Equitable Financial 10QSB 2007 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________

FORM 10-QSB

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________ to _____________

Commission file number: 0-51514

EQUITABLE FINANCIAL CORP.

(Exact name of small business issuer as specified in its charter)

United States	14-1941649
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

113 North Locust Street, Grand Island, Nebraska 68801

 (Address of principal executive offices)

(308) 382-3136

  (Issuer’s telephone number)

Not Applicable

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

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

As of November 10, 2006 there were 3,297,509 shares of the registrant’s common stock outstanding.

Transitional Small Business Disclosure Format (Check one):

Yes o   No x

EQUITABLE FINANCIAL CORP.

FORM 10-QSB

Index

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Statements of Financial Condition at three months ended September 30, 2006 (Unaudited) and year ended June 30, 2006	1
	Consolidated Statements of Operations for the three months ended September 30, 2006 and 2005 (Unaudited)	2
	Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2006 and 2005 (Unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended September 30, 2006 and 2005 (Unaudited)	4
	Notes to Consolidated Unaudited Financial Statements	5
Item 2.	Management’s Discussion and Analysis or Plan of Operation	7
Item 3.	Controls and Procedures	14
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits	16

Signatures

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQUITABLE FINANCIAL CORP.

Statements of Financial Condition

(Unaudited)

	September 30, 2006			June 30, 2006
ASSETS
Cash and due from financial institutions	$	2,877,021		$	2,392,931
Federal funds sold		-			1,700,000
Cash and cash equivalents		2,877,021			4,092,931
Securities available-for-sale, at fair value		9,411,539			9,429,663
Securities held-to-maturity, fair value at September 30, 2006 - $854,439; and June 30, 2006-$888,342		864,573			915,184
Federal Home Loan Bank stock, at cost		2,344,300			2,311,800
Loans, net of allowance for loan losses of $954,728 at September 30, 2006 and $926,312 at June 30, 2006		155,472,146			153,408,146
Premises and equipment, net		6,717,576			6,067,331
Accrued interest receivable		1,262,200			1,153,751
Other assets		1,917,871			1,382,255
Total assets	$	180,867,226		$	178,761,061
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing deposits	$	5,932,760		$	5,748,057
Interest-bearing deposits		111,023,796			116,173,516
Total deposits		116,956,556			121,921,573
Federal Home Loan Bank borrowings		38,425,082			30,604,426
Advance payments from borrowers for taxes and insurance		401,280			893,846
Accrued interest payable and other liabilities		172,173			246,540
Common stock in ESOP subject to contingent repurchase obligation		89,050			61,033
Commitments and contingencies		-			-
Stockholders’ equity:
Preferred stock, $0.01 par value per share; authorized 1,000,000 shares, no shares are outstanding		-			-
Common stock, $0.01 par value, 14,000,000 shares authorized; 3,297,509 shares issued at September 30, 2006 and June 30, 2006.		32,975			32,975
Additional paid-in capital		13,615,654			13,617,427
Retained earnings		12,547,293			12,820,516
Accumulated other comprehensive (loss)		(80,217	)		(149,962	)
Unearned ESOP shares		(1,203,570	)		(1,226,280	)
Reclassification of ESOP shares		(89,050	)		(61,033	)
Total stockholders’ equity		24,823,085			25,033,643
Total liabilities and stockholders’ equity	$	180,867,226		$	178,761,061

See Notes to the Unaudited Consolidated Financial Statements.

1

EQUITABLE FINANCIAL CORP.

Statements of Operations

(Unaudited)

	Three Months Ended September 30,
	2006			2005
Interest Income
Loans	$	2,379,894		$	1,826,748
Securities		136,918			155,698
Other		14,755			9,033
Total interest income		2,531,567			1,991,479
Interest Expense
Deposits		1,086,528			693,457
Federal Home Loan Bank borrowings		459,274			431,500
Total interest expense		1,545,802			1,124,957
Net interest income		985,765			866,522
Provision for loan losses		30,000			30,000
Net interest income after provision for loan losses		955,765			836,522
Noninterest income
Service charges on deposit accounts		75,814			53,343
Brokerage fee income		152,284			203,778
Gain on sale of loans		19,329			-
Other loan fees		19,805			65,459
Other income		24,689			35,278
Total noninterest income		291,921			357,858
Noninterest expenses
Salaries and employee benefits		902,106			715,295
Director and committee fees		24,450			24,450
Data processing fees		72,373			104,028
Occupancy and equipment		239,272			205,726
Regulatory fees and deposit insurance premium		14,906			14,587
Advertising and public relations		82,442			88,507
Contributions and donations		21,519			21,965
Insurance and surety bond premiums		25,164			21,162
Professional fees		109,339			56,892
Supplies, telephone, postage		69,155			54,882
ATM expenses		9,669			8,160
Dues and subscriptions		13,365			17,587
Other expenses		66,145			56,144
Total noninterest expenses		1,649,905			1,389,385
(Loss) before income taxes		(402,219	)		(195,005	)
Income tax (benefit)		(128,996	)		(82,599	)
Net (loss)	$	(273,223	)	$	(112,406	)
Basic and diluted (loss) per share	$	(0.09	)		N/A

___________________

N/A-Not applicable, see Note 2.

See Notes to the Unaudited Consolidated Financial Statements.

2

EQUITABLE FINANCIAL CORP.

Consolidated Statements of Stockholders’ Equity

Three Months Ended September 30, 2006 and 2005

(Unaudited)

	Common Stock		Additional Paid-In Capital			Retained Earnings			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)			Amount Reclassified On ESOP Shares			Total
Balance at June 30, 2005	$	-	$	-		$	13,889,317		$	-		$	473,301		$	-		$	14,362,618
Comprehensive income (loss)
Net income (loss)		-		-			(112,406	)		-			-			-			(112,406	)
Net decrease in fair value of securities classified as available-for-sale, net of income taxes		-		-			-			-			(134,343	)		-			(134,343	)
Total comprehensive income																			(246,749	)
Balance at September 30, 2005	$	-	$	-		$	13,776,911		$	-		$	338,958		$	-		$	14,115,869
Balance at June 30, 2006		32,975		13,617,427			12,820,516			(1,226,280	)		(149,962	)		(61,033	)		25,033,643
Comprehensive loss		-		-						-			-			-
Net income (loss)		-		-			(273,223	)		-			-			-			(273,223	)
Net increase (decrease) in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments		-		-			-			-			69,745			-			69,745
Total comprehensive loss																			203,478
Release of 2,271 unearned ESOP shares		-		(1,773	)		-			22,710			-			-			20,937
Reclassification due to release and change in fair value of common stock in ESOP subject to contingent repurchase obligation of ESOP shares		-		-			-			-			-			(28,017	)		(28,017	)
Balance at September 30, 2006	$	32,975	$	13,615,654		$	12,547,293		$	(1,203,570	)	$	80,217		$	(89,050	)	$	24,823,085

See Notes to the Unaudited Consolidated Financial Statements.

3

EQUITABLE FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended September 30,
	2006			2005
Cash flows from operating activities:
Net (loss)	$	(273,223	)	$	(112,406	)
Adjustments to reconcile net (loss) to net cash from operating activities:
Depreciation		91,439			48,523
Federal Home Loan Bank stock dividends		(32,500	)		(22,800	)
ESOP expense		20,937			-
Amortization of:
Deferred loan origination costs, net		(14,156	)		(100,397	)
Premiums and discounts		3,875			9,091
Provision for loan losses		30,000			30,000
Gain on sale of loans		(19,329	)		-
Loans originated for sale		(1,222,291	)		-
Proceeds from sale of loans		1,241,620			-
Change in:
Accrued interest receivable		(108,449	)		(125,818	)
Other assets		(535,321	)		(473,788	)
Accrued interest payable and other liabilities		(46,350	)		23,317
Net cash from operating activities		(863,748	)		(724,278	)
Cash flows from investing activities:
Net change in loans		(2,108,156	)		(18,202,996	)
Securities available-for-sale
Proceeds from principal repayments		84,977			276,538
Securities held-to-maturity
Proceeds from principal repayments		49,628			97,258
Purchases of Federal Home Loan Bank stock.		-			(214,300	)
Purchase of premises and equipment		(741,684	)		(138,907	)
Net cash from investing activities		(2,715,235	)		(18,182,407	)
Cash flows from financing activities:
Net change in deposits		(4,965,017	)		13,286,921
Proceeds from Federal Home Loan Bank borrowings		8,500,000			30,500,000
Repayments of Federal Home Loan Bank borrowings		(679,344	)		(24,776,062	)
Net change in advance payments from borrowers for taxes and insurance……		(492,566	)		(381,129	)
Net cash from financing activities		2,363,073			18,629,730
Increase/decrease in cash and cash equivalents		(1,215,910	)		(276,955	)
Cash and cash equivalents, beginning of period		4,092,931			2,159,699
Cash and cash equivalents, end of period	$	2,877,021		$	1,882,744
Supplemental cash flow information:
Interest paid on deposits and borrowings	$	1,534,045		$	386,446
Income taxes (refunded) paid		-			45,000
Supplemental noncash disclosure:
Common stock in ESOP subject to contingent repurchase obligation	$	89,050		$	-

See notes to the Unaudited Consolidated Financial Statements

4

EQUITABLE FINANCIAL CORP.

Notes to the Unaudited Consolidated Financial Statements

September 30, 2006

(1) Basis of Presentation

The unaudited consolidated financial statements as of and for the period ended September 30, 2006 include the accounts of Equitable Financial Corp. (“Equitable Financial” or the “Company) and its wholly owned subsidiary, Equitable Bank (the “Bank”). The Company was incorporated on November 8, 2005 for the purpose of serving as the holding company of the Bank as part of the Bank’s mutual holding company reorganization and minority stock issuance. As described in note 3 below, the reorganization was completed on November 8, 2005.All significant intercompany accounts and transactions have been eliminated. The Company, through the Bank, operates in a single business segment, providing traditional banking services through its office network. The financial statements for the periods prior to November 8, 2005 include only the accounts of the Bank, as the Company was not in existence during such period.

The accompanying unaudited financial statements have been prepared in accordance with instructions for Form 10-QSB and, therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with U.S. generally accepted accounting principles. However, all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. Such adjustments were of a normal recurring nature. The results of operations for the three-month period ended September 30, 2006 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.

In preparing financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses, deferred tax valuation and the fair values of financial instruments.

Certain prior period amounts have been reclassified to correspond with the current period presentations.

(2) Earnings Per Share

 Basic earnings (loss) per share are computed by dividing income available to common stockholders by the weighted average number of common stock outstanding for the period. Weighted average common shares outstanding during the period includes allocated and committed-to-be-released employee stock ownership plan shares. Diluted earnings (loss) per share shows the dilutive effect, if any, of additional common shares issuable under stock options. The Company has no common stock equivalents; consequently, basic and diluted earnings (loss) per share are the same.

	2006			2005
	(Dollars in thousands)
Net (loss) for the three months ended September 30	$	(273,000	)	$	(112,000	)
Weighted average shares outstanding for the quarter		3,174,881			N/A
Earnings (loss) per share	$	(0.09	)		N/A

5

Earnings per share data is not presented for the three months ended September 30, 2005, as the Company had no shares outstanding prior to the Company’s incorporation and initial public offering on November 8, 2005.

(3) Mutual Holding Company Reorganization and Stock Issuance

Equitable Financial was organized as a federal corporation at the direction of the Bank in connection with the mutual holding company reorganization of the Bank. The reorganization was completed on November 8, 2005. In the reorganization, Equitable Financial sold 43.1% of its outstanding shares of common stock (1,421,226 shares) to the public, contributed 1.9% of its outstanding shares of common stock (62,653 shares) plus $100,000 in cash to the Equitable Bank Charitable Foundation and issued 55% of its outstanding shares of common stock (1,813,630 shares) to Equitable Financial MHC, the mutual holding company of the Bank. In addition, a contribution of $100,000 was made to capitalize Equitable Financial MHC. In connection with the reorganization, the Bank changed its name to Equitable Bank from Equitable Savings Bank of Grand Island. Costs incurred in connection with the common stock offering (approximately $1.2 million) were recorded as a reduction of the proceeds from the offering. Net proceeds from the common stock offering amounted to approximately $13.0 million.

(4) Employee Stock Ownership Plan

On November 8, 2005, the Company adopted an employee stock ownership plan (the “ESOP”) for the benefit of substantially all employees. The ESOP borrowed approximately $1.3 million 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.

Shares purchased by the ESOP with the loan proceeds are held in a suspense account and are allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company’s discretionary contributions to the ESOP and earnings on ESOP assets. Annual principal and interest payments of approximately $145,000 are to be made by the ESOP.

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 appraised fair value of all earned and allocated ESOP shares may become a liability.

(5) Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which was issued to require that all tax positions be evaluated using consistent criteria and measurement and further supplemented by enhanced disclosure. FIN 48, an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. This interpretation provides clear criteria for subsequently recognizing, derecognizing and measuring such tax positions for financial statement purposes, as well as provides guidance on accrual of interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 or January 1, 2007 for calendar year-end companies. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption would be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The cumulative-effect adjustment would not apply to those items that would not have been recognized in earnings, such as the effect of adopting FIN 48 on tax positions related to business combinations. The Company is currently evaluating the impact of the statement on its financial position, results of operations and liquidity.

6

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements,” to provide guidance on how to measure fair value, which would apply broadly to financial and non-financial assets and liabilities that are measured at fair value under other authoritative accounting pronouncements. The statement defines fair value, provides a hierarchy that prioritizes inputs that should be used in valuation techniques used to measure fair value, and expands current disclosures about the use of fair value to measure assets and liabilities. The disclosures focus on the methods used for the measurements and their effect on earnings and would apply whether the assets were measured at fair value in all periods, such as trading securities, or in only some periods, such as for impaired assets. A transition adjustment would be recognized as a cumulative-effect adjustment to beginning retained earnings for the fiscal year in which the statement is initially adopted. This adjustment is measured as the difference between the carrying amounts and the fair values of those financial instruments at the date of adoption. The statement is effective for fiscal years beginning after November 15, 2007 (or January 1, 2008 for calendar-year companies) and interim periods within those fiscal years. The Company will adopt the statement on January 1, 2008. The fair value disclosures required by this statement will be effective for the first interim period in which the statement is adopted. The Company is currently evaluating the impact of the statement on its financial position, results of operations and liquidity.

In September 2006, the Securities Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) 108, which was issued to address the diversity in practice in quantifying financial statement misstatements and the potential under current practices for the build up of improper amounts on the balance sheet. The Company is in the process evaluating the potential impact of the standard for future periods.

Also in September 2006, under EITF 06-5: Accounting for Purchases of Life Insurance - Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin No. 85-4, “Accounting for Purchases of Life Insurance,” the task force reached a consensus that a policyholder should consider any additional amounts included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract. The task force agreed that contractual limitations should be considered when determining the realizable amounts. Those amounts that are recoverable by the policyholder at the discretion of the insurance company should be excluded from the amount that could be realized. The task force also agreed that fixed amounts that are recoverable by the policyholder in future periods in excess of one year from the surrender of the policy should be recognized at their present value. The task force also reached a consensus that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual life policy. The task force also noted that any amount ultimately realized by the policyholder upon the assumed surrender of the final policy shall be included in the amount that could be realized under the insurance contract. The issue should be effective for fiscal years beginning after December 15, 2006, but early adoption is permitted. The Company is currently evaluating the impact of this interpretation on its financial condition and results of operations.

Item 2. Management’s Discussion and Analysis or Plan of Operation

Management’s discussion and analysis of the financial condition and results of operations at and for the three months ended September 30, 2006 and 2005 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 and tables thereto, appearing in Part I, Item 1 of this document.

7

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of Equitable Financial MHC, Equitable Financial and Equitable Bank. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.

Equitable Financial MHC, Equitable Financial and Equitable Bank’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of Equitable Financial and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in Equitable Financial and Equitable Bank’s market area, changes in real estate market values in Equitable Financial and Equitable Bank’s market area, changes in relevant accounting principles and guidelines and inability of third party service providers to perform.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, Equitable Financial does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

General

Equitable Financial was organized on November 8, 2005 in connection with the Bank’s mutual holding company reorganization. The information as of and for the three months ended September 30, 2006 includes Equitable Financial’s information. The information in this report for the periods prior to November 8, 2005 and including the financial statements and related financial data, relates to the Bank only.

The Company is headquartered in Grand Island, Nebraska and is a community-oriented financial institution dedicated to serving the financial services needs of consumers and businesses within our market areas, including North Platte and Omaha. The Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate one-to four-family residential real estate loans. To a lesser extent, we originate multi-family and nonresidential real estate loans, construction loans, commercial loans and consumer loans.

The Federal Deposit Insurance Corporation, through the Deposit Insurance Fund, insures the Bank’s savings accounts up to the applicable legal limits. The Bank is a member of the Federal Home Loan Bank System.

8

Statement of Financial Condition Analysis

Overview. Total assets at September 30, 2006 were $180.9 million, an increase of $2.1 million or 1.2% from total assets of $178.8 million at June 30, 2006. Total liabilities at September 30, 2006 were $156.1 million, compared to $153.7 million at June 30, 2006, an increase of $2.4 million or 1.6%. Stockholders’ equity decreasedto $24.8 million at September 30, 2006 from $25.0 million at June 30, 2006, a decrease of $200,000 or 0.8%.

Loans. We originate commercial business (including agriculture), consumer, one-to four-family residential, multi-family and non-residential real estate and construction loans. Recently, we have increased our emphasis on originating non-residential real estate, construction and commercial business loans.

The following table sets forth the composition of our loan portfolio at the dates indicated.

	September 30, 2006						June 30, 2006
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate—mortgage:
One- to four-family	$	78,739			50.5	%	$	80,031			52.0	%
Multi-family		7,061			4.5			7,480			4.9
Nonresidential		31,672			20.3			30,169			19.6
Total real estate mortgage loans		117,472			75.3			117,680			76.5
Construction		4,363			2.8			3,790			2.5
Commercial		18,874			12.1			17,480			11.3
Consumer:
Home equity		12,449			8.0			12,287			8.0
Other consumer		2,912			1.8			2,726			1.7
Total consumer loans		15,361			9.8			15,013			9.7
Total loans		156,070			100.0	%		153,963			100.0	%
Deferred loan origination costs, net		357						371
Allowance for loan losses		(955	)					(926	)
Loans, net	$	155,472					$	153,408

Loans, net, increased $2.1 million, or 1.4%, to $155.5 million at September 30, 2006 compared to $153.4 million at June 30, 2006. The increase was primarily the result of commercial loan originations in all three markets of Grand Island, North Platte and Omaha, Nebraska.

9

Nonperforming Assets. The following table provides information with respect to our nonperforming assets at the dates indicated. We did not have any troubled debt restructurings or any accruing loans past due 90 days or more at the dates presented.

	September 30, 2006			June 30, 2006
	(Dollars in thousands)
Nonaccrual loans:
Real estate ─ mortgage	$	338		$	452
Construction		─			─
Commercial		─			─
Consumer		34			38
Total nonaccrual loans		372			490
Loans 90 days, still on accrual		65			65
Foreclosed assets, net		─			─
Total nonperforming assets	$	437		$	555
Total nonperforming loans to total loans		0.3	%		0.4	%
Total nonperforming loans to total assets		0.2			0.3
Total nonperforming assets to total assets		0.2			0.3

Nonaccrual loans decreased $118,000 to $372,000 at September 30, 2006, compared to $490,000 at June 30, 2006. The decrease represents one loan which became current during the quarter.

Securities. Our securities portfolio consists primarily of U.S. Government-sponsored entity securities and mortgage-backed securities. Securities available-for-sale decreased $18,000, or 0.2%, between June 30, 2006 and September 30, 2006. The decrease was the result of repayments of $85,000 net amortization of $3,000, offset by an increase in the market value of the portfolio of $106,000. Securities held-to-maturity decreased $51,000, or 5.5%, between June 30, 2006 and September 30, 2006. This decrease was the result of repayments of $50,000 and net amortization of $1,000. The Company evaluates its securities with significant declines in fair value on a quarterly basis to determine whether they should be considered temporarily or other than temporarily impaired. The unrealized losses on investments is attributable to changes in interest rates, rather than credit quality, and the Company has the ability and management the intent to hold these securities until a market price recovery or maturity.

Deposits. Our primary source of funds is our deposit accounts, which are comprised of noninterest-bearing accounts, interest-bearing NOW accounts, money market accounts, savings accounts and certificates of deposit.

The following table sets forth the balances of our deposit products at the dates indicated.

	September 30, 2006					June 30, 2006
	Amount		%			Amount		%
	(Dollars in thousands)
Noninterest-bearing accounts	$	5,933		5.1	%	$	5,748		4.7	%
Interest-bearing NOW		11,306		9.7			11,542		9.5
Money market		6,601		5.6			5,878		4.8
Savings accounts		3,992		3.4			4,445		3.6
Certificates of deposit		89,125		76.2			94,309		77.4
Total	$	116,957		100.0	%	$	121,922		100.0	%

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Total deposits decreased to $117.0 million from $121.9 million during the three months ended September 30, 2006, a decrease of $5.0 million or 4.1%.Although core deposits increased $219,000, or 0.8%, certificates decreased $5.2 million or 5.5%. The decrease in certificates was primarily the result of a decrease in brokered certificates from $17.4 million at June 30, 2006 to $13.5 million at September 30, 2006.

Borrowings. We utilize borrowings from the Federal Home Loan Bank of Topeka to supplement our supply of funds for loans and investments.Federal Home Loan Bank borrowings increased$7.8 million to $38.4 million at September 30, 2006 from $30.6 million at June 30, 2006. The increase was in floating rate advances, which the Bank believes is the most favorable funding product that coincides with its interest rate projections. The advances outstanding at September 30, 2006 mature in 2006 through 2015.

Results of Operations for the Three Months Ended September 30, 2006 and 2005

Overview. We recorded a net loss of approximately $273,000 during the three months ended September 30, 2006, compared to a net loss of $112,000 during the three months ended September 30, 2005. The further loss was due primarily tothe additional expenses incurred opening our new facilities in Grand Island, North Platte and Omaha, and increases in professional fees due to our ongoing strategic activities, including our expansion activities.

Net Interest Income. The following table summarizes changes in interest income and expense for the three months ended September 30, 2006 and 2005.

	Three Months Ended September 30,
	2006		2005		% Change
	(Dollars in Thousands)
Interest Income:
Loans	$	2,380	$	1,827		30.3	%
Securities		137		156		(12.2	)
Other		14		9		55.6
Total interest income	$	2,531	$	1,992		27.1	%
Interest Expense:
Deposits	$	1,087	$	694		56.6	%
Federal Home Loan Bank borrowings		459		431		6.5
Total interest expense	$	1,546	$	1,125		37.4	%
Net interest income	$	985	$	867		13.6	%

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The following table summarizes average balances and average yield and costs for the three months ended September 30, 2006 and 2005.

	Three Months Ended September 30,
	2006					2005
	Average Balance		Yield/ Cost			Average Balance		Yield/ Cost
Loans	$	154,853		6.2	%	$	130,792		5.6	%
Securities and other		12,851		4.7			16,128		4.1
Total interest-bearing deposits		116,130		3.7			99,352		2.8
FHLB borrowings		35,048		5.2			35,814		4.8
Interest rate spread				1.9					2.1
Net interest margin				2.4					2.4

Net interest income for the three months ended September 30, 2006 increased $119,000, or 13.8%, compared to the same period last year, as a result of an increase in the loan portfolio funded byinterest-bearing deposit accounts. Total interest income increased$540,000 as a result of loan growth, primarily in the commercial loan portfolio, and an increase in the yield on loans. This increase in interest income was partially offset by an increase in total interest expense of $421,000 as a result ofincreased average balances of interest bearing liabilities and an increased cost of funds.

Provision for Loan Losses. The allowance for loan losses is a valuation allowance for probable incurred credit losses in the loan portfolio. We evaluate the allowance for loan losses on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. The following table summarizes the activity in the provision for loan losses for the three months ended September 30, 2006 and 2005.

	Three Months Ended September 30,
	2006			2005
	(Dollars in thousands)
Allowance at beginning of period	$	926		$	786
Provision for loan losses		30			30
Charge-offs		(2	)		(9	)
Recoveries		1			80
Allowance at end of period	$	955		$	887
Allowance to nonaccrual loans		256.7	%		261.7	%
Allowance to total loans outstanding at the end of the period		0.6			0.6
Net charge-offs to average loans outstanding during the period		0.0			(0.1	)

Recoveries totalled $1,000 as of September 30, 2006 compared to $80,000 as of September 30, 2005. The higher recovery amount in 2005 was due to the Bank’s charge off of a commercial property early in 2005 and then a subsequent recovery of $80,000 in the quarter ended September 30, 2005 on the same property.

Noninterest Income. The $66,000 decrease in noninterest income was primarily due to a $51,000 decrease in brokerage fee income, a $46,000 decrease in other loan fees and an $11,000 decrease in other income, partially offset by a $22,000 increase in service charges on deposit accounts from the increased deposit activity created by our new branches. The decrease in fee income was due to reduced brokerage activity and loan originations compared to the three months ended September 30, 2005. Gain on sale of loans increased $19,000. This was due to the Bank’s recent decision to sell substantially all fixed rate mortgage loans when originated.

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Noninterest Expenses. Total noninterest expenses increased$261,000, or 18.8%, for the three months ended September 30, 2006, from the three months ended September 30, 2005. This increase is primarily a result of an increase in salaries and employee benefits related to the opening of three new facilities in Omaha, North Platte and Grand Island. The Bank also recorded increases in professional fees due to our ongoing strategic activities, including our expansion activities. Our noninterest expenses are likely to continue to increase as a result of recognizing additional annual employee compensation and benefit expenses stemming from the shares purchased or granted to employees and executives under new benefit plans.

Income Taxes. The Bank recorded a tax benefit of $129,000 during the three months ended September 30, 2006 compared to a tax benefit of $83,000 during the three months ended September 30, 2005. The effective tax rate was (32.1)% for the three months ended September 30, 2006 compared to (42.4)% for the three months ended September 30, 2005. The tax benefits at September 30, 2006 and 2005 were calculated based on the tax items and the operating loss recorded during the respective quarters.

Liquidity and Capital Management

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit in-flows, loan repayments, maturities and sales of securities, and Federal Home Loan Bank borrowings. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2006, cash and cash equivalents totaled $2.9 million. Securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $313,000 at September 30, 2006. Total securities classified as available-for-sale were $9.4 million at September 30, 2006. Of this amount, $6.7 million were pledged to secure certain depository relationships, such as certificates of deposit and checking accounts held by various municipal entities and a charitable organization, as well as a line of credit with the Federal Home Loan Bank of Topeka. In addition, at September 30, 2006, we had the ability to borrow a total of approximately $70.3 million from the Federal Home Loan Bank of Topeka. On September 30, 2006, we had $38.4 million of borrowings outstanding. It is our intention to hold these advances to maturity. Future growth of our loan portfolio resulting from our expansion efforts may require us to borrow additional funds.

At September 30, 2006, we had $15.6 million in loan commitments outstanding, which consisted of $1.5 million of mortgage loan commitments, $5.6 million in unused home equity lines of credit, $154,000 in personal lines of credit and $8.4 million in commercial lines of credit. Certificates of deposit due within one year of September 30, 2006 totaled $64.9 million, or 72.8%, of certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the current low interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2007. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

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Capital Management. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2006, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines.

We also manage our capital for maximum stockholder benefit. The capital from our recently completed stock offering significantly increased our liquidity and capital resources. Over time, the initial level of liquidity will be reduced, as net proceeds from the stock offering are used for general corporate purposes, including the funding of lending activities. We may use capital management tools such as cash dividends and common stock repurchases. However, under the Office of Thrift Supervision regulations, we are not allowed to repurchase any shares during the first year following the offering, except under limited circumstances.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. 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 and lines of credit. We currently have no plans to engage in hedging activities in the future.

For the three months ended September 30, 2006 and the year ended June 30, 2006, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Commitments

Since March 31, 2005, we have opened the following new offices: an additional loan production and retail investment office in Grand Island that we intend to convert to a full-service branch in October 2006; a full-service branch in North Platte; and a full-service branch in Omaha. Based on current estimates, we expect the total cost of the land and construction for the new Grand Island and North Platte locations to be $2.3 million, of which $2.1 million had been incurred at September 30, 2006. We currently lease our initial location in Omaha with the annual lease expenses of $120,000.

Item 3. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, and based on the material weakness in the Company’s internal control over financial reporting set forth below, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective for the purposes of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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In connection with its audit of the Company’s consolidated financial statements for the year ended June 30, 2006, Crowe Chizek and Company LLC (“Crowe Chizek”), the Company’s independent registered public accounting firm, advised the Board of Directors, the Audit Committee and management of certain significant internal control deficiencies that they considered to be, in the aggregate, a material weakness. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

In particular, in connection with the audit for the year ended June 30, 2006, Crowe Chizek identified several adjustments and corrections that had to be incorporated into the consolidated financial statements as a result of Crowe Chizek’s audit. These adjustments encompassed various areas, including real estate taxes, income taxes, compensation, rent and capitalized interest. According to Crowe Chizek, these adjustments and corrections indicated that management’s internal review process over financial reporting was not appropriately designed and implemented. Specifically, Crowe Chizek advised the Board of Directors, the Audit Committee and management that: (a) a formal procedure was not in place to ensure that entries were recorded in accordance with United States generally accepted accounting principles and that the posting of these entries was appropriately reviewed; and (b) when there were departures from United States generally accepted accounting principles, a formal procedure was not in place to ensure that an analysis of the potential differences was completed, conclusions as to materiality documented and remediation steps determined on a quarterly and annual basis.

In order to remediate this material weakness identified by Crowe Chizek and to improve the effectiveness of the Company’s disclosure controls, management is in the process of designing, implementing and continuing to enhance disclosure controls to correct the material weakness set forth above. Management will continue to monitor, evaluate and test the operating effectiveness of these controls.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Equitable Financial is not involved in any pending legal proceedings. Equitable Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to its financial condition, results of operations or cash flows.

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

The Company did not repurchase any of its common stock during the quarter ended September 30, 2006 and at September 30, 2006, the Company had not publicly announced repurchase plans or programs.

Item 3. Defaults upon Senior Securities

Not Applicable.

Item 4.Submission of Matters to a Vote of Security Holders

Not Applicable.

Item 5.Other Information

None.

Item 6.Exhibits

3.1   Charter of Equitable Financial Corp. (1)

3.2   Bylaws of Equitable Financial Corp. (1)

4.0   Stock Certificate of Equitable Financial Corp. (2)

31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.0   Section 1350 Certification

___________________________________

(1)   Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Quarterly Report on Form 10-QSB on February 14, 2006.

(2)   Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Registration Statement on Form SB-2, and any amendments thereto, Registration No. 333-126617.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EQUITABLE FINANCIAL CORP.
Dated: November 13, 2006	By:	/s/ Richard L. Harbaugh
		Richard L. Harbaugh President and Chief Executive Officer (principal executive officer)
Dated: November 13, 2006	By:	/s/ Kim E. Marco
		Kim E. Marco Executive Vice President and Chief Financial Officer (principal financial and accounting officer)