Equity Bancshares, Inc. — 2024 Q1 Form 10-Q Summary
Business context and reporting period
Equity Bancshares, Inc. is a Wichita-based financial holding company whose principal subsidiary, Equity Bank, operates 72 full-service banking locations in Arkansas, Kansas, Missouri and Oklahoma. The filing covers the three months ended March 31, 2024, with balance-sheet comparisons to December 31, 2023 and operating comparisons to the three months ended March 31, 2023. Results include Bank of Kirksville beginning February 10, 2024, following the acquisition of Rockhold BanCorp.
Key financial metrics
| Metric | Q1 2024 | Comparable period | Change |
|---|---|---|---|
| Net interest income | $44.2 million | $39.1 million | 13.0% increase |
| Provision for credit losses | $1.0 million | $0.4 million reversal | $1.4 million unfavorable |
| Non-interest income | $11.7 million | $8.6 million | 36.4% increase |
| Non-interest expense | $37.2 million | $33.2 million | 11.8% increase |
| Income before taxes | $17.8 million | $14.8 million | 19.6% increase |
| Net income | $14.1 million | $12.3 million | 14.2% increase |
| Diluted EPS | $0.90 | $0.77 | Increase |
| Net interest margin | 3.75% | 3.44% | 31 basis-point increase |
| Efficiency ratio, adjusted | 65.16% | 69.69% | Improved |
| Return on average assets | 1.10% | 1.00% | Improved |
| Return on average equity | 12.29% | 11.89% | Improved |
Interest income increased $15.6 million, driven by higher loan and securities yields and larger average earning-asset balances. Interest expense increased $10.6 million, primarily because the cost of interest-bearing deposits rose to 2.77% from 1.73%. Loan yield increased to 6.85% from 5.94%.
Non-interest income benefited from a $3.3 million recovery on zero-basis purchased loans and a $1.2 million acquisition gain. Merger expense was $1.6 million. The effective income tax rate was 20.8%, compared with 17.0% in the prior-year quarter.
Balance sheet, credit quality and capital
- Total assets were $5.24 billion, up $204.4 million, or approximately 4.1%, from December 31, 2023.
- Gross loans held for investment were $3.48 billion, up $149.3 million, or 4.5%; $118.1 million of acquired loans came from Rockhold.
- Total deposits were $4.37 billion, up $225.6 million, or 5.4%. Reciprocal and brokered deposits totaled $692.7 million.
- Available-for-sale securities increased to $1.09 billion from $919.6 million. The portfolio had $85.5 million of gross unrealized losses, primarily reflecting interest-rate changes.
- The allowance for credit losses was $44.4 million, or 1.3% of total loans, compared with $43.5 million at year-end. Net charge-offs were $667 thousand, compared with $378 thousand in Q1 2023.
- Nonperforming assets were $25.4 million, or 0.49% of total assets, down from $26.5 million and 0.53% at year-end. Nonaccrual loans were $24.2 million.
- Stockholders’ equity was $456.8 million, while tangible common equity was $384.8 million. Tangible common equity to tangible assets was 7.45%.
- Equity Bank remained categorized as well capitalized. At March 31, 2024, its total risk-based capital ratio was 14.30%, common equity Tier 1 ratio was 13.15%, and Tier 1 leverage ratio was 10.20%.
Cash flow, debt and liquidity
- Cash and cash equivalents declined to $235.0 million from $379.1 million at year-end.
- Operating activities provided $12.6 million of cash. Investing activities provided $5.3 million, including the net cash effect of the Rockhold acquisition.
- Financing activities used $162.0 million, reflecting a $124.2 million decrease in deposits, $140.0 million repayment of Federal Reserve borrowings, treasury-stock purchases of $6.8 million and dividends of $1.9 million, partially offset by $119.9 million of additional Federal Home Loan Bank advances.
- Federal Home Loan Bank advances were $219.9 million, up from $100.0 million. There were no Federal Reserve Bank borrowings at March 31, 2024.
- Subordinated debt totaled $97.1 million. Total reported borrowings, including subordinated debt and other funding, were $360.8 million.
- Management stated that expected funding needs can be met through operating cash flow, loan and securities repayments, core deposits, Federal Home Loan Bank advances and other borrowing relationships.
Material changes and unusual items
- On February 9, 2024, the Company acquired Rockhold BanCorp, parent of Bank of Kirksville, for $44.3 million in cash. The transaction added eight Missouri branches, approximately $118.1 million of loans, $164.6 million of available-for-sale securities and $349.8 million of deposits.
- The acquisition generated a $1.2 million bargain-purchase gain and $1.6 million of merger expenses. Acquisition accounting remained subject to completion at the filing date.
- On April 18, 2024, the Company entered into an agreement to acquire KansasLand Bancshares, parent of KansasLand Bank. Regulatory approval is required, and closing was expected in Q2 2024. KansasLand reported $54.5 million of assets and $43.4 million of deposits at December 31, 2023.
- The Company repurchased 209,591 shares during the quarter for $6.8 million, leaving 790,409 shares available under its repurchase authorization through September 30, 2024.
- Accumulated other comprehensive loss increased to $60.8 million from $57.9 million, primarily due to changes in the fair value of available-for-sale securities.
Outlook, risks and contingencies
The filing does not provide specific earnings or revenue guidance. Management expects results to remain sensitive to interest-rate movements, deposit pricing, loan demand, funding costs, credit quality and economic conditions. The Company’s modeled 12-month net interest income sensitivity at March 31, 2024 ranged from a 7.4% increase under a 300-basis-point rate increase to a 5.1% decrease under a 300-basis-point decrease.
- A significant portion of the loan portfolio is secured by real estate, exposing the Company to commercial and residential real-estate values, borrower performance and local economic conditions.
- Management’s allowance estimate depends on economic forecasts, collateral values, repayment behavior and other judgments; actual credit losses could differ materially.
- Deposit costs remain elevated, and liquidity could be affected by deposit outflows, slower loan repayments or reduced market access.
- The investment portfolio contains substantial unrealized losses. Management does not expect credit losses and does not intend, or expect to be required, to sell the affected securities before recovery.
- Equity Bank faces three lawsuits alleging improperly collected overdraft fees, including proposed class actions. The Company believes the claims lack merit, but cannot reasonably estimate potential losses.
- Forward-looking results are subject to monetary policy, inflation, competition, regulatory requirements, FDIC assessments, cybersecurity and technology risks, acquisition integration risks, litigation and other factors.
Investor verification priorities
- Verify the completed purchase accounting for Rockhold, including final loan marks, core deposit intangibles and any changes to the recorded bargain-purchase gain.
- Monitor deposit mix, reciprocal and brokered deposits, deposit pricing and reliance on Federal Home Loan Bank funding.
- Track commercial real-estate exposure, nonaccrual loans, criticized assets, charge-offs and the adequacy of the allowance for credit losses.
- Assess the effect of interest-rate changes on net interest margin, securities values, liquidity and tangible capital.
- Review the status and potential exposure of the overdraft-fee litigation.
- Confirm regulatory approval, timing, purchase terms and expected capital impact of the proposed KansasLand acquisition.
- Distinguish recurring operating performance from the Rockhold acquisition gain, zero-basis purchased-loan recovery and merger expenses.