Equitable Financial 10QSB 2008 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, 2007

OR

¨ 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 ¨

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

Yes ¨   No x

As of November 1, 2007 there were 3,297,509 shares of the registrant’s common stock outstanding.

Transitional Small Business Disclosure Format (Check one): 

Yes ¨   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 September 30, 2007 (Unaudited) and June 30, 2007	1
	Consolidated Statements of Operations for the three months ended September 30, 2007 and 2006 (Unaudited)	2
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the three months ended September 30, 2007 and 2006 (Unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended September 30, 2007 and 2006 (Unaudited)	4
	Notes to Consolidated Unaudited Financial Statements	5
Item 2.	Management’s Discussion and Analysis or Plan of Operation	10
Item 3.	Controls and Procedures	14
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 5.	Other Information	15
Item 6.	Exhibits	15
Signatures

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQUITABLE FINANCIAL CORP.

Statements of Financial Condition

	September 30, 2007			June 30, 2007
	(Unaudited)
ASSETS
Cash and due from financial institutions	$	2,638,556		$	2,382,234
Federal funds sold		5,700,000			7,100,000
Cash and cash equivalents		8,338,556			9,482,234
Securities available-for-sale, at fair value		6,088,118			6,584,274
Securities held-to-maturity, fair value at September 30, 2007 - $669,602; and June 30, 2007-$684,464		679,653			702,030
Federal Home Loan Bank stock, at cost		2,481,500			2,447,500
Loans, net of allowance for loan losses of $1,103,398 at September 30, 2007 and $1,056,873 at June 30, 2007		154,955,608			153,329,552
Premises and equipment, net		6,770,582			6,850,891
Foreclosed assets, net		64,703			82,900
Accrued interest receivable		1,474,219			1,235,278
Other assets		2,240,142			2,119,652
Total assets	$	183,093,081		$	182,834,311
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing deposits	$	7,303,748		$	6,465,861
Interest-bearing deposits		126,220,861			121,279,000
Total deposits		133,524,609			127,744,861
Federal Home Loan Bank borrowings		25,271,618			30,599,626
Advance payments from borrowers for taxes and insurance		346,302			794,930
Accrued interest payable and other liabilities		981,794			528,952
Common stock in ESOP subject to contingent repurchase obligation		172,515			151,679
Total liabilities		160,296,838			159,820,048
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 September 30, 2007 and June 30, 2007.		32,975			32,975
Additional paid-in capital		13,618,584			13,619,515
Retained earnings		11,160,439			11,421,576
Unearned ESOP shares		(1,112,730	)		(1,135,440	)
Treasury stock, 64,631 shares at cost		(694,783	)		(694,783	)
Accumulated other comprehensive loss, net		(35,727	)		(77,901	)
Reclassification of ESOP shares		(172,515	)		(151,679	)
Total stockholders’ equity		22,796,243			23,014,263
Total liabilities and stockholders’ equity	$	183,093,081		$	182,834,311

See Notes to the Unaudited Consolidated Financial Statements

1

EQUITABLE FINANCIAL CORP.

Statements of Operations

(Unaudited)

	Three Months Ended September 30, 2007			Three Months Ended September 30, 2006
Interest Income
Loans	$	2,490,550		$	2,379,894
Securities		109,325			136,918
Other		75,270			14,755
Total interest income		2,675,145			2,531,567
Interest Expense
Deposits		1,334,507			1,086,528
Federal Home Loan Bank borrowings		357,466			459,274
Total interest expense		1,691,973			1,545,802
Net interest income		983,172			985,765
Provision for loan losses		60,000			30,000
Net interest income after provision for loan losses		923,172			955,765
Non-interest income
Service charges on deposit accounts		151,489			75,814
Brokerage fee income		211,053			152,284
Gain on sale of loans		26,630			19,329
Other loan fees		7,225			19,805
Other income		89,353			24,689
Total non-interest income		485,750			291,921
Non-interest expenses
Salaries and employee benefits		1,090,435			902,106
Director and committee fees		21,450			24,450
Data processing fees		131,346			72,373
Occupancy and equipment		230,739			239,272
Regulatory fees and deposit insurance premium		17,779			14,906
Loss on sale of foreclosed assets		4,293			-
Loss on investment in low income housing partnerships		7,500			-
Advertising and public relations		41,788			82,442
Contributions and donations		13,633			21,519
Insurance and surety bond premiums		65,585			25,164
Professional fees		100,978			109,339
Supplies, telephone, postage		54,406			69,155
ATM expenses		8,059			9,669
Dues and subscriptions		7,304			13,365
Other expenses		39,605			66,145
Total non-interest expenses		1,834,900			1,649,905
Income (loss) before income taxes		(425,978	)		(402,219	)
Income tax expense (benefit)		(164,841	)		(128,996	)
Net income (loss)	$	(261,137	)	$	(273,223	)
Basic and diluted earnings (loss) per share	$	(0.08	)	$	(0.09	)

See Notes to the Unaudited Consolidated Financial Statements

2

EQUITABLE FINANCIAL CORP.

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

3

Three Months Ended September 30, 2007 and 2006

(Unaudited)

	Common Stock		Additional Paid- In Capital			Retained Earnings			Unearned ESOP Shares			Treasury Stock			Accumulated Other Comprehensive Income			Amount Reclassified on ESOP Shares			Total
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		-		-			(273,223	)		-			-			-			-			(273,223	)
Change in net unrealized gain (loss) on securities available-for-sale, net of income taxes		-		-			-			-			-			69,745			-			69,745
Total comprehensive loss, net																						(203,478	)
Release of 2,271 unearned ESOP shares		-		(1,773	)		-			22,710			-			-			-			20,937
Reclassification due to release and changes 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
Balance at June 30, 2007		32,975		13,619,515			11,421,576			(1,135,440	)		(694,783	)		(77,901	)		(151,679	)		23,014,263
Comprehensive loss:
Net loss		-		-			(261,137	)		-			-			-			-			(261,137	)
Change in net unrealized gain (loss) on securities available-for-sale, net of income taxes		-		-			-			-			-			42,174			-			42,174
Total comprehensive loss, net																						(218,963	)
Release of 2,271 unearned ESOP shares		-		(931	)		-			22,710			-			-			-			21,779
Reclassification due to release and changes in fair value of common stock in ESOP subject to contingent repurchase obligation of ESOP shares		-		-			-			-			-			-			(20,836	)		(20,836	)
Balance at September 30, 2007	$	32,975	$	13,618,584		$	11,160,439		$	(1,112,730	)	$	(694,783	)	$	(35,727	)	$	(172,515	)	$	22,796,243

See Notes to the Unaudited Consolidated Financial Statements

3

EQUITABLE FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended September 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(261,137	)	$	(273,223	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation		93,591			91,439
Amortization of premiums and discounts		1,997			3,875
Federal Home Loan Bank stock dividends		(34,000	)		(32,500	)
ESOP expense		21,779			20,937
Deferred loan origination costs, net		(33,350	)		(14,156	)
Provision for loan losses		60,000			30,000
Gain on sale of loans		(26,630	)		(19,329	)
Deferred taxes		(164,841	)		(162,066	)
Loans originated for sale		(1,500,870	)		(1,222,291	)
Proceeds from sale of loans		2,257,531			1,241,620
Loss on sale of foreclosed asset		4,293			-
Change in:
Accrued interest receivable		(238,941	)		(108,449	)
Other assets		26,095			(373,255	)
Accrued interest payable and other liabilities		452,842			(46,350	)
Net cash from operating activities		658,359			(863,748	)
Cash flows from investing activities:
Net change in loans		(2,450,911	)		(2,108,156	)
Proceeds from sale of foreclosed asset		78,607			-
Principal repayments from securities available-for-sale		558,463			84,977
Principal repayments from securities held-to-maturity		21,974			49,628
Purchases of premises and equipment		(13,282	)		(741,684	)
Net cash from investing activities		(1,805,149	)		(2,715,235	)
Cash flows from financing activities:
Net change in deposits		5,779,748			(4,965,017	)
Proceeds from Federal Home Loan Bank borrowings		-			8,500,000
Repayments of Federal Home Loan Bank borrowings		(5,328,008	)		(679,344	)
Net change in advance payments from borrowers for taxes and insurance		(448,628	)		(492,566	)
Net cash from financing activities		3,112			2,363,073
Increase in cash and cash equivalents		(1,143,678	)		(1,215,910	)
Cash and cash equivalents, beginning of period		9,482,234			4,092,931
Cash and cash equivalents, end of period	$	8,338,556		$	2,877,021
Supplemental cash flow information:
Interest paid on deposits and borrowings	$	1,626,264		$	1,534,045
Supplemental noncash disclosure:
Common stock in ESOP subject to contingent repurchase obligation	$	172,515		$	89,050
Transfer of loans to foreclosed real estate	$	64,703		$	-

See Notes to the Unaudited Consolidated Financial Statements

4

EQUITABLE FINANCIAL CORP.

Notes to the Unaudited Consolidated Financial Statements

September 30, 2007

(1)Basis of Presentation

The unaudited consolidated financial statements as of and for the period ended September 30, 2007 include the accounts of Equitable Financial Corp. (“Equitable Financial” or the “Company”) and its wholly owned subsidiary, Equitable Bank (the “Bank”). The Company, through the Bank, operates in a single business segment, providing traditional banking services through its office network.

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, 2007, which was filed with the Securities and Exchange Commission on September 28, 2007. The results of operations for the three month period ended September 30, 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.

(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 and 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.

5

(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 September 30,
	2007			2006
Net (loss) for the three months ended	$	(261,137	)	$	(273,223	)
Weighted average shares outstanding for the quarter		3,119,334			3,174,881
(Loss) per share	$	(0.08	)	$	(0.09	)

(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 September 30, 2007, and June 30, 2007 are as follows:

	September 30, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
Mortgage-backed securities	$	1,664,186	$	10,643	$	(43,583	)	$	1,631,246
U.S. government-sponsored entity securities		3,485,000		-		(13,911	)		3,471,089
Municipal obligations		993,062		-		(7,279	)		985,783
Total investment and mortgage-backed securities, available for sale	$	6,142,248	$	10,643	$	(64,773	)	$	6,088,118

	June 30, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
Mortgage-backed securities	$	1,724,293	$	10,494	$	(64,497	)	$	1,670,290
U.S. government-sponsored entity securities		3,985,000		-		(43,736	)		3,941,264
Municipal obligations		993,012		-		(20,292	)		972,720
Total investment and mortgage-backed securities, available for sale	$	6,702,305	$	10,494	$	(128,525	)	$	6,584,274

Management believes that all unrealized losses as of September 30, 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 September 30, 2007, we have the ability and management intent to hold these securities until a market price recovery or maturity.

6

(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.

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

	September 30, 2007						June 30, 2007
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate-mortgage:
One-to-four family	$	64,280			41.3	%	$	65,266			42.4	%
Multi-family		7,304			4.7	%		6,874			4.4	%
Nonresidential		37,064			23.8	%		37,019			24.1	%
Total real estate-mortgage loans		108,648			69.8	%		109,159			70.9	%
Construction		4,132			2.7	%		4,810			3.1	%
Commercial		25,292			16.3	%		24,154			15.7	%
Consumer:
Home equity		13,894			8.9	%		12,323			8.0	%
Other consumer		3,632			2.3	%		3,513			2.3	%
Total consumer loans		17,526			11.2	%		15,836			10.3	%
Total loans		155,598			100.0	%		153,959			100.0	%
Deferred loan origination costs, net		461						428
Allowance for loan losses		(1,103	)					(1,057	)
Loans, net	$	154,956					$	153,330

(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 months ended September 30, 2007 and 2006.

	Three Months Ended
	September 30,
	2007			2006
	(Dollars in thousands)
Allowance at beginning of period	$	1,057		$	926
Provision for loan losses		60			30
Charge-offs		(26	)		(2	)
Recoveries		12			1
Allowance at end of period	$	1,103		$	955
Allowance to nonaccrual loans		199.1	%		256.7	%
Allowance to total loans outstanding at the end of the period		0.7	%		0.6	%
Net charge-offs to average loans outstanding during the period		0.0	%		0.0	%

(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.

7

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

	September 30, 2007					June 30, 2007
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Noninterest-bearing accounts	$	7,304		5.5	%	$	6,466		5.1	%
Interest-bearing NOW		11,851		8.9	%		12,424		9.7	%
Money market		21,899		16.4	%		14,317		11.2	%
Savings accounts		4,013		3.0	%		4,398		3.4	%
Certificates of deposit		88,458		66.2	%		90,140		70.6	%
Total	$	133,525		100.0	%	$	127,745		100.0	%

(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 Bank’s 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 September 30,
	2007		2006
ESOP compensation expense	$	21,779	$	20,937
ESOP shares allocated to employees		2,271		2,271
ESOP shares allocated in prior periods		15,718		6,634
ESOP shares unallocated		111,273		120,357
Fair value of ESOP shares unallocated	$	1,067,108	$	1,203,570

(9)Equity Incentive Plan

In November 2006, the Company’s stockholders approved the Equitable Financial Corp. 2006 Equity Incentive Plan (the “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 September 30, 2007 no options or stock awards had 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 had been recorded pertaining to the Plan as of September 30, 2007 as the Company had not implemented the stock award program. At September 30, 2007, the Company had purchased 64,631 shares of Treasury stock for the restricted stock awards program for approximately $695,000.

8

(10)Income Taxes

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), effective July 1, 2007. The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statement in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of the Company’s evaluation of the implementation of FIN 48, no significant income tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits during the three months ended September 30, 2007. Corporate tax returns for the years 2004 through 2006 remain open to examination by taxing authorities.

(11)Recent Accounting Pronouncements

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 Emerging Issues Task Force (“EITF”) reached a final consensus 06-04 “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The consensus stipulates that an agreement by an employer to share a portion of the proceeds of a life insurance policy with an employee during the postretirement period is a postretirement benefit arrangement required to be accounted for under SFAS No. 106 or Accounting Principles Board Opinion (“APB”) No. 12, “Omnibus Opinion - 1967.” The consensus concludes that the purchase of a split-dollar life insurance policy does not constitute a settlement under SFAS No. 106 and, therefore, a liability for the postretirement obligation must be recognized under SFAS No. 106 if the benefit is offered under an arrangement that constitutes a plan or under APB No. 12 if it is not part of a plan. Issue 06-04 is effective for annual or interim reporting periods beginning after December 15, 2007. The Company has endorsement split-dollar life insurance policies and is currently assessing the financial statement impact of implementing EITF 06-04.

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.

In March 2007, the Emerging Issues Task Force (“EITF”) reached a final conclusion on Issue 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangement.” The consensus concludes that a liability must be recognized for the postretirement obligation related to a collateral assignment split-dollar life insurance arrangement in accordance with SFAS No. 106 or APB No. 12. Any assets should be recognized and measured based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. The effective date of EITF 06-10 is for fiscal years beginning after December 15, 2007. The Company is currently assessing the financial statement impact of implementing EITF 06-10.

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(12)Subsequent Events

On October 17, 2007, the Company issued a press release announcing that the Company's Board of Directors approved the repurchase of up to 59,355 shares of the Company's outstanding common stock, which is 4.0% of the outstanding shares not held by Equitable Financial MHC.

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

Management’s discussion and analysis of the Company’s financial condition and results of operations at and for the three months ended September 30, 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 report.

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

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 deposit 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 September 30, 2007 were $183.1 million, an increase of $300,000 or 0.2% from total assets of $182.8 million at June 30, 2007. Total liabilities at September 30, 2007 were $160.3 million, compared to $159.8 million at June 30, 2007, an increase of $500,000 or 0.3%. Stockholders’ equity at September 30, 2007 was $22.8 million compared to $23.0 million at June 30, 2007, a decrease of $200,000 or 0.9%.

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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 increased $1.7 million, or 1.1%, to $155.0 million at September 30, 2007 compared to $153.3 million at June 30, 2007. This increase was primarily due to commercial loans increasing $1.1 million and consumer home equity loans increasing $1.6 million. A decrease of $1.0 million in one-to four- family residential real estate loans partially offset these increases. This activity is in line with our continued emphasis on originating non-residential real estate, construction and commercial loans.

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 September 30, 2007. There were no accruing loans past due 90 days or more for the period ended September 30, 2007.

	September 30,			June 30,
	2007			2007
	(Dollars in thousands)
Non-accrual loans:
Real estate-mortgage	$	516		$	466
Commercial		15			-
Consumer		23			3
Total non-accrual loans		554			469
Foreclosed assets, net		65			83
Total non-performing assets	$	619		$	552
Total non-accrual loans to total loans		0.4	%		0.3	%
Total non-accrual loans to total assets		0.3	%		0.3	%
Total non-performing assets to total assets		0.3	%		0.3	%

Non-accrual loans increased $85,000 to $554,000 at September 30, 2007, compared to $469,000 at June 30, 2007. The increase in real estate-mortgage non-accrual loans is attributable to a loan with a balance of $240,000 becoming past due 90 days or greater during the quarter ended September 30, 2007. This loan is secured by residential real estate that is currently for sale. The Bank expects to receive payment in full for this loan. This increase was offset by three smaller loans becoming less than 90 days past due totaling $195,000. The increase in commercial non-accrual loans is from one customer. Additionally, the $20,000 increase in consumer loans is also related to two loans for one customer. One loan is an auto loan that the Bank is currently in the process of repossessing and the other loan is a home equity loan secured by residential real estate. The Bank is the second lien on the home equity loan and expects to write off this loan.

During the quarter ended September 30, 2007 we sold a foreclosed asset for $79,000, the book value of this asset was $83,000. Also during the quarter we foreclosed on a house with a fair value of $65,000.

Securities. Our securities portfolio consists primarily of U.S. Government-sponsored entity securities and mortgage-backed securities. Securities available-for-sale decreased $496,000, or 7.5%, between June 30, 2007 and September 30, 2007. The decrease was the result of maturities and repayments in the portfolio of $558,000 and an increase in the market value of the portfolio of $64,000. Securities held-to-maturity decreased $22,000, or 3.1%, between June 30, 2007 and September 30, 2007. This decrease was the result of repayments. 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 $133.5 million from $127.7 million during the three months ended September 30, 2007, an increase of $5.8 million or 4.5%. The increase in core deposits was primarily due to two existing customers depositing large amounts due to the sale of business ventures. These deposits are highly volatile and not likely to remain with the Company for an extended period of time as we anticipate the money will be reinvested into investment with greater returns. Although core deposits increased $7.5 million, or 19.9%, certificates decreased $1.7 million or 1.9%. This decrease in certificates was due to a decrease in brokered certificates of $2.0 million. This decrease was offset by an increase in retail certificates of deposit of $300,000. We continue to utilize brokered certificates to reduce the overall cost-of-funds.

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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 decreased $5.3 million to $25.3 million at September 30, 2007 from $30.6 million at June 30, 2007. The advances outstanding at September 30, 2007 mature in 2008 through 2014.

Results of Operations for the Three Months Ended September 30, 2007 and 2006

Overview. We recorded a net loss of $261,000 during the three months ended September 30, 2007, compared to a net loss of $273,000 during the three months ended September 30, 2006.

Net Interest Income. The following table summarizes changes in interest income and expense for the three months ended September 30, 2007 and 2006.

	Three Months Ended September 30,
	2007		2006		% Change
Interest Income:
Loans	$	2,491	$	2,380		4.7	%
Securities		109		137		(20.4	)
Other		75		14		435.7
Total interest income		2,675		2,531		5.7
Interest Expense
Deposits		1,335		1,087		22.8
Federal Home Loan Bank		357		459		(22.2	)
Total interest expense	$	1,692	$	1,546		9.4
Net interest income	$	983	$	985		(0.2	)

The following table summarizes average balances and average yield and costs for the three months ended September 30, 2007 and 2006.

	Three Months Ended September 30,
	2007							2006
	Average Balance		Interest Income		Yield/ Cost			Average Balance		Interest  Income		Yield/ Cost
	(Dollars in thousands)
Loans, net	$	152,111	$	2,491		6.55	%	$	154,853	$	2,380		6.15	%
Securities and other		15,056		184		4.89	%		12,851		152		4.73	%
Total interest-bearing assets		167,167		2,675		6.40	%		167,704		2,532		6.04	%
Total interest-bearing deposits		122,325		1,335		4.37	%		116,130		1,087		3.74	%
FHLB borrowings		26,429		357		5.40	%		35,048		459		5.24	%
Total interest-bearing liabilities	$	148,754	$	1,692		4.55	%	$	151,178	$	1,546		4.09	%
Interest rate spread						1.85	%						1.95	%
Net interest margin						2.35	%						2.35	%

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Net interest income for the three months ended September 30, 2007 decreased $3,000, or 3.0%, compared to the same period last year. Due to the Company being more liability sensitive, the cost of funding loans has increased more dramatically than the yield on the assets in the current increasing 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 $60,000 compared to $30,000 for the three months ended September 30, 2006. This increased provision is a result of the continuing change in the composition of loans from residential real estate to non-residential real estate and commercial loans.

Non-interest Income.During the quarter ended September 30, 2007 non-interest income increased $194,000 from the comparable period in 2006. Service charges on deposit accounts increased by $76,000 as a result of our focus on reducing the amount of charges reversed for customers. Brokerage fee income increased $59,000 as a result of increased productivity in our investment departments. Additionally other income increased by $65,000. The primary reason for this increase was a referral fee of $60,000 received for one loan.

Non-interest Expenses. Total non-interest expenses increased$185,000 for the three months ended September 30, 2007, from the three months ended September 30, 2006. Increases in salaries and employee benefits of $188,000 and in data processing fees of $59,000 occurred during the period ended September 30, 2007. The increase in salaries and employee benefits is due to operational activities. Data processing increased due to increased vendor responsibilities. These increases were offset by a reduction in advertising expense of $41,000 and other expenses of $27,000.

Income Taxes. The Company recorded a tax benefit of $165,000 during the three months ended September 30, 2007 compared to a tax benefit of $129,000 during the three months ended September 30, 2006. The tax benefit and expense at September 30, 2007 and 2006 were calculated based on the tax items and the operating loss or income 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, 2007, cash and cash equivalents totaled $8.3 million, a decrease of $1.2 million from June 30, 2007. Securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $323,000 at September 30, 2007. Total securities classified as available-for-sale were $6.1 million at September 30, 2007. Of this amount, $3.2 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 September 30, 2007, we had the ability to borrow a total of approximately $54.7 million from the Federal Home Loan Bank of Topeka. On September 30, 2007, we had $25.3 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, 2007, we had $19.2 million in loan commitments outstanding, which consisted of $2.1 million in mortgage loan commitments, $3.3 million in unused home equity lines of credit, and $196,000 in personal lines of credit and $13.6 million in commercial lines of credit. Certificates of deposit due within one year of September 30, 2007 totaled $68.7 million, or 77.6%, of certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects the flat yield curve. 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, 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 September 30, 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.

On October 17, 2007, the Company issued a press release announcing that the Company's Board of Directors approved the repurchase of up to 59,355 shares of the Company's outstanding common stock, which is 4.0% of the outstanding shares not held by Equitable Financial MHC.

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, 2007 and the year ended June 30, 2007, 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

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, 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 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.

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, 2007 and at September 30, 2007, the Company had not publicly announced any repurchase plans or programs.

On October 17, 2007, the Company issued a press release announcing that the Company's Board of Directors approved the repurchase of up to 59,355 shares of the Company's outstanding common stock, which is 4.0% of the outstanding shares not held by Equitable Financial MHC.

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, 2007	By:	/s/ Richard L. Harbaugh
		Richard L. Harbaugh
		President and Chief Executive Officer
		(principal executive officer)
Dated: November 13, 2007	By:	/s/ Kim E. Marco
		Kim E. Marco
		Executive Vice President and Chief Financial Officer
		(principal financial and accounting officer)