Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended March 31, 2017

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

	For the transition period from ____________________ to ____________________

Commission File No. 333-202707

Equitable Financial Corp.

(Exact name of registrant as specified in its charter)

Maryland		32-0467709
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

113 North Locust Street
Grand Island, NE		68801
(Address of principal executive offices)		(Zip Code)

(308) 382-3136

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 ☒ 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 ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
Emerging growth company	☒

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

Shares of the Registrant’s common stock, par value $0.01 per share, 3,431,963 issued and outstanding as of May 11, 2017.

Table of Contents

EQUITABLE FINANCIAL CORP.

FORM 10-Q

INDEX

		Page
Part I. Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statement of Changes in Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4.	Controls and Procedures	41

Part II. Other Information

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

Signatures		45

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Equitable Financial Corp. and Subsidiary

Consolidated Balance Sheets


	(Unaudited)
	March 31, 2017		June 30, 2016
Assets
Cash and due from financial institutions	$	4,830,944	$	2,567,296
Interest-earning deposits		2,576,000		12,380,000
		7,406,944		14,947,296
Securities available-for-sale		1,433,716		664,755
Securities held-to-maturity		744,640		781,740
Federal Home Loan Bank stock, at cost		231,700		229,900
Loans, net of allowance for loan losses of $3,300,000 and $2,947,000, respectively		220,944,659		198,309,920
Premises and equipment, net		5,459,920		5,274,461
Foreclosed assets, net		223,200		461,847
Accrued interest receivable		1,233,302		1,147,467
Deferred taxes, net		1,495,039		1,416,093
Other assets		2,085,724		1,853,698

Total assets	$	241,258,844	$	225,087,177

Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing deposits	$	28,414,452	$	24,296,166
Interest-bearing deposits		174,473,915		162,666,186
		202,888,367		186,962,352
Advance payments from borrowers for taxes and insurance		445,546		387,166
Accrued interest payable and other liabilities		1,416,707		1,198,850
Total liabilities		204,750,620		188,548,368

Common stock in ESOP subject to contingent repurchase obligation		681,820		564,723


Stockholders’ equity:
Common stock, $0.01 par value, 25,000,000 shares authorized 3,431,963 and 3,477,157 shares issued and outstanding at March 31, 2017 and June 30, 2016, respectively		34,320		34,771
Additional paid-in capital		26,405,683		26,844,426
Retained earnings		12,089,781		11,239,913
Unearned ESOP shares		(1,142,270)		(1,246,045)
Shares reserved for stock compensation		(861,060)		(338,332)
Accumulated other comprehensive income/(loss) net of tax		(18,230)		4,076
Reclassification of ESOP shares		(681,820)		(564,723)
Total stockholders’ equity		35,826,404		35,974,086

Total liabilities and stockholders’ equity	$	241,258,844	$	225,087,177

See Notes to Consolidated Financial Statements.

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Equitable Financial Corp. and Subsidiary

Consolidated Statements of Income

(Unaudited)


	For the three months ended				For the nine months ended
	March 31, 2017		March 31, 2016		March 31, 2017		March 31, 2016
Interest income:
Loans	$	2,301,482	$	2,012,359	$	6,737,414	$	6,125,911
Securities		13,417		9,797		32,500		70,763
Other		5,329		30,788		21,704		49,387
Total interest income		2,320,228		2,052,944		6,791,618		6,246,061

Interest expense:
Deposits		281,285		271,490		813,465		777,262
Federal Home Loan Bank borrowings		1,011		—		1,011		—
Other		595		186		1,357		630
Total interest expense		282,891		271,676		815,833		777,892

Net interest income		2,037,337		1,781,268		5,975,785		5,468,169
Provision for loan losses		60,830		2,023		382,703		159,368
Net interest income after provision for loan losses		1,976,507		1,779,245		5,593,082		5,308,801

Noninterest income:
Service charges on deposit accounts		150,976		149,571		468,544		435,027
Brokerage fee income		160,542		147,257		545,779		460,795
Gain on sale of loans		103,721		151,618		595,439		564,680
Other loan fees		57,644		66,672		208,947		206,240
Other income		38,930		29,119		107,231		102,403
Total noninterest income		511,813		544,237		1,925,940		1,769,145

Noninterest expense:
Salaries and employee benefits		1,225,488		1,093,182		3,538,488		3,356,930
Director and committee fees		41,557		39,192		122,342		120,242
Data processing fees		146,346		142,544		433,039		399,921
Occupancy and equipment		247,386		224,508		729,916		656,208
Regulatory fees and deposit insurance premium		42,804		52,926		126,003		152,689
Advertising and public relations		58,207		56,639		153,379		172,392
Insurance and bond premiums		23,860		23,642		71,604		75,406
Professional fees		53,198		71,329		310,931		398,963
Supplies, telephone and postage		75,480		67,173		207,570		203,138
Other expenses		160,028		154,852		487,081		452,433
Total noninterest expense		2,074,354		1,925,987		6,180,353		5,988,322

Income before income taxes		413,966		397,495		1,338,669		1,089,624

Income tax expense		(138,620)		(155,001)		(488,801)		(350,028)

Net income	$	275,346	$	242,494	$	849,868	$	739,596

Basic earnings per share	$	0.08	$	0.07	$	0.26	$	0.23
Diluted earnings per share	$	0.08	$	0.07	$	0.25	$	0.23

See Notes to Consolidated Financial Statements.

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Equitable Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the three months ended				For the nine months ended
	March 31, 2017		March 31, 2016		March 31, 2017		March 31, 2016
Net income	$	275,346	$	242,494	$	849,868	$	739,596
Other comprehensive income/(loss):
Unrealized gain/(loss) on securities available-for-sale, net of tax		4,941		4,086		(22,306)		6,031
Comprehensive income	$	280,287	$	246,580	$	827,562	$	745,627

See Notes to Consolidated Financial Statements.

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Equitable Financial Corp. and Subsidiary

Consolidated Statement of Changes in Stockholders’ Equity

For the nine months ended March 31, 2017

(Unaudited)


									Shares		Accumulated		Amount
									Reserved for		Other		Reclassified
	Common		Additional		Retained		Unearned		Stock		Comprehensive		on ESOP
	Stock		Paid-in Capital		Earnings		ESOP Shares		Compensation		Income		Shares		Total

Balance, June 30, 2016	$	34,771	$	26,844,426	$	11,239,913	$	(1,246,045)	$	(338,332)	$	4,076	$	(564,723)	$	35,974,086

Net Income						849,868										849,868
Other comprehensive loss												(22,306)				(22,306)
Release of 11,894 unearned ESOP shares				7,840				103,775								111,615
Stock compensation expense				(47,835)						105,536						57,701
Equity Incentive Plan stock issued		635		627,629						(628,264)						-
Stock Buyback		(1,086)		(1,026,377)												(1,027,463)
Reclassification due to release and changes in fair value of common stock in ESOP subject to contingent repurchase obligation of ESOP shares														(117,097)		(117,097)

Balance, March 31, 2017	$	34,320	$	26,405,683	$	12,089,781	$	(1,142,270)	$	(861,060)	$	(18,230)	$	(681,820)	$	35,826,404

See Notes to Consolidated Financial Statements.

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Equitable Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)


	For the nine months ended
	March 31, 2017		March 31, 2016
Cash Flows from Operating Activities:
Net income	$	849,868	$	739,596
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		254,167		260,212
Federal Home Loan Bank stock dividends		(1,800)		(2,400)
ESOP expense		111,615		72,697
Stock compensation expense		57,701		59,116
Amortization of deferred loan origination costs, net		369,661		345,516
Amortization of premiums and discounts		8,641		12,114
Gain on sale of loans		(595,439)		(564,680)
(Gain)/Loss on sale of foreclosed assets		(4,579)		11,008
Loss on disposal of premises and equipment		—		50,293
Provision for loan losses		382,703		159,368
Deferred taxes		(67,456)		244,109
Loans originated for sale		(23,044,937)		(21,413,781)
Proceeds from sale of loans		23,355,172		18,410,861
Loss on investment in partnership		34,859		28,500
Changes in:
Accrued interest receivable		(85,835)		(82,064)
Other assets		(50,217)		(12,260)
Accrued interest payable and other liabilities		202,857		170,328
Net cash provided/(used) by operating activities		1,776,981		(1,511,467)

Cash Flows from Investing Activities:
Net change in loans		(23,303,567)		(9,731,377)
Proceeds from sale of foreclosed assets, net		243,226		115,500
Proceeds from maturity of time deposits with financial institutions		—		500,000
Securities available-for-sale:
Proceeds from calls and principal repayments		175,728		153,027
Purchases		(985,400)		(469,253)
Securities held-to-maturity:
Proceeds from calls and principal repayments		35,374		2,481,550
Purchase of premises and equipment		(439,626)		(98,393)
Net cash used in investing activities		(24,274,265)		(7,048,946)

(Continued)

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Equitable Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows (Continued)

(Unaudited)


	For the nine months ended
	March 31, 2017		March 31, 2016
Cash Flows from Financing Activities:
Net change in deposits	$	15,926,015	$	21,804,620
Proceeds from Federal Home Loan Bank borrowings		2,620,000		—
Repayments of Federal Home Loan Bank borrowings		(2,620,000)		—
Net change in advance payments from borrowers for taxes and insurance		58,380		50,738
Stock Buyback		(1,027,463)		—
Purchase of ESOP Shares		—		(951,912)
Expenses and return of proceeds in advance of offering		—		(2,555,176)
Net cash provided by financing activities		14,956,932		18,348,270

Increase/(Decrease) in cash and cash equivalents		(7,540,352)		9,787,857

Cash and Cash Equivalents:
Beginning		14,947,296		21,512,653

Ending	$	7,406,944	$	31,300,510

Supplemental Cash Flow Information:
Interest paid on deposits and borrowings	$	816,262	$	768,607
Income taxes paid	$	162,879	$	145,156

See Notes to Consolidated Financial Statements.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

The accompanying consolidated financial statements of Equitable Financial Corp. (the “Company”) and its wholly owned subsidiary Equitable Bank (the “Bank”) have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with SEC rules and regulations. Accordingly, the statements do not include all the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto that were included in the Company’s annual report for the year ended June 30, 2016. The consolidated balance sheet of the Company as of June 30, 2016 has been derived from the audited consolidated balance sheet of the Company as of that date. All significant intercompany transactions are eliminated in consolidation. In the opinion of the Company’s management, all adjustments necessary (i) for a fair presentation of the financial statements for the interim periods included herein and (ii) to make such financial statements not misleading have been made and are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year.

In preparing the financial statements, management is required to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ from those estimates. For further information with respect to significant accounting policies followed by the Company in preparation of the financial statements, refer to the Company’s annual report for the year ended June 30, 2016.

The Bank is a federally chartered stock savings bank and a member of the Federal Home Loan Bank (“FHLB”) system. The Bank maintains insurance on deposit accounts with the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”).

Note 2. Stock Conversion

On July 8, 2015, Equitable Financial, MHC, the Company’s former federally chartered mutual holding company, consummated its mutual-to-stock conversion, and the Company consummated its initial stock offering. In the Offering, the Company sold 1,983,160 shares of its common stock, par value $0.01 per share, at $8.00 per share in a subscription offering and community offering, including 118,989 shares, equal to 6.0% of the shares sold in the offering, to the Equitable Bank employee stock ownership plan.

In accordance with applicable federal conversion regulations, at the time of the completion of our mutual-to-stock conversion, we established a liquidation account in an amount equal to the Company’s total equity as of the latest balance sheet date in the final prospectus used in the Conversion. Each eligible account holder or supplemental account holder is entitled to a proportionate share of this liquidation account in the event of a complete liquidation of the Bank, and only in such event. This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record as of any June 30 and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after Conversion in the related deposit balance.

Following completion of the Conversion, the Bank may not declare, pay a dividend on, or repurchase any of its capital stock of the Bank, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

Note 3. New Accounting Pronouncements

In May 2014, the FASB issued Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is intended to provide robust framework for addressing revenue recognitition guidance related to contractual rights and obligations. ASU 2014-09 is effective for annual periods beginning after December 15, 2017 and is not expected to have a material impact on the Company’s condoliated financial statements.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

In On February 25, 2016, the FASB issued ASU 2016-02, intended to improve financial reporting about leasing transactions. The ASU is effective for the Company with the interim period beginning January 1, 2019. We are currently evaluating the effect of this proposal to our financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The purpose of this Update is to simplify the accounting for share-based payment award transactions. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. This ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The purpose of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity. The Update replaces the current incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is expected to have an impact on the Company’s consolidated financial statements. The Company is currently evaluating the effect this will have on its financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows; Classification of Certain Cash Receipts and Cash Payments. The purpose of this Update is to address existing diversity in practice related to specific cash flow issues. This Update will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. The purpose of this Update is to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other. The purposes of this Update is to simplify how an entity is required to test goodwill for impairment. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05 Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets. The purpose of this Update is to clarify the scope for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers and add guidance for partial sales of nonfinancing assets. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issues ASU 2017-08 Receivables – Nonrefundable Fees and Other Costs. The purpose of this Update is to shorten the amortization period of certain callable debt securities held at a premium. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

Note 4. Securities

The fair value of securities available-for-sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2017	Cost		Gains		Losses		Fair Value
U.S. Government-sponsored agencies securities	$	986,306	$	—	$	(27,274)	$	959,032
Residential mortgage-backed securities		475,031		—		(347)		474,684
	$	1,461,337	$	—	$	(27,621)	$	1,433,716

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)


			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2016	Cost		Gains		Losses		Fair Value
Residential mortgage-backed securities	$	658,579	$	6,176	$	—	$	664,755

The carrying amount, unrecognized gross gains and losses, and fair value of securities held-to-maturity are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2017	Cost		Gains		Losses		Fair Value
Residential mortgage-backed securities	$	144,501	$	11,208	$	—	$	155,709
Municipal securities		600,139		—		(155)		599,984
	$	744,640	$	11,208	$	(155)	$	755,693


			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2016	Cost		Gains		Losses		Fair Value
Residential mortgage-backed securities	$	180,035	$	15,281	$	—	$	195,316
Municipal securities		601,705		4,093		—		605,798
	$	781,740	$	19,374	$	—	$	801,114

Securities available-for-sale and held-to-maturity consist of investments in bonds securitized by U.S. Government sponsored agencies, local municipal securities and mortgage-backed securities securitized by the Government National Mortgage Association.

The contractual maturities of the residential mortgage-backed securities at March 31, 2017 are not disclosed because the securities are not due at a single maturity date. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Approximately $400,000 in municipal securities will mature in the year ending June 30, 2019 with the remaining balance maturing in the year ending June 30, 2020. Approximately $985,000 of U.S. Government sponsored agency bonds will mature in the year ending June 30, 2023.

There were no sales of securities for the nine months ended March 31, 2017 and 2016.

The duration of gross unrealized losses is not disclosed as such amounts are immaterial to the consolidated financial statements. The Company has not recognized other-than-temporary impairment on any securities for the nine months ended March 31, 2017 and 2016.

Note 5. Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at their outstanding unpaid principal balances, less an allowance for loan losses, premiums and discounts on loans purchased, and net deferred loan fees/costs. Interest income on loans is recognized over the term of the loan and is calculated using the simple interest method on principal amounts outstanding. Direct loan origination fees and costs are generally being deferred and the net amounts amortized as an adjustment of the related loan's yield. The Company generally amortizes these amounts over the contractual life. Direct loan origination fees and costs related to loans sold to unrelated third parties are recognized as income or expense in the current consolidated statement of income.

The Company’s portfolio segments are as follows:

Commercial

Agricultural

Residential real estate

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Other

The Company’s classes of loans are as follows:

Commercial – operating

Commercial – real estate

Agricultural – operating

Agricultural – real estate

Residential real estate – 1-4 family

Residential real estate – home equity

Other – construction and land

Other – consumer

Loans are as follows:


	March 31, 2017		June 30, 2016
Commercial:
Operating	$	16,904,455	$	15,355,676
Real estate		78,315,059		67,698,929
Agricultural:
Operating		22,612,056		22,942,560
Real estate		30,037,940		24,965,541
Residential real estate:
1-4 family		41,636,099		40,309,797
Home equity		11,171,511		12,644,624
Other:
Construction and land		19,161,346		13,210,393
Consumer		3,808,313		3,566,917
Total loans		223,646,779		200,694,437

Deferred loan origination costs, net		597,880		562,483
Allowance for loan losses		(3,300,000)		(2,947,000)
		(2,702,120)		(2,384,517)

Loans, net	$	220,944,659	$	198,309,920

For all portfolio segments, the allowance for loan losses is maintained at the level considered adequate by management of the Company to provide for losses that are probable. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs. Subsequent recoveries, if any, are credited to the allowance. In determining the adequacy of the allowance balance, the Company makes continuous evaluations of the loan portfolio and related off-balance sheet commitments, considers current economic conditions, historical loan loss experience, review of specific problem loans and other factors.

Changes in the allowance for loan losses, by portfolio segment are summarized as follows:


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	For the three months ended March 31, 2017
Balance, beginning	$	1,468,000	$	848,000	$	635,000	$	287,000	$	3,238,000
Provision charged to expense		53,020		(9,000)		(19,838)		36,648		60,830
Recoveries		980		—		932		1,402		3,314
Loans charged off		—		—		(94)		(2,050)		(2,144)
Balance, ending	$	1,522,000	$	839,000	$	616,000	$	323,000	$	3,300,000

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	For the three months ended March 31, 2016
Balance, beginning	$	1,225,000	$	748,000	$	672,000	$	172,000	$	2,817,000
Provision charged to expense		(14,121)		12,000		(7,675)		11,819		2,023
Recoveries		1,121		—		675		1,058		2,854
Loans charged off		—		—		—		(8,877)		(8,877)
Balance, ending	$	1,212,000	$	760,000	$	665,000	$	176,000	$	2,813,000


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	For the nine months ended March 31, 2017
Balance, beginning	$	1,337,000	$	738,000	$	655,000	$	217,000	$	2,947,000
Provision charged to expense		209,331		101,000		(40,812)		113,184		382,703
Recoveries		23,536		—		2,000		2,604		28,140
Loans charged off		(47,867)		—		(188)		(9,788)		(57,843)
Balance, ending	$	1,522,000		839,000		616,000		323,000	$	3,300,000


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	For the nine months ended March 31, 2016
Balance, beginning	$	1,124,000	$	697,000	$	644,000	$	118,000	$	2,583,000
Provision charged to expense		13,433		63,000		19,641		63,294		159,368
Recoveries		75,831		—		1,359		5,452		82,642
Loans charged off		(1,264)		—		—		(10,746)		(12,010)
Balance, ending	$	1,212,000	$	760,000	$	665,000	$	176,000	$	2,813,000

For commercial loans, agricultural loans, and construction and land loans the allowance for estimated losses on loans consists of specific and general components.

The specific component relates to loans that are classified as impaired, as defined below. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

For commercial loans, agricultural loans, and construction and land loans, 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 case-by-case basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

The general component consists of quantitative and qualitative factors and covers non-impaired loans. The quantitative factors are based on historical charge-off experience. The qualitative factors are determined based on an assessment of internal and/or external influences on credit quality that are not fully reflected in the historical loss data. The Company’s credit quality indicator for all loans excluding commercial loans is past due or performance status. The Company’s credit quality indicator for commercial loans is internal risk ratings.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

For residential real estate loans and consumer and other loans, these large groups of smaller balance homogenous loans are collectively evaluated for impairment. In estimating the allowance for loan losses for these loans, the Company applies quantitative and qualitative factors on a portfolio segment basis. Quantitative factors are based on historical charge-off experience and qualitative factors are based on an assessment of internal and/or external influences on credit quality that are not fully reflected in the historical loss data. Accordingly, the Company generally does not separately identify individual residential real estate loans and/or consumer loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Troubled debt restructures are considered impaired loans and are subject to the same allowance methodology as described above for impaired loans by portfolio segment.

The allowance for loan losses, by impairment evaluation and portfolio segment is summarized as follows:


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	March 31, 2017
Allowance for loans individually evaluated for impairment	$	10,884	$	21,191	$	26,354	$	1,343	$	59,772
Allowance for loans collectively evaluated for impairment		1,511,116		817,809		589,646		321,657		3,240,228
	$	1,522,000	$	839,000	$	616,000	$	323,000	$	3,300,000

Loans individually evaluated for impairment	$	950,007	$	904,768	$	3,415,882	$	23,418	$	5,294,075
Loans collectively evaluated for impairment		94,269,507		51,745,228		49,391,728		22,946,241		218,352,704
	$	95,219,514	$	52,649,996	$	52,807,610	$	22,969,659	$	223,646,779


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	June 30, 2016
Allowance for loans individually evaluated for impairment	$	34,975	$	—	$	17,828	$	—	$	52,803
Allowance for loans collectively evaluated for impairment		1,302,025		738,000		637,172		217,000		2,894,197
	$	1,337,000	$	738,000	$	655,000	$	217,000	$	2,947,000

Loans individually evaluated for impairment	$	227,824	$	885,757	$	3,726,602	$	3,194	$	4,843,377
Loans collectively evaluated for impairment		82,826,781		47,022,344		49,227,819		16,774,116		195,851,060
	$	83,054,605	$	47,908,101	$	52,954,421	$	16,777,310	$	200,694,437

Generally, for all classes of loans, loans are considered past due when contractual payments are delinquent for 31 days or greater.

For all classes of loans, loans will generally be placed on nonaccrual status when the loan has become greater than 90 days past due; or when management believes, after considering collection efforts and other factors, that the borrower’s financial condition is such that collection of interest is doubtful.

When a loan is placed on nonaccrual status, payments received will be applied to the principal balance. However, interest may be taken on a cash basis in the event the loan is fully secured and the risk of loss is minimal. Previously recorded but uncollected interest on a loan placed in nonaccrual status is accounted for as follows: if the previously accrued but uncollected interest and the principal amount of the loan is protected by sound collateral value based upon a current, independent qualified appraisal, such interest may remain on the Company’s books. If such interest is not so protected, it is considered a loss with the amount thereof recorded in the current year being reversed against current interest income, and the amount recorded in the prior year being charged against the allowance for possible loan losses.

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

For all classes of loans, nonaccrual loans may be restored to accrual status provided the following criteria are met:

The loan is current, and all principal and interest amounts contractually due have been made

The loan is well secured and in the process of collection

Prospects for future principal and interest payments are not in doubt

The aging in terms of unpaid principal balance of the loan portfolio, by classes of loans is summarized as follows:


							> 90 days
			31-60 days		61-90 days		Past Due				Non accrual
	Current		Past Due		Past Due		(Nonaccrual)		Total		Loans
	March 31, 2017
Classes of loans:
Commercial:
Operating	$	16,882,591	$	—	$	21,864	$	—	$	16,904,455	$	160,590
Real estate		78,234,228		—		42,607		38,224		78,315,059		692,720
Agricultural:
Operating		22,605,208		—		—		6,848		22,612,056		44,260
Real estate		29,211,431		—		—		826,509		30,037,940		841,509
Residential real estate:
1-4 family		41,379,209		23,046		—		233,844		41,636,099		697,559
Home equity		11,153,134		18,377		—		—		11,171,511		34,699
Other:
Construction and land		19,161,346		—		—		—		19,161,346		—
Consumer		3,803,153		176		4,984		—		3,808,313		23,418
	$	222,430,300	$	41,599	$	69,455	$	1,105,425	$	223,646,779	$	2,494,755


							> 90 days
			31-60 days		61-90 days		Past Due					Non accrual
	Current		Past Due		Past Due		(Nonaccrual)		Total			Loans
	June 30, 2016
Classes of loans:
Commercial:
Operating	$	15,256,328	$	99,348	$	—	$	—	$	15,355,676	$	97,294
Real estate		67,606,842		—		—		92,087		67,698,929		92,087
Agricultural:
Operating		22,318,246		624,314		—		—		22,942,560		6,848
Real estate		24,965,541		—		—		—		24,965,541		877,909
Residential real estate:
1-4 family		38,428,793		1,823,353		23,736		33,915		40,309,797		688,454
Home equity		12,644,624		—		—		—		12,644,624		29,807
Other:
Construction and land		13,210,393		—		—		—		13,210,393		—
Consumer		3,563,221		1,294		—		2,402		3,566,917		7,248
	$	197,993,988	$	2,548,309	$	23,736	$	128,404	$	200,694,437	$	1,799,647

For commercial, agriculture, and construction and land loans, the Company utilizes the following internal risk rating scale:

Highest Quality (rating 1) -- Loans represent a credit extension of the highest quality. Excellent liquidity, management and character in an industry with favorable conditions. High quality financial information, history of strong cash flows and superior collateral including readily marketable assets, prime real estate, U.S. government securities, U.S.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

government agencies, highly rated municipal bonds, insured savings accounts, and insured certificates of deposit drawn on high-quality financial institutions.

Good Quality (rating 2) -- Loans which have a sound primary and secondary source of repayment. Strong to good liquidity, management and character in an industry with favorable conditions. Good quality financial information and margins of cash flow coverage is consistently good. Loans may be unsecured, secured by quality (but less readily marketable) assets, high quality real estate or traded stocks, lower grade municipal bonds (which must still be investment grade), and uninsured certificates of deposit on other financial institutions may also be included in this grade.

Acceptable Quality (rating 3) -- Loans where the borrower is a reasonable credit risk and demonstrates the ability to repay the debt from normal business operations. Good liquidity, management and character in an industry that is more sensitive to external factors. Alternative sources of refinancing may be less available in periods of uncertain economic conditions. Term debt is moderate but cash flow margins fall within bank policy guidelines. Quality of financial information is adequate but is not as detailed and sophisticated as information found on higher-grade loans. Secured by business assets that conform to usual lending parameters for margin and eligibility or real estate that is deemed to be of satisfactory quality in an area that may not be prime but still within viable economic centers.

Fair Quality (rating 4) -- Loans where the borrower is a reasonable credit risk but shows a more erratic earnings history (a loss may have been realized in the past four years). Liquidity is limited and primary repayment is susceptible to unfavorable external factors. Industry characteristics are generally stable. Borrower is more highly leveraged with increased levels of term debt. Cash flow margins remain adequate but may not fall within the policy guidelines. Quality of financial information is adequate and interim reporting may be required. Secured by business assets with an adequate collateral margin or real estate that is of fair quality and location. Property may have limited alternative uses and may be considered a "special use" facility.

Special Mention (rating 5) -- Loans in this category have the potential for developing weaknesses that deserve extra attention from the account manager and other management personnel. If the developing weakness is not corrected or mitigated, the ability of the borrower to repay the Company's debt in the future may deteriorate. This grade should not be assigned to loans that bear certain peculiar risks normally associated with the type of financing involved, unless circumstances have caused the risk to increase to a level higher than would have been acceptable when the credit was originally approved. If a loan's actual, not potential, weakness or problems are clearly evident and significant it should generally be graded in one of the following grade categories.

Substandard (rating 6) -- Loans and other credit extensions are considered to be inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. These loans, even if apparently protected by collateral value, have a well-defined weakness or weaknesses that jeopardize the liquidation of 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 loans, does not have to exist in individual loans classified substandard.

Doubtful (rating 7) -- Loans and other credit extensions have all the weaknesses inherent in those graded "6" with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include: proposed merger, acquisition, or liquidation actions; capital injection; perfecting liens on collateral and refinancing plans. Loans in this classification should be placed in non-accrual status, with collections applied to principal.

Loss (rating 8) -- Loans are considered uncollectible and cannot be justified as a viable asset of the Bank. This classification does not mean the loan has absolutely no recovery value. However, it is not prudent to delay writing off this loan even though partial recovery may be obtained in the future.

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

For commercial, agricultural and construction and land loans or credit relationships with aggregate exposure greater than $250,000, a loan review is required within 12 months of the most recent credit review. The reviews are completed in enough detail to, at a minimum, validate the risk rating. Additionally, the reviews shall determine whether any documentation exceptions exist, appropriate written analysis is included in the loan file, and whether credit policies have been properly adhered to.

For each class of loans, the following summarizes the unpaid principal balance by credit quality indicator as of:


									Other —
	Commercial —		Commercial —		Agricultural —		Agricultural —		Construction
	Operating		Real Estate		Operating		Real Estate		and Land		Total
	March 31, 2017
Internally assigned risk rating:
Highest Quality (rating 1)	$	—	$	—	$	764,263	$	326,045	$	—	$	1,090,308
Good Quality (rating 2)		200,639		6,739,080		3,816,673		2,953,291		2,870,445		16,580,128
Acceptable Quality (rating 3)		7,400,028		38,337,562		7,551,517		14,801,186		9,429,231		77,519,524
Fair Quality (rating 4)		9,101,485		30,335,575		9,534,145		11,115,909		6,861,670		66,948,784
Special Mention (rating 5)		—		—		342,234		—		—		342,234
Substandard (rating 6)		202,303		2,902,842		603,224		841,509		—		4,549,878
Doubtful (rating 7)		—		—		—		—		—		—
Loss (rating 8)		—		—		—		—		—		—
	$	16,904,455	$	78,315,059	$	22,612,056	$	30,037,940	$	19,161,346	$	167,030,856


									Other —
	Commercial —		Commercial —		Agricultural —		Agricultural —		Construction
	Operating		Real Estate		Operating		Real Estate		and Land		Total
	June 30, 2016
Internally assigned risk rating:
Highest Quality (rating 1)	$	—	$	—	$	484,813	$	348,011	$	—	$	832,824
Good Quality (rating 2)		213,824		4,923,002		5,510,208		6,173,479		1,993,567		18,814,080
Acceptable Quality (rating 3)		7,732,341		33,606,696		5,992,063		9,729,301		6,675,761		63,736,162
Fair Quality (rating 4)		7,294,630		28,578,771		9,604,176		7,836,841		4,541,065		57,855,483
Special Mention (rating 5)		—		—		829,738		—		—		829,738
Substandard (rating 6)		114,881		590,460		521,562		877,909		—		2,104,812
Doubtful (rating 7)		—		—		—		—		—		—
Loss (rating 8)		—		—		—		—		—		—
	$	15,355,676	$	67,698,929	$	22,942,560	$	24,965,541	$	13,210,393	$	144,173,099


	Residential RE —		Residential RE —		Other —
	1-4 Family		Home Equity		Consumer		Total
	March 31, 2017
Delinquency status*:
Performing	$	40,915,493	$	11,134,736	$	3,779,735	$	55,829,964
Nonperforming		720,606		36,775		28,578		785,959
	$	41,636,099	$	11,171,511	$	3,808,313	$	56,615,923

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)


	Residential RE —		Residential RE —		Other —
	1-4 Family		Home Equity		Consumer		Total
	June 30, 2016
Delinquency status*:
Performing	$	37,832,838	$	12,614,817	$	3,558,375	$	54,006,030
Nonperforming		2,476,959		29,807		8,542		2,515,308
	$	40,309,797	$	12,644,624	$	3,566,917	$	56,521,338

* Performing loans are those which are accruing and less than 31 days past due. Nonperforming loans are those on nonaccrual and accruing loans that are greater than or equal to 31 days past due.

At March 31, 2017 and June 30, 2016, the Company had no loans greater than 90 days past due and still accruing.

For commercial, agricultural, and construction and land loans, the Company’s credit quality indicator is internally assigned risk ratings. Each loan is assigned a risk rating upon origination. The risk rating is reviewed every 12 months, at a minimum, and on an as needed basis depending on the specific circumstances of the loan.

For residential real estate and consumer loans, the Company’s credit quality indicator is performance determined by delinquency status. Delinquency status is updated daily by the Company’s loan system.

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Loans, by classes of loans, considered to be impaired are summarized as follows:


			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	March 31, 2017
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	195,801	$	193,338	$	—
Real estate		656,969		654,496		—
Agricultural:
Operating		26,426		25,848		—
Real estate		409,712		355,452		—
Residential real estate:
1-4 family		2,767,870		2,749,483		—
Home equity		8,309		8,296		—
Other:
Consumer		2,152		1,546		—
		4,067,239		3,988,459		—

Impaired loans with specific allowance recorded:
Commercial:
Operating		64,522		63,949		2,596
Real estate		48,596		38,224		8,288
Agricultural:
Operating		37,804		37,411		2,297
Real estate		518,721		486,057		18,894
Residential real estate:
1-4 family		655,459		641,801		25,768
Home equity		16,440		16,302		586
Other:
Consumer		21,923		21,872		1,343
		1,363,465		1,305,616		59,772

Total impaired loans:
Commercial:
Operating		260,323		257,287		2,596
Real estate		705,565		692,720		8,288
Agricultural:
Operating		64,230		63,259		2,297
Real estate		928,433		841,509		18,894
Residential real estate:
1-4 family		3,423,329		3,391,284		25,768
Home equity		24,749		24,598		586
Other:
Consumer		24,075		23,418		1,343
	$	5,430,704	$	5,294,075	$	59,772

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)


			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	June 30, 2016
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	88,902	$	87,497	$	—
Agricultural:
Operating		8,009		7,848		—
Real estate		925,288		877,909		—
Residential real estate:
1-4 family		3,330,310		3,320,028		—
Home equity		59,336		59,123		—
Other:
Consumer		3,756		3,194		—
		4,415,601		4,355,599		—

Impaired loans with specific allowance recorded:
Commercial:
Operating		48,302		48,240		4,824
Real estate		114,837		92,087		30,151
Residential real estate:
1-4 family		330,997		329,623		16,913
Home equity		17,882		17,828		915
		512,018		487,778		52,803

Total impaired loans:
Commercial:
Operating		137,204		135,737		4,824
Real estate		114,837		92,087		30,151
Agricultural:
Operating		8,009		7,848		—
Real estate		925,288		877,909		—
Residential real estate:
1-4 family		3,661,307		3,649,651		16,913
Home equity		77,218		76,951		915
Other:
Consumer		3,756		3,194		—
	$	4,927,619	$	4,843,377	$	52,803

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Impaired loans, for which no allowance has been provided as of March 31, 2017 and June 30, 2016, have adequate collateral, based on management’s current estimates.


	For the three months ended
	March 31, 2017				March 31, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	192,837	$	3,125	$	71,908	$	585
Real estate		663,799		4,749		187,474		—
Agricultural:
Operating		16,903		125		7,079		105
Real estate		411,432		—		970,207		1,669
Residential real estate:
1-4 family		2,811,564		35,254		3,624,633		45,273
Home equity		8,520		141		60,648		1,000
Other:
Consumer		2,642		24		8,592		134
		4,107,697		43,418		4,930,541		48,766

Impaired loans with specific allowance recorded:
Commercial:
Operating		65,973		906		60,747		705
Real estate		48,321		—		237,966		—
Agricultural:
Operating		18,902		—		198,658		—
Real estate		515,527		230		—		—
Residential real estate:
1-4 family		661,611		9,955		345,848		4,634
Home equity		17,202		447		19,339		525
Other:
Consumer		22,947		378		—		—
		1,350,483		11,916		862,558		5,864

Total impaired loans:
Commercial:
Operating		258,810		4,031		132,655		1,290
Real estate		712,120		4,749		425,440		—
Agricultural:
Operating		35,805		125		205,737		105
Real estate		926,959		230		970,207		1,669
Residential real estate:
1-4 family		3,473,175		45,209		3,970,481		49,907
Home equity		25,722		588		79,987		1,525
Other:
Consumer		25,589		402		8,592		134
	$	5,458,180	$	55,334	$	5,793,099	$	54,630

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)


	For the nine months ended
	March 31, 2017				March 31, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	164,025	$	7,722	$	53,766	$	2,030
Real estate		328,484		7,124		187,636		2,331
Agricultural:
Operating		17,218		125		8,380		339
Real estate		425,722		—		856,736		15,902
Residential real estate:
1-4 family		2,733,003		100,579		3,628,569		153,553
Home equity		8,926		450		61,807		3,093
Other:
Consumer		3,780		144		9,831		399
		3,681,158		116,144		4,806,725		177,647

Impaired loans with specific allowance recorded:
Commercial:
Operating		60,770		2,028		62,616		2,856
Real estate		47,764		—		234,325		—
Agricultural:
Operating		37,804		—		203,386		14,843
Real estate		508,658		593		—		—
Residential real estate:
1-4 family		663,628		18,199		343,496		7,739
Home equity		17,161		835		19,221		1,366
Other:
Consumer		23,861		951		—		—
		1,359,646		22,606		863,044		26,804

Total impaired loans:
Commercial:
Operating		224,795		9,750		116,382		4,886
Real estate		376,248		7,124		421,961		2,331
Agricultural:
Operating		55,022		125		211,766		15,182
Real estate		934,380		593		856,736		15,902
Residential real estate:
1-4 family		3,396,631		118,778		3,972,065		161,292
Home equity		26,087		1,285		81,028		4,459
Other:
Consumer		27,641		1,095		9,831		399
	$	5,040,804	$	138,750	$	5,669,769	$	204,451

The Company's troubled debt restructuring as of March 31, 2017 and June 30, 2016 were not material to the consolidated financial statements.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 6. Borrowings

Our borrowings consist primarily of advances from Federal Home Loan Bank of Topeka. At March 31, 2017, we had access to Federal Home Loan Bank advances up to $39.5 million. To the extent such borrowings have different terms to repricing than our deposits, they can change our interest rate risk profile.

The following table sets forth information concerning balances and interest rates on our advances at March 31, 2017. At and during the period ended March 31, 2016 there were no advances outstanding.


	At or For the
		Nine Months Ended
	March 31, 2017
	(Dollars in thousands)
Federal Home Loan Bank Advances:
Maximum outstanding at any month end	$	300,000
Balance at the end of period		—
Average balance during period		575,000
Weighted average interest rate at the end of period		0.75	%
Weighted average interest rate during period		0.75	%

Note 7. Regulatory Matters

The Bank is subject to regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. Management believes, as of March 31, 2017, that the Bank meets all capital adequacy requirements to which it is subject.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Actual capital levels and minimum required levels for the Bank were:


									Minimum
									Required to Be
									Well Capitalized
					Minimum Required for				Under Prompt
					Capital Adequacy				Corrective Action
					Purposes				Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio

March 31, 2017
Total capital (to risk-weighted assets)	$	30,362	13.8	%	$	17,563	8.0	%	$	21,954	10.0	%
Common equity Tier 1 capital (to risk-weighted assets)		27,610	12.6	%		9,879	4.5	%		14,270	6.5	%
Tier 1 (core) capital (to risk-weighted assets)		27,610	12.6	%		13,172	6.0	%		17,563	8.0	%
Tier 1 (core) capital (to adjusted total assets)		27,610	11.8	%		9,322	4.0	%		11,653	5.0	%

June 30, 2016
Total capital (to risk-weighted assets)	$	28,977	14.7	%	$	15,805	8.0	%	$	19,757	10.0	%
Common equity Tier 1 capital (to risk-weighted		26,500	13.4	%		8,891	4.5	%		12,842	6.5	%
Tier 1 (core) capital (to risk-weighted assets)		26,500	13.4	%		11,854	6.0	%		15,805	8.0	%
Tier 1 (core) capital (to adjusted total assets)		26,500	11.6	%		9,114	4.0	%		11,393	5.0	%

Federal regulations require the Bank to comply with a Qualified Thrift Lender (“QTL”) test, which requires that 65% of assets be maintained in housing-related finance and other specified assets. If the QTL test is not met, limits are placed on growth, branching, new investment, FHLB advances, and dividends or the institution must convert to a commercial bank charter. Management believes the QTL test has been met.

In July 2013, the Federal Reserve Board and the Federal Deposit Insurance Corporation issued final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes. The rules revised minimum capital requirements and adjusted prompt corrective action thresholds. The final rules revised the regulatory capital elements, added a new common equity Tier 1 capital ratio, increased the minimum Tier 1 capital ratio requirement, and implemented a new capital conservation buffer. The rules also permitted certain banking organizations to retain, through a one-time election, the existing treatment for accumulated other comprehensive income. Management chose the one-time election to retain the existing treatment. The final rules took effect for community banks on January 1, 2015, subject to a transition period for certain parts of the rules.

Note 8. Employee Benefit Plan

The Company has a 401(k) and profit sharing plan (the “Plans”) covering substantially all employees. Annual contributions to the Plans are made at the discretion of and determined by the Board of Directors. Participant interests are vested over a period from one to five years of service. Contributions were made of $88,548 and $71,366 for the nine months ended March 31, 2017 and 2016.

On November 8, 2005, the Company adopted an employee stock ownership plan (the “ESOP”) for the benefit of substantially all employees. The ESOP borrowed $1,292,620 from the Company and used those funds to acquire 129,262 shares of the Company’s stock in connection with the reorganization at a price of $10.00 per share.

On July 8, 2015, the ESOP borrowed $951,912 from the Company and used the funds to acquire 118,989 shares of the Company’s stock in connection with the stock offering at a price of $8.00 per share.

Shares purchased by the ESOP with the loan proceeds are held in a suspense account and are allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company’s discretionary contributions to the ESOP and earnings on ESOP assets. Annual principal and interest payments from the

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

note dated November 8, 2005 are approximately $145,000 until maturity at December 31, 2019. Annual principal and interest payments from the note dated July 8, 2015 are approximately $65,000 until maturity at July 8, 2035.

As shares are released from collateral, the Company will report compensation expense equal to the current market price of the shares and the shares will become outstanding for earnings-per-share computations. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce accrued interest. Because participants may require the Company to purchase their ESOP shares upon termination of their employment, the fair value of all earned and allocated ESOP shares may become a liability.

The ESOP has a plan year-end of December 31. The Company recorded compensation expense of $111,615 and $72,697 for the nine months ended March 31, 2017 and 2016, respectively.

Shares held by the ESOP were as follows:


	March 31, 2017		June 30, 2016
Allocated shares		70,230		71,803
Shares allocated to be released		19,826		7,932
Unearned ESOP shares		138,806		150,700

Total ESOP shares		228,862		230,435

Fair value of unearned ESOP shares	$	1,422,762	$	1,252,317

Fair value of allocated shares subject to repurchase obligation	$	681,820	$	564,723

The Company approved the Equitable Financial Corp. 2006 Equity Incentive Plan (“2006 Plan”) in November 2006 and the Equitable Financial Corp. 2016 Equity Incentive Plan (“2016 Plan”) in November 2016. Both plans provide for awards of stock options and restricted stock to officers, employees and directors. The cost of the plan is based on the fair value of the awards at the grant date. The fair value of stock is based on the closing price of the Company’s stock on the grant date. The cost of the awards are being recognized over the five-year vesting periods during which participants are required to provide services in exchange for the awards. As of December 31, 2016 the 2006 plan has terminated.

The maximum number of shares authorized under the 2016 Plan is 198,316 stock options and 79,326 shares of restricted stock to employees and directors. As of March 31, 2017 158,653 stock options and 63,461 stock awards were awarded.

Restricted stock awards are accounted for as fixed grants using the fair value of the Company’s stock at the time of the grant. Unvested restricted stock awards may not be disposed of or transferred during the vesting period. Restricted stock awards carry with them the right to receive dividends.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


	Service-Based		Weighted
	Stock		Grant Date
	Awards		Fair Value

Non-vested at July 1, 2015		43,094	$	4.02
Conversion for stock offering		3,907		—
Granted		4,900		8.53
Vested		(6,297)		4.93
Non-vested at March 31, 2016		45,604	$	4.02

Non-vested at July 1, 2016		39,281	$	4.32
Granted		63,461		9.90
Vested		(7,294)		5.40
Non-vested at March 31, 2017		95,448	$	6.97

Note 9. Earnings per Share

Amounts reported in earnings per share reflect earnings available to common stockholders for the period divided by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is calculated by dividing earnings available to common stockholders for the period by the sum of the weighted average common shares outstanding and the weighted average dilutive shares.

The following table presents a reconciliation of the components used to compute basic earnings per share for the nine months ended March 31, 2017 and 2016:


	For the three months ended				For the nine months ended
	March 31,				March 31,
	2017		2016		2017		2016
Weighted average common shares outstanding		3,284,630		3,285,020		3,289,170		3,260,513
Net income available to common stockholders	$	275,346	$	242,494	$	849,868	$	739,596
Basic earnings per share	$	0.08	$	0.07	$	0.26	$	0.23

The following table presents a reconciliation of the components used to compute diluted earnings per share for the nine months ended March 31, 2017 and 2016:


	For the three months ended				For the nine months ended
	March 31,				March 31,
	2017		2016		2017		2016
Weighted average common shares outstanding		3,284,630		3,285,020		3,289,170		3,260,513
Weighted average of net additional shares from restricted stock awards		53,546		25,927		48,058		25,834
Weighted average number of shares outstanding		3,338,176		3,310,947		3,337,228		3,286,347

Net income available to common stockholders	$	275,346	$	242,494	$	849,868	$	739,596
Diluted earnings per share	$	0.08	$	0.07	$	0.25	$	0.23

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 10. Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification defines fair value, establishes a framework for measuring fair value and requires disclosure of fair value measurements. The fair value hierarchy set forth in the Topic is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

There were no transfers between levels during the nine months ended March 31, 2017, nor were there any changes in valuation techniques used for assets or liabilities measured at fair value at March 31, 2017.

Assets and liabilities recorded at fair value on a recurring basis : A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below:

Securities Available-for-Sale — Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 and June 30, 2016, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Fair Value Measurement at March 31, 2017 Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Total

Level 1

Level 2

Level 3

Assets

Securities available-for-sale

1,433,716

—

1,433,716

—

Fair Value Measurement at June 30, 2016 Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Total

Level 1

Level 2

Level 3

Assets

Securities available-for-sale

664,755

—

664,755

—

Assets and liabilities recorded at fair value on a nonrecurring basis : A description of the valuation methodologies used for assets and liabilities measured at fair value on a nonrecurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Impaired Loans — From time to time, a loan is considered impaired and an allowance for credit losses is established. The specific reserves for collateral dependent impaired loans are based on the fair value of the collateral

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

less estimated costs to sell. The fair value of collateral was determined based on appraisals. In some cases, adjustments were made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral. When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement.

Foreclosed Assets — Foreclosed assets are carried at estimated fair value of the property, less disposal costs. The fair value of the property is determined based upon appraisals. As with impaired loans, if significant adjustments are made to the appraised value, based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement.

At March 31, 2017 and June 30, 2016 the fair value of impaired loans and foreclosed assets were immaterial.

The Financial Instruments Topic of the FASB Accounting Standards Codification requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Fair value is determined under the framework discussed above. The Topic excludes all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions used in estimating fair value disclosure for financial instruments are described below:

Cash and due from financial institutions — For cash and due from financial institutions, the current carrying amount is a reasonable estimate of fair value.

Interest-earning deposits — For interest-earning deposits, the current carrying amount is a reasonable estimate of fair value.

Securities — The fair value of securities is determined using quoted prices, when available in an active market. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or a discounted cash flows model.

Federal Home Loan Bank stock — For restricted equity securities, the carrying value approximates fair value.

Loans, net — The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of variable rate loans approximates carrying value.

Deposits — The carrying value of noninterest-bearing deposits approximates fair value. The fair value of fixed rate deposits is estimated by discounting the future cash flows using the current rates for the same remaining maturities.

Federal funds purchased — For federal funds purchased, the carrying value approximates fair value. As of March 31, 2017 and June 30, 2016 the Company did not have any federal funds purchased.

Federal Home Loan Bank borrowings — The estimated fair value of fixed rate advances from the FHLB is determined by discounting the future cash flows of existing advances using rates currently available on advances from the FHLB having similar characteristics. Adjustable rate advances’ carrying value approximates fair value. As of March 31, 2017 and June 30, 2016 the Company did not have any FHLB borrowings.

Accrued interest — The carrying amounts of accrued interest approximate fair value.

Off-balance sheet items — The fair value of off-balance-sheet items is based on current fees or cost that would be charged to enter into or terminate such arrangements. There were not considered material and are not presented in the below tables.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The estimated fair value of financial instruments is as follows:


	Fair Value	Carrying		Estimated
March 31, 2017	Hierarchy Level	Amount		Fair Value
Financial assets:
Cash and due from financial institutions	Level 1	$	7,406,944	$	7,407,000
Securities available-for-sale	See previous table		1,433,716		1,434,000
Securities held-to-maturity	Level 2		744,640		756,000
Federal Home Loan Bank stock	Level 1		231,700		232,000
Loans, net	Level 2		220,944,659		217,926,000
Accrued interest receivable	Level 1		1,233,302		1,233,000
Financial liabilities:
Noninterest-bearing deposits	Level 2		28,414,452		28,414,000
Interest-bearing deposits	Level 2		174,473,915		178,969,000
Accrued interest payable and other liabilities	Level 1		1,416,707		1,417,000


	Fair Value	Carrying		Estimated
June 30, 2016	Hierarchy Level	Amount		Fair Value
Financial assets:
Cash and due from financial institutions	Level 1	$	14,947,296	$	14,947,000
Securities available-for-sale	See previous table		664,755		665,000
Securities held-to-maturity	Level 2		781,740		801,000
Federal Home Loan Bank stock	Level 1		229,900		230,000
Loans, net	Level 2		198,309,920		198,000,000
Accrued interest receivable	Level 1		1,147,467		1,147,000
Financial liabilities:
Noninterest-bearing deposits	Level 2		24,296,166		24,296,000
Interest-bearing deposits	Level 2		162,666,186		170,276,000
Accrued interest payable and other liabilities	Level 1		1,198,850		1,199,000

Note 11. Accumulated Other Comprehensive Income/(Loss)

Accumulated other comprehensive income components were as follows:


	March 31, 2017		June 30, 2016
Unrealized holding gains/(losses) on securities available-for-sale	$	(27,621)	$	6,176
Tax expense		9,391		(2,100)

	$	(18,230)	$	4,076

Note 12. Income Taxes


	Three months ended
	March 31, 2017		March 31, 2016
Provision computed at the statutory federal tax rate	$	(140,748)	$	(135,148)
State income taxes, net of federal tax		(11,264)		(11,125)
Release of unearned EOSP shares and stock awards		(1,834)		1,905
Nondeductible expenses		(2,161)		(1,522)
Other		17,387		(9,111)
	$	(138,620)	$	(155,001)

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)


	Nine months ended
	March 31, 2017		March 31, 2016
Provision computed at the statutory federal tax rate	$	(455,147)	$	(370,472)
State income taxes, net of federal tax		(39,019)		(35,837)
Release of unearned EOSP shares and stock awards		3,713		10,388
Nondeductible expenses		(5,875)		(5,724)
Valuation allowance adjustment		—		79,000
Other		7,527		(27,383)
	$	(488,801)	$	(350,028)

Note 13. Stock Buyback

The Company announced a stock repurchase plan on October 7, 2016 whereby the Company could repurchase up to 173,857 shares of its common stock, or approximately 5% of the then current outstanding shares. There were 108,655 shares of the Company’s common stock repurchased by the Company during the nine months ended March 31, 2017, and there were 65,202 shares yet to be repurchased under the plan as of March 31, 2017.

The following table provides information regarding the Company’s purchase of its common stock during the nine months ended March 31, 2017:


				Total Number of
				Shares Purchased	Maximum Number of
			Weighted	as Part of Publicly	Shares that May Yet Be
	Total Number of	Average Price		Announced Plans	Purchased Under the
Period	Shares Purchased	Paid Per Share		or Programs	Plans or Programs
10/1/16 - 10/31/16	—	$	—	—	173,857
11/1/16 - 11/30/16	60,000		9.07	60,000	113,857
12/1/16 - 12/31/16	26,455		9.57	86,455	87,402
01/1/17 - 01/31/17	—		—	86,455	87,402
02/1/17 - 02/28/17	—		—	86,455	87,402
03/1/17 - 03/31/17	22,200		10.25	108,655	65,202
Total	108,655	$	9.43

Note

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s discussion and analysis of financial condition and results of operations at March 31, 2017 and for the three and nine months ended March 31, 2017 and 2016 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this report. All references herein to the “Company”, “we”, “us”, or similar terms refer to Equitable Financial Corp. and its subsidiary.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

Statements of our goals, intentions and expectations;

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

Statements regarding the quality of our loan and investment portfolios; and

Estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

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

General economic conditions, either nationally or in our market areas, that are worse than expected;

Competition among depository and other financial institutions;

Inflation and changes in the interest rate environment that reduce our margins and yields or reduce the fair value of financial instruments;

Our success in continuing to emphasize agricultural and commercial loans;

Changes in consumer spending, borrowing and savings habits;

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

Our ability to successfully integrate acquired branches or entities;

Adverse changes in the securities markets;

Changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

Changes in our organization, compensation and benefit plans;

Our ability to retain key employees;

Changes in the level of government support for housing finance;

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Significant increases in our loan losses; and

Changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

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

Overview

We are a Nebraska-based community bank headquartered in Grand Island, Nebraska, with full-service branch offices in Grand Island, Omaha and North Platte, Nebraska. For most of our history as a community bank, which dates back to 1882, we have operated as a traditional thrift institution, focusing on the origination of one- to four-family residential real estate loans. In the past 10 years, however, we have expanded our lending focus and now offer a wide range of loans to commercial businesses, agricultural borrowers and consumers – in addition to our traditional residential loan products. We also invest in securities, primarily U.S. government agency securities, municipal bonds and mortgage-backed securities. In addition, we offer insurance and investment products and services from locations in Grand Island, Omaha and North Platte.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service fees, rental income, gain on sales of loans and other income. Non-interest expense currently consists primarily of expenses related to compensation and employee benefits, occupancy, data processing, advertising and promotion, professional and regulatory, federal deposit insurance premiums, net loss on other real estate owned, write-downs, sales and other operating expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. By their nature, changes in these assumptions and estimates could significantly affect our financial position or results of operations. Actual results could differ from those estimates.

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

Discussed below are selected critical accounting policies that are of particular significance to us:

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. An allowance for loan losses is maintained at a level considered necessary to provide for loan losses based upon an evaluation of known and inherent losses in the loan portfolio. In determining the allowance for loan losses, we consider the losses inherent in the loan portfolio and changes in the nature and volume of the loan activities, along with the local economic and real estate market conditions. We utilize a two-tier approach: (1) establishment of specific reserves for impaired loans, and (2) establishment of a general valuation allowance for the remainder of the loan portfolio. We maintain a loan review system which allows for a periodic review of the loan portfolio and the early identification of impaired loans. One- to four-family residential real estate loans and consumer installment loans are considered to be homogeneous and, therefore, are not separately evaluated for impairment unless they are considered troubled debt restructurings. A loan is considered to be a troubled

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debt restructuring when, to maximize the recovery of the loan we modify the borrower’s existing loan terms and conditions in response to financial difficulties experienced by the borrower.

In establishing specific reserves for impaired loans, we take into consideration, among other things, 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 shortfalls on a case-by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and reason for the delay, the borrower’s prior payment record and the amount of shortfall in relation to what is owed. A loan is deemed to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts when due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated individually. We do not aggregate such loans for evaluation purposes. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Payments received on impaired loans are generally applied first to principal and then to interest.

The general valuation allowance is based upon a combination of factors including, but not limited to, actual loan loss rates, composition of the loan portfolio, current economic conditions and management’s judgment. Regardless of the extent of the analysis of customer performance, portfolio evaluations, trends or risk management processes established, certain inherent, but undetected losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer’s financial condition or changes in their financial condition, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends, and the sensitivity of assumptions utilized to establish allocated allowances for homogeneous groups of loans among other factors. These other risk factors are continually reviewed and revised by management using relevant information available at the time of the evaluation.

Although we believe that we use the best information available to recognize losses on loans and establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the OCC, as an integral part of its examination process, periodically reviews the adequacy of our allowance for loan losses. That agency may require us to recognize additions to the allowance based on its judgments about information available to it at the time of its examination.

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. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. 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. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and 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. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets.

Fair Value Measurements. We use our best judgment in estimating fair value measurements of the Bank’s financial instruments; however, there are inherent weaknesses in any estimation technique. We utilize various assumptions and valuation techniques to determine fair value, including, but not limited to cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, quoted market prices, and appraisals. The fair value estimates are not necessarily indicative of the actual amounts that could have been realized in a sale transaction on the dates indicated. The estimated fair value amounts have not been re-evaluated or updated subsequent to the respective reporting dates. As such, the estimated fair values subsequent to the respective dates may be different than the amounts reported.

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Comparison of Financial Condition at March 31, 2017 and June 30, 2016

Assets. Total assets at March 31, 2017 were $241.3 million, an increase of $16.2 million, or 7.2%, from $225.1 million at June 30, 2016. This increase is primarily due to an increase in securities available-for-sale and net loans. Securities available-for-sale increased $769,000, or 115.6% to $1.4 million at March 31, 2017 from $665,000 at June 30, 2016. This increase was related to the purchase of one security. Net loans increased $22.6 million, or 11.4%, to $220.9 million at March 31, 2017 from $198.3 million at June 30, 2016. These increases were offset by a decrease in cash of $7.5 million, or 50.3%, to $7.4 million at March 31, 2017 from $14.9 million at June 30, 2016. This decrease was a result of deploying cash to fund securities purchased and loans advanced.

Nonperforming Assets and Allowance for Loan Losses. We had non-performing assets of $2.7 million, or 1.1% of total assets as of March 31, 2017 and $2.3 million, or 1.0% of total assets as of June 30, 2016. The allowance for loan losses totaled $3.3 million at March 31, 2017 and $2.9 million at June 30, 2016. This represents a ratio of the allowance for loan losses to gross loans receivable of 1.5% at March 31, 2017 and June 30, 2016. The allowance for loan losses to non-performing loans was 132.3% at March 31, 2017 and 163.7% at June 30, 2016.

Deposits. Total deposits increased $15.9 million, or 8.5%, to $202.9 million at March 31, 2017 from $187.0 million at June 30, 2016. Noninterest-bearing deposits increased $4.1 million, or 16.9% to $28.4 million at March 31, 2017 from $24.3 million at June 30, 2016. Interest-bearing deposits increased $11.8 million, or 7.3%, to $174.5 million at March 31, 2017 from $162.7 million at June 30, 2016.

Stockholders’ Equity. Total stockholder’s equity decreased $148,000, or 0.4% to $35.8 million at March 31, 2017 from $36.0 million at June 30, 2016. The decrease was a result of the stock buyback. The decrease was offset in part by the net income earned during the nine months ended March 31, 2017.

Comparison of Operating Results for the Three Months Ended March 31, 2017 and 2016

General. Net income for the three months ended March 31, 2017 was $275,000. This represented an increase of $33,000, or 13.6%, from net income of $242,000 for the three months ended March 31, 2016.

Interest Income. Total interest income for the three months ended March 31, 2017 increased $267,000, or 13.0%, to $2.3 million, from $2.1 million for the three months ended March 31, 2016. The increase in interest income was due to an increase in interest income in loans, partially offset by a decrease in interest income on other interest income.

Interest income from loans increased $289,000, or 14.4%, to $2.3 million for the three months ended March 31, 2017 from $2.0 million for the three months ended March 31, 2016. The increase in interest income from loans was due primarily to an increase of $29.6 million in average loan balances. Average loan balances were $216.8 million for the three months ended March 31, 2017 compared to $187.2 million for the three months ended March 31, 2016. The increase in our average loan balance was primarily due to increased loan demand, primarily attributable to improved economic conditions in our market areas and growth in commercial loans originated in all branches. The average yield on loans decreased 5 basis points to 4.25% during the three months ended March 31, 2017 from 4.30% for the three months ended March 31, 2016.

Other interest income decreased $22,000, or 53.7%, to $19,000 for the three months ended March 31, 2017 from $41,000 for the three months ended March 31, 2016. This decrease was primarily due to a decrease in average balances of interest-earning deposits and securities.

Interest Expense. Interest expense increased $11,000, or 4.0%, to $283,000 for the three months ended March 31, 2017 from $272,000 for the three months ended March 31, 2016. This increase was due to an increase in interest cost on deposit accounts. Cost of deposits was 66 basis points for the three months ended March 13, 2017 compared to 64 basis points for the three months ended March 31, 2016.

Net Interest Income. Net interest income increased $256,000, or 14.4%, to $2.0 million for the three months ended March 31, 2017 from $1.8 million for the three months ended March 31, 2016. Average interest-earning assets were $220.8 million for the three months ended March 31, 2017 and $217.2 million for the three months ended March 31, 2016, while the average yield was 4.20% and 3.78% for the respective periods. Our net interest spread increased 40 basis points for the three months ended March 31, 2017 to 3.54% from 3.14% for the three months ended March 31, 2016. Our

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net interest margin increased 41 basis points to 3.69% for the three months ended March 31, 2017 from 3.28% for the three months ended March 31, 2016. The ratio of average interest-earning assets to average interest-bearing liabilities increased 210 basis points to 129.8% for the three months ended March 31, 2017 from 127.7% for the three months ended March 31, 2016.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. Based on our evaluation of these factors, we recorded a provision for loan losses of $61,000 and $2,000 for the three months ended March 31, 2017 and 2016, respectively. The provision for loan losses for the three months ended March 31, 2017 and 2016 was primarily a result of loan growth. The allowance for loan losses was $3.3 million, or 1.5% of loans outstanding at March 31, 2017 compared to $2.8 million, or 1.5% of loans outstanding at March 31, 2016. The non-performing assets to total assets ratio at March 31, 2017 and 2016 was 1.1%. The level of the allowance is based on estimates and the ultimate losses may vary from estimates.

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may request to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of March 31, 2017 was maintained at a level that represents management’s best estimate of inherent losses in the loan portfolio, such losses were both probable and reasonably estimable.

Non-Interest Income. Non-interest income decreased $32,000, or 5.9% to $512,000 for the three months ended March 31, 2017 from $544,000 for the three months ended March 31, 2016. We realized a decrease in revenue from the gain on sale of loans and other loan fees. Gain on sale of loans decreased $48,000, or 31.6%, to $104,000 for the three months ended March 31, 2017 from $152,000 for the three months ended March 31, 2016. Other loan fees decreased $9,000, or 13.4%, to $58,000 for the three months ended March 31, 2017 from $67,000 for the three months ended March 31, 2016. These decreases were offset by increases in brokerage fee income and other income. Brokerage fee income increased $14,000, or 9.5%, to $161,000 for the three months ended March 31, 2017 from $147,000 for the three months ended March 31, 2016. Other income increased $10,000, or 34.5%, to $39,000 for the three months ended March 31, 2017 from $29,000 for the three months ended March 31, 2016.

Non-Interest Expense. Total non-interest expense increased $148,000, or 7.7%, to $2.1 million for the three months ended March 31, 2017 from $1.9 million for the three months ended March 13, 2016. Increases were realized in salaries and employee benefits, occupancy and equipment, and supplies, telephone, and postage. Salaries and employee benefits increased $132,000, or 12.1%, to $1.2 million for the three months ended March 31, 2017 from $1.1 million for the three months ended March 31, 2016. Occupancy and equipment increased $22,000, or 9.8%, to $247,000 for the three months ended March 31, 2017 from $225,000 for the three months ended March 31, 2016. Supplies, telephone, and postage increased $8,000, or 11.9%, to $75,000 for the three months ended March 31, 2017 from $67,000 for the three months ended March 31, 2016. These increases were offset by decreases in regulatory fees and deposit insurance premium and professional fees. Regulatory fees and deposit insurance premiums decreased $10,000, or 18.9%, to $43,000 for the three months ended March 31, 2017 from $53,000 for the three months ended March 31, 2016. Professional fees decreased $18,000, or 25.3%, to $53,000 for the three months ended March 31, 2017 from $71,000 for the three months ended March 31, 2016.

Income Tax Expense. For the three months ended March 31, 2017, income tax expense was $139,000 compared to $155,000 for the three months ended March 31, 2016. The effective tax rate for the three months March 31, 2017 was 33.6% compared to 39.0% for the three months ended March 31, 2016.

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Comparison of Operating Results for the Nine Months Ended March 31, 2017 and 2016

General. Net income for the nine months ended March 31, 2017 was $850,000. This represents an increase of $110,000, or 14.9%, from net income of $740,000 for the nine months ended March 31, 2016.

Interest Income. Total interest income for the nine months ended March 31, 2017 increased $546,000, or 8.7%, to $6.8 million for the nine months ended March 31, 2017 from $6.2 million for the nine months ended March 31, 2016. This increase was attributable to an increase in loan interest income offset in part by a decrease in other interest income.

Interest income from loans increased $611,000, or 10.0%, to $6.7 million for the nine months ended March 31, 2017 from $6.1 million for the same period in 2016. The increase in interest income from loans was due primarily to an increase of $24.8 million in average loan balances. Average loan balances were $210.8 million for the nine months ended March 31, 2017 compared to $186.0 million for the nine months ended March 31, 2016. The increase in our average loan balance was primarily due to increased loan demand, primarily attributable to improved economic conditions in our market areas and growth in commercial loans originated in all branches. The average yield on loans decreased 13 basis points to 4.26% during the nine months ended March 31, 2017 from 4.39% for the nine months ended March 31, 2016.

Other interest income decreased $66,000, or 55.0%, to $54,000 for the nine months ended March 31, 2017 from $120,000 for the nine months ended March 31, 2016. This decrease was primarily due to a decrease in average balances of interest-earning deposits and securities. The yield realized on securities and interest-earning deposits also decreased.

Interest Expense. Interest expense increased $37,000, or 4.8%, to $815,000 for the nine months ended March 31, 2017 from $778,000 for the nine months ended March 31, 2016. This increase was due to an increase in interest expense on deposit accounts from increased average balances. Average balances for the nine months ended March 31, 2017 were $166.3 million compared to $160.8 million for the nine months ended March 31, 2016.

Net Interest Income. Net interest income increased $508,000, or 9.3%, to $6.0 million for the nine months ended March 31, 2017 from $5.5 million for the nine months ended March 31, 2016. Average interest-earning assets were $216.9 million for the nine months ended March 31, 2017 and $207.2 million for the nine months ended March 31, 2016, while the average yield was 4.18% and 4.02% for the respective periods. Our net interest spread increased 14 basis points for the nine months ended March 31, 2017 to 3.52% from 3.38% for the nine months ended March 31, 2016. Our net interest margin increased 15 basis point to 3.67% for the nine months ended March 31, 2017 from 3.52% for the nine months ended March 31, 2016. The ratio of average interest-earning assets to average interest-bearing liabilities increased 160 basis points to 130.4% for the nine months ended March 31, 2017 from 128.8% for the nine months ended March 31, 2016.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. Based on our evaluation of these factors, we recorded a provision for loan losses of $383,000 and $159,000 for the nine months ended March 31, 2017 and 2016, respectively. The provision for loan losses for the nine months ended March 31, 2017 and 2016 was primarily a result of loan growth. The allowance for loan losses was $3.3 million, or 1.5% of loans outstanding at March 31, 2017 compared to $2.8 million, or 1.5% of loans outstanding at March 31, 2016. The non-performing assets to total assets ratio at March 31, 2017 and 2016 was 1.1%. The level of the allowance is based on estimates and the ultimate losses may vary from estimates.

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Non-Interest Income. Non-interest income increased $157,000, or 8.9% to $1.9 million for the nine months ended March 31, 2017 from $1.8 million for the nine months March 31, 2016. Increases were recorded in service charges on deposit accounts of $34,000, brokerage fee income of $85,000 and gain on sale of loans of $30,000. These increases were related to increased activity.

Non-Interest Expense. Total non-interest expense increased $192,000, or 3.2%, to $6.2 million for the nine months ended March 31, 2017 from $6.0 million for the nine months ended March 31, 2016. Salaries and employee benefits increased $181,000, data processing fees increased $33,000, occupancy and equipment increased $74,000, and other expense increased $35,000. Offsetting these increases was a decrease in regulatory fees and deposit insurance premiums of $27,000, advertising and public relations of $19,000 and professional fees of $88,000.

Income Tax Expense. For the nine months ended March 31, 2017 income tax expense was $489,000 compared to $350,000 for the nine months ended March 31, 2016. The effective tax rate for the nine months ended March 31, 2016 was 36.5% compared to 32.1% for the nine months ended March 31, 2016. During the nine months ended March 31, 2016 a reversal of an income tax valuation allowance was recorded for $79,000. This caused a decrease in the effective tax rate. There was no such entry during the nine months ended March 31, 2017.

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Analysis of Net Interest Income

The following table sets forth average balance sheets, average yields and costs and certain other information for the periods indicated. No tax equivalent adjustments were made. All average balances are monthly average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.


	For the Three Months Ended March 31,
	2017					2016
	Average		Interest			Average		Interest
	Outstanding		Earned/			Outstanding		Earned/
	Balance		Paid		Yield/Cost	Balance		Paid		Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits in other financial institutions	$	1,594	$	5	1.25%	$	28,211	$	31	0.44%
Securities		2,193		13	2.37%		1,551		9	2.32%
Loans receivable		216,760		2,301	4.25%		187,206		2,012	4.30%
FHLB common stock		231		1	1.73%		229		1	1.75%
Total interest-earning assets		220,778		2,320	4.20%		217,197		2,053	3.78%
Total noninterest-earning assets		14,376					13,989
Total assets	$	235,154				$	231,186

Interest-bearing liabilities:
Savings accounts	$	16,197	$	10	0.25%	$	15,299	$	9	0.24%
NOW accounts		47,147		46	0.39%		45,970		44	0.38%
Money market accounts		64,477		124	0.77%		63,394		110	0.69%
Certificates of deposit		41,668		101	0.97%		45,455		109	0.96%
Total deposits		169,489		281	0.66%		170,118		272	0.64%
Federal funds purchased		510		1	0.00%		—		—	0.00%
FHLB advances		100		1	0.00%		—		—	0.00%
Total interest-bearing liabilities		170,099		283	0.67%		170,118		272	0.64%
Noninterest-bearing demand deposits - checking accounts		27,356					23,746
Other liabilities		1,834					1,776
Total liabilities		199,289					195,640

Stockholders' equity		35,865					35,546
Total liabilities and stockholders' equity	$	235,154				$	231,186

Net interest income			$	2,037				$	1,781
Net interest rate spread					3.54%					3.14%
Net interest-earning assets	$	50,679				$	47,079
Net interest margin					3.69%					3.28%
Average interest-earning assets to average interest-bearing liabilities					129.79%					127.67%

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	For the Nine Months Ended March 31,
	2017					2016
	Average		Interest			Average		Interest
	Outstanding		Earned/			Outstanding		Earned/
	Balance		Paid		Yield/Cost	Balance		Paid		Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits in other financial institutions	$	4,012		22	0.73%	$	18,348	$	49	0.36%
Securities		1,843		30	2.17%		2,582		68	3.51%
Loans receivable		210,773		6,737	4.26%		185,994		6,126	4.39%
FHLB common stock		231		2	1.15%		228		3	1.75%
Total interest-earning assets		216,859		6,791	4.18%		207,152		6,246	4.02%
Total noninterest-earning assets		14,024					14,018
Total assets	$	230,883				$	221,170

Interest-bearing liabilities:
Savings accounts	$	15,501	$	28	0.24%	$	14,133	$	25	0.24%
NOW accounts		44,135		128	0.39%		43,042		127	0.39%
Money market accounts		63,983		354	0.74%		57,732		296	0.68%
Certificates of deposit		41,953		303	0.96%		45,918		329	0.96%
Total deposits		165,572		813	0.65%		160,825		777	0.64%
Federal funds purchased		504		1	0.26%		—		—	—
Other Borrowings		—		—	0.00%		—		1	—
FHLB advances		256		1	0.52%		—		—	—
Total interest-bearing liabilities		166,332		815	0.65%		160,825		778	0.65%
Noninterest-bearing demand deposits - checking accounts		26,709					22,670
Other liabilities		1,753					5,359
Total liabilities		194,794					188,854

Stockholders' equity		36,089					32,316
Total liabilities and stockholders' equity	$	230,883				$	221,170

Net interest income			$	5,976				$	5,468
Net interest rate spread					3.52%					3.38%
Net interest-earning assets	$	50,527				$	46,327
Net interest margin					3.67%					3.52%
Average interest-earning assets to average interest-bearing liabilities					130.38%					128.81%

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Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.


	Three Months Ended						Nine Months Ended
	March 31, 2017 vs. 2016						March 31, 2017 vs. 2016
	Increase (Decrease)				Total		Increase (Decrease)				Total
	Due to				Increase		Due to				Increase
	Volume		Rate		(Decrease)		Volume		Rate		(Decrease)
	(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits in other financial institutions	$	(49)	$	23	$	(26)	$	(55)	$	28	$	(27)
Securities		4		—		4		(16)		(22)		(38)
FHLB Stock		—		—		—		—		(1)		(1)
Loans receivable		313		(24)		289		796		(185)		611
Total interest-earning assets		268		(1)		267		725		(180)		545

Interest-bearing liabilities:
Savings accounts		—		1		1		3		—		3
NOW accounts		1		1		2		1		—		1
Money market accounts		2		12		14		32		26		58
Certificates of deposit		(9)		1		(8)		(26)		—		(26)
Total deposits		(6)		15		9		10		26		36
Federal funds purchased and securities sold under repurchase agreements		1		—		1		1		—		1
Other Borrowings		—		—		—		(1)		—		(1)
FHLB advances		1		—		1		1		—		1
Total interest-bearing liabilities		(4)		15		11		11		26		37

Change in net interest income	$	272	$	(16)	$	256	$	714	$	(206)	$	508

Liquidity and Capital Resources

We maintain liquid assets at levels we consider adequate to meet our liquidity needs. Liquid assets, which include cash and cash equivalents and securities available-for-sale, totaled $8.8 million, or 3.7% of total assets at March 31, 2017, as compared to $15.6 million, or 6.9% of total assets, at June 30, 2016. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on mortgage loans, repay our borrowings and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.

Our primary sources of liquidity are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning investments and other assets, which provide liquidity to meet lending requirements. Short-term interest-earning deposits with the FHLB of Topeka and Midwest Independent Bank amounted to $2.7 million at March 31, 2017 and $12.4 million at June 30, 2016.

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A significant portion of our liquidity consists of securities classified as available-for-sale and cash and cash equivalents, which are a product of our operating, investing and financing activities. Our primary sources of cash are net income, principal repayments on loans and mortgage-backed securities, and increases in deposit accounts, along with advances from the FHLB of Topeka.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB which provides an additional source of funds.

Our cash flows are comprised of three classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $1.8 million for the nine months ended March 31, 2017 and net cash used by operating activities was $1.5 million for the nine months ended March 31, 2016. Net cash used by investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from sales, calls, and maturities of securities and proceeds from the pay downs on mortgage-backed securities, was $24.3 million and $7.0 million for the nine months ended March 31, 2017 and 2016, respectively. The Company purchased $985,000 and $469,000 of securities classified as available-for-sale during the nine months ended March 31, 2017 and 2016, respectively. For the nine months ended March 31, 2017 and 2016, net cash provided by financing activities was $15.0 million and $18.3 million, respectively.

Off-Balance-Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with 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, unused lines of credit and standby letters of credit.

For the nine months ended March 31, 2017, we did not engage in any off-balance sheet transactions, other than loan origination commitments, unused lines of credit and standby letters of credit in the normal course of our lending activities.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements that are applicable to the Company, please see Note 3 of the notes to the Company’s consolidated financial statements, beginning on page 9.

Effect of Inflation and Changing Prices

The unaudited consolidated financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company’s performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, because such prices are affected by inflation to a larger extent than interest rates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

This item is not applicable because we are a smaller reporting company.

Item 4. Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective. In addition, there have been no changes in the Company’s internal control over financial reporting during

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the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

At March 31, 2017, there were no material legal proceedings to which the Company is a party or of which any of its property is subject. From time to time, the Company is a party to various legal proceedings incident to its business.

Item 1A. Risk Factors.

This item is not applicable because we are a smaller reporting company.

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

(a)

Not applicable.

(b)

Not applicable.

(c) The following table sets forth information concerning purchases made by the Company of its common stock for each month in the quarter end March 31, 2017:


				Total Number of
				Shares Purchased	Maximum Number of
			Weighted	as Part of Publicly	Shares that May Yet Be
	Total Number of	Average Price		Announced Plans	Purchased Under the
Period	Shares Purchased	Paid Per Share		or Programs	Plans or Programs
01/1/17 - 01/31/17	—		—	86,455	87,402
02/1/17 - 02/28/17	—		—	86,455	87,402
03/1/17 - 03/31/17	22,200		10.25	108,655	65,202
Total	22,200	$	10.25

The Company announced a stock repurchase plan on October 7, 2016 whereby the Company can repurchase up to 173,857 shares of its common stock, or approximately 5% of the then current outstanding shares.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Table of Contents

Item 6. Exhibits.

	2.1	Plan of Conversion and Reorganization (Incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)

	3.1	Articles of Incorporation of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, file no. 001-37489, filed on September 23, 2015)

	3.2	Bylaws of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, file no. 001-37489, filed on September 23, 2015)

	4	Form of Common Stock Certificate of Equitable Financial Corp. (Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015, as amended)

	10.3	Equitable Financial Corp. 2016 Equity Incentive Plan (Incorporated by reference to Appendix A to the Company’s definitive proxy statement on Schedule 14A for the Company’s Annual Meeting of Stockholders, file no. 001-37489, filed on October 7, 2016)

	10.4	Form of Restricted Stock Award Agreement (Employee)

	10.5	Form of Restricted Stock Award Agreement (Outside Director)

	10.6	Form of Stock Option Award Agreement (Employee)

	10.7	Form of Stock Option Award Agreement (Outside Director)

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

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

	32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

Table of Contents

SIGNATU RES

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

	EQUITABLE FINANCIAL CORP.

Dated: May 12, 2017	By:	/s/ Thomas E. Gdowski
		Thomas E. Gdowski
		President and CEO


Dated: May 12, 2017	By:	/s/ Darcy M. Ray
		Darcy M. Ray
		CFO

Table of Contents

EXHIBIT INDEX

Exhibit Number		Description
2.1		Plan of Conversion and Reorganization (Incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)

3.1		Articles of Incorporation of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, file no. 001-37489 filed on September 23, 2015)

3.2		Bylaws of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, file no. 001-37489 filed on September 23, 2015)

4		Form of Common Stock Certificate of Equitable Financial Corp. (Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015, as amended)

10.3		Equitable Financial Corp. 2016 Equity Incentive Plan (Incorporated by reference to Appendix A to the Company’s definitive proxy statement on Schedule 14A for the Company’s Annual Meeting of Stockholders, file no. 001-37489, filed on October 7, 2016)

10.4		Form of Restricted Stock Award Agreement (Employee)

10.5		Form of Restricted Stock Award Agreement (Outside Director)

10.6		Form of Stock Option Award Agreement (Employee)

10.7		Form of Stock Option Award Agreement (Outside Director)

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

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

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

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