Equitable Financial 10QSB 2007 Q3 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 March 31, 2007

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 May 14, 2007 there were 3,232,878 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 March 31, 2007 (Unaudited) and year ended June 30, 2006	1
	Consolidated Statements of Operations for the three and nine months ended March 31, 2007 and 2006 (Unaudited)	2
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the nine months ended March 31, 2007 and 2006 (Unaudited)	3
	Consolidated Statements of Cash Flows for the nine months ended March 31, 2007 and 2006 (Unaudited)	4
	Notes to Consolidated Unaudited Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Controls and Procedures	19
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQUITABLE FINANCIAL CORP.

Statements of Financial Condition

	March 31, 2007			June 30, 2006
	(Unaudited)
ASSETS
Cash and due from financial institutions	$	2,619,940		$	2,392,931
Federal funds sold		10,200,000			1,700,000
Cash and cash equivalents		12,819,940			4,092,931
Securities available-for-sale, at fair value		6,683,124			9,429,663
Securities held-to-maturity, fair value at March 31, 2007 - $740,438; and June 30, 2006-$888,342		747,367			915,184
Federal Home Loan Bank stock, at cost		2,413,600			2,311,800
Loans, net of allowance for loan losses of $989,776 at March 31, 2007 and $926,312 at June 30, 2006		150,371,110			153,408,146
Premises and equipment, net		6,947,744			6,067,331
Foreclosed assets, net		291,900			-
Accrued interest receivable		1,215,470			1,153,751
Other assets		2,135,780			1,382,255
Total assets	$	183,626,035		$	178,761,061
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing deposits	$	6,372,372		$	5,748,057
Interest-bearing deposits		116,018,627			116,173,516
Total deposits		122,390,999			121,921,573
Federal Home Loan Bank borrowings		35,132,450			30,604,426
Advance payments from borrowers for taxes and insurance		1,265,774			893,846
Accrued interest payable and other liabilities		611,834			246,540
Common stock in ESOP subject to contingent repurchase obligation		138,504			61,033
Total liabilities		159,539,561			153,727,418
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 and outstanding at March 31, 2007 and June 30, 2006		32,975			32,975
Additional paid-in capital		13,620,310			13,617,427
Retained earnings		11,783,863			12,820,516
Accumulated other comprehensive loss, net		(54,020	)		(149,962	)
Unearned ESOP shares		(1,158,150	)		(1,226,280	)
Reclassification of ESOP shares		(138,504	)		(61,033	)
Total stockholders’ equity		24,086,474			25,033,643
Total liabilities and stockholders’ equity	$	183,626,035		$	178,761,061

See Notes to the Unaudited Consolidated Financial Statements.

1

EQUITABLE FINANCIAL CORP.

Statements of Operations

(Unaudited) 

	Three Months Ended March 31,						Nine Months Ended March 31,
	2007			2006			2007			2006
Interest Income
Loans	$	2,484,792		$	2,134,775		$	7,358,838		$	6,044,519
Securities		115,688			140,434			378,466			454,563
Other		39,273			40,294			66,141			61,517
Total interest income		2,639,753			2,315,503			7,803,445			6,560,599
Interest Expense
Deposits		1,211,931			888,192			3,471,030			2,408,080
Federal Home Loan Bank borrowings		481,702			397,999			1,445,165			1,265,662
Total interest expense		1,693,633			1,286,191			4,916,195			3,673,742
Net interest income		946,120			1,029,312			2,887,250			2,886,857
Provision for loan losses		128,231			30,000			188,231			90,000
Net interest income after provision for loan losses		817,889			999,312			2,699,019			2,796,857
Non-interest income
Service charges on deposit accounts		92,129			59,501			251,878			170,943
Gain on sale of investments		-			354,189			-			694,583
Brokerage fee income		264,174			242,505			606,244			609,119
Loss on sale of loans		(99,282	)		(1,739	)		(44,390	)		(144,731	)
Other loan fees		9,141			33,523			49,714			142,979
Other income		25,786			15,583			76,041			75,079
Total non-interest income		291,948			703,562			939,487			1,547,972
Non-interest expenses
Salaries and employee benefits		1,107,720			843,947			3,096,476			2,440,994
Director and committee fees		27,300			24,450			76,200			73,350
Data processing fees		105,781			100,559			243,037			319,442
Occupancy and equipment		250,266			180,794			758,841			555,205
Regulatory fees and deposit insurance premium		17,402			15,710			51,319			44,731
Advertising and public relations		36,944			94,633			183,696			251,844
Contributions and donations		17,451			19,130			56,754			823,335
Insurance and surety bond premiums		15,631			20,298			67,212			63,133
Professional fees		92,140			112,081			325,378			221,532
Supplies, telephone, postage		57,520			57,848			201,980			173,643
ATM expenses		8,789			8,676			25,693			25,923
Dues and subscriptions		7,779			8,247			29,844			37,505
Other expenses		69,248			51,283			235,652			172,391
Total non-interest expenses		1,813,971			1,537,656			5,352,082			5,203,028
Income (loss) before income taxes		(704,134	)		165,218			(1,713,573	)		(858,199	)
Income tax expense (benefit)		(292,631	)		48,963			(676,923	)		(350,254	)
Net income (loss)		(411,503	)		116,255			(1,036,653	)		(507,945	)
Basic and diluted earnings (loss) per share	$	(0.13	)	$	0.04		$	(0.33	)	$	(0.13	)

See Notes to the Unaudited Consolidated Financial Statements.

2

EQUITABLE FINANCIAL CORP.

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Nine Months Ended March 31, 2007 and 2006

(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
Distribution to capitalize Equitable Financial MHC		-		-			(100,000	)		-			-			-			(100,000	)
Issuance of common stock, net of offering costs		32,348		12,994,635			-			-			-			-			13,026,983
Purchase of 129,262 shares of ESOP		-		-			-			(1,292,620	)		-			-			(1,292,620	)
Donation of 62,653 shares to Equitable Charitable Foundation		627		625,903															626,530
Comprehensive loss:
Net loss		-		-			(507,945	)		-			-			-			(507,945	)
Net decrease in fair value of securities classified as available-for-sale, net of income taxes		-		-			-			-			(591,773	)		-			(591,773	)
Total comprehensive loss, net		-		-			-			-			-			-			(1,099,718	)
Release of 4,363 unearned ESOP shares		-		(1,168	)		-			34,831			-			-			33,663
Reclassification due to release and change in fair value of common stock in ESOP subject to contingent repurchase obligation of ESOP shares		-		-			-			-			-			(39,267	)		(39,267	)
Balance at March 31, 2006	$	32,975	$	13,619,370		$	13,281,372		$	(1,257,789	)	$	(118,472	)	$	(39,267	)	$	25,518,189
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 loss		-		-			(1,036,653	)		-			-			-			(1,036,653	)
Net increase in fair value of securities classified as available-for-sale, net of income taxes		-		-			-			-			95,942			-			95,942
Total comprehensive loss, net																			(940,711	)
Release of 6,813 unearned ESOP shares		-		2,883			-			68,130			-			-			71,013
Reclassification due to release and change in fair value of common stock in ESOP subject to contingent repurchase obligation of ESOP shares		-		-			-			-			-			(77,471	)		(77,471	)
Balance at March 31, 2007	$	32,975	$	13,620,310		$	11,783,863		$	(1,158,150	)	$	(54,020	)	$	(138,504	)	$	24,086,474

See Notes to the Unaudited Consolidated Financial Statements.

3

EQUITABLE FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended March 31,
	2007			2006
Cash flows from operating activities:
Net loss	$	(1,036,653	)	$	(507,945	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation		305,600			172,568
Amortization of premiums and discounts		10,218			23,717
Federal Home Loan Bank stock dividends		(101,800	)		(77,854	)
Charitable Foundation donation		-			626,530
ESOP expense		71,013			34,831
Deferred loan origination costs, net		(23,914	)		60,384
Provision for loan losses		188,231			90,000
Loss on sale of loans		44,390			144,731
Loss on disposal of premises and equipment		21,009			-
Loans originated for sale		(6,218,624	)		-
Proceeds from sale of loans originated for sale		6,268,051			-
Gain on sale of stock		-			(694,583	)
Change in:
Accrued interest receivable		(61,719	)		(355,220	)
Other assets		(714,873	)		(436,021	)
Accrued interest payable and other liabilities		365,294			(136,755	)
Net cash from operating activities		(883,777	)		(1,055,617	)
Cash flows from investing activities:
Net change in loans		(5,680,698	)		(34,162,736	)
Proceeds from sale of loans		8,079,625			6,328,580
Proceeds from sale of stock		-			705,650
Principal repayments from securities available-for-sale		2,884,437			1,199,802
Principal repayments from securities held-to-maturity		165,066			261,209
Purchases of Federal Home Loan Bank stock		-			(214,046	)
Purchase of premises and equipment		(1,207,022	)		(1,275,662	)
Net cash from investing activities		4,241,408			(27,157,203	)
Cash flows from financing activities:
Net change in deposits		469,426			19,664,268
Proceeds from Federal Home Loan Bank borrowings		55,100,000			53,200,000
Repayments of Federal Home Loan Bank borrowings		(50,571,976	)		(54,723,440	)
Net change in advance payments from borrowers for taxes and insurance		371,928			553,219
Net proceeds from initial stock offering		-			13,025,815
Purchase of ESOP shares		-			(1,292,620	)
Distribution to capitalize Equitable Financial MHC		-			(100,000	)
Net cash from financing activities		5,369,378			30,327,242
Increase in cash and cash equivalents		8,727,009			2,114,422
Cash and cash equivalents, beginning of period		4,092,931			2,159,699
Cash and cash equivalents, end of period		12,819,940			4,274,121
Supplemental cash flow information:
Interest paid on deposits and borrowings		4,750,103			3,654,347
Income taxes (refunded) paid		(34,497	)		19,479
Supplemental noncash disclosure:
Common stock in ESOP subject to contingent repurchase obligation		138,504			61,033
Transfer of loans to foreclosed real estate		291,900			-
Donation of premises and equipment		-			34,126

See notes to the Unaudited Consolidated Financial Statements

4

EQUITABLE FINANCIAL CORP.

Notes to the Unaudited Consolidated Financial Statements

March 31, 2007

(1)Basis of Presentation

Equitable Financial Corp. (“Equitable Financial” or the “Company”) was organized as a federal corporation at the direction of Equitable Bank (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.

The unaudited consolidated financial statements as of and for the period ended March 31, 2007 include the accounts of Equitable Financial and its wholly owned subsidiary, the Bank. 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 consolidated financial statements have not been audited by independent auditors. All significant intercompany accounts and transactions have been eliminated in consolidation. 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 unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information in accordance with instructions to Form 10-QSB and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission and, therefore, do not include all of the information and notes required for complete audited financial statements. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-KSB for the year ended June 30, 2006. The results of operations for the three and nine-month periods ended March 31, 2007 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.

5

(2)Critical Accounting Policies

Allowance for loan losses. The allowance for loan losses is the amount estimated by management as necessary to cover probable incurred credit losses in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are the following: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

Mortgage Servicing Rights. The estimated value of mortgage servicing rights are capitalized upon the sale of loans. The estimated value takes into consideration contractually known amounts, such as loan balance, term and interest rate. These estimates are impacted by loan prepayment speeds, servicing costs, and discount rates used to compute a present value of the cash flow stream. Changes in these estimates impact fair value and could require the creation of a valuation allowance or recovery. The fair value of mortgage servicing rights is highly sensitive to changes in assumptions. Changes in prepayment speed assumptions have the most significant impact on the fair value of mortgage servicing rights. Generally, as interest rates decline, prepayments accelerate with increased refinance activity, which results in a decrease in the fair value of mortgage servicing rights. As interest rates rise, prepayments generally slow, which results in an increase in the fair value of mortgage servicing rights. All estimates are reviewed for reasonableness on a quarterly basis and adjusted as necessary to reflect current and anticipated market conditions. Thus, any measurement of fair value is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if applied at a different point in time.

(3)Earnings Per Share

Basic earnings (loss) per share is 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.

	Three Months Ended March 31,					Nine Months Ended March 31,
	2007			2006		2007			2006
	(Dollars in thousands)
Net income (loss)	$	(411,503	)	$	116,255	$	(1,036,653	)	$	(402,071	)
Weighted average shares outstanding for the quarter		3,179,423			3,171,035		3,177,135			3,169,989
Earnings (loss) per share	$	(0.13	)	$	0.04	$	(0.33	)	$	(0.13	)

6

The nine months ended March 31, 2006 earnings per share calculation is based on the earnings of the Company from November 8, 2005, the date of the initial public offering of the Company, through March 31, 2006.

(4)Investment and mortgage-backed securities

The carrying value, gross unrealized gains and losses and fair value of investment and mortgage-backed securities by major security category at March 31, 2007, and June 30, 2006 are as follows:

	March 31, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Mortgage-backed securities	$	1,787,044	$	12,001	$	36,397	$	1,762,648
U.S. government securities and agency obligations		3,985,000		-		49,540		3,935,460
Municipal obligations		992,928		734		8,646		985,016
Total investment and mortgage-backed securities, available-for-sale	$	6,764,972	$	12,735	$	94,583	$	6,683,124

	June 30, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Mortgage-backed securities	$	2,068,332	$	12,486	$	78,697	$	2,002,121
U.S. government securities and agency obligations		6,595,797		-		133,577		6,462,220
Municipal obligations		992,748		-		27,426		965,322
Total investment and mortgage-backed securities, available-for-sale	$	9,656,877	$	12,486	$	239,699	$	9,429,663

Management believes that all unrealized losses as of March 31, 2007, are market-related, with no impairments. The unrealized losses are believed to be due to movements in interest rates and temporary in nature. As of March 31, 2007, we have the ability and intent to hold these securities to maturity.

(5)Loan Portfolio Composition

We originate commercial (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 loans.

7

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

	March 31, 2007						June 30, 2006
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate-mortgage:
One- to four-family	$	66,345			43.95	%	$	80,031			51.98	%
Multi-family		6,781			4.49			7,480			4.86
Nonresidential		33,668			22.30			30,169			19.59
Total real estate-mortgage loans		106,794			70.74			117,680			76.43
Construction		5,243			3.47			3,790			2.46
Commercial		24,439			16.19			17,480			11.36
Consumer:
Home equity		11,410			7.56			12,287			7.98
Other consumer		3,084			2.04			2,726			1.77
Total consumer loans		14,494			9.60			15,013			9.75
Total loans		150,970			100.00	%		153,963			100.0	%
Deferred loan origination costs, net		391						371
Allowance for loan losses		(990	)					(926	)
Loans, net	$	150,371					$	153,408

(6)Allowance 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 and nine months ended March 31, 2007 and 2006.

	Three months ended March 31,						Nine months ended March 31,
	2007			2006			2007			2006
	(Dollars in thousands)
Allowance at beginning of period	$	928		$	913		$	926		$	786
Provision for loan losses		128			30			188			90
Charge-offs		(67	)		(12	)		(125	)		(25	)
Recoveries		1			-			1			80
Allowance at end of period	$	990		$	931		$	990		$	931
Allowance to nonaccrual loans		2,531.97	%		1,980.85	%		2,531.97	%		1,980.85	%
Allowance to total loans outstanding at the end of the period		0.66			0.62			0.66			0.62
Net charge-offs to average loans outstanding during the period		0.04			0.00			0.08			0.04

8

(7)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. 

	March 31, 2007					June 30, 2006
	Amount		%			Amount		%
	(Dollars in thousands)
Noninterest-bearing accounts	$	6,372		5.21	%	$	5,748		4.71	%
Interest-bearing NOW		12,422		10.15			11,542		9.47
Money market		9,616		7.86			5,878		4.82
Savings accounts		4,298		3.51			4,445		3.65
Certificates of deposit		89,683		73.27			94,309		77.35
Total	$	122,391		100.00	%	$	121,922		100.00	%

(8)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.

We account for our ESOP in accordance with Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans. Accordingly, as shares are committed to be released from collateral, we report employee compensation expense equal to the average market price of the shares and the shares become outstanding for earnings per share (“EPS”) 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.

	For the Three Months Ended March 31,				For the Nine Months Ended March 31,
	2007		2006		2007		2006
ESOP compensation expense	$	23,391	$	20,439	$	71,013	$	39,790
ESOP shares allocated to employees		2,271		2,271		6,813		4,363
ESOP shares allocated in prior periods		11,176		2,092		6,634		-
ESOP shares unallocated		115,815		124,899		115,815		124,899
Fair value of ESOP shares unallocated	$	1,192,895	$	1,124,091	$	1,192,895	$	1,124,091

9

(9)Equity Incentive Plan

In November 2006, the Company’s stockholders approved the Equitable Financial Corp. 2006 Equity Incentive Plan. The plan provides for the grant of options and stock awards to directors, officers, and employees of the Company. Under the terms of the Plan, 226,208 shares of the Company’s common stock were reserved for issuance. Of the 226,208 shares of common stock, 161,577 shares were reserved for issuance upon the exercise of stock options and 64,631 shares were registered for restricted stock awards. As of March 31, 2007 no options or shares have been granted.

When the Company commences the restricted stock award program, compensation expense will be recognized over the vesting period of the shares based on the market value of the Company’s common stock at the issue date. The unamortized cost of shares not yet vested is reported as a reduction of stockholders’ equity. No compensation expense has been recorded pertaining to this Plan as of March 31, 2007 as the Company has not implemented the stock award program.

(10)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.

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.

10

In September 2006, the 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 of 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.

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115” (“SFAS 159”).  SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets and liabilities to be carried at fair value.  Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and other eligible financial instruments.  SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is in the process of determining the effects if any this statement will have on its financial condition and results of operations.

(11)Subsequent Events

On April 19, 2007, the Company announced that it had authorized the funding of a trust to repurchase up to 64,631 of the Company’s outstanding shares. The shares acquired by the trust will be used to fund restricted stock awards under the Company’s 2006 Equity Incentive Plan.On May 1, 2007 the trust purchased all 64,631 shares.  The cost per share was $10.75 for a total cost of $695,000. The Company had not made any restricted stock grants as of May 1, 2007.

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 and nine months ended March 31, 2007 and 2006 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.

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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 and nine months ended March 31, 2007 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 commercial (including agriculture), consumer, one-to four-family residential, multi-family and non-residential real estate and construction 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.

Statement of Financial Condition Analysis

Overview. Total assets at March 31, 2007 were $183.63 million, an increase of $4.87 million or 2.72% from total assets of $178.76 million at June 30, 2006. Total liabilities at March 31, 2007 were $159.54 million, compared to $153.73 million at June 30, 2006, an increase of $5.81 million or 3.78%. Stockholders’ equity at March 31, 2007 was $24.09 million compared to $25.03 million at June 30, 2006, a decrease of $947,000 or 3.78%.

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Loans. We originate commercial (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 loans. Loans, net decreased $3.04 million, or 1.98%, to $150.37 million at March 31, 2007 compared to $153.41 million at June 30, 2006. We incurred a decrease in loans of $8.26 million due to selling a portion of our one-to four-family residential real estate portfolio. The sale of these longer term, lower coupon loans will improve our interest rate risk position. We believe that this restructuring is the right decision for the long-term profitability of the Company and our effort to create value for our stockholders. This decrease was offset by an increase of loan originations generated in our expanded branch network in Grand Island, North Platte and Omaha, Nebraska.

Non-performing Assets. The following table provides information with respect to our non-performing assets at the dates indicated. The Company had no troubled debt restructurings during the quarter ended March 31, 2007. There were no accruing loans past due 90 days or more for the period ended March 31, 2007.

	March 31, 2007			June 30, 2006
	(Dollars in thousands)
Non-accrual loans:
Real estate-mortgage	$	387		$	452
Consumer		4			38
Total non-accrual loans		391			490
Loans 90 days, still on accrual		─			65
Foreclosed assets, net		292			─
Total non-performing assets	$	683		$	555
Total non-accrual loans to total loans		0.26	%		0.32	%
Total non-accrual loans to total assets		0.21			0.27
Total non-performing assets to total assets		0.37			0.31

Non-accrual loans decreased $99,000 to $391,000 at March 31, 2007, compared to $490,000 at June 30, 2006.

Foreclosed assets increased $292,000 during the period ended March 31, 2007 which represented two real estate foreclosures.

Securities. Our securities portfolio consists primarily of U.S. Government-sponsored entity securities and mortgage-backed securities. Securities available-for-sale decreased $2.75 million, or 29.13%, between June 30, 2006 and March 31, 2007. The decrease was the result of maturities and repayments in the portfolio of $2.88 million and an increase in the market value of the portfolio of $145,000. Securities held-to-maturity decreased $168,000, or 18.34%, between June 30, 2006 and March 31, 2007. This decrease was the result of repayments of $165,000 and net amortization of $3,000. 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 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. Total deposits increased to $122.39 million from $121.92 million during the nine months ended March 31, 2007, an increase of $470,000 or 0.39%. Although core deposits increased $5.10 million, or 18.45%, certificates decreased $4.63 million or 4.91%. The decrease in certificates was primarily the result of maturities in brokered certificates of $7.34 million from June 30, 2006 to March 31, 2007, partially offset by an increase in certificates due to new branch locations.

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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 $4.53 million to $35.13 million at March 31, 2007 from $30.60 million at June 30, 2006. The increase was in floating rate advances, which the Company believes is the most favorable funding product that coincides with its interest rate projections. The advances outstanding at March 31, 2007 mature in 2006 through 2014.

Results of Operations for the Three Months Ended March 31, 2007 and 2006

Overview. We recorded a net loss of $412,000 during the three months ended March 31, 2007, compared to net income of $116,000 during the three months ended March 31, 2006. The loss was due to an increase in operating expenses to fund our expansion into other communities. Additionally, we sold stock for a gain of $354,000 during the three months ended March 31, 2006, with no similar transaction occurring in the same period ending 2007. Also contributing to the loss was the sale of one-to four-family loans with a gross realized loss of $183,000 and recording of $98,000 of provision over the amount recorded for March 31, 2006.

Net Interest Income. The following table summarizes changes in interest income and expense for the three months ended March 31, 2007 and 2006.

	Three Months Ended March 31,
	2007		2006		% Change
	(Dollars in Thousands)
Interest Income:
Loans	$	2,485	$	2,135		16.39	%
Securities		116		140		(17.14	)
Other		39		40		(2.50	)
Total interest income		2,640		2,315		14.04
Interest Expense:
Deposits		1,212		888		36.49
Federal Home Loan Bank borrowings		482		398		21.11
Total interest expense		1,694		1,286		31.73
Net interest income	$	946	$	1,029		(8.07	)%

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The following table summarizes average balances and average yield and costs for the three months ended March 31, 2007 and 2006.

	Three months ended March 31,
	2007							2006
	Average Balance		Interest Income		Yield/ Cost			Average Balance		Interest Income		Yield/ Cost
	(Dollars in thousands)
Loans, net	$	160,002	$	2,485		6.21	%	$	147,778	$	2,135		5.78	%
Securities and other		12,942		155		4.79			17,366		180		4.15
Total interest-bearing assets		172,944		2,640		6.11			165,144		2,315		5.61
Total interest-bearing deposits		121,602		1,212		3.99			113,479		888		3.13
FHLB borrowings		36,559		482		5.27			32,155		398		4.95
Total interest-bearing liabilities		158,161		1,694		4.28			145,634		1,286		3.53
Interest rate spread						1.83							2.08
Net interest margin						2.19							2.49

Net interest income for the three months ended March 31, 2007 decreased $83,000, or 8.07%, compared to the same period last year, as a result of a decrease in the interest rate spread of 0.25% and a decrease in net interest margin of 0.30%. This variation in net interest margin results from the change in our asset composition from mortgage loans to commercial loans. This change has increased our yield on earning assets. However, due to the Company being more liability sensitive, the cost of funding these loans has increased more dramatically than the yield on the assets in the current rate environment.

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 loss is charged to earnings. During this quarter our evaluation resulted in a provision of $128,000 compared to $30,000 for the period ended March 31, 2006. This increased provision is a result of a significant change in the composition of the type of loans we are holding. From June 30, 2006 to March 31, 2007 our one-to four-family real estate loans that bear a low degree of risk decreased $13.69 million. However, during the same period we had an increase in all other loan types of $10.69 million. The majority of this increase was in commercial loans which bear a higher degree of risk than one-to four-family real estate loans. Our strategy to continue changing from a traditional thrift to a commercial bank warrants the increase in the provision. The net charge-offs of $67,000 for the three months ended March 31, 2007 represented the write off of one real estate loan and one commercial loan.

Non-interest Income.During the quarter ended March 31, 2007 non-interest income decreased $412,000 from the comparable period in 2006. For the three months ended March 31, 2006, a gain of $354,000 was recorded on the sale of Freddie Mac common stock; no such sales were made during the same period of 2007. Additionally, we incurred a loss of $183,000 from the sale of longer term, lower coupon one-to four-family loans, for which we retained the servicing. The sale of these longer term, lower coupon loans will improve our interest rate risk position. We believe that this restructuring is the right decision for the long-term profitability of the Company and our effort to create value for our stockholders. The change in other loan fees was due to loan activity. This decrease in income was offset by the recording of $65,000 of mortgage servicing rights resulting from the sale of loans. An increase in service charges on deposit accounts, brokerage fee income and other income of $65,000 is a result of activity generated by additional branches.

15

Non-interest Expenses. Total non-interest expenses increased$276,000, for the three months ended March 31, 2007, from the three months ended March 31, 2006. Increases in salaries and employee benefits of $264,000 and in occupancy and equipment of $70,000 occurred during the period ended March 31, 2007. These increases were the result of operating three recently added facilities in Omaha, North Platte and Grand Island. These increases were offset by a reduction in advertising expense of $58,000.

Income Taxes. The Company recorded a tax benefit of $293,000 during the three months ended March 31, 2007 compared to tax expense of $49,000 during the three months ended March 31, 2006. The tax benefit and expense at March 31, 2007 and 2006 were calculated based on the tax items and the operating loss or income recorded during the respective quarters.

Results of Operations for the Nine Months Ended March 31, 2007 and 2006

Overview. We recorded a net loss of $1,037,000 during the nine months ended March 31, 2007, compared to a net loss of $508,000 during the nine months ended March 31, 2006. The loss was due to an increase in operating expenses to fund our expansion into other communities and increases in professional fees due to the conversion to stock ownership of our Company. Additionally, we sold stock for a gain of $695,000 during the nine months ended March 31, 2006, with no similar transaction occurring in the same period ending 2007. Also contributing to the increased loss is the sale of one-to four-family real estate loans for a gross realized loss of $183,000 and recording of $98,000 of provision over the amount recorded for the nine months ended March 31, 2007.

Net Interest Income. The following table summarizes changes in interest income and expense for the nine months ended March 31, 2007 and 2006.

	Nine Months Ended March 31,
	2007		2006		% Change
	(Dollars in Thousands)
Interest Income:
Loans	$	7,359	$	6,045		21.74	%
Securities		378		455		(16.92	)
Other		66		61		8.20
Total interest income		7,803		6,561		18.93
Interest Expense:
Deposits		3,471		2,408		44.14
Federal Home Loan Bank Borrowings		1,445		1,266		14.14
Total interest expense		4,916		3,674		33.81
Net interest income	$	2,887	$	2,887		0.00	%

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The following table summarizes average balances and average yield and costs for the nine months ended March 31, 2007 and 2006.

	Nine months ended March 31,
	2007							2006
	Average Balance		Interest Income		Yield/ Cost			Average Balance		Interest Income		Yield/ Cost
	(Dollars in thousands)
Loans, net	$	157,644	$	7,359		6.22	%	$	141,355	$	6,045		5.70	%
Securities and other		12,327		444		4.80			16,464		516		4.18
Total interest-bearing assets		169,971		7,803		6.12			157,819		6,561		5.54
Total interest-bearing deposits		118,795		3,471		3.90			108,078		2,408		2.97
FHLB borrowings		36,190		1,445		5.32			34,223		1,266		4.93
Total interest-bearing liabilities		154,985		4,916		4.23			142,301		3,674		3.44
Interest rate spread						1.89							2.10
Net interest margin						2.26							2.44

Although net interest income is the same for the nine months ended March 31, 2007 and 2006 our net interest margin decreased by 0.18%. This variation in net interest margin results from the change in our asset composition from mortgage loans to commercial loans. This change has increased our yield on earning assets. However, due to the Company being more liability sensitive, the cost of funding these loans has increased more dramatically than the yield on the assets in the current rate environment.

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 loss is charged to earnings. For the nine months ended March 31, 2007 we recorded $188,000 of provision compared to $90,000 for the same period in 2006. This rise of $98,000 in the provision is a result of a significant change in the composition of our loan portfolio. From June 30, 2006 to March 31, 2007 our one-to four-family real estate loans that bear a low degree of risk decreased $13.69 million. However, during the same period we had an increase in all other loan types of $10.69 million. The majority of this increase was in commercial loans which bear a higher degree of risk than one-to four-family real estate loans. Our strategy to continue changing from a traditional thrift to a commercial bank warrants the increase in the provision. The higher recovery amount in 2006 was due to the Company’s charge off of a commercial property in the period ended June 30, 2005 and then a subsequent recovery of $80,000 in the quarter ended September 30, 2005 on the same property. The charge-offs for the nine months ended March 31, 2007 represented the write off of two real estate loans and one commercial loan.

Non-interest Income.The $608,000 decrease in non-interest income was partially due to a gain of $695,000 recorded for the nine months ended March 31, 2006 on the sale of Freddie Mac common stock, no such sales were made during the same period of 2007. The change in other loan fees was due to loan activity. These decreases of non-interest income were offset by a loss on sale of loans of $44,000 during the period ended 2007 compared to a loss during 2006 of $145,000. In addition, the bank had an increase of $81,000 in service charges on deposit accounts for the period ended March 31, 2007 attributable to an increase in activity from additional branches.

Non-interest Expenses. Total non-interest expenses increased$149,000, for the nine months ended March 31, 2007, from the nine months ended March 31, 2006. During 2006, a contribution expense of $726,000 was recorded in connection with the establishment of the Equitable Charitable Foundation, no comparable expenditures were made in 2007. Increases in salaries and employee benefits of $655,000 and occupancy and equipment of $204,000 occurred during the nine month period ended March 31, 2007. These increases were the result of operating three recently added facilities in Omaha, North Platte and Grand Island. The Company also recorded increases in professional fees of $104,000 and supplies, telephone, and postage of $28,000. These increases were offset by decreases in data processing fees of $76,000 and advertising and public relations of $68,000. Additionally, an increase in state sales and use tax expense, due to an audit by the Nebraska Department of Revenue, contributed $21,000 to the increase in other expense. Our non-interest 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.

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Income Taxes. The Company recorded a tax benefit of $677,000 during the nine months ended March 31, 2007 compared to a tax benefit of $350,000 during the nine months ended March 31, 2006. The tax benefits at March 31, 2007 and 2006 were calculated based on the tax items and the operating loss recorded during the respective periods.

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 March 31, 2007, cash and cash equivalents totaled $12.82 million, an increase of $8.73 million over June 30, 2006. This additional liquidity generated from the loan sale in the quarter ended March 31, 2007 will be used to fund higher yielding commercial loans. Securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $778,000 at March 31, 2007. Total securities classified as available-for-sale were $6.68 million at March 31, 2007. Of this amount, $4.97 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. In addition, at March 31, 2007, we had the ability to borrow a total of approximately $66.80 million from the Federal Home Loan Bank of Topeka. On March 31, 2007, we had $35.13 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 March 31, 2007, we had $12.70 million in loan commitments outstanding, which consisted of $675,000 in mortgage loan commitments, $4.43 million in unused home equity lines of credit, and $216,000 in personal lines of credit and $7.38 million in commercial lines of credit. Certificates of deposit due within one year of March 31, 2007 totaled $68.39 million, or 76.26%, 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 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 March 31, 2008. 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 March 31, 2007, 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.

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 nine months ended March 31, 2007 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: a full-service branch in Grand Island; a full-service branch in North Platte; and a full-service branch in Omaha. The construction for the new Grand Island and North Platte locations has been completed and all costs have been capitalized as of March 31, 2007. 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 at that time, 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 U.S. generally accepted accounting principles and that the posting of these entries was appropriately reviewed; and (b) when there were departures from U.S. 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. During the quarter ended December 31, 2006, the Company employed an internal auditor to further enhance its internal control environment. 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.

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 March 31, 2007 and at March 31, 2007, 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.

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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: May 15, 2007	By:	/s/ Richard L. Harbaugh
		Richard L. Harbaugh President and Chief Executive Officer (principal executive officer)

Dated: May 15, 2007	By:	/s/ Kim E. Marco
		Kim E. Marco Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

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