Equity Bancshares, Inc. Fourth Quarter Results Highlighted by 6.1% Annualized Loan Growth and Strategic Balance Sheet Repositioning

Company Announces Merger with Bank of Kirksville and Tangible Equity Growth

WICHITA, Kan., Jan. 24, 2024 (GLOBE NEWSWIRE) — Equity Bancshares, Inc. (NYSE: EQBK), (“Equity”, “the Company”, “we,” “us,” “our”), the Wichita-based holding company of Equity Bank, reported a net loss of $28.3 million or $(1.84) earnings per diluted share for the quarter ended December 31, 2023. Excluding the impact of our previously announced bond repositioning and merger related expenses, operating income would have been $11.9 million or $0.77 earnings per diluted share.

“Our Company entered the fourth quarter positioned to take advantage of market opportunities which we expect will drive our operating growth in the future,” said Brad S. Elliott, Chairman and CEO of Equity.  “With our team’s efforts around capital creation and management, we were able to announce our newest strategic combination with the Bank of Kirksville, Missouri, as well as a repositioning of our bond portfolio.  Each of these transactions reflect our entrepreneurial spirit and, we believe, position our Company for continued success.”

“In addition to the transformative transactions, our teams continued to emphasize core customer creation and service, while maintaining strong credit quality,” Mr. Elliott said. “Our classified asset ratio continues to be historically low, while both capital and on balance sheet reserves remain high, positioning Equity to be strategic for organic and acquisitive growth opportunities.”

Notable Items:

• The Company realized linked quarter gross loans held-for-investment expansion of $50.8 million, or 6.1% annualized.  Commercial lending categories were the primary contributors to realized growth.
• The Company realized linked quarter deposit growth of $63.3 million, including $13.3 million in non-brokered deposit balances.
• The Company sold $493.6 million in securities par value, realizing gross loss of $50.6 million.  Securities included in the transaction were yielding 1.20% at the date of sale.  Funds received were redeployed in bond purchases, loan production, cash, and the avoidance of high-cost borrowings.
• Stockholders’ Equity increased $34.7 million linked quarter, while tangible book value increased $35.5 million. Tangible book value per share closed the year at $25.37 compared to $23.09 as of September 30, 2023 and $21.67 as of December 31, 2022.
• The Company announced its planned merger with Rockhold Bancorp, the parent company of Bank of Kirksville (“BoK”) which operates eight banking locations in northcentral Missouri. As of September 30, 2023 BoK reported total assets of $406 million, including $122 million in loans, and $344 million in deposits.
• Classified assets as a percentage of total risk based capital at Equity Bank closed the period at 7.1% while non-performing assets remained historically low.  The allowance for credit losses closed the quarter at 1.31% of total loans.

Financial Results for the Quarter Ended December 31, 2023

Net loss allocable to common stockholders was $28.3 million, or $(1.84) per diluted share, for the three months ended December 31, 2023, as compared to $12.3 million, or $0.80 per diluted share, for the three months ended September 30, 2023. The decrease during the quarter was primarily driven by a loss on sales of available-for-sale securities of $50.6 million. Excluding the tax-effected impact of loss on sale, operating net income would have been $11.9 million, or $0.77 per diluted share.

Net Interest Income

Net interest income was $39.5 million for the three months ended December 31, 2023, as compared to $41.0 million for the three months ended September 30, 2023, a decrease of $1.5 million, or 3.77%. Net interest margin decreased to 3.49% from 3.51% as the yield on interest-earning assets increased 12 basis points to 5.69% and the cost of interest-bearing deposits increased 18 basis points to 2.83%. Continued increases in loan coupon were offset by a decline in purchase accounting and non-accrual loan costs.

Average deposits declined during the quarter and the Company continued to experience compositional shift from noninterest-bearing deposits into interest-bearing categories. At December 31, 2023, non-interest-bearing deposits declined $38.1 million from September 30, 2023, and $199.8 million from December 31, 2022.  The majority of the decline over the last 12 months is due to deposits migrating to interest-bearing deposit accounts coupled with declining excess liquidity positions of our customer base.

Provision for Credit Losses

During the three months ended December 31, 2023, there was a provision of $711 thousand compared to a provision of $1.2 million in the previous quarter.  The provision for the quarter is the result of increased loss rates within the portfolio as well as realized charge-offs; however, overall we continue to experience positive credit trends. The Company continues to estimate the allowance for credit loss with assumptions that anticipate slower prepayment rates and continued market disruption caused by elevated inflation, supply chain issues and the impact of monetary policy on consumers and businesses.  For the three months ended December 31, 2023, we had net charge-offs of $1.4 million as compared to $1.6 million for the three months ended September 30, 2023.

Non-Interest Income

Total non-interest income was $(43.4) million for the three months ended December 31, 2023, as compared to $8.7 million for the three months ended September 30, 2023, or a decrease of 597.0%, quarter-over-quarter.  The $52.1 million decrease was primarily due to an increase in losses on the sale of available-for-sale securities of $50.7 million. During the fourth quarter the Company repositioned it’s investment portfolio by selling lower yielding securities and reinvesting into higher yielding assets, resulting in the loss.

Exclusive of the investment portfolio re-positioning, non-interest income was driven down by the fair valuation of portfolio derivatives as market rates trended down in the quarter, as well as a decline in the benefits from specific credits related to the Almena State Bank transaction of $526 thousand. 

Non-Interest Expense

Total non-interest expense for the quarter ended December 31, 2023, was $35.0 million as compared to $34.2 million for the quarter ended September 30, 2023, an increase of $754 thousand. Adjusting for merger expenses, the increase quarter over quarter was $462 thousand due to increased incentive and insurance accruals within the salary and employee benefits line item.

Income Tax Expense

At December 31, 2023, the effective tax rate for the quarter was 28.6% as compared to 13.5% at September 30, 2023. The year-to-date tax rate is (223.9)% compared to 14.1% at September 30, 2023. The increase in the rate linked to the quarter represents additional benefit associated with the sale of bonds generating pre-tax losses recognized in the fourth quarter ending December 31, 2023. The year-to-date tax rate represents the anticipated tax planning benefits and credits amplified by a reduction in pre-tax book income for the year due to the pre-tax losses generated in the fourth quarter related to the sale of bonds.  The anticipated tax rate for the full year, normalized for the sale of the bonds, would have been 12.8%.  

Loans, Total Assets and Funding

Loans held for investment were $3.33 billion at December 31, 2023, increasing $50.8 million compared to the previous quarter. Total assets were $5.03 billion as of December 31, 2023, increasing $89.3 million or 1.8% from September 30, 2023.

Total deposits were $4.1 billion at December 31, 2023, increasing $63.3 million from the previous quarter end and decreasing $96.4 million from the same period end in 2022.  During the fourth quarter, there were increases in brokered deposits of $50.0 million. Excluding the impact of brokered deposits, totals deposits increased $13.3 million as compared to September 30, 2023. Of the total deposit balance, non-interest-bearing accounts comprise approximately 21.7%. Advances from the FHLB and borrowings from the Federal Reserve’s Bank Term Funding Program remained unchanged from September 30, 2023.

Asset Quality

As of December 31, 2023, Equity’s allowance for credit losses to total loans remained materially consistent at 1.3% as compared to September 30, 2023.  Nonperforming assets were $26.5 million as of December 31, 2023, or 0.5% of total assets, compared to $20.5 million at September 30, 2023, or 0.4% of total assets.  Non-accrual loans were $25.0 million at December 31, 2023, as compared to $19.4 million at September 30, 2023.  Total classified assets, including loans rated special mention or worse, other real estate owned, excluding previous branch locations, and other repossessed assets were $40.5 million, or 7.1% of regulatory capital, up from $37.6 million, or 6.3% of regulatory capital as of September 30, 2023.

Capital

Quarter over quarter, book capital increased $34.7 million to $452.9 million and tangible capital increased $35.5 million to $391.5 million.  The increase in book and tangible capital is primarily due to a decrease in the unrealized loss position in our investment portfolio of $65.0 million, partially offset by net loss for the quarter of $28.3 million, dividends declared of $1.9 million and a decrease in unrealized gains on cash-flow derivatives of $1.0 million.

The Company’s ratio of common equity tier 1 capital to risk-weighted assets was 11.7%, the total capital to risk-weighted assets was 15.5% and the total leverage ratio was 9.5% at December 31, 2023.  At September 30, 2023, the Company’s common equity tier 1 capital to risk-weighted assets ratio was 12.7%, the total capital to risk-weighted assets ratio was 16.4% and the total leverage ratio was 9.8%.

Equity Bank’s ratio of common equity tier 1 capital to risk-weighted assets was 13.9%, total capital to risk-weighted assets was 15.1% and the total leverage ratio was 10.6% at December 31, 2023.  At September 30, 2023, Equity Bank’s ratio of common equity tier 1 capital to risk-weighted assets was 14.7%, the ratio of total capital to risk-weighted assets was 15.9% and the total leverage ratio was 10.8%.

Non-GAAP Financial Measures

In addition to evaluating the Company’s results of operations in accordance with accounting principles generally accepted in the United States of America (“GAAP”), management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures that are intended to provide the reader with additional perspectives on operating results, financial condition and performance trends, while facilitating comparisons with the performance of other financial institutions.  Non-GAAP financial measures are not a substitute for GAAP measures, rather, they should be read and used in conjunction with the Company’s GAAP financial information.

The efficiency ratio is a common comparable metric used by banks to understand the expense structure relative to total revenue.  In other words, for every dollar of total revenue recognized, how much of that dollar is expended.  To improve the comparability of the ratio to our peers, non-core items are excluded.  To improve transparency and acknowledging that banks are not consistent in their definition of the efficiency ratio, we include our calculation of this non-GAAP measure.

Return on average assets before income tax provision and provision for loan losses is a measure that the Company uses to understand fundamental operating performance before these expenses.  Used as a ratio relative to average assets, we believe it demonstrates “core” performance and can be viewed as an alternative measure of how efficiently the Company services its asset base.  Used as a ratio relative to average equity, it can function as an alternative measure of the Company’s earnings performance in relationship to its equity.

Tangible common equity and related measures are non-GAAP financial measures that exclude the impact of intangible assets, net of deferred taxes, and their related amortization.  These financial measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally.  Return on average tangible common equity is used by management and readers of our financial statements to understand how efficiently the Company is deploying its common equity.  Companies that are able to demonstrate more efficient use of common equity are more likely to be viewed favorably by current and prospective investors.

The Company believes that disclosing these non-GAAP financial measures is both useful internally and is expected by our investors and analysts in order to understand the overall performance of the Company.  Other companies may calculate and define their non-GAAP financial measures and supplemental data differently.  A reconciliation of GAAP financial measures to non-GAAP measures and other performance ratios, as adjusted, are included in Table 6 in the following press release tables.

Conference Call and Webcast

Equity’s Chairman and Chief Executive Officer, Brad Elliott, and Chief Financial Officer, Chris Navratil, will hold a conference call and webcast to discuss fourth quarter results on Thursday, January 25, 2024, at 10 a.m. eastern time or 9 a.m. central time.

A live webcast of the call will be available on the Company’s website at investor.equitybank.com. To access the call by phone, please go to this registration link, and you will be provided with dial in details. Investors, news media, and other participants are encouraged to dial into the conference call ten minutes ahead of the scheduled start time.

A replay of the call and webcast will be available two hours following the close of the call until January 31, 2024, accessible at investor.equitybank.com.

About Equity Bancshares, Inc.
Equity Bancshares, Inc. is the holding company for Equity Bank, offering a full range of financial solutions, including commercial loans, consumer banking, mortgage loans, trust and wealth management services and treasury management services, while delivering the high-quality, relationship-based customer service of a community bank. Equity’s common stock is traded on the NYSE National, Inc. under the symbol “EQBK.” Learn more at www.equitybank.com.

Special Note Concerning Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements reflect the current views of Equity’s management with respect to, among other things, future events and Equity’s financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “positioned,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature.  These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about Equity’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond Equity’s control. Accordingly, Equity cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although Equity believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.  Factors that could cause actual results to differ materially from Equity’s expectations include competition from other financial institutions and bank holding companies; the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; changes in the demand for loans; fluctuations in value of collateral and loan reserves; inflation, interest rate, market and monetary fluctuations; changes in consumer spending, borrowing and savings habits; and acquisitions and integration of acquired businesses; and similar variables. The foregoing list of factors is not exhaustive.

For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in Equity’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2023, and any updates to those risk factors set forth in Equity’s subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if Equity’s underlying assumptions prove to be incorrect, actual results may differ materially from what Equity anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and Equity does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties arise from time to time and it is not possible for us to predict those events or how they may affect us. In addition, Equity cannot assess the impact of each factor on Equity’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Equity or persons acting on Equity’s behalf may issue.

Investor Contact:

Brian J. Katzfey
VP, Director of Corporate Development and Investor Relations
Equity Bank
(316) 858-3128
bkatzfey@equitybank.com     

Media Contact:

John J. Hanley
Chief Marketing Officer
Equity Bancshares, Inc.
(913) 583-8004
jhanley@equitybank.com

Unaudited Financial Tables

• Table 1. Consolidated Statements of Income
• Table 2. Quarterly Consolidated Statements of Income
• Table 3. Consolidated Balance Sheets
• Table 4. Selected Financial Highlights
• Table 5. Year-To-Date Net Interest Income Analysis
• Table 6. Quarter-To-Date Net Interest Income Analysis
• Table 7. Quarter-Over-Quarter Net Interest Income Analysis
• Table 8. Non-GAAP Financial Measures

TABLE 1. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)

TABLE 2. QUARTERLY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)

TABLE 3. CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)

TABLE 4. SELECTED FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share data)

TABLE 5. YEAR-TO-DATE NET INTEREST INCOME ANALYSIS (Unaudited)
(Dollars in thousands)

TABLE 6. QUARTER-TO-DATE NET INTEREST INCOME ANALYSIS (Unaudited)
(Dollars in thousands)

TABLE 7. QUARTER-OVER-QUARTER NET INTEREST INCOME ANALYSIS (Unaudited)

(Dollars in thousands)

TABLE 8. NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share data)