Equity Bancshares, Inc. Second Quarter Results Highlighted by Record Net Interest Income and Net Interest Margin Expansion

Reports NIM of 3.94%, Announces Merger with KansasLand Bancshares, Inc., Adding to Kansas Franchise

Equity Bancshares, Inc. (NYSE:EQBK), ("Equity", "the Company", "we," "us," "our"), the Wichita-based holding company of Equity Bank, reported net income of $11.7 million or $0.76 earnings per diluted share for the quarter ended June 30, 2024. Adjusting to exclude $2.3 million in costs associated with mergers and $1.7 million in costs associated with the surrender and re-positioning of bank owned life insurance ("BOLI"), net income was $15.3 million or $0.99 per diluted share.

"Our Company realized another excellent quarter driven by a continued increase in margin," said Brad S. Elliott, Chairman and CEO of Equity. "Our team continued to capitalize on opportunities to enhance customer relationships and build stockholder value as we look to leverage our balance sheet position to grow our franchise."

"In addition, during the quarter, our team effectively merged core systems following the Bank of Kirksville transaction while also analyzing, negotiating, and subsequently closing our acquisition of KansasLand Bank," Mr. Elliott said. "We continue to be positioned to facilitate strategic M&A. We have the teams, the processes and the experience to be the preferred consolidation partner in our geography."

Notable Items:

• The Company realized earnings per diluted share of $0.99, adjusted to exclude merger expenses of $2.3 million and $1.7 million in surrender costs related to repositioning of BOLI contracts.
• The Company integrated the operations of its previously completed merger with Rockhold Bancshares, Inc., while also announcing and subsequently closing (July 1) its merger with KansasLand Bancshares, Inc.
• The Company realized expansion in net interest income and net interest margin, as the benefits of previously announced strategic transactions continued to be realized. Total net interest income for the quarter was $46.5 million, an all-time high for the Company.
• The Company was active in its share repurchase plan during the quarter, purchasing 152,982 shares at a weighted average cost of $33.35. Under the repurchase plan announced in the fourth quarter of 2023, 637,427 shares remain available for purchase.
• Classified assets as a percentage of total risk based capital at Equity Bank closed the period at 8.5% while non-performing assets remained historically low. The allowance for credit losses closed the quarter at 1.3% of total loans.

Financial Results for the Quarter Ended June 30, 2024

Net income allocable to common stockholders was $11.7 million, or $0.76 per diluted share. Excluding merger expenses and the costs associated with repositioning a portion of our BOLI portfolio, net income was $15.3 million, or $0.99 per diluted share. Excluding the impact of the merger expenses and opening balance sheet provisioning for Bank of Kirksville balances, operating net income for the previous quarter was $16.1 million. The drivers of the periodic change are discussed in detail in the following sections.

Net Interest Income

Net interest income was $46.5 million for the period, as compared to $44.2 million for the three months ended March 31, 2024, the increase was driven by increasing average assets as well as a positive trend in margin. Net interest margin increased to 3.94% from 3.75% as the yield on interest-earning assets increased 28 basis points to 6.37% and the cost of interest-bearing deposits remained materially consistent at 2.78%. Total cost of deposits declined during the quarter to 2.14%, while utilization of debt and associated costs increased. Total cost of interest-bearing liabilities expanded 10 bps to 3.09%.

The earning asset improvement was driven by the continued increase in originated and re-priced loan coupons, loan and investment assets added through the Bank of Kirksville merger and the expiration of a receive-fixed swap during the quarter. Deposits acquired from the Bank of Kirksville contributed to maintaining cost of interest-bearing deposits and dropping total cost of deposits.

Provision for Credit Losses

During the quarter, there was a provision of $265 thousand compared to a provision of $1.0 million in the previous quarter. The provision was attributable to charge-offs realized during the period. The Company continues to estimate the allowance for credit loss with assumptions that anticipate slower prepayment rates and continued market disruption caused by elevated inflation, supply chain issues and the impact of monetary policy on consumers and businesses. During the quarter, we realized net charge-offs of $1.2 million as compared to $667 thousand for the previous quarter.

Non-Interest Income

Total non-interest income was $9.0 million for the quarter, as compared to $11.7 million for the three months ended March 31, 2024. The previous quarter included $1.2 million in gain on acquisition and $2.3 million in gains on resolution of special assets that did not repeat in the current quarter. Excluding these items non-interest income increased $777 thousand during the quarter, driven by increased service fee revenue including deposit services, treasury, debit card, credit card, insurance and wealth management.

Non-Interest Expense

Total non-interest expense for the quarter was $38.9 million as compared to $37.1 million for the previous quarter. Adjusting for merger expenses in both periods, the increase quarter over quarter was $1.0 million driven by the addition of Bank of Kirksville, including $320 thousand in intangible amortization as well as additional salary, technology and facility expenses.

The conversion of systems following the acquisition of Bank of Kirksville was completed in the second quarter.

Income Tax Expense

The effective tax rate for the quarter was 28.1% as compared to 20.8% for the quarter ended March 31, 2024. The increase in rate during the quarter was the result of an $11.5 million tax gain and related penalty recognized in our annual effective tax rate due to the surrender of BOLI. The impact of this transaction was partially offset by tax benefit related to a new investment in tax credit structures made by the Company in the quarter. The tax rate in the second quarter, normalized to exclude the impact of the BOLI surrender, would have been 17.5%.

Loans, Total Assets and Funding

Loans held for investment were $3.5 billion at June 30, 2024, decreasing $27.8 million during the quarter. Total assets were $5.2 billion as of the end of the period, increasing $6.5 million during the quarter.

Total deposits were $4.3 billion at June 30, 2024, decreasing $29.6 million from the previous quarter end. Of the total deposit balance, non-interest-bearing accounts comprise approximately 22.7%. Total Federal Home Loan Bank borrowings were $250.3 million as of the end of the quarter, up $30.4 million as compared to March 31, 2024.

Asset Quality

As of June 30, 2024, Equity's allowance for credit losses to total loans remained materially consistent at 1.3% as compared to March 31, 2024. Nonperforming assets were $27.2 million as of June 30, 2024, or 0.5% of total assets, compared to $25.4 million at March 31, 2024, or 0.5% of total assets. Non-accrual loans were $26.6 million at June 30, 2024, as compared to $24.2 million at March 31, 2024. Total classified assets, including loans rated special mention or worse, other real estate owned, excluding previous branch locations, and other repossessed assets were $48.4 million, or 8.47% of regulatory capital, up from $39.2 million, or 6.9% of regulatory capital as of March 31, 2024.

Capital

Quarter over quarter, book capital increased $4.7 million to $461.4 million and tangible capital increased $5.9 million to $390.7 million. The increase in capital is primarily due to earnings, partially offset by treasury share purchases of $5.2 million, increase in unrealized loss on bonds and cash flow hedges of $1.2 million and dividends declared of $1.9 million. Tangible capital was also positively affected by the amortization of core deposit intangibles during the quarter.

The Company's ratio of common equity tier 1 capital to risk-weighted assets was 11.1%, the total capital to risk-weighted assets was 14.6% and the total leverage ratio was 9.1% at June 30, 2024. At March 31, 2024, the Company's common equity tier 1 capital to risk-weighted assets ratio was 11.1%, the total capital to risk-weighted assets ratio was 14.7% and the total leverage ratio was 9.1%.

Equity Bank's ratio of common equity tier 1 capital to risk-weighted assets was 12.9%, total capital to risk-weighted assets was 14.0% and the total leverage ratio was 10.1% at June 30, 2024. At March 31, 2024, Equity Bank's ratio of common equity tier 1 capital to risk-weighted assets was 13.2%, the ratio of total capital to risk-weighted assets was 14.3% and the total leverage ratio was 10.2%.

Non-GAAP Financial Measures

In addition to evaluating the Company's results of operations in accordance with accounting principles generally accepted in the United States of America ("GAAP"), management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures that are intended to provide the reader with additional perspectives on operating results, financial condition and performance trends, while facilitating comparisons with the performance of other financial institutions. Non-GAAP financial measures are not a substitute for GAAP measures, rather, they should be read and used in conjunction with the Company's GAAP financial information.

The efficiency ratio is a common comparable metric used by banks to understand the expense structure relative to total revenue. In other words, for every dollar of total revenue recognized, how much of that dollar is expended. To improve the comparability of the ratio to our peers, non-core items are excluded. To improve transparency and acknowledging that banks are not consistent in their definition of the efficiency ratio, we include our calculation of this non-GAAP measure.

Return on average assets before income tax provision and provision for loan losses is a measure that the Company uses to understand fundamental operating performance before these expenses. Used as a ratio relative to average assets, we believe it demonstrates "core" performance and can be viewed as an alternative measure of how efficiently the Company services its asset base. Used as a ratio relative to average equity, it can function as an alternative measure of the Company's earnings performance in relationship to its equity.

Tangible common equity and related measures are non-GAAP financial measures that exclude the impact of intangible assets, net of deferred taxes, and their related amortization. These financial measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. Return on average tangible common equity is used by management and readers of our financial statements to understand how efficiently the Company is deploying its common equity. Companies that are able to demonstrate more efficient use of common equity are more likely to be viewed favorably by current and prospective investors.

The Company believes that disclosing these non-GAAP financial measures is both useful internally and is expected by our investors and analysts in order to understand the overall performance of the Company. Other companies may calculate and define their non-GAAP financial measures and supplemental data differently. A reconciliation of GAAP financial measures to non-GAAP measures and other performance ratios, as adjusted, are included in Table 6 in the following press release tables.

Conference Call and Webcast

Equity's Chairman and Chief Executive Officer, Brad Elliott, and Chief Financial Officer, Chris Navratil, will hold a conference call and webcast to discuss second quarter results on Wednesday, July 17, 2024, at 10 a.m. eastern time or 9 a.m. central time.

A live webcast of the call will be available on the Company's website at investor.equitybank.com. To access the call by phone, please go to this registration link, and you will be provided with dial in details. Investors, news media, and other participants are encouraged to dial into the conference call ten minutes ahead of the scheduled start time.

A replay of the call and webcast will be available two hours following the close of the call until August 1, 2024, accessible at investor.equitybank.com.

About Equity Bancshares, Inc.

Equity Bancshares, Inc. is the holding company for Equity Bank, offering a full range of financial solutions, including commercial loans, consumer banking, mortgage loans, trust and wealth management services and treasury management services, while delivering the high-quality, relationship-based customer service of a community bank. Equity's common stock is traded on the NYSE National, Inc. under the symbol "EQBK." Learn more at www.equitybank.com.

Special Note Concerning Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect the current views of Equity's management with respect to, among other things, future events and Equity's 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," "positioned," "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 Equity's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond Equity's control. Accordingly, Equity cautions 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 Equity believes 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. Factors that could cause actual results to differ materially from Equity's expectations include competition from other financial institutions and bank holding companies; the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; changes in the demand for loans; fluctuations in value of collateral and loan reserves; inflation, interest rate, market and monetary fluctuations; changes in consumer spending, borrowing and savings habits; and acquisitions and integration of acquired businesses; and similar variables. The foregoing list of factors is not exhaustive.

For discussion of these and other risks that may cause actual results to differ from expectations, please refer to "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in Equity's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 7, 2024, and any updates to those risk factors set forth in Equity's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if Equity's underlying assumptions prove to be incorrect, actual results may differ materially from what Equity anticipates. 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 Equity does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. 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, Equity cannot assess the impact of each factor on Equity's 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 press release 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 Equity or persons acting on Equity's behalf may issue.

Unaudited Financial Tables

• Table 1. Consolidated Statements of Income
• Table 2. Quarterly Consolidated Statements of Income
• Table 3. Consolidated Balance Sheets
• Table 4. Selected Financial Highlights
• Table 5. Year-To-Date Net Interest Income Analysis
• Table 6. Quarter-To-Date Net Interest Income Analysis
• Table 7. Quarter-Over-Quarter Net Interest Income Analysis
• Table 8. Non-GAAP Financial Measures