements may be higher than those imposed under the Dodd-Frank Act or that would otherwise qualify the bank as being “well capitalized” under the Federal Deposit Insurance Corporation’s prompt corrective action regulations. If we were to become subject to a supervisory agreement or higher individual capital requirements, such action may have a negative impact on our ability to execute our business plans, as well as our ability to grow, pay dividends or engage in mergers and acquisitions and may result in restrictions in our operations. See “Regulation and Supervision—Federal Savings Institution Regulation—Capital Requirements” for a discussion of regulatory capital requirements.

We are dependent upon the services of key executives.

We rely heavily on our President and Chief Executive Officer, Edward F. Seserko and on our Executive Vice President and Chief Financial Officer, Gary B. Pepper. The loss of Mr. Seserko or Mr. Pepper could have a material adverse impact on our operations because, as a small company, we have fewer management-level personnel that have the experience and expertise to readily replace these individuals. Changes in key personnel and their responsibilities may be disruptive to our business and could have a material adverse effect on our business, financial condition, and results of operations. We have employment agreements with Messrs. Seserko and Pepper.

We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Federal Reserve Board and the Office of the Comptroller of the Currency, our primary federal regulators, and the Federal Deposit Insurance Corporation, as insurer of our deposits. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of the Company’s common stock. Our regulators may subject us to supervisory and enforcement actions, such as the imposition of certain restrictions on our operations, the classification of our assets and the determination of the level of our allowance for loan losses, that are aimed at protecting the insurance fund and the depositors and borrowers of the Bank but that are detrimental to holders of the Company’s common stock. Any change in our regulation or oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Strong competition within our market area could reduce our profits.

We face intense competition in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and at times has forced us to offer higher deposit rates. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which would reduce net interest income. Competition also makes it more difficult to grow loans and deposits. As of June 30, 2015, the most recent date for which information is available, we held 0.14% of the deposits in Allegheny County, in which both of our offices are located. Many of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market areas.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

We currently conduct business through our two full-service banking offices in Pittsburgh. We own our main office and lease our Shaler office. The lease expires in 2017. The net book value of the land, buildings, furniture, fixture and equipment owned by us was $1.0 million at September 30, 2015.

ITEM 3.

LEGAL PROCEEDINGS

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

On October 20, 2015, a purported shareholder of the Company filed a putative class action lawsuit in the Circuit Court for Baltimore City captioned Fruma Rubin vs Eureka Financial, its directors and NexTier. The complaint alleges that the directors of the Company breached their fiduciary duties by agreeing to the proposed

merger with NexTier for inadequate consideration and agreeing to unreasonable deal protection devices. The complaint further alleges that the Company and NexTier aided and abetted the alleged breach of fiduciary of duties by the directors of the Company. The plaintiff seeks, among other things, the entry of an order (1) granting class certification, (2) declaring that the conduct of the defendants in approving the merger constituted a breach of their fiduciary duties, (3) enjoining the individual defendants from implementing any of the deal protection measures, and (4) awarding plaintiff and the class appropriate compensatory damages. At this early stage of the litigation, it is not possible to access the probability of a material adverse outcome or reasonably estimate any potential financial impact of the lawsuits on the Company. The defendants believe the claims against them are without merit and intend to contest the matter vigorously.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Equity and Related Stockholder Matters

The Company’s common stock is quoted on the Over-the-Counter Bulletin Board “Pink Sheets” under the symbol “EKFC.” The following table sets forth the high and low sales prices of the Company’s common stock for the past two fiscal years, as well as corresponding cash dividends per share for each quarterly period.


	High		Low		Dividend Paid Per Share
Year Ended September 30, 2015
Fourth quarter	$	27.50	$	21.08	$	0.10
Third quarter		26.00		21.50		0.10
Second quarter		22.00		19.50		0.10
First quarter		22.00		18.50		0.20


	High		Low		Dividend Paid Per Share
Year Ended September 30, 2014
Fourth quarter	$	19.29	$	17.90	$	0.10
Third quarter		19.75		18.00		0.10
Second quarter		18.40		17.50		0.10
First quarter		22.00		17.25		0.10

The board of directors of the Company has the authority to declare dividends on the common stock, subject to statutory and regulatory requirements. Declarations of dividends by the board of directors, if any, will depend upon a number of factors, including investment opportunities available to the Company or the Bank, capital requirements, regulatory limitations, the Company’s and the Bank’s financial condition and results of operations, tax considerations and general economic conditions. No assurances can be given, however, that any dividends will be paid.

As of December 18, 2015, the Company had 321 holders of record of common stock. The figure of shareholders of record does not reflect the number of persons whose shares are in nominee or “street” name accounts through brokers.

Purchase of Equity Securities

On February 22, 2012, the Company’s board of directors authorized a stock repurchase program to acquire up to 10% of the Company’s outstanding common stock (the “2012 Repurchase Program”). The repurchase program became effective on March 1, 2012. On September 16, 2014, the Company’s board of directors authorized an additional stock repurchase program, which authorized the repurchase of 10% of the Company’s outstanding common stock, or 122,547 shares. The repurchase program began after the expiration of the 2012 Repurchase Program and will continue until it is completed or terminated by the board of directors.

The Company did not repurchase any shares of stock in the fourth quarter of fiscal 2015.

ITEM 6.

SELECTED FINANCIAL DATA

The following tables contain certain information concerning our consolidated financial position and results of operations, which is derived in part from our consolidated financial statements. The following is only a summary and should be read in conjunction with the consolidated financial statements and notes beginning on page F-1 of this annual report.


	At or for the Year Ended September 30,
	2015		2014
	(In thousands, except per share data)
Financial Condition Data:
Total assets	$	155,016	$	152,187
Cash and cash equivalents		7,583		9,640
Securities available for sale		5,861		8,404
Securities held-to-maturity		2,769		2,772
Loans receivable, net		135,064		128,030
Deposits		129,656		127,861
Total stockholders’ equity		23,584		22,694

Operating Data:
Interest income	$	6,938	$	6,813
Interest expense		835		870

Net interest income		6,103		5,943
Provision for loan losses		70		62

Net interest income after provision for loan losses		6,033		5,881
Non-interest income		83		101
Non-interest expense		4,060		3,652

Income before income tax expense		2,056		2,330
Income tax expense		740		801

Net income	$	1,316	$	1,529

Per Share Data:
Earnings per share, basic	$	1.13	$	1.29
Earnings per share, diluted		1.13		1.28
Dividends		0.50		0.40


	At or for the Year Ended September 30,
	2015			2014
Performance Ratios:
Return on average assets		0.85	%		1.04	%
Return on average equity		5.71			6.83
Dividend payout ratio		44.25			31.01
Interest rate spread (1)		3.91			4.00
Net interest margin (2)		3.92			4.13
Non-interest expense to average assets		2.61			2.48
Efficiency ratio (3)		65.63			60.43
Average interest-earning assets to average interest-bearing liabilities		123.98			121.73
Average equity to average assets		14.81			15.22

Capital Ratios:
Total equity to total assets		15.21			14.91
Tier 1 capital (to adjusted assets) (4)		14.37			14.32
Tier 1 capital (to risk-weighted assets) (4)		20.72			22.41
Total risk-based capital (to risk-weighted assets) (4)		21.95			23.66

Asset Quality Ratios:
Allowance for loan losses as a percent of total loans		0.98			1.05
Allowance for loan losses as a percent of non-performing loans and accruing loans of 90 days or more past due		354.98			160.49
Net charge-offs to average outstanding loans during the period		0.06			—
Non-performing loans as a percent of total loans		0.28			0.65
Non-performing loans as a percent of total assets		0.24			0.56

(1)	Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)	Represents net interest income as a percent of average interest-earning assets.

(3)	Represents non-interest expense divided by the sum of net interest income and other income, excluding gains or losses on the impairment and sale of securities.

(4)	Ratios are for the Bank.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General Overview

We conduct community banking activities by accepting deposits and making loans in our primary market area. Our lending products include residential mortgage loans, multi-family and commercial real estate loans and, to a lesser extent, commercial lines of credit, construction and consumer loans. We also purchase, through an unrelated third party, commercial leases. In addition, we maintain an investment portfolio consisting primarily of government agency debentures to help manage our liquidity and interest rate risk. Our loan and investment portfolios are funded with deposits.

Income. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits. Our net interest income is affected by a variety of factors, including the mix of interest-earning assets and interest-bearing liabilities in our portfolio and changes in levels of interest rates. Growth in net interest income is dependent upon our ability to prudently manage the balance sheet for growth, combined with how successfully we maintain or increase net interest margin, which is net interest income as a percentage of average interest-earning assets.

A secondary source of income is non-interest income, or other income, which is revenue that we receive from providing products and services. The majority of our non-interest income generally comes from service charges (mostly from service charges on deposit accounts).

Provision for Loan Losses. The allowance for loan losses is maintained at a level representing management’s best estimate of known and inherent losses in the loan portfolio, based upon management’s evaluation of the portfolio’s collectability. The allowance is established through the provision for loan losses, which is charged against income. Charge-offs, if any, are charged to the allowance. Subsequent recoveries, if any, are credited to the allowance. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

Expenses. The non-interest expense we incur in operating our business consists of salaries and benefits expenses, occupancy expenses, computer costs, professional fees, Federal Deposit Insurance Corporation premiums and various other miscellaneous expenses. For the year ended September 30, 2015, we also incurred expenses related to the Merger.

Our largest non-interest expense is for salaries and benefits, which consists primarily of salaries and wages paid to our employees, payroll taxes, expenses for health insurance, retirement plans, director and committee fees and other employee benefits, including employer 401(k) plan contributions.

Occupancy expenses include the fixed and variable costs of buildings such as depreciation charges, maintenance, real estate taxes and costs of utilities. Depreciation of premises is computed using the straight-line method based on the useful lives of the related assets, which range from five to 50 years for buildings and premises. Leasehold improvements are amortized over the shorter of the useful life of the asset or the term of the lease.

Computer costs include fees paid to our third-party data processing service and ATM expense.

Professional fees include fees paid to our independent auditors, attorneys and consultants.

Federal Deposit Insurance Corporation assessments are a specified percentage of assessable deposits, depending on the risk characteristics of the institution.

Other non-interest expense includes expenses for stationery, printing, marketing, supplies, telephone, postage, insurance premiums and other fees and expenses.

Our Business Strategy

The following are the key elements of our business strategy:

•

Improve earnings through continued loan diversification. Historically, we have emphasized the origination of one-to four-family real estate loans secured by homes in our market area. A majority of these real estate loans are secured by non-owner occupied residences located in our primary market area. These real estate loans house college and graduate students in the immediate area surrounding our Oakland branch office, which is located adjacent to the University of Pittsburgh and Carnegie Mellon University campuses. In addition, we have also emphasized the purchase and, to a lesser extent, origination of commercial leases and lines of credit. Going forward, we intend to continue to emphasize loan diversification as a means of improving our earnings, as commercial leases and lines of credit generally have higher interest rates than residential mortgage loans. Another benefit of commercial lending is that it improves the interest rate sensitivity of our interest-earning assets because commercial loans typically have shorter terms than residential mortgage loans and frequently have variable interest rates.

•

Use conservative underwriting practices to maintain asset quality. We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards that we believe are conservative. Non-performing loans and accruing loans delinquent 90 days or more were 0.28% and 0.65% of our total loan portfolio at September 30, 2015 and 2014, respectively. Although we intend to continue our efforts to originate commercial real estate and business loans, we intend to adhere to our philosophy of managing lending risks through our conservative approach to lending.

•

Improve our funding mix by marketing core deposits. Core deposits (demand, money market and savings accounts) comprised 46.3% of our total deposits at September 30, 2015 compared to 45.0% of our total deposits at September 30, 2014. We value core deposits because they represent longer-term customer relationships and a lower cost of funding compared to certificates of deposit.

•

Actively manage our balance sheet. The recent severe economic recession has underscored the importance of a strong balance sheet. We strive to achieve this through managing our interest rate risk and maintaining strong capital levels and liquidity. In addition, our diverse loan mix improves our net interest margin and reduces the exposure of our net interest income and earnings to interest rate fluctuations. We will continue to manage our interest rate risk by maintaining the diversification in our loan portfolio and monitoring the maturities in our deposit portfolio. Moreover, it is expected that existing minimum regulatory capital ratios may be increased by regulatory agencies in response to market and economic conditions. However, we anticipate that we will continue to exceed any such increase in minimum regulatory capital ratios.

•

Continued expense control. Management continues to focus on the level of non-interest expense and methods to identify cost savings opportunities, such as reviewing the number of employees, renegotiating key third-party contracts and reducing certain other operating expenses. Our efficiency ratio was 65.63% and 60.43% for the years ended September 30, 2015 and 2014, respectively.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level representing management’s best estimate of known and inherent losses in the loan portfolio, based on management’s evaluation of the portfolio’s collectability. The allowance is established through the provision for loan losses, which is charged against income. Management estimates the allowance balance required using loss experience in particular segments of the portfolio, the size and composition of the loan portfolio, trends and absolute levels of non-performing loans, classified and criticized loans, delinquent loans, trends in risk ratings, trends in industry charge-offs by particular segments and changes in existing general economic and business conditions affecting our lending area and the national economy. Additionally, for loans identified by management as impaired, management will provide a specific provision for loan loss based on the expected discounted cash flows of the loan, or for loans determined to be collateral dependent, a specific provision for loan loss is established based on appraised value less costs to sell. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if actual conditions differ substantially from the assumptions used in making the evaluation. Further, current economic conditions have increased the uncertainty inherent in these estimates and assumptions. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings. For additional discussion, see “—Risk Management — Analysis and Determination of the Allowance for Loan Losses” below and the notes to the consolidated financial statements included in this annual report.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Valuation and Other-Than-Temporary Impairment of Investment Securities. We evaluate our investment securities portfolio on a quarterly basis for indicators of other-than-temporary impairment, which requires significant judgment. We assess whether other-than-temporary impairment has occurred when the fair value of a debt security is less than the amortized cost basis at the balance sheet date. Under these circumstances, other-than-temporary impairment is considered to have occurred: (1) if we intend to sell the security; (2) if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. For securities that we do not expect to sell or that we are not more likely than not to be required to sell, the other-than-temporary impairment is separated into credit and non-credit components. The credit-related other-than-temporary impairment, represented by the expected loss in principal, is recognized in non-interest income, while noncredit-related other-than-temporary impairment is recognized in other comprehensive income (loss). Noncredit-related other-than-temporary impairment results from other factors, including increased liquidity spreads and extension of the security. For securities which we do expect to sell, all other-than-temporary impairment is recognized in earnings. Other-than-temporary impairment is presented in the income statement on a gross basis with a reduction for the amount of other-than-temporary impairment recognized in other comprehensive income (loss). Once an other-than-temporary impairment is recorded, when future cash flows can be reasonably estimated, future cash flows are re-allocated between interest and principal cash flows to provide for a level-yield on the security.

Financial Condition

General. At September 30, 2015, total assets were $155.0 million, an increase of $2.8 million, or 1.8%, from $152.2 million at September 30, 2014 due to an increase in loans, offset by decreases in investment securities and cash and cash equivalents. Loans receivable, net, increased by $7.0 million to $135.1 million at September 30, 2015 from $128.0 million at September 30, 2014, primarily due to increases in one-to four-family non owner-occupied loans, commercial real-estate loans and construction loans. The increase was primarily the result of our continued offering of competitive rates, strong customer service and continued borrowings by long-standing relationships, as well as improvements in market conditions and loan demand. Securities decreased $2.5 million, or 22.8%, during the year ended September 30, 2015 primarily as a result of calls and maturities of $4.1 million in longer-term government agency debentures and municipal securities, offset by purchases of $1.5 million. The securities purchased were classified as available for sale in order to provide additional liquidity sources. Cash and cash equivalents decreased by $2.1 million, or 21.3%, as cash was used to fund loan growth.

Total liabilities were $131.4 million at September 30, 2015, an increase of $1.9 million, or 1.5%, from $129.5 million at September 30, 2014. Deposits increased $1.8 million to $129.7 million during the year ended September 30, 2015 primarily a result of an increase in CDARS one-way buy brokered deposits and savings accounts, offset by a decline in certificates of deposit.

Stockholders’ equity increased $890,000 to $23.6 million at September 30, 2015 from $22.7 million at September 30, 2014. The increase was primarily the result of net income of $1.3 million, offset by dividends of $0.50 per share at a cost of $605,505 and the repurchase of 6,578 shares at a cost of $125,000.

Loans. The following table sets forth the composition of our loan portfolio at the dates indicated.


	At September 30,
	2015						2014
	Amount (1)			Percent			Amount (1)			Percent
	(Dollars in thousands)
Real estate loans:
One- to four-family real estate – owner-occupied	$	22,081			16.15	%	$	21,556			16.62	%
One- to four-family real estate – non-owner-occupied		42,209			30.87			39,186			30.21
Construction		4,752			3.47			2,563			1.98
Multi-family		17,429			12.75			18,699			14.42
Commercial real estate		24,151			17.66			21,636			16.68

Total real estate loans		110,622			80.90			103,640			79.91
Consumer loans:
Home equity and second mortgages		1,958			1.43			1,881			1.45
Secured loans		140			0.10			158			0.12

Total consumer loans		2,098			1.53			2,039			1.57
Commercial leases and loans (2)		20,048			14.66			19,231			14.83
Commercial lines of credit		3,986			2.91			4,790			3.69

Total loans		136,754			100.00	%		129,700			100.00	%

Less:
Deferred loan premiums and origination fees, net		(344	)					(309	)
Allowance for loan losses		(1,346	)					(1,361	)

Net loans	$	135,064					$	128,030

(1)	Amounts listed are net of undisbursed portions.

(2)	Includes $17.5 million and $16.8 million in commercial leases at September 30, 2015 and 2014, respectively.

Loan Maturity. The following table sets forth certain information at September 30, 2015 regarding scheduled contractual maturities during the periods indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. The amounts shown below exclude deferred loan fees and costs.


	September 30, 2015
	One- to four- family real estate - owner- occupied		One- to four- family real estate - non-owner- occupied		Construction		Multi-family real estate		Commercial Real Estate		Home Equity and Second Mortgages		Secured Loans		Commercial Leases and Loans		Commercial Lines of Credit		Total Loans
	(in thousands)
Amounts due in :
One year or less	$	3	$	15	$	4,752	$	19	$	444	$	604	$	47	$	1,487	$	3,986	$	11,357
More than one year to two years		11		63		—		75		7		23		8		3,492		—		3,679
More than two year to three years		25		212		—		299		123		27		18		4,100		—		4,804
More than three years to five years		361		649		—		854		1,446		604		19		10,058		—		13,991
More than five years to ten years		2,274		5,320		—		4,998		7,286		348		6		911		—		21,143
More than ten years to fifteen years		4,183		25,341		—		4,577		9,893		—		42		—		—		44,036
More than fifteen years		15,224		10,609		—		6,607		4,952		352		—		—		—		37,744

Total	$	22,081	$	42,209	$	4,752	$	17,429	$	24,151	$	1,958	$	140	$	20,048	$	3,986	$	136,754

The following table sets forth the dollar amount of all scheduled maturities of loans at September 30, 2015 that are due after September 30, 2016 and have either fixed interest rates or adjustable interest rates. The amounts shown below exclude unearned interest on consumer loans and deferred loan fees.


	Fixed Rates		Floating or Adjustable Rates		Total
			(in thousands)
Real estate loans:
One- to four-family real estate – owner-occupied	$	22,078	$	—	$	22,078
One- to four-family real estate - non-owner- occupied		38,324		3,870		42,194
Construction		—		—		—
Multi-family real estate		11,242		6,168		17,410
Commercial real estate		12,233		11,474		23,707
Home equity and second mortgages		1,264		90		1,354
Secured loans		93		—		93
Commercial leases and loans		18,561		—		18,561
Commercial lines of credit		—		—		—

Total loans	$	103,793	$	21,604	$	125,397

Securities. The following table sets forth the amortized cost and fair values of our securities portfolio at the dates indicated.


	At September 30,
	2015				2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
			(In thousands)
Securities held to maturity:
Obligations of state and political subdivisions	$	2,019	$	2,089	$	2,022	$	2,057
U.S government agency securities		750		706		750		684

Total held-to-maturity securities		2,769		2,795		2,772		2,741

Securities available for sale:
Obligations of state and political subdivision		445		448		591		587
U.S. government agency securities		5,498		5,413		7,996		7,816
Freddie Mac mortgage-backed certificates		1		1		1		1
Fannie Mae mortgage-backed certificates		2		2		4		5

Total available-for-sale securities		5,946		5,864		8,592		8,409

Total securities	$	8,715	$	8,659	$	11,365	$	11,150

Federal law requires a member institution of the Federal Home Loan Bank System to hold stock of its district Federal Home Loan Bank according to a predetermined formula. This stock is carried at cost and was $131,900 at September 30, 2015. The Federal Home Loan Bank of Pittsburgh is permitted to increase the amount of capital stock owned by a member company to 6.00% of a member’s advances, plus 1.50% of the unused borrowing capacity.

At September 30, 2015, we had no investments in a single company or entity (other than state or U.S. Government-sponsored entity securities) that had an aggregate book value in excess of 10% of our equity at September 30, 2015.

The following table sets forth the stated maturities and weighted average yields of investment securities at September 30, 2015. Weighted average yields on tax-exempt securities are presented on a tax equivalent basis. Certain mortgage related securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the tables below.


	One Year or Less					More than 1 Year to 5 Years					More than 5 Years to 10 Years					More than 10 Years					Total
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield
	(Dollars in thousands)
Obligations of state and political subdivisions	$	145		.75	%	$	—		—		$	484		5.80	%	$	1,835		3.06	%	$	2,464		3.46	%
U.S. government agency securities		—		—			—		—			—		—			6,248		3.12	%		6,248		3.12	%
Freddie Mac certificates		—		—			2		6.67	%		—		—			—		—			2		6.67	%
Fannie Mae certificates		—		—			—		—			—		—			1		6.50	%		1		6.50	%

Total securities	$	145		.75	%	$	2		6.67	%	$	484		5.80	%	$	8,084		3.11	%	$	8,715		3.22	%

Cash and Cash Equivalents. Our primary source of short-term liquidity is comprised of branch working cash and interest-bearing deposits in other banks. Cash and cash equivalents decreased $2.1 million to $7.6 million during the year ended September 30, 2015 primarily as a result of a decrease in interest-bearing accounts in other banks, which was used to fund loan growth.

Deposits. Our primary source of funds is our deposit accounts, which are comprised of non-interest-bearing demand accounts, interest-bearing NOW accounts, money market accounts, savings accounts, certificates of deposit and CDARS. These deposits are provided primarily by individuals and businesses within our primary market area. CDARS one-way buy deposits are considered brokered deposits and are originated outside of our primary market area.

The following table sets forth the average balances of our deposit products at the dates indicated.


	At September 30,
	2015					2014
	Average Amount		Weighted Average Rate			Average Amount		Weighted Average Rate
	(Dollars in thousands)
Non-interest-bearing demand deposits	$	5,311		—	%	$	5,446		—	%
Interest-bearing demand deposits		29,378		0.18			23,976		0.16
Savings accounts		25,183		0.10			23,350		0.10
Time deposits		71,063		1.07			66,585		1.19

Total	$	130,935				$	119,357

The following table indicates the amount of jumbo certificates of deposit by time remaining until maturity at September 30, 2015. Jumbo certificates of deposit require minimum deposits of $100,000.


Maturity Period at September 30, 2015	Jumbo Certificates of Deposits
	(In thousands)
Three months or less	$	8,386
Over three months through six months		2,883
Over six months through twelve months		7,228
Over twelve months		20,502

Total	$	38,999

The following table sets forth time deposits classified by rates at the dates indicated.


	At September 30,
	2015		2014
	(In thousands)
0.00% - 1.00%	$	36,385	$	42,450
1.01% - 2.00%		20,076		11,954
2.01% - 3.00%		11,392		13,303
3.01% - 4.00%		1,799		1,953
4.01% - 5.00%		—		126
5.01% - 6.00%		30		588

Total	$	69,682	$	70,374

The following table sets forth the amount and maturities of time deposits classified by rates at September 30, 2015.


	Amount Due										Percent of Total Time Deposit Accounts
	Less than One Year		One Year to Two Years		Two Years to Three Years		More Than Three Years		Total		Percent of Total Time Deposit Accounts
					(Dollars in thousands)
0.00% - 1.00%	$	29,252	$	7,019	$	94	$	20	$	36,385		52.2	%
1.01% - 2.00%		2,479		4,030		5,909		7,658		20,076		28.8
2.01% - 3.00%		1,206		131		1,609		8,446		11,392		16.4
3.01% - 4.00%		101		122		407		1,169		1,799		2.6
4.01% - 5.00%		—		—		—		—		—		—
5.01% - 6.00%		30		—		—		—		30		—

Total	$	33,068	$	11,302	$	8,019	$	17,293	$	69,682		100.0	%

Results of Operations for the Years Ended September 30, 2015 and 2014

Overview.


	Years Ended September 30,
	2015			2014
	(Dollars in thousands, except per share amounts)
Net Income	$	1,316		$	1,529
Basic earnings per share		1.13			1.29
Diluted earnings per share		1.13			1.28
Average equity to average assets		14.81	%		15.22	%

For the year ended September 30, 2015, net income decreased to $1.3 million from $1.5 million for the 2014 fiscal year primarily a result of an increase in other non-interest expenses associated with the Merger.

Net Interest Income. For the year ended September 30, 2015, net interest income increased $160,000 compared to the year ended September 30, 2014 due to an increase in interest income and a decrease in interest expense.

Interest income increased $125,000 to $6.9 million for the year ended September 30, 2015 from $6.8 million for the year ended September 30, 2014. This increase was primarily the result of a $78,000 increase in interest income on loans to $6.6 million from $6.5 million for fiscal 2014, which consists of a $6.2 million increase in the average balance offset by an 18 basis point decrease in the average yield. Interest income on investment securities and interest-bearing deposits increased $47,000 from $302,000 to $349,000 for fiscal 2015 as a result of a 9 basis point increase in the average yield and a $1.8 million increase in the average balance.

Interest expense decreased $34,000 for the year ended September 30, 2015 compared to the year ended September 30, 2014 due primarily to a decrease in the average cost of deposits, offset by an increase in the average balance of interest-bearing liabilities. The decrease in the average cost of deposits was primarily due to a $103,000 decrease in interest paid on certificates of deposit due to a 2 basis point decrease in the average cost and a $16,000 decrease in interest paid on IRA accounts due to a 16 basis point decrease in the average cost. Average interest-bearing liabilities increased $7.5 million in fiscal 2015 to $125.6 million from $118.1 million in fiscal 2014.

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using month-end balances. Management does not believe that the use of month-end balances instead of daily average balances has caused any material differences in the information presented. Loan fees are included in interest income on loans and are insignificant. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.


	At September 30, 2015					2015							2014
	Actual Balance		Actual Yield/ Cost			Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost
Interest-earning assets:
Loans receivable (1)	$	135,064		4.88	%	$	131,626	$	6,589		5.01	%	$	125,397	$	6,511		5.19	%
Investments securities and interest bearing deposits (2)		15,479		2.25			20,172		349		1.73			18,383		302		1.64

Total interest-earning assets		150,543		4.61			151,799		6,938		4.57			143,780		6,813		4.74
Non-interest earning assets		4,473					3,947							3,288

Total Assets	$	155,016				$	155,745						$	147,068

Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts	$	28,778		0.18	%	$	29,378		52		0.18	%	$	23,976		39		0.16	%
Passbook and savings accounts		25,717		0.10			25,183		25		0.10			23,350		23		0.10
IRA accounts		8,201		1.52			8,451		125		1.48			8,576		141		1.64
Certificates of deposit		43,616		1.22			44,575		534		1.20			52,107		637		1.22
CDARS		17,865		0.56			18,037		100		0.55			5,902		17		0.29
Other liabilities		—		—			—		—		—			4,208		12		0.29

Total interest-bearing liabilities		124,177		0.67			125,623		835		0.66			118,118		869		0.74
Non-interest bearing liabilities		7,135					7,058							6,565

Total Liabilities		131,312					132,681							124,683
Stockholders’ equity (3)		23,704					23,064							22,385

Total Liabilities and stockholders’ equity	$	155,016				$	155,745						$	147,068

Net interest income								$	6,103						$	5,944
Interest rate spread (4)				3.94	%						3.90	%						3.99	%

Net yield on interest-earning assets (5)				4.05	%						4.02	%						4.13	%

Ratio of average interest-earning assets to average interest-bearing liabilities				121.23	%						120.84	%						121.73	%

(1)	Average balances include non-accrual loans with respect to which income is recognized on a cash basis.

(2)	Includes interest-bearing deposits in other financial institutions, investment securities and mortgage-backed securities.

(3)	Includes unrealized gains on available for sale securities.

(4)	Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(5)	Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by current volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.


	Year Ended September 30, 2015 Compared to Year Ended September 30, 2014
	Increase (Decrease) Due to
	Rate			Volume			Net
	(In thousands)
Interest Income:
Loans receivable	$	(239	)	$	317		$	78
Investment securities		16			31			47

Total interest-earning assets		(223	)		348			125

Interest Expense:
NOW accounts		3			9			12
Passbook & club accounts		0			2			2
IRA Accounts		(14	)		(2	)		(16	)
Certificates of deposit		(14	)		(89	)		(103	)
CDARS		26			57			83
FHLB advances		(6	)		(6	)		(12	)

Total interest-bearing liabilities		(5	)		(29	)		(34	)

Net change in interest income	$	(218	)	$	377		$	159

Provision for Loan Losses. For the year ended September 30, 2015, the provision for loan losses increased $8,000 to $70,000 from $62,000 for the year ended September 30, 2014. A larger increase in the allowance for loan losses was needed in 2015 because of the growth in the loan portfolio in one-to four-family real estate loans, which have a lower risk classification than commercial real estate or commercial lease loans. The risk-based approach to calculating the loan portfolio’s general valuation allowance assigns a risk classification and subsequent reserve percentage to every loan, either individually or as a classification, that is in our portfolio. Individual loan risk classifications are adjusted annually, on an as needed basis, when the loans are internally and externally reviewed. Total non-performing residential loans decreased to $0 at September 30, 2015 from $36,000 at September 30, 2014. A commercial loan with a balance of $302,000 and a commercial line of credit with a balance of $77,000 as of September 30, 2015 are considered impaired loans. We had an $85,000 charge-off for the year ended September 30, 2015 and no charge-offs in 2014.

An analysis of the changes in the allowance for loan losses is presented under “— Risk Management — Analysis and Determination of the Allowance for Loan Losses.”

Non-interest Income. The following table shows the components of non-interest income for the years ended September 30, 2015 and 2014.


	Years Ended September 30,
	2015		2014		$ Change			% Change
	(Dollars in thousands)
Fees on NOW accounts	$	40	$	33	$	7			21.2	%
ATM Surcharge fees		13		12		1			8.3
Increase in cash surrender value of life insurance policies		4		31		(27	)		(87.1	)
Other income		26		25		1			4.0

Total non-interest income	$	83	$	101	$	(18	)		(17.8	)%

Non-interest income decreased $18,000 for the year ended September 30, 2015 compared to the year ended September 30, 2014. The decrease was primarily related to a $27,000 decrease in the cash surrender value of life insurance policies offset by an increase in NOW account fees.

Non-interest Expense. The following table shows the components of non-interest expense and the percentage changes for the years ended September 30, 2015 and 2014.


	Years Ended September 30,
	2015		2014		$ Change			% Change
	(Dollars in thousands)
Salary and benefits	$	2,241	$	2,150		91			4.2	%
Occupancy		354		350		4			1.1
Data processing		255		272		(17	)		(6.3	)
Merger expenses		269		—		269			—
Professional fees		349		346		3			.9
FDIC insurance premiums		73		70		3			4.3
Charitable contributions		85		90		(5	)		(5.6	)
Other		434		375		59			15.7

Total non-interest expense	$	4,060	$	3,653		407			11.1	%

The increase in non-interest expense for the year ended September 30, 2015 was primarily due to $269,000 in expenses associated with the Merger and a $91,000 increase in salary and benefits expense. The increase in salary and benefits expense was related to a $39,000 increase in retirement fund contribution, a $31,000 increase in salary expense, and a $21,000 increase in ESOP benefits expense.

Income Taxes. We recorded income tax expense of $740,000 for the year ended September 30, 2015 compared to an income tax expense of $801,000 for the year ended September 30, 2014. This change in the provision for income taxes was primarily related to a decrease in income before tax. The effective tax rate for fiscal year 2015 was 35.97% compared to 34.37% for the 2014 fiscal year.

Risk Management

Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that

may result in changes in the values of financial instruments, such as available-for-sale securities, that are accounted for on a mark-to-market basis. Other risks that we face are operational risks, liquidity risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers due to unforeseen circumstances. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.

Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. When a borrower fails to make a required loan payment, we take a number of steps to attempt to have the borrower cure the delinquency and restore the loan to current status. When the loan becomes 15 days past due, a late notice is generated and sent to the borrower. A second notice is sent and phone calls are made ten days later. If payment is not received by the 30th day of delinquency, a further notification is sent to the borrower. If payment is not received by the 45th day of delinquency, a notice is sent to the borrower advising them that they have a specified period of time to cure their default before legal action begins. If no successful workout can be achieved, after a loan becomes 90 days delinquent, we typically commence foreclosure or other legal proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at or subsequent to foreclosure. We also may consider loan workout arrangements with certain borrowers under certain circumstances. Management reports to the board of directors or a committee of the board monthly regarding the amount of loans delinquent more than 30 days, all loans in foreclosure and all foreclosed and repossessed property that we own.

Analysis of Nonperforming and Classified Assets. We consider repossessed assets, loans that are 90 days or more past due, and troubled debt restructurings to be non-performing assets. Typically, payments received on a non-accrual loan are applied to the outstanding principal and interest as determined at the time of collection of the loan.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed assets until it is sold. When property is acquired, it is initially recorded at the lower of its cost or fair value, less estimate selling expenses. Holding costs and declines in fair value after acquisition of the property result in charges against income.

The following table provides information with respect to our non-performing assets at the dates indicated. We had one troubled debt restructuring and no loans past due 90 days and still accruing interest at the dates indicated.


	At September 30,
	2015			2014
	(Dollars in thousands)
Non-accruing loans:
One- to four-family real estate	$	—		$	36
Commercial leases and loans		301			388

Commercial lines of credit		77			424

Total non-performing loans		378			848

Assets acquired through foreclosure		—			—

Total non-performing assets	$	378		$	848

Total non-performing loans to total loans		0.28	%		0.65	%
Total non-performing loans to total assets		0.24			0.56
Total non-performing assets to total assets		0.24			0.56

For a discussion of the specific allowance related to these assets, see “Analysis and Determination of the Allowance for Loan Losses — Allowance on Impaired Loans.”

Interest income that would have been recorded for the years ended September 30, 2015 and 2014 had non-accruing loans been current according to their original terms was approximately $40,000 and $69,000, respectively. Interest income included in net income for these loans for the years ended September 30, 2015 and 2014 was $9,000 and $2,000, respectively.

Federal regulations require us to review and classify our assets on a regular basis. In addition, the Office of the Comptroller of the Currency has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. We also utilize a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. If we classify an asset as loss, we reserve an amount equal to 100% of the portion of the asset classified loss.

The following table shows the aggregate amounts of our classified assets at the dates indicated.


	At September 30,
	2015		2014
	(In thousands)
Special mention assets	$	—	$	192
Substandard assets		379		812
Doubtful assets		—		—
Loss		—		—

Total criticized and classified assets	$	379	$	1,004

At September 30, 2015, substandard assets were comprised of a $302,000 commercial lease and a $77,000 commercial line of credit. At September 30, 2014, substandard assets were comprised of a $388,000 commercial lease and a $424,000 commercial line of credit.

At September 30, 2015, Eureka Bank had no loans classified as special mention. At September 30, 2014, Eureka Bank had nine loans classified as special mention, which were comprised of five one- to four-family residential real estate loans, two commercial line of credit and two home equity lines of credit.

Other than as disclosed in the above tables, there are no other loans at September 30, 2015 that management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

Delinquencies. The following table provides information about delinquencies in our loan portfolio at the dates indicated.


	At September 30,
	2015						2014
	30-59 days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		30-59 days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due
	(In thousands)
One-to four-family real estate	$	44	$	591	$	—	$	257	$	—	$	36
Home equity and second mortgages		—		—		—		—		—		—
Commercial leases and loans		—		—		302		—		—		388
Commercial lines of credit		—		—		—		—		—		424

Total	$	44	$	591	$	302	$	257	$	—	$	848

At September 30, 2015, delinquent loans were comprised of two, one- to four-family residential real estate loans and one commercial loan. At September 30, 2014, delinquent loans were comprised of two one- to four-family residential real estate loans.

Analysis and Determination of the Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a valuation allowance on impaired loans; and (2) a valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

Allowance on Impaired Loans. We establish an allowance for loans that are individually evaluated and determined to be impaired. The allowance is determined by utilizing one of the three impairment measurement methods. A loan is impaired when, based upon current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest according to the contractual terms of the loan agreement. Management performs individual assessments of larger impaired loans and, to a lesser extent, certain non-impaired loans, to determine the existence of loss exposure and, where applicable, the extent of loss exposure based upon the present value of expected future cash flows available to pay the loan, or based upon the estimated realizable collateral where a loan is collateral dependent. Generally, loans excluded from the individual impairment analysis are collectively evaluated by management to estimate reserves for loan losses inherent in those loans.

Allowance on the Remainder of the Loan Portfolio. We establish another allowance for loans that are not determined to be impaired. Management determines the appropriate loss factor for each group of loans with similar risk characteristics within the portfolio based on loss experience and qualitative and environmental factors for loans in each group. Loan categories will represent groups of loans with similar risk characteristics and may include types of loans categorized by product, large credit exposures, concentrations, loan grade, or any other characteristic that causes a loan’s risk profile to be similar to another. We consider qualitative or environmental factors that are likely to cause estimated credit losses associated with our existing portfolio to differ from historical loss experience including changes in lending policies and procedures; changes in the nature and volume of the loan portfolio; changes in experience, ability and depth of loan management; changes in the volume and severity of past due loans, non-accrual loans and adversely graded or classified loans; changes in the quality of the loan review system; changes in the value of underlying collateral for collateral dependent loans; the existence of or changes in concentrations of credit; changes in economic or business conditions; and the effect of competition, legal and regulatory requirements on estimated credit losses.

We identify loans that may need to be charged-off as a loss by reviewing all delinquent loans, classified loans and other loans about which management may have concerns about collectability. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan or a shortfall in collateral value would result in our charging off the loan or the portion of the loan that was impaired.

The Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for loan losses. The Office of the Comptroller of the Currency may require us to make additional provisions for loan losses based on judgments different from ours.

At September 30, 2015, our allowance for loan losses was $1.3 million, or 1.00% of loans receivable, net and 354.98% of non-performing loans. At September 30, 2014, our allowance for loan losses was $1.4 million, or 1.05% of loans receivable, net and 160.49% of non-performing loans. Non-performing loans at September 30, 2015, were $379,000 or 0.28% of loans receivable, net compared to $848,000, or 0.65% of loans receivable, net at September 30, 2014. The allowance for loan losses is maintained at a level that represents management’s best estimate of losses in the loan portfolio at the balance sheet date. However, the allowance for loan losses may not be adequate to cover losses which may be realized in the future and additional provisions for loan losses may be required.

Our historical loss experience and qualitative and environmental factors are reviewed on a quarterly basis to ensure they are reflective of current conditions in our loan portfolio and economy.

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.


	At September 30,
	2015					2014
	Amount		% of Loans in Category to Total Loans			Amount		% of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family real estate - owner-occupied	$	121		8.99	%	$	156		16.62	%
One- to four-family real estate - non-owner- occupied		266		19.76			308		30.21
Construction		31		2.30			36		1.98
Multi-family real estate		97		7.21			141		14.42
Commercial real estate		235		17.46			223		16.68
Consumer loans:
Home equity and second mortgages		38		2.82			8		1.45
Secured loans		—		—			—		0.12
Commercial leases and loans		321		23.85			271		14.83
Commercial lines of credit		38		2.82			51		3.69
Non-allocated		199		14.79			167		—

Total allowance for loan losses	$	1,346		100.00	%	$	1,361		100.00	%

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with U.S. generally accepted accounting principles, the Office of the Comptroller of the Currency, in reviewing our loan portfolio, may request that we increase our allowance for loan losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, increases may be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the years indicated.


	Year Ended September 30,
	2015			2014
Allowance at beginning of year	$	1,361		$	1,299

Charge-offs		(85	)		—
Recoveries		—			—

Net charge-offs		—			—

Provision for loan losses		70			62

Allowance at end of year	$	1,346		$	1,361

Allowance for loan losses to non-performing loans		354.98	%		160.49	%
Allowance for loan losses to total loans at the end of the year		.98			1.05
Net charge-offs to average loans outstanding during the year		.03			—

Interest Rate Risk Management. Because the majority of our assets and liabilities are sensitive to changes in interest rates, our most significant form of market risk is interest rate risk. We are vulnerable to an increase in interest rates that may cause our interest-bearing liabilities to increase at a rate faster than our interest-earning assets, thereby negatively affecting net income. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. To reduce the volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk generally is to:

•

originate multi-family and commercial real estate loans with adjustable-rate features or fixed-rate loans with shorter maturities than one- to four-family residential mortgages;

•

purchase commercial leases with adjustable-rate features or fixed-rate loans with shorter maturities than one- to four-family residential mortgages;

•

attract low-cost checking and transaction accounts, which tend to be less interest rate sensitive;

•

maintain interest-bearing deposits, federal funds and U.S. Government securities with short to intermediate terms; and

•

maintain an investment portfolio that provides stable cash flows, thereby providing investable funds in varying interest rate cycles.

We have made a significant effort to increase our level of lower-cost deposits as a method of enhancing profitability. At September 30, 2015, we had 46.26% of our deposits in lower-cost savings account and interest-bearing and non-interest bearing demand accounts compared to 44.96% at September 30, 2014. Such deposits have traditionally remained relatively stable and would be expected to be only moderately affected by changes in interest rates.

Net Portfolio Value Analysis. We use a net portfolio value analysis prepared by a consultant to review our level of interest rate risk. Such analysis measures interest rate risk by computing changes in the net portfolio value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market

value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained 100 to 400 basis point increase or 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. Because of the low level of market interest rates, these analyses are not performed for decreases of more than 100 basis points.

The following table, which is based on information that we provide to the Office of the Comptroller of the Currency, presents the change in the net portfolio value of the Bank at September 30, 2015, which is the most recent date for which information is available, that would occur in the event of an immediate change in interest rates based on Office of the Comptroller of the Currency assumptions, with no effect given to any steps that we might take to counteract that change.


	Net Portfolio Value								Net Portfolio Value as a % of Portfolio Value of Assets
Basis Point (“bp”) Change in Rates	Amount		Change			% Change			NPV Ratio			Change (bp)
	(Dollars in Thousands)
+400 bp	$	21,412	$	(9,344	)		(30	)%		14.70	%		(434	)
+300 bp		24,231		(6,525	)		(21	)		16.14			(290	)
+200 bp		27,003		(3,753	)		(12	)		17.49			(155	)
+100 bp		29,296		(1,460	)		(5	)		18.50			(54	)
0 bp		30,756		—			—			19.04			—
- 100 bp		30,746		(10	)		—			18.68			(36	)

The changes in our net portfolio value shown in the preceding table that would occur reflects: (1) that a substantial portion of our interest-earning assets are fixed-rate loans and fixed-rate investment securities; and (2) the shorter duration of deposits, which reprice more frequently in response to changes in market interest rates.

The interest rate risk model uses various assumptions in assessing interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analyses presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income. Because of the large percentage of loans we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe these assumptions to be reasonable, assumed prepayment rates may not approximate actual future loan repayment activity.

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of cash and cash equivalents, deposit inflows, wholesale borrowings, brokered deposits, loan repayments and maturities and liquidation and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, loan prepayments and sales of securities are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand; (2) expected deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of our asset/liability management policy. We use a variety of measures to assess our liquidity needs, which are provided to our board of directors on a regular basis.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Cash and cash equivalents totaled $7.6 million at September 30, 2015. In addition, at September 30, 2015, we had the ability to borrow a total of approximately $70.4 million from the Federal Home Loan Bank of Pittsburgh, of which we had no advances outstanding.

At September 30, 2015, we had $3.0 million in loan commitments outstanding, which consisted of commitments to grant $2.1 million in loans and $915,000 in commercial leases and lines of credit. At September 30, 2015, we had $6.7 million in undisbursed lines of credit, $200,000 in undisbursed loans in process and $1.2 million in undisbursed construction loans.

Certificates of deposit due within one year of September 30, 2015 totaled $33.1 million, representing 46.82% of certificates of deposit at September 30, 2015. We believe, based on past experience, that we will retain a significant portion of these deposits at maturity. However, if these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2015.

The following table presents certain of our contractual obligations as of September 30, 2015.


	Payments Due by Period
	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years
	(In thousands)
Contractual Obligations
Operating lease obligations (1)	$	120	$	58	$	62	$	—	$	—
Other long-term obligations (2)		5		2		3		—		—

Total	$	125	$	60	$	65	$	—	$	—

(1)	Represents the lease for the Bank’s Shaler branch office.

(2)	Represents obligations relating to the Bank’s mailing system.

Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts. Deposit flows are affected by the overall levels of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposit relationships. Occasionally, we offer higher than market rates on certain deposit products to attract deposits.

The following table presents our primary investing and financing activities during the periods indicated.


	Years Ended September 30,
	2015			2014
	(In thousands)
Investing activities:
Proceeds from maturities and redemptions of investment securities	$	4,150		$	2,255
Purchase of investment securities		(1,500	)		(4,000	)
Net (increase) decrease in loans		2,106			(385	)
Commercial leases purchased		(9,748	)		(6,261	)
Financing activities:
Increase in deposits		1,796			10,403
Purchase and retirement of common stock		(125	)		(769	)
Payment of dividends		(606	)		(475	)

Capital Management. We have managed our capital to maintain strong protection for depositors and creditors. We are subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2015, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines. See “Regulation and Supervision — Federal Banking Regulations — Capital Requirements” and the notes to the consolidated financial statements included in this annual report.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, letters of credit and lines of credit. For information about our loan commitments and unused lines of credit, see note 14 of the notes to the consolidated financial statements.

For the years ended September 30, 2015 and 2014, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Impact of Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see note 1 of the notes to the consolidated financial statements.

Effect of Inflation and Changing Prices

The financial statements and related financial data presented in this annual report have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial condition and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8.

FINANCIAL STATEMENTS

The information required by this item is included herein beginning on page F-1.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”): (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter or year ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2015, utilizing the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of September 30, 2015 is effective.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements are prevented or timely detected.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

The Company’s Board of Directors is currently comprised of six members and is divided into three classes that are each elected for three-year terms. The same individuals comprise the Board of Directors of the Company and the Bank.

Information regarding the directors is provided below. Unless otherwise stated, each person has held his or her current occupation for the last five years. Ages presented are as of September 30, 2015. The starting year of service as director relates to service on the Board of Directors of the Bank.

Mark B. Devlin is the owner of T.B. Devlin Funeral Home in Pittsburgh, Pennsylvania. Mr. Devlin has served as Chairman of the Board of Directors of the Company and the Bank since 2012. Age 64. Director since 1992.

Mr. Devlin’s background offers the Board of Directors substantial small company management experience, specifically within the market in which the Bank conducts its business, and offers the board significant business experience from a setting outside of the financial services industry.

Robert J. Malone is retired and was the former owner and Chief Executive Officer of Fidelity Insurance Agency, Inc. in Pittsburgh, Pennsylvania. He served as the Chairman of the Board of Directors of the Company and the Bank until 2012 and now serves as Chairman Emeritus. Age 89. Director since 1961.

Mr. Malone’s insurance background provides the Board of Directors with substantial management and leadership experience with respect to an industry that complements the financial services provided by the Bank.

Paul M. Matvey is a certified public accountant and a stockholder of Schneider Downs Co., Inc., a public accounting firm headquartered in Pittsburgh, Pennsylvania. Age 62. Director since 1994.

As a certified public accountant, Mr. Matvey provides the Board of Directors with substantial experience regarding accounting and financial matters.

Dennis P. McManus is the Government Affairs Director for the Greater Pittsburgh Community Food Bank and is also an adjunct faculty member at the University of Pittsburgh. Age 60. Director since 1997.

Mr. McManus’ strong ties to the community, through his work with the Greater Pittsburgh Community Food Bank and involvement in civic organizations, provides the board with valuable insight regarding the local business and consumer environment.

William F. Ryan is Chairman and Chief Executive Officer of Point Spring & Driveshaft Co., a transportation-related business in Pittsburgh, Pennsylvania. Age 62. Director since 1997.

Mr. Ryan’s background offers the Board of Directors substantial small company management experience, specifically within the market in which the Bank conducts its business, and provides the board with valuable insight regarding the local business and consumer environment. In addition, Mr. Ryan offers the board significant business experience from a setting outside of the financial services industry.

Edward F. Seserko is President and Chief Executive Officer of the Company and the Bank. Mr. Seserko has been employed by the Bank since 1976 and has served in various positions with the Bank since that time. Age 63. Director since 1986.

Mr. Seserko’s extensive experience in the local banking industry and involvement in business and civic organizations in the communities in which the Bank serves affords the board valuable insight regarding the business and operations of the Bank. Mr. Seserko’s knowledge of the Company’s and the Bank’s business and history, combined with his success and guiding of the organization, position him well to continue to serve as our President and Chief Executive Officer.

Executive Officers

For information concerning officers of the Company, see Part I, Item I, “Business — Executive Officers.”

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors, and persons who own more than 10% of any registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. These individuals are required by regulation to furnish the Company with copies of all Section 16(a) reports they file.

Based solely on its review of the copies of the reports it has received and written representations provided to the Company from the individuals required to file the reports, the Company believes that each of its executive officers and directors has complied with applicable reporting requirements for transactions in Company common stock during the year ended September 30, 2015.

Code of Ethics

The Company has adopted a code of ethics and business conduct which applies to all of the Company’s and the Bank’s directors, officers and employees. We intend to disclose any changes or waivers from our code of ethics and business conduct applicable to senior financial officers in a Current Report on Form 8-K. A copy of the code of ethics and business conduct is available to stockholders on the Investor Relations portion of the Company’s website at www.eurekabancorp.com.

Corporate Governance

The Company’s Board of Directors maintains an Audit Committee that assists the Board of Directors in its oversight of the Company’s accounting, auditing, internal control structure and financial reporting matters. The Audit Committee is responsible for providing oversight relating to our consolidated financial statements and financial reporting process, systems of internal accounting and financial controls, internal audit function, annual independent audit and the compliance programs established by management and the Board. The Audit Committee is also responsible for engaging the Company’s independent registered public accounting firm and monitoring its conduct and independence. The Company’s Board of Directors has determined that Paul M. Matvey qualifies as an audit committee financial expert under the rules of the Securities and Exchange Commission.

Board Leadership Structure and Board’s Role in Risk Oversight

The Board of Directors of the Company has determined that the separation of the offices of Chairman of the Board and President and Chief Executive Officer enhance board independence and oversight. Moreover, the separation of the positions of the Chairman of the Board and President and Chief Executive Officer allow the President and Chief Executive Officer to focus on his responsibilities of running the Company, enhancing stockholder value and expanding and strengthening our franchise while allowing the Chairman of the Board to lead

the Board in its fundamental role of providing advice to and independent oversight of management. Consistent with this determination, Mark B. Devlin serves as Chairman of the Board of the Company and Edward F. Seserko serves as President and Chief Executive Officer of the Company.

Risk is inherent with every business and how well a business manages risk can ultimately determine its success. We face a number of risks, including credit, interest rate, liquidity, operational, strategic and reputation risks. Management is responsible for the day-to-day management of risks we face, while the Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board of Directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. Senior management attends the Board meetings and is available to address any questions or concerns raised by the Board on risk management and any other matters. The Chairman of the Board and independent members of the Board work together to provide strong, independent oversight of our management and affairs through our standing committees and, when necessary, special meetings of independent directors.

ITEM 11.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table provides information concerning total compensation earned or paid to Edward F. Seserko, our President and Chief Executive Officer, and Gary B. Pepper, our Executive Vice President and Chief Financial Officer, during the fiscal years ended September 30, 2015 and 2014. No other employee received total compensation exceeding $100,000 during the 2015 or 2014 fiscal years. Messrs. Seserko and Pepper are sometimes referred to in this proxy statement as “named executive officers.”


Name and Principal Position	Year		Salary		Bonus		All Other Compensation (1)		Total
Edward F. Seserko		2015	$	155,000	$	40,000	$	32,303	$	227,303
President and Chief Executive Officer		2014		150,000		46,000		30,664		226,664

Gary B. Pepper		2015		115,000		32,000		9,280		156,280
Executive Vice President and Chief Financial Officer		2014		110,000		31,000		9,048		150,048

(1)	Details of the amounts reported in the “All Other Compensation” column for 2015 are provided in the table below.


	Mr. Seserko			Mr. Pepper
Employer contributions to 401(k) plan	$	9,216		$	6,780
Supplemental executive retirement plan benefit		6,800			2,500
Perquisites		16,287	(a)		—	(b)

(a)	Includes the value of Mr. Seserko’s use of a company-owned automobile and country club dues.

(b)	Did not exceed $10,000.

Employment Agreements

The Company and the Bank maintain employment agreements with Messrs. Seserko and Pepper. Under the agreements, the current base salaries for Messrs. Seserko and Pepper are $155,000 and $114,000, respectively. We may increase the amount of the base salaries under the agreements from time to time and will review the salaries of the executives not less than annually. We may also pay discretionary bonuses to each of the executives. In addition to cash compensation, the executives participate in all standard benefit plans and programs we sponsor for employees or other executive officers.

Under the agreements, if we terminate an executive’s employment for “just cause,” as that term is defined in the agreements, the executive will not receive any compensation for any period after his termination date. If we terminate an executive’s employment without just cause, we will continue to pay the executive the salary he would have earned for the greater of (1) the then remaining term of the employment agreement or (2) 12 months.

If we, or our successor, terminate an executive’s employment during the term of his employment agreement following a change in control or within a period of 24 months following a change in control, the executive will receive a severance benefit equal to 2.99 times the executive’s average taxable income for the five taxable years preceding the change in control. The executive will receive the benefit in 36 equal, monthly installments. We will also pay this benefit to the executive if he voluntarily terminates his employment during the term of his employment agreement following a change in control or within 12 months following the change in control if (1) he must relocate his residence or employment location by more than 35 miles, (2) he must report to someone other than our Board of Directors, (3) we fail to maintain his base salary or benefits, (4) we assign him duties or responsibilities other than those normally associated with his position, (5) we diminish or reduce his responsibilities or authority or (6) in the case of Mr. Seserko, he is not re-elected to our Board of Directors.

If an executive dies while the agreement is in effect, we will provide the executive’s estate with the compensation due to the executive through the last day of the calendar month in which the executive dies. If an executive becomes disabled, we will continue to provide him with 100% of the compensation and benefits owed under the employment agreement for the lesser of (1) the remaining term of the agreement or (2) 12 months. If more than 12 months remain on the term of the employment agreement at the time the executive becomes disabled, we will also provide him with 65% of his compensation and benefits for the term of the agreement remaining after the 12-month period.

Deferred Compensation Plan

The Bank maintains deferred compensation agreements with each of Messrs. Seserko and Pepper. Under the agreements, if an executive dies while employed with the Bank, we will pay his beneficiary a single lump sum benefit scheduled under the agreement (the “Death Benefit”). At their current ages, the agreements provide for a Death Benefit of $300,000 for Mr. Seserko and $130,000 for Mr. Pepper.

Under the agreements, if Messrs. Seserko and Pepper terminate employment after attaining age 65, we will pay them a retirement benefit of $500,000 and $300,000, respectively (the “Normal Retirement Benefit”). We will also pay the executives a reduced benefit if they terminate employment before attaining age 65, but after attaining age 60 (the “Early Retirement Benefit”). In the case of Mr. Seserko, the Early Retirement Benefit ranges from $400,000 to $480,000, depending on his age at the time of his termination of employment. In the case of Mr. Pepper, the Early Retirement Benefit ranges from $181,000 to $268,000, depending on his age at the time of his termination of employment. The executives would receive the Normal Retirement Benefit or the Early Retirement Benefit in ten equal annual installments.

Under the deferred compensation agreements, we will also pay the executives a benefit if we terminate their employment other than for “cause” (as defined in the agreements) or if they terminate employment due to a permanent disability (the “Other Termination Benefit”). At their current ages, we would pay Messrs. Seserko and Pepper an Other Termination Benefit of $188,000 and $71,000, respectively. The maximum Other Termination Benefit payable to Messrs. Seserko and Pepper equal $188,000 and $138,000, respectively, depending on their age at the time the benefit becomes payable. The executives would receive the Other Termination Benefits in ten equal annual installments.

Under the agreements, we also have the discretion to credit the executives’ Death Benefit, Normal Retirement Benefit, Early Retirement Benefit and/or Other Termination Benefit with additional amounts from time to time and we may make this determination based on the Bank’s or the executive’s performance.

Outstanding Equity Awards at Fiscal Year End

The following table provides information concerning unexercised options and unvested restricted stock awards for each named executive officer as of September 30, 2015.


Name	Number of Securities Underlying Unexercised Options Exercisable		Number of Securities Underlying Unexercised Options Unexercisable (1)		Option Exercise Price		Option Expiration Date	Number of Shares of Restricted Stock That Have Not Vested (2)		Market Value of Shares of Restricted Stock That Have Not Vested (3)
Edward F. Seserko		11,454		7,637	$	15.24	05/21/2022		3,055	$	83,554

Gary B. Pepper		6,873		4,581		15.24	05/21/2022		2,750		75,212

(1)	Options vest in five equal annual installments beginning on May 21, 2013, the first anniversary of the date of grant.

(2)	Restricted stock awards vest in five equal annual installments beginning one year from the date of grant.

(3)	Based upon the Company’s closing stock price of $27.35 on September 30, 2015.

Director Compensation

The following table provides information regarding the compensation received by individuals who served as non-employee directors of the Company and the Bank during fiscal 2015. The table excludes perquisites, which did not exceed $10,000 in the aggregate for any director.


	Fees Earned or Paid in Cash		All Other Compensation		Total
Mark B. Devlin	$	31,825	$	—	$	31,825
Robert J. Malone		36,344		—		36,344
Paul M. Matvey		29,725		—		29,725
Dennis P. McManus		29,575		—		29,575
William F. Ryan		30,025		—		30,025

Cash Retainer and Meeting Fees for Non-Employee Directors. The following table sets forth the applicable retainers and fees that will be paid to our non-employee directors for their service on our Board of Directors during the year ending September 30, 2015.


Annual retainer	$	19,200
Additional annual retainer:
Chairman of the Board		1,800
Chairman Emeritus of the Board		1,800
Attendance fees:
Per Executive Committee meeting		450
Per Loan, Compensation and CRA Committee meeting		300
Per Audit Committee meeting		300
Per Audit Committee meeting (Committee Chairman)		450

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Stock Ownership of Certain Beneficial Owners

The following table provides information as of December 18, 2015 about the persons known to the Company to be the beneficial owners of more than 5% of the Company’s outstanding common stock. A person may be considered to beneficially own any shares of common stock over which he or she has, directly or indirectly, sole or shared voting or investment power or which he may acquire within 60 days.


Name and Address	Number of Shares Owned			Percent of Common Stock Outstanding (1)
Edward F. Seserko 3455 Forbes Avenue Pittsburgh, Pennsylvania 15213		92,683	⁽²⁾	7.56%

Gary B. Pepper 3455 Forbes Avenue Pittsburgh, Pennsylvania 15213		76,122	⁽²⁾	6.21%

(1)	Based on 1,225,735 shares of the Company’s common stock outstanding and entitled to vote as of December 18, 2015.

(2)	See the table on the following page for additional information regarding Messrs. Seserko’s and Pepper’s beneficial ownership of Company common stock.

Ownership of Management

The following table provides information about the shares of Company common stock that may be considered to be owned by each director of the Company, by the executive officers and by all directors and executive officers of the Company as a group as of December 18, 2015. A person may be considered to own any shares of common stock over which he has, directly or indirectly, sole or shared voting or investment power or which he may acquire within 60 days. Unless otherwise indicated, each of the named individuals has sole voting and investment power with respect to the shares shown.


	Number of Shares Owned (1)			Number of Shares That May Be Acquired Within 60 Days By Exercising Options		Percent of Common Stock Outstanding (2)
Directors:
Mark B. Devlin		46,725			2,292		4.00	%
Robert J. Malone		16,755			2,292		1.55
Paul M. Matvey		19,363			2,292		1.77
Dennis P. McManus		16,863			2,292		1.56
William F. Ryan		26,663			2,292		2.36
Edward F. Seserko		81,229	⁽³⁾		—		6.63
Executive Officers Who Are Not Directors:
Gary B. Pepper		69,249	⁽⁴⁾		—		5.65
All Directors and Executive Officers as a Group (7 persons)		276,847			11,460		23.52

(1)

Includes shares of unvested restricted stock held under the Eureka Financial Corp. 2012 Equity Incentive Plan as follows: Messrs. Devlin, Malone, Matvey, McManus and Ryan—612 shares each; Mr. Seserko—3,055 shares; and Mr. Pepper—2,750 shares. Shares of restricted stock vest in five equal annual installments beginning on May 21, 2013, the first anniversary of the date of grant (subject to acceleration upon a change in control of the Company, such as the merger with NexTier).

(2)	Based on 1,225,725 shares of the Company’s common stock outstanding and entitled to vote as of December 18, 2015.

(3)	Includes 19,078 shares held under the Eureka Bank Retirement Savings Plan and 4,418 shares held under the Eureka Bank Employee Stock Ownership Plan.

(4)	Includes 13,394 shares held under the Eureka Bank Retirement Savings Plan and 3,193 shares held under the Eureka Bank Employee Stock Ownership Plan.

Changes in Control

Except for the Merger, management of the Company knows of no arrangements, including any pledge by any person or securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

Equity Compensation Plan Information

The following table provides information as of September 30, 2015 for compensation plans under which equity securities may be issued. The Company does not maintain any equity compensation plans that have not been approved by security holders.


Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights *(a)*		Weighted-average exercise price of outstanding options, warrants and rights *(b)*		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) *(c)*
Equity compensation plans approved by security holders		68,725	$	15.59		7,638
Equity compensation plans not approved by security holders		—		—		—

Total		68,725	$	15.59		7,638

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such prohibition for loans by the Bank to its executive officers and directors in compliance with federal banking regulations. Federal regulations require that all loans or extensions of credit to executive officers and directors of insured financial institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk of repayment or present other unfavorable features. The Bank is therefore prohibited from making any new loans or extensions of credit to executive officers and directors at different rates or terms than those offered to the general public. Notwithstanding this rule, federal regulations permit the Bank to make loans to executive officers and directors at reduced interest rates if the loan is made under a benefit program generally available to all other employees and does not give preference to any executive officer or director over any other employee, although the Bank does not currently have such a program in place. All outstanding loans made by the Bank to its directors and executive officers, and members of their immediate families, were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Bank, and did not involve more than the normal risk of collectibility or present other unfavorable features.

Pursuant to the Company’s Audit Committee charter, the Audit Committee will periodically review, no less frequently than quarterly, a summary of the Company’s transactions with directors and executive officers of the Company and with firms that employ directors, as well as any other related person transactions, to recommend to the disinterested members of the Board of Directors that the transactions are fair, reasonable and within Company policy and should be ratified and approved. Also, in accordance with banking regulations and its policy, the Board of Directors will review all loans made to a director or executive officer in an amount that, when aggregated with the amount of all other loans to such person and his or her related interests, exceed the greater of $25,000 or 5% of the Company’s capital and surplus (up to a maximum of $500,000) and such loans must be approved in advance by a majority of the disinterested members of the Board of Directors. Additionally, pursuant to the Company’s Code of Ethics and Business Conduct, all executive officers and directors of the Company must disclose any existing or potential conflicts of interest to the President and Chief Executive Officer of the Company. Such potential conflicts of interest include, but are not limited to, the following: (1) the Company conducting business with or competing against an organization in which a family member of an executive officer or director has an ownership or employment interest and (2) the ownership of more than 5% of the outstanding securities or 5% of total assets of any business entity that does business with or is in competition with the Company.

Director Independence

Although the Company’s common stock is quoted on the Over-the-Counter Bulletin Board and is not listed on a national securities exchange, we believe that sound management and oversight is in the best interests of the Company and its stockholders. Accordingly, all of our directors are independent under the current listing standards of the Nasdaq Stock Market, except for Mr. Seserko, who is President and Chief Executive Officer of the Company and the Bank.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the fees billed to the Company by S.R. Snodgrass for the fiscal years ended September 30, 2015 and 2014.


	2015		2014
Audit fees (1)	$	76,290	$	73,678
Audit related fees		5,000		—
Tax fees (2)		13,450		15,150
All other fees (3)		4,000		2,500

(1)	Includes fees for the audit of the consolidated financial statements and review of the interim financial information contained in the quarterly reports on Form 10-Q and other regulatory reporting.

(2)	Includes fees for tax compliance services including preparation of original and amended federal and state income tax returns, preparation of personal property tax returns and tax payment and planning advice.

(3)	Includes fees for consulting services regarding compliance matters.

The Company’s Audit Committee has adopted a policy for approval of audit and permitted non-audit services by the Company’s independent registered public accounting firm. The Audit Committee will consider annually and approve the provision of audit services by the independent registered public accounting firm and, if appropriate, approve the provision of certain defined audit and non-audit services. The Audit Committee also will consider on a case-by-case basis and, if appropriate, approve specific engagements.

Any proposed specific engagement may be presented to the Audit Committee for consideration at its next regular meeting or, if earlier consideration is required, to the Audit Committee or one or more of its members. The member or members to whom such authority is delegated shall report any specific approval of services at its next regular meeting. The Audit Committee will regularly review summary reports detailing all services being provided to the Company by its independent registered public accounting firm.

During the year ended September 30, 2015, all of the audit related fees, tax fees and all other fees set forth above were approved by the Audit Committee.

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(1)

The financial statements required in response to this item are incorporated by reference from Item 8 of this Annual Report on Form 10-K.

(2)

All financial statement schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

(3)

Exhibits


No.		Description

2.1		Agreement and Plan of Merger, dated as of September 3, 2015, by and between Eureka Financial Corp. and NexTier, Inc. (1)

3.1		Articles of Incorporation of Eureka Financial Corp. (2)

3.2		Bylaws of Eureka Financial Corp. (2)

3.2.1		Amendment to Bylaws of Eureka Financial Corp. (1)

4.1		Specimen Stock Certificate of Eureka Financial Corp. (2)

10.1*		Employment Agreement between Eureka Financial Corp. and Edward F. Seserko, dated as of February 28, 2011 (3)

10.2*		Employment Agreement between Eureka Financial Corp. and Gary B. Pepper,dated as of February 28, 2011 (3)

10.3*		Eureka Financial Corp. 2012 Equity Incentive Plan (4)

21.0		Subsidiaries

23.1		Consent of S.R. Snodgrass, P.C.

31.1		Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer

32.0		Section 1350 Certificate of Chief Executive Officer and Chief Financial Officer

101.0		The following materials from the Company’s Annual Report on Form 10-K for the year ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statement of Comprehensive Income; (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

*	Management contract or compensatory plan, contract or arrangement

(1)	Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on September 4, 2015.

(2)	Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1 (File No. 333-169767), as amended, initially filed with the Securities and Exchange Commission on October 5, 2010.

(3)	Incorporated herein by reference to the exhibits to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2011, as filed with the Securities and Exchange Commission on May 17, 2011.

(4)	Incorporated herein by reference to Appendix A to the definitive proxy materials on Schedule 14A filed with the Securities and Exchange Commission on March 14, 2012.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name	Title	Date

/s/ Edward F. Seserko	President, Chief Executive Officer and Director	December 23, 2015
Edward F. Seserko	(principal executive officer)

/s/ Gary B. Pepper	Executive Vice President and Chief Financial Officer	December 23, 2015
Gary B. Pepper	(principal accounting and financial officer)

/s/ Mark B. Devlin	Director	December 23, 2015
Mark B. Devlin

/s/ Robert J. Malone	Director	December 23, 2015
Robert J. Malone

/s/ Paul M. Matvey	Director	December 23, 2015
Paul M. Matvey

/s/ Dennis P. McManus	Director	December 23, 2015
Dennis P. McManus

/s/ William F. Ryan	Director	December 23, 2015
William F. Ryan

LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Eureka Financial Corp. and subsidiary

We have audited the accompanying consolidated balance sheet of Eureka Financial Corp. and subsidiary (the “Company”) as of September 30, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eureka Financial Corp. and subsidiary as of September 30, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ S.R. Snodgrass, P.C.

Wexford, Pennsylvania

December 22, 2015

F-1

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Balance Sheet


	September 30,
	2015			2014
Assets:
Cash and due from banks	$	868,709		$	698,899
Interest-bearing deposits in other banks		6,714,637			8,941,044

Cash and cash equivalents		7,583,346			9,639,943
Investment securities available for sale		5,860,878			8,403,565
Investment securities held to maturity (fair value of $2,795,317 and $2,740,940, respectively)		2,768,913			2,772,470
Mortgage-backed securities available for sale		3,004			5,585
Federal Home Loan Bank (“FHLB”) stock, at cost		131,900			302,500
Loans receivable, net of allowance for loan losses of $1,346,038 and $1,361,038, respectively		135,063,718			128,030,483
Premises and equipment, net		1,007,329			1,073,073
Deferred tax asset, net		834,347			832,735
Other real estate owned		593,612			—
Accrued interest receivable and other assets		1,169,190			1,126,697

Total Assets	$	155,016,237		$	152,187,051

Liabilities and Stockholders’ Equity:
Deposits:
Non-interest bearing	$	5,479,236		$	5,639,321
Interest bearing		124,177,212			122,221,240

Total deposits		129,656,448			127,860,561
Advances from borrowers for taxes and insurance		717,869			633,159
Accrued interest payable and other liabilities		1,058,383			999,554

Total Liabilities		131,432,700			129,493,274

Stockholders’ Equity:
Common stock, $0.01 par value; 10,000,000 shares authorized; 1,207,408 shares outstanding at September 30, 2015; 1,213,986 shares outstanding at September 30, 2014		12,074			12,140
Paid-in capital		10,077,648			10,025,400
Retained earnings - substantially restricted		13,891,183			13,179,662
Accumulated other comprehensive loss		(54,325	)		(121,279	)
Unearned ESOP shares		(343,043	)		(402,146	)

Total Stockholders’ Equity		23,583,537			22,693,777

Total Liabilities and Stockholders’ Equity	$	155,016,237		$	152,187,051

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

F-2

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statement of Income


	Year Ended September 30,
	2015		2014
Interest Income
Loans, including fees	$	6,589,371	$	6,511,365
Investment securities and other interest-earning assets:
Taxable		260,440		211,999
Tax exempt		88,051		89,447
Mortgage-backed securities		271		483

Total Interest Income		6,938,133		6,813,294

Interest Expense
Deposits		835,177		857,378
FHLB advances		—		12,258

Total Interest Expense		835,177		869,636

Net Interest Income		6,102,956		5,943,658
Provision for Loan Losses		70,000		62,000

Net Interest Income after Provision for Loan Losses		6,032,956		5,881,658

Non-Interest Income
Fees on deposit accounts		40,378		33,267
Other income		43,020		67,445

Total Non-Interest Income		83,398		100,712

Non-Interest Expense
Salaries and benefits		2,240,956		2,149,804
Occupancy		354,259		349,492
Data processing		255,527		272,191
Professional fees		349,054		345,702
Merger expenses		268,880		—
FDIC insurance premiums		72,600		69,850
Charitable contributions		84,552		90,247
Other		434,406		375,404

Total Non-Interest Expenses		4,060,234		3,652,690

Income Before Income Tax Provision		2,056,120		2,329,680
Income Tax Provision		739,746		800,766

Net Income	$	1,316,374	$	1,528,914

Earnings per Common Share - Basic	$	1.13	$	1.29
Earnings per Common Share - Diluted		1.13		1.28

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

F-3

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statement of Comprehensive Income


	Year Ended September 30,
	2015			2014
Net Income	$	1,316,374		$	1,528,914
Other comprehensive income:
Decrease in unrealized losses on available for sale securities		101,445			363,810
Income tax effect		(34,491	)		(123,695	)

Other comprehensive income, net of tax:		66,954			240,115

Total Comprehensive Income	$	1,383,328		$	1,769,029

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

F-4

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity


	Common Stock Shares Outstanding			Par Value			Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned ESOP Shares			Total
Balance, September 30, 2013		1,255,819		$	12,558		$	10,647,396		$	12,147,028		$	(361,394	)	$	(459,388	)	$	21,986,200

Net income		—			—			—			1,528,914			—			—			1,528,914
Other comprehensive income		—			—			—			—			240,115			—			240,115
Compensation expense related to restricted stock		—			—			79,128			—			—			—			79,128
Compensation expense related to stock options		—			—			17,340			—			—			—			17,340
Compensation expense on ESOP		—			—			50,340			—			—			57,242			107,582
Purchase and retirement of common stock		(41,833	)		(418	)		(768,804	)		—			—			—			(769,222	)
Dividends declared on common stock ($0.40 per share)		—			—			—			(496,280	)		—			—			(496,280	)

Balance, September 30, 2014		1,213,986			12,140			10,025,400			13,179,662			(121,279	)		(402,146	)		22,693,777

Net income		—			—			—			1,316,374			—			—			1,316,374
Other comprehensive income		—			—			—			—			66,954			—			66,954
Compensation expense related to restricted stock		—			—			85,367			—			—			—			85,367
Compensation expense related to stock options		—			—			20,237			—			—			—			20,237
Compensation expense on ESOP		—			—			71,362			—			—			59,104			130,465
Purchase and retirement of common stock		(6,578	)		(66	)		(124,718	)		—			—			—			(124,784	)
Dividends declared on common stock ($0.50 per share)		—			—			—			(604,853	)		—			—			(604,853	)

Balance, September 30, 2015		1,207,408		$	12,074		$	10,077,648		$	13,891,183		$	(54,325	)	$	(343,043	)	$	23,583,537

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

F-5

EUREKA FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statement of Cash Flows


	Year Ended September 30,
	2015			2014
OPERATING ACTIVITIES
Net income	$	1,316,374		$	1,528,914
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		139,288			149,319
Provision for loan losses		70,000			62,000
Net accretion/amortization of discounts and premiums on securities and net amortization of loan fees and costs		(2,016	)		883
Compensation expense for ESOP, restricted stock, and stock options		236,070			204,050
Deferred income taxes		(36,103	)		(14,806	)
Decrease (increase) in accrued interest receivable		23,556			(29,488	)
Increase in prepaid income tax		(66,951	)		(221,428	)
Increase (decrease) in accrued interest payable		15,018			(12,305	)
Increase in retirement fund obligation		9,021			5,957
Writedown on other real estate owned		19,139			—
Other, net		36,343			(21,685	)

Net cash provided by operating activities		1,759,739			1,651,411

INVESTING ACTIVITIES
Proceeds from maturities and redemptions of investment securities held to maturity		5,000			2,255,000
Proceeds from maturities and redemptions of investment securities available for sale		4,145,000			—
Purchase of investment securities available for sale		(1,500,000	)		(4,000,000	)
Net paydowns in mortgage-backed securities		2,286			3,046
Purchase of FHLB stock		(97,700	)		(361,800	)
Redemption of FHLB stock		268,300			296,700
Net decrease (increase) in loans		2,106,132			(384,961	)
Commercial leases purchased		(9,748,046	)		(6,261,059	)
Other real estate owned improvements		(74,072	)		—
Premises and equipment expenditures		(73,544	)		(54,156	)

Net cash used for investing activities		(4,966,644	)		(8,507,230	)

FINANCING ACTIVITIES
Net increase in deposit accounts		1,795,887			10,403,139
Net increase in advances from borrowers for taxes and insurance		84,710			156,124
Proceeds from FHLB borrowings		—			8,000,000
Repayment of FHLB borrowings		—			(8,000,000	)
Retirement of common stock		(124,784	)		(769,222	)
Payment of dividends		(605,505	)		(475,348	)

Net cash provided by financing activities		1,150,308			9,314,693

Net increase (decrease) in cash and cash equivalents		(2,056,597	)		2,458,874
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		9,639,943			7,181,069

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,583,346		$	9,639,943

SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Interest paid	$	820,159		$	881,941
Income taxes paid		842,000			849,000

Noncash investing transaction:
Transfer from loans to other real estate owned		593,612			—

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

F-6

EUREKA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Eureka Financial Corp. and subsidiary (collectively the “Company”) provide a variety of financial services to individuals and corporate customers through its main office and branch located in southwestern Pennsylvania. The Company’s primary deposit products are interest-bearing checking accounts, savings accounts, and certificates of deposits. Its primary lending products are single-family residential loans, multi-family and commercial real estate loans, and commercial leases.

Nature of Operations and Basis of Presentation

Eureka Financial Corp. (“Eureka Financial”) is a Maryland corporation and stock holding company whose wholly owned subsidiary is Eureka Bank (the “Bank”), a federally chartered stock savings bank located in Pittsburgh, Pennsylvania.

The Bank operates as a community-oriented financial institution offering traditional financial services to consumers and businesses in the Oakland and Shaler sections of the Pittsburgh metropolitan area. The Bank attracts deposits from the general public and through the Certificate of Deposit Account Registry Service (‘CDARS”) network and uses those funds to originate one- to four-family real estate, multi-family and commercial real estate, commercial loans, lines of credit, construction, and consumer loans and to purchase commercial leases. The Bank generally holds all its loans for investment. The Bank is subject to regulation and supervision by the Office of the Comptroller of the Currency, while Eureka Financial is subject to regulation and supervision by the Federal Reserve Board.

The consolidated financial statements include the accounts of Eureka Financial and its wholly owned subsidiary, the Bank. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and with general practices within the banking industry. In preparing the financial statements, management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and reported amounts of revenue and expenses for the period. Actual results could differ significantly from those estimates.

Investment and Mortgage-Backed Securities

Investment securities and mortgage-backed securities are classified at the time of purchase as securities held to maturity or securities available for sale based on management’s intention and ability to hold such securities to maturity. Debt securities acquired with the intent and ability to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount that are computed using the level yield method and recognized as adjustments of interest income. Debt securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are reported in the other comprehensive income component of stockholders’ equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned.

Securities are evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other than temporary. For debt securities, management considers whether the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline, and the Company’s intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in fair value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings.

F-7

Loans

Loans are reported at their unpaid principal balance plus loan premiums less any undisbursed portion of loans, unamortized loan fees and costs, and allowance for loan losses. Loan origination fees and certain direct loan origination costs are deferred and amortized over the contractual lives of the related loans, as an adjustment of yield (interest income), using the level yield method. Premiums on loans are amortized over the contractual lives of the related loans, using the level yield method.

The accrual of interest is generally discontinued when interest or principal payments are over 90 days in arrears on a contractual basis, or when other factors indicate that the collection of such amounts is doubtful. At the time a loan is placed on non-accrual status, an allowance for uncollected interest is recorded in the current period for previously accrued and uncollected interest. Interest on such loans is either applied against principal or recognized as income when payments are received. A loan is returned to accrual status when interest or principal payments are no longer more than 90 days in arrears on a contractual basis and factors indicating doubtful collectability no longer exist.

Allowance for Loan Losses

An allowance for loan losses is maintained at a level that represents management’s best estimate of losses known and inherent in the loan portfolio that are both probable and reasonable to estimate. The allowance is decreased by loan charge-offs, increased by subsequent recoveries of loans previously charged-off, and then adjusted, via either a charge or credit to operations, to an amount determined by management to be necessary. Loans or portions thereof are charged-off when, after collection efforts are exhausted, they are determined to be uncollectible. Management of the Company, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Company utilizes a two-tier approach to establish the allowance: (1) identification of impaired loans and establishment of a specific allowance allocation on such loans, and (2) establishment of general valuation allowances on the remainder of its loan portfolio.

The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral, and financial condition of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, size and composition of the loan portfolio, and current economic conditions and management’s judgment. Although management believes that specific and general loan losses are established in accordance with management’s best estimate, actual losses are dependent upon future events and, as such, further additions to the level of loan loss allowances may be necessary.

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated individually. The Company does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to interest receivable and then to principal.

Premises and Equipment

Land is carried at cost. Building and improvements, furniture, fixtures and equipment, vehicles, and leasehold improvements are carried at cost, less accumulated depreciation computed on the straight-line method over the following estimated useful lives:


		Years
Building and improvements		5 - 50
Furniture, fixtures and equipment		3 - 10
Leasehold improvements		Shorter of useful lives or lease term
Vehicles		5

Costs for maintenance and repairs are expensed currently while costs of major additions or improvements are capitalized.

F-8

Restricted Investment in Bank Stock

As a member of the Federal Home Loan Bank of Pittsburgh (the “FHLB”), the Bank is required to maintain a minimum amount of FHLB stock. The investment is required by law according to a predetermined formula. This investment is carried at cost.

Management evaluates the restricted stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as: (1) the significance of the decline in net assets of the FHLB as compared with the capital stock amount for the FHLB and the length of time this situation has persisted; (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB; (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB; and (4) the liquidity position of the FHLB. There was no impairment of the FHLB stock as of September 30, 2015 or 2014.

Other Real Estate Owned

Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of cost or fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell.

Income Taxes

The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for cumulative differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Eureka Financial and the Bank file a consolidated federal income tax return.

Eureka Financial has entered into a tax allocation agreement with the Bank as a result of their status as members of an affiliated group under the Internal Revenue Code. The tax allocation agreement generally provides that Eureka Financial will file consolidated federal income tax returns with the Bank. The tax allocation agreement also formalizes procedures for allocating the consolidated tax liability of the group among its members and establishes procedures for the payments by the Bank to Eureka Financial for tax liabilities attributable to the Bank.

The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statement of Income. With few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2011.

F-9

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense totaled $3,277 and $3,206 for the years ended September 30, 2015 and 2014, respectively.

Earnings Per Share

Basic earnings per share exclude dilution and are computed by dividing net income by weighted-average shares outstanding. Diluted earnings per share are computed by dividing net income by weighted-average shares outstanding plus potential common stock resulting from dilutive stock options.

The following is a reconciliation of the numerators and denominators of the basic and dilutive earnings per share computations for net income for the years ended September 30, 2015 and 2014:


	September 30,
	2015			2014
Weighted average common shares outstanding		1,209,843			1,244,999
Average unearned nonvested shares		(11,247	)		(16,085	)
Average unearned employee stock ownership plan shares		(34,888	)		(40,998	)

Weighted average common shares and common stock equivalents used to calculate basic earnings per share		1,163,708			1,187,916

Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share		111			—
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		3,710			2,716

Weighted average common shares and common stock equivalents used to calculate basic and diluted earnings per share		1,167,529			1,190,632

Net income	$	1,316,374		$	1,528,914
Basic earnings per share	$	1.13		$	1.29
Diluted earnings per share		1.13			1.28

As of September 30, 2015 there were 11,607 shares of restricted stock and 15,577 shares as of September 30, 2014, outstanding with a grant price of $15.24 not included in the computation of diluted earnings per share because to do so would be anti-dilutive.

As of September 30, 2015 there were 68,725 options to purchase shares of common stock consisting of 64,907 options to purchase common stock at $15.24 per share and 3,818 options to purchase common stock at $21.52 per share. All of the options were considered dilutive based on the weighted average market value exceeding the weighted average stock price. As of September 30, 2014 there were 64,907 options to purchase common stock at $15.24 per share.

Off-Balance Sheet Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under commercial lines of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Comprehensive Income

The Company is required to present comprehensive income in a full set of general purpose financial statements for all periods presented. Other comprehensive income is comprised of unrealized holding gains (losses) on investment securities available for sale.

F-10

Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, all cash and amounts due from banks and interest-bearing deposits in other banks with an initial maturity of three months or less are considered to be cash equivalents.

Reclassifications

Certain comparative amounts from the prior-year period have been reclassified to conform to current-period classifications. Such reclassifications had no effect on net income and stockholders’ equity.

Recent Accounting Pronouncements:

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This Update did not have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update did not have a significant impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and

F-11

repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This Update did not have a significant impact on the Company’s financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). This Update clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards. This Update eliminates from U.S. GAAP the concept of extraordinary items.

F-12

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-04, Compensation – Retirement Benefits (Topic 715), as part of its initiative to reduce complexity in accounting standards. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40), as part of its initiative to reduce complexity in accounting standards. This guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. For public business entities, the FASB decided that the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities. This Update is not expected to have a significant impact on the Company’s financial statements.

F-13

In April 2015, the FASB issued ASU 2015-06, Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions. Topic 260, Earnings Per Share, contains guidance that addresses master limited partnerships that originated from Emerging Issues Task Force (“EITF”) Issue No. 07-4, Application of the Two-Class Method Under FASB Statement No. 128 to Master Limited Partnerships. Under Topic 260, master limited partnerships apply the two-class method of calculating earnings per unit because the general partner, limited partners, and incentive distribution rights holders each participate differently in the distribution of available cash in accordance with the contractual rights contained in the partnership agreement. The amendments in this Update specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method are also required. The amendments in this Update are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). The Update applies to reporting entities that elect to measure the fair value of an investment using the net asset value per share (or its equivalent) practical expedient. Under the amendments in this Update, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. Removing those investments from the fair value hierarchy not only eliminates the diversity in practice resulting from the way in which investments measured at net asset value per share (or its equivalent) with future redemption dates are classified, but also ensures that all investments categorized in the fair value hierarchy are classified using a consistent approach. Investments that calculate net asset value per share (or its equivalent), but for which the practical expedient is not applied will continue to be included in the fair value hierarchy. A reporting entity should continue to disclose information on investments for which fair value is measured at net asset value (or its equivalent) as a practical expedient to help users understand the nature and risks of the investments and whether the investments, if sold, are probable of being sold at amounts different from net asset value. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity’s financial statements. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-08, Business Combinations – Pushdown Accounting – Amendment to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This Update was issued to amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosure About Short-Duration Contracts. The amendments apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services – Insurance. The amendments require insurance entities to disclose for annual reporting periods certain information about the liability for unpaid claims and claim adjustment expenses. The amendments also require insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements. Additionally, the amendments require insurance entities to disclose for annual and interim reporting periods a rollforward of the liability for unpaid claims and claim adjustment expenses, described in Topic 944. For health insurance claims, the amendments require the disclosure of the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. For all other entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

F-14

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation And Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. This Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. This Update is not expected to have a significant impact on the Company’s financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). The amendments in this Update require that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

2. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the changes in accumulated comprehensive loss by component net of tax for the years ended September 30, 2015 and 2014:


	Unrealized Losses on Available for Securities				Unrealized Losses on Available for Securities
Balance as of October 1, 2014	$	(121,279	)	Balance as of October 1, 2013	$	(361,394	)
Other comprehensive income before reclassification		66,954		Other comprehensive income before reclassification		240,115
Amount reclassified from accumulated other comprehensive loss		—		Amount reclassified from accumulated other comprehensive loss		—

Total other comprehensive income		66,954		Total other comprehensive income		240,115

Balance as of September 30, 2015	$	(54,325	)	Balance as of September 30, 2014	$	(121,279	)

F-15

3. INVESTMENT SECURITIES

Investment securities available for sale consisted of the following at September 30, 2015 and 2014.


	September 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of states and political subdivisions	$	445,355	$	2,173	$	—		$	447,528
U.S. government agency securities		5,498,050		2,700		(87,400	)		5,413,350

Total	$	5,943,405	$	4,873	$	(87,400	)	$	5,860,878


	September 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of states and political subdivisions	$	591,350	$	535	$	(4,770	)	$	587,115
U.S. government agency securities		7,996,488		975		(181,013	)		7,816,450

Total	$	8,587,838	$	1,510	$	(185,783	)	$	8,403,565

U.S. government agency securities with carrying values of $5,413,350 and $5,070,700 at September 30, 2015 and 2014, respectively, were pledged to secure public deposits held by the Company.

The amortized cost and fair value of investment securities available for sale by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers might have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2015
	Amortized Cost		Fair Value
Due in one year or less	$	145,355	$	145,638
Due after ten years		5,798,050		5,715,240

Total	$	5,943,405	$	5,860,878

F-16

Investment securities held to maturity consisted of the following at September 30, 2015 and 2014:


	September 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of states and political subdivisions	$	2,018,913	$	85,046	$	(14,392	)	$	2,089,567
U.S. government agency securities		750,000		—		(44,250	)		705,750

Total	$	2,768,913	$	85,046	$	(58,642	)	$	2,795,317


	September 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of states and political subdivisions	$	2,022,470	$	58,846	$	(24,751	)	$	2,056,565
U.S. government agency securities		750,000		—		(65,625	)		684,375

Total	$	2,772,470	$	58,846	$	(90,376	)	$	2,740,940

U.S. government agency securities with carrying values of $750,000 and $750,000 at September 30, 2015 and 2014, respectively, were pledged to secure public deposits held by the Company.

The amortized cost and fair value of securities held to maturity at September 30, 2015 and 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers might have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2015
	Amortized Cost		Fair Value
Due from five to ten years	$	483,500	$	539,272
Due after ten years		2,285,413		2,256,045

Total	$	2,768,913	$	2,795,317

F-17

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at September 30, 2015 and 2014.


	September 30, 2015
	Less than 12 Months					More than 12 Months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of states and political subdivisions	$	—	$	—		$	286,470	$	(14,392	)	$	286,470	$	(14,392	)
U.S. government agency securities		1,975,075		(24,275	)		3,391,325		(107,375	)		5,366,400		(131,650	)

Total	$	1,975,075	$	(24,275	)	$	3,677,795	$	(121,767	)	$	5,652,870	$	(146,042	)


	September 30, 2014
	Less than 12 Months					More than 12 Months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of states and political subdivisions	$	297,030	$	(1,310	)	$	572,700	$	(28,212	)	$	869,730	$	(29,522	)
U.S. government agency securities		2,490,575		(7,975	)		4,759,275		(238,663	)		7,249,850		(246,638	)

Total	$	2,787,605	$	(9,285	)	$	5,331,975	$	(266,875	)	$	8,119,580	$	(276,160	)

The Company reviews its position quarterly and has determined that at September 30, 2015 the declines outlined in the above table represent temporary declines and the Company does not intend to sell and does not believe it will be required to sell these securities before recovery of its cost basis, which may be at maturity. All investments are interest rate sensitive. These investments earn interest at fixed and adjustable rates. The adjustable-rate instruments are generally linked to an index, such as the three-month LIBOR rate, plus or minus a variable. The value of these instruments fluctuates with interest rates.

The Company had 9 securities in an unrealized loss position at September 30, 2015 and 14 securities in an unrealized loss position at September 30, 2014. The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes or sector credit ratings changes that are not expected to result in the non-collection of principal and interest during the period. The Company’s current intention is not to sell any of these securities and it is more likely than not it will not be required to sell these securities before the recovery of its amortized cost basis.

F-18

4. MORTGAGE-BACKED SECURITIES

The amortized cost and fair values of mortgage-backed securities, all of which are government-sponsored entities secured by residential real estate and are available for sale, are summarized as follows at September 30, 2015 and 2014:


	September 30, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Freddie Mac Certificates	$	563	$	36	$	—	$	599
Fannie Mae Certificates		2,225		180		—		2,405

Total	$	2,788	$	216	$	—	$	3,004


	September 30, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Freddie Mac Certificates	$	822	$	60	$	—	$	882
Fannie Mae Certificates		4,246		457		—		4,703

Total	$	5,068	$	517	$	—	$	5,585

The amortized cost and fair values of mortgage-backed securities at September 30, 2015 and 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers have the right to repay obligations without penalty. Amounts have been rounded to the nearest dollar.


	September 30, 2015
	Amortized
	Cost		Fair Value
Due in one year or less	$	53	$	54
Due after one year through five years		1,445		1,547
Due after five years through ten years		404		434
Due after ten years		886		969

Total	$	2,788	$	3,004

The Company reviews its position quarterly for other-than-temporary impairment. The Company had no mortgage-backed securities in an unrealized loss position at September 30, 2015 or 2014.

F-19

5. LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

Major classifications of loans at September 30, 2015 and 2014 are summarized as follows:


	2015			2014
One- to four-family real estate - owner occupied	$	22,080,808		$	21,556,222
One- to four-family real estate - non-owner occupied		42,208,759			39,185,939
Construction		4,751,996			2,562,823
Multi-family real estate		17,428,754			18,699,192
Commercial real estate		24,151,207			21,635,758
Home equity and second mortgages		1,957,927			1,880,546
Secured loans		140,231			158,512
Commercial leases and loans		20,048,025			19,231,496
Commercial lines of credit		3,985,981			4,790,107

		136,753,688			129,700,595

Plus:
Unamortized loan premiums		10,625			12,176
Less:
Unamortized loan fees and costs, net		(354,557	)		(321,250	)
Allowance for loan losses		(1,346,038	)		(1,361,038	)

Loans receivable, net	$	135,063,718		$	128,030,483

Loan Portfolio Composition

The loan and lease receivable portfolio is broken down into the following categories: (1) one-to four-family real estate loans - owner occupied and non-owner occupied; (2) construction; (3) multi-family real estate loans; (4) commercial real estate loans; (5) home equity and second mortgage loans; (6) secured loans; (7) commercial leases and loans; and (8) commercial lines of credit.

One- to four-family real estate loans consist of residential first mortgage loans originated by the Company in the greater Pittsburgh metropolitan area. The Company currently originates fully amortizing loans with maturities up to 30 years. These loans have a maximum loan-to-value ratio of 80 percent, unless they fall into the first-time homebuyer program in the Company’s Community Reinvestment Act Assessment Area, and then the maximum loan-to-value ratio can extend up to 95 percent. Due to the Company’s stringent underwriting, historical losses, and location of the majority of the portfolio, the Company’s risk on this segment of the portfolio is considered minimal.

Construction loans include dwelling and land loans where funds are being held by the Company until the construction has ended. Dwelling construction consists of new construction and upgrades to existing dwellings. The normal construction period is for a term of six months. Construction loans on land are originated for developments where the land is being prepared for future home building. On-site inspections are performed as per the draw schedule for all construction loans. The risk associated with the construction loans is considered low, since the Company makes only a small number of these loans at any given time and adheres to the draw schedule to ensure work is being completed in a timely and professional manner.

Multi-family real estate loans include five or more unit dwellings. These loans could pose a higher risk to the Company than the one-to four-family real estate loans and, therefore, are originated with a term of up to 20 years and a loan-to-value ratio of 75 percent. Different risk factors are taken into consideration when originating these loans, such as location, the strength of borrower, rent rolls, and total lending relationship with the borrower(s).

F-20

Commercial real estate loans consist of loans that are originated in which a commercial property is being used as collateral. These loans also produce a higher risk to the Company and have the same maximum terms and loan-to-value ratios as the multi-family loans. The risks associated with these loans are affected by economic conditions, location, strength of borrower, rent rolls, and potential resale value should foreclosure become necessary.

Home equity and second mortgages include loans as first or second liens to any applicant who maintains an owner-occupied or single-family dwelling. These loans also include home equity lines of credit. The maximum loan amount is $100,000. The first and second liens combined cannot exceed 80 percent of the appraised value of the property. The risk to the Company depends on whether it holds the first and/or second lien. The Company relies heavily on the appraised value to ensure equity is available, as well as the strength of the borrower. These loans are not considered to be more than moderate risk.

Secured loans are made to applicants who maintain deposit accounts at the Company. The Company will originate these loans up to a term of five years or to maturity date whichever comes first. These loans pose no risk to the Company, since the loan amount will never exceed the collateral that is securing the loan.

Commercial leases and loans consist of loans that typically are collateralized by either equipment or vehicles. Forms under the Uniform Commercial Code are filed on all collateral to ensure the Company has the ability to take possession should the loan go into default. The maximum term is up to seven years but typically falls in the three- to five-year range, which gives the Company a quicker repayment of the debt. Based on the collateral alone, the value of which is sometimes difficult to ascertain and can fluctuate as the market and economic climate change, these loans do have a higher risk assigned to them. However, the Company’s loss on these loans has been negligible over the last ten years, which is also taken into consideration when the loans are originated and before they are assigned a risk weighting.

Commercial lines of credit consist of lines where residential property is primarily used as collateral. These loans are made to individuals as well as companies and are collateralized by residential and commercial property, equipment, or receivables. The loan amount is determined by the borrower’s financial strength as well as the collateral. The lines are based on the collateral and the ability of the borrower(s) to repay the debt. The lines are closely monitored and limits adjusted accordingly based on updated tax returns and/or other changes to the financial wellbeing of the borrower(s). Subsequently, risk is controlled but considered moderate based on the collateral and nature of the loan.

Credit Quality

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: one- to four-family real estate (owner occupied), one- to four-family real estate (non-owner occupied), construction, multi-family real estate, commercial real estate, home equity and second mortgages, secured loans, commercial leases and loans, and commercial lines of credit. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a two-year period for all portfolio segments. Certain qualitative factors are then added to the historical allocation percentage to arrive at an adjusted factor to be applied to non-classified loans. These qualitative factors are reviewed each quarter and adjusted based upon relevant changes within the portfolio. As of September 30, 2015, the calculated allowance for one-to four-family real estate loans and multi-family loans was lower than the amount calculated as of the prior year end. This was due to a five basis point reduction in the factor related to the level of past due loans and the impact and effect of loan concentrations. An increases in the allowance for commercial loans and leases was a result of higher loan volume while the increase in the allowance for home equity and second mortgages was primarily the result of a higher net loss percentage. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight. Generally, residential real estate and consumer loans are included in the pass category unless a specific action, such as delinquency greater than 90 days, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.

F-21

Rating 1 – Pass

Rating 1 has asset risks ranging from excellent low risk to acceptable. This rating considers customer history of earnings, cash flow, liquidity, leverage, capitalization, consistency of debt service coverage, the nature and extent of customer relationship, and other relevant specific business factors, such as the stability of the industry or market area, changes to management, litigation, or unexpected events that could have an impact on risks.

Rating 2 – Special Mention

A special mention asset has a potential weakness that deserves management’s close attention. If left uncorrected, the potential weakness may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The Special mention classification is a transitory one and is the first classification that requires an action plan to resolve the weaknesses inherent to the credit. These relationships are reviewed at least quarterly.

Rating 3 – Substandard

Substandard assets are assets that are inadequately protected by the sound worth or paying capacity of the borrower or of the collateral pledged. These assets have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the 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 as substandard. The loans may have a delinquent history or combination of weak collateral, weak guarantor strength, or income statement losses. These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies. These relationships are reviewed at least quarterly.

Rating 4 – Doubtful

Doubtful assets have many of the same characteristics of substandard assets, with the exception that the Company has determined that loss is not only possible but is probable and the risk is close to certain that loss will occur. When a loan is assigned to this category, the Company will identify the probable loss and it will receive allocation in the loan loss reserve analysis. These relationships are reviewed at least quarterly.

Rating 5 – Loss

Once an asset is identified as a definite loss to the Company, it will receive the classification of loss. There may be some future potential recovery; however, it is more practical to write off the loan at the time of classification. Losses will be taken in the period in which they are determined to be uncollectible.

F-22

Credit quality indicators as of September 30, 2015 and 2014, were as follows:


	September 30, 2015
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
One- to four-family real estate - non-owner occupied	$	42,208,759	$	—	$	—	$	—	$	—	$	42,208,759
Construction		4,751,996		—		—		—		—		4,751,996
Multi-family real estate		17,428,754		—		—		—		—		17,428,754
Commercial real estate		24,151,207		—		—		—		—		24,151,207
Commercial leases and loans		19,746,297		—		301,728		—		—		20,048,025
Commercial lines of credit		3,908,519		—		77,462		—		—		3,985,981

Total	$	112,195,532	$	—	$	379,190	$	—	$	—	$	112,574,722


	September 30, 2014
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
One- to four-family real estate - non-owner occupied	$	39,185,939	$	—	$	—	$	—	$	—	$	39,185,939
Construction		2,562,823		—		—		—		—		2,562,823
Multi-family real estate		18,699,192		—		—		—		—		18,699,192
Commercial real estate		21,635,758		—		—		—		—		21,635,758
Commercial leases and loans		18,843,633		—		387,863		—		—		19,231,496
Commercial lines of credit		4,174,051		192,139		423,917		—		—		4,790,107

Total	$	105,101,396	$	192,139	$	811,780	$	—	$	—	$	106,105,315

The following tables present performing and non-performing residential real estate and consumer loans based on payment activity for the years ended September 30, 2015 and 2014. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be non-performing when they become 90 days past due or are placed on nonaccrual status.


	September 30, 2015
	Non-performing Loans		Performing Loans		Total
One- to four-family real estate - owner occupied	$	—	$	22,080,808	$	22,080,808
Home equity and second mortgages		—		1,957,927		1,957,927
Secured loans		—		140,231		140,231

Total	$	—	$	24,178,966	$	24,178,966


	September 30, 2014
	Non-performing Loans		Performing Loans		Total
One- to four-family real estate - owner occupied	$	36,263	$	21,519,959	$	21,556,222
Home equity and second mortgages		—		1,880,546		1,880,546
Secured loans		—		158,512		158,512

Total		36,263	$	23,559,017	$	23,595,280

F-23

Consistent with accounting and regulatory guidance, the Bank recognizes a troubled debt restructuring (“TDR”) when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Bank’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan.

To be considered a TDR, both of the following criteria must be met:

•

the borrower must be experiencing financial difficulties; and

•

the Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would not otherwise be considered.

Factors that indicate a borrower is experiencing financial difficulties include, but are not limited to:

•

the borrower is currently in default on their loan(s);

•

the borrower has filed for bankruptcy;

•

the borrower has insufficient cash flows to service their loan(s); or

•

the borrower is unable to obtain refinancing from other sources at a market rate similar to rates available to a non-troubled debtor.

Factors that indicate that a concession has been granted include, but are not limited to:

•

the borrower is granted an interest rate reduction to a level below market rates for debt with similar risk; or

•

the borrower is granted a material maturity date extension, or extension of the amortization plan to provide payment relief. For purposes of this policy, a material maturity date extension will generally include any maturity date extension, or the aggregate of multiple consecutive maturity date extensions, that exceed 120 days. A restructuring that results in an insignificant delay in payment, i.e. 120 days or less, is not necessarily a TDR. Insignificant payment delays occur when the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value, and will result in an insignificant shortfall in the originally scheduled contractual amount due, and/or the delay in timing of the restructured payment period is insignificant relative to the frequency of payments, the original maturity or the original amortization.

The determination of whether a restructured loan is a TDR requires consideration of all of the facts and circumstances surrounding the modification. No single factor is determinative of whether a restructuring is a TDR. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean that the borrower is experiencing financial difficulty. Accordingly, determination of whether a modification is a TDR involves a large degree of judgment.

For the year ended September 30, 2015, there were no troubled debt restructurings. There was one previously modified TDR totaling $301,728 that was in default as of September 30, 2015.

The following table includes the recorded investment and number of modifications for loans considered trouble debt restructuring at September 30, 2014.


Loans in non-accrual status	Number of Loans	Balance		Concession Granted
Commercial loan secured by business equipment	1	$	387,863		Extension of maturity date

The TDR was individually evaluated for impairment and no related allowance was recorded at of September 30, 2015 and 2014.

Once a loan is classified as a TDR, this classification will remain until documented improvement in the financial position of the borrower supports confidence that all principal and interest will be paid according to terms. Additionally, the customer must have re-established a track record of timely payments according to the restructured contract terms for a minimum of six consecutive months prior to consideration for removing the loan from non-accrual TDR status.

F-24

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past-due status as of September 30, 2015 and 2014:


	September 30, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans
One-to four-family real estate owner occupied	$	44,023	$	590,935	$	—	$	634,958	$	21,445,850	$	22,080,808	$	—
One-to four-family real estate non-owner occupied		—		—		—		—		42,208,759		42,208,759		—
Construction		—		—		—		—		4,751,996		4,751,996		—
Multi-family real estate		—		—		—		—		17,428,754		17,428,754		—
Commercial real estate		—		—				—		24,151,207		24,151,207		—
Home equity and second mortgages		—		—		—		—		1,957,927		1,957,927		—
Secured loans		—		—		—		—		140,231		140,231		—
Commercial leases and loans		—		—		301,728		301,728		19,746,297		20,048,025		301,728
Commercial lines of credit		—		—		—		—		3,985,981		3,985,981		—

	$	44,023	$	590,935	$	301,728	$	936,686	$	135,817,002	$	136,753,688	$	301,728


	September 30, 2014
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans
One-to four-family real estate owner occupied	$	256,707	$	—	$	36,263	$	292,970	$	21,263,252	$	21,556,222	$	36,263
One-to four-family real estate non-owner occupied		—		—		—		—		39,185,939		39,185,939		—
Construction		—		—		—		—		2,562,823		2,562,823		—
Multi-family real estate		—		—		—		—		18,699,192		18,699,192		—
Commercial real estate		—		—		—		—		21,635,758		21,635,758		—
Home equity and second mortgages		—		—		—		—		1,880,546		1,880,546		—
Secured loans		—		—		—		—		158,512		158,512		—
Commercial leases and loans		—		—		387,863		387,863		18,843,633		19,231,496		387,863
Commercial lines of credit		—		—		423,917		423,917		4,366,190		4,790,107		423,917

	$	256,707	$	—	$	848,043	$	1,104,750	$	128,595,845	$	129,700,595	$	848,043

The Company primarily grants loans to customers throughout southwestern Pennsylvania. The Company maintains a diversified loan portfolio and the ability of its debtors to honor their obligations is not substantially dependent on any particular economic business sector. Loans on non-accrual at September 30, 2015 and September 30, 2014 were $301,728 and $848,043, respectively. The foregone interest on nonaccrual loans was approximately $28,000 and $69,000 for years ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and 2014, there were no loans that were 90 days or more delinquent and still accruing interest.

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan and lease portfolio. The ALLL is based on management’s continuing evaluation of the risk classifications and credit quality of the loan and lease portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans. Management reviews the loan and lease portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL. The Company’s calculated allowance requirement for credit losses decreased during the year ended September 30, 2015. The reduction in the

F-25

allowance requirement is due to a decrease in the historical loss percentage factor used in the calculation to generate the required allowance amount. The following table details the allowance for loan losses and loan receivable balances at September 30, 2015 and 2014. An allocation of the allowance to one category of loans does not prevent the Company’s ability to utilize the allowance to absorb losses in a different category. The loans receivable are disaggregated on the basis of the Company’s impairment methodology.


	One-to four- family real estate - owner occupied			One-to four- family real estate -non- owner occupied			Construction			Multi-family real estate			Commercial real estate			Home equity and second mortgages		Secured loans		Commercial leases and loans		Commercial lines of credit			Non- allocated		Total
Allowance for credit losses:
Beginning balance 10/1/2014	$	155,957		$	307,400		$	36,253		$	141,179		$	222,886		$	8,302	$	—		271,367	$	50,333		$	167,361	$	1,361,038
Charge-offs		—			—			—			—			—			—		—		—		(85,000	)		—		(85,000	)
Recoveries		—			—			—			—			—			—		—		—		—			—		—
Provisions		(34,713	)		(41,253	)		(5,108	)		(44,370	)		11,930			30,010		—		49,208		72,668			31,628		70,000

Ending balance 9/30/15	$	121,244		$	266,147		$	31,145		$	96,809		$	234,816		$	38,312	$	—	$	320,575	$	38,001		$	198,989	$	1,346,038

Beginning balance 10/1/2013	$	156,975		$	267,895		$	19,435		$	141,683		$	269,940		$	7,471	$	—	$	246,978	$	46,381		$	142,280	$	1,299,038
Charge-offs		—			—			—			—			—			—		—		—		—			—		—
Recoveries		—			—			—			—			—			—		—		—		—			—		—
Provisions		(1,018	)		39,505			16,818			(504	)		(47,054	)		831		—		24,389		3,952			25,081		62,000

Ending balance 9/30/14	$	155,957		$	307,400		$	36,253		$	141,179		$	222,886		$	8,302	$	—	$	271,367	$	50,333		$	167,361	$	1,361,038

Allowance for credit losses:
Ending balance 9/30/2015	$	121,244		$	266,147		$	31,145		$	96,809		$	234,816		$	38,312	$	—	$	320,575	$	38,001		$	198,989	$	1,346,038

Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—	$	—	$	—	$	—		$	—	$	—

Ending balance: collectively evaluated for impairment	$	121,244		$	266,147		$	31,145		$	96,809		$	234,816		$	38,312	$	—	$	320,575	$	38,001		$	198,989	$	1,346,038

Loans receivables:
Ending balance 9/30/2015	$	22,080,808		$	42,208,759		$	4,751,996		$	17,428,754		$	24,151,207		$	1,957,927	$	140,231	$	20,048,025	$	3,985,981		$	—	$	136,753,688

Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—	$	—	$	301,728	$	77,462		$	—	$	379,190

Ending balance: collectively evaluated for impairment	$	22,080,808		$	42,208,759		$	4,751,996		$	17,428,754		$	24,151,207		$	1,957,927	$	140,231	$	19,746,297	$	3,908,519		$	—	$	136,374,498

Allowance for credit losses:
Ending balance 9/30/2014	$	155,957		$	307,400		$	36,253		$	141,179		$	222,886		$	8,302	$	—	$	271,367	$	50,333		$	167,361	$	1,361,038

Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—	$	—	$	—	$	—		$	—	$	—

Ending balance: collectively evaluated for impairment	$	155,957		$	307,400		$	36,253		$	141,179		$	222,886		$	8,302	$	—	$	271,367	$	50,333		$	167,361	$	1,361,038

Loans receivables:
Ending balance 9/30/2014	$	21,556,222		$	39,185,939		$	2,562,823		$	18,699,192		$	21,635,758		$	1,880,546	$	158,512	$	19,231,496	$	4,790,107		$	—	$	129,700,595

Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—	$	—	$	387,863	$	423,917		$	—	$	811,780

Ending balance: collectively evaluated for impairment	$	21,556,222		$	39,185,939		$	2,562,823		$	18,699,192		$	21,635,758		$	1,880,546	$	158,512	$	18,843,633	$	4,366,190		$	—	$	128,888,815

F-26

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral dependent. There were two impaired loans as of September 30, 2015 and two impaired loans as of September 30, 2014.


					Impaired Loans
	Impaired Loans with Specific				with No Specific
	Allowance				Allowance		Total Impaired Loans
									Unpaid		Average		Interest
	Recorded		Related		Recorded		Recorded		Principal		Recorded		Income
	Investment		Allowance		Investment		Investment		Balance		Investment		Recognized
September 30, 2015
Commercial leases and loans	$	—	$	—	$	301,728	$	301,728	$	301,728	$	344,796	$	—
Commercial lines of credit		—		—		77,462		77,462		162,462		183,087		16,737

	$	—	$	—	$	379,190	$	379,190	$	464,190	$	527,883	$	16,737

September 30, 2014
Commercial leases and loans	$	—	$	—	$	387,863	$	387,863	$	387,863	$	415,179	$	15,175
Commercial lines of credit		—		—		423,917		423,917		423,917		423,917		—

	$	—	$	—	$	811,780	$	811,780	$	811,780	$	839,096	$	15,175

6. PREMISES AND EQUIPMENT

Major classifications of premises and equipment at September 30, 2015 and 2014 are summarized as follows:


	2015			2014
Land, building, and improvements	$	2,297,469		$	2,288,134
Furniture, fixtures, and equipment		1,183,016			1,118,807
Vehicle		48,985			48,985

Total premises and equipment		3,529,470			3,455,926
Less accumulated depreciation		(2,522,141	)		(2,382,853	)

Total	$	1,007,329		$	1,073,073

Depreciation charged to operations was $139,288 in 2015 and $149,319 in 2014.

The Company leases a branch, located in Shaler, Pennsylvania, under a long-term lease which qualifies as an operating lease. In addition to the fixed rental payments, the lease requires the Company to pay for operating expenses, including real estate taxes, insurance premiums, utilities, and maintenance. The lease has an initial term of 10 years with a renewal option of an additional 10 years. The following is a schedule by year for the future minimum lease payments under the existing operating lease:


2016			57,528
2017			57,528
2018			4,794
2019

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Eureka Financial Corp. 10-K