Eureka Homestead Bancorp Inc., the proposed holding company for Metairie, La.-based Eureka Homestead, is seeking to raise up to $21.2 million in gross proceeds in its mutual-to-stock conversion. The thrift has one of the highest-cost funding structures in the banking industry.

Funding base

Eureka Homestead does not offer checking accounts and instead heavily relies on certificates of deposits and borrowings to fund its operations. More than 70% of the thrift's equity plus liabilities at March 31 consisted of Federal Home Loan Bank advances and time deposits between $100,000 and $250,000, according to regulatory data. One of the primary CD funding sources is listing service deposits, which totaled $25.5 million at March 31.

A consequence of the thrift's balance sheet composition is higher funding costs. Its cost of interest-bearing liabilities was 2.27% in the first quarter, ranking No. 89 for highest cost among nearly 6,000 U.S. banks and thrifts. The industry median was 1.04%.

Profitability and asset quality

Eureka Homestead's overall profitability is substandard. Aggregate net income since 2016 is $455,000. The peak for quarterly return on average assets during that span is just 0.39%, which came in the third quarter of 2018.

Higher profits in the near term could prove challenging with expenses projected to climb.

"Following the completion of the conversion, our noninterest expense is expected to increase because of the increased costs associated with operating as a public company, including the expected hiring of additional accounting personnel," the company said in the prospectus.

On the bright side, Eureka Homestead's asset quality is pristine. It has reported zero or negative net charge-offs for the last five quarters, and none of the thrift's assets were classified as nonperforming at March 31.

Insider purchases

Executive officers and directors are planning to buy 52,500 shares in the offering, representing 3.3% of the shares offered at the midpoint. Both CEO and Chairman Alan Heintzen and President and CFO Cecil Haskins Jr. are proposing to purchase 15,000 shares in the offering, which is the maximum permitted for groups.

Peer group analysis

S&P Global Market Intelligence created a custom peer group for Eureka Homestead Bancorp. Criteria included total assets under $500 million and a tangible common equity to tangible assets ratio greater than 10% at March 31. All but one of the peers trade at a discount to tangible book value, with a median price/TBV of 91.9% at May 21. Eureka Homestead Bancorp is priced at 63.9% of pro forma TBV at the midpoint of the offering, representing a 30.5% discount to the peer median.

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