Equity Bank(EQBK) - 2021 Q4 - Annual Report

Part I Business Overview This section provides an overview of Equity Bancshares, Inc.'s business, including its operations, growth strategies, competitive strengths, and regulatory environment Our Company Equity Bancshares, Inc. is a bank holding company operating through its subsidiary, Equity Bank, across four states - Equity Bancshares, Inc. operates through Equity Bank, providing financial services via 69 branches in AR, KS, MO, and OK as of December 31, 2021[14] Consolidated Financial Data (as of December 31, 2021) | Metric | Amount (Millions) | | :----------------- | :---------------- | | Total Assets | $5,140 | | Total Deposits | $4,420 | | Total Loans (net) | $3,110 | | Stockholders' Equity | $500.6 | Our History and Growth The company has a history of successful strategic acquisitions and focuses on improving loan and deposit mixes of acquired banks - Founded in November 2002, Equity Bancshares has a successful track record of strategic acquisitions, completing 18 transactions between June 2003 and December 2021, expanding its branch network from two to 69 and increasing full-time equivalent employees from 19 to 702[16][17][19][21] - The company focuses on repositioning and improving the loan and deposit mix of acquired banks, disposing of problematic loans, and replacing them with higher-quality, organically generated loans, particularly in the commercial sector[20] Our Strategies The company's core strategy involves strategic consolidation, organic growth in key markets, and enhancing acquired bank performance - The company's core strategy is the strategic consolidation of community banks to achieve economies of scale and improve efficiency, alongside organic growth in targeted Midwestern markets[22] - A key focus is on enhancing the performance of acquired banks by integrating them into existing operational platforms and realizing synergies in technology, data processing, compliance, and human resources[25] - Equity Bancshares aims to grow commercial loans in metropolitan markets (Kansas City, Wichita, Tulsa) funded by low-cost, stable core deposits from community markets, supported by opportunistic hiring of talented bankers[25][27] Deposits and Loans by Market Type (as of December 31, 2021) | Market Type | Deposits (Thousands) | Deposits (%) | Loans (Thousands) | Loans (%) | | :------------------- | :------------------- | :----------- | :---------------- | :-------- | | Metropolitan Markets | $1,441,634 | 33% | $1,953,142 | 62% | | Community Markets | $2,978,369 | 67% | $1,202,485 | 38% | Our Competitive Strengths The company leverages an experienced leadership team, a commercial banking focus, disciplined acquisitions, and scalable infrastructure - The company boasts an experienced leadership team with over twenty years of experience in financial institutions and M&A, fostering a transparent and entrepreneurial culture[28] - Equity Bancshares is primarily a commercial bank, with commercial loans comprising over 65.1% of its loan portfolio as of December 31, 2021, and 72.4% of those being commercial real estate loans[28] - A disciplined acquisition approach includes selective valuations, comprehensive due diligence, achievable cost savings estimates, and robust integration of credit procedures and risk management[28][30] - The company has built an efficient and scalable corporate infrastructure through technology investments and outsourcing, supporting anticipated growth while controlling costs[30] 2021 Acquisitions In 2021, the company completed two key acquisitions, significantly expanding its assets, loans, and deposits - On October 1, 2021, Equity Bancshares acquired American State Bancshares, Inc. (ASBI), issuing 2,485,983 shares of Class A common stock and paying $8.4 million in cash, adding $777.6 million in total assets, $441.9 million in loans, and $668.8 million in deposits[19][31] - On December 6, 2021, the company acquired three branch locations from Security Bank of Kansas City, increasing deposits by $75.1 million, loans by $1.4 million, and total assets by $75.8 million[19][33] Our Banking Services The company offers diverse commercial and consumer loans and deposit products, supported by conservative lending and digital solutions - The company offers a variety of commercial and consumer loans, with total loans (net of allowances) of $3.11 billion as of December 31, 2021, representing 60.5% of total assets[36][37] - Loan portfolio concentrations include commercial real estate (47.1%), commercial and industrial (18%), and residential real estate (20.2%), primarily in metropolitan Kansas City, Tulsa, and Wichita[37] - Lending activities are guided by conservative loan policies, consistent underwriting, ongoing credit monitoring, and a diversified portfolio approach, with a Chief Credit Officer providing company-wide oversight[41][42] - Deposit products include demand, savings, money market, and time deposits, with strategies focused on core deposits and cross-selling to loan customers, supported by online and mobile banking solutions, treasury management, and wealth management services[66][68][71][73] Our Markets The company operates 69 branches across four states, strategically balancing metropolitan and community markets with diverse industries - As of December 31, 2021, banking operations are conducted through 69 locations in Arkansas, Kansas, Missouri, and Oklahoma, with a strategic split between growing metropolitan markets (Kansas City, Wichita, Tulsa) and stable community markets[74][77] - The markets have experienced stable population growth and are home to diverse industries including manufacturing, trade, healthcare, consumer services, and technology, with expected household income growth of 9.22% from 2022-2027[75][77][78] Information Technology Systems The company invests in IT systems and staff to support growth and customer experience, employing a layered cybersecurity model - The company invests significantly in IT systems and staff to support growth, enhance product capabilities, and improve customer experience, utilizing nationally recognized software vendors and third-party service providers for core systems and online banking[80][81] - A layered cybersecurity model is employed to protect systems and data, though evolving threats necessitate continuous resource expenditure for protective measures and remediation[82] Competition The company faces intense competition from various financial institutions, leveraging personalized service and community involvement - The financial services industry is highly competitive, with rivals including other banks, internet-based banks, money market funds, and other financial services companies, many of whom have greater resources and broader offerings[84] - Equity Bancshares competes through personalized service, community involvement, and competitive pricing, aiming to leverage its comprehensive banking products against smaller banks and its relationship-based service against larger institutions[79][86] Human Capital The company prioritizes attracting and retaining qualified employees, fostering an inclusive workplace, and investing in development programs - The company's success relies on attracting and retaining highly qualified employees, fostering an inclusive and supportive workplace, and investing in employee development through programs like 'Equity University'[87] - As of December 31, 2021, the company employed 702 full-time equivalent employees, none of whom are represented by a collective bargaining unit[87] Available Information The company provides SEC filings (10-K, 10-Q, 8-K) free of charge on its investor relations website - The company files reports with the SEC (10-K, 10-Q, 8-K) and makes them available free of charge on its investor relations website[88] Supervision and Regulation The company is subject to extensive regulation by federal and state authorities, ensuring a safe banking system and consumer protection - The company is subject to extensive regulation by authorities such as the Federal Reserve, FDIC, and Kansas OSBC, with primary goals of maintaining a safe banking system and sound monetary policy, primarily for the protection of depositors and the public[89][90] - Key regulations include the Bank Holding Company Act (BHC Act), Basel III capital requirements (CET1, Tier 1, Total Risk-Based, Leverage ratios), FDICIA's prompt corrective action, and consumer protection laws like the Dodd-Frank Act and CRA[95][104][111][119][132][139][148] - Equity Bank, as a Kansas state-chartered bank, is subject to dividend restrictions under the Kansas Banking Code and federal capital guidelines, requiring regulatory approval under certain conditions[124][125] - The company must comply with anti-money laundering laws (Patriot Act, Bank Secrecy Act) and privacy regulations, with non-compliance potentially leading to significant legal, reputational, and financial consequences[145][146] Consolidated Financial Snapshot (as of December 31, 2021) | Metric | Amount (Millions) | | :----------------- | :---------------- | | Total Assets | $5,140 | | Total Deposits | $4,420 | | Total Loans (net) | $3,110 | | Stockholders' Equity | $500.6 | - The company's strategy involves strategic consolidation of community banks and organic growth, particularly by expanding its commercial customer base in metropolitan markets (Kansas City, Wichita, Tulsa) while leveraging stable, low-cost deposits from community markets[22][25] Loan Portfolio Composition (as of December 31, 2021) | Loan Type | Amount (Millions) | Percentage of Total Loans | | :------------------------ | :---------------- | :------------------------ | | Commercial Real Estate | $1,490 | 47.1% | | Commercial and Industrial | $567.5 | 18.0% | | Residential Real Estate | $638.1 | 20.2% | - In 2021, Equity Bancshares acquired American State Bancshares, Inc. (ASBI) and three branches from Security Bank of Kansas City, significantly increasing deposits, loans, and total assets[19][31][33] Risk Factors The company faces diverse risks including economic, credit, interest rate, strategic, operational, and regulatory factors - Economic risks include the potential for recessionary conditions leading to increased nonperforming loans and reduced demand for services, and adverse effects from changes in monetary policy, inflation, or commodity price volatility[160][161][162][163][164][165] - Credit and interest rate risks encompass the inability to effectively manage credit risk, potential losses from declining asset credit quality (especially real estate and commercial loans), and vulnerability to interest rate fluctuations, including the transition from LIBOR[167][170][171][174][181][184] - Strategic risks involve negative impacts from failing to execute growth strategies, difficulties in identifying and integrating acquisitions, and challenges associated with rapid growth or expansion into new markets[191][192][194][196][197][198][213] - Operational risks include heavy reliance on the management team, geographic concentration of business, technological changes, potential information system failures or cyber-attacks (including a November 2021 incident), dependence on third-party vendors, and risks from employee errors or fraud[202][204][225][226][227][229][233][234] - Regulatory risks stem from extensive industry regulation, potential changes in laws and monetary policy, banking agency examinations, higher FDIC insurance premiums, stringent capital requirements, and the Federal Reserve's 'source of strength' doctrine[240][243][244][245][246][248][256] - Risks related to common stock include market price fluctuations, dilution from future stock issuances for acquisitions or capital, significant influence by institutional investors and executive officers, and the fact that shares are not insured deposits[262][274][275][276][277][279] Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[302] Properties The company's principal executive offices are in Wichita, Kansas, operating 69 owned branches across four states, suitable for operations - The company's principal executive offices are located at 7701 East Kellogg Drive, Wichita, Kansas 67207[304] - As of December 31, 2021, the company operated a total of 69 branches across Arkansas, Kansas, Missouri, and Oklahoma[304] - Most of Equity Bank's branches are owned, equipped with automated teller machines and drive-through facilities, and are considered suitable for operational needs[304][305][307][308][309][311] Legal Proceedings The company is involved in various litigation, including a class action lawsuit on overdraft fees dismissed in November 2021 after settlement - The company is party to various litigation matters in the ordinary course of business[313] - A lawsuit filed in November 2020 concerning improperly collected overdraft fees was dismissed with prejudice on November 29, 2021, following a settlement[898] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[314] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on NASDAQ, with 16.66 million shares outstanding, a discretionary dividend policy, and share repurchase programs - The company's Class A common stock is listed on the NASDAQ Global Select Market under the symbol 'EQBK'[316] Common Stock Outstanding (as of February 28, 2022) | Class | Shares Outstanding | | :------------------- | :----------------- | | Class A Common Stock | 16,660,372 | | Class B Common Stock | 0 | - The dividend policy is discretionary, determined by the board of directors based on factors like earnings, capital, regulatory restrictions, and business strategy. Dividends are primarily dependent on distributions from Equity Bank, which are also subject to regulatory limits[317][319] - The company authorized share repurchase programs, including up to 1,000,000 shares of Class A common stock from October 30, 2021, to October 29, 2022. In Q4 2021, 132,873 shares were repurchased at an average price of $32.99[327][331] Equity Compensation Plan Data (as of December 31, 2021) | Plan Category | Number of Securities to be Issued Upon Exercise | Weighted Average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :-------------------------------------------------------------------------- | :---------------------------------------------- | :------------------------------ | :----------------------------------------------------------- | | Equity compensation plans approved by security holders - stock options | 478,841 | $26.08 | * | | Equity compensation plans approved by security holders - restricted stock units | 287,737 | — | * | | Total Equity compensation plans available under the Amended and Restated 2013 Stock Incentive Plan | 766,578 | | 420,985 | | Equity compensation plans approved by security holders - employee stock purchase plan | — | — | 412,531 | | Total | 766,578 | $26.08 | 833,516 | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and results for 2021, highlighting increased net income, asset growth, and the impact of acquisitions Overview Equity Bancshares, Inc. aims to increase stockholder value through organic growth and strategic acquisitions across its 69 branches - Equity Bancshares, Inc. is a bank holding company with 69 full-service branches across Arkansas, Kansas, Missouri, and Oklahoma, aiming to increase stockholder value through organic growth and strategic acquisitions[340][342] Key Financial Highlights (Year Ended December 31, 2021) | Metric | Amount (Millions) | YoY Change (%) | | :----------------------------------- | :---------------- | :------------- | | Net Interest Income | $142.6 | 7.5% | | Total Loans Held for Investment | $3,160 | 21.8% | | Total Deposits | $4,420 | 28.2% | | Total Assets | $5,140 | 28.0% | | Tangible Book Value per Common Share | $25.65 | 3.9% | - The company completed the acquisition of ASBI and three Security Bank branches in 2021, contributing to significant asset and deposit growth[344] - The COVID-19 pandemic continued to impact operations in 2021, leading to payment deferral programs for commercial clients ($36.3 million in 20 loans) and active participation in the Paycheck Protection Program (PPP), with $44.8 million in outstanding PPP loans as of December 31, 2021[345][347][355][356] Critical Accounting Policies The company adopted the CECL methodology in 2021 for credit losses and annually assesses goodwill for impairment - The company adopted the Current Expected Credit Loss (CECL) methodology on January 1, 2021, requiring estimation of expected credit losses over the contractual life of loans, considering historical default and loss experience, current and projected economic conditions, and qualitative factors[359][360] - Goodwill, resulting from business acquisitions, is assessed annually for impairment. Following a $104.8 million impairment charge in 2020, no further impairment was warranted in 2021 due to improving market conditions and strong earnings[362] Results of Operations Net income significantly increased in 2021 due to the absence of goodwill impairment and a decrease in loan loss provisions - Net income allocable to common stockholders increased by $127.5 million to $52.5 million in 2021, compared to a net loss of $75.0 million in 2020, primarily due to the absence of a goodwill impairment charge and a decrease in provision for loan losses[370] Net Interest Income and Margin Analysis (Years Ended December 31) | Metric | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :------------------ | :--------------- | :--------------- | :--------------- | | Interest Income | $157,368 | $155,561 | $175,499 | | Interest Expense | $14,789 | $22,909 | $49,641 | | Net Interest Income | $142,579 | $132,652 | $125,858 | | Net Interest Margin | 3.44% | 3.63% | 3.48% | - Net interest income increased by $9.9 million (7.5%) in 2021, driven by increased volume of interest-earning assets (especially loans) and a decrease in average rates of interest-bearing liabilities, partially offset by lower yields on interest-earning assets[343][380] - A reversal of provision for credit losses of $8.5 million occurred in 2021, compared to a $24.3 million provision in 2020, mainly due to reductions in reserves on specifically assessed assets and improving economic conditions, partially offset by CECL adoption impacts[386] Non-Interest Income (Years Ended December 31) | Category | 2021 (Thousands) | 2020 (Thousands) | Change (Thousands) | Change (%) | | :----------------------------- | :--------------- | :--------------- | :----------------- | :--------- | | Service Charges and Fees | $8,596 | $6,856 | $1,740 | 25.4% | | Debit Card Income | $10,236 | $9,136 | $1,100 | 12.0% | | Mortgage Banking | $3,306 | $3,153 | $153 | 4.9% | | Increase in Bank-Owned Life Insurance | $3,506 | $1,941 | $1,565 | 80.6% | | Other Non-Interest Income | $6,207 | $2,781 | $3,426 | 123.2% | | Net Gain on Acquisition | $585 | $2,145 | $(1,560) | (72.7)% | | Net Gain (Loss) from Securities Transactions | $406 | $11 | $395 | 3590.9% | | Total Non-Interest Income | $32,842 | $26,023 | $6,819 | 26.2% | - Total non-interest expense decreased by $89.5 million (42.8%) in 2021, primarily due to the $104.8 million goodwill impairment charge in 2020. Excluding this, expenses increased due to higher occupancy, data processing, and other non-interest expenses[397] Non-Interest Expense (Years Ended December 31) | Category | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :------------------------------- | :--------------- | :--------------- | :--------------- | | Salaries and Employee Benefits | $54,198 | $54,129 | $52,122 | | Net Occupancy and Equipment | $10,137 | $8,784 | $8,674 | | Data Processing | $13,261 | $10,991 | $10,124 | | Professional Fees | $4,713 | $4,282 | $4,734 | | Merger Expenses | $9,189 | $299 | $915 | | Goodwill Impairment | $— | $104,831 | $— | | Total Non-Interest Expense | $119,465 | $208,990 | $99,635 | Financial Condition Total assets and loans grew significantly in 2021, while nonperforming assets increased, and the allowance for credit losses rose due to CECL adoption - Total assets increased by $1.12 billion (28.0%) to $5.14 billion at December 31, 2021, driven by increases in securities ($455.6 million), loans ($549.3 million), and other assets[412] - Gross loans held for investment increased by $563.9 million (21.8%) to $3.16 billion at December 31, 2021, with significant growth in commercial real estate and residential real estate, partially offset by a decrease in commercial and industrial loans[343][413] Loan Portfolio Composition (as of December 31) | Loan Type | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :------------------------ | :--------------- | :--------------- | :--------------- | | Commercial and Industrial | $567,497 | $734,495 | $592,052 | | Commercial Real Estate | $1,486,148 | $1,188,696 | $1,158,022 | | Residential Real Estate | $638,087 | $381,958 | $503,439 | | Agricultural Real Estate | $198,330 | $133,693 | $141,868 | | Agricultural | $166,975 | $94,322 | $92,893 | | Consumer | $98,590 | $58,532 | $68,378 | | Total Loans | $3,155,627 | $2,591,696 | $2,556,652 | - Nonperforming assets increased to $66.0 million at December 31, 2021, from $54.6 million in 2020, with nonaccrual loans at $29.4 million and other repossessed assets at $28.8 million[432] Nonperforming Assets (as of December 31) | Metric | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :----------------------------------- | :--------------- | :--------------- | :--------------- | | Nonaccrual Loans | $29,361 | $43,689 | $38,379 | | Accruing Loans 90+ Days Past Due | $256 | $143 | $— | | OREO Acquired Through Foreclosure, Net | $7,582 | $10,698 | $8,293 | | Other Repossessed Assets | $28,799 | $67 | $236 | | Total Nonperforming Assets | $65,998 | $54,597 | $46,908 | | Nonperforming Assets to Total Assets | 1.28% | 1.36% | 1.19% | - The allowance for credit losses totaled $48.4 million (1.53% of total loans) at December 31, 2021, up from $33.7 million (1.30% of total loans) in 2020, primarily due to CECL adoption and increasing estimated exposure at default[444][446] Available-for-Sale Securities (as of December 31, 2021) | Security Type | Amortized Cost (Thousands) | Fair Value (Thousands) | | :------------------------------------------ | :------------------------- | :--------------------- | | U.S. Government-sponsored entities | $124,898 | $123,407 | | U.S. Treasury securities | $157,289 | $155,602 | | Mortgage-backed securities | $835,301 | $836,575 | | Corporate | $52,555 | $53,777 | | Small Business Administration loan pools | $16,568 | $16,475 | | State and local subdivisions | $138,404 | $141,606 | | Total Available-for-Sale Securities | $1,325,015 | $1,327,442 | - Total deposits increased by $972.4 million (28.2%) to $4.42 billion at December 31, 2021, with non-interest-bearing demand deposits showing significant growth (57.2% YoY)[343][468] Deposit Composition (as of December 31) | Deposit Type | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :------------------------------- | :--------------- | :--------------- | :--------------- | | Non-interest-bearing Demand | $1,244,117 | $791,639 | $481,298 | | Interest-bearing Demand and NOW | $1,202,408 | $1,016,424 | $703,048 | | Savings and Money Market | $1,319,881 | $1,012,673 | $1,046,000 | | Time | $653,598 | $626,854 | $833,170 | | Total Deposits | $4,420,004 | $3,447,590 | $3,063,516 | - The company utilizes various borrowings, including federal funds purchased, retail repurchase agreements, FHLB advances, and subordinated debt, to supplement deposits for funding lending and investing activities[478] Liquidity and Capital Resources Liquidity is primarily met by core deposits and asset maturities, supplemented by various borrowings, with the company maintaining strong capital ratios - Liquidity is primarily met by core deposits, security and loan maturities, and amortizing portfolios, supplemented by federal funds, retail repurchase agreements, brokered CDs, subordinated notes, and FHLB borrowings[488] - In 2021, operating and financing activities provided $102.7 million and $191.9 million in liquidity, respectively, while investing activities used $315.3 million, resulting in a $20.7 million decrease in cash and cash equivalents[491] - The company and Equity Bank maintained capital ratios in excess of all regulatory requirements at December 31, 2021, categorized as 'well capitalized' under prompt corrective action regulations[497][499] - Stockholders' equity increased by $93.0 million, primarily due to the ASBI merger ($84.7 million) and comprehensive income ($34.5 million), partially offset by a CECL implementation adjustment and treasury stock purchases[500] Non-GAAP Financial Measures The company uses non-GAAP financial measures like Tangible Book Value per Share and Efficiency Ratio to provide additional performance insights - The company uses non-GAAP financial measures such as Tangible Book Value per Common Share, Tangible Common Equity to Tangible Assets, Return on Average Tangible Common Equity, and Efficiency Ratio to provide additional insights into performance, excluding the effects of intangible assets and certain non-recurring items[501][503][508][512][515][516] Tangible Book Value per Share (as of December 31) | Metric | 2021 ($) | 2020 ($) | 2019 ($) | | :----------------------------------- | :------- | :------- | :------- | | Book Value per Common Share | 29.87 | 28.04 | 30.95 | | Tangible Book Value per Common Share | 25.65 | 24.68 | 20.75 | Tangible Common Equity to Tangible Assets (as of December 31) | Metric | 2021 (%) | 2020 (%) | 2019 (%) | | :----------------------------------- | :------- | :------- | :------- | | Equity / Assets | 9.74% | 10.16% | 12.10% | | Tangible Common Equity to Tangible Assets | 8.48% | 9.05% | 8.45% | Return on Average Tangible Common Equity (Years Ended December 31) | Metric | 2021 (%) | 2020 (%) | 2019 (%) | | :----------------------------------- | :------- | :------- | :------- | | Return on Average Equity (ROAE) | 11.75% | (16.14)% | 5.52% | | Return on Average Tangible Common Equity (ROATCE) | 14.10% | 8.27% | 9.22% | Efficiency Ratio (Years Ended December 31) | Metric | 2021 (%) | 2020 (%) | 2019 (%) | | :--------------- | :------- | :------- | :------- | | Efficiency Ratio | 63.01% | 66.36% | 65.45% | Selected Financial Data (Years Ended December 31, 2021 vs. 2020) | Metric | 2021 (Thousands) | 2020 (Thousands) | Change (Thousands) | Change (%) | | :----------------------------------- | :--------------- | :--------------- | :----------------- | :--------- | | Net Income (Loss) | $52,480 | $(74,970) | $127,450 | 170.0% |\ | Net Interest Income | $142,579 | $132,652 | $9,927 | 7.5% |\ | Total Loans Held for Investment | $3,155,627 | $2,591,696 | $563,931 | 21.8% |\ | Total Deposits | $4,420,004 | $3,447,590 | $972,414 | 28.2% |\ | Total Assets | $5,137,631 | $4,013,356 | $1,124,275 | 28.0% |\ | Tangible Book Value per Common Share | $25.65 | $24.68 | $0.97 | 3.9% | - The significant increase in net income in 2021 was primarily due to a $104.8 million goodwill impairment charge in 2020, a $32.7 million decrease in provision for loan losses, and increased net interest income[370] - The company adopted the Current Expected Credit Loss (CECL) methodology effective January 1, 2021, resulting in a $15.7 million increase in the allowance for credit losses on loans held for investment and a $12.4 million decrease in retained earnings[359][445][672] Quantitative and Qualitative Disclosure About Market Risk The company's primary market risk is interest rate volatility, managed by ALCO through balance sheet structuring and simulation analysis - The primary component of market risk is interest rate volatility, affecting income, expense, and market value of interest-earning assets and liabilities[521] - The Asset Liability Committee (ALCO) manages interest rate risk by structuring the balance sheet and using simulation analysis to monitor NII and EVE sensitivity to interest rate changes[523][524] Simulated Immediate Change in Net Interest Income (12 Months) | Change in Prevailing Interest Rates | December 31, 2021 (%) | December 31, 2020 (%) | | :---------------------------------- | :-------------------- | :-------------------- | | +300 basis points | (4.4)% | (1.2)% | | +200 basis points | (2.4)% | 0.4% | | +100 basis points | (1.0)% | 1.0% | | 0 basis points | —% | —% | | -100 basis points | (4.4)% | (2.3)% | Simulated Immediate Change in Economic Value of Equity | Change in Prevailing Interest Rates | December 31, 2021 (%) | December 31, 2020 (%) | | :---------------------------------- | :-------------------- | :-------------------- | | +300 basis points | (2.8)% | 12.8% | | +200 basis points | 0.7% | 14.4% | | +100 basis points | 2.7% | 9.2% | | 0 basis points | —% | —% | | -100 basis points | (14.8)% | (21.2)% | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021, 2020, and 2019, including the auditor's report and detailed notes Report of Independent Registered Public Accounting Firm Crowe LLP provided an unqualified opinion on the financial statements and internal controls, highlighting CECL adoption as a critical audit matter - Crowe LLP provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting for Equity Bancshares, Inc. as of December 31, 2021[560][561] - The adoption of ASC 326 (CECL) on January 1, 2021, for credit losses was highlighted as a critical audit matter due to the significant auditor judgment and effort required to evaluate management's subjective and complex judgments[562][571][573] Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheet (as of December 31) | Asset/Liability/Equity | 2021 (Thousands) | 2020 (Thousands) | | :------------------------------- | :--------------- | :--------------- | | ASSETS | | | | Cash and Cash Equivalents | $259,954 | $280,698 | | Available-for-Sale Securities | $1,327,442 | $871,827 | | Loans, Net of Allowance | $3,107,262 | $2,557,987 | | Goodwill | $54,465 | $31,601 | | Total Assets | $5,137,631 | $4,013,356 | | LIABILITIES | | | | Total Deposits | $4,420,004 | $3,447,590 | | Subordinated Debt | $95,885 | $87,684 | | Total Liabilities | $4,637,000 | $3,605,707 | | STOCKHOLDERS' EQUITY | | | | Total Stockholders' Equity | $500,631 | $407,649 | Consolidated Statements of Income This section presents the company's consolidated statements of income, detailing revenues, expenses, and net income Consolidated Statements of Income (Years Ended December 31) | Income/Expense Item | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :----------------------------------- | :--------------- | :--------------- | :--------------- | | Total Interest and Dividend Income | $157,368 | $155,561 | $175,499 | | Total Interest Expense | $14,789 | $22,909 | $49,641 | | Net Interest Income | $142,579 | $132,652 | $125,858 | | Provision (Reversal) for Credit Losses | $(8,480) | $24,255 | $18,354 | | Total Non-Interest Income | $32,842 | $26,023 | $24,988 | | Total Non-Interest Expense | $119,465 | $208,990 | $99,635 | | Income (Loss) Before Income Tax | $64,436 | $(74,570) | $32,857 | | Provision for Income Taxes | $11,956 | $400 | $7,278 | | Net Income (Loss) | $52,480 | $(74,970) | $25,579 | | Basic Earnings (Loss) per Share | $3.49 | $(4.97) | $1.64 | | Diluted Earnings (Loss) per Share | $3.43 | $(4.97) | $1.61 | Consolidated Statements of Comprehensive Income This section presents the company's consolidated statements of comprehensive income, including net income and other comprehensive income Consolidated Statements of Comprehensive Income (Years Ended December 31) | Item | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :----------------------------------------------------------------- | :--------------- | :--------------- | :--------------- | | Net Income (Loss) | $52,480 | $(74,970) | $25,579 | | Other Comprehensive Income (Loss), Net of Tax | $(18,005) | $19,784 | $4,864 | | Comprehensive Income (Loss) | $34,475 | $(55,186) | $30,443 | Consolidated Statements of Stockholders' Equity This section presents the company's consolidated statements of stockholders' equity, detailing changes in equity components Consolidated Statements of Stockholders' Equity (Years Ended December 31) | Item | Balance at Dec 31, 2018 (Thousands) | 2019 Changes (Thousands) | Balance at Dec 31, 2019 (Thousands) | 2020 Changes (Thousands) | Balance at Dec 31, 2020 (Thousands) | 2021 Changes (Thousands) | Balance at Dec 31, 2021 (Thousands) | | :--------------------------------- | :---------------------------------- | :----------------------- | :---------------------------------- | :----------------------- | :---------------------------------- | :----------------------- | :---------------------------------- | | Common Stock | $173 | $1 | $174 | $0 | $174 | $29 | $203 | | Additional Paid-In Capital | $379,085 | $3,650 | $382,731 | $4,089 | $386,820 | $92,042 | $478,862 | | Retained Earnings | $101,326 | $24,431 | $125,757 | $(74,970) | $50,787 | $37,537 | $88,324 | | Accumulated Other Comprehensive Income (Loss) | $(4,867) | $4,864 | $(3) | $19,784 | $19,781 | $(18,005) | $1,776 | | Treasury Stock | $(19,655) | $(10,867) | $(30,522) | $(19,348) | $(49,870) | $(18,664) | $(68,534) | | Employee Stock Loans | $(121) | $44 | $(77) | $34 | $(43) | $43 | $0 | | Total Stockholders' Equity | $455,941 | $22,123 | $478,060 | $(70,401) | $407,649 | $92,982 | $500,631 | Consolidated Statements of Cash Flows This section presents the company's consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities Consolidated Statements of Cash Flows (Years Ended December 31) | Cash Flow Activity | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :--------------------------------- | :--------------- | :--------------- | :--------------- | | Net Cash Provided by Operating Activities | $102,698 | $43,621 | $48,521 | | Net Cash (Used in) Provided by Investing Activities | $(315,339) | $96,004 | $96,101 | | Net Cash Provided by (Used in) Financing Activities | $191,897 | $51,782 | $(248,149) |\ | Net Change in Cash and Cash Equivalents | $(20,744) | $191,407 | $(103,527) |\ | Ending Cash and Cash Equivalents | $259,954 | $280,698 | $89,291 | Notes to Consolidated Financial Statements This section provides detailed notes explaining the company's accounting policies, business combinations, and financial instrument specifics NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details the company's operations and significant accounting policies, including the adoption of CECL and ASU 2017-08 - Equity Bancshares, Inc. is a bank holding company operating through Equity Bank and EBAC, LLC, providing banking, mortgage banking, and financial services primarily in Arkansas, Kansas, Missouri, and Oklahoma[595][597] - The company adopted ASU 2016-13 (CECL) effective January 1, 2021, changing the method for measuring credit losses for financial assets and off-balance-sheet exposures, resulting in a $15.7 million increase in ACL on loans and a $12.4 million decrease in retained earnings[672] - The CECL model utilizes a probability of default (PD) and loss given default (LGD) approach, incorporating macroeconomic factors and qualitative adjustments, with a 12-month reasonable and supportable forecast period[626][627] - The company also adopted ASU 2017-08, shortening the amortization period of certain callable debt securities held at a premium to the earliest call date, resulting in a $1.148 million reduction in retained earnings[674] NOTE 2 – BUSINESS COMBINATIONS This note details the company's business acquisitions, including ASBI and Security Bank branches in 2021, and Almena State Bank in 2020 - On October 1, 2021, the company acquired American State Bancshares, Inc. (ASBI) for $8.4 million in cash and 2,485,983 shares of Class A common stock, resulting in $22.2 million in goodwill[682][685] - On December 3, 2021, the company acquired three branches from Security Bank of Kansas City, resulting in $0.7 million in goodwill[687][688] - On October 23, 2020, the company acquired assets and assumed deposits of Almena State Bank, resulting in a gain on acquisition of $2.1 million[689][692] ASBI Acquisition: Assets Acquired and Liabilities Assumed (October 1, 2021) | Item | Amount (Thousands) | | :------------------------- | :----------------- | | Cash and Due from Banks | $97,724 | | Available-for-Sale Securities | $176,476 | | Loans | $441,884 | | Total Assets Acquired | $780,548 | | Deposits | $668,849 | | Total Liabilities Assumed | $709,557 | | Goodwill | $22,198 | NOTE 3 – SECURITIES This note details the company's available-for-sale securities portfolio, including unrealized losses and pledged securities Available-for-Sale Securities (as of December 31, 2021) | Security Type | Amortized Cost (Thousands) | Fair Value (Thousands) | | :------------------------------------------ | :------------------------- | :--------------------- | | U.S. Government-sponsored entities | $124,898 | $123,407 | | U.S. Treasury securities | $157,289 | $155,602 | | Mortgage-backed securities | $835,301 | $836,575 | | Corporate | $52,555 | $53,777 | | Small Business Administration loan pools | $16,568 | $16,475 | | State and political subdivisions | $138,404 | $141,606 | | Total Available-for-Sale Securities | $1,325,015 | $1,327,442 | - As of December 31, 2021, the company held 166 available-for-sale securities in an unrealized loss position, but these losses were not recognized in income due to high credit quality, no intent to sell, and the expectation of recovery as securities approach maturity[700][701] - The carrying value of securities pledged as collateral was approximately $892.2 million at December 31, 2021[697] NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES This note details the loan portfolio composition, allowance for credit losses, nonaccrual loans, and COVID-19 payment deferral programs Loan Portfolio by Type (as of December 31) | Loan Type | 2021 (Thousands) | 2020 (Thousands) | | :------------------------ | :--------------- | :--------------- | | Commercial Real Estate | $1,486,148 | $1,188,696 | | Commercial and Industrial | $567,497 | $734,495 | | Residential Real Estate | $638,087 | $381,958 | | Agricultural Real Estate | $198,330 | $133,693 | | Agricultural | $166,975 | $94,322 | | Consumer | $98,590 | $58,532 | | Total Loans | $3,155,627 | $2,591,696 | | Allowance for Loan Losses | $(48,365) | $(33,709) |\ | Net Loans | $3,107,262 | $2,557,987 | - The allowance for credit losses totaled $48.4 million (1.53% of total loans) at December 31, 2021, reflecting the adoption of CECL and management's estimate of expected credit losses over the contractual life of the loan portfolio[710][717][720] - As of December 31, 2021, 20 loans totaling $36.3 million were participating in the COVID-19 payment deferral program, with all classified as unclassified (pass) credits[740][741] Nonaccrual Loans (as of December 31, 2021) | Loan Type | Recorded Investment (Thousands) | Allowance for Loan Losses Allocated (Thousands) | | :------------------------ | :------------------------------ | :---------------------------------------------- | | Commercial Real Estate | $6,833 | $1,632 | | Commercial and Industrial | $4,593 | $1,800 | | Residential Real Estate | $4,646 | $888 | | Agricultural Real Estate | $2,738 | $637 | | Agricultural | $6,175 | $2,307 | | Consumer | $274 | $74 | | Total | $29,361 | $7,338 | NOTE 5 – OTHER REAL ESTATE OWNED This note details the activity and expenses related to other real estate owned, including transfers, sales, and valuation reserves Other Real Estate Owned Activity (Years Ended December 31) | Item | 2021 (Thousands) | 2020 (Thousands) | | :------------------------- | :--------------- | :--------------- | | Beginning Balance | $11,733 | $8,293 | | Transfers In | $2,222 | $10,729 | | Net (Loss) Gain on Sales | $462 | $835 | | Proceeds from Sales | $(4,732) | $(6,363) |\ | Additions to Valuation Reserve | $(162) | $(2,397) |\ | Recorded Investment | $9,523 | $11,733 | Other Real Estate Owned Expenses (Years Ended December 31) | Expense Item | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :----------------------------------------- | :--------------- | :--------------- | :--------------- | | Net Loss (Gain) on Sales | $(462) | $(835) | $10 |\ | Provision for Unrealized Losses | $162 | $2,397 | $250 | | Operating Expenses, Net of Rental Income | $651 | $748 | $638 | | Total Other Real Estate Owned Expenses | $(188) | $2,310 | $707 | NOTE 6 – PREMISES AND EQUIPMENT This note details the company's premises and equipment, net of depreciation, and operating lease liabilities and costs Premises and Equipment, Net (as of December 31) | Category | 2021 (Thousands) | 2020 (Thousands) | | :----------------------------- | :--------------- | :--------------- | | Land | $21,217 | $20,113 | | Buildings and Improvements | $86,324 | $71,923 | | Furniture, Fixtures and Equipment | $23,215 | $19,928 | | Less: Accumulated Depreciation | $(26,718) | $(22,552) |\ | Premises and Equipment, Net | $104,038 | $89,412 | - As of December 31, 2021, the company had operating lease liabilities of $5.9 million and corresponding right-of-use assets of $6.0 million, primarily for land and building leases[755] Operating Lease Costs (Years Ended December 31) | Cost Type | 2021 (Thousands) | 2020 (Thousands) | | :-------------------- | :--------------- | :--------------- | | Operating Lease Cost | $586 | $728 | | Variable Lease Cost | $35 | $34 | | Total Operating Lease Cost | $621 | $762 | NOTE 7 – GOODWILL AND CORE DEPOSIT INTANGIBLES This note details goodwill and core deposit intangibles, including the annual impairment assessment and the $104.8 million impairment charge in 2020 - Goodwill results from business acquisitions and represents the excess of purchase price over fair value of net assets. It is assessed annually for impairment[649][762] - As of December 31, 2021, management concluded no goodwill impairment was warranted, following a $104.8 million non-cash impairment charge recorded on September 30, 2020, due to economic market disruption and stock price movement[762] Goodwill and Core Deposit Intangibles (as of December 31) | Item | 2021 (Thousands) | 2020 (Thousands) | | :--------------------------------- | :--------------- | :--------------- | | Goodwill | $54,465 | $31,601 | | Core Deposit Intangibles | $14,879 | $16,057 | | Total Goodwill and Intangibles | $69,344 | $47,658 | NOTE 8 – QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS This note details the company's investments in qualified affordable housing projects, including balances, unfunded commitments, and recognized expenses - The company invests in qualified affordable housing projects, with balances of $21.7 million at December 31, 2021, and unfunded commitments totaling $17.7 million[766] - In 2021, the company recognized $1.1 million in amortization expense and $0.6 million in tax credits from these investments[767] NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS This note details the company's use of interest rate swaps for hedging and stand-alone derivatives, including notional balances and fair values - The company uses interest rate swaps as fair value hedges for commercial real estate loans, cash flow hedges for subordinated debentures (acquired from ASBI), and stand-alone derivatives to offer long-term fixed-rate loans to borrowers[768][769][770] Derivative Notional Balances and Fair Values (as of December 31, 2021) | Derivative Type | Notional Amount (Thousands) | Derivative Assets (Thousands) | Derivative Liabilities (Thousands) | | :-------------------------------------------- | :-------------------------- | :---------------------------- | :--------------------------------- | | Interest Rate Swaps (Hedging Instruments) | $26,663 | $— | $369 | | Interest Rate Swaps (Cash Flow Hedges) | $7,500 | $602 | $— | | Interest Rate Swaps (Stand-Alone Derivatives) | $150,780 | $4,419 | $5,184 | | Total | $184,943 | $5,021 | $5,553 | Net Gains (Losses) on Derivatives and Hedging Activities (Years Ended December 31) | Item | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | | :---------------------------------------- | :--------------- | :--------------- | :--------------- | | Derivatives Designated as Hedging Instruments | $28 | $— | $— | | Derivatives Not Designated as Hedging Instruments | $757 | $254 | $307 | | Total Net Gains (Losses) | $785 | $254 | $307 | NOTE 10 – DEPOSITS This note details the company's deposit composition, including time deposits exceeding FDIC limits and the use of ICS and CDARS programs Deposit Composition (as of December 31) | Deposit Type | 2021 (Thousands) | 2020 (Thousands) | | :------------------------------- | :--------------- | :--------------- | | Non-interest-bearing Demand | $1,244,117 | $791,639 | | Interest-bearing Demand and NOW | $1,202,408 | $1,016,424 | | Savings and Money Market | $1,319,881 | $1,012,673 | | Time | $653,598 | $626,854 | | Total Deposits | $4,420,004 | $3,447,590 | - Time deposits exceeding the FDIC insurance limit of $250,000 totaled $233.5 million at December 31, 2021[779] - The company utilizes Insured Cash Sweep (ICS) and Certificate of Deposit Account Registry Service (CDARS) programs to manage large deposits and ensure FDIC insurance coverage, with total reciprocal and brokered deposits of $373.5 million at December 31, 2021[780][781][783] NOTE 11 – BORROWINGS This note details the company's borrowings, including federal funds, repurchase agreements, FHLB advances, and bank stock loan facilities Federal Funds Purchased and Retail Repurchase Agreements (as of December 31) | Item | 2021 (Thousands) | 2020 (Thousands) | | :------------------------------- | :--------------- | :--------------- | | Federal Funds Purchased | $— | $— | | Retail Repurchase Agreements | $56,006 | $36,029 | - The company had no FHLB advances outstanding at December 31, 2021, but maintained undisbursed advance commitments (letters of credit) of $17.0 million[790][791] - A bank stock loan facility, secured by Equity Bank stock, had no outstanding balance at December 31, 2021, and was renewed in February 2022 with a decreased maximum borrowing amount of $25.0 million[793][794][795] [NOTE 12 – SUBORDINATED DEBT](index=140&type=