eqbk-10q_20170331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2017

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 300

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                  ☐                       Accelerated filer                        ☒

                                                   Non-accelerated filer (Do not check if a smaller reporting company)                       ☐

                                                                                                                   Smaller reporting company                        ☐

                                                                                                                   Emerging growth company                        ☒

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

May 1, 2017

Class A Common Stock, par value $0.01 per share

12,017,724

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

186,513

 

 


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

11

Item 2.

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

35

 

Overview

35

 

Critical Accounting Policies

37

 

Results of Operations

39

 

Financial Condition

45

 

Liquidity and Capital Resources

59

 

Non-GAAP Financial Measures

61

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

63

Item 4.

Controls and Procedures

66

Part II

OTHER INFORMATION

67

Item 1.

Legal Proceedings

67

Item 1A.

Risk Factors

67

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3.

Defaults Upon Senior Securities

67

Item 4.

Mine Safety Disclosures

67

Item 5.

Other Information

67

Item 6.

Exhibits

67

 

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.

2


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 16, 2017, 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 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 (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;

3


 

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 “Item 1A - 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.

 

 

4


PART I

 

 

Item 1: Financial Statements

EQUITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2017 and December 31, 2016

(Dollar amounts in thousands)

 

 

 

(Unaudited)

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

34,300

 

 

$

34,137

 

Federal funds sold

 

 

1,021

 

 

 

958

 

Cash and cash equivalents

 

 

35,321

 

 

 

35,095

 

Interest-bearing time deposits in other banks

 

 

4,488

 

 

 

3,750

 

Available-for-sale securities

 

 

103,178

 

 

 

95,732

 

Held-to-maturity securities, fair value of $515,594 and $461,156

 

 

519,239

 

 

 

465,709

 

Loans held for sale

 

 

4,021

 

 

 

4,830

 

Loans, net of allowance for loan losses of $7,048 and $6,432

 

 

1,511,528

 

 

 

1,377,173

 

Other real estate owned, net

 

 

8,202

 

 

 

8,656

 

Premises and equipment, net

 

 

53,637

 

 

 

50,515

 

Bank owned life insurance

 

 

48,411

 

 

 

48,055

 

Federal Reserve Bank and Federal Home Loan Bank stock

 

 

15,565

 

 

 

16,652

 

Interest receivable

 

 

9,189

 

 

 

6,991

 

Goodwill

 

 

64,521

 

 

 

58,874

 

Core deposit intangible, net

 

 

5,954

 

 

 

4,715

 

Other

 

 

16,002

 

 

 

15,445

 

Total assets

 

$

2,399,256

 

 

$

2,192,192

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Demand

 

$

275,519

 

 

$

207,668

 

Total non-interest-bearing deposits

 

 

275,519

 

 

 

207,668

 

Savings, NOW, and money market

 

 

923,747

 

 

 

869,625

 

Time

 

 

621,824

 

 

 

553,158

 

Total interest-bearing deposits

 

 

1,545,571

 

 

 

1,422,783

 

Total deposits

 

 

1,821,090

 

 

 

1,630,451

 

Federal funds purchased and retail repurchase agreements

 

 

17,699

 

 

 

20,637

 

Federal Home Loan Bank advances

 

 

257,068

 

 

 

259,588

 

Subordinated debentures

 

 

13,754

 

 

 

13,684

 

Contractual obligations

 

 

2,489

 

 

 

2,504

 

Interest payable and other liabilities

 

 

7,950

 

 

 

7,364

 

Total liabilities

 

 

2,120,050

 

 

 

1,934,228

 

Commitments and contingent liabilities, see Notes 10 and 11

 

 

 

 

 

 

 

 

Stockholders’ equity, see Note 6

 

 

 

 

 

 

 

 

Common stock

 

 

137

 

 

 

132

 

Additional paid-in capital

 

 

252,197

 

 

 

236,103

 

Retained earnings

 

 

49,192

 

 

 

44,328

 

Accumulated other comprehensive loss

 

 

(2,495

)

 

 

(2,702

)

Employee stock loans

 

 

(170

)

 

 

(242

)

Treasury stock

 

 

(19,655

)

 

 

(19,655

)

Total stockholders’ equity

 

 

279,206

 

 

 

257,964

 

Total liabilities and stockholders’ equity

 

$

2,399,256

 

 

$

2,192,192

 

See accompanying condensed notes to interim consolidated financial statements.

5


EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months ended March 31, 2017 and 2016

(Dollar amounts in thousands, except per share data)

 

 

(Unaudited)

Three Months Ended

March 31,

 

 

 

2017

 

 

2016

 

Interest and dividend income

 

 

 

 

 

 

 

 

Loans, including fees

 

$

19,400

 

 

$

11,841

 

Securities, taxable

 

 

2,724

 

 

 

2,209

 

Securities, nontaxable

 

 

785

 

 

 

328

 

Federal funds sold and other

 

 

306

 

 

 

484

 

Total interest and dividend income

 

 

23,215

 

 

 

14,862

 

Interest expense

 

 

 

 

 

 

 

 

Deposits

 

 

2,576

 

 

 

1,607

 

Federal funds purchased and retail repurchase agreements

 

 

12

 

 

 

12

 

Federal Home Loan Bank advances

 

 

502

 

 

 

332

 

Subordinated debentures

 

 

232

 

 

 

153

 

Total interest expense

 

 

3,322

 

 

 

2,104

 

Net interest income

 

 

19,893

 

 

 

12,758

 

Provision for loan losses

 

 

1,095

 

 

 

723

 

Net interest income after provision for loan losses

 

 

18,798

 

 

 

12,035

 

Non-interest income

 

 

 

 

 

 

 

 

Service charges and fees

 

 

1,152

 

 

 

779

 

Debit card income

 

 

1,005

 

 

 

677

 

Mortgage banking

 

 

485

 

 

 

242

 

Increase in value of bank owned life insurance

 

 

355

 

 

 

251

 

Net gain from securities transactions

 

 

13

 

 

 

420

 

Other

 

 

329

 

 

 

329

 

Total non-interest income

 

 

3,339

 

 

 

2,698

 

Non-interest expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,806

 

 

 

5,212

 

Net occupancy and equipment

 

 

1,499

 

 

 

1,094

 

Data processing

 

 

1,161

 

 

 

838

 

Professional fees

 

 

516

 

 

 

449

 

Advertising and business development

 

 

518

 

 

 

218

 

Telecommunications

 

 

361

 

 

 

231

 

FDIC insurance

 

 

106

 

 

 

258

 

Courier and postage

 

 

226

 

 

 

145

 

Free nationwide ATM cost

 

 

212

 

 

 

152

 

Amortization of core deposit intangible

 

 

209

 

 

 

87

 

Loan expense

 

 

177

 

 

 

92

 

Other real estate owned

 

 

205

 

 

 

66

 

Loss on debt extinguishment

 

 

 

 

58

 

Merger expenses

 

 

926

 

 

 

Other

 

 

1,304

 

 

 

789

 

Total non-interest expense

 

 

15,226

 

 

 

9,689

 

Income before income taxes

 

 

6,911

 

 

 

5,044

 

Provision for income taxes

 

 

2,047

 

 

 

1,604

 

Net income

 

 

4,864

 

 

 

3,440

 

Dividends and discount accretion on preferred stock

 

 

 

 

 

(1

)

Net income allocable to common stockholders

 

$

4,864

 

 

$

3,439

 

Basic earnings per share

 

$

0.41

 

 

$

0.42

 

Diluted earnings per share

 

$

0.40

 

 

$

0.41

 

See accompanying condensed notes to interim consolidated financial statements.

6


EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months ended March 31, 2017 and 2016

(Dollar amounts in thousands)

 

 

 

(Unaudited)

Three Months Ended

March 31,

 

 

 

2017

 

 

2016

 

Net income

 

$

4,864

 

 

$

3,440

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period on

   available-for-sale securities

 

 

212

 

 

 

1,208

 

Amortization of unrealized losses on held-to-maturity securities

 

 

137

 

 

 

140

 

Reclassification adjustment for net gains included in net income

 

 

(13

)

 

 

(420

)

Total other comprehensive income (loss)

 

 

336

 

 

 

928

 

Tax effect

 

 

(129

)

 

 

(351

)

Other comprehensive income (loss), net of tax

 

 

207

 

 

 

577

 

Comprehensive income

 

$

5,071

 

 

$

4,017

 

See accompanying condensed notes to interim consolidated financial statements.

 

 

7


EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months ended March 31, 2017 and 2016

(Unaudited)

(Dollar amounts in thousands, except per share data)

 

 

 

Preferred

Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Employee

 

 

 

 

 

 

Total

 

 

 

Series C

 

 

Shares

Outstanding

 

 

Amount

 

 

Paid-In

Capital

 

 

Retained

Earnings

 

 

Comprehensive

Income (loss)

 

 

Stock

Loans

 

 

Treasury

Stock

 

 

Stockholders’

Equity

 

Balance at January 1, 2016

 

$

16,372

 

 

 

8,211,727

 

 

$

97

 

 

$

138,077

 

 

$

34,955

 

 

$

(2,371

)

 

$

(242

)

 

$

(19,655

)

 

$

167,233

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,440

 

 

 

 

 

 

 

 

 

 

 

 

3,440

 

Other comprehensive income,

   net of tax effects

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

577

 

 

 

 

 

 

 

 

 

577

 

Retirement of preferred stock

 

 

(16,372

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,372

)

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

215

 

Cash dividends declared and

   accrued on preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Balance at March 31, 2016

 

$

 

 

 

8,211,727

 

 

$

97

 

 

$

138,292

 

 

$

38,394

 

 

$

(1,794

)

 

$

(242

)

 

$

(19,655

)

 

$

155,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

 

$

 

 

 

11,680,308

 

 

$

132

 

 

$

236,103

 

 

$

44,328

 

 

$

(2,702

)

 

$

(242

)

 

$

(19,655

)

 

$

257,964

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,864

 

 

 

 

 

 

 

 

 

 

 

 

4,864

 

Other comprehensive income,

   net of tax effects

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

207

 

 

 

 

 

 

 

 

 

207

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

494

 

Common stock issued upon

   exercise of stock options

 

 

 

 

 

40,834

 

 

 

 

 

 

692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

692

 

Common stock issued under stock based incentive plan

 

 

 

 

 

1,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments on employee stock loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

72

 

Issuance of common stock in connection with the acquisition of Prairie State Bancshares, net of issuance expenses of $329

 

 

 

 

 

479,465

 

 

 

5

 

 

 

14,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,913

 

Balance at March 31, 2017

 

$

 

 

 

12,202,237

 

 

$

137

 

 

$

252,197

 

 

$

49,192

 

 

$

(2,495

)

 

$

(170

)

 

$

(19,655

)

 

$

279,206

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

 

8


EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months ended March 31, 2017 and 2016

(Dollar amounts in thousands, except per share data)

 

 

 

(Unaudited)

March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

4,864

 

 

$

3,440

 

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

 

 

 

 

 

 

 

 

Stock based compensation

 

 

386

 

 

 

215

 

Depreciation

 

 

585

 

 

 

425

 

Provision for loan losses

 

 

1,095

 

 

 

723

 

Net accretion (amortization) of purchase valuation adjustments

 

 

1,780

 

 

 

28

 

Amortization of premiums and discounts on securities

 

 

723

 

 

 

564

 

Amortization of intangibles

 

 

211

 

 

 

88

 

Deferred income taxes

 

 

(53

)

 

 

(22

)

FHLB stock dividends

 

 

(182

)

 

 

(162

)

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

 

 

30

 

 

 

(2

)

Net loss (gain) on securities transactions

 

 

(13

)

 

 

(420

)

Loss (gain) on disposal of premise and equipment

 

 

2

 

 

 

Loss (gain) on sales of loans

 

 

(412

)

 

 

(199

)

Originations of loans held for sale

 

 

(17,230

)

 

 

(8,651

)

Proceeds from the sale of loans held for sale

 

 

18,450

 

 

 

9,154

 

Increase in the value of bank owned life insurance

 

 

(356

)

 

 

(251

)

Change in fair value of derivatives recognized in earnings

 

 

 

 

4

 

Net change in:

 

 

 

 

 

 

 

 

Interest receivable

 

 

130

 

 

 

187

 

Other assets

 

 

(634

)

 

 

(510

)

Interest payable and other liabilities

 

 

449

 

 

 

(167

)

Net cash provided by (used in) operating activities

 

 

9,825

 

 

 

4,444

 

Cash flows (to) from investing activities

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(13,660

)

 

 

(10,200

)

Purchases of held-to-maturity securities

 

 

(62,978

)

 

 

(1,042

)

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

 

 

6,303

 

 

 

28,292

 

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

 

 

13,383

 

 

 

9,331

 

Net change in interest-bearing time deposits in other banks

 

 

(738

)

 

 

Net change in loans

 

 

(7,040

)

 

 

22,280

 

Purchase of premises and equipment

 

 

(1,286

)

 

 

(149

)

Proceeds from sale of premise and equipment

 

 

1

 

 

 

Net redemption (purchase) of FHLB and FRB stock

 

 

1,467

 

 

 

(3,799

)

Proceeds from sale of other real estate owned

 

 

425

 

 

 

252

 

Purchase of Prairie, net of cash acquired

 

 

(6,005

)

 

 

Net cash provided by (used in) investing activities

 

 

(70,128

)

 

 

44,965

 

Cash flows (to) from financing activities

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

65,238

 

 

 

18,249

 

Net change in federal funds purchased and retail repurchase agreements

 

 

(2,938

)

 

 

1,040

 

Net borrowings (payments) on Federal Home Loan Bank line of credit

 

 

(2,520

)

 

 

(45,901

)

Principal payments on bank stock loan

 

 

 

 

(18,612

)

Proceeds from the exercise of employee stock options

 

 

692

 

 

 

Principal payments on employee stock loans

 

 

72

 

 

 

Redemption of Series C preferred stock

 

 

 

 

(16,372

)

Net change in contractual obligations

 

 

(15

)

 

 

(14

)

Dividends paid on preferred stock

 

 

 

 

(42

)

Net cash provided by (used in) financing activities

 

 

60,529

 

 

 

(61,652

)

Net change in cash and cash equivalents

 

 

226

 

 

 

(12,243

)

Cash and cash equivalents, beginning of period

 

 

35,095

 

 

 

56,829

 

Ending cash and cash equivalents

 

$

35,321

 

 

$

44,586

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

2,863

 

 

$

2,044

 

Income taxes paid, net of refunds

 

 

(78

)

 

 

86

 

9


Supplemental noncash disclosures:

 

 

 

 

 

 

 

 

Other real estate owned acquired in settlement of loans

 

 

 

 

333

 

Total fair value of assets acquired in purchase of Prairie, net of cash

 

 

146,509

 

 

 

 

 

Total fair value of liabilities assumed in purchase of Prairie, net of cash

 

 

125,591

 

 

 

 

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

10


EQUITY BANCSHARES, INC.

CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(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, 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 United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information.  The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.  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, 2016 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2017.  Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any other period.

Effective January 1, 2017, the Company adopted the provisions of Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting. In accordance with ASU 2016-09, excess tax benefits and excess tax deficiencies, which are generated when the tax-return deduction for a share-based payment award differs from the compensation cost recognized for financial reporting purposes, are recognized as income tax benefits or expense in the income statement in the period in which the excess tax benefits occur. The provision for income taxes for the three months ended March 31, 2017, was reduced by excess income tax benefits of $207 associated with stock options exercised during the period. This reduction in the provision for income taxes increased net income $207 or $0.02 per fully diluted share. ASU 2016-09 was adopted on a prospective basis. Prior to the adoption of ASU 2016-09, excess tax benefits were recognized in additional paid in capital, however there were no excess tax benefits recognized in the three months ended March 31, 2016.

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. These amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.  Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period.  The amendments should be applied retrospectively to all periods presented or retrospectively with the cumulative effect recognized at the date of initial application. The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements, although no material impact is expected it will modify disclosures.

In January 2016, FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  The main provisions of the update are to eliminate the available-for-sale classification of accounting for equity securities and to adjust fair value disclosures for financial instruments carried at amortized costs such that the disclosed fair values represent an exit price as opposed to an entry price.  The amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those years.  Generally, early adoption of the amendments in this update is not permitted.  An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.  The Company is currently evaluating the impact of this new accounting standard but does not expect a material impact on its financial statements.

11


In February 2016, FASB issued ASU 2016-02, Leases, with the intention of improving financial reporting about leasing transactions.  The ASU requires all lessees to recognize lease assets and lease liabilities on the balance sheet.  Lessor accounting is largely unchanged by the ASU, however disclosures about the amount, timing, and uncertainty of cash flows arising from leases are required of both lessees and lessors.  The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.  The modified retrospective approach provides for optional practical expedients when applying the ASU to leases that commenced before the effective date of the ASU.  The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements but expects that assets and liabilities will increase to reflect the impact of this standard.

 

In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which will change how the Company measures credit losses for most of its financial assets. This guidance is applicable to loans held for investment, off-balance-sheet credit exposures, such as loan commitments and standby letters of credit, and held-to-maturity investment securities. The Company will be required to use a new forward-looking expected loss model that is anticipated to result in the earlier recognition of allowances for losses.  For available-for-sale securities with unrealized losses, the Company will measure credit losses in a manner similar to current practice, but will recognize those credit losses as allowances rather than reductions in the amortized cost of the securities.  In addition, the ASU requires significantly more disclosure including information about credit quality by year of origination for most loans. The ASU is effective for the Company beginning in the first quarter of 2020.  Generally, the amendments will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.  The Company is currently gathering the historical loss data by portfolio and class of financial instrument to estimate the life of financial instrument credit loss and is developing the supporting system requirements to routinely generate the reported values. At this time an estimate of the impact to the Company’s financial statements is not known.

 

In August 2016, FASB issued accounting standards update No. 2016-15, Statement of Cash Flows (Topic 230). This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flow. The amendments in this update are effective for fiscal years and interim periods beginning after December 15, 2017; however early adoption is permitted. Management is currently in the process of evaluating the impact of this new accounting standard but does not expect a material impact to its financial statements.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other, which will simplify the subsequent measurement of goodwill. Goodwill and other intangibles must be assessed for impairment annually. If an entity’s assessment determines that the fair value of an entity is less than its carrying amount, including goodwill, currently, the measurement of goodwill impairment requires that the entity’s identifiable net assets be valued following procedures similar to determining the fair value of assets acquired and liabilities assumed in a business combination. Under ASU 2017-04, goodwill impairment is measured to the extent that the carrying amount of an entity exceeds its fair value. The amendments in this update are effective for the Company’s annual goodwill impairment tests beginning in 2020. The amendments will be applied on a prospective basis. The Company is currently evaluating the impact of this new accounting standard but does not expect a material impact to its financial statements.

 

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, this update shortens the amortization period of certain callable debt securities held at a premium to the earliest call date.  The amendments in this update are effective for the Company’s fiscal year beginning after December 15, 2018, and interim periods within that fiscal year; however, early adoption is permitted.  If early adoption of this update is elected by the Company, any adjustments will be reflected as of the beginning of the fiscal year.  The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and the Company will be required to provide change in accounting principle disclosures.  The Company is currently evaluating the impact of this new accounting guidance and an estimate of the impact to the Company’s financial statements is not known, at this time.

 

 

 

12


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

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored entities

 

$

4,776

 

 

$

50

 

 

$

 

 

$

4,826

 

Residential mortgage-backed securities (issued by

   government-sponsored entities)

 

 

95,523

 

 

 

133

 

 

 

(1,561

)

 

 

94,095

 

Corporate

 

 

3,000

 

 

 

77

 

 

 

 

 

3,077

 

Small Business Administration loan pools

 

 

183

 

 

 

10

 

 

 

 

 

 

193

 

State and political subdivisions

 

 

497

 

 

 

4

 

 

 

 

 

 

501

 

Equity securities

 

 

500

 

 

 

 

 

(14

)

 

 

486

 

 

 

$

104,479

 

 

$

274

 

 

$

(1,575

)

 

$

103,178

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored entities

 

$

4,766

 

 

$

16