Equity Bancshares, Inc. 2026 Q3 Earnings Call

Luke, please go ahead. Welcome, everyone, and thank you for joining Equity Bancshares' third quarter earnings call.

A quick note before we begin. Today's call is being recorded and is available via webcast at investor.equitybank.com, along with our earnings release and presentation materials. Today's presentation contains forward-looking statements, which are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. After the presentation, we'll open the floor up for questions and discussion. A conversation we look forward to. With that, let me turn the call over to our Chairman and CEO, Brad Elliott.

Good morning, everyone, and thank you for joining us. Joining me today is Rick Sems, our Bank CEO, and Chris Navratil, our CFO. Our third quarter shows what happens when a larger franchise starts to work together. Net income was $26.8 million, or $1.29 per diluted share. Core earnings was $29 million or $1.40 per share, and our core ROTCE was 16.5%. Pre-tax, pre-provision earnings were $36.9 million, the highest since we combined the three companies together, and our efficiency ratio was 54%. The story of the quarter is organic loan growth. This improvement is something that we have focused on for the last several years. Loans in our legacy markets grew at an annualized rate of nearly 12%. Production was the largest in our history. For the first time since closing the acquisition, total loan balances increased during the quarter.

Under Rick's leadership, Mark Parman, Justin Harris, Greg Kossover, Craig Dunn, and their teams have continued to make sales calls, cultivated relationships, and emphasized value creation for our customers on both lending and the deposit side. The results in the quarter reflect the effort and confirm the ability of our franchise to grow the balance sheet organically. Remaining focused on technology initiatives, finding ways to automate processes, enhancing lead generation, and expanding the services our customers rely on provides opportunity to add operating leverage and enhance shareholder returns as the balance sheet grows. I continue to be excited about the emerging technology will do in our industry and what it will do in our bank as we continue to pursue all that it offers. The funding market has tightened over the quarter as we have seen migration within both our legacy and acquired footprints.

Declines are concentrated in large rate-sensitive customers, including public funds. While our retail and treasury teams continue to grow relationships, full service relationships which start with deposits are the focus of our teams, and that will never change. We have strong strategies to deal with the pricing challenges that come during these cycles in our industry. Our branch network during these periods is the strength of Equity, and we are excited to operate during these periods as we think we have a competitive advantage. Mergers create financial statement noise, but strategically adding core deposits and expanding markets to the Equity franchise is core to what we do. Execution on this strategy will provide opportunity to continue the success realized in the quarter. As you know, on September 3, we announced our agreement to merge Lincoln Bancorp, the holding company of Lincoln Savings Bank, headquartered in Reinbeck, Iowa, into Equity.

Lincoln has served the Iowa community since 1902 and operates 16 locations across central and northeast Iowa. The transaction gives us a meaningful presence in the Des Moines and Waterloo, Cedar Falls area and a strong in-market deposit franchise. It is financially attractive and builds on the disciplined approach of our 15 prior transactions since 2015. Pro forma will be approximately $9.1 billion as a company. We are on track to close Lincoln in the fourth quarter, and momentum is building. We anticipate Lincoln will convert onto Equity systems in the second quarter of 2027. We do not plan to close or consolidate any branches, which protects the customer relationships that makes this franchise so valuable. Closing on time lets us capture cost savings and earnings accretion as early as possible. Lincoln brings exceptional banking talent, deep relationships, and strong communities to the consolidated franchise.

Under the continued leadership of their commercial and retail teams, we are excited for what this strategic combination will contribute to our growing company. I am excited about the quarter and the trajectory of Equity Bank. Let me turn this over to Rick at this time.

Thanks, Brad. This quarter was about organic growth, and the numbers show it. Total loans grew $39 million to $5.44 billion, our first quarterly increase since the acquisitions closed. In our legacy markets, balances grew $106 million or 2.9% to $3.5 billion. That is nearly 12% annualized. Within our acquired markets, we continue to see period-over-period decline in balances, although it was slowed as production improved by 55% as our teams continue to find traction post-integration into Equity's processes. Production across the bank reached a new high. We closed $379 million in loans at an average rate of 6.9%, up $64 million or 20% from last quarter, and up $136 million or 56% from a year ago. Our legacy markets produced $279 million of that, up 11% from last quarter.

Specifically, I would like to note Kansas City under the leadership of Jeff Keyes, Wichita under the leadership of Harrison Helms, Western Missouri under the leadership of Blake Moreland, Tulsa under the leadership of Ryan Morris, and Western Kansas under the leadership of Levi Getz for the production and balances they were able to generate this quarter. Looking forward, our 75% weighted pipeline stands at $534 million, up 27% from last quarter, and line utilization was at 55.3%. We have hired 13 bankers year-to-date across Oklahoma City, Omaha, Lincoln, Wichita, and Des Moines, and those teams are still ramping up. Total deposits declined $136 million or 2.2% to $6.17 billion. In our legacy markets, deposits were down $102 million. Excluding public funds, which declined due to pricing pressure and seasonal payments, balances in legacy markets were effectively flat on the quarter and up 3.6% from a year ago.

Average deposit balances for the period were flat. Non-interest-bearing deposits were 18.7% of total deposits, down from 20.2% in the first quarter. Rebuilding that mix and replacing brokered funding with core relationship deposits over time is a priority for our retail and treasury teams. On accounts, our legacy markets produced 6,269 accounts in the quarter, up 22% over same quarter last year. In addition, digital active users reached almost 79,000, up 10% from a year ago. 759 business accounts were opened in the quarter, which is an area of focus with the average balance per business account growing nearly 4%. Fee income momentum continued. Treasury fees grew 4% on the quarter and 11% on the year. We are just getting started there. Continued momentum from trust and wealth and mortgage banking provided additional benefit.

On credit, the provision was $1.7 million, and the allowance stands at 1.18% of loans. Net charge-offs were $2.1 million or 15 basis points annualized, up from 12 basis points last quarter. Non-performing assets were 1% of total assets. Non-accrual loans were $69 million. Classified assets to regulatory capital were 10.42%, down 140 basis points in the quarter. We remain comfortable with the overall credit posture of the portfolio. On Lincoln, integration planning is well underway. Local leadership and decision-making will stay in place as we welcome their teammates, customers, and communities. We now operate in seven growing metro markets, we believe the best in the Midwest. And with Lincoln, we add density in Des Moines and now enter Waterloo, Cedar Falls, as well as other surrounding community markets, which gives us opportunity for future growth. I'll now turn it over to Chris.

Thanks, Rick. Good morning. Net income for the quarter was $26.8 million or $1.29 per diluted share. Excluding M&A expenses of $1.0 million, intangible amortization of $1.8 million, and securities gains, core net income was $29.0 million or $1.40 per share, in line with last quarter. Core return on average tangible common equity was 16.5%. Net interest income was $72.8 million, down $1 million from the second quarter. The periodic decline was driven by increasing costs within the deposit portfolio, as well as declining yield on interest-earning assets. Total cost of deposits moved up seven basis points on a flat average balance. As both Brad and Rick mentioned, the market tightened for deposits as we saw the short end of the curve rise. Investment yield declined as excess discount realization from the previous quarter did not recur. Loan coupon yields declined five basis points.

Net interest margin was 4.2%, down 16 basis points, affected by the same drivers as net interest income, as well as composition dynamics. Average earning assets increased to $6.87 billion from $6.80 billion, driven by cash and securities, which were funded by expanded borrowings. The impact of the growth is, absent other changes, accretive to income and dilutive to margin. Year-to-date margin has averaged approximately 4.30%. Looking to the fourth quarter, excluding Lincoln, we expect margin to return to the 4.25%-4.35% range. We enter the quarter with $50 million in loan balances in excess of the average for the third quarter. The FOMC's decision to raise interest rates in September will provide a near-term benefit as contractual earning asset balances are repriced. 14% of the loan portfolio reprices daily and 22% monthly. New production is coming on at 6.91%.