Q2 2025 Equity Bancshares Inc Earnings Call
Operator: 2025 Q2 earnings call will begin in two minutes time. In the meantime, you can register to ask a question by pressing star followed by 1 on your telephone. Thank you for your patience, everyone. The call will begin in one minute time. In the meantime, you can register to ask questions by pressing star followed by one on your telephone keyboard. Thank you for your patience, everyone.
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Karla: Hello everyone and welcome to the Equity Bancshares Inc. 2025 Q2 earnings call. My name is Karla and I will be coordinating your call today.
Operator: During the presentation, you can register to ask questions by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2.
Operator: I would now like to hand you over to your host.
Brian Katzfey: Brian Katzfey, Vice President, Director of Corporate Development and Investor Relations. To begin, please go ahead when you're ready. Good morning. Thank you for joining us today for Equity Bancshares' second quarter earnings call. Before we begin, let me remind you that today's call is being recorded and is available via webcast at investor.equitybank.com, along with our earnings release and presentation materials. Today's presentation contains forward-looking statements which are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. Following the presentation, we will allow time for questions and further discussion.
Hello everyone, and welcome to the equity Bankers, Inc, 2025 Q, Q2 earnings call. My name is Carla and I will be coordinating your call today during the presentation, you can register to ask questions by pressing star, followed by 1 on your telephone key by, if you change your mind, please press star followed by 2. I would now like to hand you over to your house.
Speaker Change: Brian Kate, vice president, director of corporate development and investor relations to begin. Please go ahead when you're ready.
Speaker Change: Good morning, thank you for joining us today for Equity Bank share second quarter. Earnings spell before we begin, let me remind you that today is called as being recorded and is available via webcast at investor equitybank.com along with our earnings release and presentation materials.
Speaker Change: today's presentation contains forward-looking statements, which are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed,
Operator: Thank you all for joining us.
Speaker Change: Following the presentation, we will allow time for questions and further discussion.
Brad Elliott: With that, I'd like to turn the call over to our Chairman and CEO, Brad Elliott. Good morning, and thank you for joining Equity Bancshares earnings call. Joining me today are Rick Sems, our bank CEO, Chris Navratil, our CFO, and Krzysztof Slupkowski, our chief credit officer. We are excited to share our company's sustained strong beginning to 2025. In the second quarter, we achieved strong earnings, core margin expansion, and successfully closed our merger with NBC Bank on July 2. Limiting time between announcement and closure of our transaction has been a core competency of equity. Our work to receive all required approvals on this transaction within 60 days of announcement provides confidence to a seller and value to our shareholders.
Speaker Change: Thank you all for joining us with that. I'd like to turn the call over to our chairman and CEO, Brad Elliott.
Good morning and thank you for joining Equity Bank shares, earnings call.
Joining me today are Rick Sims our bank CEO, Chris NATO, our CFO and Kristoff siie, credit officer.
Speaker Change: we are excited to share our company's sustained, strong beginning to 2025,
Speaker Change: In the second quarter we achieved strong earnings core margin expansion and successfully closed our merger with NBC Bank on July 2nd.
Limiting time between announcement and closure of our transaction has been, a core competency of equity, our work to receive all required approvals on this transaction within 60 days of announcements.
Brad Elliott: We are proud of our teams for putting us in a position to continue to excel in this space. We couldn't be more excited to welcome the leadership and team members of NBC Bank.
Speaker Change: Provides confidence to a seller and value to our shareholders.
Speaker Change: We are proud of our teams for putting us in a position to continue to excel in this space.
Brad Elliott: H.K. Hatcher. Glenn Floresca Jeff Greenlee, Dennis Seamer, and Scott Bixler. That team, coupled with Ken Ferguson joining our board, are excellent additions to Equity Bank's franchise. I look forward to all they can and will accomplish as we continue to expand our presence in the state of Oklahoma. While executing on our M&A strategy, our team has also remained hyper focused on serving the communities in which we operate. I am very proud of all that Rick has accomplished as he and Jonathan Roo have worked to reset and retool our retail staff and philosophy. He has also made a lot of progress with our commercial.
Speaker Change: We couldn't be more excited to welcome the leadership and team members of NBC Bank.
HK Hatcher: HK Hatcher.
Glen floresca: Glen floresca.
Glen floresca: Jeff Greenley. Dennis Timur. And Scott Bixler.
That team coupled with Ken Ferguson joining our board, our excellent additions to Equity Bank franchise.
Glen floresca: I look forward to all they can and will accomplish as we continue to expand our presence in the state of Oklahoma.
Glen floresca: While executing on our m&a strategy. Our team has also remained hyper focused on serving the communities in which we operate.
Speaker Change: I am very proud of all that Rick has accomplished as he and Jonathan roof have worked to reset and retool or retail staff and philosophy.
Brad Elliott: Originations are growing as are commercial product sales. Loan balances year-to-date are up $100 million. while deposits excluding seasonal public funds have held their ground. Our teams are motivated and armed with tools to meet the needs of our communities and we look forward to continued execution on our mission. We close the quarter with a TCE ratio of 10.63% and a tangible book value per share of $32.17. Compared to second quarter 2024, our TCE ratio is up 41%. And our tangible book value per share is up 25%. Providing top-notch products and services through exceptional bankers continues to be our guiding principle as we aim to grow equity banks.
Speaker Change: He has ALS made a lot of progress with our commercial teams.
Originations are growing as our commercial product sales.
Speaker Change: Loan, balances year to date are up to a hundred million dollars.
Speaker Change: Well, deposits excluding seasonal public funds have held their ground.
Our teams are motivated and armed with tools to meet the needs of our communities and we look forward to continued execution on our mission.
We closed the quarter with a tce ratio of 10.63%.
In a tangible book, value per share of 32.17.
Compared to second quarter 2024. Our tce ratio is up 41% and our tangible book. Value per share is up 25%.
Brad Elliott: We started the year with a strong balance sheet, motivated bankers, and a solid capital stack to execute on our dual strategy of organic growth and strategic M&A.
Speaker Change: Providing top-notch products and services through exceptional Bankers continues to be our guiding principle as we aim to grow Equity Bank.
We started the year with a strong, balance sheet, motivated bankers.
Brad Elliott: We have executed through the first half of the year and look forward to maintaining this momentum throughout the year.
Speaker Change: And a solid Capital stack to execute on our dual strategy of organic growth and strategic m&a.
Chris Navratil: I'll now hand it over to Chris to walk you through our financial results. Thank you, Brad. Last night we reported net income of $15.3 million or $0.86 per diluted share. Adjusting for costs incurred on M&A and the extinguishment of debt, earnings were $16.6 million or $0.94 per diluted share. That interest income for the period was $49.8 million, up $1.8 million link quarter when adjusting for $2.3 million in non-accrual benefits realized in the prior period. Margin for the quarter was 4.17%, an improvement of 10 basis points when compared to core margins of 4.07% linked quarter. We continue to be optimistic about our opportunities to maintain spread and improve earnings through repositioning of earning assets throughout 2025.
Speaker Change: if you're the first half of the year and look forward to maintaining this momentum throughout the year,
I'll now hand it over to Chris to walk you through our financial results.
Chris: Thank you, Brad.
Last night, we reported net income of 15.3 million or 86 cents per diluted share, adjusting for costs incurred on m&a and the extinguishment of debt earnings were 16.6 million or 94 cents per diluted share.
Chris: That interest income for the period was 49.8. Million up 1.8 million link quarter when adjusting for 2.3 million and not a cruel benefits realized in the prior period.
Margin for the quarter was 4.17% and Improvement of 10 basis points when compared to core margins of 4.07% length quarter.
Chris Navratil: More to come on margin dynamics later in this call. Non-interest income for the quarter was $8.6 million, up $500,000 from Q1 when excluding the $2.2 million BOLI benefit realized in that quarter. The increase was driven by improvement in customer service charge line items including deposit services, treasury, debit and credit card, mortgage, and trust and wealth. Non-interest expenses for the quarter were $40 million. Adjusted to exclude loss of static distinguishment and M&A charges, non-interest expenses were $38.3 million, down modestly in the quarter, and in line with outlook. Debt extinguishment charges of $1.4 million were realized during the quarter as the company chose to redeem our outstanding subordinated debt issue following its first capital and interest rate reset period.
Chris: We continue to be optimistic about our opportunities, to maintain spread and improve earnings through repositioning of earning assets throughout 2025.
More to come on margin Dynamics later. In this call.
Not interested income for the quarter, was 8.6, million up to 500,000 from q1. When excluding the 2.2 million bully benefit realized in that quarter
The increase was driven by Improvement in customer service charge line items including deposit Services, treasuries debit and credit cards mortgage and trust and well.
Chris: Not interest expenses for the quarter over 4 million dollars.
Chris: Adjusted to exclude loss on static extinguishment and m&a. Charges 936 expenses were 38.3 million now modestly in the corner and in line without money.
Chris: That extinguishment charges of 1.4 million were realized during the quarter.
Chris Navratil: The plan is to refinance within the month. As we have discussed in past calls, we are in an opportunity-rich environment, and maintaining this source of capital provides continued flexibility while resetting allows for capital maintenance and a better QBox. Our Gap Net Income included a provision for credit loss of $19,000. The provision is the result of realized charge-offs partially offset by a moderate decline in ending loan balances. We continue to hold reserves for any economic challenges that could arise. To date, we have not seen concerns in our operating markets that would indicate these challenges are on the horizon.
Chris: As the company chose to redeem, our outstanding support, native debt issue following its first capital and interest rate reset period.
The plan is to refinance within the month.
As we have discussed in past calls, we are in an opportunity Rich environment and maintaining this source of capital provides continued. Flexibility while resetting allows for Capital maintenance and a better coupon.
Chris: Our gaap net income included a provision for credit loss of 19,000.
Chris: The provision is the result of real life. Charge offs partially offset by a moderate decline in ending loan balances,
Chris Navratil: The ending coverage of ACL to loans is 1.26%. As Brad mentioned, our TCE ratio for the quarter remained above 10%, closing at 10.63%. The funds from the cap rate in Q4 continue to be maintained at the holding company with no current intention of pushing into the pen. At the bank level, the PCE ratio closed at 10.11%, benefited both by earnings and improvement in the unrealized loss position on the securities portfolio.
we continue to hold reserves for any economic challenges that could arise to date. We have not seen concerns in our operating markets that would indicate these challenges that are on the horizon.
Chris: The ending coverage of HCL to loans is 1.26%.
As Brad mentioned, our tce ratio for the quarter remained above 10% of closing at 10.63%.
Speaker Change: The funds from the capital is in Q4 continued to be maintained at the holding company with no current intention of pushing into the time.
Krzysztof Slupkowski: I'll stop here for a moment and let Krzysztof talk through our asset quality for the quarter. Thanks Chris. During the quarter, non-accrual and non-performing loans moved up as we saw migration of the QSR relationship we have discussed on previous calls. Non-accrual loans closed the quarter at $42.6 million, up $18.3 million from the previous quarter. The increase is almost entirely driven by that same QSR relationship. The customer has a good path to exiting the underperforming locations over the next several quarters. We remain engaged with the borrower in a collaborative effort to pursue a full resolution through multiple avenues.
Speaker Change: At the bank level, the tce ratio closed at 10.11% benefited. Both by earnings and Improvement in the unrealized loss position on security portfolio.
Stop here for a moment and let Kristoff talk through our asset quality for the quarter.
Thanks Chris, during the quarter. Not a cruel and non-performing Loans. Moved up. As we saw, migration of the qsr relationship, we have discussed on previous calls
Then our cruel loans closed. The quarter at 42.6. Million up 18.23 million from the previous quarter. That increased is almost entirely driven by that same qsr relationship.
Krzysztof Slupkowski: Until the resolution of the challenge stores is realized, classification as a non-accrual asset is an appropriate step. Total classified assets close the quarter at $71 million, or 11.4% of total bank regulatory capital. Importantly, classified assets levels remain well below our historical averages and continue to be actively monitored and managed.
Speaker Change: The customer has a good path to exiting the underperforming locations over the next several quarters. We remain engaged with the borrower, in a collaborative effort to pursue a full resolution through multiple allergies.
Speaker Change: October resolution of the challenge stores is, realized, classification as a non-accrual asset is an appropriate step.
Krzysztof Slupkowski: Delinquency in excess of 30 days moved down during the quarter to $16.8 million. That charge of annualized were 6 basis points for the quarter, while your state's charge of annualized were 4 basis points. Recognized charge-offs continue to reflect specific circumstances on individual credits and do not signal systemic issues within our market.
Speaker Change: Total classified assets closed, the quarter at 71 million, or 11.4% of total Bank. Regulatory Capital importantly, classified assets levels remain well below our historical averages and continue to be actively monitored and managed.
Speaker Change: The delinquency in Nexus of 30 days, moved down to the quarter, to 16.8 million.
Krzysztof Slupkowski: Looking ahead, we remain positive on the credit environment and the outlook for the reminder of 2025. Despite some uncertainty in the broader economy, credit quality trends across our portfolio remain stable and below historic levels. Our disciplined underwriting, strong capital and reserve levels position us well to navigate any potential headwinds. We believe this proactive and measured approach will support continued sound credit performance while allowing us to respond quickly if conditions change.
Net charge of annualized were 6 basis points for the quarter while year to date charges. Annualized were 4. Basis points recognized charges continue to reflect specific circumstances on individual credits and do not signal systemic issues within our markets.
Speaker Change: looking ahead, we remain positive on the credit environment and the outlook for the reminder of 2025
Speaker Change: Despite some uncertainty in the broader economy credit quality Trends across our portfolio remains stable and Below historic levels. Our discipline on writing strong capital and Reserve levels position as well to navigate any potential headwinds.
Speaker Change: To practice and a measure of approach will support continued Sound Credit performance while allowing us to respond quickly. If conditions change
Chris Navratil: Thanks, Krzysztof. As I previously mentioned, margin adjusted for one-time items in Q1 improved 10 basis points in the quarter. The improvement during the period was driven by remixing of balance sheets as loans comprised 76% of average earning assets as compared to 75% in the previous quarter. Yield expansion on the loan portfolio driven by increasing coupon results and a reduction in both the level and cost of interest-bearing liability. Average loans increased during the quarter at an annualized rate of 6.2%, while average interest earning assets increased 1.7%.
Speaker Change: Chris, thanks Kristoff.
Speaker Change: As I previously mentioned margin adjusted for 1-time items in q1 improved 10 basis points in the quarter, the Improvement During the period was driven by remixing of balance sheets. As loans, comprised 76% of average earning assets as compared to 75% in the previous quarter yield expansion on the loan portfolio driven by increasing coupon results and a reduction in both the level and cost of interest bearing liabilities.
Chris Navratil: The increase in margin and earning assets coupled with an additional day in the period led to core net interest income growth of $1.8 million. As we look to the remainder of the year, we are optimistic about margin maintenance on the legacy portfolios as we see loan balance growth and continued lag repricing on our asset portfolios. In addition to our legacy portfolios, following the July 2nd closing of NBP, we will begin to realize the benefits of that transaction. While we are continuing to work through fair valuation estimates, we expect to realize margin improvement from the addition of the underlying assets and liabilities.
average loans increase during the quarter at an annualized rate of 6.2%, while average interest earning assets increased 1.7%
Speaker Change: The increase in margin and earning assets, coupled with an additional Day In the period led to coordinate interest income growth of 1.8 million.
As we look to the remainder of the year, we are optimistic about margin maintenance on the Legacy portfolio, as we see loan balance growth and continues lag re-pricing on our asset portfolios.
In addition to our Legacy portfolios following the July 2nd closing of NBC, we will begin to realize the benefits of that transaction.
Chris Navratil: Refer to our Outlook slide for additional detail on second half earnings expectations reflecting current estimates of the impact of NBC. As a reminder, we do not include future rate changes, though our forecast continues to include the effects of lagging repricing in both our loan and deposit portfolio. Our provision is forecasted to be 12 basis points to average loans on an annualized basis.
While we are continuing to work through Fair, valuation estimates, we expect to realize margin improvement from the addition of the underlying assets and liabilities.
Speaker Change: Refer to our Outlook side for additional detail on the second half earnings expectations reflecting current estimates of the impact of NBC.
Speaker Change: As a reminder, we do not include future rate changes. So our forecast continues to include the effects of lagging repricing in both our loan and deposit portfolios.
Rick Sems: Rick? Our production teams have had an excellent start to the year, as we realized loan growth of more than $100 million through the first two quarters, while also maintaining deposit balance exclusive of anticipated municipality outflows.
Our provision is forecasted to be 12 basis points to average loans on an annualized basis.
Speaker Change: Rick.
Rick: Our production teams have had an excellent start to the year.
As we realize, loan growth of more than 100 million through the first 2 quarters, while also maintaining deposit balance, exclude
Rick Sems: As we look to layer in NBC Footprint and their exceptional leadership team, I'm excited to see what the equity team can accomplish in the second half of 2025. Production in the quarter totaled $197 million, in line with prior period organic production, and twice as much as Q2 2024. Rates on new production were 7.17% compared to 6.73% in Q1, continuing to provide accretive value compared to current yields. While originations kept pace, decreasing line utilization and increasing level of payoffs during the period resulted in a decline in ending balance sheet as compared to prior quarter Higher payoffs resulted during the period were related to positive outcomes for borrowers, asset sales, or upstream takeouts.
Rick: Exclusive of anticipated, municipality outflows. As we look to layer in the NBC footprint and their exceptional leadership team. I'm excited to see what the equity team can accomplish in the second half of 2025.
Production in the quarter, total of 197 million in line with prior period, organic production and twice as much as Q2 2024.
Rates on new production were 7.17% compared to 6.73% in q1. Continuing to provide a creative value compared to current yields.
While originations kept pace, decreasing line, utilization and increasing level of payoffs During the period, resulted in a decline in any balance sheet as compared to Prior quarter end.
Rick Sems: We anticipate additional opportunities to bank these borrowers in the future. As we close the quarter, our 75% pipeline is $481 million, up $119 million, or 33% from quarter one. The team continues to focus on growing relationships, deepening wallet share, and pricing for the value provided, which will benefit Equity Bank in the future.
Rick: Higher payoffs. Resulted During the period were related to positive outcomes for borrowers, asset sales or Upstream takeouts.
We anticipate additional opportunities to bank, these borrowers in the future. As we closed the quarter, our 75% pipeline is 481, million of 199 million or 333% from quarter 1.
Rick Sems: Our retail teams entered the year with a line direction and a framework designed to drive success throughout our footprint. The first half of the year showed positive trends in gross and net production levels, including net positive DDA account production, though we have a long way to go to meet the aggressive goals we have set.
The team continues to focus on growing relationships. Deepening wallet, share and pricing for the value provided which will benefit Equity Bank in the future.
Rick: Our retail teams entered the year with a line Direction and a framework designed to drive success, throughout our footprint.
Rick Sems: I look forward to assisting this group and realizing success throughout 2025 and beyond. Deposit balance, excluding brokered funds, declined $43 million. Lost balances were primarily in commercial accounts due to normal outflow activities. The accounts remain open and active.
Rick: The first half of the Year shows, positive Trends in gross and net production levels, including net positive, DDA account production, though we have a long way to go to meet the aggressive goals. We have set, I look forward to assisting this group and realizing success throughout 2025 and Beyond.
Rick: The Brokerage funds, the client 43 million lost balances were primarily in commercial accounts due to normal outflow activities.
Rick Sems: With the closing of NBC, Equity adds Oklahoma City, a growing metro market, with opportunities to leverage a larger balance sheet and franchise, while the many Oklahoma communities added continue to align with the Equity Bank mission. With Greg Kossover and H.K. Hatcher and all of our market leaders driving our franchise forward, we can accomplish a lot.
Rick: The accounts remain open and active.
Rick: With the closing of NBC Equity ads, Oklahoma City, a growing Metro Market with opportunities to leverage, a larger balance sheet, and franchise while the many Oklahoma communities added continue to align with the Equity Bank Mission.
Brad Elliott: It is a very exciting time for everyone associated with equity. Our employee base has opportunities to grow and learn. Our board is incredibly engaged and focused on what creates long-term shareholder value. The communities we serve to continue to get the scale of a larger company with a small town feel. And our shareholders benefit by continued EPS growth, market and deposit based expansion, all leading to compounding tangible book value. We're in a great position in our markets with our organic sales team.
Rick: With great cost over in HK Hatcher. And all of our Market leaders, driving our franchise board, we can accomplish a lot Brad.
It is a very exciting time for everyone associated with equity.
Our employee base has opportunities to grow and learn.
Our board is incredibly engaged and focused on what creates long-term shareholder value.
Rick: the communities we serve to continue to get the scale of a larger company with a small town feel
and our shareholders benefit by continued EPS growth.
Rick: Market and deposit base expansion. All leading to compounding tangible Book value.
Brad Elliott: Our management team is ready for the challenge and relishes the opportunity ahead of us. Our board has done a great job navigating a strategic path that allows us to grow both organically and through M&A. M&A conversations continue at a very high rate. Equity will remain disciplined in our approach to assessing these opportunities, emphasizing value while controlling dilution in the earnback timeline.
In our markets with our organic sales team.
Our management team is ready for the challenge and relishes, the opportunity ahead of us.
Rick: Our board is done a great job, navigating a strategic path that allows us to grow both organically and through m&a.
Rick: M&a, conversations continue at a very high rate.
Brad Elliott: I look forward to the rest of the year and beyond.
Equity will remain disciplined in our approach to assessing these opportunities if the idea while controlling dilution in the urn back timeline,
Operator: Thank you for joining our call today, and we're now happy to take any questions you might have. Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. We will prepare. When preparing to ask a question, please ensure your device is unmuted locally. We will make a quick pause here for the questions to be registered.
Rick: I look forward to the rest of the year and Beyond,
Rick: Thank you for joining our call today, and we're now happy to take any questions. You might have.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star. Followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2.
Rick: We will prepare.
Olympic Branch, ask your question, please. Ensure your devices and muted locally. We will make a quick pause here for the questions to be registered.
Terry McBoy: And our first question comes from Terry McBoy with 7. Hi, good morning, everybody.
And our first question comes from Terry mcvoy with 7.
Speaker Change: Hi, good morning everybody.
Chris Navratil: Chris, could you talk about plans for the MBC Bank bond portfolio at MBC Bank and just overall thoughts on managing the securities portfolio in the second half of the year? Yeah, good question, Terry. Under the terms of the MBC agreement, the MBC management team actually affected sale of their bond portfolio prior to our acquisition of the bank. So coming over to our balance sheet, effectively, those have been monetized into cash balances. And there's a very small level of security being brought over that. then retained for the purposes of managing pledging positions. So that cash will come into our environment with the opportunity to deploy both for securities portfolio needs as well as funding loan growth and funding other alternatives on the balance sheet.
Um, maybe start with a question for Chris. Could you just help? Hey, Chris could you talk about plans for the, the NBC Bank Bond? The bond portfolio, at NBC Bank and just overall thoughts on managing the Securities portfolio in the second half of the year.
Speaker Change: Yeah, good question.
Chris Navratil: So no specific actions needing to be taken by us at this point as it relates to their bond portfolio, just based on what's actually coming over to us. In terms of managing the rest of the way, you know, the bond portfolio for us is a mechanism by which to deploy cash. We constantly are looking, is there an opportunistic time to rebalance that portfolio also?
Under the so. Under the terms of the NBC agreement, the the MVC managed VC actually affected sale of their bond portfolio prior to our acquisition of the bank. So, coming over to our balance sheet. Effectively those have been monetized into Cash balances and there's a very small level of security is being brought over that of just. Um then retained for the purposes of managing pledging positions. So those that cash will come into our environment with the opportunity to deploy. Uh, both for security portfolio, needs as well as funding uh, loan growth and and funding other alternatives on the balance sheet. So no specific actions needing to be taken by us at this point, as it relates to their bond portfolio. Um, just based on what's actually coming over to us in terms of managing the rest of the way. You know, the bond portfolio for us is, uh, is a mechanism by which to deploy cash with, you know, an improved return potentially. Um, but really the balance is flush.
A dependent on.
Speaker Change: Need on both liquidity and pledging as well as, uh, you know, cash balances relative to deposits. So we saw in the quarter, some average balance decline, uh, we, we had some purchases into the end of the quarter, which is going to grow that balance for average balance purposes going in and as we begin Q3. Um, but that it, it's a balancing function in that Securities portfolio where we're maintaining to um, you know, kind of best leverage our cash position while also having the liquidity and the um pledging required for municipality deposits.
Speaker Change: We constantly look Chris.
we are looking period, you know, is there an opportunistic time to
Operator: is next.
Thought process that we we come up with to to do a a structured trade or a rebalance that portfolio will will will move forward with that as well.
Krzysztof Slupkowski: And a question for Krzysztof. Are you seeing any stress within that QSR portfolio outside of the one relationship that we've talked about for the past couple quarters? Yeah, so. And I've discussed this on previous calls, we do have... do see softer operating numbers in that sector from our other borrowers. when it comes to classified numbers, we have one small. relationship in that space outside of this large one that I mentioned. But outside of that, you know, we have a lot of granularity. In this portfolio, we have diversification between the different QSR concepts, the different brands.
Speaker Change: And the question for Kristoff, um, are you seeing any stress within that qsr portfolio outside of the 1 that we've talked about for the past? Couple quarters?
Kristoff: Yeah. Uh, so
Um, and I've discussed this on previous calls, uh, we do have, we do see softer, um, you know, software operating numbers from uh, in that sector from um, our other borrowers. Um, um, when it comes to classified numbers that we have, um,
Krzysztof Slupkowski: We have diversification when it comes to geography. and far worse. So there's a lot of granularity over there and this is definitely the one we just downgraded.
Kristoff: And power. So there's a lot of granularity over there and um, um, you know this is this is definitely the, the 1 we just uh, downgraded is definitely um the the you know, the largest concern.
Krzysztof Slupkowski: Thank you for that.
Chris Navratil: And maybe just one last quick one back to Chris, that step down in fourth in the fourth quarter, as it relates to non interest expenses relative to the third quarter. Is that all cost savings from the deal? Or is there anything else baked into that decline in 4Q? Yeah, it's predominantly the impact of NBC. I think we always have a little bit of a downward trend through the year in terms of NIE, primarily in the salaries and employee benefits line items, but most of that reduction is at the NBC.
Speaker Change: Thank you for that and maybe just 1 last Quick. 1 back to Chris, that stepped down in 4, in the fourth quarter, as it relates to non-interest expenses relative to the third quarter. Is that all cost savings from the deal or is there anything else baked into that decline uh in for Q.
Speaker Change: I think we always have a little bit of a downward Trend through the year, in terms of nie uh primarily in the salaries and uh employ.
Most of that reduction is.
Speaker Change: The NBC.
Speaker Change: Savings.
Terry McBoy: Thanks for taking my questions.
Speaker Change: Great. Thanks for taking my questions.
Jeff Rulis: Thank you, and the next question comes from Jeff Rulis with DAW. Thanks. Good morning.
Thank you. And the next question comes from Jeff Riley with da Davidson
Krzysztof Slupkowski: Maybe a couple questions on the on that larger QSR credit that the first is, you know, what triggered the move to non-accrual? Is it just sort of a time, I suppose, is sort of the first part.
Jeff Riley: Thanks, good morning.
Jeff Riley: On that.
larger qsr credit, that the first
Jeff Riley: Is.
Krzysztof Slupkowski: And then second piece is, Krzysztof, you mentioned the expectation for a path of exiting some of the better locations. And I guess if there's properties that are sold, would you anticipate that that can, I guess, reduce the non-accrual amount before you kind of fully resolve the whole relationship? In other words, can we see that balance trickle down as you have progress in some of those other locations?
You know what triggered, the the move to non-accrual, is it just sort of a time. I, I suppose is sort of the first part and then second piece is Kristoff, you mentioned. Um, the expectation for a, a path of exiting, some of the, the the better locations. And and I guess if, if there's properties that are sold, would, would you anticipate that that can
Krzysztof Slupkowski: Thanks. Yeah, so your first question on the non-accrual treatment, we just got to a point of time where where it was appropriate to set from an accounting standpoint the loans were past due from a payment perspective.
Jeff Riley: I guess reduce the non-accrual amount. Um, before you kind of fully uh resolve the the whole relationship in other words, can we see that balance trickle down as you have progressed in some of those other locations? Uh, thanks
Jeff Riley: Yeah. Uh, so your first question on the non acral treatment um um the we just got to a point of time where
Krzysztof Slupkowski: When it comes to exiting the stores, I talked about exiting the on-profit. They have a market that is unprofitable for them. All of the stores in the market are underperforming, dragging their cash flow down. So we're working on a, or we have a plan in place that they're executing, or we're going to execute to exit these stores.
Jeff Riley: Where it was appropriate steps from an accounting standpoint. The loans were passed to do, uh, for my payment perspective. Um, when it comes to exiting the stores, uh, I, I talked about exiting, the on profitable stores, they have a market that is, uh, that is unprofitable for them. Um, um, all of the stores in the market, uh, are underperforming dragging, their cash flow down. So, um, we're working on a, or we have a plan in place that, um, um, they
Krzysztof Slupkowski: And then the rest of the locations are performing very well. They're able to carry the debt load that we have. So we're not exactly sure how long this process is going to take. We think it's going to be the next several quarters, at least. three quarters to execute on this plan and then stabilize. And we're in a better CAFO situation later next year.
Jeff Riley: They're executing or, um, we're we're, we're, we're going to execute, uh, to exit the stores. Uh, and then and then the rest of the locations are performing very well. Um, they're they're able to carry the debt load that we have. So, uh, we're not exactly sure how long this, um, this process is going to take we uh, we think it's going to be uh, the next several Quarters at least 3, 3 quarters, um, to execute on this plan and then stabilize.
Jeff Riley: Stabilize cash flow. So
Krzysztof Slupkowski: We could potentially talk about what Okay, I appreciate it.
Jeff Riley: Help is that once that's executed. And, and we're in the uh we're in the um in a better cash flow situation, um, later in next year. Um, you know, we could potentially uh talk about upgrading this to a cruel status.
Brad Elliott: And Brad sounds fairly positive on the on the M&A front.
Brad Elliott: I'm interested in, you know, sellers, the conversation there, as they view, you know, seeing regulatory approval for deals accelerating. Is that changing the tone or bringing more folks to the table? Or is it just been a pretty steady state of the folks that you talked to in terms of partnerships? Wondering if that reg approval speed is changing the tone with sellers at all.
Speaker Change: Okay, I appreciate it. Um, and Brad sounds fairly positive on the, on the m&a front, I I interested in, um, in a seller's, the conversation there. Um, as they do, you know, seeing regulatory approval for deals accelerating.
Is that changing the, the tone or or um bringing more folks to the table? Or is it just been a pretty steady state of the folks that you talk to in terms of Partnerships, um, wondering if that Reg approval speed is, is
Speaker Change: um,
Speaker Change: Changing the tone with with sellers at all.
Brad Elliott: Yeah, let me finish on the QSR Restaurant. There's several paths to resolution there. One is that they close down the eight restaurants that are underperforming, and then the other restaurants are currently cash flowing positively. So they actually, actually have a really good. of their other 33 stores.
We finish on, uh, the the qsr restaurant there's there's several paths to resolution. There 1 is that they close down the 8 restaurants that are underperforming. And then the other the other restaurants are currently cash flowing positive today. So they actually actually have a really good business.
Brad Elliott: So if they can't execute on getting things done fast enough, we're gonna ask them to sell the whole package. and force them into that process, so there's several avenues. Liquidation here from our standpoint on the M&A front, I don't think it's driven by regulatory. I think it's driven by, you know, we're on the tail end of a four-year or five-year period. Financial Institution. because four years ago you were in COVID, two years ago we had a really low interest rate environment.
Uh, on the m&a front, I I don't think it's driven by regulatory. I think it's driven by, you know, we're on the the tail end of a 4 year or 5 year period, where you couldn't sell your financial institution, because 4 years ago you were in coid uh 2 years ago. Uh, we had a really low interest rate environment. Um, which
Brad Elliott: Thanks everyone. And so, you know. Ownership teams have windows on when they want to have liquidity, a lot of them are past that window from two to five years, and so that's really what's driving this, or the management. is three to five years older than they wanted to be when they had talked to their owners about selling the institution. And so it's really age of ownership and age of management that's driving every conversation that we have. And that's.
Speaker Change: Had, uh, you know, taking some time for people to realize what their new tangible Book value really is. Um, and so, uh, now that we have kind of passed those 2 Windows, um, I think the age of ownership and age of management uh is driving those decisions. And um and so you know ownership teams uh have Windows on. When they they want to have liquidity. Uh a lot of them are past that window from 2 to 5 years uh and so that's really what's driving uh this or the management team is 3 to 5 years older than they uh wanted to be when they had talked to their owners about selling this institution and so it's really age of ownership and age of management. That's driving every conversation that we have.
Brad Elliott: has it changed? And I don't think it will change. I think there's the reason why there's so much activity is I think there's been so much put off of time.
Speaker Change: And that's uh, you know, hasn't changed and I don't think it will change. I think there's the reason why there's so much activity is I think there's been so much uh put off of timing uh from the from the past several years.
Brad Elliott: appreciate it. Thanks, Brad.
Speaker Change: I appreciate it. Uh, thanks Brad.
Damon Delmonte: Thank you. And just as a reminder is star one to ask a question. The next question comes from Damon DelMonte with Keith Breed, and Good morning, guys. Thanks for taking my questions. First one, maybe for Rick, on the outlook here in the second half of the year for loan growth, it seems like, you know, clearly explained what led to the end of period decline this quarter. Could you just talk a little bit about kind of the optimism here in the back half of the year and kind of what's driving that both from a geographic standpoint and asset class?
Speaker Change: Thank you and just as a reminder is star 1 to ask you a question. The next question comes from Damon Del Monte with.
Keith Bria and woods.
Hey, good morning guys. Uh thanks for taking my questions. Um first 1 maybe maybe for Rick on um the outlook here on the second half of the year for for loan growth. It seems like um you know um
Clearly explained what led to the the uh, end of period decline. This quarter could just talk a little bit about kind of the optimism here, on the back half of the year and and kind of what um what's driving? That both from a geographic standpoint and asset class?
Rick Sems: Sure. Yeah, we're definitely seeing continued pipelines building. I mean, our pipelines are at the highest levels they've been at. So that's a lot of where the optimism comes. We're seeing more... Activity in the C&I side as well and our Sherry remain strong as well. So we've had a lot of deals. You get these waves of payoffs and the reality... You can do one quarter a year, it seems like you get a lot of payoffs. Trilling Four Quarters, we've had two months with larger payoffs. So I think there's some aspects of that slowing down as well with the production engine that we have, and the last four quarters of production has been really good, and so we just continue on that path with a little bit less payoffs.
Speaker Change: Sure. Yeah, we're, we're definitely seeing continued, uh, pipelines building. I mean, our pipelines are at the highest levels they've been at. So, that's a lot of where the optimism comes. It's, it's, um, we're seeing more, uh,
Speaker Change: More uh, uh, activity in in the uh, cni side as well and and our Cherry side uh, remains strong as well. So got a lot of deals coming in and and and and you get these waves of payoffs. And the reality is we you know you get typically 1 quarter a year, you get a lot of it seems like you get a lot of payoffs and so reality is in the last year.
Speaker Change: Trailing for, for quarters, we've had 2 months with with larger payoff. So I think there's some aspects of that slowing down as well with the production engine that we have. Um,
Speaker Change: the last, uh,
Rick Sems: that that growth. So that's that's really Got it.
Speaker Change: 4 quarters of production has been really good. And so if we just continue on that path um, with a little bit less payoffs, you're going to see that that growth. So that's that's really why we have the optimism for the second half of the year.
Rick Sems: And the lower line utilization this quarter, was that something that was kind of seasonally driven or is that maybe a shift in your customer operating approach? No, I think there's a couple of there's actually a couple of specific things with with a large It's actually a situation where a couple of our wealthy customers have some lines. They received some money and had lines and paid them down. It's sort of a unique situation that happened. Those lines remain in place. We expect those to probably be drawn on again as we get later in the year as well.
Got it. And the the lower line utilization of this quarter was that something that was kind of seasonally driven? Or is that maybe a shift in your customer operating approach?
Chris Navratil: So that had a sort of a disproportional amount. I think also some of it's in some of the ag lines as well. Those come back. So again, we're optimistic. It actually affected our deposit balances and our loan balances. They were carrying them in different entities on the deposit side. for their lines of credit, so we got hit twice. that that's actually a positive result. customers doing extremely well, and they'll draw the Got it. Appreciate that color.
No, I think there's a couple of there's a actually, a couple of the specific things with, uh, with a a large. Uh, it's, it's actually a situation where a couple of our, of our wealthy customers, have some lines, they receive some money, uh, and headlines, and paid them down. It's, it's sort of a unique situation that happens. Those lines remain in place. We expect those to, you know, probably be drawn again on again, as as we get later in the year as well. So, uh, that that had a sort of a disproportional amount. I think. Also, some of it is in the, in some of the, a lines as well. Does come back. So, um, you know, we're we're again, we're optimistic that this was just sort of a, a 1 time.
a thing, it actually affected our deposit, balances and our load balances because they uh were carrying them in different entities on the deposit side, then distributed those funds to several principles and then those principles paid down their uh,
Their lines of credit. So we got we got hit twice, uh, from the same customer base, but that's actually a positive result from the standpoint customers doing extremely well. Uh and they'll draw those lines. Back up again.
Chris Navratil: And then just lastly, Chris, on the margin outlook, I think you mentioned that there's some repricing that's going to be occurring over the next few months for loans. Do you have some numbers around kind of what you expect in total loans to be repricing in the back half of the year? Yeah, we continue to have kind of lag repricing in their game and really on both sides. There's some up, there's some down. I would look at our core margin is kind of maintaining right where we realized that this quarter. So that lag reprice that has the effect of maintaining around that 417 point, as you consider both the liabilities and the loans.
Chris Navratil: And then as we look forward into 2026, there continues to be some runway there of additional repricing. Again, on both sides of the balance sheet, some time structured deposits and some longer dated loans.
Speaker Change: Yeah, we continue to have kind of like repricing in their Damon really on both sides, there's some up, there's some down. Um, I would look at our, our core margin is kind of maintaining, right, where we realize that this quarter. So, um, that lag re price that has the effect of maintaining around that 417 Point. As you can see there, both the, the liabilities and the loans. Um, and then, as we look forward into 2026, there continues to be something Runway. There of additional re-pricing, um, again on both sides of the balance sheet, some time structure deposits, and, um, some longer dated loans that we'll continue to see move up.
Damon Delmonte: Okay, great. That's all that I had.
Operator: Thank you very much.
Okay, great. Uh, that's all that I had. Thank you very much.
Operator: You are so just as another reminder is that we want to ask a question.
Speaker Change: Yeah. So just
Brad Rabatin: Our next question comes from Brad Rabatin with Hoft Group.
Another reminder is star 1 to ask a question. Our next question comes from Brett Robinson with hoft group.
Brad Elliott: Hey guys, good morning. wanted to just just start on on Wichita and just with the you know with the environment of more defense spending and you know Wichita having a bit of an aviation and military backdrop just wanted to hear you know what was going on in Wichita and then I know you guys have have gotten away from aircraft lending and that kind of thing but just wanted to see if that might be an opportunity for you and get maybe get a little bit of color on how Wichita is doing with the subtrend. Yeah, so if you look at our portfolio, it's less than 10% of our company now is based in Wichita, so it's not a big factor for us on an overall basis, macro basis, but on a micro basis, we have less than $5 million, I think, outstanding to suppliers in the aircraft industry.
Brett Robinson: Hey guys. Good morning.
wanted to um just just uh start on on Witchita and just with the you know, with the environment of of more defense spending and you know Witchita having a bit of an aviation and Military um backdrop just wanted to hear, you know, what was going on in Witchita and then I know you guys have have have gotten away from aircraft lending and that kind of thing, but just wanted to see if that might be an opportunity for you and get, maybe get a little bit of color on how
Brett Robinson: Witchita is doing with the subtr.
Brad Elliott: from a direct exposure, you know, that's down from 100 plus million five years ago. So we've really, we're not in that space any longer. It's not affecting our community, what's going on with Boeing in particular very much because Cessna, Beechcraft and Learjet are doing so well that there's so much demand for the jobs. And Spirit isn't laying people off. Spirit Boeing are not laying people off yet and haven't made any announcements that they're going. So there's still a lot of demand for jobs here. The workforce is very intact. You know, their biggest issue in that workforce is, I think, CESTA has somewhere between 500 and 750 retirees.
Brett Robinson: Based in Witchita. So it's not a big factor for us on an overall basis macro basis. Uh but on a on a micro basis we you know, we have less than 5 million dollars. I think outstanding to suppliers uh in the aircraft industry uh from a direct exposure. Um, you know that's down from 100%. Uh so we really we're not in that space, any longer? Um,
Brad Elliott: annually. Neubauer, Gregory Kossover, Ted Hubbard, Nancy Glick, Mark Marthias, Audria Boyd, Jerry on the marketplace. and look out my window and... We can see 190 fuselages on the ground out there for Spirit on delivery, so... Okay.
It's not affecting our community. What's going on with Boeing, in particular, very much because, uh, Cessna beachcraft and Learjet are doing so, well, that there's so much demand for the jobs. Um, and spirit isn't laying people off spirit, being are not laying people off yet, um, and having them made any announcements that they're going to. Um, so there's still a lot of demand for jobs here, uh and the workforce is very intact. You know, their biggest issue in that Workforce is I think cesa has somewhere between 500 and 750 retirees annually.
Brett Robinson: Out of their Workforce so making sure that they can replace them with. Skilled workers is is important, and I'm sure all of us have manufacturers are the same way. So the demand for talent here is still very very high. Um and we're not seeing any effects of the Boeing Spirit relationship, uh, on the marketplace yet today.
I can look out my window and I can see 190 fuselages on the ground out there uh for Spirit on delivery. So
Chris Navratil: And then just a question for Chris, back on the margin, you know, it would seem like you're implying that you can't get much more out of the deposit betas or get deposit costs lower from here, absent Fed cuts. Any thoughts on how you're modeling that and just what you guys think deposit growth takes at this point? Yeah, so a couple things on that. In terms of the actual deposit betas, as it applies to our face today, so call it a no-grill face position, there's a little bit of potential continued repricing as we have some time to find the maturity.
Brett Robinson: okay.
Speaker Change: Um and then just a question for Chris back on the margin you know and it would it would seem like you're you're implying that you can't
Speaker Change: Get much more out of the deposit based or get deposit costs lower, uh, from here absence that cuts any any thoughts on how you're modeling that and just what you guys think, um, deposit growth takes at this point.
Speaker Change: Yeah. So
Chris Navratil: But, you know, as you saw over the past few quarters, as rates started to come down, we, like the industry, took, you know, we're strategic in that we move forward quickly and we're able to get those costs out relatively quickly. So the opportunity set for working declines went down. That said, we continue to have some that are what I'll call at market today. I think depending on how competition behaves, there's always going to be a little bit of continued opportunity there.
Speaker Change: To our our Base today. So I'm calling to know girl face position. Um, there's a little bit of potential to continue to re-pricing as we have some time to pause the maturities. But you know, as you saw over the past few quarters, as rates started to come down, we like the industry to cook. Um, you know, we're we're strategic in that we move forward quickly and um we're able to get those costs out uh, relatively quickly. So the opportunity set for you looking to come
Chris Navratil: , Jeffrey Liesch, Andrew Liesch, Gregory Kossover, Gregory Katzfey, Gregory Kossover, Gregory Unknown Executive, Chris Navratil, Andrew Liesch, Jeffrey Rulis, Damon DelMonte, Terence McEvoy, Brad Elliott, Chris Navratil, Unknown Executive, Richard Slupkowski, Gregory Kossover, where, you know, John Rupp and Rick Sems can find success in driving consumer relationships and DDA accounts, all those incrementally So as we see traction there, there's opportunity for us. But on a cost-static basis, Brad, the majority of those costs. Ok.
Speaker Change: Relative to the cost of funds.
Speaker Change: There's still some value there, um, but where we can pursue commercial relationships, we grow the loan balances and with them Drive, um, commercial deposit relationships. And, um, where, you know, John RP and, and Rick sense can find success in in driving consumer relationships, and, and DDA accounts all those incrementally create value. So, as we see traction there, there's opportunity for us. Um, but on a called Static basis, breathe the the majority of those costs have come out.
This 1.
Brad Elliott: And then maybe just one last one for me, you know, Brad, I think, you know, you're still optimistic about M&A and the possibilities. Is the size range for you guys, from a target perspective, increasing or any color on how you're thinking about? You know, the typical target from here. Yeah, the opportunities have been increasing on size for us. But I think their size range, you know, the set that we have is one and a half billion and below. And so I think you could think we're going to spend our energy on $250 million. to 1.5 Billion, and anything in between there that fits our geographic footprints.
Speaker Change: Okay.
um, and then maybe just 1 last 1 for me, you know, Brad I think you, you know, you still optimistic about m&a and the possibilities is the size range for you guys from a Target perspective, increasing or or any color on how you're thinking about
You know, the the typical Target from here.
Yeah. Uh, the opportunities have been increasing on size for us. Um,
Brad Elliott: It's kind of what we're focused on.
Speaker Change: But I I think your size range, you know, the the set that we have is 1 and 12 billion and below. And so I think you could think we're going to spend our energy on 250 million uh institutions to 1 and a half billion uh and kind of anything in between there that fits our Geographic Footprints kind of what we're focused on.
Brad Elliott: Great, appreciate the call guys. Thank you.
Speaker Change: Okay.
Speaker Change: Great. Appreciate all the color, guys.
Operator: So just as a final reminder, if you would like to ask a question, it's star one on your telephone keypad. And as we currently have no further questions in the queue, this concludes today's Equity Bancshares earnings call. Thank you, everyone, for joining You May Now Disconnect. Please have a great rest of your day.
Speaker Change: Thank you. So just as a final reminder, if you would like to ask a question, is star 1 on your telephone keypad?
Speaker Change: And as we currently have no further questions in the queue.
Speaker Change: This concludes today's Equity Bankers earnings call. Thank you everyone for joining you may now disconnect please have a great rest of your day.