10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 001-37624

 

 

EQUITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Kansas   72-1532188

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

7701 East Kellogg Drive, Suite 200

Wichita, KS

  67207
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: 316.612.6000

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ¨  Yes    x  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x      Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

    Shares outstanding as of
December 16, 2015

Class A Common Stock, par value $0.01 per share

  7,150,017

Class B Non-Voting Common Stock, par value $0.01 per share

  1,061,710

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I

 

Financial information

     5   

Item 1.

 

Financial Statements

     5   
 

Consolidated Balance Sheets

     5   
 

Consolidated Statements of Income

     6   
 

Consolidated Statements of Comprehensive Income

     7   
 

Consolidated Statements of Stockholders’ Equity

     8   
 

Consolidated Statements of Cash Flows

     10   
 

Condensed Notes to Interim Consolidated Financial Statements

     11   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     32   
 

Overview

     32   
 

Critical Accounting Policies

     33   
 

Results of Operations

     35   
 

Financial Condition

     46   
 

Liquidity and Capital Resources

     57   
 

Non-GAAP Financial Measures

     60   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     61   

Item 4.

 

Controls and Procedures

     62   

Part II

 

OTHER INFORMATION

     63   

Item 1.

 

Legal Proceedings

     63   

Item 1A.

 

Risk Factors

     63   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     63   

Item 3.

 

Defaults Upon Senior Securities

     63   

Item 4.

 

Mine Safety Disclosures

     63   

Item 5.

 

Other Information

     63   

Item 6.

 

Exhibits

     64   

Important Notice about Information in this Quarterly Report

Unless we state otherwise or the context otherwise requires, references in this quarterly report to “we,” “our,” “us,” “the Company” and “Equity” refer to Equity Bancshares, Inc. and its consolidated subsidiaries, including Equity Bank, which we sometimes refer to as “Equity Bank,” “the Bank” or “our Bank.”

The information contained in this quarterly report is accurate only as of the date of this quarterly report and as of the dates specified herein.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains “forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).” These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” in our prospectus file with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) of the Securities Act on November 12, 2015, and in Item 1A – Risk Factors of this quarterly report.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but are not limited to, the following:

 

    an economic downturn, especially one affecting our core market areas;

 

    the occurrence of various events that negatively impact the real estate market, since a significant portion of our loan portfolio is secured by real estate;

 

    difficult or unfavorable conditions in the market for financial products and services generally;

 

    interest rate fluctuations, which could have an adverse effect on our profitability;

 

    external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System, or the Federal Reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition;

 

    continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;

 

    costs arising from the environmental risks associated with making loans secured by real estate;

 

    losses resulting from a decline in the credit quality of the assets that we hold;

 

    inadequacies in our allowance for loan losses, which could require us to take a charge to earnings and thereby adversely affect our financial condition;

 

    inaccuracies or changes in the appraised value of real estate securing the loans that we originate, which could lead to losses if the real estate collateral is later foreclosed upon and sold at a price lower than the appraised value;

 

    the costs of integrating the businesses we acquire, which may be greater than expected;

 

    challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services;

 

    a lack of liquidity resulting from decreased loan repayment rates, lower deposit balances, or other factors;

 

    restraints on the ability of Equity Bank to pay dividends to us, which could limit our liquidity;

 

    the loss of our largest loan and depositor relationships;

 

    limitations on our ability to lend and to mitigate the risks associated with our lending activities as a result of our size and capital position;

 

    additional regulatory requirements and restrictions on our business, which could impose additional costs on us;

 

    increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;

 

    a failure in the internal controls we have implemented to address the risks inherent to the business of banking;

 

    inaccuracies in our assumptions about future events, which could result in material differences between our financial projections and actual financial performance;

 

    the departure of key members of our management personnel or our inability to hire qualified management personnel;

 

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    disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems;

 

    unauthorized access to nonpublic personal information of our customers, which could expose us to litigation or reputational harm;

 

    disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions;

 

    the occurrence of adverse weather or manmade events, which could negatively affect our core markets or disrupt our operations;

 

    an increase in FDIC deposit insurance assessments, which could adversely affect our earnings;

 

    an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies; and

 

    other factors that are discussed in “Risk Factors.”

The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this quarterly report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this quarterly report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

 

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PART I

Item 1: Financial Statements

EQUITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

 

 

 

     (Unaudited)
September 30,
    December 31,  
     2015     2014  

ASSETS

    

Cash and due from banks

   $ 12,668      $ 31,193   

Federal funds sold

     10,525        514   
  

 

 

   

 

 

 

Cash and cash equivalents

     23,193        31,707   

Interest-bearing time deposits in other banks

     5,245        5,995   

Available-for-sale securities

     109,906        52,985   

Held-to-maturity securities, fair value of $307,687 and $265,189

     303,695        261,017   

Loans held for sale

     1,948        897   

Loans, net of allowance for loan losses of $5,038 and $5,963

     850,016        719,284   

Other real estate owned, net

     5,957        4,754   

Premises and equipment, net

     40,497        36,434   

Bank owned life insurance

     29,429        28,729   

Federal Reserve Bank and Federal Home Loan Bank stock

     14,052        4,312   

Interest receivable

     4,374        3,589   

Goodwill

     18,130        18,130   

Core deposit intangible, net

     926        1,107   

Other

     6,723        6,383   
  

 

 

   

 

 

 

Total assets

   $ 1,414,091      $ 1,175,323   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Deposits

    

Demand

   $ 37,467      $ 49,312   

Savings, NOW, and money market

     586,352        589,494   

Time

     403,698        342,160   
  

 

 

   

 

 

 

Total deposits

     1,027,517        980,966   

Federal funds purchased and retail repurchase agreements

     22,271        25,301   

Federal Home Loan Bank advances

     190,809        20,976   

Bank stock loan

     19,000        15,152   

Subordinated debentures

     9,174        8,941   

Contractual obligations

     3,003        3,146   

Interest payable and other liabilities

     16,263        3,112   
  

 

 

   

 

 

 

Total liabilities

     1,288,037        1,057,594   

Commitments and contingent liabilities, see Notes 10 and 11

    

Stockholders’ equity, see Note 6

    

Preferred stock, Series C (liquidation preference of $16,372)

     16,365        16,359   

Common stock

     78        76   

Additional paid-in capital

     98,876        98,398   

Retained earnings

     32,449        24,832   

Accumulated other comprehensive loss

     (1,801     (2,281

Employee stock loans

     (258     —     

Treasury stock

     (19,655     (19,655
  

 

 

   

 

 

 

Total stockholders’ equity

     126,054        117,729   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,414,091      $ 1,175,323   
  

 

 

   

 

 

 

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

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EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollar amounts in thousands, except per share data)

 

     (Unaudited)
Three Months Ended
September 30,
    (Unaudited)
Nine Months Ended
September 30,
 
     2015     2014     2015     2014  

Interest and dividend income

        

Loans, including fees

   $ 10,642      $ 9,685      $ 31,636      $ 28,191   

Securities, taxable

     1,911        1,724        5,440        5,616   

Securities, nontaxable

     291        215        746        629   

Federal funds sold and other

     283        88        549        244   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and dividend income

     13,127        11,712        38,371        34,680   

Interest expense

        

Deposits

     1,284        1,073        3,409        3,033   

Federal funds purchased and retail repurchase agreements

     16        20        47        55   

Federal Home Loan Bank advances

     141        93        267        265   

Bank stock loan

     146        137        446        137   

Subordinated debentures

     162        157        480        475   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     1,749        1,480        4,649        3,965   

Net interest income

     11,378        10,232        33,722        30,715   

Provision for loan losses

     537        300        1,867        1,200   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     10,841        9,932        31,855        29,515   

Non-interest income

        

Service charges and fees

     714        795        2,016        2,262   

Debit card income

     556        395        1,537        1,111   

Mortgage banking

     277        271        855        639   

Increase in value of bank owned life insurance

     234        242        700        716   

Net gain on sale of available-for-sale securities

     —          631        370        725   

Other

     425        539        1,510        1,643   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

     2,206        2,873        6,988        7,096   

Non-interest expense

        

Salaries and employee benefits

     4,659        5,031        14,243        13,984   

Net occupancy and equipment

     1,010        1,173        3,248        3,548   

Data processing

     746        602        2,127        1,808   

Professional fees

     498        668        1,410        1,703   

Advertising and business development

     295        248        863        770   

Telecommunications

     203        195        582        576   

FDIC insurance

     217        177        568        543   

Courier and postage

     112        150        375        424   

Amortization of core deposit intangible

     61        69        182        247   

Loan expense

     94        104        272        248   

Other real estate owned

     64        76        200        73   

Loss on debt extinguishment

     —          —          316        —     

Merger Expenses

     77        —          77        —     

Other

     932        771        2,732        2,290   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest expense

     8,968        9,264        27,195        26,214   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax

     4,079        3,541        11,648        10,397   

Provision for income taxes

     1,343        1,108        3,902        3,189   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     2,736        2,433        7,746        7,208   

Dividends and discount accretion on preferred stock

     (43     (101     (129     (666
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income allocable to common stockholders

   $ 2,693      $ 2,332      $ 7,617      $ 6,542   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

   $ 0.43      $ 0.38      $ 1.21      $ 1.03   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ 0.43      $ 0.38      $ 1.21      $ 1.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

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EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

 

 

 

     (Unaudited)
Three Months Ended
September 30,
    (Unaudited)
Nine Months Ended
September 30,
 
     2015     2014     2015     2014  

Net income

   $ 2,736      $ 2,433      $ 7,746      $ 7,208   

Other comprehensive income:

        

Unrealized holding gains (losses) arising during the period on available-for-sale securities

     826        63        555        399   

Amortization of unrealized losses on held-to-maturity securities

     167        186        590        529   

Reclassification adjustment for net gains included in net income

     —          (631     (370     (725
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     993        (382     775        203   

Tax effect

     (379     162        (295     (38
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     614        (220     480        165   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 3,350      $ 2,213      $ 8,226      $ 7,373   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

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EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months ended September 30, 2015 and 2014

(Unaudited)

(Dollar amounts in thousands, except per share data)

 

 

 

    Preferred Stock     Common Stock        
    Series A & B     Series C     Shares
Outstanding
    Amount     Additional
Paid-In
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (loss)
    Treasury
Stock
    Total
Stockholders’
Equity
 

Balance at January 1, 2014

  $ 15,540      $ 16,352        7,385,603      $ 76      $ 96,392      $ 16,553      $ (2,606   $ (2,434   $ 139,873   

Net income

    —          —          —          —          —          7,208        —          —          7,208   

Other comprehensive income, net of tax effects

    —          —          —          —          —          —          165        —          165   

Accretion of discount on preferred stock

    —          6        —          —          —          (6     —          —          —     

Retirement of preferred stock

    (15,540     —          —          —          —          —          —          —          (15,540

Stock based compensation

    —          —          —          —          805        —          —          —          805   

Purchases of common stock for treasury

    —          —          (1,320,660     —          —          —          —          (17,220     (17,220

Cash dividends declared and accrued on preferred stock

    —          —          —          —          —          (660     —          —          (660
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

  $ —        $ 16,358        6,064,943      $ 76      $ 97,197      $ 23,095      $ (2,441   $ (19,654   $ 114,631   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

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EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months ended September 30, 2015 and 2014

(Unaudited)

(Dollar amounts in thousands, except per share data)

 

 

 

    Preferred
Stock
    Common Stock        
    Series C     Shares
Outstanding
    Amount     Additional
Paid-In
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (loss)
    Treasury
Stock
    Employee
Stock
Loans
    Total
Stockholders’
Equity
 

Balance at January 1, 2015

  $ 16,359        6,067,511      $ 76      $ 98,398      $ 24,832      $ (2,281   $ (19,655   $ —        $ 117,729   

Net income

    —          —          —          —          7,746        —          —          —          7,746   

Other comprehensive income, net of tax effects

    —          —          —          —          —          480        —          —          480   

Accretion of discount on preferred stock

    6        —          —          —          (6     —          —          —          —     

Stock based compensation

    —          —          —          256        —          —          —          —          256   

Common stock issued upon termination of restricted stock unit plan

    —          203,216        2        222        —          —          —          (1,215     (991

Repayments on employee stock loans

    —          —          —          —          —          —          —          957        957   

Cash dividends declared and accrued on preferred stock

    —          —          —          —          (123     —          —          —          (123
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2015

  $ 16,365        6,270,727      $ 78      $ 98,876      $ 32,449      $ (1,801   $ (19,655   $ (258   $ 126,054   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

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EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months ended September 30, 2015 and 2014

(Dollar amounts in thousands, except per share data)

 

 

 

     (Unaudited)
September 30,
 
     2015     2014  

Cash flows from operating activities

    

Net income

   $ 7,746      $ 7,208   

Adjustments to reconcile net income to net cash from operating activities:

    

Stock based compensation

     121        805   

Depreciation

     1,331        1,188   

Provision for loan losses

     1,867        1,200   

Net accretion of purchase valuation adjustments

     232        232   

Amortization (accretion) of premiums and discounts on securities

     1,714        1,505   

Amortization of core deposits intangible

     182        247   

FHLB stock dividends

     (232     (24

Loss (gain) on sales and valuation adjustments on other real estate owned

     (41     (280

Net loss (gain) on sales of securities

     (370     (725

Loss (gain) on disposal of premise and equipment

     11        (134

Loss (gain) on sales of loans

     (720     (499

Originations of loans held for sale

     (31,609     (23,963

Proceeds from the sale of loans held for sale

     31,278        22,146   

Increase in the value of bank owned life insurance

     (700     (686

Change in fair value of derivatives recognized in earnings

     13        28   

Net change in:

    

Interest receivable

     (785     13   

Other assets

     (648     2,055   

Interest payable and other liabilities

     2,112        (1,658
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     11,502        8,658   

Cash flows to investing activities

    

Purchases of available-for-sale securities

     (83,968     (31,253

Purchases of held-to-maturity securities

     (77,450     (12,533

Proceeds from sales, calls, pay-downs, and maturities of available-for-sale securities

     27,429        29,110   

Proceeds from calls, pay-downs and maturities of held-to-maturity securities

     34,783        31,345   

Net change in interest-bearing time deposits in other banks

     750        (1,000

Net change in loans

     (124,941     (50,870

Purchase of premises and equipment

     (5,420     (2,848

Proceeds from sale of premise and equipment

     15        771   

Net redemptions (purchases) of FHLB and FRB stock

     (9,508     (701

Proceeds from sale of other real estate owned

     1,616        3,996   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (236,694     (33,983

Cash flows (to) from financing activities

    

Net increase (decrease) in deposits

     46,551        9,403   

Net change in federal funds purchased and retail repurchase agreements

     (3,030     2,658   

Net borrowings on Federal Home Loan Bank line of credit

     174,265        26,633   

Principal payments on Federal Home Loan Bank term advances

     (4,432     (132

Borrowings on bank stock loan

     5,014        15,540   

Principal payments on bank stock loan

     (1,166     —     

Issuance of employee stock loan

     (1,215     —     

Principal payments on employee stock loan

     957        —     

Redemption of Series A and Series B preferred stock

     —          (15,540

Purchase of treasury stock

     —          (17,220

Net change in contractual obligations

     (143     (112

Dividends paid on preferred stock

     (123     (763
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     216,678        20,467   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (8,514     (4,858

Cash and cash equivalents, beginning of period

     31,707        20,620   
  

 

 

   

 

 

 

Ending cash and cash equivalents

   $ 23,193      $ 15,762   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Interest paid

   $ 4,711      $ 4,718   

Income taxes paid, net of refunds

     2,140        550   

Supplemental noncash disclosures:

    

Other real estate owned acquired in settlement of loans

     2,777        1,203   

Preferred stock dividends payable at period end

     41        41   

Securities purchased but not settled

     962        —     

Loans purchased but not settled

     10,078        —     

Accrued compensation elected to be received as options, recognized as an increase in additional paid-in capital

     135        —     

Excess tax benefits as a result of the distribution of common stock in termination of the restricted stock unit plan recognized as an increase in additional paid-in capital

   $ 224      $ —     

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

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EQUITY BANCSHARES, INC.

CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

(Dollar amounts in thousands, except per share data)

 

 

NOTE 1 – BASIS OF PRESENTATION

The interim consolidated financial statements include the accounts of Equity Bancshares, Inc., its wholly owned subsidiary, Equity Bank (“Equity Bank”) and Equity Bank’s wholly owned subsidiary, SA Holdings, Inc. These entities are collectively referred to as the “Company”. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information. In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are of a normal recurring nature. These financial statements and the accompanying notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2014. Operating results for nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 or any other period.

Recent Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which amended existing guidance related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer. ASU 2014-09 as originally issued is effective for annual reporting periods beginning after December 15, 2016 and early application is not permitted. In July 2015 the FASB deferred the effective date of this revenue recognition standard by one year to annual reporting periods beginning after December 15, 2017, and amended the ASU to permit early adoption. The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements.

In September 2015, FASB issued ASU 2015-16, Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments, which amends how the change in provisional amounts are accounted for during the measurement period following a business combination. These amendments require that recognized adjustments to provisional amounts that are identified during the measurement period to be recognized during the period the adjustments are determined. In addition, disclosure is required of the amount recorded in current-period earnings by financial statement line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance is effective for fiscal years beginning after December 31, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted for financial statements that have not been issued. The Company does not expect the implementation to have a significant impact on the consolidated financial statements.

NOTE 2 – SECURITIES

The amortized cost and fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

September 30, 2015

           

Available-for-sale securities

           

U.S. government-sponsored entities

   $ 17,077       $ 58       $ (11    $ 17,124   

Residential mortgage-backed securities (issued by government-sponsored entities)

     87,792         718         (41      88,469   

Corporate

     3,000         8         —           3,008   

Small Business Administration loan pools

     276         21         —           297   

State and political subdivisions

     505         4         —           509   

Equity securities

     500         —           (1      499   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 109,150       $ 809       $ (53    $ 109,906   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

December 31, 2014

           

Available-for-sale securities

           

U.S. government-sponsored entities

   $ 10,546       $ 16       $ (162    $ 10,400   

Residential mortgage-backed securities (issued by government-sponsored entities)

     35,867         680         (18      36,529   

Corporate

     3,000         11         —           3,011   

Small Business Administration loan pools

     332         24         —           356   

State and political subdivisions

     2,169         24         —           2,193   

Equity securities

     500         —           (4      496   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 52,414       $ 755       $ (184    $ 52,985   
  

 

 

    

 

 

    

 

 

    

 

 

 

The amortized cost and fair value of held-to-maturity securities and the related gross unrecognized gains and losses were as follows:

 

     Amortized
Cost
     Gross
Unrecognized
Gains
     Gross
Unrecognized
Losses
     Fair
Value
 

September 30, 2015

           

Held-to-maturity securities

           

U.S. Government-sponsored entities

   $ 2,703       $ —         $ (15    $ 2,688   

Residential mortgage-backed (securities issued by government sponsored entities)

     225,937         2,736         (217      228,456   

Corporate

     12,981         145         (227      12,899   

Small Business Administration loan pools

     2,863         23         (1      2,885   

State and political subdivisions

     59,211         1,689         (141      60,759   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 303,695       $ 4,593       $ (601    $ 307,687   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

           

Held-to-maturity securities

           

U.S. Government-sponsored entities

   $ 2,800       $ 9       $ —         $ 2,809   

Residential mortgage-backed (securities issued by government sponsored entities)

     195,458         2,795         (82      198,171   

Corporate

     12,976         73         (270      12,779   

Small Business Administration loan pools

     3,220         14         (10      3,224   

State and political subdivisions

     46,563         1,663         (20      48,206   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 261,017       $ 4,554       $ (382    $ 265,189   
  

 

 

    

 

 

    

 

 

    

 

 

 

The table above presents unrealized losses on held-to-maturity securities since date of designation.

The fair value and amortized cost of debt securities at September 30, 2015, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

     Available-for-Sale      Held-to-Maturity  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Within one year

   $ —         $ —         $ 3,286       $ 3,308   

One to five years

     12,867         12,912         15,609         16,002   

Five to ten years

     7,715         7,729         26,698         27,787   

After ten years

     276         297         32,165         32,134   

Mortgage-backed securities

     87,792         88,469         225,937         228,456   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

   $ 108,650       $ 109,407       $ 303,695       $ 307,687   
  

 

 

    

 

 

    

 

 

    

 

 

 

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was approximately $284,283 at September 30, 2015 and $250,114 at December 31, 2014.

 

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Table of Contents

The following tables show gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014:

 

     Less Than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
 

September 30, 2015

               

Available-for-sale securities

               

U.S. Government-sponsored entities

   $ 4,989       $ (11   $ —         $ —        $ 4,989       $ (11

Residential mortgage-backed (issued by government-sponsored entities)

     11,273         (41     —           —          11,273         (41

Corporate

     —           —          —           —          —           —     

Small Business Administration loan pools

     —           —          —           —          —           —     

State and political subdivisions

     —           —          —           —          —           —     

Equity securities

     —           —          499         (1     499         (1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 16,262       $ (52   $ 499       $ (1   $ 16,761       $ (53
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2014

               

Available-for-sale securities

               

U.S. Government-sponsored entities

   $ 6,777       $ (162   $ —         $ —        $ 6,777       $ (162

Residential mortgage-backed (issued by government-sponsored entities)

     2,499         (18     —           —          2,499         (18

Corporate

     —           —          —           —          —           —     

Small Business Administration loan pools

     —           —          —           —          —           —     

State and political subdivisions

     —           —          —           —          —           —     

Equity securities

     —           —          496         (4     496         (4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 9,276       $ (180   $ 496       $ (4   $ 9,772       $ (184
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     Less Than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
 

September 30, 2015

               

Held-to-maturity securities

               

U.S. Government-sponsored entities

   $ 2,688       $ (14   $ —         $ —        $ 2,688       $ (14

Residential mortgage-backed (issued by government-sponsored entities)

     48,849         (278     94,859         (895     143,708         (1,173

Corporate

     9,883         (124     3,016         (112     12,899         (236

Small Business Administration loan pools

     1,321         (1     1,565         (36     2,886         (37

State and political subdivisions

     14,724         (169     8,153         (207     22,877         (376
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 77,465       $ (586   $ 107,593       $ (1,250   $ 185,058       $ (1,836
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2014

               

Held-to-maturity securities

               

Residential mortgage-backed (issued by government-sponsored entities)

   $ 18,093       $ (30   $ 121,617       $ (1,480   $ 139,710       $ (1,510

Corporate

     4,296         (141     8,483         (231     12,779         (372

Small Business Administration loan pools

     —           —          1,720         (58     1,720         (58

State and political subdivisions

     1,930         (11     15,160         (351     17,090         (362
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 24,319       $ (182   $ 146,980       $ (2,120   $ 171,299       $ (2,302
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

As of September 30, 2015, the Company held 4 available-for-sale securities and 112 held-to-maturity securities in an unrealized loss position. The table above presents unrealized losses on held-to maturity securities since the date of the securities purchases, independent of the impact associated with changes in cost basis upon transfer from the available-for-sale designation to the held-to-maturity designation.

Unrealized losses on securities have not been recognized into income because the security issuers are of high credit quality, management does not intend to sell and it is more likely than not that the Company will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach maturity.

 

13


Table of Contents

The proceeds from sales and the associated gains and losses reclassified from other comprehensive income to income are listed below:

 

     Three Months Ended
September 30,
 
     2015      2014  

Proceeds

   $ —         $ 20,685   

Gross gains

     —           631   

Gross losses

     —           —     

Income tax expense on net realized gains

     —           241   
     Nine Months Ended
September 30,
 
     2015      2014  

Proceeds

   $ 17,105       $ 23,460   

Gross gains

     370         725   

Gross losses

     —           —     

Income tax expense on net realized gains

     142         277   

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at September 30, 2015 and December 31, 2014 include:

 

     September,
2015
     December 31,
2014
 

Commercial real estate

   $ 371,488       $ 363,467   

Commercial and industrial

     255,233         183,100   

Residential real estate

     183,775         134,455   

Agricultural real estate

     18,104         17,083   

Consumer

     10,826         7,875   

Agricultural

     15,628         19,267   
  

 

 

    

 

 

 

Total loans

     855,054         725,247   

Allowance for loan losses

     (5,038      (5,963
  

 

 

    

 

 

 

Net loans

   $ 850,016       $ 719,284   
  

 

 

    

 

 

 

In 2015, the Company began a participatory relationship with another institution in mortgage finance loans. These mortgage finance loans consist of ownership interests purchased in single family residential mortgages funded through the originator’s mortgage finance group. These loans are typically on the Company’s balance sheet for 10 to 20 days. The originator has mortgage lenders and purchase interests in individual loans they originate. As of September 30, 2015, the Company had balances of $20.0 million in mortgage finance loans classified as commercial and industrial.

Over-draft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $283 at September 30, 2015 and $224 at December 31, 2014.

 

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Table of Contents

The following tables present the activity in the allowance for loan losses by portfolio segment and class for the three months ended September 30, 2015 and 2014:

 

September 30, 2015

   Commercial
Real Estate
    Commercial
and Industrial
    Residential
Real
Estate
    Agricultural
Real
Estate
    Consumer     Agricultural     Total  

Allowance for loan losses:

              

Beginning balance

   $ 1,913      $ 2,228      $ 1,345      $ 25      $ 90      $ 42      $ 5,643   

Provision for loan losses

     (44     493        20        (2     68        2        537   

Loans charged-off

     (8     (1,181     (2     —          (64     —          (1,255

Recoveries

     79        —          18        —          15        1        113   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

   $ 1,940      $ 1,540      $ 1,381      $ 23      $ 109      $ 45      $ 5,038   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2014

   Commercial
Real Estate
    Commercial
and Industrial
    Residential
Real
Estate
    Agricultural
Real
Estate
    Consumer     Agricultural     Total  

Allowance for loan losses:

              

Beginning balance

   $ 3,009      $ 1,478      $ 1,297      $ 153      $ 51      $ 114      $ 6,102   

Provision for loan losses

     225        (358     358        8        52        15        300   

Loans charged-off

     (7     —          (238     —          (131     (19     (395

Recoveries

     4        4        11        —          80        1        100   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

   $ 3,231      $ 1,124      $ 1,428      $ 161      $ 52      $ 111      $ 6,107   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following tables present the activity in the allowance for loan losses by portfolio segment and class for the nine months ended September 30, 2015 and 2014:

 

September 30, 2015

   Commercial
Real Estate
    Commercial
and Industrial
    Residential
Real
Estate
    Agricultural
Real
Estate
    Consumer     Agricultural     Total  

Allowance for loan losses:

              

Beginning balance

   $ 2,897      $ 1,559      $ 1,190      $ 148      $ 81      $ 88      $ 5,963   

Provision for loan losses

     387        1,164        321        (125     164        (44     1,867   

Loans charged-off

     (1,464     (1,190     (158     —          (182     —          (2,994

Recoveries

     120        7        28        —          46        1        202   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

   $ 1,940      $ 1,540      $ 1,381      $ 23      $ 109      $ 45      $ 5,038   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2014

   Commercial
Real Estate
    Commercial
and Industrial
    Residential
Real
Estate
    Agricultural
Real
Estate
    Consumer     Agricultural     Total  

Allowance for loan losses:

              

Beginning balance

   $ 2,866      $ 990      $ 1,360      $ 217      $ 63      $ 118      $ 5,614   

Provision for loan losses

     303        145        736        (56     61        11        1,200   

Loans charged-off

     (7     (46     (801     —          (251     (20     (1,125

Recoveries

     69        35        133        —          179        2        418   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

   $ 3,231      $ 1,124      $ 1,428      $ 161      $ 52      $ 111      $ 6,107   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

15


Table of Contents

The following tables present the recorded investment in loans and the balance in the allowance for loan losses by portfolio segment and class based on impairment method as of September 30, 2015 and December 31, 2014:

 

     Loan Balance      Allowance for Loan Losses  

September 30, 2015

   Individually
Evaluated for
Impairment
     Collectively
Evaluated for
Impairment
     Total      Individually
Evaluated for
Impairment
     Collectively
Evaluated for
Impairment
     Total  

Commercial real estate

   $ 3,619       $ 367,869       $ 371,488       $ 219       $ 1,721       $ 1,940   

Commercial and industrial

     1,629         253,604         255,233         214         1,326         1,540   

Residential real estate

     1,263         182,512         183,775         166         1,215         1,381   

Agricultural real estate

     —           18,104         18,104         —           23         23   

Consumer

     26         10,800         10,826         2         107         109   

Agricultural

     —           15,628         15,628         —           45         45   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,537       $ 848,517       $ 855,054       $ 601       $ 4,437       $ 5,038   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Loan Balance      Allowance for Loan Losses  

December 31, 2014

   Individually
Evaluated for
Impairment
     Collectively
Evaluated for
Impairment
     Total      Individually
Evaluated for
Impairment
     Collectively
Evaluated for
Impairment
     Total  

Commercial real estate

   $ 7,267       $ 356,200       $ 363,467       $ 1,044       $ 1,853       $ 2,897   

Commercial and industrial

     1,710         181,390         183,100         523         1,036         1,559   

Residential real estate

     1,419         133,036         134,455         95         1,095         1,190   

Agricultural real estate

     259         16,824         17,083         16         132         148   

Consumer

     29         7,846         7,875         3         78         81   

Agricultural

     —           19,267         19,267         —           88         88   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,684       $ 714,563       $ 725,247       $ 1,681       $ 4,282       $ 5,963   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present information related to impaired loans by segment and class of loans as of and for the nine months ended September 30, 2015 and the year ended December 31, 2014:

 

September 30, 2015

   Unpaid
Principal
Balance
     Recorded
Investment
     Allowance for
Loan Losses
Allocated
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With no related allowance recorded:

              

Commercial real estate

   $ 276       $ 275       $ —         $ 945       $ 8   

Commercial and industrial

     1,507         812         —           599         11   

Residential real estate

     519         284         —           608         —     

Agricultural real estate

     —           —           —           66         —     

Consumer

     —           —           —           3         —     

Agricultural

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     2,302         1,371         —           2,221         19   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

Commercial real estate

     4,179         3,344         219         3,921         42   

Commercial and industrial

     1,318         817         214         1,655         23   

Residential real estate

     1,057         979         166         714         12   

Agricultural real estate

     —           —           —           78         —     

Consumer

     28         26         2         29         —     

Agricultural

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     6,582         5,166         601         6,397         77   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,884       $ 6,537       $ 601       $ 8,618       $ 96   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above table presents interest income for the nine months ended September 30, 2015. Interest income recognized for the three months ended September 30, 2015 was not material. Interest income recognized in the above table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest receivable due to immateriality.

 

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Table of Contents

December 31, 2014

   Unpaid
Principal
Balance
     Recorded
Investment
     Allowance for
Loan Losses
Allocated
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With no related allowance recorded:

              

Commercial real estate

   $ 2,496       $ 1,837       $ —         $ 1,159       $ 64   

Commercial and industrial

     553         524         —           906         —     

Residential real estate

     778         523         —           1,055         —     

Agricultural real estate

     114         111         —           112         —     

Consumer

     —           —           —           5         —     

Agricultural

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     3,941         2,995         —           3,237         64   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

Commercial real estate

     5,717         5,430         1,044         5,504         21   

Commercial and industrial

     1,225         1,186         523         284         36   

Residential real estate

     988         896         95         1,526         14   

Agricultural real estate

     154         148         16         35         8   

Consumer

     30         29         3         11         2   

Agricultural

     —           —           —           12         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     8,114         7,689         1,681         7,372         81   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,055       $ 10,684       $ 1,681       $ 10,609       $ 145   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above table presents interest income for the twelve months ended December 31, 2014. Interest income recognized for the three and nine months ended September 30, 2014 was not material and the average impaired balance at September 30, 2014 is materially consistent with December 31, 2014. Interest income recognized in the above table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest receivable due to immateriality.

The following tables present the aging of the recorded investment in past due loans as of September 30, 2015 and December 31, 2014, by segment and class of loans:

 

September 30, 2015

   30 - 59
Days
Past Due
     60 - 89
Days
Past Due
     Greater Than
90 Days Past
Due Still On
Accrual
     Nonaccrual      Loans Not
Past Due
     Total  

Commercial real estate

   $ 2,084       $ 41       $ —         $ 3,650       $ 365,713       $ 371,488   

Commercial and industrial

     224         —           438         1,629         252,942         255,233   

Residential real estate

     295         162         —           1,300         182,018         183,775   

Agricultural real estate

     —           99         —           —           18,005         18,104   

Consumer

     52         —           —           26         10,748         10,826   

Agricultural

     —           —           —           —           15,628         15,628   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,655       $ 302       $ 438       $ 6,605       $ 845,054       $ 855,054   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

   30 - 59
Days
Past Due
     60 - 89
Days
Past Due
     Greater Than
90 Days Past
Due Still On
Accrual
     Nonaccrual      Loans Not
Past Due
     Total  

Commercial real estate

   $ 1,010       $ 1,958       $ —         $ 7,294       $ 353,205       $ 363,467   

Commercial and industrial

     83         165         39         1,710         181,103         183,100   

Residential real estate

     765         497         —           1,499         131,694         134,455   

Agricultural real estate

     —           —           —           258         16,825         17,083   

Consumer

     22         —           —           29         7,824         7,875   

Agricultural

     —           44         —           —           19,223         19,267   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,880       $ 2,664       $ 39       $ 10,790       $ 709,874       $ 725,247   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Consumer loans are considered pass credits unless downgraded due to payment status or reviewed as part of a larger credit relationship. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The risk category of loans by class of loans is as follows as of September 30, 2015 and December 31, 2014:

 

September 30, 2015

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Commercial real estate

   $ 359,760       $ —         $ 11,728       $ —         $ 371,488   

Commercial and industrial

     252,816         —           2,110         307         255,233   

Residential real estate

     181,813         —           1,962         —           183,775   

Agricultural real estate

     17,701         —           403         —           18,104   

Consumer

     10,800         —           26         —           10,826   

Agricultural

     15,511         —           117         —           15,628   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 838,401       $ —         $ 16,346       $ 307       $ 855,054   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Commercial real estate

   $ 340,224       $ 147       $ 23,096       $ —         $ 363,467   

Commercial and industrial

     181,272         —           1,828         —           183,100   

Residential real estate

     132,285         —           2,170         —           134,455   

Agricultural real estate

     16,708         —           375         —           17,083   

Consumer

     7,846         —           29         —           7,875   

Agricultural

     15,432         —           3,835         —           19,267   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 693,767       $ 147       $ 31,333       $ —         $ 725,247   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Purchased Credit Impaired Loans

As part of previous acquisitions, the Company has acquired certain loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The recorded investments in purchase credit impaired loans as of September 30, 2015 and December 31, 2014 were as follows:

 

     September 30,
2015
     December 31,
2014
 

Contractually required principal payments

   $ 5,552       $ 7,278   

Discount

     (1,312      (2,167
  

 

 

    

 

 

 

Recorded investment

   $ 4,240       $ 5,111   
  

 

 

    

 

 

 

For the three month and nine month periods ended September 30, 2015 and 2014, no provision for loan losses was recorded for these loans. The accretable yield associated with these loans as of the period ended September 30, 2015 was $1,139. For the period ended December 31, 2014, the accretable yield was immaterial. For the three month and nine month periods ended September 30, 2015 and 2014 the interest income recognized on these loans was immaterial.

 

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Table of Contents

Troubled Debt Restructurings

Troubled debt restructured loans outstanding as of September 30, 2015 and December 31, 2014 were as follows:

 

     September 30, 2015      December 31, 2014  
     Accruing      Nonaccrual      Accruing      Nonaccrual  
     (Dollars in thousands)  

Commercial Real Estate

   $ —         $ —         $ —         $ 265   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ —         $ 265   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged unless the derivative meets the criteria to be a financing derivative. All derivatives are recognized in the consolidated balance sheet at their fair values and are reported as either derivative assets or derivative liabilities net of accrued net settlements and collateral, if any. The individual derivative amounts are netted by counterparty when the netting requirements have been met. If these netted values are positive, they are classified as an asset and, if negative, they are classified as a liability.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis (at least quarterly), whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that are accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will effect earnings.

Interest Rate Swaps Designated as Fair Value Hedges:

The Company periodically enters into interest rate swaps to hedge the fair value of certain commercial real estate loans. These transactions are designated as fair value hedges. In this type of transaction, the Company typically receives from the counterparty a variable-rate cash flow based on the one-month London Interbank Offered Rate (LIBOR) plus a spread to this index and pays a fixed-rate cash flow equal to the customer loan rate. At September 30, 2015, the portfolio of interest rate swaps have a weighted average maturity of 10.2 years, a weighted average pay rate of 4.45% and a weighted average rate received of 2.92%. No interest rate swaps were outstanding at December 31, 2014.

Stand-Alone Derivatives:

In 2009, the Company purchased an interest rate cap derivative to assist with interest rate risk management. This derivative is not designated as a hedging instrument but rather as a stand-alone derivative. At September 30, 2015, the interest rate cap had a term of 4.1 years and a cap rate of 4.50%. At December 31, 2014, the interest rate cap had a term of 4.9 years and a cap rate of 4.50%

Reconciliation of Derivative Fair Values and Gains/(Losses):

The notional amount of a derivative contract is a factor in determining periodic interest payments or cash flows received or paid. The notional amount of derivatives serves as a level of involvement in various types of derivatives. The notional amount does not represent the Company’s overall exposure to credit or market risk, generally, the exposure is significantly smaller.

 

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Table of Contents

The following table shows the notional balances and fair values (including net accrued interest) of the derivatives outstanding by derivative type at September 30, 2015 and December 31, 2014:

 

     September 30, 2015     December 31, 2014  
     Notional
Amount
     Derivative
Assets
     Derivative
Liabilities
    Notional
Amount
     Derivative
Assets
     Derivative
Liabilities
 

Derivatives designated as hedging instruments:

                

Interest rate swaps

   $ 12,341       $ —         $ 361      $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total derivatives designated as hedging relationships

     12,341         —           361        —           —           —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

                

Interest rate caps/floors

     3,206         2         —          3,399         11         —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

     3,206         2         —          3,399         11         —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 15,547         2         361      $ 3,399         11         —     
  

 

 

         

 

 

       

Cash Collateral

        —           (270        —           —     
     

 

 

    

 

 

      

 

 

    

 

 

 

Net amount presented in Balance Sheet

      $ 2       $ 91         $ 11       $ —     
     

 

 

    

 

 

      

 

 

    

 

 

 

For the three months ended September 30, 2015 and 2014, the Company recorded net losses on derivatives and hedging activities:

 

     2015      2014  

Derivatives designated as hedging instruments:

     

Interest rate swaps

   $ —         $ —     
  

 

 

    

 

 

 

Total net gain (loss) related to fair value hedge ineffectiveness

     —           —     
  

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

     

Economic hedges:

     

Interest rate caps/floors

     (3      (2
  

 

 

    

 

 

 

Total net gains (losses) related to derivatives not designated as hedging instruments

     (3      (2
  

 

 

    

 

 

 

Net gains (losses) on derivatives and hedging activities

   $ (3    $ (2
  

 

 

    

 

 

 

For the nine months ended September 30, 2015 and 2014, the Company recorded net losses on derivatives and hedging activities:

 

     2015      2014  

Derivatives designated as hedging instruments:

     

Interest rate swaps

   $ —         $ —     
  

 

 

    

 

 

 

Total net gain (loss) related to fair value hedge ineffectiveness

     —           —     
  

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

     

Economic hedges:

     

Interest rate caps/floors

     (9      (28
  

 

 

    

 

 

 

Total net gains (losses) related to derivatives not designated as hedging instruments

     (9      (28
  

 

 

    

 

 

 

Net gains (losses) on derivatives and hedging activities

   $ (9    $ (28
  

 

 

    

 

 

 

 

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Table of Contents

The following table shows the recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Company’s net interest income for the three months ended September 30, 2015. No hedging relationships were outstanding during the three months ended September 30, 2014.

 

     September 30, 2015  
     Gain/(Loss)
on
Derivatives
     Gain/(Loss)
on Hedged
Items
     Net Fair Value
Hedge
Ineffectiveness
     Effect of
Derivatives on
Net Interest
Income
 

Commercial real estate loans

   $ (342    $ 342       $ —         $ (37
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ (342    $ 342       $ —         $ (37
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows the recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Company’s net interest income for the nine months ended September 30, 2015. No hedging relationships were outstanding during the nine months ended September 30, 2014.

 

     September 30, 2015  
     Gain/(Loss)
on
Derivatives
     Gain/(Loss)
on Hedged
Items
     Net Fair Value
Hedge
Ineffectiveness
     Effect of
Derivatives on
Net Interest
Income
 

Commercial real estate loans

   $ (357    $ 357       $ —         $ (47
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ (357    $ 357       $ —         $ (47
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 5 – BORROWINGS

Federal funds purchased and retail repurchase agreements

Federal funds purchased and retail repurchase agreements as of September 30, 2015 and December 31, 2014 are as follows:

 

     September 30,
2015
     December 31,
2014
 

Federal funds purchased

   $ —         $ —     

Retail repurchase agreements

     22,271         25,301   

The Company has available federal funds lines of credit with its correspondent banks.

Securities sold under agreements to repurchase (retail repurchase agreements) consist of obligations of the Company to other parties. The obligations are secured by residential mortgage-backed securities held by the Company with a fair value of $27,063 and $32,983 at September 30, 2015 and December 31, 2014. The agreements are on a day-to-day basis and can be terminated on demand.

 

     September 30,
2015
    December 31,
2014
 

Average daily balance during the period

   $ 25,667      $ 28,058   

Average interest rate during the period

     0.24     0.26

Maximum month-end balance during the period

     27,951        30,964   

Weighted average interest rate at period-end

     0.25     0.25

Federal Home Loan Bank advances

Federal Home Loan Bank advances include both draws against the Company’s line of credit and fixed rate term advances.

 

     September 30,
2015
     December 31,
2014
 

Federal Home Loan Bank line of credit advances

   $ 190,809       $ 16,544   

Federal Home Loan Bank fixed rate term advances

     —           4,432   
  

 

 

    

 

 

 

Total Federal Home Loan Bank advances

   $ 190,809       $ 20,976   
  

 

 

    

 

 

 

 

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Table of Contents

At September 30, 2015, the Company had $190,809 drawn against its line of credit at a weighted average rate of 0.29%. At December 31, 2014, the $16,544 drawn against the Federal Home Loan Bank line of credit was at a weighted average rate of 0.25%.

In February 2015, all of the Company’s Federal Home Loan Bank term advances were prepaid. The Company recorded a loss on debt extinguishment of $316 for the nine months ended September 30, 2015 in connection with the prepayment of the Federal Home Loan Bank term advances.

At September 30, 2015 and December 31, 2014, the Company had undisbursed advance commitments (letters of credit) with the Federal Home Loan Bank of $378 and $32,378. These letters of credit were obtained in lieu of pledging securities to secure public fund deposits that are over the FDIC insurance limit. The letter of credit outstanding at September 30, 2015 matures on October 23, 2015.

The advances and letters of credit were collateralized by certain qualifying loans totaling $245,253 and $199,610 at September 30, 2015 and December 31, 2014. Based on this collateral and the Company’s holdings of Federal Home Loan Bank stock, the Company was eligible to borrow an additional $54,066 and $146,256 at September 30, 2015 and December 31, 2014.

Bank stock loan

In July 2014, the Company borrowed $15,540 from an unaffiliated financial institution, secured by the Company’s stock in Equity Bank. In September 2015, the Company amended and restated the loan and borrowed an additional $5,014. The loan bears interest at a fixed rate of 4.00% (computed on the basis of a 360-day year and the actual number of days elapsed) until July 2019, at which time the interest rate adjusts to Prime Rate, as designated as such in the “Money Rates” section of the Wall Street Journal (or any generally recognized successor), floating daily. Accrued interest and principal payments are due quarterly on the first day of January, April, July and October, with one final payment of unpaid principal and interest due in July 2021. The terms of the loan require the Company and Equity Bank to maintain minimum capital ratios and other covenants. The loan and accrued interest may be pre-paid at any time without penalty. In the event of default, the lender has the option to declare all outstanding balances as immediately due. The outstanding balance of the bank stock loan was $19,000 as of September 30, 2015 and $15,152 as of December 31, 2014. The Company recently completed an initial public offering and will use part of the proceeds to repay this borrowing, see Note 12.

Future principal repayments of the September 30, 2015 outstanding balance are as follows:

 

Due in one year or less

   $ 2,018   

Due after one year through two years

     2,172   

Due after two years through three years

     2,172   

Due after three years through four years

     2,172   

Due after four years through five years

     2,172   

Thereafter

     8,294   
  

 

 

 

Total

   $ 19,000   
  

 

 

 

The Company believes it is in compliance with the terms of the loan and has not been otherwise notified of noncompliance.

NOTE 6 – STOCKHOLDERS’ EQUITY

Preferred stock

The Company’s articles of incorporation provide for the issuance of 10,000,000 shares of preferred stock. At September 30, 2015 and December 31, 2014 the Company had 16,372 shares of Series C, senior non-cumulative perpetual preferred stock with a par value $0.01 per share issued and outstanding. The Company recently completed an initial public offering and will use part of the proceeds to redeem the Series C preferred stock, see Note 12.

 

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Common stock

The Company’s articles of incorporation provide for the issuance of 45,000,000 shares of Class A voting common stock (“Common Class A”) and 5,000,000 shares of Class B non-voting (“Common Class B”), both of which have a par value of $0.01. At September 30, 2015 and December 31, 2014, the following shares were issued and held in treasury or were outstanding:

 

     September 30,
2015
     December 31,
2014
 

Common Class A – issued

     6,207,060         6,003,844   

Common Class A – held in treasury

     (1,271,043      (1,271,043
  

 

 

    

 

 

 

Common Class A – outstanding

     4,936,017         4,732,801   
  

 

 

    

 

 

 

Common Class B – issued

     1,569,613         1,569,613   

Common Class B – held in treasury

     (234,903      (234,903
  

 

 

    

 

 

 

Common Class B – outstanding

     1,334,710         1,334,710   
  

 

 

    

 

 

 

Agreements with certain owners of Common Class B shares require the Company to issue Common Class A shares to replace an equal number of Common Class B shares in the event of a future transfer from the owner to an unaffiliated party. The Common Class B owner may require this exchange in certain stipulated transactions including the transfer of Common Class B shares to: (1) the Company or its bank subsidiary, (2) in a widespread public distribution, (3) a transfer in which no transferee receives two percent or more of any class of the Company’s voting securities, or (4) to a transferee that would control more than fifty percent of the Company’s voting securities without any transfer from the purchaser.

Restricted stock unit plan termination loans

In connection with the termination of the Company’s restricted stock unit plan (‘RSUP”), 203,216 shares of Class A common stock were issued in May 2015 to employees with vested restricted stock units. Additional paid-in capital includes $224 of tax benefits in excess of those previously provided in connection with stock compensation expense. Also in connection with the termination of the RSUP, the Company agreed to loan electing participants an amount equal to each participant’s federal and state income tax withholding obligation associated with the stock issuance. These loans totaling $258 at September 30, 2015, are collateralized with the shares received, have an initial maturity date of December 31, 2015 and an interest rate of 0.43%.

Accumulated other comprehensive income (loss)

At September 30, 2015 and December 31, 2014, accumulated other comprehensive income consisted of (i) the after tax effect of unrealized gains (losses) on available-for-sale securities and (ii) the after tax effect of unamortized unrealized gains (losses) on securities transferred from the available-for-sale designation to the held-to-maturity designation.

Components of accumulated other comprehensive income as of September 30, 2015 and December 31, 2014 were as follows:

 

     Available-for-Sale
Securities
     Held-to-Maturity
Securities
     Accumulated
Other
Comprehensive
Income
 

September 30, 2015

        

Net unrealized or unamortized gains (losses)

   $ 756       $ (3,668    $ (2,912

Tax effect

     (292      1,403         1,111   
  

 

 

    

 

 

    

 

 

 
   $ 464       $ (2,265    $ (1,801
  

 

 

    

 

 

    

 

 

 

December 31, 2014

        

Net unrealized or unamortized gains (losses)

   $ 571       $ (4,258    $ (3,687

Tax effect

     (222      1,628         1,406   
  

 

 

    

 

 

    

 

 

 
   $ 349       $ (2,630    $ (2,281
  

 

 

    

 

 

    

 

 

 

NOTE 7 – REGULATORY MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. The Company and Equity Bank have elected to exclude accumulated other comprehensive income items in computing regulatory capital. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of September 30, 2015, the Company and Equity Bank meet all capital adequacy requirements to which they are subject.

 

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Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as are asset growth and acquisitions, and capital restoration plans are required. To be categorized as well capitalized, Equity Bank must maintain minimum total risk-based, Tier 1 risk-based, Common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. The most recent notification from the regulatory banking agencies categorized Equity Bank as “well capitalized” under the regulatory capital framework for prompt corrective action and there have been no events since that notification that the Company believes have changed Equity Bank’s category.

In July 2013, the federal banking agencies published final rules establishing a new comprehensive capital framework for U.S. banking organizations. These rules became effective as applied to the Company and Equity Bank on January 1, 2015. An additional ratio, common equity Tier 1 capital to risk weighted assets, was added by these new rules. The Company’s and Equity Bank’s capital amounts and ratios at September 30, 2015 (under the new rules) and December 31, 2014 (under the previous rules) are presented in the tables below. Ratios provided for Equity Bancshares, Inc. represent the ratios of the Company on a consolidated basis.

 

     Actual     Minimum Required for
Capital Adequacy
Purposes
    To Be Well
Capitalized Under
Prompt Corrective
Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  

September 30, 2015

               

Total capital to risk weighted assets

               

Equity Bancshares, Inc.

   $ 115,894         11.58   $ 80,069         8.0   $ N/A         N/A   

Equity Bank

     125,573         12.53     80,187         8.0     100,234         10.0

Tier 1 capital to risk weighted assets

               

Equity Bancshares, Inc.

     110,856         11.08     60,052         6.0     N/A         N/A   

Equity Bank

     120,535         12.03     60,140         6.0     80,187         8.0

Common equity Tier 1 capital to risk weighted assets

               

Equity Bancshares, Inc.

     94,493         9.44     45,039         4.5     N/A         N/A   

Equity Bank

     120,535         12.03     45,105         4.5     65,152         6.5

Tier 1 leverage to average assets

               

Equity Bancshares, Inc.

     110,856         7.94     55,854         4.0     N/A         N/A   

Equity Bank

     120,535         8.62     55,922         4.0     69,903         5.0

December 31, 2014

               

Total capital to risk weighted assets

               

Equity Bancshares, Inc.

   $ 116,882         13.86   $ 67,409         8.0   $ N/A         N/A   

Equity Bank

     124,513         14.74     67,573         8.0     84,466         10.0

Tier 1 capital to risk weighted assets

               

Equity Bancshares, Inc.

     110,859         13.16     33,704         4.0     N/A         N/A   

Equity Bank

     118,550         14.04     33,786         4.0     50,680         6.0

Tier 1 leverage to average assets

               

Equity Bancshares, Inc.

     110,859         9.62     46,085         4.0     N/A         N/A   

Equity Bank

     118,550         10.28     46,149         4.0     57,686         5.0

Equity Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.

 

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Table of Contents

NOTE 8 – EARNINGS PER SHARE

The following table presents earnings per share for the three months ended September 30, 2015 and 2014:

 

     September 30,
2015
     September 30,
2014
 

Basic:

     

Net income allocable to common stockholders

   $ 2,693       $ 2,332   
  

 

 

    

 

 

 

Weighted average common shares outstanding

     6,270,727         6,064,943   

Weighted average vested restricted stock units

     —           35,092   
  

 

 

    

 

 

 

Weighted average shares

     6,270,727         6,100,035   
  

 

 

    

 

 

 

Basic earnings per common share

   $ 0.43       $ 0.38   
  

 

 

    

 

 

 

Diluted:

     

Net income allocable to common stockholders

   $ 2,693       $ 2,332   
  

 

 

    

 

 

 

Weighted average common shares outstanding for:

     

Basic earnings per common share

     6,270,727         6,100,035   

Dilutive effects of the assumed exercise of stock options

     24,860         —     

Dilutive effects of the assumed redemption of RSU’s

     —           62,642   
  

 

 

    

 

 

 

Average shares and dilutive potential common shares

     6,295,587         6,162,677   
  

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.43       $ 0.38   
  

 

 

    

 

 

 

Average outstanding stock options of 123,700 and 259,954 for the three month periods ended September 30, 2015 and 2014 were not included in the computation of diluted earnings per share because the options’ exercise price was greater than or equal to the average market price of the common shares.

The following table presents earnings per share for the nine months ended September 30, 2015 and 2014:

 

     September 30,
2015
     September 30,
2014
 

Basic:

     

Net income allocable to common stockholders

   $ 7,617       $ 6,542   
  

 

 

    

 

 

 

Weighted average common shares outstanding

     6,161,303         6,330,894   

Weighted average vested restricted stock units

     109,424         35,092   
  

 

 

    

 

 

 

Weighted average shares

     6,270,727         6,365,986   
  

 

 

    

 

 

 

Basic earnings per common share

   $ 1.21       $ 1.03   
  

 

 

    

 

 

 

Diluted:

     

Net income allocable to common stockholders

   $ 7,617       $ 6,542   
  

 

 

    

 

 

 

Weighted average common shares outstanding for:

     

Basic earnings per common share

     6,270,727         6,365,986   

Dilutive effects of the assumed exercise of stock options

     19,675         —     

Dilutive effects of the assumed redemption of RSU’s

     —           62,642   
  

 

 

    

 

 

 

Average shares and dilutive potential common shares

     6,290,402         6,428,628   
  

 

 

    

 

 

 

Diluted earnings per common share

   $ 1.21       $ 1.02   
  

 

 

    

 

 

 

Average outstanding stock options of 124,510 and 251,911 for the nine month periods ended September 30, 2015 and 2014 were not included in the computation of diluted earnings per share because the options’ exercise price was greater than or equal to the average market price of the common shares.

As described in Note 12, the Company issued additional shares during the fourth quarter of 2015. The above tables do not reflect the impact of the initial public offering.

NOTE 9 – FAIR VALUE

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on

 

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the measurement date. For disclosure purposes, the Company groups its financial and non-financial assets and liabilities into three different levels based on the nature of the instrument and the availability and reliability of the information that is used to determine fair value. The three levels of inputs that may be used to measure fair values are defined as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Level 1 inputs are considered to be the most transparent and reliable. The Company assumes the use of the principal market to conduct a transaction of each particular asset or liability being measured and then considers the assumptions that market participants would use when pricing the asset or liability. Whenever possible, the Company first looks for quoted prices for identical assets or liabilities in active markets (level 1 inputs) to value each asset or liability. However, when inputs from identical assets or liabilities on active markets are not available, the Company utilizes market observable data for similar assets and liabilities. The Company maximizes the use of observable inputs and limits the use of unobservable inputs to occasions when observable inputs are not available. The need to use unobservable inputs generally results from the lack of market liquidity of the actual financial instrument or of the underlying collateral. Although, in some instances, third party price indications may be available, limited trading activity can challenge the implied value of those quotations.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of each instrument under the hierarchy:

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The fair values of securities available-for-sale are carried at fair value on a recurring basis. To the extent possible, observable quoted prices in an active market are used to determine fair value and, as such, these securities are classified as level 1. For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities, generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Company’s available-for-sale securities, including U.S. Government sponsored agencies, residential mortgage-backed securities (all of which are issued or guaranteed by government sponsored agencies), corporate securities, Small Business Administration securities, State and Political Subdivision securities, and equity securities are classified as level 2.

The fair values of interest rate swaps and interest rate caps are determined based on valuation pricing models using readily available observable market parameters such as interest rate yield curves (Level 2 inputs) adjusted for credit risk attributable to the seller of the interest rate derivative. Cash collateral received from or delivered to a derivative counterparty is classified as level 1.

 

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Table of Contents

Assets and Liabilities measured at fair value on a recurring basis are summarized below:

 

     September 30, 2015  
     (Level 1)      (Level 2)      (Level 3)  

Assets:

        

Available-for-sale securities:

        

U.S. government-sponsored entities

   $ —         $ 17,124       $ —     

Residential mortgage-backed securities (issued by government-sponsored entities)

     —           88,469         —     

Corporate

     —           3,008         —     

Small Business Administration loan pools

     —           297         —     

State and political subdivisions

     —           509         —     

Equity securities

     —           499         —     

Interest rate caps (included in other assets)

     —           2         —     

Liabilities:

        

Interest rate swaps (included in other liabilities)

     —           361         —     

Cash collateral held by counterparty

     (270      —           —     
  

 

 

    

 

 

    

 

 

 

Total derivative liabilities

     (270      361         —     
  

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     (Level 1)      (Level 2)      (Level 3)  

Assets:

        

Available-for-sale securities:

        

U.S. government-sponsored entities

   $ —         $ 10,400       $ —     

Residential mortgage-backed securities (issued by government-sponsored entities)

     —           36,529         —     

Corporate

     —           3,011         —     

Small Business Administration loan pools

     —           356         —     

State and political subdivisions

     —           2,193         —     

Equity securities

     —           496         —     

Interest rate caps (included in other assets)

     —           11         —     

The Company did not record any liabilities for which the fair value was measured on a recurring basis at December 31, 2014. There were no transfers between Levels during the nine months ended September 30, 2015 or the year ended December 31, 2014. The Company’s policy is to recognize transfers into or out of a level as of the end of a reporting period.

Fair Value of Assets and Liabilities Measured on a Non-recurring Basis

Certain assets are measured at fair value on a non-recurring basis when there is evidence of impairment. The fair values of impaired loans with specific allocations of the allowance for loan losses are generally based on recent real estate appraisals of the collateral less estimated cost to sell. Declines in the fair values of other real estate owned subsequent to their initial acquisitions are also based on recent real estate appraisals less selling costs.

Real estate appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

 

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Table of Contents

Assets measured at fair value on a non-recurring basis are summarized below:

 

     September 20, 2015  
     (Level 1)      (Level 2)      (Level 3)  

Impaired loans:

        

Commercial real estate

   $ —         $ —         $ 3,125   

Commercial and industrial

     —           —           603   

Residential real estate

     —           —           813   

Other

     —           —           24   

Other real estate owned:

        

Commercial real estate

     —           —           524   

Residential real estate

     —           —           540   
     December 31, 2014  
     (Level 1)      (Level 2)      (Level 3)  

Impaired loans:

        

Commercial real estate

   $ —         $ —         $ 4,386   

Commercial and industrial

     —           —           663   

Residential real estate

     —           —           801   

Other

     —           —           158   

Other real estate owned:

        

Commercial real estate

     —           —           524   

Residential real estate

     —           —           646   

The Company did not record any liabilities for which the fair value was measured on a non-recurring basis at September 30, 2015 or at December 31, 2014.

Valuations of impaired loans and other real estate owned utilize third party appraisals or broker price opinions, and are classified as Level 3 due to the significant judgment involved. Appraisals may include the utilization of unobservable inputs, subjective factors, and utilize quantitative data to estimate fair market value.

The following table presents additional information about the unobservable inputs used in the fair value measurement of financial assets measured on a nonrecurring basis that were categorized with Level 3 of the fair value hierarchy:

 

     Fair Value     

Valuation

Technique

  

Unobservable

Input

   Range
(weighted
average)

September 30, 2015

           

Impaired loans

   $ 4,565      

Sales Comparison Approach

  

Adjustments for differences between comparable sales

   6% - 29% (17%)

December 31, 2014

           

Impaired loans

   $ 6,008      

Sales Comparison Approach

  

Adjustments for differences between comparable sales

   3% - 15% (7%)

Measurable inputs for other real estate owned are not material.

 

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Table of Contents

Carrying amount and estimated fair values of financial instruments at period end were as follows as of the date indicated:

 

     September 30, 2015  
     Carrying
Amount
    Estimated
Fair Value
    Level 1     Level 2      Level 3  

Financial assets:

           

Cash and cash equivalents

   $ 23,193      $ 23,193      $ 23,193      $ —         $ —     

Interest bearing deposits

     5,245        5,245        —          5,245         —     

Available-for-sale securities

     109,906        109,906        —          109,906         —     

Held-to-maturity securities

     303,695        307,687        —          307,687         —     

Loans held for sale

     1,948        1,948        —          1,948         —     

Loans, net of allowance for loan losses

     850,016        840,193        —          —           840,193   

Federal Reserve Bank and Federal Home Loan Bank stock

     14,052        N/A        N/A        N/A         N/A   

Interest receivable

     4,374        4,374        —          4,374         —     

Interest rate cap

     2        2        —          2         —     

Financial liabilities:

           

Deposits

   $ 1,027,517      $ 1,032,819      $ —        $ 1,032,819       $ —     

Federal funds purchased and retail repurchase agreements

     22,271        22,271        —          22,271         —     

Federal Home Loan Bank advances

     190,809        190,809        —          190,809         —     

Bank stock loan

     19,000        19,000        —          19,000         —     

Subordinated debentures

     9,174        9,174        —          9,174         —     

Contractual obligations

     3,003        3,003        —          3,003         —     

Interest payable

     650        650        —          650         —     

Interest rate swaps

     361        361        —          361         —     

Cash collateral held by derivative counterparty

     (270     (270     (270     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total derivative liabilities

     91        91        (270     361         —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     December 31, 2014  
     Carrying
Amount
    Estimated
Fair Value
    Level 1     Level 2      Level 3  

Financial assets:

           

Cash and cash equivalents

   $ 31,707      $ 31,707      $ 31,707      $ —         $ —     

Interest bearing deposits

     5,995        5,995        —          5,995         —     

Available-for-sale securities

     52,985        52,985        —          52,985         —     

Held-to-maturity securities

     261,017        265,189        —          265,189         —     

Loans held for sale

     897        897        —          897         —     

Loans, net of allowance for loan losses

     719,284        717,141        —          —           717,141   

Federal Reserve Bank and Federal Home Loan Bank stock

     4,312        N/A        N/A        N/A         N/A   

Interest receivable

     3,589        3,589        —          3,589         —     

Interest rate caps

     11        11        —          11         —     

Financial liabilities:

           

Deposits

   $ 980,966      $ 982,434      $ —        $ 982,434       $ —     

Federal funds purchased and retail repurchase agreements

     25,301        25,301        —          25,301         —     

Federal Home Loan Bank advances

     20,976        21,207        —          21,207         —     

Bank stock loan

     15,152        15,152        —          15,152         —     

Subordinated debentures

     8,941        8,941        —          8,941         —     

Contractual obligations

     3,146        3,146        —          3,146         —     

Interest payable

     631        631        —          631         —     

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and cash equivalents and interest-bearing deposits: The carrying amounts of cash and short-term instruments approximate fair values.

Held-to-maturity securities: The fair value of held-to-maturity securities are determined in a manner consistent with available-for-sale securities which has been previously discussed.

Loans held for sale: The fair values of loans held for sale are based on quoted market prices for loans with similar characteristics.

 

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Table of Contents

Loans: Fair values of variable rate loans that reprice frequently and with no significant change in credit risk are based on carrying values. Fair values of other loans are estimated using discounted cash flows analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Federal Reserve Bank and Federal Home Loan Bank stock: It is not practical to determine the fair value of Federal Reserve Bank and Federal Home Loan Bank stock due to restrictions placed on its transferability.

Interest receivable and interest payable: The carrying amounts of accrued interest receivable and payable approximate their fair values.

Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount). The carrying amount of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered.

Federal funds purchased and retail repurchase agreements: Federal funds purchased and retail repurchase agreements mature daily and may be terminated at any time. The carrying amounts of these financial instruments approximate their fair values.

Federal Home Loan Bank Advances: The carrying amounts of draws against the Company’s line of credit at the Federal Home Loan Bank approximate their fair values. The fair values of fixed rate term advances are determined using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements.

Bank stock loan: The fair value of the bank stock loan was estimated using a discounted cash flow analysis based on current borrowing rates for similar types of borrowing arrangements.

Subordinated debentures: Subordinated debentures are carried at the outstanding principal balance less an unamortized fair value adjustment from the date of assumption. The outstanding principal balance, net of this adjustment, approximates their fair value.

Contractual obligations: The carrying value of contractual obligations approximate their fair value.

The fair value of off-balance-sheet items is not considered material.

NOTE 10 – COMMITMENTS AND CREDIT RISK

The Company extends credit for commercial real estate mortgages, residential mortgages, working capital financing and loans to businesses and consumers.

Commitments to Originate Loans and Available Lines of Credit: Commitments to originate loans and available lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments and lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments and lines of credit may expire without being drawn upon, the total commitment and lines of credit amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate. Mortgage loans in the process of origination represent amounts that the Company plans to fund within a normal period of 60 to 90 days, and which are intended for sale to investors in the secondary market.

The contractual amounts of commitments to originate loans and available lines of credit as of September 30, 2015 and December 31, 2014 were as follows:

 

     September 30, 2015      December 31, 2014  
     Fixed
Rate
     Variable
Rate
     Fixed
Rate
     Variable
Rate
 

Commitments to make loans

   $ 21,132       $ 54,594       $ 9,791       $ 15,776   

Mortgage loans in the process of origination

     7,204         1,207         2,175         761   

Unused lines of credit

     47,972         57,166         32,447         48,290   

The fixed rate loan commitments have interest rates ranging from 2.50% to 8.50% and maturities ranging from 4 months to 60 months.

 

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Standby Letters of Credit: Standby letters of credit are irrevocable commitments issued by the Company to guarantee the performance of a customer to a third party once specified pre-conditions are met. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The contractual amounts of standby letters of credit as of September 30, 2015 and December 31, 2014 were as follows:

 

     September 30, 2015      December 31, 2014  
     Fixed
Rate
     Variable
Rate
     Fixed
Rate
     Variable
Rate
 

Standby letters of credit

   $ 3,515       $ 1,209       $ 2,093       $ 616   

NOTE 11 – LEGAL MATTERS

The Company is party to various matters of litigation in the ordinary course of business. The Company periodically reviews all outstanding pending or threatened legal proceedings and determines if such matters will have an adverse effect on the business, financial condition or results of operations or cash flows. A loss contingency is recorded when the outcome is probable and reasonably able to be estimated. The following loss contingencies have been identified by the Company as reasonably possible to result in an unfavorable outcome for the Company or the Bank.

Equity Bank is a party to a February 3, 2015 lawsuit filed against it by CitiMortgage, Inc. The lawsuit involves an alleged breach of contract related to loan repurchase obligations and damages of $2,700 plus pre-judgment and post-judgment interest. At this early stage of the litigation it is difficult to estimate any potential loss, however Equity Bank believes it has numerous and meritorious defenses to the claims and anticipates contesting the matter vigorously. The Company currently does not believe that it is probable that this legal matter will result in an unfavorable outcome for the Company or Equity Bank.

Equity Bank and U.S. Bank (“USB”) were parties to lawsuits filed against each other. These lawsuits involved loan-repurchase demands made by USB and allegations by Equity Bank that USB withheld servicing release premiums (profits) on loans sold by Equity Bank to USB, and also that USB had interfered with a 2012 business combination. In June 2015, Equity Bank and USB settled the lawsuits filed against each other.

Except for the above mentioned lawsuit and settlement, there have been no other claims for potential repurchase or indemnification demands regarding mortgage loans originated by Equity Bank and sold to investors. However, the Company believes there is possible risk it may face similar demands based on comparable demands loan aggregators are facing from their investors, including Government Sponsored Entities such as Freddie Mac and Fannie Mae, and or settlement agreements loan aggregators have entered into with those investors. The amount of potential loss and outcome of such possible litigation, if it were commenced, is uncertain and the Company would vigorously contest any claims.

NOTE 12 – SUBSEQUENT EVENTS

On July 27, 2015, the Company entered into a definitive agreement to acquire First Independence Corporation and its subsidiary, First Federal Savings & Loan of Independence, based in Independence, Kansas. The acquisition was completed on October 9, 2015 for aggregate cash consideration of $14,740 and First Federal Savings & Loan of Independence was merged into Equity Bank. The estimated fair values of assets acquired as of the acquisition date are $134,000; which include total loans valued at $89,962; securities of $29,355; core deposit intangible of $735 and goodwill of $570. The estimated fair values of liabilities assumed as of the acquisition date are $119,420; which include deposits of $87,251 and Federal Home Loan Bank advances of $31,603. Although the Company does not expect significant differences from estimated values, final valuations are not yet available. Goodwill is calculated as the excess of the cash consideration transferred over the net of the acquisition-date fair values of identifiable assets acquired and liabilities assumed. Goodwill is not expected to be deductible for tax purposes. The Company has incurred expenses related to the acquisition of approximately $1,691. For the three and nine month periods ended September 30, 2015, merger expenses totaled $77.

On November 16, 2015, the Company completed an initial public offering of 2,231,000 shares of Class A common stock, $0.01 par value, at a price to the public of $22.50 per share, including 291,000 shares pursuant to the full exercise by the underwriters of their option to purchase additional shares of Class A common stock from the Company. The Company sold 1,941,000 shares of its Class A common stock and the selling stockholders named in the registration statement sold 290,000 shares of the Company’s Class A common stock (which included 273,000 shares of Class A common stock that were issued upon the automatic conversion of an equal number of shares of Class B common stock as a result of the offering). Gross proceeds paid to the Company were $43,673. The Company’s net proceeds are expected to be approximately $39,184 after the subtraction of underwriting discounts and commissions and estimated offering expenses, which are not yet finalized. All of the shares issued and sold in the initial public offering were registered under the Securities Act pursuant to a Registration Statement on Form S-1 (File No. 333-207351), which was declared effective by the SEC on November 10, 2015. Proceeds from the initial public offering will be used for on-going operating expense, to redeem the Series C preferred stock and to repay the bank stock loan.

 

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our prospectus filed with the SEC pursuant to Rule 424(b) of the Securities Act on November 12, 2015 (the “Prospectus”) and our consolidated financial statements and related notes appearing elsewhere in this quarterly report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary Statement Regarding Forward-Looking statements.” Also, see the risk factors and other cautionary statements described under the heading “Risk Factors” included in the Prospectus and in Item 1A of this quarterly report. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

This discussion and analysis of our financial condition and results of operation includes the following sections:

 

    Overview – a general description of our business and financial highlights;

 

    Critical Accounting Policies – a discussion of accounting policies that require critical estimates and assumptions;

 

    Results of Operations – an analysis of our operating results, including disclosures about the sustainability of our earnings;

 

    Financial Condition – an analysis of our financial position;

 

    Liquidity and Capital Resources – an analysis of our cash flows and capital position; and

 

    Non-GAAP Financial Measures – reconciliation of non-GAAP measures.

Overview

We are a bank holding company headquartered in Wichita, Kansas. Our wholly-owned banking subsidiary, Equity Bank, provides a broad range of financial services primarily to businesses and business owners as well as individuals through our network of 29 full service branches located in Kansas and Missouri. As of September 30, 2015, we had consolidated total assets of $1.41 billion, total loans held for investment of $850.0 million (net of allowances), total deposits of $1.03 billion and total stockholders’ equity of $126.1 million. During the three-month periods ended September 30, 2015 and September 30, 2014, net income was $2.7 million and $2.4 million. For the nine months ended September 30, 2015 and September 30, 2014 net income was $7.7 million compared to $7.2 million.

Selected Financial Data for the periods indicated (dollars in thousands, except per share amounts):

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2015     2014     2015     2014  

Statement of Income Data

        

Interest and dividend income

   $ 13,127      $ 11,712      $ 38,371      $ 34,680   

Interest expense

     1,749        1,480        4,649        3,965   

Net interest income

     11,378        10,232        33,722        30,715   

Provision for loan losses

     537        300        1,867        1,200   

Net gain on sale of securities

     —          631        370        725   

Other non-interest income

     2,206        2,242        6,618        6,371   

Non-interest expense

     8,968        9,264        27,195        26,214   

Income before income taxes

     4,079        3,541        11,648        10,397   

Provision for income taxes

     1,343        1,108        3,902        3,189   

Net income

     2,736        2,433        7,746        7,208   

Dividends and discount accretion on preferred Stock

     (43     (101     (129     (666

Net income allocable to common stockholders

     2,693        2,332        7,617        6,542   

Basic earnings per share

     0.43        0.38        1.21        1.03   

Diluted earnings per share

     0.43        0.38        1.21        1.02   

Performance ratios - Annualized

        

Return on average assets (ROAA)

     0.77     0.82     0.80     0.83

Return on average equity (ROAE)

     8.78     8.34     8.56     7.67

Yield on loans

     5.08     5.49     5.42     5.64

Cost of interest-bearing deposits

     0.51     0.46     0.47     0.44

Net interest margin

     3.46     3.81     3.79     3.92

Efficiency ratio

     65.5     74.3     66.4     70.7

Non-interest income / average assets

     0.62     0.97     0.72     0.82

Non-interest expense / average assets

     2.52     3.14     2.81     3.03

 

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     September 30,
2015
    December 31,
2014
 

Balance Sheet Data (at period end)

    

Cash and cash equivalents

   $ 23,193      $ 31,707   

Securities available-for-sale

     109,906        52,985   

Securities held-to-maturity

     303,695        261,017   

Loans held for sale

     1,948        897   

Gross loans held for investment

     855,054        725,247   

Allowance for loan losses

     5,038        5,963   

Loans held for investment, net of allowance for loan losses

     850,016        719,284   

Goodwill and core deposit intangibles, net

     19,056        19,237   

Total assets

     1,414,091        1,175,323   

Total deposits

     1,027,517        980,966   

Borrowings

     241,254        70,370   

Total liabilities

     1,288,037        1,057,594   

Total stockholders’ equity

     126,054        117,729   

Tangible common equity

     90,633        82,133   

Capital Ratios

    

Tier 1 Leverage Ratio

     7.94     9.62

Tier 1 Common Capital Ratio

     9.44     N/A   

Tier 1 Risk Based Capital Ratio

     11.08     13.16

Total Risk Based Capital Ratio

     11.58     13.86

Equity / Assets

     8.91     10.02

Book value per share

   $ 17.49      $ 16.71   

Tangible book value per share

   $ 14.45      $ 13.54   

Tangible common equity to tangible assets

     6.50     7.10

Critical Accounting Policies

Our significant accounting policies are integral to understanding the results reported. Our accounting policies are described in detail in Note 1 to the December 31, 2014 audited financial statements included in our Prospectus. We believe that of our significant accounting policies, the following may involve a higher degree of judgement and complexity.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of previous charge-offs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance.

Purchased Credit Impaired Loans: As part of previous acquisitions, we acquired certain loans for which there was, at acquisition, evidence of deterioration of credit quality since origination. These purchased credit impaired loans were recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses. Such purchased credit impaired loans are accounted for individually. We estimate the amount and timing of expected cash flows for each loan, and the expected cash flows in excess of the amount paid are recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the loan, expected cash flows continue to be estimated. If the present value of the expected cash flows is less than the carrying amount, a loss is recorded. If the present value of the expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Nonaccrual Loans: Generally, loans are designated as nonaccrual when either principal or interest payments are 90 days or more past due based on contractual terms unless the loan is well secured and in the process of collection. Consumer loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed against income. Future interest income may be recorded on a cash basis after recovery of principal is reasonably assured. Nonaccrual loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Impaired Loans: A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all contractual principal and interest due according to the terms of the loan agreement. All loans are individually evaluated for impairment. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or on the value of the underlying collateral if the loan is collateral dependent. We evaluate the collectability of both principal and interest when assessing the need for a loss accrual.

 

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Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Troubled Debt Restructurings: In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan and classified as impaired. Generally, a nonaccrual loan that is a troubled debt restructuring remains on nonaccrual until such time that repayment of the remaining principal and interest is not in doubt, and the borrower has a period of satisfactory repayment performance.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. A loan review process, independent of the loan approval process, is utilized by management to verify loans are being made and administered in accordance with Company policy, to review loan risk grades and potential losses, to verify that potential problem loans are receiving adequate and timely corrective measures to avoid or reduce losses, and to assist in the verification of the adequacy of the loan loss reserve. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the sale of the collateral. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, we determine the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component of the allowance for loan losses covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by us. This actual loss experience is then adjusted by comparing current conditions to the conditions that existed during the loss history. We consider the changes related to (i) lending policies, (ii) economic conditions, (iii) nature and volume of the loan segments, (iv) lending staff, (v) volume and severity of past due, non-accrual, and risk graded loans, (vi) loan review system, (vii) value of underlying collateral for collateral dependent loans, (viii) concentration levels and (ix) effects of other external factors.

There have been no material changes to our accounting policies related to the allowance for loan loss methodology from those disclosed in our Prospectus.

Goodwill: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets.

Core deposit intangibles: Core deposit intangibles are acquired customer relationships arising from whole bank and branch acquisitions. Core deposit intangibles are initially measured at fair value and then are amortized over their estimated useful lives using an accelerated method. The useful lives of the core deposits are estimated to generally be between seven and ten years.

Goodwill and core deposit intangibles are assessed at least annually for impairment and any such impairment is recognized and expensed in the period identified. We have selected December 31, as the date to perform our annual goodwill impairment test. Goodwill is the only intangible asset with an indefinite useful life.

Emerging Growth Company: Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the Financial Accounting Standards Board (“FASB”) or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have irrevocably elected to adopt new accounting standards within the public company adoption period.

We may take advantage of some of the reduced regulatory and reporting requirements that are available to us so long as the Company qualifies as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

 

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Recent Acquisition:

On October 9, 2015, we closed our acquisition of First Independence Corporation and its wholly-owned subsidiary, First Federal Savings & Loan of Independence. We paid the shareholders of First Independence Corporation $14.7 million in cash as the merger consideration. As of the closing, First Independence Corporation operated through four branches and one loan production office, all in our geographic footprint and within approximately 150 miles from our Wichita headquarters. We closed the loan production office as it is not a part of our strategic direction. The estimated fair values of assets acquired as of the acquisition date are $134.0 million; which include total loans valued at $90.0 million; securities of $29.4 million; core deposit intangible of $735 thousand and goodwill of $570 thousand. The estimated fair values of liabilities assumed as of the acquisition date are $119.4 million; which include deposits of $87.3 million and Federal Home Loan Bank (“FHLB”) advances of $31.6 million. Although the Company does not expect significant differences from estimated values, final valuations are not yet available. Goodwill is calculated as the excess of the cash consideration transferred over the net of the acquisition-date fair values of identifiable assets acquired and liabilities assumed. Goodwill is not expected to be deductible for tax purposes. The Company has incurred expenses related to the acquisition of approximately $1.7 million. For the three and nine month periods ended September 30, 2015, merger expenses totaled $77 thousand. In connection with our acquisition of First Independence Corporation we amended and restated our bank stock loan and increased our borrowings under it by $5.0 million, on the same terms as our previous bank stock loan. We used the proceeds from the increase in our bank stock loan and working capital necessary to close the acquisition.

Results of Operations

We generate most of our revenue from interest income and fees on loans, interest and dividends on investment securities and non-interest income, such as service charges and fees and mortgage banking income. We incur interest expense on deposits and other borrowed funds and non-interest expense, such as salaries and employee benefits and occupancy expenses.

Changes in interest rates earned on interest-earning assets or incurred on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities and stockholders’ equity, are usually the largest drivers of periodic change in net interest income. Fluctuations in interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Kansas and Missouri, as well as developments affecting the consumer, commercial and real estate sectors within these markets.

Net Income

Three months ended September 30, 2015 compared with three months ended September 30, 2014:

During the three-month period ended September 30, 2015 net income was $2.7 million as compared to net income of $2.4 million during the three-month period ended September 30, 2014. Net income allocable to common stockholders was $2.7 million for the three months ended September 30, 2015, compared to $2.3 million for the three months ended September 30, 2014, an increase of $362 thousand, or 15.5%. During the three-month period ended September 30, 2015, increases in net interest income of $1.1 million and decreases in non-interest expense of $296 thousand were offset by a decrease in non-interest income of $667 thousand and an increase of $237 thousand in provision for loan losses when compared to the three-month period ended September 30, 2014. The changes in the components of net income are discussed in more detail in the following sections of “Results of Operations.”

Nine months ended September 30, 2015 compared with nine months ended September 30, 2014:

Net income for the nine-month period ended September 30, 2015 was $7.7 million compared to $7.2 million for nine-month period ended September 30, 2014. Net income allocable to common stockholders was $7.6 million for the nine months ended September 30, 2015, compared to $6.5 million for the nine months ended September 30, 2014. During the nine-month period ended September 30, 2015, an increase in net interest income of $3.0 million was offset by $981 thousand in higher non-interest expenses, increase of $667 thousand in the provision for loan loss and decrease of $108 thousand in non-interest income when compared to the nine-month period ended September 30, 2014. The changes in the components of net income are discussed in more detail in the following sections of “Results of Operations.”

Net Interest Income and Net Interest Margin Analysis

Net interest income is the difference between interest income on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. To evaluate net interest income, management measures and monitors (1) yields on loans and other interest-earning assets, (2) the costs of deposits and other funding sources, (3) the net interest spread and (4) net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because non-interest-bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these non-interest-bearing sources of funds. Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change,” and it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “yield/rate change.”

 

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Three months ended September 30, 2015 compared with three months ended September 30, 2014: The following table shows the average balance of each principal category of assets, liabilities, and stockholders’ equity and the average yields on interest-earning assets and average costs of interest-bearing liabilities for the three-month periods ended September 30, 2015 and 2014. The yields and costs are calculated by dividing annualized income or annualized expense by the average daily balances of the associated assets or liabilities.

Average Balance Sheets and Net Interest Analysis

 

     For the Three Months Ended September 30,  
     2015     2014  

(dollars in thousands)

   Average
Outstanding
Balance
     Interest
Income/
Expense
     Average
Yield/
Rate(3)(4)
    Average
Outstanding
Balance
     Interest
Income/
Expense
     Average
Yield/
Rate(3)(4)
 

Interest-earning assets:

                

Loans(1)

   $ 830,682       $ 10,642         5.08   $ 699,585       $ 9,685         5.49

Taxable securities

     351,156         1,911         2.16     307,616         1,724         2.22

Nontaxable securities

     46,546         291         2.48     37,657         215         2.26

Federal funds sold and other

     75,406         283         1.48     20,563         88         1.75
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets

     1,303,790       $ 13,127         3.99     1,065,421       $ 11,712         4.36
     

 

 

         

 

 

    

Non-interest-earning assets:

                

Other real estate owned, net

     6,349              5,631         

Premises and equipment, net

     40,543              38,542         

Bank owned life insurance

     29,275              28,327         

Goodwill and core deposit intangible, net

     19,082              19,383         

Other non-interest-earning assets

     11,781              13,248         
  

 

 

         

 

 

       

Total assets

   $ 1,410,820            $ 1,170,552         
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Savings, NOW and money market

   $ 604,447       $ 391         0.26   $ 563,138       $ 305         0.21

Certificates of deposit

     387,251         893         0.92     367,299         768         0.83
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

     991,698         1,284         0.51     930,437         1,073         0.46

FHLB term and line of credit advances

     210,136         141         0.27     26,738         93         1.39

Bank stock loan

     14,167         146         4.10     13,006         137         4.17

Subordinated borrowings

     9,140         162         7.01     8,830         157         7.12

Other borrowings

     25,563         16         0.25     28,962         20         0.26
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     1,250,704       $ 1,749         0.55     1,007,973       $ 1,480         0.58
     

 

 

         

 

 

    

Non-interest-bearing liabilities:

                

Non-interest-bearing checking accounts

     28,831              39,387         

Non-interest-bearing liabilities

     7,691              7,486         

Stockholders’ equity

     123,594              115,706         
  

 

 

         

 

 

       

Total liabilities and equity

   $ 1,410,820            $ 1,170,552         
  

 

 

         

 

 

       

Net interest income

      $ 11,378            $ 10,232      
     

 

 

         

 

 

    

Interest rate spread

           3.44           3.78
        

 

 

         

 

 

 

Net interest margin(2)

           3.46           3.81

Total cost of deposits, including non-interest bearing deposits

   $ 1,020,528       $ 1,284         0.50   $ 969,824       $ 1,073         0.44
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Average interest-earning assets to interest-bearing liabilities

           104.24           105.70
        

 

 

         

 

 

 

 

(1) Average loan balances include nonaccrual loans.
(2) Net interest margin is calculated by dividing annualized net interest income by average interest-earnings assets for the period.
(3) Tax exempt income is not included in the above table on a tax equivalent basis.
(4) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.

 

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Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest yields/rates. The following table analyzes the change in volume variances and yield/rate variances for the three months ended September 30, 2015 and September 30, 2014.

Analysis of Changes in Net Interest Income

For the Three Months Ended September 30, 2015 and September 30, 2014

 

     Increase (Decrease) Due to:      Total Increase /  

(dollars in thousands)

   Volume(1)      Yield/Rate(1)      (Decrease)  

Interest-earning assets:

        

Loans

   $ 1,719       $ (762    $ 957   

Taxable securities

     235         (48      187   

Nontaxable securities

     54         22         76   

Federal funds sold and other

     210         (15      195   
  

 

 

    

 

 

    

 

 

 

Total interest-earning assets

   $ 2,218       $ (803    $ 1,415   
  

 

 

    

 

 

    

 

 

 

Interest-bearing liabilities:

        

Savings, NOW and money market

   $ 24       $ 62       $ 86   

Certificates of deposit

     43         82         125   
  

 

 

    

 

 

    

 

 

 

Total interest-bearing deposits

     67         144         211   

FHLB term and line of credit advances

     178         (130      48   

Bank stock loan

     12         (3      9   

Subordinated borrowings

     8         (3      5   

Other borrowings

     (3      (1      (4
  

 

 

    

 

 

    

 

 

 

Total interest-bearing liabilities

   $ 262       $ 7       $ 269   
  

 

 

    

 

 

    

 

 

 

Net Interest Income

   $ 1,956       $ (810    $ 1,146   
  

 

 

    

 

 

    

 

 

 

 

(1) The effect of changes in volume is determined by multiplying the change in volume by the previous year’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the prior year’s volume. The changes attributable to both volume and rate, which cannot be segregated, have been allocated to the volume variance and the rate variance in proportion to the relationship of the absolute dollar amount of the change in each.

Net interest income before the provision for loan losses for the three months ended September 30, 2015 was $11.4 million compared with $10.2 million for the three months ended September 30, 2014, an increase of $1.1 million, or 11.2%. Interest income for the three months ended September 30, 2015 was $13.1 million, an increase of $1.4 million, or 12.1%, from $11.7 million for the three months ended September 30, 2014. Interest income increased primarily due to an increase in the average volume of interest-earning assets due in large part to growth in loan balances during the period. Interest expense for the three months ended September 30, 2015 was $1.7 million, an increase of $269 thousand, or 18.2%, from $1.5 million for the three months ended September 30, 2014. The increase in interest expense was primarily due to an increase in the average volume of interest-bearing liabilities.

Interest income on loans, including loan fees which consist of fees for loan origination, renewal, prepayment, covenant breakage and loan modification, was $10.6 million for the three months ended September 30, 2015, an increase of $957 thousand, or 9.9%, compared with the three months ended September 30, 2014. This increase was due to an increase in average loans, partially offset by a decrease in the average yield on the loan portfolio. The increase in average loan volume was primarily from increases in average loan volume of $73.0 million in commercial and industrial loans and $77.0 million in mortgage loans, which were partially offset by a decrease of $16.7 million in commercial real estate loans and $5.0 million in average loan volume of agricultural loans. The average yield on loans was 5.08% for the three months ended September 30, 2015 and 5.49% for the three months ended September 30, 2014. The average yield on loans excluding loan fees was 4.79% for the three months ended September 30, 2015 and 5.13% for the three months ended September 30, 2014. The decrease in yield excluding loan fees was primarily due to decreases in average yields on commercial loans, mortgage loans and agricultural loans. The decrease in yield on commercial loans was the result of loan growth in a lower interest rate environment and the payoff of higher-rate, higher-credit risk loans. The decrease in the yield on mortgage loans is due to the pay down of higher-rate older loans and origination of new loans in a low interest rate environment. The decrease in yield on agricultural loans was the result of pay downs of higher-rate, higher-credit risk loans. Interest income on all securities was $2.2 million for the quarter ending September 30, 2015, an increase of $263 thousand when compared to the quarter ending September 30, 2014. The increase was due to the increase of $52.4 million in average total securities, partially offset by a two basis point decrease in the average yield on the securities portfolio. The increase in the average volume of securities was due to the purchase of additional mortgage-backed and municipal securities.

Interest expense was $1.7 million for the three months ended September 30, 2015, an increase of $269 thousand over interest expense of $1.5 million for the three months ended September 30, 2014. The change in interest expense was primarily due to an increase of $242.7 million in the average volume of interest-bearing liabilities. Average savings, NOW and money market deposits

 

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increased $41.3 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014, and the average rate on these interest-bearing deposits increased from 0.21% to 0.26% for the same period. The average balance increase in interest-bearing deposits is the result of actively managing deposits as a funding vehicle and expansion of our customer base. The increase in rate on interest-bearing deposits is the result of actively managing the rates on this funding source to remain competitive in the market place. Average certificates of deposit increased $20.0 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014, and the average rate increased from 0.83% to 0.92% for the same period. The increase in interest expense on certificates of deposit was primarily due to the increase in longer term higher rate certificates of deposits. In February 2015, we prepaid older higher cost FHLB term advances and began using the FHLB line of credit advance option that resulted in a much lower funding cost and is pre-payable without a fee. Total cost of funds decreased three basis points to 0.55% for the three months ended September 30, 2015 from 0.58% for the three months ended September 30, 2014.

Net interest margin, defined as net interest income divided by average interest-earning assets, for the three months ended September 30, 2015 was 3.46%, a decrease of 35 basis points compared with 3.81% for the for the three months ended September 30, 2014. The decline in our net interest margin for the three months ended September 30, 2015 relates to our purchase of additional investment securities, our utilization of an existing “spread opportunity” and the increase in our 1-4 family loan portfolio. In anticipation of consummating the acquisition of First Independence Corporation, we purchased approximately $30.0 million in investment securities to replace First Independence Corporation’s investment portfolio of similar size that did not meet our investment criteria. We have since liquidated First Independence Corporation’s investment portfolio. The “spread opportunity” involves borrowing overnight on our line of credit with the FHLB and investing the proceeds in federal funds sold, resulting in a positive spread of approximately 25 basis points. We utilize the spread opportunity to generate income to help offset the costs associated with the First Independence Corporation merger and our initial public offering. We can reduce or terminate the spread opportunity each business day and we do not presently anticipate that this opportunity would be part of our core earnings stream or strategy. These changes for the three months ended September 30, 2015 resulted in an increase in net interest income of $1.1 million, an increase in average interest-earning assets of $238.4 million and a decrease in net interest margin of 35 basis points.

 

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Nine months ended September 30, 2015 compared with nine months ended September 30, 2014: The following table shows the average balance of each principal category of assets, liabilities, and stockholders’ equity and the average yields on interest-earning assets and average costs of interest-bearing liabilities for the nine months ended September 30, 2015 and 2014. The yields and costs are calculated by dividing annualized income or expense by the average daily balances of the associated assets or liabilities.

Average Balance Sheets and Net Interest Analysis

 

     For the Nine Months Ended September 30,  
     2015     2014  

(dollars in thousands)

   Average
Outstanding
Balance
     Interest
Income/
Expense
     Average
Yield/
Rate(3)(4)
    Average
Outstanding
Balance
     Interest
Income/
Expense
     Average
Yield/
Rate(3)(4)
 

Interest-earning assets:

                

Loans(1)

   $ 780,182       $ 31,636         5.42   $ 667,885       $ 28,191         5.64

Taxable securities

     323,195         5,440         2.25     320,794         5,616         2.34

Nontaxable securities

     42,390         746         2.35     36,829         629         2.28

Federal funds sold and other

     43,876         549         1.67     22,933         244         1.47
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets

     1,189,643       $ 38,371         4.31     1,048,441       $ 34,680         4.42
     

 

 

         

 

 

    

Non-interest-earning assets:

                

Other real estate owned, net

     5,722              6,460         

Premises and equipment, net

     38,670              37,894         

Bank owned life insurance

     29,045              28,109         

Goodwill and core deposit intangible, net

     19,142              19,460         

Other non-interest-earning assets

     12,121              14,461         
  

 

 

         

 

 

       

Total assets

   $ 1,294,343            $ 1,154,825         
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Savings, NOW and money market

   $ 607,447       $ 1,105         0.24   $ 556,059       $ 873         0.21

Certificates of deposit

     355,363         2,304         0.87     371,959         2,160         0.78
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

     962,810         3,409         0.47     928,018         3,033         0.44

FHLB term and line of credit advances

     122,874         267         0.29     19,381         265         1.83

Bank stock loan

     14,517         446         4.11     4,383         137         4.17

Subordinated borrowings

     9,063         480         7.08     8,754         475         7.26

Other borrowings

     25,667         47         0.24     28,005         55         0.26
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     1,134,931       $ 4,649         0.55     988,541       $ 3,965         0.53
     

 

 

         

 

 

    

Non-interest-bearing liabilities:

                

Non-interest-bearing checking accounts

     31,278              32,831         

Non-interest-bearing liabilities

     7,179              7,857         

Stockholders’ equity

     120,955              125,596         
  

 

 

         

 

 

       

Total liabilities and equity

   $ 1,294,343            $ 1,154,825         
  

 

 

         

 

 

       

Net interest income

      $ 33,722            $ 30,715      
     

 

 

         

 

 

    

Interest rate spread

           3.76           3.89
        

 

 

         

 

 

 

Net interest margin(2)

           3.79           3.92
        

 

 

         

 

 

 

Total cost of deposits, including non-interest bearing deposits

   $ 994,088       $ 3,409         0.46   $ 960,849       $ 3,033         0.42
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Average interest-earning assets to interest-bearing liabilities

           104.82           106.06