2017
Annual
Report
INTEGRITY
The original Eastman National Bank vault in Equity’s Ponca
City downtown location features a reminder to customers.
We never forget it’s your money.
ACCOUNTABILITY
Equity Bank supported and led local pet adoption days
throughout its regions during summer’s annual Official Bank
of Pets campaign, helping rescue pups (and cats, and birds,
and more) find homes.
ENTREPRENEURIAL
SPIRIT
Equity cut the ribbon for its brand new Andover bank facility,
opened in October 2017. The location replaced Equity’s original
bank location, around the corner in its home of Andover.
COMMUNITY FOCUS
Equity Bank team members prepare a dinner in the kitchen
of Kansas City’s Ronald McDonald House for the House’s
overnight guests.
RESPECT
Chris Ryan and Mark Steinman of Equity Bank Kansas City
visit with local business leaders at the KC Business Journal’s
Entrepreneurship Summit in downtown KC in February.
The values of Equity Bank, represented as I CARE, supplement and inform all of our activities as a company. From community events
to business partnerships and employee gatherings, Integrity, Community Focus, Accountability, Respect and Entrepreneurial Spirit
are our primary focus in everything we do.
On January 15, 2018, nearly 600 Equity Bank team members traveled to centrally-located Overland Park, Kansas,
for our annual All-Employee Celebration Day, to highlight team accomplishments, individual accomplishments, and a
glimpse of the year ahead for the Company and our industry. Above, the team members identified within each
region, Equity Bank strong!
The historic clock in downtown Newkirk,
Oklahoma is operational once again.
Purchased in 1960, the unique, ornamental
clock is a landmark in downtown Newkirk.
Each year Equity Bank celebrates
the graduates of Equity University,
a yearlong leadership development
program with bimonthly meetings
and actionable project work by
each student.
Table of Contents
4 Letter to Shareholders
6 Selected Financial Highlights
8 Board of Directors
& Market Leadership
9 Senior Leadership & Management
10 Equity Bancshares, Inc. Timeline
Annual Report on Form 10-K
follows page 10.
Recognized this year: Michael Doyle, Marissa Easter,
Larry Hillier, Elizabeth Kelley, Cheri Mense, Theresa
Nixon, Donna Richardson, Ronan Sramek.
42
BANK LOCATIONS
$3.17B
ASSETS
(12/31/2017)
$2.1B
LOANS
(12/31/2017)
$2.4B
DEPOSITS
(12/31/2017)
$1.62
EARNINGS PER
DILUTED SHARE
(12/31/2017)
Dear Shareholders,
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two important objectives of community banks.
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and colleagues grow - through unique plans
for businesses of any size, and for generous
community and family spirit. The second is
to serve as a next step for strong community
banks in Midwestern communities - partnering
and combining with other trusted banks and
ensuring stewardship for customers. In both
aspects of the Equity Bancshares model, 2017
was a great year for the Company, and we
thank you for your support.
Brad Elliott, Chairman & CEO
Equity Bancshares, Inc.
Equity, and I’m proud of the cohesion and
teamwork within all of our merger planning.
Equity Bank features a cast of talented bankers and
leaders who would do well in any industry ... we’re
businesspeople who happen to be bankers.
I believe it is a
differentiator for
our Company.
In December, we
announced two
We had several newsworthy events in 2017.
In March, we added new Western Kansas
locations in Hoxie, Grinnell, and Quinter,
Kansas. In July, we announced simultaneous
mergers with Eastman National Bank, a strong,
100-year-old community bank in Ponca City
and Newkirk, Oklahoma, and Patriot Bank of
Tulsa, Oklahoma, and we completed these
additional mergers. We expect to enter the
Southwest Kansas market in the second quarter
as we merge First National Bank of Liberal and
Hugoton into Equity Bank. Tina Call and her
teams are a great community bank partner for
us. They’ve grown a loyal and trusted customer
base in Southwest Kansas for more than 100
years, and we’re proud to be the next part of
transactions in November.
their story.
Mike Mense, Mark Detten, Mike Bezanson, and
their respective market teams have become
key regions within our Equity Bank franchise.
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Adams Dairy Bank, in Blue Springs, Missouri,
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of entrepreneurial spirit, the team is a match
with ours. In fact, the Adams Dairy team was
strong community bank and deposit customer
recognized by Thinking Bigger KC as one of the
foundation in Kay
County, and a
sales team in
the metropolitan
market of Tulsa
that shares our
entrepreneurial
spirit. Throughout
Top 25 Companies with
Brad Elliott
Under 25 Employees
speaking
at the All
Employee
Celebration
Day in
January.
in Kansas City. A great
small business with a
great plan, realizing its
dreams. We’re proud
to support that.
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$20.6MM
NET INCOME
TO COMMON
STOCKHOLDERS
(12/31/2017)
our proven combination process, the Equity
the second objective of our model, however,
Teams delivered. We consistently stepped
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up to help one another, from operations
growth in the communities we serve. In these
and accounting, to sales and beyond. We’ve
pages you’ll see that our sales teams are
developed a collaborative environment at
committed to the growth of our customers,
4
Letter to Shareholders
and our operations and leadership teams
reach our customers, and for our customers to
are committed to developing new and better
manage their money. Over the next 12 months,
solutions. Absent mergers in 2017, our net
we’ll make further investments in our technology
loans grew by 9% year-over-year, and our core
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deposit franchise grew by 10%. Our products,
customers and businesses, streamlining
services, and delivery are competitive, but it is
consumer lending and mortgage lending
the people of Equity Bank who drive the
processes, and making it easy for our
growth engine.
In 2017, Wendell Bontrager joined our Company
as President, and together with region leaders
Jeremy Machain, Mark Parman, and Patrick
Harbert, they
have led a
focus on
lending, sales
and service
within their
teams. John
Blakeney
joined Equity
customers to do business with Equity Bank.
We’ll continue to add talent in key positions.
We’ll contribute time, energy, and dollars to our
communities. We’ll review and add new markets,
new customers, and
Equity Bank’s
new bankers to a
Tulsa, Oklahoma
location opened
as Equity Bank
for the first time
on November 13,
2017.
growing franchise.
I like to say that
Equity Bank features
a cast of talented
bankers and leaders
who would do well
in any industry -
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that we’re businesspeople who happen to be
Jennifer Johnson, they have boosted our
bankers. Taking care of our customers and
operational and technical capability. Julie
communities is what inspires us each and
Huber adopted a new role, overseeing Strategic
every day. As we’ve grown from $1.2 billion in
Initiatives and M&A Integrations. Her leadership,
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attention to detail, and ability to execute has
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set Equity apart for years, and she is great
followers to 10,000 followers, from 300,000
running point for our merger teams. We’ve added
debit card swipes to 10,000,000 plus. It’s the
additional key roles throughout 2017, and we
focus on making life better for our customers,
continue to focus on the next generation of
communities, and our shareholders that drives
leaders at Equity Bank, and developing stars for
us to succeed.
the future, within our industry and beyond.
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We will face change. Our industry is not immune
to the passage of time and the development
of technology and communication as a way to
Brad S. Elliott
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Equity Bancshares, Inc.
Special Note Concerning Forward-Looking Statements
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tion Reform Act of 1995. These statements are based upon the belief of Equity Bancshares, Inc. (“the Company”) management, as
well as assumptions made beyond information currently available to the Company's management, and may be, but not necessarily
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statements" are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ materially from the Company's expectations include
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(cid:70)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:30)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:30)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
(cid:76)(cid:81)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:30)(cid:3)(cid:76)(cid:81)(cid:73)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:82)(cid:81)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:86)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)
(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:75)(cid:68)(cid:69)(cid:76)(cid:87)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:76)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)
factors is not exhaustive. Except as otherwise stated in this annual report, the Company does not undertake any obligation to update
publicly or revise any forward-looking statements because of new information, future events or otherwise.
For discussion of these and other risks that may cause actual results to differ from expectations, please refer to "Cautionary Note
(cid:53)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:41)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:5)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:5)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:5)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)(cid:16)(cid:46)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:54)(cid:40)(cid:38)(cid:3)(cid:868)(cid:79)(cid:76)(cid:81)(cid:74)(cid:86)(cid:17)(cid:3)(cid:44)(cid:73)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achieve-
ments could differ materially from those expressed in, or implied by, forward-looking information and statements contained herein.
Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made. Equity
Bancshares, Inc. assumes no obligation to update or revise any forward-looking statements that are made from time to time.
7
MERGER
ANNOUNCEMENTS
SINCE 2015
73,137
CHECKING
ACCOUNTS
(12/31/2017)
10,406
SOCIAL MEDIA
FOLLOWERS
(12/31/2017)
10,964,441
DEBIT CARD
SWIPES IN 2017
$1.2
MILLION
CONTRIBUTED
TO COMMUNITY
SPONSORSHIPS
930
CAUSES SUPPORTED
IN EQUITY BANK
COMMUNITIES
5
Letter to Shareholders
(cid:54)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:29)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:86)
as of and for December 31, 2017.
Selected Financial Highlights (unaudited)
(Dollars in thousands, except per share data)
(cid:54)(cid:72)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:29)(cid:3)(cid:5)(cid:54)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:39)(cid:68)(cid:87)(cid:68)(cid:15)(cid:5)(cid:3)(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:24)(cid:23)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)(cid:16)(cid:46)(cid:17)
Statement of Income Data
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Other non-interest income
Merger expense
Other non-interest expense
Income before income taxes
Provision for income taxes
Net income
Dividends and discount accretion on preferred Stock
Net income allocable to common stockholders
Basic earnings per share
Diluted earnings per share
Balance Sheet Data (at period end)
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Gross loans held for investment
Allowance for loan losses
Years Ended December 31
2017
2016
2015
2014
2013
(cid:7)
(cid:20)(cid:19)(cid:21)(cid:15)(cid:25)(cid:28)(cid:22)
(cid:7)
(cid:25)(cid:20)(cid:15)(cid:26)(cid:28)(cid:28)
(cid:7)
(cid:24)(cid:22)(cid:15)(cid:19)(cid:21)(cid:27)
(cid:7)
(cid:23)(cid:25)(cid:15)(cid:26)(cid:28)(cid:23)
(cid:7)
(cid:23)(cid:25)(cid:15)(cid:27)(cid:23)(cid:24)
(cid:20)(cid:25)(cid:15)(cid:25)(cid:28)(cid:20)
(cid:27)(cid:25)(cid:15)(cid:19)(cid:19)(cid:21)
2,953
(cid:20)(cid:24)(cid:15)(cid:20)(cid:25)(cid:28)
5,352
(cid:25)(cid:21)(cid:15)(cid:20)(cid:20)(cid:20)
(cid:22)(cid:20)(cid:15)(cid:19)(cid:21)(cid:25)
10,377
(cid:21)(cid:19)(cid:15)(cid:25)(cid:23)(cid:28)
-
(cid:21)(cid:19)(cid:15)(cid:25)(cid:23)(cid:28)
(cid:20)(cid:17)(cid:25)(cid:25)
(cid:20)(cid:17)(cid:25)(cid:21)
9,202
52,597
2,119
(cid:28)(cid:15)(cid:28)(cid:27)(cid:26)
(cid:24)(cid:15)(cid:21)(cid:28)(cid:23)
(cid:23)(cid:20)(cid:15)(cid:26)(cid:21)(cid:22)
(cid:20)(cid:22)(cid:15)(cid:27)(cid:25)(cid:28)
(cid:23)(cid:15)(cid:23)(cid:28)(cid:24)
(cid:28)(cid:15)(cid:22)(cid:26)(cid:23)
(1)
9,373
1.09
1.07
(cid:25)(cid:15)(cid:26)(cid:25)(cid:25)
(cid:24)(cid:15)(cid:23)(cid:22)(cid:22)
(cid:24)(cid:15)(cid:25)(cid:20)(cid:19)
(cid:23)(cid:25)(cid:15)(cid:21)(cid:25)(cid:21)
(cid:23)(cid:20)(cid:15)(cid:22)(cid:25)(cid:20)
(cid:23)(cid:20)(cid:15)(cid:21)(cid:22)(cid:24)
(cid:22)(cid:15)(cid:19)(cid:23)(cid:26)
(cid:27)(cid:15)(cid:22)(cid:25)(cid:23)
(cid:20)(cid:15)(cid:25)(cid:28)(cid:20)
(cid:22)(cid:25)(cid:15)(cid:24)(cid:25)(cid:27)
(cid:20)(cid:23)(cid:15)(cid:23)(cid:23)(cid:21)
(cid:23)(cid:15)(cid:20)(cid:23)(cid:21)
10,300
(177)
10,123
1.55
(cid:20)(cid:17)(cid:24)(cid:23)
1,200
(cid:26)(cid:15)(cid:25)(cid:27)(cid:27)
-
(cid:22)(cid:24)(cid:15)(cid:25)(cid:23)(cid:24)
13,190
(cid:23)(cid:15)(cid:21)(cid:19)(cid:22)
(cid:27)(cid:15)(cid:28)(cid:27)(cid:26)
(cid:11)(cid:26)(cid:19)(cid:27)(cid:12)
(cid:27)(cid:15)(cid:21)(cid:26)(cid:28)
1.31
1.30
(cid:21)(cid:15)(cid:24)(cid:27)(cid:22)
7,392
-
35,137
(cid:20)(cid:20)(cid:15)(cid:23)(cid:19)(cid:26)
(cid:22)(cid:15)(cid:24)(cid:22)(cid:23)
(cid:26)(cid:15)(cid:27)(cid:26)(cid:22)
(cid:11)(cid:28)(cid:26)(cid:27)(cid:12)
(cid:25)(cid:15)(cid:27)(cid:28)(cid:24)
0.93
0.92
$
52,195
$
35,095
(cid:7)
(cid:24)(cid:25)(cid:15)(cid:27)(cid:21)(cid:28)
$
31,707
(cid:7)
(cid:21)(cid:19)(cid:15)(cid:25)(cid:21)(cid:19)
(cid:20)(cid:25)(cid:21)(cid:15)(cid:21)(cid:26)(cid:21)
95,732
(cid:20)(cid:22)(cid:19)(cid:15)(cid:27)(cid:20)(cid:19)
(cid:24)(cid:21)(cid:15)(cid:28)(cid:27)(cid:24)
(cid:25)(cid:24)(cid:15)(cid:23)(cid:24)(cid:19)
(cid:24)(cid:22)(cid:24)(cid:15)(cid:23)(cid:25)(cid:21)
(cid:23)(cid:25)(cid:24)(cid:15)(cid:26)(cid:19)(cid:28)
310,539
(cid:21)(cid:25)(cid:20)(cid:15)(cid:19)(cid:20)(cid:26)
(cid:21)(cid:27)(cid:23)(cid:15)(cid:23)(cid:19)(cid:26)
(cid:20)(cid:25)(cid:15)(cid:22)(cid:23)(cid:23)
(cid:23)(cid:15)(cid:27)(cid:22)(cid:19)
(cid:22)(cid:15)(cid:24)(cid:19)(cid:23)
(cid:27)(cid:28)(cid:26)
(cid:22)(cid:23)(cid:26)
2,103,279
(cid:20)(cid:15)(cid:22)(cid:27)(cid:22)(cid:15)(cid:25)(cid:19)(cid:24)
(cid:28)(cid:25)(cid:19)(cid:17)(cid:22)(cid:24)(cid:24)
(cid:26)(cid:21)(cid:24)(cid:15)(cid:27)(cid:26)(cid:25)
(cid:25)(cid:25)(cid:19)(cid:15)(cid:21)(cid:28)(cid:23)
(cid:27)(cid:15)(cid:23)(cid:28)(cid:27)
(cid:25)(cid:15)(cid:23)(cid:22)(cid:21)
(cid:24)(cid:15)(cid:24)(cid:19)(cid:25)
(cid:24)(cid:15)(cid:28)(cid:25)(cid:22)
(cid:24)(cid:15)(cid:25)(cid:20)(cid:23)
Loans held for investment, net of allowance for loan losses
(cid:21)(cid:15)(cid:19)(cid:28)(cid:23)(cid:15)(cid:26)(cid:27)(cid:20)
1,377,173
(cid:28)(cid:24)(cid:23)(cid:15)(cid:27)(cid:23)(cid:28)
719,913
(cid:25)(cid:24)(cid:23)(cid:15)(cid:25)(cid:27)(cid:19)
Goodwill and core deposit intangibles, net
(cid:20)(cid:20)(cid:24)(cid:15)(cid:25)(cid:23)(cid:24)
(cid:25)(cid:22)(cid:15)(cid:24)(cid:27)(cid:28)
(cid:20)(cid:28)(cid:15)(cid:25)(cid:26)(cid:28)
19,237
(cid:20)(cid:28)(cid:15)(cid:25)(cid:19)(cid:19)
Total assets
Total deposits
Borrowings
Total liabilities
Total stockholders' equity
Tangible common equity*
Performance Ratios
Return on average assets (ROAA)
Return on average equity (ROAE)
Return on average tangible common equity (ROATCE)*
Yield on loans
Cost of interest-bearing deposits
Net interest margin
(cid:40)(cid:73)(cid:868)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)*
Non-interest income/average assets
Non-interest expense/average assets
Capital Ratios
Tier 1 Leverage Ratio
Common Equity Tier 1 Captial Ratio
Tier 1 Risk Based Capital Ratio
Total Risk Based Capital Ratio
Equity/Assets
Book value per share
Tangible book value per share*
Tangible common equity to tangible assets*
3,170,509
2,192,192
(cid:20)(cid:15)(cid:24)(cid:27)(cid:24)(cid:15)(cid:26)(cid:21)(cid:26)
(cid:20)(cid:15)(cid:20)(cid:26)(cid:23)(cid:15)(cid:24)(cid:20)(cid:24)
(cid:20)(cid:15)(cid:20)(cid:22)(cid:28)(cid:15)(cid:27)(cid:28)(cid:26)
(cid:21)(cid:15)(cid:22)(cid:27)(cid:21)(cid:15)(cid:19)(cid:20)(cid:22)
(cid:20)(cid:15)(cid:25)(cid:22)(cid:19)(cid:15)(cid:23)(cid:24)(cid:20)
(cid:20)(cid:15)(cid:21)(cid:20)(cid:24)(cid:15)(cid:28)(cid:20)(cid:23)
(cid:28)(cid:27)(cid:20)(cid:15)(cid:20)(cid:26)(cid:26)
(cid:28)(cid:23)(cid:26)(cid:15)(cid:22)(cid:20)(cid:28)
(cid:23)(cid:19)(cid:20)(cid:15)(cid:25)(cid:24)(cid:21)
293,909
(cid:20)(cid:28)(cid:23)(cid:15)(cid:19)(cid:25)(cid:23)
70,370
(cid:23)(cid:22)(cid:15)(cid:22)(cid:25)(cid:24)
(cid:21)(cid:15)(cid:26)(cid:28)(cid:25)(cid:15)(cid:22)(cid:25)(cid:24)
(cid:20)(cid:15)(cid:28)(cid:22)(cid:23)(cid:15)(cid:21)(cid:21)(cid:27)
(cid:20)(cid:15)(cid:23)(cid:20)(cid:27)(cid:15)(cid:23)(cid:28)(cid:23)
(cid:20)(cid:15)(cid:19)(cid:24)(cid:25)(cid:15)(cid:26)(cid:27)(cid:25)
(cid:20)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:19)(cid:21)(cid:23)
(cid:22)(cid:26)(cid:23)(cid:15)(cid:20)(cid:23)(cid:23)
(cid:21)(cid:24)(cid:26)(cid:15)(cid:28)(cid:25)(cid:23)
(cid:20)(cid:25)(cid:26)(cid:15)(cid:21)(cid:22)(cid:22)
117,729
(cid:20)(cid:22)(cid:28)(cid:15)(cid:27)(cid:26)(cid:22)
257,222
(cid:20)(cid:28)(cid:23)(cid:15)(cid:22)(cid:24)(cid:21)
131,153
(cid:27)(cid:21)(cid:15)(cid:20)(cid:22)(cid:22)
(cid:27)(cid:27)(cid:15)(cid:22)(cid:27)(cid:20)
(cid:19)(cid:17)(cid:27)(cid:23)(cid:8)
7.03%
(cid:28)(cid:17)(cid:27)(cid:20)(cid:8)
(cid:24)(cid:17)(cid:23)(cid:22)(cid:8)
0.79%
(cid:22)(cid:17)(cid:27)(cid:22)(cid:8)
0.55%
5.55%
(cid:25)(cid:17)(cid:26)(cid:24)(cid:8)
(cid:23)(cid:17)(cid:28)(cid:27)(cid:8)
(cid:19)(cid:17)(cid:25)(cid:24)(cid:8)
3.30%
0.75%
(cid:27)(cid:17)(cid:20)(cid:28)(cid:8)
(cid:28)(cid:17)(cid:25)(cid:25)(cid:8)
5.31%
0.55%
(cid:22)(cid:17)(cid:25)(cid:24)(cid:8)
(cid:19)(cid:17)(cid:26)(cid:27)(cid:8)
7.30%
9.99%
(cid:24)(cid:17)(cid:25)(cid:22)(cid:8)
(cid:19)(cid:17)(cid:23)(cid:28)(cid:8)
3.92%
(cid:19)(cid:17)(cid:25)(cid:26)(cid:8)
5.71%
(cid:27)(cid:17)(cid:21)(cid:26)(cid:8)
(cid:24)(cid:17)(cid:25)(cid:22)(cid:8)
0.53%
(cid:22)(cid:17)(cid:27)(cid:26)(cid:8)
(cid:25)(cid:20)(cid:17)(cid:22)(cid:28)(cid:8)
(cid:25)(cid:25)(cid:17)(cid:25)(cid:26)(cid:8)
(cid:25)(cid:25)(cid:17)(cid:28)(cid:23)(cid:8)
(cid:26)(cid:21)(cid:17)(cid:25)(cid:26)(cid:8)
(cid:26)(cid:21)(cid:17)(cid:21)(cid:25)(cid:8)
(cid:19)(cid:17)(cid:25)(cid:22)(cid:8)
(cid:21)(cid:17)(cid:26)(cid:23)(cid:8)
10.33%
(cid:20)(cid:20)(cid:17)(cid:24)(cid:25)(cid:8)
12.17%
(cid:20)(cid:21)(cid:17)(cid:24)(cid:23)(cid:8)
(cid:20)(cid:20)(cid:17)(cid:27)(cid:19)(cid:8)
(cid:21)(cid:24)(cid:17)(cid:25)(cid:21)
(cid:20)(cid:26)(cid:17)(cid:25)(cid:20)
(cid:27)(cid:17)(cid:23)(cid:21)(cid:8)
$
(cid:7)
(cid:19)(cid:17)(cid:25)(cid:20)(cid:8)
(cid:21)(cid:17)(cid:26)(cid:23)(cid:8)
(cid:20)(cid:20)(cid:17)(cid:27)(cid:20)(cid:8)
(cid:20)(cid:22)(cid:17)(cid:22)(cid:23)(cid:8)
(cid:20)(cid:23)(cid:17)(cid:21)(cid:24)(cid:8)
(cid:20)(cid:23)(cid:17)(cid:25)(cid:26)(cid:8)
11.77%
22.09
(cid:20)(cid:25)(cid:17)(cid:25)(cid:23)
9.13%
(cid:7)
$
0.71%
(cid:21)(cid:17)(cid:27)(cid:20)(cid:8)
(cid:28)(cid:17)(cid:23)(cid:26)(cid:8)
12.35%
(cid:20)(cid:22)(cid:17)(cid:27)(cid:24)(cid:8)
(cid:20)(cid:23)(cid:17)(cid:22)(cid:24)(cid:8)
10.55%
(cid:20)(cid:27)(cid:17)(cid:22)(cid:26)
15.97
(cid:27)(cid:17)(cid:22)(cid:26)(cid:8)
(cid:7)
(cid:7)
0.75%
(cid:22)(cid:17)(cid:19)(cid:27)(cid:8)
(cid:28)(cid:17)(cid:25)(cid:21)(cid:8)
N/A
(cid:20)(cid:22)(cid:17)(cid:20)(cid:25)(cid:8)
(cid:20)(cid:22)(cid:17)(cid:27)(cid:25)(cid:8)
10.02%
(cid:20)(cid:25)(cid:17)(cid:26)(cid:20)
(cid:20)(cid:22)(cid:17)(cid:24)(cid:23)
7.11%
(cid:7)
$
(cid:19)(cid:17)(cid:25)(cid:26)(cid:8)
2.99%
11.59%
N/A
17.01%
(cid:20)(cid:26)(cid:17)(cid:26)(cid:23)(cid:8)
12.27%
(cid:20)(cid:23)(cid:17)(cid:25)(cid:21)
11.97
(cid:26)(cid:17)(cid:27)(cid:28)(cid:8)
(cid:7)
(cid:7)
6
Selected Financial Highlights
(cid:13)(cid:49)(cid:82)(cid:81)(cid:16)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:868)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:17)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:86)(cid:72)(cid:72)(cid:3)(cid:824)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:26)(cid:3)(cid:29)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:821)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)
of Operations - Non-GAAP Financial Measures” for reconciliation to the most directly comparable GAAP measure.
Tangible Common Book Value* And Total Assets
Total Assets
TCBV per Share
)
s
n
o
i
l
l
i
m
$
(
s
t
e
s
s
A
l
a
t
o
T
$11.97
$13.54
$1,140
$1,175
$15.97
$1,586
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
(cid:7)(cid:20)(cid:27)(cid:17)(cid:19)(cid:19)
$17.61
$3,171
(cid:7)(cid:20)(cid:23)(cid:17)(cid:19)(cid:19)
$16.64
$2,192
$10.00
(cid:7)(cid:25)(cid:17)(cid:19)(cid:19)
$2.00
2013
2014
2015
2016
2017
T
C
B
V
p
e
r
S
h
a
r
e
(
$
)
Return on Average Tangible
Common Equity*
Revenue And
Net Interest Margin**
Net Interest Income
Fee Income
Net Interest Margin
)
%
i
(
y
t
i
u
q
E
n
o
m
m
o
C
e
l
b
g
n
a
T
e
g
a
r
e
v
A
n
o
n
r
u
t
e
R
9.99%
9.66%
9.81%
8.27%
6.75%
12.00%
10.00%
(cid:27)(cid:17)(cid:19)(cid:19)(cid:8)
(cid:25)(cid:17)(cid:19)(cid:19)(cid:8)
(cid:23)(cid:17)(cid:19)(cid:19)(cid:8)
2.00%
$120,000
$100,000
(cid:7)(cid:27)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:7)(cid:25)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:7)(cid:23)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
$20,000
)
s
0
0
0
$
(
e
u
n
e
v
e
R
l
a
t
o
T
3.87%
3.92%
3.65%
3.83%
(cid:23)(cid:17)(cid:19)(cid:19)(cid:8)
15%
(cid:27)(cid:24)(cid:8)
3.30%
(cid:20)(cid:25)(cid:8)
(cid:27)(cid:23)(cid:8)
,
4
8
5
2
6
$
,
1
7
1
1
0
1
$
3.50%
3.00%
2.50%
2.00%
1.50%
15%
(cid:27)(cid:24)(cid:8)
15%
(cid:27)(cid:24)(cid:8)
(cid:20)(cid:25)(cid:8)
(cid:27)(cid:23)(cid:8)
,
7
2
6
8
4
$
,
9
4
0
9
4
$
,
6
2
6
4
5
$
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
N
e
t
I
n
t
e
r
e
s
t
M
a
r
g
n
i
(
%
)
Efficiency Ratio* And
NIE/Average Assets
(cid:40)(cid:73)(cid:868)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:53)(cid:68)(cid:87)(cid:76)(cid:82)
Noninterest Expense/Average Assets
Diluted EPS
And Net Income
Net Income Allocable to
Common Stockholders
Diluted EPS
)
%
(
o
i
t
a
R
y
c
n
e
i
c
i
ff
E
(cid:26)(cid:23)(cid:17)(cid:19)(cid:8)
72.0%
2.99%
3.08%
70.0%
(cid:25)(cid:27)(cid:17)(cid:19)(cid:8)
(cid:25)(cid:25)(cid:17)(cid:19)(cid:8)
(cid:25)(cid:23)(cid:17)(cid:19)(cid:8)
2.81%
2.74%
2.74%
%
3
.
2
7
%
7
.
2
7
%
9
.
6
6
%
7
.
6
6
%
4
.
1
6
2013
2014
2015
2016
2017
3.30%
3.10%
2.90%
2.70%
2.50%
2.30%
2.10%
i
C
o
r
e
N
o
n
n
t
e
r
e
s
t
E
x
p
/
A
v
g
.
.
A
s
s
e
t
s
(
%
)
)
s
0
0
0
$
(
n
o
m
m
o
C
o
t
e
m
o
c
n
I
t
e
N
$25,000
$1.54
$1.62
(cid:7)(cid:20)(cid:17)(cid:27)(cid:19)
$20,000
$1.30
$15,000
$10,000
$0.92
$1.07
$5,000
5
9
8
6
$
,
9
7
2
8
$
,
,
3
2
1
0
1
$
3
7
3
9
$
,
,
9
4
6
0
2
$
2013
2014
2015
2016
2017
(cid:7)(cid:20)(cid:17)(cid:23)(cid:19)
$1.00
(cid:7)(cid:19)(cid:17)(cid:25)(cid:19)
$0.20
D
i
l
u
t
e
d
E
P
S
(
$
)
(cid:13)(cid:49)(cid:82)(cid:81)(cid:16)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:868)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:17)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:86)(cid:72)(cid:72)(cid:3)(cid:824)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:26)(cid:3)(cid:29)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:821)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)
of Operations - Non-GAAP Financial Measures” for reconciliation to the most directly comparable GAAP measure.
**Does not include gains on sales of securities or acquisitions.
7
Selected Financial Highlights
Board of Directors
Brad S. Elliott
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:9)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)
Equity Bancshares, Inc.
Wichita, Kansas
Gary C. Allerheiligen
CPA/Consultant
Wichita, Kansas
James L. Berglund
Retired President & CEO
Sunflower Bank
Salina, Kansas
Jeff A. Bloomer
President & COO
(cid:54)(cid:88)(cid:81)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:50)(cid:76)(cid:79)(cid:868)(cid:72)(cid:79)(cid:71)(cid:3)(cid:54)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92)
Wichita, Kansas
Dan R. Bowers
Attorney
Harrison, Arkansas
Roger A. Buller
SVP & Regional Manager
Benjamin F. Edwards & Co.
Wichita, Kansas
Michael R. Downing
Retired President
Ellis State Bank
Ellis, Kansas
P. John Eck
Owner,
AGV Corp., Eck Agency, Inc.
Wichita, Kansas
Gregory L. Gaeddert
Managing Partner
B12 Capital Partners, LLC
Leawood, Kansas
Randee R. Koger
Attorney & Partner
Wise & Reber L.C.
McPherson, Kansas
Gregory H. Kossover
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)
Equity Bancshares, Inc.
Wichita, Kansas
Jerry P. Maland
Retired Chairman & CEO
Community First Bancshares, Inc.
Harrison, Arkansas
Shawn D. Penner
Owner, Shamrock Development, LLC
Wichita, Kansas
Harvey R. Sorensen
Attorney & Partner
Foulston Siefkin LLP
Wichita, Kansas
Members of the Equity Bancshares Board of Directors.(cid:3)(cid:37)(cid:68)(cid:70)(cid:78)(cid:3)(cid:85)(cid:82)(cid:90)(cid:15)(cid:3)(cid:79)(cid:72)(cid:73)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:29)(cid:3)(cid:39)(cid:68)(cid:81)(cid:3)(cid:37)(cid:82)(cid:90)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:45)(cid:72)(cid:85)(cid:85)(cid:92)(cid:3)
Maland, Roger Buller, Brad Elliott, Jeff Bloomer, Gary Allerheiligen, Michael Downing. Front row,
(cid:79)(cid:72)(cid:73)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:29)(cid:3)(cid:42)(cid:85)(cid:72)(cid:74)(cid:3)(cid:46)(cid:82)(cid:86)(cid:86)(cid:82)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:42)(cid:85)(cid:72)(cid:74)(cid:3)(cid:42)(cid:68)(cid:72)(cid:71)(cid:71)(cid:72)(cid:85)(cid:87)(cid:15)(cid:3)(cid:45)(cid:82)(cid:75)(cid:81)(cid:3)(cid:40)(cid:70)(cid:78)(cid:15)(cid:3)(cid:53)(cid:68)(cid:81)(cid:71)(cid:72)(cid:72)(cid:3)(cid:46)(cid:82)(cid:74)(cid:72)(cid:85)(cid:15)(cid:3)(cid:43)(cid:68)(cid:85)(cid:89)(cid:72)(cid:92)(cid:3)(cid:54)(cid:82)(cid:85)(cid:72)(cid:81)(cid:86)(cid:72)(cid:81)(cid:15)(cid:3)(cid:54)(cid:75)(cid:68)(cid:90)(cid:81)(cid:3)
Penner, Jim Berglund.
Market Leadership
Ozark Mountain
Ozark Mountain Regional President
Ozark Mountain CEO
(cid:50)(cid:93)(cid:68)(cid:85)(cid:78)(cid:3)(cid:48)(cid:82)(cid:88)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
President
President
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
SVP, Bank Manager
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
SVP, Credit Analyst
(cid:57)(cid:51)(cid:15)(cid:3)(cid:48)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
VP, Bank Manager
Ann B. Main
David C. Morton
(cid:39)(cid:68)(cid:81)(cid:81)(cid:92)(cid:3)(cid:53)(cid:17)(cid:3)(cid:38)(cid:85)(cid:76)(cid:81)(cid:72)(cid:85)(cid:3)
Elizabeth S. Kelley
Deretha K. Walker
(cid:45)(cid:68)(cid:92)(cid:3)(cid:37)(cid:17)(cid:3)(cid:40)(cid:85)(cid:87)(cid:72)(cid:79)(cid:3)
Tammy L. Bullock
(cid:53)(cid:76)(cid:70)(cid:78)(cid:3)(cid:38)(cid:17)(cid:3)(cid:39)(cid:68)(cid:81)(cid:76)(cid:72)(cid:79)(cid:3)
Rita M. Herrmann
(cid:37)(cid:88)(cid:85)(cid:81)(cid:72)(cid:87)(cid:87)(cid:68)(cid:3)(cid:46)(cid:17)(cid:3)(cid:37)(cid:68)(cid:88)(cid:72)(cid:85)(cid:3)
Janet D. David
(cid:38)(cid:82)(cid:81)(cid:81)(cid:76)(cid:72)(cid:3)(cid:46)(cid:17)(cid:3)(cid:41)(cid:72)(cid:68)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:87)(cid:82)(cid:81)(cid:72)(cid:3) (cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
Amanda L. Lowry
Harry H. Melhorn
Carla K. Riley
(cid:39)(cid:88)(cid:86)(cid:87)(cid:76)(cid:81)(cid:3)(cid:36)(cid:17)(cid:3)(cid:58)(cid:68)(cid:79)(cid:78)(cid:72)(cid:85)(cid:3)
VP, Bank Manager
VP, Mortgage Loans
VP, Teller Supervisor
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
Harrison
Harrison
(cid:43)(cid:68)(cid:85)(cid:85)(cid:76)(cid:86)(cid:82)(cid:81)
Eureka Springs
Berryville
(cid:40)(cid:88)(cid:85)(cid:72)(cid:78)(cid:68)(cid:3)(cid:54)(cid:83)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)
Eureka Springs
(cid:51)(cid:72)(cid:68)(cid:3)(cid:53)(cid:76)(cid:71)(cid:74)(cid:72)
Harrison
(cid:43)(cid:68)(cid:85)(cid:85)(cid:76)(cid:86)(cid:82)(cid:81)
Pea Ridge
(cid:40)(cid:88)(cid:85)(cid:72)(cid:78)(cid:68)(cid:3)(cid:54)(cid:83)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)
Harrison
Harrison
Harrison
(cid:37)(cid:72)(cid:85)(cid:85)(cid:92)(cid:89)(cid:76)(cid:79)(cid:79)(cid:72)
Wichita
(cid:39)(cid:68)(cid:89)(cid:76)(cid:71)(cid:3)(cid:36)(cid:17)(cid:3)(cid:46)(cid:76)(cid:81)(cid:74)(cid:3)
Andrew L. Chaney
(cid:55)(cid:85)(cid:68)(cid:70)(cid:72)(cid:92)(cid:3)(cid:36)(cid:17)(cid:3)(cid:39)(cid:85)(cid:72)(cid:76)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:39)(cid:72)(cid:85)(cid:85)(cid:76)(cid:70)(cid:78)(cid:3)(cid:58)(cid:17)(cid:3)(cid:43)(cid:68)(cid:92)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:47)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
VP, Commercial Banking
(cid:57)(cid:51)(cid:15)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:58)(cid:76)(cid:70)(cid:75)(cid:76)(cid:87)(cid:68)
Wichita
(cid:58)(cid:76)(cid:70)(cid:75)(cid:76)(cid:87)(cid:68)
(cid:58)(cid:76)(cid:70)(cid:75)(cid:76)(cid:87)(cid:68)
Kansas City
(cid:45)(cid:17)(cid:3)(cid:38)(cid:75)(cid:85)(cid:76)(cid:86)(cid:3)(cid:53)(cid:92)(cid:68)(cid:81)(cid:3)
Michael A. Mange
Brian E. Orr
Ronan J. Sramek
(cid:48)(cid:76)(cid:70)(cid:75)(cid:68)(cid:72)(cid:79)(cid:3)(cid:43)(cid:17)(cid:3)(cid:39)(cid:82)(cid:92)(cid:79)(cid:72)(cid:3)
(cid:36)(cid:79)(cid:72)(cid:91)(cid:3)(cid:47)(cid:17)(cid:3)(cid:42)(cid:82)(cid:82)(cid:71)(cid:83)(cid:68)(cid:86)(cid:87)(cid:72)(cid:85)(cid:3)
(cid:47)(cid:68)(cid:85)(cid:85)(cid:92)(cid:3)(cid:58)(cid:17)(cid:3)(cid:43)(cid:76)(cid:79)(cid:79)(cid:76)(cid:72)(cid:85)(cid:3)
Sharon R. Holmes
(cid:54)(cid:75)(cid:72)(cid:85)(cid:85)(cid:76)(cid:3)(cid:47)(cid:17)(cid:3)(cid:43)(cid:82)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)
(cid:48)(cid:68)(cid:85)(cid:78)(cid:3)(cid:54)(cid:17)(cid:3)(cid:45)(cid:68)(cid:81)(cid:70)(cid:93)(cid:72)(cid:90)(cid:86)(cid:78)(cid:76)(cid:3)
(cid:45)(cid:88)(cid:86)(cid:87)(cid:76)(cid:81)(cid:3)(cid:49)(cid:17)(cid:3)(cid:46)(cid:72)(cid:79)(cid:79)(cid:92)(cid:3)
(cid:48)(cid:68)(cid:85)(cid:78)(cid:3)(cid:58)(cid:17)(cid:3)(cid:54)(cid:87)(cid:72)(cid:76)(cid:81)(cid:80)(cid:68)(cid:81)(cid:3)
(cid:38)(cid:75)(cid:72)(cid:85)(cid:92)(cid:79)(cid:3)(cid:36)(cid:17)(cid:3)(cid:55)(cid:75)(cid:82)(cid:80)(cid:83)(cid:86)(cid:82)(cid:81)(cid:3)
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
SVP, Director of Treasury Management
VP, Investment Sales Manager
VP, Mortgage Manager
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
VP, Retail Sales Manager
(cid:57)(cid:51)(cid:15)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:47)(cid:72)(cid:72)(cid:10)(cid:86)(cid:3)(cid:54)(cid:88)(cid:80)(cid:80)(cid:76)(cid:87)
Kansas City
Lee's Summit
Kansas City
(cid:50)(cid:89)(cid:72)(cid:85)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)
(cid:50)(cid:89)(cid:72)(cid:85)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)
(cid:47)(cid:72)(cid:72)(cid:10)(cid:86)(cid:3)(cid:54)(cid:88)(cid:80)(cid:80)(cid:76)(cid:87)
Kansas City
(cid:46)(cid:68)(cid:81)(cid:86)(cid:68)(cid:86)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)
(cid:46)(cid:68)(cid:81)(cid:86)(cid:68)(cid:86)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)
(cid:50)(cid:89)(cid:72)(cid:85)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)
(cid:50)(cid:89)(cid:72)(cid:85)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)
(cid:46)(cid:68)(cid:81)(cid:86)(cid:68)(cid:86)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)
8
Board of Directors & Leadership
Senior Leadership
Brad S. Elliott
Chairman & Chief
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)
Gregory H. Kossover
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)
Wendell L. Bontrager
President, Equity Bank
Julie A. Huber
EVP, Strategic Initiatives
Patrick J. Harbert
EVP, Community Markets
President
Rolando Mayans
(cid:40)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)
John M. Blakeney
EVP, Chief Information
(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)
Jennifer A. Johnson
EVP, Chief Operations
(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)
Elizabeth A. Money
EVP, Retail Director
Patrick L. Salmans
SVP, Human Resources
Director
Mark C. Parman
President, Kansas City
Jeremy E. Machain
President, Wichita
John J. Hanley
SVP, Senior Marketing
Director
Michael E. Bezanson
Tulsa CEO
Oklahoma - Community
Ponca City CEO
Mark T. Detten
(cid:39)(cid:68)(cid:85)(cid:76)(cid:81)(cid:3)(cid:36)(cid:17)(cid:3)(cid:46)(cid:76)(cid:85)(cid:70)(cid:75)(cid:72)(cid:81)(cid:69)(cid:68)(cid:88)(cid:72)(cid:85)(cid:3) (cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
Erin M. Liberton
(cid:47)(cid:68)(cid:85)(cid:85)(cid:92)(cid:3)(cid:40)(cid:17)(cid:3)(cid:37)(cid:88)(cid:70)(cid:78)(cid:3)
(cid:58)(cid:17)(cid:3)(cid:55)(cid:85)(cid:82)(cid:92)(cid:3)(cid:38)(cid:68)(cid:80)(cid:83)(cid:69)(cid:72)(cid:79)(cid:79)(cid:3)
(cid:54)(cid:87)(cid:72)(cid:89)(cid:72)(cid:3)(cid:40)(cid:17)(cid:3)(cid:47)(cid:76)(cid:81)(cid:89)(cid:76)(cid:79)(cid:79)(cid:72)(cid:3)
(cid:42)(cid:68)(cid:85)(cid:92)(cid:3)(cid:58)(cid:17)(cid:3)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:3)
Mary M. Austin
SVP, Retail Sales Manager
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
VP, Bank Manager
VP, Special Assets Manager
(cid:57)(cid:51)(cid:15)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:53)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
Timothy A. Kerr
Wichita
(cid:58)(cid:76)(cid:70)(cid:75)(cid:76)(cid:87)(cid:68)
(cid:37)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:57)(cid:17)(cid:3)(cid:46)(cid:82)(cid:72)(cid:75)(cid:81)(cid:3)
Mandi R. Martinson VP, Talent Development Specialist Wichita
VP, Senior Credit Manager
Barbara K. Mize
Wichita
VP, Systems Operations Manager Wichita
Jesse A. Nienke
(cid:58)(cid:76)(cid:70)(cid:75)(cid:76)(cid:87)(cid:68)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:46)(cid:17)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:86)(cid:81)(cid:72)(cid:79)(cid:79)(cid:3)
Harrison
Shannon M. Snow
VP, Information Technology
Kristof P. Slupkowski VP, Credit Manager
Wichita
VP, Human Resources Manager Wichita
Mark W. Taylor
Ponca City
(cid:51)(cid:82)(cid:81)(cid:70)(cid:68)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)
Ponca City
(cid:51)(cid:82)(cid:81)(cid:70)(cid:68)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)
(cid:51)(cid:82)(cid:81)(cid:70)(cid:68)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)
(cid:51)(cid:82)(cid:81)(cid:70)(cid:68)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)
(cid:49)(cid:72)(cid:90)(cid:78)(cid:76)(cid:85)(cid:78)
Newkirk
Quality Care
Southeast Kansas
Monique C. Kittle
Theresa M. Nixon
Barbara M. Noyes
Robert E. Quaney
Beverly D. Axmann
SVP, Director of Enterprise Risk Wichita
SVP, Loan Operations Manager Wichita
Wichita
SVP, Controller
SVP, Finance
Wichita
VP, Internal Financial Reporting Wichita
Manager
VP, Deposit Operations Manager Wichita
Evette P. Beckman
(cid:58)(cid:76)(cid:70)(cid:75)(cid:76)(cid:87)(cid:68)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:37)(cid:85)(cid:68)(cid:71)(cid:79)(cid:72)(cid:92)(cid:3)(cid:39)(cid:17)(cid:3)(cid:37)(cid:76)(cid:86)(cid:70)(cid:75)(cid:82)(cid:73)(cid:73)(cid:3)
VP, Corporate Training Manager Wichita
J. Mathew Brewer
Wichita
VP, IT Director
James R. Brunsell
Wichita
Stephen L. Fisher
VP, Senior Accountant
Wichita
Kenneth W. Furgason VP, External Financial
Reporting Manager
(cid:45)(cid:76)(cid:80)(cid:3)(cid:47)(cid:17)(cid:3)(cid:38)(cid:79)(cid:88)(cid:69)(cid:76)(cid:81)(cid:72)(cid:3) (cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:47)(cid:82)(cid:85)(cid:76)(cid:3)(cid:47)(cid:17)(cid:3)(cid:46)(cid:72)(cid:79)(cid:79)(cid:72)(cid:92)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)
(cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)
Topeka
Jason L. Pickerell
(cid:54)(cid:68)(cid:85)(cid:68)(cid:3)(cid:40)(cid:17)(cid:3)(cid:47)(cid:76)(cid:72)(cid:86)(cid:3)
(cid:3)
Janet A Thayer
President
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
VP, Bank Manager
Topeka
(cid:3) (cid:55)(cid:82)(cid:83)(cid:72)(cid:78)(cid:68)
Topeka
Tulsa
John B. "Jay" Morey President
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)(cid:3)
(cid:3)
(cid:45)(cid:17)(cid:3)(cid:53)(cid:92)(cid:68)(cid:81)(cid:3)(cid:60)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)
SVP, Commercial Lender
Ryan K. Schrieber
David C. Bonds
VP, Credit Analyst
Kimberly D. Edwards VP, Bank Manager
Tulsa
(cid:55)(cid:88)(cid:79)(cid:86)(cid:68)
Tulsa
Tulsa
Tulsa
9
Senior Leadership & Management
(cid:45)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:40)(cid:17)(cid:3)(cid:42)(cid:82)(cid:79)(cid:71)(cid:73)(cid:68)(cid:85)(cid:69)(cid:3)
Robert T. Potts
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
VP, Treasury Management
(cid:55)(cid:88)(cid:79)(cid:86)(cid:68)
Tulsa
Western Kansas
Western Kansas
Regional President
President
President
SVP, Retail Sales Manager
Michael C. Mense
Dale F. Gottschalk
Allen Weber
Cheri L. Mense
(cid:54)(cid:87)(cid:72)(cid:89)(cid:72)(cid:81)(cid:3)(cid:47)(cid:17)(cid:3)(cid:54)(cid:70)(cid:75)(cid:82)(cid:72)(cid:81)(cid:71)(cid:68)(cid:79)(cid:72)(cid:85)(cid:3) (cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:45)(cid:72)(cid:73)(cid:73)(cid:3)(cid:55)(cid:17)(cid:3)(cid:55)(cid:82)(cid:85)(cid:79)(cid:88)(cid:72)(cid:80)(cid:78)(cid:72)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:53)(cid:68)(cid:81)(cid:71)(cid:92)(cid:3)(cid:46)(cid:17)(cid:3)(cid:41)(cid:68)(cid:85)(cid:69)(cid:72)(cid:85)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:47)(cid:72)(cid:89)(cid:76)(cid:3)(cid:39)(cid:17)(cid:3)(cid:42)(cid:72)(cid:87)(cid:93)(cid:3)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:54)(cid:87)(cid:68)(cid:81)(cid:79)(cid:72)(cid:92)(cid:3)(cid:39)(cid:17)(cid:3)(cid:50)(cid:86)(cid:87)(cid:80)(cid:72)(cid:92)(cid:72)(cid:85)(cid:3)
Hays
Ellis
Hoxie
(cid:42)(cid:85)(cid:76)(cid:81)(cid:81)(cid:72)(cid:79)(cid:79)
(cid:43)(cid:82)(cid:91)(cid:76)(cid:72)
(cid:43)(cid:82)(cid:91)(cid:76)(cid:72)
(cid:42)(cid:85)(cid:76)(cid:81)(cid:81)(cid:72)(cid:79)(cid:79)
(cid:52)(cid:88)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)
Western Missouri
Regional President
President
President
President
President
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3) (cid:58)(cid:68)(cid:85)(cid:85)(cid:72)(cid:81)(cid:86)(cid:69)(cid:88)(cid:85)(cid:74)
(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3)
Joshua J. Means
Cheryl A. Barnson
Doug F. Larkin
Rhonda R. Scott
Ed R. Stewart
(cid:42)(cid:85)(cid:72)(cid:74)(cid:82)(cid:85)(cid:92)(cid:3)(cid:49)(cid:17)(cid:3)(cid:43)(cid:68)(cid:79)(cid:79)(cid:3)
(cid:40)(cid:85)(cid:76)(cid:70)(cid:3)(cid:40)(cid:17)(cid:3)(cid:46)(cid:85)(cid:68)(cid:88)(cid:86)(cid:3)
Melinda A. Mitchell VP, Retail Sales Manager Western Missouri
Sandra J. Rice
VP, Financial Advisor
(cid:55)(cid:72)(cid:85)(cid:85)(cid:92)(cid:3)(cid:47)(cid:17)(cid:3)(cid:55)(cid:75)(cid:82)(cid:80)(cid:83)(cid:86)(cid:82)(cid:81)(cid:3) (cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:3) (cid:43)(cid:76)(cid:74)(cid:74)(cid:76)(cid:81)(cid:86)(cid:89)(cid:76)(cid:79)(cid:79)(cid:72)
Higginsville
VP, Registered Sales
Jill K. Warren
Western Missouri
Sedalia
Warrensburg
Windsor
Warsaw
(cid:54)(cid:72)(cid:71)(cid:68)(cid:79)(cid:76)(cid:68)
Sedalia
Timeline
2003
2005
2014
Equity Bancshares, Inc.
purchases National Bank
of Andover.
Equity acquires two
branches in Wichita from
Hillcrest Bank.
Equity completes repayment of TARP funds acquired in FCB merger.
Equity repurchases more than 1.3 million common shares, reinvests
in company. Equity opens new branch at 1555 N Webb Rd in Wichita.
2007 Equity merges with Signature
(cid:37)(cid:68)(cid:81)(cid:70)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:83)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:43)(cid:76)(cid:79)(cid:79)(cid:15)(cid:3)(cid:46)(cid:54)(cid:30)
Equity opens full-service branch in
Lee's Summit, Missouri.
2015 Equity merges with First Independence
Corporation, expands into Southeast
Kansas.
Equity completes Initial Public Offering
(cid:82)(cid:81)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:25)(cid:17)
signaturerr bank®
2008
Equity expands to Hays and Ellis, Kansas,
acquiring Ellis State Bank.
2009
Equity opens two Overland Park, Kansas
(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:29)(cid:3)(cid:44)(cid:16)(cid:23)(cid:22)(cid:24)(cid:3)(cid:9)(cid:3)(cid:53)(cid:82)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:87)(cid:76)(cid:82)(cid:70)(cid:75)(cid:3)(cid:9)(cid:3)(cid:20)(cid:24)(cid:20)(cid:86)(cid:87)(cid:17)
Equity completes $20 million capital raise.
2011 Equity acquires four locations in
Topeka, Kansas, from Citizens Bank &
Trust.
2012 Equity acquires First Community
(cid:37)(cid:68)(cid:81)(cid:70)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:20)(cid:23)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)
Kansas and Missouri.
2016 Equity merges with Community First
Bancshares, Inc. of Harrison, Arkansas.
(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:86)(cid:3)(cid:7)(cid:22)(cid:24)(cid:17)(cid:23)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)
investment in December.
2017 Equity completes merger with Prairie
State Bancshares, Inc. in Western
Kansas.
Equity enters Oklahoma, completing
mergers with Eastman National Bank of
Ponca City and Patriot Bank of Tulsa.
Equity announces mergers with First
National Bank of Liberal, Kansas, and
Adams Dairy Bank of Blue Springs, Mo.
Mergers are expected to close in Q2
(cid:21)(cid:19)(cid:20)(cid:27)(cid:17)
10 Management & Equity Bancshares, Inc. Timeline
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:3)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2017
OR
(cid:4)(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number 001-37624
EQUITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Kansas
(State or other jurisdiction of
incorporation or organization)
p
g
72-1532188
(I.R.S. Employer
Identification No.)
7701 East Kellogg Drive, Suite 300
Wichita, KS
p
(Address of principal executive offices)
p
Registrant’s telephone number, including area code: 316.612.6000
Securities registered pursuant to Section 12(b) of the Act:
67207
p(Zip Code)
Title of each class
Class A Common Stock, par value $0.01 per share
p
p
Name of exchange on which registered
NASDAQ Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:3) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:3) No (cid:3)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (cid:3) No (cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes (cid:3) No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. (cid:5)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
r
Large accelerated filer
Non-accelerated filer
(cid:3)
(cid:3) (Do not check if a smaller reporting company)
(cid:4)
(cid:3)
(cid:4)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3) No (cid:3)
As of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s
voting and non-voting common stock held by non-affiliates was $310.9 million.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Accelerated filer
Smaller reporting company
Emerging growth company
ff
r
Class A Common Stock, par value $0.01 per share
Class B Non-Voting Common stock, par value $0.01 per share
Shares outstanding as of
March 7, 2018
14,605,607
0
Portions of the registrant’s Proxy Statement relating to the 2018 Annual Meeting of Stockholders, which will be filed within 120 days after December 31,
2017, are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE:
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Part IV
Item 15.
Exhibits, Financial Statement Schedules
3
24
48
48
50
50
51
54
56
91
93
F-1
F-2
F-3
F-4
F-5
F-7
F-9
94
94
94
95
95
95
95
95
96
Important Notice about Information in this Annual Report on Form 10-K
Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to “we,”
“our,” “us,” “the Company” and “Equity” refer to Equity Bancshares, Inc. and its consolidated subsidiaries, including Equity
Bank, which we sometimes refer to as “Equity Bank,” “the Bank” or “our Bank.”
The information contained in this Annual Report on Form 10-K is accurate only as of the date of this annual report and
as of the dates specified herein.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).” These forward-looking statements reflect our current views with respect to, among other
things, future events and our 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 our
industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, we caution 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 we
believe 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. When
considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described
in “Item 1A – Risk Factors” of this Annual Report on Form 10-K.
There are or will be important factors that could cause our actual results to differ materially from those indicated in
these forward-looking statements, including, but not limited to, the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
an economic downturn, especially one affecting our core market areas;
the occurrence of various events that negatively impact the real estate market, since a significant portion of our
loan portfolio is secured by real estate;
difficult or unfavorable conditions in the market for financial products and services generally;
interest rate fluctuations which could have an adverse effect on our profitability;
external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the
interest rate policies of the Board of Governors of the Federal Reserve System, or the Federal Reserve, inflation
or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings
habits which may have an adverse impact on our financial condition;
continued or increasing competition from other financial institutions, credit unions, and non-bank financial
services companies, many of which are subject to different regulations than we are;
costs arising from the environmental risks associated with making loans secured by real estate;
losses resulting from a decline in the credit quality of the assets that we hold;
the effects of new federal tax laws, or changes to existing federal tax laws;
inadequacies in our allowance for loan losses which could require us to take a charge to earnings and thereby
adversely affect our financial condition;
inaccuracies or changes in the appraised value of real estate securing the loans we originate that could lead to
losses if the real estate collateral is later foreclosed upon and sold at a price lower than the appraised value;
the costs of integrating the businesses we acquire which may be greater than expected;
challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services;
a lack of liquidity resulting from decreased loan repayment rates, lower deposit balances, or other factors;
1
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
restraints on the ability of Equity Bank to pay dividends to us which could limit our liquidity;
the loss of our largest loan and depositor relationships;
limitations on our ability to lend and to mitigate the risks associated with our lending activities as a result of our
size and capital position;
additional regulatory requirements and restrictions on our business which could impose additional costs on us;
increased capital requirements imposed by banking regulators which may require us to raise capital at a time
when capital is not available on favorable terms or at all;
a failure in the internal controls we have implemented to address the risks inherent to the business of banking;
inaccuracies in our assumptions about future events which could result in material differences between our
financial projections and actual financial performance;
the departure of key members of our management personnel or our inability to hire qualified management
personnel;
disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information
technology systems;
unauthorized access to nonpublic personal information of our customers, which could expose us to litigation or
reputational harm;
disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of
our critical processing functions;
required implementation of new accounting standards that significantly change certain of our existing recognition
practices;
the occurrence of adverse weather or manmade events which could negatively affect our core markets or disrupt
our operations;
an increase in FDIC deposit insurance assessments which could adversely affect our earnings;
an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new
technologies; and
other factors that are discussed in “Item 1A – Risk Factors.”
The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary
statements that are included in this Annual Report on Form 10-K. If one or more events related to these or other risks or
uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from
what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any
forward-looking statement speaks only as of the date when it is made and we do 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, we cannot assess the impact of each factor on our 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 Annual Report on Form 10-K 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 we or persons acting on our behalf may issue.
2
Part I
Item 1: Business
Our Company
We are a bank holding company headquartered in Wichita, Kansas. Our wholly-owned banking subsidiary, Equity
Bank, provides a broad range of financial services primarily to businesses and business owners as well as individuals through
our network of 42 full service branches located in Arkansas, Kansas, Missouri and Oklahoma. As of December 31, 2017, we
had, on a consolidated basis, total assets of $3.17 billion, total deposits of $2.38 billion, total loans (net of allowances) of
$2.09 billion and total stockholders’ equity of $374.1 million.
Our principal objective is to increase stockholder value and generate consistent earnings growth by expanding our
commercial banking franchise both organically and through strategic acquisitions. We strive to provide an enhanced banking
experience for our customers by providing them with a comprehensive suite of sophisticated banking products and services
tailored to meet their needs, while delivering the high-quality, relationship-based customer service of a community bank.
Our History and Growth
We were founded in November 2002 by our Chairman and CEO, Brad S. Elliott. Mr. Elliott believed that, as a result
of in-market consolidation, there existed an opportunity to build an attractive commercial banking franchise and create long-
term value for our stockholders. Following thirteen years’ experience as a finance executive, including serving as a Regional
President for a Kansas bank with over $1.0 billion in assets, Mr. Elliott implemented his banking vision of developing a
strategic consolidator of community banks and a destination for seasoned bankers and business persons who share our
entrepreneurial spirit. In 2003, we raised capital from 23 local investors to finance the acquisition of National Bank of
Andover in Andover, Kansas. At the time of our acquisition, National Bank of Andover had $32 million in assets and was
subject to a regulatory enforcement agreement with the Office of the Comptroller of the Currency (“OCC”). Subsequent to
our acquisition of National Bank of Andover, we changed its name to Equity Bank and instilled in its commercial and retail
staff our entrepreneurial spirit and disciplined credit culture. Within eight months of the acquisition, the enforcement action
with the OCC was terminated.
We believe we have a successful track record of selectively acquiring, integrating and consolidating community banks
and branch networks. Our acquisition activity includes the following transactions.
•
•
•
•
•
•
•
•
June 2003 – Acquired National Bank of Andover in Andover, Kansas for $3 million. At the time of our
acquisition, National Bank of Andover had $32 million in total assets.
February 2005 – Acquired two branches of Hillcrest Bank, N.A. in Wichita, Kansas, which increased our
deposits by $66 million. In conjunction with this acquisition, we relocated our headquarters to our current
principal executive offices in Wichita.
June 2006 – Acquired the Mortgage Centre of Wichita and integrated it into our Bank as a department to expand
our mortgage loan platform.
October 2006 – Acquired a Missouri charter from First National Bank in Sarcoxie, Missouri, which allowed us to
subsequently open a full service branch in Lee’s Summit, Missouri in 2007.
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November 2007 – Acquired Signature Bancshares, Inc. in Spring Hill, Kansas, which provided us entry into the
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Overland Park, Kansas market.
August 2008 – Acquired Ellis State Bank with locations in Ellis and Hays, Kansas.
December 2011 – Acquired four branches of Citizens Bank and Trust in Topeka, Kansas, which increased our
deposits by $110 million.
October 2012 – Acquired First Community Bancshares, Inc. in Overland Park, Kansas, which increased our
deposits by approximately $515 million. At the time of acquisition, First Community had total assets of
approximately $595 million, which significantly increased our total asset size and provided us with ten additional
branches in Western Missouri and five additional branches in Kansas City.yy
3
•
•
•
•
5
October 2015 – Acquired First Independence Corporation of Independence, the registered savings and loan
holding company for First Federal Savings & Loan of Independence, based in Independence, Kansas. First
Independence operated four full service branches in Southeastern Kansas. At the time of acquisition, First
Independence had consolidated total assets of $135.0 million, total deposits of $87.1 million and total loans of
$89.9 million.
6
November 2016 – Acquired Community First Bancshares, Inc. in Harrison, Arkansas, which increased our
deposits by $375.4 million. At the time of acquisition, Community First had total assets of $462.9 million and
five locations in Arkansas.
March 2017 – 7 Acquired Prairie State Bancshares, Inc. (“Prairie”) in Hoxie, Kansas, which increased our deposits
by $125.4 million. At the time of acquisition, Prairie had total assets of $153.1 million and three locations in
western Kansas.
7
November 2017 – Acquired Eastman National Bancshares, Inc. (“Eastman”), which had a total of four branches
in Ponca City and Newkirk, Oklahoma. The acquisition increased our deposits by $224.1 million, our loans by
$177.9 million and our total assets by $259.7 million. In addition, at the same time, we acquired Cache
Holdings, Inc. (“Cache”) in Tulsa, Oklahoma. Cache was the holding company for Patriot Bank and had one
branch in Tulsa. The acquisition of Cache added $278.7 million in deposits, $300.7 million in loans, and $324.6
in total assets.
In conjunction with our strategic acquisition growth, we strive to reposition and improve the loan portfolio and deposit
mix of the banks we acquire. Following our acquisitions, we focus on identifying and disposing of problematic loans and
replacing them with higher quality loans generated organically. In addition, we have focused on growth in our commercial
loan portfolio, which we believe generally offers higher return opportunities than our consumer loan portfolio, primarily by
hiring additional talented bankers, particularly in our metropolitan markets, and incentivizing our bankers to expand their
commercial banking relationships. We also seek to increase our most attractive deposit accounts, primarily by growing
deposits in our community markets and cross-selling our depository products to our loan customers.
As a result of these strategic and organic growth efforts, since our inception through December 31, 2017, we have
expanded our team of full-time equivalent employees from 19 to 526, and our network of branches from two to 42. We
believe that we are well positioned to continue to be a strategic consolidator of community banks, while maintaining our
history of attracting experienced and entrepreneurial bankers and organically growing our loans and deposits.
Our Initial Public Offering
We completed the underwritten initial public offering (“IPO”) of our common stock on November 16, 2015, where we
sold an aggregate of 2,231,000 shares of our common stock at a price to the public of $22.50 per share. Our common stock
began trading on the NASDAQ Global Select Market on November 11, 2015 under the ticker symbol “EQBK.”
4
Our Strategies
We believe we are a leading provider of commercial and personal banking services to businesses and business owners
as well as individuals in our targeted Midwestern markets. Our strategy is to continue strategically consolidating community
banks within such markets and maintaining our organic growth, while preserving our asset quality through disciplined
lending practices.
•
Strategic Consolidation of Community Banks. We believe our strategy of selectively acquiring and integrating
community banks has provided us with economies of scale and improved our overall franchise efficiency. We
expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many
and varied acquisition opportunities. The following map illustrates the headquarters of potential acquisition
opportunities broken out by asset size between $50.0 million and $1.5 billion within our target footprint.
We believe many of these banks will continue to be burdened by new and more complex banking regulations, resource
constraints, competitive limitations, rising technological and other business costs, management succession issues and
liquidity concerns.
Despite the significant number of opportunities, we intend to continue to employ a disciplined approach to our
acquisition strategy and only seek to identify and partner with financial institutions that possess attractive market share, low-
cost deposit funding and compelling noninterest income-generating businesses. We believe consolidation will lead to organic
growth opportunities for us following the integration of businesses we acquire. We also expect to continue to manage our
branch network in order to ensure effective coverage for customers while minimizing any geographic overlap and driving
corporate efficiency.
•
Enhance the Performance of the Banks We Acquire. We strive to successfully integrate the banks we acquire
into our existing operational platform and enhance stockholder value through the creation of efficiencies within
the combined operations. As a result of our acquisition history, we believe we have developed an experienced
approach to integration that seeks to identify and execute on such synergies, particularly in the areas of
technology, data processing, compliance and human resources, while generating earnings growth. We believe
that our experience and reputation as a successful integrator and acquirer will allow us to continue to capitalize
on additional opportunities within our markets in the future.
5
•
Focus on Lending Growth in Our Metropolitan Markets While Increasing Deposits in Our Community
Markets. We are focused on continuing to grow organically and believe the markets in which we operate
currently provide meaningful opportunities to expand our commercial customer base and increase our current
market share. We believe our branch network is strategically split between growing metropolitan markets, such
as Kansas City, Wichita and Tulsa, and stable community markets within Western Kansas, Western Missouri,
Topeka, Northern Arkansas and Northern Oklahoma. We believe this diverse geographic footprint provides us
with access to low cost, stable core deposits in community markets that we can use to fund commercial loan
growth in our metropolitan markets. The following table shows our total deposits and loans (net of allowances)
in our community markets and our metropolitan markets as of December 31, 2017, which we believe illustrates
our execution of this strategy.
Metropolitan markets(2)
Community markets(3)
Deposits
Loans
Amount(1)
$ 794,769
$1,587,244
Overall %
Amount(1)
Overall %
33% $1,240,935
67% $ 862,344
59%
41%
(1) Amounts in thousands.
(2) Represents 11 branches located in the Wichita, Kansas City, and Tulsa metropolitan statistical areas (“MSAs”).
(3) Represents 31 branches located outside of the Wichita, Kansas City, and Tulsa MSAs.
Our team of seasoned bankers represents an important driver of our organic growth by expanding banking relationships
with current and potential customers. We expect to continue to make opportunistic hires of talented and entrepreneurial
bankers, particularly in our metropolitan markets, to further augment our growth. Our bankers are incentivized to increase
the size of their loan and deposit portfolios and generate fee income while maintaining strong credit quality. We also seek to
cross-sell our various banking products, including our deposit and treasury wealth management products, to our commercial
loan customers, which we believe provides a basis for expanding our banking relationships as well as a stable, low-cost
deposit base. We believe we have built a scalable platform that will support this continued organic growth.
•
Preserve Our Asset Quality Through Disciplined Lending Practices. Our approach to credit management uses
well-defined policies and procedures, disciplined underwriting criteria and ongoing risk management. We
believe we are a competitive and effective commercial and industrial lender, supplementing ongoing and active
loan servicing with early-stage credit review provided by our bankers. This approach has allowed us to maintain
loan growth with a diversified portfolio of high quality assets. We believe our credit culture supports
accountable bankers, who maintain an ability to expand our customer base as well as make sound decisions for
our Company. We believe our success in managing asset quality is illustrated by our aggregate net charge-off
history.
Our Competitive Strengths
We believe the following competitive strengths will allow us to continue to achieve our principal objective of
increasing stockholder value and generating consistent earnings growth through the organic and strategic expansion of our
commercial banking franchise.
•
•
Experienced Leadership and Management Team. Our seasoned and experienced executive management team,
senior leaders and board of directors have exhibited the ability to deliver stockholder value by consistently
growing profitably while expanding our commercial banking franchise through acquisition and integration. Our
executive management team has, on average, more than twenty years of experience working for large, billion-
dollar-plus financial institutions in our markets during various economic cycles along with significant merger and
acquisition experience in the financial services industry. Our executive management team has instilled a
transparent and entrepreneurial culture that rewards leadership, innovation, and problem solving.
Focus on Commercial Banking. We are primarily a commercial bank. As measured by outstanding balances at
December 31, 2017, commercial loans composed over 71.1% of our loan portfolio, and within our commercial
loan portfolio, 66.1% of such loans were commercial real estate loans and 33.9% were commercial and industrial
loans. We believe we have developed strong commercial relationships in our markets across a diversified range
of sectors, including key areas supporting regional and local economic activity and growth, such as
manufacturing, freight/transportation, consumer services, franchising and commercial real estate. We believe we
have also been successful in attracting customers from larger competitors because of our flexible and responsive
approach in providing banking solutions tailored to meet our customers’ needs while maintaining disciplined
underwriting standards. Our relationship-based approach seeks to grow lending relationships with our customers
as they expand their businesses, including geographically and through cross-selling our various other banking
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•
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•
•
•
•
products, such as our deposit and treasury management products. We have a growing presence in attractive
commercial banking markets, such as Wichita, Kansas City, and Tulsa, which we believe present significant
opportunities to continue to increase our business banking activities.
Our Ability to Consolidate. Our branches are strategically located within metropolitan markets, such as Kansas
City, Tulsa, and Wichita as well as stable community markets that present opportunities to expand our market
share. Our executive management team has identified significant acquisition and consolidation opportunities,
ranging from small to large community banking institutions. We believe our track record of strategic
acquisitions and effective integrations, combined with our expertise in our markets and scalable platform, will
allow us to capitalize on these growth opportunities.
Disciplined Acquisition Approach. Our disciplined approach to acquisitions, consolidations and integrations
includes the following: (i) selectively acquiring community banking franchises only at appropriate valuations,
after taking into account risks that we perceive with respect to the targeted bank; (ii) completing comprehensive
due diligence and developing an appropriate plan to address any legacy credit problems of the targeted
institution; (iii) identifying an achievable cost savings estimate and holding our management accountable for
achieving such estimates; (iv) executing definitive acquisition agreements that we believe provide adequate
protections to us; (v) installing our credit procedures, audit and risk management policies and procedures and
compliance standards upon consummation of the acquisition; (vi) collaborating with the target’s management
team to execute on synergies and cost saving opportunities related to the acquisition; (vii) involving a broader
management team across multiple departments in order to help ensure the successful integration of all business
functions; and (viii) scheduling the acquisition closing date to occur simultaneously with the platform conversion
date. We believe this approach allows us to realize the benefits of the acquisition and create stockholder value,
while appropriately managing risk.
Efficient and Scalable Platform with Capacity to Support Our Growth. Through significant investments in
technology and staff, our management team has built an efficient and scalable corporate infrastructure within our
commercial banking franchise, including in the areas of banking processes, technology, data processing,
underwriting and risk management, which we believe will support our continued growth. While expanding our
infrastructure, several departmental functions have been outsourced to gain the experience of outside
professionals while at the same time achieving more favorable economics and cost-effective solutions. Such
outsourced areas include the internal audit function, investment securities management, and select loan review.
This outsourcing strategy has proven to control costs while adding enhanced controls and/or service levels. We
believe that this scalable infrastructure will continue to allow us to efficiently and effectively manage our
anticipated growth.
Culture Committed to Talent Development, Transparency and Accountability. We have invested in
professional talent since our inception by building a team of “business persons first and bankers second” and
economically aligned them with our stockholders, primarily through our stock purchase opportunities. In our
efforts to become a destination for seasoned bankers with an entrepreneurial spirit, we have developed numerous
leadership development programs. For example, “Equity University” is a year-long program we designed for our
promising company-wide leaders. In addition, in 2014 Equity Bank was named one of the “Best Places to Work”
by the Wichita Business Journal, and in 2015, the Wichita Business Journal named Equity Bank a “Best in
Business” winner. We believe our well-trained and motivated professionals work most effectively in a corporate
environment that emphasizes transparency, respect, innovation and accountability. Our culture provides our
professionals with the empowerment to better serve our clients and our communities.
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Sophisticated and Customized Banking Products with High-Quality Customer Service. We strive to offer our
customers the sophisticated commercial banking products of large financial institutions with the personalized
service of a community bank. Our management team’s significant banking and lending experience in our
markets has provided us with an understanding of the commercial banking needs of our customers, which allows
us to tailor our products and services to meet our customers’ needs. In addition to offering a diverse array of
banking products and services, we offer our customers the high-touch, relationship-based customer service
experience of a community bank. For example, we utilize Flight, a customized customer relationship
management system, to assign relationship officers to enhance our relationships with our customers and to
identify and meet their particular needs.
Strong Risk Management Practices. We place significant emphasis on risk management as an integral
component of our organizational culture without sacrificing growth. We believe our comprehensive risk
management system is designed to make sure that we have sound policies, procedures, and practices for the
management of key risks under our risk framework (which includes market, operational, liquidity, interest rate
7
sensitivity, credit, insurance, regulatory, legal and reputational risk) and that any exceptions are reported by
senior management to our board of directors or audit committee. Our risk management practices are overseen by
the Chairmen of our audit and risk committees, who have more than 60 years of combined banking experience,
and our Chief Risk Officer, who has more than 30 years of banking experience. We believe that our enterprise
risk management philosophy has been important in gaining and maintaining the confidence of our various
constituencies and growing our business and footprint within our markets. We also believe our strong risk
management practices are manifested in our asset quality statistics.
2017 Acquisitions
On March 10, 2017, we completed our acquisition of Prairie pursuant to the terms of the Agreement and Plan of
Merger, dated October 20, 2016, by and between the Company, Prairie Merger Sub, Inc., a wholly-owned subsidiary of the
Company (“Prairie Merger Sub”), and Prairie (the “Prairie Merger Agreement”). At the effective time of the merger (the
“Prairie Effective Time”), Prairie Merger Sub merged with and into Prairie, with Prairie surviving the merger as a wholly-
owned subsidiary of the Company. Following the Prairie Effective Time, Prairie was merged into the Company, with the
Company surviving the merger. Subsequently, State Bank, Prairie’s wholly-owned banking subsidiary, was merged into
Equity Bank, with Equity Bank surviving the merger. Pursuant to the Prairie Merger Agreement, at the Effective Time the
Company issued an aggregate of 479,468 shares of its Class A common stock and paid $12.3 million to the stockholders of
Prairie as consideration under the terms of the Prairie Merger Agreement.
On November 10, 2017, we completed our acquisition of Eastman pursuant to the terms of the Agreement and Plan of
Reorganization, dated July 14, 2017, by and between the Company, ENB Merger Sub, Inc., a wholly-owned subsidiary of the
Company (“ ENB Merger Sub”), and Eastman ( the “Eastman Reorganization Agreement”). At the effective time of the
merger (the “Eastman Effective Time”), ENB Merger Sub merged with and into Eastman, with Eastman surviving the merger
as a wholly-owned subsidiary of the Company. Following the Eastman Effective Time, Eastman was merged into the
Company, with the Company surviving the merger. Subsequently, The Eastman National Bank of Newkirk, Oklahoma,
Eastman’s wholly-owned banking subsidiary, was merged into Equity Bank, with Equity Bank surviving the merger.
Pursuant to the Eastman Reorganization Agreement, at the Eastman Effective Time the Company issued an aggregate of
1,179,747 shares of its Class A common stock and paid $8.0 million to the stockholders of Eastman as consideration under
the terms of the Eastman Reorganization Agreement.
On November 10, 2017, we completed our acquisition of Cache Holdings, Inc., an Oklahoma corporation (“Cache”),
pursuant to the terms of the Agreement and Plan of Reorganization, dated July 14, 2017, by and between the Company and
Cache (the “Cache Reorganization Agreement”). At the effective time of the merger (the “Cache Effective Time”), Cache
was merged into the Company, with the Company surviving the merger. Subsequently, Patriot Bank of Tulsa, Oklahoma,
Cache’s wholly-owned banking subsidiary, was merged into Equity Bank, with Equity Bank surviving the merger. Pursuant
to the Cache Reorganization Agreement, at the Cache Effective Time the Company issued an aggregate of 1,190,941 shares
of its Class A common Stock and paid $12.9 million to the stockholders of Cache as consideration under the terms of the
Cache Reorganization Agreement.
Pending Acquisitions
On December 16, 2017, the Company entered into an agreement and plan of reorganization with Kansas Bank
Corporation (“KBC”). KBC is the holding company of First National Bank of Liberal (“FNB”), which has four branch
locations in Liberal, Kansas, and one location in Hugoton, Kansas. The transaction is expected to close in the second quarter
of 2018, subject to customary closing conditions, including the receipt of regulatory approval and the approval of KBC’s
stockholders. For more information, see “Note 25 – PENDING MERGERS” in the Notes to Consolidated Financial
Statements.
Also on December 16, 2017, the Company entered into an agreement and plan of reorganization with Adams Dairy
Bancshares, Inc. (“ADBI”). ADBI is the holding company of Adams Dairy Bank (“ADB”), which has one branch location in
Blue Springs, Missouri. The transaction is expected to close in the second quarter of 2018, subject to customary closing
conditions, including the receipt of regulatory approval and the approval of ADBI’s stockholders. For more information, see
“Note 25 – PENDING MERGERS” in the Notes to Consolidated Financial Statements.
Our Banking Services
A general description of the range of commercial banking products and other services we offer follows.
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Lending Activities
We offer a variety of loans, including commercial and industrial, commercial real estate-backed loans (including loans
secured by owner occupied commercial properties), commercial lines of credit, working capital loans, term loans, equipment
financing, acquisition, expansion and development loans, borrowing base loans, real estate construction loans, homebuilder
loans, agricultural, government guaranteed loans, letters of credit and other loan products to national and regional companies,
restaurant franchisees, hoteliers, real estate developers, manufacturing and industrial companies, agribusiness companies and
other businesses. We also offer various consumer loans to individuals and professionals including residential real estate
loans, home equity loans, home equity lines of credit (“HELOCs”), installment loans, unsecured and secured personal lines
of credit, overdraft protection and letters of credit. Lending activities originate from the relationships and efforts of our
bankers, with an emphasis on providing banking solutions tailored to meet our customers’ needs while maintaining our
underwriting standards.
At December 31, 2017, we had total loans of $2.09 billion (net of allowances), representing 66.1% of our total assets.
For additional information concerning our loan portfolio, see “Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Financial Condition – Loan Portfolio.”
Concentrations of Credit Risk. Most of our lending activity is conducted with businesses and individuals in
metropolitan Kansas City, Tulsa, and Wichita. Our loan portfolio consists primarily of commercial and industrial loans,
which were $507.5 million and constituted 24.1% of our total loans net of allowances as of December 31, 2017, commercial
real estate loans, which were $987.7 million and constituted 47.0% of our total loans net of allowances as of December 31,
2017, and residential real estate loans, which were $376.7 million and constituted 17.9% of our total loans net of allowances
as of December 31, 2017. Our commercial real estate loans are generally secured by first liens on real property. The
remaining commercial and industrial loans are typically secured by general business assets, accounts receivable inventory
and/or the corporate guaranty of the borrower and/or personal guaranty of its principals. The geographic concentration
subjects the loan portfolio to the general economic conditions within Arkansas, Kansas, Missouri and Oklahoma. The risks
created by such concentrations have been considered by management in the determination of the adequacy of the allowance
for loan losses. Management believes the allowance for loan losses is adequate to cover incurred losses in our loan portfolio
as of December 31, 2017.
Sound risk management practices and appropriate levels of capital are essential elements of a sound commercial real
estate lending program. Concentrations of commercial real estate exposures add a dimension of risk that compounds the risk
inherent in individual loans. Interagency guidance on commercial real estate concentrations describe sound risk management
practices which include board and management oversight, portfolio management, management information systems, market
analysis, portfolio stress testing and sensitivity analysis, credit underwriting standards, and credit risk review functions.
Management believes these practices allow us to monitor concentrations in commercial real estate in our loan portfolio.
Large Credit Relationships. As of December 31, 2017, the aggregate amount of loans to our ten largest borrowers
(including related entities) amounted to approximately $208.6 million, or 9.8% of total loans. See “Item 1A – Risk Factors –
Risks Related to Our Business – Our largest loan relationships currently make up a material percentage of our total loan
portfolio.”
Loan Underwriting and Approval. Historically, we believe we have made sound, high quality loans while recognizing
that lending money involves a degree of business risk. We have loan policies designed to assist us in managing this business
risk. These policies provide a general framework for our loan origination, monitoring and funding activities, while
recognizing that not all risks can be anticipated. Our board of directors delegates loan authority up to board-approved hold
limits collectively to our Directors’ credit committee, which is comprised of members of our board of directors. Our board of
directors also delegates limited lending authority to our internal loan committee, which is comprised of members of our
executive management team. In addition, our board of directors also delegates more limited lending authority to our Chief
Executive Officer, Chief Credit Officer, credit risk personnel, and, on a further limited basis, to selected lending managers in
each of our target markets. Lending officers and relationship managers, including our bankers, have further limited
individual loan authority. When the total relationship exceeds an individual’s loan authority, a higher authority or credit
committee approval is required. The objective of our approval process is to provide a disciplined, collaborative approach to
larger credits while maintaining responsiveness to client needs.
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Loan decisions are documented as to the borrower’s business, purpose of the loan, evaluation of the repayment source
and the associated risks, evaluation of collateral, covenants and monitoring requirements, and the risk rating rationale. Our
strategy for approving or disapproving loans is to follow conservative loan policies and consistent underwriting practices
which include:
•
•
•
•
•
maintaining close relationships among our customers and their designated banker to ensure ongoing credit
monitoring and loan servicing;
granting credit on a sound basis with full knowledge of the purpose and source of repayment for such credit;
ensuring that primary and secondary sources of repayment are adequate in relation to the amount of the loan;
developing and maintaining targeted levels of diversification for our loan portfolio as a whole and for loans
within each category; and
ensuring that each loan is properly documented and that any insurance coverage requirements are satisfied.
Managing credit risk is a Company-wide process. Our strategy for credit risk management includes well-defined,
centralized credit policies, uniform underwriting criteria and ongoing risk monitoring and review processes for all credit
exposures. Our processes emphasize early-stage review of loans, regular credit evaluations and management reviews of
loans, which supplement the ongoing and proactive credit monitoring and loan servicing provided by our bankers. Our Chief
Credit Officer provides Company-wide credit oversight and periodically reviews all credit risk portfolios to ensure that the
risk identification processes are functioning properly and that our credit standards are followed. In addition, a third-party
loan review is performed to assist in the identification of problem assets and to confirm our internal risk rating of loans. We
attempt to identify potential problem loans early in an effort to seek aggressive resolution of these situations before the loansa
become a loss, record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses
incurred in the loan portfolio.
Our loan policies generally include other underwriting guidelines for loans collateralized by real estate. These
underwriting standards are designed to determine the maximum loan amount that a borrower has the capacity to repay based
upon the type of collateral securing the loan and the borrower’s income. Such loan policies include maximum amortization
schedules and loan terms for each category of loans collateralized by liens on real estate.
In addition, our loan policies provide guidelines for personal guarantees; an environmental review; loans to employees,
executive officers and directors; problem loan identification; maintenance of an adequate allowance for loan losses and other
matters relating to lending practices.
Lending Limits. Our lending activities are subject to a variety of lending limits imposed by federal law. In general, the
Bank is subject to a legal lending limit on loans to a single borrower based on the Bank’s capital level. The dollar amounts of
the Bank’s lending limit increases or decreases as the Bank’s capital increases or decreases. The Bank is able to sell
participations in its larger loans to other financial institutions, which allows it to manage the risk involved in these loans and
to meet the lending needs of its customers requiring extensions of credit in excess of these limits.
The Bank’s legal lending limit as of December 31, 2017 on loans to a single borrower was $69.9 million. However, we
typically maintain an in-house limit of $25.0 million for loans to a single borrower. We have strict policies and procedures in
place for the establishment of hold limits with respect to specific products and businesses and evaluating exceptions to the
hold limits for individual relationships.
Our loan policies provide general guidelines for loan-to-value ratios that restrict the size of loans to a maximum
percentage of the value of the collateral securing the loans, which percentage varies by the type of collateral. Our internal
loan-to-value limitations follow limits established by applicable law.
Loan Types. We provide a variety of loans to meet our customers’ needs. The section below discusses our general
loan categories.
Commercial and Industrial Loans. We make commercial and industrial loans, including commercial lines of credit,
working capital loans, commercial real estate-backed loans (including loans secured by owner occupied commercial
properties), term loans, equipment financing, acquisition, expansion and development loans, borrowing base loans, real estate
construction loans, homebuilder loans, restaurant franchisees, hoteliers, government guaranteed loans, letters of credit and
other loan products, primarily in our target markets that are underwritten on the basis of the borrower’s ability to service the
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debt from income. We take as collateral a lien on general business assets including, among other things, available real estate,
accounts receivable, inventory and equipment and generally obtain a personal guaranty of the borrower or principal. Our
commercial and industrial loans generally have variable interest rates and terms that typically range from one to five years
depending on factors such as the type and size of the loan, the financial strength of the borrower/guarantor and the age, type
and value of the collateral. Fixed rate commercial and industrial loan maturities are generally short-term, with three-to-five
year maturities, or include periodic interest rate resets. Terms greater than five years may be appropriate in some
circumstances, based upon the useful life of the underlying asset being financed or if some form of credit enhancement, such
as a government guarantee is obtained.
We also participate in syndicated loans (loans made by a group of lenders, including us, who share or participate in a
specific loan) with a larger regional financial institution as the lead lender. Syndicated loans are typically made to large
businesses (which are referred to as shared national credits) or middle market companies (which do not meet the regulatory
definition of shared national credits), both of which are secured by business assets or equipment, and also commercial real
estate. The syndicate group for both types of loans usually consists of two to three other financial institutions. In particular,
we frequently work with a large regional financial institution, which is often the lead lender with respect to these loans. We
have developed this portfolio to diversify our balance sheet, increase our yield and mitigate interest rate risk due to the
variable rate pricing structure of the loans. We have a defined set of credit guidelines that we use when evaluating these
credits. Although other large financial institutions are the lead lenders on these loans, our credit department does its own
independent review of these loans and the approval process of these loans is consistent with our underwriting of loans and
our lending policies. We expect to continue our syndicated lending program for the foreseeable future.
In 2015, we began to participate in mortgage finance loans with another institution, “the originator.” These mortgage
finance loans consist of ownership interests purchased in single family residential mortgages funded through the originator’s
mortgage finance group. These loans are typically on our balance sheet for 10 to 20 days. We have grown this portfolio with
the intent to diversify our balance sheet, increase our yield compared to other short term investment opportunities and
mitigate interest rate risk due to the variable rate pricing structure of the loans. We have a defined set of credit guidelines we
use when evaluating these loans, our credit department does its own independent review of these loans and the approval
process of these loans is consistent with our underwriting of loans and our lending policies.
In general, commercial and industrial loans may involve increased credit risk and, therefore, typically yield a higher
return. The increased risk in commercial and industrial loans derives from the expectation that such loans generally are
serviced principally from the operations of the business, and those operations may not be successful. Any interruption or
discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the
borrower such as economic events and changes in governmental regulations, could materially affect the ability of the
borrower to repay the loan. In addition, the collateral securing commercial and industrial loans generally includes moveable
property such as equipment and inventory, which may decline in value more rapidly than we anticipate exposing us to
increased credit risk. As a result of these additional complexities, variables and risks, commercial and industrial loans
require extensive underwriting and servicing.
Commercial Real Estate Loans. We make commercial mortgage loans collateralized by real estate, which may be
owner occupied or non-owner occupied real estate. Commercial real estate lending typically involves higher loan principal
amounts and the repayment is dependent, in large part, on sufficient income from the properties securing the loans to cover
operating expenses and debt service. We require our commercial real estate loans to be secured by well-managed property
with adequate margins and generally obtain a guarantee from responsible parties. Our commercial mortgage loans generally
are collateralized by first liens on real estate, have variable or fixed interest rates and amortize over a 10-to-20 year period
with balloon payments or rate adjustments due at the end of three to seven years. Periodically, we will utilize an interest rate
swap to hedge against long term fixed rate exposures. Commercial mortgage loans considered for interest rate swap hedging
typically have terms of greater than five years.
Payments on loans secured by such properties are often dependent on the successful operation (in the case of owner
occupied real estate) or management (in the case of non-owner occupied real estate) of the properties. Accordingly,
repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent
than other types of loans. In underwriting commercial real estate loans, we seek to minimize these risks in a variety of ways,
including giving careful consideration to the property’s age, condition, operating history, future operating projections, current
and projected market rental rates, vacancy rates, location and physical condition. The underwriting analysis also may include
credit verification, reviews of appraisals, environmental hazards or reports, the borrower’s liquidity and leverage,
management experience of the owners or principals, economic condition and industry trends.
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Real Estate Construction Loans. We make loans to finance the construction of residential and non-residential
properties. Construction loans generally are collateralized by first liens on real estate and have floating interest rates. We
conduct periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans.
Underwriting guidelines similar to those described above also are used in our construction lending activities. Our
construction loans have terms that typically range from six months to two years depending on factors such as the type and
size of the development and the financial strength of the borrower/guarantor. Loans are typically structured with an interest
only construction period. Loans are underwritten to either mature at the completion of construction, or transition to a
traditional amortizing commercial real estate facility at the completion of construction, in line with other commercial real
estate loans held at the bank.
Construction loans generally involve additional risks attributable to the fact that loan funds are advanced upon the
security of a project under construction, and the project is of uncertain value prior to its completion. Because of uncertainties
inherent in estimating construction costs, the market value of the completed project and the effects of governmental
regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the
related loan-to-value ratio. As a result of these uncertainties, construction lending often involves the disbursement of
substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a
borrower or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, there is no assurance
that we will be able to recover the entire unpaid portion of the loan. In addition, we may be required to fund additional
amounts to complete a project and it may be necessary to hold the property for an indeterminate period of time subject to the
regulatory limitations imposed by local, state or federal laws.
1 – 4 Family Residential Mortgages. We make residential real estate loans collateralized by owner occupied properties
located in our market areas. We offer a variety of mortgage loan products with amortization periods up to 30 years including
traditional 30-year fixed loans and various adjustable rate mortgages. Typically, loans with a fixed interest rate of greater
than 10 years are held for sale and sold on the secondary market, and adjustable rate mortgages are held for investment.
However, in connection with the acquisition of First Independence, we acquired $71 million in residential real estate loans,
with a substantial amount having fixed interest rate terms of greater than 10 years. Loans collateralized by one-to-four family
residential real estate generally are originated in amounts of no more than 80% of appraised value. Home equity loans and
HELOCs are generally limited to a combined loan-to-value ratio of 80%, including the subordinate lien. We retain a valid
lien on real estate, obtain a title insurance policy that insures that the property is free from encumbrances and require hazard
insurance.
From time to time we have purchased pools of residential mortgages originated by other financial institutions to hold
for investment with the intent to diversify our residential mortgage loan portfolio, and increase our yield. These loans
purchased typically have an adjustable rate with a fixed period of no more than 10-years, and are collateralized by one-to-
four family residential real estate. We have a defined set of credit guidelines that we use when evaluating these credits.
Although these loans were originated and underwritten by another institution, our mortgage and credit departments do their
own independent review of these loans. These loans typically are secured by collateral outside of our branch footprint.
Agricultural Loans. We offer both fixed-rate and adjustable-rate agricultural real estate loans to our customers. We
also make loans to finance the purchase of machinery, equipment and breeding stock, seasonal crop operating loans used to
fund the borrower’s crop production operating expenses, livestock operating and revolving loans used to purchase livestock
for resale and related livestock production expense.
Generally, our agricultural real estate loans amortize over periods not in excess of 20 years and have a loan-to-value
ratio of 80%. We also originate agricultural real estate loans directly and through programs sponsored by the Farmers Home
Administration, an agency of the United States Department of Agriculture (“FHA”), which provides a partial guarantee on
loans underwritten to FHA standards. Agricultural real estate loans generally carry higher interest rates and have shorter
terms than 1-4 family residential real estate loans. Agricultural real estate loans, however, entail additional credit risks
compared to one- to four-family residential real estate loans, as they typically involve larger loan balances concentrated with
single borrowers or groups of related borrowers. We generally require farmers to obtain multi-peril crop insurance coverage
through a program partially subsidized by the Federal government to help mitigate the risk of crop failures.
Agricultural operating loans may be originated at an adjustable- or fixed-rate of interest and generally for a term of up
to 7 years. In the case of agricultural operating loans secured by breeding livestock and/or farm equipment, such loans are
originated at fixed rates of interest for a term of up to 5 years. We typically originate agricultural operating loans on the basis
of the borrower’s ability to make repayment from the cash flow of the borrower’s agricultural business. As a result, the
availability of funds for the repayment of agricultural operating loans may be substantially dependent on the success of the
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business itself and the general economic environment. A significant number of agricultural borrowers with these types of
loans may qualify for relief under a chapter of the U.S. Bankruptcy Code that is designed specifically for the reorganization
of financial obligations of family farmers and which provides certain preferential procedures to agricultural borrowers
compared to traditional bankruptcy proceedings pursuant to other chapters of the U.S. Bankruptcy Code.
Consumer Loans. We make a variety of loans to individuals for personal and household purposes, including secured
and unsecured term loans and home improvement loans. Consumer loans are underwritten based on the individual
borrower’s income, current debt level, past credit history and the value of any available collateral. The terms of consumer
loans vary considerably based upon the loan type, nature of collateral and size of the loan. Consumer loans entail greater risk
than do residential real estate loans because they may be unsecured or, if secured, the value of the collateral, such as an
automobile or boat, may be more difficult to assess and more likely to decrease in value than real estate. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding
loan balance. The remaining deficiency often will not warrant further substantial collection efforts against the borrower
beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing
financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.
Deposit Products
Our lending and investing activities are primarily funded by deposits. We offer a variety of deposit accounts with a
wide range of interest rates and terms including demand, savings, money market and time deposits with the goal of attracting
a wide variety of customers, including small to medium-sized businesses. We employ customer acquisition strategies to
generate new account and deposit growth, such as customer referral incentives, search engine optimization, targeted direct
mail and email campaigns, in addition to conventional marketing initiatives and advertising. Our goal is to emphasize our
Signature Deposits and cross-sell our deposit products to our loan customers.
We design our consumer deposit products specifically for the lifestyles of clients in the communities we serve. Some
accounts emphasize and reward debit card usage, while others appeal to higher deposit customers. We also utilize Flight,
which is our customer relationship management system, to assist our personnel in deepening and expanding current
relationships by providing timely identification of potential needs. It also serves as a methodical tool to track customer
onboarding and retention actions by account officers. We do participate in the CDARS service via Promontory Interfinancial
Network as an option for our customers to place funds and occasionally as a funding source.
We also from time to time bid for, and accept, deposits from public entities in our markets.
Other Products and Services
We offer banking products and services that are competitively priced with a focus on convenience and accessibility.
We offer a full suite of online banking solutions including access to account balances, online transfers, online bill payment
and electronic delivery of customer statements, mobile banking solutions for iPhone and Android phones, including remote
check deposit with mobile bill pay. We offer extended drive-through hours, ATMs and banking by telephone, mail and
personal appointment. We offer debit cards with no ATM surcharges or foreign ATM fees for checking customers, plus
night depository, direct deposit, cashier’s and travelers checks and letters of credit, as well as treasury management services,
wire transfer services and automated clearing house (“ACH”) services.
We offer a full array of commercial treasury management services designed to be competitive with banks of all sizes.
Treasury Management Services include balance reporting (including current day and previous day activity), transfers between
accounts, wire transfer initiation, ACH origination and stop payments. Cash management deposit products consist of
lockbox, remote deposit capture, positive pay, reverse positive pay, account reconciliation services, zero balance accounts
and sweep accounts including loan sweep.
Our Markets
We currently conduct banking operations through our 42 full service branches located in Arkansas, Kansas, Missouri
and Oklahoma. We believe that an important factor contributing to our historical performance and our ability to execute our
strategy is the attractiveness and specific characteristics of our existing and target markets. In particular, we believe our
markets provide us with access to low cost, stable core deposits in smaller community markets that we can use to fund
commercial loan growth in metropolitan areas.
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We believe our existing and target markets are among some of the most attractive in the Midwestern United States.
Our markets are home to thousands of manufacturing and trade jobs, and have experienced recent growth in the healthcare,
consumer services and technology sectors. We believe the central geographic footprint of our markets provides numerous
industrial plants, facilities and manufacturing businesses with a central shipping location from which they can distribute their
products. Our markets also serve as the corporate headquarters for Koch Industries Inc., Hallmark Cards, Inc., H&R Block,
Inc., Sprint Corporation, Cerner Corporation, AMC Entertainment Holdings, Inc., Garmin International, Inc., Cessna Aircraft
Company, Seaboard Corporation, Cargill Meat Solutions and The Coleman Company and host a major presence for
companies across a variety of industries, including Spirit AeroSystems, Inc., Bombardier Learjet, Collective Brands, Inc.,
FedEx, Flexsteel, Hills Pet Nutrition, Inc., Textron Aviation Services, Tyson Foods, Williams Companies, Phillips 66,
OneOK, Quik Trip, Rib Crib, Dairy Farmers of America, Honeywell, Bayer Corporation and Dean & Deluca, Inc. We
understand the community banking needs of the businesses and individuals within our markets and have focused on
developing a commercial and personal banking platform to service such needs.
The markets in which we operate have generally experienced stable population growth over the past five years, with
modest population growth expected over the next five years. Wichita is the largest MSA in Kansas with a population of over
648,000, Kansas City, Missouri and Kansas is the No. 31 largest MSA in the U.S. with a population of 2.2 million as of
December 31, 2017, and Tulsa, Oklahoma, is No. 54 with a 2017 MSA population of over 1 million. In addition, we believe
our markets are stable and have weathered various economic cycles relatively well. Household income is expected to
increase by a five-year growth rate of 5.0%. Our markets are expected to experience moderate compounded annual growth in
consumer and commercial deposits, with a three-year compounded average growth rate of 4.94% for commercial deposits,
according to data from Fiserv BancIntelligence, and 2.0% in consumer deposits.
We compete for loans, deposits and financial services in our markets against many other bank and nonbank institutions,
including community banks, regional banks, national banks, Internet-based banks, money market and mutual funds,
brokerage houses, credit unions, mortgage companies and insurance companies. We believe that our comprehensive suite of
sophisticated banking products provides us with a competitive advantage over smaller community banks within our markets
while our high-quality, relationship-based customer service will allow us to take market share from larger regional and
national banks. In addition, our markets present significant acquisition, integration and consolidation opportunities, and we
expect to continue to pursue strategic acquisitions in our markets. We believe that many small to mid-sized banking
organizations that currently serve our markets are acquisition opportunities for us, either because of scale and operational
challenges, regulatory pressures, management succession issues or stockholder liquidity needs. We think we offer an
attractive solution for such banks because we retain the community banking feel and services upon which their customers
expect and rely.
Information Technology Systems
We continue to make significant investments in our information technology systems and staff for our banking and
lending operations and treasury management activities. We believe this investment will support our continued growth,
permit us to enhance our capabilities to offer new products and overall customer experience and enable us to provide scale
for future growth and acquisitions. We use nationally recognized software vendors and their support allows us to operate our
data processing and core systems in-house. Our internal network and e-mail systems are maintained in-house and we have
enhanced our back-up site at a decentralized location. This back-up site provides for redundancy and disaster recovery
capabilities.
The majority of our other systems, including our electronic funds transfer, transaction processing and online banking
services are hosted by third-party service providers. The scalability of this infrastructure will support our growth strategy. In
addition, the tested capability of these vendors to automatically switch over to standby systems should allow us to recover our
systems and provide business continuity quickly in case of a disaster.
Due to our heavy reliance on the strength and capability of our technology systems, which we use both to interface
with our customers and to manage our internal financial reporting and other systems, we utilize a layered cyber security
model designed to protect all systems and sensitive data. This layered model is composed of a variety of different
components from a range of security vendors. The various components are centrally managed and monitored creating a
multi-layered, interlocking, cybersecurity defense system. We believe this defense system is dynamic and designed to adjust
itself to protect against the latest cyber threats and attack vectors.
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Competition
The financial services industry is highly competitive. We compete for loans, deposits, and financial services in all of
our principal markets. We compete directly with other bank and nonbank institutions located within our markets, Internet-
based banks, out-of-market banks, and bank holding companies that advertise in or otherwise serve our markets, along with
money market and mutual funds, brokerage houses, mortgage companies, and insurance companies or other commercial
entities that offer financial services products. Competition involves efforts to retain current customers, obtain new loans and
deposits, increase the scope and type of services offered, and offer competitive interest rates paid on deposits and charged on
loans. Many of our competitors enjoy competitive advantages, including greater financial resources, a wider geographic
presence, more accessible branch office locations, the ability to offer additional services, more favorable pricing alternatives,
and lower origination and operating costs. Some of our competitors have been in business for a long time and have an
established customer base and name recognition. We believe that our competitive pricing, personalized service, and
community involvement enable us to effectively compete in the communities in which we operate.
Employees
As of December 31, 2017, we had approximately 526 full-time equivalent employees. None of our employees are
represented by any collective bargaining unit or is a party to a collective bargaining agreement.
Available Information
The Company files reports, proxy statements and other information with the Securities and Exchange Commission
(“SEC”) under the Securities Exchange Act of 1934, as amended. You may read and copy this information at the SEC’s
Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains
reports, proxy and information statements and other information about issuers, like the Company, who file electronically with
the SEC. The address of the site is http://www.sec.gov.
Documents filed by the Company with the SEC are available from the Company without charge (except for exhibits to
the documents). You may obtain documents filed by the Company with the SEC by requesting them in writing or by
telephone from the Company at the following address:
Equity Bancshares, Inc.
7701 East Kellogg Drive, Suite 300
Wichita, Kansas 67207
Attention: Investor Relations
Telephone: (316) 612-6000
Documents filed by the Company with the SEC are also available on the Company’s website,
http://investor.equitybank.com. Information furnished by the Company and information on, or accessible through, the SEC’s
or the Company’s website is not part of this Annual Report on Form 10-K.
Supervision and Regulation
Banking is a complex, highly regulated industry. Consequently, our growth and earnings performance can be affected,
not only by management decisions and general and local economic conditions, but also by the statutes administered by and
the regulations and policies of, various governmental regulatory authorities. These authorities include, but are not limited to,
the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency (“OCC”), the Kansas Office of State Bank
Commissioner (“OSBC”), the Consumer Financial Protection Bureau (“CFPB”), the IRS, and state taxing authorities. The
effect of these statutes, regulations and policies and any changes to any of them can be significant and cannot be predicted.
The primary goals of the bank regulatory scheme are to maintain a safe and sound banking system and to facilitate the
conduct of sound monetary policy. In furtherance of those goals, the U.S. Congress and the individual states have created
several regulatory agencies and enacted numerous laws, such as the Dodd-Frank Act, that govern banks and the banking
industry. The system of supervision and regulation applicable to us establishes a comprehensive framework for our
operations and is intended primarily for the protection of the FDIC’s deposit insurance funds, our depositors and the public,
rather than the stockholders and creditors.
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New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures,
regulations and competitive relationships of financial institutions operating in the United States. The federal banking
agencies have issued a number of significant new regulations as a result of the Dodd-Frank Act and a number of additional
regulations are pending or may be proposed. We cannot predict whether or in what form any proposed regulation or statute
will be adopted or the extent to which our businesses may be affected by any new regulation or statute.
The following is an attempt to summarize some of the relevant laws, rules and regulations governing banks and bank
holding companies, but does not purport to be a complete summary of all applicable laws, rules and regulations governing
banks. The descriptions are qualified in their entirety by reference to the specific statutes and regulations discussed.
Bank Holding Company Regulation
We are a bank holding company registered under the Bank Holding Company Act of 1956, as amended, or the BHC
Act, and are subject to supervision and regulation by the Federal Reserve. Federal laws subject bank holding companies to
particular restrictions on the types of activities in which they may engage and to a range of supervisory requirements and
activities, including regulatory enforcement actions, for violation of laws and policies.
Activities Closely Related to Banking
The BHC Act prohibits a bank holding company, with certain limited exceptions, from acquiring direct or indirect
ownership or control of more than five percent of the voting shares of any company that is not a bank or from engaging in
any activities other than those of banking, managing or controlling banks and certain other subsidiaries or furnishing services
to or performing services for its subsidiaries. Bank holding companies also may engage in or acquire interests in companies
that engage in a limited set of activities that are so closely related to banking as to be a proper incident thereto. If a bank
holding company has become a financial holding company (“FHC”), it may engage in a broader set of activities, including
insurance underwriting and broker-dealer services as well as activities that are jointly determined by the Federal Reserve and
the U.S. Treasury to be financial in nature or incidental to such financial activity. FHCs may also engage in activities that are
determined by the Federal Reserve to be complementary to financial activities. We have not elected to be an FHC at this
time. To maintain FHC status, the bank holding company and all subsidiary depository institutions must be “well managed”
and “well capitalized.” Additionally, all subsidiary depository institutions must have received at least a “Satisfactory” rating
on its most recent CRA examination. Failure to meet these requirements may result in limitations on activities and
acquisitions.
Safe and Sound Banking Practices
Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The Federal Reserve
may order a bank holding company to terminate an activity or control of a non-bank subsidiary if such activity or control
constitutes a significant risk to the financial safety, soundness or stability of a subsidiary bank and is inconsistent with sound
banking principles. Regulation Y also requires a holding company to give the Federal Reserve prior notice of any
redemption or repurchase of its own equity securities if the consideration to be paid, together with the consideration paid for
any repurchases or redemptions in the preceding year, is equal to 10% or more of the company’s consolidated net worth.
Consistent with the Dodd-Frank Act codification of the Federal Reserve’s policy that bank holding companies must
serve as a source of financial strength for their subsidiary banks, the Federal Reserve has stated that, as a matter of prudence,
a bank holding company generally should not maintain a rate of distributions to stockholders unless its available net income
has been sufficient to fully fund the distributions and the prospective rate of earnings retention appears consistent with a bank
holding company’s capital needs, asset quality and overall financial condition.
In addition, the Federal Reserve Supervisory Letter SR 09-4 provides guidance on the declaration and payment of
dividends, capital redemptions and capital repurchases by a bank holding company. Supervisory Letter SR 09-4 provides
that, as a general matter, a bank holding company should eliminate, defer or significantly reduce its dividends if: (i) the bank
holding company’s net income available to stockholders for the past four quarters, net of dividends previously paid during
that period, is not sufficient to fully fund the dividends, (ii) the bank holding company’s prospective rate of earnings retention
is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition or
(iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Failure to do so could result in a supervisory finding that the bank holding company is operating in an unsafe and unsound
manner.
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Limitations on Equity Bank’s ability to pay dividends could, in turn, affect our ability to pay dividends to our
stockholders. For more information concerning Equity Bank’s ability to pay dividends, see “Bank Regulation” below.
The Federal Reserve has broad authority to prohibit activities of bank holding companies and their non-banking
subsidiaries which represent unsafe and unsound banking practices or which constitute violations of laws or regulations.
Notably, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), provides that the Board of
Governors of the Federal Reserve can assess civil money penalties for such practices or violations which can be as high as $1
million per day. FIRREA contains expansive provisions regarding the scope of individuals and entities against which such
penalties may be assessed.
Annual Reporting and Examinations
We are required to file annual and quarterly reports with the Federal Reserve and such additional information as the
Federal Reserve may require pursuant to the BHC Act. The Federal Reserve may examine a bank holding company or any of
its subsidiaries and charge the company for the cost of such an examination. We are also subject to reporting and disclosure
requirements under state and federal securities laws.
Rules on Regulatory Capital
Regulatory capital rules released in July 2013 pursuant to the Basel III requirements (“Basel III rules”), implement
higher minimum capital requirements for bank holding companies and banks. The Basel III rules include a new common
equity Tier 1 capital requirement and establish criteria that instruments must meet to be considered common equity Tier 1
capital, additional Tier 1 capital or Tier 2 capital. These enhancements are designed to both improve the quality and increase
the quantity of capital required, on a fully phased-in basis, to be held by banking organizations, better equipping the U.S.
banking system to deal with adverse economic conditions. The Basel III rules require banks and bank holding companies to
maintain a minimum common equity Tier 1 (“CET1”) capital ratio of 4.5%, a total Tier 1 capital ratio of 6%, a total capital
ratio of 8% and a leverage ratio of 4%. Once fully phased in, bank holding companies will also be required to hold a capital
conservation buffer of CET1 capital of 2.5% to avoid limitations on capital distributions and executive compensation
payments. Under the Basel III rules, bank holding companies must maintain a total risk-based capital ratio of 10% and a total
Tier 1 risk-based capital ratio of 6% to be considered “well capitalized” for purposes of certain rules and requirements.
The Basel III rules also require banks to maintain a CET1 capital ratio of 6.5%, a total Tier 1 capital ratio of 8%, a total
capital ratio of 10% and a leverage ratio of 5% to be deemed “well capitalized” for purposes of certain rules and prompt
corrective action requirements. The risk-based ratios include a “capital conservation buffer” of 2.5%. The new capital
conservation buffer requirement is to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will
increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on
certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its
capital level is below the buffer amount.
The Basel III rules attempt to improve the quality of capital by implementing changes to the definition of capital.
Among the most important changes are stricter eligibility criteria for regulatory capital instruments that would disallow the
inclusion of instruments, such as trust preferred securities, in Tier 1 capital going forward and new constraints on the
inclusion of minority interests, mortgage-servicing assets, deferred tax assets and certain investments in the capital of
unconsolidated financial institutions. In addition, the Basel III rules require that most regulatory capital deductions be made
from CET1 capital.
Under the Basel III rules, to avoid limitations on capital distributions, including dividend payments and certain
discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed
of common equity Tier 1 capital above its minimum risk-based capital requirements. This buffer will help to ensure that
banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress.
The buffer is measured relative to risk-weighted assets.
The Federal Reserve may also set higher capital requirements for holding companies whose circumstances warrant it.
For example, holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. At this time,
the bank regulatory agencies are more inclined to impose higher capital requirements to meet well capitalized standards and
future regulatory change could impose higher capital standards as a routine matter. Our regulatory capital ratios and those of
Equity Bank are in excess of the levels established for well capitalized institutions under the Basel III rules.
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The Basel III rules also set forth certain changes in the methods of calculating certain risk-weighted assets, which in
turn will affect the calculation of risk-based ratios. Under the Basel III rules, higher or more sensitive risk weights would be
assigned to various categories of assets, including certain credit facilities that finance the acquisition, development or
construction of real property, certain exposures or credits that are 90 days past due or on non-accrual, foreign exposures and
certain corporate exposures. In addition, the Basel III rules include (i) alternative standards of credit worthiness consistent
with the Dodd-Frank Act, (ii) greater recognition of collateral and guarantees and (iii) revised capital treatment for
derivatives and repo-style transactions.
In addition, the Basel III rules include certain exemptions to address concerns about the regulatory burden on
community banks. For example, banking organizations with less than $15 billion in consolidated assets as of December 31,
2009, are permitted to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock issued and
included in Tier 1 capital prior to May 19, 2010, on a permanent basis, without any phase out. Community banks were also
permitted to make a one-time election in their March 31, 2015, quarterly filings to opt-out of the requirement to include most
accumulated other comprehensive income (“AOCI”) components in the calculation of CET1 capital and, in effect, retain the
AOCI treatment under the current capital rules. Under the Basel III rules, we made the one-time, permanent election to
continue to exclude AOCI from capital.
Imposition of Liability for Undercapitalized Subsidiaries
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) required each federal banking
agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of nontraditional activities, as well as reflect the actual performance and expected
risk of loss on multifamily mortgages.
Pursuant to FDICIA, each federal banking agency has specified, by regulation, the levels at which an insured institution
would be considered well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. As of December 31, 2017, Equity Bank exceeded the capital levels required to be deemed well capitalized.
Additionally, FDICIA requires bank regulators to take prompt corrective action to resolve problems associated with
insured depository institutions. In the event an institution becomes undercapitalized, it must submit a capital restoration plan.
Under these prompt corrective action provisions of FDICIA, if a controlled bank is undercapitalized, then the
regulators could require the bank to submit a capital restoration plan. If an institution becomes significantly undercapitalized
or critically undercapitalized, additional and significant limitations are placed on the institution. The capital restoration plan
of an undercapitalized institution will not be accepted by the regulators unless each company having control of the
undercapitalized institution guarantees the subsidiary’s compliance with the capital restoration plan until it becomes
adequately capitalized. We have control of Equity Bank for the purpose of this statute.
Further, by statute and regulation, a bank holding company must serve as a source of financial and managerial strength
to each bank that it controls and, under appropriate circumstances, may be required to commit resources to support each such
controlled bank. This support may be required at times when the bank holding company may not have the resources to
provide the support. In addition, if the Federal Reserve believes that a bank holding company’s activities, assets or affiliates
represent a significant risk to the financial safety, soundness or stability of a controlled bank, then the Federal Reserve could
require the bank holding company to terminate the activities, liquidate the assets or divest the affiliates. The regulators mayaa
require these and other actions in support of controlled banks even if such actions are not in the best interests of the bank
holding company or its stockholders.
Acquisitions by Bank Holding Companies
The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before it may
acquire all or substantially all of the assets of any bank or ownership or control of any voting shares of any bank if after such
acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. In approving
bank acquisitions by bank holding companies, the Federal Reserve is required to consider the financial and managerial
resources and future prospects of the bank holding company and banks concerned, the convenience and needs of the
communities to be served, the effect on competition as well as the financial stability of the United States. The Attorney
General of the United States may, within 30 days after approval of an acquisition by the Federal Reserve, bring an action
challenging such acquisition under the federal antitrust laws, in which case the effectiveness of such approval is stayed
pending a final ruling by the courts. Under certain circumstances, the 30-day period may be shortened to 15 days.
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Control Acquisitions
The Change in Bank Control Act (“CBCA”) prohibits a person or group of persons from acquiring “control” of a bank
holding company unless the Federal Reserve has been notified and has not objected to the transaction. Under a rebuttable
presumption established by the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a bank holding
company with a class of securities registered under Section 12 of the Exchange Act, such as ourselves, would, under the
circumstances set forth in the presumption, constitute acquisition of control of us.
In addition, the CBCA prohibits any entity from acquiring 25% (the BHC Act has a lower limit for acquirers that are
existing bank holding companies) or more of a bank holding company’s or bank’s voting securities, or otherwise obtaining
control or a controlling influence over a bank holding company or bank without the approval of the Federal Reserve. On
September 22, 2008, the Board of Managers of the Federal Reserve issued a policy statement on equity investments in bank
holding companies and banks, which states the Federal Reserve generally will not consider an entity’s investment to be
“controlling” if the entity owns or controls less than 25% of the voting shares and less than 33% total equity of the bank
holding company or bank and has limited business relationships, director representation or other indicia of control.
Depending on the nature of the overall investment and the capital structure of the banking organization, the Federal Reserve
will permit, based on the policy statement, noncontrolling investments in the form of voting and nonvoting shares that
represent in the aggregate (i) less than one-third of the total equity of the banking organization (and less than one-third of any
class of voting securities, assuming conversion of all convertible nonvoting securities held by the entity) and (ii) less than
15% of any class of voting securities of the banking organization.
Interstate Branching
The Dodd-Frank Act permits a national or state bank, with the approval of its regulator, to open a branch in any state if
the law of the state in which the branch is located would permit the establishment of the branch if the bank were a bank
chartered in that state.
Anti-Tying Restrictions
Bank holding companies and their affiliates are prohibited from tying the provision of certain services, such as
extensions of credit, to other services offered by a holding company or its affiliates.
Bank Regulation
Equity Bank operates under a Kansas state bank charter and is subject to regulation by the OSBC and the Federal
Reserve. The OSBC and the Federal Reserve regulate or monitor all areas of Equity Bank’s operations, including capital
requirements, issuance of stock, declaration of dividends, interest rates, deposits, loans, investments, borrowings, record
keeping, establishment of branches, acquisitions, mergers, information technology and employee responsibility and conduct.
The OSBC places limitations on activities of Equity Bank, including the issuance of capital notes or debentures and the
holding of real estate and personal property, and requires Equity Bank to maintain a certain ratio of reserves against deposits.
The OSBC requires Equity Bank to file a report annually, in addition to any periodic report requested.
The Federal Reserve and the OSBC regularly examine Equity Bank and its records. The FDIC may also periodically
examine and evaluate insured banks.
Standards for Safety and Soundness
As part of FDICIA’s efforts to promote the safety and soundness of depository institutions and their holding
companies, appropriate federal banking regulators are required to have in place regulations specifying operational and
management standards (addressing internal controls, loan documentation, credit underwriting and interest rate risk), asset
quality and earnings. As discussed above, the Federal Reserve and the FDIC have extensive authority to police unsafe or
unsound practices and violations of applicable laws and regulations by depository institutions and their holding companies.
For example, the FDIC may terminate the deposit insurance of any institution that it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties of up to $1 million per day, issue cease-and-desist or
removal orders, seek injunctions and publicly disclose such actions.
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The ability of Equity Bank, as a Kansas state bank, to pay dividends is restricted under the Kansas Banking Code.
Pursuant to the Kansas Banking Code, a Kansas state bank may declare and pay a dividend out of undivided profits after
deducting losses to the holders of record of the stock outstanding on the date the dividend is declared. However, prior to the
declaration of any dividend, a Kansas state bank must transfer 25% of its net profits since the last preceding dividend to its
surplus fund until the surplus fund is equal to its total capital stock. In addition, no dividend may be declared without the
approval of the OSBC, if such dividend would reduce the surplus fund to an amount less than 30% of the resulting total
capital of the bank.
Equity Bank is also subject to certain restrictions on the payment of dividends as a result of the requirement that it
maintain an adequate level of capital in accordance with guidelines promulgated from time to time by the federal regulators.
The present and future dividend policy of Equity Bank is subject to the discretion of its boards of directors. In
determining whether to pay dividends to us and, if made, the amount of the dividends, the board of directors of Equity Bank
considers many of the same factors discussed above. Equity Bank cannot guarantee that it will have the financial ability to
pay dividends to us, or if dividends are paid, that they will be sufficient for us to make distributions to our stockholders.
Equity Bank is not obligated to pay dividends.
Insider Transactions
A bank is subject to certain restrictions on extensions of credit to insiders of the bank or of any affiliate. Insiders
include executive officers, directors, certain principal stockholders, and their related interests. Extensions of credit include
derivative transactions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions to
the extent that such transactions cause a bank to have credit exposure to an insider. Any extension of credit to an insider
must:
•
•
Be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with third parties; and
Involve no more than the normal risk of repayment or present other unfavorable features.
For loans above certain threshold amounts, board approval is required, and the interested insider may not be involved.
In addition, a bank may purchase an asset from or sell an asset to an insider only if the transaction is on market terms and, if
representing more than 10% of capital, is approved in advance by the majority of disinterested directors.
Additional and more stringent limits apply to a bank’s transactions with its own executive officers and certain directors.
These limits do not apply to transactions with all directors nor to insiders of the bank’s affiliates.
Restrictions on Transactions with Affiliates
Section 23A of the Federal Reserve Act imposes quantitative and qualitative limits on transactions between a bank and
any affiliate and requires certain levels of collateral for any such loans. It also limits the amount of advances to third parties
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which are collateralized by the securities or obligations of a holding company. Section 23B of the Federal Reserve Act
requires that certain transactions between Equity Bank and its affiliates must be on terms substantially the same, or at least as
favorable, as those prevailing at the time for comparable transactions with or involving other nonaffiliated companies. In the
absence of such comparable transactions, any transaction between Equity Bank and its affiliates must be on terms and under
circumstances, including credit standards, which in good faith would be offered to or would apply to nonaffiliated companies.
Capital Adequacy
In addition to the capital rules applicable to both banks and bank holding companies discussed above, under the prompt
corrective action regulations, the federal bank regulators are required and authorized to take supervisory actions against
undercapitalized banks. For this purpose, a bank is placed in one of the following five categories based on the bank’s capital
(as of the new capital rules discussed above):
•
•
•
well capitalized (at least 5% leverage capital, 6.5% common equity Tier 1 risk-based capital, 8% Tier 1 risk-
based capital and 10% total risk-based capital);
adequately capitalized (at least 4% leverage capital, 4.5% common equity Tier 1 risk-based capital, 6% Tier 1
risk-based capital and 8% total risk-based capital);
undercapitalized (less than 4% leverage capital, 4.5% common equity Tier 1 risk-based capital, 6% Tier 1 risk-
based capital and 8% total risk-based capital);
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•
•
significantly undercapitalized (less than 3% leverage capital, 3% common equity Tier 1 risk-based capital, 4%
Tier 1 risk-based capital and 6% total risk-based capital); and
critically undercapitalized (less than 2% tangible capital).
Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other
discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends
upon the capital category in which the institution is placed. The regulators have the discretion to downgrade a bank from one
category to a lower category. Generally, subject to a narrow exception, banking regulators must appoint a receiver or
conservator for an institution that is “critically undercapitalized.” An institution that is categorized as “undercapitalized,”
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“significantly undercapitalized,” or “critically undercapitalized” is required to submit an acceptable capital restoration plan to
its appropriate federal banking agency.
Failure to meet capital guidelines could subject Equity Bank to a variety of enforcement remedies, including issuance
of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits and
other restrictions on our business.
As of December 31, 2017, Equity Bank exceeded the capital levels required to be deemed well capitalized.
Deposit Insurance
The FDIC insures the deposits of federally insured banks up to prescribed statutory limits for each depositor, through
the Deposit Insurance Fund (“DIF”), and safeguards the safety and soundness of the banking and thrift industries. The Dodd-
Frank Act permanently raised the standard maximum deposit insurance amount to $250,000. The amount of FDIC
assessments paid by each insured depository institution is based on its relative risk of default as measured by regulatory
capital ratios and other supervisory factors.
In connection with the Dodd Frank Act’s requirement that insurance assessments be based on assets, the FDIC has
redefined its deposit insurance premium assessment base to be an institution’s average consolidated total assets minus
average tangible equity. The FDIC also has revised its deposit insurance assessment rate schedule in light of this change to
the assessment base. The revised rate schedule and other revisions to the assessment rules became effective April 1, 2011.
We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. At least
semi-annually, the FDIC will update its loss and income projections for the DIF and, if needed, will increase or decrease
assessment rates, following notice-and-comment rulemaking, if required. If there are additional bank or financial institution
failures or if the FDIC otherwise determines to increase assessment rates, Equity Bank may be required to pay higher FDIC
insurance premiums. Any future increases in FDIC insurance premiums may have a material and adverse effect on our
earnings.
In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on
bonds issued by the Financing Corporation (“FICO”), an agency of the federal government established to recapitalize the
predecessor to DIF. These assessments, which are included in Deposit Insurance Premiums on the Consolidated Statements
of Income, will continue until the FICO bonds mature between 2018 and 2019.
Consumer Financial Protection Bureau
The Dodd-Frank Act created the Consumer Financial Protection Bureau (“CFPB”) which is granted broad rulemaking,
supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit
Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt
Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The
CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in
assets. Depository institutions with less than $10 billion in assets, such as Equity Bank, are subject to rules promulgated by
the CFPB, which may increase their compliance risk and the costs associated with their compliance efforts, but such banks
will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB
has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products.
The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential
mortgages, including a determination of the borrower’s ability to repay. In addition, the Dodd-Frank Act allows borrowers to
raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB.
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The CFPB has issued a number of regulations related to the origination of mortgages, foreclosure and overdrafts as
well as many other consumer issues. Additionally, the CFPB has proposed, or will be proposing, additional regulations on
issues that directly relate to our business. Although it is difficult to predict at this time the extent to which the CFPB’s final
rules impact the operations and financial condition of Equity Bank, such rules may have a material impact on Equity Bank’s
compliance costs, compliance risk and fee income.
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Privacy
Under the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial
records and prescribes procedures for complying with administrative subpoenas of financial records, financial institutions are
required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent
financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that
market the institutions’ own products and services. Additionally, financial institutions generally may not disclose consumer
account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through
electronic mail to consumers.
Recent cyber attacks against bank and other institutions that resulted in unauthorized access to confidential customer
information have prompted the federal banking agencies to issue extensive guidance on cyber security. The regulatory
agencies may devote more resources to this part of their safety and soundness examination than they may have in the past.
Like other lending institutions, our subsidiary bank uses credit bureau data in its underwriting activities. Use of that
data is regulated under the Federal Credit Reporting Act on a uniform, nationwide basis. The act and its implementing
regulation, Regulation V, cover credit reporting, prescreening, sharing of information between affiliates, and the use of credit
data. The Fair and Accurate Credit Transactions Act of 2003 allows states to enact identity theft laws that are not
inconsistent with the conduct required by the provisions of the act.
The Patriot Act, International Money Laundering Abatement and Financial Anti-Terrorism Act and Bank Secrecy Act
A major focus of governmental policy on financial institutions has been aimed at combating money laundering and
terrorist financing. The Patriot Act and the International Money Laundering and Financial Anti-Terrorism Act of 2001
substantially broadened the scope of U.S. anti-money laundering laws and penalties, specifically related to the Bank Secrecy
Act and expanded the extra-territorial jurisdiction of the United States. The U.S. Treasury has issued a number of
implementing regulations that apply various requirements of the Patriot Act to financial institutions, such as Equity Bank.
These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to
detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers.
Failure of a financial institution and its holding company to maintain and implement adequate programs to combat
money laundering and terrorist financing, or to comply with relevant laws and regulations, could have serious legal,
reputational and financial consequences for the institution. Because of the significance of regulatory emphasis on these
requirements, Equity Bank will continue to expend significant staffing, technology and financial resources to maintain
programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing of
Equity Bank’s compliance with the Bank Secrecy Act on an ongoing basis.
Community Reinvestment Act
The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of financial institutions
within its jurisdiction, the federal and the state banking regulators, as applicable, evaluate the record of each financial
institution in meeting the credit needs of its local community, including low and moderate-income neighborhoods. These
facts are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. Failure to
adequately meet these criteria could impose additional requirements and limitations on us. Additionally, we must publicly
disclose the terms of various CRA-related agreements.
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Other Regulations
Interest and other charges that Equity Bank collects or contracts for are subject to state usury laws and federal laws
concerning interest rates. Equity Bank’s loan operations are also subject to federal laws applicable to credit transactions,
such as:
•
•
•
•
•
•
the Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
the Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public
and public officials to determine whether a financial institution is fulfilling its obligation to help meet the
housing needs of the community it serves;
the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit;
the Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection
agencies; and
the rules and regulations of the various governmental agencies charged with the responsibility of implementing
these federal laws.
In addition, Equity Bank’s deposit operations are subject to the Electronic Funds Transfer Act and Regulation E issued
by the Federal Reserve to implement such act, which govern automatic deposits to and withdrawals from deposit accounts
and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.
Concentrated Commercial Real Estate Lending Regulations
The Federal Reserve and other federal banking regulatory agencies have promulgated guidance governing financial
institutions with concentrations in commercial real estate lending. The guidance provides that a bank has a concentration in
commercial real estate lending if (i) total reported loans for construction, land development and other land represent 100% or
more of total capital or (ii) total reported loans secured by multifamily and non-farm residential properties and loans for
construction, land development and other land represent 300% or more of total capital and the bank’s commercial real estate
loan portfolio has increased 50% or more during the prior 36 months. If a concentration is present, management must
employ heightened risk management practices including board and management oversight and strategic planning,
development of underwriting standards, risk assessment and monitoring through market analysis and stress testing and
increasing capital requirements.
All of the above laws and regulations add significantly to the cost of operating the Company and Equity Bank and thus
have a negative impact on profitability. We would also note that there has been a tremendous expansion experienced in
recent years by certain financial service providers that are not subject to the same rules and regulations as the Company and
Equity Bank. These institutions, because they are not so highly regulated, have a competitive advantage over the Company
and Equity Bank and may continue to draw large amounts of funds away from banking institutions, with a continuing adverse
effect on the banking industry in general.
Effect of Governmental Monetary Policies
The commercial banking business is affected not only by general economic conditions but also by both U.S. fiscal
policy and the monetary policies of the Federal Reserve. Some of the instruments of fiscal and monetary policy available to
the Federal Reserve include changes in the discount rate on member bank borrowings, the fluctuating availability of
borrowings at the “discount window,” open market operations, the imposition of and changes in reserve requirements against
member banks’ deposits and assets of foreign branches, the imposition of and changes in reserve requirements against certain
borrowings by banks and their affiliates and the placing of limits on interest rates that member banks may pay on time and
savings deposits. Such policies influence, to a significant extent, the overall growth of bank loans, investments and deposits
and the interest rates charged on loans or paid on time and savings deposits. We cannot predict the nature of future fiscal and
monetary policies and the effect of such policies on the future business and our earnings.
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Item 1A: Risk Factors
Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our
control. The material risks and uncertainties that management believes affect the Company are described below. Additional
risks and uncertainties that management is not aware of, or that management currently deems immaterial, may also impair the
Company’s business operations. This report is qualified in its entirety by these risk factors. If any of the following risks
actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this
were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.
Some statements in the following risk factors constitute forward-looking statements. Please refer to “Cautionary Note
Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K.
Risks Relating to Our Business
Our business is concentrated in, and largely dependent upon, the continued growth and welfare of the general
geographic markets in which we operate.
Our banking operations are concentrated in Arkansas, Kansas, Missouri and Oklahoma. As a result, our financial
condition and results of operations and cash flows are affected by changes in the economic conditions of our markets. Our
success depends to a significant extent upon the business activity, population, income levels, deposits, and real estate activity
in these markets. Although our customers’ business and financial interests may extend well beyond these market areas,
adverse conditions that affect these market areas could reduce our growth rate, affect the ability of our customers to repay
their loans, affect the value of collateral underlying loans, impact our ability to attract deposits, and generally affect our
financial conditions and results of operations. Because of our geographic concentration, we may be less able than other
regional or national financial institutions to diversify our credit risks across multiple markets.
A return of recessionary conditions could result in increases in our level of nonperforming loans and/or reduced
demand for our products and services, which could have an adverse effect on our results of operations.
Economic recession or other economic problems, including those affecting our markets and regions, but also those
affecting the U.S. or world economies, could have a material adverse impact on the demand for our products and services.
Since the conclusion of the last recession, economic growth has been slow and uneven, and unemployment levels remain
high. If economic conditions deteriorate, or if there are negative developments affecting the domestic and international credit
markets, the value of our loans and investments may be harmed, which in turn would have an adverse effect on our financial
performance, and our financial condition may be adversely affected. In addition, although deteriorating market conditions
could adversely affect our financial condition, results of operations, and cash flows, we may not benefit from any market
growth or favorable economic conditions, either in our primary market areas or nationally, even if they do occur.
Difficult conditions in the market for financial products and services may materially and adversely affect our
business and results of operations.
Dramatic declines in the housing market during the previous recessionary period, along with increased foreclosures and
unemployment, resulted in significant write-downs of asset values by financial institutions, including government-sponsored
entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but
spreading to credit default swaps and other derivative securities, caused many financial institutions to seek additional capital,
to merge with larger and stronger institutions, and, in some cases, to fail. This market turmoil and tightening of credit led to
an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility, and
widespread reduction of business activity generally. Although conditions have improved, a return of these trends could have
a material adverse effect on our business and operations. Negative market developments may affect consumer confidence
levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may
impact our charge-offs and provisions for loan and credit losses. Economic deterioration that affects household and/or
corporate incomes could also result in reduced demand for credit or fee-based products and services. These conditions would
have adverse effects on us and others in the financial services industry.
We rely heavily on our management team and could be adversely affected by the unexpected loss of key officers.
We are led by an experienced management team with substantial experience in the markets that we serve and the
financial products that we offer. Our operating strategy focuses on providing products and services through long-term
relationship managers. Accordingly, our success depends in large part on the performance of our key personnel, as well as
on our ability to attract, motivate and retain highly qualified senior and middle management. Competition for employees is
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intense, and the process of locating key personnel with the combination of skills and attributes required to execute our
business plan may be lengthy. We may not be successful in retaining our key employees and the unexpected loss of services
of one or more of our key personnel could have a material adverse effect on our business because of their skills, knowledge
of our market and financial products, years of industry experience, long-term customer relationships and the difficulty of
promptly finding qualified replacement personnel. If the services of any of our key personnel should become unavailable for
any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, which could have an adverse
effect on our business, financial condition and results of operations.
Our ability to grow our loan portfolio may be limited by, among other things, economic conditions, competition
within our market areas, the timing of loan repayments and seasonality.
Our ability to continue to improve our operating results is dependent upon, among other things, growing our loan
portfolio. While we believe that our strategy to grow our loan portfolio is sound and our growth targets are achievable over
an extended period of time, competition within our market areas is significant, particularly for borrowers whose businesses
have been less negatively impacted by the challenging economic conditions of the last few years. We compete with both
large regional and national financial institutions, who are sometimes able to offer more attractive interest rates and other
financial terms than we choose to offer, as well as other community-based banks who seek to offer a similar level of service
to that which we offer. This competition can make loan growth challenging, particularly if we are unwilling to price loans at
levels that would cause unacceptable levels of compression of our net interest margin or if we are unwilling to structure a
loan in a manner that we believe results in a level of risk to us that we are not willing to accept. Moreover, loan growth
throughout the year can fluctuate due in part to seasonality of the businesses of our borrowers and potential borrowers and the
timing on loan repayments, particularly those of our borrowers with significant relationships with us, resulting from, among
other things, excess levels of liquidity. To the extent that we are unable to increase loans, we may be unable to successfully
implement our growth strategy, which could materially and adversely affect us.
Our financial performance will be negatively impacted if we are unable to execute our growth strategy.
Our current growth strategy is to grow organically and supplement that growth with select acquisitions. Our ability to
grow organically depends primarily on generating loans and deposits of acceptable risk and expense, and we may not be
successful in continuing this organic growth. Our ability to identify appropriate markets for expansion, recruit and retain
qualified personnel, and fund growth at a reasonable cost depends upon prevailing economic conditions, maintenance of
sufficient capital, competitive factors, and changes in banking laws, among other factors. Conversely, if we grow too quickly
and are unable to control costs and maintain asset quality, such growth, whether organic or through select acquisitions, could
materially and adversely affect our financial condition and results of operations.
We may not be able to identify and acquire other financial institutions, which could hinder our ability to continue to
grow.
A substantial part of our historical growth has been a result of acquisitions of other financial institutions. We intend to
continue our strategy of evaluating and selectively acquiring other financial institutions that serve customers or markets we
find desirable. However, the market for acquisitions remains highly competitive, and we may be unable to find satisfactory
acquisition candidates in the future that fit our acquisition strategy. To the extent that we are unable to find suitable
acquisition candidates, an important component of our strategy may be lost. If we are able to identify attractive acquisition
opportunities, we must generally satisfy a number of conditions prior to completing any such transaction, including certain
bank regulatory approval, which has become substantially more difficult, time-consuming and unpredictable as a result of the
recent financial crisis. Additionally, any future acquisitions may not produce the revenue, earnings or synergies that we
anticipated.
Our strategy of pursuing acquisitions exposes us to financial, execution, compliance and operational risks that
could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We intend to continue pursuing a strategy that includes acquisitions. An acquisition strategy involves significant risks,
including the following:
•
•
•
finding suitable candidates for acquisition;
attracting funding to support additional growth within acceptable risk tolerances;
maintaining asset quality;
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•
•
•
•
•
retaining customers and key personnel, including bankers;
obtaining necessary regulatory approvals, which we may have difficulty obtaining or be unable to obtain;
conducting adequate due diligence and managing known and unknown risks and uncertainties;
integrating acquired businesses; and
maintaining adequate regulatory capital.
The market for acquisition targets is highly competitive, which may adversely affect our ability to find acquisition
candidates that fit our strategy and standards. We face significant competition in pursuing acquisition targets from other
banks and financial institutions, many of which possess greater financial, human, technical and other resources than we do.
Our ability to compete in acquiring target institutions will depend on our available financial resources to fund the
acquisitions, including the amount of cash and cash equivalents we have and the liquidity and market price of our Class A
common stock. In addition, increased competition may also drive up the acquisition consideration that we will be required to
pay in order to successfully capitalize on attractive acquisition opportunities. To the extent that we are unable to find suitable
acquisition targets, an important component of our growth strategy may not be realized.
Acquisitions of financial institutions also involve operational risks and uncertainties, such as unknown or contingent
liabilities with no available manner of recourse, exposure to unexpected problems such as asset quality, the retention of key
employees and customers, and other issues that could negatively affect our business. We may not be able to complete future
acquisitions or, if completed, we may not be able to successfully integrate the operations, technology platforms, management,
products and services of the entities that we acquire or to realize our attempts to eliminate redundancies. The integration
process may also require significant time and attention from our management that would otherwise be directed toward
servicing existing business and developing new business. Failure to successfully integrate the entities we acquire into our
existing operations in a timely manner may increase our operating costs significantly and adversely affect our business,
financial condition and results of operations. Further, acquisitions typically involve the payment of a premium over book and
market values and, therefore, some dilution of our tangible book value and net income per common share may occur in
connection with any future acquisition, and the carrying amount of any goodwill that we currently maintain or may acquire
may be subject to impairment in future periods.
If we continue to grow, we will face risks arising from our increased size. If we do not manage such growth
effectively, we may be unable to realize the benefit from the investments in technology, infrastructure and personnel that we
have made to support our expansion. In addition, we may incur higher costs and realize less revenue growth than we expect,
which would reduce our earnings and diminish our future prospects, and we may not be able to continue to implement our
business strategy and successfully conduct our operations. Risks associated with failing to maintain effective financial and
operational controls as we grow, such as maintaining appropriate loan underwriting procedures, information technology
systems, determining adequate allowances for loan losses and complying with regulatory accounting requirements, including
increased loan losses, reduced earnings and potential regulatory penalties and restrictions on growth, all could have a
negative effect on our business, financial condition and results of operations.
Acquisitions may disrupt our business and dilute stockholder value, and integrating acquired companies may be
more difficult, costly, or time-consuming than we expect.
Our pursuit of acquisitions may disrupt our business, and any equity that we issue as merger consideration may have
the effect of diluting the value of your investment. In addition, we may fail to realize some or all of the anticipated benefits
of completed acquisitions. We anticipate that the integration of businesses that we may acquire in the future will be a time-
consuming and expensive process, even if the integration process is effectively planned and implemented.
In addition, our acquisition activities could be material to our business and involve a number of significant risks,
including the following:
•
•
•
incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating
potential transactions, resulting in our attention being diverted from the operation of our existing business;
using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with
respect to the target company or the assets and liabilities that we seek to acquire;
exposure to potential asset quality issues of the target company;
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•
•
•
•
•
•
•
•
•
•
•
•
intense competition from other banking organizations and other potential acquirers, many of which have
substantially greater resources than we do;
potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including, without
limitation, liabilities for regulatory and compliance issues;
inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and
other projected benefits of the acquisition;
incurring time and expense required to integrate the operations and personnel of the combined businesses;
inconsistencies in standards, procedures, and policies that would adversely affect our ability to maintain
relationships with customers and employees;
experiencing higher operating expenses relative to operating income from the new operations;
creating an adverse short-term effect on our results of operations;
losing key employees and customers;
significant problems relating to the conversion of the financial and customer data of the entity;
integration of acquired customers into our financial and customer product systems;
potential changes in banking or tax laws or regulations that may affect the target company; or
risks of impairment to goodwill.
If difficulties arise with respect to the integration process, the economic benefits expected to result from acquisitions
might not occur. As with any merger of financial institutions, there also may be business disruptions that cause us to lose
customers or cause customers to move their business to other financial institutions. Failure to successfully integrate
businesses that we acquire could have an adverse effect on our profitability, return on equity, return on assets, or our abilitytt
to implement our strategy, any of which in turn could have a material adverse effect on our business, financial condition, and
results of operations.
Our largest loan relationships currently make up a material percentage of our total loan portfolio.
As of December 31, 2017, our ten largest loan relationships totaled over $208.6 million in loan exposure, or 9.8% of
the total loan portfolio. The concentration risk associated with having a small number of large loan relationships is that, if
one or more of these relationships were to become delinquent or suffer default, we could be at serious risk of material losses.
The allowance for loan losses may not be adequate to cover losses associated with any of these relationships, and any loss or
increase in the allowance would negatively affect our earnings and capital. Even if the loans are collateralized, the large
increase in classified assets could harm our reputation with our regulators, investors and potential investors and inhibit our
ability to execute our business plan.
Several of our large depositors have relationships with each other, which creates a higher risk that one customer’s
withdrawal of its deposit could lead to a loss of other deposits from customers within the relationship, which, in turn,
could force us to fund our business through more expensive and less stable sources.
As of December 31, 2017, our ten largest non-brokered depositors accounted for $282.8 million in deposits, or
approximately 11.9% of our total deposits. Further, our non-brokered deposit account balance was $2.30 billion, or
approximately 96.4% of our total deposits, as of December 31, 2017. Several of our large depositors have business, family,
or other relationships with each other, which creates a risk that any one customer’s withdrawal of its deposit could lead to a
loss of other deposits from customers within the relationship.
Withdrawals of deposits by any one of our largest depositors or by one of our related customer groups could force us to
rely more heavily on borrowings and other sources of funding for our business and withdrawal demands, adversely affecting
our net interest margin and results of operations. We may also be forced, as a result of any withdrawal of deposits, to rely
more heavily on other, potentially more expensive and less stable funding sources. Consequently, the occurrence of any of
these events could have a material adverse effect on our business, results of operations, financial condition, and future
prospects.
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Our ability to retain bankers and recruit additional successful bankers is critical to the success of our business
strategy, and any failure to do so could adversely affect our business, financial condition, results of operations and growth
prospects.
Our ability to retain and grow our loans, deposits and fee income depends upon the business generation capabilities,
reputation and relationship management skills of our bankers. If we were to lose the services of any of our bankers,
including successful bankers employed by banks that we may acquire, to a new or existing competitor or otherwise, we may
not be able to retain valuable relationships and some of our customers could choose to use the services of a competitor
instead of our services.
Our growth strategy also relies on our ability to attract and retain additional profitable bankers. We may face
difficulties in recruiting and retaining bankers of our desired caliber, including as a result of competition from other financial
institutions. In particular, many of our competitors are significantly larger with greater financial resources, and may be able
to offer more attractive compensation packages and broader career opportunities. Additionally, we may incur significant
expenses and expend significant time and resources on training, integration and business development before we are able to
determine whether a new banker will be profitable or effective. If we are unable to attract and retain successful bankers, or if
our bankers fail to meet our expectations in terms of customer relationships and profitability, we may be unable to execute
our business strategy and our business, financial condition, results of operations and growth prospects may be adversely
affected.
Any expansion into new markets or new lines of business might not be successful.
As part of our ongoing strategic plan, we may consider expansion into new geographic markets. Such expansion might
take the form of the establishment of de novo branches or the acquisition of existing banks or bank branches. There are
considerable costs associated with opening new branches and new branches generally do not generate sufficient revenues to
offset costs until they have been in operation for some time. Additionally, we may consider expansion into new lines of
business through the acquisition of third parties or organic growth and development. There are substantial risks associated
with such efforts, including risks that (i) revenues from such activities might not be sufficient to offset the development,
compliance, and other implementation costs, (ii) competing products and services and shifting market preferences might
affect the profitability of such activities, and (iii) our internal controls might be inadequate to manage the risks associated
with new activities. Furthermore, it is possible that our unfamiliarity with new markets or lines of business might adversely
affect the success of such actions. If any such expansions into new geographic or product markets are not successful, there
could be an adverse effect on our financial condition and results of operations.
Our small to medium-sized business and entrepreneurial customers may have fewer financial resources than larger
entities to weather a downturn in the economy, which may impair a borrower’s ability to repay a loan, and such
impairment could adversely affect our financial condition and results of operations.
We focus our business development and marketing strategy primarily to serve the banking and financial services needs
of small to medium-sized businesses and entrepreneurs. These small to medium-sized businesses and entrepreneurs may
have fewer financial resources in terms of capital or borrowing capacity than larger entities. If economic conditions
negatively impact our markets generally, and small to medium-sized businesses are adversely affected, our financial
condition and results of operations may be negatively affected.
In our business, we must effectively manage our credit risk.
As a lender, we are exposed to the risk that our loan customers may not repay their loans according to the terms of
these loans and the collateral securing the payment of these loans may be insufficient to fully compensate us for the
outstanding balance of the loan plus the costs to dispose of the collateral. We may experience significant loan losses, which
could have a material adverse effect on our operating results and financial condition. Management makes various
assumptions and judgments about the collectability of our loan portfolio, including the diversification by industry of our
commercial loan portfolio, the amount of nonperforming loans and related collateral, the volume, growth and composition of
our loan portfolio, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers and
the evaluation of our loan portfolio through our internal loan review process and other relevant factors.
We maintain an allowance for credit losses, which is an allowance established through a provision for loan losses
charged to expense that represents management’s best estimate of probable incurred losses in our loan portfolio. Additional
credit losses will likely occur in the future and may occur at a rate greater than we have experienced to date. In determining
the amount of the allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general
28
economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient and adjustments
may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. Material
additions to the allowance could materially decrease our net income.
In addition, banking regulators periodically review our allowance for credit losses and may require us to increase our
provision for credit losses or recognize further charge-offs, based on judgments different than those of our management. Any
increase in our allowance for credit losses or charge-offs as required by these regulatory agencies could have a material
negative effect on our operating results, financial condition and liquidity.
We may not be able to adequately measure and limit the credit risk associated with our loan portfolio, which could
adversely affect our profitability.
As a part of the products and services that we offer, we make commercial and commercial real estate loans. The
principal economic risk associated with each class of loans is the creditworthiness of the borrower, which is affected by the
strength of the relevant business market segment, local market conditions, and general economic conditions. Additional
factors related to the credit quality of commercial loans include the quality of the management of the business and the
borrower’s ability both to properly evaluate changes in the supply and demand characteristics affecting our market for
products and services, and to effectively respond to those changes. Additional factors related to the credit quality of
commercial real estate loans include tenant vacancy rates and the quality of management of the property. A failure to
effectively measure and limit the credit risk associated with our loan portfolio could have an adverse effect on our business,
financial condition, and results of operations.
External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse
effect on our business, financial condition and results of operations.
Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the
Board of Governors of the Federal Reserve System, or the Federal Reserve. Actions by monetary and fiscal authorities,
including the Federal Reserve, could lead to inflation, deflation, or other economic phenomena that could adversely affect our
financial performance. The primary impact of inflation on our operations most likely will be reflected in increased operating
costs. Conversely, deflation generally will tend to erode collateral values and diminish loan quality. Virtually all of our
assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance
than general levels of inflation or deflation. Interest rates do not necessarily move in the same direction or by the same
magnitude as the prices of goods and services.
Our profitability is vulnerable to interest rate fluctuations.
Our profitability depends substantially upon our net interest income. Net interest income is the difference between the
interest earned on assets (such as loans and securities held in our investment portfolio) and the interest paid for liabilities
(such as interest paid on savings and money market accounts and time deposits). Income associated with interest-earning
assets and costs associated with interest-bearing liabilities may not be affected uniformly by fluctuations in interest rates.
The magnitude and duration of changes in interest rates are events over which we have no control, and such changes may
have an adverse effect on our net interest income. Prepayment and early withdrawal levels, which are also impacted by
changes in interest rates, can significantly affect our assets and liabilities. For example, an increase in interest rates could,
among other things, reduce the demand for loans and decrease loan repayment rates. Such an increase could also adversely
affect the ability of our floating-rate borrowers to meet their higher payment obligations, which could in turn lead to an
increase in nonperforming assets and net charge-offs. Conversely, a decrease in the general level of interest rates could affect
us by, among other things, leading to greater competition for deposits and incentivizing borrowers to prepay or refinance
their loans more quickly or frequently than they otherwise would. The primary tool that management uses to measure
interest rate risk is a simulation model that evaluates the impact of varying levels of prevailing interest rates and the impact
on net interest income and the economic value of equity. Generally, the interest rates on our interest-earning assets and
interest-bearing liabilities do not change at the same rate, to the same extent or on the same basis. Even assets and liabilities
with similar maturities or re-pricing periods may react in different degrees to changes in market interest rates. Interest rates
on certain types of assets and liabilities may fluctuate in advance of changes in general market interest rates, while interest
rates on other types of assets and liabilities may lag behind changes in general market rates. Certain assets, such as fixed and
t
adjustable rate mortgage loans, have features that limit changes in interest rates on a short-term basis and over the life of the
asset. Changes in interest rates could materially and adversely affect our financial condition and results of operations. See
“Item 7A – Quantitative and Qualitative Disclosure About Market Risk” for a discussion of interest rate risk modeling and
the inherent risks in modeling assumptions.
29
Market interest rates for loans, investments, and deposits are highly sensitive to many factors beyond our control.
Generally, interest rate spreads (the difference between interest rates earned on assets and interest rates paid on
liabilities) have narrowed in recent years as a result of changing market conditions, policies of various government and
regulatory authorities, and competitive pricing pressures, and we cannot predict whether these rate spreads will narrow even
further. This narrowing of interest rate spreads could adversely affect our financial condition and results of operations. In
addition, we cannot predict whether interest rates will continue to remain at present levels. Changes in interest rates may
cause significant changes, up or down, in our net interest income.
We attempt to minimize the adverse effects of changes in interest rates by structuring our asset-liability composition in
order to obtain the maximum spread between interest income and interest expense. However, there can be no assurance that
we will be successful in minimizing the adverse effects of changes in interest rates. Depending on our portfolio of loans and
investments, our financial condition and results of operations may be adversely affected by changes in interest rates.
We could suffer losses from a decline in the credit quality of the assets that we hold.
We could sustain losses if borrowers, guarantors, and related parties fail to perform in accordance with the terms of
their loans. We have adopted underwriting and credit monitoring procedures and policies that we believe are appropriate to
minimize this risk, including the establishment and review of the allowance for credit losses, periodic assessment of the
likelihood of nonperformance, tracking loan performance, and diversifying our credit portfolio. These policies and
procedures, however, may not prevent unexpected losses that could materially adversely affect our financial condition and
results of operations. In particular, we face credit quality risks presented by past, current, and potential economic and real
estate market conditions.
Federal income tax reform could have unforeseen effects on our financial condition and results of operations.
On December 22, 2017, the President of the United States signed into law H.R. 1, originally known as the “Tax Cuts
and Jobs Act.” The Company is still in the process of analyzing the Tax Cuts and Jobs Act and its possible effects on the
Company. The Tax Cuts and Jobs Act includes a number of provisions, including the lowering of the U.S. corporate tax rate
from 35 percent to 21 percent, effective January 1, 2018. There are also provisions that may partially offset the benefit of
such rate reduction. Financial statement impacts include adjustments for, among other things, the re-measurement of
deferred tax assets and liabilities. The re-measurement of the Company’s net deferred tax asset resulted in a $1.2 million re-
measurement charge being recognized in income tax expense in 2017. While there are benefits, there is also substantial
uncertainty regarding the details of U.S. Tax Reform. The intended and unintended consequences of the Tax Cuts and Jobs
Act on our business and on holders of our common shares is uncertain and could be adverse. The Company anticipates that
the impact of the Tax Cuts and Jobs Act may be material to our business, financial condition and results of operations.
Changes in economic conditions could cause an increase in delinquencies and nonperforming assets, including
loan charge-offs, which could depress our net income and growth.
Our loan portfolio includes many real estate secured loans, demand for which may decrease during economic
downturns as a result of, among other things, an increase in unemployment, a decrease in real estate values and, a slowdown
in housing. If we see negative economic conditions develop in the United States as a whole or our Arkansas, Kansas,
Missouri and Oklahoma markets, we could experience higher delinquencies and loan charge-offs, which would reduce our
net income and adversely affect our financial condition. Furthermore, to the extent that real estate collateral is obtained
through foreclosure, the costs of holding and marketing the real estate collateral, as well as the ultimate values obtained from
disposition, could reduce our earnings and adversely affect our financial condition.
The value of real estate collateral may fluctuate significantly resulting in an under-collateralized loan portfolio.
The market value of real estate, particularly real estate held for investment, can fluctuate significantly in a short period
of time as a result of market conditions in the geographic area in which the real estate is located. If the value of the real estate
serving as collateral for our loan portfolio were to decline materially, a significant part of our loan portfolio could become
under-collateralized. If the loans that are collateralized by real estate become troubled during a time when market conditions
are declining or have declined, then, in the event of foreclosure, we may not be able to realize the amount of collateral that
we anticipated at the time of originating the loan. This could have a material adverse effect on our provision for loan losses
and our operating results and financial condition.
30
A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate
market could negatively impact our business.
There are significant risks associated with real estate-based lending. Real estate collateral may deteriorate in value
during the time that credit is extended, in which case we might not be able to sell such collateral for an amount necessary to
satisfy a defaulting borrower’s obligation to us. In that event, there could be a material adverse effect on our financial
condition and results of operations. Additionally, commercial real estate loans are subject to unique risks. These types of
loans are often viewed as having more risks than residential real estate or other consumer loans, primarily because relatively
large amounts are loans to a relatively small number of borrowers. Thus, the deterioration of even a small number of these
loans could cause a significant increase in the loan loss allowance or loan charge-offs, which in turn could have a material
adverse effect on our financial condition and results of operations. Furthermore, commercial real estate loans depend on cash
flows from the property securing the debt. Cash flows may be affected significantly by general economic conditions, and a
downturn in a local economy in one of our markets or in occupancy rates where a property is located could increase the
likelihood of default.
The foregoing risks are enhanced as a result of the limited geographic scope of our principal markets. Most of the real
estate securing our loans is located in our Arkansas, Kansas, Missouri and Oklahoma markets. Because the value of this
collateral depends upon local real estate market conditions and is affected by, among other things, neighborhood
characteristics, real estate tax rates, the cost of operating the properties, and local governmental regulation, adverse changes
in any of these factors in our markets could cause a decline in the value of the collateral securing a significant portion of our
loan portfolio. Further, the concentration of real estate collateral in these three markets limits our ability to diversify the risk
of such occurrences.
A large portion of our loan portfolio is comprised of commercial loans, which are secured by accounts receivable,
inventory, equipment or other asset-based collateral, and deterioration in the value of such collateral could increase our
exposure to future probable losses.
These commercial loans are typically larger in amount than loans to individuals, and therefore, have the potential for
larger losses on a single loan basis. Additionally, asset-based borrowers are often highly leveraged and have inconsistent
historical earnings and cash flows. Historically, losses in our commercial credits have been higher than losses in other
classes of our loan portfolio. Significant adverse changes in our borrowers’ industries and businesses could cause rapid
declines in values of, and collectability associated with, those business assets, which could result in inadequate collateral
coverage for our commercial loans and expose us to future losses. An increase in specific reserves and charge-offs related to
our commercial loan portfolio could have a material adverse effect on our business, financial condition, results of operations
and future prospects.
Our use of appraisals in deciding whether to make a loan secured by real property does not ensure the value of the
real property collateral.
In considering whether to make a loan secured by real property, we generally require an appraisal. However, an
appraisal is only an estimate of the value of the property at the time the appraisal is made. If the appraisal does not reflect the
amount that may be obtained upon any sale or foreclosure of the property, we may not realize an amount equal to the
indebtedness secured by the property.
A portion of our loan portfolio is comprised of participation and syndicated transaction interests, which could have
an adverse effect on our ability to monitor the lending relationships and lead to an increased risk of loss.
We participate in loans originated by other institutions and in syndicated transactions (including shared national
credits) in which other lenders serve as the agent bank. Our reduced control over the monitoring and management of these
relationships, particularly participations in large bank groups, could lead to increased risk of loss, which could have a
material adverse effect on our business, financial condition, results of operations and future prospects.
A lack of liquidity could adversely affect our financial condition and results of operations.
Liquidity is essential to our business. We rely on our ability to generate deposits and effectively manage the repayment
and maturity schedules of our loans to ensure that we have adequate liquidity to fund our operations. An inability to raise
funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our
liquidity. Our most important source of funds is deposits. Deposit balances can decrease when customers perceive
alternative investments as providing a better risk/return tradeoff. If customers move money out of bank deposits and into
other investments such as money market funds, we would lose a relatively low-cost source of funds, increasing our funding
costs and reducing our net interest income and net income.
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Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities, and
proceeds from the issuance and sale of our equity securities to investors. Additional liquidity is provided by the ability to
borrow from the Federal Home Loan Bank of Topeka. We also may borrow funds from third-party lenders, such as other
financial institutions. Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms
that are acceptable to us, could be impaired by factors that affect us directly or the financial services industry or economy in
general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial
services industry. Our access to funding sources could also be affected by a decrease in the level of our business activity as a
result of a downturn in our markets or by one or more adverse regulatory actions against us.
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our
expenses, or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which
could have a material adverse impact on our liquidity, business, financial condition and results of operations.
As a bank holding company, the sources of funds available to us are limited.
Any future constraints on liquidity at the holding company level could impair our ability to declare and pay dividends
on our Class A common stock. In some instances, notice to, or approval from, the Federal Reserve may be required prior to
our declaration or payment of dividends. Further, our operations are primarily conducted by our subsidiary, Equity Bank,
which is subject to significant regulation. Federal and state banking laws restrict the payment of dividends by banks to their
holding companies, and Equity Bank will be subject to these restrictions in paying dividends to us. Because our ability to
receive dividends or loans from Equity Bank is restricted, our ability to pay dividends to our stockholders is also restricted.
Additionally, the right of a bank holding company to participate in the assets of its subsidiary bank in the event of a
bank-level liquidation or reorganization is subject to the claims of the bank’s creditors, including depositors, which take
priority, except to the extent that the holding company may be a creditor with a recognized claim.
We operate in a highly competitive industry and face significant competition from other financial institutions and
financial services providers, which may decrease our growth or profits.
Consumer and commercial banking are highly competitive industries. Our market areas contain not only a large
number of community and regional banks, but also a significant presence of the country’s largest commercial banks. We
compete with other state and national financial institutions, as well as savings and loan associations, savings banks, and credit
unions, for deposits and loans. In addition, we compete with financial intermediaries, such as consumer finance companies,
commercial finance companies, mortgage banking companies, insurance companies, securities firms, mutual funds, and
several government agencies, as well as major retailers, all actively engaged in providing various types of loans and other
financial services. Some of these competitors may have a long history of successful operations in our market areas and
greater ties to local businesses and more expansive banking relationships, as well as more established depositor bases, fewer
regulatory constraints, and lower cost structures than we do. Competitors with greater resources may possess an advantage
through their ability to maintain numerous banking locations in more convenient sites, to conduct more extensive
promotional and advertising campaigns, or to operate a more developed technology platform. Due to their size, many
competitors may offer a broader range of products and services, as well as better pricing for certain products and services
than we can offer. For example, in the current low interest rate environment, competitors with lower costs of capital may
solicit our customers to refinance their loans with a lower interest rate. Further, increased competition among financial
services companies due to the recent consolidation of certain competing financial institutions may adversely affect our ability
to market our products and services. Technology has lowered barriers to entry and made it possible for banks to compete in
our market areas without a retail footprint by offering competitive rates, and for non-banks to offer products and services
traditionally provided by banks.
The financial services industry could become even more competitive as a result of legislative, regulatory, and
technological changes and continued consolidation. Banks, securities firms, and insurance companies can merge under the
umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities
underwriting, insurance (both agency and underwriting), and merchant banking.
Our ability to compete successfully depends on a number of factors, including:
•
•
our ability to develop, maintain, and build upon long-term customer relationships based on quality service and
high ethical standards;
our ability to attract and retain qualified employees to operate our business effectively;
32
•
•
•
•
•
our ability to expand our market position;
the scope, relevance, and pricing of products and services that we offer to meet customer needs and demands;
the rate at which we introduce new products and services relative to our competitors;
customer satisfaction with our level of service; and
industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely
affect our growth and profitability, which, in turn, could harm our business, financial condition, and results of operations.
As a community bank, our ability to maintain our reputation is critical to the success of our business, and the
failure to do so may materially adversely affect our performance.
We are a community bank, and our reputation is one of the most valuable components of our business. As such, we
strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring, and
retaining employees who share our core values of being an integral part of the communities we serve, delivering superior
service to our customers, and caring about our customers and associates. If our reputation is negatively affected, by the
actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely
affected. Further, negative public opinion can expose us to litigation and regulatory action as we seek to implement our
growth strategy.
As a community banking institution, we have lower lending limits and different lending risks than certain of our
larger, more diversified competitors.
We are a community banking institution that provides banking services to the local communities in the market areas in
which we operate. Our ability to diversify our economic risks is limited by our own local markets and economies. We lend
primarily to individuals and to small to medium-sized businesses, which may expose us to greater lending risks than those of
banks that lend to larger, better-capitalized businesses with longer operating histories. In addition, our legally mandated
lending limits are lower than those of certain of our competitors that have more capital than we do. These lower lending
limits may discourage borrowers with lending needs that exceed our limits from doing business with us. We may try to serve
such borrowers by selling loan participations to other financial institutions; however, this strategy may not succeed.
Our financial projections are based upon numerous assumptions about future events, and our actual financial
performance may differ materially from our projections if our assumptions are inaccurate.
If the communities in which we operate do not grow, or if the prevailing economic conditions locally or nationally are
less favorable than we have assumed, then our ability to reduce our nonperforming loans and other real estate owned
portfolios and to implement our business strategies may be adversely affected, and our actual financial performance may be
materially different from our projections.
Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic
conditions in our market areas even if they do occur. If our senior management team is unable to provide the effective
leadership necessary to implement our strategic plan, our actual financial performance may be materially adversely different
from our projections. Additionally, to the extent that any component of our strategic plan requires regulatory approval, if we
are unable to obtain necessary approval, we will be unable to completely implement our strategy, which may adversely affect
our actual financial results. Our inability to successfully implement our strategic plan could adversely affect the price of our
Class A common stock.
Volatility in commodity prices may adversely affect our financial condition and results of operations.
In addition to the geographic concentration of our markets, certain industry-specific economic factors also affect us.
For example, while we do not have a concentration in energy lending, the industry is cyclical and recently has experienced a
significant drop in crude oil and natural gas prices. In addition, we make loans to customers involved in the agricultural
industry, many of whom are also impacted by fluctuations in commodity prices. Volatility in commodity prices could
adversely impact the ability of borrowers in these industries to perform under the terms of their borrowing arrangements with
us, and as a result, a severe and prolonged decline in commodity prices may adversely affect our financial condition and
results of operations. It is also difficult to project future commodity prices as they are dependent upon many different factors
beyond our control.
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We depend on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on
information furnished to us by or on behalf of customers and counterparties, including financial statements and other
financial information. We also may rely on representations of customers and counterparties as to the accuracy and
completeness of that information and, with respect to financial statements, on reports of independent auditors. In deciding
whether to extend credit, we may rely upon our customers’ representations that their financial statements conform to GAAP
and present fairly, in all material respects, the financial condition, results of operations, and cash flows of the customer. We
also may rely on customer representations and certifications, or other audit or accountants’ reports, with respect to the
business and financial condition of our clients. Our financial condition, results of operations, financial reporting, and
reputation could be negatively affected if we rely on materially misleading, false, inaccurate, or fraudulent information.
We are subject to environmental risk in our lending activities.
Because a significant portion of our loan portfolio is secured by real property, we may foreclose upon and take title to
such property in the ordinary course of business. If hazardous substances are found on such property, we could be liable for
remediation costs, as well as for personal injury and property damage. Environmental laws might require us to incur
substantial expenses, materially reduce the property’s value, or limit our ability to use or sell the property. Although
management has policies requiring environmental reviews before loans secured by real property are made and before
foreclosure is commenced, it is still possible that environmental risks might not be detected and that the associated costs
might have a material adverse effect on our financial condition and results of operations.
We continually encounter technological change and may have fewer resources than our competitors to continue to
invest in technological improvements.
The banking and financial services industries are undergoing rapid technological changes, with frequent introductions
of new technology-driven products and services. In addition to enhancing the level of service provided to customers, the
effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will
depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services
that enhance customer convenience and create additional efficiencies in operations. Many of our competitors have greater
resources to invest in technological improvements, and we may not be able to effectively implement new technology-driven
products and services, which could reduce our ability to effectively compete.
Our information systems may experience a failure or interruption.
We rely heavily on communications and information systems to conduct our business. Any failure or interruption in
the operation of these systems could impair or prevent the effective operation of our customer relationship management,
general ledger, deposit, lending, or other functions. While we have policies and procedures designed to prevent or limit the
effect of a failure or interruption in the operation of our information systems, there can be no assurance that any such failures
or interruptions will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures or
interruptions impacting our information systems could damage our reputation, result in a loss of customer business, and
expose us to additional regulatory scrutiny, civil litigation, and possible financial liability, any of which could have a material
adverse effect on our financial condition and results of operations.
We use information technology in our operations and offer online banking services to our customers, and
unauthorized access to our or our customers’ confidential or proprietary information as a result of a cyber-attack or
otherwise could expose us to reputational harm and litigation and adversely affect our ability to attract and retain
customers.
Information security risks for financial institutions have generally increased in recent years, in part because of the
proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial
transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other
external parties. The financial services industry has seen increases in electronic fraudulent activity, hacking, security
breaches, sophisticated social engineering and cyber-attacks, including in the commercial banking sector, as cyber-criminals
have been targeting commercial bank and brokerage accounts on an increasing basis. We are under continuous threat of loss
due to fraudulent activity, hacking and cyber-attacks, especially as we continue to expand customer capabilities to utilize
internet and other remote channels to transact business. Our risk and exposure to these matters remains heightened because
of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide
internet banking and mobile banking channels, and our plans to develop additional remote connectivity solutions to serve our
34
customers. Therefore, the secure processing, transmission, and storage of information in connection with our online banking
services are critical elements of our operations. However, our network could be vulnerable to unauthorized access, computer
viruses and other malware, phishing schemes, or other security failures. In addition, our customers may use personal
smartphones, tablet PCs, or other mobile devices that are beyond our control systems in order to access our products and
services. Our technologies, systems and networks, and our customers’ devices, may become the target of cyber-attacks,
electronic fraud, or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse,
loss, or destruction of our or our customers’ confidential, proprietary, and other information, or otherwise disrupt our or our
customers’ or other third parties’ business operations. As cyber threats continue to evolve, we may be required to spend
significant capital and other resources to protect against these threats or to alleviate or investigate problems caused by such
threats. Our business relies on the secure processing, storage, transmission and retrieval of confidential customer information
in our computer and data management systems and networks, and in the comp0uter and data management systems and
networks of third parties, and any breaches or unauthorized access to such information could present significant regulatory
costs and expose us to litigation and other possible liabilities. Any inability to prevent these types of security threats could
also cause existing customers to lose confidence in our systems and could adversely affect our reputation and ability to
generate deposits. While we have not experienced any material losses relating to cyber-attacks or other information security
breaches to date, we may suffer such losses in the future. The occurrence of any cyber-attack or information security breach
could result in financial losses or increased costs to us or our clients, disclosure or misuse of confidential information
belonging to us or personal or confidential information belonging to our clients, misappropriation of assets, reputational
damage, damage to our competitive position, and the disruption of our operations, all of which could adversely affect our
financial condition or results of operations.
In addition to well-known risks related to fraudulent activity, which take many forms, such as check “kiting” or fraud,
wire fraud, and other dishonest acts, information security breaches and cybersecurity-related incidents have become a
material risk in the financial services industry. These threats may include fraudulent or unauthorized access to data
processing or data storage systems used by us or by our clients, electronic identity theft, “phishing”, account takeover, denial
or degradation of service attacks, and malware or other cyber-attacks. These electronic viruses or malicious code are
typically designed to, among other things:
•
•
•
•
obtain unauthorized access to confidential information belonging to us or our clients and customers;
manipulate or destroy data;
disrupt, sabotage or degrade service on a financial institution’s systems, or
steal money.
In recent periods, several governmental agencies and large corporations, including financial service organizations and
retail companies, have suffered major data breaches, in some cases exposing not only their confidential and proprietary
corporate information, but also sensitive financial and other personal information of their clients or clients and their
employees or other third parties, and subjecting those agencies and corporations to potential fraudulent activity and their
clients, clients and other third parties to identity theft and fraudulent activity in their credit card and banking accounts.
Therefore, security breaches and cyber-attacks can cause significant increases in operating costs, including the costs and
capital expenditures required to correct the deficiencies in and strengthen the security of data processing and storage systems.
Unfortunately, it is not always possible to anticipate, detect, or recognize these threats to our systems, or to implement
effective preventative measures against all breaches, whether those breaches are malicious or accidental. Cybersecurity risks
for banking organizations have significantly increased in recent years and have been difficult to detect before they occur
because, among other reasons:
•
•
•
the proliferation of new technologies and the use of the Internet and telecommunications technologies to conduct
financial transactions;
these threats arise from numerous sources, not all of which are in our control, including among others, human
error, fraud or malice on the part of employees or third parties, accidental technological failure, electrical or
telecommunication outages, failures of computer servers or other damage to our property or assets, natural
disasters or severe weather conditions, health emergencies or pandemics, or outbreaks of hostilities or terrorist
acts;
the techniques used in cyber-attacks change frequently and may not be recognized until launched or until well
after the breach has occurred;
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•
•
•
the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile
foreign governments, disgruntled employees or vendors, activists and other external parties, including those
involved in corporate espionage;
the vulnerability of systems to third parties seeking to gain access to such systems either directly or using
equipment or security passwords belonging to employees, customers, third-party service providers or other users
of our systems; and
our frequent transmission of sensitive information to, and storage of such information by, third parties, including
our vendors and regulators, and possible weaknesses that go undetected in our data systems notwithstanding the
testing we conduct of those systems.
Although to date we have experienced any losses or other material consequences relating to technology failure, cyber-
attacks or other information, we may suffer such losses or other consequences in the future. While we invest in systems and
processes that are designed to detect and prevent security breaches and cyber-attacks and we conduct periodic tests of our
security systems and processes, we may not succeed in anticipating or adequately protecting against or preventing all security
breaches and cyber-attacks from occurring. Even the most advanced internal control environment may be vulnerable to
compromise. Targeted social engineering attacks are becoming more sophisticated and are extremely difficult to prevent.
Additionally, the existence of cyber-attacks or security breaches at third parties with access to our data, such as vendors, may
not be disclosed to us in a timely manner. Further, we may not be able to insure against losses related to cyber-threats. As
cyber-threats continue to evolve, we may be required to expend significant additional resources to continue to modify or
enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents.
As is the case with non-electronic fraudulent activity, cyber-attacks or other information or security breaches, whether
directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception
that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation
with customers and third parties with whom we do business. A successful penetration or circumvention of system security
could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations
and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our
customers’ and/or third parties’ computers or systems, and could expose us to additional regulatory scrutiny and result in a
violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of
confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance
costs, and could adversely impact our results of operations, liquidity and financial condition.
We are dependent upon outside third parties for the processing and handling of our records and data.
We rely on software developed by third-party vendors to process various transactions. In some cases, we have
contracted with third parties to run their proprietary software on our behalf. These systems include, but are not limited to,
general ledger, payroll, employee benefits, loan and deposit processing, and securities portfolio accounting. While we
perform a review of controls instituted by the applicable vendors over these programs in accordance with industry standards
and perform our own testing of user controls, we must rely on the continued maintenance of controls by these third-party
vendors, including safeguards over the security of customer data. In addition, we maintain, or contract with third parties to
maintain, daily backups of key processing outputs in the event of a failure on the part of any of these systems. Nonetheless,
we may incur a temporary disruption in our ability to conduct business or process transactions, or incur damage to our
reputation, if the third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems.
Such a disruption or breach of security may have a material adverse effect on our business.
We are subject to losses due to the errors or fraudulent behavior of employees or third parties.
We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical
record-keeping errors and transactional errors. Our business is dependent on our employees as well as third-party service
providers to process a large number of increasingly complex transactions. We could be materially adversely affected if
someone causes a significant operational breakdown or failure, either as a result of human error or where an individual
purposefully sabotages or fraudulently manipulates our operations or systems. When we originate loans, we rely upon
information supplied by loan applicants and third parties, including the information contained in the loan application,
property appraisal and title information, if applicable, and employment and income documentation provided by third parties.
If any of this information is misrepresented and such misrepresentation is not detected prior to loan funding, we generally
bear the risk of loss associated with the misrepresentation. Any of these occurrences could result in a diminished ability of us
to operate our business, potential liability to customers, reputational damage and regulatory intervention, which could
negatively impact our business, financial condition and results of operations.
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If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer
unexpected losses and our results of operations could be materially adversely affected.
Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is
critical to optimizing stockholder value. We have established processes and procedures intended to identify, measure,
monitor, report and analyze the types of risk to which we are subject, including credit, liquidity, operational, regulatory
compliance and reputational. However, as with any risk management framework, there are inherent limitations to our risk
management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or
identified. For example, the recent financial and credit crisis and resulting regulatory reform highlighted both the importance
and some of the limitations of managing unanticipated risks. If our risk management framework proves ineffective, we could
suffer unexpected losses and our business and results of operations could be materially adversely affected.
Changes in accounting standards could materially impact our financial statements.
From time to time, the Financial Accounting Standards Board or the SEC may change the financial accounting and
reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to
new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as
banking regulators, outside auditors or management) may change their interpretations or positions on how these standards
should be applied. These changes may be beyond our control, can be hard to predict, and can materially impact how we
record and report our financial condition and results of operations. In some cases, we could be required to apply a new or
revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our
needing to revise or restate prior period financial statements.
A new accounting standard will result in a significant change in how we recognize credit losses and may have a
material impact on our financial condition or results of operations.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, “Financial
Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current
“incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit
Loss (“CECL”) model. Under the CECL model, we will be required to present certain financial assets carried at amortized
cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The
measurement of expected credit losses is to be based on information about past events, including historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This
measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This
differs significantly from the “incurred loss” model required under current general accepted accounting principles (“GAAP”),
which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL
model will materially affect how we determine our allowance for loan losses and could require us to significantly increase
our allowance. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we are
required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our
business, financial condition and results of operations.
The new CECL standard will become effective for us the fiscal year beginning after December 15, 2019, and for
interim periods within those fiscal years. We are currently evaluating the impact the CECL model will have on our
accounting, but we expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the
beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forthrr
in interagency guidance issued at the end of 2016. We cannot yet determine the magnitude of any such one-time cumulative
adjustment or of the overall impact of the new standard on our business, financial condition and results of operations.
Adverse weather or man-made events could negatively affect our markets or disrupt our operations, which could
have an adverse effect upon our business and results of operations.
A significant portion of our business is generated in our Arkansas, Kansas, Missouri and Oklahoma markets, which
have been, and may continue to be, susceptible to natural disasters, such as tornadoes, droughts, floods and other severe
weather events. These natural disasters could negatively impact regional economic conditions, cause a decline in the value or
destruction of mortgaged properties and increase the risk of delinquencies, foreclosures, or loss on loans originated by us,
damage our banking facilities and offices, and negatively impact our growth strategy. Such weather events could disrupt
operations, result in damage to properties, and negatively affect the local economies in the markets where we operate. We
cannot predict whether or to what extent damage that may be caused by future weather or man-made events will affect our
operations or the economies in our current or future market areas, but such events could negatively impact economic
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conditions in these regions and result in a decline in local loan demand and loan originations, a decline in the value or
destruction of properties securing our loans, and an increase in delinquencies, foreclosures, or loan losses. Our business or
results of operations may be adversely affected by these and other negative effects of natural or man-made disasters. Further,
severe weather, natural disasters, acts of war or terrorism, and other external events could adversely affect us in a number of
ways, including an increase in delinquencies, bankruptcies, or defaults that could result in a higher level of nonperforming
assets, net charge-offs, and provision for loan losses. Such risks could also impair the value of collateral securing loans and
hurt our deposit base.
We are or may become involved from time to time in suits, legal proceedings, information-gathering requests,
investigations, and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences.
Many aspects of our business involve substantial risk of legal liability. We have been named or threatened to be named
as defendants in various lawsuits arising from our business activities (and in some cases from the activities of companies that
we have acquired), including, but not limited to, consumer residential real estate mortgages. In addition, from time to time,
we are, or may become, the subject of governmental and self-regulatory agency information-gathering requests, reviews,
investigations and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, the Consumer
Financial Protection Bureau, the SEC, and law enforcement authorities. The results of such proceedings could lead to
significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines,
injunctions, restrictions on the way in which we conduct our business, or reputational harm.
We are subject to claims and litigation pertaining to intellectual property.
We rely on technology companies to provide information technology products and services necessary to support our
day-to-day operations. Technology companies frequently enter into litigation based on allegations of patent infringement or
other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have
purchased or otherwise obtained. Competitors of our vendors, or other individuals or companies, have from time to time
claimed to hold intellectual property sold to us by its vendors. Such claims may increase in the future as the financial
services sector becomes more reliant on information technology vendors. The plaintiffs in these actions frequently seek
injunctions and substantial damages.
Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by
potential or actual litigants, we may have to engage in litigation that could be expensive, time-consuming, disruptive to our
operations, and distracting to management. If we are found to infringe one or more patents or other intellectual property
rights, we may be required to pay substantial damages or royalties to a third-party. In certain cases, we may consider
entering into licensing agreements for disputed intellectual property, although no assurance can be given that such licenses
can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase our
operating expenses. If legal matters related to intellectual property claims were resolved against us or settled, we could be
required to make payments in amounts that could have a material adverse effect on our business, financial condition and
results of operations.
If the goodwill that we have recorded or may record in connection with a business acquisition becomes impaired, it
could require charges to earnings, which would adversely affect on our business, financial condition and results of
operations.
Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in
connection with the purchase of another financial institution. We review goodwill for impairment at least annually, or more
frequently if a triggering event occurs which indicates that the carrying value of the asset might be impaired.
Our goodwill impairment test involves a two-step process. Under the first step, the estimation of fair value of the
reporting unit is compared to its carrying value including goodwill. If step one indicates a potential impairment, the second
step is performed to measure the amount of impairment, if any. If the carrying amount of the reporting unit goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such
adjustments are reflected in our results of operations in the periods in which they become known. While we have not
recorded any impairment charges since we initially recorded the goodwill, there can be no assurance that our future
evaluations of our existing goodwill or goodwill we may acquire in the future will not result in findings of impairment and
related write-downs, which could adversely affect our business, financial condition and results of operations.
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We have pledged all of the stock of Equity Bank as collateral for a loan and if the lender forecloses, you could lose
your investment.
We have pledged all of the stock of Equity Bank as collateral for a third-party loan, which had a balance of $2.5
million as of December 31, 2017. This loan has a maximum lending commitment of $30.0 million. If we were to default on
this indebtedness, the lender of such loan could foreclose on Equity Bank’s stock and we would lose our principal asset. In
that event, if the value of Equity Bank’s stock is less than the amount of the indebtedness, you would lose the entire amount
of your investment.
We may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which
could harm liquidity, results of operations and financial condition.
When mortgage loans are sold, whether as whole loans or pursuant to a securitization, we are required to make
customary representations and warranties to purchasers, guarantors and insurers, including government-sponsored
enterprises, about the mortgage loans and the manner in which they were originated. We may be required to repurchase or
substitute mortgage loans, or indemnify buyers against losses, in the event we breach these representations or warranties. In
addition, we may be required to repurchase mortgage loans as a result of early payment default of the borrower on a
mortgage loan. With respect to loans that are originated through Equity Bank or correspondent channels, the remedies
available against the originating broker or correspondent, if any, may not be as broad as the remedies available to purchasers,
guarantors and insurers of mortgage loans against us. We face further risk that the originating broker or correspondent, if
any, may not have financial capacity to perform remedies that otherwise may be available. Therefore, if a purchaser,
guarantor or insurer enforces its remedies against us, we may not be able to recover losses from the originating broker or
correspondent. If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our
provision for potential losses, our liquidity, results of operations and financial condition may be adversely affected.
Risks Related to the Regulation of Our Industry
We are subject to extensive regulation in the conduct of our business, which imposes additional costs on us and
adversely affects our profitability.
As a bank holding company, we are subject to federal regulation under the Bank Holding Company Act of 1956, as
amended, or the BHC Act, and the examination and reporting requirements of the Federal Reserve. Federal regulation of the
banking industry, along with tax and accounting laws, regulations, rules, and standards, may limit our operations significantly
and control the methods by which we conduct business, as they limit those of other banking organizations. Banking
regulations are primarily intended to protect depositors, deposit insurance funds, and the banking system as a whole, and not
stockholders or other creditors. These regulations affect lending practices, capital structure, investment practices, dividend
policy, and overall growth, among other things. For example, federal and state consumer protection laws and regulations
limit the manner in which we may offer and extend credit. In addition, the laws governing bankruptcy generally favor
debtors, making it more expensive and more difficult to collect from customers who become subject to bankruptcy
proceedings.
We also may be required to invest significant management attention and resources to evaluate and make any changes
necessary to comply with applicable laws and regulations, particularly as a result of regulations adopted under the Dodd-
Frank Act. This allocation of resources, as well as any failure to comply with applicable requirements, may negatively
impact our financial condition and results of operations.
Changes in laws, government regulation, and monetary policy may have a material effect on our results of
operations.
Financial institutions have been the subject of significant legislative and regulatory changes and may be the subject of
further significant legislation or regulation in the future, none of which is within our control. New proposals for legislation
continue to be introduced in the United States Congress that could further substantially increase regulation of the bank and
non-bank financial services industries, impose restrictions on the operations and general ability of firms within the industry to
conduct business consistent with historical practices, including in the areas of compensation, interest rates, financial product
offerings, and disclosures, and have an effect on bankruptcy proceedings with respect to consumer residential real estate
mortgages, among other things. Federal and state regulatory agencies also frequently adopt changes to their regulations or
change the manner in which existing regulations are applied. Changes to statutes, regulations, or regulatory policies,
including changes in their interpretation or implementation by regulators, could affect us in substantial and unpredictable
ways. Such changes could, among other things, subject us to additional costs and lower revenues, limit the types of financial
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services and products that we may offer, ease restrictions on non-banks and thereby enhance their ability to offer competing
financial services and products, increase compliance costs, and require a significant amount of management’s time and
attention. Failure to comply with statutes, regulations, or policies could result in sanctions by regulatory agencies, civil
monetary penalties, or reputational damage, each of which could have a material adverse effect on our business, financial
condition, and results of operations.
Banking agencies periodically conduct examinations of our business, including compliance with laws and
regulations, and our failure to comply with any supervisory actions to which we become subject as a result of such
examinations could materially and adversely affect us.
We are subject to supervision and regulation by federal and state banking agencies that periodically conduct
examinations of our business, including compliance with laws and regulations – specifically, our subsidiary, Equity Bank, is
subject to examination by the Federal Reserve and the OSBC, and we are subject to examination by the Federal Reserve.
Accommodating such examinations may require management to reallocate resources, which would otherwise be used in the
day-to-day operation of other aspects of our business. If, as a result of an examination, any such banking agency was to
determine that the financial condition, capital resources, allowance for loan losses, asset quality, earnings prospects,
management, liquidity, or other aspects of our operations had become unsatisfactory, or that we or our management were in
violation of any law or regulation, such banking agency may take a number of different remedial actions as it deems
appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to
correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially
enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us, our officers,
or directors, to remove officers and directors, and, if it is concluded that such conditions cannot be corrected or there is an
imminent risk of loss to depositors, to terminate our deposit insurance. If we become subject to such a regulatory action, it
could have a material adverse effect on our business, financial condition, and results of operations.
FDIC deposit insurance assessments may continue to materially increase in the future, which would have an
adverse effect on earnings.
As a member institution of the FDIC, our subsidiary, Equity Bank, is assessed a quarterly deposit insurance premium.
Failed banks nationwide have significantly depleted the insurance fund and reduced the ratio of reserves to insured deposits.
The FDIC has adopted a Deposit Insurance Fund, or DIF, Restoration Plan, which requires the DIF to attain a 1.35% reserve
ratio by September 30, 2020. As a result of this requirement, Equity Bank could be required to pay significantly higher
premiums or additional special assessments that would adversely affect its earnings, thereby reducing the availability of
funds to pay dividends to us.
We are subject to certain capital requirements by regulators.
Applicable regulations require us to maintain specific capital standards in relation to the respective credit risks of our
assets and off-balance sheet exposures. Various components of these requirements are subject to qualitative judgments by
regulators. We maintain a “well capitalized” status under the current regulatory framework. Our failure to maintain a “well
capitalized” status could affect our customers’ confidence in us, which could adversely affect our ability to do business. In
addition, failure to maintain such status could also result in restrictions imposed by our regulators on our growth and other
activities. Any such effect on customers or restrictions by our regulators could have a material adverse effect on our financial
condition and results of operations.
We will become subject to more stringent capital requirements, which may adversely impact our return on equity or
constrain us from paying dividends or repurchasing shares.
The Dodd-Frank Act requires the federal banking agencies to establish stricter risk-based capital requirements and
leverage limits to apply to banks and bank and savings and loan holding companies. In July 2013, the federal banking
agencies published the final Basel III rules (as defined in “Item 1 – Business – Supervision and Regulation – Bank Holding
Company Regulation”) that revised their risk-based and leverage capital requirements and their method for calculating risk-
weighted assets. The Basel III rules will apply to all bank holding companies with $1.0 billion or more in consolidated assets
and all banks regardless of size.
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As a result of the enactment of the Basel III rules, we will become subject to increased required capital levels. The
Basel III rules became effective as applied to us on January 1, 2015, with a phase-in period that generally extends from
January 1, 2015 through January 1, 2019. The application of more stringent capital requirements on us could, among other
things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions such as the
inability to pay dividends or repurchase shares if we were to be unable to comply with such requirements.
We may need to raise additional capital in the future, including as a result of potential increased minimum capital
thresholds established by regulators, but that capital may not be available when it is needed or may be dilutive to
stockholders.
We are required by federal and state regulatory authorities to maintain adequate capital levels to support our operations.
New regulations implementing minimum capital standards could require financial institutions to maintain higher minimum
capital ratios and may place a greater emphasis on common equity as a component of “Tier 1 capital,” which consists
generally of stockholders’ equity and qualifying preferred stock, less certain goodwill items and other intangible assets. In
order to support our operations and comply with regulatory standards, we may need to raise capital in the future. Our ability
to raise additional capital will depend on conditions in the capital markets at that time, which are outside of our control, and
on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on
favorable terms. The capital and credit markets have experienced significant volatility in recent years. In some cases, the
markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those
issuers’ underlying financial strength. If we cannot raise additional capital when needed, our financial condition and results
of operations may be adversely affected, and our banking regulators may subject us to regulatory enforcement action,
including receivership. Furthermore, our issuance of additional shares of our Class A common stock could dilute the
economic ownership interest of our Class A stockholders.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and
fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The Community Reinvestment Act, or CRA, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair
lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The U.S. Department
of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory
challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of
sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity,
restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to
challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a
material adverse effect on our business, financial condition, results of operations, and future prospects.
We are subject to the Bank Secrecy Act and other anti-money laundering statutes and regulations, and any deemed
deficiency by us with respect to these laws could result in significant liability.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, or the Patriot Act, and other laws and regulations require
financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file
suspicious activity and currency transaction reports when appropriate. In addition to other bank regulatory agencies, the
federal Financial Crimes Enforcement Network of the U.S. Treasury, is authorized to impose significant civil money
penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the state and
federal banking regulators, as well as the U.S. Department of Justice, Consumer Financial Protection Bureau, Drug
Enforcement Administration, and Internal Revenue Service, or the IRS. We are also subject to increased scrutiny of
compliance with the rules enforced by the Office of Foreign Assets Control of the U.S. Treasury regarding, among other
things, the prohibition of transacting business with, and the need to freeze assets of, certain persons and organizations
identified as a threat to the national security, foreign policy, or economy of the United States. If our policies, procedures, and
systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include
restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of
our business plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money
laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a
material adverse effect on our business, financial condition, results of operations, and future prospects.
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Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may
restrict our growth.
We intend to complement and expand our business by pursuing strategic acquisitions of financial institutions and other
complementary businesses. Generally, we must receive state and federal regulatory approval before we can acquire an FDIC-
insured depository institution or related business. In determining whether to approve a proposed acquisition, federal banking
regulators will consider, among other factors, the effect of the acquisition on competition, our financial condition, our future
prospects, and the impact of the proposal on U.S. financial stability. The regulators also review current and projected capital
ratios and levels, the competence, experience and integrity of management and its record of compliance with laws and
regulations, the convenience and needs of the communities to be served (including the acquiring institution’s record of
compliance under the CRA) and the effectiveness of the acquiring institution in combating money laundering activities. Such
regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may also be required to sell
branches as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us,
may reduce the benefit of any acquisition.
The Federal Reserve may require us to commit capital resources to support our subsidiary, Equity Bank.
The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its
subsidiary banks and to commit resources to support its subsidiary banks. Under the “source of strength” doctrine, the
Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank at times
when the bank holding company may not be inclined to do so and may charge the bank holding company with engaging in
unsafe and unsound practices for failure to commit resources to such a subsidiary bank. Accordingly, we could be required
to provide financial assistance to our subsidiary, Equity Bank, if it experiences financial distress.
Such a capital injection may be required at a time when our resources are limited and we may be required to borrow the
funds to make the required capital injection. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee
will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority
of payment over the claims of the holding company’s general unsecured creditors, including the holders of any note
obligations.
We could be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We
have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the
financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients.
Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit
risk may be exacerbated when our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the
full amount of the credit or derivative exposure due. Any such losses could adversely affect our business, financial condition
and results of operations.
Stockholders may be deemed to be acting in concert or otherwise in control of us and our bank subsidiary, which
could impose prior approval requirements and result in adverse regulatory consequences for such holders.
We are a bank holding company regulated by the Federal Reserve. Any entity (including a “group” composed of
natural persons) owning 25% or more of a class of our outstanding shares of voting stock, or a lesser percentage if such
holder or group otherwise exercises a “controlling influence” over us, may be subject to regulation as a “bank holding
company” in accordance with the Bank Holding Company Act of 1956, as amended. In addition, (i) any bank holding
company or foreign bank with a U.S. presence is required to obtain the approval of the Federal Reserve under the Bank
Holding Company Act to acquire or retain 5% or more of a class of our outstanding shares of voting stock, and (ii) any
person other than a bank holding company may be required to obtain prior regulatory approval under the Change in Bank
Control Act to acquire or retain 10% or more of our outstanding shares of voting stock. Any stockholder that is deemed to
“control” the Company for bank regulatory purposes would become subject to prior approval requirements and ongoing
regulation and supervision. Such a holder may be required to divest amounts equal to or exceeding 5% of the voting shares
of investments that may be deemed incompatible with bank holding company status, such as an investment in a company
engaged in non-financial activities. Regulatory determination of “control” of a depository institution or holding company is
based on all of the relevant facts and circumstances. Potential investors are advised to consult with their legal counsel
regarding the applicable regulations and requirements.
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Shares of our common stock owned by holders determined by a bank regulatory agency to be acting in concert would
be aggregated for purposes of determining whether those holders have control of a bank or bank holding company. Each
stockholder obtaining control that is a “company” would be required to register as a bank holding company. “Acting in
concert” generally means knowing participation in a joint activity or parallel action towards the common goal of acquiring
control of a bank or a parent company, whether or not pursuant to an express agreement. The manner in which this definition
is applied in individual circumstances can vary and cannot always be predicted with certainty. Many factors can lead to a
finding of acting in concert, including where: (i) the stockholders are commonly controlled or managed; (ii) the stockholders
are parties to an oral or written agreement or understanding regarding the acquisition, voting or transfer of control of voting
securities of a bank or bank holding company; (iii) the stockholders are immediate family members; or (iv) both a
stockholder and a controlling stockholder, partner, trustee or management official of such stockholder own equity in the bank
or bank holding company.
Risks Related to Our Class A Common Stock
The market price of our Class A common stock may be subject to substantial fluctuations, which may make it
difficult for you to sell your shares at the volumes, prices, and times desired.
The trading price of our Class A common stock may be volatile, which may make it difficult for you to resell your
shares at the volume, prices and times desired. There are many factors that may impact the market price and trading volume
of our Class A common stock, including:
•
•
•
•
•
•
•
•
•
•
actual or anticipated fluctuations in our operating results, financial condition, or asset quality;
market conditions in the broader stock market in general, or in our industry in particular;
publication of research reports about us, our competitors, or the bank and non-bank financial services industries
generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating
performance, or lack of research reports by industry analysts or ceasing of coverage;
future issuances of our Class A common stock or other securities;
significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments
by or involving our competitors or us;
additions or departures of key personnel;
trades of large blocks of our Class A common stock;
economic and political conditions or events;
regulatory developments; and
other news, announcements, or disclosures (whether by us or others) related to us, our competitors, our core
markets, or the bank and non-bank financial services industries.
The stock market and, in particular, the market for financial institution stocks, have experienced substantial fluctuations
in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies.
In addition, significant fluctuations in the trading volume in our Class A common stock may cause significant price variations
to occur. Increased market volatility may materially and adversely affect the market price of our Class A common stock,
which could make it difficult to sell your shares at the volume, prices and times desired.
The obligations associated with being a public company require significant resources and management attention.
As a public company, we face increased legal, accounting, administrative and other costs and expenses that are not
incurred by private companies, particularly after we are no longer an emerging growth company. We are subject to the
reporting requirements of the Exchange Act, which requires that we file annual, quarterly and current reports with respect to
our business and financial condition and proxy and other information statements, and the rules and regulations implemented
by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act, the PCAOB and the NASDAQ Global Select Market, each of
which imposes additional reporting and other obligations on public companies. As a public company, we are required to:
•
•
prepare and distribute periodic reports, proxy statements and other stockholder communications in compliance
with the federal securities laws and rules;
expand the roles and duties of our board of directors and committees thereof;
43
•
•
•
•
•
•
•
•
maintain an enhanced internal audit function;
institute more comprehensive financial reporting and disclosure compliance procedures;
involve and retain to a greater degree outside counsel and accountants in the activities listed above;
enhance our investor relations function;
establish new internal policies, including those relating to trading in our securities and disclosure controls and
procedures;
retain additional personnel;
comply with the NASDAQ Global Select Market listing standards; and
comply with the Sarbanes-Oxley Act.
We expect these rules and regulations and changes in laws, regulations and standards relating to corporate governance
and public disclosure, which have created uncertainty for public companies, to increase legal and financial compliance costs
and make some activities more time consuming and costly. These laws, regulations and standards are subject to varying
interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over
time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding
compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our
investment in compliance with existing and evolving regulatory requirements will result in increased administrative expenses
and a diversion of management’s time and attention from revenue-generating activities to compliance activities, which could
have a material adverse effect on our business, financial condition and results of operations. These increased costs may
require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our
strategic objectives
We have not historically declared or paid cash dividends on our common stock and we do not expect to pay
dividends on our common stock in the foreseeable future. Consequently, your only opportunity to achieve a return on your
investment is if the price of our Class A common stock appreciates.
The holders of our common stock will receive dividends if and when declared by our board of directors out of legally
available funds. Our board of directors has not declared a dividend on our common stock since our inception. Any future
determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a
number of factors, including our future earnings, capital requirements, financial condition, future prospects, regulatory
restrictions, and other factors that our board of directors may deem relevant.
Our principal business operations are conducted through our subsidiary, Equity Bank. Cash available to pay dividends
to our stockholders is derived primarily, if not entirely, from dividends paid by Equity Bank to us. The ability of Equity
Bank to pay dividends to us, as well as our ability to pay dividends to our stockholders, will continue to be subject to, and
limited by, certain legal and regulatory restrictions. Further, any lenders making loans to us may impose financial covenants
that may be more restrictive with respect to dividend payments than the regulatory requirements.
If a substantial number of shares become available for sale and are sold in a short period of time, the market price
of our Class A common stock could decline.
If our existing stockholders sell substantial amounts of our Class A common stock in the public market, the market
price of our Class A common stock could decrease significantly. The perception in the public market that our existing
stockholders might sell shares of Class A common stock could also depress our market price. A decline in the price of shares
of our Class A common stock might impede our ability to raise capital through the issuance of additional shares of our
Class A common stock or other equity securities and could result in a decline in the value of the shares of our Class A
common stock.
Securities analysts may not initiate or continue coverage on our Class A common stock, which could adversely
affect the market for our Class A common stock.
The trading market for our Class A common stock may depend in part on the research and reports that securities
analysts publish about us and our business. We do not have any control over these securities analysts and they may not cover
our Class A common stock. If securities analysts do not cover our Class A common stock, the lack of research coverage may
44
adversely affect our market price. If we are covered by securities analysts and our Class A common stock is the subject of an
unfavorable report, the price of our Class A common stock may decline. If one or more of these analysts cease to cover us or
fail to publish regular reports on us, we could lose visibility in the financial markets, which could cause the price or trading
volume of our Class A common stock to decline.
The trading volume in our common stock is less than other larger financial institutions.
Although our Class A common stock is listed for trading on the Nasdaq Global Select Market, the trading volume in
our common stock is less than that of other, larger financial services companies. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of
our Class A common stock at any given time. This presence depends on the individual decisions of investors and general
economic and market conditions over which we have no control. Given the lower trading volume of our Class A common
stock, significant sales of our Class A common stock, or the expectation of these sales, could cause the price of our Class A
common stock to decline.
Use of our common stock for future acquisitions or to raise capital may be dilutive to existing stockholders.
When we determine that appropriate strategic opportunities exist, we may acquire other financial institutions and
related businesses, subject to applicable regulatory requirements. We may use our common stock for such acquisitions. We
may also seek to raise capital for such acquisitions through selling additional common stock. It is possible that the issuance
of additional common stock in such acquisitions or capital transactions may be dilutive to the interests of our existing
stockholders.
A future issuance of stock could dilute the value of our Class A common stock.
We may sell additional shares of Class A common stock, or securities convertible into or exchangeable for such shares,
in subsequent public or private offerings. Future issuance of any new shares could cause further dilution in the value of our
outstanding shares of Class A common stock. We cannot predict the size of future issuances of our Class A common stock,
or securities convertible into or exchangeable for such shares, or the effect, if any, that future issuances and sales of shares of
our Class A common stock will have on the market price of our Class A common stock. Sales of substantial amounts of our
Class A common stock (including shares issued in connection with an acquisition), or the perception that such sales could
occur, may adversely affect prevailing market prices of our Class A common stock.
We have significant institutional investors whose interests may differ from yours.
A significant portion of our outstanding equity is currently held by various investment funds. These funds could have a
significant level of influence because of their level of ownership and representation on our board of directors, including a
greater ability than you and our other stockholders to influence the election of directors and the potential outcome of other
matters submitted to a vote of our stockholders, such as mergers, the sale of substantially all of our assets and other
extraordinary corporate matters and affect the votes of our board of directors. These funds also have certain rights, such as
access rights and registration rights that our other stockholders do not have. The interests of these funds could conflict with
the interests of our other stockholders, including you, and any future transfer by these funds of their shares of Class A
common stock to other investors who have different business objectives could have a material adverse effect on our business,
financial condition, results of operations and future prospects, and the market value of our Class A common stock.
Our directors and executive officers beneficially own a significant portion of our Class A common stock and have
substantial influence over us.
Our directors and executive officers, as a group, beneficially owned approximately 11.7% of our outstanding Class A
common stock as of December 31, 2017. As a result of this level of ownership, our directors and executive officers have the
ability, by taking coordinated action, to exercise significant influence over our affairs and policies. The interests of our
directors and executive officers may not be consistent with your interests as a stockholder. This influence may also have the
effect of delaying or preventing changes of control or changes in management, or limiting the ability of our other
stockholders to approve transactions that they may deem to be in the best interests of our Company.
Shares of our Class A common stock are not insured deposits and may lose value.
Shares of our Class A common stock are not savings or deposit accounts and are not insured by the FDIC’s DIF, or any
other agency or private entity. Such shares are subject to investment risk, including the possible loss of some or all of the
value of your investment.
45
The laws that regulate our operations are designed for the protection of depositors and the public, not our
stockholders.
The federal and state laws and regulations applicable to our operations give regulatory authorities extensive discretion
in connection with their supervisory and enforcement responsibilities, and generally have been promulgated to protect
depositors and the FDIC’s DIF and not for the purpose of protecting stockholders. These laws and regulations can materially
affect our future business. Laws and regulations now affecting us may be changed at any time, and the interpretation of such
laws and regulations by bank regulatory authorities is also subject to change.
We have the ability to incur debt and pledge our assets, including our stock in Equity Bank, to secure that debt and
holders of any such debt obligations will generally have priority over holders of our Class A common stock with respect to
certain payment obligations.
We have the ability to incur debt and pledge our assets to secure that debt. Absent special and unusual circumstances,
a holder of indebtedness for borrowed money has rights that are superior to those of holders of Class A common stock. For
example, interest must be paid to the lender before dividends can be paid to stockholders, and loans must be paid off before
any assets can be distributed to stockholders if we were to liquidate. Furthermore, we would have to make principal and
interest payments on our indebtedness, which could reduce our profitability or result in net losses on a consolidated basis.
We are an emerging growth company under the JOBS Act, and we cannot be certain whether the reduced disclosure
requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
We are an emerging growth company under the JOBS Act, and we therefore are permitted to, and we intend to, take
advantage of exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of:
(i) the last day of the fiscal year during which we had total annual gross revenues of $1.0 billion or more; (ii) the last day of
the fiscal year following the fifth anniversary of our initial public offering; (iii) the date on which we have, during the
previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed a
“large accelerated filer,” as defined under the federal securities laws. For so long as we remain an emerging growth
company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other
public companies that are not emerging growth companies, including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a
nonbinding advisory vote on certain executive compensation matters, such as “say on pay” and “say on frequency.” As a
result, our stockholders may not have access to certain information that they may deem important. Although we intend to
rely on certain of the exemptions provided in the JOBS Act, the exact implications of the JOBS Act for us are still subject to
interpretations and guidance by the SEC and other regulatory agencies.
We cannot predict whether investors will find our Class A common stock less attractive as a result of our taking
advantage of these exemptions. If some investors find our Class A common stock less attractive as a result of these choices,
there may be a less active trading market for our Class A common stock, and our stock price may be more volatile.
If we fail to maintain an effective system of disclosure controls and procedures and internal control over financial
reporting, we may not be able to accurately report our financial results or prevent fraud.
Ensuring that we have adequate disclosure controls and procedures, including internal control over financial reporting,
in place so that we can produce accurate financial statements on a timely basis is costly and time-consuming and needs to be
reevaluated frequently. We are in the process of documenting, reviewing and, if appropriate, improving our internal controls
and procedures in anticipation of being subject to the requirements of Section 404 of the Sarbanes-Oxley Act, which will
require annual management assessments of the effectiveness of our internal control over financial reporting and, when we
cease to be an emerging growth company under the JOBS Act, a report by our independent auditors addressing these
assessments. Our management may conclude that our internal control over financial reporting are not effective due to our
failure to cure any identified material weakness or otherwise. Moreover, even if our management concludes that our internal
control over financial reporting are effective, our independent registered public accounting firm may not conclude that our
internal control over financial reporting are effective. In the future, our independent registered public accounting firm may
not be satisfied with our internal control over financial reporting or the level at which our controls are documented, designed,
operated or reviewed, or it may interpret the relevant requirements differently from us. In addition, during the course of the
evaluation, documentation and testing of our internal control over financial reporting, we may identify deficiencies that we
may not be able to remediate in time to meet the deadline imposed by the SEC for compliance with the requirements of
Section 404 of the Sarbanes-Oxley Act. Any such deficiencies may also subject us to adverse regulatory consequences. If
46
we fail to achieve and maintain the adequacy of our internal control over financial reporting, as these standards are modified,
supplemented or amended from time to time, we may be unable to report our financial information on a timely basis, we may
not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance
with the Sarbanes-Oxley Act, and we may suffer adverse regulatory consequences or violations of listing standards. There
could also be a negative reaction in the financial markets due to a loss of investor confidence in the reliability of our financial
statements.
Our corporate governance documents, and certain corporate and banking laws applicable to us, could make a
takeover more difficult.
Certain provisions of our Articles of Incorporation and our Bylaws, and applicable corporate and federal banking laws,
could make it more difficult for a third party to acquire control of us or conduct a proxy contest, even if those events were
perceived by many of our stockholders as beneficial to their interests. These provisions, and the corporate and banking laws
and regulations applicable to us, among others:
•
•
•
•
•
•
empower our board of directors, without stockholder approval, to issue preferred stock, the terms of which,
including voting power, are set by our board of directors;
only permit stockholder action to be taken at an annual or special meeting of stockholders and not by written
consent in lieu of such a meeting;
provide for a classified board of directors, so that only approximately one-third of or directors are elected each
year;
prohibit us from engaging in certain business combinations with “interested stockholders” (generally defined as a
holder of 15% or more of the corporation’s outstanding voting stock);
require at least 120 days’ advance notice of nominations for the election of directors and the presentation of
stockholder proposals at meetings of stockholders; and
require prior regulatory application and approval of any transaction involving control of our organization.
These provisions may discourage potential acquisition proposals and could delay or prevent a change in control,
including under circumstances in which our stockholders might otherwise receive a premium over the market price of our
shares.
Our board of directors may issue shares of preferred stock that would adversely affect the rights of our Class A
common stockholders.
Our authorized capital stock includes 10,000,000 shares of preferred stock of which none were issued and outstanding
as of March 16, 2018. Our board of directors, in its sole discretion, may designate and issue one or more series of preferred
stock from the authorized and unissued shares of preferred stock. Subject to limitations imposed by law or our Articles of
Incorporation, our board of directors is empowered to determine:
•
•
•
•
•
•
the designation of, and the number of, shares constituting each series of preferred stock;
the dividend rate for each series;
the terms and conditions of any voting, conversion and exchange rights for each series;
the amounts payable on each series on redemption or our liquidation, dissolution or winding-up;
the provisions of any sinking fund for the redemption or purchase of shares of any series; and
the preferences and the relative rights among the series of preferred stock.
We could issue preferred stock with voting and conversion rights that could adversely affect the voting power of the
shares of our Class A common stock and with preferences over our Class A common stock with respect to dividends and in
liquidation.
47
The return on your investment in our Class A common stock is uncertain.
We cannot provide any assurance that an investor in our Class A common stock will realize a substantial return on his
or her investment, or any return at all. Further, as a result of the uncertainty and risks associated with our operations, many
of which are described in this “Item 1A—Risk Factors” section, it is possible that an investor could lose his or her entire
investment.
Item 1B: Unresolved Staff Comments
None
Item 2: Properties
Our principal executive offices are located at 7701 East Kellogg Drive, Wichita, Kansas 67207. Including our
principal executive offices, as of December 31, 2017, we operated a total of 42 branches, consisting of four branches in the
Wichita, Kansas metropolitan area, six branches in the Kansas City metropolitan area, three branches in Topeka, Kansas, ten
branches in Western Missouri, five branches in Western Kansas, four branches in Southeast Kansas, five branches in
Northern Arkansas, one branch in the Tulsa, Oklahoma metropolitan area and four branches in Northern Oklahoma. Most of
Equity Bank’s branches are equipped with automated teller machines and drive-through facilities. We believe all of our
facilities are suitable for our operational needs. The following table summarizes pertinent details of our principal executive
offices and branches, as of December 31, 2017.
Address
Owned/Leased
Principal Executive Office and Wichita Branch:
7701 East Kellogg Drive
Wichita, Kansas 67207
Other Wichita Area Branches:
345 North Andover Road
Andover, Kansas 67002
1555 North Webb Road
Wichita, Kansas 67206
10222 West Central
Wichita, Kansas 67212
Kansas City Branches:
6200 Northwest 63rd Terrace
Kansas City, Missouri 64151
d
8880 West 151st Street
Overland Park, Kansas 66221
t
4551 West 107th Street, Suite 210
Overland Park, Kansas 66207
909 Northeast Rice Road
Lee’s Summit, Missouri 64086
301 Southeast Main Street
Lee’s Summit, Missouri 64063
1251 Southwest Oldham Parkway
Lee’s Summit, Missouri 64081
Tulsa Branches:
9292 South Delaware Ave
Tulsa, Oklahoma 74137
48
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Address
Western Missouri Branches:
1919 Highway 13
Higginsville, Missouri 64037
300 South Miller Street
Sweet Springs, Missouri 65351
612 North Maguire
Warrensburg, Missouri 64093
1110 South Mitchell Street
Warrensburg, Missouri 64093
200 North State Street
Knob Noster, Missouri 65336
920 Thompson Boulevard
Sedalia, Missouri 65301
504 West Benton Street
Windsor, Missouri 65360
615 East Ohio Street
Clinton, Missouri 64735
100 East Main Street
Warsaw, Missouri 65355
1601 Commercial Street
Warsaw, Missouri 65355
Topeka Branches:
701 South Kansas Avenue
Topeka, Kansas 66603
507 West 8th Street
Topeka, Kansas 66603
3825 Southwest 29th Street
Topeka, Kansas 66614
Western Kansas Branches:
2428 Vine Street
Hays, Kansas 67601
916 Washington Street
Ellis, Kansas 67637
745 Main Street
Hoxie, Kansas 67740
300 Highway 212
Quinter, Kansas 67752
106 South Adams Street
Grinnell, Kansas 67738
Southeast Kansas Branches:
49
Owned/Leased
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Address
902 McArthur Rd
Coffeyville, Kansas 67337
112 East Myrtle Street
Independence, Kansas 67301
801 Main
Neodesha, Kansas 66757
102 North Broadway Street
Pittsburg, Kansas 66762
Northern Arkansas Branches:
200 East Ridge Avenue
Harrison, Arkansas 72601
1304 Highway 62/65 North(1)
Harrison, Arkansas 72601
911 West Trimble Avenue
Berryville, Arkansas 72616
107 West Van Buren
Eureka Springs, Arkansas 72632
198 Slack Street
Pea Ridge, Arkansas 72751
Northern Oklahoma Branches:
222 East Grand Avenue
Ponca City, Oklahoma 74601
802 East Prospect Avenue
Ponca City, Oklahoma 74601
1417 East Hartford Avenue
Ponca City, Oklahoma 74604
102 South Main Street
Newkirk, Oklahoma 74647
Owned/Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Leased
Owned
(1)The building at this location is owned but the land is on a long term lease expiring in January 2030.
Item 3: Legal Proceedings
From time to time we are party to various litigation matters incidental to the conduct of our business. See “NOTE 23 –
LEGAL MATTERS” of the Notes to Consolidated Financial Statements under Item 8 to this Annual Report on Form 10-K
for a complete discussion of litigation matters.
Item 4: Mine Safety Disclosures
Not applicable.
50
Part II
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information and Common Equity Holders
Our common stock is listed on the NASDAQ Global Select Markets under the symbol “EQBK”. At March 7, 2018,
there were 14,605,607 shares of our Class A common stock, outstanding and 276 stockholders of record for the Company’s
Class A common stock. At March 7, 2018, no shares of our Class B common stock were outstanding.
The following table sets forth, for the periods indicated, the high and low intraday sales prices for our Class A common
stock as reported by the NASDAQ Global Select Market.
High
Low
Quarter ended March 31, 2016
Quarter ended June 30, 2016
Quarter ended September 30, 2016
Quarter ended December 31, 2016
Quarter ended March 31, 2017
Quarter ended June 30, 2017
Quarter ended September 30, 2017
Quarter ended December 31, 2017
Quarter ended March 31, 2018 (through March 7, 2018)
$
$
$
$
$
$
$
$
$
24.10 $
23.94 $
26.27 $
38.03 $
35.24 $
33.11 $
36.30 $
36.99 $
38.80 $
19.72
19.81
20.77
23.94
29.82
29.13
30.67
32.93
35.13
Dividend Policy
We have not historically declared or paid cash dividends on our common stock and we do not expect to pay dividends
on our common stock for the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to
support our operations and to finance the growth and development of our business. Any future determination to pay
dividends on our common stock will be made by our board of directors and will depend on a number of factors, including:
•
•
•
•
•
•
•
•
•
our historical and projected financial condition, liquidity and results of operations;
our capital levels and requirements;
statutory and regulatory prohibitions and other limitations;
any contractual restriction on our ability to pay cash dividends, including pursuant to the terms of any of our
credit agreements or other borrowing arrangements;
our business strategy;
tax considerations;
any acquisitions or potential acquisitions that we may examine;
general economic conditions; and
other factors deemed relevant by our board of directors.
We are not obligated to pay dividends on our common stock.
As a Kansas corporation, we are subject to certain restrictions on dividends under the Kansas General Corporation
Code. Generally, a Kansas corporation may pay dividends to its stockholders out of its surplus or, if there is no surplus, out of
its net profits for the fiscal year in which the dividend is declared or the preceding fiscal year, or both. In addition, if thet
capital of a Kansas corporation is diminished by depreciation in the value of its property, or by losses, or otherwise, to an
amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, the directors of such corporation cannot declare and pay out of such net profits any
dividends upon any shares of any classes of its capital stock until the deficiency in the amount of capital represented by the
issued and outstanding stock of all classes having a preference upon the distribution of assets is repaired. We are also subject
to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies. For more
information, see “Item 1 – Supervision and Regulation – Banking Regulation – Standards for Safety and Soundness.”
51
Since we are a bank holding company and do not engage directly in business activities of a material nature, our ability
to pay dividends to our stockholders depends, in large part, upon our receipt of dividends from Equity Bank, which is also
subject to numerous limitations on the payment of dividends under federal and state banking laws, regulations and policies.
The present and future dividend policy of Equity Bank is subject to the discretion of its board of directors. Equity Bank is
not obligated to pay dividends.
If Equity Bank is “significantly undercapitalized” under the applicable federal bank capital standards, or if Equity Bank
is “undercapitalized” and has failed to submit an acceptable capital restoration plan or has materially failed to implement
such a plan, the FDIC may choose to require Equity Bank to receive prior approval for any capital distribution from the
Federal Reserve. In addition, Equity Bank generally is prohibited from making a capital distribution if such a distribution
would cause Equity Bank to be “undercapitalized” under applicable federal bank capital standards. For more information,
see “Item 7 – Supervision and Regulation – Banking Regulation – Standards for Safety and Soundness.”
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents shares of our common stock that may be issued with respect to compensation plans at
December 31, 2017.
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted average
exercise price
of outstanding
options, warrants
and rights
(b)
Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column a)
(c)
647,521 $
24.99
219,252
150,000 (1)
797,521 $
12.00
22.54
—
219,252
Plan category
Equity compensation plans approved by
security holders(2)
Equity compensation plans not approved by
security holders
Total
(1)
Includes 150,000 options to purchase common stock outstanding under our 2006 Non-Qualified Stock Option Plan.
(2) All securities remaining available for future issuance were available under our Amended and Restated 2013 Stock
Incentive Plan as of December 31, 2017. No securities remained available for future issuance under our 2006 Non-
Qualified Stock Option Plan.
52
Performance Graph
The following performance graph compares total stockholders’ return on the Company’s common stock for the period
beginning at the close of trading November 11, 2015 to December 31, 2017, with the cumulative total return of the NASDAQ
Composite Index and the NASDAQ Bank Index for the same period. Cumulative total return is computed by dividing the
difference between the Company’s share price at the end and the beginning of the measurement period by the share price at
the beginning of the measurement period. The performance graph assumes $100 is invested on November 11, 2015, in the
Company’s common stock, the NASDAQ Composite Index and the NASDAQ Bank Index. Historical stock price
performance is not necessarily indicative of future stock price performance.
Recent Sales of Unregistered Equity Securities
On December 20, 2016, the Company and certain selling stockholders of the Company, who are funds affiliated with
Patriot Financial Partners, L.P. and Endicott Management Company (the “Selling Stockholders”), severally and not jointly
and severally, entered into a Securities Purchase Agreement (“Purchase Agreement”) with certain institutional and accredited
investors (the “Investors”). Pursuant to the Purchase Agreement, the Investors agreed to purchase an aggregate of 1,090,000
shares of our Class A common stock, par value $0.01 per share, at a purchase price of $32.50 per share which consisted of
770,000 shares of Class A common stock that were issued by the Company and 320,000 shares of the Company’s Class B
common stock, par value $0.01, which were converted into an equal number of shares of Class A common stock upon
transfer to the Investors. The gross proceeds to the Company were approximately $25.0 million and underwriter fees paid by
the Company were $1.3 million. The net proceeds were used by the Company to repay debt under its line of credit and to
provide working capital for the Company’s growth strategies. The Company did not receive any of the proceeds from the
sale of shares by the Selling Stockholders. The issuance of the shares of Class A common stock by the Company pursuant to
the Purchase Agreement to the institutional and “accredited investors” (as that term is defined under rule 501 of Regulation
D) was exempt from registration under the Securities Act, in reliance upon Section 4(a)(2) of the Securities Act and
Regulation D Rule 506, as a transaction by an issuer involving a public offering. In connection with the Purchase agreement,
the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) between the Company and
each of the Investors. The Company filed a Form S-3 registration statement pursuant to the terms of the Registration Rights
Agreement on January 17, 2017, which was declared effective by the SEC on January 27, 2017.
Purchases of equity securities by the issuer and affiliated purchasers
None
53
Item 6: Selected Financial Data
The following table sets forth selected historical consolidated financial and other data as of and for the years ended
December 31, 2017, 2016, 2015, 2014 and 2013. Our historical results are not necessarily indicative of any future period.
The performance, asset quality and capital ratios are unaudited and derived from our audited and unaudited financial
statements as of and for the periods presented. Average balances have been calculated using daily averages, unless otherwise
denoted.
You should read the selected consolidated financial data set forth below in conjunction with “Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the
related notes included elsewhere in this Annual Report on Form 10-K.
Selected Financial Data for the periods indicated (dollars in thousands, except per share amounts) is listed below.
Statement of Income Data
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Net gain on acquisition
Net gain on sale and settlement
of securities
Other non-interest income
Merger expense
Loss on extinguishment of debt
Other non-interest expense
Income before income taxes
Provision for income taxes
Net income
Dividends and discount accretion
on preferred stock
Net income allocable to common
stockholders
Basic earnings per share
Diluted earnings per share
Balance Sheet Data (at period end)
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Gross loans held for investment
Allowance for loan losses
Loans held for investment, net of
allowance for loan losses
Goodwill and core deposit
intangibles, net
Mortgage servicing asset, net
Naming rights, net
Total assets
Total deposits
Borrowings
Total liabilities
Total stockholders’ equity
Tangible common equity*
Performance ratios
Return on average assets (ROAA)
Return on average equity (ROAE)
Return on average tangible common
equity (ROATCE)*
2017
$
$ 102,693
16,691
86,002
2,953
—
271
15,169
5,352
—
62,111
31,026
10,377
20,649
Years Ended December 31,
2015
2016
2014
$
61,799
9,202
52,597
2,119
—
479
9,987
5,294
58
41,723
13,869
4,495
9,374
$
53,028
6,766
46,262
3,047
682
756
8,364
1,691
316
36,568
14,442
4,142
10,300
$
46,794
5,433
41,361
1,200
—
986
7,688
—
—
35,645
13,190
4,203
8,987
2013
46,845
5,610
41,235
2,583
—
500
7,392
—
—
35,137
11,407
3,534
7,873
—
(1)
(177)
(708)
(978)
20,649
1.66
1.62
9,373
1.09
1.07
$
$
52,195
162,272
535,462
16,344
2,103,279
8,498
$
35,095
95,732
465,709
4,830
1,383,605
6,432
10,123
1.55
1.54
56,829
130,810
310,539
3,504
960,355
5,506
8,279
1.31
1.30
6,895
0.93
0.92
$
$
31,707
52,985
261,017
897
725,876
5,963
20,620
65,450
284,407
347
660,294
5,614
2,094,781
1,377,173
954,849
719,913
654,680
115,645
17
1,260
3,170,509
2,382,013
401,652
2,796,365
374,144
257,222
63,589
23
—
2,192,192
1,630,451
293,909
1,934,228
257,964
194,352
19,679
29
—
1,585,727
1,215,914
194,064
1,418,494
167,233
131,153
19,237
—
—
1,174,515
981,177
70,370
1,056,786
117,729
82,133
19,600
—
—
1,139,897
947,319
43,365
1,000,024
139,873
88,381
0.84%
7.03%
0.55%
5.55%
0.75%
8.19%
0.78%
7.30%
0.67%
5.71%
9.81%
6.75%
9.66%
9.99%
8.27%
54
Yield on loans
Cost of interest-bearing deposits
Net interest margin
Efficiency ratio*
Non-interest income / average assets
Non-interest expense / average
assets
Capital Ratios
5.43%
0.79%
3.83%
61.39%
0.63%
4.98%
0.65%
3.30%
66.67%
0.61%
5.31%
0.55%
3.65%
66.94%
0.71%
5.63%
0.49%
3.92%
72.67%
0.75%
5.63%
0.53%
3.87%
72.26%
0.67%
2.74%
2.74%
2.81%
3.08%
2.99%
10.33%
11.81%
9.47%
9.62%
11.59%
Tier 1 Leverage Ratio
Common Equity Tier 1 Capital
Ratio
Tier 1 Risk Based Capital Ratio
Total Risk Based Capital Ratio
Equity / Assets
Book value per share
Tangible book value per share*
Tangible common equity to
tangible assets*
11.56%
12.17%
12.54%
11.80%
$
25.62
$
17.61
13.34%
14.25%
14.67%
11.77%
$
22.09
$
16.64
12.35%
13.85%
14.35%
10.55%
$
18.37
$
15.97
N/A
13.16%
13.86%
10.02%
$
16.71
$
13.54
N/A
17.01%
17.74%
12.27%
14.62
11.97
$
$
8.42%
9.13%
8.37%
7.11%
7.89%
*Indicates non-GAAP financial measure. Please see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Non-GAAP Financial Measures” for reconciliation to the most directly comparable GAAP measure.
55
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this
Annual Report on Form 10-K. The following discussion contains “forward-looking statements” that reflect our future plans,
estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs
about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary
Statement Regarding Forward-Looking Statements.” Also, see the risk factors and other cautionary statements described
under the heading “Item 1A – Risk Factors” included in Item 1A of this Annual Report on Form 10-K. We do not undertake
any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
This discussion and analysis of our financial condition and results of operation includes the following sections:
Overview
Critical Accounting Policies – a discussion of accounting policies that require critical estimates and assumptions;
Results of Operations – an analysis of our operating results, including disclosures about the sustainability of our
earnings;
Financial Condition – an analysis of our financial position;
Liquidity and Capital Resources – an analysis of our cash flows and capital position; and
Non-GAAP Financial Measures – reconciliation of non-GAAP measures.
•
•
•
•
•
•
Overview
We are a bank holding company headquartered in Wichita, Kansas. Our wholly-owned banking subsidiary, Equity
Bank, provides a broad range of financial services primarily to businesses and business owners as well as individuals through
our network of 42 full service branches located in Arkansas, Kansas, Missouri and Oklahoma. As of December 31, 2017, we
had, on a consolidated basis, total assets of $3.17 billion, total deposits of $2.38 billion, total loans held for investment of
$2.09 billion (net of allowances) and total stockholders’ equity of $374.1 million. Net income for the year ended
December 31, 2017 was $20.6 million compared to $9.4 million for the prior year ended December 31, 2016, an increase of
$11.3 million, or 120.3%.
History and Background
Since 2003, we have completed a series of thirteen acquisitions and two charter consolidations. We have sought to
integrate the banks we acquire into our existing operational platform and enhance stockholder value through the creation of
efficiencies within the combined operations. In conjunction with our strategic acquisition growth, we strive to reposition and
improve the loan portfolio and deposit mix of the banks we acquire. Following our acquisitions, we focus on identifying and
disposing of problematic loans and replacing them with higher quality loans generated organically. In addition, we have
focused on growth in our commercial loan portfolio, which we believe generally offers higher return opportunities than our
consumer loan portfolio, primarily by hiring additional talented bankers, particularly in our metropolitan markets, and
incentivizing our bankers to expand their commercial banking relationships. We also seek to increase our most attractive
deposit accounts primarily by growing deposits in our community markets and cross-selling our depository products to our
loan customers.
Our principal objective is to continue to increase stockholder value and generate consistent earnings growth by
expanding our commercial banking franchise both organically and through strategic acquisitions. We believe our strategy of
selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall
franchise efficiency. We expect to continue to pursue strategic acquisitions and believe our targeted market areas present us
with many and varied acquisition opportunities. We are also focused on continuing to grow organically and believe the
markets in which we operate currently provide meaningful opportunities to expand our commercial customer base and
increase our current market share. We believe our geographic footprint, which is strategically split between growing
metropolitan markets, such as Kansas City, Tulsa and Wichita, and stable community markets within Western Kansas,
Western Missouri, Topeka, Northern Arkansas and Northern Oklahoma, provides us with access to low cost, stable core
deposits in community markets that we can use to fund commercial loan growth in our metropolitan markets. We strive to
provide an enhanced banking experience for our customers by providing them with a comprehensive suite of sophisticated
banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based customer
service of a community bank.
56
Highlights for the Year Ended December 31, 2017
•
•
•
•
•
•
Net income allocable to common stockholders of $20.6 million for the year ended December 31, 2017, compared
to $9.4 million for the previous year ended December 31, 2016, a 120.3% increase.
Total loans held for investment of $2.09 billion at December 31, 2017, compared to $1.38 billion at December
31, 2016, an increase of $717.6 million, or 52.1%.
Total deposits of $2.38 billion at December 31, 2017, compared to $1.63 billion at December 31, 2016, an
increase of $751.6 million, or 46.1%.
Total assets of $3.17 billion at December 31, 2017, compared to $2.19 billion at December 31, 2016, an increase
of $978.3 million, or 44.6%.
Book value per common share of $25.62 at December 31, 2017, compared to $22.09 at December 31, 2016, an
increase of $3.53, or 16.0%.
Tangible book value per common share of $17.61 at December 31, 2017, compared to $16.64 at December 31,
2016, an increase of $0.97, or 5.9%.
We completed our acquisition of Prairie State Bancshares, Inc. (“Prairie”) of Hoxie, Kansas on March 10, 2017.
Prairie had total assets of $153.1 million, net loans of $130.1 million, and total deposits of $125.4 million. On November 10,
2017, we completed our acquisition of Eastman National Bancshares, Inc. (“Eastman”) of Newkirk/Ponca City, Oklahoma.
Eastman had total assets of $259.7 million, net loans of $177.9 million, and total deposits of $224.6 million. Also on
November 10, 2017, we completed our acquisition of Cache Holdings, Inc. (“Cache”) of Tulsa, Oklahoma. Cache had total
assets of $324.6 million, net loans of $308.3 million, and total deposits of $278.7 million.
Critical Accounting Policies
Our significant accounting policies are integral to understanding the results reported. Our accounting policies are
described in the December 31, 2017 notes to consolidated financial statements “NOTE 1 – NATURE OF OPERATIONS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.” We believe that of our significant accounting policies,
the following may involve a higher degree of judgement and complexity.
Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff
are reported at the principal balance outstanding, net of previous charge-offs and an allowance for loan losses, and for
purchased loans, net of unamortized purchase premiums and discounts. Interest income is accrued on the unpaid principal
balance.
Purchased Credit Impaired Loans: As a part of previous acquisitions, we acquired certain loans for which there was,
at acquisition, evidence of deterioration of credit quality since origination. These purchased credit impaired loans were
recorded at the acquisition date fair value, such that there is no carryover of the seller’s allowance for loan losses. After
acquisition, losses are recognized by an increase in the allowance for loan losses. Such purchased credit impaired loans are
accounted for individually. We estimate the amount and timing of expected cash flows for each loan, and the expected cash
flows in excess of the amount paid are recorded as interest income over the remaining life of the loan (accretable yield). The
excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference).
Over the life of the loan, expected cash flows continue to be estimated. If the present value of the expected cash flows is less
than the carrying amount, a loss is recorded. If the present value of the expected cash flows is greater than the carrying
amount, it is recognized as part of future interest income.
Nonaccrual Loans: Generally, loans are designated as nonaccrual when either principal or interest payments are 90
days or more past due based on contractual terms unless the loan is well secured and in the process of collection. Consumer
loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at
an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on nonaccrual status, unpaid
interest credited to income is reversed against income. Future interest income may be recorded on a cash basis after recovery
of principal is reasonably assured. Nonaccrual loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably assured.
57
Impaired Loans: A loan is considered impaired when, based on current information and events, it is probable that we
will be unable to collect all contractual principal and interest due according to the terms of the loan agreement. All loans are a
individually evaluated for impairment. Impaired loans are measured based on the present value of expected future cash flows
discounted at the loan’s effective interest rate or on the value of the underlying collateral if the loan is collateral dependent.
We evaluate the collectability of both principal and interest when assessing the need for a loss accrual.
Factors considered by management in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Troubled Debt Restructurings: In cases where a borrower experiences financial difficulties and we make certain
concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan and classified as
impaired. Generally, a nonaccrual loan that is a troubled debt restructuring remains on nonaccrual until such time that
repayment of the remaining principal and interest is not in doubt, and the borrower has a period of satisfactory repayment
performance.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses.
Loan losses are charged against the allowance when management believes the collectability of a loan balance is unlikely.
Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using
past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and other factors. A loan review process, independent of the loan approval
process, is utilized by management to verify loans are being made and administered in accordance with Company policy, to
review loan risk grades and potential losses, to verify that potential problem loans are receiving adequate and timely
corrective measures to avoid or reduce losses, and to assist in the verification of the adequacy of the loan loss reserve.
Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in
management’s judgment, should be charged off.
The allowance consists of specific and general components. The specific component relates to loans that are
individually classified as impaired. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported
net at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if
repayment is expected solely from the sale of the collateral. Troubled debt restructurings are separately identified for
impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at
inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair
value of the collateral. For troubled debt restructurings that subsequently default, we determine the amount of reserve in
accordance with the accounting policy for the allowance for loan losses.
The general component of the allowance for loan losses covers non-impaired loans and is based on historical loss
experience adjusted for current factors. The historical loss experience is determined by portfolio and class and is based on
the actual loss history experienced by us. This actual loss experience is then adjusted by comparing current conditions to the
conditions that existed during the loss history. We consider the changes related to (i) lending policies, (ii) economic
conditions, (iii) nature and volume of the loan portfolio and class, (iv) lending staff, (v) volume and severity of past due, non-
accrual, and risk graded loans, (vi) loan review system, (vii) value of underlying collateral for collateral dependent loans,
(viii) concentration levels and (ix) effects of other external factors.
Goodwill: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair
value of acquired tangible assets and liabilities and identifiable intangible assets.
Core Deposit Intangibles: Core deposit intangibles are acquired customer relationships arising from whole bank and
branch acquisitions. Core deposit intangibles are initially measured at fair value and then are amortized over their estimated
useful lives using an accelerated method. The useful lives of the core deposits are estimated to generally be between seven
and ten years.
Goodwill and core deposit intangibles are assessed at least annually for impairment and any such impairment is
recognized and expensed in the period identified. We have selected December 31 as the date to perform our annual goodwill
impairment test. Goodwill is the only intangible asset with an indefinite useful life.
58
Emerging Growth Company: Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt
new or revised accounting standards that may be issued by the Financial Accounting Standards Board (“FASB”) or the SEC
either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same
time periods as private companies. We have irrevocably elected to adopt new accounting standards within the public
company adoption period.
We may take advantage of some of the reduced regulatory and reporting requirements that are available to us so long as
the Company qualifies as an emerging growth company, including, but not limited to, not being required to comply with the
auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive
compensation and golden parachute payments.
Results of Operations
We generate most of our revenue from interest income and fees on loans, interest and dividends on investment
securities and non-interest income, such as service charges and fees, debit card income and mortgage banking income. We
incur interest expense on deposits and other borrowed funds and non-interest expense, such as salaries and employee benefits
and occupancy expenses.
Changes in interest rates earned on interest-earning assets or incurred on interest-bearing liabilities, as well as the
volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities and stockholders’ equity, are
usually the largest drivers of periodic change in net interest income. Fluctuations in interest rates are driven by many factors,
including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the
money supply, political and international circumstances and domestic and foreign financial markets. Periodic changes in the
volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in
Arkansas, Kansas, Missouri and Oklahoma, as well as developments affecting the consumer, commercial and real estate
sectors within these markets.
Net Income
Year ended December 31, 2017 compared with year ended December 31, 2016
Net income for the year ended December 31, 2017 was $20.6 million compared to $9.4 million for year ended
December 31, 2016. Net income allocable to common stockholders was $20.6 million for the year ended December 31,
2017, compared to $9.4 million for the year ended December 31, 2016, an increase of $11.3 million, or 120.3%. During the
year ended December 31, 2017, increases in net interest income of $33.4 million and non-interest income of $5.0 million
were partially offset by $20.4 million in higher non-interest expenses and an increase of $834 thousand in the provision for
loan loss when compared to the year ended December 31, 2016. The changes in the components of net income are discussed
in more detail in the following sections of “Results of Operations.”
Year ended December 31, 2016 compared with year ended December 31, 2015
Net income for the year ended December 31, 2016 was $9.4 million compared to $10.3 million for year ended
December 31, 2015. Net income allocable to common stockholders was $9.4 million for the year ended December 31, 2016,
compared to $10.1 million for the year ended December 31, 2015, a decrease of $750 thousand, or 7.4%. During the year
ended December 31, 2016, increases in net interest income of $6.3 million, non-interest income of $664 thousand and a
reduction of $928 thousand in the provision for loan loss were offset by $8.5 million in higher non-interest expenses when
compared to the year ended December 31, 2015. The changes in the components of net income are discussed in more detail
in the following sections of “Results of Operations.”
Net Interest Income and Net Interest Margin Analysis
Net interest income is the difference between interest income on interest-earning assets, including loans and securities,
and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. To evaluate net
interest income, management measures and monitors (1) yields on loans and other interest-earning assets, (2) the costs of
deposits and other funding sources, (3) the net interest spread and (4) net interest margin. Net interest spread is the difference
between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated
as net interest income divided by average interest-earning assets. Because non-interest-bearing sources of funds, such as non-
59
interest-bearing deposits and stockholders’ equity also fund interest-earning assets, net interest margin includes the benefit of
these non-interest-bearing sources of funds. Net interest income is affected by changes in the amount and mix of interest-
earning assets and interest-bearing liabilities, referred to as a “volume change,” and it is also affected by changes in yields
earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a
“yield/rate change.”
The following table shows the average balance of each principal category of assets, liabilities, and stockholders’ equity
and the average yields on interest-earning assets and average rates on interest-bearing liabilities for the years ended
December 31, 2017, 2016 and 2015. The yields and rates are calculated by dividing income or expense by the average daily
balances of the associated assets or liabilities.
Average Balance Sheets and Net Interest Analysis
December 31, 2017
December 31, 2016
December 31, 2015
Average
Outstanding
Balance
Interest
Income/
Expense
Average
Yield/
Rate(3)(4)
Average
Outstanding
Balance
Interest
Income/
Expense
Average
Yield/
Rate(3)(4)
Average
Outstanding
Balance
Interest
Income/
Expense
Average
Yield/
Rate(3)(4)
$ 1,576,364 $ 85,662
510,165 12,308
111,242
3,375
47,937
1,348
2,245,708 $102,693
5.43% $ 1,009,918 $50,272
382,616 8,111
2.41%
59,735 1,654
3.03%
2.81%
140,415 1,762
4.57% 1,592,684 $61,799
816,427 $43,361
4.98% $
336,905 7,634
2.12%
43,769 1,057
2.77%
1.25%
976
71,224
3.88% 1,268,325 $53,028
5.31%
2.27%
2.41%
1.37%
4.18%
(Dollars in thousands)
Interest-earning assets
Loans(1)
Taxable securities
Nontaxable securities
Federal funds sold and other
Total interest-earning assets
Non-interest-earning assets
Other real estate owned, net
Premises and equipment, net
Bank-owned life insurance
Goodwill and core deposit intangible, net
Other non-interest-earning assets
Total assets
8,968
55,299
49,409
76,320
26,315
$ 2,462,019
6,167
40,800
33,415
25,749
18,397
$ 1,717,212
5,742
36,983
29,816
19,505
13,839
$ 1,374,210
Interest-bearing liabilities
Interest-bearing demand deposits
Savings and money market
Savings, NOW and money market
Certificates of deposit
Total interest-bearing deposits
FHLB term and line of credit advances
Bank stock loan
Subordinated borrowings
Other borrowings
Total interest-bearing liabilities
Non-interest-bearing liabilities and
stockholders’ equity
$
452,652 $
501,386
954,038
647,998
2,299
2,781
5,080
7,642
1,602,036 12,722
2,909
16
980
64
1,900,986 $ 16,691
258,951
356
13,820
25,823
314,515 $
890
0.51% $
317,394 1,317
0.55%
631,909 2,207
0.53%
1.18%
453,045 4,835
0.79% 1,084,954 7,042
250,282 1,400
1.12%
31
4.48%
671
7.09%
0.25%
58
0.88% 1,368,772 $ 9,202
989
9,948
22,599
633
259,007 $
0.28% $
261,195
918
0.41%
520,202 1,551
0.35%
374,846 3,375
1.07%
895,048 4,926
0.65%
495
157,801
0.56%
641
15,581
3.09%
643
9,102
6.74%
0.26%
61
24,862
0.67% 1,102,394 $ 6,766
0.24%
0.35%
0.30%
0.90%
0.55%
0.31%
4.11%
7.06%
0.24%
0.61%
257,346
Non-interest-bearing checking accounts
9,889
Non-interest-bearing liabilities
Stockholders’ equity
293,798
Total liabilities and stockholders’ equity $ 2,462,019
169,514
10,103
168,823
$ 1,717,212
138,933
7,075
125,808
$ 1,374,210
Net interest income
Interest rate spread
Net interest margin(2)
Total cost of deposits, including
non-interest bearing deposits
Average interest-earning assets to
interest-bearing liabilities
$ 86,002
$52,597
$46,262
3.69%
3.83%
3.21%
3.30%
3.57%
3.65%
$ 1,859,382 $ 12,722
0.68% $ 1,254,468 $ 7,042
0.56% $ 1,033,981 $ 4,926
0.48%
118.13%
116.36%
115.05%
(1)
(2)
(3)
(4)
Average loan balances include nonaccrual loans, hedge fair value adjustments and merger fair value adjustments.
Net interest margin is calculated by dividing net interest income by average interest-earning assets for the period.
Tax exempt income is not included in the above table on a tax equivalent basis.
Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in
thousands as disclosed in this report may not produce the same amounts.
60
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of
interest-earning assets and interest-bearing liabilities, as well as changes in average interest yields/rates. The following table
analyzes the change in volume variances and yield/rate variances for the year ended December 31, 2017 as compared to the
year ended December 31, 2016, and the year ended December 31, 2016 as compared to the year ended December 31, 2015.
Analysis of Changes in Net Interest Income
(Dollars in thousands)
Interest-earning assets
Loans
Taxable securities
Nontaxable securities
Federal funds sold and other
Total interest-earning assets
Interest-bearing liabilities
Savings, NOW and money market
Certificates of deposit
Total interest-bearing deposits
FHLB term and line of credit advances
Bank stock loan
Subordinated borrowings
Other borrowings
Total interest-bearing liabilities
Net Interest Income
2017 vs. 2016
Increase (Decrease) Due to:
2016 vs. 2015
Increase (Decrease) Due to:
Volume(1)
Yield/Rate(1)
Total
Volume(1)
Yield/Rate(1)
Total
$ 30,418 $
2,968
1,549
(1,659)
$ 33,276 $
9,767 $
4,972 $ 35,390 $
990
4,197
1,229
426
1,721
172
1,245
875
(414)
7,618 $ 40,894 $ 12,058 $
1,427 $
2,256
3,683
50
(25)
273
8
$
3,989 $
$ 29,287 $
365 $
2,873 $
1,446 $
773
2,807
551
1,138
5,680
1,997
388
1,509
1,459
(482)
(15)
10
58
309
36
(6)
6
(2)
3,500 $
1,096 $
7,489 $
4,118 $ 33,405 $ 10,962 $
(2,856) $
(513)
171
(89)
(3,287)
291 $
687
978
517
(128)
(30)
3
1,340 $
(4,627) $
6,911
477
597
786
8,771
656
1,460
2,116
905
(610)
28
(3)
2,436
6,335
rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the prior year’s
volume. The changes attributable to both volume and rate, which cannot be segregated, have been allocated to the
volume variance and the rate variance in proportion to the relationship of the absolute dollar amount of the change in
each.
Year ended December 31, 2017 compared with year ended December 31, 2016
Net interest income before the provision for loan losses for the year ended December 31, 2017 was $86.0 million
compared with $52.6 million for the year ended December 31, 2016, an increase of $33.4 million, or 63.5%. The increase in
net interest income is primarily due to the increase in the volume of interest-earnings assets and to a lesser extent an increase
in yields on interest-earning assets. The increase in average volume of interest-earning assets was primarily due to increases
in loans and investment securities partially offset by a decrease in Federal funds sold and other. Interest expense for the year
ended December 31, 2017 was $16.7 million, an increase of $7.5 million, or 81.4%, from the interest expense of $9.2 million
for the year ended December 31, 2016. The increase in interest expense was primarily due to an increase in the average
volume and rates of interest bearing liabilities incurred to fund the increased volume of interest-earning assets.
Interest income was $102.7 million for the year ended December 31, 2017 and $61.8 million for the year ended
December 31, 2016, an increase of $40.9 million, or 66.2%. Interest income on loans , including loan fees, was $85.7 million
for the year ended December 31, 2017, an increase of $35.4 million, or 70.4%, compared to the year ended December 31,
2016. The increase in loan interest income was driven by the increase in average loan volume and a 45 basis point increase
in yield on the loan portfolio from 4.98% for the year ended December 31, 2016 to 5.43% for the year ended December 31,
2017. The impact to net interest income from loan fees for the year ended December 31, 2017, was $3.4 million compared to
$2.4 million for the year ended December 31, 2016.
61
Interest expense was $16.7 million for the year ended December 31, 2017, an increase of $7.5 million from the $9.2
million for the year ended December 31, 2016. Interest expense on savings, NOW and money market deposits was $5.1
million for the year ended December 31, 2017, an increase of $2.9 million from $2.2 million for the year ended December 31,
2016. Average certificates of deposit increased $195.0 million for the year ended December 31, 2017 compared to the year
ended December 31, 2016 and the average rate increased from 1.07% to 1.18% for the same time period resulting in an
increase in related interest expense of $2.8 million. Average balances of borrowings from the FHLB increased by $8.7
million from an average balance of $250.3 million for the year ended December 31, 2016 to an average balance of $259.0
million for the year ended December 31, 2017, resulting in an increase in interest expense of $1.5 million. Interest expense
on our bank stock loan for the year ended December 31, 2017 was $16 thousand compared to $31 thousand for the year
ended December 31, 2016. Total cost of interest-bearing liabilities increased 21 basis points to 0.88% for the year ended
December 31, 2017 from 0.67% for the year ended December 31, 2016.
Net interest margin, for the year ended December 31, 2017 was 3.83%, an increase of 53 basis points compared with
3.30% for the year ended December 31, 2016. The increase in net interest margin during 2017 is largely due to the increase
in overall yield on interest earning assets. Also, during the first nine months of 2016, we utilized a “leverage” or “spread”
opportunity. The spread opportunity involved borrowing overnight on our line of credit with the FHLB and investing the
proceeds in FHLB stock, federal funds sold and other overnight assets, such as money market accounts in other financial
institutions, resulting in a decrease in net interest margin of 0.21% for 2016. We terminated the spread opportunity at
September 30, 2016. These changes for the year ended December 31, 2017 resulted in an increase in net interest income of
$33.4 million, an increase in average interest-earning assets of $653.0 million and an increase in net interest margin of 53
basis points.
Year ended December 31, 2016 compared with year ended December 31, 2015
Net interest income before the provision for loan losses for the year ended December 31, 2016 was $52.6 million
compared with $46.3 million for the year ended December 31, 2015, an increase of $6.3 million, or 13.7%. The increase in
net interest income is primarily due to the increase in the volume of interest-earnings assets partially offset by a decrease in
yields on interest-earning assets. The increase in average volume of interest-earning assets was primarily due to increases in
loans, investment securities and Federal funds sold and other. Interest expense for the year ended December 31, 2016 was
$9.2 million, an increase of $2.4 million, or 36.0%, from the interest expense of $6.8 million for the year ended
December 31, 2015. The increase in interest expense was primarily due to an increase in the average volume and rates of
interest bearing liabilities incurred to fund the increased volume of interest-earning assets.
Interest income was $61.8 million for the year ended December 31, 2016 and $53.0 million for the year ended
December 31, 2015, an increase of $8.8 million, or 16.5%. Interest income on loans, including loan fees which consist of
fees for loan origination, renewal, prepayment, covenant breakage and loan modification, was $50.3 million for the year
ended December 31, 2016, an increase of $6.9 million, or 15.9%, compared to the year ended December 31, 2015. The
increase in loan interest income was driven by the increase in average loan volume; however, the yield on the loan portfolio
decreased 33 basis points from 5.31% for the year ended December 31, 2015 to 4.98% for the year ended December 31,
2016. Loan fees for the year ended December 31, 2016 were $2.4 million compared to $3.4 million for the year ended
December 31, 2015. The primary driver of the decrease in loan yields is the origination or purchase of commercial,
commercial real estate and mortgage loans in a low interest rate environment and the pay off of older higher yielding loans.
Interest expense was $9.2 million for the year ended December 31, 2016, an increase of $2.4 million from the $6.8
million for the year ended December 31, 2015. Interest expense on savings, NOW and money market deposits was $2.2
million for the year ended December 31, 2016, an increase of $656 thousand from $1.6 million for the year ended
December 31, 2015. Average certificates of deposit increased $78.2 million for the year ended December 31, 2016 compared
to the year ended December 31, 2015 and the average rate increased from 0.90% to 1.07% for the same time period resulting
in an increase in related interest expense of $1.5 million. Average balances of borrowings from the FHLB increased by $92.5
million from an average balance of $157.8 million for the year ended December 31, 2015 to an average balance of $250.3
million for the year ended December 31, 2016, resulting in an increase in interest expense of $905 thousand. In February
2015, we prepaid older higher cost FHLB term advances and began using the FHLB line of credit or LOC advance option,
which is pre-payable without a fee and resulted in a much lower funding cost. Interest expense on our bank stock loan for the
year ended December 31, 2016 was $31 thousand compared to $641 thousand for the year ended December 31, 2015. Total
cost of interest-bearing liabilities increased six basis points to 0.67% for the year ended December 31, 2016 from 0.61% for
the year ended December 31, 2015.
62
Net interest margin, for the year ended December 31, 2016 was 3.30%, a decrease of 35 basis points compared with
3.65% for the year ended December 31, 2015. The decrease in net interest margin is largely the result of changes in mix and
yield of interest-earning assets and cost of interest-bearing liabilities. The decline in our net interest margin for the year
ended December 31, 2016 relates to our purchase of additional investment securities, our utilization of an available “spread
opportunity” and the increase in our 1-4 family loan portfolio, which contributed to a decline in yield on our loan portfolio.
The “spread opportunity” involved borrowing overnight on our line of credit with the FHLB and investing the proceeds in
FHLB stock, federal funds sold and other overnight assets, such as money market accounts in other financial institutions,
resulting in a decrease in net interest margin of 0.21% for 2016 and 0.10% for 2015. We utilized the spread opportunity to
generate additional income. We terminated the spread opportunity at September 30, 2016. These changes for the year ended
December 31, 2016 resulted in an increase in net interest income of $6.3 million, an increase in average interest-earning
assets of $324.4 million and a decrease in net interest margin of 35 basis points.
Provision for Loan Losses
We maintain an allowance for loan losses for probable incurred credit losses. The allowance for loan losses is
increased by a provision for loan losses, which is a charge to earnings, and subsequent recoveries of amounts previously
charged-off, but is decreased by charge-offs when the collectability of a loan balance is unlikely. Management estimates the
allowance balance required using past loan loss experience, the nature and volume of the loan portfolio, information about
specific borrower situations and estimated collateral values, discounted cash flows, economic conditions, and other factors
including regulatory guidance. As these factors change, the amount of the loan loss provision changes.
Year ended December 31, 2017 compared with year ended December 31, 2016
The provision for loan losses for the year ended December 31, 2017 was $3.0 million compared with $2.1 million for
the year ended December 31, 2016. The increased provision of $834 thousand was primarily related to the overall increase in
volume in our loan portfolio during 2017. Net charge-offs for the year ended December 31, 2017 were $887 thousand
compared to net charge-offs of $1.2 million for the year ended December 31, 2016. For the year ended December 31, 2017,
gross charge-offs were $2.1 million offset by gross recoveries of $1.2 million. In comparison, gross charge-offs were $1.7
million for the year ended December 31, 2016 offset by gross recoveries of $527 thousand.
Year ended December 31, 2016 compared with year ended December 31, 2015
The provision for loan losses for the year ended December 31, 2016 was $2.1 million compared with $3.0 million for
the year ended December 31, 2015. The decreased provision of $928 thousand was primarily related to decreased charge-
offs and increased recoveries on loans as compared to the previous year. Net charge-offs for the year ended December 31,
2016 were $1.2 million compared to net charge-offs of $3.5 million for the year ended December 31, 2015. For the year
ended December 31, 2016, gross charge-offs were $1.7 million offset by gross recoveries of $527 thousand. In comparison,
gross charge-offs were $3.7 million for the year ended December 31, 2015 offset by gross recoveries of $237 thousand.
Non-Interest Income
The primary sources of non-interest income are service charges and fees, debit card income, mortgage banking income,
increases in the value of bank owned life insurance, investment referral income, the recovery of zero-basis purchased loans,
and net gains on the sale of available-for-sale securities and other securities transactions. Non-interest income does not
include loan origination or other loan fees which are recognized as an adjustment to yield using the interest method.
63
The following table provides a comparison of the major components of non-interest income for the years ended
December 31, 2017, 2016 and 2015.
Non-Interest Income
For the Years Ended December 31,
(Dollars in thousands)
Service charges and fees
Debit card income
Mortgage banking
Increase in value of bank-owned life
insurance
Investment referral income
Recovery on zero-basis
purchased loans
Other
Sub-Total
Net gain on acquisition
Net gains on sales and settlement
of securities
Total non-interest income
2017
2016
2015
Change
%
Change
%
$
5,154 $
4,547
1,955
3,552 $
2,898
1,394
2,708 $
2,161
1,088
1,602
1,649
561
45.1% $
56.9%
40.2%
844
737
306
31.2%
34.1%
28.1%
2017 vs. 2016
2016 vs. 2015
1,445
353
1,000
418
957
571
445
(65)
44.5%
(15.6)%
43
(153)
4.5%
(26.8)%
319
1,396
15,169
—
102
623
9,987
—
393
486
8,364
682
217
773
5,182
—
212.7%
124.1%
51.9%
—%
(291)
137
1,623
(682)
(74.0)%
28.2%
19.4%
(100.0)%
271
479
$ 15,440 $ 10,466 $
756
9,802 $
(208)
4,974
(43.4)%
47.5% $
(277)
664
(36.6)%
6.8%
Year ended December 31, 2017 compared with year ended December 31, 2016
For the year ended December 31, 2017, non-interest income totaled $15.4 million, an increase of $5.0 million, or
47.5%, from $10.5 million for the year ended December 31, 2016. The increase was primarily due to increases in service
charges and fees, debit card income, other, mortgage banking income, increase in value of bank owned life insurance and
recovery on zero-basis purchased loans partially offset by decreases in net gains on sales of and settlement of securities and
investment referral income. Service charges and fees increased $1.6 million during the twelve months ended December 31,
2017, as compared to the same time period during 2016, mainly due to an increase in non-sufficient fund charges. Debit card
income was $4.5 million for the year ended December 31, 2017, an increase of $1.6 million, or 56.9%, from $2.9 million for
the year ended December 31, 2016. Mortgage banking increased largely due to an increase in proceeds received from
investors on the sale of mortgage loans. In connection with acquisitions, we received the rights to certain loans that were
previously charged off by the acquired bank. At acquisition, there was no expectation of future cash flows from these
previously charged-off loans and thus they were assigned a zero basis. Subsequent to the acquisitions, we have received cash
payments on several of these loans. No interest has been accrued as cash flow payments have not been expected prior to
receipt. Cash receipts on these zero-basis loans totaled $319 thousand and $102 thousand for the years ended December 31,
2017 and 2016. For the year ended December 31, 2017 gains on sales of and settlement of securities amounted to $271
thousand. For the year ended December 31, 2016 gains on sales of and settlement of securities amounted to $893 thousand.
During 2016, the Company recorded an other-than-temporary impairment loss in the amount of $414 thousand, resulting in a
net gain on sales of and settlement of securities of $479 thousand. The impairment loss reflected the difference between the
amortized cost of the Company’s investment in AgriBank’s 9.125% subordinated notes, due July 2019 and the fair value
attributed to AgriBank’s redemption call of those notes.
Year ended December 31, 2016 compared with year ended December 31, 2015
For the year ended December 31, 2016, non-interest income totaled $10.5 million, an increase of $663 thousand, or
6.8%, from $9.8 million for the year ended December 31, 2015. The increase was primarily due to increases in service
charges and fees, debit card income, and mortgage banking income, partially offset by decreases in net gain on acquisition,
recovery of zero-basis purchased loans, and net gains on sales of and settlement of securities. Service charges and fees
increased $844 thousand during the twelve months ended December 31, 2016, as compared to the same time period during
2015, mainly due to an increase in non-sufficient fund charges. Debit card income was $2.9 million for the year ended
December 31, 2016, an increase of $737 thousand, or 34.1%, from $2.2 million for the year ended December 31, 2015.
Mortgage banking increased largely due to an increase in proceeds received from investors on the sale of mortgage loans.
The recognized amounts of the identifiable net assets acquired, including deferred tax assets associated with NOL and tax
credit carryforwards, exceeded the cash consideration exchanged in the First Independence acquisition resulting in the net
64
gain on acquisition in 2015. In connection with acquisitions, we received the rights to certain loans that were previously
charged off by the acquired bank. At acquisition, there was no expectation of future cash flows from these previously
charged-off loans and thus they were assigned a zero basis. Subsequent to the acquisitions, we have received cash payments
on several of these loans. No interest has been accrued as cash flow payments have not been expected prior to receipt. Cash
receipts on these zero-basis loans totaled $102 thousand and $393 thousand for the years ended December 31, 2016 and
2015. For the year ended December 31, 2016 gains on sales of and settlement of securities amounted to $893 thousand.
During 2016, the Company recorded an other-than-temporary impairment loss in the amount of $414 thousand, resulting in a
net gain on sales of and settlement of securities of $479 thousand. The impairment loss reflected the difference between the
amortized cost of the Company’s investment in AgriBank’s 9.125% subordinated notes, due July 2019 and the fair value
attributed to AgriBank’s redemption call of those notes. For the year ended December 31, 2015 gains on sales of and
settlement of securities amounted to $370 thousand. During 2015, the Company received $386 thousand in connection with
the bankruptcy settlement related to a political subdivision security written off in 2011, resulting in a net gain on sales of and
settlement of securities of $756 thousand.
Non-Interest Expense
The following table provides a comparison of the major components of non-interest expense for the years ended
December 31, 2017, 2016 and 2015.
(Dollars in thousands)
Salaries and employee benefits
Net occupancy and equipment
Data processing
Professional fees
Advertising and business
development
Telecommunications
FDIC insurance
Courier and postage
Free nationwide ATM expense
Amortization of core deposit
intangibles
Loan expense
Other real estate owned
Other
Sub-Total
Merger expenses
Loss on extinguishment of debt
Total non-interest expense
Non-Interest Expense
For the Year Ended December 31,
2017
2016
2015
Change
%
Change
%
2017 vs. 2016
2016 vs. 2015
$ 33,960 $ 21,951 $ 19,202 $ 12,009
1,719
1,359
288
4,155
2,939
2,086
6,305
4,927
2,363
4,586
3,568
2,075
54.7% $
37.5%
38.1%
13.9%
2,749
431
629
(11)
2,105
1,191
945
935
932
1,198
1,101
894
683
672
1,199
811
840
544
468
907
90
51
252
260
75.7%
8.2%
5.7%
36.9%
38.7%
1,025
993
523
5,907
413
599
386
3,597
275
388
287
3,374
612
394
137
2,310
62,111 41,723 36,568 20,388
58
(58)
$ 67,463 $ 47,075 $ 38,575 $ 20,388
1,691
316
5,294
58
5,352
—
148.2%
65.8%
35.5%
64.2%
48.9%
1.1%
(100.0)%
43.3% $
(1)
290
54
139
204
138
211
99
223
5,155
3,603
(258)
8,500
14.3%
10.4%
21.4%
(0.5)%
(0.1)%
35.8%
6.4%
25.6%
43.6%
50.2%
54.4%
34.5%
6.6%
14.1%
213.1%
(81.6)%
22.0%
Year ended December 31, 2017 compared with year ended December 31, 2016
For the year ended December 31, 2017, non-interest expense totaled $67.5 million, an increase of $20.4 million, or
43.3%, compared to December 31, 2016. This increase was primarily due to increases in salaries and employee benefits of
$12.0 million, other of $2.3 million, net occupancy and equipment of $1.7 million, data processing of $1.4 million,
advertising and business development of $907 thousand and amortization of core deposit intangible of $612 thousand. These
items and other changes in the various components of non-interest expense are discussed in more detail below.
Salaries and employee benefits: Salaries and benefits were $34.0 million for the year ended December 31, 2017, an
increase of $12.0 million compared to the year ended December 31, 2016. There was a $8.4 million increase in salaries for
year ended December 31, 2017 as compared to year ended December 31, 2016, which reflects the full year effect of the
Community First merger, the March 2017 addition of staff related to the merger with Prairie, the November 2017 addition of
65
staff related to the mergers with Eastman and Cache, as well as additions to corporate and operations staff indirectly
attributable to acquisitions and our growth. In addition, during the same time period, there was an increase in benefits cost of
$1.1 million. Included in salaries and employee benefits is share-based compensation expense of $552 thousand in the year
ended December 31, 2017 and $268 thousand for the year ended December 31, 2016.
Net occupancy and equipment: Net occupancy and equipment includes expenses related to the use of premises and
equipment, such as depreciation, operating lease payments, repairs and maintenance, insurance, property taxes and utilities,
net of incidental rental income of excess facilities. Occupancy expenses were $6.3 million for the year ended December 31,
2017, compared to $4.6 million for the year ended December 31, 2016. The majority of the increase is due to a full year of
expenses related to the acquisition of Community First and the subsequent addition of five branches in Northern Arkansas.
In addition, due to the acquisitions of Prairie, Eastman and Cache, there were three additional branches added in March 2017
and five additional branches added in November 2017.
Data processing: Data processing expenses were $4.9 million for the year ended December 31, 2017, an increase of
$1.4 million, or 38.1%, from the year ended December 31, 2016. The increase was principally due to increased debit card
processing costs as usage increased.
Professional fees: Professional fees, including regulatory assessments, were $2.4 million for the year ended
December 31, 2017 and $2.1 million for the year ended December 31, 2016. The increase of $288 thousand, or 13.9%,
principally is due to an increase in consulting fees of $130 thousand, legal fees of $110 thousand and regulatory assessments
of $60 thousand partially offset by a decrease in accounting fees of $12 thousand.
Other real estate owned: As detailed in “NOTE 5 – OTHER REAL ESTATE OWNED” in the Notes to Consolidated
Financial Statements other real estate owned expenses, including provision for unrealized losses were $644 thousand for the
year ended December 31, 2017, offset by gains on the sale of other real estate owned of $121 thousand. For the year ended
December 31, 2016 other real estate owned expenses, including provision for unrealized losses were $542 thousand offset by
gains on the sale of other real estate owned of $156 thousand.
Other: Other non-interest expenses, which consist of subscriptions; memberships and dues; employee expenses
including travel, meals, entertainment and education; supplies; printing; insurance; account related losses; correspondent
bank fees; customer program expenses; losses net of gains on the sale of fixed assets; losses net of gains on the sale of
repossessed assets other than real estate; and other operating expenses such as settlement of claims, were $5.9 million for the
year ended December 31, 2017 and $3.6 million for the year ended December 31, 2016.
Merger expenses: Merger expenses include legal, advisory and accounting fees associated with services to facilitate
the acquisition of other banks. Merger expenses also include data processing conversion costs and costs associated with the
integration of personnel, processes, facilities and employee bonuses. On March 10, 2017, we acquired Prairie State
Bancshares, Inc., based in Hoxie, Kansas. Merger expenses of $926 thousand for the year ended December 31, 2017 are
related to the Prairie State Bancshares, Inc. merger. On November 10, 2017, we acquired Eastman National Bancshares, Inc.
based in Newkirk/Ponca City, Oklahoma. Merger expenses of $2.9 million for the year ended December 31, 2017 are related
to the Eastman National Bancshares, Inc. merger. Additionally, on November 10, 2017 we acquired Cache Holdings, Inc.
based in Tulsa, Oklahoma. Merger expenses of $1.5 million for the year ended December 31, 2017 are related to the Cache
Holdings, Inc. merger. On November 10, 2016, we acquired Community First Bancshares, Inc. based in Harrison, Arkansas.
Merger expenses of $4.6 million for the year ended December 31, 2016 are related to the Community First Bancshares, Inc.
merger and $678 thousand for the year ended December 31, 2016, are related to the previously mentioned Prairie State
Bancshares, Inc. merger.
Loss on extinguishment of debt: In the first quarter of 2016, we repaid our bank stock loan and wrote off the deferred
debt issuance costs associated with this loan resulting in a $58 thousand loss on debt extinguishment.
Year ended December 31, 2016 compared with year ended December 31, 2015
For the year ended December 31, 2016, non-interest expense totaled $47.1 million, an increase of $8.5 million, or
22.0%, compared to December 31, 2015. This increase was primarily due to increases in merger expenses of $3.6 million,
salaries and employee benefits of $2.7 million, data processing of $629 thousand, net occupancy and equipment of $431
thousand, telecommunications of $290 thousand, other expense of $223 thousand, loan expense of $211 thousand, and free
nation-wide ATM costs of $204 thousand, partially offset by a decrease of $258 thousand in loss on extinguishment of debt.
These items and other changes in the various components of non-interest expense are discussed in more detail below.
66
Salaries and employee benefits: Salaries and benefits were $22.0 million for the year ended December 31, 2016, an
increase of $2.7 million compared to the year ended December 31, 2015. There was a $2.3 million increase in salaries for
year ended December 31, 2016 as compared to year ended December 31, 2015, which reflects the full year effect of the First
Independence merger, the November 2016 addition of staff related to the merger with Community First, as well as additions
to lending, customer service, and operations staff. In addition, during the same time period, there was an increase in benefits
cost of $351 thousand. Included in salaries and employee benefits is stock based compensation expense of $268 thousand in
the year ended December 31, 2016 and $162 thousand for the year ended December 31, 2015.
Net occupancy and equipment: Net occupancy and equipment includes expenses related to the use of premises and
equipment, such as depreciation, operating lease payments, repairs and maintenance, insurance, property taxes and utilities,
net of incidental rental income of excess facilities. Occupancy expenses were $4.6 million for the year ended December 31,
2016, compared to $4.2 million for the year ended December 31, 2015. The majority of the increase is due to a full year of
expenses related to the acquisition of First Independence and the subsequent addition of four branches in Southeast Kansas.
In addition, due to the acquisition of Community First, there were five additional branches added in November 2016.
Data processing: Data processing expenses were $3.6 million for the year ended December 31, 2016, an increase of
$629 thousand, or 21.4%, from the year ended December 31, 2015. The increase was principally due to increased debit card
processing costs as usage increased.
Professional fees: Professional fees, including regulatory assessments, were $2.1 million for the year ended
December 31, 2016 and $2.1 million for the year ended December 31, 2015. The decrease of $11 thousand, or 0.5%,
principally is due to a decrease in legal fees of $135 thousand and consulting fees of $66 thousand, offset by an increase in
accounting fees of $135 thousand and an increase in other professional fees of $55 thousand. The decrease in legal fees was
primarily due to the settlement of the lawsuit with U.S. Bank in June 2015, as discussed in the Notes to Consolidated
Financials Statements, “NOTE 23 – LEGAL MATTERS.” The offsetting increases in professional fees are principally
attributable to the reporting requirements of being a public company.
Other real estate owned: As detailed in “NOTE 5 – OTHER REAL ESTATE OWNED” in the Notes to Consolidated
Financial Statements other real estate owned expenses, including provision for unrealized losses were $542 thousand for the
year ended December 31, 2016, offset by gains on the sale of other real estate owned of $156 thousand. For the year ended
December 31, 2015 other real estate owned expenses, including provision for unrealized losses were $418 thousand offset by
gains on the sale of other real estate owned of $131 thousand.
Other: Other non-interest expenses, which consist of subscriptions; memberships and dues; employee expenses
including travel, meals, entertainment and education; supplies; printing; insurance; account related losses; correspondent
bank fees; customer program expenses; losses net of gains on the sale of fixed assets; losses net of gains on the sale of
repossessed assets other than real estate; and other operating expenses such as settlement of claims, were $3.6 million for the
year ended December 31, 2016 and $3.4 million for the year ended December 31, 2015.
Merger expenses: Merger expenses include legal, advisory and accounting fees associated with services to facilitate
the acquisition of other banks. Merger expenses also include data processing conversion costs and costs associated with the
integration of personnel, processes, facilities and employee bonuses. On November 10, 2016, we acquired Community First
Bancshares, Inc., based in Harrison, Arkansas. Merger expenses of $5.3 million for the year ended December 31, 2016 are
mostly related to this merger. On October 9, 2015, we acquired First Independence Corporation and its subsidiary, First
Federal Savings & Loan of Independence, based in Independence, Kansas. Merger expenses of $1.7 million for the year
ended December 31, 2015 are related to this merger.
Loss on extinguishment of debt: In the first quarter of 2016, we repaid our bank stock loan and wrote off the deferred
debt issuance costs associated with this loan resulting in a $58 thousand loss on debt extinguishment. In the first quarter of
2015, we chose to incur a $316 thousand loss on extinguishment of debt due to the prepayment of all our FHLB term
advances. The weighted average rate of the FHLB term advances was 3.82%.
Efficiency Ratio
The efficiency ratio is a supplemental financial measure utilized in the internal evaluation of our performance and is
not defined under GAAP. Our efficiency ratio is computed by dividing non-interest expense, excluding merger expenses and
loss on debt extinguishment by the sum of net interest income and non-interest income, excluding net gains on sales of and
settlement of securities and gain on acquisition. Generally, an increase in the efficiency ratio indicates that more resources
67
are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of
resources. The ratio defined under GAAP that is most comparable to the efficiency ratio is non-interest expense to net
interest income plus non-interest income which is discussed in “Results of Operations – Non-GAAP Financial Measures.”
The Company’s non-interest expense to net interest income plus non-interest income was 66.50% for the year ended
December 31, 2017, compared with 74.65% for the year ended December 31, 2016. This improvement was primarily due to
increased net interest income and non-interest income, partially offset by increased non-interest expense as discussed in
“Results of Operations – Non-GAAP Financial Measures.” Our efficiency ratio was 61.39% for the year ended December 31,
2017, compared with 66.67% for the year ended December 31, 2016. This improvement was primarily due to increased net
interest income and non-interest income as discussed in “Results of Operations – Net Interest Income and Net Interest Margin
Analysis” and “Results of Operations – Non-Interest Income.”
The Company’s non-interest expense to net interest income plus non-interest income was 74.65% for the year ended
December 31, 2016, compared with 68.81% for the year ended December 31, 2015. This decline was primarily due to
increased non-interest expense, partially offset by increased net interest income and non-interest income as discussed in
“Results of Operations – Non-GAAP Financial Measures.” Our efficiency ratio was 66.7% for the year ended December 31,
2016, compared with 66.9% for the year ended December 31, 2015. This improvement was primarily due to increased net
interest income and non-interest income as discussed in “Results of Operations – Net Interest Income and Net Interest Margin
Analysis” and “Results of Operations – Non-Interest Income.”
Income Taxes
The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income,
the amount non-deductible expenses and available tax credits.
Year ended December 31, 2017 compared with year ended December 31, 2016
For the year ended December 31, 2017, income tax expense was $10.4 million compared with $4.5 million for the year
ended December 31, 2016. The effective income tax rates for the years ended December 31, 2017 and 2016 were 33.5% and
32.4%, as compared to the U.S. statutory rate of 35.0%. As detailed in “NOTE 15 – INCOME TAXES” in the Notes to
Consolidated Financial Statements, the income tax rate differed from the U.S. statutory rate primarily due to non-taxable
income, non-deductible expenses and tax credits. In addition, beginning with the first quarter 2017 adoption of ASU 2016-
09, Improvements to Employee Share-Based Payment Accounting, excess tax benefits, generated when the tax return
deductible compensation expense exceeds cumulative compensation cost recognized for financial reporting purposes, have
been recorded in the period in which they occur. Prior to adoption of ASU 2016-09, excess tax benefits associated with the
exercise of stock options were recognized as additional paid in capital. The 2017 provision for income taxes also includes a
fourth quarter charge of $1.1 million related to Tax Reform. The reduction of the U.S. statutory tax rate from 35% to 21%,
provided for by Tax Reform, resulted in the re-measurement of the Company’s net deferred tax assets.
Year ended December 31, 2016 compared with year ended December 31, 2015
For the year ended December 31, 2016, income tax expense was $4.5 million compared with $4.1 million for the year
ended December 31, 2015. The effective income tax rates for the years ended December 31, 2016 and 2015 were 32.4% and
28.7%, as compared to the U.S. statutory rate of 35.0%. As detailed in “NOTE 15 – INCOME TAXES” in the Notes to
Consolidated Financial Statements, the income tax rate differed from the U.S. statutory rate primarily due to non-taxable
income, non-deductible expenses and tax credits.
Impact of Inflation
Our consolidated financial statements and related notes included elsewhere in this annual report have been prepared in
accordance with GAAP. These require the measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative value of money over time due to inflation or recession.
Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result,
interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates
may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However,
other operating expenses do reflect general levels of inflation.
68
Financial Condition
Overview
Our total assets increased $978.3 million, or 44.6%, from $2.19 billion at December 31, 2016, to $3.17 billion at
December 31, 2017. The increase in total assets was primarily from increases in net loans of $717.6 million, $136.3 million
in investment securities, $46.0 million in goodwill, $20.3 million in bank owned life insurance, $16.8 million in cash and
cash equivalents, $12.9 million in premises and equipment, $11.5 million in loans held for sale, $7.7 million in Federal
Reserve Bank and FHLB stock, $6.0 million in core deposit intangibles and $5.4 million in interest receivable. Included in
the above changes are the assets of Prairie, Eastman and Cache, which totaled $153.1 million, $281.5 million and $343.4
million at acquisition. Our total liabilities increased $862.1 million, or 44.6%, from $1.93 billion at December 31, 2016 to
$2.80 billion at December 31, 2017. The increase in total liabilities was primarily from increases in total deposits of $751.6
million, FHLB advances of $88.1 million, federal funds purchased and retail repurchase agreements of $16.9 million, interest
payable and other liabilities of $3.4 million, bank stock loan of $2.5 million and subordinated debentures of $284 thousand,
partially offset by decreases of $537 thousand in contractual obligations. Our total stockholders’ equity increased $116.2
million, or 45.0%, from $258.0 million at December 31, 2016 to $374.1 million at December 31, 2017.
Loan Portfolio
Loans are our largest category of earning assets and typically provide higher yields than other types of earning assets.
At December 31, 2017, our gross loans held for investment portfolio totaled $2.10 billion, an increase of $719.7 million, or
52.0%, compared with December 31, 2016. Excluding acquisitions of Prairie, Eastman and Cache, gross loans held for
investment increased by $124.5 million, or 9.0%, compared with December 31, 2016. Overall growth consisted of $322.7
million or 67.4% from commercial real estate, $159.1 million or 45.6% from commercial and industrial, $71.9 million or
62.9% from real estate construction, $71.1 million or 291.4% from agricultural, $48.2 million or 125.6% from agricultural
real estate, $38.3 million or 11.3% from residential real estate and $8.5 million or 20.7% from consumer. We also had loans
classified as held for sale totaling $16.3 million at December 31, 2017.
Our loan portfolio consists of various types of loans, most of which are made to borrowers located in the Wichita,
Kansas City and Tulsa MSAs, as well as various community markets throughout Arkansas, Kansas, Missouri and Oklahoma.
Although the portfolio is diversified and generally secured by various types of collateral, the majority of our loan portfolio
consists of commercial and industrial and commercial real estate loans and a substantial portion of our borrowers’ ability to
honor their obligations is dependent on local economic conditions in Arkansas, Kansas, Missouri and Oklahoma. As of
December 31, 2017, there was no concentration of loans to any one type of industry exceeding 10% of total loans.
At December 31, 2017, gross total loans were 88.3% of deposits and 66.3% of total assets. At December 31, 2016,
gross total loans were 84.9% of deposits and 63.1% of total assets.
The organic, or non-acquired, growth in our loan portfolio is attributable to our ability to attract new customers from
other financial institutions and overall growth in our markets. Our lending staff has been successful in building banking
relationships with new customers. Several new lenders have been hired in our markets, and these employees have been
successful in transitioning their former clients and attracting new clients. Lending activities originate from the efforts of our
lenders, with an emphasis on lending to individuals, professionals, small to medium-sized businesses and commercial
companies located in the Wichita, Kansas City and Tulsa MSAs, as well as community markets in Arkansas, Kansas,
Missouri and Oklahoma.
69
The following table summarizes our loan portfolio by type of loan as of the dates indicated.
Composition of Loan Portfolio
2017
2016
December 31,
2015
2014
2013
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
$ 507,519 24.1% $ 348,465 25.2% $262,032 27.3% $183,100 25.2% $139,365 21.1%
801,491 38.1%
478,815 34.6% 343,096 35.7% 323,676 44.6% 310,165 47.0%
186,170
8.9%
114,293
8.3% 53,921
5.6% 40,420
5.6% 31,347
4.8%
376,705 17.9%
338,387 24.4% 250,216 26.1% 134,455 18.5% 125,395 19.0%
86,486
4.1%
38,331
2.8% 18,180
1.9% 17,083
2.3% 22,092
3.3%
Commercial and
industrial
Real estate loans:
Commercial real
estate
Real estate
construction
Residential real
estate
Agricultural real
estate
Total real estate
loans
Consumer
Agricultural
1,450,852 69.0%
2.4%
4.5%
49,361
95,547
969,826 70.1% 665,413 69.3% 515,634 71.0% 488,999 74.1%
1.2%
3.6%
1.1%
7,961
2.7% 23,969
1.8%
7,875
1.6% 19,267
2.9% 17,103
1.8% 15,807
40,902
24,412
$2,103,279 100.0% $1,383,605 100.0% $960,355 100.0% $725,876 100.0% $660,294 100.0%
16,344 100.0% $
4,830 100.0% $
3,504 100.0% $
897 100.0% $
347 100.0%
Total loans
held for
investment
Total loans
held for sale $
Total loans
held for
investment
(net of
allowances)
$2,094,781 100.0% $1,377,173 100.0% $954,849 100.0% $719,913 100.0% $654,680 100.0%
Commercial and industrial: Commercial and industrial loans include loans used to purchase fixed assets, to provide
working capital, or meet other financing needs of the business. Our commercial and industrial portfolio totaled $507.5
million at December 31, 2017, an increase of $159.1 million, or 45.6%, compared to December 31, 2016. Of this growth,
$12.2 million, or 7.7%, was a result of loans acquired through Prairie, $38.2 million, or 24.0%, was a result of loans acquired
through Eastman, and $83.5 million, or 52.5%, was a result of loans acquired through Cache. The remainder was a
combination of loan originations within our target markets and changes in the balances of revolving lines of credit, partially
offset by reductions of broadly syndicated shared national credit originations and mortgage finance loan participations.
Commercial real estate: Commercial real estate loans include all loans secured by nonfarm nonresidential properties
and by multifamily residential properties, as well as 1-4 family investment-purpose real estate loans. Our commercial real
estate loans were $801.5 million at December 31, 2017, an increase of $322.7 million, or 67.4%, compared to December 31,
2016. Of this growth, $73.3 million, or 22.7%, was a result of loans acquired through Eastman and $147.8 million, or 45.8%,
was a result of loans acquired through Cache. The remainder was a combination of loan originations within our target market
and changes in the balances of revolving lines of credit.
Real estate construction: Real estate construction loans include loans made for the purpose of acquisition,
development, or construction of real property, both commercial and consumer. Our real estate construction portfolio totaled
$186.2 million at December 31, 2017, an increase of $71.9 million, or 62.9%, compared to December 31, 2016. The increase
in real estate construction loans is primarily related to $3.9 million in real estate construction loans acquired through
Eastman, $52.3 million in real estate construction loans acquired through Cache and increased originations.
70
Residential real estate: Residential real estate loans include loans secured by primary or secondary personal
residences. Our residential real estate portfolio totaled $376.7 million at December 31, 2017, an increase of $38.3 million, or
11.3%, compared to December 31, 2016. The acquisitions of Prairie, Eastman and Cache added $137 thousand, $37.3
million and $2.0 million in residential real estate loans as of December 31, 2017. Also during 2017, we purchased one $14.8
million pool of mortgage loans. These increases were offset by payment activity in the existing residential real estate loans.
During 2016, we purchased two pools of mortgage loans totaling $38.4 million. These pools of mortgages were purchased to
expand our loan portfolio and provide additional loan income.
Agricultural real estate, Agricultural, Consumer and other: Agricultural real estate loans are loans related to farmland.
Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield of the
agricultural commodities produced. Consumer loans are generally secured by consumer assets, but may be unsecured. These
three loan pools represent 11.0% of our overall loan portfolio.
The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with predetermined interest
rates and floating rates in each maturity range as of December 31, 2017 and December 31, 2016 are summarized in the
following tables.
Loan Maturity and Sensitivity to Changes in Interest Rates
Commercial and industrial
Real Estate:
Commercial real estate
Real estate construction
Residential real estate
Agricultural real estate
Total real estate
Consumer
Agricultural
Total
Loans with a predetermined fixed interest rate
Loans with an adjustable/floating interest rate
Total
Commercial and industrial
Real Estate:
Commercial real estate
Real estate construction
Residential real estate
Agricultural real estate
Total real estate
Consumer
Agricultural
Total
Loans with a predetermined fixed interest rate
Loans with an adjustable/floating interest rate
Total
As of December 31, 2017
After one
year
After five
through five
years
years
(Dollars in thousands)
$ 175,425 $ 198,951 $ 133,143 $ 507,519
One year
or less
Total
219,707
33,611
349,065
21,891
116,797
76,406
14,852
32,241
240,296
9,113
70,427
464,987
76,153
12,788
32,354
586,282
31,997
19,746
801,491
186,170
376,705
86,486
624,274 1,450,852
49,361
95,547
$ 495,261 $ 836,976 $ 771,042 $ 2,103,279
212,711 1,002,160
558,331 1,101,119
$ 495,261 $ 836,976 $ 771,042 $ 2,103,279
532,308
304,668
257,141
238,120
8,251
5,374
As of December 31, 2016
After one
year
After five
through five
years
years
(Dollars in thousands)
$ 115,467 $ 130,409 $ 102,589 $ 348,465
One year
or less
Total
74,721
45,375
11,141
7,381
138,618
6,662
12,723
262,774
52,105
16,780
18,973
350,632
26,814
9,400
141,320
16,813
310,466
11,977
480,576
7,426
2,289
478,815
114,293
338,387
38,331
969,826
40,902
24,412
$ 273,470 $ 517,255 $ 592,880 $ 1,383,605
713,600
670,005
$ 273,470 $ 517,255 $ 592,880 $ 1,383,605
194,905
397,975
364,177
153,078
154,518
118,952
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Nonperforming Assets
The following table presents information regarding nonperforming assets at the dates indicated.
Nonperforming Assets
Nonaccrual loans
Accruing loans 90 or more days past due
Restructured loans-accruing
OREO acquired through foreclosure, net
Total nonperforming assets
Ratios:
Nonperforming assets to total assets
Nonperforming assets to total loans
plus OREO
2017
$ 40,276
—
—
7,907
$ 48,183
2014
2016
As of December 31,
2015
(Dollars in thousands)
$ 8,197
35
—
5,811
$ 14,043
$ 22,693
—
—
8,656
$ 31,349
$ 10,790
39
—
4,754
$ 15,583
2013
$ 12,985
174
—
7,332
$ 20,491
1.52%
1.43%
0.89%
1.33%
1.80%
2.28%
2.25%
1.45%
2.13%
3.07%
Nonperforming assets (“NPAs”) include loans on nonaccrual status, accruing loans 90 or more days past due,
restructured loans, and other real estate acquired through foreclosure.
We had $40.3 million in nonperforming loans at December 31, 2017, compared with $22.7 million at December 31,
2016. The nonperforming loans at December 31, 2017 consisted of 307 separate credits and 223 separate borrowers. We had
seven nonperforming loan relationships each with outstanding balances exceeding $1.0 million as of December 31, 2017. Of
the increase in nonperforming assets, $16.7 million was the direct result of the Prairie, Eastman and Cache mergers. There
are several procedures in place to assist us in maintaining the overall quality of our loan portfolio. We have established
underwriting guidelines to be followed by lenders, and also monitor delinquency levels for any negative or adverse trends.
There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from
deteriorating borrower credit due to general economic conditions.
Potential Problem Loans
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their
debt such as: current financial information, historical payment experience, credit documentation, public information, and
current economic trends, among other factors. Loans are analyzed individually and classified based on credit risk. Consumer
loans are considered pass credits unless downgraded due to payment status or reviewed as part of a larger credit relationship.
We use the following definitions for risk ratings:
Pass: Loans classified as pass do not have any noted weaknesses and repayment of the loan is expected. These loans
are considered unclassified.
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the
loan or of our credit position at some future date. These loans are considered classified.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity
of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected. These loans are considered classified.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the
added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts,
conditions, and values, highly questionable and improbable. These loans are considered classified.
Potential problem loans consist of loans that are performing in accordance with contractual terms, but for which
management has concerns about the borrower’s ability to comply with repayment terms because of the borrower’s potential
financial difficulties. Potential problem loans are assigned a grade of special mention or substandard. At December 31,
2017, the Company had $21.1 million in potential problem loans which were not included in either non-accrual or 90 days
past due categories, compared to $9.5 million at December 31, 2016.
72
The risk category of loans by class of loans is as follows for December 31, 2017 and December 31, 2016.
Risk Category of Loans by Class
Commercial and industrial
Real estate:
Commercial real estate
Real estate construction
Residential real estate
Agricultural real estate
Total real estate
Consumer
Agricultural
Total
Commercial and industrial
Real estate:
Commercial real estate
Real estate construction
Residential real estate
Agricultural real estate
Total real estate
Consumer
Agricultural
Total
Unclassified
As of December 31, 2017
Classified
(Dollars in thousands)
Total
$
486,150 $
21,369 $
507,519
787,894
183,564
370,151
77,084
1,418,693
48,777
88,261
2,041,881 $
$
13,597
2,606
6,554
9,402
32,159
584
7,286
61,398 $
801,491
186,170
376,705
86,486
1,450,852
49,361
95,547
2,103,279
Unclassified
As of December 31, 2016
Classified
(Dollars in thousands)
Total
$
341,307 $
7,158 $
348,465
464,095
111,975
333,298
36,190
945,558
40,382
24,134
1,351,381 $
$
14,720
2,318
5,089
2,141
24,268
520
278
32,224 $
478,815
114,293
338,387
38,331
969,826
40,902
24,412
1,383,605
At December 31, 2017, loans considered unclassified decreased to 97.1% of total loans from 97.7% of total loans at
December 31, 2016. Classified loans were $61.4 million at December 31, 2017, an increase of $29.2 million, or 90.5%, from
$32.2 million at December 31, 2016. Approximately $22.8 million of the increase was a direct result of the Prairie, Eastman
and Cache mergers.
Generally, loans are designated as nonaccrual when either principal or interest payments are 90 days or more past due
based on contractual terms, unless the loan is well secured and in the process of collection. Consumer loans are typically
charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if
collection of principal or interest is considered doubtful. When a loan is placed on nonaccrual status, unpaid interest credited
to income is reversed against income. Future interest income may be recorded on a cash basis after recovery of principal is
reasonably assured. Nonaccrual loans are returned to accrual status when all the principal and interest amounts contractually
due are brought current and future payments are reasonably assured.
In accordance with applicable regulation, appraisals or evaluations are required to independently value real estate and,
as an important element, to consider when underwriting loans secured in part or in whole by real estate. The value of real
estate collateral provides additional support to the borrower’s credit capacity.
With respect to potential problem loans, all monitored and under-performing loans are reviewed and evaluated to
determine if they are impaired. If we determine that a loan is impaired, then we evaluate the borrower’s overall financial
condition to determine the need, if any, for possible write downs or appropriate additions to the allowance for loan losses
based on the unlikelihood of full repayment of principal and interest in accordance with the contractual terms or the net
realizable value of the pledged collateral.
73
Allowance for loan losses
Please see “Critical Accounting Policies – Allowance for Loan Losses” for additional discussion of our allowance
policy.
In connection with our review of the loan portfolio, risk elements attributable to particular loan types or categories are
considered when assessing the quality of individual loans. Some of the risk elements include:
•
•
•
•
•
Commercial and industrial loans are dependent on the strength of the industries of the related borrowers and the
success of their businesses. Commercial and industrial loans are advanced for equipment purchases, to provide
working capital, or meet other financing needs of the business. These loans may be secured by accounts
receivable, inventory, equipment, or other business assets. Financial information is obtained from the borrower
to evaluate the debt service coverage and ability to repay the loans.
Commercial real estate loans are dependent on the industries tied to these loans as well as the local commercial
real estate market. The loans are secured by the real estate, and appraisals are obtained to support the loan
amount. An evaluation of the project’s cash flows is performed to evaluate the borrower’s ability to repay the
loan at the time of origination and periodically updated during the life of the loan. Residential real estate loans
are affected by the local residential real estate market, the local economy, and movement in interest rates. We
evaluate the borrower’s repayment ability through a review of credit reports and debt to income ratios.
Appraisals are obtained to support the loan amount.
Agricultural real estate loans are real estate loans related to farmland, and are affected by the value of farmland.
We evaluate the borrower’s ability to repay based on cash flows from farming operations.
Consumer loans are dependent on the local economy. Consumer loans are generally secured by consumer assets,
but may be unsecured. We evaluate the borrower’s repayment ability through a review of credit scores and an
evaluation of debt to income ratios.
Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield
of the agricultural commodities produced and the market pricing at the time of sale.
Purchased credit impaired loans: We have acquired loans, for which there was, at acquisition, evidence of
deterioration of credit quality since origination and it was probable, at acquisition, that all required payments would not be
collected. These purchased credit impaired loans were recorded at fair value, such that there is no carryover of the seller’s
allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses. Purchased
credit impaired loans are accounted for individually. We estimate the amount and timing of expected cash flows for each
loan, and the expected cash flows in excess of the amount paid are recorded as interest income over the remaining life of the
loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded
(non-accretable difference). Over the life of the loan, expected cash flows continue to be estimated. If the present value of
the expected cash flows is less than the carrying amount, a loss is recorded. If the present value of the expected cash flows is
greater than the carrying amount, it is recognized as part of future interest income.
The table below shows the contractually required principal loan payments and the associated purchase discount on our
purchased credit impaired portfolio.
Recorded Investment in Purchased Credit Impaired Loans
Contractually required payments
Discount
Recorded investment
$
$
2017
December 31,
2016
(Dollars in thousands)
27,413 $
(8,914)
18,499 $
41,349 $
(12,492)
28,857 $
2015
7,550
(1,794)
5,756
Analysis of allowance for loan and lease losses: At December 31, 2017, the allowance for loan losses totaled $8.5
million, or 0.40% of total loans. At December 31, 2016 the allowance for loan losses aggregated $6.4 million, or 0.46% of
total loans.
74
The allowance for loan losses on loans collectively evaluated for impairment totaled $7.6 million, or 0.36%, of the
$2.09 billion in loans collectively evaluated for impairment at December 31, 2017, compared to an allowance for loan losses
of $5.8 million, or 0.42%, of the $1.37 billion in loans collectively evaluated for impairment at December 31, 2016, and an
allowance for loan losses of $5.2 million, or 0.55%, of the $948.9 million in loans collectively evaluated for impairment at
December 31, 2015. The decrease in allowance as a percentage of loans collectively evaluated for impairment from
December 31, 2016, to December 31, 2017, was largely due to $533.7 million in loans which were purchased at a discount as
part of mergers during 2017. The decrease in allowance for loan losses as a percentage of loans collectively evaluated for
impairment from December 31, 2015, to December 31, 2016, was primarily related to a change in applied loss factors which
are based in part on historical loss experience as well as changes in the composition and quality of our loan portfolio
collectively evaluated for impairment. The changes in composition included purchased loans, outside of business
combinations, which have different characteristics than our originated loan portfolio at December 31, 2015.
Net losses as a percentage of average loans decreased to 0.06% for the twelve months ended December 31, 2017 as
compared to 0.12% for the twelve months ended December 31, 2016, and 0.43% for the twelve months ended December 31,
2015.
There have been no material changes to our accounting policies related to our allowance for loan and lease loss
methodology during 2017 and 2016.
75
The following table presents, as of and for the periods indicated, an analysis of the allowance for loan and lease losses
and other related data.
Allowance for Loan and Lease Losses
As of and for the Twelve Months
ended December 31,
2017
2016
2015
2014
2013
Average loans outstanding(1)
Gross loans outstanding at end of
period(1)
Allowance for loan and lease
losses at beginning of the period $
Provision for loan losses
Charge-offs:
Commercial and industrial
Real estate:
Commercial real estate
Real estate construction
Residential real estate
Agricultural real estate
Consumer
Agricultural
Total charge-offs
Recoveries:
Commercial and industrial
Real estate:
Commercial real estate
Real estate construction
Residential real estate
Agricultural real estate
Consumer
Agricultural
Total recoveries
Net recoveries (charge-offs)
Allowance for loan and lease
losses at end of the period
Ratio of ALLL to end of period
loans(1)
Ratio of net charge-offs
(recoveries) to average loans
(1)
Excluding loans held for sale.
$1,571,481
$2,103,279
(Dollars in thousands)
$1,006,745
$813,970
$680,982
$698,447
$1,383,605
$960,355
$725,876
$660,295
$
6,432
2,953
$
5,506
2,119
$
5,963
3,047
$
5,614
1,200
4,471
2,583
(431)
(226)
(1,468)
(46)
(126)
(271)
—
(350)
(16)
(1,025)
(42)
(2,135)
(557)
—
(299)
(23)
(584)
(31)
(1,720)
(1,668)
—
(296)
—
(309)
—
(3,741)
(241)
—
(668)
—
(360)
(19)
(1,334)
(920)
(6)
(522)
—
(374)
(37)
(1,985)
35
41
23
36
39
660
—
243
13
291
6
1,248
(887)
201
—
165
23
96
1
527
(1,193)
126
2
31
—
53
2
237
(3,504)
72
16
139
—
218
2
483
(851)
29
30
292
—
154
1
545
(1,440)
$
8,498
$
6,432
$
5,506
$
5,963
$
5,614
0.40%
0.46%
0.57%
0.82%
0.85%
0.06%
0.12%
0.43%
0.13%
0.21%
76
The following table shows the allocation of the allowance for loan losses among our loan categories and certain other
information as of the dates indicated. The total allowance is available to absorb losses from any loan or lease category.
Analysis of the Allowance for Loan and Lease Losses
2017
2016
December 31,
2015
2014
2013
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
(Dollars in thousands)
Balance of allowance for loan
and lease losses applicable to:
Commercial and industrial
Real estate:
Commercial real estate
Real estate construction
Residential real estate
Agricultural real estate
Consumer
Agricultural
Total allowance for loan
and lease losses
$2,136 25.1% $1,881 29.3% $1,366 24.8% $1,559 26.1% $ 990 17.6%
612
693
8.2%
2,047 24.1% 1,808 28.1% 1,728 31.4% 2,298 38.5% 2,378 42.4%
8.7%
2,262 26.6% 1,765 27.4% 1,824 33.1% 1,190 20.0% 1,360 24.2%
3.9%
1.1%
2.1%
2.5%
1.4%
1.5%
0.5%
3.4%
0.9%
0.6%
4.1%
1.0%
3.8%
9.0%
3.2%
217
63
118
29
187
49
35
266
65
319
768
273
148
81
88
599 10.0%
5.9%
9.5%
323
488
$8,498 100.0% $6,432 100.0% $5,506 100.0% $5,963 100.0% $5,614 100.0%
Management believes that the allowance for loan and lease losses at December 31, 2017, was adequate to cover
probable incurred losses in the loan portfolio as of such date. There can be no assurance, however, that we will not sustain
losses in future periods, which could be substantial in relation to the size of the allowance at December 31, 2017.
Securities
We use our securities portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to
manage interest rate risk, to meet pledging requirements and to meet regulatory capital requirements. At December 31, 2017,
the carrying amount of investment securities totaled $697.7 million, an increase of $136.3 million, or 24.3%, compared with
December 31, 2016. At December 31, 2017, securities represented 22.0% of total assets compared with 25.6% at
December 31, 2016.
At the date of purchase, debt and equity securities are classified into one of two categories, held-to-maturity or
available-for-sale. We do not purchase securities for trading purposes. At each reporting date, the appropriateness of the
classification is reassessed. Investments in debt securities are classified as held-to-maturity and carried at cost, adjusted for
the amortization of premiums and the accretion of discounts, in the financial statements only if management has the positive
intent and ability to hold those securities to maturity. Debt securities not classified as held-to-maturity are classified as
available-for-sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax,
as accumulated comprehensive income or loss until realized. Interest earned on securities is included in total interest and
dividend income. Also included in total interest and dividend income are dividends received on stock investments in the
Federal Reserve Bank of Kansas City and the FHLB of Topeka. These stock investments are stated at cost.
77
The following table summarizes the amortized cost and fair value by classification of available-for-sale securities as of
the dates shown.
Available-For-Sale Securities
U.S. government-sponsored entities
Residential mortgage-backed securities (issued by
government-sponsored entities)
Corporate
Small Business Administration loan pools
State and political subdivisions
Equity securities
Total available-for-sale securities
2017
Amortized
Cost
Fair
Value
December 31,
2016
Amortized
Cost
Fair
Value
(Dollars in thousands)
2015
Amortized
Cost
Fair
Value
$
— $
— $
4,766 $
4,782 $ 17,090 $ 17,036
163,374 161,591 88,257 86,703 109,784 109,521
2,954
3,000
297
210
508
499
494
500
$ 164,069 $ 162,272 $ 97,232 $ 95,732 $ 131,153 $ 130,810
3,039
223
499
486
3,000
275
504
500
—
—
195
486
—
—
195
500
The following table summarizes the amortized cost and fair value by classification of held-to-maturity securities as of
the dates shown:
Held-To-Maturity Securities
U.S. government-sponsored entities
Residential mortgage-backed securities (issued by
government-sponsored entities)
Corporate
Small Business Administration loan pools
State and political subdivisions
Total held-to-maturity securities
2017
Amortized
Cost
Fair
Value
December 31,
2016
Amortized
Cost
Fair
Value
(Dollars in thousands)
2015
Amortized
Cost
Fair
Value
$
998 $
985 $
998 $
965 $
2,669 $
2,643
383,875 379,582 338,749 334,733 230,554 230,993
22,991 23,346 12,988 13,099 12,983 12,758
2,875
125,550 126,797 110,576 109,977 61,470 63,533
$ 535,462 $ 532,744 $ 465,709 $ 461,156 $ 310,539 $ 312,802
2,863
2,382
2,048
2,398
2,034
At December 31, 2017, 2016 and 2015, we did not own securities of any one issuer (other than the U.S. government
and its agencies or sponsored entities) for which aggregate adjusted cost exceeded 10% of the consolidated stockholders’
equity at the reporting dates noted.
78
The following tables summarize the contractual maturity of debt securities and their weighted average yields as of
December 31, 2017 and December 31, 2016. Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single
maturity date, primarily mortgage-backed securities, are shown separately. Available-for-sale securities are shown at fair
value and held-to-maturity securities are shown at cost, adjusted for the amortization of premiums and the accretion of
discounts.
Due in one year
or less
Due after one
year through
five years
December 31, 2017
Due after five
years through
10 years
Carrying
Carrying
Carrying
Value Yield
Value Yield
Value Yield
(Dollars in thousands)
Due after 10
years
Total
Carrying
Value
Yield
Carrying
Value
Yield
Available-for-sale securities:
Residential mortgage-backed securities
(issued by government- sponsored
entities)
State and political subdivisions(1)
Total available-for-sale securities
Held-to-maturity securities:
U.S. government-sponsored entities
Residential mortgage-backed securities
(issued by government-sponsored
entities)
Corporate
Small Business Administration loan
pools
State and political subdivisions(1)
Total held-to-maturity securities
Total debt securities
$ 3,461 1.82% $
195 1.11%
3,656 1.78%
20 3.14% $
— —%
20 3.14%
171 2.38% $157,939 2.90% $161,591 2.87%
— —%
195 1.11%
— —%
171 2.38% 157,939 2.90% 161,786 2.87%
— —%
998 1.65%
— —%
— —%
998 1.65%
— —%
— —%
9,203 2.60% 23,979 2.52% 350,693 2.86% 383,875 2.83%
— —% 22,991 4.25%
5,236 2.74% 17,755 4.69%
— —%
— —%
2,048 2.61%
2,871 2.35% 21,022 3.02% 25,351 3.16% 76,306 3.23% 125,550 3.16%
2,871 2.35% 36,459 2.84% 67,085 3.34% 429,047 2.93% 535,462 2.97%
$ 6,527 2.03% $ 36,479 2.84% $ 67,256 3.33% $586,986 2.92% $697,248 2.95%
2,048 2.61%
— —%
(1)
The calculated yield is not calculated on a tax equivalent basis.
Due in one year
or less
Due after one
year through
five years
December 31, 2016
Due after five
years through
10 years
Carrying
Carrying
Carrying
Value Yield
Value Yield
Value Yield
(Dollars in thousands)
Due after 10
years
Total
Carrying
Value
Yield
Carrying
Value
Yield
Available-for-sale securities:
U.S. government-sponsored entities
Residential mortgage-backed securities
(issued by government- sponsored
entities)
Corporate
Small Business Administration
loan pools
State and political subdivisions(1)
Total available-for-sale securities
Held-to-maturity securities:
U.S. government-sponsored entities
Residential mortgage-backed securities
(issued by government-sponsored
entities)
Corporate
Small Business Administration loan
pools
State and political subdivisions(1)
Total held-to-maturity securities
Total debt securities
$
— —% $
— —% $ 4,782 2.48% $
— —% $
4,782 2.48%
— —%
— —%
3,601 1.87%
— —%
270 2.38% 82,832 2.66% 86,703 2.63%
3,039 1.96%
— —%
3,039 1.96%
— —%
— —%
— —%
— —%
499 1.50%
4,100 1.83%
— —%
— —%
223 5.21%
499 1.50%
8,091 2.29% 83,055 2.67% 95,246 2.60%
223 5.21%
— —%
— —%
998 1.65%
— —%
— —%
998 1.65%
— —%
— —%
4,190 2.50%
5,304 2.74%
8,751 2.75% 325,808 2.75% 338,749 2.74%
7,684 2.64% 12,988 2.68%
— —%
— —%
— —%
2,398 2.61%
2,812 2.49% 15,122 2.86% 30,942 3.06% 61,700 3.28% 110,576 3.14%
2,812 2.49% 25,614 2.73% 39,693 2.99% 397,590 2.83% 465,709 2.83%
$ 2,812 2.49% $ 29,714 2.60% $ 47,784 2.87% $480,645 2.80% $560,955 2.79%
2,398 2.61%
— —%
(1)
The calculated yield is not calculated on a tax equivalent basis.
79
Mortgage-backed securities are securities that have been developed by pooling a number of real estate mortgages and
which are principally issued by federal agencies such as Ginnie Mae, Fannie Mae and Freddie Mac. Unlike U.S. Treasury
and U.S. government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide
cash flows from regular principal and interest payments and principal prepayments throughout the lives of the securities.
Premiums and discounts on mortgage-backed securities are amortized and accreted over the expected life of the security and
may be impacted by prepayments. As such, mortgage-backed securities which are purchased at a premium will generally
produce decreasing net yields as interest rates drop because home owners tend to refinance their mortgages resulting in
prepayments and an acceleration of premium amortization. Securities purchased at a discount will reflect higher net yields in
a decreasing interest rate environment as prepayments result in an acceleration of discount accretion.
The contractual maturity of mortgage-backed securities is not a reliable indicator of their expected lives because
borrowers have the right to prepay their obligations at any time. Monthly pay downs on mortgage-backed securities cause
the average lives of these securities to be much different than their stated lives. At December 31, 2017 and December 31,
2016, 93.0% and 96.0% of the mortgage-backed securities held by us had contractual final maturities of more than ten years
with a weighted average life of 5.5 years and 5.4 years and a modified duration of 4.8 years and 4.8 years.
Deposits
Our lending and investing activities are primarily funded by deposits. A variety of deposit accounts are offered with a
wide range of interest rates and terms including demand, savings, money market and time deposits. We rely primarily on
competitive pricing policies, convenient locations, comprehensive marketing strategy and personalized service to attract and
retain these deposits.
The following table shows our composition of deposits at December 31, 2017, 2016 and 2015.
Composition of Deposits
2017
Amount
December 31,
2016
Percent of
Total
Amount
Percent of
Total
(Dollars in thousands)
2015
Amount
Percent of
Total
Non-interest-bearing demand
Interest-bearing demand and NOW accounts
Savings and money market
Time
Total deposits
$ 366,530
550,577
688,407
776,499
$2,382,013
15.4% $ 207,668
492,583
23.1%
377,042
28.9%
553,158
32.6%
100.0% $1,630,451
12.8% $ 157,834
316,965
30.2%
302,503
23.1%
438,612
33.9%
100.0% $1,215,914
13.0%
26.0%
24.9%
36.1%
100.0%
The following table shows the average deposit balance and average rate paid on deposits for the year ended
December 31, 2017, 2016 and 2015.
Average Deposit Balances and Average Rate Paid
2017
Average
Balance
Average
Rate
Paid
December 31,
2016
Average
Rate
Average
Balance
Paid
(Dollars in thousands)
2015
Average
Balance
Average
Rate
Paid
Non-interest-bearing demand
Interest-bearing demand and NOW accounts
Savings and money market
Time
Total deposits
$ 257,346
452,652
501,386
647,998
$1,859,382
0.51%
0.55%
1.18%
—% $ 169,514
314,515
317,394
453,045
$1,254,468
0.28%
0.41%
1.07%
—% $ 138,933
259,007
261,195
374,846
$1,033,981
—%
0.25%
0.34%
0.90%
80
Total deposits at December 31, 2017 were $2.38 billion, an increase of $751.6 million, or 46.1%, compared to
December 31, 2016. All deposit categories reflect increases including: savings and money market deposits of $311.4 million,
or 82.6%, time deposits of $223.3 million, or 40.4%, non-interest-bearing demand deposits of $158.9 million, or 76.5%, and
interest-bearing demand and NOW deposits of $58.0 million, or 11.8%. As part of the Prairie merger we assumed non-
interest-bearing deposits of $30.8 million, interest-bearing demand and NOW accounts of $3.1 million, savings and money
market deposits of $46.2 million and time deposits of $45.3 million. As part of the Eastman merger we assumed non-
interest-bearing demand deposits of $73.8 million, interest-bearing demand and NOW accounts of $36.8 million, savings and
money market deposits of $86.5 million and time deposits of $27.0 million. In relation to the Cache merger we assumed non-
interest-bearing demand deposits of $26.1 million, interest-bearing demand and NOW accounts of $60.5 million, savings and
money market deposits of $59.9 million and time deposits of $132.1 million. The increases in savings and money market
deposits, non-interest-bearing demand deposits and time deposits, excluding the impact of the mergers, are partially offset by
a decrease in interest-bearing demand deposits. The increases are due to the addition of new public-fund customers, the
increase in existing public-fund customer balances and our ongoing business development efforts
Total deposits at December 31, 2016 were $1.63 billion, an increase of $414.5 million, or 34.1%, compared to
December 31, 2015. All deposit categories reflect increases including: interest-bearing demand and NOW accounts of
$175.6 million, or 55.4%, time deposits of $114.5 million, or 26.1%, savings and money market deposits of $74.5 million, or
24.6%, and non-interest-bearing demand deposits of $49.8 million, or 31.6%. As part of the Community First merger we
assumed non-interest-bearing demand deposits of $53.4 million, interest-bearing demand and NOW deposits of $160.5
million, savings and money market deposits of $64.1 million and time deposits of $97.5 million. The increases in time
deposits and interest-bearing demand and NOW accounts, excluding the impact of the merger, are primarily due to the
addition of new public-fund customers and the increase in existing public-fund customer balances in these deposit products.
The increases in savings and money market deposits and non-interest-bearing demand deposits, excluding the impact of the
merger, are due to our ongoing business development efforts.
Included in savings and money market deposits at December 31, 2017, 2016 and 2015 are brokered deposit balances of
$23.2 million, $2.7 million, and $3.9 million. These balances represent customer funds placed in the Insured Cash Sweep
(“ICS”) service that allows Equity Bank to break large money-market deposits into smaller amounts and place them in a
network of other ICS banks to ensure that FDIC insurance coverage is gained on the entire deposit. Although classified as
brokered deposits for regulatory purposes, funds placed through the ICS service are Equity Bank’s customer relationships
that management views as core funding. Brokered certificates of deposit as of December 31, 2017, 2016, and 2015 were
$63.0 million, $5.4 million, and $4.2 million. Of these balances, $63.0 million at December 31, 2017, $5.4 million at
December 31, 2016 and $4.2 million at December 31, 2015 were customer funds placed in the Certificate of Deposit Account
Registry Service (“CDARS”) program. CDARS allows Equity Bank to break large deposits into smaller amounts and place
them in a network of other CDARS banks to ensure that FDIC insurance coverage is gained on the entire deposit. Although
classified as brokered deposits for regulatory purposes, funds placed through the CDARS program are Equity Bank’s
customer relationships that management views as core funding.
The following table provides information on the maturity distribution of time deposits of $100,000 or more as of
December 31, 2017 and December 31, 2016.
3 months or less
Over 3 through 6 months
Over 6 through 12 months
Over 12 months
Total Time Deposits
December 31,
2017
2016
(Dollars in thousands)
133,588 $
98,523
131,098
155,457
518,666 $
52,799
41,555
96,606
138,860
329,820
$
$
Other Borrowed Funds
We utilize borrowings to supplement deposits to fund our lending and investing activities. Short-term borrowing and
long-term borrowing consist of funds from the FHLB, federal funds purchased and retail repurchase agreements, a bank stock
loan and subordinated debentures.
81
The following table presents our short-term borrowings at the dates indicated.
(Dollars in thousands)
December 31, 2017:
Amount outstanding at year-end
Weighted average interest rate at year-end
Maximum month-end balance during the year
Average balance outstanding during the year
Weighted average interest rate during the year
December 31, 2016:
Amount outstanding at year-end
Weighted average interest rate at year-end
Maximum month-end balance during the year
Average balance outstanding during the year
Weighted average interest rate during the year
December 31, 2015:
Amount outstanding at year-end
Weighted average interest rate at year-end
Maximum month-end balance during the year
Average balance outstanding during the year
Weighted average interest rate during the year
Federal funds
purchased
and retail
repurchase
agreements
FHLB
Line of
Credit
$
$
$
$
$
$
$
$
$
37,492
$ 347,692
0.23%
1.47%
43,843
25,823
$ 347,692
$ 258,951
0.25%
1.12%
20,637
$ 259,588
0.27%
0.72%
25,382
22,599
$ 292,756
$ 250,282
0.26%
0.56%
20,762
$ 145,439
0.24%
0.48%
27,951
24,862
$ 260,939
$ 156,085
0.24%
0.29%
Federal funds purchased and retail repurchase agreements: We have available federal funds lines of credit with our
correspondent banks. As of December 31, 2017 and December 31, 2016, there were no federal funds purchased outstanding.
Retail repurchase agreements outstanding represent the purchase of interests in securities by banking customers. Retail
repurchase agreements are stated at the amount of cash received in connection with the transaction. We do not account for
any of our repurchase agreements as sales for accounting purposes in our financial statements. Repurchase agreements with
banking customers are settled on the following business day. Retail repurchase agreements are secured by investment
securities held by us totaling $44.8 million at December 31, 2017 and $23.4 million at December 31, 2016. The agreements
are on a day-to-day basis and can be terminated on demand. At December 31, 2017 and December 31, 2016, we had retail
repurchase agreements with banking customers of $37.5 million and $20.6 million.
FHLB advances: FHLB advances include both draws against our line of credit and fixed rate term advances. Each
term advance is payable in full at its maturity date and contains provision for prepayment penalties. At December 31, 2017
and December 31, 2016 we had no term advances with the FHLB. The Company acquired $1.3 million in term advances in
the November 2017 Cache merger which were paid later the same month. There were no term advances during the year
ended December 31, 2016. Our FHLB borrowings are used for operational liquidity needs for originating and purchasing
loans, purchasing investments and general operating cash requirements. Our FHLB borrowings were collateralized by certain
qualifying loans totaling $479.0 million at December 31, 2017. Based on this collateral and our holdings of FHLB stock, we
were eligible to borrow an additional $125.3 million at December 31, 2017.
Bank stock loan: At January 1, 2016, we had an outstanding balance of $18.6 million on a fixed rate 4.00% loan
(computed on the basis of a 360 day year and the actual number of days elapsed) from an unaffiliated financial institution,
secured by our stock in Equity Bank. This borrowing was repaid on January 4, 2016 using proceeds from our initial public
offering (“IPO”).
On January 28, 2016, we entered into a new agreement with the same lender that provided for a maximum borrowing
facility of $20.0 million, secured by our stock in Equity Bank. At December 31, 2016, there was no outstanding balance on
this loan. The borrowing facility matured on January 26, 2017 and was subsequently extended, at which time we entered into
a new agreement with the same lender that provides for a maximum borrowing facility of $30.0 million, secured by our stock
in Equity Bank. The borrowing facility was recently renewed for an additional year and will mature on March 13, 2019.
Each draw of funds on the facility will create a separate note that is repayable over a term of five years. Each note will bear
interest at a variable interest rate equal to the Prime Rate published in the “Money Rates” section of The Wall Street Journal
(or any generally recognized successor), floating daily. Accrued interest and principal payments are due quarterly with one
82
final payment of unpaid principal and interest due at the end of the five year term of each separate note. We are also required
to pay an unused commitment fee in an amount equal to twenty basis points per annum on the unused portion of the
maximum borrowing facility. The terms of the loan require us and Equity Bank to maintain minimum capital ratios and other
covenants. The loan and accrued interest may be pre-paid at any time without penalty. In the event of default, the lender has
the option to declare all outstanding balances as immediately due. At December 31, 2017, we had an outstanding balance of
$2.5 million on this loan at a rate of 4.5%.
Subordinated debentures: In conjunction with the 2012 acquisition of First Community, we assumed certain
subordinated debentures owed to special purpose unconsolidated subsidiaries that are controlled by us, FCB Capital Trust II
and FCB Capital Trust III, (“CTII” and “CTIII,” respectively). The trust preferred securities issued by CTII accrue and pay
distributions quarterly at three-month LIBOR plus 2.00% on the stated liquidation amount of the trust preferred securities.
These trust preferred securities are mandatorily redeemable upon maturity on April 15, 2035 or upon earlier redemption. The
trust preferred securities issued by CTIII accrue and pay distributions quarterly at three-month LIBOR plus 1.89% on the
stated liquidation amount of the trust preferred securities. These trust preferred securities are mandatorily redeemable upon
maturity on June 15, 2037 or upon earlier redemption.
In conjunction with the 2016 acquisition of Community First Bancshares, Inc., we assumed certain subordinated
debentures owed to special purpose unconsolidated subsidiaries that are controlled by us, Community First (AR) Statutory
Trust I, (“CFSTI”). The trust preferred securities issued by CFSTI accrue and pay distributions quarterly at three-month
LIBOR plus 3.25% on the stated liquidation amount of the trust preferred securities. These trust preferred securities are
mandatorily redeemable upon maturity on December 26, 2032 or upon earlier redemption.
The subordinated debentures balance, including CTII, CTIII and CFSTI, was $14.0 million at December 31, 2017 and
$13.7 million at December 31, 2016.
Liquidity and Capital Resources
Liquidity
Market and public confidence in our financial strength and financial institutions in general will largely determine
access to appropriate levels of liquidity. This confidence is significantly dependent on our ability to maintain sound asset
quality and appropriate levels of capital reserves.
Liquidity is defined as the ability to meet anticipated customer demands for future funds under credit commitments and
deposit withdrawals at a reasonable cost and on a timely basis. We measure our liquidity position by giving consideration to
both on- and off-balance sheet sources of and demands for funds on a daily, weekly, and monthly basis.
Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as
well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure
the ability to fund operations in a cost-effective manner and to meet current and future potential obligations such as loan
commitments, lease obligations, and unexpected deposit outflows. In this process, we focus on both assets and liabilities and
on the manner in which they combine to provide adequate liquidity to meet our needs.
During the years ended December 31, 2017, 2016, and 2015 our liquidity needs have primarily been met by core
deposits, security and loan maturities and amortizing investment and loan portfolios. Other funding sources include federal
funds purchased, retail repurchase agreements, brokered certificates of deposit, borrowings from the FHLB, in 2015 the
issuance of common stock in our initial public offering or IPO and in 2016 issuance of common stock in private placement.
Our largest sources of funds are FHLB borrowings and deposits and our largest uses of funds are the origination or
purchases of loans and securities purchases. Average loans were $1.58 billion for the year ended December 31, 2017, an
increase of 56.1% over average loans of $1.01 billion for the year ended December 31, 2016. Excess deposits are primarily
invested in our interest-bearing deposit account with the Kansas City Federal Reserve Bank, investment securities, federal
funds sold or other short-term liquid investments until the funds are needed to fund loan growth. Our securities portfolio has
a weighted average life of 5.8 years and a modified duration of 5.1 years at December 31, 2017. In January 2016, $35.0
million of the proceeds from our November 2015 initial public offering were used to repay the bank stock loan of $18.6
million and to repurchase the Series C Preferred Stock at liquidation preference of $16.4 million. We believe that our daily
funding needs can be met through cash provided by operating activities, payments and maturities on loans and investment
securities, our core deposit base and FHLB advances and other borrowing relationships. In January 2016, we entered into a
lending agreement with another financial institution providing for a maximum borrowing capacity of $20.0 million. The
83
borrowing facility matured on January 26, 2017 and was subsequently extended, at which time we entered into a new
agreement with the same lender that provides for a maximum borrowing capacity of $30.0 million. This agreement, which is
secured by Equity Bank stock, can be used to fund future acquisitions and for general corporate purposes. The outstanding
balance on this borrowing facility was $2.5 million for the period ending December 31, 2017.
Cash Flow Overview
Cash and cash equivalents were $52.2 million at December 31, 2017, an increase of $17.1 million from the $35.1
million cash and cash equivalents at December 31, 2016. The net cash provided by operating activities of $13.6 million and
the net cash provided by financing activities of $212.4 million were offset by the $222.4 million use of cash and cash
equivalents for investing purposes, resulting in net proceeds of cash and cash equivalents of $17.1 million for the year ended
December 31, 2017. The net cash used in investing activities was principally related to loan portfolio growth, purchase of
investment securities in excess of the cash flows generated by maturities, pay-downs, calls and sales of and settlement of
securities and purchase of additional bank owned life insurance. During 2017 liquidity provided by operating activities,
FHLB borrowings and deposit growth were used to grow loans by $125.2 million and purchase additional investment
securities of $74.5 million, purchase additional FHLB and Federal Reserve Bank stock of $4.3 million and purchase premise
and equipment of $6.9 million. The purchase of net non-cash assets of Prairie State Bancshares, Inc. and Cache Holdings,
Inc. used $6.7 million and $2.9 million which was funded by available cash, cash and cash equivalents of $6.1 million from
the purchase of Eastman National Bancshares, Inc. and $2.5 million additional borrowings on the bank stock loan.
Cash and cash equivalents were $35.1 million at December 31, 2016, a decrease of $21.7 million from the $56.8
million cash and cash equivalents at December 31, 2015. The net cash provided by operating activities of $15.5 million and
the net cash provided by financing activities of $103.4 million were offset by the $140.7 million use of cash and cash
equivalents for investing purposes, resulting in net proceeds of cash and cash equivalents of $21.7 million for the year ended
December 31, 2015. The net cash used in investing activities was principally related to loan portfolio growth , the purchase
of investment securities in excess of the cash flows generated by maturities, pay-downs, call and sales of and settlement of
securities and purchase of additional bank owned life insurance. During 2016 liquidity provided by operating activities,
FHLB borrowings and deposit growth were used to grow loans by $73.9 million and purchase additional investment
securities of $48.2 million, purchase additional FHLB and Federal Reserve Bank stock of $2.0 million and purchase premise
and equipment of $2.8 million. The purchase of net non-cash assets of Community First Bancshares, Inc. used $3.0 million
of cash and cash equivalents which was funded by available cash and $6.0 million of additional borrowings on the bank stock
loan.
Cash and cash equivalents were $56.8 million at December 31, 2015, an increase of $25.1 million from the $31.7
million cash and cash equivalents at December 31, 2014. The net cash provided by operating activities of $13.6 million plus
the net cash provided by financing activities of $278.4 million were offset by the $266.9 million use of cash and cash
equivalents for investing purposes, resulting in net proceeds of cash and cash equivalents of $25.1 million for the year ended
December 31, 2015. The net cash used in investing activities was principally related to loan portfolio growth and the
purchase of investment securities in excess of the cash flows generated by maturities, pay-downs, call and sales of and
settlement of securities. During 2015 liquidity provided by operating activities, FHLB borrowings and deposit growth were
used to grow loans by $150.6 million and purchase additional investment securities of $99.7 million, purchase additional
FHLB and Federal Reserve Bank stock of $4.9 million and purchase premise and equipment of $5.7 million. The purchase
of net non-cash assets of First Independence used $9.0 million of cash and cash equivalents which was funded by available
cash and $5.0 million of additional borrowings on the bank stock loan.
Off-Balance Sheet Items
In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included
in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These
transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying
degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
Our exposure to credit loss is represented by the contractual amounts of these commitments. The same credit policies and
procedures are used in making these commitments as for on-balance sheet instruments.
Our commitments associated with outstanding standby and performance letters of credit and commitments to extend
credit expiring by period as of December 31, 2017 are summarized below. Since commitments associated with letters of
credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future
cash funding requirements:
84
Credit Extensions and Commitments
December 31, 2017
Standby and performance letters of credit
Commitments to extend credit
Total
1 Year
or Less
More Than
1 Year but Less
Than 3 Years
3 Years or
More but Less
Than 5 Years
5 Years
or More
Total
(Dollars in thousands)
$
6,492 $
224,338
$ 230,830 $
1,357 $
44,635
45,992 $
45 $
38,126
38,171 $
— $
7,894
51,074 358,173
51,074 $ 366,067
Standby and Performance Letters of Credit: Standby letters of credit are irrevocable commitments issued by us to
guarantee the performance of a customer to a third party once specified pre-conditions are met. Financial standby letters of
credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain
customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is
essentially the same as that involved in extending loans to customers.
Commitments to Extend Credit: Commitments to originate loans and available lines of credit are agreements to lend to
a customer as long as there is no violation of any condition established in the contract. Commitments and lines of credit
generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the
commitments and lines of credit may expire without being drawn upon, the total commitment and lines of credit amounts do
not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis.
The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty.
Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate,
and residential real estate. Mortgage loans in the process of origination represent amounts that we plan to fund within a
normal period of 60 to 90 days, and which are intended for sale to investors in the secondary market.
Contractual Obligations
The following table summarizes our contractual obligations and other commitments to make future payments as of
December 31, 2017 (other than securities sold under repurchase agreements). These obligations consist of our future cash
payments associated with contractual obligations pursuant to FHLB advances, time deposit contracts, borrowed funds, and
non-cancelable future operating leases. Payments related to leases are based on actual payments specified in underlying
contracts.
Other contractual obligations represent commitments made by us to make capital investments in limited-liability
entities that invest in qualified affordable housing projects. Payments on these obligations are made as requested by the
managers of the limited-liability entities, however the table below includes an estimate of the anticipated timing of payments
pursuant to these commitments.
Contractual Obligations
December 31, 2017
Certificates and other time deposits
Subordinated debentures
FHLB advances
Other contractual obligation commitments
Non-cancelable future operating leases
Total
More Than
1 Year but
Less Than
3 Years
1 Year
or Less
—
347,692
478
653
$ 503,803 $ 181,325 $
—
—
803
425
$ 852,626 $ 182,553 $
3 Years or
More but
Less
Than
5 Years
(Dollars in thousands)
90,057 $
—
—
676
280
91,013 $
5 Years or
More
Total
13,968
—
10
2,741
1,314 $ 776,499
13,968
347,692
1,967
4,099
18,033 $1,144,225
85
Capital Resources
Capital management consists of providing equity to support our current and future operations. The federal bank
regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-
insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount
and types of assets they hold. As a bank holding company and a state-chartered-Fed-member bank, the Company and Equity
Bank are subject to regulatory capital requirements.
Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can
initiate regulatory action. Management believes as of December 31, 2017 and December 31, 2016, the Company and Equity
Bank meet all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent
overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as are asset growth and acquisitions, and capital restoration plans are
required.
Failure to meet capital guidelines could subject the institution to a variety of enforcement remedies by federal bank
regulatory agencies, including termination of deposit insurance by the FDIC, restrictions on certain business activities and
appointment of the FDIC as conservator or receiver. As of December 31, 2017, the most recent notifications from the federal
regulatory agencies categorized Equity Bank as “well capitalized” under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, Equity Bank must maintain minimum total capital, Tier 1 capital, Common
Equity Tier 1 capital, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed Equity Bank’s category.
Total stockholders’ equity was $374.1 million at December 31, 2017, an increase of $116.2 million, or 45.0%,
compared with December 31, 2016. The increase was principally attributable to common stock issuance as part of the
mergers with Prairie State Bancshares, Inc., Eastman National Bancshares, Inc. and Cache Holdings, Inc., net of issuance
expenses of $14.9 million, $38.8 million and $39.2 million, retained earnings of $20.6 million for the year ended
December 31, 2017, common stock issued upon exercise of stock options of $1.2 million, stock based compensation of $1.1
million and change in accumulated other comprehensive loss of $145 thousand.
In July 2013, the federal banking agencies published final rules establishing a new comprehensive capital framework
for U.S. banking organizations under Basel III. These rules became effective as applied to the Company and Equity Bank on
January 1, 2015, with a phase in period from January 1, 2015 through January 1, 2019. The following table provides a
comparison of the Company’s and Equity Bank’s leverage and risk-weighted capital ratios as of December 31, 2017, to the
minimum and well-capitalized regulatory standards.
86
Capital Adequacy Analysis
December 31, 2017
Minimum
Required for
Capital Adequacy
Under Basel III
Phase-In
Minimum
Required for
Capital Adequacy
Under Basel III
Fully Phased-In
To be Categorized as
Well Capitalized
Under Prompt
Corrective Action
Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
(Dollars in thousands)
Ratio
Amount
Ratio
The Company(1)
Total capital (to risk weighted assets) $288,353 12.54% $212,705 9.25% $241,449 10.50% $
Tier 1 capital (to risk weighted assets) 279,855 12.17% 166,715 7.25% 195,459 8.50%
Common equity tier 1 capital (to risk
weighted assets)
Tier 1 leverage capital (to average
assets)
The Bank(2)
279,855 10.33% 108,372 4.00% 108,372 4.00%
265,887 11.56% 132,222 5.75% 160,966 7.00%
N/A N/A
N/A N/A
N/A N/A
N/A N/A
Total capital (to risk weighted assets) $279,712 12.17% $212,682 9.25% $241,423 10.50% $229,927 10.00%
Tier 1 capital (to risk weighted assets) 271,214 11.80% 166,697 7.25% 195,438 8.50% 183,942 8.00%
Common equity tier 1 capital (to risk
weighted assets)
Tier 1 leverage capital (to average
assets)
271,214 10.01% 108,351 4.00% 108,351 4.00% 135,439 5.00%
271,214 11.80% 132,208 5.75% 160,949 7.00% 149,452 6.50%
(1)
(2)
The Federal Reserve may require the Company to maintain capital ratios above the required minimums.
The FDIC may require Equity Bank to maintain capital ratios above the required minimums.
Non-GAAP Financial Measures
We identify certain financial measures discussed in this Annual Report on Form 10-K as being “non-GAAP financial
measures.” In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if
that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or
including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and
presented in accordance with generally accepted accounting principles as in effect from time to time in the United States in
our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include
operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures
calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or
both.
The non-GAAP financial measures that we discuss in this Annual Report on Form 10-K should not be considered in
isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.
Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Annual Report on
Form 10-K may differ from that of other companies reporting measures with similar names. You should understand how
such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial
measures we have discussed in this Annual Report on Form 10-K when comparing such non-GAAP financial measures.
Tangible Book Value Per Common Share and Tangible Book Value Per Diluted Common Share: Tangible book value
is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We
calculate: (a) tangible common equity as total stockholders’ equity less preferred stock, goodwill, core deposit intangibles,
net of accumulated amortization, mortgage servicing asset, net of accumulated amortization and naming rights, net of
accumulated amortization; (b) tangible book value per common share as tangible common equity (as described in clause (a))
divided by shares of common stock outstanding; and (c) tangible book value per diluted common share as tangible common
equity (as described in clause (a)) divided by shares of common stock outstanding plus the period-end dilutive effects of
vested restricted stock units and the assumed exercise of stock options and redemption of non-vested restricted stock units.
For tangible book value, the most directly comparable financial measure calculated in accordance with GAAP is book value.
87
Management believes that these measures are important to many investors who are interested in changes from period to
period in book value per common share exclusive of changes in intangible assets. Goodwill and other intangible assets have
the effect of increasing total book value while not increasing our tangible book value.
The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity,
tangible book value per common share, and diluted tangible book value per common share and compares these values with
book value per common share.
December 31,
2017
2016
2015
2014
2013
(Dollars in thousands, except share data)
Total stockholders’ equity
Less: preferred stock
Less: goodwill
Less: core deposit intangibles, net
Less: mortgage servicing asset, net
Less: naming rights, net
Tangible common equity
Common shares outstanding at
period end
Diluted common shares outstanding
at period end
Book value per common share $
Tangible book value per
common share
$
Tangible book value per diluted
$
common share
$
$
374,144 $
—
104,907
10,738
17
1,260
257,222 $
257,964 $ 167,233 $ 117,729 $ 139,873
31,892
18,130
1,470
—
—
88,381
16,372
18,130
1,549
29
—
194,352 $ 131,153 $
16,359
18,130
1,107
—
—
82,133 $
—
58,874
4,715
23
—
14,605,607 11,680,308 8,211,727 6,067,511 7,385,603
14,873,257 11,873,480 8,332,762 6,285,628 7,464,074
14.62
18.37 $
25.62 $
22.09 $
16.71 $
17.61 $
16.64 $
15.97 $
13.54 $
11.97
17.29 $
16.37 $
15.74 $
13.07 $
11.84
Tangible Common Equity to Tangible Assets: Tangible common equity to tangible assets is a non-GAAP measure
generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible
common equity as total stockholders’ equity less preferred stock, goodwill, core deposit intangibles, net of accumulated
amortization, mortgage servicing asset, net of accumulated amortization and naming rights, net of accumulated amortization;
(b) tangible assets as total assets less goodwill, core deposit intangibles, net of accumulated amortization, mortgage servicing
asset, net of accumulated amortization and naming rights, net of accumulated amortization; and (c) tangible common equity
to tangible assets as tangible common equity (as described in clause (a)) divided by tangible assets (as described in clause
(b)). For common equity to tangible assets, the most directly comparable financial measure calculated in accordance with
GAAP is total stockholders’ equity to total assets.
Management believes that this measure is important to many investors in the marketplace who are interested in the
relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets.
Goodwill and other intangible assets have the effect of increasing both total stockholders’ equity and total assets while not
increasing tangible common equity or tangible assets.
88
The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity
and total assets to tangible assets.
Total stockholders’ equity
Less: preferred stock
Less: goodwill
Less: core deposit
intangibles, net
Less: mortgage servicing
asset, net
Less: naming rights, net
Tangible common
equity
Total assets
Less: goodwill
Less: core deposit
intangibles, net
Less: mortgage servicing
asset, net
Less: naming rights, net
Tangible assets
Equity / assets
Tangible common
equity to tangible
assets
2017
2016
2014
2013
$ 374,144
—
104,907
$ 257,964
—
58,874
$ 117,729
16,359
18,130
$ 139,873
31,892
18,130
December 31,
2015
(Dollars in thousands)
$ 167,233
16,372
18,130
10,738
4,715
1,549
1,107
1,470
17
1,260
23
—
29
—
—
—
—
—
$ 257,222
$3,170,509
104,907
$ 194,352
$2,192,192
58,874
$ 131,153
$1,585,727
18,130
$
82,133
$1,174,515
18,130
$
88,381
$1,139,897
18,130
10,738
4,715
1,549
1,107
1,470
17
1,260
$3,053,587
23
—
$2,128,580
29
—
$1,566,019
—
—
$1,155,278
—
—
$1,120,297
11.80%
11.77%
10.55%
10.02%
12.27%
8.42%
9.13%
8.37%
7.11%
7.89%
Return on Average Tangible Common Equity: Return on average tangible common equity is a non-GAAP measure
generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) average
tangible common equity as total average stockholders’ equity less average intangible assets and preferred stock; (b) adjusted
net income allocable to common stockholders as net income allocable to common stockholders plus amortization of core
deposit intangible less tax effect of amortization of core deposit intangible (tax rates used in this calculation were 35% for
2017, 2016, and 2015) (c) return on average tangible common equity as adjusted net income allocable to common
stockholders (as described in clause (b)) divided by average tangible common equity (as described in clause (a)). For return
on average tangible common equity, the most directly comparable financial measure calculated in accordance with GAAP is
return on average equity.
Management believes that this measure is important to many investors in the marketplace because it measures the
return on equity, exclusive of the effects of intangible assets on earnings and capital. Goodwill and other intangible assets
have the effect of increasing average stockholders’ equity and, through amortization, decreasing net income allocable to
common stockholders while not increasing average tangible common equity or decreasing adjusted net income allocable to
common stockholders.
89
The following table reconciles, as of the dates set forth below, total average stockholders’ equity to average tangible
common equity and net income allocable to common stockholders to adjusted net income allocable to common stockholders.
$293,798
Total average stockholders’ equity
Less: average intangible assets and
preferred stock
76,320
Average tangible common equity $217,478
$ 20,649
1,070
Net income allocable to common
Amortization of intangible assets
Less: tax effect of intangible asset
amortization
2017
2016
2014
2013
December 31,
2015
(Dollars in thousands)
$125,808
$168,823
$123,181
$137,936
25,883
$142,940
9,373
$
419
19,165
$106,643
$ 10,123
275
37,924
$ 85,257
8,279
$
363
50,646
$ 87,290
6,895
$
487
Adjusted net income allocable to
common stockholders
Return on average equity
(ROAE)
Return on average tangible
common equity (ROATCE)
375
147
96
127
166
$ 21,344
$
9,645
$ 10,302
$
8,515
$
7,216
7.03%
5.55%
8.19%
7.30%
5.71%
9.81%
6.75%
9.66%
9.99%
8.27%
Efficiency Ratio: The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment
bankers to evaluate financial institutions. We calculate the efficiency ratio by dividing non-interest expense, excluding
merger expenses and loss on debt extinguishment, by the sum of net interest income and non-interest income, excluding net
gains on the sale of available-for-sale securities and other securities transactions, and the net gain on acquisition. The
GAAP-based efficiency ratio is non-interest expenses divided by net interest income plus non-interest income.
In management’s judgment, the adjustments made to non-interest expense and non-interest income allow investors and
analysts to better assess operating expenses in relation to operating revenue by removing merger expenses, loss on debt
extinguishment, net gains on the sale of available-for-sale securities and other securities transactions, and the net gain on
acquisition.
The following table reconciles, as of the dates set forth below, the efficiency ratio to the GAAP-based efficiency ratio.
2017
$ 67,463
5,352
—
Non-interest expense
Less: merger expenses
Less: loss on debt extinguishment
Non-interest expense, excluding merger
expenses and loss on debt extinguishment $ 62,111
$ 86,002
Net interest income
$ 15,440
Non-interest income
Less: net gains on sales and settlement of
securities
Less: net gain on acquisition
Non-interest income, excluding net gains
on security transactions and on
acquisition
271
—
$ 15,169
2014
2016
December 31,
2015
(Dollars in thousands)
$ 38,575
1,691
316
$ 47,075
5,294
58
$ 35,645
—
—
2013
$ 35,137
—
—
$ 41,723
$ 52,597
$ 10,466
$ 36,568
$ 46,262
$ 9,802
$ 35,645
$ 41,361
$ 8,674
$ 35,137
$ 41,235
$ 7,892
479
—
756
682
986
—
500
—
$ 9,987
$ 8,364
$ 7,688
$ 7,392
Non-interest expense to net interest
income plus non-interest income
Efficiency Ratio
66.50% 74.65% 68.81% 71.24% 71.52%
61.39% 66.67% 66.94% 72.67% 72.26%
90
Item 7A: Quantitative and Qualitative Disclosure About Market Risk
Our asset-liability policy provides guidelines to management for effective funds management, and management has
established a measurement system for monitoring net interest rate sensitivity position within established guidelines.
As a financial institution, the primary component of market risk is interest rate volatility. Fluctuations in interest rates
will ultimately impact both the level of income and expense recorded on most assets and liabilities, and the market value of
all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate
risk is the potential of economic gains or losses due to future interest rate changes. These changes can be reflected in future
net interest income and/or fair market values. The objective is to measure the effect on net interest income (“NII”) and
economic value of equity (“EVE”) and to adjust the balance sheet to minimize the inherent risk, while at the same time
maximizing income.
We manage exposure to interest rates by structuring the balance sheet in the ordinary course of business. We have the
ability to enter into instruments such as leveraged derivatives, interest rate swaps, financial options, financial future contracts
or forward delivery contracts for the purpose of reducing interest rate risk; however, currently we do not have a material
exposure to these instruments. We also have the ability to enter into interest rate swaps as an accommodation to our
customers in connection with an interest rate swap program. Based upon the nature of its operations, we are not subject to
foreign exchange or commodity price risk. We do not own any trading assets.
Our exposure to interest rate risk is managed by the Asset Liability Committee (“ALCO”), which is composed of
certain members of senior management, in accordance with policies approved by the Board of Directors. The ALCO
formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk,
the ALCO considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest
rates, regional economies, liquidity, business strategies and other factors. The ALCO meets monthly to review, among other
things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, securities purchase and sale activities, commitments to originate loans and the maturities of
investment securities and borrowings. Additionally, the ALCO reviews liquidity, projected cash flows, maturities of deposits
and consumer and commercial deposit activity.
ALCO uses a simulation analysis to monitor and manage the pricing and maturity of assets and liabilities in order to
diminish the potential adverse impact that changes in interest rates could have on net interest income. The simulation tests
the sensitivity of NII and EVE. Contractual maturities and repricing opportunities of loans are incorporated in the simulation
model as are prepayment assumptions, maturity data and call options within the investment securities portfolio. Assumptions
based on past experience are incorporated into the model for non-maturity deposit accounts. The assumptions used are
inherently uncertain and, as a result, the model cannot precisely measure the future NII and EVE. Actual results will differ
from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in
market conditions and the application and timing of various management strategies.
The change in the impact of net interest income from the base case for December 31, 2017 and 2016 was primarily
driven by the rate and mix of variable and fixed rate financial instruments, the underlying duration of the financial
instruments, and the level of response to changes in the interest rate environment. The increase in the level of negative
impact to net interest income in the up interest rate shock scenarios are due to the assumed migration of non-term deposit
liabilities to higher rate term deposits; the level of fixed rate investments and loans receivable that will not reprice to higher
rates; the variable rate Federal Home Loan Bank advances; the variable rate subordinated debentures, and the non-term
deposits that are assumed not to migrate to term deposits that are variable rate and will reprice to the higher rates; and a
portion of our portfolio of variable rate loans contain restrictions on the amount of repricing and frequency of repricing that
limit the amount of repricing to the current higher rates. These factors result in the negative impacts to net interest income in
the up interest rate shock scenarios that are detailed in the table below. In the down interest rate shock scenario the main
drivers of the negative impact on net interest income are the decrease in investment income due to the negative convexity
features of the fixed rate mortgage backed securities; assumed prepayment of existing fixed rate loans receivable; the
downward pricing of variable rate loans receivable; the constraint of the shock on non-term deposits; and the level of term
deposit repricing. Our mortgage back security portfolio is comprised of fixed rate investments and as rates decrease the level
of prepayments will increase and cause the current higher rate investments to prepay and the assumed reinvestment will be at
lower interest rates. Similar to our mortgage backed securities, the model assumes that our fixed rate loans receivable will
prepay at a faster rate and reinvestment will occur at lower rates. The level of downward shock on the non-term deposits is
constrained to limit the downward shock to a non-zero rate which results in a minimal reduction in the average rate
paid. Term deposits repricing will only decrease the average cost paid by a minimal amount due to the assumed repricing
occurring at maturity. These factors result in the negative impact to net interest income in the down interest rate shock
scenario.
91
The change in the economic value of equity from the base case for December 31, 2017 and 2016 is due to us being in a
liability sensitive position and the level of convexity in our pre-payable assets. Generally, with a liability sensitive position,
as interest rates increase the value of your assets decrease faster than the value of liabilities and as interest rates decrease the
value of your assets increase at a faster rate than liabilities. However, due to the level of convexity in our fixed rate pre-
payable assets we do not experience a similar change in the value of assets in a down interest rate shock scenario.
Substantially all investments and approximately 47.6% of loans are pre-payable and fixed rate and as rates decrease the level
of modeled prepayments increase. The prepaid principal is assumed to reprice at the assumed current rates, resulting in a
smaller positive impact to the economic value of equity.
The following table summarizes the simulated immediate change in net interest income for twelve months as of the
dates indicated.
Market Risk
Change in prevailing interest rates
+300 basis points
+200 basis points
+100 basis points
0 basis points
-100 basis points
Change in prevailing interest rates
+300 basis points
+200 basis points
+100 basis points
0 basis points
-100 basis points
Impact on Net Interest
Income
December 31,
2017
2016
(9.8)%
(5.9)%
(2.7)%
—
0.2%
(11.2)%
(6.9)%
(3.2)%
—
(0.6)%
Impact on Economic Value of Equity
December 31,
2017
2016
(15.4)%
(8.5)%
(2.0)%
—
(2.7)%
(22.4)%
(12.9)%
(3.8)%
—
2.7%
92
Item 8: Financial Statements and Supplementary Data
Our financial statements and accompanying notes, including the Report of Independent Registered Public Accounting
Firm, are set forth on pages F-1 to F-50 of this Annual Report on Form 10-K.
Audited Financial Statements
Description
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page Number
F-1
F-2
F-3
F-4
F-5
F-7
F-9
The following tables present supplementary quarterly financial information (unaudited) for the years ended December
31, 2017 and 2016. This information should be read in conjunction with the historical consolidated financial statements of the
Company and the notes thereto appearing elsewhere in this Annual Report on Form 10-K.
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan loss
Net interest income after provision for loan loss
Total non-interest income
Total non-interest expense(1)
Provision for income taxes
Net income
Basic earnings per share
Diluted earnings per share
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan loss
Net interest income after provision for loan loss
Total non-interest income
Total non-interest expense
Provision for income taxes
Net income
Basic earnings per share
Diluted earnings per share
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
(Dollars in thousands, except per share data)
2017
$
$
$
$
29,808 $
5,219
24,589
503
24,086
4,104
20,718
3,198
4,274 $
0.32 $
0.31 $
24,588 $
4,267
20,321
727
19,594
4,035
16,388
2,084
5,157 $
0.42 $
0.41 $
2016
25,082 $
3,883
21,199
628
20,571
3,962
15,131
3,048
6,354 $
0.52 $
0.51 $
23,215
3,322
19,893
1,095
18,798
3,339
15,226
2,047
4,864
0.41
0.40
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
(Dollars in thousands, except per share data)
$
$
$
$
18,307 $
2,644
15,663
760
14,903
2,789
16,711
564
417 $
0.04 $
0.04 $
14,250 $
2,268
11,982
104
11,878
2,527
10,734
1,000
2,671 $
0.32 $
0.32 $
14,380 $
2,186
12,194
532
11,662
2,452
9,941
1,327
2,846 $
0.35 $
0.34 $
14,862
2,104
12,758
723
12,035
2,698
9,689
1,604
3,440
0.42
0.41
(1) For additional information see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
93
Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None
Item 9A: Controls and Procedures
Disclosure Controls and Procedures
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act. The Company’s internal control system is a
process designed to provide reasonable assurance regarding the preparation and fair presentation of published financial
statements in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations
and can only provide reasonable assurance with respect to financial reporting.
As of the end of the period covered by this report, management of the Company, under the supervision and with the
participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures. Based upon, and as of the date of that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures
were effective, in ensuring the information relating to the Company (and its consolidated subsidiaries) required to be
disclosed by the Company in the reports it files or submits under the Exchange Act was recorded, summarized and reported
in a timely manner.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) during the last fiscal quarter of the fiscal year for which this Annual Report on Form
10-K is filed that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Report on Management’s Assessment of Internal Control Over Financial Reporting
Management of the Company is responsible for internal control over financial reporting as defined under Rules 13a-
15(f) and 15d-15(f) of the Exchange Act.
As of December 31, 2017, management assessed the effectiveness of the Company’s internal control over financial
reporting based on the criteria for effective internal control over financial reporting established in “Internal Control-
Integrated Framework,” issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in
2013. Based on the assessment, management determined that the Company maintained effective internal control over
financial reporting as of December 31, 2017.
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered
public accounting firm due to the rules of the Securities and Exchange Commission for an Emerging Growth Company.
Item 9B: Other Information
None
94
Part III
Item 10: Directors, Executive Officer and Corporate Governance
The information required by this item will be contained in our Proxy Statement for the 2018 Annual Meeting of
Stockholders to be held in April 2018, a copy of which will be filed not later than 120 days after the close of the fiscal year,
and is incorporated herein by reference.
Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers
and directors, including our Chief Executive Officer, Chief Financial Officer and other executive officers. The full text of
our Code of Business Conduct and Ethics is posted on the investor relations page of our website which is located at
http://investor.equitybank.com. We will post any amendments to our code of business conduct and ethics, or waivers of its
requirements, on our website.
Item 11: Executive Compensation
The information required by this item will be contained in our Proxy Statement for the 2018 Annual Meeting of
Stockholders to be held in April 2018, a copy of which will be filed not later than 120 days after the close of the fiscal year,
and is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be contained in our Proxy Statement for the 2018 Annual Meeting of
Stockholders to be held in April 2018, a copy of which will be filed not later than 120 days after the close of the fiscal year,
and is incorporated herein by reference.
Information relating to securities authorized for issuance under our equity compensation plans is included in Part II of
this Annual Report on Form 10-K under “Item 5 – Market for Registrant’s Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities.”
Item 13: Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be contained in our Proxy Statement for the 2018 Annual Meeting of
Stockholders to be held in April 2018, a copy of which will be filed not later than 120 days after the close of the fiscal year,
and is incorporated herein by reference.
Item 14: Principal Accounting Fees and Services
The information required by this item will be contained in our Proxy Statement for the 2018 Annual Meeting of
Stockholders to be held in April 2018, a copy of which will be filed not later than 120 days after the close of the fiscal year,
and is incorporated herein by reference.
95
Part IV
Item 15: Exhibits, Financial Statement Schedules
a)
The following documents are filed as part of this Annual Report on Form 10-K:
1.
Financial Statements
The financial statements included as part of this Form 10-K are identified in the index to the Audited Financial
Statements appearing in Item 8 of this Form 10-K and which index is incorporated in this Item 15 by reference.
2.
Financial Statement Schedules
All supplemental schedules are omitted as inapplicable or because the required information is included in the
Consolidated Financial Statements or notes thereto.
3.
Exhibits
The information required by this Item 15(a)(3) is set forth in the Exhibit Index immediately following. The
exhibits listed herein will be furnished upon written request to Equity Bancshares, Inc., 7701 East Kellogg Drive,
Suite 300, Wichita, Kansas 67207, Attention: Investor Relations, and payment of a reasonable fee that will be
limited to our reasonable expense in furnishing such exhibits.
b)
Exhibits
The exhibits listed below are incorporated by reference or attached hereto.
Exhibit
No.
2.1
2.2
2.3
2.4
2.5
3.1
3.2
4.1
Description
Agreement and Plan of Merger by and among Equity Bancshares, Inc., Prairie Merger Sub,
Inc. and Prairie State Bancshares, Inc., dated as of October 20, 2016 (incorporated by
reference to Exhibit 2.1 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed with
the SEC on October 20, 2016).
Agreement and Plan of Reorganization by and among Equity Bancshares, Inc., ENB Merger
Sub, Inc. and Eastman National Bancshares, Inc., dated as of July 14, 2017 (incorporated by
reference to Exhibit 2.1 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed with
the SEC on July 17, 2017).
Agreement and Plan of Reorganization by and between Equity Bancshares, Inc. and Cache
Holdings, Inc., dated as of July 14, 2017 (incorporated by reference to Exhibit 2.2 to Equity
Bancshares, Inc.’s Current Report on Form 8-K, filed with the SEC on July 17, 2017).
Agreement and Plan of Reorganization by and among Equity Bancshares, Inc., Oz Merger
Sub, Inc. and Kansas Bank Corporation, dated as of December 16, 2017 (incorporated by
reference to Exhibit 2.1 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed with
the SEC on December 18, 2017).
Agreement and Plan of Reorganization by and among Equity Bancshares, Inc., Abe Merger
Sub, Inc. and Adams Dairy Bancshares, Inc., dated as of December 16, 2017 (incorporated
by reference to Exhibit 2.2 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed
with the SEC on December 18, 2017).
Second Amended and Restated Articles of Incorporation of Equity Bancshares, Inc.
(incorporated by reference to Exhibit 3.1 to Equity Bancshares, Inc.’s Current Report on
Form 8-K, filed with the SEC on May 3, 2016).
Amended and Restated Bylaws of Equity Bancshares, Inc. (incorporated by reference to
Exhibit 3.2 to Equity Bancshares, Inc.’s Registration Statement on Form S-1, filed with the
SEC on October 9, 2015, File No. 333-207351).
Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
Equity Bancshares, Inc.’s Amendment No. 1 to Registration Statement on Form S-1, filed
with the SEC on October 27, 2015, File No. 333-207351).
96
Exhibit
No.
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8
10.9
Description
Equity Bancshares, Inc. 2006 Non-Qualified Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to Equity Bancshares, Inc.’s Amendment No. 1 to Registration
Statement on Form S-1, filed with the SEC on October 27, 2015, File No. 333-207351).
Equity Bancshares, Inc. Amended and Restated 2013 Stock Incentive Plan (incorporated by
reference to Appendix A to Equity Bancshares, Inc.’s Definitive Proxy Statement on
Schedule 14A, filed with the SEC on March 28, 2016).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.3 to Equity
Bancshares, Inc.’s Registration Statement on Form S-1, filed with the SEC on October 9,
2015, File No. 333-207351).
Amended and Restated Employment Agreement, dated November 14, 2016, between Equity
Bank, Equity Bancshares, Inc. and Brad S. Elliott (incorporated by reference to Exhibit 10.1
to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed with the SEC on November
15, 2016).
Amended and Restated Employment Agreement, dated November 14, 2016, among Equity
Bank, Equity Bancshares, Inc. and Gregory H. Kossover (incorporated by reference to
Exhibit 10.2 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed with the SEC on
November 15, 2016).
Employment Agreement, dated January 26, 2017, among Equity Bank, Equity Bancshares,
Inc. and Wendell Bontrager. (incorporated by reference to Exhibit 10.1 to Equity Bancshares,
Inc.’s Current Report on Form 8-K, filed with the SEC on January 26, 2017).
Amended and Restated Employment Agreement, dated December 15, 2014, between Equity
Bank, Equity Bancshares, Inc. and Julie Huber (incorporated by reference to Exhibit 10.1 to
Equity Bancshares, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on May 10,
2017).
Amended Loan and Security Agreement, dated March 13, 2017, between Equity Bancshares,
Inc. and ServisFirst Bank (incorporated by reference to Exhibit 10.1 to Equity Bancshares,
Inc.’s Current Report on Form 8-K, filed with the SEC on March 16, 2017).
Amended and Restated Registration Rights Agreement, dated November 16, 2015, by and
between Equity Bancshares, Inc., Patriot Financial Partners, L.P., Patriot Financial Partners
Parallel, L.P., Endicott Opportunity Partners III, L.P., Compass Island Investment
Opportunities Fund A, L.P. and Compass Island Investment Opportunities Fund C, L.P.
(incorporated by reference to Exhibit 10.1 to Equity Bancshares, Inc.’s Current Report on
Form 8-K, filed with the SEC on November 19, 2015).
10.10†
Equity Bancshares, Inc. Annual Executive Incentive Plan (incorporated by reference to
Appendix A to Equity Bancshares, Inc.’s Definitive Proxy Statement on Schedule 14A, filed
with the SEC on March 22, 2017).
10.11
10.12
10.13
Form of Securities Purchase Agreement, dated as of December 19, 2016 (incorporated by
reference to Exhibit 10.1 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed
with the SEC on December 22, 2016).
Form of Registration Rights Agreement, dated as of December 19, 2016 (incorporated by
reference to Exhibit 10.2 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed
with the SEC on December 22, 2016).
Exchange Agreement, dated October 4, 2017, between Equity Bancshares, Inc. and Endicott
Opportunity Partners III, L.P. (incorporated by reference to Exhibit 10.1 to Equity
Bancshares, Inc.’s Current Report on Form 8-K, filed with the SEC on October 10, 2017).
10.14†
Form of Performance-vested Restricted Stock Units Award Agreement (incorporated by
reference to Exhibit 10.1 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed
with the SEC on March 5, 2018).
97
Exhibit
No.
10.15†
21.1*
Description
Form of Time-vested Restricted Stock Units Award Agreement (incorporated by reference to
Exhibit 10.2 to Equity Bancshares, Inc.’s Current Report on Form 8-K, filed with the SEC on
March 5, 2018).
List of Subsidiaries of Equity Bancshares, Inc.
23.1*
Consent of Crowe Chizek LLP
24.1
Powers of Attorney (included on signature page).
31.1*
31.2*
32.1**
32.2**
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* XBRL Instance Document.
101.SCH* XBRL Taxonomy Extension Schema Document.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document.
*
**
†
c)
Filed herewith.
These exhibits are furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Exchange
Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference
into any filing under the Securities Act or the Exchange Act.
Represents a management contract or a compensatory plan or arrangement.
Excluded Financial Statements
Not Applicable
98
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
EQUITY BANCSHARES, INC.
/s/ Brad S. Elliott
By:
Name: Brad S. Elliott
Title: Chairman and Chief Executive Officer
Date: March 16, 2018
99
POWER OF ATTORNEY
Each person whose signature appears below appoints Brad S. Elliott and Gregory H. Kossover, and each of them, any
of whom may act without the joinder of the other, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or would do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Brad S. Elliott
Brad S. Elliott
/s/ Gregory H. Kossover
Gregory H. Kossover
/s/ Gary C. Allerheiligen
Gary C. Allerheiligen
/s/ James L. Berglund
James L. Berglund
/s/ Jeff A. Bloomer
Jeff A. Bloomer
/s/ Dan R. Bowers
Dan R. Bowers
/s/ Roger A. Buller
Roger A. Buller
/s/ Michael R. Downing
Michael R. Downing
/s/ P. John Eck
P. John Eck
/s/ Gregory L. Gaeddert
Gregory L. Gaeddert
/s/ Randee R. Koger
Randee R. Koger
/s/ Jerry P. Maland
Jerry P. Maland
/s/ Shawn D. Penner
Shawn D. Penner
/s/ Harvey R. Sorensen
Harvey R. Sorensen
Chairman and
Chief Executive Officer (Principal Executive
Officer)
Director, Executive Vice President and Chief
Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
100
Date
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors of Equity Bancshares, Inc.
Wichita, Kansas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Equity Bancshares, Inc. (the "Company") as of December
31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in
accordance with the standards of the PCAOB.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Crowe Chizek LLP
We have served as the Company's auditor since 2007.
Dallas, Texas
March 16, 2018
F-1
EQUITY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
(Dollar amounts in thousands, except per share data)
2017
2016
$
$
$
ASSETS
Cash and due from banks
Federal funds sold
Cash and cash equivalents
Interest-bearing time deposits in other banks
Available-for-sale securities
Held-to-maturity securities, fair value of $532,744 and $461,156
Loans held for sale
Loans, net of allowance for loan losses of $8,498 and $6,432
Other real estate owned, net
Premises and equipment, net
Bank-owned life insurance
Federal Reserve Bank and Federal Home Loan Bank stock
Interest receivable
Goodwill
Core deposit intangibles, net
Other
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand
Total non-interest-bearing deposits
Savings, NOW and money market
Time
Total interest-bearing deposits
Total deposits
Federal funds purchased and retail repurchase agreements
Federal Home Loan Bank advances
Bank stock loan
Subordinated debentures
Contractual obligations
Interest payable and other liabilities
Total liabilities
Commitments and contingent liabilities, see Notes 22 and 23
Stockholders’ equity, see Note 14
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Employee stock loans
Treasury stock
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
48,034 $
4,161
52,195
3,496
162,272
535,462
16,344
2,094,781
7,907
63,449
68,384
24,373
12,371
104,907
10,738
13,830
3,170,509 $
366,530 $
366,530
1,238,984
776,499
2,015,483
2,382,013
37,492
347,692
2,500
13,968
1,967
10,733
2,796,365
161
331,339
65,512
(3,092)
(121)
(19,655)
374,144
3,170,509 $
34,137
958
35,095
3,750
95,732
465,709
4,830
1,377,173
8,656
50,515
48,055
16,652
6,991
58,874
4,715
15,445
2,192,192
207,668
207,668
869,625
553,158
1,422,783
1,630,451
20,637
259,588
—
13,684
2,504
7,364
1,934,228
132
236,103
44,328
(2,702)
(242)
(19,655)
257,964
2,192,192
See accompanying notes to consolidated financial statements.
F-2
EQUITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2017, 2016 and 2015
(Dollar amounts in thousands, except per share data)
2017
2016
2015
Interest and dividend income
Loans, including fees
Securities, taxable
Securities, nontaxable
Federal funds sold and other
Total interest and dividend income
Interest expense
Deposits
Federal funds purchased and retail repurchase agreements
Federal Home Loan Bank advances
Bank stock loan
Subordinated debentures
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Service charges and fees
Debit card income
Mortgage banking
Increase in value of bank-owned life insurance
Net gain on acquisition
Net gains on sales and settlements of securities
Other
Total non-interest income
Non-interest expense
Salaries and employee benefits
Net occupancy and equipment
Data processing
Professional fees
Advertising and business development
Telecommunications
FDIC insurance
Courier and postage
Free nationwide ATM cost
Amortization of core deposit intangibles
Loan expense
Other real estate owned
Loss on debt extinguishment
Merger expenses
Other
Total non-interest expense
$
85,662 $
12,308
3,375
1,348
102,693
50,272 $
8,111
1,654
1,762
61,799
7,042
58
1,400
31
671
9,202
52,597
2,119
50,478
3,552
2,898
1,394
1,000
—
479
1,143
10,466
21,951
4,586
3,568
2,075
1,198
1,101
894
683
672
413
599
386
58
5,294
3,597
47,075
13,869
4,495
9,374
(1)
9,373 $
1.09 $
1.07 $
43,361
7,634
1,057
976
53,028
4,926
61
495
641
643
6,766
46,262
3,047
43,215
2,708
2,161
1,088
957
682
756
1,450
9,802
19,202
4,155
2,939
2,086
1,199
811
840
544
468
275
388
287
316
1,691
3,374
38,575
14,442
4,142
10,300
(177)
10,123
1.55
1.54
12,722
64
2,909
16
980
16,691
86,002
2,953
83,049
5,154
4,547
1,955
1,445
—
271
2,068
15,440
33,960
6,305
4,927
2,363
2,105
1,191
945
935
932
1,025
993
523
—
5,352
5,907
67,463
31,026
10,377
20,649
20,649
—
$
1.66 $
1.62 $
Income before income tax
Provision for income taxes
Net income
Dividends and discount accretion on preferred stock
Net income allocable to common stockholders
Basic earnings per share
Diluted earnings per share
$
$
$
See accompanying notes to consolidated financial statements.
F-3
EQUITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2017, 2016 and 2015
(Dollar amounts in thousands, except per share data)
Net income
Other comprehensive income:
2017
2016
2015
$
20,649 $
9,374 $
10,300
Unrealized holding gains (losses) arising during the period on
available-for-sale securities
Amortization of unrealized losses on held-to-maturity securities
Reclassification adjustment for net gains included in net income
Total other comprehensive income (loss)
Tax effect
Other comprehensive income (loss), net of tax
Comprehensive income
$
(26)
532
(271)
235
(90)
145
20,794 $
(264)
615
(893)
(542)
211
(331)
9,043 $
(544)
767
(370)
(147)
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F-6
EQUITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31, 2017, 2016 and 2015
(Dollar amounts in thousands, except per share data)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash from operating activities:
2017
2016
2015
$
20,649 $
9,374 $
10,300
Stock based compensation
Depreciation
Provision for loan losses
Net amortization (accretion) of purchase valuation adjustments
Amortization (accretion) of premiums and discounts on securities
Amortization of intangible assets
Deferred income taxes
Federal Home Loan Bank stock dividends
Loss (gain) on sales and valuation adjustments on other real
estate owned
Net loss (gain) on sales and settlements of securities
Loss (gain) on disposal of premises and equipment
Loss (gain) on sales of foreclosed assets
Loss (gain) on sales of loans
Originations of loans held for sale
Proceeds from the sale of loans held for sale
Increase in the value of bank-owned life insurance
Change in fair value of derivatives recognized in earnings
Gain on acquisition
Net change in:
Interest receivable
Other assets
Interest payable and other liabilities
Net cash provided by operating activities
Cash flows (to) from investing activities
Purchases of available-for-sale securities
Purchases of held-to-maturity securities
Proceeds from sales, calls, pay-downs and maturities of available-for-
sale securities
Proceeds from calls, pay-downs and maturities of held-to-maturity
securities
Net change in interest-bearing time deposits in other banks
Net change in loans
Purchase of premises and equipment
Proceeds from sale of premises and equipment
Proceeds from sale of foreclosed assets
Net redemptions (purchases) of Federal Home Loan Bank and Federal
Reserve Bank stock
Proceeds from sale of other real estate owned
Purchase of bank-owned life insurance
Net cash paid for acquisition of First Independence
Net cash paid for acquisition of Community First
Net cash paid for acquisition of Prairie
Net cash from acquisition of Eastman
Net cash paid for acquisition of Cache
Net cash (used in) investing activities
Cash flows (to) from financing activities
Net increase (decrease) in deposits
Net change in federal funds purchased and retail repurchase agreements
Net borrowings (repayments) on Federal Home Loan Bank line of credit
Principal repayments on Federal Home Loan Bank term advances
Borrowings on bank stock loan
F-7
1,100
2,496
2,953
(4,518)
2,869
1,070
2,621
(760)
(109)
(271)
(5)
32
(1,640)
(96,400)
100,026
(1,445)
(14)
—
(1,276)
(673)
433
27,138
553
1,764
2,119
615
3,049
419
909
(657)
(112)
(479)
(42)
—
(1,198)
(51,369)
51,241
(1,000)
6
—
(544)
885
15
15,548
531
1,672
3,047
(380)
2,309
275
2,427
(407)
(44)
(756)
11
—
(903)
(41,407)
39,703
(957)
13
(682)
(751)
(2,551)
2,170
13,620
(105,749)
(129,016)
(56,391)
(134,745)
(108,997)
(97,103)
102,040
90,459
60,088
58,245
1,242
(125,189)
(6,873)
9
165
(4,276)
5,461
(15,000)
—
—
(6,744)
6,108
(2,857)
(222,434)
123,224
8,177
79,996
(1,300)
2,500
51,439
1,495
(73,932)
(2,796)
209
—
(1,973)
3,017
(14,500)
—
(2,971)
—
—
—
(140,689)
39,082
(4,150)
114,149
(25,221)
6,000
46,322
750
(150,625)
(5,736)
15
—
(4,875)
2,266
—
(9,046)
—
—
—
—
(266,941)
147,952
(4,539)
128,895
(36,035)
5,014
Principal repayments on bank stock loan
Proceeds from issuance of common stock, net
Proceeds from exercise of employee stock options
Issuance of employee stock loan
Principal payments on employee stock loan
Redemption of Series C preferred stock
Net change in contractual obligations
Dividends paid on preferred stock
Excess tax benefits as a result of the distribution of common stock in
termination of the restricted stock unit plan recognized as an increase
in additional paid-in capital
Excess tax benefits as a result of the exercise of employee stock options
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Ending cash and cash equivalents
Supplemental cash flow information:
Interest paid
Income taxes paid, net of refunds
Supplemental noncash disclosures:
(1,000)
—
1,215
—
121
—
(537)
—
(33,218)
23,643
112
—
—
(16,372)
(589)
(42)
—
—
212,396
17,100
35,095
52,195
$
—
13
103,407
(21,734)
56,829
35,095 $
15,041 $
6,438
8,943 $
3,212
$
$
Other real estate owned acquired in settlement of loans
Preferred stock dividends payable at period end
Total fair value of assets acquired in purchase of First Independence,
net of cash
Total fair value of liabilities acquired in purchase of First Independence
Total fair value of assets acquired in purchase of Community First,
net of cash
Total fair value of liabilities acquired in purchase of Community First
Total fair value of assets acquired in purchase of Prairie, net of cash
Total fair value of liabilities acquired in purchase of Prairie
Total fair value of assets acquired in purchase of Eastman, net of cash
Total fair value of liabilities acquired in purchase of Eastman
Total fair value of assets acquired in purchase of Cache, net of cash
Total fair value of liabilities acquired in purchase of Cache
4,562
—
—
—
—
—
147,248
125,591
267,039
234,337
333,140
291,056
3,006
—
—
—
462,936
419,641
—
—
—
—
—
—
See accompanying notes to consolidated financial statements.
(1,554)
38,945
—
(1,215)
973
—
(53)
(164)
224
—
278,443
25,122
31,707
56,829
6,670
2,938
3,164
41
129,341
119,613
—
—
—
—
—
—
—
—
F-8
EQUITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Dollar amounts in thousands, except per share data)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Equity Bancshares, Inc. is a bank holding company, whose principal activity is the ownership
and management of its wholly-owned subsidiary, Equity Bank (“Equity Bank”). SA Holdings, Inc. is a wholly-owned
subsidiary of Equity Bank and was established for the purpose of holding and selling other real estate owned. These entities
are collectively referred to as the “Company”. All significant intercompany accounts and transactions have been eliminated
in consolidation.
Equity Bank is a Kansas state-chartered bank and member of the Federal Reserve (state Fed member bank jointly
supervised by both the Federal Reserve Bank of Kansas City and the Office of the Kansas State Bank Commissioner).
The Company is primarily engaged in providing a full range of banking, mortgage banking and financial services to
individual and corporate customers generally in Arkansas, Kansas, Missouri and Oklahoma. Equity Bank competes with a
variety of other financial institutions including large regional banks, community banks and thrifts as well as credit unions and
other non-traditional lenders.
Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles,
management makes estimates and assumptions based on available information. These estimates and assumptions affect the
amounts reported in the financial statements and the disclosures provided, and actual results could differ.
Cash Equivalents: Cash and cash equivalents include cash, deposits with other financial institutions with original
maturities less than 90 days and federal funds sold. Net cash flows are reported for customer loan and deposit transactions,
interest-bearing deposits in other financial institutions, federal funds purchased, retail repurchase agreements, Federal Home
Loan Bank advances and contractual obligations.
Securities: Securities are classified as held-to-maturity when management has the positive intent and ability to hold
them to maturity. Securities are classified as available-for-sale when they might be sold before maturity. Held-to-maturity
securities are carried at amortized cost while securities available-for-sale are carried at fair value, with unrealized holding
gains and losses reported in other comprehensive income, net of tax.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are
amortized on the level-yield basis without anticipating prepayments, except for certain securities where prepayments are
anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more
frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position,
management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of
the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a
security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or
requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through
earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two
components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI
related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference
between the present value of the cash flows expected to be collected and the amortized cost basis. All OTTI related to equity
securities is recognized through earnings.
Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower
of aggregate cost or fair value. Net unrealized losses, if any, are recorded as a valuation allowance and charged to
earnings. Mortgage loans held for sale are sold with servicing rights released. Gains or losses on loans held for sale are
recognized upon completion of the sale and based on the difference between the net sales proceeds and carrying value of the
sold loan.
F-9
Loans : Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff
are reported at the principal balance outstanding, net of previous charge-offs and an allowance for loan losses, and for
purchased loans, net of unamortized purchase premiums and discounts. Interest income is accrued on the unpaid principal
balance.
Purchased Credit Impaired Loans. As a part of acquisitions, the Company acquired certain loans, for which there was,
at acquisition, evidence of deterioration of credit quality since origination. These purchased credit impaired loans were
recorded at the acquisition date fair value, such that there is no carryover of the seller’s allowance for loan losses. After
acquisition, losses are recognized by an increase in the allowance for loan losses. Such purchase credit impaired loans are
accounted for individually. The Company estimates the amount and timing of expected cash flows for each loan, and the
expected cash flows in excess of the amount paid are recorded as interest income over the remaining life of the loan
(accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-
accretable difference). Over the life of the loan, expected cash flows continue to be estimated. If the present value of the
expected cash flows is less than the carrying amount, a loss is recorded. If the present value of the expected cash flows is
greater than the carrying amount, it is recognized as part of future interest income.
Nonaccrual Loans. Generally, loans are designated as nonaccrual when either principal or interest payments are 90
days or more past due based on contractual terms unless the loan is well secured and in the process of collection. Consumer
loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at
an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on nonaccrual status, unpaid
interest credited to income is reversed against income. Future interest income may be recorded on a cash basis after recovery
of principal is reasonably assured. Nonaccrual loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably assured.
Impaired Loans. A loan is considered impaired when, based on current information and events, it is probable that the
Company will be unable to collect all contractual principal and interest due according to the terms of the loan agreement. All
loans are individually evaluated for impairment. Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan’s effective interest rate or on the value of the underlying collateral if the loan is collateral
dependent. The Company evaluates the collectability of both principal and interest when assessing the need for a loss
accrual.
Factors considered by management in determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the
amount of the shortfall in relation to the principal and interest owed.
Troubled Debt Restructurings. In cases where a borrower experiences financial difficulties and the Company makes
certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan and
classified as impaired. Generally, a nonaccrual loan that is a troubled debt restructuring remains on nonaccrual until such
time that repayment of the remaining principal and interest is not in doubt and the borrower has a period of satisfactory
repayment performance.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses.
Loan losses are charged against the allowance when management believes the collectability of a loan balance is unlikely.
Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using
past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions and other factors. A loan review process, independent of the loan approval
process, is utilized by management to verify loans are being made and administered in accordance with Company policy, to
review loan risk grades and potential losses, to verify that potential problem loans are receiving adequate and timely
corrective measures to avoid or reduce losses and to assist in the verification of the adequacy of the loan loss reserve.
Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in
management’s judgment, should be charged off.
The allowance consists of specific and general components. The specific component relates to loans that are
individually classified as impaired. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported
net at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if
F-10
repayment is expected solely from the sale of the collateral. Troubled debt restructurings are separately identified for
impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at
inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair
value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of
reserve in accordance with the accounting policy for the allowance for loan losses.
The general component of the allowance for loan losses covers non-impaired loans and is based on historical loss
experience adjusted for current factors. The historical loss experience is determined by portfolio and class and is based on
the actual loss history experienced by the Company. This actual loss experience is then adjusted by comparing current
conditions to the conditions that existed during the loss history. The Company considers the changes related to (i) lending
policies, (ii) economic conditions, (iii) nature and volume of the loan portfolio and class, (iv) lending staff, (v) volume and
severity of past due, non-accrual, and risk graded loans, (vi) loan review system, (vii) value of underlying collateral for
collateral dependent loans, (viii) concentration levels and (ix) effects of other external factors.
The Company considers loan performance and collateral values in assessing risk for each class in the loan portfolio, as
follows:
•
•
•
•
•
•
Commercial and industrial loans are dependent on the strength of the industries of the related borrowers and the
success of their businesses. Commercial and industrial loans are advanced for equipment purchases, to provide
working capital or meet other financing needs of the business. These loans may be secured by accounts
receivable, inventory, equipment or other business assets. Financial information is obtained from the borrower to
evaluate the debt service coverage and ability to repay the loans.
Commercial real estate loans are dependent on the industries tied to these loans, as well as the local commercial
real estate market. The loans are secured by real estate and typically appraisals are obtained to support the loan
amount. Generally, an evaluation of the project’s cash flows is performed to evaluate the borrower’s ability to
repay the loan at the time of origination and periodically updated during the life of the loan.
Residential real estate loans are affected by the local residential real estate market, the local economy and
movement in interest rates. The Company evaluates the borrower’s repayment ability through a review of credit
reports and debt to income ratios. Generally, appraisals are obtained to support the loan amount.
Agricultural real estate loans are real estate loans related to farmland and are affected by the value of farmland.
Generally, the Company evaluates the borrower’s ability to repay based on cash flows from farming operations.
Consumer loans are dependent on the local economy. Consumer loans are generally secured by consumer assets,
but may be unsecured. Typically, the Company evaluates the borrower’s repayment ability through a review of
credit scores and an evaluation of debt to income ratios.
Agricultural loans are primary operating lines subject to annual farming revenues, including productivity and
yield of the farm products and market pricing at the time of sale.
There have been no material changes to the Company’s accounting policies related to its allowance for loan loss
methodology during 2017 and 2016.
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has
been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the
Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity.
Bank-Owned Life Insurance: The Company maintains insurance policies on certain key executives as well as policies
from acquired institutions. Bank-owned life insurance is recorded at the amount that can be realized under the insurance
contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are
probable at settlement. In some cases, the Company has entered into agreements with the insured which would require it to
make one-time payments to the insured’s beneficiaries if certain conditions exist at the time of death.
Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value
less estimated cost to sell when acquired, thereby establishing a new cost basis. Generally, collateral properties are recorded
as other real estate owned when the Company takes physical possession. Physical possession of residential real estate
collateral occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the
F-11
property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Other
real estate owned properties are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. If
fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after
acquisition are expensed.
Premises and Equipment: Land is carried at cost. Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is an estimate and is charged to expense using the straight-line method over the estimated useful
lives of the respective assets. The useful lives of buildings and related components are estimated to be 39 years. The useful
lives of furniture, fixtures and equipment are estimated to be 4 to 7 years. Leasehold improvements are capitalized and
depreciated using the straight-line method over the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter. Property held for sale is carried at the lower of cost or fair value.
Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying
amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Federal Reserve Bank and Federal Home Loan Bank Stock: Federal Reserve Bank (“FRB”) and Federal Home Loan
Bank (“FHLB”) stocks are required investments for institutions that are members of the FRB and FHLB systems. FRB and
FHLB stocks are carried at cost, considered restricted securities and are periodically evaluated for impairment based on the
ultimate recovery of par value. Both cash and stock dividends are reported as income.
Goodwill and Core Deposit Intangibles: Goodwill results from business acquisitions and represents the excess of the
purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Core deposit
intangibles are acquired customer relationships arising from whole bank and branch acquisitions. Core deposit intangibles
are initially measured at fair value and then amortized over their estimated useful lives using an accelerated method. The
useful lives of the core deposits are estimated to generally be between seven and ten years. Goodwill and core deposit
intangibles are assessed at least annually for impairment and any such impairment is recognized and expensed in the period
identified. The Company has selected December 31 as the date to perform its annual goodwill impairment test. Goodwill is
the only intangible asset with an indefinite useful life.
Credit Related Financial Instruments: Credit related financial instruments include off-balance-sheet credit instruments,
such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face
amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such
financial instruments are recorded when they are funded.
Derivatives: The Company is exposed to interest rate risk primarily from the effect of interest rate changes on its
interest-earning assets and its sources of funding these assets. The Company will periodically enter into interest rate swaps or
interest rate caps/floors to manage certain interest rate risk exposure.
An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the
dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. Typically, an interest
rate swap transaction is used as an exchange of cash flows based on a fixed rate for cash flows based on a variable rate.
In an interest rate cap agreement, a cash flow is generated if the price or interest rate of an underlying variable rises
above a certain threshold price or interest rate. In an interest rate floor agreement, a cash flow is generated if the price or
interest rate of an underlying variable falls below a certain threshold price or interest rate. Caps and floors are designed as
protection against the interest rate on a variable rate asset or liability rising above or falling below a certain level.
At the inception of a derivative contract, the Company designates the derivatives as one of three types based on the
Company’s intentions and belief as to likely effectiveness as a hedge. These three types are: (1) a hedge of the fair value of
a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”); (2) a hedge of a forecasted
transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”);
or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss on the
derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair value changes.
For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into
earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the
fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the
hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for
hedge accounting are reported currently in earnings as non-interest income.
F-12
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest
expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are
reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of
the items being hedged unless the derivative meets the criteria to be a financing derivative. All derivatives are recognized in
the consolidated balance sheet at their fair values and are reported as either derivative assets or derivative liabilities net of
accrued net settlements and collateral, if any. The individual derivative amounts are netted by counterparty when the netting
requirements have been met. If these netted values are positive, they are classified as an asset and, if negative, they are
classified as a liability.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-
management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This
documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to
specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception
and on an ongoing basis, at least quarterly, whether the derivative instruments that are used are highly effective in offsetting
changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines
that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative
is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm or
treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest
income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value
and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow
hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that are
accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions
will affect earnings.
The Company has entered into interest rate cap derivatives to assist with interest rate risk management. These
derivatives are not designated as hedging instruments but rather as stand-alone derivatives. The fair values of stand-alone
derivatives are included in other assets and other liabilities. Changes in fair value of stand-alone derivatives are recorded
through earnings as non-interest income.
Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities and are computed using enacted tax rates. A
valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is
recognized as a benefit only if it is “more likely than not” that the tax position will be sustained in a tax examination, with ah
tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is more likely than
not to be realized on examination. On December 22, 2017, the President of the United States signed the 2017 Tax Cuts and
Jobs Act (Tax Reform) which reduced the U.S. federal statutory corporate income tax rate from 35% to 21% beginning in
2018. On the same date, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, which specifies
that reasonable estimates of the income tax effects of Tax Reform should be used to account for the effects of Tax Reform in
the period of enactment as required by general accepted accounting principals and also provided for a measurement period
that should not extend beyond one year from Tax Reform’s enactment date. The Company has accounted for the effects of
Tax Reform using reasonable estimates based on currently available information. This accounting may change due to
changes in interpretations the Company has made and the issuance of new tax or accounting guidance.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. During 2016
there was $1 paid to the Missouri Department of Revenue. No such interest or penalties were incurred in 2017 or 2015.
Earnings Per Common Share: Net income, less dividends and discount accretion on preferred stock, equals net income
allocable to common stockholders. Basic earnings per common share is net income allocable to common stockholders
divided by the weighted average number of common shares and vested restricted stock units outstanding during the
period. Diluted earnings per common share include the dilutive effect of additional potential common shares of unexercised
stock options and unvested restricted stock units.
F-13
Share-Based Payments: The Company has share-based payments which are described more fully in a subsequent
note. Compensation expense associated with the stock option plan is based on the fair value of the options at the grant
date. This compensation is expensed over the periods during which the options vest. Options vest based on the passage of
time or the achievement of performance targets, depending on the structure of the related grant.
Compensation expense associated with restricted stock units is based on the fair value of the units at the grant
date. This compensation expense is recognized ratably over the service period stipulated in the grant agreement.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains and losses on securities available-for-sale and the amortization of
unrealized gains and losses on securities transferred to held-to-maturity from available-for-sale.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business,
are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Additional discussion of loss contingencies at December 31, 2017, is presented in a subsequent note.
Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory
reserve and clearing requirements.
Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid
by the wholly owned subsidiaries to the holding company or by the holding company to stockholders.
Fair Value: Fair values of financial instruments, impaired loans, other real estate owned and property held for sale are
estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value
estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments,
collateral values and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or
in market conditions could materially affect the estimates.
Segment Information: As a community oriented financial institution, substantially all of the Company’s operations
involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses
performance based on an ongoing review of these banking operations, which constitute the Company’s only operating
segment for financial reporting purposes.
Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current
presentation. Management determined the items reclassified are immaterial to the consolidated financial statements taken as
a whole and did not result in a change in equity or net income for years ended December 31, 2017, 2016 and 2015.
Initial Public Offering (IPO): On November 16, 2015, the Company completed an IPO of 2,231,000 shares of Class A
common stock, $0.01 par value. The Company sold 1,941,000 shares and selling stockholders sold 290,000 shares, which
included 273,000 shares of Class A common stock that were issued upon the automatic conversion of an equal number of
shares of Class B common stock as a result of the offering. All of the shares issued and sold in the initial public offering
were registered under the Securities Act pursuant to a Registration Statement on Form S-1, which was declared effective by
the Securities and Exchange Commission (SEC) on November 10, 2015. The Company is an “emerging growth company” as
defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). Pursuant to the JOBS Act, an emerging growth
company is provided the option to adopt new or revised accounting standards that may be issued by the Financial Accounting
Standards Board (FASB) or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth
companies or (ii) within the same time periods as private companies. The Company has irrevocably elected to adopt new
accounting standards within the public company adoption period.
Recent Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which amended existing guidance
related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue
recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model,
changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed
guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the
accounting for some costs to obtain or fulfill a contract with a customer. These amendments are effective for annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early
application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting
F-14
periods within that period. The amendments should be applied retrospectively to all periods presented or retrospectively with
the cumulative effect recognized at the date of initial application. Interest income earned on financial instruments is outside
the scope of the update and as a result, the impact of the update is limited to certain components of noninterest income. The
Company’s noninterest income is generated by customer transactions or through the passage of time and as a result the
pattern or timing of income recognition is not expected to be impacted under the update. The Company has evaluated the
impact of this new accounting standard on the consolidated financial statements and has concluded that the most significant
impact will be the disaggregated disclosure of certain components of noninterest income.
In January 2016, FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial
Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments.
The main provisions of the update are to eliminate the available-for-sale classification of accounting for equity securities and
to adjust fair value disclosures for financial instruments carried at amortized costs such that the disclosed fair values represent
an exit price as opposed to an entry price. The amendments are effective for fiscal years beginning after December 15, 2017,
including interim periods within those years. Generally, early adoption of the amendments in this update is not permitted.
An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning
of the fiscal year of adoption. At December 31, 2017, the Company had available-for-sale equity securities totaling $486.
When ASU 2016-01 is adopted in the first quarter of 2018, changes in the market value of these securities will be recognized
through income rather than other comprehensive income and market values utilized in disclosures will be based on exit
prices.
In February 2016, FASB issued ASU 2016-02, Leases, with the intention of improving financial reporting about
leasing transactions. The ASU requires all lessees to recognize lease assets and lease liabilities on the balance sheet. Lessor
accounting is largely unchanged by the ASU, however disclosures about the amount, timing and uncertainty of cash flows
arising from leases are required of both lessees and lessors. The ASU is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018. Lessees and lessors are required to recognize and measure leases at
the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach
provides for optional practical expedients when applying the ASU to leases that commenced before the effective date of the
ASU. The Company is currently evaluating the impact of this new accounting standard on the consolidated financial
statements but expects that assets and liabilities will increase to reflect the impact of this standard.
In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which will change how the
Company measures credit losses for most of its financial assets. This guidance is applicable to loans held for investment, off-ff
balance-sheet credit exposures, such as loan commitments and standby letters of credit, and held-to-maturity investment
securities. The Company will be required to use a new forward-looking expected loss model that is anticipated to result in
the earlier recognition of allowances for losses. For available-for-sale securities with unrealized losses, the Company will
measure credit losses in a manner similar to current practice, but will recognize those credit losses as allowances rather than
reductions in the amortized cost of the securities. In addition, the ASU requires significantly more disclosure including
information about credit quality by year of origination for most loans. The ASU is effective for the Company beginning in
the first quarter of 2020. Generally, the amendments will be applied through a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently
gathering the historical loss data by portfolio and class of financial instrument to estimate the life of financial instrument
credit loss and is developing the supporting system requirements to routinely generate the reported values. At this time, an
estimate of the impact to the Company’s financial statements is not known.
In August 2016, FASB issued accounting standards update No. 2016-15, Statement of Cash Flows (Topic 230). This
update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice of how
certain cash receipts and cash payments are presented and classified in the statement of cash flow. The amendments in this
update are effective for fiscal years and interim periods beginning after December 15, 2017, however, early adoption is
permitted. Management is currently in the process of evaluating the impact of this new accounting standard but does not
expect a material impact to its financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other, which will simplify the subsequent
measurement of goodwill. Goodwill and other intangibles must be assessed for impairment annually. If an entity’s
assessment determines that the fair value of an entity is less than its carrying amount, including goodwill, currently, the
measurement of goodwill impairment requires that the entity’s identifiable net assets be valued following procedures similar
to determining the fair value of assets acquired and liabilities assumed in a business combination. Under ASU 2017-04,
goodwill impairment is measured to the extent that the carrying amount of an entity exceeds its fair value. The amendments
in this update are effective for the Company’s annual goodwill impairment tests beginning in 2020. The amendments will be
applied on a prospective basis. The Company is currently evaluating the impact of this new accounting standard but does not
expect a material impact to its financial statements.
F-15
In March 2017, FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities. This
update shortens the amortization period of certain callable debt securities held at a premium to the earliest call date. The
amendments in this update are effective for the Company’s fiscal year beginning after December 15, 2018, and interim
periods within that fiscal year, however, early adoption is permitted. If early adoption of this update is elected by the
Company, any adjustments will be reflected as of the beginning of the fiscal year. The amendments will be applied on a
modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of
adoption and the Company will be required to provide change in accounting principle disclosures. The Company is currently
evaluating the impact of this new accounting guidance and an estimate of the impact to the Company’s financial statements is
not known at this time.
In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for
Hedging Activities, with the stated objective of improving the financial reporting of hedging relationships to better reflect the
economics of hedging transactions and to simplify the application of hedge accounting. The amendments are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Potential effects on the
Company’s current hedging activities include eliminating the requirement to separately measure and report hedge
ineffectiveness, providing additional flexibility for measuring the change in fair value of the hedged item in fair value hedges
of interest rate risk and easing certain hedge documentation and assessment requirements. Initial evaluation of this new
accounting standard indicates that it will not materially impact the Company’s financial statements.
In February 2018, FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income, which allows an optional reclassification of stranded tax effects included in accumulated other
comprehensive income, resulting from the reduction in the U.S. statutory corporate income tax rate. As a result of Tax
Reform, the Company recognized a $1,086 re-measurement of its net deferred tax assets, including a re-measurement of $535
in a net deferred tax asset related to unrealized losses on available-for-sale securities and held-to-maturity securities
previously transferred from available-for-sale. Because the tax effect of variations in unrealized losses on available-for-sale
securities and transferred held-to-maturity securities impact accumulated other comprehensive income, the Company had a
stranded tax effect of $535 as of the date of enactment. The provisions of the ASU are effective for all entities beginning
with fiscal years commencing after December 15, 2018, with early adoption allowed in any interim period or for financial
statements not yet issued as of the date FASB issued the ASU. The Company elected to early adopt this standard resulting in
a reclassification of $535 from accumulated other comprehensive income to retained earnings.
NOTE 2 – BUSINESS COMBINATIONS
On November 10, 2017, the Company acquired 100% of the outstanding common shares of Eastman National
Bancshares, Inc., based in Newkirk, Oklahoma (“Eastman”). Results of operations of Eastman were included in the
Company’s results of operations beginning November 11, 2017. Acquisition-related costs associated with this merger were
$2,925 ($1,920 on an after-tax basis) and are included in merger expenses in the Company’s income statement for the year
ended December 31, 2017.
F-16
Information necessary to recognize the fair value of assets acquired and liabilities assumed is complete except for
certain matters related to loans and taxes. The fair value of consideration exchanged exceeded the recognized amounts of the
identifiable net assets and resulted in goodwill of $20,687. Goodwill resulted from a combination of expected synergies,
expansion in northern Oklahoma with the addition of four branch locations, growth opportunities and increases in stock
prices after the stock exchange ratios were negotiated. The following table summarizes the consideration paid for Eastman
and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.
Fair value of consideration:
Common stock
Cash
Recognized amounts of identifiable assets acquired and
liabilities assumed:
Cash and due from banks
Available-for-sale securities
Federal Reserve Bank and Federal Home Loan Bank stock
Loans
Premises and equipment
Core deposit intangibles
Other real estate owned
Interest receivable
Other assets
Total assets acquired
Deposits
Federal funds purchased and retail repurchase agreements
Interest payable and other liabilities
Total liabilities assumed
Total identifiable net assets
Goodwill
$
$
$
$
39,109
8,040
47,149
14,698
59,778
434
177,880
1,903
4,020
41
998
1,047
260,799
224,111
8,678
1,548
234,337
26,462
20,687
47,149
The fair value of net assets acquired includes fair value adjustments to certain loans that were not considered purchased
credit impaired as of the merger date. The fair value adjustments were determined using discounted contractual cash flows.
However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As
such, these loans were not considered impaired at the merger date and were not subject to the guidance relating to purchased
credit impaired loans, which have shown evidence of credit deterioration since origination. Cash flows associated with
purchased credit impaired loans are not considered reasonably predictable and as such these loans are considered nonaccrual.
The following table presents the best available information about the loans acquired in the Eastman merger as of the
date of merger.
Contractually required principal
Non-accretable difference (expected losses)
Cash flows expected to be collected
Accretable yield
Fair value of acquired loans
Non-Credit
Impaired
Purchased Credit
Impaired
$
$
171,788 $
—
171,788
(2,680)
169,108 $
12,849
(4,077)
8,772
—
8,772
F-17
The following table presents the carrying value of the loans acquired in the Eastman merger by class, as of the date of
merger.
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Fair value of acquired loans
Non-Credit
Impaired
Purchased
Credit
Impaired
$
$
71,917 $
36,645
36,846
7,080
5,158
11,462
169,108 $
5,326 $
1,545
458
33
—
1,410
8,772 $
Total
77,243
38,190
37,304
7,113
5,158
12,872
177,880
Also on November 10, 2017, the Company acquired 100% of the outstanding common shares of Cache Holdings, Inc.,
based in Tulsa, Oklahoma ( “Cache”). Results of operations of Cache were included in the Company’s results of operations
beginning November 11, 2017. Acquisition-related costs associated with this merger were $1,483 ($1,031 on an after-tax
basis) and are included in merger expenses in the Company’s income statement for the year ended December 31, 2017.
Information necessary to recognize the fair value of assets acquired and liabilities assumed is complete except for
certain matters related to loans and taxes. The fair value of consideration exchanged exceeded the recognized amounts of the
identifiable net assets and resulted in goodwill of $19,633. Goodwill resulted from a combination of expected synergies,
expansion in the Tulsa metro area with the addition of one branch location, growth opportunities and increases in stock prices
after the stock exchange ratios were negotiated. The following table summarizes the consideration paid for Cache and the
amounts of the assets acquired and liabilities assumed recognized at the acquisition date.
Fair value of consideration:
Common Stock
Cash
Recognized amounts of identifiable assets acquired and
liabilities assumed:
Cash and due from banks
Federal Reserve Bank and Federal Home Loan Bank stock
Loans held for sale
Loans held for investment
Premises and equipment
Core deposit intangibles
Bank-owned life insurance
Interest receivable
Other assets
Total assets acquired
Deposits
Federal Home Loan Bank advances
Bank stock loan
Interest payable and other liabilities
Total liabilities assumed
Total identifiable net assets
Goodwill
$
$
$
$
39,480
12,877
52,357
10,273
2,053
13,501
287,214
4,235
1,580
3,883
778
263
323,780
278,706
9,402
1,000
1,948
291,056
32,724
19,633
52,357
The fair value of net assets acquired includes fair value adjustments to certain loans that were not considered purchased
credit impaired as of the merger date. The fair value adjustments were determined using discounted contractual cash flows.
However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As
such, these loans were not considered impaired at the merger date and were not subject to the guidance relating to purchased
credit impaired loans, which have shown evidence of credit deterioration since origination. Cash flows associated with
purchased credit impaired loans are not considered reasonably predictable and as such these loans are considered nonaccrual.
F-18
The following table presents the best available information about the loans acquired in the Cache merger as of the date
of merger.
Contractually required principal
Non-accretable difference (expected losses)
Cash flows expected to be collected
Accretable yield
Fair value of acquired loans
Non-Credit
Impaired
Purchased Credit
Impaired
$
$
288,959 $
—
288,959
(3,017)
285,942 $
2,035
(371)
1,664
(392)
1,272
The following table presents the carrying value of the loans acquired in the Cache merger by class, as of the date of
merger.
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Fair value of acquired loans
Non-Credit
Impaired
Purchased
Credit
Impaired
$
$
199,151 $
83,181
2,027
265
1,318
285,942 $
918 $
354
—
—
—
1,272 $
Total
200,069
83,535
2,027
265
1,318
287,214
On March 10, 2017, the Company acquired 100% of the outstanding common shares of Prairie State Bancshares, Inc.,
based in Hoxie, Kansas (“Prairie”). Results of operations of Prairie were included in the Company’s results of operations
beginning March 11, 2017. Acquisition-related costs associated with this merger were $926 ($576 on an after-tax basis) and
are included in merger expenses in the Company’s income statement for the year ended December 31, 2017.
Information necessary to recognize the fair value of assets acquired and liabilities assumed is complete. The fair value
of consideration exchanged exceeded the recognized amounts of the identifiable net assets and resulted in goodwill of
$5,713. Goodwill resulted from a combination of expected synergies, expansion in western Kansas with the addition of three
branch locations, growth opportunities and increases in stock prices after the stock exchange ratios were negotiated. The
following table summarizes the consideration paid for Prairie and the amounts of the assets acquired and liabilities assumed
recognized at the acquisition date.
Fair value of consideration:
Common stock
Cash
Recognized amounts of identifiable assets acquired and
liabilities assumed:
Cash and due from banks
Available-for-sale securities
Held-to-maturity securities
Federal Reserve Bank and Federal Home Loan Bank stock
Loans
Premises and equipment
Core deposit intangibles
Other assets
Total assets acquired
Deposits
Interest payable and other liabilities
Total liabilities assumed
Total identifiable net assets
Goodwill
F-19
$
$
$
$
15,242
12,255
27,497
6,579
3,427
971
198
129,997
2,424
1,448
2,331
147,375
125,353
238
125,591
21,784
5,713
27,497
The fair value of net assets acquired includes fair value adjustments to certain loans that were not considered purchased
credit impaired as of the merger date. The fair value adjustments were determined using discounted contractual cash flows.
However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As
such, these loans were not considered impaired at the merger date and were not subject to the guidance relating to purchased
credit impaired loans, which have shown evidence of credit deterioration since origination. Cash flows associated with
purchased credit impaired loans are not considered reasonably predictable and as such these loans are considered nonaccrual.
The following table presents the best available information about the loans acquired in the Prairie merger as of the date
of merger.
Contractually required principal
Non-accretable difference (expected losses)
Cash flows expected to be collected
Accretable yield
Fair value of acquired loans
Non-Credit
Impaired
Purchased Credit
Impaired
$
$
123,519 $
—
123,519
(2,279)
121,240 $
11,430
(2,673)
8,757
—
8,757
The following table presents the carrying value of the loans acquired in the Prairie merger by class, as of the date of
merger.
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Fair value of acquired loans
Non-Credit
Impaired
Purchased
Credit
Impaired
$
$
9,224 $
11,203
137
25,593
1,451
73,632
121,240 $
144 $
974
—
2,960
—
4,679
8,757 $
Total
9,368
12,177
137
28,553
1,451
78,311
129,997
Assuming that the Prairie, Eastman and Cache mergers would have taken place on January 1, 2016, total combined
revenue would have been $141,843 for year ended December 31, 2017 and $106,969 for year ended December 31, 2016. Net
income would have been $32,539 and $24,480 at December 31, 2017 and 2016. The pro forma amounts disclosed exclude
merger expense from non-interest expense, which is considered a material non-recurring adjustment. Separate revenue and
earnings of the former Prairie, Eastman and Cache are not available subsequent to the business combinations.
On November 10, 2016, the Company acquired 100% of the outstanding common shares of Community First
Bancshares, Inc., based in Harrison, Arkansas ( “Community First”). Results of operations of Community First were
included in the Company’s results of operations beginning November 11, 2016. Acquisition-related costs associated with
this merger were $4,616 and are included in merger expenses in the Company’s income statement for the year ended
December 31, 2016, which was $3,402 on an after-tax basis.
F-20
The fair value of consideration exchanged exceeded the recognized amounts of the identifiable net assets and resulted
in goodwill of $40,744. Goodwill resulted from a combination of expected synergies, expansion in northern Arkansas with
the addition of five branch locations, growth opportunities and increases in stock prices after the stock exchange ratios were
negotiated. The following table summarizes the consideration paid for Community First and the amounts of the assets
acquired and liabilities assumed recognized at the acquisition date.
Fair value of consideration:
Common stock
Cash
Recognized amounts of identifiable assets acquired and
liabilities assumed:
Cash and due from banks
Held-to-maturity securities
Federal Reserve Bank and Federal Home Loan Bank stock
Loans
Premises and equipment
Core deposit intangible
Other real estate owned
Deferred tax asset, net
Interest receivable
Other assets
Total assets acquired
Deposits
Federal funds purchased and retail repurchase agreements
Federal Home Loan Bank advances
Bank stock loan
Subordinated debentures
Interest payable and other liabilities
Total liabilities assumed
Total identifiable net assets
Goodwill
$
$
$
$
74,289
9,750
84,039
7,328
73,967
3,009
354,071
10,400
3,579
2,744
4,084
1,907
1,847
462,936
375,431
4,025
25,221
8,606
4,187
2,171
419,641
43,295
40,744
84,039
The fair value of net assets acquired includes fair value adjustments to certain loans that were not considered purchased
credit impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash
flows. However, the Company believes that all contractual cash flows related to these financial instruments will be
collected. As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance
relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. Cash flows
associated with purchased credit impaired loans are not considered reasonably predictable and as such these loans are
considered nonaccrual.
The following table presents the best available information about the loans acquired in the Community First acquisition
as of the date of acquisition.
Contractually required principal
Non-accretable difference (expected losses)
Cash flows expected to be collected
Accretable yield
Fair value of acquired loans
Non-Credit
Impaired
Purchased Credit
Impaired
$
$
343,785 $
—
343,785
(4,036)
339,749 $
22,069
(6,568)
15,501
(1,179)
14,322
F-21
The following table presents the carrying value of the loans acquired in the Community First acquisition by class, as of
the date of acquisition.
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Fair value of acquired loans
Non-Credit
Impaired
Purchased
Credit
Impaired
$
$
167,906 $
38,307
79,832
22,984
23,818
6,902
339,749 $
9,069 $
3,522
893
838
—
—
14,322 $
Total
176,975
41,829
80,725
23,822
23,818
6,902
354,071
Assuming that the merger would have taken place on January 1, 2015, total combined revenue would have been
$93,121 for year ended December 31, 2016 and $91,729 for year ended December 31, 2015. Net income would have been
$19,815 and $17,527 at December 31, 2016 and 2015. The pro forma amounts disclosed exclude merger expense from non-
interest expense, which is considered a material non recurring adjustment. Separate revenue and earnings of the former
Community First are not available subsequent to the business combination.
NOTE 3 – SECURITIES
The amortized cost and fair value of available-for-sale securities and the related gross unrealized gains and losses
recognized in accumulated other comprehensive income were as follows.
December 31, 2017
Available-for-sale securities
Residential mortgage-backed securities (issued by
government-sponsored entities)
State and political subdivisions
Equity securities
December 31, 2016
Available-for-sale securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$ 163,374 $
195
500
$ 164,069 $
36 $
—
—
36 $
(1,819) $ 161,591
195
486
(1,833) $ 162,272
—
(14)
U.S. Government-sponsored entities
Residential mortgage-backed securities (issued by
government-sponsored entities)
Corporate
Small Business Administration loan pools
State and political subdivisions
Equity securities
$
4,766 $
16 $
— $
4,782
88,257
3,000
210
499
500
97,232 $
$
93
39
13
—
—
161 $
(1,647)
—
—
—
(14)
(1,661) $
86,703
3,039
223
499
486
95,732
F-22
The amortized cost and fair value of held-to-maturity securities and the related gross unrecognized gains and losses
were as follows.
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair Value
December 31, 2017
Held-to-maturity securities
U.S. Government-sponsored entities
Residential mortgage-backed securities (issued by
government sponsored entities)
Corporate
Small Business Administration loan pools
State and political subdivisions
$
998 $
— $
(13) $
985
383,875
22,991
2,048
125,550
$ 535,462 $
573
355
—
1,694
2,622 $
(4,866)
—
(14)
(447)
379,582
23,346
2,034
126,797
(5,340) $ 532,744
December 31, 2016
Held-to-maturity securities
U.S. Government-sponsored entities
Residential mortgage-backed securities (issued by
government sponsored entities)
Corporate
Small Business Administration loan pools
State and political subdivisions
$
998 $
— $
(33) $
965
338,749
12,988
2,398
110,576
$ 465,709 $
686
139
1
1,211
2,037 $
334,733
(4,702)
13,099
(28)
2,382
(17)
109,977
(1,810)
(6,590) $ 461,156
The tables above present unrecognized losses on held-to-maturity securities since date of designation.
The fair value and amortized cost of debt securities at December 31, 2017, by contractual maturity, is shown
below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-
backed securities, are shown separately.
Available-for-Sale
Held-to-Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Within one year
One to five years
Five to ten years
After ten years
Mortgage-backed securities
Total debt securities
$
195 $
—
—
—
2,876
27,610
43,951
78,725
379,582
$ 163,569 $ 161,786 $ 535,462 $ 532,744
2,871 $
27,256
43,106
78,354
383,875
195 $
—
—
—
161,591
163,374
approximately $570,146 at December 31, 2017 and $439,208 at December 31, 2016. At year-end 2017 and 2016, there were
no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10%
of stockholders’ equity.
F-23
The following tables show gross unrealized losses and fair value aggregated by investment category and length of time
that individual securities have been in a continuous unrealized loss position at December 31, 2017 and 2016.
Less Than 12 Months
Fair
Value
Unrealized
Loss
12 Months or More
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
December 31, 2017
Available-for-sale securities
Residential mortgage-backed (issued by
government-sponsored entities)
Equity securities
Total temporarily impaired securities
December 31, 2016
Available-for-sale securities
Residential mortgage-backed (issued by
government-sponsored entities)
Equity securities
Total temporarily impaired securities
December 31, 2017
Held-to-maturity securities
U.S. Government-sponsored entities
Residential mortgage-backed (issued by
government-sponsored entities)
Corporate
Small Business Administration loan pools
State and political subdivisions
Total temporarily impaired securities
December 31, 2016
Held-to-maturity securities
U.S. Government-sponsored entities
Residential mortgage-backed (issued by
government-sponsored entities)
Corporate
Small Business Administration loan pools
State and political subdivisions
Total temporarily impaired securities
$ 78,884 $
—
$ 78,884 $
(437) $ 58,540 $ (1,382) $ 137,424 $ (1,819)
(14)
(437) $ 59,026 $ (1,396) $ 137,910 $ (1,833)
486
486
(14)
—
$ 77,414 $ (1,647) $
—
$ 77,414 $ (1,647) $
—
— $
486
486 $
— $ 77,414 $ (1,647)
(14)
(14)
486
(14) $ 77,900 $ (1,661)
Less Than 12 Months
Fair
Value
Unrealized
Loss
12 Months or More
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
$
— $
— $
985 $
(13) $
985 $
(13)
(6,293)
147,281
(16)
5,312
(39)
926
22,100
(562)
$ 175,619 $ (1,403) $ 226,719 $ (5,520) $ 402,338 $ (6,923)
(5,030) 345,520
5,312
2,034
(439) 48,487
(1,263) 198,239
—
1,108
(123) 26,387
—
(38)
(16)
(1)
$
965 $
(33) $
— $
— $
965 $
(33)
291,003
5,407
1,068
65,220
$ 363,663 $ (8,095) $ 15,281 $
(5,922) 10,801
3,166
1,314
—
(16)
(2)
(2,122)
(426) 301,804
8,573
(28)
(45)
2,382
— 65,220
(6,348)
(44)
(47)
(2,122)
(499) $ 378,944 $ (8,594)
As of December 31, 2017, the Company held 32 available-for-sale securities and 324 held-to-maturity securities in an
unrealized loss position. The tables above present unrealized losses on held-to-maturity securities since the date of their
purchase, independent of the impact associated with changes in cost basis upon transfer from the available-for-sale
designation to the held-to-maturity designation.
Unrealized losses on securities have not been recognized into income because the security issuers are of high credit
quality, management does not intend to sell and it is more likely than not that the Company will not be required to sell the
securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair
value is expected to recover as the securities approach maturity.
F-24
The proceeds from sales and the associated gains and losses on available-for-sale securities reclassified from other
comprehensive income to income are listed below.
Proceeds
Gross gains
Gross losses
Income tax expense on net realized gains
$
2017
84,087 $
271
—
103
2016
70,957 $
893
—
342
2015
17,105
370
—
142
Included in net gains on sales of and settlement of securities in the Company’s consolidated statement of income for
2016 the Company recorded an other-than-temporary impairment loss in the amount of $414. The impairment loss reflects
the difference between the amortized cost of the Company’s investment in AgriBank 9.125% subordinated notes, due July
2019 and the fair value attributable to AgriBank’s redemption call of those notes.
Included in net gains on sales of and settlement of securities in the Company’s consolidated statement of income for
2015 is $386 received in connection with the bankruptcy settlement related to a political subdivision security written off in
2011.
NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table lists categories of loans at December 31, 2017 and 2016.
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Total loans
Allowance for loan losses
Net loans
$
2017
987,661 $
507,519
376,705
86,486
49,361
95,547
2016
593,108
348,465
338,387
38,331
40,902
24,412
2,103,279 1,383,605
(6,432)
$ 2,094,781 $ 1,377,173
(8,498)
The Company participates in mortgage finance loans with another institution ( “originator”). These mortgage finance
loans consist of ownership interests purchased in single family residential mortgages funded through the originator’s
mortgage finance group. These loans are typically on the Company’s balance sheet for 10 to 20 days. As of December 31,
2017 and December 31, 2016 the Company had balances of $10,000 and $10,000 in mortgage finance loans classified as
commercial and industrial.
During 2017 the Company purchased one pool of residential real estate loans totaling $14,767. During 2016, the
Company purchased two pools of residential real estate loans totaling $38,362. As of December 31, 2017 and 2016,
residential real estate loans include $85,868 and $90,705 of purchased residential real estate loans.
Overdraft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $741 and
$567 at December 31, 2017 and 2016.
F-25
The following tables present the activity in the allowance for loan losses by class for the years ended December 31,
2017, 2016 and 2015.
December 31, 2017
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Total ending allowance balance
December 31, 2016
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Total ending allowance balance
December 31, 2015
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Total ending allowance balance
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real
Estate
Agricultural
Real
Estate
Consumer Agricultural Total
$
$
2,420 $
(69)
(271)
660
2,740 $
1,881 $
651
(431)
35
2,136 $
1,765 $
604
(350)
243
2,262 $
35 $
287
(16)
13
319 $
266 $
1,236
(1,025)
291
768 $
65 $ 6,432
244 2,953
(42) (2,135)
6 1,248
273 $ 8,498
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real
Estate
Agricultural
Real
Estate
Consumer Agricultural Total
$
$
2,051 $
725
(557)
201
2,420 $
1,366 $
700
(226)
41
1,881 $
1,824 $
75
(299)
165
1,765 $
29 $
6
(23)
23
35 $
187 $
567
(584)
96
266 $
49 $ 5,506
46 2,119
(31) (1,720)
1
527
65 $ 6,432
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real
Estate
Agricultural
Real
Estate
Consumer Agricultural Total
$
$
2,897 $
694
(1,668)
128
2,051 $
1,559 $
1,252
(1,468)
23
1,366 $
1,190 $
899
(296)
31
1,824 $
148 $
(119)
—
—
29 $
81 $
362
(309)
53
187 $
88 $ 5,963
(41) 3,047
— (3,741)
2
237
49 $ 5,506
The following tables present the recorded investment in loans and the balance in the allowance for loan losses by
portfolio and class based on impairment method as of December 31, 2017 and 2016.
December 31, 2017
Allowance for loan losses:
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real
Estate
Agricultural
Real
Estate
Consumer Agricultural
Total
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit impaired loans
Total
$
$
130 $
2,582
28
2,740 $
87 $
2,028
21
2,136 $
386 $
1,815
61
2,262 $
46 $
190
83
319 $
56 $
712
—
768 $
36 $
236
1
273 $
741
7,563
194
8,498
Loan Balance:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit impaired loans
Total
7,886 $
2,728 $
$
4,829 $
971,376 493,903 369,471
2,405
$ 987,661 $ 507,519 $376,705 $
13,557
5,730
533 $
556 $
82,493 48,802
3
3,460
86,486 $ 49,361 $
1,050 $
17,582
90,795 2,056,840
28,857
3,702
95,547 $2,103,279
F-26
December 31, 2016
Allowance for loan losses:
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real
Estate
Agricultural
Real
Estate
Consumer Agricultural
Total
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit impaired loans
Total
$
$
270 $
2,150
—
2,420 $
22 $
1,859
—
1,881 $
288 $
1,477
—
1,765 $
2 $
33
—
35 $
45 $
221
—
266 $
— $
65
—
65 $
627
5,805
—
6,432
Loan Balance:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit impaired loans
Total
550 $
3,182 $
$
3,321 $
577,863 344,414 332,962
2,104
$ 593,108 $ 348,465 $338,387 $
12,063
3,501
834 $
429 $
36,668 40,471
2
38,331 $ 40,902 $
829
3 $
8,319
24,409 1,356,787
18,499
24,412 $1,383,605
—
Excluding purchased credit impaired loans, included in the above tables is $796,064, $388,251 and $87,290 of loans
purchased at a discount acquired as part of a merger and the discount associated with these loans is $7,231, $3,596 and $502
at December 31, 2017, 2016 and 2015.
The following table presents information related to impaired loans, excluding those purchased credit impaired loans
which have not deteriorated since acquisition, by class of loans as of and for the year ended December 31, 2017.
December 31, 2017
With no related allowance recorded:
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Subtotal
With an allowance recorded:
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Subtotal
Total
Unpaid
Principal
Balance
Recorded
Investment
Allowance
for
Loan Losses
Allocated
Average
Recorded
Investment
Interest
Income
Recognized
$
$
1,878 $
8,679
1,230
52
1
7
11,847
4,049
1,310
4,868
1,266
677
1,798
13,968
25,815 $
1,567 $
8,020
969
52
—
7
10,615
1,597
1,113
4,468
1,034
559
1,444
10,215
20,830 $
— $
—
—
—
—
—
—
158
108
447
129
56
37
935
935 $
1,426 $
4,572
587
270
—
83
6,938
1,813
663
3,916
527
448
469
7,836
14,774 $
267
252
29
12
1
73
634
16
51
95
16
15
2
195
829
The above table presents interest income for the twelve months ended December 31, 2017. Interest income recognized
in the above table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest
receivable due to immateriality.
F-27
The following table presents information related to impaired loans, excluding purchased credit impaired loans which
have not deteriorated since acquisition, by portfolio and class of loans as of and for the year ended December 31, 2016.
December 31, 2016
With no related allowance recorded:
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Subtotal
With an allowance recorded:
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Subtotal
Total
Unpaid
Principal
Balance
Recorded
Investment
Allowance
for
Loan Losses
Allocated
Average
Recorded
Investment
Interest
Income
Recognized
$
$
904 $
510
1,230
824
53
—
3,521
4,493
265
2,433
23
449
3
7,666
11,187 $
676 $
309
980
812
51
—
2,828
2,506
240
2,341
23
378
3
5,491
8,319 $
— $
—
—
—
—
—
—
270
22
288
2
45
—
627
627 $
2,764 $
1,475
957
872
35
67
6,170
1,792
122
1,336
6
271
24
3,551
9,721 $
6
—
15
27
—
1
49
20
1
32
—
9
5
67
116
The above table presents interest income for the twelve months ended December 31, 2016. Interest income recognized
in the above table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest
receivable due to immateriality.
The following tables present the aging of the recorded investment in past due loans as of December 31, 2017 and 2016,
by portfolio and class of loans.
December 31, 2017
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Total
December 31, 2016
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Total
Greater Than
90 Days Past
Due Still On
Accrual
30 – 59
Days
Past Due
60 – 89
Days
Past Due
$
$
1,284 $
251
1,457
123
359
415
3,889 $
22 $
6
1,176
—
112
—
1,316 $
Total
Nonaccrual
Loans Not
Past Due
— $ 11,607 $ 974,748 $ 987,661
507,519
—
376,705
—
86,486
—
49,361
—
—
95,547
— $ 40,276 $2,057,798 $2,103,279
494,045
367,924
82,370
48,331
90,380
13,217
6,148
3,993
559
4,752
30 – 59
Days
60 – 89
Days
Past Due
Past Due
Greater Than
90 Days Past
Due Still On
Accrual
Nonaccrual
Loans Not
Past Due
Total
— $ 12,258 $ 577,107 $ 593,108
348,465
—
338,387
—
38,331
—
—
40,902
24,412
—
— $ 22,693 $1,355,137 1,383,605
343,995
332,887
36,667
40,124
24,357
4,051
4,285
1,664
432
3
$
$
2,955 $
419
368
—
303
52
4,097 $
788 $
—
847
—
43
—
1,678 $
F-28
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to
service their debt such as: current financial information, historical payment experience, credit documentation, public
information and current economic trends, among other factors. The Company analyzes loans individually by classifying the
loans as to credit risk. Consumer loans are considered unclassified credits unless downgraded due to payment status or
reviewed as part of a larger credit relationship. The Company uses the following definitions for risk ratings:
Pass: Loans classified as pass do not have any noted weaknesses and repayment of the loan is expected. These loans
are considered unclassified.
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the
loan or of the Company’s credit position at some future date. These loans are considered classified.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity
of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected. These loans are considered classified.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the
added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts,
conditions and values, highly questionable and improbable. These loans are considered classified.
The risk category of loans by class of loans is as follows as of December 31, 2017 and 2016.
December 31, 2017
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Total
December 31, 2016
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Consumer
Agricultural
Total
Unclassified
Classified
971,458 $
486,150
370,151
77,084
48,777
88,261
2,041,881 $
16,203 $
21,369
6,554
9,402
584
7,286
61,398
Unclassified
Classified
576,070 $
341,307
333,298
36,190
40,382
24,134
1,351,381 $
17,038 $
7,158
5,089
2,141
520
278
32,224
$
$
$
$
Total
987,661
507,519
376,705
86,486
49,361
95,547
2,103,279
Total
593,108
348,465
338,387
38,331
40,902
24,412
1,383,605
Purchased Credit Impaired Loans
The Company has acquired loans, for which there was, at acquisition, evidence of deterioration of credit quality since
origination and it was probable, at acquisition, that all contractually required payments would not be collected. The recorded
investments in purchased credit impaired loans as of December 31, 2017, 2016 and 2015 were as follows.
Contractually required principal payments
Discount
Recorded investment
2017
41,349 $
(12,492)
28,857 $
2016
27,413 $
(8,914)
18,499 $
2015
7,550
(1,794)
5,756
$
$
The accretable yield associated with these loans was $1,980, $1,063 and $935 as of December 31, 2017, 2016 and
2015. The interest income recognized on these loans was $1,785, $1,237 and $866 for the years ended December 31, 2017,
2016 and 2015. For the year ended December 31, 2017 there was $194 provision for loan losses recorded for these loans and
no provision for loan losses were recorded for these loans for the years ended December 31, 2016 and 2015.
F-29
Troubled Debt Restructurings
The company had no material loans modified under troubled debt restructurings as of December 31, 2017 and 2016.
NOTE 5 – OTHER REAL ESTATE OWNED
Changes in other real estate owned for the years ended December 31, 2017 and 2016 were as follows.
Beginning of year
Transfers in
Acquired in acquisition
Gain on sales
Proceeds from sales
Additions to valuation reserve
Recorded investment
2017
2016
$
$
8,656 $
4,562
41
121
(5,461)
7,919
(12)
7,907 $
5,811
3,006
2,744
156
(3,017)
8,700
(44)
8,656
Expenses related to other real estate owned for the years ended December 31, 2017, 2016 and 2015 were as follows.
Net loss (gain) on sales
Provision for unrealized losses
Operating expenses, net of rental income
2017
2016
2015
$
$
(121) $
12
632
523 $
(156) $
44
498
386 $
(131)
87
331
287
The balance of real estate owned includes $704 of foreclosed residential real estate properties recorded as a result of
obtaining physical possession of the property at December 31, 2017 and $1,938 at December 31, 2016. The recorded
investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings
are in process was $2,186 at December 31, 2017 and $1,006 at December 31, 2016.
NOTE 6 – PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as follows.
Land
Buildings and improvements
Furniture, fixtures and equipment
Less: accumulated depreciation
Premises and equipment, net
2017
2016
$
$
13,842 $
51,703
11,620
77,165
(13,716)
63,449 $
10,709
41,645
9,537
61,891
(11,376)
50,515
Operating Leases
The Company leases certain branch properties under operating leases. Rent expense was $691, $554 and $545 for
2017, 2016 and 2015. Rent commitments at December 31, 2017, before considering renewal options that generally are
present, were as follows.
Due in one year or less
Due after one year through two years
Due after two years through three years
Due after three years through four years
Due after four years through five years
Thereafter
Total
F-30
$
$
653
252
173
139
141
2,741
4,099
NOTE 7 – GOODWILL AND CORE DEPOSIT INTANGIBLES
The assets and liabilities acquired in business combinations are recorded at their estimated fair values at the acquisition
date. The excess of the purchase price over the estimated fair value of the net assets for tax free acquisitions is recorded as
goodwill, none of which is deductible for tax purposes. The excess of the purchase price over the estimated fair value of the
net assets for taxable acquisitions is recorded as goodwill and is deductible for tax purposes.
The carrying basis of goodwill and core deposit intangibles as of and for the years ended December 31, 2017 and 2016
were as follows.
Balance as of January 1, 2016
Acquired in acquisition
Amortization
Balance as of December 31, 2016
Acquired in acquisition
Amortization
Balance as of December 31, 2017
Goodwill
$
18,130 $
40,744
—
58,874
46,033
—
104,907 $
Core Deposit
1,549
3,579
(413)
4,715
7,048
(1,025)
10,738
$
Estimated amortization expense for each of the following five years and thereafter is listed in the following table.
Expensed in one year or less
Expensed after one year through two years
Expensed after two years through three years
Expensed after three years through four years
Expensed after four years through five years
Thereafter
Total
$
$
1,535
1,535
1,399
1,327
1,138
3,804
10,738
NOTE 8 – QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS
The Company invests in qualified affordable housing projects. At December 31, 2017, 2016 and 2015, the balances of
the investments in qualified affordable housing projects were $4,604, $4,983 and $4,939. These balances are reflected in the
other assets line in the consolidated balance sheets. Total unfunded commitments related to the investments in qualified
affordable housing projects totaled $1,967, $2,504 and $3,093 at December 31, 2017, 2016 and 2015. The Company expects
to fulfill these commitments during the years 2018 through 2023.
During the years ended December 31, 2017, 2016 and 2015, the Company recognized amortization expense of $376,
$296 and $224, which was included within pretax income on the consolidated statements of income. Additionally, during the
years ended December 31, 2017, 2016 and 2015, the Company recognized tax credits from its investment in affordable
housing tax credits of $657, $625 and $435.
NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS
Interest Rate Swaps Designated as Fair Value Hedges
The Company periodically enters into interest rate swaps to hedge the fair value of certain commercial real estate
loans. These transactions are designated as fair value hedges. In this type of transaction, the Company typically receives
from the counterparty a variable-rate cash flow based on the one-month London Interbank Offered Rate (LIBOR) plus a
spread to this index and pays a fixed-rate cash flow equal to the customer loan rate. At December 31, 2017, the portfolio of
interest rate swaps had a weighted average maturity of 8.7 years, a weighted average pay rate of 4.94% and a weighted
average rate received of 4.13%. At December 31, 2016, the portfolio of interest rate swaps had a weighted average maturity
of 9.0 years, a weighted average pay rate of 4.82% and a weighted average rate received of 3.50%.
F-31
Stand-Alone Derivatives
In 2009, the Company purchased an interest rate cap derivative to assist with interest rate risk management. This
derivative is not designated as a hedging instrument but rather as a stand-alone derivative. At December 31, 2017, the
interest rate cap had a term of 1.9 years and a cap rate of 4.50%. At December 31, 2016, the interest rate cap had a term of
2.9 years and a cap rate of 4.50%.
Reconciliation of Derivative Fair Values and Gains/(Losses)
The notional amount of a derivative contract is a factor in determining periodic interest payments or cash flows
received or paid. The notional amount of derivatives serves as a level of involvement in various types of derivatives. The
notional amount does not represent the Company’s overall exposure to credit or market risk, generally, the exposure is
significantly smaller.
The following table shows the notional balances and fair values (including net accrued interest) of the derivatives
outstanding by derivative type at December 31, 2017 and December 31, 2016.
Notional
Amount
December 31, 2017
Derivative
Assets
Derivative
Liabilities
Notional
Amount
December 31, 2016
Derivative
Assets
Derivative
Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps
$ 17,231 $
— $
46 $ 15,923 $
— $
17,231
—
46 15,923
—
39
39
Total derivatives designated as hedging
relationships
Derivatives not designated as hedging
instruments:
Interest rate caps/floors
Total derivatives not designated as hedging
instruments
Total
Cash collateral
Netting adjustments
Net amount presented in balance sheet
2,574
1
—
2,865
1
—
2,574
$ 19,805
$
1
1
—
164
165 $
—
2,865
46 $ 18,788
(210)
164
—
$
1
1
—
151
152 $
—
39
(190)
151
—
For the years ended December 31, 2017, 2016 and 2015, the Company recorded net losses on derivatives and hedging
activities.
Derivatives designated as hedging instruments:
Interest rate swaps
$
— $
— $
2017
2016
2015
Total net gain (loss) related to fair value hedge
ineffectiveness
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate caps/floors
Total net gains (losses) related to derivatives not
designated as hedging instruments
Net gains (losses) on derivatives and hedging activities
$
—
—
(1)
(1)
(1) $
(1)
(1)
(1) $
—
—
(9)
(9)
(9)
F-32
The following table shows the recorded net gains (losses) on derivatives and the related hedged items in fair value
hedging relationships and the impact of those derivatives on the Company’s net interest income for the years ended
December 31, 2017, 2016 and 2015.
December 31, 2017
Gain/(Loss)
on
Derivatives
Gain/(Loss)
on Hedged
Items
Net Fair Value
Hedge
Ineffectiveness
Effect of
Derivatives
on
Net Interest
Income
Commercial real estate loans
Total
$
$
12 $
12 $
(12) $
(12) $
— $
— $
(137)
(137)
December 31, 2016
Gain/(Loss)
on
Derivatives
Gain/(Loss)
on Hedged
Items
Net Fair Value
Hedge
Ineffectiveness
Effect of
Derivatives
on
Net Interest
Income
Commercial real estate loans
Total
$
$
211 $
211 $
(211) $
(211) $
— $
— $
(199)
(199)
December 31, 2015
Gain/(Loss)
on
Derivatives
Gain/(Loss)
on Hedged
Items
Net Fair Value
Hedge
Ineffectiveness
Effect of
Derivatives
on
Net Interest
Income
Commercial real estate loans
Total
$
$
(242) $
(242) $
242 $
242 $
— $
— $
(82)
(82)
NOTE 10 – DEPOSITS
Time deposits that met or exceeded the FDIC insurance limit of $250 totaled $245,321 and $158,932 as of December
31, 2017 and 2016.
At December 31, 2017 and 2016, brokered deposits of $62,988 and $5,427 were included in the Company’s time
deposit balance. Of the brokered deposits at December 31, 2017 and 2016, $22,934 and $4,427 were customer funds placed
in the Certificate of Deposit Account Registry Service (“CDARS”) program. CDARS allows Equity Bank to break large
deposits into smaller amounts and place them in a network of other CDARS banks to ensure that FDIC insurance coverage is
gained on the entire deposit. Although classified as brokered deposits for regulatory purposes, funds placed through the
CDARS program are Equity Bank’s customer relationships.
At December 31, 2017, the scheduled maturities of time deposits are as follows.
Due in one year or less
Due after one year through two years
Due after two years through three years
Due after three years through four years
Due after four years through five years
Thereafter
Total
$
$
503,803
123,235
58,090
33,171
56,886
1,314
776,499
F-33
NOTE 11 – BORROWINGS
Federal funds purchased and retail repurchase agreements
Federal funds purchased and retail repurchase agreements included the following at December 31, 2017 and 2016.
Federal funds purchased
Retail repurchase agreements
2017
2016
$
$
— $
37,492 $
—
20,637
Securities sold under agreements to repurchase (retail repurchase agreements) consist of obligations of the Company to
other parties. The obligations are secured by residential mortgage-backed securities held by the Company with a fair value of
$44,768 and $23,389 at December 31, 2017 and December 31, 2016. The agreements are on a day-to-day basis and can be
terminated on demand.
The following table presents the borrowing usage and interest rate information for federal funds purchased and retail
repurchase agreements at and for the years ended December 31, 2017 and 2016.
Average daily balance during the period
Average interest rate during the period
Maximum month-end balance during the period
Weighted average interest rate at period-end
$
$
2017
25,823
$
0.25%
$
0.23%
43,843
2016
22,599
0.26%
25,382
0.27%
Federal Home Loan Bank advances
Federal Home Loan Bank advances as of December 31, 2017 and 2016 were as follows.
Federal Home Loan Bank line of credit advances
Federal Home Loan Bank fixed rate term advances
Total Federal Home Loan Bank advances
2017
347,692 $
$
—
$
347,692 $
2016
259,588
—
259,588
At December 31, 2017 and 2016, the Company had $347,692 and $259,588 drawn against its line of credit at a
weighted average rate of 1.47% and 0.72%.
At December 31, 2017 and 2016, the Company had undisbursed advance commitments (letters of credit) with the
Federal Home Loan Bank of $5,690 and $0. These letters of credit were obtained in lieu of pledging securities to secure
public fund deposits that are over the FDIC insurance limit.
The advances, Mortgage Partnership Finance credit enhancement obligations and letters of credit were collateralized by
certain qualifying loans totaling $478,966 and $454,025 at December 31, 2017 and 2016. Based on this collateral and the
Company’s holdings of Federal Home Loan Bank stock, the Company was eligible to borrow an additional $125,271 and
$193,674 at December 31, 2017 and 2016.
Bank stock loan
At January 1, 2016, the Company had an outstanding balance of $18,612 on a fixed rate 4.00% loan (computed on the
basis of a 360 day year and the actual number of days elapsed) from an unaffiliated financial institution, secured by the
Company’s stock in Equity Bank. This borrowing was repaid on January 4, 2016 using proceeds from the Company’s initial
public offering (“IPO”).
On January 28, 2016, the Company entered into a new agreement with the same lender that provided for a maximum
borrowing facility of $20,000, secured by the Company’s stock in Equity Bank. At December 31, 2016, there was no
outstanding balance on this loan. The borrowing facility matured on January 26, 2017 and was subsequently extended, at
which time the Company entered into a new agreement with the same lender that provides for a maximum borrowing facility
of $30,000, secured by the Company’s stock in Equity Bank. The borrowing facility was recently renewed for an additional
year and will mature on March 13, 2019. Each draw of funds on the facility will create a separate note that is repayable over
F-34
a term of five years. Each note will bear interest at a variable interest rate equal to the prime rate published in the “Money
Rates” section of The Wall Street Journal (or any generally recognized successor), floating daily. Accrued interest and
principal payments will be due quarterly with one final payment of unpaid principal and interest due at the end of the five
year term of each separate note. The company is also required to pay an unused commitment fee in an amount equal to 20
basis points per annum on the unused portion of the maximum borrowing facility. At December 31, 2017, the Company had
an outstanding balance of $2,500 on this loan at a rate of 4.50%.
l
The terms of the borrowing facility require the Company and Equity Bank to maintain minimum capital ratios and
other covenants. The Company believes it is in compliance with the terms of the borrowing facility and has not been
otherwise notified of noncompliance.
NOTE 12 – SUBORDINATED DEBENTURES
In conjunction with the 2012 acquisition of First Community Bancshares, Inc. (FCB), the Company assumed certain
subordinated debentures owed to special purpose unconsolidated subsidiaries that are controlled by the Company, FCB
Capital Trust II and FCB Capital Trust III, (“CTII” and “CTIII”, respectively).
On March 24, 2005, CTII, an unconsolidated subsidiary of the Company, issued $10,000 of variable rate trust preferred
securities, all of which are outstanding at December 31, 2017 and 2016. The trust preferred securities issued by CTII accrue
and pay distributions quarterly at three-month LIBOR plus 2.00% (3.36% at December 31, 2017 and 2.88% at December 31,
2016) on the stated liquidation amount of the trust preferred securities. As an integral part of the acquisition of FCB, the
Company has guaranteed fully and unconditionally all of the obligations of CTII. The guaranty covers the quarterly
distributions and payments on liquidation or redemption of the trust preferred securities. These trust preferred securities are
mandatorily redeemable upon maturity on April 15, 2035 or upon earlier redemption. The Company has the right to redeem
the trust preferred securities in whole or in part, on or after April 15, 2015 at a redemption price specified in the indenture
plus any accrued but unpaid interest to the redemption date. The proceeds from the sale of the trust preferred securities and
the issuance of $310 in common securities to FCB were used by CTII to purchase $10,310 of floating rate subordinated
debentures of FCB which have the same payment terms as the trust preferred securities.
On March 30, 2007, CTIII, an unconsolidated subsidiary of the Company, issued $5,000 of variable rate trust preferred
securities, all of which are outstanding at December 31, 2017 and 2016. The trust preferred securities issued by CTIII accrue
and pay distributions quarterly at three-month LIBOR plus 1.89% (3.48% at December 31, 2017, and 2.85% at December 31,
2016) on the stated liquidation amount of the trust preferred securities. As an integral part of the acquisition of FCB, the
Company has guaranteed fully and unconditionally all of the obligations of CTIII. The guaranty covers the quarterly
distributions and payments on liquidation or redemption of the trust preferred securities. These trust preferred securities are
mandatorily redeemable upon maturity on June 15, 2037 or upon earlier redemption. The Company has the right to redeem
the trust preferred securities in whole or in part at a redemption price specified in the indenture plus any accrued but unpaid
interest to the redemption date. The proceeds from the sale of the trust preferred securities and the issuance of $155 in
common securities to FCB were used by CTIII to purchase $5,155 of floating rate subordinated debentures of FCB which
have the same payment terms as the trust preferred securities.
In conjunction with the 2016 acquisition of Community First Bancshares, Inc. (CFBI), the Company assumed certain
subordinated debentures owed to special purpose unconsolidated subsidiaries, Community First (AR) Statutory Trust I,
(“CFSTI”). The trust preferred securities issued by CFSTI accrue and pay distributions quarterly at three-month LIBOR plus
3.25% (4.92% at December 31, 2017 and 4.25% at December 31, 2016) on the stated liquidation amount of the trust
preferred securities. These trust preferred securities are mandatorily redeemable upon maturity on December 26, 2032 or
upon earlier redemption.
The common securities issued to the Company by the trusts possess sole voting rights with respect to matters involving
those entities. The Company has the right to defer the payment of interest on all of its outstanding trust preferred
securities. The Company has the right to declare such a deferral for up to 20 consecutive quarterly periods and deferral may
only be declared as long as the Company is not then in default under the provisions of the Amended and Restated Trust
Agreements. During the deferral period, interest on the indebtedness continues to accrue and the unpaid interest is
compounded. As long as the deferral period continues, the Company is prohibited from: (i) declaring or paying any dividend
on any of its capital stock, which would include both its common stock and the outstanding preferred stock issued to the
Treasury, or (ii) making any payment on any debt security that is ranked equally with or junior to the securities issued by the
trust.
F-35
As a part of the acquisition of FCB, the Company recorded the debentures at an estimated fair value of $8,270. As part
of the acquisition of CFBI, the Company recorded the debentures at an estimated fair value of $4,187. The initial fair value
adjustments will be amortized against earnings on a prospective basis. At December 31, 2017 and 2016, the contractual
balance and the unamortized fair value adjustments were as follows:
Contractual balance
Unamortized fair value adjustment
Net book value
2017
2016
$
$
20,620 $
(6,652)
13,968 $
20,620
(6,936)
13,684
Subordinated debentures are included in Tier 1 capital for purposes of determining the Company’s compliance with
regulatory capital requirements.
NOTE 13 – CONTRACTUAL OBLIGATIONS
At December 31, 2017 and 2016, the Company had contractual obligations of $1,967 and $2,504. Contractual
obligations represent commitments made by the Company to make capital investments in limited-liability entities that invest
in qualified affordable housing projects. The Company expects to fulfill these commitments during the years 2018 through
2024.
NOTE 14 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company’s articles of incorporation provide for the issuance of 10,000,000 shares of preferred stock.
On August 11, 2011, as part of the Small Business Lending Fund (“SBLF”), the Company entered into an SBLF
Purchase Agreement with the United States Treasury. Under the SBLF Purchase Agreement, the Company issued the Series
C preferred stock having a per share liquidation amount of $1,000 per share. The Series C preferred stock qualified as Tier 1
capital and paid quarterly dividends at a rate of 1.0% at December 31, 2015. At December 31, 2015, there were 16,372
shares of senior non-cumulative perpetual preferred stock, Series C (the Series C preferred stock) issued and outstanding. A
portion of the proceeds of the IPO were used to redeem the Series C preferred stock on January 4, 2016 at liquidation amount
of $16,372.
Common stock
The Company’s articles of incorporation provide for the issuance of 45,000,000 shares of Class A voting common
stock (“Class A common stock”) and 5,000,000 shares of Class B non-voting common stock (“Class B common stock”), both
of which have a par value of $0.01 per share. At December 31, 2017 and 2016, the following table presents shares that were
issued and were held in treasury or were outstanding.
Class A common stock – issued
Class A common stock – held in treasury
Class A common stock – outstanding
Class B common stock – issued
Class B common stock – held in treasury
Class B common stock – outstanding
2017
2016
15,876,650 12,393,124
(1,271,043) (1,271,043)
14,605,607 11,122,081
793,130
(234,903)
558,227
234,903
(234,903)
—
Treasury stock is stated at cost, determined by the first-in, first-out method.
On November 10, 2016, the Company completed its acquisition of Community First Bancshares, Inc. (“Community”)
of Harrison, Arkansas. There were a total of 2,689,690 shares of Class A common stock issued in connection with this
acquisition.
F-36
The Company closed a private placement of 770,000 shares of its Class A common stock at $32.50 per share on
December 20, 2016. The net proceeds of $23.6 million, after offering costs of $1.4 million, were used to pay off the
Company’s $6.0 million line of credit and will provide working capital for continuing growth strategies.
On March 10, 2017, the Company completed its merger with Prairie State Bancshares, Inc. (“Prairie”) of Hoxie,
Kansas. There were a total of 479,465 shares of Class A common stock issued in connection with this merger.
On November 10, 2017, the Company completed its mergers with Eastman National Bancshares, Inc. (“Eastman”) of
Newkirk, Oklahoma and Cache Holdings, Inc. (“Cache”) of Tulsa, Oklahoma. There were a total of 1,179,747 shares of
Class A common stock issued in connection with the Eastman merger and 1,190,941 shares of Class A common stock issued
in connection with the Cache merger.
Restricted stock unit plan termination loans
In connection with termination of the Company’s restricted stock unit plan (“RSUP”), 203,216 shares of Class A
common stock were issued in May 2015 to employees with vested restricted stock units. Additional paid-in capital includes
$224 of tax benefits in excess of those previously provided in connection with stock compensation expense. Also in
connection with the termination of the RSUP, the Company agreed to loan electing participants an amount equal to each
participant’s federal and state income tax withholding obligation associated with the stock issuance. These loans totaling
$121 at December 31, 2017, are collateralized by the shares received with a maturity date of December 31, 2018, and an
interest rate of 1.68%.
Accumulated other comprehensive income (loss)
For the years ended December 31, 2017 and 2016, accumulated other comprehensive income consisted of (i) the after
tax effect of unrealized gains (losses) on available-for-sale securities and (ii) the after tax effect of unamortized unrealized
gains (losses) on securities transferred from the available-for-sale designation to the held-to-maturity designation. During
2017, 2016 and 2015, gains of $271, $893 and $370 were reclassified from accumulated other comprehensive income to net
gains on sales of and settlement of securities within the consolidated statement of income and $532, $615 and $767 of
accretion expense were reclassified from accumulated other comprehensive income to taxable interest income on securities
within the consolidated statement of income.
Components of accumulated other comprehensive income as of December 31, 2017 and 2016 were as follows.
December 31, 2017
Net unrealized or unamortized gains (losses)
Tax effect
December 31, 2016
Net unrealized or unamortized gains (losses)
Tax effect
Available
-for-Sale
Securities
Held-to
-Maturity
Securities
Accumulated
Other
Comprehensive
Income
$
$
$
$
(1,797) $
455
(1,342) $
(2,344) $
594 $
(1,750) $
(1,500) $
574
(926) $
(2,876) $
1,100
(1,776) $
(4,141)
1,049
(3,092)
(4,376)
1,674
(2,702)
F-37
NOTE 15 – INCOME TAXES
Income tax expense is listed in the following table.
Current income tax expense
Federal
State
Total current income tax expense
Deferred income tax expense
Federal
State
Total deferred income tax expense
Total income tax expense
2017
2016
2015
$
$
6,474 $
1,282
7,756
2,550
71
2,621
10,377 $
2,863 $
723
3,586
865
44
909
4,495 $
1,157
558
1,715
2,263
164
2,427
4,142
A reconciliation of income tax expense at the U.S. federal statutory rate (35% in 2017, 2016 and 2015) to the
Company’s actual income tax expense is shown below.
Computed at the statutory rate
Increase (decrease) resulting from:
State and local taxes, net of federal benefit
Tax-exempt interest
Non-taxable life insurance income
Non-deductible expenses
Share-based payments
Federal tax credits
Gain on acquisition
Change in valuation allowance
Effect of tax reform
Other
Income tax expense
$
2017
10,862 $
$
2016
2015
4,854 $
5,055
717
(1,177)
(506)
376
(335)
(660)
—
187
1,086
(173)
10,377 $
449
(576)
(350)
689
—
(625)
—
65
—
(11)
4,495 $
457
(370)
(335)
167
—
(435)
(239)
13
—
(171)
4,142
On December 22, 2017, Tax Reform was enacted which reduced the U.S. federal statutory income tax rate from 35% to
21% effective January 1, 2018. On the same date, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 118, which specifies that reasonable estimates of the income tax effects of Tax Reform should be used to account for the
effects of Tax Reform in the period of enactment as required by generally accepted accounting principals and also provided
for a measurement period that should not extend beyond one year from Tax Reform’s enactment date. The Company has
accounted for the effects of Tax Reform using reasonable estimates based on currently available information. This
accounting may change due to changes in interpretations the Company has made and the issuance of new tax or accounting
guidance. The direct impact to the 2017 financial statements was the re-measurement of the Company’s December 31, 2017,
deferred tax assets and liabilities which are expected to reverse beginning in 2018. The re-measurement of the Company’s
net deferred tax asset resulted in $1,086 additional income tax expense being recognized in 2017, including a $535 decrease
in the net deferred tax assets related to unrealized or unamortized losses on securities. The impact of this re-measurement is
included in the statutory rate reconciliation above.
With the exception of the revaluation adjustment required by Tax Reform, the deferred tax effects of unrealized or
unamortized gains and losses on securities are recorded directly to stockholders’ equity as part of other comprehensive
income. Effective January 1, 2017, the Company adopted the provisions of ASU 2016-09 on a prospective basis. In
accordance with ASU 2016-09, $335 tax benefits, which were generated when the tax deduction for share-based payments
exceeded book compensation costs, reduced income tax expense for the year ended December 31, 2017. Prior to the
adoption of ASU 2016-09, excess tax benefits associated with share-based payments were recognized in paid-in-capital and
totaled $13 and $224 in 2016 and 2015.
F-38
Components of deferred tax assets and liabilities are shown in the table below.
Deferred tax assets
Allowance for loan losses
Net unrealized or unamortized losses on securities
Tax credit carryforwards
Accrued compensation
Net operating loss carryforwards
Other real estate owned
Acquired loans fair market value adjustments
Other
Gross deferred tax assets
Deferred tax liabilities
Assumed debt fair market value adjustments
Goodwill amortization
Depreciation
Federal Home Loan Bank stock dividends
Core deposit intangibles
Other
Gross deferred tax liabilities
State valuation allowance
Net deferred tax asset
2017
2016
$
$
$
2,121 $
1,034
974
1,208
797
588
4,532
404
11,658
1,607
1,267
1,831
764
2,301
360
8,130
(571)
2,957 $
2,460
1,674
974
1,450
880
1,764
4,279
616
14,097
2,608
1,685
2,153
882
1,715
360
9,403
(382)
4,312
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or
recovered. In 2017, the Company recognized deferred tax assets of $2,832 and deferred tax liabilities of $2,075 for
temporary differences associated with the Eastman merger and deferred tax assets of $1,446 and deferred tax liabilities of
$694 for temporary differences associated with the Cache merger. In 2016, the Company recognized deferred tax assets of
$6,621 and deferred tax liabilities of $2,537 for temporary differences associated with the Community First merger. Federal
net operating losses, acquired through previous acquisitions, totaled $880 at December 31, 2017 and will expire between
2030 and 2031. Acquired federal tax credits totaling $974 will expire between 2027 and 2034. The utilization of these net
operating loss and tax credit carryforwards are not expected to be limited by internal revenue code sections 382 and 383.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of
Arkansas, Kansas, Missouri, Oklahoma and Iowa. Commercial banks are not allowed to file consolidated Kansas returns
with non-bank consolidated group members. The Company has unused state operating loss carryforwards of approximately
$15,160 that expire between 2018 and 2027 resulting from the separate Kansas returns of the Company and SA Holdings,
Inc. These operating losses, as well as certain deferred tax assets, have a full valuation allowance recorded against them
resulting in a zero carrying value. In connection with a 2015 acquisition, the Company acquired Kansas net operating losses
useable against Kansas bank income. At December 31, 2017, the Kansas net operating loss carryforward useable against
Kansas bank income totaled $3,622 with expiration dates between 2019 and 2022. The utilization of this acquired Kansas net
operating loss carryforward is expected to be limited, and a valuation allowance has been recorded against the portion which
is expected to expire unused. In establishing a valuation allowance management considers whether it is more likely than not
that some or all of the deferred tax assets will not be realized. The Company is no longer subject to examination by taxing
authorities for years before 2013. At December 31, 2017, there were no examinations in any jurisdiction.
NOTE 16 – REGULATORY MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking
agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can
initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for
U.S. banks (Basel III rules) became effective for the Company on January 1, 2015, with full compliance with all of the
requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The Basel III rules also
require banks to maintain a Common Equity Tier 1 capital ratio of 6.5%, a total Tier 1 capital ratio of 8%, a total capital ratio
F-39
of 10% and a leverage ratio of 5% to be deemed “well capitalized” for purposes of certain rules and prompt corrective action
requirements. The risk-based ratios include a “capital conservation buffer” of 2.5%. The new capital conservation buffer
requirement is to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount
each year until fully implemented in January 2019. An institution would be subject to limitations on certain activities,
including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below
the buffer amount. Management believes as of December 31, 2017, the Company and Bank meet all capital adequacy
requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent
overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as are asset growth and acquisitions and capital restoration plans are
required.
As of December 31, 2017, the most recent notifications from the federal regulatory agencies categorized Equity Bank
as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized,
Equity Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table.
There are no conditions or events since that notification that management believes have changed Equity Bank’s category.
The Company’s and Equity Bank’s capital amounts and ratios at December 31, 2017 and 2016, are presented in the
tables below. Ratios provided for Equity Bancshares, Inc. represent the ratios of the Company on a consolidated basis.
Minimum Required
for
Capital Adequacy
Under Basel III
Phase-In
Minimum Required
for
Capital Adequacy
Under Basel III
Fully Phased-In
To Be Well
Capitalized Under
Prompt Corrective
Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2017
Total capital to risk weighted assets
Equity Bancshares, Inc.
Equity Bank
$288,353 12.54% $212,705 9.25% $241,449 10.50% $
279,712 12.17% 212,682 9.25% 241,423 10.50% 229,927 10.00%
N/A N/A
Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.
Equity Bank
279,855 12.17% 166,715 7.25% 195,459 8.50%
271,214 11.80% 166,697 7.25% 195,438 8.50% 183,942 8.00%
N/A N/A
Common equity Tier 1 capital to risk
weighted assets
Equity Bancshares, Inc.
Equity Bank
Tier 1 leverage to average assets
Equity Bancshares, Inc.
Equity Bank
265,887 11.56% 132,222 5.75% 160,966 7.00%
271,214 11.80% 132,208 5.75% 160,949 7.00% 149,452 6.50%
N/A N/A
279,855 10.33% 108,372 4.00% 108,372 4.00%
271,214 10.01% 108,351 4.00% 108,351 4.00% 135,439 5.00%
N/A N/A
F-40
Minimum
Required for
Capital Adequacy
Under Basel III
Phase-In
Actual
Amount
Ratio
Amount
Ratio
Minimum
Required for
Capital Adequacy
Under Basel III
Fully Phased-In
Ratio
Amount
To Be Well
Capitalized Under
Prompt Corrective
Provisions
Amount
Ratio
December 31, 2016
Total capital to risk weighted assets
Equity Bancshares, Inc.
Equity Bank
$221,779 14.67% $130,372 8.63% $158,714 10.50% $
196,478 13.01% 130,283 8.63% 158,606 10.50% 151,053 10.00%
N/A N/A
Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.
Equity Bank
215,347 14.25% 100,141 6.63% 128,483 8.50%
190,046 12.58% 100,073 6.63% 128,395 8.50% 120,842 8.00%
N/A N/A
Common equity Tier 1 capital to risk
weighted assets
Equity Bancshares, Inc.
Equity Bank
201,663 13.34% 77,468 5.13% 105,809 7.00%
190,046 12.58% 77,415 5.13% 105,737 7.00% 98,184 6.50%
N/A N/A
Tier 1 leverage to average assets
Equity Bancshares, Inc.
Equity Bank
215,347 11.81% 72,920 4.00% 72,920 4.00%
190,046 10.42% 72,924 4.00% 72,924 4.00% 91,155 5.00%
N/A N/A
Equity Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory
approval.
NOTE 17 – RELATED PARTY TRANSACTIONS
At December 31, 2017 and 2016, the Company had loans outstanding to executive officers, directors, significant
stockholders, and their affiliates (related parties), in the amount of $3,892 and $3,713. Changes during 2017 are listed below.
Balance at January 1, 2017
New loans/advances
Repayments
Balance at December 31, 2017
2017
3,713
1,368
(1,189)
3,892
$
$
At December 31, 2017 and 2016, the Company had deposits from executive officers, directors, significant
stockholders, and their affiliates (related parties), in the amount of $6,274 and $5,351.
NOTE 18 – EMPLOYEE BENEFITS
The Company has a defined contribution profit sharing plan and a retirement savings 401(k) plan covering substantially
all employees. Employees may contribute up to $18 of their compensation. Contributions to the profit sharing plan and
401(k) plan are discretionary and are determined annually by the Board of Directors. Employer contributions charged to
expense for 2017, 2016 and 2015 were $704, $479 and $414.
As a result of the acquisition of First Independence, the Company assumed the obligations related to First
Independence’s participation in the Pentegra Defined Benefit Plan for Financial Institutions, a tax-qualified defined benefit
pension plan. The Pentegra Defined Benefit Plan is treated as a multi-employer plan for accounting purposes but operates as
a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue
Code. As a result, certain multi-employer plan disclosures are not applicable to the Pentegra Defined Benefit Plan. Under
the Pentegra Defined Benefit Plan, contributions made by a participating employer may be used to provide benefits to
employees of other participating employers because assets contributed by an employer are not segregated in a separate
account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is
unable to meet its contribution requirements, the required contributions for the other participating employers could increase
proportionately.
F-41
The Pentegra Defined Benefit Plan covered substantially all officers and employees of First Independence who began
employment prior to December 31, 2009, with 57 participants retaining benefits under the plan.
The Pentegra Defined Benefit Plan operates on a fiscal year from July 1 through June 30 and files one Form 5500 on
behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit
plan number is 333. There are no collective bargaining agreements in place at the Company.
The Pentegra Defined Benefit Plan’s annual valuation process includes calculating the plan’s funded status and
separately calculating the funded status of each participating employer. The funded status is defined as the market value of
assets divided by the funding target (100 percent of the present value of all benefit liabilities accrued at that date). As
permitted by ERISA, the Pentegra Defined Benefit Plan accepts contributions for the prior plan year up to eight and a half
months after the asset valuation date. As a result, the fair value of assets at the valuation date (July 1) will increase by any
subsequent contributions designated for the immediately preceding plan year ended June 30. The most recent Form 5500
available for the Pentegra Defined Benefit Plan is for the year ended June 30, 2016.
The following table presents the net pension cost and funded status of the Company relating to the Pentegra Defined
Benefit Plan since the date of acquisition (dollar amounts in thousands).
Net pension cost charged to salaries and
employee benefits
Pentegra defined benefit plan funded status
as of July 1
Plan's funded status as of July 1
Contributions paid to the plan
2017
2016
$
$
84
$
71
110.37%
96.89%
$
65
104.72%
97.75%
62
The Company’s contributions to the Pentegra Defined Benefit Plan were less than 5.00% of the total contributions to
the Pentegra Defined Benefit plan for the plan year ended June 30, 2016.
NOTE 19 – SHARE-BASED PAYMENTS
The Company’s Amended and Restated 2013 Stock Incentive Plan (the Plan) reserved 900,000 shares for the grant of
non-qualified stock options, restricted stock units, restricted stock and unrestricted stock to its employees and directors. The
Plan replaced the 2006 Non-qualified Stock Option Plan (2006 Plan). Under the 2006 Plan, there were 150,000 and 203,700
fully vested and exercisable options outstanding at December 31, 2017 and 2016. No new grants of options may be made
under the 2006 Plan. The Company believes that stock-based awards better align the interests of its employees with those of
its stockholders. Under the Company’s director compensation policy, directors may elect to receive all or a portion of their
fees in cash, Company stock or non-qualified stock options. During the years ended December 31, 2017 and 2016, the
Company recognized director compensation expense of $46 and $32 and issued 1,457 and 953 shares of Company stock
pursuant to certain directors’ elections under the Company’s director compensation policy. There were no directors’
elections for payment of director compensation in Company stock in the year ended December 31, 2015. At December 31,
2017, there were 219,252 shares available for equity awards under the Plan.
Stock Option Awards: Options granted to directors and employees under the Plan vest depending on the passage of
time or the achievement of performance targets, depending on the terms of the underlying grant.
F-42
The following tables summarize stock option activity for the years ended December 31, 2017 and 2016.
December 31, 2017
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Fully vested and expected to vest
Exercisable at end of year
December 31, 2016
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Fully vested and expected to vest
Exercisable at end of year
Weighted
Average
Remaining
Contractual
Term
(Years)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Options
590,835 $
305,404
(71,434)
(27,284)
797,521 $
797,521 $
484,728 $
16.69
33.05
(17.01)
(27.72)
22.54
22.54
16.41
7 $
10
(3)
(10)
8 $
8 $
7 $
10,017
—
—
—
10,261
10,261
8,692
Weighted
Average
Remaining
Contractual
Term
(Years)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Options
561,995 $
49,467
(7,938)
(12,689)
590,835 $
590,835 $
453,180 $
15.93
25.44
(14.21)
(18.82)
16.69
16.69
15.89
8 $
10
(7)
(10)
7 $
7 $
7 $
4,194
—
—
—
10,017
10,017
7,943
The fair values of stock options granted during the years ended December 31, 2017, 2016 and 2015, were estimated to
be $8.75 per share, $5.10 per share and $5.39 per share. The fair value of each option award is estimated on the date of grant
using a closed form option valuation (Black-Scholes) model. Expected stock price volatility is based on the historical
volatility of the SNL Bank Index. The expected term of options granted is based on the Simplified Method. The risk-free
interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
The fair values of options granted were determined using the following weighted-average assumptions as of grant
dates.
Risk free rate
Market value of stock on grant date
Expected term (in years)
Expected volatility
Dividend rate
$
2017
2016
2015
2.20%
33.05
$
6.7
19.66%
—%
1.58%
25.44
$
5.0
19.08%
—%
1.92%
21.25
5.8
21.49%
—%
Compensation expense for stock options is recognized as the options vest. Total stock option compensation cost that
has been charged against income was $592, $374, and $397 for 2017, 2016 and 2015. The total income tax benefit was $226,
$143 and $152. At December 31, 2017, there was $2.2 million of unrecognized compensation expense related to non-vested
stock options granted under the Plan. Unrecognized compensation expense at December 31, 2017, will be recognized over a
remaining weighted average period of 4 years.
F-43
Restricted Stock Unit Awards:
Restricted stock units (RSUs) granted to employees under the Plan represent the right to receive one share of Company
stock upon vesting, in accordance with the vesting schedule provided in each award agreement. To the extent vested, the
RSUs become Class A voting common stock within ten calendar days of the vesting date. Non-vested RSUs have no voting
rights and are not considered outstanding until vesting. The fair value of the RSUs is determined by the closing price of the
Company’s stock on the date of grant.
A summary of changes in the Company’s non-vested RSUs for the year is shown below.
Non-vested Restricted Stock Units
Shares
Weighted
Average
Grant Date Fair
Value
Non-vested RSUs at January 1, 2017
Granted
Vested
Forfeited
Outstanding at end of year
— $
9,020
(2,255)
(1,875)
4,890
—
32.46
32.46
29.74
33.50
Compensation expense is recognized over the vesting period of the award based on the fair value of RSU awards at the
grant date. The Company recognized share-based compensation attributable to RSUs of $80, $0 and $0 for the years ended
December 31, 2017, 2016 and 2015. The total income tax benefit was $31, $0 and $0 for the same time periods.
Unrecognized RSU compensation expense of $60 at December 31, 2017, will be recognized over a remaining weighted
average period of 2 years.
NOTE 20 – EARNINGS PER SHARE
Earnings per share were computed as shown below.
2017
2016
2015
Basic:
Net income allocable to common stockholders
Weighted average common shares outstanding
Weighted average vested restricted stock units
Weighted average shares
Basic earnings per common share
Diluted:
Net income allocable to common stockholders
Weighted average common shares outstanding for:
Basic earnings per common share
Dilutive effects of the assumed exercise of
stock options
Dilutive effects of the assumed redemption
of RSUs
Average shares and dilutive potential
common shares
Diluted earnings per common share
9,373 $
20,649 $
10,123
$
12,446,851 8,624,108 6,433,503
81,843
12,448,602 8,624,108 6,515,346
1.55
$
1.09 $
1.66 $
1,751
—
$
20,649 $
9,373 $
10,123
12,448,602 8,624,108 6,515,346
255,947
131,418
44,675
2,635
—
—
12,707,184 8,755,526 6,560,021
1.54
$
1.07 $
1.62 $
Average outstanding stock options of 141,891, 92 and 365 for the years ending December 31, 2017, 2016 and 2015
were not included in the computation of diluted earnings per share because the options were antidilutive.
F-44
NOTE 21 – FAIR VALUE
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to
disclose the fair value of its financial instruments. Fair value is the exchange price that would be received for an asset or paid
to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. For disclosure purposes, the Company groups its financial
and non-financial assets and liabilities into three different levels based on the nature of the instrument and the availability and
reliability of the information that is used to determine fair value. The three levels of inputs that may be used to measure fair
values are defined as follows.
y
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to
access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that
market participants would use in pricing an asset or liability.
Level 1 inputs are considered to be the most transparent and reliable. The Company assumes the use of the principal
market to conduct a transaction of each particular asset or liability being measured and then considers the assumptions that
market participants would use when pricing the asset or liability. Whenever possible, the Company first looks for quoted
prices for identical assets or liabilities in active markets (Level 1 inputs) to value each asset or liability. However, when
inputs from identical assets or liabilities on active markets are not available, the Company utilizes market observable data for
similar assets and liabilities. The Company maximizes the use of observable inputs and limits the use of unobservable inputs
to occasions when observable inputs are not available. The need to use unobservable inputs generally results from the lack of
market liquidity of the actual financial instrument or of the underlying collateral. Although, in some instances, third party
price indications may be available, limited trading activity can challenge the implied value of those quotations.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as
well as the general classification of each instrument under the hierarchy.
Fair Value of Assets and Liabilities Measured on a Recurring Basis
The fair values of available-for-sale securities are carried at fair value on a recurring basis. To the extent possible,
observable quoted prices in an active market are used to determine fair value and, as such, these securities are classified as
Level 1. For securities where quoted prices are not available, fair values are calculated based on market prices of similar
securities, generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value
securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’
relationship to other benchmark quoted securities (Level 2 inputs). The Company’s available-for-sale securities, including
U.S. Government sponsored agencies, residential mortgage-backed securities (all of which are issued or guaranteed by
government sponsored agencies), corporate securities, Small Business Administration securities, state and political
subdivision securities, and equity securities are classified as Level 2.
The fair values of derivatives are determined based on a valuation pricing model using readily available observable
market parameters such as interest rate yield curves (Level 2 inputs) adjusted for credit risk attributable to the seller of the
derivative.
F-45
Assets and liabilities measured at fair value on a recurring basis are summarized below.
Assets:
Available-for-sale securities:
Residential mortgage-backed securities (issued by
government-sponsored entities)
State and political subdivisions
Equity securities
$
Derivative assets (included in other assets)
Cash collateral held by counterparty
Total derivative assets
Total assets
Liabilities:
Derivative liabilities (included in other liabilities)
Cash collateral held by counterparty
Total derivative liabilities
Total liabilities
(Level 1)
December 31, 2017
(Level 2)
(Level 3)
— $
—
486
—
164
164
650
—
(46)
(46)
(46)
161,591 $
195
—
1
—
1
161,787
46
—
46
46
—
—
—
—
—
—
—
—
—
—
—
(Level 1)
December 31, 2016
(Level 2)
(Level 3)
Assets:
Available-for-sale securities:
U.S. government-sponsored entities
Residential mortgage-backed securities (issued by
government-sponsored entities)
Corporate
Small Business Administration loan pools
State and political subdivisions
Equity securities
Derivative assets (included in other assets)
Cash collateral held by counterparty
Total derivative assets
Total assets
Liabilities:
Derivative liabilities (included in other liabilities)
Cash collateral held by counterparty
Total derivative liabilities
Total liabilities
$
— $
4,782 $
—
—
—
—
486
—
151
151
637
—
(39)
(39)
(39)
86,703
3,039
223
499
—
1
—
1
95,247
39
—
39
39
—
—
—
—
—
—
—
—
—
—
—
—
—
—
There were no transfers between Levels during 2017 or 2016. The Company’s policy is to recognize transfers into or
out of a level as of the end of a reporting period.
Fair Value of Assets and Liabilities Measured on a Non-recurring Basis
Certain assets are measured at fair value on a non-recurring basis when there is evidence of impairment. The fair
values of impaired loans with specific allocations of the allowance for loan losses are generally based on recent real estate
appraisals of the collateral. Declines in the fair values of other real estate owned subsequent to their initial acquisitions are
also based on recent real estate appraisals less selling costs.
Real estate appraisals may utilize a single valuation approach or a combination of approaches including comparable
sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for
differences between the comparable sales and income data available. Such adjustments are typically significant and result in
a Level 3 classification of the inputs for determining fair value.
F-46
Assets measured at fair value on a non-recurring basis are summarized below.
Impaired loans:
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Other
Other real estate owned:
Commercial real estate
Residential real estate
Impaired loans:
Commercial real estate
Commercial and industrial
Residential real estate
Agricultural real estate
Other
Other real estate owned:
Commercial real estate
Residential real estate
$
$
(Level 1)
December 31, 2017
(Level 2)
(Level 3)
— $
—
—
—
—
—
—
— $
—
—
—
—
—
—
1,439
1,005
4,021
905
1,910
1,018
157
(Level 1)
December 31, 2016
(Level 2)
(Level 3)
— $
—
—
—
—
—
—
— $
—
—
—
—
—
—
2,236
218
2,053
21
336
2,400
429
The Company did not record any liabilities for which the fair value was measured on a non-recurring basis during the
years ended December 31, 2017 and 2016.
Valuations of impaired loans and other real estate owned utilize third party appraisals or broker price opinions and are
classified as Level 3 due to the significant judgment involved. Appraisals may include the utilization of unobservable inputs,
subjective factors and utilize quantitative data to estimate fair market value.
The following table presents additional information about the unobservable inputs used in the fair value measurement
of financial assets measured on a nonrecurring basis that were categorized with Level 3 of the fair value hierarchy.
December 31, 2017
Impaired loans
December 31, 2016
Impaired loans
Fair
Value
Valuation
Technique
Unobservable
Input
Range
(weighted
average)
$
9,280
Sales Comparison
Approach
Adjustments for
differences
between comparable sales
15% - 26%
(5%)
$
4,864
Sales Comparison
Approach
Adjustments for
differences
between comparable sales
7% - 26%
(9%)
Measurable inputs for other real estate owned are not material.
F-47
Carrying amounts and estimated fair values of financial instruments at year end were as follows as of the date
indicated.
Carrying
Amount
Estimated
Fair Value
Level 1
Level 2
Level 3
December 31, 2017
Financial assets:
Cash and cash equivalents
Interest-bearing deposits
Available-for-sale securities
Held-to-maturity securities
Loans held for sale
Loans, net of allowance for loan losses
Federal Reserve Bank and Federal Home Loan
Bank stock
Interest receivable
Derivative assets
Cash collateral held by derivative counterparty
Total derivative assets
Total assets
Financial liabilities:
Deposits
Federal funds purchased and retail repurchase
agreements
Federal Home Loan Bank advances
Bank stock loan
Subordinated debentures
Contractual obligations
Interest payable
Derivative liabilities
Cash collateral held by derivative counterparty
Total derivative liabilities
Total liabilities
$
52,195 $
3,496
162,272
535,462
16,344
52,195 $
3,496
162,272
532,744
16,344
2,094,781 2,098,431
52,195 $
—
486
—
—
—
— $
3,496
161,786
532,744
16,344
—
—
—
—
—
— 2,098,431
24,373
12,371
1
164
165
N/A
12,371
1
164
165
$2,901,459 $2,878,018 $
N/A
N/A
—
—
—
—
52,845 $ 726,742 $2,098,431
N/A
12,371
1
—
1
—
—
164
164
$2,382,013 $2,385,528 $
— $2,385,528 $
37,492
347,692
2,500
13,968
1,967
1,932
46
(46)
—
37,492
347,692
2,500
13,968
1,967
1,932
46
(46)
—
$2,787,564 $2,791,079 $
37,492
—
347,692
—
2,500
—
13,968
—
1,967
—
1,932
—
46
—
—
(46)
(46)
46
(46) $2,791,125 $
—
—
—
—
—
—
—
—
—
—
—
F-48
Financial assets:
Cash and cash equivalents
Interest-bearing deposits
Available-for-sale securities
Held-to-maturity securities
Loans held for sale
Loans, net of allowance for loan losses
Federal Reserve Bank and Federal Home Loan
Bank stock
Interest receivable
Derivative assets
Cash collateral held by derivative counterparty
Total derivative assets
Total assets
Financial liabilities:
Deposits
Federal funds purchased and retail repurchase
agreements
Federal Home Loan Bank advances
Subordinated debentures
Contractual obligations
Interest payable
Derivative liabilities
Cash collateral held by derivative counterparty
Total derivative liabilities
Total liabilities
Carrying
Amount
Estimated
Fair Value
Level 1
Level 2
Level 3
December 31, 2016
$
35,095 $
3,750
95,732
465,709
4,830
35,095 $
3,750
95,732
461,156
4,830
1,377,173 1,374,700
35,095 $
—
486
—
—
—
— $
3,750
95,246
461,156
4,830
—
—
—
—
—
— 1,374,700
16,652
6,991
1
151
152
N/A
6,991
1
151
152
$2,006,084 $1,982,406 $
N/A
N/A
—
—
—
—
35,732 $ 571,974 $1,374,700
N/A
6,991
1
—
1
—
—
151
151
$1,630,451 $1,635,881 $
— $1,635,881 $
20,637
259,588
13,684
2,504
728
39
(39)
—
20,637
259,588
13,684
2,504
728
39
(39)
—
$1,927,592 $1,933,022 $
20,637
—
259,588
—
13,684
—
2,504
—
728
—
39
—
—
(39)
(39)
39
(39) $1,933,061 $
—
—
—
—
—
—
—
—
—
—
The methods and assumptions, not previously presented, used to estimate fair values are described as follows.
Cash and cash equivalents and interest-bearing deposits: The carrying amount of cash and short-term instruments
approximate fair value.
Held-to-maturity securities: The fair value of held-to-maturity securities are determined in a manner consistent with
available-for-sale securities which has been previously discussed.
Loans held for sale: The fair value of loans held for sale are based on quoted market prices for loans with similar
characteristics.
Loans: Fair value of variable rate loans that reprice frequently and with no significant change in credit risk are based
on carrying values. Fair value of other loans are estimated using discounted cash flows analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar credit quality. The methods utilized to
estimate the fair value of loans do not necessarily represent an exit price.
Federal Reserve Bank and Federal Home Loan Bank stock: It is not practical to determine the fair value of Federal
Reserve Bank and Federal Home Loan Bank stock due to restrictions placed on its transferability.
Interest receivable and interest payable: The carrying amount of accrued interest receivable and payable approximate
their fair value.
Deposits: The fair value disclosed for demand deposits is, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amount). The carrying amount of variable rate, fixed-term money market accounts
and certificates of deposit approximate their fair value at the reporting date. Fair value for fixed rate certificates of
deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered.
Federal funds purchased and retail repurchase agreements: Federal funds purchased and retail repurchase agreements
mature daily and may be terminated at any time. The carrying amount of these financial instruments approximate their
fair value.
F-49
Federal Home Loan Bank Advances: The carrying amount of draws against the Company’s line of credit at the Federal
Home Loan Bank approximate their fair value. The fair value of fixed rate term advances is determined using
discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements.
Bank stock loan: The fair value of the bank stock loan was estimated using a discounted cash flow analysis based on
current borrowing rates for similar types of borrowing arrangements.
Subordinated debentures: Subordinated debentures are carried at the outstanding principal balance less an unamortized
fair value adjustment from the date of assumption. The outstanding principal balance, net of this adjustment,
approximates their fair value.
Contractual obligations: The carrying value of contractual obligations approximate their fair value.
The fair value of off-balance-sheet items is not considered material.
NOTE 22 – COMMITMENTS AND CREDIT RISK
The Company extends credit for commercial real estate mortgages, residential mortgages, working capital financing
and loans to businesses and consumers.
Commitments to Originate Loans and Available Lines of Credit:
Commitments to originate loans and available lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments and lines of credit generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since a portion of the commitments and lines of credit may
expire without being drawn upon, the total commitment and lines of credit amounts do not necessarily represent future cash
requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if
deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate. Mortgage
loans in the process of origination represent amounts that the Company plans to fund within a normal period of 60 to 90 days
and are intended for sale to investors in the secondary market.
The contractual amounts of commitments to originate loans and available lines of credit as of December 31, 2017 and
2016 were as as follows.
Commitments to make loans
Mortgage loans in the process of origination
Unused lines of credit
$
December 31, 2017
December 31, 2016
Fixed
Rate
38,031 $
14,803
87,948
Variable
Rate
67,107 $
9,258
141,026
Fixed
Rate
24,988 $
7,267
45,251
Variable
Rate
50,362
2,696
68,085
The fixed rate loan commitments have interest rates ranging from 3.75% to 7.50% and maturities ranging from 1 month
to 116 months.
Standby Letters of Credit:
Standby letters of credit are irrevocable commitments issued by the Company to guarantee the performance of a
customer to a third party once specified pre-conditions are met. Financial standby letters of credit are primarily issued to
support public and private borrowing arrangements, including commercial paper, bond financing, and similar
transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-
financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that
involved in extending loans to customers. The contractual amounts of standby letters of credit as of December 31, 2017 and
2016 are listed below.
Standby letters of credit
December 31, 2017
December 31, 2016
Fixed
Rate
Variable
Rate
Fixed
Rate
Variable
Rate
$
4,064 $
3,830 $
5,762 $
2,769
F-50
NOTE 23 – LEGAL MATTERS
The Company is party to various matters of litigation in the ordinary course of business. The Company periodically
reviews all outstanding pending or threatened legal proceedings and determines if such matters will have an adverse effect on
the business, financial condition or results of operations or cash flows. A loss contingency is recorded when the outcome is
probable and reasonably able to be estimated. The following loss contingencies have been identified by the Company as
reasonably possible to result in an unfavorable outcome for the Company.
Equity Bank is a party to a February 3, 2015, lawsuit filed against it by CitiMortgage, Inc. (“Citi”). The lawsuit
involves an alleged breach of contract related to loan repurchase obligations and damages of $2,700 plus pre-judgment and
post-judgment interest. In January 2018, final judgement was entered by the court dismissing Citi’s claims with regard to six
loans and holding Equity Bank liable with regard to six loans. A loss contingency of $477 was recorded at December 31,
2017, in connection with the resolution of this case.
Except for the above mentioned lawsuit and settlement, there have been no other claims for potential repurchase or
indemnification demands regarding mortgage loans originated by Equity Bank and sold to investors. However, the Company
believes there is possible risk it may face similar demands based on comparable demands loan aggregators are facing from
their investors, including Government Sponsored Entities such as Freddie Mac and Fannie Mae and/or settlement agreements
loan aggregators have entered into with those investors. The amount of potential loss and outcome of such possible
litigation, if it were commenced, is uncertain and the Company would vigorously contest any claims.
NOTE 24 – CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is the condensed financial information as to financial position, results of operations and cash flows of
the Parent Company.
CONDENSED BALANCE SHEET
ASSETS
Cash and due from banks
Investment in Equity Bank
Other real estate owned, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
2017
2016
4,201 $
379,933
—
6,762
390,896 $
16,752 $
374,144
390,896 $
20,611
246,822
267
5,234
272,934
14,970
257,964
272,934
$
$
$
$
F-51
CONDENSED STATEMENT OF INCOME
Dividends from Equity Bank
Other income
Total income
Expenses
Interest expense
Other expenses
Total expenses
Income (loss) before income tax and equity in undistributed
income of subsidiaries
Income tax benefit
Income (loss) before equity in undistributed income (loss)
of subsidiaries
Equity in undistributed income of Equity Bank
Net income
Dividends and discount accretion on preferred stock
Net income allocable to common stockholders
2017
2016
2015
$
$
17,250 $
26
17,276
996
3,018
4,014
13,262
2,017
15,279
5,370
20,649
—
20,649 $
9,500 $
1
9,501
701
2,408
3,109
6,392
859
7,251
2,123
9,374
(1)
9,373 $
10,500
2
10,502
1,284
1,336
2,620
7,882
858
8,740
1,560
10,300
(177)
10,123
F-52
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash from
operating activities:
Stock based compensation
Equity in undistributed income of Equity Bank
Net amortization of purchase valuation adjustments
Net change in:
Other assets
Interest payable and other liabilities
Net cash from (to) operating activities
Cash flows (to) from investing activities
Proceeds from sale of other real estate owned
Purchase stock of First Independence, net of holding
company cash acquired
Purchase stock of Community First, net of holding
company cash acquired
Purchase stock of Prairie, net of holding
company cash acquired
Purchase stock of Eastman, net of holding
company cash acquired
Purchase stock of Cache, net of holding
company cash acquired
Net cash (used in) investing activities
Cash flows (to) from financing activities
Borrowings on bank stock loan
Principal payments on bank stock loan
Proceeds from the issuance of common stock, net
Proceeds from exercise of employee stock options
Issuance of employee stock loan
Principal payments on employee stock loan
Redemption of Series C preferred stock
Dividends paid on preferred stock
Excess tax benefits as a result of the distribution of
common stock in termination of the restricted
stock unit plan
Excess tax benefits recognized on exercise of employee
stock options
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Ending cash and cash equivalents
2017
2016
2015
$
20,649 $
9,374 $
10,300
1,100
(5,370)
284
(1,331)
(1,419)
13,913
267
—
553
(2,123)
246
(1,529)
(409)
6,112
531
(1,560)
301
(344)
397
9,625
—
—
—
(14,585)
—
(9,549)
(12,510)
(7,813)
—
—
—
—
—
(13,103)
(33,159)
—
(9,549)
—
(14,585)
2,500
(1,000)
—
1,215
—
121
—
—
6,000
(33,218)
23,643
112
—
—
(16,372)
(42)
5,014
(1,554)
38,945
—
(1,215)
973
—
(164)
—
—
224
—
2,836
(16,410)
20,611
4,201 $
13
(19,864)
(23,301)
43,912
20,611 $
—
42,223
37,263
6,649
43,912
$
F-53
NOTE 25 – PENDING MERGERS
On December 16, 2017, the Company entered into an agreement and plan of reorganization with Kansas Bank
Corporation (“KBC”). KBC is the holding company of First National Bank of Liberal (“FNB”), which has four branch
locations in Liberal, Kansas, and one location in Hugoton, Kansas. The transaction is expected to close in the second quarter
of 2018, subject to customary closing conditions, including the receipt of regulatory approval and the approval of KBC’s
stockholders. In its December 31, 2017, unaudited Consolidated Report of Condition, FNB reported total assets of $320,111,
which included total loans of $167,969 and securities of $121,825. At December 31, 2017, total liabilities of $289,675 were
reported by FNB, which included deposits of $289,360. FNB reported $3,811 in net income before income taxes for the
twelve months ended December 31, 2017. The Company anticipates there will be goodwill and a core deposit intangible
recorded with this acquisition. Goodwill is calculated as the excess of the cash consideration transferred over the net of the
acquisition-date fair values of identifiable assets acquired and liabilities assumed.
Also on December 16, 2017, the Company entered into an agreement and plan of reorganization with Adams Dairy
Bancshares, Inc. (“ADBI”). ADBI is the holding company of Adams Dairy Bank (“ADB”), which has one branch location in
Blue Springs, Missouri. The transaction is expected to close in the second quarter of 2018, subject to customary closing
conditions, including the receipt of regulatory approval and the approval of ADBI’s stockholders. In its December 31, 2017,
unaudited Consolidated Report of Condition, ADB reported total assets of $128,363, which included total loans of $93,252
and securities of $15,099. At December 31, 2017, total liabilities of $116,539 were reported by ADB, which included
deposits of $97,274. ADB reported $1,594 in net income before income taxes for the twelve months ended December 31,
2017. The Company anticipates there will be goodwill and a core deposit intangible recorded with this acquisition.
F-54
Corporate Headquarters
7701 East Kellogg Avenue, Suite 300
Wichita, Kansas 67207
(316) 612-6000
investor.equitybank.com
Form 10K and Investor Inquiries
Analysts, investors, and others with additional
questions about Equity Bancshares, Inc. are encouraged
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(316) 779-1675 or investor@equitybank.com.
Transfer Agent
Continental Stock Transfer & Trust Company
1 State Street, 30th Floor
New York, NY 10004-1561
(212) 509-4000
investor.equitybank.com