Equitable Financial (EQFN) 10-Q 2016 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2016
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________________ to ____________________

Commission File No. 333-202707

Equitable Financial Corp.

(Exact name of registrant as specified in its charter)

Maryland	32-0467709
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
113 North Locust Street
Grand Island, NE	68801
(Address of principal executive offices)	(Zip Code)

(308) 382-3136

(Registrant’s telephone number, including area code)

N/A

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒

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

Shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding as of May 12, 2016 were:  3,477,328.

EQUITABLE FINANCIAL CORP.

FORM 10-Q

INDEX

		Page
Part I.  Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	38
Part II.  Other Information
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	39
Signatures		40

2

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

Equitable Financial Corp. and Subsidiary

Consolidated Balance Sheets

	(Unaudited)
	March 31, 2016		June 30, 2015
Assets
Cash and due from financial institutions	$	3,542,510	$	3,037,653
Interest-earning deposits		27,758,000		18,475,000
		31,300,510		21,512,653
Time deposits with financial institutions		—		500,000
Securities available-for-sale		735,352		420,248
Securities held-to-maturity		793,348		3,276,752
Federal Home Loan Bank stock, at cost		229,200		226,800
Loans, net of allowance for loan losses of $2,813,000 and $2,583,000, respectively		191,062,539		178,423,486
Premises and equipment, net		5,339,678		5,551,790
Foreclosed assets, net		223,200		349,708
Accrued interest receivable		1,126,335		1,044,271
Deferred taxes, net		1,517,972		1,765,189
Other assets		2,125,500		1,958,816
Total assets	$	234,453,634	$	215,029,713
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing deposits	$	23,218,187	$	21,779,092
Interest-bearing deposits		173,355,354		152,989,829
		196,573,541		174,768,921
Advance payments from borrowers for taxes and insurance		455,205		404,467
Accrued interest payable and other liabilities		1,250,279		18,408,315
Total liabilities		198,279,025		193,581,703
Common stock in ESOP subject to contingent repurchase obligation		594,429		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 March 31, 2016 and June 30, 2015, respectively		34,773		32,975
Additional paid-in capital		26,863,774		13,086,447
Retained earnings		10,924,751		10,185,155
Unearned ESOP shares		(1,280,647)		(408,750)
Shares reserved for stock compensation		(370,018)		(465,080)
Treasury stock at cost; 114,505 shares at June 30, 2015		—		(978,682)
Accumulated other comprehensive income (loss), net of tax		1,976		(4,055)
Reclassification of ESOP shares		(594,429)		(516,800)
Total stockholders’ equity		35,580,180		20,931,210
Total liabilities and stockholders’ equity	$	234,453,634	$	215,029,713

See Notes to Consolidated Financial Statements.

3

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Income

(Unaudited)

	For the three months ended				For the nine months ended
	March 31, 2016		March 31, 2015		March 31, 2016		March 31, 2015
Interest income:
Loans	$	2,012,359	$	1,783,244	$	6,125,911	$	5,375,096
Securities		9,797		44,785		70,763		149,350
Other		30,788		9,013		49,387		14,749
Total interest income		2,052,944		1,837,042		6,246,061		5,539,195
Interest expense:
Deposits		271,490		244,525		777,262		685,483
Federal Home Loan Bank borrowings		—		118,557		—		240,669
Other		186		279		630		279
Total interest expense		271,676		363,361		777,892		926,431
Net interest income		1,781,268		1,473,681		5,468,169		4,612,764
Provision for loan losses		2,023		(857,717)		159,368		(710,837)
Net interest income after provision for loan losses		1,779,245		2,331,398		5,308,801		5,323,601
Noninterest income:
Service charges on deposit accounts		149,571		128,908		435,027		427,605
Brokerage fee income		147,257		153,505		460,795		426,337
Gain on sale of loans		151,618		71,276		564,680		487,516
Other loan fees		66,672		59,488		206,240		187,577
Other income		29,119		20,926		102,403		69,722
Total noninterest income		544,237		434,103		1,769,145		1,598,757
Noninterest expense:
Salaries and employee benefits		1,093,182		1,040,508		3,356,930		3,201,451
Director and committee fees		39,192		33,150		120,242		99,100
Data processing fees		142,544		125,191		399,921		200,988
Occupancy and equipment		224,508		226,665		656,208		678,711
Regulatory fees and deposit insurance premium		52,926		52,279		152,689		143,063
Advertising and public relations		56,639		69,124		172,392		154,829
Insurance and surety bond premiums		23,642		22,521		75,406		68,913
Professional fees		71,329		12,743		398,963		140,666
Supplies, telephone and postage		67,173		55,474		203,138		186,677
Other expenses		154,852		108,724		452,433		390,685
Total noninterest expense		1,925,987		1,746,379		5,988,322		5,265,083
Income before income taxes		397,495		1,019,122		1,089,624		1,657,275
Income tax expense		(155,001)		(403,995)		(350,028)		(540,221)
Net income	$	242,494	$	615,127	$	739,596	$	1,117,054
Basic earnings per share	$	0.07	$	0.20	$	0.23	$	0.36
Diluted earnings per share	$	0.07	$	0.20	$	0.23	$	0.36

See Notes to Consolidated Financial Statements.

4

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the three months ended				For the nine months ended
	March 31, 2016		March 31, 2015		March 31, 2016		March 31, 2015
Net income	$	242,494	$	615,127	$	739,596	$	1,117,054
Other comprehensive income:
Unrealized gain on securities available-for-sale, net of tax		4,086		1,941		6,031		2,639
Comprehensive income	$	246,580	$	617,068	$	745,627	$	1,119,693

See Notes to Consolidated Financial Statements.

5

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the nine months ended March 31, 2016

(Unaudited)

									Shares				Accumulated		Amount
									Reserved for				Other		Reclassified
	Common		Additional		Retained		Unearned		Stock		Treasury		Comprehensive		on ESOP
	Stock		Paid-in Capital		Earnings		ESOP Shares		Compensation		Stock		Income/(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		—		—		739,596		—		—		—		—		—		739,596
Other comprehensive income		—		—		—		—		—		—		6,031		—		6,031
Stock Offering Proceeds		1,798		13,820,591		—		(951,912)		—		978,682		—		—		13,849,159
Release of 8,922 unearned ESOP shares		—		(7,318)		—		80,015		—		—		—		—		72,697
Stock compensation expense		—		(35,946)		—		—		95,062		—		—		—		59,116
Reclassification due to release and changes in fair value of common stock in ESOP subject to contingent repurchase obligation of ESOP shares		—		—		—		—		—		—		—		(77,629)		(77,629)
Balance, March 31, 2016	$	34,773	$	26,863,774	$	10,924,751	$	(1,280,647)	$	(370,018)	$	—	$	1,976	$	(594,429)	$	35,580,180

See Notes to Consolidated Financial Statements.

6

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

	For the nine months ended
	March 31, 2016		March 31, 2015
Cash Flows from Operating Activities:
Net income	$	739,596	$	1,117,054
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		260,212		235,976
Federal Home Loan Bank stock dividends		(2,400)		(15,800)
ESOP expense		72,697		39,462
Stock compensation expense		59,116		93,294
Amortization of deferred loan origination costs, net		345,516		350,492
Amortization of premiums and discounts		12,114		12,879
Amortization of prepayment penalty fee		—		216,208
Gain on sale of loans		(564,680)		(487,516)
Loss on sale of foreclosed assets		11,008		2,914
Loss on disposal of premises and equipment		50,293		—
Provision for loan losses		159,368		(710,837)
Provisions for repurchase reserve		—		17,062
Provision for foreclosed assets		—		—
Deferred taxes		244,109		453,262
Loans originated for sale		(21,413,781)		(18,541,664)
Proceeds from sale of loans		18,410,861		18,894,713
Loss on investment in partnership		28,500		22,500
Changes in:
Accrued interest receivable		(82,064)		(71,739)
Other assets		(12,260)		(870,518)
Accrued interest payable and other liabilities		170,328		272,785
Net cash provided/(used) by operating activities		(1,511,467)		1,030,527
Cash Flows from Investing Activities:
Net change in loans		(9,731,377)		(7,055,424)
Proceeds from sale of foreclosed assets, net		115,500		59,681
Proceeds from maturity of time deposits with financial institutions		500,000		750,000
Securities available-for-sale:
Proceeds from calls and principal repayments		153,027		328,560
Purchases		(469,253)		—
Securities held-to-maturity:
Proceeds from calls and principal repayments		2,481,550		253,845
Redemption of Federal Home Loan Bank stock		—		353,000
Purchases of Federal Home Loan Bank stock		—		(13,500)
Purchase of premises and equipment		(98,393)		(320,896)
Net cash used in investing activities		(7,048,946)		(5,644,734)

(Continued)

7

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	For the nine months ended
	March 31, 2016		March 31, 2015
Cash Flows from Financing Activities:
Net change in deposits	$	21,804,620	$	27,951,306
Proceeds from Federal Home Loan Bank borrowings		—		1,410,000
Repayments of Federal Home Loan Bank borrowings		—		(12,394,023)
Net change in advance payments from borrowers for taxes and insurance		50,738		105,502
Purchase of ESOP Shares		(951,912)		—
Expenses and return of proceeds in advance of offering		(2,555,176)		—
Net cash provided by financing activities		18,348,270		17,072,785
Increase in cash and cash equivalents		9,787,857		12,458,578
Cash and Cash Equivalents:
Beginning		21,512,653		7,776,305
Ending	$	31,300,510	$	20,234,883
Supplemental Cash Flow Information:
Interest paid on deposits and borrowings	$	768,607	$	922,960
Income taxes paid	$	145,156	$	112,222

See Notes to Consolidated Financial Statements.

8

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 February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-02, Amendments to the Consolidation Analysis.  ASU 2015-02 is intended to improve the reporting of consolidated companies.  This Update is effective for fiscal years, and interim periods within those fiscal years beginning

9

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

after December 15, 2015.  This ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities.  The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  The amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  This ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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

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

Note 4.Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2016	Cost		Gains		Losses		Fair Value
Residential mortgage-backed securities	$	732,358	$	3,684	$	(690)	$	735,352

			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
March 31, 2016	Cost		Gains		Losses		Fair Value
Residential mortgage-backed securities	$	191,121	$	15,274	$	—	$	206,395
Municipal securities		602,227		2,911		—		605,138
	$	793,348	$	18,185	$	—	$	811,533

10

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

			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 March 31, 2016 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.

There were no sales of securities for the nine months ended March 31, 2016 and 2015.

The duration of gross unrealized losses is not disclosed as such amounts are immaterial to the consolidated financial statements. The Company has not recognized other-than-temporary impairment on any securities for the nine months ended March 31, 2016 and 2015.

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

11

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Loans are as follows:

	March 31, 2016		June 30, 2015
Commercial:
Operating	$	15,183,650	$	14,967,289
Real estate		61,410,628		56,609,106
Agricultural:
Operating		24,316,248		27,229,622
Real estate		24,615,461		21,048,555
Residential real estate:
1-4 family		42,044,845		40,892,433
Home equity		11,908,715		10,760,935
Other:
Construction and land		10,683,024		5,844,461
Consumer		3,118,304		3,092,798
Total loans		193,280,875		180,445,199
Deferred loan origination costs, net		594,664		561,287
Allowance for loan losses		(2,813,000)		(2,583,000)
		(2,218,336)		(2,021,713)
Loans, net	$	191,062,539	$	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.

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

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

					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	For the three months ended March 31, 2015
Balance, beginning	$	1,016,000	$	647,000	$	623,000	$	117,000	$	2,403,000
Provision charged to expense		42,938		(58,000)		18,548		(861,203)		(857,717)
Recoveries		17,062		—		452		855,854		873,368
Loans charged off		—		—		—		(4,651)		(4,651)
Balance, ending	$	1,076,000	$	589,000	$	642,000	$	107,000	$	2,414,000

12

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	For the nine months ended March 31, 2015
Balance, beginning	$	1,237,000	$	646,000	$	586,000	$	105,000	$	2,574,000
Provision charged to expense		224,463		(57,000)		42,767		(921,067)		(710,837)
Recoveries		20,118		—		13,233		931,930		965,281
Loans charged off		(405,581)		—		—		(8,863)		(414,444)
Balance, ending	$	1,076,000	$	589,000	$	642,000	$	107,000	$	2,414,000

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.

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.

13

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	March 31, 2016
Allowance for loans individually evaluated for impairment	$	34,340	$	9,243	$	18,228	$	—	$	61,811
Allowance for loans collectively evaluated for impairment		1,177,660		750,757		646,772		176,000		2,751,189
	$	1,212,000	$	760,000	$	665,000	$	176,000	$	2,813,000
Loans individually evaluated for impairment	$	548,773	$	1,128,219	$	4,023,086	$	6,464	$	5,706,542
Loans collectively evaluated for impairment		76,045,505		47,803,490		49,930,474		13,794,864		187,574,333
	$	76,594,278	$	48,931,709	$	53,953,560	$	13,801,328	$	193,280,875

					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

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

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

14

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

							> 90 days
			31-60 days		61-90 days		Past Due				Non accrual
	Current		Past Due		Past Due		(Nonaccrual)		Total		Loans
	March 31, 2016
Classes of loans:
Commercial:
Operating	$	15,155,334	$	—	$	28,316	$	—	$	15,183,650	$	103,596
Real estate		61,009,503		—		—		401,125		61,410,628		401,125
Agricultural:
Operating		24,316,248		—		—		—		24,316,248		190,416
Real estate		24,615,461		—		—		—		24,615,461		937,803
Residential real estate:
1-4 family		41,630,778		33,915		44,596		335,556		42,044,845		665,286
Home equity		11,908,715		—		—		—		11,908,715		30,789
Other:
Construction and land		10,683,024		—		—		—		10,683,024		—
Consumer		3,116,896		1,408		—		—		3,118,304		8,233
	$	192,435,959	$	35,323	$	72,912	$	736,681	$	193,280,875	$	2,337,248

							> 90 days
			31-60 days		61-90 days		Past Due					Non accrual
	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

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.

15

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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

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

Substandard (rating 6) -- Loans and other credit extensions are considered to be inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. These loans, even if apparently protected by collateral value, have a well-defined weakness or weaknesses that jeopardize the liquidation of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

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

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

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.

16

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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
	March 31, 2016
Internally assigned risk rating:
Highest Quality (rating 1)	$	—	$	—	$	544,156	$	200,250	$	744,406
Good Quality (rating 2)		233,977		2,309,722		6,934,766		6,028,868		15,507,333
Acceptable Quality (rating 3)		7,357,408		35,109,895		6,185,375		10,705,686		59,358,364
Fair Quality (rating 4)		7,461,919		22,262,295		8,625,713		6,742,854		45,092,781
Special Mention (rating 5)		—		—		1,835,822		—		1,835,822
Substandard (rating 6)		130,346		1,728,716		190,416		937,803		2,987,281
Doubtful (rating 7)		—		—		—		—		—
Loss (rating 8)		—		—		—		—		—
	$	15,183,650	$	61,410,628	$	24,316,248	$	24,615,461	$	125,525,987

	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

	Residential RE —		Residential RE —		Other — Construction		Other —
	1-4 Family		Home Equity		and Land		Consumer		Total
	March 31, 2016
Delinquency status*:
Performing	$	41,345,644	$	11,877,926	$	10,683,024	$	3,108,662	$	67,015,256
Nonperforming		699,201		30,789		—		9,642		739,632
	$	42,044,845	$	11,908,715	$	10,683,024	$	3,118,304	$	67,754,888

	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 March 31, 2016 and June 30, 2015, 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 an as needed basis depending on the specific circumstances of the loan.

17

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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.

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

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	March 31, 2016
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	91,378	$	89,451	$	—
Real estate		191,140		180,528		—
Agricultural:
Operating		6,417		6,416		—
Real estate		970,652		937,803		—
Residential real estate:
1-4 family		3,618,996		3,609,412		—
Home equity		60,038		59,891		—
Other:
Consumer		7,072		6,464		—
		4,945,693		4,889,965		—
Impaired loans with specific allowance recorded:
Commercial:
Operating		58,298		58,196		5,270
Real estate		239,762		220,598		29,070
Agricultural:
Operating		189,507		184,000		9,243
Residential real estate:
1-4 family		344,733		335,555		17,289
Home equity		18,382		18,228		939
		850,682		816,577		61,811
Total impaired loans:
Commercial:
Operating		149,676		147,647		5,270
Real estate		430,902		401,126		29,070
Agricultural:
Operating		195,924		190,416		9,243
Real estate		970,652		937,803		—
Residential real estate:
1-4 family		3,963,729		3,944,967		17,289
Home equity		78,420		78,119		939
Other:
Consumer		7,072		6,464		—
	$	5,796,375	$	5,706,542	$	61,811

18

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

			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

19

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Impaired loans, for which no allowance has been provided as of March 31, 2016 and June 30, 2015, have adequate collateral, based on management’s current estimates.

	For the three months ended
	March 31, 2016				March 31, 2015
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	71,908	$	585	$	295,395	$	4,064
Real estate		187,474		—		235,246		3,162
Agricultural:
Operating		7,079		105		12,254		154
Real estate		970,207		1,669		391,141		13,315
Residential real estate:
1-4 family		3,624,633		45,273		3,799,634		58,108
Home equity		60,648		1,000		65,151		1,099
Other:
Consumer		8,592		134		9,685		138
		4,930,541		48,766		4,808,506		80,040
Impaired loans with specific allowance recorded:
Commercial:
Operating		60,747		705		59,144		630
Real estate		237,966		—		—		—
Agricultural:
Operating		198,658		—		—		—
Residential real estate:
1-4 family		345,848		4,634		70,848		—
Home equity		19,339		525		20,619		381
		862,558		5,864		150,611		1,011
Total impaired loans:
Commercial:
Operating		132,655		1,290		354,539		4,694
Real estate		425,440		—		235,246		3,162
Agricultural:
Operating		205,737		105		12,254		154
Real estate		970,207		1,669		391,141		13,315
Residential real estate:
1-4 family		3,970,481		49,907		3,870,482		58,108
Home equity		79,987		1,525		85,770		1,480
Other:
Consumer		8,592		134		9,685		138
	$	5,793,099	$	54,630	$	4,959,117	$	81,051

20

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	For the nine months ended
	March 31, 2016				March 31, 2015
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	53,766	$	2,030	$	313,206	$	13,121
Real estate		187,636		2,331		236,802		11,005
Agricultural:
Operating		8,380		339		13,490		515
Real estate		856,736		15,902		388,916		15,700
Residential real estate:
1-4 family		3,628,569		153,553		3,843,756		156,154
Home equity		61,807		3,093		66,004		3,150
Other:
Consumer		9,831		399		10,489		455
		4,806,725		177,647		4,872,663		200,100
Impaired loans with specific allowance recorded:
Commercial:
Operating		62,616		2,856		60,738		2,287
Real estate		234,325		—		—		—
Agricultural:
Operating		203,386		14,843		—		—
Residential real estate:
1-4 family		343,496		7,739		69,958		349
Home equity		19,221		1,366		20,925		979
		863,044		26,804		151,621		3,615
Total impaired loans:
Commercial:
Operating		116,382		4,886		373,944		15,408
Real estate		421,961		2,331		236,802		11,005
Agricultural:
Operating		211,766		15,182		13,490		515
Real estate		856,736		15,902		388,916		15,700
Residential real estate:
1-4 family		3,972,065		161,292		3,913,714		156,503
Home equity		81,028		4,459		86,929		4,129
Other:
Consumer		9,831		399		10,489		455
	$	5,669,769	$	204,451	$	5,024,284	$	203,715

The Company's troubled debt restructuring as of March 31, 2016 and June 30, 2015 were not material to the consolidated financial statements.

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

21

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Bank’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition.  If only adequately capitalized, regulatory approval is required to accept brokered deposits.  If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required.  Management believes, as of March 31, 2016, 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
March 31, 2016
Total capital (to risk-weighted assets)	$	28,295	14.9	%	$	15,178	8.0	%	$	18,973	10.0	%
Common equity Tier 1 capital (to risk-weighted assets)		25,915	13.7	%		8,538	4.5	%		12,332	6.5	%
Tier 1 (core) capital (to risk-weighted assets)		25,915	13.7	%		11,384	6.0	%		15,178	8.0	%
Tier 1 (core) capital (to adjusted total assets)		25,915	11.3	%		9,155	4.0	%		11,444	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		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	%

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.

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 $71,366 and $62,739 for the nine months ended March 31, 2016 and 2015.

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

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

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

22

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

dated November 8, 2005 are made by the ESOP prior to the calendar year December 31, 2015.  Annual principal and interest payments from the note dated December 31, 2015 are approximately $145,000.  Annual principal and interest payments from the note dated July 8, 2015 are approximately $65,000.

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 $72,697 and $39,462 for the nine months ended March 31, 2016 and 2015, respectively. 

Shares held by the ESOP were as follows:

	March 31, 2016		June 30, 2015
Allocated shares		72,050		61,249
Unearned ESOP shares		158,633		45,417
Total ESOP shares		230,683		106,666
Fair value of unearned ESOP shares	$	1,308,722	$	411,024
Fair value of allocated shares subject to repurchase obligation	$	594,429	$	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 and nine months ended March 31, 2016 and 2015:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2016		2015		2016		2015
Weighted average common shares outstanding		3,285,020		3,087,784		3,260,513		3,080,962
Net income available to common stockholders	$	242,494	$	615,127	$	739,596	$	1,117,054
Basic earnings per share	$	0.07	$	0.20	$	0.23	$	0.36

23

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The following table presents a reconciliation of the components used to compute diluted earnings per share for the three and nine months and ended March 31, 2016 and 2015:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2016		2015		2016		2015
Weighted average common shares outstanding		3,285,020		3,087,784		3,260,513		3,080,962
Weighted average of net additional shares from restricted stock awards		25,927		41,094		25,834		39,971
Weighted average number of shares outstanding		3,310,947		3,128,878		3,286,347		3,120,933
Net income available to common stockholders	$	242,494	$	615,127	$	739,596	$	1,117,054
Diluted earnings per share	$	0.07	$	0.20	$	0.23	$	0.36

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 nine months ended March 31, 2016, nor were there any changes in valuation techniques used for assets or liabilities measured at fair value at March 31, 2016.

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)

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 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 March 31, 2016 Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Total		Level 1		Level 2		Level 3
Assets
Securities available-for-sale	$	735,352	$	—	$	735,352	$	—

	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 comparables included in the appraisal, and known changes in the market and in the collateral.  When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement.

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

At March 31, 2016 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.

Interest-earning deposits — For interest-earning deposits, 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.

25

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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.  As of March 31, 2016 and June 30, 2015 the Company did not have any federal funds purchased or securities sold under agreements to repurchase; however from time to time the Company will.

Federal Home Loan Bank borrowings — The estimated fair value of fixed rate advances from the FHLB is determined by discounting the future cash flows of existing advances using rates currently available on advances from the FHLB having similar characteristics.  Adjustable rate advances’ carrying value approximates fair value.  As of March 31, 2016 and June 30, 2015 the Company did not have any Federal Home Loan Bank borrowings; however from time to time the Company will.

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.

The estimated fair value of financial instruments is as follows:

	Fair Value	Carrying		Estimated
March 31, 2016	Hierarchy Level	Amount		Fair Value
Financial assets:
Cash and due from financial institutions	Level 1	$	3,542,510	$	3,543,000
Interest-earning deposits	Level 1		27,758,000		27,758,000
Securities available-for-sale	See previous table		735,352		735,000
Securities held-to-maturity	Level 2		793,348		812,000
Federal Home Loan Bank stock	Level 1		229,200		229,000
Loans, net	Level 2		191,062,539		191,166,000
Accrued interest receivable	Level 1		1,126,335		1,126,000
Financial liabilities:
Noninterest-bearing deposits	Level 2		23,218,187		23,218,000
Interest-bearing deposits	Level 2		173,355,354		179,806,000
Accrued interest payable and other liabilities	Level 1		1,250,279		1,250,000

26

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Fair Value	Carrying		Estimated
June 30, 2015	Hierarchy Level	Amount		Fair Value
Financial assets:
Cash and due from financial institutions	Level 1	$	3,037,653	$	3,038,000
Interest-earning deposits	Level 1		18,475,000		18,475,000
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:

	March 31, 2016		June 30, 2015
Unrealized holding gains/(losses) on securities available-for-sale	$	2,994	$	(6,144)
Tax (expense)/benefit		(1,018)		2,089
	$	1,976	$	(4,055)

Note 11.Income Taxes

	Three months ended
	March 31, 2016		March 31, 2015
Provision computed at the statutory federal tax rate	$	(135,148)	$	(346,502)
State income taxes, net of federal tax		(11,125)		(24,625)
Release of unearned EOSP shares and stock awards		1,905		6,402
Nondeductible expenses		(1,522)		(2,087)
Return-to-provision, net		—		(85,492)
Other		(9,111)		48,309
	$	(155,001)	$	(403,995)

	Nine months ended
	March 31, 2016		March 31, 2015
Provision computed at the statutory federal tax rate	$	(370,472)	$	(563,474)
State income taxes, net of federal tax		(35,837)		(43,777)
Release of unearned EOSP shares and stock awards		10,388		48,369
Nondeductible expenses		(5,724)		(5,218)
Valuation allowance adjustment		79,000		—
Return-to-provision, net		—		(21,617)
Other		(27,383)		45,496
	$	(350,028)	$	(540,221)

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

Management’s discussion and analysis of financial condition and results of operations at March 31, 2016 and for the three and nine months ended March 31, 2016 and 2015 is intended to assist in understanding the financial condition and results of operations of the Company.  The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this report.  All references herein to the “Company”, “we”, “us”, or similar terms refer to Equitable Financial Corp. and its subsidiary.

Forward-Looking Statements

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

· Statements of our goals, intentions and expectations;

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

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

· Estimates of our risks and future costs and benefits.

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

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

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

· Competition among depository and other financial institutions;

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

· Our success in continuing to emphasize agricultural and commercial loans;

· Changes in consumer spending, borrowing and savings habits;

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

· Our ability to successfully integrate acquired branches or entities;

· Adverse changes in the securities markets;

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

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

· Changes in our organization, compensation and benefit plans;

· Our ability to retain key employees;

· Changes in the level of government support for housing finance;

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· Significant increases in our loan losses; and

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

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

Overview

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

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

Critical Accounting Policies

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

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

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

Allowance for Loan Losses.  The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio.  We evaluate the need to establish allowances against losses on loans on aquarterly 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

29

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

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

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

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

Deferred Income Taxes.  We use the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities.  These judgments require us to make projections of future taxable income.  The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change.  Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.  A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings.  Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets.

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

30

Comparison of Financial Condition at March 31, 2016 and June 30, 2015

Assets.  Total assets at March 31, 2016 were $234.5 million, an increase of $19.5 million, or 9.1%, from $215.0 million at June 30, 2015.  The increase was primarily due to an increase in net cash and due from financial institutions and interest-earning deposits, securities available-for-sale and net loans, partially offset by decreases in time deposits with financial institutions, securities held-to-maturity, and foreclosed assets.    Net cash and due from financial institutions and interest-earning deposits increased $9.8 million, or 45.6%, to $31.3 million at March 31, 2016 from $21.5 million at June 30, 2015.  This increase is primarily related to an increase in deposits offset by new loan volume.  Securities available-for-sale increased $315,000, or 75.0%, to $735,000 at March 31, 2016 from $420,000 at June 30, 2015.  This increase was a result of purchasing one security classified as available-for-sale.  Net loans increased $12.7 million, or 7.1%, to $191.1 million at March 31, 2016 from $178.4 million at June 30, 2015.  The Company experienced loan growth in all three market areas. All time deposits with financial institutions had matured as of March 31, 2016 resulting in a zero balance compared to $500,000 at June 30, 2015.  Securities held-to-maturity decreased $2.5 million, or 75.8%, to $793,000 at March 31, 2016 from $3.3 million at June 30, 2015.  This decrease was primarily due to one security being called.  Foreclosed assets decreased $127,000, or 36.3%, to $223,000 at March 31, 2016 from $350,000 at June 30, 2015.  This decrease was a result of selling commercial property.

Nonperforming Assets and Allowance for Loan Losses.  We had non-performing assets of $2.6 million, or 1.1% of total assets as of March 31, 2016 and $1.8 million, or 0.9% of total assets as of June 30, 2015.  The allowance for loan losses totaled $2.8 million at March 31, 2016 and $2.6 million at June 30, 2015.  This represents a ratio of the allowance for loan losses to gross loans receivable of 1.5% at March 31, 2016 and 1.4% at June 30, 2015.  The allowance for loan losses to non-performing loans was 107.2% at March 31, 2016 and 123.5% at June 30, 2015.  This change is a result of an increase in nonperforming loans.

Deposits. Total deposits increased $21.8 million, or 12.5%, to $196.6 million at March 31, 2016 from $174.8 million at June 30, 2015.  The increase in deposits was a result of increases in non-interest bearing demand, interest-bearing NOW, money market, and savings account types.  Non-interest bearing demand accounts increased $1.4 million or, 6.4%, to $23.2 million at March 31, 2016 from $21.8 million at June 30, 2015.  Interest bearing NOW accounts increased $5.5 million, or 13.3% to $46.7 million at March 31, 2016 from $41.2 million at June 30, 2015.  Money market deposits increased $13.7 million, or 26.7%, to $65.0 million at March 31, 2016 from $51.3 million at June 30, 2015.  Savings accounts increased $3.4 million, or 26.0%, to $16.5 million at March 31, 2016 from $13.1 million at June 30, 2015.  Certificates of deposit decreased $2.2 million, or 4.6%, to $45.2 million at March 31, 2016 from $47.4 million at June 30, 2015.

Stockholders’ Equity. Total stockholder’s equity increased $14.6 million, or 69.5% to $35.6 million at March 31, 2016 from $21.0 million at June 30, 2015.  This increase was a result of the stock offering and net income of $740,000.

Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015

General. Net income for the three months ended March 31, 2016 was $242,000.  This represented a decrease of $373,000, or 60.7%, from net income of $615,000 for the three months ended March 31, 2015.

Interest Income. Total interest income for the three months ended March 31, 2016 increased $216,000, or 11.8%, to $2.1 million, from $1.8 million for the three months ended March 31, 2015.  The increase in interest income was due to increases in loans and interest-bearing bank balances. 

Interest income from loans increased $229,000, or 12.8%, to $2.0 million for the three months ended March 31, 2016 from $1.8 million for the same period in 2015.  The increase in interest income from loans was due primarily to an increase of $24.1 million in average loan balances.  Average loan balances were $187.2 million for the three months ended March 31, 2016 compared to $163.1 million for the three months ended March 31, 2015.  The increase in our average loan balance was primarily due to increased loan demand, primarily attributable to improved economic conditions in our market areas and growth in commercial loans originated in all branches.  The average yield on loans decreased 7 basis points to 4.30% during the three months ended March 31, 2016 from 4.37% for the three months ended March 31, 2015.

Interest income from interest-bearing balances increased $21,000, or 210.0% to $31,000 for the three months ended March 31, 2016 from $10,000 for the three months ended March 31, 2015.  This increase was due to an increase in average balances and higher yield.

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Interest income from securities and FHLB Stock decreased $34,000, or 77.3%, to $10,000 for the three months ended March 31, 2016 from $44,000 for the three months ended March 31, 2015.  The causes for these decreases were lower average balances and a reduction in yields.

Interest Expense.   Interest expense decreased $92,000, or 25.3%, to $272,000 for the three months ended March 31, 2016 from $363,000 for the three months ended March 31, 2015.  Interest expense on deposits increased $27,000, or 11.0%, to $272,000 for the three months ended March 31, 2016 from $245,000 for the three months ended March 31, 2015.  This increase is primarily due to increased average balances.  Average balances for the three months ended March 31, 2016 was $170.1 million compared to $152.3 million for the three months ended March 31, 2015.  Interest expense on FHLB advances decreased $119,000, or 100.0%, to nothing for the three months ended March 31, 2016 compared to $119,000 for the three months ended March 31, 2015.  This was a result of no FHLB advances outstanding during the three months ended March 31, 2016.

Net Interest Income. Net interest income increased $308,000, or 20.9%, to $1.8 million for the three months ended March 31, 2016 from $1.5 million for the three months ended March 31, 2015.  Average interest-earning assets were $217.2 million for the three months ended March 31, 2016 and $185.0 million for the three months ended March 31, 2015, while the average yield was 3.78% and 3.97% for the respective periods.  Our net interest spread increased 10 basis points for the three months ended March 31, 2016 to 3.14% from 3.04% for the three months ended March 31, 2015. Our net interest margin increased 9 basis points to 3.28% for the three months ended March 31, 2016 from 3.19% for the three months ended March 31, 2015.  The ratio of average interest-earning assets to average interest-bearing liabilities increased 914 basis points to 127.7% for the three months ended March 31, 2016 from 118.5% for the three months ended March 31, 2015.

Provision for Loan Losses.   We establish provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio.  In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change.  Based on our evaluation of these factors, we recorded a provision for loan losses of $2,000 for the three months ended March 31, 2016 and a provision benefit of $858,000 for the three months ended March 31, 2015.  The provision for loan losses for the three months ended March 31, 2016 was primarily a result of loan growth.  The allowance for loan losses was $2.8 million, or 1.5% of loans outstanding at March 31, 2016 compared to $2.4 million, or 1.5% of loans outstanding at March 31, 2015.  The non-performing assets to total assets ratio at March 31, 2016 was 1.1% as compared to 0.9% at March 31, 2015.  The level of the allowance is based on estimates and the ultimate losses may vary from estimates.

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance.  While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may request to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of March 31, 2016 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 $110,000, or 25.4%, to $544,000 for the three months ended March 31, 2016 from $434,000 for the three months March 31, 2015.  The Company experienced increases in services charges on deposits accounts, gain on sale of loans, other loan fees and other income.  Offsetting these increases was a decrease in brokerage fee income.  Services charges on deposit accounts increased $21,000, or 16.3%, to $150,000 for the three months ended March 31, 2016 from $129,000 for the three months ended March 31, 2015.  Gain on sale of loans increased $81,000, or 114.1%, to $152,000 for the three months ended March 31, 2016 from $71,000 for the three months ended March 31, 2015.  Other loan fees increased $8,000, or 13.6%, to $67,000 for the three months ended March 31, 2016 from $59,000 for the three months ended March 31, 2015.  Other income increased $8,000, or 38.1%, to $29,000 for the three months ended March 31, 2016 from $21,000 for the three months ended March 31, 2015.  Brokerage fee income decreased $7,000, or 4.5%, to $147,000 for the three months ended March 31, 2016 from $154,000 for the three months ended March 31, 2015. 

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Non-Interest Expense Non-interest expense increased $180,000, or 10.3%, to $1.9 million for the three months ended March 31, 2016 from $1.7 million for the three months ended March 31, 2015.  This increase is primarily due to increases in salaries and employee benefits, director and committee fees, data processing fees, professional fees, supplies, telephone and postage, and other expenses.  Salaries and employee benefits increased $52,000, or 5.0%, to $1.1 million for the three months ended March 31, 2016 from $1.0 million for the three months ended March 31, 2015.  This increase is related to customary raises and increased benefits costs for existing personnel and bonuses tied to bank performance.  Director and committee fees increased $6,000, or 18.2%, to $39,000 for the three months ended March 31, 2016 from $33,000 for the three months ended March 31, 2015.  Data processing fees increased $18,000, or 14.4%, to $143,000 for the three months ended March 31, 2016 from $125,000 for the three months ended March 31, 2015.  Professional fees increased $58,000, or 446.2%, to $71,000 for the three months ended March 31, 2016 from $13,000 for the three months ended March 31, 2015.  This increase is a result of expenses related to being a public company.  Supplies, telephone, and postage increased $12,000, or 21.8%, to $67,000 for the three months ended March 31, 2016 from $55,000 for the three months ended March 31, 2015.  Other expenses increased $46,000, or 42.2%, to $155,000 for the three months ended March 31, 2016 from $109,000 for the three months ended March 31, 2015.

Income Tax Expense. For the three months ended March 31, 2016, income tax expense was $155,000 compared to $404,000 for the three months ended March 31, 2015.  The effective tax rate for the three months March 31, 2016 was 39.0% compared to 39.6% for the three months ended March 31, 2015. 

Comparison of Operating Results for the Nine Months Ended March 31, 2016 and 2015

General. Net income for the nine months ended March 31, 2016 was $740,000.  This represented a decrease of $377,000, or 33.8%, from net income of $1.1 million for the nine months ended March 31, 2015.

Interest Income. Total interest income for the nine months ended March 31, 2016 increased $707,000, or 12.8%, to $6.2 million, from $5.5 million for the nine months ended March 31, 2015.  The increase in interest income was due to increases in loans and interest-bearing bank balances. 

Interest income from loans increased $751,000, or 14.0%, to $6.1 million for the nine months ended March 31, 2016 from $5.4 million for the same period in 2015.  The increase in interest income from loans was due primarily to an increase of $23.5 million in average loan balances.  Average loan balances were $186.0 million for the nine months ended March 31, 2016 compared to $162.5 million for the nine months ended March 31, 2015.  The increase in our average loan balance was primarily due to increased loan demand, primarily attributable to improved economic conditions in our market areas and growth in commercial loans originated in all branches.  The average yield on loans decreased 2 basis points to 4.39% during the nine months ended March 31, 2016 from 4.41% for the nine months ended March 31, 2015.

Interest income from interest-bearing balances increased $27,000, or 122.7%, to $49,000 for the nine months ended March 31, 2016 from $22,000 for the nine months ended March 31, 2015.  This increase was due to an increase in average balances and an increase in yield.

Interest income from securities and FHLB Stock decreased $71,000, or 47.9%, to $71,000 for the nine months ended March 31, 2016 from $142,000 for the nine months ended March 31, 2015.  The cause for these decreases was primarily a reduction in average balances.

Interest Expense.   Interest expense decreased $148,000, or 16.0%, to $778,000 for the nine months ended March 31, 2016 from $926,000 for the nine months ended March 31, 2015.  Interest expense on deposits increased $92,000, or 13.4%, to $777,000 for the nine months ended March 31, 2016 from $685,000 for the nine months ended March 31, 2015.  This increase is primarily due to increased average balances.  Average balances for the nine months ended March 31, 2016 was $160.8 million compared to $141.2 million for the nine months ended March 31, 2015.  Interest expense on FHLB advances decreased $240,000, or 100.0%, to nothing for the nine months ended March 31, 2016 compared to $240,000 for the nine months ended March 31, 2015.  This was a result of no FHLB advances outstanding during the nine months ended March 31, 2016.

Net Interest Income. Net interest income increased $855,000, or 18.5%, to $5.5 million for the nine months ended March 31, 2016 from $4.6 million for the nine months ended March 31, 2015.  Average interest-earning assets were $207.2 million for the nine months ended March 31, 2016 and $177.9 million for the nine months ended March 31, 2015,

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while the average yield was 4.02% and 4.15% for the respective periods.  Our net interest spread increased 5 basis points for the nine months March 31, 2016 to 3.38% from 3.33% for the nine months ended March 31, 2015.  Our net interest margin increased 6 basis points to 3.52% for the nine months ended March 31, 2016 from 3.42% for the nine months ended March 31, 2015.  The ratio of average interest-earning assets to average interest-bearing liabilities increased 1,039 basis points to 128.8% for the nine months ended March 31, 2016 from 118.4% for the nine months ended March 31, 2015.

Provision for Loan Losses.   We establish provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio.  In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change.  Based on our evaluation of these factors, we recorded a provision for loan losses of $159,000 for the nine months ended March 31, 2016 and a provision benefit of $711,000 for the nine months ended March 31, 2015.  The provision for loan losses for the nine months ended March 31, 2016 was primarily a result of loan growth.  The provision benefit recorded during the nine months ended March 31, 2015 was from recoveries received on loans previously charged off.  The allowance for loan losses was $2.8 million, or 1.5% of loans outstanding at March 31, 2016 and $2.4 million, or 1.5% of loans outstanding for March 31, 2015.  The non-performing assets to total assets ratio at March 31, 2016 was 1.1% as compared to 0.9% at March 31, 2015.  The level of the allowance is based on estimates and the ultimate losses may vary from estimates.

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance.  While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may request to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of March 31, 2016 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 $170,000, or 10.6%, to $1.8 million for the nine months ended March 31, 2016 from $1.6 million for the nine months ended March 31, 2015.  The Company experienced increases in services charges on deposit accounts, brokerage fee income, gain on sale of loans, other loan fees and other income.  Services charges on deposits accounts increased $7,000, or 1.6%, to $435,000 for the nine months ended March 31, 2016 from $428,000 for the nine months ended March 31, 2015.  Brokerage fee income increased $35,000, or 8.2%, to $461,000 for the nine months ended March 31, 2016 from $426,000 for the same period in 2015.  Gain on sale of loans increased $77,000, or 15.8%, to $565,000 for the nine months ended March 31, 2016 from $488,000 for the nine months ended March 31, 2015.  Other loan fees increased $18,000, or 9.6%, to $206,000 for the nine months ended March 31, 2016 from $188,000 for the same period ending in 2015.  Other income increased $32,000, or 45.7%, to $102,000 for the nine months ended March 31, 2016 from $70,000 for the nine months ended March 31, 2015. 

Non-Interest Expense Non-interest expense increased $723,000, or 13.7%, to $6.0 million for the nine months ended March 31, 2016 from $5.3 million for the nine months ended March 31, 2015.  This increase is primarily due to increases in salaries and employee benefits, director and committee fees, data processing fees, advertising and public relations, professional fees, and other expenses.  Salaries and employee benefits increased $155,000, or 4.8%, to $3.4 million for the nine months ended March 31, 2016 from $3.2 million for the nine months ended March 31, 2015.  Director and committee fees increased $21,000, or 21.2%, to $120,000 for the nine months ended March 31, 2016 from $99,000 for the same period in 2015.  Data processing fees increased $199,000, or 99.0%, to $400,000 for the nine months ended March 31, 2016 from $201,000 for the nine months ended March 31, 2015.  Advertising and public relations increased $17,000 or 11.0%, to $172,000 for the nine months ended March 31, 2016 from $155,000 for the same period in 2015.  Professional fees increased $258,000 or 183.0%, to $399,000 for the nine months ended March 31, 2016 from $141,000 for the nine months ended March 31, 2015.  Other expenses increased $61,000 or 15.6%, to $452,000 for the nine months ended March 31, 2016 from $391,000 for the nine months ended March 31, 2015.  The increases were primarily attributable to non-recurring vendor rebates received in 2015 as well as the increased costs of being a public company.

Income Tax Expense. For the nine months ended March 31, 2016, income tax expense was $350,000 compared to $540,000 for the nine months ended March 31, 2015.  The effective tax rate for the nine months ended March 31, 2016 was 32.1% compared to 32.6% for the nine months ended March 31, 2015. 

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Analysis of Net Interest Income

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

	For the Three Months Ended March 31,
	2016					2015
	Average		Interest			Average		Interest
	Outstanding		Earned/			Outstanding		Earned/
	Balance		Paid		Yield/Cost	Balance		Paid		Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits in other financial institutions	$	28,211	$	31	0.44%	$	17,614	$	10	0.23%
Securities		1,551		9	2.32%		3,986		40	4.01%
Loans receivable		187,206		2,012	4.30%		163,107		1,783	4.37%
FHLB common stock		229		1	1.75%		331		4	4.83%
Total interest-earning assets		217,197		2,053	3.78%		185,038		1,837	3.97%
Total noninterest-earning assets		13,989					14,983
Total assets	$	231,186				$	200,021
Interest-bearing liabilities:
Savings accounts	$	15,299	$	9	0.24%	$	13,379	$	10	0.30%
NOW accounts		45,970		44	0.38%		43,833		51	0.47%
Money market accounts		63,394		110	0.69%		46,134		69	0.60%
Certificates of deposit		45,455		109	0.96%		48,920		115	0.94%
Total deposits		170,118		272	0.64%		152,266		245	0.64%
Other Borrowings		—		—	0.00%		222		—	0.00%
FHLB advances		—		—	0.00%		3,629		119	13.12%
Total interest-bearing liabilities		170,118		272	0.64%		156,117		364	0.93%
Noninterest-bearing demand deposits - checking accounts		23,746					21,823
Other liabilities		1,776					1,347
Total liabilities		195,640					179,287
Stockholders' equity		35,546					20,734
Total liabilities and stockholders' equity	$	231,186				$	200,021
Net interest income			$	1,781				$	1,473
Net interest rate spread					3.14%					3.04%
Net interest-earning assets	$	47,079				$	28,921
Net interest margin					3.28%					3.19%
Average interest-earning assets to average interest-bearing liabilities					127.67%					118.53%

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	For the Nine Months Ended March 31,
	2016					2015
	Average		Interest			Average		Interest
	Outstanding		Earned/			Outstanding		Earned/
	Balance		Paid		Yield/Cost	Balance		Paid		Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits in other financial institutions	$	18,348		49	0.36%	$	10,732	$	22	0.27%
Securities		2,582		68	3.51%		4,186		126	4.01%
Loans receivable		185,994		6,126	4.39%		162,530		5,375	4.41%
FHLB common stock		228		3	1.75%		477		16	4.47%
Total interest-earning assets		207,152		6,246	4.02%		177,925		5,539	4.15%
Total noninterest-earning assets		14,018					15,320
Total assets	$	221,170				$	193,245
Interest-bearing liabilities:
Savings accounts	$	14,133	$	25	0.24%	$	12,708	$	24	0.25%
NOW accounts		43,042		127	0.39%		38,639		110	0.38%
Money market accounts		57,732		296	0.68%		42,431		186	0.58%
Certificates of deposit		45,918		329	0.96%		47,421		365	1.03%
Total deposits		160,825		777	0.64%		141,199		685	0.65%
Federal funds purchased and securities sold under repurchase agreements		—		—	—		231		1	0.58%
Other Borrowings		—		1	—		74		—	0.00%
FHLB advances		—		—	—		8,741		240	3.66%
Total interest-bearing liabilities		160,825		778	0.65%		150,245		926	0.82%
Noninterest-bearing demand deposits - checking accounts		22,670					20,771
Other liabilities		5,359					1,855
Total liabilities		188,854					172,871
Stockholders' equity		32,316					20,374
Total liabilities and stockholders' equity	$	221,170				$	193,245
Net interest income			$	5,468				$	4,613
Net interest rate spread					3.38%					3.33%
Net interest-earning assets	$	46,327				$	27,680
Net interest margin					3.52%					3.46%
Average interest-earning assets to average interest-bearing liabilities					128.81%					118.42%

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,

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changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

	Three Months Ended						Nine Months Ended
	March 31, 2016 vs. 2015						March 31, 2016 vs. 2015
	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	$	8	$	13	$	21	$	18	$	9	$	27
Securities		(18)		(13)		(31)		(44)		(14)		(58)
FHLB Stock		(1)		(2)		(3)		(6)		(7)		(13)
Loans receivable		258		(29)		229		775		(24)		751
Total interest-earning assets		247		(31)		216		743		(36)		707
Interest-bearing liabilities:
Savings accounts		5		(6)		(1)		4		(3)		1
NOW accounts		(1)		(6)		(7)		14		3		17
Money market accounts		18		23		41		77		33		110
Certificates of deposit		(8)		2		(6)		(11)		(25)		(36)
Federal funds purchased and securities sold under repurchase agreements		—		—		—		(1)		—		(1)
Other Borrowings		—		—		—		1		—		1
FHLB advances		(119)		—		(119)		(240)		—		(240)
Total interest-bearing liabilities		(105)		13		(92)		(156)		8		(148)
Change in net interest income	$	352	$	(44)	$	308	$	899	$	(44)	$	855

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 $32.0 million, or 13.7% of total assets at March 31, 2016, 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 $27.9 million at March 31, 2016 and $18.5 million at June 30, 2015.

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

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

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Our cash flows are comprised of three classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash used by operating activities was $1.5 million for the nine months ended March 31, 2016 while net cash provided by operating activities was $1.0 million for the nine months ended March 31, 2015.  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 $7.0 million and $5.6 million for the nine months ended March 31, 2016 and 2015, respectively.  During the nine months ended March 31, 2016 the Company purchased $469,000 of securities classified as available-for-sale.  During the nine months ended March 31, 2015 there were no securities purchased or sold.  Net cash provided by financing activities, consisted primarily of deposit account activity and costs associated with the stock offering.  For the nine months ended March 31, 2016 and 2015 net cash provided by financing activities was $18.3 million and $17.1 million, respectively.

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

For the nine months ended March 31, 2016, we did not engage in any off-balance sheet transactions, other than loan origination commitments, unused lines of credit and standby letters of credit in the normal course of our lending activities.

Recent Accounting Pronouncements

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

Effect of Inflation and Changing Prices

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

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4.Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective.  In addition, there have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.Legal Proceedings.

At March 31, 2016, 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.

2.1	Plan of Conversion and Reorganization (Incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)
3.1	Articles of Incorporation of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, file no. 001-37489, filed on September 23, 2015)
3.2	Bylaws of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, file no. 001-37489, filed on September 23, 2015)
4	Form of Common Stock Certificate of Equitable Financial Corp.  (Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

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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: May 12, 2016	By:	/s/ Thomas E. Gdowski
		Thomas E. Gdowski
		President and CEO
Dated: May 12, 2016	By:	/s/ Darcy M. Ray
		Darcy M. Ray
		CFO

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EXHIBIT INDEX

Exhibit Number	Description
2.1	Plan of Conversion and Reorganization (Incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)
3.1	Articles of Incorporation of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, file no. 001-37489 filed on September 23, 2015)
3.2	Bylaws of Equitable Financial Corp. (Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, file no. 001-37489 filed on September 23, 2015)
4	Form of Common Stock Certificate of Equitable Financial Corp.  (Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-1, file no. 333-202707, originally filed on March 12, 2015)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

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