Equity Bank(EQBK) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed interim consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes Consolidated Balance Sheets | ASSETS (in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------- | :------------- | :---------------- | | Cash and cash equivalents | $250,366 | $104,428 | | Available-for-sale securities | $1,183,247 | $1,184,390 | | Loans, net | $3,285,515 | $3,265,701 | | Total assets | $5,156,716 | $4,981,651 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------------------------------------- | :------------- | :---------------- | | Total deposits | $4,286,933 | $4,241,807 | | Federal Reserve Bank borrowings | $140,000 | — | | Total liabilities | $4,731,593 | $4,571,593 | | Total stockholders' equity | $425,123 | $410,058 | | Total liabilities and stockholders' equity | $5,156,716 | $4,981,651 | Consolidated Statements of Income | (Dollar amounts in thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total interest and dividend income | $56,123 | $42,652 | | Total interest expense | $17,013 | $3,363 | | Net interest income | $39,110 | $39,289 | | Provision (reversal) for credit losses | $(366) | $(412) | | Total non-interest income | $9,089 | $9,022 | | Total non-interest expense | $33,718 | $29,459 | | Net income (loss) | $12,323 | $15,650 | | Basic earnings (loss) per share | $0.78 | $0.94 | | Diluted earnings (loss) per share | $0.77 | $0.93 | Consolidated Statements of Comprehensive Income | (Dollar amounts in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $12,323 | $15,650 |\ | Other comprehensive income (loss), net of tax | $12,273 | $(51,788) | | Comprehensive income (loss) | $24,596 | $(36,138) | Consolidated Statements of Stockholders' Equity | (Dollar amounts in thousands) | Balance at January 1, 2023 | Net Income | Other Comprehensive Income (Loss), net of tax effects | Cash Dividends - Common Stock | Treasury Stock Purchases | Balance at March 31, 2023 | | :---------------------------- | :------------------------- | :--------- | :---------------------------------------------------- | :---------------------------- | :----------------------- | :------------------------ | | Total Stockholders' Equity | $410,058 | $12,323 | $12,273 | $(1,573) | $(9,593) | $425,123 | Consolidated Statements of Cash Flows | (Dollar amounts in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $19,132 | $7,804 | | Net cash (used in) provided by investing activities | $(18,244) | $(165,912) | | Net cash (used in) provided by financing activities | $145,050 | $(11,796) | | Net change in cash and cash equivalents | $145,938 | $(169,904) | | Ending cash and cash equivalents | $250,366 | $90,050 | Condensed Notes to Interim Consolidated Financial Statements NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC guidance, and include Equity Bancshares, Inc. and its consolidated subsidiaries. Management makes estimates and assumptions that affect reported amounts, and actual results may differ[30][31] - Recent high-profile bank failures have negatively impacted customer confidence in regional banks, potentially affecting Equity Bank's liquidity, loan funding capacity, net interest margin, capital, and results of operations. Equity Bank pledged additional investments to the FRB for liquidity but did not experience significant deposit runoff[33][302] - The Company adopted ASU 2022-02, eliminating accounting guidance for Troubled Debt Restructurings (TDRs) and enhancing disclosure requirements for loan restructurings. This implementation did not have a material financial impact but affected loan disclosures[37] NOTE 2 – INVESTMENTS | Available-for-sale securities (in thousands) | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Amortized Cost | $1,315,258 | $1,332,419 | | Fair Value | $1,183,247 | $1,184,390 | | Gross Unrealized Losses | $(132,183) | $(148,101) | - Unrealized losses on securities have not been recognized into income because issuers are high credit quality, management does not intend to sell, and it is likely the Company will not be required to sell prior to recovery. The decline in fair value is largely due to interest rate changes[48] - The Company's available-for-sale investments with credit risk include private label residential mortgage-backed securities, corporate securities, and state and political subdivisions securities. No credit losses are anticipated in these portfolios[49][50][51][54] NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES | Loan Categories (in thousands) | March 31, 2023 | December 31, 2022 | | :----------------------------- | :------------- | :---------------- | | Commercial real estate | $1,746,834 | $1,721,268 | | Commercial and industrial | $605,576 | $594,863 | | Residential real estate | $563,791 | $570,550 | | Agricultural real estate | $202,274 | $199,189 | | Agricultural | $106,169 | $120,003 | | Consumer | $105,974 | $105,675 | | Total loans | $3,330,618 | $3,311,548 | | Allowance for credit losses | $(45,103) | $(45,847) | | Net loans | $3,285,515 | $3,265,701 | | Allowance for Credit Losses Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $45,847 | $48,365 | | Provision for credit losses | $(366) | $(412) | | Loans charged-off | $(638) | $(534) | | Recoveries | $260 | $171 | | Total ending allowance balance | $45,103 | $47,590 | - Total nonaccrual loans decreased from $17.6 million at December 31, 2022, to $16.55 million at March 31, 2023. The allowance for credit losses on off-balance-sheet credit exposures increased from $1,353 thousand to $1,485 thousand[70][94] NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS - The Company uses interest rate swaps and caps/floors to manage interest rate risk, designating them as fair value hedges (for commercial real estate loans) or cash flow hedges (for subordinated notes interest expense and prime rate adjustable rate loans interest income)[95][96][97] | Derivative Notional Balances (in thousands) | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Derivatives designated as hedging instruments | $271,092 | $179,028 | | Derivatives not designated as hedging instruments | $197,178 | $184,277 | | Total | $468,270 | $363,305 | | Net Gains (Losses) on Derivatives (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------------------- | :-------------------------------- | :-------------------------------- | | Derivatives designated as hedging instruments | $8 | $38 | | Derivatives not designated as hedging instruments | $(3) | $675 | | Net gains (losses) on derivatives and hedging activities | $5 | $713 | NOTE 5 – LEASE OBLIGATIONS | Operating Leases (in thousands) | March 31, 2023 | December 31, 2022 | | :------------------------------ | :------------- | :---------------- | | Right-of-Use Asset | $5,090 | $5,256 | | Lease Liability | $5,062 | $5,294 | | Weighted Average Lease Term (Years) | 13.1 | 13.2 | | Weighted Average Discount Rate | 2.32% | 2.32% | | Operating Lease Costs (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total operating lease cost | $210 | $220 | NOTE 6 – BORROWINGS | Borrowings (in thousands) | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Retail repurchase agreements | $45,098 | $46,478 | | Federal Home Loan Bank advances | $111,222 | $138,864 | | Federal Reserve Bank borrowings | $140,000 | — | | Subordinated debt | $96,522 | $96,392 | - The Company had a borrowing capacity of $452.8 million with the Federal Reserve Bank at March 31, 2023, and borrowed $140 million under the Bank Term Funding Program at a rate of 4.38% with a one-year term[122] - The bank stock loan facility was renewed on February 10, 2023, with a new maturity date of February 10, 2024, maintaining a maximum borrowing amount of $25 million. There were no outstanding principal balances on this loan at March 31, 2023[126][127] NOTE 7 – STOCKHOLDERS' EQUITY | Common Stock Shares | March 31, 2023 | December 31, 2022 | | :------------------ | :------------- | :---------------- | | Class A common stock – outstanding | 15,730,257 | 15,930,112 | | Class B common stock – outstanding | — | — | - The Company repurchased 320,050 shares of common stock at an average price of $29.97 per share during the three months ended March 31, 2023, under a program authorized in September 2022. As of March 31, 2023, 459,488 shares remained available for repurchase[148] | Accumulated Other Comprehensive Income (Loss) (in thousands) | March 31, 2023 | December 31, 2022 | | :----------------------------------------------------------- | :------------- | :---------------- | | Net unrealized or unamortized gains (losses) | $(134,075) | $(150,892) | | Tax effect | $32,837 | $37,381 | | Total | $(101,238) | $(113,511) | NOTE 8 – REGULATORY MATTERS - Equity Bancshares, Inc. and Equity Bank meet all capital adequacy requirements, with Equity Bank categorized as 'well capitalized' under prompt corrective action regulations as of March 31, 2023[152][154][309][311] | Capital Ratios (March 31, 2023) | Actual Ratio | Minimum Required (Basel III) | To Be Well Capitalized | | :------------------------------ | :----------- | :--------------------------- | :--------------------- | | Total capital to risk weighted assets (Equity Bancshares, Inc.) | 15.98% | 10.50% | N/A | | Tier 1 capital to risk weighted assets (Equity Bancshares, Inc.) | 12.83% | 8.50% | N/A | | Common equity Tier 1 capital to risk weighted assets (Equity Bancshares, Inc.) | 12.21% | 7.00% | N/A | | Tier 1 leverage to average assets (Equity Bancshares, Inc.) | 9.60% | 4.00% | N/A | | Total capital to risk weighted assets (Equity Bank) | 15.66% | 10.50% | 10.00% | | Tier 1 capital to risk weighted assets (Equity Bank) | 14.43% | 8.50% | 8.00% | | Common equity Tier 1 capital to risk weighted assets (Equity Bank) | 14.43% | 7.00% | 6.50% | | Tier 1 leverage to average assets (Equity Bank) | 10.80% | 4.00% | 5.00% | NOTE 9 – EARNINGS PER SHARE | Earnings Per Share | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------- | :-------------------------------- | :-------------------------------- | | Basic EPS | $0.78 | $0.94 | | Diluted EPS | $0.77 | $0.93 | | Antidilutive Shares | March 31, 2023 | March 31, 2022 | | :------------------ | :------------- | :------------- | | Stock options | 255,510 | 201,758 | | Restricted stock units | 9,980 | 3,505 | | Total antidilutive shares | 265,490 | 205,263 | NOTE 10 – FAIR VALUE - The Company uses fair value measurements (Level 1, 2, and 3 inputs) for recurring adjustments to available-for-sale securities, equity securities, and derivatives, and non-recurring adjustments for individually assessed loans and other real estate owned[163][164][165][168][169][173] | Assets Measured at Fair Value (in thousands) | March 31, 2023 (Level 1) | March 31, 2023 (Level 2) | March 31, 2023 (Level 3) | | :------------------------------------------- | :----------------------- | :----------------------- | :----------------------- | | Total assets | $232,604 | $952,682 | $— | | Total liabilities | $(3,758) | $6,510 | $— | - Individually evaluated loans and other real estate owned are classified as Level 3 due to significant judgment and unobservable inputs in their valuation, such as adjustments for differences in comparable sales[177][179] NOTE 11 – COMMITMENTS AND CREDIT RISK | Commitments (in thousands) | March 31, 2023 (Fixed Rate) | March 31, 2023 (Variable Rate) | December 31, 2022 (Fixed Rate) | December 31, 2022 (Variable Rate) | | :------------------------- | :-------------------------- | :----------------------------- | :----------------------------- | :-------------------------------- | | Commitments to make loans | $67,149 | $271,420 | $73,185 | $210,266 | | Unused lines of credit | $141,115 | $357,582 | $130,843 | $354,408 | | Standby letters of credit | $16,023 | $26,776 | $16,358 | $25,791 | - The Company extends credit for commercial real estate, residential mortgages, working capital, and consumer loans, evaluating creditworthiness on a case-by-case basis with collateral obtained as deemed necessary[184][185] NOTE 12 – LEGAL MATTERS - Equity Bank is involved in three class-action lawsuits filed in Kansas and Missouri District Courts, alleging improperly collected overdraft fees. The Company believes these lawsuits are without merit and intends to vigorously defend against the claims, but is currently unable to reasonably estimate potential loss amounts[191][192][193][194] NOTE 13 – REVENUE RECOGNITION - The majority of the Company's revenue comes from interest income on financial instruments, which are outside the scope of ASC 606. Services within ASC 606, such as service charges, debit card income, and insurance sales commissions, are recognized as non-interest income when obligations are satisfied[195] | Non-Interest Income (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Service charges and fees | $2,545 | $2,522 | | Debit card income | $2,554 | $2,628 | | Mortgage banking | $88 | $562 | | Increase in value of bank-owned life insurance | $1,583 | $865 | | Total non-interest income | $9,089 | $9,022 | NOTE 14 – BUSINESS COMBINATIONS AND BRANCH SALES - The Company sold three branch locations in Kansas to United Bank and Trust on June 24, 2022, and one branch location in Oklahoma to High Plains Bank on November 10, 2022. No related costs were incurred for these sales during the three months ended March 31, 2023[198][199] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial condition and results, including operating results, financial position, liquidity, and capital Overview - Equity Bancshares, Inc. is a financial holding company headquartered in Wichita, Kansas, operating 64 full-service banking sites across Arkansas, Kansas, Missouri, and Oklahoma[203] | Financial Highlights (in millions) | March 31, 2023 | December 31, 2022 | | :------------------------------- | :------------- | :---------------- | | Consolidated total assets | $5,160 | $4,980 | | Total loans held for investment, net | $3,280 | $3,270 | | Total deposits | $4,290 | $4,240 | | Total stockholders' equity | $425.1 | $410.1 | | Net income (Q1) | $12.3 | $11.6 (Q4) | Critical Accounting Policies - Key critical accounting policies requiring complex management judgment include the Allowance for Credit Losses (ACL) and Goodwill. The ACL is management's estimate of expected credit losses over the loan portfolio's life, influenced by historical data, economic conditions, and asset quality trends. Goodwill is assessed annually for impairment, with no triggering events identified for Q1 2023[207][209] - Significant changes in loan quality or economic conditions could materially impact the allowance for credit losses. Under the CECL methodology, the life-of-loan perspective can exacerbate periodic differences due to changing contractual or adjusted duration of assets[208] Results of Operations Net Income | Net Income (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Net income allocable to common stockholders | $12,323 | $15,650 | | Diluted earnings per share | $0.77 | $0.93 | - The decrease in net income was primarily due to a $4.3 million increase in non-interest expense, partially offset by a $1.1 million decrease in income tax expense[214] Net Interest Income and Net Interest Margin Analysis | Net Interest Analysis | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net interest income | $39,110 | $39,289 | | Interest rate spread | 2.96% | 3.26% | | Net interest margin | 3.44% | 3.38% | - Interest income on interest-earning assets increased by $13.5 million, driven by higher yields on loans (up 133 bps) and taxable securities (up 53 bps). Interest expense on deposits increased by $12.1 million due to rising market interest rates, with the cost of interest-bearing deposits increasing from 0.22% to 1.73%[226][227] - Net interest margin increased by 6 basis points, while net interest spread decreased by 30 basis points, as the re-pricing of interest-bearing liabilities and their increased average balance outpaced the re-pricing of interest-earning assets[228][229] Provision for Credit Losses | Credit Loss Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Provision (reversal) for credit losses | $(366) | $(412) | | Net charge-offs | $378 | $363 | | Gross charge-offs | $638 | $534 | | Gross recoveries | $260 | $171 | - The reversal for credit losses in Q1 2023 reflects continued positive credit trends without significant losses. The Company's allowance for credit losses calculation anticipates slowing prepayment rates and ongoing market disruption from inflation and monetary policy[231] Non-Interest Income | Non-Interest Income (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (2023 vs 2022) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | | Service charges and fees | $2,545 | $2,522 | $23 (0.9%) | | Debit card income | $2,554 | $2,628 | $(74) (-2.8%) | | Mortgage banking | $88 | $562 | $(474) (-84.3%) | | Increase in value of bank-owned life insurance | $1,583 | $865 | $718 (83.0%) | | Total non-interest income | $9,089 | $9,022 | $67 (0.7%) | - The overall increase in non-interest income was primarily driven by a $718 thousand increase in bank-owned life insurance value, largely offset by a $474 thousand decrease in mortgage banking income due to reduced activity from higher mortgage interest rates[237] Non-Interest Expense | Non-Interest Expense (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (2023 vs 2022) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | | Salaries and employee benefits | $16,692 | $15,068 | $1,624 (10.8%) | | FDIC insurance | $360 | $180 | $180 (100.0%) | | Other | $4,706 | $2,174 | $2,532 (116.5%) | | Total non-interest expense | $33,718 | $29,459 | $4,259 (14.5%) | - The $4.3 million increase in non-interest expense was mainly due to a $1.6 million rise in salaries and employee benefits (including $824 thousand in employee salaries and $444 thousand in share-based compensation) and a $2.5 million increase in 'Other' expenses, driven by higher provision for unfunded commitments, solar tax credit losses, and ERMI premium expense[240][241] Efficiency Ratio | Efficiency Ratio | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------- | :-------------------------------- | :-------------------------------- | | Efficiency ratio | 70.0% | 60.4% | - The efficiency ratio increased to 70.0% from 60.4%, primarily due to higher non-interest expense and a decrease in net interest income, as the volume and cost of interest-bearing liabilities grew faster than the yield on interest-bearing assets[243] Income Taxes | Income Tax | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------- | :-------------------------------- | :-------------------------------- | | Effective income tax rate | 17.0% | 18.8% | - The effective income tax rate decreased to 17.0% from 18.8%, benefiting from a $69 thousand tax benefit from stock settlements and options exercise, and a $686 thousand benefit from federal tax credits[245] Financial Condition Loan Portfolio | Loan Portfolio Composition | March 31, 2023 (Amount) | March 31, 2023 (Percent) | December 31, 2022 (Amount) | December 31, 2022 (Percent) | Change (Amount) | Change (%) | | :------------------------- | :---------------------- | :----------------------- | :------------------------- | :-------------------------- | :-------------- | :--------- | | Commercial and industrial | $605,576 | 18.2% | $594,863 | 18.0% | $10,713 | 1.8% | | Commercial real estate | $1,746,834 | 52.4% | $1,721,268 | 52.0% | $25,566 | 1.5% | | Residential real estate | $563,791 | 16.9% | $570,550 | 17.2% | $(6,759) | -1.2% | | Agricultural | $106,169 | 3.2% | $120,003 | 3.6% | $(13,834) | -11.5% | | Total loans held for investment | $3,330,618 | 100.0% | $3,311,548 | 100.0% | $19,070 | 0.6% | - Gross total loans, including loans held for sale, were 77.7% of deposits and 64.6% of total assets at March 31, 2023, a slight decrease from December 31, 2022[250] | Loan Interest Rate Type (March 31, 2023) | Total (in thousands) | | :--------------------------------------- | :------------------- | | Loans with a predetermined fixed interest rate | $1,462,067 | | Loans with an adjustable/floating interest rate | $1,868,551 | | Total | $3,330,618 | Credit Quality Indicators - Loans are categorized into risk categories (Pass, Special Mention, Substandard, Doubtful) based on borrower's ability to service debt, financial information, payment history, collateral, and economic trends. Consumer loans are generally 'Pass' unless downgraded by payment status[262] Nonperforming Assets | Nonperforming Assets (in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Nonaccrual loans | $16,550 | $17,601 | | Accruing loans 90+ days past due | $23 | — | | OREO acquired through foreclosure, net | $420 | $600 | | Other repossessed assets | $57 | $47 | | Total nonperforming assets | $17,050 | $18,248 | | Nonperforming assets to total assets | 0.33% | 0.37% | - Nonperforming assets decreased from $18.2 million to $17.1 million, with nonaccrual loans decreasing from $17.6 million to $16.55 million. The Company had 172 non-performing credits and 151 borrowers, with 5 relationships exceeding $1.0 million[266][268] Potential Problem Loans | Potential Problem Loans (in millions) | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Total potential problem loans | $40.1 | $37.6 | - Potential problem loans, classified as special mention or substandard, increased to $40.1 million from $37.6 million, indicating management concerns about borrowers' repayment ability despite current performance[270] Allowance for Credit Losses | Allowance for Credit Losses (ACL) | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | ACL to total loans | 1.4% | 1.4% | | ACL to non-accrual loans | 272.5% | 229.9% | - Management believes the ACL at March 31, 2023, was adequate to cover expected credit losses. The ACL on loans measured collectively totaled $41.4 million (1.2% of collective loans), up from $40.9 million (1.2%) at December 31, 2022[276][277] Securities | Securities (in thousands) | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Available-for-sale securities (Fair Value) | $1,183,247 | $1,184,390 | | Held-to-maturity securities (Amortized Cost) | $1,944 | $1,948 | | Securities as % of total assets | 23.0% | 23.8% | - The Company uses its securities portfolio for liquidity, return on funds, interest rate risk management, and regulatory requirements. Debt securities are classified as held-to-maturity or available-for-sale, with no securities purchased for trading[278][279] - At March 31, 2023, 60.6% of residential mortgage-backed securities had contractual maturities over ten years, with a weighted average life of 5.1 years and a modified duration of 4.3 years[289] Goodwill Impairment Assessment - An interim qualitative analysis at March 31, 2023, concluded no indications of goodwill impairment[290] Deposits | Deposit Composition (in thousands) | March 31, 2023 | December 31, 2022 | | :--------------------------------- | :------------- | :---------------- | | Non-interest-bearing demand | $1,012,671 | $1,097,899 | | Interest-bearing demand | $992,736 | $1,061,264 | | Savings and money market | $1,341,727 | $1,268,320 | | Time | $939,799 | $814,324 | | Total deposits | $4,286,933 | $4,241,807 | - Total deposits increased by $45.1 million (1.1%) to $4.29 billion at March 31, 2023. The Company utilizes Insured Cash Sweep (ICS) and Certificate of Deposit Account Registry Service (CDARS) for large deposits, which are considered core funding[293][294] | Reciprocal and Brokered Deposits (in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------------------------- | :------------- | :---------------- | | Total reciprocal and brokered deposits | $625,615 | $563,985 | Other Borrowed Funds - The Company uses short-term and long-term borrowings, including federal funds purchased, retail repurchase agreements, FHLB advances, Federal Reserve Bank borrowings, a bank stock loan, and subordinated debt, to supplement deposits for funding lending and investing activities[299] Liquidity and Capital Resources Liquidity - Liquidity is managed by meeting customer demands for funds at a reasonable cost. Recent banking sector issues have led to increased scrutiny on liquidity, prompting Equity Bank to pledge additional investments to the FRB and borrow $140 million under the Bank Term Funding Program as a precaution[300][302] - Primary liquidity sources include core deposits, security and loan maturities, and amortizing portfolios. Other sources are federal funds purchased, brokered CDs, FHLB, and Federal Reserve Bank borrowings. Cash and cash equivalents increased by $145.9 million to $250.4 million at March 31, 2023[303][305] Off-Balance-Sheet Items - Off-balance-sheet items include commitments to extend credit and standby/commercial letters of credit, which carry credit and interest rate risk. The Company applies the same credit policies for these as for on-balance sheet instruments[306] Capital Resources - The Company and Equity Bank are subject to federal bank regulatory capital requirements and maintain minimum capital relative to assets. Management believes both entities meet all capital adequacy requirements and Equity Bank is categorized as 'well capitalized' under prompt corrective action regulations[308][309][311] Non-GAAP Financial Measures - 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 financial performance, excluding the impact of intangible assets and certain non-recurring expenses[313][315][319][323][325] Tangible Book Value Per Common Share and Tangible Book Value Per Diluted Common Share | Tangible Book Value Per Share | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Book value per common share | $27.03 | $25.74 | | Tangible book value per common share | $22.96 | $21.67 | | Tangible book value per diluted common share | $22.83 | $21.35 | Tangible Common Equity to Tangible Assets | Tangible Common Equity to Tangible Assets | March 31, 2023 | December 31, 2022 | | :---------------------------------------- | :------------- | :---------------- | | Equity to assets | 8.24% | 8.23% | | Tangible common equity to tangible assets | 7.09% | 7.02% | Return on Average Tangible Common Equity | Return on Average Equity | March 31, 2023 | December 31, 2022 | | :----------------------- | :------------- | :---------------- | | ROAE annualized | 11.89% | 11.57% | | ROATCE annualized | 14.89% | 14.74% | Efficiency Ratio | Efficiency Ratio (Non-GAAP) | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Efficiency Ratio | 70.00% | 70.47% | Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risk, primarily interest rate volatility, and its management through balance sheet structuring and simulation analysis - The primary market risk is interest rate volatility, managed by the Asset Liability Committee (ALCO) through balance sheet structuring and simulation analysis (NII and EVE sensitivity). The Company does not have material exposure to leveraged derivatives, foreign exchange, or commodity price risk[328][329][330][331][332] | Impact on Net Interest Income (March 31, 2023) | Change in prevailing interest rates | | :--------------------------------------------- | :---------------------------------- | | +300 basis points | 8.8% | | +200 basis points | 5.8% | | +100 basis points | 2.9% | | -100 basis points | (2.7%) | | -200 basis points | (5.5%) | | Impact on Economic Value of Equity (March 31, 2023) | Change in prevailing interest rates | | :-------------------------------------------------- | :---------------------------------- | | +300 basis points | (11.3%) | | +200 basis points | (6.8%) | | +100 basis points | (3.4%) | | -100 basis points | 1.2% | | -200 basis points | 0.7% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance for information accumulation, communication, recording, processing, summarizing, and timely reporting[340] - There were no material changes in the Company's internal control over financial reporting during the quarter ended March 31, 2023[341] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in various litigation matters in the ordinary course of business, with specific details referenced in Note 12 - The Company is party to various litigation matters incidental to the conduct of its business, as detailed in Note 12 of the Condensed Notes to Interim Consolidated Financial Statements[342] Item 1A. Risk Factors Highlights new material risks from banking industry developments, impacting customer confidence, liquidity, and regulatory costs - Recent high-profile bank failures have eroded customer confidence in the banking system, leading to significant market volatility for regional banks. This could adversely impact Equity Bank's liquidity, loan funding capacity, net interest margin, capital, and results of operations[344] - Increased regulatory scrutiny and new requirements are anticipated for banks of similar size, potentially raising business costs and reducing profitability. There is an increased focus on deposit composition and uninsured deposits, with Equity Bank's uninsured deposits at 23.4% of non-brokered deposits as of March 31, 2023[345] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchase programs, including shares repurchased and remaining authorization - The Board of Directors authorized a repurchase program in September 2022 for up to 1,000,000 shares, concluding September 30, 2023. During Q1 2023, the Company repurchased 320,050 shares at an average price of $29.97 per share[347][349] | Common Stock Repurchases (Q1 2023) | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Shares Yet to Be Purchased | | :--------------------------------- | :------------------------------- | :--------------------------- | :--------------------------------- | | January 1 - January 31, 2023 | — | $— | 836,273 | | February 1 - February 28, 2023 | 218,700 | $30.77 | 617,573 | | March 1 - March 31, 2023 | 101,350 | $28.25 | 516,223 | | Total | 320,050 | $29.97 | 516,223 | Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[350] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[350] Item 5. Other Information Reports on significant personnel changes, including the hiring of Richard M. Sems and the resignation of Craig L. Anderson Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. Hire of Richard M. Sems as President of Equity Bank - Richard M. Sems was hired as President of Equity Bank, effective May 15, 2023, and will also join the board of directors. His employment agreement includes a base salary of $600,000, a target annual incentive bonus of 65% of base salary, and an annual equity award target of 55% of base salary[350][352] - Mr. Sems received an initial equity award of approximately $500,000 in time-based stock options and a $250,000 signing bonus, subject to repayment if employment terminates within three years[353] Resignation of Craig L. Anderson as President of Equity Bank - Craig L. Anderson resigned from his role as President of Equity Bank, effective June 2, 2023[358] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including loan agreements, employment agreements, and certifications - Key exhibits include the Sixth Amendment to Loan and Security Agreement with Servis First Bank (Exhibit 10.1) and the Employment Agreement with Richard M. Sems (Exhibit 10.2†*)[360]