Equity Bancshares (EQBK) Clears Final Regulatory Hurdle Needed to Close Community First Bancshares Merger; Moves to Acquire Prairie State Bancshares

October 20, 2016 4:57 PM EDT
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Equity Bancshares, Inc. (Nasdaq: EQBK), the Wichita-based holding company of Equity Bank, announced it has received the necessary regulatory approvals to consummate its acquisition of Community First Bancshares, Inc. (“CFBI”) of Harrison, Arkansas. Equity expects the transaction to close on November 10, 2016, pending Equity stockholder approval and CFBI shareholder approval.

Equity also announced it has entered into a definitive merger agreement to acquire all the common stock of Prairie State Bancshares, Inc. (“Prairie”), headquartered in Hoxie, Kansas, the holding company of State Bank. Prairie conducts business through three State Bank branches located in Hoxie, Grinnell, and Quinter, Kansas. Following the consummation of the transaction, State Bank will merge with and into Equity Bank, subject to receipt of customary regulatory approvals and closing conditions, including Prairie shareholder approval. The merger is expected to be completed in the first quarter of 2017. As of June 30, 2016, Prairie had consolidated total assets of $149 million, $135 million in loans, and $129 million in deposits. According to FDIC data as of June 30, 2016, Prairie ranks No. 1 in deposit market share in Sheridan County, Kansas, and No. 2 in market share in Gove County, Kansas. Following completion of the merger, Prairie’s three branches will become Equity Bank branches.

Equity also reported its unaudited results for the nine months ended September 30, 2016, including net income allocable to common stockholders of $9.0 million, a 17.6% increase, compared to net income allocable to common stockholders of $7.6 million for the nine months ended September 30, 2015.

Brad Elliott, Chairman and CEO of Equity, said “We continue to seek, add, and integrate outstanding community banks into our growing Equity Bank network, while delivering commercial and community banking solutions that fit a wide range of customers. Once the CFBI transaction is completed, we expect these new Equity Bank locations to bolster a strong bank network, and provide service and solutions to vibrant community banking markets in Arkansas. We’re also pleased to partner with a bank dedicated to community banking in Western Kansas, with a strong track record in agricultural lending, local service and with strong leadership teams in place, who are committed to their local communities. As always, our teams remain focused on integrating merger and acquisition opportunities within a compressed timeframe, while maintaining organic growth. It’s Equity’s mission to continue serving as the best of both worlds: providing innovative and sophisticated products and services delivered through the hometown feel of a community bank.”

“We’re pleased to find a partner dedicated to the continued service to our Western Kansas communities,” said Michael C. Mense, CEO of Prairie. “Equity shares our approach to local decision making and straightforward customer service, and shares the values of a Kansas-based community bank. Our customers will benefit from the additional products and services of a strong, statewide bank network.”

Equity Announces Regulatory Approval of CFBI Acquisition

On July 14, 2016, Equity entered into a definitive agreement pursuant to which Equity will acquire CFBI through the merger of CFBI with and into Equity, with Equity surviving the merger. Equity received the necessary regulatory approvals and expects the transaction to close on November 10, 2016, pending approvals by CFBI and Equity stockholders. It is anticipated that promptly after the merger of CFBI into Equity, Community First Bank will merge with and into Equity Bank, with Equity Bank surviving the merger.

CFBI, headquartered in Harrison, Arkansas, is the holding company of Community First Bank and its five branch locations in Arkansas: Harrison (2), Berryville, Eureka Springs, and Pea Ridge. According to FDIC data as of June 30, 2016, CFBI ranks first in deposit market share in Harrison and in the top four within each of the communities it serves. As of June 30, 2016, CFBI had total assets of $495 million, net loans of $370 million, and $384 million in deposits.

The merger with CFBI adds a third state to Equity’s footprint. At the close of the transaction, Equity will have approximately $2.0 billion in assets and 34 branch offices across its three-state footprint of Arkansas, Kansas and Missouri. The combined institution is expected to include $1.6 billion in deposits and $1.3 billion in loans.

Equity expects the merger to be approximately 26% accretive to diluted earnings per share in 2017, and 25% accretive to earnings per share in 2018, with transaction-related and one-time costs of approximately $6.6 million. Equity expects the merger to be approximately 9.0% dilutive to tangible book value per share at closing, inclusive of the estimated purchase accounting adjustments, and expects the tangible book value earnback to be approximately 3.5 years. Finally, Equity expects to remain above all “Well Capitalized” capital ratios as defined by regulatory guidelines, inclusive of the impact of all estimated purchase accounting adjustments.

Equity Announces Definitive Agreement to Acquire Prairie

Equity announced today it has entered into a definitive merger agreement to acquire all the common stock of Prairie State Bancshares, Inc., of Hoxie, Kansas, the holding company of State Bank.

Following the consummation of the transaction, State Bank will merge with and into Equity Bank, subject to receipt of customary regulatory approvals and closing conditions, including Prairie shareholder approval. Following completion of the merger, State Bank branches will become Equity Bank offices. The merger is expected to be completed in the first quarter of 2017.

The merger bolsters Equity’s presence in Kansas. Including its headquarters in Wichita, Equity will operate 18 branches across the state following completion of the transaction. The branches in Hoxie, Grinnell, and Quinter supplement Equity’s Western Kansas markets of Hays and Ellis. The merger is Equity’s 11th acquisition in the past 14 years, and will be its third merger in the past two years, including Equity’s acquisition of First Independence Corporation on October 9, 2015 and its merger with CFBI. Following completion of the Prairie merger, Equity expects to have $2.2 billion in total assets, with 37 bank locations in Arkansas, Kansas, and Missouri.

Under the terms of the agreement, approved by the boards of directors of Equity and Prairie, at the effective time of merger, the shareholders of Prairie will have the right to receive aggregate consideration of approximately $327.67 per share. The definitive agreement provides that each outstanding share of Prairie common stock will represent the right to receive a fixed exchange ratio of 6.41 shares of Equity Class A common stock and $163.84 in cash. Equity will issue a total of 479,468 shares worth approximately $12.255 million, based upon Equity’s stock valued at $25.56 per share, based on the 30-day volume-weighted average price (“VWAP”) as of October 19, 2016 and pay an aggregate of $12.255 million in cash to Prairie shareholders. The aggregate transaction value of $24.510 million represents approximately 140% of stated tangible common equity of Prairie. The actual aggregate transaction value may be subject to equity adjustments prior to closing, as further set forth in the definitive merger agreement.

Equity expects the merger to be approximately 6% accretive to diluted earnings per share in 2017, and 6% accretive to earnings per share in 2018, with transaction-related and one-time costs of approximately $2.4 million. Equity expects the merger to be approximately 0.9% dilutive to tangible book value per share at closing, inclusive of the estimated purchase accounting adjustments, and expects the tangible book value earnback to be 1.3 years. Finally, Equity expects to remain above all “Well Capitalized” capital ratios as defined by regulatory guidelines, inclusive of the impact of all estimated purchase accounting adjustments.

Equity was advised by FinPro Capital Advisors, Inc. as financial advisor and Norton Rose Fulbright US LLP as legal counsel.

Prairie was advised by The Capital Corporation as financial advisor and Stinson Leonard Street LLP as legal counsel.

Equity Reports Nine-Month Earnings of $9.0 Million for 2016

Equity reported its unaudited results for the nine months ended September 30, 2016, including net income allocable to common stockholders of $9.0 million.

Highlights of Equity’s performance include:

  • Net income allocable to common stockholders of $9.0 million for the nine months ended September 30, 2016, compared to $7.6 million for the nine months ended September 30, 2015, a 17.6% increase. Net income allocable to common stockholders was $2.7 million for the quarter ended September 30, 2016, compared to $2.7 million for the quarter ended September 30, 2015.
  • Earnings per diluted share of $1.07 for the nine months ended September 30, 2016, compared to $1.21 for the nine months ended September 30, 2015. Earnings per diluted share of $0.32 for the quarter ended September 30, 2016 ($0.35 prior to the after-tax effect of merger expenses), compared to $0.43 for the quarter ended September 30, 2015.
  • Total loans held for investment of $956.1 million at September 30, 2016, a decrease of $4.3 million as compared to total loans held for investment of $960.4 million at December 31, 2015 and an increase of $100.4 million, compared to loans held for investment of $855.7 million at September 30, 2015.
  • Total deposits were $1.18 billion at September 30, 2016, $1.22 billion at December 31, 2015, and $1.03 billion at September 30, 2015. Signature Deposits, or core deposits comprised of checking accounts, savings accounts, and money market accounts, were $740.6 million at September 30, 2016, compared to $777.3 million at December 31, 2015 and $624.0 million at September 30, 2015.
  • Total assets of $1.56 billion at September 30, 2016, compared to $1.59 billion at December 31, 2015 and $1.41 billion at September 30, 2015.
  • Book value per common share of $19.62 and tangible book value per common share of $17.25 at September 30, 2016.

Year-to-Date Financial Results

Net income allocable to common stockholders was $9.0 million for the nine months ended September 30, 2016, as compared to $7.6 million for the nine months ended September 30, 2015, an increase of $1.3 million or 17.6%. Financial results for 2016 reflect the October 2015 acquisition of First Independence Corporation and its subsidiary, First Federal Savings & Loan of Independence, Kansas, collectively referred to as “First Independence.” The acquisition of First Independence added four branch locations in southeast Kansas with total assets of $135.0 million.

Diluted earnings per share were $1.07 for the nine-month period ended September 30, 2016, as compared to $1.21 for the comparable period of 2015. Fully diluted shares were 8,333,613 and 6,290,402 for the nine months ended September 30, 2016 and 2015. The increase in weighted average fully diluted shares reflects the issuance of 1,941,000 shares in connection with Equity’s November 2015 initial public offering.

Net interest income was $36.9 million for the nine months ended September 30, 2016 as compared to $33.9 million for the nine months ended September 30, 2015, a $3.0 million or 8.8% increase. The increase in net interest income was primarily driven by growth in loan and securities balances, partially offset by an increase in interest expense as we funded the increase in earning assets with increased deposits and borrowings.

Our net interest margin was 3.19% for the nine months ended September 30, 2016 as compared to 3.81% for the nine months ended September 30, 2015. The decrease in net interest margin was primarily due to the decrease in overall yield on interest-earning assets and the continued utilization of our “leverage” or “spread” opportunity. The decrease in yield on interest-earning assets is primarily due to growth in a continually low interest rate environment and the pay down of older higher yielding assets. Our spread opportunity as more fully discussed in our Annual Report on Form 10-K, positively impacts net income but negatively impacts net interest margin due to investing in lower yielding interest-earning assets. Net interest margin excluding this spread opportunity was approximately 3.48% for the nine months ended September 30, 2016 and 3.85% for the comparable period of 2015.

The provision for loan losses was $1.4 million for the nine months ended September 30, 2016 as compared to $1.9 million for the nine months ended September 30, 2015. Net charge-offs for the nine months ended September 30, 2016 were $785 thousand compared to net charge-offs of $2.8 million for the comparable period of 2015.

Total non-interest income was $7.7 million for the nine months ended September 30, 2016 as compared to $6.5 million for the nine months ended September 30, 2015. Increases in service charges and fees and in debit card income are principally attributable to the addition of accounts and higher transaction volumes associated with the First Independence acquisition. Non-interest income includes net gain from securities transactions of $479 thousand and $370 thousand in the nine-month periods ended September 30, 2016 and 2015.

Total non-interest expense was $30.4 million for the nine months ended September 30, 2016 as compared to $27.0 million for the nine months ended September 30, 2015. These results reflect the effect of the First Independence acquisition as well as additions to lending, customer service, and operations staff and increased data processing costs principally associated with increased debit card volumes.

Equity’s effective tax rate for the nine-month period ended September 30, 2016 was 30.5% as compared to 33.5% for the nine-month period ended September 30, 2015. The effective tax rates for each of the comparable periods reflect the levels of tax-exempt income, non-taxable life insurance income and federal income tax credits estimated to be included in Equity’s financial results for the applicable full fiscal years. The lower effective tax rate in 2016 is principally due to the benefit of higher levels of tax-exempt income and increased income tax credits from investments in qualified affordable housing projects, including an additional project acquired in the First Independence acquisition.

Third Quarter Financial Results

Net income allocable to common stockholders was $2.7 million for the three months ended September 30, 2016, as compared to $2.7 million for the three months ended September 30, 2015. Diluted earnings per share were $0.32 for the three-month period ended September 30, 2016, as compared to $0.43 for the comparable period of 2015. Fully diluted shares were 8,347,566 and 6,295,587 for the three months ended September 30, 2016 and 2015.

Net interest income for the quarter ended September 30, 2016 was $12.0 million as compared to $11.5 million for the quarter ended September 30, 2015. Growth in loan and securities balances, partially offset by the increased deposits and borrowings required to fund that growth resulted in the increased net interest income.

Our net interest margin was 3.06% for the quarter ended September 30, 2016 and 3.48% for the comparable quarter of the prior year. The decline in our net interest margin for the three-month period ended September 30, 2016 is primarily due to the decrease in overall yield on interest-earning assets. The decrease in yield on interest-earning assets is primarily due to the pay down of older higher yielding assets and reinvestment and growth in a continually low interest-rate environment. Net interest margins for the third quarter of 2016 and the third quarter of 2015 were both affected by our “leverage” or “spread” opportunity. Net interest margin excluding our “leverage” or “spread” opportunity was approximately 3.33% for the three months ended September 30, 2016 compared to 3.58% for the comparable period of 2015.

The provision for loan losses was $104 thousand for the quarter ended September 30, 2016 as compared to $537 thousand for the quarter ended September 30, 2015. The decreased provision is principally related to decreased net charge-offs in the third quarter of 2016 as compared to the third quarter of 2015. Net charge-offs for the three months ended September 30, 2016 were $54 thousand compared to net charge-offs of $1.1 million for the comparable period of 2015.

Total non-interest income for the quarter ended September 30, 2016 was $2.5 million, compared to $2.0 million for the quarter ended September 30, 2015. Increases in service charges and fees of $198 thousand and in debit card income of $166 thousand are principally attributable to the addition of accounts and higher transaction volumes associated with the First Independence acquisition. Mortgage banking income increased $165 thousand associated with greater mortgage loans sales in the current year.

Total non-interest expense for the quarter ended September 30, 2016 was $10.7 million, compared to $8.9 million for the quarter ended September 30, 2015. Increased non-interest expense reflects the effect of the First Independence acquisition as well as additions to lending, customer service, and operations staff and increased data processing costs principally associated with increased debit card volumes. Merger expenses were $237 thousand in the quarter ended September 30, 2016, an increase of $160 thousand over merger expenses of $77 thousand recorded in the comparable quarter of 2015.

Equity’s effective tax rate for the three-month period ended September 30, 2016 was 27.2%, which reflects a reduction in the estimated effective tax rate expected to be applicable for the full year of 2016 from 31.8% to 30.5%. At September 30, 2016, the effective tax rate expected to be applicable for the full year of 2016 was reduced to reflect lower anticipated income before taxes and proportionately higher tax-exempt income. Equity’s effective tax for the three-month period ended September 30, 2015 was 32.9%.

Loans, Deposits, and Total Assets

Loans held for investment were $956.1 million at September 30, 2016, compared to $960.4 million at December 31, 2015 and $855.7 million at September 30, 2015. Equity’s loan portfolio decreased $4.3 million between September 30, 2016 and December 31, 2015, and increased by $100.4 million between September 30, 2016 and September 30, 2015. The decrease in loans during the first nine months of 2016 is primarily attributable to the decrease in commercial real estate loans and the pay down of existing residential real estate and commercial loans. The year-over-year increase in loans held for investment includes $89.9 million of net loans acquired in the First Independence acquisition in the fourth quarter of 2015.

As of September 30, 2016, Equity’s allowance for loan losses to total loans was 0.64%, compared to 0.57% at December 31, 2015 and 0.59% at September 30, 2015. Total reserves, including purchase discounts, to total loans were approximately 0.82% as of September 30, 2016, compared to 0.81% at December 31, 2015 and 0.74% at September 30, 2015. Nonperforming assets of $12.8 million as of September 30, 2016 were 0.82% to total assets, as compared to $14.0 million or 0.89% of total assets at December 31, 2015 and $13.0 million or 0.92% of total assets at September 30, 2015.

Total deposits were $1.18 billion at September 30, 2016, as compared to $1.22 billion at December 31, 2015 and $1.03 billion at September 30, 2015. Total deposits increased $150.1 million between September 30, 2015 and September 30, 2016, including $87.1 million of deposits assumed in the First Independence acquisition. Signature Deposits were $740.6 million at September 30, 2016, as compared to $777.3 million at December 31, 2015 and $624.0 million at September 30, 2015. The decrease in Signature Deposits during the first nine months of 2016 is primarily due to the seasonal use of tax monies by public fund customers.

At September 30, 2016, Equity had consolidated total assets of $1.56 billion, compared to $1.59 billion at December 31, 2015 and $1.41 billion at September 30, 2015. The $28.6 million decrease in total assets between December 31, 2015 and September 30, 2016 is primarily a reduction in cash and cash equivalents and a reduction in loans of $4.3 million partially offset by an $11.0 million increase in investment securities.

Capital and Borrowings

On November 16, 2015, we completed our initial public offering (“IPO”) of 1,941,000 shares. In January 2016, a portion of the IPO net proceeds of $38.9 million were used to retire our Small Business Lending Fund obligation of $16.4 million and repay our bank stock loan of $18.6 million.

At September 30, 2016, common stockholders’ equity totaled $161.2 million, $19.62 per common share, compared to $167.2 million, $18.37 per common share at December 31, 2015. Tangible common equity was $141.8 million and tangible book value per common share was $17.25 at September 30, 2016. Tangible common equity was $131.2 million and tangible book value per common share was $15.97 at December 31, 2015. The ratio of common equity tier 1 capital to risk-weighted assets was 13.57% and the total capital to risk-weighted assets was 15.02% at September 30, 2016.

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. Reconciliations of non-GAAP financial measures to GAAP financial measures are provided at the end of this press release.

Conference Call and Webcast

Equity will host a conference call on Friday, October 21, 2016 at 9:30 a.m. central time to review these announcements. Investors, news media, and others may dial into the call toll-free at (844) 534-7311 from anywhere in the U.S. or (574) 990-1419 internationally, using conference ID no. 79465209.

Participants are encouraged to dial into the call or access the webcast approximately 10 minutes prior to the start time. Two separate presentations will be available approximately one hour prior to the conference call at investor.equitybank.com. The first presentation will highlight the definitive merger agreement with Prairie. An additional presentation will supplement Equity’s Q3 financial results discussion.

A replay of the call and webcast will be available two hours following the close of the call until October 28, 2016, accessible at (855) 859-2056 with conference ID no. 79465209 or investor.equitybank.com.

Unaudited Financial Tables

  • Table 1. Selected Financial Highlights
  • Table 2. Consolidated Balance Sheets
  • Table 3. Consolidated Statements of Income
  • Table 4. Non-GAAP Financial Measures

TABLE 1. SELECTED FINANCIAL HIGHLIGHTS (Unaudited)(Dollars in thousands, except per share data)

As of and for the three months ended
September 30,2016June 30,2016March 31,2016 December 31, 2015 September 30, 2015
Statement of Income Data
Net interest income$11,982 $12,194 $12,758 $12,313 $11,450
Provision for loan losses 104 532 723 1,180 537
Net gain on acquisition 682
Net gains from securities transactions 59 420 386
Total non-interest income 2,527 2,452 2,698 3,325 2,032
Merger expenses 237 1,614 77
Total non-interest expense 10,734 9,941 9,689 11,664 8,866
Income before income taxes 3,671 4,173 5,044 2,794 4,079
Provision for income taxes 1,000 1,327 1,604 240 1,343
Net income 2,671 2,846 3,440 2,554 2,736
Dividends and discount accretion on preferred stock (1) (48) (43)
Net income allocable to common stockholders 2,671 2,846 3,439 2,506 2,693
Basic earnings per share 0.32 0.35 0.42 0.35 0.43
Diluted earnings per share 0.32 0.34 0.41 0.34 0.43
Balance Sheet Data (at period end)
Securities available-for-sale$102,391 $74,976 $113,821 $130,810 $109,906
Securities held-to-maturity 349,915 317,509 301,931 310,539 303,695
Gross loans held for investment 956,070 980,110 938,055 960,355 855,676
Allowance for loan losses 6,080 6,030 5,980 5,506 5,038
Goodwill and core deposit intangibles, net 19,419 19,506 19,592 19,679 19,056
Total assets 1,557,082 1,544,857 1,528,729 1,585,727 1,413,355
Total deposits 1,177,732 1,196,767 1,234,165 1,215,914 1,027,650
Non-time deposits 740,623 753,168 803,653 777,302 623,953
Borrowings 203,569 179,801 130,651 194,064 241,254
Total liabilities 1,395,834 1,386,669 1,373,637 1,418,494 1,287,301
Total stockholders’ equity 161,248 158,188 155,092 167,233 126,054
Tangible common equity* 141,804 138,656 135,472 131,153 90,633
Selected Average Balance Sheet Data (quarterly average)
Total gross loans receivable$968,402 $950,243 $944,366 $921,312 $831,553
Investment securities 414,376 412,095 425,434 425,450 397,702
Interest-earning assets 1,555,511 1,541,405 1,542,794 1,499,139 1,304,661
Total assets 1,668,535 1,655,317 1,657,655 1,613,499 1,410,072
Interest-bearing deposits 1,022,155 1,045,784 1,060,618 991,109 886,706
Borrowings 314,181 284,631 280,097 311,871 259,006
Total interest-bearing liabilities 1,336,336 1,330,415 1,340,715 1,302,980 1,145,712
Total deposits 1,184,717 1,204,861 1,214,738 1,151,932 1,020,655
Total liabilities 1,508,647 1,498,914 1,503,726 1,473,292 1,286,477
Total stockholders’ equity 159,887 156,403 153,929 140,207 123,595
Tangible common equity* 136,771 135,094 133,313 110,893 88,451
Performance ratios
Return on average assets (ROAA) annualized 0.64% 0.69% 0.83% 0.63% 0.77%
Return on average equity (ROAE) annualized 6.65% 7.32% 8.99% 7.23% 8.78%
Return on average tangible common equity (ROATCE) annualized* 7.94% 8.64% 10.55% 9.18% 12.26%
Yield on loans annualized 4.72% 4.89% 5.04% 4.95% 5.11%
Cost of interest-bearing deposits annualized 0.66% 0.64% 0.61% 0.61% 0.57%
Cost of total deposits annualized 0.57% 0.56% 0.53% 0.52% 0.50%
Net interest margin annualized 3.06% 3.18% 3.33% 3.26% 3.48%
Efficiency ratio* 72.35% 68.15% 64.05% 68.98% 65.19%
Non-interest income / average assets 0.60% 0.60% 0.65% 0.82% 0.57%
Non-interest expense / average assets 2.56% 2.42% 2.35% 2.87% 2.49%
Capital Ratios
Tier 1 Leverage Ratio 9.42% 9.32% 9.10% 9.47% 7.94%
Common Equity Tier 1 Capital Ratio 13.57% 13.04% 13.13% 12.35% 9.44%
Tier 1 Risk Based Capital Ratio 14.45% 13.90% 14.01% 13.85% 11.08%
Total Risk Based Capital Ratio 15.02% 14.45% 14.57% 14.35% 11.58%
Total stockholders’ equity to total assets 10.36% 10.24% 10.15% 10.55% 8.92%
Tangible common equity to tangible assets* 9.22% 9.09% 8.98% 8.37% 6.50%
Book value per share$19.62 $19.25 $18.89 $18.37 $17.49
Tangible common book value per share*$17.25 $16.87 $16.50 $15.97 $14.45
Tangible book value per diluted common share*$16.95 $16.64 $16.29 $15.74 $14.39

* The value noted is considered a Non-GAAP financial measure. For a reconciliation of Non-GAAP financial measures, see Table 4. Non-GAAP Financial Measures. TABLE 2. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands)

September 30, 2016 December 31, 2015
ASSETS
Cash and due from banks$20,925 $36,276
Federal funds sold 922 20,553
Cash and cash equivalents 21,847 56,829
Interest-bearing time deposits in other banks 4,995 5,245
Available-for-sale securities 102,391 130,810
Held-to-maturity securities, fair value of $358,223 and $312,802 349,915 310,539
Loans held for sale 3,071 3,504
Loans, net of allowance for loan losses of $6,080 and $5,506 949,990 954,849
Other real estate owned, net 5,647 5,811
Premises and equipment, net 39,909 39,147
Bank owned life insurance 33,301 32,555
Federal Reserve Bank and Federal Home Loan Bank stock 11,587 11,013
Interest receivable 4,712 4,540
Goodwill 18,130 18,130
Core deposit intangible, net 1,289 1,549
Other 10,298 11,206
Total assets$1,557,082 $1,585,727
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand$169,368 $157,834
Total non-interest-bearing deposits 169,368 157,834
Savings, NOW, and money market 571,255 619,468
Time 437,109 438,612
Total interest-bearing deposits 1,008,364 1,058,080
Total deposits 1,177,732 1,215,914
Federal funds purchased and retail repurchase agreements 25,382 20,762
Federal Home Loan Bank advances 168,756 145,439
Bank stock loan 18,612
Subordinated debentures 9,431 9,251
Contractual obligations 2,831 3,093
Interest payable and other liabilities 11,702 5,423
Total liabilities 1,395,834 1,418,494
Stockholders’ equity
Preferred stock, Series C (liquidation preference of $16,372) 16,372
Common stock 97 97
Additional paid-in capital 138,546 138,077
Retained earnings 43,911 34,955
Accumulated other comprehensive loss (1,409) (2,371)
Employee stock loans (242) (242)
Treasury stock (19,655) (19,655)
Total stockholders’ equity 161,248 167,233
Total liabilities and stockholders’ equity$1,557,082 $1,585,727

TABLE 3. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)(Dollars in thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2016201520162015
Interest and dividend income
Loans, including fees$11,493 $10,713 $34,885 $31,862
Securities, taxable 1,855 1,912 6,051 5,441
Securities, nontaxable 383 291 1,043 746
Federal funds sold and other 519 283 1,513 549
Total interest and dividend income 14,250 13,199 43,492 38,598
Interest expense
Deposits 1,707 1,283 4,984 3,409
Federal funds purchased and retail repurchase agreements 16 17 42 47
Federal Home Loan Bank advances 386 141 1,063 267
Bank stock loan 146 446
Subordinated debentures 159 162 469 480
Total interest expense 2,268 1,749 6,558 4,649
Net interest income 11,982 11,450 36,934 33,949
Provision for loan losses 104 537 1,359 1,867
Net interest income after provision for loan losses 11,878 10,913 35,575 32,082
Non-interest income
Service charges and fees 851 653 2,437 1,823
Debit card income 722 556 2,127 1,537
Mortgage banking 442 277 1,019 855
Increase in value of bank owned life insurance 249 234 746 700
Net gain from securities transactions 479 370
Other 263 312 869 1,192
Total non-interest income 2,527 2,032 7,677 6,477
Non-interest expense
Salaries and employee benefits 5,391 4,659 15,849 14,243
Net occupancy and equipment 1,159 952 3,321 3,078
Data processing 883 746 2,590 2,127
Professional fees 527 498 1,544 1,410
Advertising and business development 353 295 901 863
Telecommunications 285 203 803 582
FDIC insurance 240 217 753 568
Courier and postage 179 112 482 375
Amortization of core deposit intangible 87 61 260 182
Loan expense 153 94 413 272
Other real estate owned 156 53 164 174
Loss on debt extinguishment 58 316
Merger expenses 237 77 237 77
Other 1,084 899 2,989 2,644
Total non-interest expense 10,734 8,866 30,364 26,911
Income before income taxes 3,671 4,079 12,888 11,648
Provision for income taxes 1,000 1,343 3,931 3,902
Net income 2,671 2,736 8,957 7,746
Dividends and discount accretion on preferred stock (43) (1) (129)
Net income allocable to common stockholders$2,671 $2,693 $8,956 $7,617
Basic earnings per share$0.32 $0.43 $1.09 $1.21
Diluted earnings per share$0.32 $0.43 $1.07 $1.21

TABLE 4. Non-GAAP Financial Measures (Unaudited)(Dollars in thousands, except per share data)

As of and for the three months ended
September 30,2016June 30,2016March 31,2016December 31, 2015 September 30, 2015
Total stockholders’ equity$161,248 $158,188 $155,092 $167,233 $126,054
Less: preferred stock 16,372 16,365
Less: goodwill 18,130 18,130 18,130 18,130 18,130
Less: core deposit intangibles, net 1,289 1,376 1,462 1,549 926
Less: mortgage servicing asset 25 26 28 29
Tangible common equity$141,804 $138,656 $135,472 $131,153 $90,633
Common shares outstanding at period end 8,219,415 8,219,415 8,211,727 8,211,727 6,270,727
Diluted common shares outstanding at period end 8,365,283 8,334,445 8,317,882 8,332,762 6,296,227
Book value per common share$19.62 $19.25 $18.89 $18.37 $17.49
Tangible book value per common share$17.25 $16.87 $16.50 $15.97 $14.45
Tangible book value per diluted common share$16.95 $16.64 $16.29 $15.74 $14.39
Total assets$1,557,082 $1,544,857 $1,528,729 $1,585,727 $1,413,355
Less: goodwill 18,130 18,130 18,130 18,130 18,130
Less: core deposit intangibles, net 1,289 1,376 1,462 1,549 926
Less: mortgage servicing asset 25 26 28 29
Tangible assets$1,537,638 $1,525,325 $1,509,109 $1,566,019 $1,394,299
Equity to assets 10.36% 10.24% 10.15% 10.55% 8.92%
Tangible common equity to tangible assets 9.22% 9.09% 8.98% 8.37% 6.50%
Total average stockholders’ equity$159,887 $156,403 $153,929 $140,207 $123,595
Less: average intangible assets and preferred stock 23,116 21,309 20,616 29,314 35,144
Average tangible common equity$136,771 $135,094 $133,313 $110,893 $88,451
Net income allocable to common stockholders$2,671 $2,846 $3,439 $2,506 $2,693
Amortization of intangible assets 88 88 88 93 61
Less: Tax effect of intangible assets amortization 31 31 31 33 21
Adjusted net income allocable to common stockholders$2,728 $2,903 $3,496 $2,566 $2,733
Return on total average stockholders’ equity (ROAE) annualized 6.65% 7.32% 8.99% 7.23% 8.78%
Return on average tangible common equity (ROATCE) annualized 7.94% 8.64% 10.55% 9.18% 12.26%
Non-interest expense$10,734 $9,941 $9,689 $11,664 $8,866
Less: merger expenses 237 1,614 77
Less: loss on debt extinguishment 58
Non-interest expense, excluding merger expenses and loss on debt extinguishment$10,497 $9,941 $9,631 $10,050 $8,789
Net interest income$11,982 $12,194 $12,758 $12,313 $11,450
Non-interest income$2,527 $2,452 $2,698 $3,325 $2,032
Less: net gain from securities transactions 59 420 386
Less: net gain on acquisition 682
Non-interest income, excluding net gains on security transactions and net gain on acquisition$2,527 $2,393 $2,278 $2,257 $2,032
Net interest income plus non-interest income, excluding net gains on security transactions and net gains on acquisition$14,509 $14,587 $15,036 $14,570 $13,482
Non-interest expense to net interest income plus non-interest income 73.98% 67.88% 62.69% 74.59% 65.76%
Efficiency ratio 72.35% 68.15% 64.05% 68.98% 65.19%

Media and Investor Contact:
John Hanley, SVP, Director of Investor Relations
913-583-8004 / jhanley@equitybank.com
investor.equitybank.com

Source: Equity Bancshares, Inc.



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