Equity Bancshares, Inc. Third Quarter Results Include a Significant Recovery on Problem Asset and 16.9% Annualized Loan Growth

Equity Bancshares, Inc. (NYSE: EQBK), (“Equity”, “the Company,” “we,” “us,” “our”), the Wichita-based holding company of Equity Bank, reported net income of $19.8 million or $1.28 earnings per diluted share for the quarter ended September 30, 2024.

“Our Company realized another exceptional earnings quarter, which included the favorable resolution of a significant problem loan," said Brad S. Elliott, Chairman and CEO of Equity. "Our team is committed to serving our communities and, through prudent underwriting, mitigating risk. When challenges arise, we will pursue all avenues available to us for successful resolution on behalf of our shareholders."

"Also during this quarter, our team continued to execute on our mission as we grew customer relationships and loan balances while also expanding our footprint via the KansasLand Bancshares, Inc. ("KansasLand") acquisition," Mr. Elliott said. "We are well positioned to facilitate both organic growth and strategic M&A. We have the teams, the processes and the experience to be the premier community bank in our geography."

Notable Items:

• The Company realized earnings per diluted share of $1.28, or $1.31 adjusted to exclude pre-tax merger expense of $618 thousand and gain on security transactions of $206 thousand.
• The Company closed its merger with and completed its integration of KansasLand. Adding $28.3 million in loan balances and $42.4 million in deposit balances.
• During the quarter, the Company grew loan balances, excluding those acquired from KansasLand, by $117.8 million or 13.6% on an annualized basis.
• The Company resolved a significant problem asset, recognizing an $8.5 million pre-tax benefit during the quarter.
• The Company ended the quarter with deposit balances of $4.4 billion and a loan-to-deposit ratio of 82.5%.
• The Company increased its quarterly dividend by 25% to $0.15 per share, its third consecutive annual increase. The Company also announced the approval of a share repurchase plan allowing for the purchase of up to 1,000,000 shares from October 1, 2024 through September 30, 2025.
• The Company realized an increase in book and tangible book value of $42.6 million and $43.2 million, respectively. Linked quarter tangible book value per share improved 10.4% to $28.38 per share.
• Classified assets as a percentage of total risk-based capital at Equity Bank closed the period at 8.3% while non-performing assets remained historically low. The allowance for credit losses closed the quarter at 1.2% of total loans.

Financial Results for the Quarter Ended September 30, 2024

Net income allocable to common stockholders was $19.8 million, or $1.28 per diluted share. Adjusting to exclude $618 thousand in pre-tax costs associated with mergers and gain on security transactions of $206 thousand, net income was $20.2 million or $1.31 per diluted share.

Excluding merger expenses and the costs associated with repositioning a portion of our BOLI portfolio in the prior quarter, net income was $15.3 million, or $0.99 per diluted share. The drivers of the periodic change are discussed in detail in the following sections.

Net Interest Income

Net interest income was $46.0 million for the period ended September 30, 2024, as compared to $46.5 million for the three months ended June 30, 2024, the decline was driven by minor declines in average earning assets and margin, partially offset by an additional day in the current period. Net interest margin was 3.87% for the quarter compared to 3.94% as the yield on interest-earning assets declined 7 basis points to 6.30%.

The decline in earning asset yield was driven by declining trends in both non-accrual loan impacts and purchase accounting accretion. The comparative change in these components of interest income resulted in an 8 basis point decline in margin.

Provision for Credit Losses

During the quarter ended September 30, 2024, there was a provision of $1.2 million compared to a provision of $265 thousand in the previous quarter. The provision was primarily attributable to growth in loan balances during the period. 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. During the quarter, we realized net charge-offs of $1.6 million as compared to $1.2 million for the previous quarter.

Non-Interest Income

Total non-interest income was $9.3 million for the quarter ended September 30, 2024, as compared to $9.0 million linked quarter. Included in current quarter results was gain realized on the acquisition of KansasLand of $831 thousand. Service fee revenue including deposit services, treasury, debit card, credit card, insurance and wealth management increased at an annualized rate of 2% during the quarter.

Non-Interest Expense

Total non-interest expense for the quarter was $30.3 million as compared to $38.9 million for the previous quarter. Adjusting for merger expenses in both periods, the decrease quarter over quarter was $6.9 million driven by the $8.5 million gain from a borrower's repurchase of our preferred equity interest in the borrower's company, partially offset by a $742 thousand write-down of a previous bank location now carried in Other Real Estate Owned and a $900 thousand increase in incentive accruals.

Income Tax Expense

The effective tax rate for the quarter was 16.7% as compared to 28.1% for the quarter ended June 30, 2024. The decrease in rate during the quarter was the result of the reversal of the non-recurring recognition of tax expense related to the liquidation of bank owned life insurance in the second quarter in addition to the reversal of deferred tax asset valuation allowance for the expected utilization of net operating loss carryforwards in the current tax year. Year-to-date effective tax rate is 21.2%.

Loans, Total Assets and Funding

Loans held for investment were $3.6 billion at September 30, 2024, increasing $146.5 million, or 16.9% on an annualized basis, during the quarter. Total assets were $5.4 billion as of the end of the period, increasing $109.7 million during the quarter.

Total deposits were $4.4 billion at September 30, 2024, increasing $21.5 million, or 2.0% on an annualized basis, from the previous quarter end. Of the total deposit balance, non-interest-bearing accounts comprise approximately 22.2%. Total Federal Home Loan Bank borrowings were $296.0 million as of the end of the quarter, up $45.7 million as compared to June 30, 2024.

Asset Quality

As of September 30, 2024, Equity’s allowance for credit losses to total loans was 1.2% down 5 basis points as compared to June 30, 2024. The decline was driven by realized charge-offs during the period. Nonperforming assets were $32.3 million as of September 30, 2024, or 0.6% of total assets, compared to $27.2 million at June 30, 2024, or 0.5% of total assets. Non-accrual loans were $31.2 million at September 30, 2024, as compared to $26.6 million at June 30, 2024. Total classified assets, including loans rated special mention or worse, other real estate owned, excluding previous branch locations, and other repossessed assets were $49.1 million, or 8.32% of regulatory capital, up from $48.4 million, or 8.5% of regulatory capital as of June 30, 2024.

Capital

Quarter over quarter, book capital increased $42.6 million to $504.0 million and tangible capital increased $43.2 million to $433.9 million. Tangible book value per share closed the quarter at $28.4, increasing 10.4% compared to prior quarter. The increase in capital is primarily due to earnings and improvement in unrealized losses on bonds and cash flow hedges of $22.0 million, partially offset by dividends of $2.3 million. Tangible capital was also positively affected by the amortization of core deposit intangibles during the quarter.

The Company’s ratio of common equity tier 1 capital to risk-weighted assets was 11.4%, the total capital to risk-weighted assets was 14.8% and the total leverage ratio was 9.6% at September 30, 2024. At June 30, 2024, the Company’s common equity tier 1 capital to risk-weighted assets ratio was 11.1%, the total capital to risk-weighted assets ratio was 14.6% and the total leverage ratio was 9.1%.

Equity Bank's ratio of common equity tier 1 capital to risk-weighted assets was 13.0%, total capital to risk-weighted assets was 14.1% and the total leverage ratio was 10.4% at September 30, 2024. At June 30, 2024, Equity Bank’s ratio of common equity tier 1 capital to risk-weighted assets was 12.9%, the ratio of total capital to risk-weighted assets was 14.0% and the total leverage ratio was 10.1%.

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 third quarter results on Wednesday, October 16, 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 following the close of the call 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 7, 2024, 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.

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