Equity Bank(EQBK) - 2020 Q1 - Quarterly Report

Part I: Financial Information Item 1. Financial Statements Equity Bancshares, Inc.'s unaudited interim consolidated financial statements as of March 31, 2020, detail financial position, operating results, and key notes Consolidated Balance Sheets Total assets were $3.94 billion as of March 31, 2020, a slight decrease from year-end 2019, with shifts in loans, cash, and deposits Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $3,943,832 | $3,949,578 | | Cash and cash equivalents | $142,252 | $89,291 | | Loans, net of allowance | $2,485,208 | $2,544,420 | | Goodwill | $136,432 | $136,432 | | Total Liabilities | $3,466,481 | $3,471,518 | | Total deposits | $2,960,397 | $3,063,516 | | Federal Home Loan Bank advances | $389,620 | $324,373 | | Total Stockholders' Equity | $477,351 | $478,060 | Consolidated Statements of Operations Q1 2020 net income reached $1.3 million, a significant turnaround from a $4.1 million net loss in Q1 2019, driven by reduced loan loss provision and increased net interest income Quarterly Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net Interest Income | $32,095 | $30,639 | | Provision for Loan Losses | $9,940 | $15,646 | | Non-interest Income | $5,306 | $5,324 | | Non-interest Expense | $25,758 | $25,543 | | Net Income (Loss) | $1,258 | ($4,073) | | Diluted Earnings (Loss) Per Share | $0.08 | ($0.26) | Condensed Notes to Interim Consolidated Financial Statements Notes detail COVID-19 impacts, including loan deferrals, PPP, CECL deferral, increased allowance for loan losses, and stable capital ratios - In response to the COVID-19 pandemic, the company implemented a payment deferral program for affected clients. As of April 27, 2020, 927 deferrals were executed on loan balances of $474.7 million. These are not considered troubled debt restructurings per regulatory guidance[42][88] - The company is an active participant in the SBA's Paycheck Protection Program (PPP). As of April 27, 2020, it had closed or approved 1,776 PPP loans totaling $470.1 million[43][194] - The company elected to defer the implementation of the new Current Expected Credit Losses (CECL) accounting standard, as permitted by the CARES Act. The allowance for loan losses at March 31, 2020 was calculated using the prior incurred loss method[47] Allowance for Loan Losses Activity (in thousands) | | Three Months Ended March 31, 2020 | | :--- | :--- | | Beginning Balance | $12,232 | | Provision for Loan Losses | $9,940 | | Charge-offs | ($357) | | Recoveries | $100 | | Ending Balance | $21,915 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 financial performance, attributing improved net income to lower loan loss provision and higher net interest income, with significant focus on COVID-19 impacts and credit risk Recent Developments (COVID-19 Impact) COVID-19 significantly impacted Q1 2020 results, increasing loan loss allowance, prompting deferrals and PPP, and identifying at-risk loan categories - The COVID-19 pandemic materially impacted the allowance for loan losses, which was significantly increased due to worsening economic forecasts, even without any direct charge-offs related to the pandemic in Q1[189] Loan Exposure in At-Risk Industries (as of March 31, 2020) | Industry | Exposure (in millions) | % of Total Loans | | :--- | :--- | :--- | | Hospitality | $239.9 | 9.6% | | Construction | $222.2 | 8.9% | | Retail | $144.2 | 6.0% | | Restaurants | $96.4 | 3.8% | | Multifamily | $85.1 | 3.4% | | Aircraft Manufacturing | $62.9 | 2.5% | Results of Operations Q1 2020 net income was $1.3 million, a $5.3 million increase from Q1 2019, driven by higher net interest income and a lower loan loss provision Key Performance Metrics | Metric | Q1 2020 | Q1 2019 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $32.1M | $30.6M | +$1.5M | | Net Interest Margin | 3.67% | 3.49% | +18 bps | | Provision for Loan Losses | $9.9M | $15.6M | -$5.7M | | Net Income (Loss) | $1.3M | ($4.1M) | +$5.3M | - The increase in net interest margin was largely due to interest-bearing liabilities repricing downward at a faster rate than interest-earning assets in a declining interest rate environment[222] - The Q1 2020 provision for loan loss of $9.9 million was primarily driven by increases in qualitative factors related to the projected economic impact of COVID-19[225] Financial Condition Total assets were $3.94 billion at March 31, 2020, with a significant increase in the allowance for loan losses to 0.87% of total loans due to COVID-19 risks Credit Quality Metrics | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Nonperforming Assets | $48.1M | $46.9M | | Nonperforming Assets / Total Assets | 1.22% | 1.19% | | Allowance for Loan Losses | $21.9M | $12.2M | | Allowance / Total Loans | 0.87% | 0.48% | - The allowance for loan losses as a percentage of total loans nearly doubled from 0.48% at year-end 2019 to 0.87% at March 31, 2020, primarily due to management's evaluation of the economic impact of COVID-19[285][287] - Classified loans increased by $955 thousand to $66.5 million at March 31, 2020, representing 2.7% of the total loan portfolio[273] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, managed by ALCO using simulation analysis to assess impacts on Net Interest Income and Economic Value of Equity Interest Rate Sensitivity Analysis (Simulated Immediate Change) | Change in Interest Rates | Impact on Net Interest Income (12 months) | Impact on Economic Value of Equity | | :--- | :--- | :--- | | +300 bps | (7.6)% | (0.9)% | | +200 bps | (4.5)% | 1.9% | | +100 bps | (1.7)% | 3.5% | | -100 bps | (3.7)% | (14.1)% | - The company manages interest rate risk through its Asset Liability Committee (ALCO), which uses simulation analysis to monitor the sensitivity of Net Interest Income (NII) and Economic Value of Equity (EVE) to rate changes[352][354] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2020, and fully remediated a previously identified material weakness in internal control over financial reporting - The company has fully remediated the material weakness in internal control over financial reporting that was identified as of December 31, 2019[366] - Management concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective at a reasonable assurance level[363] Part II: Other Information Item 1. Legal Proceedings The company is involved in various litigation matters, including a $1.47 million judgment with CitiMortgage and a vigorously defended securities class action lawsuit - The company is party to a lawsuit with CitiMortgage, with a judgment of $1.47 million against Equity Bank. A loss contingency of $477 thousand was previously recorded[170] - A securities class action lawsuit was filed against the company in May 2019, alleging misleading statements. The company has filed a motion to dismiss and believes the suit is without merit[173] Item 1A. Risk Factors A significant new risk factor addresses the unprecedented economic dislocation and uncertainty caused by the COVID-19 pandemic on the company's operations - A material new risk factor has been added regarding the adverse effects of the COVID-19 pandemic on the company's financial condition and results of operations, citing significant economic dislocation and uncertainty[372] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 295,461 shares of common stock in Q1 2020 at an average price of $23.33, with the program temporarily suspended in March due to COVID-19 Common Stock Repurchases (Q1 2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2020 | 15,000 | $27.26 | | Feb 2020 | 69,996 | $27.68 | | Mar 2020 | 210,465 | $21.60 | | Total Q1 | 295,461 | $23.33 | - The company's share repurchase program was temporarily suspended in March 2020 in response to the COVID-19 environment[126] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files