eqbk-10q_20190331.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, 2019

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 every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

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

Large accelerated filer            ☐Accelerated filer                    

Non-accelerated filer              ☐                            Smaller reporting company    

Emerging growth company    ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Class A, Common Stock, par value $0.01 per share

Trading Symbol

EQBK

Name of each exchange on which registered

The Nasdaq Stock Market LLC

As of May 14, 2019, the registrant had 15,740,617 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

TABLE OF CONTENTS

 

Part I

Financial Information

5

Item 1.

Financial Statements

5

 

Consolidated Balance Sheets

5

 

Consolidated Statements of Operations

6

 

Consolidated Statements of Comprehensive Income (Loss)

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

38

 

Overview

38

 

Critical Accounting Policies

40

 

Results of Operations

42

 

Financial Condition

47

 

Liquidity and Capital Resources

60

 

Non-GAAP Financial Measures

62

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

65

Item 4.

Controls and Procedures

67

Part II

Other Information

68

Item 1.

Legal Proceedings

68

Item 1A.

Risk Factors

68

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3.

Defaults Upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

68

 

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 20, 2019, 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;

 

the adoption of ASU 2016-13, Financial Instruments – Credit Losses, and its impact on our allowance for loan losses and capital;

 

the effects of new federal tax laws, or changes to existing federal tax laws;

 

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

 

differences in our qualitative factors used in our calculation of the allowance for loan losses from actual results;

 

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;

3


 

 

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;

 

required implementation of new accounting standards that significantly change certain of our existing recognition practices;

 

the occurrence of adverse weather or man-made 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 verbal 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, 2019 and December 31, 2018

(Dollar amounts in thousands)

 

 

 

(Unaudited)

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

167,016

 

 

$

192,735

 

Federal funds sold

 

 

437

 

 

 

83

 

Cash and cash equivalents

 

 

167,453

 

 

 

192,818

 

Interest-bearing time deposits in other banks

 

 

4,742

 

 

 

4,991

 

Available-for-sale securities

 

 

166,355

 

 

 

168,875

 

Held-to-maturity securities, fair value of $752,207 and $739,989

 

 

749,493

 

 

 

748,356

 

Loans held for sale

 

 

2,140

 

 

 

2,972

 

Loans, net of allowance for loan losses of $26,340 and $11,454

 

 

2,592,646

 

 

 

2,563,954

 

Other real estate owned, net

 

 

6,382

 

 

 

6,372

 

Premises and equipment, net

 

 

81,496

 

 

 

80,442

 

Bank-owned life insurance

 

 

73,594

 

 

 

73,105

 

Federal Reserve Bank and Federal Home Loan Bank stock

 

 

22,569

 

 

 

29,214

 

Interest receivable

 

 

16,423

 

 

 

17,372

 

Goodwill

 

 

136,432

 

 

 

131,712

 

Core deposit intangibles, net

 

 

22,296

 

 

 

21,725

 

Other

 

 

23,333

 

 

 

19,808

 

Total assets

 

$

4,065,354

 

 

$

4,061,716

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Demand

 

$

483,107

 

 

$

503,831

 

Total non-interest-bearing deposits

 

 

483,107

 

 

 

503,831

 

Savings, NOW, and money market

 

 

1,737,003

 

 

 

1,611,710

 

Time

 

 

1,040,760

 

 

 

1,007,906

 

Total interest-bearing deposits

 

 

2,777,763

 

 

 

2,619,616

 

Total deposits

 

 

3,260,870

 

 

 

3,123,447

 

Federal funds purchased and retail repurchase agreements

 

 

43,433

 

 

 

50,068

 

Federal Home Loan Bank advances

 

 

264,954

 

 

 

384,898

 

Bank stock loan

 

 

8,500

 

 

 

15,450

 

Subordinated debentures

 

 

14,334

 

 

 

14,260

 

Contractual obligations

 

 

3,964

 

 

 

3,965

 

Interest payable and other liabilities

 

 

15,836

 

 

 

13,687

 

Total liabilities

 

 

3,611,891

 

 

 

3,605,775

 

Commitments and contingent liabilities, see Notes 11 and 12

 

 

 

 

 

 

 

 

Stockholders’ equity, see Note 7

 

 

 

 

 

 

 

 

Common stock

 

 

173

 

 

 

173

 

Additional paid-in capital

 

 

379,931

 

 

 

379,085

 

Retained earnings

 

 

95,868

 

 

 

101,326

 

Accumulated other comprehensive loss

 

 

(2,767

)

 

 

(4,867

)

Employee stock loans

 

 

(87

)

 

 

(121

)

Treasury stock

 

 

(19,655

)

 

 

(19,655

)

Total stockholders’ equity

 

 

453,463

 

 

 

455,941

 

Total liabilities and stockholders’ equity

 

$

4,065,354

 

 

$

4,061,716

 

See accompanying condensed notes to interim consolidated financial statements.

5


 

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months ended March 31, 2019 and 2018

(Dollar amounts in thousands, except per share data)

 

 

(Unaudited)

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Interest and dividend income

 

 

 

 

 

 

 

 

Loans, including fees

 

$

36,533

 

 

$

29,048

 

Securities, taxable

 

 

5,082

 

 

 

3,723

 

Securities, nontaxable

 

 

953

 

 

 

879

 

Federal funds sold and other

 

 

634

 

 

 

473

 

Total interest and dividend income

 

 

43,202

 

 

 

34,123

 

Interest expense

 

 

 

 

 

 

 

 

Deposits

 

 

10,730

 

 

 

4,718

 

Federal funds purchased and retail repurchase agreements

 

 

32

 

 

 

23

 

Federal Home Loan Bank advances

 

 

1,305

 

 

 

1,299

 

Bank stock loan

 

 

162

 

 

 

27

 

Subordinated debentures

 

 

334

 

 

 

269

 

Total interest expense

 

 

12,563

 

 

 

6,336

 

Net interest income

 

 

30,639

 

 

 

27,787

 

Provision for loan losses

 

 

15,646

 

 

 

1,170

 

Net interest income after provision for loan losses

 

 

14,993

 

 

 

26,617

 

Non-interest income

 

 

 

 

 

 

 

 

Service charges and fees

 

 

1,923

 

 

 

1,580

 

Debit card income

 

 

1,738

 

 

 

1,253

 

Mortgage banking

 

 

317

 

 

 

313

 

Increase in value of bank-owned life insurance

 

 

488

 

 

 

652

 

Net gain (loss) from securities transactions

 

 

6

 

 

 

(8

)

Other

 

 

852

 

 

 

461

 

Total non-interest income

 

 

5,324

 

 

 

4,251

 

Non-interest expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

14,098

 

 

 

10,891

 

Net occupancy and equipment

 

 

1,967

 

 

 

1,802

 

Data processing

 

 

2,405

 

 

 

1,674

 

Professional fees

 

 

1,156

 

 

 

715

 

Advertising and business development

 

 

646

 

 

 

619

 

Telecommunications

 

 

585

 

 

 

369

 

FDIC insurance

 

 

278

 

 

 

244

 

Courier and postage

 

 

327

 

 

 

255

 

Free nationwide ATM cost

 

 

361

 

 

 

292

 

Amortization of core deposit intangibles

 

 

779

 

 

 

384

 

Loan expense

 

 

268

 

 

 

346

 

Other real estate owned

 

 

112

 

 

 

268

 

Merger expenses

 

 

639

 

 

 

531

 

Other

 

 

1,922

 

 

 

1,237

 

Total non-interest expense

 

 

25,543

 

 

 

19,627

 

Income (loss) before income taxes

 

 

(5,226

)

 

 

11,241

 

Provision for income taxes

 

 

(1,153

)

 

 

2,530

 

Net income (loss) and net income (loss) allocable to common stockholders

 

$

(4,073

)

 

$

8,711

 

Basic earnings (loss) per share

 

$

(0.26

)

 

$

0.60

 

Diluted earnings (loss) per share

 

$

(0.26

)

 

$

0.58

 

See accompanying condensed notes to interim consolidated financial statements.

6


 

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three Months ended March 31, 2019 and 2018

(Dollar amounts in thousands)

 

 

 

(Unaudited)

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Net income (loss)

 

$

(4,073

)

 

$

8,711

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period on

   available-for-sale securities

 

 

2,520

 

 

 

(2,937

)

Amortization of unrealized losses on held-to-maturity securities

 

 

293

 

 

 

119

 

Total other comprehensive income (loss)

 

 

2,813

 

 

 

(2,818

)

Tax effect

 

 

(713

)

 

 

714

 

Other comprehensive income (loss), net of tax

 

 

2,100

 

 

 

(2,104

)

Comprehensive income (loss)

 

$

(1,973

)

 

$

6,607

 

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, 2019 and 2018

(Unaudited)

(Dollar amounts in thousands, except share data)

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Employee

 

 

 

 

 

 

Total

 

 

 

Shares

Outstanding

 

 

Amount

 

 

Paid-In

Capital

 

 

Retained

Earnings

 

 

Comprehensive

Income (Loss)

 

 

Stock

Loans

 

 

Treasury

Stock

 

 

Stockholders’

Equity

 

Balance at January 1, 2018

 

 

14,605,607

 

 

$

161

 

 

$

331,339

 

 

$

65,512

 

 

$

(3,092

)

 

$

(121

)

 

$

(19,655

)

 

$

374,144

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

8,711

 

 

 

 

 

 

 

 

 

 

 

 

8,711

 

Other comprehensive loss, net of tax effects

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,104

)

 

 

 

 

 

 

 

 

(2,104

)

Stock based compensation

 

 

 

 

 

 

 

 

718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

718

 

Common stock issued upon exercise of stock options

 

 

1,250

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

Common stock issued under stock-based incentive plan

 

 

2,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adoption of ASU 2016-01 reclassifying AFS equity securities with readily determined fair value

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

11

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

 

 

14,609,414

 

 

$

161

 

 

$

332,075

 

 

$

74,212

 

 

$

(5,185

)

 

$

(121

)

 

$

(19,655

)

 

$

381,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

 

15,793,095

 

 

$

173

 

 

$

379,085

 

 

$

101,326

 

 

$

(4,867

)

 

$

(121

)

 

$

(19,655

)

 

$

455,941

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(4,073

)

 

 

 

 

 

 

 

 

 

 

 

(4,073

)

Other comprehensive income,

   net of tax effects

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,100

 

 

 

 

 

 

 

 

 

2,100

 

Stock based compensation

 

 

 

 

 

 

 

 

734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

734

 

Common stock issued upon exercise of stock options

 

 

6,100

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

112

 

Common stock issued under stock-based incentive plan

 

 

21,108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayment on employee stock loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

34

 

Cumulative effect of change in accounting principle from implementation of ASU 2017-08

 

 

 

 

 

 

 

 

 

 

 

(1,385

)

 

 

 

 

 

 

 

 

 

 

 

(1,385

)

Balance at March 31, 2019

 

 

15,820,303

 

 

$

173

 

 

$

379,931

 

 

$

95,868

 

 

$

(2,767

)

 

$

(87

)

 

$

(19,655

)

 

$

453,463

 

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, 2019 and 2018

(Dollar amounts in thousands, except per share data)

 

 

 

(Unaudited)

March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(4,073

)

 

$

8,711

 

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

734

 

 

 

718

 

Depreciation

 

 

863

 

 

 

689

 

Amortization of operating lease right of use asset

 

 

148

 

 

 

 

Amortization of cloud computing implementation costs

 

 

20

 

 

 

 

Provision for loan losses

 

 

15,646

 

 

 

1,170

 

Net (accretion) amortization of purchase accounting adjustments

 

 

(1,233

)

 

 

(1,047

)

Amortization of premiums and discounts on securities

 

 

1,288

 

 

 

755

 

Amortization of intangibles

 

 

791

 

 

 

396

 

Deferred income taxes

 

 

(14

)

 

 

(19

)

FHLB stock dividends

 

 

(184

)

 

 

(254

)

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

 

 

(21

)

 

 

(182

)

Change in unrealized loss (gain) on equity securities

 

 

(6

)

 

 

8

 

Loss (gain) on disposal of premise and equipment

 

 

(10

)

 

 

(192

)

Loss (gain) on sale of foreclosed assets

 

 

15

 

 

 

 

Loss (gain) on sales of loans

 

 

(260

)

 

 

(256

)

Originations of loans held for sale

 

 

(11,448

)

 

 

(10,296

)

Proceeds from the sale of loans held for sale

 

 

12,540

 

 

 

11,064

 

Increase in the value of bank-owned life insurance

 

 

(488

)

 

 

(652

)

Change in fair value of derivatives recognized in earnings

 

 

(1,342

)

 

 

(4

)

Payments on operating lease payable

 

 

(222

)

 

 

 

Net change in:

 

 

 

 

 

 

 

 

Interest receivable

 

 

965

 

 

 

(80

)

Other assets

 

 

(156

)

 

 

1,034

 

Interest payable and other liabilities

 

 

(803

)

 

 

(1,377

)

Net cash provided by (used in) operating activities

 

 

12,750

 

 

 

10,186

 

Cash flows from (to) investing activities

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

 

 

 

(20,498

)

Purchases of held-to-maturity securities

 

 

(27,022

)

 

 

 

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

 

 

4,602

 

 

 

4,447

 

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

 

 

23,942

 

 

 

13,963

 

Net change in interest-bearing time deposits in other banks

 

 

249

 

 

 

 

Net change in loans

 

 

(36,465

)

 

 

(17,183

)

Purchase of premises and equipment

 

 

(1,261

)

 

 

(814

)

Proceeds from sale of premise and equipment

 

 

10

 

 

 

1,194

 

Proceeds from sale of foreclosed assets

 

 

73

 

 

 

35

 

Net redemption (purchase) of FHLB and FRB stock

 

 

6,829

 

 

 

(810

)

Proceeds from sale of other real estate owned

 

 

121

 

 

 

1,202

 

Proceeds from bank-owned life insurance death benefits

 

 

 

 

 

346

 

Cash paid for acquisition of Eastman

 

 

 

 

 

(55

)

Net cash received from acquisition of MidFirst locations

 

 

85,360

 

 

 

 

Net cash provided by (used in) investing activities

 

 

56,438

 

 

 

(18,173

)

Cash flows from (to) financing activities

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

38,824

 

 

 

(13,770

)

Net change in federal funds purchased and retail repurchase agreements

 

 

(6,635

)

 

 

4,609

 

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

 

 

(119,429

)

 

 

8,144

 

Principal payments on Federal Home Loan Bank term advances

 

 

(509

)

 

 

 

9


 

Principal payments on bank stock loan

 

 

(6,950

)

 

 

(62

)

Principal payments on employee stock loans

 

 

34

 

 

 

 

Proceeds from the exercise of employee stock options

 

 

112

 

 

 

18

 

Net change in contractual obligations

 

 

 

 

 

(1

)

Net cash provided by (used in) financing activities

 

 

(94,553

)

 

 

(1,062

)

Net change in cash and cash equivalents

 

 

(25,365

)

 

 

(9,049

)

Cash and cash equivalents, beginning of period

 

 

192,818

 

 

 

52,195

 

Ending cash and cash equivalents

 

$

167,453

 

 

$

43,146

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

11,418

 

 

$

6,021

 

Income taxes paid, net of refunds

 

 

 

 

 

 

Supplemental noncash disclosures:

 

 

 

 

 

 

 

 

Other real estate owned acquired in settlement of loans

 

 

111

 

 

 

203

 

Operating leases recognized

 

 

3,546

 

 

 

 

Total fair value of assets acquired in purchase of MidFirst locations

 

 

13,246

 

 

 

 

Total fair value of liabilities acquired in purchase of MidFirst locations

 

 

98,606

 

 

 

 

 

See accompanying condensed notes to interim consolidated financial statements.

 

10


 

EQUITY BANCSHARES, INC.

CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(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 subsidiaries, EBAC, LLC and 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, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 20, 2019.  Operating results for the three months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, or any other period.

Reclassifications

Some items in prior financial statements were reclassified to conform to the current presentation.  Management determined the items reclassified are immaterial to the consolidated financial statements taken as a whole and did not result in a change in equity or net income for the periods reported.

Adoption of New Accounting Standards

In February 2016, FASB issued ASU 2016-02, Leases, with the intention of improving financial reporting about leasing transactions.  The ASU required all lessees to recognize lease assets and lease liabilities on the balance sheet.  Lessor accounting was 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 was 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.  This accounting pronouncement was further modified in July 2018 with the issuance of ASU 2018-11, Leases – Targeted Improvements, to allow for another transition method by applying a cumulative-effect adjustment to opening retained earnings at adoption and providing lessors a practical expedient to not separate non-lease and lease components in certain circumstances.  The Company adopted this accounting standard effective January 1, 2019, and elected to record the adoption through a cumulative-effect adjustment at January 1, 2019 which resulted in the Company recording $3,251 in right of use assets and $3,251 of operating lease liabilities.  In addition, the Company elected the following practical expedients to all leases that commenced prior to January 1, 2019: (1) No reassessment of lease populations as long as the contract was properly scoped as a lease or not a lease under ASC 840; (2) No reassessment of existing lease classification; (3) No adjustment of existing costs.

In March 2017, FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities.  This update shortened the amortization period of certain callable debt securities held at a premium to the earliest call date.  The amendments in this update was effective for the Company’s fiscal year beginning after December 15, 2018, and interim periods within that fiscal year, however, early adoption was permitted.  If early adoption of this update was elected by the Company, any adjustments will be reflected as of the beginning of the fiscal year.  The amendments were applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings.  The Company adopted this accounting standard effective January 1, 2019, which resulted in the Company recording a $1,385 reduction in the amortized cost of investment securities and retained earnings.

In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities, with the stated objective of improving the financial reporting of hedging relationships to better reflect the economics of hedging transactions and to simplify the application of hedge accounting.  The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Potential effects on the Company’s current hedging activities

11


 

included eliminating the requirement to separately measure and report hedge ineffectiveness, providing additional flexibility for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk and easing certain hedge documentation and assessment requirements.  The adoption of  this accounting standard did not materially impact the Company’s financial statements but did result in changes to financial statement disclosures and changes to existing and future swap documentation.

In August 2018, FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.  This update required implementation costs of hosting arrangements that are considered a service contract to be capitalized.  The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Early adoption of the amendments in this update is permitted, including adoption in any interim period, for all entities.  The Company adopted this accounting standard effective October 1, 2018 and resulted in the Company capitalizing $311 of implementation costs during 2018.

Recent Accounting Pronouncements

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 evaluating 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 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.

 

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 (loss) are listed below.

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities (issued by

   government-sponsored entities)

 

$

168,463

 

 

$

151

 

 

$

(2,259

)

 

$

166,355

 

 

 

$

168,463

 

 

$

151

 

 

$

(2,259

)

 

$

166,355

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities (issued by

   government-sponsored entities)

 

$

173,503

 

 

$

12

 

 

$

(4,640

)

 

$

168,875

 

 

 

$

173,503

 

 

$

12

 

 

$

(4,640

)

 

$

168,875

 

 

12


 

The amortized cost and fair value of held-to-maturity securities and the related gross unrecognized gains and losses are listed in the following table.

 

 

 

Amortized

Cost

 

 

Gross

Unrecognized

Gains

 

 

Gross

Unrecognized

Losses

 

 

Fair

Value

 

March 31, 2019