Equity Bancshares, Inc. Announces Regulatory Approval of Merger with Community First Bancshares, Inc., Announces Definitive Merger Agreement with Prairie State Bancshares, Inc., and Reports Nine-Month Earnings of $9.0 Million for 2016

WICHITA, Kan., Oct. 20, 2016 (GLOBE NEWSWIRE) — Equity Bancshares, Inc. (NASDAQ:EQBK), (“Equity”, ”we”, “us”, “our”), 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.

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, and treasury management services. As of September 30, 2016, Equity had $1.56 billion in consolidated total assets, with 29 locations throughout Kansas and Missouri, including corporate headquarters in Wichita and branches throughout the Kansas City metropolitan area.

Equity seeks to provide an enhanced banking experience for customers by providing a suite of sophisticated banking services tailored to their needs, while delivering the high-quality, relationship-based customer service of a community bank. Equity’s common stock is traded on the NASDAQ Global Select Market 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,” “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 (“SEC”) on March 17, 2016 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. 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.

Important Additional Information

This communication shall not constitute an offer to sell, a solicitation of an offer to sell, or the solicitation or an offer to buy any securities.   Investors and security holders are urged to carefully review and consider Equity’s public filings with the SEC, including but not limited to its Annual Reports on Form 10-K, its proxy statements, its Current Reports on Form 8-K and its Quarterly Reports on Form 10-Q. The documents filed by Equity with the SEC may be obtained free of charge at Equity’s investor relations website at investor.equitybank.com or at the SEC’s website at www.sec.gov. Alternatively, these documents, when available, can be obtained free of charge from Equity upon written request to Equity Bancshares, Inc., Attn: Investor Relations, 7701 East Kellogg Drive, Suite 300, Wichita, Kansas 67207 or by calling (316) 612-6000.

In connection with the proposed merger transactions, Equity (i) filed a registration statement on Form S-4 (Reg. No. 333-213283) with the SEC on August 24, 2016 for the CFBI merger transaction, which includes a joint proxy statement of CFBI and Equity and a prospectus of Equity, (ii) intends to file a registration statement on Form S-4 with the SEC for the Prairie merger transaction, which will include a proxy statement of Prairie and a prospectus of Equity, and (iii) will file other documents regarding the proposed CFBI and Prairie merger transactions with the SEC. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE ENTIRE APPLICABLE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER TRANSACTIONS. The applicable proxy statement/prospectus has or will be sent to the stockholders of each institution seeking the required stockholder approvals. Investors and security holders may obtain the registration statements and the proxy statement/prospectuses free of charge from the SEC’s website or from Equity by writing to the address provided above.

Equity, CFBI and Prairie and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from their stockholders in connection with the proposed merger transactions. Information about Equity’s participants may be found in the definitive proxy statement of Equity relating to its 2016 Annual Meeting of Stockholders filed with the SEC on March 28, 2016. The definitive proxy statement can be obtained free of charge from the sources indicated above. Additional information regarding the interests of such participants will be included in the proxy statement and other relevant documents regarding the proposed merger transactions filed with the SEC when they become available, copies of which may also be obtained free of charge from the sources indicated above.

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,
2016
June 30,
2016
March 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,
  2016 2015 2016 2015
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,
2016
June 30,
2016
March 31,
2016
December 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 %
           

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

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