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 September 30, 2017
	For the quarterly period ended December 31, 2017
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________________ to ____________________

Commission File No. 333-202707

Equitable Financial Corp.

(Exact name of registrant as specified in its charter)

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

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

(308) 382-3136

(Registrant’s telephone number, including area code)

N/A

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

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

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

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


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

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

Shares of the Registrant’s common stock, par value $0.01 per share, 3,~~368~~359,~~932~~845 issued and outstanding as of ~~November~~February 1314, ~~2017~~2018.

Table of Contents

EQUITABLE FINANCIAL CORP.

FORM 10-Q

INDEX

		Page
Part I. Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statement of Changes in Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3032
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3742
Item 4.	Controls and Procedures	3742
Part II. Other Information
Item 1.	Legal Proceedings	3843
Item 1A.	Risk Factors	3843
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3843
Item 3.	Defaults upon Senior Securities	3843
Item 4.	Mine Safety Disclosures	3843
Item 5.	Other Information	3844
Item 6.	Exhibits	3944
Signatures		4046

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Equitable Financial Corp. and Subsidiary

Consolidated Balance Sheets

	(Unaudited)
	September 30, 2017		June 30, 2017
	December 31, 2017		June 30, 2017
Assets
Cash and due from financial institutions	$	4,~~593~~023,~~564~~310	$	4,881,007
Securities available-for-sale		1,385,153		1,410,955
Interest-earning deposits		879,000		—
Securities held-to-maturity		729,076		735,978
		4,902,310		4,881,007
Federal Home Loan Bank stock, at cost		459,100		453,400
Securities available-for-sale		1,344,367		1,410,955
Loans, net of allowance for loan losses of $3,759,000 and $3,555,000, respectively		245,504,612		236,545,125
Securities held-to-maturity		718,955		735,978
Premises and equipment, net		5,437,408		5,424,855
Federal Home Loan Bank stock, at cost		283,300		453,400
Foreclosed assets, net		223,200		223,200
Loans, net of allowance for loan losses of $4,462,000 and $3,555,000, respectively		250,963,387		236,545,125
Accrued interest receivable		1,732,728		1,297,908
Premises and equipment, net		5,384,529		5,424,855
Deferred taxes, net		927,279		862,009
Foreclosed assets, net		744,786		223,200
Other assets		1,809,089		2,008,051
Accrued interest receivable		1,451,427		1,297,908
Total assets	$	262,801,209	$	253,842,488
Deferred taxes, net		830,875		862,009
Customer list intangible		1,466,822		289,058
Other assets		2,186,652		1,718,993
Total assets	$	270,277,410	$	253,842,488
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing deposits	$	2730,~~951~~059,~~900~~481	$	29,546,051
Interest-bearing deposits		~~187~~196,~~205~~141,~~987~~018		179,512,265
		215,157,887		209,058,316
		226,200,499		209,058,316
Federal funds purchased		~~564~~150,000		399,000
Federal Home Loan Bank Borrowings		85,~~963~~000,000		6,745,400
Advance payments from borrowers for taxes and insurance		~~260~~526,~~276~~189		432,960
Accrued interest payable and other liabilities		1,~~073~~711,~~664~~551		820,229
Total liabilities		~~226~~233,~~018~~588,~~827~~239		217,455,905
Common stock in ESOP subject to contingent repurchase obligation		~~836~~874,~~010~~714		815,280
Stockholders’ equity:
Common stock, $0.01 par value, 25,000,000 shares authorized 3,368,932 and 3,372,532 shares issued and outstanding at September 30, 2017 and June 30, 2017, respectively		33,689		33,725
Common stock, $0.01 par value, 25,000,000 shares authorized 3,361,845 and 3,372,532 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively		33,618		33,725
Additional paid-in capital		25,~~756~~683,~~511~~531		25,794,124
Retained earnings		12,~~803~~695,~~276~~957		12,474,958
Unearned ESOP shares		(1,~~073~~038,~~089~~496)		(1,107,692)
Shares reserved for stock compensation		(~~734~~671,~~840~~730)		(797,950)
Accumulated other comprehensive income/(loss) net of tax		(3,165)		(10,582)
Accumulated other comprehensive loss net of tax		(13,709)		(10,582)
Reclassification of ESOP shares		(~~836~~874,~~010~~714)		(815,280)
Total stockholders’ equity		35,~~946~~814,~~372~~457		35,571,303
Total liabilities and stockholders’ equity	$	~~262~~270,~~801~~277,~~209~~410	$	253,842,488

See Notes to Consolidated Financial Statements.

Table of Contents

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Income

(Unaudited)

	For the three months ended				For the six months ended
	September 30, 2017		September 30, 2016
	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Interest income:
Loans	$	2,~~787~~778,~~454~~682	$	2,~~194~~241,~~248~~684	$	5,566,136	$	4,435,932
Securities		1615,~~913~~914		810,~~730~~353		32,827		19,083
Other		18,~~241~~965		123,~~392~~983		10,206		16,375
Total interest income		2,~~805~~803,~~608~~561		2,~~215~~256,~~370~~020		5,609,169		4,471,390
Interest expense:
Deposits		~~359~~401,~~534~~904		~~266~~265,~~385~~795		761,438		532,180
Federal Home Loan Bank borrowings		2523,~~938~~722		—		49,660		—
Other		~~2,825~~833		~~138~~624		3,658		762
Total interest expense		~~388~~426,~~297~~459		266,~~523~~419		814,756		532,942
Net interest income		2,~~417~~377,~~311~~102		1,~~948~~989,~~847~~601		4,794,413		3,938,448
Provision for loan losses		~~204~~662,~~434~~905		~~152~~169,~~764~~109		867,339		321,873
Net interest income after provision for loan losses		21,~~212~~714,~~877~~197		1,~~796~~820,~~083~~492		3,927,074		3,616,575
Noninterest income:
Service charges on deposit accounts		~~160~~165,~~875~~703		~~167~~150,~~196~~372		326,578		317,568
Brokerage fee income		~~134~~177,~~282~~226		~~178~~206,~~447~~790		311,508		385,237
Gain on sale of loans		~~133~~169,~~364~~951		~~236~~255,~~464~~254		303,315		491,718
Other loan fees		5948,~~052~~139		7872,~~848~~455		107,191		151,303
Other income		53148,~~878~~442		3136,~~870~~431		202,320		68,301
Total noninterest income		~~541~~709,~~451~~461		~~692~~721,~~825~~302		1,250,912		1,414,127
Noninterest expense:
Salaries and employee benefits		1,~~306~~241,~~419~~917		1,~~183~~129,~~786~~214		2,548,336		2,313,000
Director and committee fees		4340,~~692~~508		40,~~392~~393		84,200		80,785
Data processing fees		~~151~~154,~~911~~802		~~140~~146,~~650~~043		306,713		286,693
Occupancy and equipment		~~260~~239,~~237~~870		~~258~~224,~~373~~157		500,107		482,530
Regulatory fees and deposit insurance premium		4963,~~883~~374		5329,~~617~~582		113,257		83,199
Advertising and public relations		5558,~~692~~553		47,~~891~~281		114,245		95,172
Insurance and bond premiums		8,010		23,924
Professional fees		53,248		140,415		207,576		257,733
Professional fees		154,328		117,318
Supplies, telephone and postage		75,986		71,875		138,958		132,090
Supplies, telephone and postage		62,972		60,215
Other expenses		186,281		181,651		339,612		374,797
Other expenses		145,321		169,222
Total noninterest expense		2,114,539		2,010,611		4,353,004		4,105,999
Total noninterest expense		2,238,465		2,095,388
Income before income taxes		309,119		531,183		824,982		924,703
Income before income taxes		515,863		393,520
Income tax expense		(416,438)		(221,719)		(603,983)		(350,181)
Income tax expense		(187,545)		(128,462)
Net income/(loss)	$	(107,319)	$	309,464	$	220,999	$	574,522
Net income	$	328,318	$	265,058
Basic earnings/(loss) per share	$	(0.03)	$	0.09	$	0.07	$	0.17
Basic earnings per share	$	0.10	$	0.08
Diluted earnings/(loss) per share	$	(0.03)	$	0.09	$	0.07	$	0.17
Diluted earnings per share	$	0.10	$	0.08

See Notes to Consolidated Financial Statements.

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Equitable Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income/(Loss)

(Unaudited)

	For the three months ended				For the six months ended
	September 30, 2017		September 30, 2016
	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Net income	$	328,318	$	265,058
Net income/(loss)	$	(107,319)	$	309,464	$	220,999	$	574,522
Other comprehensive income/(loss):
Other comprehensive loss:
Unrealized gain/(loss) on securities available-for-sale, net of tax		7,417		(1,158)
Unrealized loss on securities available-for-sale, net of tax		(10,544)		(26,089)		(3,127)		(27,247)
Comprehensive income	$	335,735	$	263,900
Comprehensive income/(loss)	$	(117,863)	$	283,375	$	217,872	$	547,275

See Notes to Consolidated Financial Statements.

Table of Contents

Equitable Financial Corp. and Subsidiary

Consolidated Statement of Changes in Stockholders’ Equity

For the ~~three~~ six months ended ~~September~~December 3031, 2017

(Unaudited)

									Shares		Accumulated		Amount
									Reserved for		Other		Reclassified
	Common		Additional		Retained		Unearned		Stock		Comprehensive		on ESOP
	Stock		Paid-in Capital		Earnings		ESOP Shares		Compensation		~~Income~~Loss		Shares		Total
Balance, June 30, 2017	$	33,725	$	25,794,124	$	12,474,958	$	(1,107,692)	$	(797,950)	$	(10,582)	$	(815,280)	$	35,571,303
Net Income						~~328~~220,~~318~~999										~~328~~220,~~318~~999
Other comprehensive income												7,417				7,417
Other comprehensive loss												(3,127)				(3,127)
Release of 3,966 unearned ESOP shares				5,718				34,603								40,321
Release of 7,931 unearned ESOP shares				12,956				69,196								82,152
Stock compensation expense				(613,~~567~~135)						63126,~~110~~220						56113,~~543~~085
Stock Buyback		(36107)		(36110,~~764~~414)												(36110,~~800~~521)
Reclassification due to release and changes in fair value of common stock in ESOP subject to contingent repurchase obligation of ESOP shares														(2059,~~730~~434)		(2059,~~730~~434)
Balance, September 30, 2017	$	33,689	$	25,756,511	$	12,803,276	$	(1,073,089)	$	(734,840)	$	(3,165)	$	(836,010)	$	35,946,372
Balance, December 31, 2017	$	33,618	$	25,683,531	$	12,695,957	$	(1,038,496)	$	(671,730)	$	(13,709)	$	(874,714)	$	35,814,457

See Notes to Consolidated Financial Statements.

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Equitable Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

	For the three months ended
	For the six months ended
	September 30, 2017		September 30, 2016
	December 31, 2017		December 31, 2016
Cash Flows from Operating Activities:
Net income	$	~~328~~220,~~318~~999	$	~~265~~574,~~058~~522
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		91178,~~103~~626		83167,~~089~~890
Federal Home Loan Bank stock dividends		(36,~~700~~300)		(~~600~~1,200)
ESOP expense		4082,~~321~~152		3471,~~240~~335
Stock compensation expense		56113,~~543~~085		1429,~~570~~139
Amortization of deferred loan origination costs, net		~~121~~245,~~105~~238		~~126~~259,~~446~~989
Amortization of premiums and discounts		745		3,564
Amortization of intangibles		11,118		11,118
Gain on sale of loans		(133,364)		(236,464)
Amortization of premiums and discounts		1,060		6,799
Provision for loan losses		204,434		152,764
Gain on sale of loans		(303,315)		(491,718)
Deferred taxes		(69,092)		116,029
Loss on disposal of premises and equipment		—		1,207
Loans originated for sale		(5,024,278)		(8,609,214)
Provision for loan losses		867,339		321,873
Proceeds from sale of loans		5,124,534		8,770,606
Deferred taxes		32,743		(878)
Loss on investment in partnership		—		27,332
Loans originated for sale		(10,986,456)		(19,126,779)
Proceeds from sale of loans		10,785,239		19,376,441
Loss on investment in partnership		—		34,832
Changes in:
Accrued interest receivable		(~~434~~153,~~820~~519)		(~~339~~188,~~592~~494)
Other assets		~~235~~(1,~~951~~550,562)		89(241,~~706~~206)
Accrued interest payable and other liabilities		~~253~~1,~~435~~131,322		(50141,~~219~~669)
Net cash provided by operating activities		~~791~~668,~~235~~769		~~447~~663,~~315~~201
Cash Flows from Investing Activities:
Net change in loans		(915,~~288~~653,~~907~~871)		(815,~~736~~511,~~662~~942)
Securities available-for-sale:
Proceeds from calls and principal repayments		3660,~~326~~851		63136,~~256~~838
Purchases		—		(985,400)
Securities held-to-maturity:
Proceeds from calls and principal repayments		616,~~872~~963		1027,~~862~~732
Redemption of Federal Home Loan Bank stock		~~219~~397,~~500~~900		—
Purchases of Federal Home Loan Bank stock		(221,500)		—
Purchase of premises and equipment		(103,656)		(325,361)
Purchase of customer list intangible		(240,000)		—
Net cash used in investing activities		(9,351,365)		(8,987,905)
Purchase of premises and equipment		(138,300)		(383,389)
Net cash used in investing activities		(15,777,957)		(16,716,161)

(Continued)

Table of Contents

Equitable Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	For the three months ended
	For the six months ended
	September 30, 2017		September 30, 2016
	December 31, 2017		December 31, 2016
Cash Flows from Financing Activities:
Net change in deposits	$	617,~~099~~142,~~571~~183	$	21,~~700~~311,~~721~~158
Net change in federal funds purchased		~~165~~(249,000)		—3,008,000
Proceeds from Federal Home Loan Bank borrowings		23,000,000		—2,000,000
Repayments of Federal Home Loan Bank borrowings		(2024,~~782~~745,400)		—
Net change in advance payments from borrowers for taxes and insurance		~~(172~~93,~~684)~~229		~~(184~~53,~~706)~~510
Stock Buyback		(36110,~~800~~521)		—(799,257)
Net cash provided by financing activities		815,~~272~~130,~~687~~491		25,~~516~~573,~~015~~411
Decrease in cash and cash equivalents		(287,443)		(6,024,575)
Increase/(Decrease) in cash and cash equivalents		21,303		(10,479,549)
Cash and Cash Equivalents:
Beginning		4,881,007		14,947,296
Ending	$	4,~~593~~902,~~564~~310	$	84,~~922~~467,~~721~~747
Supplemental Cash Flow Information:
Interest paid on deposits and borrowings	$	~~366~~787,~~239~~745	$	~~268~~536,~~880~~618
Income taxes paid	$	~~283~~433,401	$	162,879
Supplemental Noncash Disclosure:
Transfer of loans to foreclosed assets	$	521,585	$	—
Deferred payments on purchase of customer list intangible	$	960,000	$	—

See Notes to Consolidated Financial Statements.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 1.Basis of Presentation

The accompanying consolidated financial statements of Equitable Financial Corp. (the “Company”) and its wholly owned subsidiary Equitable Bank (the “Bank”) have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with SEC rules and regulations. Accordingly, the statements do not include all the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto that were included in the Company’s annual report for the year ended June 30, 2017. The consolidated balance sheet of the Company as of June 30, 2017 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, 2017.

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.New Accounting Pronouncements

In May 2014, the ~~FASB issued~~ Financial Accounting Standards Board (“the FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. ~~The~~This ASU is effective for the Company beginning with the fiscal year ending June 30, 2019. The FASB issued this ASU to clarify the principles for recognizing revenue and to develop a common revenue standard. The Company believes this will have a minimal impact on its financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments in this ASU 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.

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

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The purpose of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity. ~~The~~This ASU replaces the current incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU will be effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. This ASU is expected to have an impact on the Company’s consolidated financial statements. The Company is currently evaluating the effect this will have on its financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows; Classification of Certain Cash Receipts and Cash Payments. The purpose of this ASU is to address existing diversity in practice related to specific cash flow issues. This ASU will be effective for fiscal years beginning after December 15, 2017, and interim periods within

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

~~flow issues. This ASU will be effective for fiscal years beginning after December 15, 2017, and interim periods within~~ those fiscal years. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. The purpose of this ASU is to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory. This ASU will be effective for annual reporting periods beginning after December 15, 2017. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other. The ~~purposes~~purpose of this ASU is to simplify how an entity is required to test goodwill for impairment. This ASU will be effective for annual fiscal years beginning after December 15, 2019. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05 Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets. The purpose of this ASU is to clarify the scope for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers and add guidance for partial sales of nonfinancing assets. ~~The~~This ASU is effective for the Company beginning with the fiscal year ending June 30, 2019. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB ~~issues~~issued ASU 2017-08 Receivables – Nonrefundable Fees and Other Costs. The purpose of this ASU is to shorten the amortization period of certain callable debt securities held at a premium. This ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09 Compensation – Stock Compensation. The purpose of this ASU is to provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation – Stock Compensation, to a change to the terms or conditions of a share-based payment award. This ASU will be effective for annual periods, and interim periods within those annual periods, beginning December 15, 2017. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11 Earnings Per Share, Distinguishing Liabilities from Equity, and Derivatives and Hedging. The purpose of this ASU is to address complexity of accounting for certain financial instruments with down round features and the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity. This ASU is effective for fiscal years beginning after December 15, 2019. This Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB ~~issues~~issued ASU 2017-12 Derivatives and Hedging. The purpose of this ASU is to improve the hedge accounting model to facilitate financial reporting that more closely reflects an entity’s risk management activities. This ASU will be effective for fiscal years beginning after December 15, 2018. This Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

Note 3.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

Amortized

Unrealized

September 30, 2017

Cost

Gains

Losses

Fair Value

December 31, 2017

Cost

Gains

Losses

Fair Value

U.S. Government-sponsored agencies securities

~~987~~988,~~532~~146

—

(620,~~474~~252)

~~981~~967,~~058~~894

Residential mortgage-backed securities

~~402~~376,~~416~~992

1,~~919~~085

(~~240~~1,604)

~~404~~376,~~095~~473

1,~~389~~365,~~948~~138

1,~~919~~085

(621,~~714~~856)

1,~~385~~344,~~153~~367

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)


			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2017	Cost		Gains		Losses		Fair Value
U.S. Government-sponsored agencies securities	$	986,919	$	—	$	(17,974)	$	968,945
Residential mortgage-backed securities		440,070		1,973		(33)		442,010
	$	1,426,989	$	1,973	$	(18,007)	$	1,410,955

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

Gross

Amortized

Unrealized

September 30, 2017

Cost

Gains

Losses

Fair Value

December 31, 2017

Cost

Gains

Losses

Fair Value

Residential mortgage-backed securities

~~129~~118,~~076~~955

97,~~421~~228

—

~~138~~126,~~497~~183

Municipal securities

600,000

—

(~~746~~2,564)

~~599~~597,~~254~~436

~~729~~718,~~076~~955

97,~~421~~228

(~~746~~2,564)

~~737~~723,~~751~~619


			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2017	Cost		Gains		Losses		Fair Value
Residential mortgage-backed securities	$	135,978	$	10,279	$	—	$	146,257
Municipal securities		600,000		—		(384)		599,616
	$	735,978	$	10,279	$	(384)	$	745,873

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

The contractual maturities of the residential mortgage-backed securities at ~~September~~December 3031, 2017 are not disclosed because the securities are not due at a single maturity date. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Approximately $400,000 in municipal securities will mature in the year ending June 30, 2019 with the remaining balance maturing in the year ending June 30, 2020. Approximately $981,000 of U.S. Government sponsored agency bonds will mature in the year ending June 30, 2023.

There were no sales of securities for the ~~three~~six months ended ~~September~~December 3031, 2017 and 2016.

The duration of gross unrealized losses is not disclosed as such amounts are immaterial to the consolidated financial statements. The Company has not recognized other-than-temporary impairment on any securities for the ~~three~~six months ended ~~September~~December 3031, 2017 and 2016.

Note 4.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.

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

Loans are as follows:

	September 30, 2017		June 30, 2017
	December 31, 2017		June 30, 2017
Commercial:
Operating	$	2120,~~012~~053,~~850~~461	$	20,139,045
Real estate		8993,~~413~~249,~~534~~454		86,809,938
Agricultural:
Operating		2729,~~653~~712,~~547~~495		26,739,407
Real estate		30,~~837~~910,~~522~~292		31,105,790
Residential real estate:
1-4 family		4445,~~898~~995,~~107~~076		43,060,013
Home equity		1112,~~363~~074,~~532~~946		11,748,363
Other:
Construction and land		19,~~716~~087,~~368~~822		16,175,698
Consumer		3,~~741~~670,~~855~~362		3,674,674
Total loans		~~248~~254,~~637~~753,~~315~~908		239,452,928
Deferred loan origination costs, net		~~626~~671,~~297~~479		647,197
Allowance for loan losses		(34,~~759~~462,000)		(3,555,000)
		(3,132,703)		(2,907,803)
		(3,790,521)		(2,907,803)
Loans, net	$	~~245~~250,~~504~~963,~~612~~387	$	236,545,125

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.

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

Residential

Commercial

Agricultural

Real Estate

Other

Total

For the three months ended September 30, 2017

For the three months ended December 31, 2017

Balance, beginning

1,~~703~~796,000

~~918~~947,000

~~656~~689,000

~~278~~327,000

3,~~555~~759,000

Provision charged to expense

91610,~~954~~187

2933,000

3225,~~462~~707

51(5,~~018~~989)

~~204~~662,~~434~~905

Recoveries

139,~~046~~813

—

~~538~~1,293

~~154~~1,724

142,~~738~~830

Loans charged off

—

(2,~~172~~735)

Balance, ending

12,~~796~~446,000

~~947~~980,000

~~689~~716,000

~~327~~320,000

34,~~759~~462,000

Residential

Commercial

Agricultural

Real Estate

Other

Total

For the three months ended September 30, 2016

For the three months ended December 31, 2016

Balance, beginning

1,~~337~~393,~~000~~510

~~738~~802,000

~~655~~617,000

~~217~~243,000

23,~~947~~055,~~000~~510

Provision charged to expense

9659,~~703~~608

6446,000

~~(38~~17,~~225)~~252

3046,~~286~~249

~~152~~169,~~764~~109

Recoveries

714,~~674~~882

—

~~225~~842

~~964~~238

815,~~863~~962

Loans charged off

~~(47,867)~~—

—

—(94)

(52,~~250~~487)

(532,~~117~~581)

Balance, ending

1,~~393~~468,~~510~~000

~~802~~848,000

~~617~~635,000

~~243~~287,000

3,~~055~~238,~~510~~000


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	For the six months ended December 31, 2017
Balance, beginning	$	1,703,000	$	918,000	$	656,000	$	278,000	$	3,555,000
Provision charged to expense		702,141		62,000		58,169		45,029		867,339
Recoveries		40,859		—		1,831		1,878		44,568
Loans charged off		—		—		—		(4,907)		(4,907)
Balance, ending	$	2,446,000		980,000		716,000		320,000	$	4,462,000


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	For the six months ended December 31, 2016
Balance, beginning	$	1,337,000	$	738,000	$	655,000	$	217,000	$	2,947,000
Provision charged to expense		156,311		110,000		(20,973)		76,535		321,873
Recoveries		22,556		—		1,067		1,202		24,825
Loans charged off		(47,867)		—		(94)		(7,737)		(55,698)
Balance, ending	$	1,468,000	$	848,000	$	635,000	$	287,000	$	3,238,000

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

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

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

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

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

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

~~individual~~of ~~residential~~the ~~real~~shortfall ~~estate~~in ~~loans~~relation to the principal and~~/or~~ ~~consumer~~interest ~~loans~~owed. ~~for~~Impairment ~~impairment~~is ~~disclosures,~~measured ~~unless~~on ~~such~~a ~~loans~~case-by-case ~~are~~basis by either the ~~subject~~present value of aexpected ~~restructuring~~future ~~agreement~~cash ~~due~~flows todiscounted ~~financial~~at ~~difficulties~~the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the ~~borrower~~collateral if the loan is collateral dependent.

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

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

Residential

Commercial

Agricultural

Real Estate

Other

Total

September 30, 2017

December 31, 2017

Allowance for loans individually evaluated for impairment

22676,~~633~~799

3029,~~445~~730

4150,~~206~~348

1,~~807~~387

96758,~~091~~264

Allowance for loans collectively evaluated for impairment

1,~~773~~769,~~367~~201

~~916~~950,~~555~~270

~~647~~665,~~794~~652

~~325~~318,~~193~~613

3,~~662~~703,~~909~~736

12,~~796~~446,000

~~947~~980,000

~~689~~716,000

~~327~~320,000

34,~~759~~462,000

Loans individually evaluated for impairment

13,~~026~~310,~~830~~075

486,057

32,~~081~~711,~~718~~366

1817,~~857~~337

46,~~613~~524,~~462~~835

Loans collectively evaluated for impairment

109,~~399~~992,~~554~~840

5860,~~005~~136,~~012~~730

5355,~~179~~358,~~921~~656

2322,~~439~~740,~~366~~847

~~244~~248,~~023~~229,~~853~~073

~~110~~113,~~426~~302,~~384~~915

5860,~~491~~622,~~069~~787

5658,~~261~~070,~~639~~022

2322,~~458~~758,~~223~~184

~~248~~254,~~637~~753,~~315~~908


					Residential
	Commercial		Agricultural		Real Estate		Other		Total
	June 30, 2017
Allowance for loans individually evaluated for impairment	$	6,487	$	17,973	$	29,271	$	1,949	$	55,680
Allowance for loans collectively evaluated for impairment		1,696,513		900,027		626,729		276,051		3,499,320
	$	1,703,000	$	918,000	$	656,000	$	278,000	$	3,555,000

Loans individually evaluated for impairment	$	870,377	$	864,357	$	3,142,020	$	20,408	$	4,897,162
Loans collectively evaluated for impairment		106,078,606		56,980,840		51,666,356		19,829,964		234,555,766
	$	106,948,983	$	57,845,197	$	54,808,376	$	19,850,372	$	239,452,928

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.

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Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

14The 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
	December 31, 2017
Classes of loans:
Commercial:
Operating	$	19,899,428	$	79,207	$	—	$	74,826	$	20,053,461	$	346,184
Real estate		93,249,454		—		—		—		93,249,454		613,204
Agricultural:
Operating		29,712,495		—		—		—		29,712,495		—
Real estate		30,439,235		—		—		471,057		30,910,292		486,057
Residential real estate:
1-4 family		45,669,062		13,614		—		312,400		45,995,076		812,504
Home equity		12,074,946		—		—		—		12,074,946		19,700
Other:
Construction and land		19,087,822		—		—		—		19,087,822		—
Consumer		3,636,137		32,203		—		2,022		3,670,362		19,360
	$	253,768,579	$	125,024	$	—	$	860,305	$	254,753,908	$	2,297,009

Table of Contents

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
	September 30, 2017
Classes of loans:
Commercial:
Operating	$	20,907,328	$	—	$	17,457	$	88,065	$	21,012,850	$	362,056
Real estate		89,413,534		—		—		—		89,413,534		627,117
Agricultural:
Operating		27,653,547		—		—		—		27,653,547		—
Real estate		30,366,465		—		—		471,057		30,837,522		486,057
Residential real estate:
1-4 family		44,031,250		42,871		—		823,986		44,898,107		1,322,277
Home equity		11,356,742		6,790		—		—		11,363,532		21,761
Other:
Construction and land		19,716,368		—		—		—		19,716,368		—
Consumer		3,738,987		—		—		2,868		3,741,855		21,725
	$	247,184,221	$	49,661	$	17,457	$	1,385,976	$	248,637,315	$	2,840,993


							> 90 days
			31-60 days		61-90 days		Past Due					Non accrual
	Current		Past Due		Past Due		(Nonaccrual)		Total			Loans
	June 30, 2017
Classes of loans:
Commercial:
Operating	$	20,072,350	$	33,060	$	13,240	$	20,395	$	20,139,045	$	154,671
Real estate		86,809,938		—		—		—		86,809,938		640,881
Agricultural:
Operating		26,699,805		32,754		—		6,848		26,739,407		6,848
Real estate		30,263,281		47,900		—		794,609		31,105,790		857,509
Residential real estate:
1-4 family		42,722,767		164,549		—		172,697		43,060,013		675,197
Home equity		11,748,363		—		—		—		11,748,363		22,649
Other:
Construction and land		16,175,698		—		—		—		16,175,698		—
Consumer		3,670,927		—		3,747		—		3,674,674		24,124
	$	238,163,129	$	278,263	$	16,987	$	994,549	$	239,452,928	$	2,381,879

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

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

15Acceptable 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.

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

~~marketable)~~circumstances ~~assets,~~have ~~high~~caused ~~quality~~the ~~real~~risk ~~estate~~to orincrease ~~traded~~to ~~stocks,~~a ~~lower~~level ~~grade~~higher ~~municipal~~than ~~bonds~~would ~~(which~~have ~~must~~been ~~still~~acceptable bewhen ~~investment~~the ~~grade)~~credit was originally approved. If a loan's actual, ~~and~~not ~~uninsured~~potential, ~~certificates~~weakness ofor ~~deposit~~problems onare ~~other~~clearly ~~financial~~evident ~~institutions~~and ~~may~~significant ~~also~~it should generally be ~~included~~graded in ~~this~~one of the following grade categories.

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.

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

16For each class of loans, the following summarizes the unpaid principal balance by credit quality indicator as of:


									Other —
	Commercial —		Commercial —		Agricultural —		Agricultural —		Construction
	Operating		Real Estate		Operating		Real Estate		and Land		Total
	December 31, 2017
Internally assigned risk rating:
Highest Quality (rating 1)	$	—	$	—	$	364,038	$	302,991	$	—	$	667,029
Good Quality (rating 2)		151,182		11,031,355		3,265,475		3,497,478		9,166		17,954,656
Acceptable Quality (rating 3)		6,959,993		43,807,603		10,497,020		7,167,665		10,923,816		79,356,097
Fair Quality (rating 4)		11,613,697		32,006,136		14,379,528		18,058,471		7,596,154		83,653,986
Special Mention (rating 5)		68,268		148,000		987,950		295,000		558,686		2,057,904
Substandard (rating 6)		1,260,321		6,256,360		218,484		1,588,687		—		9,323,852
Doubtful (rating 7)		—		—		—		—		—		—
Loss (rating 8)		—		—		—		—		—		—
	$	20,053,461	$	93,249,454	$	29,712,495	$	30,910,292	$	19,087,822	$	193,013,524

Table of Contents

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:

									Other —
	Commercial —		Commercial —		Agricultural —		Agricultural —		Construction
	Operating		Real Estate		Operating		Real Estate		and Land		Total
	September 30, 2017
Internally assigned risk rating:
Highest Quality (rating 1)	$	—	$	—	$	406,038	$	326,045	$	—	$	732,083
Good Quality (rating 2)		164,561		6,725,271		5,337,113		3,538,384		2,606,567		18,371,896
Acceptable Quality (rating 3)		9,433,973		45,673,386		9,246,950		11,823,831		12,729,538		88,907,678
Fair Quality (rating 4)		11,082,665		31,533,346		11,859,229		12,937,216		4,380,263		71,792,719
Special Mention (rating 5)		—		3,140,303		600,000		295,000		—		4,035,303
Substandard (rating 6)		331,651		2,341,228		204,217		1,917,046		—		4,794,142
Doubtful (rating 7)		—		—		—		—		—		—
Loss (rating 8)		—		—		—		—		—		—
	$	21,012,850	$	89,413,534	$	27,653,547	$	30,837,522	$	19,716,368	$	188,633,821


									Other —
	Commercial —		Commercial —		Agricultural —		Agricultural —		Construction
	Operating		Real Estate		Operating		Real Estate		and Land		Total
	June 30, 2017
Internally assigned risk rating:
Highest Quality (rating 1)	$	—	$	—	$	324,038	$	326,045	$	—	$	650,083
Good Quality (rating 2)		177,795		6,638,998		5,185,147		3,541,630		2,868,632		18,412,202
Acceptable Quality (rating 3)		8,470,283		44,240,531		9,271,425		12,354,765		10,426,245		84,763,249
Fair Quality (rating 4)		11,313,276		31,603,455		11,489,750		13,116,352		2,880,821		70,403,654
Special Mention (rating 5)		—		1,948,017		403,234		—		—		2,351,251
Substandard (rating 6)		177,691		2,378,937		65,813		1,766,998		—		4,389,439
Doubtful (rating 7)		—		—		—		—		—		—
Loss (rating 8)		—		—		—		—		—		—
	$	20,139,045	$	86,809,938	$	26,739,407	$	31,105,790	$	16,175,698	$	180,969,878

Residential RE —

Other —

1-4 Family

Home Equity

Consumer

Total

September 30, 2017

December 31, 2017

Delinquency status*:

Performing

4345,~~532~~188,~~959~~972

1112,~~341~~055,~~771~~246

3,~~720~~618,~~130~~799

5860,~~594~~863,~~860~~017

Nonperforming

1806,~~365,148~~104

2119,~~761~~700

2151,~~725~~563

1877,~~408,634~~367

4445,~~898~~995,~~107~~076

1112,~~363~~074,~~532~~946

3,~~741~~670,~~855~~362

6061,~~003~~740,~~494~~384


	Residential RE —		Residential RE —		Other —
	1-4 Family		Home Equity		Consumer		Total
	June 30, 2017
Delinquency status*:
Performing	$	42,220,268	$	11,725,714	$	3,650,519	$	57,596,501
Nonperforming		839,745		22,649		24,155		886,549
	$	43,060,013	$	11,748,363	$	3,674,674	$	58,483,050

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

At ~~September~~December 3031, 2017 and June 30, 2017, the Company had no loans greater than 90 days past due and still accruing.

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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

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

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	September 30, 2017
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	214,079	$	210,919	$	—
Real estate		629,412		627,117		—
Residential real estate:
1-4 family		2,409,291		2,387,146		—
Home equity		6,262		6,251		-
		3,259,044		3,231,433		—
Impaired loans with specific allowance recorded:
Commercial:
Operating		190,218		188,794		22,633
Agricultural:
Real estate		531,638		486,057		30,445
Residential real estate:
1-4 family		691,561		673,350		40,533
Home equity		15,009		14,971		673
Other:
Consumer		18,927		18,857		1,807
		1,447,353		1,382,029		96,091
Total impaired loans:
Commercial:
Operating		404,297		399,713		22,633
Real estate		629,412		627,117		—
Agricultural:
Real estate		531,638		486,057		30,445
Residential real estate:
1-4 family		3,100,852		3,060,496		40,533
Home equity		21,271		21,222		673
Other:
Consumer		18,927		18,857		1,807
	$	4,706,397	$	4,613,462	$	96,091

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	June 30, 2017
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	164,823	$	164,128	$	—
Real estate		643,226		640,881		—
Agricultural:
Operating		7,503		6,848		—
Real estate		432,468		371,452		—
Residential real estate:
1-4 family		2,448,574		2,439,137		—
Home equity		7,880		7,868		—
		3,704,474		3,630,314		—
Impaired loans with specific allowance recorded:
Commercial:
Operating		65,701		65,369		6,487
Agricultural:
Real estate		525,068		486,056		17,973
Residential real estate:
1-4 family		695,327		679,474		28,857
Home equity		15,553		15,541		414
Other:
Consumer		20,433		20,408		1,949
		1,322,082		1,266,848		55,680
Total impaired loans:
Commercial:
Operating		230,524		229,497		6,487
Real estate		643,226		640,881		—
Agricultural:
Operating		7,503		6,848		—
Real estate		957,536		857,508		17,973
Residential real estate:
1-4 family		3,143,901		3,118,611		28,857
Home equity		23,433		23,409		414
Other:
Consumer		20,433		20,408		1,949
	$	5,026,556	$	4,897,162	$	55,680

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


			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	December 31, 2017
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	176,325	$	171,824	$	—
Real estate		1,938,846		1,928,763		—
Residential real estate:
1-4 family		1,863,107		1,853,218		—
Home equity		6,124		6,112		—
		3,984,402		3,959,917		—

Impaired loans with specific allowance recorded:
Commercial:
Operating		1,214,347		1,209,488		676,799
Agricultural:
Real estate		538,192		486,057		29,730
Residential real estate:
1-4 family		688,914		668,781		37,656
Home equity		183,530		183,255		12,692
Other:
Consumer		17,404		17,337		1,387
		2,642,387		2,564,918		758,264

Total impaired loans:
Commercial:
Operating		1,390,672		1,381,312		676,799
Real estate		1,938,846		1,928,763		—
Agricultural:
Real estate		538,192		486,057		29,730
Residential real estate:
1-4 family		2,552,021		2,521,999		37,656
Home equity		189,654		189,367		12,692
Other:
Consumer		17,404		17,337		1,387
	$	6,626,789	$	6,524,835	$	758,264

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	June 30, 2017
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	164,823	$	164,128	$	—
Real estate		643,226		640,881		—
Agricultural:
Operating		7,503		6,848		—
Real estate		432,468		371,452		—
Residential real estate:
1-4 family		2,448,574		2,439,137		—
Home equity		7,880		7,868		—
		3,704,474		3,630,314		—

Impaired loans with specific allowance recorded:
Commercial:
Operating		65,701		65,369		6,487
Agricultural:
Real estate		525,068		486,056		17,973
Residential real estate:
1-4 family		695,327		679,474		28,857
Home equity		15,553		15,541		414
Other:
Consumer		20,433		20,408		1,949
		1,322,082		1,266,848		55,680

Total impaired loans:
Commercial:
Operating		230,524		229,497		6,487
Real estate		643,226		640,881		—
Agricultural:
Operating		7,503		6,848		—
Real estate		957,536		857,508		17,973
Residential real estate:
1-4 family		3,143,901		3,118,611		28,857
Home equity		23,433		23,409		414
Other:
Consumer		20,433		20,408		1,949
	$	5,026,556	$	4,897,162	$	55,680

	For the three months ended
	September 30, 2017				September 30, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	189,451	$	3,006	$	92,025	$	1,114
Real estate		636,319		6,960		35,413		406
Agricultural:
Operating		—		—		12,597		6,036
Real estate		—		—		431,652		—
Residential real estate:
1-4 family		2,416,029		22,505		3,087,791		38,181
Home equity		6,330		96		26,502		431
Other:
Consumer		—		—		3,411		39
		3,248,129		32,567		3,689,391		46,207
Impaired loans with specific allowance recorded:
Commercial:
Operating		182,562		1,925		114,596		835
Real estate		—		—		47,209		—
Agricultural:
Real estate		528,353		245		487,147		—
Residential real estate:
1-4 family		693,404		6,672		576,314		2,208
Home equity		15,281		244		50,112		792
Other:
Consumer		19,680		175		—		—
		1,439,280		9,261		1,275,378		3,835
Total impaired loans:
Commercial:
Operating		372,013		4,931		206,621		1,949
Real estate		636,319		6,960		82,622		406
Agricultural:
Operating		—		—		12,597		6,036
Real estate		528,353		245		918,799		—
Residential real estate:
1-4 family		3,109,433		29,177		3,664,105		40,389
Home equity		21,611		340		76,614		1,223
Other:
Consumer		19,680		175		3,411		39
	$	4,687,409	$	41,828	$	4,964,769	$	50,042

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

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


	For the three months ended
	December 31, 2017				December 31, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Classes of loans:
Impaired loans with no specific allowance recorded:
Commercial:
Operating	$	167,811	$	1,322	$	190,581	$	2,611
Real estate		1,284,129		6,811		335,315		2,375
Agricultural:
Operating		—		—		48,507		3,328
Real estate		—		—		432,437		135
Residential real estate:
1-4 family		1,876,204		23,076		3,103,372		36,162
Home equity		6,193		93		8,936		150
Other:
Consumer		—		—		27,440		270
		3,334,337		31,302		4,146,588		45,031

Impaired loans with specific allowance recorded:
Commercial:
Operating		1,200,206		16,844		59,569		606
Real estate		—		—		47,765		—
Agricultural:
Real estate		534,915		265		493,981		—
Residential real estate:
1-4 family		690,238		7,037		577,070		3,551
Home equity		99,269		288		17,944		156
Other:
Consumer		18,165		206		—		—
		2,542,793		24,640		1,196,329		4,313

Total impaired loans:
Commercial:
Operating		1,368,017		18,166		250,150		3,217
Real estate		1,284,129		6,811		383,080		2,375
Agricultural:
Operating		—		—		48,507		3,328
Real estate		534,915		265		926,418		135
Residential real estate:
1-4 family		2,566,442		30,113		3,680,442		39,713
Home equity		105,462		381		26,880		306
Other:
Consumer		18,165		206		27,440		270
	$	5,877,130	$	55,942	$	5,342,917	$	49,344

Table of Contents

Equitable Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

For the six months ended

December 31, 2017

December 31, 2016

Average

Interest

Filing Compare · Equitable Financial Corp.