Equitable Financial (EQFN) 10-Q 2016 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015

oTRANSITION 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 x No o

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

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	x

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

Shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding as of November 12, 2015 were:  3,477,328.

EQUITABLE FINANCIAL CORP.

FORM 10-Q

INDEX

		Page
Part I.  Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	36
Part II.  Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
Signatures		38

1

PART I – FINANCIAL INFORMATION

Item 1.           Financial Statements

Equitable Financial Corp. and Subsidiary

Consolidated Balance Sheets

	(Unaudited)
	September 30, 2015			June 30, 2015
Assets
Cash and due from financial institutions	$	3,300,118		$	3,037,653
Interest-earning deposits	6,982,000			18,475,000
	10,282,118			21,512,653
Time deposits with financial institutions	500,000			500,000
Securities available-for-sale	856,963			420,248
Securities held-to-maturity	3,231,585			3,276,752
Federal Home Loan Bank stock, at cost	227,600			226,800
Loans, net of allowance for loan losses of $2,684,000 and $2,583,000, respectively	185,921,589			178,423,486
Premises and equipment, net	5,476,928			5,551,790
Foreclosed assets, net	336,979			349,708
Accrued interest receivable	1,402,776			1,044,271
Deferred taxes, net	1,753,373			1,765,189
Other assets	1,657,353			1,958,816
Total assets	$	211,647,264		$	215,029,713
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing deposits	$	21,670,607		$	21,779,092
Interest-bearing deposits	153,093,550			152,989,829
	174,764,157			174,768,921
Advance payments from borrowers for taxes and insurance	204,268			404,467
Accrued interest payable and other liabilities	1,054,644			18,408,315
Total liabilities	176,023,069			193,581,703
Common stock in ESOP subject to contingent repurchase obligation	508,218			516,800
Stockholders’ equity:
Common stock, $0.01 par value, 25,000,000 and 14,000,000 shares authorized, 3,477,328 and 3,297,509 shares issued at September 30, 2015 and June 30, 2015, respectively	34,773			32,975
Additional paid-in capital	26,901,316			13,086,447
Retained earnings	10,460,133			10,185,155
Unearned ESOP shares	(1,337,952		)	(408,750		)
Shares reserved for stock compensation	(433,393		)	(465,080		)
Treasury stock at cost; 114,505 shares at June 30, 2015	-			(978,682		)
Accumulated other comprehensive loss, net of tax	(682		)	(4,055		)
Reclassification of ESOP shares	(508,218		)	(516,800		)
Total stockholders’ equity	35,115,977			20,931,210
Total liabilities and stockholders’ equity	$	211,647,264		$	215,029,713

See Notes to Consolidated Financial Statements.

2

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Income

(Unaudited)

	For the three months ended
	September 30, 2015			September 30, 2014
Interest income:
Loans	$	2,078,223		$	1,786,274
Securities	39,959			53,811
Other	6,795			252
Total interest income	2,124,977			1,840,337
Interest expense:
Deposits	247,486			209,945
Federal Home Loan Bank borrowings	-			61,112
Other	235			-
Total interest expense	247,721			271,057
Net interest income	1,877,256			1,569,280
Provision for loan losses	72,944			146,899
Net interest income after provision for loan losses	1,804,312			1,422,381
Noninterest income:
Service charges on deposit accounts	147,379			154,015
Brokerage fee income	157,185			127,304
Gain on sale of loans	216,199			211,032
Other loan fees	67,495			62,607
Other income	24,502			16,131
Total noninterest income	612,760			571,089
Noninterest expense:
Salaries and employee benefits	1,191,699			1,105,503
Director and committee fees	42,458			32,950
Data processing fees	127,519			73,331
Occupancy and equipment	219,318			225,974
Regulatory fees and deposit insurance premium	51,639			45,657
Advertising and public relations	62,078			39,212
Insurance and surety bond premiums	27,852			23,531
Professional fees	175,297			84,262
Supplies, telephone and postage	67,228			66,996
Other expenses	138,013			129,822
Total noninterest expense	2,103,101			1,827,238
Income before income taxes	313,971			166,232
Income tax expense	(38,993		)	(59,962		)
Net income	$	274,978		$	106,270
Basic earnings per share	$	0.08		$	0.03
Diluted earnings per share	$	0.08		$	0.03

See Notes to Consolidated Financial Statements.

3

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the three months ended
	September 30, 2015		September 30, 2014
Net income	$	274,978	$	106,270
Other comprehensive income:
Unrealized gain (loss) on securities available-for-sale, net of tax	3,373		(2,668		)
Comprehensive income	$	278,351	$	103,602

See Notes to Consolidated Financial Statements.

4

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the three months ended September 30, 2015

(Unaudited)

											Shares						Accumulated			Amount
			Additional					Unearned			Reserved for						Other			Reclassified
	Common		Paid-in			Retained		ESOP			Stock			Treasury			Comprehensive			on ESOP
	Stock		Capital			Earnings		Shares			Compensation			Stock			(Loss)			Shares			Total
Balance, June 30, 2015	$	32,975	$	13,086,447		$	10,185,155	$	(408,750	)	$	(465,080	)	$	(978,682	)	$	(4,055	)	$	(516,800	)	$	20,931,210
Net Income	-		-			274,978		-			-			-			-			-			274,978
Other comprehensive income	-		-			-		-			-			-			3,373			-			3,373
Stock Offering Proceeds	1,798		13,820,591			-		(951,912		)	-			978,682			-			-			13,849,159
Release of 2,477 unearned ESOP shares	-		(4,012		)	-		22,710			-			-			-			-			18,698
Stock compensation expense	-		(1,710		)	-		-			31,687			-			-			-			29,977
Reclassification due to release and changes in fair value of common stock in ESOP subject to contingent repurchase obligation of ESOP shares	-		-			-		-			-			-			-			8,582			8,582
Balance, September 30, 2015	$	34,773	$	26,901,316		$	10,460,133	$	(1,337,952	)	$	(433,393	)	$	-		$	(682	)	$	(508,218	)	$	35,115,977

See Notes to Consolidated Financial Statements.

5

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

	For the three months ended
	September 30, 2015			September 30, 2014
Cash Flows from Operating Activities:
Net income	$	274,978		$	106,270
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	86,209			72,240
Federal Home Loan Bank stock dividends	(800		)	(6,100		)
ESOP expense	18,698			12,233
Stock compensation expense	29,977			15,912
Amortization of deferred loan origination costs, net	108,598			126,128
Amortization of premiums and discounts	3,358			4,341
Amortization of prepayment penalty fee	-			51,153
Gain on sale of loans	(216,199		)	(211,032		)
Loss on sale of foreclosed assets	9,728			2,819
Loss on disposal of premises and equipment	2,961			-
Provision for loan losses	72,944			146,899
Deferred taxes	10,077			51,579
Loans originated for sale	(8,767,121		)	(6,719,680		)
Proceeds from sale of loans	8,236,582			6,946,159
Loss on investment in partnership	13,500			-
Changes in:
Accrued interest receivable	(358,505		)	(372,429		)
Other assets	360,182			(107,235		)
Accrued interest payable and other liabilities	(12,722		)	(139,295		)
Net cash used in operating activities	(127,555		)	(20,038		)
Cash Flows from Investing Activities:
Net change in loans	(6,989,826		)	(4,995,667		)
Proceeds from sale of foreclosed assets, net	3,000			59,681
Securities available-for-sale:
Proceeds from calls and principal repayments	34,935			94,603
Purchases	(469,253		)	-
Securities held-to-maturity:
Proceeds from calls and principal repayments	44,523			66,560
Redemption of Federal Home Loan Bank stock	-			5,300
Purchases of Federal Home Loan Bank stock	-			(13,500		)
Purchase of premises and equipment	(14,308		)	(124,459		)
Net cash used in investing activities	(7,390,929		)	(4,907,482		)
Cash Flows from Financing Activities:
Net change in deposits	(4,764		)	2,458,064
Proceeds from Federal Home Loan Bank borrowings	-			1,410,000
Net change in advance payments from borrowers for taxes and insurance	(200,199		)	(175,927		)
Purchase of ESOP Shares	(951,912		)	-
Expenses and return of proceeds in advance of offering	(2,555,176		)	-
Net cash (used in) provided by financing activities	(3,712,051		)	3,692,137
Decrease in cash and cash equivalents	(11,230,535		)	(1,235,383		)
Cash and Cash Equivalents:
Beginning	21,512,653			7,776,305
Ending	$	10,282,118		$	6,540,922
Supplemental Cash Flow Information:
Interest paid on deposits and borrowings	$	248,014		$	269,605
Income taxes paid	$	115,156		$	93,491

See Notes to Consolidated Financial Statements.

6

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, 2015.  The consolidated balance sheet of the Company as of June 30, 2015, 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, 2015.

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.

The cost of conversion and the stock offering were deferred and deducted from the proceeds of the offering.  Conversion costs incurred for the stock offering were $1,096,303.

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 August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers.  ASU 2015-14 is intended to provide a robust framework for addressing revenue recognition guidance related to contractual rights and obligations.  ASU 2015-14 is effective for annual periods beginning after December 15, 2017 and is not expected to have a material impact on the Company’s consolidated financial statements.

7

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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
September 30, 2015	Cost		Gains		Losses			Fair Value
Residential mortgage-backed securities	$	857,996	$	-	$	(1,033	)	$	856,963
			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2015	Cost		Gains		Losses			Fair Value
Residential mortgage-backed securities	$	426,392	$	-	$	(6,144	)	$	420,248

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
September 30, 2015	Cost		Gains		Losses		Fair Value
Residential mortgage-backed securities	$	214,836	$	16,245	$	-	231,081
Municipal securities	3,016,749		4,983		-		3,021,732
	$	3,231,585	$	21,228	$	-	$	3,252,813
			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2015	Cost		Gains		Losses		Fair Value
Residential mortgage-backed securities	$	259,481	$	18,101	$	-	$	277,582
Municipal securities	3,017,271		3,239		-		3,020,510
	$	3,276,752	$	21,340	$	-	$	3,298,092

Securities available-for-sale and held-to-maturity consist of investments in bonds securitized by the Government National Mortgage Association and local municipal securities.

The contractual maturities of the residential mortgage-backed securities at September 30, 2015 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.  In addition; the Company has received notification that approximately $2.4 million in municipal securities will be called in November 2015.

There were no sales of securities for the three months ended September 30, 2015 and 2014.

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 three months ended September 30, 2015 and 2014.

8

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

·    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

9

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

Loans are as follows:

	September 30, 2015			June 30, 2015
Commercial:
Operating	$	15,289,194		$	14,967,289
Real estate	57,100,223			56,609,106
Agricultural:
Operating	27,984,157			27,229,622
Real estate	22,311,393			21,048,555
Residential real estate:
1-4 family	41,895,928			40,892,433
Home equity	12,188,803			10,760,935
Other:
Construction and land	7,957,557			5,844,461
Consumer	3,325,997			3,092,798
Total loans	188,053,252			180,445,199
Deferred loan origination costs, net	552,337			561,287
Allowance for loan losses	(2,684,000		)	(2,583,000		)
	(2,131,663		)	(2,021,713		)
Loans, net	$	185,921,589		$	178,423,486

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.

10

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

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 September 30, 2015
Balance, beginning	$	1,124,000		$	697,000	$	644,000	$	118,000		$	2,583,000
Provision charged to expense	(9,352		)	29,000		24,541		28,755			72,944
Recoveries	25,352			-		459		3,392			29,203
Loans charged off	-			-		-		(1,147		)	(1,147		)
Balance, ending	$	1,140,000		$	726,000	$	669,000	$	149,000		$	2,684,000

							Residential
	Commercial			Agricultural			Real Estate		Other			Total
	For the three months ended September 30, 2014
Balance, beginning	$	1,237,000		$	646,000		$	586,000	$	105,000		$	2,574,000
Provision charged to expense	127,939			(11,000		)	19,589		10,371			$	146,899
Recoveries	1,122			-			12,411		100			$	13,633
Loans charged off	(50,061		)	-			-		(1,471		)	$	(51,532	)
Balance, ending	$	1,316,000		$	635,000		$	618,000	$	114,000		$	2,683,000

For commercial loans and agricultural 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 and agricultural 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.

11

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

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 and other 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
	September 30, 2015
Allowance for loans individually evaluated for impairment	$	5,422	$	-	$	19,949	$	-	$	25,371
Allowance for loans collectively evaluated for impairment	1,134,578		726,000		649,051		149,000		2,658,629
	$	1,140,000	$	726,000	$	669,000	$	149,000	$	2,684,000
Loans individually evaluated for impairment	$	527,122	$	483,879	$	3,883,369	$	6,684	$	4,901,054
Loans collectively evaluated for impairment	71,862,295		49,811,671		50,201,362		11,276,870		183,152,198
	$	72,389,417	$	50,295,550	$	54,084,731	$	11,283,554	$	188,053,252

					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	June 30, 2015
Allowance for loans individually evaluated for impairment	$	5,617	$	-	$	19,949	$	-	$	25,566
Allowance for loans collectively evaluated for impairment	1,118,383		697,000		624,051		118,000		2,557,434
	$	1,124,000	$	697,000	$	644,000	$	118,000	$	2,583,000
Loans individually evaluated for impairment	$	549,983	$	482,442	$	3,802,074	$	7,678	$	4,842,177
Loans collectively evaluated for impairment	71,026,412		47,795,735		47,851,294		8,929,581		175,603,022
	$	71,576,395	$	48,278,177	$	51,653,368	$	8,937,259	$	180,445,199

12

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

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.

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, and

·Prospects for future principal and interest payments are not in doubt.

13

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

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				Nonaccrual
	Current		Past Due		Past Due		(Nonaccrual)		Total		Loans
	September 30, 2015
Classes of loans:
Commercial:
Operating	$	15,289,194	$	-	$	-	$	-	$	15,289,194	$	285,631
Real estate	56,623,758		255,867		-		220,598		57,100,223		220,598
Agricultural:
Operating	27,965,353		18,804		-		-		27,984,157		9,035
Real estate	22,311,393		-		-		-		22,311,393		474,845
Residential real estate:
1-4 family	41,513,287		44,200		-		338,441		41,895,928		483,022
Home equity	12,140,119		13,846		-		34,838		12,188,803		34,838
Other:
Construction and land	7,957,557		-		-		-		7,957,557		-
Consumer	3,309,331		8,537		-		8,129		3,325,997		13,622
	$	187,109,992	$	341,254	$	-	$	602,006	$	188,053,252	$	1,521,591

							> 90 days
			31-60 days		61-90 days		Past Due				Nonaccrual
	Current		Past Due		Past Due		(Nonaccrual)		Total		Loans
	June 30, 2015
Classes of loans:
Commercial:
Operating	$	14,933,071	$	34,218	$	-	$	-	$	14,967,289	$	426,808
Real estate	56,415,655		193,451		-		-		56,609,106		235,844
Agricultural:
Operating	27,229,622		-		-		-		27,229,622		-
Real estate	21,033,555		15,000		-		-		21,048,555		-
Residential real estate:
1-4 family	39,866,787		1,024,437		1,209		-		40,892,433		487,345
Home equity	10,726,023		19,949		14,963		-		10,760,935		20,885
Other:
Construction and land	5,844,461		-		-		-		5,844,461		-
Consumer	3,062,373		30,425		-		-		3,092,798		7,960
	$	179,111,547	$	1,317,480	$	16,172	$	-	$	180,445,199	$	1,178,842

14

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

For commercial and agriculture 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. 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.

15

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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.

For commercial and agricultural 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:

	Commercial		Commercial		Agricultural		Agricultural
	– Operating		– Real Estate		– Operating		– Real Estate		Total
	September 30, 2015
Internally assigned risk rating:
Highest Quality (rating 1)	$	-	$	-	$	512,515	$	190,000	$	702,515
Good Quality (rating 2)	270,123		1,773,315		10,679,587		5,314,819		18,037,844
Acceptable Quality (rating 3)	8,048,829		33,470,930		9,505,515		10,091,234		61,116,508
Fair Quality (rating 4)	6,636,572		20,086,904		7,084,006		6,240,495		40,047,977
Special Mention (rating 5)	-		-		-		-		-
Substandard (rating 6)	333,670		1,769,074		202,534		474,845		2,780,123
Doubtful (rating 7)	-		-		-		-		-
Loss (rating 8)	-		-		-		-		-
	$	15,289,194	$	57,100,223	$	27,984,157	$	22,311,393	$	122,684,967

	Commercial		Commercial		Agricultural		Agricultural
	– Operating		– Real Estate		– Operating		– Real Estate		Total
	June 30, 2015
Internally assigned risk rating:
Highest Quality (rating 1)	$	-	$	-	$	257,515	$	190,000	$	447,515
Good Quality (rating 2)	333,434		4,913,937		10,029,448		5,089,523		20,366,342
Acceptable Quality (rating 3)	8,409,732		30,494,389		9,089,993		9,542,877		57,536,991
Fair Quality (rating 4)	5,880,641		19,404,832		7,622,340		5,754,038		38,661,851
Special Mention (rating 5)	-		-		-		-		-
Substandard (rating 6)	343,482		1,795,948		230,326		472,117		2,841,873
Doubtful (rating 7)	-		-		-		-		-
Loss (rating 8)	-		-		-		-		-
	$	14,967,289	$	56,609,106	$	27,229,622	$	21,048,555	$	119,854,572

16

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

	Residential RE		Residential RE		Other – Construction		Other –
	– 1-4 Family		– Home Equity		and Land		Consumer		Total
	September 30, 2015
Delinquency status*:
Performing	$	41,412,906	$	12,140,120	$	7,957,557	$	3,303,839	$	64,814,422
Nonperforming	483,022		48,683		-		22,158		553,863
	$	41,895,928	$	12,188,803	$	7,957,557	$	3,325,997	$	65,368,285

	Residential RE		Residential RE		Other – Construction		Other –
	– 1-4 Family		– Home Equity		and Land		Consumer		Total
	June 30, 2015
Delinquency status*:
Performing	$	39,488,822	$	10,726,024	$	5,844,461	$	3,056,267	$	59,115,574
Nonperforming	1,403,611		34,911		-		36,531		1,475,053
	$	40,892,433	$	10,760,935	$	5,844,461	$	3,092,798	$	60,590,627

*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 September 30, 2015 and June 30, 2014, the Company had no loans greater than 90 days past due and still accruing.

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

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

17

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

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

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	September 30, 2015
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	253,878	$	252,299	$	-
Real estate	232,529		220,598		-
Agricultural:
Operating	9,051		9,035		-
Real estate	489,418		474,844		-
Residential real estate:
1-4 family	3,813,684		3,801,329		-
Home equity	62,286		62,091		-
Other:
Consumer	7,176		6,684		-
	4,868,022		4,826,880		-
Impaired loans with specific allowance recorded:
Commercial:
Operating	54,295		54,225		5,422
Residential real estate:
Home equity	20,141		19,949		19,949
	74,436		74,174		25,371
Total impaired loans:
Commercial:
Operating	308,173		306,524		5,422
Real estate	232,529		220,598		-
Agricultural:
Operating	9,051		9,035		-
Real estate	489,418		474,844		-
Residential real estate:
1-4 family	3,813,684		3,801,329		-
Home equity	82,427		82,040		19,949
Other:
Consumer	7,176		6,684		-
	$	4,942,458	$	4,901,054	$	25,371

18

Note 5.           Loans (Continued)

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
			June 30, 2015
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	274,833	$	273,212	$	-
Real estate	228,889		220,598		-
Agricultural:
Operating	10,344		10,326		-
Real estate	480,879		472,116		-
Residential real estate:
1-4 family	3,730,154		3,718,852		-
Home equity	63,575		63,273		-
Other:
Consumer	8,138		7,678		-
	4,796,812		4,766,055		-
Impaired loans with specific allowance recorded:
Commercial:
Operating	56,246		56,173		5,617
Residential real estate:
Home equity	20,060		19,949		19,949
	76,306		76,122		25,566
Total impaired loans:
Commercial:
Operating	331,079		329,385		5,617
Real estate	228,889		220,598		-
Agricultural:
Operating	10,344		10,326		-
Real estate	480,879		472,116		-
Residential real estate:
1-4 family	3,730,154		3,718,852		-
Home equity	83,635		83,222		19,949
Other:
Consumer	8,138		7,678		-
	$	4,873,118	$	4,842,177	$	25,566

Impaired loans, for which no allowance has been provided as of September 30, 2015 and June 30, 2015, have adequate collateral, based on management’s current estimates.

19

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 5.Loans (Continued)

	For the three months ended
	September 30, 2015				September 30, 2014
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	269,275	$	3,807	$	53,082	$	972
Real estate	230,709		-		242,803		4,337
Agricultural:
Operating	9,697		125		-		-
Real estate	485,148		1,179		-		-
Residential real estate:
1-4 family	3,793,213		49,292		3,077,058		36,468
Home equity	62,931		1,109		67,021		1,063
Other:
Consumer	7,657		106		11,437		166
	4,858,630		55,618		3,451,401		43,006
Impaired loans with specific allowance recorded:
Commercial:
Operating	55,271		1,225		420,055		641
Residential real estate:
1-4 family	-		-		1,070,959		14,847
Home equity	20,100		645		21,243		390
	75,371		1,870		1,512,257		15,878
Total impaired loans:
Commercial:
Operating	324,546		5,032		473,137		1,613
Real estate	230,709		-		242,803		4,337
Agricultural:
Operating	9,697		125		-		-
Real estate	485,148		1,179		-		-
Residential real estate:
1-4 family	3,793,213		49,292		4,148,017		51,315
Home equity	83,031		1,754		88,264		1,453
Other:
Consumer	7,657		106		11,437		166
	$	4,934,001	$	57,488	$	4,963,658	$	58,884

The Company’s troubled debt restructuring as of September 30, 2015 and June 30, 2015 were not material to the consolidated financial statements.

20

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 6.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 September 30, 2015, that the Bank meets all capital adequacy requirements to which it is subject.

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
September 30, 2015
Total capital (to risk-weighted assets)	$	27,241	14.7	%	$	14,851	8.0	%	$	18,563	10.0	%
Common equity Tier 1 capital (to risk- weighted assets)	24,909		13.4	%	8,353		4.5	%	12,066		6.5	%
Tier 1 (core) capital (to risk-weighted assets)	24,909		13.4	%	11,138		6.0	%	14,851		8.0	%
Tier 1 (core) capital (to adjusted total assets)	24,909		11.8	%	8,436		4.0	%	10,045		5.0	%
June 30, 2015
Total capital (to risk-weighted assets)	$	20,626	11.5	%	$	14,306	8.0	%	$	17,882	10.0	%
Common equity Tier 1 capital (to risk- weighted assets)	18,379		10.3	%	8,047		4.5	%	11,624		6.5	%
Tier 1 (core) capital (to risk-weighted assets)	18,379		10.3	%	10,729		6.0	%	14,306		8.0	%
Tier 1 (core) capital (to adjusted total assets)	18,379		9.1	%	8,056		4.0	%	10,070		5.0	%

21

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 6.Regulatory Matters (Continued)

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.  The final rules took effect for community banks on January 1, 2015, subject to a transition period for certain parts of the rules.

Note 7.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 $27,955 and $24,184 for the three months ended September 30, 2015 and 2014.

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.

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 of approximately $145,000 are to be made by the ESOP prior to the calendar year December 31, 2015.

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 $18,698 and $12,233 for the three months ended September 30, 2015 and 2014, respectively.

22

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 7.Employee Benefit Plan (Continued)

Shares held by the ESOP were as follows:

	September 30, 2015		June 30, 2015
Allocated shares	66,032		61,249
Unearned ESOP shares	168,543		45,417
Total ESOP shares	234,575		106,666
Fair value of unearned ESOP shares	$	1,385,423	$	411,024
Fair value of allocated shares subject to repurchase obligation	$	508,218	$	516,800

The Company approved the Equitable Financial Corp. 2006 Equity Incentive Plan in November 2006.  Under this plan, the Company may award up to 161,577 stock options and 64,631 shares of restricted stock to employees and directors.

Note 8.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 three months ended September 30, 2015 and 2014:

	September 30, 2015		September 30, 2014
Weighted average common shares outstanding	3,259,902		3,068,991
Net income available to common stockholders	$	274,978	$	106,270
Basic earnings per share	$	0.08	$	0.03

The following table presents a reconciliation of the components used to compute diluted earnings per share for the three months and ended September 30, 2015 and 2014:

	September 30, 2015		September 30, 2014
Weighted average common shares outstanding	3,259,902		3,068,991
Weighted average of net additional shares from restricted stock awards	23,676		13,204
Weighted average number of shares outstanding	3,283,578		3,082,195
Net income available to common stockholders	$	274,978	$	106,270
Diluted earnings per share	$	0.08	$	0.03

23

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 9.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 three months ended September 30, 2015, nor were there any changes in valuation techniques used for assets or liabilities measured at fair value at September 30, 2015.

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.

24

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 9.Fair Value Measurements (Continued)

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 and June 30, 2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	Fair Value Measurement at September 30, 2015 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	$	856,963	$	-	$	856,963	$	-

	Fair Value Measurement at June 30, 2015 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	$	420,248	$	-	$	420,248	$	-

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 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 competables 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.

25

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 9.Fair Value Measurements (Continued)

At September 30, 2015 and June 30, 2015 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.

Time deposits with financial institutions – The fair value of fixed rate time deposits is estimated by discounting the future cash flows using the current rates for the same remaining maturities.  The fair value of variable rate time deposits approximates carrying 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 and securities sold under agreements to repurchase – For federal funds purchased and securities sold under agreements to repurchase, the carrying value approximates fair value.

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.

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.

26

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 9.Fair Value Measurements (Continued)

The estimated fair value of financial instruments is as follows:

	Fair Value	Carrying		Estimated
September 30, 2015	Hierarchy Level	Amount		Fair Value
Financial assets:
Cash and due from financial institutions	Level 1	$	10,282,118	$	10,282,000
Time deposits with financial institutions	Level 2	500,000		500,000
Securities available-for-sale	See previous table	856,963		857,000
Securities held-to-maturity	Level 2	3,231,585		3,253,000
Federal Home Loan Bank stock	Level 1	227,600		228,000
Loans, net	Level 2	185,921,589		185,995,000
Accrued interest receivable	Level 1	1,402,776		1,403,000
Financial liabilities:
Noninterest-bearing deposits	Level 2	21,670,607		21,671,000
Interest-bearing deposits	Level 2	153,093,550		151,767,000
Accrued interest payable and other liabilities	Level 1	1,054,644		1,055,000

	Fair Value	Carrying		Estimated
June 30, 2015	Hierarchy Level	Amount		Fair Value
Financial assets:
Cash and due from financial institutions	Level 1	$	21,512,653	$	21,513,000
Time deposits with financial institutions	Level 2	500,000		500,000
Securities available-for-sale	See previous table	420,248		420,000
Securities held-to-maturity	Level 2	3,276,752		3,298,000
Federal Home Loan Bank stock	Level 1	226,800		227,000
Loans, net	Level 2	178,423,486		178,458,000
Accrued interest receivable	Level 1	1,765,189		1,765,000
Financial liabilities:
Noninterest-bearing deposits	Level 2	21,779,092		21,779,000
Interest-bearing deposits	Level 2	152,989,829		151,248,000
Accrued interest payable and other liabilities	Level 1	18,408,315		18,408,000

Note 10.Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) components were as follows:

	September 30, 2015		June 30, 2015
Unrealized holding gains (losses) on securities available-for-sale	$	(1,033)	$	(6,144)
Tax benefit	351		2,089
	$	(682)	$	(4,055)

27

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 11.         Income Taxes

	Three months ended
	September 30, 2015			September 30, 2014
Provision computed at the statutory federal tax rate	$	(106,750	)	$		(56,519	)
State income taxes, net of federal tax	(11,986		)	(5,532			)
Release of unearned EOSP shares and stock awards	1,946			29,894
Nondeductible expenses	(1,990		)	(1,304			)
Valuation allowance adjustment	79,000			-
Return-to-provision, net	-			$	(21,617		)
Other	787			(4,884			)
	$	(38,993	)	$		(59,962	)

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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 September 30, 2015 and for the three months ended September 30, 2015 and 2014 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;

·Significant increases in our loan losses; and

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·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 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

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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.

Comparison of Financial Condition at September 30, 2015 and June 30, 2015

Assets.  Total assets at September 30, 2015 were $211.6 million, a decrease of $3.4 million, or 1.6%, from $215.0 million at June 30, 2015.  The decrease was primarily due to a decrease in federal funds sold and interest-bearing deposits, partially offset by increases in securities and net loans.  Federal funds sold and interest-bearing deposits decreased $11.2 million, or 52.2%, to $10.3 million at September 30, 2015 from $21.5 million at June 30, 2015.  This reduction was due to the increase in net loans, purchase of a security, and cash distributed to potential stockholders for over subscription on stock offering.  Securities increased $392,000, or 10.6%, to $4.1 million at September 30, 2015 from $3.7 million at June 30, 2015.  This increase was a result of purchasing one security classified as available-for-sale.  Net loans increased $7.5 million, or 4.2%, to $185.9 million at September 30, 2015 from $178.4 million at June 30, 2015.  The Company experience

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loan growth in all three market areas. Foreclosed assets decreased $13,000, or 3.6%, to $337,000 at September 30, 2015 from $350,000 at June 30, 2015.  This decrease was a result of selling items on hand.

Nonperforming Assets and Allowance for Loan Losses.  We had non-performing assets of $1.9 million, or 0.9% of total assets as of September 30, 2015 and $1.8 million, or 0.9% of total assets as of June 30, 2015.  The allowance for loan losses totaled $2.7 million at September 30, 2015 and $2.6 million at June 30, 2015.  This represents a ratio of the allowance for loan losses to gross loans receivable of 1.4% at September 30, 2015 and 1.4% at June 30, 2015.  The allowance for loan losses to non-performing loans was 142.1% at September 30, 2015 and 175.6% at June 30, 2015.  This change is a result of the allowance balance increasing more than the non-performing assets.

Deposits. Total deposits decreased $5,000, or 0.0%, to $174.8 million at September 30, 2015 from $174.8 million at June 30, 2015.  The decrease in deposits was a result of reduced balances in demand, NOW, and certificates of deposit, offset by increases in money market and savings.  Demand deposits decreased $108,000, or 0.5%, to $21.7 million at September 30, 2015 from $21.8 million at June 30, 2015.  NOW accounts decreased $993,000, or 2.4%, to $40.2 million at September 30, 2015 from $41.2 million at June 30, 2015.  Certificates of deposit decreased $1.4 million, or 2.9%, to $46.0 million at September 30, 2015 from $47.4 million at June 30, 2015.  Money market accounts increased $2.2 million, or 4.3%, to $53.5 million at September 30, 2015 from $51.3 million at June 30, 2015.  Savings accounts increased $230,000, or 1.8%, to $13.3 million at September 30, 2015 from $13.1 million at June 30, 2015.

Stockholders’ Equity. Total stockholder’s equity increased $10.2 million, or 4.9%, to $35.1 million at September 30, 2015 from $21.0 million at June 30, 2015.  This increase was a result of the stock offering and net income of $275,000.

Comparison of Operating Results for the Three Months Ended September 30, 2015 and 2014

General. Net income for the three months ended September 30, 2015 was $275,000.  This represented an increase of $169,000, or 158.8%, from net income of $106,000 for the three months ended September 30, 2014.

Interest Income. Total interest income for the three months ended September 30, 2015 increased $285,000, or 15.5%, to $2.1 million, from $1.8 million for the three months ended September 30, 2014.  The increase in interest income was due to increases in loans and interest-bearing bank balances.

Interest income from loans increased $292,000, or 16.3%, to $2.1 million for the three months ended September 30, 2015 from $1.8 million for the same period in 2014.  The increase in interest income from loans was due primarily to an increase of $21.9 million in average loan balances.  Average loan balances were $183.6 for the three months ended September 30, 2015 compared to $161.7 million for the three months ended September 30, 2014.  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 by our Omaha branch.  The average yield on loans increased 11 basis points to 4.53% during the three months ended September 30, 2015 from 4.42% for the three months ended September 30, 2014.

Interest income from interest-bearing balances increased $4,000, or 100.0%, to $8,000 for the three months ended September 30, 2015 from $4,000 for the three months ended September 30, 2014.  This increase was due to an increase in average balances.

Interest income from securities and FHLB Stock decreased $11,000, or 22.0%, $39,000 for the three months ended September 30, 2015 from $50,000 for the three months ended September 30, 2014.  The cause for these decreases is primarily a reduction in average balances.

Interest Expense.   Interest expense decreased $23,000, or 8.5%, to $248,000 for the three months ended September 30, 2015 from $271,000 for the three months ended September 30, 2014.  Interest expense on deposits increased $38,000, or 18.1%, to $248,000 for the three months ended September 30, 2015 from $210,000 for the three months ended September 30, 2014.  This increase is primarily due to increased average balances.  Average balances for the three months ended September 30, 2015 was $153.1 million compared to $130.9 million for the three months ended September 30, 2014.  Interest expense on FHLB advances decreased $60,000, or 100.0%, to nothing for the three months ended September 30, 2015 compared to $60,000 for the three months ended September 30, 2014.  This was a result of no FHLB advances outstanding during the three months ended September 30, 2015.

Net Interest Income. Net interest income increased $308,000, or 19.6%, to $1.9 million for the three months ended September 30, 2015 from $1.6 million for the three months ended September 30, 2014.  Average interest-earning assets were

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$197.5 million for the three months ended September 30, 2015 and $168.9 million for the three months ended September 30, 2014, while the average yield was 4.30% and 4.36% for the respective periods.  Our net interest spread increased 5 basis points to 3.65% for the three months ended September 30, 2015 compared to 3.60% for the three months ended September 30, 2014.  Our net interest margin also increased 8 basis points to 3.80% for the three months ended September 30, 2015 from 3.72% for the three months ended September 30, 2014.  The ratio of average interest-earning assets to average interest-bearing liabilities increased 1,115 basis points to 129.0% for the three months ended September 30, 2015 from 117.9% for the three months ended September 30, 2014.

Provision for Loan Losses.   We establish provisions for loan losses, which are charged to operations, at a level management believes is appropriates 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, estimate 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 $73,000 for the three months ended September 30, 2015 and a provision of $147,000 for the three months ended September 30, 2014.  The provision for loan losses for the three months ended September 30, 2015 and 2014 was a result of loan growth.  The allowance for loan losses was $2.7 million, or 1.4% of loans outstanding at September 30, 2015 compared to 1.6% of loans outstanding at September 30, 2014.  The non-performing assets to total assets ratio at September 30, 2015 was 0.9% as compared to 0.8% at September 30, 2014.  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 September 30, 2015 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 increased $42,000, or 7.4%, to $613,000 for the three months ended September 30, 2015 from $571,000 for the three months September 30, 2014.  The Company experienced increases in brokerage fee income, gain on sale of loans, other loan fees and other income.  Offsetting these increases was a decrease in service charges on deposit accounts.  Brokerage fee income increased $30,000, or 2.4%, to $157,000 for the three months ended September 30, 2015 from $127,000 for the three months ended September 30, 2014.  Gain on sale of loans increased $5,000, or 2.3%, to $216,000 for the three months ended September 30, 2015 from $211,000 for the three months ended September 30, 2014.  Other loan fees increased $4,000, or 6.3%, to $67,000 for the three months ended September 30, 2015 from $63,000 for the three months September 30, 2014.  Other income increased $9,000, or 56.3%, to $25,000 for the three months ended September 30, 2015 from $16,000 for the three months ended September 30, 2014.  Service charges on deposit accounts decreased $7,000, or 4.5%, to $147,000 for the three months ended September 30, 2015 from $154,000 for the three months ended September 30, 2014.

Non-Interest Expense Non-interest expense increased $276,000, or 15.1%, to $2.1 million for the three months ended September 30, 2015 from $1.8 million for the three months ended September 30, 2014.  This increase is primarily due to increases in salaries and employee benefits, data processing fees, advertising and public relations, and professional fees.  Salaries and employee benefits increased $86,000, or 7.8%, to $1.2 million for the three months ended September 30, 2015 from $1.1 million for the three months ended September 30, 2014.  This increase was due to customary raises and increased benefits costs for existing personnel and bonuses tied to bank performance.  Data processing fees increased $55,000, or 75.3%, to $128,000 for the three months ended September 30, 2015 from $73,000 for the three months ended September 30, 2014.  Advertising and public relations increased $23,000, or 59.0%, to $62,000 for the three months ended September 30, 2015 to $39,000 for the three months ended September 30, 2014.  Professional fees increased $91,000, or 108.3%, to $175,000 for the three months ended September 30, 2015 from $84,000 for the three months ended September 30, 2014.  This increase is related to additional fees required for public reporting companies.

Income Tax Expense. For the three months ended September 30, 2015, income tax expense was $39,000 compared to $60,000 for the three months ended September 30, 2014.  Income tax expense for the current period increased due to increased pretax operating profit; however this increase was offset by reversing an income tax valuation allowance.  This valuation allowance was reversed based on the calculation of estimated of deferred income tax.

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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.

	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	$	9,855	$	8	0.32%	$	2,184	$	4	0.73%
Securities	3,798		38		4.00%	4,410		44		3.99%
Loans receivable	183,634		2,078		4.53%	161,724		1,786		4.42%
FHLB common stock	227		1		1.76%	555		6		4.32%
Total interest-earning assets	197,514		2,125		4.30%	168,873		1,840		4.36%
Total noninterest-earning assets	14,120					15,559
Total assets	$	211,634				$	184,432
Interest-bearing liabilities:
Savings accounts	$	13,185	$	8	0.24%	$	12,171	$	8	0.26%
NOW accounts	40,638		39		0.38%	34,741		30		0.35%
Money market accounts	52,440		89		0.68%	39,672		56		0.56%
Certificates of deposit	46,847		112		0.96%	44,279		116		1.05%
Total deposits	153,110		248		0.65%	130,863		210		0.64%
Federal funds purchased and securities sold under repurchase agreements	-		-		0.00%	1,632		1		0.25%
FHLB advances	-		-		0.00%	10,802		60		2.22%
Total interest-bearing liabilities	153,110		248		0.65%	143,297		271		0.76%
Noninterest-bearing demand deposits - checking accounts	20,121					19,019
Other liabilities	12,616					2,059
Total liabilities	185,847					164,375
Stockholders’ equity	25,787					20,057
Total liabilities and stockholders’ equity	$	211,634				$	184,432
Net interest income			$	1,877				$	1,569
Net interest rate spread					3.65%					3.60%
Net interest-earning assets	$	44,404				$	25,576
Net interest margin					3.80%					3.72%
Average interest-earning assets to average interest-bearing liabilities					129.00%					117.85%

34

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.

	September 30, 2015									September 30, 2014
	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	$	7		$	(3	)	$	4		$	(11	)	$	1		$	(10	)
Securities	(6		)	-			(6		)	19			11			30
Federal funds sold	-			-			-			(1		)	-			(1		)
FHLB Stock	(3		)	(2		)	(5		)	(6		)	6			-
Loans receivable	247			45			292			338			(352		)	(14		)
Total interest-earning assets	245			40			285			339			(334		)	5
Interest-bearing liabilities:
Savings accounts	1			(1		)	-			2			1			3
NOW accounts	5			4			9			6			-			6
Money market accounts	21			12			33			7			3			10
Certificates of deposit	6			(10		)	(4		)	4			(3		)	1
Federal funds purchased and securities sold under repurchase agreements	(1		)	-			(1		)	1			(3		)	(2		)
FHLB advances	(60		)	-			(60		)	1			(1		)	-
Total interest-bearing liabilities	(28		)	5			(23		)	21			(3		)	18
Change in net interest income	$	273		$	35		$	308		$	318		$	(331	)	$	(13	)

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, interest-earning time deposits with other financial institutions and securities available-for-sale, totaled $11.6 million, or 5.3% of total assets at September 30, 2015, as compared to $22.4 million, or 10.2% of total assets, at June 30, 2015.   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 $7.0 million at September 30, 2015 and $18.5 million at June 30, 2015.

35

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 Federal Home Loan Bank of Topeka 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 used by operating activity was $128,000 and $20,000 for the three months ended September 30, 2015 and 2014, respectively.  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 $7.4 million and $4.9 million for the three months ended September 30, 2015 and 2014, respectively.  During the three months ended September 30, 2015 the Company purchased $469,000 of securities classified as available-for-sale.  During the three months ended September 30, 2014 there were no securities purchased or sold.  Net cash provided and used by financing activities, consisted primarily of deposit account activity and costs associated with the stock offering.  For the three months ended September 30, 2015 net cash used by financing activities was $3.7 million.  For the three months ended September 30, 2014 net cash provided by financing activities was $3.7 million.

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 information about or loan commitments, letters of credit, unused lines of credit and standby letters of credit, see note 14 of the notes to the Company’s unaudited consolidated financial statements.

For the three months ended September 30 2015, 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 7.

Effect of Inflation and Changing Prices

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 the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

36

PART II – OTHER INFORMATION

Item 1.Legal Proceedings.

At September 30, 2015, 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.

None.

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

None.

Item 6.Exhibits.

2.1Plan 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)

3.1Articles of Incorporation of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)

3.2Bylaws of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)

4Form 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)

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

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

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

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

101The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated 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.

37

SIGNATURES

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

	EQUITABLE FINANCIAL CORP.
Dated: November 12, 2015	By:	/s/ Thomas E. Gdowski
		Thomas E. Gdowski
		President and CEO
Dated: November 12, 2015	By:	/s/ Darcy M. Ray
		Darcy M. Ray
		Vice President of Finance and Controller

38

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 Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)
3.2	Bylaws of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 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)
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 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 September 30, 2015, 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.