Business Overview and History
Equity Bancshares Inc (EQBK) is a financial holding company headquartered in Wichita, Kansas, that operates a community banking subsidiary, Equity Bank. With a focus on serving businesses, business owners, and individuals across Arkansas, Kansas, Missouri, and Oklahoma, Equity Bancshares has steadily grown its presence and positioned itself as a premier community bank in the Midwest.
Equity Bancshares was founded in 1995 and has since expanded through both organic growth and strategic acquisitions. The company's first bank acquisition was completed in 2002 with the purchase of Emporia National Bank & Trust, which allowed Equity to expand its presence in Kansas. Over the following decade, Equity Bancshares continued its growth through additional bank acquisitions in Kansas, Missouri, and Arkansas.
In 2019, the company faced a significant challenge when it was impacted by losses related to a large borrower default. Equity Bancshares recorded substantial impairment charges and other one-time costs associated with this issue. However, the company's management team was able to work through the problem, recovering a significant portion of the defaulted loan in 2024. This recovery provided a positive boost to Equity's financial performance during the third quarter of 2024.
In 2024, the company completed two notable mergers - the acquisition of Rockhold BanCorp, the holding company of Bank of Kirksville, and the acquisition of KansasLand Bancshares, the parent company of KansasLand Bank. These transactions added eight branch locations in Missouri and two in Kansas, further strengthening Equity's footprint in its home state. The successful integration of these acquisitions demonstrated Equity's expertise in executing strategic M&A.
As of September 30, 2024, Equity Bancshares reported total assets of $5.36 billion, total loans of $3.60 billion, and total deposits of $4.36 billion. The company's loan portfolio is diversified across commercial real estate (53.2%), commercial and industrial (18.6%), residential real estate (15.8%), and other loan types. Equity Bank operates 71 full-service banking locations, serving a customer base that includes businesses, business owners, and individuals.
Financial Performance and Ratios
Equity Bancshares has consistently delivered solid financial results, showcasing its ability to navigate various economic environments. For the nine months ended September 30, 2024, the company reported net income of $45.6 million, or $2.95 per diluted share. This represented a 9.5% increase in net income compared to the same period in 2023.
For the third quarter of 2024, Equity Bancshares reported net income allocable to common stockholders of $19.85 million, or $1.28 per diluted share, up from $12.34 million, or $0.80 per diluted share, in the same period of 2023. Adjusting for merger expenses and security gains, net income was $20.2 million or $1.31 per diluted share for Q3 2024.
The company's net interest margin, a key metric for banks, was 3.85% for the nine months ended September 30, 2024, up from 3.44% in the same period of 2023. This improvement was driven by a combination of higher-yielding loans and disciplined management of the company's funding costs. In Q3 2024, the net interest margin was 3.87%, compared to 3.94% in the prior quarter and 3.51% in Q3 2023.
Equity Bancshares' efficiency ratio, which measures non-interest expense as a percentage of revenue, stood at 62.0% for the nine-month period, an improvement from 69.3% in the prior-year period.
In terms of asset quality, Equity Bancshares' non-performing assets to total assets ratio was 0.60% as of September 30, 2024, up slightly from 0.53% at the end of 2023. The company's allowance for credit losses to total loans ratio was 1.21% at the end of the third quarter of 2024, reflecting its prudent approach to credit risk management. Total classified loans stood at 8.3% of total regulatory capital, and non-accrual loans were 0.87% of total loans, indicating strong asset quality metrics.
Financials
Equity Bancshares maintains a strong capital position, with a total risk-based capital ratio of 14.78% and a Tier 1 leverage ratio of 9.55% as of September 30, 2024. These metrics exceed the regulatory thresholds for a "well-capitalized" designation, providing the company with the flexibility to pursue growth opportunities while maintaining a solid financial foundation.
For the most recent quarter ended September 30, 2024, Equity Bancshares reported revenue of $38.82 million, net income of $19.85 million, operating cash flow of $23.48 million, and free cash flow of $26.34 million. The company experienced year-over-year growth in the most recent quarter.
Liquidity
The company's strong liquidity position is reflected in its diverse funding sources and robust deposit base. With total deposits of $4.36 billion as of September 30, 2024, Equity Bancshares has a stable foundation to support its lending activities and growth initiatives.
Loan Portfolio and Business Segments
Equity Bancshares' loan portfolio is well-diversified across several key segments:
1. Commercial Real Estate Loans: This segment represents the largest portion of the loan portfolio at 53.2%, totaling $1.92 billion. It includes loans secured by non-farm, non-residential properties and multi-family residential properties.
2. Commercial and Industrial Loans: These loans, used by businesses for various financing needs, made up 18.6% of the total loan portfolio, amounting to $670.66 million.
3. Residential Real Estate Loans: Secured by primary or secondary personal residences, these loans accounted for 15.8% of the total loan portfolio, or $567.06 million.
4. Agricultural Real Estate and Agricultural Loans: Agricultural real estate loans related to farmland accounted for 7.2% of total loans at $259.59 million, while agricultural operating loans made up 2.5% of the portfolio at $89.53 million.
5. Consumer Loans: This segment, which includes installment loans, personal lines of credit, and other consumer-focused products, represented 2.7% of total loans at $97.22 million.
Outlook and Growth Strategies
Looking ahead, Equity Bancshares is well-positioned to continue its growth trajectory. The company has outlined plans to achieve mid- to high-single-digit organic loan growth in 2024 and 2025, driven by its focus on relationship-based banking and a disciplined approach to loan originations. This growth projection is supported by a strong pipeline of potential business.
For Q4 2024, Equity Bancshares is forecasting a provision for credit losses of approximately 12 basis points to average loans. The company continues to hold reserves for potential economic challenges, demonstrating a prudent approach to risk management.
Looking into 2025, Equity Bancshares expects to continue experiencing the effects of lagging repricing in both loan and deposit portfolios. The company anticipates some modest cost savings opportunities in Q4 2024, including areas like salaries/benefits and data processing, which should contribute to improved operational efficiency.
Additionally, Equity Bancshares remains active in the mergers and acquisitions (M&A) space, with a robust pipeline of potential transactions. The company's experienced management team and successful track record of integrating acquired operations position Equity Bancshares as an attractive partner for banks seeking liquidity or strategic growth opportunities.
The company remains optimistic about its ability to maintain and grow its deposit base in its current markets, allowing for further balance sheet and earnings growth in 2025 and beyond.
Risks and Challenges
As with any financial institution, Equity Bancshares faces certain risks and challenges that could impact its future performance. These include interest rate risk, credit risk, regulatory changes, and the potential for economic downturns in its core markets. The company's ability to effectively manage these risks will be crucial to its continued success.
Conclusion
Equity Bancshares has established itself as a well-respected community banking franchise in the Midwest, characterized by its consistent financial performance, prudent risk management, and strategic growth initiatives. With a focus on serving the banking needs of businesses, business owners, and individuals, the company is well-positioned to continue delivering value to its shareholders. As Equity Bancshares navigates the evolving banking landscape, investors should closely monitor the company's progress in executing its growth strategies and maintaining its solid financial foundation.
The company's diverse loan portfolio, spanning commercial, real estate, agricultural, and consumer segments, has contributed to its stable financial performance. The improvements in net interest margin and earnings per share highlight Equity Bancshares' ability to effectively manage its balance sheet and operations in the current market environment. With a strong capital position, robust liquidity, and a clear strategy for organic and acquisitive growth, Equity Bancshares appears well-equipped to capitalize on opportunities in its target markets and drive long-term shareholder value.