SEC Filing | Equity Bancshares, Inc.

View:

Download DOC 5 MB

Download PDF

Download XLS

Download XBRL 11 MB

eqbk-10q_20160630.htm

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 June 30, 2016

o	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 ☐ 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). ☒ 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	o		Accelerated filer	o
Non-accelerated filer	x		Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ 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

July 31, 2016

Class A Common Stock, par value $0.01 per share

7,321,984

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

897,431

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	9
	Condensed Notes to Interim Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Overview	34
	Critical Accounting Policies	36
	Results of Operations	37
	Financial Condition	49
	Liquidity and Capital Resources	62
	Non-GAAP Financial Measures	65
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	70
Part II	OTHER INFORMATION	71
Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	71

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 on Form 10-Q and as of the dates specified herein.

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 “Item 1A - Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 17, 2016, 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;

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 on Form 10-Q 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.

PART I

Item 1: Financial Statements

EQUITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

June 30, 2016 and December 31, 2015

(Dollar amounts in thousands, except per share data)

	(Unaudited) June 30,			December 31,
	2016			2015
ASSETS
Cash and due from banks	$	25,413		$	36,276
Federal funds sold		20,789			20,553
Cash and cash equivalents		46,202			56,829
Interest-bearing time deposits in other banks		5,245			5,245
Available-for-sale securities		74,976			130,810
Held-to-maturity securities, fair value of $324,425 and $312,802		317,509			310,539
Loans held for sale		4,002			3,504
Loans, net of allowance for loan losses of $6,030 and $5,506		974,080			954,849
Other real estate owned, net		4,898			5,811
Premises and equipment, net		39,103			39,147
Bank owned life insurance		33,052			32,555
Federal Reserve Bank and Federal Home Loan Bank stock		10,875			11,013
Interest receivable		4,323			4,540
Goodwill		18,130			18,130
Core deposit intangible, net		1,376			1,549
Other		11,086			11,206
Total assets	$	1,544,857		$	1,585,727
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand	$	157,896		$	157,834
Total non-interest-bearing deposits		157,896			157,834
Savings, NOW, and money market		595,272			619,468
Time		443,599			438,612
Total interest-bearing deposits		1,038,871			1,058,080
Total deposits		1,196,767			1,215,914
Federal funds purchased and retail repurchase agreements		22,782			20,762
Federal Home Loan Bank advances		147,648			145,439
Bank stock loan		—			18,612
Subordinated debentures		9,371			9,251
Contractual obligations		2,831			3,093
Interest payable and other liabilities		7,270			5,423
Total liabilities		1,386,669			1,418,494
Commitments and contingent liabilities, see Notes 10 and 11
Stockholders’ equity, see Note 6
Preferred stock, Series C (liquidation preference of $16,372)		—			16,372
Common stock		97			97
Additional paid-in capital		138,480			138,077
Retained earnings		41,240			34,955
Accumulated other comprehensive loss		(1,732	)		(2,371	)
Employee stock loans		(242	)		(242	)
Treasury stock		(19,655	)		(19,655	)
Total stockholders’ equity		158,188			167,233
Total liabilities and stockholders’ equity	$	1,544,857		$	1,585,727

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

For the Three and Six Months ended June 30, 2016 and 2015

(Dollar amounts in thousands, except per share data)

	(Unaudited) Three Months Ended June 30,						(Unaudited) Six Months Ended June 30,
	2016			2015			2016			2015
Interest and dividend income
Loans, including fees	$	11,551		$	10,737		$	23,392		$	21,149
Securities, taxable		1,987			1,796			4,196			3,529
Securities, nontaxable		332			265			660			455
Federal funds sold and other		510			169			994			266
Total interest and dividend income		14,380			12,967			29,242			25,399
Interest expense
Deposits		1,670			1,090			3,277			2,126
Federal funds purchased and retail repurchase agreements		14			14			26			30
Federal Home Loan Bank advances		345			88			677			126
Bank stock loan		—			149			—			300
Subordinated debentures		157			160			310			318
Total interest expense		2,186			1,501			4,290			2,900
Net interest income		12,194			11,466			24,952			22,499
Provision for loan losses		532			605			1,255			1,330
Net interest income after provision for loan losses		11,662			10,861			23,697			21,169
Non-interest income
Service charges and fees		807			615			1,586			1,170
Debit card income		728			540			1,405			981
Mortgage banking		335			375			577			578
Increase in value of bank owned life insurance		246			231			497			466
Net gain from securities transactions		59			2			479			370
Other		277			285			606			880
Total non-interest income		2,452			2,048			5,150			4,445
Non-interest expense
Salaries and employee benefits		5,246			4,862			10,458			9,584
Net occupancy and equipment		1,068			1,020			2,162			2,126
Data processing		869			727			1,707			1,381
Professional fees		568			441			1,017			912
Advertising and business development		330			277			548			568
Telecommunications		287			198			518			379
FDIC insurance		255			175			513			351
Courier and postage		158			126			303			263
Amortization of core deposit intangible		86			61			173			121
Loan expense		168			118			260			178
Other real estate owned		(58	)		56			8			121
Loss on debt extinguishment		—			—			58			316
Other		964			966			1,905			1,745
Total non-interest expense		9,941			9,027			19,630			18,045
Income before income taxes		4,173			3,882			9,217			7,569
Provision for income taxes		1,327			1,313			2,931			2,559
Net income		2,846			2,569			6,286			5,010
Dividends and discount accretion on preferred stock		—			(43	)		(1	)		(86	)
Net income allocable to common stockholders	$	2,846		$	2,526		$	6,285		$	4,924
Basic earnings per share	$	0.35		$	0.40		$	0.77		$	0.79
Diluted earnings per share	$	0.34		$	0.40		$	0.75		$	0.78

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Six Months ended June 30, 2016 and 2015

(Dollar amounts in thousands)

	(Unaudited) Three Months Ended June 30,						(Unaudited) Six Months Ended June 30,
	2016			2015			2016			2015
Net income	$	2,846		$	2,569		$	6,286		$	5,010
Other comprehensive income:
Unrealized holding gains (losses) arising during the period on available-for-sale securities		425			(650	)		1,633			(271	)
Amortization of unrealized losses on held-to-maturity securities		152			160			292			423
Reclassification adjustment for net gains included in net income		(473	)		(2	)		(893	)		(370	)
Total other comprehensive income (loss)		104			(492	)		1,032			(218	)
Tax effect		(42	)		188			(393	)		84
Other comprehensive income (loss), net of tax		62			(304	)		639			(134	)
Comprehensive income	$	2,908		$	2,265		$	6,925		$	4,876

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Six Months ended June 30, 2016 and 2015

(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)			Employee Stock Loans			Treasury Stock			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		—			—		—		—		5,010			—			—			—			5,010
Other comprehensive income, net of tax effects		—			—		—		—		—			(134	)		—			—			(134	)
Accretion of discount on preferred stock		4			—		—		—		(4	)		—			—			—			—
Stock based compensation		—			—		—		216		—			—			—			—			216
Common stock issued upon termination of restricted stock unit plan, net of employee stock loans		—			203,216		2		222		—			—			(1,215	)		—			(991	)
Cash dividends declared and accrued on preferred stock		—			—		—		—		(82	)		—			—			—			(82	)
Balance at June 30, 2015	$	16,363			6,270,727	$	78	$	98,836	$	29,756		$	(2,415	)	$	(1,215	)	$	(19,655	)	$	121,748
Balance at January 1, 2016	$	16,372			8,211,727	$	97	$	138,077	$	34,955		$	(2,371	)	$	(242	)	$	(19,655	)	$	167,233
Net income		—			—		—		—		6,286			—			—			—			6,286
Other comprehensive income, net of tax effects		—			—		—		—		—			639			—			—			639
Retirement of preferred stock		(16,372	)		—		—		—		—			—			—			—			(16,372	)
Stock based compensation		—			—		—		282		—			—			—			—			282
Common stock issued upon exercise of stock options		—			7,688		—		121		—			—			—			—			121
Cash dividends declared and accrued on preferred stock		—			—		—		—		(1	)		—			—			—			(1	)
Balance at June 30, 2016	$	—			8,219,415	$	97	$	138,480	$	41,240		$	(1,732	)	$	(242	)	$	(19,655	)	$	158,188

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months ended June 30, 2016 and 2015

(Dollar amounts in thousands, except per share data)

	(Unaudited) June 30,
	2016			2015
Cash flows from operating activities
Net income	$	6,286		$	5,010
Adjustments to reconcile net income to net cash from operating activities:
Stock based compensation		282			216
Depreciation		841			817
Provision for loan losses		1,255			1,330
Net accretion (amortization) of purchase valuation adjustments		192			(272	)
Amortization of premiums and discounts on securities		1,265			1,074
Amortization of intangibles		176			121
Deferred income taxes		(34	)		(57	)
FHLB stock dividends		(327	)		(96	)
Loss (gain) on sales and valuation adjustments on other real estate owned		(142	)		18
Net loss (gain) on securities transactions		(479	)		(370	)
Loss (gain) on disposal of premise and equipment	(39		)		(9	)
Loss (gain) on sales of loans		(496	)		(492	)
Originations of loans held for sale		(21,987	)		(22,341	)
Proceeds from the sale of loans held for sale		21,985			21,479
Increase in the value of bank owned life insurance		(497	)		(466	)
Change in fair value of derivatives recognized in earnings		4			16
Net change in:
Interest receivable		217			(389	)
Other assets		(314	)		4
Interest payable and other liabilities		(918	)		359
Net cash provided by (used in) operating activities		7,270			5,952
Cash flows to investing activities
Purchases of available-for-sale securities		(25,576	)		(44,543	)
Purchases of held-to-maturity securities		(25,811	)		(69,064	)
Proceeds from sales, calls, pay-downs, and maturities of available-for-sale securities		82,774			25,066
Proceeds from calls, pay-downs and maturities of held-to-maturity securities		19,677			23,419
Net change in interest-bearing time deposits in other banks	―				250
Net change in loans		(21,038	)		(107,860	)
Purchase of premises and equipment		(863	)		(5,117	)
Proceeds from sale of premise and equipment	175				15
Net redemption (purchase) of FHLB and FRB stock		465			(6,555	)
Proceeds from sale of other real estate owned		2,391			538
Net cash provided by (used in) investing activities		32,194			(183,851	)
Cash flows (to) from financing activities
Net increase (decrease) in deposits		(19,153	)		22,986