EQBK 10-Q Quarterly Report Sept. 30, 2023

EQUITY BANCSHARES INC

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2025
10-Q	Quarter ended June 30, 2025
10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2024
10-Q	Quarter ended March 31, 2024
10-K	Fiscal year ended Dec. 31, 2023
10-Q	Quarter ended Sept. 30, 2023
10-Q	Quarter ended June 30, 2023
10-Q	Quarter ended March 31, 2023
10-K	Fiscal year ended Dec. 31, 2022
10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015

PROXIES

DEF 14A	Filed on April 22, 2025
DEF 14A	Filed on March 13, 2025
DEF 14A	Filed on April 23, 2024
DEF 14A	Filed on March 14, 2024
DEF 14A	Filed on March 16, 2023
DEF 14A	Filed on April 26, 2022
DEF 14A	Filed on March 17, 2022
DEF 14A	Filed on March 18, 2021
DEF 14A	Filed on March 13, 2020
DEF 14A	Filed on March 22, 2019
DEF 14A	Filed on March 21, 2018
DEF 14A	Filed on March 22, 2017
DEF 14A	Filed on March 28, 2016

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ 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		72-1532188
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7701 East Kellogg Drive , Suite 300 Wichita , KS		67207
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 316 . 612.6000

Securities registered pursuant to Section 12(b) of the Act:

       
        Title of each class
       
          Class A, Common Stock, par value $0.01 per share

       
        Trading Symbol
       
          EQBK

       
        Name of each exchange on which registered
       
          New York Stock Exchange

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 ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

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.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

As of October 31, 2023, the registrant had 15,413,064 shares of Class A c ommon stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS


Part I	Financial Information	5
Item 1.	Financial Statements	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Stockholders’ Equity	8
	Consolidated Statements of Cash Flows	10
	Condensed Notes to Interim Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
	Overview	49
	Critical Accounting Policies	50
	Results of Operations	51
	Financial Condition	60
	Liquidity and Capital Resources	69
	Non-GAAP Financial Measures	71
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	73
Item 4.	Controls and Procedures	75
Part II	Other Information	76
Item 1.	Legal Proceedings	76
Item 1A.	Risk Factors	76
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibits	78

Important Notice about Information in this Quarterly Report

Unless we state otherwise or the context otherwise requires, references in this Quarterly Report 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 Quarterly Report is accurate only as of the date of this Quarterly Report on Form 10-Q and as of the dates specified herein.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 under the heading “Item 1A - Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2023, and in Item 1A – Risk Factors of this Quarterly Report.

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:

•

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;

•

losses resulting from a decline in the credit quality of the assets that we hold;

•

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;

•

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 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;

•

differences in our qualitative factors used in our calculation of the allowance for credit losses from actual results;

•

inadequacies in our allowance for credit losses which could require us to take a charge to earnings and thereby adversely affect our financial condition;

•

interest rate fluctuations which could have an adverse effect on our profitability;

•

the impact of the transition from London Interbank Offered Rate (“LIBOR”) and our ability to adequately manage such transition;

•

a continued economic downturn related to a pandemic, especially one affecting our core market areas;

•

potential fraud related to Small Business Administration (“SBA”) loan applications through the Paycheck Protection Program (“PPP”) as part of the U.S. Coronavirus Aid, Relief and Economic Security Act (“CARES Act”);

•

the effects of a pandemic or other widespread public health emergencies;

•

the costs of integrating the businesses we acquire, which may be greater than expected;

•

the departure of key members of our management personnel or our inability to hire qualified management personnel;

•

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;

•

inaccuracies in our assumptions about future events which could result in material differences between our financial projections and actual financial performance;

•

an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies;

•

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 our existing recognition practices;

•

additional regulatory requirements and restrictions on our business, which could impose additional costs on us;

•

an increase in FDIC deposit insurance assessments, which could adversely affect our earnings;

•

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;

•

restraints on the ability of Equity Bank to pay dividends to us, which could limit our liquidity;

•

a failure in the internal controls we have implemented to address the risks inherent to the banking industry;

•

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;

•

the occurrence of adverse weather or manmade events, which could negatively affect our core markets or disrupt our operations;

•

the effects of new federal tax laws, or changes to existing federal tax laws;

•

the obligation associated with being a public company requires significant resources and management attention;

•

effect of pending and future litigation, including the results of the overdraft fee litigation against the Company that is described in this quarterly report;

•

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 Quarterly Report. 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 on which 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 Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or verbal forward-looking statements that we or persons acting on our behalf may issue.

PAR T I

Item 1: Financ ial Statements

EQUITY BANCSHARES, INC.

CONSOLIDATED B ALANCE SHEETS

September 30, 2023, and December 31, 2022

(Dollar amounts in thousands)

See accompanying condensed notes to interim consolidated financial statements.


	(Unaudited) September 30,			December 31,
	2023			2022
ASSETS
Cash and due from banks	$	183,404		$	104,013
Federal funds sold		15,613			415
Cash and cash equivalents		199,017			104,428
Available-for-sale securities		1,057,009			1,184,390
Held-to-maturity securities, fair value of $ 2,124 and $ 1,973		2,212			1,948
Loans held for sale		627			349
Loans, net of allowance for credit losses of $ 44,186 and $ 45,847		3,237,932			3,265,701
Other real estate owned, net		3,369			4,409
Premises and equipment, net		110,271			101,492
Bank-owned life insurance		124,245			123,176
Federal Reserve Bank and Federal Home Loan Bank stock		20,780			21,695
Interest receivable		23,621			20,630
Goodwill		53,101			53,101
Core deposit intangibles, net		7,961			10,596
Other		105,122			89,736
Total assets	$	4,945,267		$	4,981,651
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand	$	936,217		$	1,097,899
Total non-interest-bearing deposits		936,217			1,097,899
Demand, savings and money market		2,397,003			2,329,584
Time		748,950			814,324
Total interest-bearing deposits		3,145,953			3,143,908
Total deposits		4,082,170			4,241,807
Federal funds purchased and retail repurchase agreements		39,701			46,478
Federal Home Loan Bank advances		100,000			138,864
Federal Reserve Bank borrowings		140,000			—
Subordinated debt		96,787			96,392
Contractual obligations		29,019			15,218
Interest payable and other liabilities		39,460			32,834
Total liabilities		4,527,137			4,571,593
Commitments and contingent liabilities, see Notes 11 and 12
Stockholders’ equity, see Note 7
Common stock		207			205
Additional paid-in capital		488,137			484,989
Retained earnings		171,188			140,095
Accumulated other comprehensive income (loss)		( 122,047	)		( 113,511	)
Treasury stock		( 119,355	)		( 101,720	)
Total stockholders’ equity		418,130			410,058
Total liabilities and stockholders’ equity	$	4,945,267		$	4,981,651

EQUITY BANCSHARES, INC.

CONSOLIDATED STAT EMENTS OF INCOME

For the Three and Nine Months ended September 30, 2023, and 2022

(Dollar amounts in thousands, except per share data)


	(Unaudited) Three Months Ended September 30,						(Unaudited) Nine Months Ended September 30,
	2023			2022			2023			2022
Interest and dividend income
Loans, including fees	$	55,152		$	41,555		$	156,281		$	114,710
Securities, taxable		5,696			5,792			17,456			16,767
Securities, nontaxable		369			687			1,606			2,020
Federal funds sold and other		3,822			514			7,075			1,327
Total interest and dividend income		65,039			48,548			182,418			134,824
Interest expense
Deposits		19,374			4,403			50,399			8,308
Federal funds purchased and retail repurchase agreements		246			71			633			150
Federal Home Loan Bank advances		968			409			2,939			594
Federal Reserve Bank borrowings		1,546			—			3,209			—
Subordinated debt		1,893			1,721			5,687			4,973
Total interest expense		24,027			6,604			62,867			14,025
Net interest income		41,012			41,944			119,551			120,799
Provision (reversal) for credit losses		1,230			( 136	)		1,162			276
Net interest income after provision (reversal) for credit losses		39,782			42,080			118,389			120,523
Non-interest income
Service charges and fees		2,690			2,788			7,888			7,927
Debit card income		2,591			2,682			7,798			8,120
Mortgage banking		226			310			527			1,300
Increase in value of bank-owned life insurance		794			754			3,134			2,355
Net gain on acquisition and branch sales		—			—			—			540
Net gain (loss) from securities transactions		( 1	)		( 17	)		( 1,291	)		( 9	)
Other		2,435			2,452			6,229			7,395
Total non-interest income		8,735			8,969			24,285			27,628
Non-interest expense
Salaries and employee benefits		15,857			15,442			47,786			45,893
Net occupancy and equipment		3,262			3,127			9,081			9,304
Data processing		4,553			4,138			12,962			11,549
Professional fees		1,312			1,265			4,341			3,547
Advertising and business development		1,419			1,191			3,827			3,139
Telecommunications		502			487			1,503			1,399
FDIC insurance		660			340			1,535			780
Courier and postage		548			436			1,469			1,348
Free nationwide ATM cost		516			551			1,565			1,593
Amortization of core deposit intangibles		799			957			2,635			3,118
Loan expense		132			174			385			566
Other real estate owned		128			188			318			201
Merger expenses		—			115			—			526
Other		4,556			3,825			13,196			10,168
Total non-interest expense		34,244			32,236			100,603			93,131
Income (loss) before income tax		14,273			18,813			42,071			55,020
Provision (benefit) for income taxes		1,932			3,642			5,951			8,940
Net income (loss) and net income (loss) allocable to common stockholders	$	12,341		$	15,171		$	36,120		$	46,080
Basic earnings (loss) per share	$	0.80		$	0.94		$	2.32		$	2.83
Diluted earnings (loss) per share	$	0.80		$	0.93		$	2.30		$	2.79

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Nine Months ended September 30, 2023, and 2022

(Dollar amounts in thousands)


	(Unaudited) Three Months Ended September 30,						(Unaudited) Nine Months Ended September 30,
	2023			2022			2023			2022
Net income	$	12,341		$	15,171		$	36,120		$	46,080
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period on available-for-sale securities		( 17,654	)		( 55,639	)		( 16,982	)		( 160,342	)
Reclassification for net (gains) losses included in net income		—			—			1,330			( 77	)
Unrealized holding gains (losses) arising during the period on cash flow hedges		1,994			( 2,149	)		4,908			( 2,616	)
Total other comprehensive income (loss)		( 15,660	)		( 57,788	)		( 10,744	)		( 163,035	)
Tax effect		3,838			14,296			2,208			40,341
Other comprehensive income (loss), net of tax		( 11,822	)		( 43,492	)		( 8,536	)		( 122,694	)
Comprehensive income (loss)	$	519		$	( 28,321	)	$	27,584		$	( 76,614	)

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months ended September 30, 2023, and 2022

(Unaudited)

(Dollar amounts in thousands, except share and per share data)


	Common Stock					Additional					Accumulated Other						Total
	Shares Outstanding			Amount		Paid-In Capital		Retained Earnings			Comprehensive Income (Loss)			Treasury Stock			Stockholders’ Equity
Balance at July 1, 2022		16,106,818		$	204	$	480,897	$	116,576		$	( 77,426	)	$	( 92,136	)	$	428,115
Net income		—			—		—		15,171			—			—			15,171
Other comprehensive income (loss), net of tax effects		—			—		—		—			( 43,492	)		—			( 43,492	)
Cash dividends - common stock, $ 0.10 per share		—			—		—		( 1,600	)		—			—			( 1,600	)
Dividend equivalents - restricted stock units, $ 0.10 per share		—			—		—		( 33	)		—			—			( 33	)
Stock-based compensation		—			—		888		—			—			—			888
Common stock issued upon exercise of stock options		21,500			—		482		—			—			—			482
Common stock issued under stock-based incentive plan		1,861			—		—		—			—			—			—
Common stock issued under employee stock purchase plan		14,555			—		401		—			—			—			401
Treasury stock purchase		( 126,900	)		—		—		—			—			( 4,126	)		( 4,126	)
Balance at September 30, 2022		16,017,834		$	204	$	482,668	$	130,114		$	( 120,918	)	$	( 96,262	)	$	395,806

Balance at July 1, 2023		15,412,139		$	207	$	487,225	$	160,715		$	( 110,225	)	$	( 119,487	)	$	418,435
Net income		—			—		—		12,341			—			—			12,341
Other comprehensive income (loss), net of tax effects		—			—		—		—			( 11,822	)		—			( 11,822	)
Cash dividends - common stock, $ 0.12 per share		—			—		—		( 1,851	)		—			—			( 1,851	)
Dividend equivalents- restricted stock units and restricted stock awards, $ 0.12 per share		—			—		—		( 17	)		—			—			( 17	)
Stock-based compensation		—			—		571		—			—			—			571
Common stock issued upon exercise of stock options		657			—		15		—			—			—			15
Common stock issued under stock-based incentive plan		1,120			—		—		—			—			—			—
Common stock issued under employee stock purchase plan		14,548			—		326											326
Treasury stock purchases		—			—		—		—			—			132			132
Balance at September 30, 2023		15,428,464		$	207	$	488,137	$	171,188		$	( 122,047	)	$	( 119,355	)	$	418,130

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months ended September 30, 2023, and 2022

(Unaudited)

(Dollar amounts in thousands, except share and per share data)


	Common Stock					Additional						Accumulated Other						Total
	Shares Outstanding			Amount		Paid-In Capital			Retained Earnings			Comprehensive Income (Loss)			Treasury Stock			Stockholders’ Equity
Balance at January 1, 2022		16,760,115		$	203	$	478,862		$	88,324		$	1,776		$	( 68,534	)	$	500,631
Net income		—			—		—			46,080			—			—			46,080
Other comprehensive income (loss), net of tax effects		—			—		—			—			( 122,694	)		—			( 122,694	)
Cash dividends - common stock, $ 0.26 per share		—			—		—			( 4,208	)		—			—			( 4,208	)
Dividend equivalents- restricted stock units, $ 0.26 per share		—			—		—			( 82	)		—			—			( 82	)
Stock-based compensation		624			—		2,436			—			—			—			2,436
Common stock issued upon exercise of stock options		28,656					579			—			—			—			579
Common stock issued under stock-based incentive plan		66,737			1		( 1	)		—			—			—			—
Common stock issued under employee stock purchase plan		28,829					792			—			—			—			792
Repayment on employee stock loans		—					—			—			—						—
Treasury stock purchases		( 867,127	)		—		—			—			—			( 27,728	)		( 27,728	)
Balance at September 30, 2022		16,017,834		$	204	$	482,668		$	130,114		$	( 120,918	)	$	( 96,262	)	$	395,806

Balance at January 1, 2023		15,930,112		$	205	$	484,989		$	140,095		$	( 113,511	)	$	( 101,720	)	$	410,058
Net income		—			—		—			36,120			—			—			36,120
Other comprehensive income (loss), net of tax effects		—			—		—			—			( 8,536	)		—			( 8,536	)
Cash dividends - common stock, $ 0.32 per share		—			—		—			( 4,965	)		—			—			( 4,965	)
Dividend equivalents- restricted stock units and restricted stock awards, $ 0.32 per share		—			—		—			( 62	)		—			—			( 62	)
Stock-based compensation		—			—		2,351			—			—			—			2,351
Common stock issued upon exercise of stock options		657			—		15			—			—			—			15
Common stock issued under stock-based incentive plan		134,805			2		( 2	)		—			—			—			—
Common stock issued under employee stock purchase plan		32,056			—		784			—			—			—			784
Treasury stock purchases		( 669,166	)		—		—			—			—			( 17,635	)		( 17,635	)
Balance at September 30, 2023		15,428,464		$	207	$	488,137		$	171,188		$	( 122,047	)	$	( 119,355	)	$	418,130

See accompanying condensed notes to interim consolidated financial statements.


EQUITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30, 2023, and 2022
(Dollar amounts in thousands)
	(Unaudited) September 30,
	2023			2022
Cash flows from operating activities
Net income	$	36,120		$	46,080
Adjustments to reconcile net income to net cash from operating activities:
Stock-based compensation		2,351			2,436
Depreciation		3,338			3,391
Amortization of operating lease right-of-use asset		472			533
Amortization of cloud computing implementation costs		141			141
Provision (reversal) for credit losses		1,162			276
Net amortization (accretion) of purchase valuation adjustments		( 649	)		( 3,437	)
Amortization (accretion) of premiums and discounts on securities		3,384			5,059
Amortization of intangible assets		2,743			3,225
Deferred income taxes		953			484
Federal Home Loan Bank stock dividends		( 446	)		( 181	)
Loss (gain) on sales and valuation adjustments on other real estate owned		44			( 202	)
Net loss (gain) on sales and settlements of securities		1,330			( 78	)
Change in unrealized (gains) losses on equity securities		( 39	)		87
Loss (gain) on disposal of premises and equipment		( 16	)		( 83	)
Loss (gain) on sales of foreclosed assets		14			( 355	)
Loss (gain) on sales of loans		( 385	)		( 994	)
Originations of loans held for sale		( 20,279	)		( 42,443	)
Proceeds from the sale of loans held for sale		20,387			45,925
Increase in the value of bank-owned life insurance		( 3,134	)		( 2,355	)
Change in fair value of derivatives recognized in earnings		334			( 1,684	)
Gain on acquisition and branch sales		—			( 540	)
Payments on operating lease payable		( 588	)		( 622	)
Net change in:
Interest receivable		( 2,991	)		( 840	)
Other assets		13,727			21,614
Interest payable and other liabilities		5,582			( 17,741	)
Net cash provided by operating activities		63,555			57,696
Cash flows (to) from investing activities
Purchases of available-for-sale securities		( 2,249	)		( 178,313	)
Purchases of held-to-maturity securities		( 275	)		—
Proceeds from sales, calls, pay-downs and maturities of available-for-sale securities		109,261			141,392
Proceeds from calls, pay-downs and maturities of held-to-maturity securities		13			—
Net change in loans		28,380			( 126,122	)
Purchase of mortgage loans		—			( 794	)
Purchase of USDA guaranteed loans		( 1,235	)		( 2,293	)
Capitalized construction cost of other real estate owned		( 561	)		—
Purchase of premises and equipment		( 12,141	)		( 1,199	)
Proceeds from sale of premises and equipment		40			139
Proceeds from sale of foreclosed assets		141			29,678
Net redemptions (purchases) of Federal Home Loan Bank and Federal Reserve Bank stock		1,361			( 6,736	)
Net redemptions (purchases) of correspondent and miscellaneous other stock		( 6,033	)		( 3,673	)
Proceeds from sale of other real estate owned		1,833			3,518
Proceeds from bank-owned life insurance death benefits		2,071			723
Net cash paid from branch sale to United Bank and Trust		—			( 22,940	)
Net cash (used in) provided by investing activities		120,606			( 166,620	)
Cash flows (to) from financing activities
Net increase (decrease) in deposits		( 159,734	)		( 140,607	)
Net change in federal funds purchased and retail repurchase agreements		( 6,777	)		( 8,563	)
Net borrowings (repayments) on Federal Home Loan Bank line of credit		( 138,864	)		186,001


Proceeds from Federal Home Loan Bank term advances		1,066,091			403,501
Principal repayments on Federal Home Loan Bank term advances		( 966,091	)		( 403,501	)
Proceeds from Federal Reserve Bank borrowings		141,000			1,000
Principal payments on Federal Reserve Bank borrowings		( 1,000	)		( 1,000	)
Proceeds from the exercise of employee stock options		15			579
Proceeds from employee stock purchase plan		784			792
Purchase of treasury stock		( 17,635	)		( 27,728	)
Net change in contractual obligations		( 2,599	)		( 2,130	)
Dividends paid on common stock		( 4,762	)		( 3,961	)
Net cash (used in) provided by financing activities		( 89,572	)		4,383
Net change in cash and cash equivalents		94,589			( 104,541	)
Cash and cash equivalents, beginning of period		104,428			259,954
Ending cash and cash equivalents	$	199,017		$	155,413
Supplemental cash flow information:
Interest paid	$	52,730		$	14,471
Income taxes paid, net of refunds		3,406			666
Supplemental noncash disclosures:
Other real estate owned acquired in settlement of loans		476			2,224
Other repossessed assets acquired in settlement of loans		176			771
Other real estate owned recorded as a result of transferring non-operational branch right-of-use-asset		—			2,210
Purchase of investments in tax credit structures and resulting contractual obligations		16,400			—

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONDE NSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

(Dollar amounts in thousands, except per share data)

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim consolidated financial statements include the accounts of Equity Bancshares, Inc., its wholly-owned subsidiaries, Equity Bank (“Equity Bank”), EBAC, LLC (“EBAC”) and Equity Risk Management, Inc. ("ERMI"). ERMI provides property and casualty insurance coverage to Equity Bancshares and Equity Bank and reinsurance to other third party insurance captives for which insurance may not be currently available or economically feasible in today's insurance marketplace. The wholly-owned subsidiaries of Equity Bank are comprised of SA Holdings, Inc. ("SA Holdings"), SA Property LLC ("SA Property"), and EQBK Investments, LLC. ("EQBK Investments"). SA Holdings and SA Property were established for the purpose of holding and selling other real estate owned. EQBK Investments was established for the purpose to hold Equity Bank's investment in a real estate investment trust. These entities are collectively referred to as the “Company”. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial information. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are of a normal recurring nature. These financial statements and the accompanying notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2023. Operating results for the nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any other period.

Reclassifications

Some items in prior 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 the periods reported.

Risk and Uncertainties

The recent high-profile bank failures involving Silicon Valley Bank, Signature Bank and First Republic Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like Equity Bank. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact Equity Bank's liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly. Equity Bank pledged additional investments to the Federal Reserve Bank to increase liquidity under the Bank Term Funding Program as a precaution; however, the Company has not experienced the same level of deposit runoff as compared to the recent failed financial institutions which, the Company believes, is due to the difference in the types of deposits being offered, deposit concentration and ALM management practices.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU 2020-04 provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include contract modifications; hedging relationships; and sale or transfer of debt

securities classified as held-to-maturity. The guidance was effective immediately for the Company and the amendments may be applied prospectively through December 31, 2022. The Company’s contracts issued prior to December 31, 2021, were primarily LIBOR tenures that had operational fallback language or were covered by the transition rules of the Adjustable Interest Rate (LIBOR) Act of 2021 and resulted in this guidance not having a significant impact on the Company's financial condition, results of operations or cash flows.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) . ASU 2021-01 clarifies that certain optional expedients and exceptions that are noted in Topic 848 apply to derivatives that are affected by the discounting transition. Certain provisions, if elected by the Company, apply to derivative instruments that use an interest rate for managing, discounting or contract price alignment that is modified as a result of reference rate reform. The guidance was effective immediately for the Company and the amendments may be applied prospectively through December 31, 2022. The Company’s contracts issued prior to December 31, 2021, were primarily LIBOR tenures that had operational fallback language or were covered by the transition rules of the Adjustable Interest Rate (LIBOR) Act of 2021 and resulted in this guidance not having a significant impact on the Company's financial condition, results of operations or cash flows.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326), Trouble Debt Restructurings and Vintage Disclosures . ASU 2022-02 eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for loan restructurings by creditor when a borrower is experiencing financial difficulty. Creditors will be required to apply the refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, ASU 2022-02 requires that public business entities disclose gross write offs by year of origination for financing receivables and net investment in leases within the scope of Financial Instruments – Credit Losses – Measured at Amortized Cost of the Accounting Standards Codification. The guidance was effective for the Company on January 1, 2023, and the Company was permitted to apply the guidance prospectively or through a modified retrospective method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Since the Company had adopted ASU 2016-13 effective January 1, 2021, the Company was permitted to early adopt the guidance in totality or individually for the topics covered in this update. The Company did not early adopt this guidance and the implementation of this guidance did not have a material financial impact on our financial condition, results of operations or cash flows, but it impacted the Company’s loan disclosures.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848. ASU 2022-06 extends the current sunset date of Topic 848 from December 31, 2022, to December 31, 2024, to allow for contracts tied to certain tenors of USD LIBOR that have cessation dates of June 30, 2023, to apply the relief of Topic 848. The Company’s contracts issued prior to December 31, 2021, were primarily LIBOR tenures that had operational fallback language or were covered by the transition rules of the Adjustable Interest Rate (LIBOR) Act of 2021 and resulted in this guidance not having a significant impact on the Company's financial condition, results of operations or cash flows.

In March 2023, the FASB issued ASU 2023-02, Investments-Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force . The amendments in ASU 2023-02 permit all reporting entities that hold tax equity investments that meet the conditions for and elect to account for them using the proportional amortization method or investments in Low Income Housing Tax Credit ("LIHTC") structure through a limited liability entity that is not accounted for using the proportional amortization method and was previously applying LIHTC specific guidance which has been removed by ASU 2023-02. The election to apply the proportional amortization election is a program-by-program election rather than at a reporting entity or individual investment level. The amendments require specific disclosures that must be provided for all investments that generate income tax credits and other income tax benefits from a tax program for which the entity elected to apply the proportional amortization method which must be provided in both annual and interim financial statements. This guidance will be effective for the Company for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years and early adoption is permitted in any interim period and shall be adopted as of the beginning of the fiscal year that includes that interim period. The amendments in this update must be applied using a modified retrospective method or a retrospective method through a cumulative-effect adjustment to the opening balance of retained earnings for the period adoption for the modified retrospective method or the earliest period presented for the retrospective method. The Company is adopting this guidance for investments in solar tax credit structures entered into during 2023, as the Company's investments in solar tax credit structures prior to 2023 do not qualify for the proportional amortization method under this guidance. The Company's financial condition, results of operations and cash flows were not significantly impacted by this guidance for investments in tax credit structures outstanding at December 31, 2022; however, the Company's disclosures related to income tax expense and investments in tax credit structures have been expanded by this guidance.

NOTE 2 – INVESTMENTS

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 (loss) are listed below.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses		Fair Value
September 30, 2023
Available-for-sale securities
U.S. Government-sponsored entities	$	122,665	$	—	$	( 17,079	)	$	—	$	105,586
U.S. Treasury securities		259,253		—		( 25,341	)		—		233,912
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		512,980		—		( 70,559	)		—		442,421
Private label residential mortgage-backed securities		173,876		—		( 29,041	)		—		144,835
Corporate		56,702		—		( 7,001	)		—		49,701
Small Business Administration loan pools		10,953		—		( 805	)		—		10,148
State and political subdivisions		84,261		—		( 13,855	)		—		70,406
	$	1,220,690	$	—	$	( 163,681	)	$	—	$	1,057,009


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses		Fair Value
December 31, 2022
Available-for-sale securities
U.S. Government-sponsored entities	$	123,196	$	—	$	( 16,790	)	$	—	$	106,406
U.S. Treasury securities		257,690		—		( 25,532	)		—		232,158
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		560,776		—		( 62,170	)		—		498,606
Private label residential mortgage-backed securities		190,889		17		( 27,346	)		—		163,560
Corporate		56,642		—		( 4,268	)		—		52,374
Small Business Administration loan pools		12,915		—		( 734	)		—		12,181
State and political subdivisions		130,311		55		( 11,261	)		—		119,105
	$	1,332,419	$	72	$	( 148,101	)	$	—	$	1,184,390

The amortized cost and fair value of held-to-maturity securities and the related gross unrecognized gains and losses are listed in the following tables.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses		Fair Value
September 30, 2023
Held-to-maturity securities
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities	$	1,097	$	—	$	( 54	)	$	—	$	1,043
State and political subdivisions		1,115		—		( 34	)		—		1,081
	$	2,212	$	—	$	( 88	)	$	—	$	2,124


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
December 31, 2022
Held-to-maturity securities
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities	$	1,108	$	—	$	—	$	—	$	1,108
State and political subdivisions		840		25		—		—		865
	$	1,948	$	25	$	—	$	—	$	1,973

The fair value and amortized cost of debt securities at September 30, 2023, 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	$	24,412	$	23,413	$	—	$	—
One to five years		329,915		297,279		—		—
Five to ten years		135,136		114,431		—		—
After ten years		44,371		34,630		1,115		1,081
Mortgage-backed securities		686,856		587,256		1,097		1,043
Total debt securities	$	1,220,690	$	1,057,009	$	2,212	$	2,124

The following table shows the carrying value of securities pledged as collateral to secure public deposits, borrowings from the Federal Reserve Bank and retail repurchase obligations at September 30, 2023, and December 31, 2022.


	September 30, 2023		December 31, 2022
Public fund deposits	$	777,425	$	820,751
Federal Reserve Bank borrowings		147,642		33,235
Retail repurchase agreements		44,873		55,289
Total securities pledged	$	969,940	$	909,275

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 September 30, 2023, and December 31, 2022.


	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
September 30, 2023
Available-for-sale securities
U.S. Government-sponsored entities	$	—	$	—		$	105,586	$	( 17,079	)	$	105,586	$	( 17,079	)
U.S. Treasury securities		1,019		—			232,893		( 25,341	)		233,912		( 25,341	)
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		152		( 6	)		442,269		( 70,553	)		442,421		( 70,559	)
Private label residential mortgage-backed securities		—		—			144,835		( 29,041	)		144,835		( 29,041	)
Corporate		—		—			49,701		( 7,001	)		49,701		( 7,001	)
Small Business Administration loan pools		5,706		( 2	)		4,442		( 803	)		10,148		( 805	)
State and political subdivisions		11,890		( 929	)		58,214		( 12,926	)		70,104		( 13,855	)
Total temporarily impaired securities	$	18,767	$	( 937	)	$	1,037,940	$	( 162,744	)	$	1,056,707	$	( 163,681	)
December 31, 2022
Available-for-sale securities
U.S. Government-sponsored entities	$	3,936	$	( 913	)	$	102,470	$	( 15,877	)	$	106,406	$	( 16,790	)
U.S. Treasury securities		92,896		( 6,866	)		139,262		( 18,666	)		232,158		( 25,532	)
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		203,416		( 15,511	)		295,190		( 46,659	)		498,606		( 62,170	)
Private label residential mortgage-backed securities		43,610		( 7,227	)		116,410		( 20,119	)		160,020		( 27,346	)
Corporate		48,199		( 3,443	)		4,175		( 825	)		52,374		( 4,268	)
Small Business Administration loan pools		7,676		( 60	)		4,505		( 674	)		12,181		( 734	)
State and political subdivisions		88,713		( 5,463	)		19,671		( 5,798	)		108,384		( 11,261	)
Total temporarily impaired securities	$	488,446	$	( 39,483	)	$	681,683	$	( 108,618	)	$	1,170,129	$	( 148,101	)

	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
September 30, 2023
Held-to-maturity securities
Residential mortgage-backed (issued by government-sponsored entities)	$	1,043	$	( 54	)	$	—	$	—		$	1,043	$	( 54	)
State and political subdivisions		1,081		( 34	)		—		—			1,081		( 34	)
Total temporarily impaired securities	$	2,124	$	( 88	)	$	—	$	—		$	2,124	$	( 88	)
December 31, 2022
Held-to-maturity securities
Residential mortgage-backed (issued by government-sponsored entities)	$	—	$	—		$	—	$	—		$	—	$	—
State and political subdivisions		—		—			—		—			—		—
Total temporarily impaired securities	$	—	$	—		$	—	$	—		$	—	$	—

The tables above present unrealized losses on available-for-sale and held-to-maturity securities since the date of purchase, independent of the impact associated with changes in cost basis upon transfer from the available-for-sale designation to the held-to-maturity designatio n. As of September 30, 2023, the Company held 498 available-for-sale and four held-to-maturity securities in an unrealized loss position.

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. The decline in fair value is largely due to changes in interest rates and the fair value is expected to recover as the securities approach maturity.

The Company's available-for-sale and held-to-maturity investments that carry some form of credit risk are the investments in private label residential mortgage-backed securities, corporate securities and state and political subdivisions securities.

All private label residential mortgage-backed securities held by the Company are senior in the capital structure, carry substantial credit enhancement and are 20 % risk weighted by the Simplified Supervisory Formula Approach ("SSFA"). At September 30, 2023, the Company does no t anticipate any credit losses in the private label residential mortgage-backed securities portfolio.

The Company's corporate debt exposure consists of 14 separate positions in U.S. financial institutions, all of which the Company has determined to be investment grade. Substantially all of the positions are subordinated debt issued by bank holding companies. The Company periodically reviews financial data of the issuers to ensure their continued investment grade status. At September 30, 2023, the Company does no t anticipate any credit losses in the corporate debt securities portfolio.

The Company's portfolio of state and political subdivisions securities is comprised of 132 positions of which 88 % of the positions are rated "A" or better by a Nationally Recognized Statistical Ratings Organization ("NRSRO"), and 73 % of the overall portfolio is made up of general obligation bonds. The Company periodically reviews financial data of the entities and regularly monitors credit ratings changes of the entities. At September 30, 2023, the Company does no t anticipate any credit losses in the state and political subdivisions securities portfolio.

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.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023			2022
Proceeds	$	—	$	—	$	49,258		$	3,265
Gross gain		—		—		—			115
Gross losses		—		—		1,330			36
Income tax expense on net realized gains		—		—		( 325	)		20

The Company also invests in several other investments, including investments in stocks and partnerships, which are included in other assets. The following table shows the various investment balances and method of accounting at September 30, 2023, and December 31, 2022.


	September 30, 2023		December 31, 2022
Investments in stocks
Accounted for at fair value through net income	$	609	$	570
Accounted for at amortized cost assessed for impairment		1,397		1,398
Total investments in stocks		2,006		1,968
Investments in partnerships
Accounted for under the equity method		2,213		1,816
Accounted for under the hypothetical liquidation book value		3,346		980
Accounted for under proportional amortization		27,228		19,794
Total investments in partnerships		32,787		22,590
Total other investments	$	34,793	$	24,558

The following table discloses the financial statement impact of tax credit investments for the three month period ended September 30, 2023.


	Income Tax Credits Recognized During Period (a)			Other Income Tax Benefits (a)			Total Tax Benefits			Investment Amortization Included in Income Tax Expense
September 30, 2023
Investments and tax credit structures:
Included in proportional amortization	$	( 2,950	)	$	( 274	)	$	( 3,224	)	$	2,805
Not included in proportional amortization	$	( 945	)	$	( 186	)	$	( 1,131	)	$	—

(a) Reported in income tax expense on statements of income and reported in net change in other assets on statements of cash flows.

The following table discloses the financial statement impact of tax credit investments for the nine month period ended September 30, 2023.


	Income Tax Credits Recognized During Period (a)			Other Income Tax Benefits (a)			Total Tax Benefits			Investment Amortization Included in Income Tax Expense
September 30, 2023
Investments and tax credit structures:
Included in proportional amortization	$	( 8,901	)	$	( 1,247	)	$	( 10,148	)	$	8,966
Not included in proportional amortization	$	( 2,617	)	$	( 641	)	$	( 3,258	)	$	—

(a) Reported in income tax expense on statements of income and reported in net change in other assets on statements of cash flows.

Contingent contributions for investment tax credit structures not subject to proportional amorti zation were zero for the nine month period ended September 30, 2023.

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Types of loans and normal collateral securing those loans are listed below.

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.

Commercial and industrial : Commercial and industrial loans include loans used to purchase fixed assets, provide working capital or meet other financing needs of the business. Loans are normally secured by the assets being purchased or already owned by the borrower, inventory or accounts receivable. These may include SBA and other guaranteed or partially guaranteed types of loans.

Residential real estate : Residential real estate loans include loans secured by primary or secondary personal residences.

Agricultural real estate : Agricultural real estate loans are loans typically secured by farmland.

Agricultural : Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield of the agricultural commodities produced. These loans may be secured by growing crops, stored crops, livestock, equipment, and miscellaneous receivables.

Consumer : Consumer loans may include installment loans, unsecured and secured personal lines of credit, overdraft protection and letters of credit. These loans are generally secured by consumer assets but may be unsecured.

The following table lists categories of loans at September 30, 2023, and December 31, 2022.


	September 30, 2023			December 31, 2022
Commercial real estate	$	1,721,761		$	1,721,268
Commercial and industrial		585,129			594,863
Residential real estate		558,188			570,550
Agricultural real estate		205,865			199,189
Agricultural		103,352			120,003
Consumer		107,823			105,675
Total loans		3,282,118			3,311,548
Allowance for credit losses		( 44,186	)		( 45,847	)
Net loans	$	3,237,932		$	3,265,701

From time to time, the Company has purchased pools of residential real estate loans originated by other financial institutions to hold for investment with the intent to diversify the residential real estate portfolio . During the three and nine months ended September 30, 2023, the Company did no t purchase any pools of residential loans. During the three and nine months ended September 30, 2022, the Company purchased residential loan pools of $ 794 . As of September 30, 2023, and December 31, 2022, residential real estate loans include $ 307,724 and $ 327,309 of purchased residential real estate loans.

The Company occasionally purchases the government guaranteed portion of loans originated by other financial institutions to hold for investment. During the three and nine months ended September 30, 2023, the Company purchased $ 0 and $ 1,235 in loans guaranteed by governmental agencies. During the three and nine months ended September 30, 2022, the Company purchased $ 0 and $ 2,293 in loans guaranteed by governmental agencies.

The unamortized purchase accounting discounts related to non-purchase credit deteriorated loans included in the loan totals abov e are $ 2,574 with related loans of $ 218,115 at September 30 , 20 23, and $ 3,632 with related loans of $ 286,538 at December 31, 2022.

Overdraft deposit accounts are reclassified and included in consumer loans above. These accoun ts totaled $ 661 at September 30, 2023, and $ 475 a t December 31, 2022.

The following tables present the activity in the allowance for credit losses by class for the three month periods ended September 30, 2023, and 2022.


September 30, 2023	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Agricultural Real Estate			Agricultural		Consumer			Total
Allowance for credit losses:
Beginning balance	$	16,652		$	15,194		$	8,855		$	583		$	1,289	$	1,971		$	44,544
Provision for credit losses		( 2,954	)		5,163			( 1,521	)		620			35		( 113	)		1,230
Loans charged-off		( 8	)		( 1,399	)		—			( 4	)		—		( 242	)		( 1,653	)
Recoveries		6			2			2			1			—		54			65
Total ending allowance balance	$	13,696		$	18,960		$	7,336		$	1,200		$	1,324	$	1,670		$	44,186


September 30, 2022	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Agricultural Real Estate		Agricultural			Consumer			Total
Allowance for credit losses:
Beginning balance	$	22,665		$	13,209		$	6,818		$	1,007	$	2,289		$	2,250		$	48,238
Provision for credit losses		( 1,712	)		911			486			40		( 202	)		341			( 136	)
Loans charged-off		( 612	)		( 706	)		( 51	)		—		( 44	)		( 266	)		( 1,679	)
Recoveries		7			1			7			1		—			60			76
Total ending allowance balance	$	20,348		$	13,415		$	7,260		$	1,048	$	2,043		$	2,385		$	46,499

The following tables present the activity in the allowance for credit losses by class for the nine month periods ended September 30, 2023, and 2022.


September 30, 2023	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Agricultural Real Estate			Agricultural			Consumer			Total
Allowance for credit losses:
Beginning balance	$	16,731		$	14,951		$	8,608		$	819		$	2,457		$	2,281		$	45,847
Provision for credit losses		( 3,100	)		6,430			( 1,275	)		381			( 1,180	)		( 94	)	$	1,162
Loans charged-off		( 18	)		( 2,474	)		( 57	)		( 4	)		( 108	)		( 698	)		( 3,359	)
Recoveries		83			53			60			4			155			181			536
Total ending allowance balance	$	13,696		$	18,960		$	7,336		$	1,200		$	1,324		$	1,670		$	44,186


September 30, 2022	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Agricultural Real Estate			Agricultural			Consumer			Total
Allowance for credit losses:
Beginning balance	$	22,478		$	12,248		$	5,560		$	2,235		$	3,756		$	2,088		$	48,365
Provision for credit losses		( 1,293	)		1,833			1,758			( 1,195	)		( 1,668	)		841			276
Loans charged-off		( 906	)		( 785	)		( 99	)		—			( 45	)		( 760	)		( 2,595	)
Recoveries		69			119			41			8			—			216			453
Total ending allowance balance	$	20,348		$	13,415		$	7,260		$	1,048		$	2,043		$	2,385		$	46,499

The following tables present the recorded investment in loans and the balance in the allowance for credit losses by portfolio and class based on method to determine allowance for credit loss as of September 30, 2023, and December 31, 2022.


September 30, 2023	Commercial Real Estate		Commercial and Industrial		Residential Real Estate		Agricultural Real Estate		Agricultural		Consumer		Total
Allowance for credit losses:
Individually evaluated for credit losses	$	441	$	1,446	$	780	$	683	$	912	$	163	$	4,425
Collectively evaluated for credit losses		13,255		17,514		6,556		517		412		1,507		39,761
Total	$	13,696	$	18,960	$	7,336	$	1,200	$	1,324	$	1,670	$	44,186
Loan Balance:
Individually evaluated for credit losses	$	3,476	$	6,182	$	3,237	$	4,667	$	3,691	$	693	$	21,946
Collectively evaluated for credit losses		1,718,285		578,947		554,951		201,198		99,661		107,130		3,260,172
Total	$	1,721,761	$	585,129	$	558,188	$	205,865	$	103,352	$	107,823	$	3,282,118


December 31, 2022	Commercial Real Estate		Commercial and Industrial		Residential Real Estate		Agricultural Real Estate		Agricultural		Consumer		Total
Allowance for credit losses:
Individually evaluated for credit losses	$	285	$	1,433	$	795	$	221	$	2,125	$	87	$	4,946
Collectively evaluated for credit losses		16,446		13,518		7,813		598		332		2,194		40,901
Total	$	16,731	$	14,951	$	8,608	$	819	$	2,457	$	2,281	$	45,847
Loan Balance:
Individually evaluated for credit losses	$	2,867	$	6,653	$	3,344	$	2,606	$	4,576	$	379	$	20,425
Collectively evaluated for credit losses		1,718,401		588,210		567,206		196,583		115,427		105,296		3,291,123
Total	$	1,721,268	$	594,863	$	570,550	$	199,189	$	120,003	$	105,675	$	3,311,548

The following tables present information related to nonaccrual loans at September 30, 2023, and December 31, 2022.


	September 30, 2023
	Unpaid Principal Balance		Recorded Investment		Allowance for Credit Losses Allocated
With no related allowance recorded:
Commercial real estate	$	2,309	$	1,674	$	—
Commercial and industrial		5,097		1,256		—
Residential real estate		23		—		—
Agricultural real estate		1,421		1,031		—
Agricultural		2,303		—		—
Consumer		27		1		—
Subtotal		11,180		3,962		—
With an allowance recorded:
Commercial real estate		1,640		1,413		334
Commercial and industrial		5,635		4,363		1,124
Residential real estate		3,432		3,124		777
Agricultural real estate		4,820		3,333		673
Agricultural		3,056		2,585		788
Consumer		733		655		159
Subtotal		19,316		15,473		3,855
Total	$	30,496	$	19,435	$	3,855


	December 31, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance for Credit Losses Allocated
With no related allowance recorded:
Commercial real estate	$	2,443	$	1,866	$	—
Commercial and industrial		21		—		—
Residential real estate		54		25		—
Agricultural real estate		1,518		583		—
Consumer		6		—		—
Subtotal		4,042		2,474		—
With an allowance recorded:
Commercial real estate		1,011		823		206
Commercial and industrial		10,758		5,838		1,091
Residential real estate		3,488		3,181		786
Agricultural real estate		1,956		1,469		216
Agricultural		6,272		3,468		1,860
Consumer		412		348		85
Subtotal		23,897		15,127		4,244
Total	$	27,939	$	17,601	$	4,244

The tables below present average recorded investment and interest income related to nonaccrual loans for the three and nine months ended September 30, 2023, and 2022. Interest income recognized in the following table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest receivable due to immateriality.


	As of and for the three months ended
	September 30, 2023				September 30, 2022
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	1,749	$	—	$	2,646	$	—
Commercial and industrial		628		—		1,979		157
Residential real estate		—		—		—		—
Agricultural real estate		1,301		—		1,449		—
Agricultural		—		—		5		—
Consumer		1		—		5		1
Subtotal		3,679		—		6,084		158
With an allowance recorded:
Commercial real estate		1,158		14		2,577		20
Commercial and industrial		4,467		19		3,464		97
Residential real estate		3,020		8		3,086		18
Agricultural real estate		1,822		—		1,924		2
Agricultural		2,548		2		3,594		—
Consumer		507		11		266		2
Subtotal		13,522		54		14,911		139
Total	$	17,201	$	54	$	20,995	$	297


	As of and for the nine months ended
	September 30, 2023				September 30, 2022
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	1,802	$	—	$	1,528	$	—
Commercial and industrial		314		1		1,480		157
Residential real estate		6		1		384		1
Agricultural real estate		937		—		1,554		—
Agricultural		—		—		2		—
Consumer		—		—		15		1
Subtotal		3,059		2		4,963		159
With an allowance recorded:
Commercial real estate		1,000		14		3,702		20
Commercial and industrial		5,064		21		3,808		97
Residential real estate		3,077		12		3,559		19
Agricultural real estate		1,621		1		2,251		5
Agricultural		2,872		2		4,437		—
Consumer		445		11		291		2
Subtotal		14,079		61		18,048		143
Total	$	17,138	$	63	$	23,011	$	302

The following tables present the aging of the recorded investment in past due loans as of September 30, 2023, and December 31, 2022, by portfolio and class of loans.


September 30, 2023	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due Still On Accrual		Nonaccrual		Loans Not Past Due		Total
Commercial real estate	$	2,596	$	2,298	$	483	$	3,087	$	1,713,297	$	1,721,761
Commercial and industrial		912		405		312		5,619		577,881		585,129
Residential real estate		1,050		4,551		39		3,124		549,424		558,188
Agricultural real estate		979		—		—		4,364		200,522		205,865
Agricultural		169		—		—		2,585		100,598		103,352
Consumer		423		88		—		656		106,656		107,823
Total	$	6,129	$	7,342	$	834	$	19,435	$	3,248,378	$	3,282,118


December 31, 2022	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due Still On Accrual		Nonaccrual		Loans Not Past Due		Total
Commercial real estate	$	1,526	$	69	$	—	$	2,689	$	1,716,984	$	1,721,268
Commercial and industrial		232		195		—		5,838		588,598		594,863
Residential real estate		1,133		1,993		—		3,206		564,218		570,550
Agricultural real estate		569		—		—		2,052		196,568		199,189
Agricultural		212		—		—		3,468		116,323		120,003
Consumer		246		55		—		348		105,026		105,675
Total	$	3,918	$	2,312	$	—	$	17,601	$	3,287,717	$	3,311,548

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 pass credits unless downgraded due to payment status or reviewed as part of a larger credit relationship. Loans that participated in the short-term deferral program are not automatically considered classified solely due to a deferral, are subject to ongoing monitoring and will be downgraded or placed on nonaccrual if a noted weakness exists. The Company uses the following definitions for risk ratings.

Pass: Loans classified as pass include all loans that do not fall under one of the three following categories.

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.

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.

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.

Based on the most recent analysis performed, the risk category of loans, by type and year of origination, at September 30, 2023, is as follows.


September 30, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost		Revolving Loans Converted to Term		Total
Commercial real estate
Risk rating
Pass	$	175,524	$	382,092	$	243,586	$	168,924	$	68,734	$	205,595	$	465,774	$	870	$	1,711,099
Special mention		—		2,037		120		—		—		398		257		—		2,812
Substandard		—		429		3,086		237		1,500		2,519		79		—		7,850
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial real estate	$	175,524	$	384,558	$	246,792	$	169,161	$	70,234	$	208,512	$	466,110	$	870	$	1,721,761
Commercial and industrial
Risk rating
Pass	$	111,420	$	122,245	$	57,766	$	53,275	$	31,559	$	8,335	$	185,545	$	1,859	$	572,004
Special mention		—		—		15		—		—		998		2,251		—		3,264
Substandard		1,310		624		310		2,280		254		2,192		2,891		—		9,861
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial	$	112,730	$	122,869	$	58,091	$	55,555	$	31,813	$	11,525	$	190,687	$	1,859	$	585,129
Residential real estate
Risk rating
Pass	$	25,540	$	30,415	$	284,667	$	5,554	$	12,662	$	135,185	$	59,834	$	1,141	$	554,998
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		123		115		22		198		1,992		670		70		3,190
Doubtful		—		—		—		—		—		—		—		—		—
Total residential real estate	$	25,540	$	30,538	$	284,782	$	5,576	$	12,860	$	137,177	$	60,504	$	1,211	$	558,188
Agricultural real estate
Risk rating
Pass	$	22,127	$	27,644	$	18,627	$	19,285	$	10,845	$	20,968	$	80,167	$	289	$	199,952
Special mention		903		395		—		—		—		168		755		—		2,221
Substandard		—		—		28		—		102		3,524		38		—		3,692
Doubtful		—		—		—		—		—		—		—		—		—
Total agricultural real estate	$	23,030	$	28,039	$	18,655	$	19,285	$	10,947	$	24,660	$	80,960	$	289	$	205,865
Agricultural
Risk rating
Pass	$	10,865	$	8,113	$	5,653	$	8,144	$	1,621	$	4,228	$	60,921	$	55	$	99,600
Special mention		—		—		—		—		—		33		259		—		292
Substandard		59		69		503		640		1,862		63		264		—		3,460
Doubtful		—		—		—		—		—		—		—		—		—
Total agricultural	$	10,924	$	8,182	$	6,156	$	8,784	$	3,483	$	4,324	$	61,444	$	55	$	103,352
Consumer
Risk rating
Pass	$	45,341	$	27,568	$	11,826	$	5,555	$	1,619	$	3,211	$	12,046	$	1	$	107,167
Special mention		—		—		—		—		—		—		—		—		—
Substandard		19		267		194		92		57		26		1		—		656
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer	$	45,360	$	27,835	$	12,020	$	5,647	$	1,676	$	3,237	$	12,047	$	1	$	107,823
Total loans
Risk rating
Pass	$	390,817	$	598,077	$	622,125	$	260,737	$	127,040	$	377,522	$	864,287	$	4,215	$	3,244,820
Special mention		903		2,432		135		—		—		1,597		3,522		—		8,589
Substandard		1,388		1,512		4,236		3,271		3,973		10,316		3,943		70		28,709
Doubtful		—		—		—		—		—		—		—		—		—
Total loans	$	393,108	$	602,021	$	626,496	$	264,008	$	131,013	$	389,435	$	871,752	$	4,285	$	3,282,118

Based on the analysis performed at December 31, 2022, the risk category of loans, by type and year of origination is as follows.


December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost		Revolving Loans Converted to Term		Total
Commercial real estate
Risk rating
Pass	$	432,196	$	252,616	$	188,897	$	92,290	$	114,415	$	171,498	$	462,140	$	741	$	1,714,793
Special mention		—		122		—		—		—		401		—		—		523
Substandard		—		3,049		244		144		—		2,515		—		—		5,952
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial real estate	$	432,196	$	255,787	$	189,141	$	92,434	$	114,415	$	174,414	$	462,140	$	741	$	1,721,268
Commercial and industrial
Risk rating
Pass	$	172,912	$	79,782	$	65,915	$	39,487	$	6,712	$	5,089	$	189,998	$	6,654	$	566,549
Special mention		—		—		—		—		674		3,851		—		—		4,525
Substandard		283		4,316		2,167		10,127		1,460		783		4,653		—		23,789
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial	$	173,195	$	84,098	$	68,082	$	49,614	$	8,846	$	9,723	$	194,651	$	6,654	$	594,863
Residential real estate
Risk rating
Pass	$	34,705	$	299,840	$	5,939	$	13,073	$	47,986	$	102,871	$	62,494	$	271	$	567,179
Special mention		—		—		—		—		—		—		—		—		—
Substandard		58		86		48		209		239		2,633		98		—		3,371
Doubtful		—		—		—		—		—		—		—		—		—
Total residential real estate	$	34,763	$	299,926	$	5,987	$	13,282	$	48,225	$	105,504	$	62,592	$	271	$	570,550
Agricultural real estate
Risk rating
Pass	$	33,586	$	20,712	$	26,408	$	12,754	$	5,608	$	18,882	$	68,510	$	300	$	186,760
Special mention		874		—		2,493		—		—		604		5,983		—		9,954
Substandard		—		203		—		115		485		1,635		37		—		2,475
Doubtful		—		—		—		—		—		—		—		—		—
Total agricultural real estate	$	34,460	$	20,915	$	28,901	$	12,869	$	6,093	$	21,121	$	74,530	$	300	$	199,189
Agricultural
Risk rating
Pass	$	23,917	$	7,778	$	9,437	$	2,642	$	2,250	$	2,134	$	64,647	$	75	$	112,880
Special mention		—		—		—		92		22		375		556		—		1,045
Substandard		—		1,003		1,838		2,044		386		213		594		—		6,078
Doubtful		—		—		—		—		—		—		—		—		—
Total agricultural	$	23,917	$	8,781	$	11,275	$	4,778	$	2,658	$	2,722	$	65,797	$	75	$	120,003
Consumer
Risk rating
Pass	$	56,497	$	17,460	$	8,415	$	3,235	$	1,370	$	3,396	$	14,955	$	—	$	105,328
Special mention		—		—		—		—		—		—		—		—		—
Substandard		17		148		54		81		13		34		—		—		347
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer	$	56,514	$	17,608	$	8,469	$	3,316	$	1,383	$	3,430	$	14,955	$	—	$	105,675
Total loans
Risk rating
Pass	$	753,813	$	678,188	$	305,011	$	163,481	$	178,341	$	303,870	$	862,744	$	8,041	$	3,253,489
Special mention		874		122		2,493		92		696		5,231		6,539		—		16,047
Substandard		358		8,805		4,351		12,720		2,583		7,813		5,382		—		42,012
Doubtful		—		—		—		—		—		—		—		—		—
Total loans	$	755,045	$	687,115	$	311,855	$	176,293	$	181,620	$	316,914	$	874,665	$	8,041	$	3,311,548

The following table discloses the charge-off and recovery activity by loan type and year of origination for the nine month period ending September 30, 2023.


September 30, 2023	2023			2022			2021			2020			2019			Prior			Revolving Loans Amortized Cost			Revolving Loans Converted to Term		Total
Commercial real estate
Gross charge-offs	$	—		$	—		$	—		$	—		$	( 9	)	$	( 9	)	$	—		$	—	$	( 18	)
Gross recoveries		—			64			—			—			—			19			—			—		83
Net charge-offs	$	—		$	64		$	—		$	—		$	( 9	)	$	10		$	—		$	—	$	65
Commercial and industrial
Gross charge-offs	$	—		$	( 69	)	$	( 10	)	$	( 19	)	$	( 2	)	$	( 1,158	)	$	( 1,216	)	$	—	$	( 2,474	)
Gross recoveries		—			29			—			15			—			9			—			—		53
Net charge-offs	$	—		$	( 40	)	$	( 10	)	$	( 4	)	$	( 2	)	$	( 1,149	)	$	( 1,216	)	$	—	$	( 2,421	)
Residential real estate
Gross charge-offs	$	—		$	—		$	—		$	—		$	—		$	( 52	)	$	( 5	)	$	—	$	( 57	)
Gross recoveries		—			—			—			—			—			60			—			—		60
Net charge-offs	$	—		$	—		$	—		$	—		$	—		$	8		$	( 5	)	$	—	$	3
Agricultural real estate
Gross charge-offs	$	—		$	—		$	—		$	—		$	—		$	( 4	)	$	—		$	—	$	( 4	)
Gross recoveries		—			—			—			—			—			4			—			—		4
Net charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Agricultural
Gross charge-offs	$	—		$	—		$	( 107	)	$	—		$	—		$	( 1	)	$	—		$	—	$	( 108	)
Gross recoveries		—			—			—			—			—			155			—			—		155
Net charge-offs	$	—		$	—		$	( 107	)	$	—		$	—		$	154		$	—		$	—	$	47
Consumer
Gross charge-offs	$	( 168	)	$	( 129	)	$	( 84	)	$	( 48	)	$	( 46	)	$	( 164	)	$	( 59	)	$	—	$	( 698	)
Gross recoveries		1			15			41			10			9			94			11			—		181
Net charge-offs	$	( 167	)	$	( 114	)	$	( 43	)	$	( 38	)	$	( 37	)	$	( 70	)	$	( 48	)	$	—	$	( 517	)
Total loans
Gross charge-offs	$	( 168	)	$	( 198	)	$	( 201	)	$	( 67	)	$	( 57	)	$	( 1,388	)	$	( 1,280	)	$	—	$	( 3,359	)
Gross recoveries		1			108			41			25			9			341			11			—		536
Net charge-offs	$	( 167	)	$	( 90	)	$	( 160	)	$	( 42	)	$	( 48	)	$	( 1,047	)	$	( 1,269	)	$	—	$	( 2,823	)

Modifications to Debtors Experiencing Financial Difficulty

The Company adopted ASU 2022-02 Troubled Debt Restructurings and Vintage Disclosures, effective January 1, 2023, and this accounting guidance is applied prospectively. The following table presents the amortized cost basis of loans at September 30, 2023, that were both experiencing financial difficulty and modified during the three months ended September 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.


September 30, 2023	Payment Delay		Term Extension		Combination Rate Change and Term Extension		Combination Payment Delay and Term Extension		Total Modifications		Total Class of Financing Receivable
Commercial real estate	$	—	$	—	$	—	$	—	$	—		0.00	%
Commercial and industrial		—		—		—		4,896		4,896		0.84	%
Residential real estate		—		—		—		—		—		0.00	%
Agricultural real estate		—		458		—		—		458		0.22	%
Agricultural		—		—		—		—		—		0.00	%
Consumer		—		—		—		—		—		0.00	%
Total	$	—	$	458	$	—	$	4,896	$	5,354		0.16	%

The following table presents the amortized cost basis of loans at September 30, 2023, that were both experiencing financial difficulty and modified during the nine months ended September 30, 2023, by class and by type of modification.


September 30, 2023	Payment Delay		Term Extension		Combination Rate Change, Payment Delay and Term Extension		Combination Payment Delay and Term Extension		Total Modifications		Total Class of Financing Receivable
Commercial real estate	$	—	$	—	$	—	$	355	$	355		0.02	%
Commercial and industrial		—		1,491		—		10,884		12,375		2.11	%
Residential real estate		—		163		—		12		175		0.03	%
Agricultural real estate		—		858		—		170		1,028		0.50	%
Agricultural		122		—		—		421		543		0.53	%
Consumer		—		—		24		—		24		0.02	%
Total	$	122	$	2,512	$	24	$	11,842	$	14,500		0.44	%

At September 30, 20 23, there were $ 796 thousand in commitments to lend additional amounts on these loans.

The Company considers loans modified to borrowers in financial distress as loans that do not share similar risk characteristics with collectively evaluated loans at modification date for the purposes of calculating the allowance for credit losses. These loans will be evaluated for credit losses based on either discounted cash flows or the fair value of collateral at modification date; however, subsequent to the modification date these loans will be evaluated for credit losses as part of the collectively evaluated pools after a period of ongoing performance under the terms of the modified loan.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified during the three months ended September 30, 2023.


September 30, 2023	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 89 days Past Due		Total Past Due
Commercial real estate	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—
Residential real estate		163		12		—		175
Agricultural real estate		—		—		—		—
Agricultural		—		—		—		—
Consumer		24		—		—		24
Total	$	187	$	12	$	—	$	199

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended September 30, 2023.



September 30, 2023	Principal Forgiveness		Weighted Average Interest Rate Reduction			Weighted Average Term Extension in Years
Commercial real estate	$	—		—	%		—
Commercial and industrial		1,142		—	%		0.13
Residential real estate		—		—	%		—
Agricultural real estate		—		—	%		1.00
Agricultural		—		—	%		—
Consumer		—		—	%		—
Total loans	$	1,142		—	%		0.20

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the nine months ended September 30, 2023.



September 30, 2023	Principal Forgiveness		Weighted Average Interest Rate Reduction			Weighted Average Term Extension in Years
Commercial real estate	$	—		—	%		0.49
Commercial and industrial		1,142		—	%		1.13
Residential real estate		—		—	%		9.60
Agricultural real estate		—		—	%		0.99
Agricultural		—		—	%		0.58
Consumer		—		—	%		2.16
Total loans	$	1,142		—	%		1.19

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit loss expense recognized within other

non-interest expense on the consolidated statements of income and included in other liabilities on the consolidated balance sheets. The estimated credit loss includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate of expected credit loss is based on the historical loss rate for the class of loan the commitments would be classified as if funded.

The following table lists allowance for credit losses on off-balance-sheet credit exposures as of September 30, 2023, and December 31, 2022.


	Allowance for Credit Losses
	September 30, 2023		December 31, 2022
Commercial real estate	$	311	$	336
Commercial and industrial		854		700
Residential real estate		38		45
Agricultural		8		3
Consumer		246		269
Total allowance for credit losses	$	1,457	$	1,353

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

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.

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 LIBOR plus a spread to this index and pays a fixed-rate cash flow equal to the customer loan rate, rate resets subsequent to June 30, 2023, are based on one-month SOFR. At September 30, 2023, the portfolio of interest rate swaps had a weighted average maturity of 7.19 years, a weighted average pay rate of 4.60 % and a weighted average rate received of 8.47 %. At December 31, 2022, the portfolio of interest rate swaps had a weighted average maturity of 8.5 years, a weighted average pay rate of 4.53 % and a weighted average rate received of 7.13 % .

Interest Rate Swaps Designated as Cash Flow Hedges

The Company has entered into cash flow hedges to hedge future cash flows related to subordinated notes interest expense and prime rate adjustable rate loans interest income. These agreements are designated as cash flow hedges and are marked to market through other comprehensive income.


	September 30, 2023								December 31, 2022
	Weighted average Maturity in years		Weighted average pay rate			Weighted average rate received			Weighted average Maturity in years		Weighted average pay rate			Weighted average rate received
Subordinated note hedges		12.0		2.81	%		7.47	%		12.7		2.81	%		6.57	%
Variable rate FHLB advance hedges		2.5		3.59	%		5.31	%		—		—	%		—	%
Prime based receivable loan hedges		0.3		8.50	%		5.60	%		1.3		7.50	%		5.60	%
Total cash flow hedges		1.6		6.43	%		5.54	%		1.8		7.28	%		5.65	%

Stand-Alone Derivatives

The Company periodically enters into interest rate swaps with our borrowers and simultaneously enters into swaps with a counterparty with offsetting terms for the purpose of providing our borrowers long-term fixed rate loans, in addition to stand alone interest-rate swaps designed to offset the economic impact of fixed rate loans. Neither swap is designated as a hedge, and both are marked to market through earnings. At September 30, 2023, this portfolio of interest rate swaps had a weighted average maturity of 4.88 years, weighted average pay rate of 8.30 % and a weighted average rate received of 8.44 % . At December 31, 2022, this portfolio

of interest rate swaps had a weighted average maturity of 5.6 years, weighted average pay rate of 6.96 % and weighted average rate received of 7.06 %.

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 September 30, 2023, and December 31, 2022.


	September 30, 2023								December 31, 2022
	Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	15,647	$	2,059		$	—		$	21,528	$	2,425		$	—
Derivatives designated as cash flow hedges:
Interest rate swaps		257,500		2,557			—			157,500		2,120			4,457
Total derivatives designated as hedging relationships		273,147		4,616			—			179,028		4,545			4,457
Derivatives not designated as hedging instruments:
Interest rate swaps		181,799		5,530			4,870			184,277		4,191			3,555
Total derivatives not designated as hedging instruments		181,799		5,530			4,870			184,277		4,191			3,555
Total	$	454,946		10,146			4,870		$	363,305		8,736			8,012
Cash collateral				—			9,562					—			2,860
Netting adjustments				( 9,329	)		( 9,329	)				( 7,336	)		( 7,336	)
Net amount presented in Balance Sheet			$	817		$	5,103				$	1,400		$	3,536

The table below lists designated and qualifying hedged items in fair value hedges at September 30, 2023, and December 31, 2022.


	September 30, 2023								December 31, 2022
	Carrying Amount		Hedging Fair Value Adjustment			Fair Value Adjustments on Discontinued Hedges			Carrying Amount		Hedging Fair Value Adjustment			Fair Value Adjustments on Discontinued Hedges
Commercial real estate loans	$	15,445	$	( 2,362	)	$	( 458	)	$	17,202	$	( 2,384	)	$	—
Total	$	15,445	$	( 2,362	)	$	( 458	)	$	17,202	$	( 2,384	)	$	—

The Company reports hedging derivative gains (losses) as adjustments to loan interest income and loan interest expense along with the related net interest settlements. The non-hedging derivative gains (losses) and related net interest settlements for economic

derivatives are reported in other income. For the three and nine months period ended September 30, 2023, and 2022, the Company recorded net gains (losses) on derivatives and hedging activities as shown in the table below.


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023		2022
Derivatives designated as hedging instruments:
Interest rate swaps	$	( 5	)	$	46	$	5	$	148
Total net gain (loss) related to derivatives designated as hedging instruments		( 5	)		46		5		148
Derivatives designated as cash flow hedges:
Interest rate swaps		—			—		—		—
Total net gain (loss) related to derivatives designated as cash flow hedges		—			—		—		—
Total net gains (losses) related to hedging relationships		( 5	)		46		5		148
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps		203			402		407		1,544
Total net gains (losses) related to derivatives not designated as hedging instruments		203			402		407		1,544
Net gains (losses) on derivatives and hedging activities	$	198		$	448	$	412	$	1,692

The following tables show 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 three month periods ended September 30, 2023, and 2022.


	September 30, 2023
	Gain/(Loss) on Derivatives		Gain/(Loss) on Hedged Items			Net Fair Value Hedge Gain/(Loss)			Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	133	$	( 138	)	$	( 5	)	$	247
Total	$	133	$	( 138	)	$	( 5	)	$	247


	September 30, 2022
	Gain/(Loss) on Derivatives		Gain/(Loss) on Hedged Items			Net Fair Value Hedge Gain/(Loss)		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	761	$	( 715	)	$	46	$	( 154	)
Total	$	761	$	( 715	)	$	46	$	( 154	)

The following tables show 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 nine month periods ended September 30, 2023, and 2022.


	September 30, 2023
	Gain/(Loss) on Derivatives			Gain/(Loss) on Hedged Items			Net Fair Value Hedge Gain/(Loss)			Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	( 3	)	$	( 2	)	$	( 5	)	$	551
Total	$	( 3	)	$	( 2	)	$	( 5	)	$	551


	September 30, 2022
	Gain/(Loss) on Derivatives		Gain/(Loss) on Hedged Items			Net Fair Value Hedge Gain/(Loss)		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	2,840	$	( 2,692	)	$	148	$	( 626	)
Total	$	2,840	$	( 2,692	)	$	148	$	( 626	)

The following tables show the recorded net gains or (losses) on derivatives and the related hedged items in cash flow hedging relationships and the impact of those derivatives on the Company's net interest income for the three month periods ended September 30, 2023, and 2022.


	September 30, 2023
	Gain/(Loss) on Derivatives			Gain/(Loss) Recorded in Accumulated Other Comprehensive Income			Effect of Derivatives on Net Interest Income
Prime based receivable loan hedges	$	1,035		$	781		$	( 1,083	)
FHLB advance hedges		545			412			421
Subordinated note hedges		414			311			92
Total	$	1,994		$	1,504		$	( 570	)

	September 30, 2022
	Gain/(Loss) on Derivatives			Gain/(Loss) Recorded in Accumulated Other Comprehensive Income			Effect of Derivatives on Net Interest Income
Prime based receivable loan hedges	$	( 2,542	)	$	1,913		$	( 135	)
FHLB advance hedges		—			—			—
Subordinated note hedges		393			( 296	)		( 23	)
Total	$	( 2,149	)	$	1,617		$	( 158	)

The following tables show the recorded net gains or (losses) on derivatives and the related hedged items in cash flow hedging relationships and the impact of those derivatives on the Company's net interest income for the nine month periods ended September 30, 2023, and 2022.


	September 30, 2023
	Gain/(Loss) on Derivatives			Gain/(Loss) Recorded in Accumulated Other Comprehensive Income			Effect of Derivatives on Net Interest Income
Prime based receivable loan hedges	$	1,991		$	1,492		$	( 2,833	)
FHLB advance hedges		2,577			1,946			803
Subordinated note hedges		340			256			157
Total	$	4,908		$	3,694		$	( 1,873	)

	September 30, 2022
	Gain/(Loss) on Derivatives			Gain/(Loss) Recorded in Accumulated Other Comprehensive Income			Effect of Derivatives on Net Interest Income
Prime based receivable loan hedges	$	( 4,151	)	$	3,124		$	( 603	)
FHLB advance hedges		—			—			—
Subordinated note hedges		1,535			( 1,144	)		( 21	)
Total	$	( 2,616	)	$	1,980		$	( 624	)

NOTE 5 – LEASE OBLIGATIONS

Right-of-use asset and lease obligations by type of property for the periods ended September 30, 2023, and December 31, 2022, are listed below.


September 30, 2023	Right-of-Use Asset		Lease Liability		Weighted Average Lease Term in Years		Weighted Average Discount Rate
Operating Leases
Land and building leases	$	4,584	$	4,593		13.3		2.29	%
Total operating leases	$	4,584	$	4,593		13.3		2.29	%

Right-of-use-asset reported in other assets	$	2,692
Right-of-use-asset not in operation, reported in other real estate owned		1,892
Total	$	4,584


December 31, 2022	Right-of-Use Asset		Lease Liability		Weighted Average Lease Term in Years		Weighted Average Discount Rate
Operating Leases
Land and building leases	$	5,256	$	5,294		13.2		2.32	%
Total operating leases	$	5,256	$	5,294		13.2		2.32	%

Right-of-use-asset reported in other assets	$	3,185
Right-of-use-asset not in operation, reported in other real estate owned		2,071
Total	$	5,256

During the quarter ended June 30, 2022, one of our bank locations became non-operational. The right-of-use-asset for this location was transferred to other real estate owned, the weighted average lease term is 7.5 years.

Operating lease costs for the three and nine months ended September 30, 2023, and 2022, are listed below.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease cost	$	177	$	213	$	585	$	632
Short-term lease cost		—		—		—		—
Variable lease cost		34		17		62		44
Total operating lease cost	$	211	$	230	$	647	$	676

There were no sale and leaseback transactions, leverage leases, lease transactions with related parties or leases that had not yet commenced during the three or nine month periods ended September 30, 2023.

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is listed below.


Lease Payments	September 30, 2023
Due in one year or less	$	481
Due after one year through two years		521
Due after two years through three years		522
Due after three years through four years		522
Due after four years through five years		524
Thereafter		2,975
Total undiscounted cash flows		5,545
Discount on cash flows		( 952	)
Total operating lease liability	$	4,593

NOTE 6 – BORROWINGS

Federal funds purchased and retail repurchase agreements

Federal funds purchased and retail repurchase agreements as of September 30, 2023, and December 31, 2022, are listed below.


	September 30, 2023		December 31, 2022
Federal funds purchased	$	—	$	—
Retail repurchase agreements		39,701		46,478

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 $ 44,873 and $ 55,289 a t September 30, 2023, and December 31, 2022. 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 September 30, 2023, and December 31, 2022.


	September 30, 2023			December 31, 2022
Average daily balance during the period	$	43,324		$	53,337
Average interest rate during the period		1.36	%		0.42	%
Maximum month-end balance year-to-date	$	46,798		$	64,323
Weighted average interest rate at period-end		1.47	%		0.72	%

Federal Home Loan Bank advances

Federal Home Loan Bank advances include both draws against the Company’s line of credit and fixed rate term advances.

Federal Home Loan Bank advances as of September 30, 2023, and December 31, 2022, are as follows.


	September 30, 2023		December 31, 2022
Federal Home Loan Bank line of credit advances	$	—	$	138,864
Federal Home Loan Bank fixed-rate term advances		100,000		—
Total Federal Home Loan Bank advances	$	100,000	$	138,864

At September 30, 2023, and December 31, 2022, the Company had undisbursed advance commitments (letters of credit) with the Federal Home Loan Bank of $ 40,807 and $ 18,305 . 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 of $ 869,176 and securities of $ 65,125 for a total of $ 934,301 at September 30, 2023, and qualifying loans of $ 744,125 and securities of $ 74,083 for a total of $ 818,208 at December 31, 2022. Based on this collateral and the Company’s holdings of Federal Home Loan Bank stock, the Company was eligible to borrow an additional $ 792,317 and $ 659,695 a t September 30, 2023, and December 31, 2022.

Federal Reserve Bank borrowings

At September 30, 2023, and December 31, 2022, the Company had a borrowing capacity of $ 478,720 and $ 330,077 , for which the Company has pledged loans with an outstanding balanc e of $ 392,718 and $ 390,102 and securities with a fair value of $ 147,642 a nd $ 33,235 . There was $ 140,000 in borrowings secured from this facility under the Federal Reserve's Bank Term Funding Program with a rate of 4.38 % and a maturity date of March 22, 2024. The Company can repay this borrowing at any time without penalties or fees. There were no outstanding borrowings at December 31, 2022.

Bank stock loan

The Company entered into an agreement with an unaffiliated financial institution that provided for a maximum borrowing facility of $ 40,000 , secured by the Company’s stock in Equity Bank. 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 the greater of 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, or a floor of 3.50 %. 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 loan was renewed and amended on February 11, 2022, with a new maturity date of February 11, 2023 . With this amendment, the maximum borrowing amount was decreased from $ 40,000 to $ 25,000 . Each note will bear interest at the greater of 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, or a floor of 3.25 %. 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 due on the maturity date of the renewal.

The loan was renewed on February 10, 2023, with a new maturity date of February 10, 2024 . With this renewal, the maximum borrowing amount will remain at $ 25,000 . Each note will bear interest at the greater of 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, or a floor of 3.25 %. 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 due on the maturity date of the renewal.

There wer e no outstanding principal balances on the bank stock loan at September 30, 2023, and December 31, 2022.

The terms of the borrowing facility require the Company and Equity Bank to maintain minimum capital ratios and other covenants. In the event of default, the lender has the option to declare all outstanding balances immediately due. The Company believes it is in compliance with the terms of the borrowing facility and has not been otherwise notified of noncompliance.

Subordinated debt

Subordinated debt as of September 30, 2023, and December 31, 2022, are listed below.


	September 30, 2023		December 31, 2022
Subordinated debentures	$	23,508	$	23,255
Subordinated notes		73,279		73,137
Total	$	96,787	$	96,392

Subordinated debentures

In conjunction with prior acquisitions, the Company assumed certain subordinated debentures owed to special purpose unconsolidated subsidiaries that are controlled by the Company. These subordinated debentures have the same terms as the trust preferred securities issued by the special purpose unconsolidated subsidiaries.

FCB Capital Trust II (“CTII”): The trust preferred securities issued by CTII were initially issued to accrue and pay distributions quarterly at three-month LIBOR plus 2.00 %; however on October 12, 2023, after the LIBOR transition it will now accrue and pay distributions quarterly at three-month CME term SOFR plus a tenor spread adjustment of 0.26 % 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.

FCB Capital Trust III (“CTIII”): The trust preferred securities issued by CTIII were initially issued to accrue and pay distributions quarterly at three-month LIBOR plus 1.89 %; however on September 15, 2023, after the LIBOR transition it will now accrue and pay distributions quarterly at three-month CME term SOFR plus a tenor spread adjustment of 0.26 % 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.

Community First (AR) Statutory Trust I (“CFSTI”): The trust preferred securities issued by CFSTI were initially issued to accrue and pay distributions quarterly at three-month LIBOR plus 3.25 %; however on September 26, 2023, after the LIBOR transition it will now accrue and pay distributions quarterly at three-month CME term SOFR plus a tenor spread adjustment of 0.26 % 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.

American State Bank Statutory Trust I (“ASBSTI”): The trust preferred securities issued by ASBSTI were initially issued to accrue and pay distributions quarterly at three-month LIBOR plus 1.80 %; however on September 15, 2023, after the LIBOR transition it will now accrue and pay distributions quarterly at three-month CME term SOFR plus a tenor spread adjustment of 0.26 % plus 1.80 % on the stated liquidation amount of the trust preferred securities. These trust preferred securities are mandatorily redeemable upon maturity on September 15, 2035 , or upon earlier redemption.

Subordinated debentures as of September 30, 2023, and December 31, 2022, are listed below.


	September 30, 2023			Weighted Average Rate			Weighted Average Term in Years
CTII subordinated debentures	$	10,310			7.57	%		11.5
CTIII subordinated debentures		5,155			7.56	%		13.7
CFSTI subordinated debentures		5,155			8.91	%		9.2
ASBSTI subordinated debentures		7,732			7.47	%		12.0
Total contractual balance		28,352
Fair market value adjustments		( 4,844	)
Total subordinated debentures	$	23,508


	December 31, 2022			Weighted Average Rate			Weighted Average Term in Years
CTII subordinated debentures	$	10,310			6.08	%	12.3
CTIII subordinated debentures		5,155			6.66	%		14.5
CFSTI subordinated debentures		5,155			7.97	%		10.0
ASBSTI subordinated debentures		7,732			6.57	%		12.7
Total contractual balance		28,352
Fair market value adjustments		( 5,097	)
Total subordinated debentures	$	23,255

Subordinated notes

On June 29, 2020, the Company entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers and institutional accredited investors pursuant to which the Company issued and sold $ 42,000 in aggregate principal amount of its 7.00% Fixed-to-Floating Rate Subordinated notes due 2030. The notes were issued under an Indenture, dated as of June 29, 2020 (the “Indenture”), by and between the Company and UMB Bank, N.A., as trustee. The notes will mature on June 30, 2030 . From June 29, 2020, through June 29, 2025, the Company will pay interest on the notes semi-annually in arrears on June 30 and December 30 of each year, commencing on December 30, 2020 , at a fixed interest rate of 7.00 %. Beginning June 30, 2025, the notes convert to a floating interest rate, to be reset quarterly, equal to the then-current Three-Month Term SOFR, as defined in the Indenture, plus 688 basis points . Interest payments during the floating-rate period will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year, commencing on September 30, 2025 . On July 23, 2020, the Company closed on an additional $ 33,000 of subordinated notes with the same terms as the June 29, 2020, issue.

Subordinated notes as of September 30, 2023, are listed below.


	September 30, 2023			Weighted Average Rate			Weighted Average Term in Years
Subordinated notes	$	75,000			7.00	%		6.8
Total principal outstanding		75,000
Debt issuance cost		( 1,721	)
Total subordinated notes	$	73,279

Subordinated notes as of December 31, 2022, are listed below.


	December 31, 2022			Weighted Average Rate			Weighted Average Term in Years
Subordinated notes	$	75,000			7.00	%		7.5
Total principal outstanding		75,000
Debt issuance cost		( 1,863	)
Total subordinated notes	$	73,137

Future principal repayments

Future principal repayments of the September 30, 2023, outstanding balances are as follows.


	Retail Repurchase Agreements		FHLB Advances		Subordinated Debentures		Subordinated Notes		FRB Borrowings		Total
Due in one year or less	$	39,701	$	100,000	$	—	$	—	$	140,000	$	279,701
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		—		—		28,352		75,000		—		103,352
Total	$	39,701	$	100,000	$	28,352	$	75,000	$	140,000	$	383,053

NOTE 7 – STOCKHOLDERS’ EQUITY

Preferred stock

The Company’s articles of incorporation provide for the issuance of shares of preferred stock. At September 30, 2023, and December 31, 2022, th ere was no preferred stock outstanding.

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.

The following table presents shares that were issued, held in treasury or were outstanding at September 30, 2023, and December 31, 2022.


	September 30, 2023			December 31, 2022
Class A common stock – issued		20,445,428			20,277,910
Class A common stock – held in treasury		( 5,016,964	)		( 4,347,798	)
Class A common stock – outstanding		15,428,464			15,930,112
Class B common stock – issued		234,903			234,903
Class B common stock – held in treasury		( 234,903	)		( 234,903	)
Class B common stock – outstanding		—			—

Treasury stock is stated at cost, determined by the first-in first-out method.

In 2019, the Company’s Board of Directors adopted the Equity Bancshares, Inc. 2019 Employee Stock Purchase Plan (“ESPP”). The ESPP enables eligible employees to purchase the Company’s common stock at a price per share equal to 85 % of the lower of the fair market value of the common stock at the beginning or end of each offering period. ESPP compensation expe nse of $ 17 and $ 94 was recorded for the three and nine months ended September 30, 2023. ESPP compensation expe nse of $ 30 and $ 108 w as recorded for the three and nine months ended September 30, 2022. The following table presents the offering periods and costs associated with this program during the reporting period.


Offering Period	Shares Purchased		Cost Per Share		Compensation Expense
August 15, 2021 to February 14, 2022		14,274	$	27.37	$	69
February 15, 2022 to August 14, 2022		14,555		27.61		84
August 15, 2022 to February 14, 2023		17,058		26.18		81
February 15, 2023 to August 14, 2023		14,548		22.34		57

In September of 2021, the Company’s Board of Directors authorized the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock, from time to time, beginning October 29, 2021, and concluding October 28, 2022. The repurchase program did not obligate the Company to acquire a specific dollar amount or number of shares and it may be extended, modified or discontinued at any time without notice. Under this program, during the years ended December 31, 2022 and 2021, the Company repurchased a total of 1,000,000 shares of the Company’s outstanding common stock at an average price paid of $ 32.11 per share.

In September of 2022, the Company's Board of Directors authorized the repurchase of up to 1,000,000 shares of the Company's outstanding common stock, from time to time, beginning October 1, 2022, and concluding on September 30, 2023. The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and it could be extended, modified or discontinued at any time without notice. Under this program, during the years ended December 31, 2022, and 2023, the Company repurchased a total of 832,893 shares of the Company’s outstanding common stock at an average price paid of $ 27.89 per share. At September 30, 2023, there are 167,107 shares remaining under the program that expired on September 30, 2023 .

On July 26, 2023, the Board of Directors of Equity Bancshares, Inc. approved a share repurchase plan for up to 1,000,000 shares of outstanding common stock beginning on October 1, 2023, and concluding on September 30, 2024. The repurchase program does not obligate Equity to acquire a specific dollar amount or number of shares, and it may be extended, modified or discontinued at any time without notice. Non-objection from the Federal Reserve Bank of Kansas City related to this repurchase plan was received September 27, 2023.

Accumulated other comprehensive income (loss)

At September 30, 2023, and December 31, 2022, accumulated other comprehensive income (loss) consisted of (i) the after-tax effect of unrealized gains (losses) on available-for-sale securities and (ii) unrealized gains (losses) on cash flow hedges.

Components of accumulated other comprehensive income as of September 30, 2023, and December 31, 2022, are listed below.


	Available-for- Sale Securities			Cash Flow Hedges			Accumulated Other Comprehensive Income (Loss)
September 30, 2023
Net unrealized or unamortized gains (losses)	$	( 163,681	)	$	2,045		$	( 161,636	)
Tax effect		40,095			( 506	)		39,589
	$	( 123,586	)	$	1,539		$	( 122,047	)
December 31, 2022
Net unrealized or unamortized gains (losses)	$	( 148,029	)	$	( 2,863	)	$	( 150,892	)
Tax effect		36,673			708			37,381
	$	( 111,356	)	$	( 2,155	)	$	( 113,511	)

NOTE 8 – REGULATORY MATTERS

Banks and bank holding companies (on a consolidated basis) 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 Basel III rules 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 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 % which can limit certain activities of an institution, 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 September 30, 2023, 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 September 30, 2023, 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 below. 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 September 30, 2023, and December 31, 2022, are presented in the table below. The Company was able to take advantage of the accumulated other comprehensive income exception on capital calculations that was made available by regulators in order to maintain strong regulatory ratios. Ratios provided for Equity Bancshares, Inc. represent the ratios of the Company on a consolidated basis.


	Actual					Minimum Required for Capital Adequacy Under Basel III						To Be Well Capitalized Under Prompt Corrective Provisions
	Amount		Ratio			Amount		Ratio				Amount		Ratio
September 30, 2023
Total capital to risk weighted assets
Equity Bancshares, Inc.	$	620,751		16.42	%	$	396,873		10.50	%	$		N/A	N/A
Equity Bank		599,515		15.88	%		396,321		10.50	%			377,448		10.00	%
Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.		501,829		13.27	%		321,278		8.50	%		N/A		N/A
Equity Bank		553,872		14.67	%		320,831		8.50	%			301,959		8.00	%
Common equity Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.		478,321		12.65	%		264,582		7.00	%		N/A		N/A
Equity Bank		553,872		14.67	%		264,214		7.00	%			245,341		6.50	%
Tier 1 leverage to average assets
Equity Bancshares, Inc.		501,829		9.77	%		205,421		4.00	%		N/A		N/A
Equity Bank		553,872		10.80	%		205,110		4.00	%			256,388		5.00	%
December 31, 2022
Total capital to risk weighted assets
Equity Bancshares, Inc.	$	603,593		16.08	%	$	394,072		10.50	%	$		N/A	N/A
Equity Bank		588,165		15.71	%		393,168		10.50	%			374,445		10.00	%
Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.		483,539		12.88	%		319,011		8.50	%		N/A		N/A
Equity Bank		541,354		14.46	%		318,279		8.50	%			299,556		8.00	%
Common equity Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.		460,285		12.26	%		262,715		7.00	%		N/A		N/A
Equity Bank		541,354		14.46	%		262,112		7.00	%			243,390		6.50	%
Tier 1 leverage to average assets
Equity Bancshares, Inc.		483,539		9.61	%		201,288		4.00	%		N/A		N/A
Equity Bank		541,354		10.77	%		201,066		4.00	%			251,332		5.00	%

Equity Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.

NOTE 9 – EARNINGS PER SHARE

The following table presents earnings per share for the three and nine months ended September 30, 2023, and 2022.


	Three months ended				Nine months ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Basic:
Net income (loss) allocable to common stockholders	$	12,341	$	15,171	$	36,120	$	46,080
Weighted average common shares outstanding		15,404,882		16,056,366		15,570,357		16,301,500
Weighted average vested restricted stock units		110		292		5,374		2,086
Weighted average shares		15,404,992		16,056,658		15,575,731		16,303,586
Basic earnings (loss) per common share	$	0.80	$	0.94	$	2.32	$	2.83
Diluted:
Net income (loss) allocable to common stockholders	$	12,341	$	15,171	$	36,120	$	46,080
Weighted average common shares outstanding for:
Basic earnings per common share		15,404,992		16,056,658		15,575,731		16,303,586
Dilutive effects of the assumed exercise of stock options		33,189		88,530		37,550		95,435
Dilutive effects of the assumed vesting of restricted stock units		66,892		126,138		76,193		115,844
Dilutive effects of the assumed exercise of ESPP purchases		2,099		1,905		2,831		1,922
Average shares and dilutive potential common shares		15,507,172		16,273,231		15,692,305		16,516,787
Diluted earnings (loss) per common share	$	0.80	$	0.93	$	2.30	$	2.79

Average shares not included in the computation of diluted earnings per share because they were antidilutive are shown in the following table as of September 30, 2023, and 2022.


	Three months ended				Nine months ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Stock options		280,814		275,471		268,713		204,982
Restricted stock units		122,074		1		129,160		—
Total antidilutive shares		402,888		275,472		397,873		204,982

NOTE 10 – 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.

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 securities available-for-sale and equity securities with readily determinable fair value 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 entity securities, residential mortgage-backed securities (all of which are issued or guaranteed by government sponsored agencies), private-label residential mortgage-backed securities,corporate securities, Small Business Administration securities, and State and Political Subdivision 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 interest rate derivative. Cash collateral received from or delivered to a derivative counterparty is classified as Level 1.

Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables as of September 30, 2023, and December 31, 2022.


	September 30, 2023
	(Level 1)			(Level 2)		(Level 3)
Assets:
Available-for-sale securities:
U.S. Government-sponsored entities	$	—		$	105,586	$	—
U.S. Treasury securities		233,912			—		—
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		—			442,421		—
Private label residential mortgage-backed securities		—			144,835		—
Corporate		—			49,701		—
Small Business Administration loan pools		—			10,148		—
State and political subdivisions		—			70,406		—
Derivative assets:
Derivative assets (included in other assets)		—			10,146		—
Cash collateral held by counterparty and netting adjustments		( 9,329	)		—		—
Total derivative assets		( 9,329	)		10,146		—
Other assets:
Equity securities with readily determinable fair value		609			—		—
Total other assets		609			—		—
Total assets	$	225,192		$	833,243	$	—
Liabilities:
Derivative liabilities:
Derivative liabilities (included in other liabilities)	$	—		$	4,870	$	—
Cash collateral held by counterparty and netting adjustments		233			—		—
Total derivative liabilities		233			4,870		—
Total liabilities	$	233		$	4,870	$	—


	December 31, 2022
	(Level 1)			(Level 2)		(Level 3)
Assets:
Available-for-sale securities:
U.S. Government-sponsored entities	$	—		$	106,406	$	—
U.S. Treasury securities		232,158			—		—
Mortgage-backed securities
Government-sponsored residential mortgage- backed securities		—			498,606		—
Private label residential mortgage-backed securities		—			163,560		—
Corporate		—			52,374		—
Small Business Administration loan pools		—			12,181		—
State and political subdivisions		—			119,105		—
Derivative assets:
Derivative assets (included in other assets)		—			8,736		—
Cash collateral held by counterparty and netting adjustments		( 7,336	)		—		—
Total derivative assets		( 7,336	)		8,736		—
Other assets:
Equity securities with readily determinable fair value		570			—		—
Total other assets		570			—		—
Total assets	$	225,392		$	960,968	$	—
Liabilities:
Derivative liabilities:
Derivative liabilities (included in other liabilities)	$	—		$	8,012	$	—
Cash collateral held by counterparty and netting adjustments		( 4,476	)		—		—
Total derivative liabilities		( 4,476	)		8,012		—
Total liabilities	$	( 4,476	)	$	8,012	$	—

There were no material transfers between levels during the nine months ended September 30, 2023, or the year ended December 31, 2022. 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 loans individually assessed for credit losses. The fair value of loans individually assessed for credit losses with specific allowance for credit 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 estimated 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 made to real estate appraisals and other loan valuations are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Assets measured at fair value on a non-recurring basis are summarized below as of September 30, 2023, and December 31, 2022.


	September 30, 2023
	(Level 1)		(Level 2)		(Level 3)
Loans individually evaluated for credit losses:
Commercial real estate	$	—	$	—	$	1,079
Commercial and industrial		—		—		3,239
Residential real estate		—		—		2,347
Agricultural real estate		—		—		2,660
Other		—		—		2,293
Other real estate owned:
Commercial real estate		—		—		1,263
Residential real estate		—		—		170


	December 31, 2022
	(Level 1)		(Level 2)		(Level 3)
Loans individually evaluated for credit losses:
Commercial real estate	$	—	$	—	$	617
Commercial and industrial		—		—		4,747
Residential real estate		—		—		2,395
Agricultural real estate		—		—		1,253
Other		—		—		1,871
Other real estate owned:
Commercial real estate		—		—		792
Residential real estate		—		—		170

The Company did no t record any liabilities for which the fair value was measured on a non-recurring basis at September 30, 2023, or December 31, 2022.

Valuations of individually evaluated loans and other real estate owned utilize third party appraisals or broker price opinions and were 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 as of September 30, 2023, and December 31, 2022.


	Fair Value		Valuation Technique	Unobservable Input	Range (weighted average) or Multiple of Earnings
September 30, 2023
Individually evaluated real estate loans	$	11,618	Sales Comparison Approach	Adjustments for differences between comparable sales	5 % - 56 % ( 30 %)
Individually evaluated other real estate owned	$	1,433	Sales Comparison Approach	Adjustments for differences between comparable sales	5 % - 23 % ( 14 %)
December 31, 2022
Individually evaluated real estate loans	$	10,883	Sales Comparison Approach	Adjustments for differences between comparable sales	10 % - 51 % ( 31 %)
Individually evaluated other real estate owned	$	962	Sales Comparison Approach	Adjustments for differences between comparable sales	3 % - 24 % ( 13 %)

Carrying amount and estimated fair values of financial instruments at period end were as follows for September 30, 2023, and December 31, 2022.


	September 30, 2023
	Carrying Amount			Estimated Fair Value			(Level 1)			(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	199,017		$	199,017		$	199,017		$	—	$	—
Available-for-sale securities		1,057,009			1,057,009			233,912			823,097		—
Held-to-maturity securities		2,212			2,124			—			2,124		—
Loans held for sale		627			627			—			627		—
Loans, net of allowance for credit losses		3,237,932			3,161,093			—			—		3,161,093
Federal Reserve Bank and Federal Home Loan Bank stock		20,780			20,780			—			20,780		—
Interest receivable		23,621			23,621			—			23,621		—
Derivative assets		10,146			10,146			—			10,146		—
Cash collateral held by derivative counterparty and netting adjustments		( 9,329	)		( 9,329	)		( 9,329	)		—		—
Total derivative assets		817			817			( 9,329	)		10,146		—
Equity securities with readily determinable fair value		609			609			609			—		—
Total assets	$	4,542,624		$	4,465,697		$	424,209		$	880,395	$	3,161,093
Financial liabilities:
Deposits	$	4,082,170		$	4,075,032		$	—		$	4,075,032	$	—
Federal funds purchased and retail repurchase agreements		39,701			39,701			—			39,701		—
Federal Home Loan Bank advances		100,000			100,000			—			100,000		—
Federal Reserve Bank borrowings		140,000			140,000			—			140,000		—
Subordinated debentures		23,508			23,508			—			23,508		—
Subordinated notes		73,279			71,029			—			71,029		—
Contractual obligations		29,019			29,019			—			29,019		—
Interest payable		11,138			11,138			—			11,138		—
Derivative liabilities		4,870			4,870			—			4,870		—
Cash collateral held by derivative counterparty and netting adjustments		233			233			233			—		—
Total derivative liabilities		5,103			5,103			233			4,870		—
Total liabilities	$	4,503,918		$	4,494,530		$	233		$	4,494,297	$	—


	December 31, 2022
	Carrying Amount			Estimated Fair Value			(Level 1)			(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	104,428		$	104,428		$	104,428		$	—	$	—
Available-for-sale securities		1,184,390			1,184,390			232,158			952,232		—
Held-to-maturity securities		1,948			1,973			—			1,973		—
Loans held for sale		349			349			—			349		—
Loans, net of allowance for credit losses		3,265,701			3,251,129			—			—		3,251,129
Federal Reserve Bank and Federal Home Loan Bank stock		21,695			21,695			—			21,695		—
Interest receivable		20,630			20,630			—			20,630		—
Derivative assets		8,736			8,736			—			8,736		—
Cash collateral held by derivative counterparty and netting adjustments		( 7,336	)		( 7,336	)		( 7,336	)		—		—
Total derivative assets		1,400			1,400			( 7,336	)		8,736		—
Equity securities with readily determinable fair value		570			570			570			—		—
Total assets	$	4,601,111		$	4,586,564		$	329,820		$	1,005,615	$	3,251,129
Financial liabilities:
Deposits	$	4,241,807		$	4,232,948		$	—		$	4,232,948	$	—
Federal funds purchased and retail repurchase agreements		46,478			46,478			—			46,478		—
Federal Home Loan Bank advances		138,864			138,864			—			138,864		—
Subordinated debentures		23,255			23,255			—			23,255		—
Subordinated notes		73,137			70,887			—			70,887		—
Contractual obligations		15,218			15,218			—			15,218		—
Interest payable		2,462			2,462			—			2,462		—
Derivative liabilities		8,012			8,012			—			8,012		—
Cash collateral held by derivative counterparty and netting adjustments		( 4,476	)		( 4,476	)		( 4,476	)		—		—
Total derivative liabilities		3,536			3,536			( 4,476	)		8,012		—
Total liabilities	$	4,544,757		$	4,533,648		$	( 4,476	)	$	4,538,124	$	—

The fair value of off-balance-sheet items is not considered material.

NOTE 11 – 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 which 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 September 30, 2023, and December 31, 2022, were as follows.


	September 30, 2023				December 31, 2022
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	49,014	$	343,726	$	73,185	$	210,266
Mortgage loans in the process of origination		2,473		4,022		2,130		3,480
Unused lines of credit		130,889		392,145		130,843		354,408

At September 30, 2023, the fixed r ate loan commitments have interest rates ranging from 3.25 % to 18.00 % and maturities ranging from 1 month to 216 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 September 30, 2023, and December 31, 2022, were as follows.


	September 30, 2023				December 31, 2022
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Standby letters of credit	$	17,040	$	31,719	$	16,358	$	25,791

NOTE 12 – 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, results of operations or cash flows. A loss contingency is recorded when the outcome is probable and reasonably able to be estimated. Any loss contingency described below has been identified by the Company as reasonably possible to result in an unfavorable outcome for the Company or the Bank.

Equity Bank is party to a lawsuit filed on January 28, 2022, in the Sedgwick County Kansas District Court on behalf of one of our customers alleging improperly collected overdraft fees. The plaintiff seeks to have the case certified as a class action. The Bank has filed a motion to dismiss this claim on its merits and on the grounds that the defendant must litigate any such claims in arbitration. The trial court ruling denying the requirement of arbitration is currently on appeal. The Company believes that the lawsuit is without merit, and it intends to vigorously defend against the claim asserted. At this time, the Company is unable to reasonably estimate the loss amount of this litigation.

Equity Bank is party to a lawsuit filed on February 2, 2022, in Jackson County, Missouri District Court against the Bank on behalf of one of our Missouri customers alleging improperly collected overdraft fees. The plaintiff seeks to have the case certified as a class action of Missouri customers only. The Company believes that the lawsuit is without merit, and it intends to vigorously defend against the claims now asserted. At this time, the Company is unable to reasonably estimate the loss amount of this litigation.

Equity Bank is party to a lawsuit filed on February 18, 2023, in Saline County, Missouri District Court against the Bank on behalf of one of our Missouri customers alleging improperly collected overdraft fees. The plaintiff seeks to have the case certified as a class action for Missouri customers only. The Company believes that the lawsuit is without merit, and it intends to vigorously defend against the claims now asserted. At this time, the Company is unable to reasonably estimate the loss amount of this litigation.

NOTE 13 – REVENUE RECOGNITION

The majority of the Company’s revenues come from interest income on financial instruments, including loans, leases, securities and derivatives, which are outside the scope of ASC 606. The Company’s services that fall within the scope of ASC 606 are presented with non-interest income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges and fees on deposits, debit card income, investment referral income, insurance sales commissions and other non-interest income related to loans and deposits.

Except for gains or losses from the sale of other real estate owned, all of the Company’s revenue from contracts with customers within the scope of ASC 606 are recognized in non-interest income. The following table presents the Company’s sources of non-interest income for the three and nine months ended September 30, 2023, and 2022.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Non-interest income
Service charges and fees	$	2,690		$	2,788		$	7,888		$	7,927
Debit card income		2,591			2,682			7,798			8,120
Mortgage banking (a)		226			310			527			1,300
Increase in bank-owned life insurance (a)		794			754			3,134			2,355
Net gain (loss) on acquisitions (a)		—			—			—			540
Net gain (loss) from securities transactions (a)		( 1	)		( 17	)		( 1,291	)		( 9	)
Other
Investment referral income		101			137			307			420
Trust income		291			249			799			806
Insurance sales commissions		264			242			405			354
Recovery on zero-basis purchased loans (a)		2			129			515			163
Income (loss) from equity method investments (a)		( 56	)		( 56	)		( 167	)		( 167	)
Other non-interest income related to loans and deposits		1,828			1,708			4,340			5,752
Other non-interest income not related to loans and deposits (a)		5			43			30			67
Total other non-interest income		2,435			2,452			6,229			7,395
Total	$	8,735		$	8,969		$	24,285		$	27,628
(a) Not within the scope of ASC 606.

NOTE 14 – BUSINESS COMBINATI ONS AND BRANCH SALES

At the close of business on June 24, 2022, the Company sold three branch locations located in Belleville, Clyde and Concordia, Kansas to United Bank and Trust (UBT). Results of the branch sale were included in the Company's results of operations beginning June 27, 2022. Branch sale costs were $ 18 ($ 14 on an after-tax basis) and are included in merger expense in the Company's income statement for the year end ed December 31, 2022. At September 30, 2023, there were no costs related to this branch sale.

At the close of business on November 10, 2022, the Company sold one branch location located in Cordell, Oklahoma to High Plains Bank (HPB). Results of the branch sale were included in the Company's results of operations beginning November 14, 2022. There were no branch sale related costs on the Company's income statement for the year ended December 31, 2022. At September 30, 2023, there were no costs related to this branch sale.

Item 2: 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K filed with the SEC on March 9, 2023, and our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. 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 Note Regarding Forward-Looking Statements.” Also, see the risk factors and other cautionary statements described under the heading “Item 1A: Risk Factors” included in the Annual Report on Form 10-K and in Item 1A of this Quarterly Report. 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:

•

Table containing selected financial data and ratios for the periods;

•

Overview – a general description of our business and financial highlights;

•

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 – a reconciliation of non-GAAP measures.


(Dollars in thousands, except per share data)	September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022
Statement of Income Data (for the quarterly period ended)
Interest and dividend income	$	65,039		$	61,256		$	56,123		$	53,424		$	48,548
Interest expense		24,027			21,827			17,013			11,393			6,604
Net interest income		41,012			39,429			39,110			42,031			41,944
Provision (reversal) for credit losses		1,230			298			(366	)		(151	)		(136	)
Net gain on acquisition and branch sales		—			—			—			422			—
Net gain (loss) from securities transactions		(1	)		(1,322	)		32			14			(17	)
Other non-interest income		8,736			8,272			8,568			7,893			8,986
Merger expenses		—			—			—			68			115
Other non-interest expense		34,244			33,130			33,229			35,181			32,121
Income (loss) before income taxes		14,273			12,951			14,847			15,262			18,813
Provision for income taxes		1,932			1,495			2,524			3,654			3,642
Net income (loss)		12,341			11,456			12,323			11,608			15,171
Net income (loss) allocable to common stockholders		12,341			11,456			12,323			11,608			15,171
Basic earnings (loss) per share	$	0.80		$	0.74		$	0.78		$	0.73		$	0.94
Diluted earnings (loss) per share	$	0.80		$	0.74		$	0.77		$	0.72		$	0.93
Balance Sheet Data (at period end)
Cash and cash equivalents	$	199,017		$	278,099		$	250,366		$	104,428		$	155,413
Securities available-for-sale		1,057,009			1,094,748			1,183,247			1,184,390			1,198,962
Securities held-to-maturity		2,212			2,216			1,944			1,948			—
Loans held for sale		627			2,456			648			349			1,518
Gross loans held for investment		3,282,118			3,322,670			3,330,618			3,311,548			3,255,023
Allowance for credit losses		44,186			44,544			45,103			45,847			46,499
Loans held for investment, net of allowance for credit losses		3,237,932			3,278,126			3,285,515			3,265,701			3,208,524
Goodwill and core deposit intangibles, net		61,062			61,861			62,779			63,697			64,699
Mortgage servicing asset, net		100			126			151			176			201
Naming rights, net		1,011			1,022			1,033			1,044			1,054
Total assets		4,945,267			5,094,883			5,156,716			4,981,651			5,000,415
Total deposits		4,082,170			4,230,950			4,286,933			4,241,807			4,226,611
Borrowings		376,488			381,423			392,842			281,734			329,707
Total liabilities		4,527,137			4,676,448			4,731,593			4,571,593			4,604,609
Total stockholders’ equity		418,130			418,435			425,123			410,058			395,806
Tangible common equity*		355,957			355,426			361,160			345,141			329,852
Performance ratios
Return on average assets (ROAA) annualized		0.97	%		0.91	%		1.00	%		0.93	%		1.21	%
Return on average equity (ROAE) annualized		11.49	%		10.82	%		11.89	%		11.57	%		13.80	%
Return on average tangible common equity (ROATCE) annualized		14.18	%		13.55	%		14.89	%		14.74	%		17.12	%
Yield on loans annualized		6.67	%		6.34	%		5.94	%		5.59	%		5.09	%
Cost of interest-bearing deposits annualized		2.40	%		2.14	%		1.73	%		1.05	%		0.57	%
Net interest margin annualized		3.51	%		3.38	%		3.44	%		3.67	%		3.62	%
Efficiency ratio*		68.83	%		69.45	%		69.69	%		70.47	%		63.07	%
Non-interest income / average assets annualized		0.69	%		0.55	%		0.70	%		0.67	%		0.71	%
Non-interest expense / average assets annualized		2.69	%		2.62	%		2.70	%		2.84	%		2.56	%
Capital Ratios
Tier 1 Leverage Ratio		9.77	%		9.54	%		9.60	%		9.61	%		9.46	%
Common Equity Tier 1 Capital Ratio		12.65	%		12.23	%		12.21	%		12.26	%		12.21	%
Tier 1 Risk Based Capital Ratio		13.27	%		12.84	%		12.83	%		12.88	%		12.84	%
Total Risk Based Capital Ratio		16.42	%		15.96	%		15.98	%		16.08	%		16.06	%
Equity / Assets		8.46	%		8.21	%		8.24	%		8.23	%		7.92	%
Tangible common equity to tangible assets*		7.29	%		7.06	%		7.09	%		7.02	%		6.68	%
Dividend payout ratio		15.13	%		13.53	%		13.07	%		14.01	%		10.78	%
Book value per share	$	27.13		$	27.18		$	27.03		$	25.74		$	24.71
Tangible common book value per share*	$	23.09		$	23.08		$	22.96		$	21.67		$	20.59
Tangible common book value per diluted share*	$	22.96		$	22.98		$	22.83		$	21.35		$	20.33

* The value noted is considered a Non-GAAP financial measure. For a reconciliation of Non-GAAP financial measures see “Non-GAAP Financial Measures” in this Item 2.

Overv iew

We are a financial 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 65 full-service banking sites located in Arkansas, Kansas, Missouri, and Oklahoma. As of September 30, 2023, we had consolidated total assets of $4.95 billion, total loans held for investment, net of allowance, of $3.24 billion, total deposits of $4.08 billion, and total stockholders’ equity of $418.1 million. During the three and nine month periods ended September 30, 2023, the Company had net

income of $12.3 million and $36.1 million. The Company had net income of $15.2 million and $46.1 million for the three and nine month periods ended September 30, 2022.

Critical Accou nting Policies

Our significant accounting policies are integral to understanding the results reported. Our accounting policies are described in detail in Note 1 to the December 31, 2022, audited financial statements included in our Annual Report on Form 10-K filed with the SEC on March 9, 2023. The preparation of our financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect our reported results and disclosures. Several of our accounting policies are inherently subject to valuation assumptions and other subjective assessments and are more critical than others in terms of their importance to results. Changes in any of the estimates and assumptions underlying critical accounting policies could have a material effect on our financial statements. Our accounting policies are described in “NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the Notes to Interim Consolidated Financial Statements.

The accounting policies that management believes are the most critical to an understanding of our financial condition and results of operations and require complex management judgment are described below.

Allowance for Credit Losses: The allowance for credit losses for loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay a loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications, and other pertinent factors, including regulatory recommendations. The level of the allowance for credit losses maintained by management is believed adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date; however, determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. The actual realized facts and circumstances may be different than those currently estimated by management and may result in significant changes in the allowance for credit losses in future periods. The allowance for credit losses for loans, as reported in our consolidated balance sheets, is adjusted by provision for credit losses, which is recognized in earnings and is reduced by the charge-off of loan amounts, net of recoveries.

The allowance represents management’s best estimate, but significant changes in circumstances relating to loan quality and economic conditions could result in significantly different results than what is reflected in the consolidated balance sheet as of September 30, 2023. Likewise, an improvement in loan quality or economic conditions may allow for a further reduction in the required allowance. Changing credit conditions would be expected to impact realized losses, driving variability in specifically assessed allowances, as well as calculated quantitative and more subjectively analyzed qualitative factors. Depending on the volatility in these conditions, material impacts could be realized within the Company’s operations. Significant changes in economic conditions, both positive and negative, could result in unexpected realization of provision or reversal of allowance for credit losses due to its impact on the quantitative and qualitative inputs to the Company’s calculation. Under the CECL methodology, the impact of these conditions has the potential to further exacerbate periodic differences due to its life of loan perspective. The life of loans calculated under the methodology is based in contractual duration and modified for prepayment expectations, making significant variation in periodic results possible due to changing contractual or adjusted duration of the assets within the calculation.

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. Goodwill is assessed at least annually for impairment and any such impairment is recognized and expensed in the period identified. Goodwill will be assessed more frequently if a triggering event occurs which indicates that the carrying value of the asset might be impaired. 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. For the quarter ended September 30, 2023, management conducted the quarterly qualitative assessment and has determined there was no evidence of a triggering event as of or during the period then ended. Based on this qualitative analysis and conclusion, it was determined that a more robust quantitative assessment was not necessary at our measurement date.

When performing quantitative goodwill impairment assessments, management is required to estimate the fair value of the Company’s equity in a change in control transaction. To complete this valuation, management is required to derive assumptions related to industry performance, reporting unit business performance, economic and market conditions, and various other assumptions, many of which require significant management judgment.

Although management believes that the judgments and estimates used are reasonable, actual results could differ and we may be exposed to losses or gains that could be material.

Results of Operations

We generate 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, trust 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

Three months ended September 30, 2023, compared with three months September 30, 2022: Net income allocable to common stockholders for the three months ended September 30, 2023, was $12.3 million, or $0.80 diluted earnings per share as compared to $15.2 million, or $0.93 diluted earnings per share for the three months ended September 30, 2022, a decrease of $2.9 million. The decrease was largely due to a decrease in net interest income of $1.0 million, an increase in the provision for loan losses of $1.4 million and an increase in non-interest expense of $2.0 million, offset by a decrease in the provision for Income taxes of $1.7 million.

Nine months ended September 30, 2023, compared with nine months ended September 30, 2022: Net income allocable to common stockholders for the nine months ended September 30, 2023, was $36.1 million, or $2.30 diluted earnings per share as compared to $46.1 million, or $2.79 diluted earnings per share for the nine months ended September 30, 2022, a decrease of $10.0 million. The decrease was largely due to a decrease in net interest income of $1.2 million, a decrease in other income of $3.3 million, an increase in non-interest expense of $7.5 million, offset by a decrease in the provision for income taxes of $3.0 million.

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-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 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.”

Three months ended September 30, 2023, compared with three months ended September 30, 2022 : 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 three months ended September 30, 2023, and 2022. The yields and rates are calculated by dividing annualized income or annualized expense by the average daily balances of the associated assets or liabilities.

Average Balance Sheets and Net Interest Analysis


	For the Three Months Ended September 30,
	2023							2022
(Dollars in thousands)	Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate (3)(4)			Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate (3)(4)
Interest-earning assets:
Loans (1)
Commercial and industrial	$	573,039	$	10,984		7.60	%	$	575,149	$	7,750		5.35	%
Commercial real estate		1,253,362		20,824		6.59	%		1,307,244		18,023		5.47	%
Real estate construction		480,355		9,838		8.13	%		360,579		4,847		5.33	%
Residential real estate		564,138		6,085		4.28	%		582,938		5,464		3.72	%
Agricultural real estate		203,399		3,898		7.60	%		200,534		2,740		5.42	%
Agricultural		99,773		1,856		7.38	%		113,351		1,406		4.92	%
Consumer		107,417		1,667		6.16	%		101,203		1,325		5.20	%
Total loans		3,281,483		55,152		6.67	%		3,240,998		41,555		5.09	%
Taxable securities		1,027,889		5,696		2.20	%		1,164,697		5,792		1.97	%
Nontaxable securities		58,016		369		2.52	%		107,717		687		2.53	%
Total Securities		1,085,905		6,065		2.22	%		1,272,414		6,479		2.02	%
Federal funds sold and other		267,996		3,822		5.66	%		89,156		514		2.29	%
Total interest-earning assets		4,635,384		65,039		5.57	%		4,602,568		48,548		4.18	%
Non-interest-earning assets:
Other real estate owned, net		4,206							11,914
Premises and equipment, net		108,869							101,035
Bank-owned life insurance		123,790							121,970
Goodwill, core deposit and other intangibles, net		62,635							66,445
Other non-interest-earning assets		111,295							84,823
Total assets	$	5,046,179						$	4,988,755
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,014,956		6,223		2.43	%	$	1,112,901		2,257		0.80	%
Savings and money market		1,408,424		7,108		2.00	%		1,312,923		861		0.26	%
Demand, savings and money market		2,423,380		13,331		2.18	%		2,425,824		3,118		0.51	%
Certificates of deposit		782,920		6,043		3.06	%		655,421		1,285		0.78	%
Total interest-bearing deposits		3,206,300		19,374		2.40	%		3,081,245		4,403		0.57	%
FHLB term and line of credit advances		100,000		968		3.84	%		71,415		409		2.27	%
Subordinated debt		96,712		1,893		7.77	%		96,200		1,721		7.10	%
Federal Reserve Bank borrowings		140,000		1,546		4.38	%		—		—		—
Other borrowings		48,413		246		2.02	%		53,899		71		0.52	%
Total interest-bearing liabilities		3,591,425		24,027		2.65	%		3,302,759		6,604		0.79	%
Non-interest-bearing liabilities and stockholders’ equity:
Non-interest-bearing checking accounts		971,032							1,202,610
Non-interest-bearing liabilities		57,462							47,195
Stockholders’ equity		426,260							436,191
Total liabilities and stockholders’ equity	$	5,046,179						$	4,988,755
Net interest income			$	41,012						$	41,944
Interest rate spread						2.92	%						3.39	%
Net interest margin (2)						3.51	%						3.62	%
Total cost of deposits, including non-interest bearing deposits	$	4,177,332	$	19,374		1.84	%	$	4,283,855	$	4,403		0.41	%
Average interest-earning assets to interest-bearing liabilities						129.07	%						139.36	%

(1)

Average loan balances include nonaccrual loans.

(2)

Net interest margin is calculated by dividing annualized net interest income by average interest-earnings assets for the period.

(3)

Tax exempt income is not included in the above table on a tax equivalent basis.

(4)

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.

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 three month periods ended September 30, 2023, and 2022.

Analysis of Changes in Net Interest Income

For the Three Months Ended September 30, 2023, and 2022


	Increase (Decrease) Due to:						Total Increase /
(Dollars in thousands)	Volume (1)			Yield/Rate (1)			(Decrease)
Interest-earning assets:
Loans
Commercial and industrial	$	(29	)	$	3,263		$	3,234
Commercial real estate		(768	)		3,569			2,801
Real estate construction		1,937			3,054			4,991
Residential real estate		(181	)		802			621
Agricultural real estate		40			1,118			1,158
Agricultural		(185	)		635			450
Consumer		86			256			342
Total loans		900			12,697			13,597
Taxable securities		(719	)		623			(96	)
Nontaxable securities		(315	)		(3	)		(318	)
Total securities		(1,034	)		620			(414	)
Federal funds sold and other		1,908			1,400			3,308
Total interest-earning assets		1,774			14,717			16,491
Interest-bearing liabilities:
Interest-bearing demand deposits		(215	)		4,181			3,966
Savings and money market		68			6,179			6,247
Demand, savings and money market		(147	)		10,360			10,213
Certificates of deposit		294			4,464			4,758
Total interest-bearing deposits		147			14,824			14,971
FHLB term and line of credit advances		204			355			559
Subordinated debt		10			162			172
Federal Reserve Bank borrowings		1,546			—			1,546
Other borrowings		(8	)		183			175
Total interest-bearing liabilities		1,899			15,524			17,423
Net Interest Income	$	(125	)	$	(807	)	$	(932	)

(1)

The effect of changes in volume is determined by multiplying the change in volume by the previous year’s average 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.

Interest income increased $16.5 million for the quarter ended September 30, 2023, as compared to the quarter ended September 30, 2022. Of this increase, $12.7 million is attributable to increases in loan rate/yield. Yield on loans increased by 158 basis points for the quarter ended September 30, 2023, as compared quarter ended to September 30, 2022. The increase in interest income on loans is primarily due to higher yields on the entire loan portfolio, offset by decrease due to volume on commercial and industrial, commercial real estate, residential real estate and agricultural. Overall, the increase in interest income on interest earning assets is due to the increase in market interest rates.

Increase in interest expense of $17.4 million was due to a general increase in market interest rates and to a lesser extent an increase in volume on borrowing, primarily from the Federal Reserve Bank. The increase in the cost of interest-bearing deposits, from 0.57% for the quarter ended September 30, 2022 to 2.40% for the quarter ended September 30, 2023, was primarily the result the Federal Reserve raising the federal funds target rate in response to inflationary concerns.

During the quarter ended September 30, 2023, when compared to the quarter ended September 30, 2022, net interest margin decreased 11 basis points and net interest spread decreased by 47 basis points to 2.92% from 3.39%. The decrease in net interest margin is primarily due to the increase in yield earned on interest-earning asset, which was outpaced by increases in the cost of interest-bearing liabilities. The decrease in interest spread is primarily due to the increase in volume of interest bearing liabilities at current market rates.

Nine months ended September 30, 2023, compared with nine months ended September 30, 2022 : 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 nine months ended September 30, 2023, and 2022. The yields and rates

are calculated by dividing annualized income or annualized expense by the average daily balances of the associated assets or liabilities.

Average Balance Sheets and Net Interest Analysis


	For the Nine Months Ended September 30,
	2023							2022
(Dollars in thousands)	Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate (3)(4)			Average Outstanding Balance		Interest Income/ Expense		Average Yield/ Rate (3)(4)
Interest-earning assets:
Loans (1)
Commercial and industrial	$	580,359	$	31,503		7.26	%	$	579,610	$	22,994		5.30	%
Commercial real estate		1,300,202		61,811		6.36	%		1,236,282		45,995		4.97	%
Real estate construction		450,147		24,764		7.36	%		362,543		12,443		4.59	%
Residential real estate		567,169		17,933		4.23	%		604,218		16,336		3.61	%
Agricultural real estate		202,963		10,399		6.85	%		201,566		8,046		5.34	%
Agricultural		100,450		5,039		6.71	%		132,485		5,254		5.30	%
Consumer		106,841		4,832		6.05	%		101,341		3,642		4.80	%
Total loans		3,308,131		156,281		6.32	%		3,218,045		114,710		4.77	%
Taxable securities		1,059,858		17,456		2.20	%		1,220,045		16,767		1.84	%
Nontaxable securities		82,230		1,606		2.61	%		109,142		2,020		2.47	%
Total securities		1,142,088		19,062		2.23	%		1,329,187		18,787		1.89	%
Federal funds sold and other		191,585		7,075		4.94	%		116,997		1,327		1.52	%
Total interest-earning assets		4,641,804		182,418		5.25	%		4,664,229		134,824		3.86	%
Non-interest-earning assets:
Other real estate owned, net		4,226							10,377
Premises and equipment, net		105,980							102,491
Bank-owned life insurance		123,409							121,398
Goodwill, core deposit and other intangibles, net		63,505							68,521
Other non-interest-earning assets		96,435							87,399
Total assets	$	5,035,359						$	5,054,415
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,021,163		16,651		2.18	%	$	1,158,343		3,702		0.43	%
Savings and money market		1,344,809		15,637		1.55	%		1,321,770		1,759		0.18	%
Demand, savings and money market		2,365,972		32,288		1.82	%		2,480,113		5,461		0.29	%
Certificates of deposit		856,862		18,111		2.83	%		638,692		2,847		0.60	%
Total interest-bearing deposits		3,222,834		50,399		2.09	%		3,118,805		8,308		0.36	%
FHLB term and line of credit advances		97,014		2,939		4.05	%		54,100		594		1.47	%
Subordinated debt		96,584		5,687		7.87	%		96,067		4,973		6.92	%
Federal Reserve Bank borrowings		97,952		3,209		4.38	%		4		—		0.25	%
Other borrowings		48,471		633		1.75	%		56,611		150		0.35	%
Total interest-bearing liabilities		3,562,855		62,867		2.36	%		3,325,587		14,025		0.56	%
Non-interest-bearing liabilities and stockholders’ equity:
Non-interest-bearing checking accounts		997,165							1,220,073
Non-interest-bearing liabilities		51,443							53,510
Stockholders’ equity		423,895							455,245
Total liabilities and stockholders’ equity	$	5,035,358						$	5,054,415
Net interest income			$	119,551						$	120,799
Interest rate spread						2.89	%						3.30	%
Net interest margin (2)						3.44	%						3.46	%
Total cost of deposits, including non-interest bearing deposits	$	4,219,999	$	50,399		1.60	%	$	4,338,878	$	8,308		0.26	%
Average interest-earning assets to interest-bearing liabilities						130.28	%						140.25	%

(1)

Average loan balances include nonaccrual loans.

(2)

Net interest margin is calculated by dividing annualized net interest income by average interest-earnings assets for the period.

(3)

Tax exempt income is not included in the above table on a tax equivalent basis.

(4)

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 nine month periods ended September 30, 2023, and 2022.

Analysis of Changes in Net Interest Income

For the Nine Months Ended September 30, 2023, and 2022


	Increase (Decrease) Due to:					Total Increase /
(Dollars in thousands)	Volume (1)			Yield/Rate (1)		(Decrease)
Interest-earning assets:
Loans
Commercial and industrial	$	30		$	8,479	$	8,509
Commercial real estate		2,482			13,334		15,816
Real estate construction		3,525			8,796		12,321
Residential real estate		(1,047	)		2,644		1,597
Agricultural real estate		56			2,297		2,353
Agricultural		(1,431	)		1,216		(215	)
Consumer		207			983		1,190
Total loans		3,822			37,749		41,571
Taxable securities		(2,375	)		3,064		689
Nontaxable securities		(520	)		106		(414	)
Total securities		(2,895	)		3,170		275
Federal funds sold and other		1,266			4,482		5,748
Total interest-earning assets		2,193			45,401		47,594
Interest-bearing liabilities:
Interest-bearing demand deposits		(489	)		13,438		12,949
Savings and money market		31			13,847		13,878
Demand, savings and money market		(458	)		27,285		26,827
Certificates of deposit		1,277			13,987		15,264
Total interest-bearing deposits		819			41,272		42,091
FHLB term and line of credit advances		728			1,617		2,345
Subordinated debt		27			687		714
Federal Reserve Bank borrowings		3,207			2		3,209
Other borrowings		(25	)		508		483
Total interest-bearing liabilities		4,756			44,086		48,842
Net Interest Income	$	(2,563	)	$	1,315	$	(1,248	)

(1)

Interest income on interest-earning assets increased $47.6 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Of this increase, $37.7 million is attributable to increases in loan yields by 155 basis points for the nine months ended September 30, 2023, as compared to the nine months September 30, 2022. The increase in yields on interest-earning assets is due to the overall increase in market interest rates which is driven by the monetary policy of the Federal Reserve.

The increase in interest expense on total interest-bearing deposits of $42.1 million was due to a general increase in market interest rates. The increase in the cost of interest-bearing deposits increased from 0.36% for the nine months ended September 30, 2022 to 2.09% for the nine months ended September 30, 2023, was primarily the result the Federal Reserve raising federal funds target rate in response to inflationary concerns.

When compared to the nine months ended September 30, 2022, net interest margin decreased 2 basis points during the nine months ended September 30, 2023. Comparing the same periods, net interest spread decreased by 41 basis points to 2.89% from 3.30%. The decrease in both net interest margin and net interest spread can be attributed to the increase in yield on interest-earning assets being out paced by increases in the cost of interest-bearing liabilities.

Provision for Credit Losses

We maintain an allowance for credit losses for estimated losses in our loan portfolio. The allowance for credit losses is increased by a provision for credit 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 within the Company’s portfolio. This historical loss calculation is then modified to reflect quantitative economic circumstances based on evidenced economic conditions and regression formulas, which incorporate lag factors in identifying a sufficiently predictive adjusted-R square, as well as qualitative factors not inherently reflected in our historical loss or

quantitative economic inputs. Included in our qualitative assessment is the consideration of prospective economic conditions over the next 12 months, considered the Company’s reasonable and supportable forecast period. As these factors change, the amount of the credit loss provision changes.

Three months ended September 30, 2023, compared with three months ended September 30, 2022: During the three months ended September 30, 2023, there was a provision for credit losses of $1.2 million compared to a reversal of provision for credit losses of $136 thousand during the three months ended September 30, 2022. The provision for the quarter is the result of extended duration within the portfolio as well as realized charge-offs; however, overall we continue to experience positive credit trends The Company continues to estimate the allowance for credit losses with assumptions that anticipate slowing prepayment rates and continued market disruption caused by elevated inflation, supply chain issues and the impact of monetary policy on consumers and businesses. Net charge-offs for both the three months ended September 30, 2023, and 2022, were $1.6 million. For the three months ended September 30, 2023, gross charge-offs were $1.7 million, offset by gross recoveries of $65 thousand. In comparison, gross charge-offs were $1.7 million for the three months ended September 30, 2022, offset by gross recoveries of $76 thousand.

Nine months ended September 30, 2023, compared with nine months ended September 30, 2022: During the nine months ended September 30, 2023, there was a provision for credit losses of $1.2 million compared to a provision of $276 thousand during the nine months ended September 30, 2022. The increase in the provision for the nine months ended September 30, 2023, is the result of an increase in realized charge-offs and extension of duration in the portfolio. Net charge-offs for the nine months ended September 30, 2023, were $2.8 million compared to net charge-offs of $2.1 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, gross charge-offs were $3.4 million, offset by gross recoveries of $536 thousand. In comparison, gross charge-offs were $2.6 million for the nine months ended September 30, 2022, offset by gross recoveries of $453 thousand.

Non-Interest Income

The primary sources of non-interest income are service charges and fees, debit card income, mortgage banking income, and increases in the value of bank-owned life insurance. Non-interest income does not include loan origination or other loan fees, which are recognized as an adjustment to yield using the interest method.

Three months ended September 30, 2023, compared with three months ended September 30, 2022: The following table provides a comparison of the major components of non-interest income for the three months ended September 30, 2023, and 2022.

Non-Interest Income

For the Three Months Ended September 30,


							2023 vs. 2022
(Dollars in thousands)	2023			2022			Change			%
Service charges and fees	$	2,690		$	2,788		$	(98	)		(3.5	)%
Debit card income		2,591			2,682			(91	)		(3.4	)%
Mortgage banking		226			310			(84	)		(27.1	)%
Increase in value of bank-owned life insurance		794			754			40			5.3	%
Other
Investment referral income		101			137			(36	)		(26.3	)%
Trust income		291			249			42			16.9	%
Insurance sales commissions		264			242			22			9.1	%
Recovery on zero-basis purchased loans		2			129			(127	)		(98.4	)%
Income (loss) from equity method investments		(56	)		(56	)		—			—	%
Other non-interest income		1,833			1,751			82			4.7	%
Total other		2,435			2,452			(17	)		(0.7	)%
Subtotal		8,736			8,986			(250	)		(2.8	)%
Net gain (loss) on acquisition and branch sales		—			—			—			—	%
Net gain (loss) from securities transactions		(1	)		(17	)		16			(94.1	)%
Total non-interest income	$	8,735		$	8,969		$	(234	)		(2.6	)%

Total non-interest income decreased $234 thousand during the three months ended September 30, 2023, as compared to the same period in 2022. The decrease is largely attributable to decreases in recovery on zero-basis purchased loans of $127 thousand, service charges and fees of $98 thousand, debit card income of $91 thousand and mortgage banking income of $84 thousand. The decrease in mortgage banking income is due to decreased activity in held for sale mortgage portfolio primarily due to increases in

mortgage interest rates. The increase in other non-interest income was primarily due to increases in loan repurchase obligation reversal which was partially offset by decreased gains from economic derivatives.

Nine months ended September 30, 2023, compared with nine months ended September 30, 2022: The following table provides a comparison of the major components of non-interest income for the nine months ended September 30, 2023, and 2022.

Non-Interest Income

For the Nine Months Ended September 30,


							2023 vs. 2022
(Dollars in thousands)	2023			2022			Change			%
Service charges and fees	$	7,888		$	7,927		$	(39	)		(0.5	)%
Debit card income		7,798			8,120			(322	)		(4.0	)%
Mortgage banking		527			1,300			(773	)		(59.5	)%
Increase in value of bank-owned life insurance		3,134			2,355			779			33.1	%
Other
Investment referral income		307			420			(113	)		(26.9	)%
Trust income		799			806			(7	)		(0.9	)%
Insurance sales commissions		405			354			51			14.4	%
Recovery on zero-basis purchased loans		515			163			352			216.0	%
Income from equity method investments		(167	)		(167	)		—			—	%
Other non-interest income		4,370			5,819			(1,449	)		(24.9	)%
Total other		6,229			7,395			(1,166	)		(15.8	)%
Subtotal		25,576			27,097			(1,521	)		(5.6	)%
Net gain (loss) on acquisition and branch sales		—			540			(540	)		(100.0	)%
Net gain (loss) from securities transactions		(1,291	)		(9	)		(1,282	)		14244.4	%
Total non-interest income	$	24,285		$	27,628		$	(3,343	)		(12.1	)%

Total non-interest income decreased $3.3 million during the nine months ended September 30, 2023, as compared to the same period in 2022. The decrease is largely attributable to $1.3 million net loss on the sale of available-for-sale securities, a $1.2 million decrease in other income and a $540 thousand gain on branch sale in 2022. The investment securities sold were lower yielding AFS securities and the proceeds from the sale were reinvested in higher yielding interest-earning assets and to paydown higher cost interest-bearing liabilities to enhance future earnings. The calculated earn-back is expected to be less than 12 months. The decrease in mortgage banking income is due to decreased activity in held for sale mortgage portfolio. The decrease in other non-interest income was primarily due to decreases in loan repurchase obligation reversal and reduced gains on economic derivatives.

Non-Interest Expense

Three months ended September 30, 2023, compared with three months ended September 30, 2022: For the three months ended September 30, 2023, non-interest expense totaled $34.2 million, an increase of $2.0 million, when compared to the three months ended September 30, 2022. Changes in the various components of non-interest expense for the three months ended September 30, 2023, and 2022, are discussed in more detail in the following table.

Non-Interest Expense

For the Three Months Ended September 30,


					2023 vs. 2022
(Dollars in thousands)	2023		2022		Change			%
Salaries and employee benefits	$	15,857	$	15,442	$	415			2.7	%
Net occupancy and equipment		3,262		3,127		135			4.3	%
Data processing		4,553		4,138		415			10.0	%
Professional fees		1,312		1,265		47			3.7	%
Advertising and business development		1,419		1,191		228			19.1	%
Telecommunications		502		487		15			3.1	%
FDIC insurance		660		340		320			94.1	%
Courier and postage		548		436		112			25.7	%
Free nationwide ATM cost		516		551		(35	)		(6.4	)%
Amortization of core deposit intangible		799		957		(158	)		(16.5	)%
Loan expense		132		174		(42	)		(24.1	)%
Other real estate owned		128		188		(60	)		(31.9	)%
Other		4,556		3,825		731			19.1	%
Subtotal		34,244		32,121		2,123			6.6	%
Merger expenses		—		115		(115	)		(100.0	)%
Total non-interest expense	$	34,244	$	32,236	$	2,008			6.2	%

Salaries and employee benefits : There was an increase in salaries and employee benefits of $415 thousand for the period ended September 30, 2023, as compared to the same period in 2022. The increase is primarily due to increases in employee salaries and employee insurance cost, off-set by decreases in share-based compensation expense. The decrease in share-based compensation is due to the reversal of share-based compensation expense associated with the departure of senior management team members.

Data processing : There was an increase in data processing costs of $415 thousand for the period ended September 30, 2023, as compared to the same period in 2022. The increase is primarily due to inflationary effects on data processing vendor contracts.

FDIC insurance: FDIC insurance costs increased $320 thousand for the period ended September 30, 2023, as compared to the same period in 2022. The increase was primarily due to an increase in FDIC assessment rates.

Advertising and business development: There was an increase in advertising and business development costs of $228 thousand for the period ended September 30, 2023, as compared to the same period in 2022. The increase was primarily driven by additional expense to attract new deposit customers.

Other: Other non-interest expenses consists 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, other operating expenses, such as settlement of claims, losses from limited partnerships entered into for tax credits and provision for unfunded commitments. The increase in the other expense category includes a loss of $335 thousand on the disposal of other assets, an increase of $266 thousand of recruiting expenses, and an increase in travel related expenses of $130 thousand.

Nine months ended September 30, 2023, compared with nine months ended September 30, 2022: For the nine months ended September 30, 2023, non-interest expense totaled $100.6 million, an increase of $7.5 million, when compared to the nine months ended September 30, 2022. Changes in the various components of non-interest expense for the nine months ended September 30, 2023, and 2022, are discussed in more detail in the following table.

Non-Interest Expense

For the Nine Months Ended September 30,


					2023 vs. 2022
(Dollars in thousands)	2023		2022		Change			%
Salaries and employee benefits	$	47,786	$	45,893	$	1,893			4.1	%
Net occupancy and equipment		9,081		9,304		(223	)		(2.4	)%
Data processing		12,962		11,549		1,413			12.2	%
Professional fees		4,341		3,547		794			22.4	%
Advertising and business development		3,827		3,139		688			21.9	%
Telecommunications		1,503		1,399		104			7.4	%
FDIC insurance		1,535		780		755			96.8	%
Courier and postage		1,469		1,348		121			9.0	%
Free nationwide ATM cost		1,565		1,593		(28	)		(1.8	)%
Amortization of core deposit intangibles		2,635		3,118		(483	)		(15.5	)%
Loan expense		385		566		(181	)		(32.0	)%
Other real estate owned		318		201		117			58.2	%
Other		13,196		10,168		3,028			29.8	%
Sub-Total		100,603		92,605		7,998			8.6	%
Merger expenses		—		526		(526	)		(100.0	)%
Total non-interest expense	$	100,603	$	93,131	$	7,472			8.0	%

Salaries and employee benefits : There was a $1.9 million increase in salaries and employee benefits for the nine month period ended September 30, 2023, as compared to the same period in 2022. Salaries increased $2.1 million from September 30, 2022 and share-based compensation expense decreased by $505 thousand for the same period. The decrease in share-based compensation is due to the reversal of share-based compensation expense associated with the departure of senior management team members.

Data processing: There was an increase in data processing costs of $1.4 million for the nine month period ended September 30, 2023, as compared to the same period in 2022. The increase was primarily due to increases in data processing fees of $794 thousand, software license expenses of $259 thousand, credit card processing fees of $205 thousand, and debit card expenses of $200 thousand.

Professional fees: Costs of professional fees increased $794 thousand for the nine month period ended September 30, 2023, as compared to the same period in 2022. The increase was primarily due to increases in consulting fees of $636 thousand and attorney fees of $168 thousand.

FDIC insurance: FDIC insurance costs increased $755 thousand for the nine month period ended September 30, 2023, as compared to the same period in 2022. The increase was primarily due to an increase in FDIC assessment rates.

Advertising and business development: There was an increase in advertising and business development costs of $688 thousand for the nine month period ended September 30, 2023, as compared to the same period in 2022. The increase was primarily driven by additional expense to attract new deposit customers.

Other: Other non-interest expenses consists 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, other operating expenses, such as settlement of claims, losses from limited partnerships entered into for tax credits and provision for unfunded commitments. In the other expense category, there was a net $3.0 million increase, or 29.8%, between the nine months ending September 30, 2023, and 2022. The increase was primarily due to additional amortization of solar tax credits of $1.0 million, $825 thousand increase in the estimated credit loss on unfunded commitments and an increase in travel related expenses $704 thousand.

Efficiency Ratio

The efficiency ratio is a supplemental financial measure utilized in the internal evaluation of performance and is not defined under GAAP. For a reconciliation of non-GAAP financial measures see “Non-GAAP Financial Measures” in this Item 2. Our efficiency ratio is computed by dividing non-interest expense, excluding merger expenses, by the sum of net interest income and

non-interest income, excluding net gain or loss from securities transactions. Generally, an increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources.

The efficiency ratio was 68.8% for the three months ended September 30, 2023, compared with 63.1% for the three months ended September 30, 2022. The increase was primarily due to an increase in non-interest expense as well as a decrease in net interest income.

The efficiency ratio was 69.3% for the nine months ended September 30, 2023, compared with 62.6% for the nine months ended September 30, 2022. The increase was primarily due to an increase in non-interest expense as well as a decrease in net interest income.

Income Taxes

In general, the Company records income tax expense each quarter based on its estimate as to the full year’s effective tax rate which includes, in addition to statutory rates, estimated amounts for tax-exempt interest income, non-taxable life insurance income, non-deductible executive compensation, valuation allowance on deferred assets, other non-deductible expense, and federal and state income tax credits anticipated to be available in proportion to anticipated annual income before income taxes. Certain items, however, are given discrete period treatment and the tax effects for such items are therefore reported in the quarter that an event arises. Events or items that may give rise to discrete recognition include excess tax benefits or shortfalls with respect to share-based compensation, changes in tax law, and non-deductible merger expense.

Three months ended September 30, 2023, compared with three months ended September 30, 2022: The effective income tax rate for the three month period ended September 30, 2023, was 13.5% as compared to 19.4% for the three month period ended September 30, 2022. Income tax expense for the three month period ended September 30, 2023, includes $4 thousand of tax benefit attributable to the settlement in stock of restricted stock units and the exercise of options and $476 thousand of benefit related to the recognition of federal tax credits net of related proportional amortization adjustments consistent with ASU 2023-02.

Nine months ended September 30, 2023, compared with nine months ended September 30, 2022: The effective income tax rate for the nine month period ended September 30, 2023, was 14.1% as compared to 16.2% for the nine month period ended September 30, 2022. Income tax expense for the nine month period ended September 30, 2023, includes $79 thousand of tax benefit attributable to the settlement in stock of restricted stock units and the exercise of options and $1.9 million of benefit related to the recognition of federal tax credits net of related proportional amortization adjustments consistent with ASU 2023-02.

Financial Condition

Total assets decreased $36.4 million from December 31, 2022, to $4.95 billion at September 30, 2023. This variance was primarily due to a decrease of available-for-sale securities of $127.4 and loans held for investment of $29.4 million, partially offset by an increase in cash and cash equivalents of $94.6 million. Total liabilities decreased $44.5 million to $4.53 billion at September 30, 2023. The change in total liabilities is mostly due to a decrease in total deposits of $159.6 million, partially offset by an increase in Federal Reserve Bank borrowings of $140.0 million. Total stockholders’ equity increased $8.0 million from $410.1 million at December 31, 2022, to $418.1 million at September 30, 2023, principally due to net income for the nine months ended September 30, 2023, offset by the increase in treasury stock and unrealized losses on available for sale securities, net of tax.

Loan Portfolio

The following table summarizes our loan portfolio by type of loan as of the dates indicated.

Composition of Loan Portfolio


	September 30, 2023					December 31, 2022
	Amount		Percent			Amount		Percent			Change			%
	(Dollars in thousands)
Commercial and industrial	$	585,129		17.8	%	$	594,863		18.0	%	$	(9,734	)		(1.6	)%
Real estate loans:
Commercial real estate		1,721,761		52.5	%		1,721,268		52.0	%		493			0.0	%
Residential real estate		558,188		17.0	%		570,550		17.2	%		(12,362	)		(2.2	)%
Agricultural real estate		205,865		6.3	%		199,189		6.0	%		6,676			3.4	%
Total real estate loans		2,485,814		75.8	%		2,491,007		75.2	%		(5,193	)		(0.2	)%
Agricultural		103,352		3.1	%		120,003		3.6	%		(16,651	)		(13.9	)%
Consumer		107,823		3.3	%		105,675		3.2	%		2,148			2.0	%
Total loans held for investment	$	3,282,118		100.0	%	$	3,311,548		100.0	%	$	(29,430	)		(0.9	)%
Total loans held for sale	$	627		100.0	%	$	349		100.0	%	$	278			79.7	%
Total loans held for investment (net of allowances)	$	3,237,932		100.0	%	$	3,265,701		100.0	%	$	(27,769	)		(0.9	)%

Our commercial loan portfolio consists of various types of loans, most of which are generally made to borrowers located in the Wichita, Kansas City, and Tulsa Metropolitan Statistical Areas (“MSAs”), as well as various community markets throughout Arkansas, Kansas, Missouri, and Oklahoma. The majority of our 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 economies in which they operate.

At September 30, 2023, gross total loans, including loans held for sale, were 80.4% of deposits and 66.4% of total assets. At December 31, 2022, gross total loans, including loans held for sale, were 78.1% of deposits and 66.5% of total assets.

We provide commercial lines of credit, working capital loans, commercial real estate loans (including loans secured by owner-occupied commercial properties), term loans, equipment financing, aircraft financing, real property acquisition and development loans, borrowing base loans, real estate construction loans, homebuilder loans, SBA loans, agricultural and agricultural real estate loans, letters of credit and other loan products to national and regional companies, real estate developers, mortgage lenders, manufacturing and industrial companies and other businesses. The types of loans we make to consumers include residential real estate loans, home equity loans, home equity lines of credit, installment loans, unsecured and secured personal lines of credit, overdraft protection, and letters of credit.

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.

Commercial real estate: Commercial real estate loans include all loans secured by nonfarm nonresidential properties and multifamily residential properties, as well as 1-4 family investment-purpose real estate loans.

Residential real estate: Residential real estate loans include loans secured by primary or secondary personal residences. Pools of mortgages are occasionally 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.

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 September 30, 2023, are summarized in the following table.

Loan Maturity and Sensitivity to Changes in Interest Rates


	As of September 30, 2023
	One year or less		After one year through five years		After five years through fifteen years		After fifteen years		Total
	(Dollars in thousands)
Commercial and industrial	$	163,001	$	343,980	$	74,825	$	3,323	$	585,129
Real Estate:
Commercial real estate		320,478		1,072,841		250,242		78,200		1,721,761
Residential real estate		1,256		10,008		126,656		420,268		558,188
Agricultural real estate		78,654		89,312		27,967		9,932		205,865
Total real estate		400,388		1,172,161		404,865		508,400		2,485,814
Agricultural		70,362		25,739		3,088		4,163		103,352
Consumer		32,391		51,529		21,890		2,013		107,823
Total	$	666,142	$	1,593,409	$	504,668	$	517,899	$	3,282,118
Loans with a predetermined fixed interest rate	$	249,721	$	720,631	$	135,580	$	293,296	$	1,399,228
Loans with an adjustable/floating interest rate		416,421		872,778		369,088		224,603		1,882,890
Total	$	666,142	$	1,593,409	$	504,668	$	517,899	$	3,282,118

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, 2022, are summarized in the following table.

Loan Maturity and Sensitivity to Changes in Interest Rates


	As of December 31, 2022
	One year or less		After one year through five years		After five years through fifteen years		After fifteen years		Total
	(Dollars in thousands)
Commercial and industrial	$	194,487	$	310,839	$	84,930	$	4,607	$	594,863
Real Estate:
Commercial real estate		331,226		1,042,683		279,759		67,600		1,721,268
Residential real estate		1,293		9,647		122,509		437,101		570,550
Agricultural real estate		47,696		112,387		31,295		7,811		199,189
Total real estate		380,215		1,164,717		433,563		512,512		2,491,007
Agricultural		79,055		32,688		3,714		4,546		120,003
Consumer		35,026		45,258		23,091		2,300		105,675
Total	$	688,783	$	1,553,502	$	545,298	$	523,965	$	3,311,548
Loans with a predetermined fixed interest rate	$	218,417	$	771,980	$	181,239	$	306,537	$	1,478,173
Loans with an adjustable/floating interest rate		470,366		781,522		364,059		217,428		1,833,375
Total	$	688,783	$	1,553,502	$	545,298	$	523,965	$	3,311,548

Credit Quality Indicators

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, current economic trends, and 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.

For additional information, see “NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES” in the Condensed Notes to Interim Consolidated Financial Statements.

Nonperforming Assets

The following table presents information regarding nonperforming assets at the dates indicated.

Nonperforming Assets


	September 30, 2023			December 31, 2022
	(Dollars in thousands)
Nonaccrual loans	$	19,435		$	17,601
Accruing loans 90 or more days past due		834			—
OREO acquired through foreclosure, net		214			600
Other repossessed assets		64			47
Total nonperforming assets	$	20,547		$	18,248
Ratios:
Nonperforming assets to total assets		0.42	%		0.37	%
Nonperforming assets to total loans plus OREO and repossessed assets		0.63	%		0.55	%

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 earned in the current year is reversed against income and unpaid interest earned in prior years is charged off. 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.

The nonperforming loans at September 30, 2023, consisted of 219 separate credits and 188 separate borrowers. We had 4 non-performing loan relationships, totaling $7.5 million, with an outstanding balance in excess of $1.0 million as of September 30, 2023.

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 we also monitor delinquency levels for any negative or adverse trends. In accordance with applicable regulation, appraisals or evaluations are required to independently value real estate and are 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. 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

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 September 30, 2023, the Company had $14.5 million in potential problem loans which were not included in either non-accrual or 90 days past due categories, compared to $37.6 million at December 31, 2022.

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 credit 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.

Allowance for Credit Losses

Please see “Critical Accounting Policies – Allowance for Credit 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 the following items.

•

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 to 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 is 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.

•

Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield of the agricultural commodities produced and market pricing at the time of sale.

•

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.

The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data.


Allowance for Credit Losses
For the Quarters Ended,
(Dollars in thousands)
September 30, 2023	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Agricultural Real Estate			Agricultural			Consumer			Total
Allowance for credit losses (ACL)	$	13,696		$	18,960		$	7,336		$	1,200		$	1,324		$	1,670		$	44,186
Total loans outstanding (1)		1,721,761			585,129			558,188			205,865			103,352			107,823			3,282,118
Net (charge-offs) recoveries QTD		(2	)		(1,397	)		2			(3	)		—			(188	)		(1,588	)
Net (charge-offs) recoveries YTD		65			(2,421	)		3			—			47			(517	)		(2,823	)
Average loan balance QTD (1)		1,733,717			573,039			563,081			203,399			99,773			107,417			3,280,426
Average loan balance YTD (1)		1,750,349			580,359			566,080			202,963			100,450			106,841			3,307,042
Non-accrual loan balance		3,087			5,619			3,124			4,364			2,585			656			19,435
Loans to total loans outstanding		52.5	%		17.8	%		17.0	%		6.3	%		3.1	%		3.3	%		100.0	%
ACL to total loans		0.8	%		3.2	%		1.3	%		0.6	%		1.3	%		1.5	%		1.3	%
Net charge-offs to average loans QTD		—	%		(0.2	)%		—	%		—	%		—	%		(0.2	)%		—	%
Net charge-offs to average loans YTD		—	%		(0.4	)%		—	%		—	%		—	%		(0.5	)%		(0.1	)%
Non-accrual loans to total loans		0.2	%		1.0	%		0.6	%		2.1	%		2.5	%		0.6	%		0.6	%
ACL to non-accrual loans		443.7	%		337.4	%		234.8	%		27.5	%		51.2	%		254.6	%		227.4	%


September 30, 2022	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Agricultural Real Estate			Agricultural			Consumer			Total
Allowance for credit losses (ACL)	$	20,348		$	13,415		$	7,260		$	1,048		$	2,043		$	2,385		$	46,499
Total loans outstanding (1)		1,655,646			607,722			573,431			200,415			115,048			102,760			3,255,022
Net (charge-offs) recoveries QTD		(605	)		(705	)		(44	)		1			(44	)		(206	)		(1,603	)
Net (charge-offs) recoveries YTD		(837	)		(666	)		(58	)		8			(45	)		(544	)		(2,142	)
Average loan balance QTD (1)		1,667,823			575,149			581,389			200,534			113,351			101,205			3,239,451
Average loan balance YTD (1)		1,598,825			579,610			602,271			201,566			132,485			101,340			3,216,097
Non-accrual loan balance		5,341			7,536			3,269			3,268			3,441			274			23,129
Loans to total loans outstanding		50.9	%		18.7	%		17.6	%		6.2	%		3.5	%		3.2	%		100.0	%
ACL to total loans		1.2	%		2.2	%		1.3	%		0.5	%		1.8	%		2.3	%		1.4	%
Net charge-offs to average loans QTD		—	%		(0.1	)%		—	%		—	%		—	%		(0.2	)%		—	%
Net charge-offs to average loans YTD		(0.1	)%		(0.1	)%		—	%		—	%		—	%		(0.5	)%		(0.1	)%
Non-accrual loans to total loans		0.3	%		1.2	%		0.6	%		1.6	%		3.0	%		0.3	%		0.7	%
ACL to non-accrual loans		381.0	%		178.0	%		222.1	%		32.1	%		59.4	%		870.4	%		201.0	%

(1)

Excluding loans held for sale.

Management believes that the allowance for credit losses at September 30, 2023, was adequate to cover current expected credit 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 September 30, 2023.

The allowance for credit losses on loans measured on a collective basis totaled $39.8 million, or 1.2% of the $3.26 billion in loans measured on a collective basis at September 30, 2023, compared to an allowance for credit losses of $40.9 million, or 1.2%, of the $3.29 billion in loans measured on a collective basis at December 31, 2022. The total reserve percentage to total loans was 1.3% at September 30, 2023, and 1.4% at December 31, 2022.

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 September 30, 2023, securities represented 21.4% of total assets, slightly decreasing from 23.8% at December 31, 2022.

At the date of purchase, debt 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 that are classified as held-to-maturity are carried at cost, and adjusted for the amortization of premiums and the accretion of discounts, only if management has the positive intent and ability to hold those securities to maturity. Debt securities that are not classified as held-to-maturity are classified as available-for-sale and are 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.

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


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
U.S. Government-sponsored entities	$	122,665	$	105,586	$	123,196	$	106,406
U.S. Treasury securities		259,253		233,912		257,690		232,158
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		512,980		442,421		560,776		498,606
Private label residential mortgage-backed securities		173,876		144,835		190,889		163,560
Corporate		56,702		49,701		56,642		52,374
Small Business Administration loan pools		10,953		10,148		12,915		12,181
State and political subdivisions		84,261		70,406		130,311		119,105
Total available-for-sale securities	$	1,220,690	$	1,057,009	$	1,332,419	$	1,184,390

Held-To-Maturity Securities


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities	$	1,097	$	1,043	$	1,108	$	1,108
State and political subdivisions		1,115		1,081		840		865
Total held-to-maturity securities	$	2,212	$	2,124	$	1,948	$	1,973

At September 30, 2023, and December 31, 2022, we did not own securities of any one issuer (other than the U.S. government and its agencies or sponsored entities) for which aggregate par value exceeded 10% of consolidated stockholders’ equity at the reporting dates noted.

The following tables summarize the contractual maturity of debt securities and their weighted average yields as of September 30, 2023, and December 31, 2022. 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.


	September 30, 2023
	Due in one year or less					Due after one year through five years					Due after five years through 10 years					Due after 10 years					Total
	Carrying Value		Yield			Carrying Value		Yield			Carrying Value		Yield			Carrying Value		Yield			Carrying Value		Yield
	(Dollars in thousands)
Available-for-sale securities:
U.S. Government-sponsored entities	$	19,029		0.50	%	$	47,935		1.00	%	$	36,995		1.66	%	$	1,627		2.02	%	$	105,586		1.15	%
U.S. Treasury securities		1,020		4.73	%		232,892		1.19	%		—		—	%		—		—	%		233,912		5.92	%
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		—		—	%		101,071		1.43	%		136,864		1.93	%		204,486		2.62	%		442,421		2.13	%
Private label residential mortgage-backed securities		—		—	%		—		—	%		—		—	%		144,835		2.19	%		144,835		2.19	%
Corporate		—		—	%		7,994		7.47	%		41,707		4.63	%		—		—	%		49,701		5.08	%
Small Business Administration loan pools		—		—	%		—		—	%		6,795		4.91	%		3,353		1.87	%		10,148		3.91	%
State and political subdivisions (1)		3,364		1.99	%		8,458		2.40	%		28,934		2.02	%		29,650		2.34	%		70,406		2.20	%
Total available-for-sale securities		23,413		0.90	%		398,350		1.38	%		251,295		2.43	%		383,951		2.43	%		1,057,009		2.00	%
Held-to-maturity securities:
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		—		—	%		—		—	%		—		—	%		1,097		4.92	%		1,097		4.92	%
State and political subdivisions (1)		—		—	%		—		—	%		—		—	%		1,115		4.62	%		1,115		4.62	%
Total held-to-maturity securities		—		—	%		—		—	%		—		—	%		2,212		4.77	%		2,212		4.77	%
Total debt securities	$	23,413		0.90	%	$	398,350		1.38	%	$	251,295		2.43	%	$	386,163		2.44	%	$	1,059,221		2.00	%

(1)

The calculated yield is not presented on a tax equivalent basis.


	December 31, 2022
	Due in one year or less					Due after one year through five years					Due after five years through 10 years					Due after 10 years					Total
	Carrying Value		Yield			Carrying Value		Yield			Carrying Value		Yield			Carrying Value		Yield			Carrying Value		Yield
	(Dollars in thousands)
Available-for-sale securities:
U.S. Government-sponsored entities	$	—		—	%	$	49,100		0.74	%	$	54,094		1.51	%	$	3,212		1.96	%	$	106,406		1.17	%
U.S. Treasury securities		—		—	%		222,552		1.18	%		9,606		1.32	%		—		—	%		232,158		1.19	%
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		—		—	%		89,698		1.44	%		161,354		1.86	%		247,554		2.50	%		498,606		2.10	%
Private label residential mortgage-backed securities		—		—	%		—		—	%		—		—	%		163,560		2.21	%		163,560		2.21	%
Corporate		—		—	%		7,904		6.20	%		44,470		4.65	%		—		—	%		52,374		4.88	%
Small Business Administration loan pools		—		—	%		—		—	%		7,676		3.53	%		4,505		1.79	%		12,181		2.89	%
State and political subdivisions (1)		4,958		2.61	%		18,601		2.42	%		42,088		2.31	%		53,458		2.50	%		119,105		2.43	%
Total available-for-sale securities		4,958		2.61	%		387,855		1.35	%		319,288		2.27	%		472,289		2.39	%		1,184,390		2.02	%
Held-to-maturity securities:
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		—		—	%		—		—	%		—		—	%		1,108		4.96	%		1,108		4.96	%
State and political subdivisions(1)		—		—	%		—		—	%		—		—	%		840		4.57	%		840		4.57	%
Total held-to-maturity securities		—		—	%		—		—	%		—		—	%		1,948		4.79	%		1,948		4.79	%
Total debt securities	$	4,958		2.61	%	$	387,855		1.35	%	$	319,288		2.27	%	$	474,237		2.40	%	$	1,186,338		2.02	%

(1)

The calculated yield is not presented on a tax equivalent basis.

Mortgage-backed securities are securities that have been developed by pooling a number of real estate mortgages 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 homeowners 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 September 30, 2023, and December 31, 2022, 59.6% and 62.1% of the residential mortgage-backed securities held by us had contractual final maturities of more than ten years, with a weighted average life of 5.2 years and 5.1 years and a modified duration of 4.4 years and 4.3 years.

Goodwill Impairment Assessment

At September 30, 2023, we performed an interim qualitative analysis and concluded there were no indications that goodwill was impaired.

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 September 30, 2023, and December 31, 2022.

Composition of Deposits


	September 30, 2023					December 31, 2022
	Amount		Percent of Total			Amount		Percent of Total
	(Dollars in thousands)
Non-interest-bearing demand	$	936,217		22.9	%	$	1,097,899		25.9	%
Interest-bearing demand		947,464		23.2	%		1,061,264		25.0	%
Savings and money market		1,449,539		35.5	%		1,268,320		29.9	%
Time		748,950		18.4	%		814,324		19.2	%
Total deposits	$	4,082,170		100.0	%	$	4,241,807		100.0	%

Total deposits at September 30, 2023, were $4.08 billion, an decrease of $159.6 million, or 3.8%, compared to total deposits of $4.24 billion at December 31, 2022.

Equity Bank participates in the Insured Cash Sweep (“ICS”) service that allows the Bank to break large non-time deposits into smaller amounts and place them in a network of other ICS banks to ensure FDIC insurance coverage on the entire deposit. These deposits are placed through ICS services, but are Equity Bank’s customer relationships that management views as core funding. The Bank also participates in the Certificate of Deposit Account Registry Service (“CDARS”) program. CDARS allows the bank to break large time deposits into smaller amounts and place them in a network of other CDARS banks to ensure FDIC insurance coverage on the entire deposit. Reciprocal deposits are not considered brokered deposits as long as the aggregate balance is less than the lesser of 20% of total liabilities or $5.0 billion and Equity Bank is well capitalized and well rated. All non-reciprocal deposits and reciprocal deposits in excess of regulatory limits are considered brokered deposits.

The following table lists reciprocal and brokered deposits included in total deposits categorized by type at September 30, 2023, and December 31, 2022.


	September 30, 2023		December 31, 2022
Interest-bearing demand	(Dollars in thousands)
Reciprocal	$	124,398	$	17,717
Total interest-bearing demand		124,398		17,717
Savings and money market
Reciprocal		323,308		282,705
Total savings and money market		323,308		282,705
Time
Reciprocal		20,739		11,764
Non-reciprocal brokered		149,930		251,799
Total time		170,669		263,563
Total reciprocal and brokered deposits	$	618,375	$	563,985

The following table provides information on the maturity distribution of time deposits of $250 thousand or more as of September 30, 2023, and December 31, 2022.


	September 30, 2023		December 31, 2022		Change			%
	(Dollars in thousands)
3 months or less	$	49,614	$	40,578	$	9,036			22.3	%
Over 3 through 6 months		58,772		51,365		7,407			14.4	%
Over 6 through 12 months		83,895		19,191		64,704			337.2	%
Over 12 months		25,895		34,586		(8,691	)		(25.1	)%
Total Time Deposits	$	218,176	$	145,720	$	72,456			49.7	%

Other Borrowed Funds

We utilize borrowings to supplement deposits to fund our lending and investing activities. Short-term borrowings and long-term borrowings include federal funds purchased and retail repurchase agreements, FHLB advances, Federal Reserve Bank borrowings, a bank stock loan, and subordinated debt. For additional information see “NOTE 6 – BORROWINGS” in the Condensed Notes to Interim Consolidated Financial Statement.

Liquidity and Ca pital 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 considering 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 the way they combine to provide adequate liquidity to meet our needs. Recent issues in the banking sector that stem from the failures of several banks has caused banks to increase available liquidity sources and more closely monitor deposit runoff. Prior to the quarter ending March 31, 2023, Equity Bank pledged additional investments to the Federal Reserve Bank and borrowed $140 million under the Bank Term Funding Program as a precaution; however, the Company did not experience the same level of deposit runoff which, the Company believes, is due to the difference in the types of deposits being offered, deposit concentration and ALM management practices as compared to the recent failed financial institutions.

During the nine months ended September 30, 2023, and 2022, 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, brokered certificates of deposit, borrowings from the FHLB, and the Federal Reserve Bank borrowings.

Our largest sources of funds are deposits, Federal Reserve Bank borrowings and FHLB borrowings and largest uses of funds are loans, securities and debt repayment. Average loans were $3.31 billion for the nine months ended September 30, 2023, an increase of 2.3% over the December 31, 2022, average balance. Excess deposits are primarily invested in our interest-bearing deposit account with the Federal Reserve Bank of Kansas City, 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 5.2 years and a modified duration of 4.5 years at September 30, 2023.

Cash and cash equivalents were $199.0 million at September 30, 2023, an increase of $94.6 million from the $104.4 million cash and cash equivalents at December 31, 2022. The increase in cash and cash equivalents is driven by $120.6 million net cash provided by investing activities, $63.6 million net cash provided by operating activities, offset by $89.6 million net cash used in financing activities. The $89.6 million net change in cash provided by financing activities includes increases in FHLB term advances of $1.1 billion and federal reserve bank borrowings of $141.0 million, offset by net outflows of $966.1 million for paydown of FHLB term advances, $159.7 million in outflows for the decrease in deposits, $138.9 million outflow for net borrowings on the FHLB line of credit and $17.6 million outflow for the repurchase of treasury stock. Cash and cash equivalents at January 1, 2023, plus liquidity provided by operating activities, pay downs, sales, and maturities of investment securities, Federal Reserve Bank borrowings and FHLB borrowings during the first nine months of 2023 were used to originate or purchase loans and to purchase investment securities. We believe that our daily funding needs can be met through cash provided by operating activities, payments and maturities on loans and investment securities, the core deposit base and FHLB advances and other borrowing relationships.

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.

Standby and Performance Letters of Credit: For additional information see “NOTE 11 – COMMITMENTS AND CREDIT RISK” in the Condensed Notes to Interim Consolidated Financial Statement.

Commitments to Extend Credit: For additional information see “NOTE 11 – COMMITMENTS AND CREDIT RISK” in the Condensed Notes to Interim Consolidated Financial Statement.

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 financial 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 September 30, 2023, and December 31, 2022, 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 September 30, 2023, 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. For additional information, see “NOTE 8 – REGULATORY MATTERS” in the Condensed Notes to Interim Consolidated Financial Statements. There are no conditions or events since that notification that management believes have changed Equity Bank’s category.

Non-GAAP Finan cial Measures

We identify certain financial measures discussed in this Quarterly Report as being “non-GAAP financial measures.” In accordance with 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 GAAP in our statements of income, balance sheet 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 Quarterly Report 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 way we calculate the non-GAAP financial measures that we discuss in this Quarterly Report 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 to, or with names like, the non-GAAP financial measures we have discussed in this Quarterly Report 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), and other intangible assets (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 diluted shares of common stock outstanding. For tangible book value, the most directly comparable financial measure calculated in accordance with GAAP is book value.

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 tangible book value per diluted common share and compares these values with book value per common share.


					As of the period ended
	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022
	(Dollars in thousands, except per share data)
Total stockholders’ equity	$	418,130	$	418,435	$	425,123	$	410,058	$	395,806
Less: goodwill		53,101		53,101		53,101		53,101		53,101
Less: core deposit intangibles, net		7,961		8,760		9,678		10,596		11,598
Less: mortgage servicing asset, net		100		126		151		176		201
Less: naming rights, net		1,011		1,022		1,033		1,044		1,054
Tangible common equity	$	355,957	$	355,426	$	361,160	$	345,141	$	329,852
Common shares issued at period end		15,413,064		15,396,739		15,730,257		15,930,112		16,017,834
Diluted common shares outstanding at period end		15,500,749		15,468,319		15,822,536		16,163,253		16,225,591
Book value per common share	$	27.13	$	27.18	$	27.03	$	25.74	$	24.71
Tangible book value per common share	$	23.09	$	23.08	$	22.96	$	21.67	$	20.59
Tangible book value per diluted common share	$	22.96	$	22.98	$	22.83	$	21.35	$	20.33

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), and other intangible assets (net of accumulated amortization); (b) tangible assets as total assets less goodwill, core deposit intangibles (net of accumulated

amortization), and other intangible assets (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 tangible 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.

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible assets.


	As of the period ended
	September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022
	(Dollars in thousands)
Total stockholders’ equity	$	418,130		$	418,435		$	425,123		$	410,058		$	395,806
Less: goodwill		53,101			53,101			53,101			53,101			53,101
Less: core deposit intangibles, net		7,961			8,760			9,678			10,596			11,598
Less: mortgage servicing asset, net		100			126			151			176			201
Less: naming rights, net		1,011			1,022			1,033			1,044			1,054
Tangible common equity	$	355,957		$	355,426		$	361,160		$	345,141		$	329,852
Total assets	$	4,945,267		$	5,094,883		$	5,156,716		$	4,981,651		$	5,000,415
Less: goodwill		53,101			53,101			53,101			53,101			53,101
Less: core deposit intangibles, net		7,961			8,760			9,678			10,596			11,598
Less: mortgage servicing asset, net		100			126			151			176			201
Less: naming rights, net		1,011			1,022			1,033			1,044			1,054
Tangible assets	$	4,883,094		$	5,031,874		$	5,092,753		$	4,916,734		$	4,934,461
Equity to assets		8.46	%		8.21	%		8.24	%		8.23	%		7.92	%
Tangible common equity to tangible assets		7.29	%		7.06	%		7.09	%		7.02	%		6.68	%

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 goodwill, core deposit intangibles (net of accumulated amortization), and other intangible assets (net of accumulated amortization); (b) adjusted net income allocable to common stockholders as net income allocable to common stockholders plus intangible asset amortization (net of taxes); and (c) return on average tangible common equity as annualized 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 who are interested in earnings quality on tangible common equity. Goodwill and other intangible assets have the effect of increasing total stockholders’ equity while not increasing tangible common equity.

The following table reconciles, as of the dates set forth below, return on average stockholders’ equity and return on average tangible common equity.


	For the three months ended
	September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022
	(Dollars in thousands)
Total average stockholders’ equity	$	426,260		$	424,862		$	420,500		$	398,270		$	436,191
Less: average intangible assets		62,635			63,453			64,447			65,450			66,445
Average tangible common equity	$	363,625		$	361,409		$	356,053		$	332,820		$	369,746
Net income (loss) allocable to common stockholders	$	12,341		$	11,456		$	12,323		$	11,608		$	15,171
Amortization of intangible assets		835			954			954			961			992
Less: tax effect		175			200			200			202			208
Adjusted net income allocable to common stockholders	$	13,001		$	12,210		$	13,077		$	12,367		$	15,955
Return on total average stockholders’ equity (ROAE) annualized		11.49	%		10.82	%		11.89	%		11.57	%		13.80	%
Return on average tangible common equity (ROATCE) annualized		14.18	%		13.55	%		14.89	%		14.74	%		17.12	%

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, by the sum of net interest income and non-interest income, excluding net gain on acquisition and branch sales, and net gain (loss) from securities transactions. The GAAP-based efficiency ratio is non-interest expense 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, net gain (loss) from securities transactions, and net gain in acquisition and branch sales.

The following table reconciles, as of the dates set forth below, the efficiency ratio to the GAAP-based efficiency ratio.


	For the three months ended
	September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022
	(Dollars in thousands)
Non-interest expense	$	34,244		$	33,130		$	33,229		$	35,249		$	32,236
Less: merger expense		—			—			—			68			115
Non-interest expense, excluding loss on debt extinguishment and merger expense	$	34,244		$	33,130		$	33,229		$	35,181		$	32,121
Net interest income	$	41,012		$	39,429		$	39,110		$	42,031		$	41,944
Non-interest income	$	8,735		$	6,950		$	8,600		$	8,329		$	8,969
Less: net gain on acquisition and branch sales		—			—			—			422			—
Less: net gain (loss) from securities transactions		(1	)		(1,322	)		32			14			(17	)
Non-interest income, excluding net gain (loss) from securities transactions and net gain on acquisition and branch sales	$	8,736		$	8,272		$	8,568		$	7,893		$	8,986
Net interest income plus non-interest income, excluding net gain on acquisition and branch sales and net gain (loss) from securities transactions	$	49,748		$	47,701		$	47,678		$	49,924		$	50,930
Non-interest expense to net interest income plus non-interest income		68.84	%		71.43	%		69.65	%		69.99	%		63.32	%
Efficiency Ratio		68.83	%		69.45	%		69.69	%		70.47	%		63.07	%

Item 3: Quantitative and Qualitat ive Disclosures about Market Risk

Our asset-liability policy provides guidelines 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 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 interest rate exposure 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 futures contracts or forward delivery contracts for the purpose of reducing interest rate risk. 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 our 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. ALCO formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, 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. 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 purchased 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. All assumptions are as of the base period without consideration of preceding market rate changes and any lag in impact to NII. The depicted expectations are management's estimate exclusive of any non-contractual lagging impacts that have not yet been realized in income from preceding changes to interest rates. 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 September 30, 2023, and December 31, 2022, 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 positive impact to net interest income in the up interest rate shock scenarios is due to the level of adjustable rate loans receivable that will reprice to higher interest rates, non-term deposits that will adjust to higher rates but at a slower pace, the use of derivatives to hedge borrowing costs, reduced levels of fixed rate investments, reduced duration of asset based cash flow hedges, and elevated levels of cash on the balance sheet compared to December 31, 2022. These factors result in the positive 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 downward pricing of variable rate loans receivable and the level of term deposit repricing; and the assumed prepayment and scheduled repayment of existing fixed rate loans receivable and fixed rate investments. These factors result in the negative impact to net interest income in the down interest rate shock scenario.

The change in the economic value of equity from the base case for September 30, 2023, and December 31, 2022 is due to 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. 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; however, due to the current level of convexity in our fixed rate pre-payable assets becoming less negative and positive, in some cases, on a portion of or portfolio has resulted in the overall value of assets increasing more than liabilities. In addition, the mix of interest-bearing deposit and non-interest-bearing deposits impact the level of deposit decay and the resulting benefit of discounting from the non-interest-bearing deposits. At September 30, 2023, non-interest-bearing deposits were approximately $161.7 million, or 14.73%, lower than that deposit type at December 31, 2022. Substantially all investments and approximately 42.5% of loans are prepayable 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.

Management utilizes static balance sheet rate shocks to estimate the potential impact on various rate scenarios. This analysis estimates a percentage of change in the metric from the stable rate base scenario versus alternative scenarios of rising and falling market interest rates by instantaneously shocking a static balance sheet. The following table summarizes the simulated immediate change in net interest income for twelve months as of the dates indicated.

Market Risk


	Impact on Net Interest Income
Change in prevailing interest rates	September 30, 2023			December 31, 2022
+300 basis points		7.3	%		5.0	%
+200 basis points		4.8	%		3.3	%
+100 basis points		2.4	%		1.6	%
0 basis points		—			—
-100 basis points		(1.3	)%		(2.3	)%
-200 basis points		(2.3	)%		(6.0	)%

The following table summarizes the simulated immediate impact on economic value of equity as of the dates indicated.


	Impact on Economic Value of Equity
Change in prevailing interest rates	September 30, 2023			December 31, 2022
+300 basis points		(10.2	)%		(10.7	)%
+200 basis points		(6.3	)%		(6.6	)%
+100 basis points		(3.2	)%		(3.3	)%
0 basis points		—			—
-100 basis points		1.5	%		0.7	%
-200 basis points		1.9	%		(0.5	)%

Item 4: Controls and Procedures

Evaluation of disclosure controls and procedures

An evaluation of the effectiveness of the design and operation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management was required to apply judgment in evaluating its controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms.

Changes in internal control over financial reporting

There were no changes in the Company’s 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 period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1: Legal Proceedings

From time to time, we are a party to various litigation matters incidental to the conduct of our business. See “NOTE 12 – LEGAL MATTERS” of the Condensed Notes to Interim Consolidated Financial Statements under Item 1 to this Quarterly report for a complete discussion of litigation matters.

Item 1A: Ri sk Factors

Other than the risk factors set forth below, there have been no material changes in the Company’s risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 9, 2023.

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.

Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations.

The Company and Equity Bank anticipate increased regulatory scrutiny and new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition and the level of uninsured deposits. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community. Equity Bank's level of uninsured deposits as a percentage of non-brokered deposits was 36.4% at September 30, 2023, and 25.3% at December 31, 2022.

Item 2: Unregistered Sales of Equi ty Securities and Use of Proceeds

Repurchase of Common Stock

In September of 2022, the Company's Board of Directors authorized the repurchase of up to 1,000,000 shares of the Company's outstanding common stock, from time to time, beginning October 1, 2022, and concluded on September 30, 2023. The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and it could be extended, modified or discontinued at any time without notice. Under this program, during the years ended December 31, 2022, and 2023, the Company repurchased a total of 832,893 shares of the Company’s outstanding common stock at an average price paid of $27.89 per share. At September 30, 2023, there are 167,107 shares remaining under the program that expired on September 30, 2023.

No shares were repurchased under the program during the third quarter of 2023.

Item 3: Defaults Upo n Senior Securities

None

Item 4: Mine Saf ety Disclosures

Not applicable.

Item 5: Other Information

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Appointment of Chris M. Navratil as Executive Vice President and Chief Financial Officer of Equity Bank

On August 4, 2023, the Company announced the appointment of Chris M. Navratil as Executive Vice President and Chief Financial Officer of the Company.

In connection with his appointment, Mr. Navratil entered into an employment agreement, dated November 6, 2023, by and among the Company, Equity Bank and Mr. Navratil. The initial term of the employment agreement is three years and will automatically renew for successive one-year periods thereafter, unless the agreement is terminated in accordance with its terms. Under the terms of the employment agreement, Mr. Navratil will receive a base salary of $275,000 and a target annual incentive bonus of 50% of his base salary. Mr. Navratil will also be eligible to receive an annual equity award with a target grant date fair value equal to 50% of his base salary, which may be subject to certain vesting, performance and other conditions.

Mr. Navratil’s employment agreement provides that upon the termination of his employment by Mr. Navratil for good reason or by Equity Bank without cause, Mr. Navratil will be entitled to receive his base salary for a period of twelve months following such termination, subject to compliance with the terms of the employment agreement and execution of a general release in favor of the Company and Equity Bank.

Mr. Navratil’s employment agreement contains a change in control provision that provides for a payment to him if his employment is terminated by Mr. Navratil for good reason, by Equity Bank (or its successor) without cause, or due to Equity Bank’s (or its successor’s) nonrenewal of the employment agreement within 24 months after a qualifying change in control. Upon a qualifying change in control and termination of his employment, Mr. Navratil would be entitled to a payment equal to 2.99 times the sum of (i) his prior year’s base salary and (ii) all other cash compensation paid to him and received during such year. Any payments pursuant to the change in control provision are subject to compliance with restrictions imposed by the Internal Revenue Code. Additionally, Mr. Navratil is bound by the restrictive covenants set forth in his employment agreement.

Item 6: Exhibits


Exhibit No.		Description
10.1†*		Employment Agreement, dated November 6, 2023, by and between Equity Bank and Chris M. Navratil.
31.1*		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.
31.2*		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.
32.1**		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.
32.2**		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*		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

* 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.

SIGNATURES

Pursuant to the requirements 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.


	Equity Bancshares, Inc.

November 9, 2023	By:	/s/ Brad S. Elliott
Date		Brad S. Elliott
		Chairman and Chief Executive Officer

November 9, 2023	By:	/s/ Chris M. Navratil
Date		Chris M. Navratil
		Executive Vice President and Chief Financial Officer

TABLE OF CONTENTS

Part I Item 1: Financial Statements Item 1: Financ Note 1 Basis Of Presentation and Summary Of Significant Accounting Policies Note 2 Investments Note 3 Loans and Allowance For Credit Losses Note 4 Derivative Financial Instruments Note 5 Lease Obligations Note 6 Borrowings Note 7 Stockholders Equity Note 8 Regulatory Matters Note 9 Earnings Per Share Note 10 Fair Value Note 11 Commitments and Credit Risk Note 12 Legal Matters Note 13 Revenue Recognition Note 14 Business Combinations and Branch Sales Note 14 Business Combinati Item 2: Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2: Management S Discussion and Analysis Of Item 3: Quantitative and Qualitative Disclosures About Market Risk Item 3: Quantitative and Qualitat Item 4: Controls and Procedures Item 4: Controls Part II Other Information Part II Other Item 1: Legal Proceedings Item 1: Legal Item 1A: Risk Factors Item 1A: Ri Item 2: Unregistered Sales Of Equity Securities and Use Of Proceeds Item 2: Unregistered Sales Of Equi Item 3: Defaults Upon Senior Securities Item 3: Defaults Upo Item 4: Mine Safety Disclosures Item 4: Mine Saf Item 5: Other Information Item 5: Other Item 6: Exhibits

Exhibits

10.1* Employment Agreement, dated November 6, 2023, by and between Equity Bank and Chris M. Navratil. 31.1* 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. 31.2* 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. 32.1** 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. 32.2** 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.

EQBK 10-Q Quarter ended Sept. 30, 2023

Exhibits