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What changed in EQUITY BANCSHARES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of EQUITY BANCSHARES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+373 added−373 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-09)

Top changes in EQUITY BANCSHARES INC's 2023 10-K

373 paragraphs added · 373 removed · 294 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

86 edited+22 added−36 removed188 unchanged
Biggest changeUnder a rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as ourselves, would, under the circumstances set forth in the presumption, constitute acquisition of control of us. 17 In addition, the BHC Act prohibits any entity from acquiring 25% or more (the BHC Act has a lower limit for acquirers that are existing bank holding companies) of a bank holding company’s or bank’s voting securities, or otherwise obtaining control or the power to exercise a “controlling influence” over a bank holding company or bank, without the prior approval of the Federal Reserve.
Biggest changeIn addition, the BHC Act prohibits any entity from acquiring 25% or more (the BHC Act has a lower limit for acquirers that are existing bank holding companies) of a bank holding company’s or bank’s voting securities, or otherwise obtaining control or the power to exercise a “controlling influence” over a bank holding company or bank, without the prior approval of the Federal Reserve.
We make commercial mortgage loans collateralized by real estate, which may be owner occupied or non-owner-occupied real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service.
We make commercial mortgage loans collateralized by real estate, which may be owner occupied or non-owner-occupied. Commercial real estate lending typically involves higher loan principal amounts and the repayment is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service.
Although these loans were originated and underwritten by another institution, our mortgage and credit departments do their own independent review of these loans. These loans typically are secured by collateral outside of our branch footprint. Agricultural Loans . We offer both fixed-rate and adjustable-rate agricultural real estate loans to our customers.
Although these loans were originated and underwritten by another institution, our mortgage and credit departments do their own independent review. These loans typically are secured by collateral outside of our branch footprint. Agricultural Loans . We offer both fixed-rate and adjustable-rate agricultural real estate loans to our customers.
We make a variety of loans to individuals for personal and household purposes, including secured and unsecured term loans and home improvement loans. Consumer loans are underwritten based on the individual borrower’s income, current debt level, past credit history and the value of any available collateral.
Consumer Loans . We make a variety of loans to individuals for personal and household purposes, including secured and unsecured term loans and home improvement loans. Consumer loans are underwritten based on the individual borrower’s income, current debt level, past credit history and the value of any available collateral.
We house our back-up site is at a decentralized location. This back-up site is intended to provide for redundancy and disaster recovery capabilities in the event of a significant equipment failure or disaster. The majority of our other systems, including our e-mail, electronic funds transfer, transaction processing and online banking services are hosted by third-party service providers.
We house our back-up site at a decentralized location. This back-up site is intended to provide for redundancy and disaster recovery capabilities in the event of a significant equipment failure or disaster. The majority of our other systems, including our e-mail, electronic funds transfer, transaction processing and online banking services are hosted by third-party service providers.
The guidance provides that a bank may be exposed to heightened commercial real estate lending concentration risk and subject to further supervisory analysis if (i) total reported loans for construction, land development and other land represent 100% or more of total capital or (ii) total reported loans secured by multifamily residential 21 properties, non-farm non-residential properties and loans for construction, land development and other land, together with loans to finance commercial real estate, construction and land development activities that are not secured by real estate, represent 300% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
The guidance provides that a bank may be exposed to heightened commercial real estate lending concentration risk and subject to further supervisory analysis if (i) total reported loans for construction, land development and other land represent 100% or more of total capital or (ii) total reported loans secured by multifamily residential properties, non-farm non-residential properties and loans for construction, land development and other land, together with loans to finance commercial real estate, construction and land development activities that are not secured by real estate, represent 300% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
Despite the significant number of opportunities, we intend to continue to employ a disciplined approach to our acquisition strategy and only seek to identify and partner with financial institutions that possess attractive market share, low-cost deposit funding and compelling non-interest income-generating businesses. We believe consolidation will lead to organic growth opportunities for us following the integration of businesses we acquire.
Despite the significant number of opportunities, we intend to continue to employ a disciplined approach to our acquisition strategy and only seek to identify and partner with financial institutions that possess attractive market share, low-cost deposit funding or compelling non-interest income-generating businesses. We believe consolidation will lead to organic growth opportunities for us following the integration of businesses we acquire.
In addition, the collateral securing commercial and industrial loans generally includes movable property such as equipment and inventory, which may decline in value more rapidly than we anticipate exposing us to increased credit risk. As a result of these additional complexities, variables and risks, commercial and industrial loans require extensive underwriting and servicing. Commercial Real Estate Loans .
In addition, the collateral securing commercial and industrial loans generally includes movable property such as equipment and inventory, which may decline in value more rapidly than we anticipate exposing us to increased credit risk. As a result of these additional complexities, variables and risks, commercial and industrial loans require extensive underwriting and servicing. 9 Commercial Real Estate Loans .
We offer a full suite of online banking solutions including access to account balances, online transfers, online bill payment and electronic delivery of customer statements, mobile banking solutions for iPhone and Android phones, including remote check deposit with mobile bill pay. We offer extended drive-through hours, ATMs and banking by telephone, mail and personal appointment.
We offer a full suite of online banking solutions including access to account balances, online transfers, online bill payment and electronic delivery of customer statements, mobile banking solutions for iPhone and Android phones, including remote check deposit with mobile bill pay. We offer extended drive-through hours, ITMs, ATMs and banking by telephone, mail and personal appointment.
In particular, we believe our markets provide us with access to low cost, stable core deposits in smaller community markets that we can use to fund commercial loan growth in metropolitan areas. We believe our existing and target markets are among some of the most attractive in the Midwestern United States.
In particular, we believe our markets provide us with access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth in metropolitan areas. We believe our existing and target markets are among some of the most attractive in the Midwestern United States.
The laws, rules and regulations add significantly to the cost of operating the Company and Equity Bank and thus have a negative impact on profitability. In recent years, financial service providers that are not subject to the same regulations as the Company and 14 Equity Bank have expanded significantly.
The laws, rules and regulations add significantly to the cost of operating the Company and Equity Bank and thus have a negative impact on profitability. In recent years, financial service providers that are not subject to the same regulations as the Company and Equity Bank have expanded significantly.
We are focused on continuing to grow organically and believe the markets in which we operate currently provide meaningful opportunities to expand our commercial customer base and increase our current market share.
We are focused on continuing to grow organically and believe the markets in which we operate currently provide meaningful 5 opportunities to expand our commercial customer base and increase our current market share.
We 5 believe this diverse geographic footprint provides us with access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth in our metropolitan markets.
We believe this diverse geographic footprint provides us with access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth in our metropolitan markets.
We believe this approach allows us to realize the benefits of the acquisition and create stockholder value while appropriately managing risk. • Efficient and Scalable Platform with Capacity to Support Our Growth .
We believe our approach allows us to realize the benefits of the acquisition and create stockholder value while appropriately managing risk. • Efficient and Scalable Platform with Capacity to Support Our Growth .
Our board of directors delegates loan authority up to board-approved hold limits collectively to our Directors’ credit 8 committee, which is comprised of members of our board of directors. Our board of directors also delegates limited lending authority to our internal loan committee, which is comprised of members of our executive management team.
Our board of directors delegates loan authority up to board-approved hold limits collectively to our Directors’ credit committee, which is comprised of members of our board of directors. Our board of directors also delegates limited lending authority to our internal loan committee, which is comprised of members of our executive management team.
Item 1: B usiness Our Company 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 64 branches located in Arkansas, Kansas, Missouri and Oklahoma, as of December 31, 2022.
Item 1: B usiness Our Company 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 64 branches located in Arkansas, Kansas, Missouri and Oklahoma, as of December 31, 2023.
(3) Represents 50 locations outside of the Wichita, Kansas City and Tulsa MSAs. Our team of seasoned bankers represents an important driver of our organic growth by expanding banking relationships with current and potential customers. We expect to continue to make opportunistic hires of talented and entrepreneurial bankers, particularly in our metropolitan markets, to further augment our growth.
(3) Represents 49 locations outside of the Wichita, Kansas City and Tulsa MSAs. Our team of seasoned bankers represents an important driver of our organic growth by expanding banking relationships with current and potential customers. We expect to continue to make opportunistic hires of talented and entrepreneurial bankers, particularly in our metropolitan markets, to further augment our growth.
We believe that our 13 competitive pricing, personalized service and community involvement enable us to effectively compete in the communities in which we operate. Human Capital The Company’s success depends on its ability to attract and retain highly qualified senior and middle management and other skilled employees.
We believe that our competitive pricing, personalized service and community involvement enable us to effectively compete in the communities in which we operate. 12 Human Capital The Company’s success depends on its ability to attract and retain highly qualified senior and middle management and other skilled employees.
Pursuant to FDICIA, each federal banking agency has specified, by regulation, the levels at which an insured institution would be considered well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2022, Equity Bank exceeded the capital levels required to be deemed well capitalized.
Pursuant to FDICIA, each federal banking agency has specified, by regulation, the levels at which an insured institution would be considered well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2023, Equity Bank exceeded the capital levels required to be deemed well capitalized.
In addition, our board of directors also delegates more limited lending authority to our Chief Executive Officer, Chief Operating Officer, Chief Credit Officer, credit risk personnel and, on a further limited basis, to selected lending managers in each of our target markets. Lending officers and relationship managers, including our bankers, have further limited individual loan authority.
In addition, our board of directors also delegates more limited lending authority to our Chief Executive Officer, President, Chief Credit Officer, credit risk personnel and, on a further limited basis, to selected lending managers in each of our target markets. Lending officers and relationship managers, including our bankers, have further limited individual loan authority.
Such policies influence, to a significant extent, the overall growth of bank loans, investments and deposits and the interest rates charged on loans or paid on time and savings deposits. We cannot predict the nature of future fiscal and monetary policies and the effect of such policies on the future business and our earnings. 22
Such policies influence, to a significant extent, the overall growth of bank loans, investments and deposits and the interest rates charged on loans or paid on time and savings deposits. We cannot predict the nature of future fiscal and monetary policies and the effect of such policies on the future business and our earnings. 21
Our disciplined approach to acquisitions, consolidations and integrations includes the following: (i) selectively acquiring community banking franchises only at appropriate valuations, after taking into account risks that we perceive with respect to the targeted bank; (ii) completing comprehensive due diligence and developing an appropriate plan to address any legacy credit problems of the targeted institution; (iii) identifying an achievable cost savings estimate and holding our management accountable for achieving such estimates; (iv) executing definitive acquisition agreements that we believe provide adequate protections to us; (v) installing our credit procedures, audit and risk management policies and procedures and compliance standards upon consummation of the acquisition; (vi) collaborating with the target’s management team to execute on synergies and cost saving opportunities related to the acquisition; (vii) involving a broader management team across multiple departments in order to help ensure the successful integration of all business functions; and (viii) scheduling the acquisition closing date to occur simultaneously with the platform conversion date.
Our disciplined approach to acquisitions, consolidations and integrations includes the following: (i) selectively acquiring community banking franchises only at appropriate valuations, after taking into account risks that we perceive with respect to the targeted bank; (ii) completing comprehensive due diligence and developing an appropriate plan to address any legacy credit problems of the targeted institution; (iii) identifying an achievable cost savings estimate and holding our management accountable for achieving such estimates; (iv) executing definitive acquisition agreements that we believe provide adequate protections to us; (v) installing our credit procedures, audit and risk management policies and procedures and compliance standards upon consummation of the acquisition; (vi) collaborating with the target’s management team to execute on synergies and cost saving opportunities related to the acquisition; and (vii) involving a broader management team across multiple departments in order to help ensure the successful integration of all business functions.
Our strategy for approving or disapproving loans is to follow conservative loan policies and consistent underwriting practices which include: • maintaining close relationships among our customers and their designated banker to ensure ongoing credit monitoring and loan servicing; • granting credit on a sound basis with full knowledge of the purpose and source of repayment for such credit; • ensuring that primary and secondary sources of repayment are adequate in relation to the amount of the loan; • developing and maintaining targeted levels of diversification for our loan portfolio as a whole and for loans within each category; and • ensuring that each loan is properly documented and that any insurance coverage requirements are satisfied.
Our strategy for approving or disapproving loans is to follow conservative loan policies and consistent underwriting practices which include: • maintaining close relationships among our customers and their designated banker to ensure ongoing credit monitoring and loan servicing; • granting credit on a sound basis with full knowledge of the purpose and source of repayment for such credit; • ensuring that primary and secondary sources of repayment are adequate in relation to the amount of the loan; • developing and maintaining targeted levels of diversification for our loan portfolio as a whole and for loans within each category; and • ensuring that each loan is properly documented and that any insurance coverage requirements are satisfied. 8 Managing credit risk is a Company-wide process.
The section below discusses our general loan categories. 9 Commercial and Industrial Loans .
The section below discusses our general loan categories. Commercial and Industrial Loans .
Our executive management team has instilled a transparent and entrepreneurial culture that rewards leadership, innovation and problem solving. • Focus on Commercial Banking . We are primarily a commercial bank.
Our team has instilled a transparent and entrepreneurial culture that rewards leadership, innovation and problem solving. • Focus on Commercial Banking . We are primarily a commercial bank.
Additionally, the Company is committed to employee development through a combination of in-house and external training programs. Further, the Company has two staff development programs with formal in-house training programs for junior bankers including guidance from senior banking team members. As of December 31, 2022, the Company employed 732 full-time equivalent employees.
Additionally, the Company is committed to employee development through a combination of in-house and external training programs. Further, the Company has two staff development programs with formal in-house training programs for junior bankers including guidance from senior banking team members. As of December 31, 2023, the Company employed 717 full-time equivalent employees.
Recent cyber-attacks against bank and other institutions that resulted in unauthorized access to confidential customer information have prompted the federal banking agencies to issue extensive guidance on cyber-security. The regulatory agencies may devote more resources to this part of their safety and soundness examination than they may have in the past.
Recent cyber-attacks against banks and other institutions that resulted in unauthorized access to confidential customer information have prompted the federal banking agencies to issue extensive guidance on cybersecurity. The regulatory agencies may devote more resources to this part of their safety and soundness examination than they may have in the past.
Our Chief Credit Officer provides Company-wide credit oversight and periodically reviews all credit risk portfolios to ensure that the risk identification processes are functioning properly and that our credit standards are followed. In addition, a third-party loan review is performed to assist in the identification of problem assets and to confirm our internal risk rating of loans.
Our Chief Credit Officer provides Company-wide credit oversight to ensure that the risk identification processes are functioning properly and that our credit standards are followed. In addition, a third-party loan review is performed to assist in the identification of problem assets and to confirm our internal risk rating of loans.
Equity Bank cannot guarantee that it will have the financial ability to pay dividends to us, or if dividends are paid, that they will be sufficient for us to make distributions to our stockholders.
Equity Bank cannot guarantee that it will have the financial ability to pay dividends to us, or if dividends are paid, that they will be sufficient for us to make distributions to our stockholders. Equity Bank is not obligated to pay dividends.
Management believes the allowance for credit losses is adequate to cover incurred losses in our loan portfolio as of December 31, 2022. Sound risk management practices and appropriate levels of capital are essential elements of a sound commercial real estate lending program.
Management believes the allowance for credit losses is adequate to cover expected losses in our loan portfolio as of December 31, 2023. Sound risk management practices and appropriate levels of capital are essential elements of a sound commercial real estate lending program.
We have invested in professional talent since our inception by building a team of “businesspersons first and bankers second” and economically aligned them with our stockholders, primarily through our stock purchase opportunities. In our efforts to become a destination for seasoned bankers with an entrepreneurial spirit, we have developed numerous leadership development programs.
We have invested in professional talent since our inception by building a team of “businesspersons first and bankers second” and economically aligned them with our stockholders, through our share-based incentive compensation and stock purchase opportunities. In our efforts to become a destination for seasoned bankers with an entrepreneurial spirit, we have developed numerous leadership development programs.
The Bank’s legal lending limit as of December 31, 2022, on loans to a single borrower was $147.0 million. However, we typically maintain an in-house limit of $25.0 million for loans to a single borrower.
The Bank’s legal lending limit as of December 31, 2023, on loans to a single borrower was $143.0 million. However, we typically maintain an in-house limit of $25.0 million for loans to a single borrower.
Our executive management team has, on average, more than twenty years of experience working for large, up to ten billion-dollar financial institutions in our markets during various economic cycles along with significant merger and acquisition experience in the financial services industry.
Our executive management team has, on average, more than twenty years of experience working for and with large, financial institutions in our markets during various economic cycles along with significant merger and acquisition experience in the financial services industry.
The following table shows our total deposits and loans (net of allowances) in our community markets and our metropolitan markets as of December 31, 2022, which we believe illustrates our execution of this strategy.
The following table shows our total deposits and loans in our community markets and our metropolitan markets as of December 31, 2023, which we believe illustrates our execution of this strategy.
Our relationship-based approach seeks to grow lending relationships with our customers as they expand their businesses, including geographically and through cross-selling our various other banking products, such as our deposit and treasury management products.
Our relationship-based approach seeks to grow lending relationships with our customers through cross-selling our banking products, such as our deposit and treasury management tools, as they expand their businesses.
Equity Bank is not obligated to pay dividends. 18 Insider Transactions A bank is subject to certain restrictions on extensions of credit to insiders of the bank or of any affiliate. Insiders include executive officers, directors, certain principal stockholders and their related interests.
Insider Transactions A bank is subject to certain restrictions on extensions of credit to insiders of the bank or of any affiliate. Insiders include executive officers, directors, certain principal stockholders and their related interests.
Following our acquisitions, we focus on identifying and disposing of problematic loans and replacing them with higher quality loans generated organically. In addition, we focus on growth in our commercial loan portfolio primarily by hiring additional talented bankers, particularly in our metropolitan markets, and incentivizing our bankers to expand their commercial banking relationships.
Following our acquisitions, we focus on identifying and disposing of problematic loans and replacing them with higher quality loans generated organically. In addition, we focus on growth in our commercial loan portfolio through hiring and retaining talented bankers and incentivizing them to expand their commercial banking relationships.
Management believes these practices allow us to appropriately monitor concentrations in commercial real estate in our loan portfolio. Large Credit Relationships . As of December 31, 2022, the aggregate amount of loans to our ten largest borrowers (including related entities) amounted to approximately $367.2 million, or 11.1% of total loans.
Management believes these practices allow us to appropriately monitor concentrations in commercial real estate in our loan portfolio. Large Credit Relationships . As of December 31, 2023, the aggregate amount of loans to our ten largest borrowers (including related entities) amounted to approximately $344.7 million, or 10.3% of total loans.
The following map illustrates the headquarters of potential acquisition opportunities broken out by asset size between $50.0 million and $1.5 billion within our target footprint. 4 We believe many of these banks will continue to be burdened by new and more complex banking regulations, resource constraints, competitive limitations, rising technological and other business costs, management succession issues and liquidity concerns.
The following map illustrates the headquarters of potential acquisition opportunities within our target footprint. We believe many of these banks will continue to be burdened by new and more complex banking regulations, resource constraints, competitive limitations, rising technological and other business costs, management succession issues and liquidity concerns.
Cash management deposit products consist of lockbox, remote deposit capture, positive pay, reverse positive pay, account reconciliation services, zero balance accounts and sweep accounts, including loan sweep. In addition, we offer a full comprehensive suite of products and offerings for trust and wealth management customers.
Cash management deposit products consist of lockbox, remote deposit capture, positive pay, reverse positive pay, account reconciliation services, zero balance accounts and sweep accounts, including loan sweep. We offer a full comprehensive suite of products and offerings for trust and wealth management customers. Trust and wealth management services include private banking, investment management, trust services and estate and financial planning.
We offer a full array of commercial treasury management services designed to be competitive with banks of all sizes. Treasury management services include balance reporting (including current day and previous day activity), transfers between accounts, wire transfer initiation, ACH origination and stop payments.
We offer both consumer and commercial credit cards, as well as Health Savings Account solutions. 11 We offer a full array of commercial treasury management services designed to be competitive with banks of all sizes. Treasury management services include balance reporting (including current day and previous day activity), transfers between accounts, wire transfer initiation, ACH origination and stop payments.
We offer a variety of deposit accounts with a wide range of interest rates and terms including demand, savings, money market and time deposits with the goal of attracting a wide variety of customers, including small to medium-sized businesses.
Deposit Products Our lending and investing activities are primarily funded by deposits. We offer a variety of deposit accounts with a wide range of interest rates and terms including demand, savings, money market and time deposits with the goal of attracting a wide variety of customers, including small to medium-sized businesses.
As measured by outstanding balances at December 31, 2022, commercial loans composed over 70.0% of our loan portfolio and within our commercial loan portfolio, 74.3% of such loans were commercial real estate loans and 25.7% were commercial and industrial loans.
As measured by outstanding balances at December 31, 2023, commercial loans composed over 70.8% of our loan portfolio and within our commercial loan portfolio, 74.6% of such loans were commercial real estate loans and 25.4% were commercial and industrial loans.
The Dodd-Frank Act permanently raised the standard maximum deposit insurance amount to $250,000. The amount of FDIC assessments paid by each insured depository institution is based on its relative risk of default as measured by financial ratios and supervisory factors derived from a statistical model that estimates a bank’s probability of failure within three years.
The amount of FDIC assessments paid by each insured depository institution is based on its relative risk of default as measured by financial ratios and supervisory factors derived from a statistical model that estimates a bank’s probability of failure within three years.
Notably, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), provides that the Federal Reserve can assess civil money penalties for such practices or violations which can be as high as $1 million per day.
Notably, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), provides that the Federal Reserve can assess civil money penalties for such practices or violations which can be as high as $1 million per day. FIRREA contains expansive provisions regarding the scope of individuals and entities against which such penalties may be assessed.
Failure to meet capital guidelines could subject Equity Bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits and other restrictions on our business.
Failure to meet capital guidelines could subject Equity Bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits and other restrictions on our business. As of December 31, 2023, Equity Bank exceeded the capital levels required to be deemed well capitalized.
Consumer Financial Protection Bureau The Dodd-Frank Act created the CFPB which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes.
Any future increases in FDIC insurance premiums may have a material and adverse effect on our earnings. 18 Consumer Financial Protection Bureau The Dodd-Frank Act created the CFPB which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes.
Bankruptcy Code that is designed specifically for the reorganization of financial obligations of family farmers and which provides certain preferential procedures to agricultural borrowers compared to traditional bankruptcy proceedings pursuant to other chapters of the U.S. Bankruptcy Code. Consumer Loans .
A significant number of agricultural borrowers with these types of loans may qualify for relief under a chapter of the U.S. Bankruptcy Code that is designed specifically for the reorganization of financial obligations of family farmers and which provides certain preferential procedures to agricultural borrowers compared to traditional bankruptcy proceedings pursuant to other chapters of the U.S. Bankruptcy Code.
From time to time we have purchased pools of residential mortgages originated by other financial institutions to hold for investment with the intent to diversify our residential mortgage loan portfolio and increase our yield.
From time to time we have purchased pools of residential mortgages originated by other financial institutions to hold for investment with the intent to diversify our residential mortgage loan portfolio and increase our yield. We have a defined set of credit guidelines that we use when evaluating these credits.
Under the final rules, which went into effect on January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” and are eligible to opt into the community bank leverage ratio framework.
In accordance with the Economic Growth, Regulatory Relief and Consumer Protection Act, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” and are eligible to opt into the community bank leverage ratio framework.
For a discussion of certain cyber-security risk, please see “Item 1A – Risk Factors”. Competition The financial services industry is highly competitive. We compete for loans, deposits, and financial services in all of our principal markets.
For a discussion of our cybersecurity risk management and strategy and governance, please see “Item 1C – Cybersecurity" Competition The financial services industry is highly competitive. We compete for loans, deposits, and financial services in all of our principal markets.
We have a growing presence in attractive commercial banking markets, such as Wichita, Kansas City and Tulsa, which we believe present significant opportunities to continue to increase our business banking activities. • Our Ability to Consolidate .
We have a growing presence in attractive commercial banking markets, such as Wichita, Kansas City and Tulsa, which we believe present significant opportunities to continue to increase our business banking activities. • Our Ability to Consolidate . Our branches are strategically located within metropolitan markets as well as stable community markets that present opportunities to expand our market share.
We believe our track 6 record of strategic acquisitions and effective integrations, combined with our expertise in our markets and scalable platform, will allow us to capitalize on these growth opportunities. • Disciplined Acquisition Approach .
Our executive management team has identified significant acquisition and consolidation opportunities ranging from small to large community banking 6 institutions. We believe our track record of strategic acquisitions and effective integrations, combined with our expertise in our markets and scalable platform, will allow us to capitalize on these growth opportunities. • Disciplined Acquisition Approach .
In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.
Our processes emphasize early-stage review of loans, regular credit evaluations and management reviews of loans, which supplement the ongoing and proactive credit monitoring and loan servicing provided by our bankers.
Our strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria and ongoing risk monitoring and review processes for all credit exposures. Our processes emphasize early-stage review of loans, regular credit evaluations and management reviews of loans, which supplement the ongoing and proactive credit monitoring and loan servicing provided by our bankers.
Imposition of Liability for Undercapitalized Subsidiaries The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risks of nontraditional activities, as well as reflect the actual performance and expected risk of loss on multifamily mortgages.
The Company and Equity Bank have not made an election to use the community bank leverage ratio framework but may make such an election in the future if eligible and doing so is advantageous. 15 Imposition of Liability for Undercapitalized Subsidiaries The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risks of nontraditional activities, as well as reflect the actual performance and expected risk of loss on multifamily mortgages.
If there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, Equity Bank may be required to pay higher FDIC insurance premiums. Any future increases in FDIC insurance premiums may have a material and adverse effect on our earnings.
If there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, Equity Bank may be required to pay higher FDIC insurance premiums.
Other Regulations Interest and other charges that Equity Bank collects or contracts for are subject to state usury laws and federal laws concerning interest rates.
Cybersecurity for a discussion of the Company’s cybersecurity risk management, strategy and governance. 20 Other Regulations Interest and other charges that Equity Bank collects or contracts for are subject to state usury laws and federal laws concerning interest rates.
As of December 31, 2022, we had, on a consolidated basis, total assets of $4.98 billion, total deposits of $4.24 billion, total loans (net of allowances) of $3.27 billion and total stockholders’ equity of $410.1 million.
As of December 31, 2023, we had, on a consolidated basis, total assets of $5.03 billion, total deposits of $4.15 billion, total loans (net of allowances) of $3.29 billion and total stockholders’ equity of $452.9 million.
We believe our credit culture supports accountable bankers who maintain an ability to expand our customer base as well as make sound decisions for our Company. We believe our success in managing asset quality is illustrated by our aggregate net charge-off history.
We believe our credit culture supports accountable bankers who maintain an ability to expand our customer base as well as make sound decisions for our Company.
Accordingly, repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans.
Commercial mortgage loans considered for interest rate swap hedging typically have terms of greater than five years. Repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans.
Because of the significance of regulatory emphasis on these requirements, Equity Bank will continue to expend significant staffing, technology and financial resources to maintain programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing of Equity Bank’s compliance with the Bank Secrecy Act, on an ongoing basis.
Because of the significance of regulatory emphasis on these requirements, Equity Bank will continue to expend significant staffing, technology and financial resources to maintain programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing of Equity Bank’s compliance with the Bank Secrecy Act, on an ongoing basis. 19 The Community Reinvestment Act The Community Reinvestment Act (“CRA”) and related regulations are intended to encourage banks to help meet the credit needs of their service areas, including low- and moderate-income neighborhoods, consistent with safe and sound operations.
Generally, our agricultural real estate loans amortize over periods not in excess of 20 years and have a loan-to-value ratio of 80%. We also originate agricultural real estate loans directly and through programs sponsored by the Farm Service Agency (“FSA”), an agency of the United States Department of Agriculture, which provides a partial guarantee on loans underwritten to FSA standards.
We also originate agricultural real estate loans directly and through programs sponsored by the Farm Service Agency (“FSA”), an agency of the United States Department of Agriculture, which provides a partial guarantee on loans underwritten to FSA standards. Agricultural real estate loans generally carry higher interest rates and have shorter terms than 1-4 family residential real estate loans.
Loans are underwritten to either mature at the completion of construction, or transition to a traditional amortizing commercial real estate facility at the completion of construction, in line with other commercial real estate loans held at the bank. 10 Construction loans generally involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion.
Construction loans generally involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion.
Our loan portfolio consists primarily of commercial real estate loans, which were $1.72 billion and constituted 52.0% of our total loans as of December 31, 2022, commercial and industrial loans, which were $594.9 million and constituted 18% of our total loans as of December 31, 2022, and residential real estate loans, which were $570.6 million and constituted 17.2% of our total loans as of December 31, 2022.
Our loan portfolio consists primarily of commercial real estate loans, which were $1.76 billion and constituted 52.8% of our total loans as of December 31, 2023, commercial and industrial loans, which were $598.3 million and constituted 18% of our total loans as of December 31, 2023, and residential real estate loans, which were $556.3 million and constituted 16.7% of our total loans as of December 31, 2023.
For loans above certain threshold amounts, board approval is required, and the interested insider may not be involved. In addition, a bank may purchase an asset from or sell an asset to an insider only if the transaction is on market terms and if representing more than 10% of capital, is approved in advance by the majority of disinterested directors.
In addition, a bank may purchase an asset from or sell an asset to an insider only if the transaction is on market terms and if representing more than 10% of capital, is approved in advance by the majority of disinterested directors. 17 Additional and more stringent limits apply to a bank’s transactions with its own executive officers and certain directors.
In the case of agricultural operating loans secured by breeding livestock and/or farm equipment, such loans are originated at fixed rates of interest for a term of up to 5 years. We typically originate agricultural operating loans based on the borrower’s ability to make repayment from the cash flow of the borrower’s agricultural business.
Agricultural operating loans may be originated at an adjustable or fixed rate of interest and generally for a term of up to 7 years. In the case of agricultural operating loans secured by breeding livestock and/or farm equipment, such loans are originated at fixed rates of interest for a term of up to 5 years.
Interstate Branching The Dodd-Frank Act permits a national or state bank, with the approval of its regulator, to open a branch in any state if the law of the state in which the branch is located would permit the establishment of the branch if the bank were a bank chartered in that state.
Interstate Branching The Dodd-Frank Act permits a national or state bank, with the approval of its regulator, to open a branch in any state if the law of the state in which the branch is located would permit the establishment of the branch if the bank were a bank chartered in that state. 16 Anti-Tying Restrictions Bank holding companies and their affiliates are prohibited from tying the provision of certain services, such as extensions of credit, to other services offered by a holding company or its affiliates.
Restrictions on Transactions with Affiliates Section 23A of the Federal Reserve Act imposes quantitative and qualitative limits on transactions between a bank and any affiliate and requires certain levels of collateral for any such loans. It also limits the amount of advances to third parties which are collateralized by the securities or obligations of a holding company.
These limits do not apply to transactions with all directors or to insiders of the bank’s affiliates. Restrictions on Transactions with Affiliates Section 23A of the Federal Reserve Act imposes quantitative and qualitative limits on transactions between a bank and any affiliate and requires certain levels of collateral for any such loans.
We also make loans to finance the purchase of machinery, equipment and breeding stock, seasonal crop operating loans used to fund the borrower’s crop production operating expenses, livestock operating, and revolving loans used to purchase livestock for resale and related livestock production expense.
We also make loans to finance the purchase of machinery, equipment and breeding stock, seasonal crop operating loans used to fund the borrower’s crop production operating expenses, livestock operating, and revolving loans used to purchase livestock for resale and related livestock production expense. 10 Generally, our agricultural real estate loans amortize over periods not in excess of 20 years and have a loan-to-value ratio under 80%.
The Fair and Accurate Credit Transactions Act of 2003 allows states to enact identity theft laws that are not inconsistent with the conduct required by the provisions of the act. 20 The Patriot Act, International Money Laundering Abatement and Financial Anti-Terrorism Act and Bank Secrecy Act A major focus of governmental policy on financial institutions has been aimed at combating money laundering and terrorist financing.
The Patriot Act, International Money Laundering Abatement and Financial Anti-Terrorism Act and Bank Secrecy Act A major focus of governmental policy on financial institutions has been aimed at combating money laundering and terrorist financing.
We expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied acquisition opportunities.
We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency. We expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied 4 acquisition opportunities.
Bank Holding Company Regulation We are a bank holding company registered under the Bank Holding Company Act of 1956 (“BHC Act”), as amended, and are subject to supervision and regulation by the Federal Reserve.
Such institutions may continue to draw large amounts of funds away from banking institutions, with a continuing adverse effect on the banking industry in general. 13 Bank Holding Company Regulation We are a bank holding company registered under the Bank Holding Company Act of 1956 (“BHC Act”), as amended, and are subject to supervision and regulation by the Federal Reserve.
Our Strategies We believe we are a leading provider of commercial and personal banking services to businesses and business owners as well as individuals in our targeted Midwestern markets.
Our Strategies We believe we are a leading provider of commercial and personal banking services to businesses and business owners as well as individuals in our targeted Midwestern markets. Our strategy is to continue consolidating community banks within such markets and maintaining our organic growth, while preserving our asset quality through disciplined lending practices. • Strategic Consolidation of Community Banks.
Deposits Loans Amount (1) Overall % Amount (1) Overall % Metropolitan markets (2) $ 1,492,090 35 % $ 2,146,372 65 % Community markets (3) $ 2,749,717 65 % $ 1,165,176 35 % (1) Amounts in thousands. (2) Represents 15 locations in the Wichita, Kansas City and Tulsa metropolitan statistical areas (“MSAs”).
Deposits Loans Amount (1) Overall % Amount (1) Overall % Metropolitan markets (2) $ 1,633,213 39 % $ 2,461,136 74 % Community markets (3) $ 2,512,242 61 % $ 871,765 26 % (1) Amounts in thousands. (2) Represents 15 locations in the Wichita, Kansas City and Tulsa metropolitan statistical areas (“MSAs”).
As of December 31, 2022, Equity Bank exceeded the capital levels required to be deemed well capitalized. 19 Deposit Insurance The FDIC insures the deposits of federally insured banks up to prescribed statutory limits for each depositor, through the Deposit Insurance Fund (“DIF”) and safeguards the safety and soundness of the banking and thrift industries.
Deposit Insurance The FDIC insures the deposits of federally insured banks up to prescribed statutory limits for each depositor, through the Deposit Insurance Fund (“DIF”) and safeguards the safety and soundness of the banking and thrift industries. The Dodd-Frank Act permanently raised the standard maximum deposit insurance amount to $250,000.
The Federal Reserve may examine a bank holding company or any of its subsidiaries and charge the company for the cost of such an examination. We are also subject to reporting and disclosure requirements under state and federal securities laws.
Annual Reporting and Examinations We are required to file annual and quarterly reports with the Federal Reserve and such additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve may examine a bank holding company or any of its subsidiaries and 14 charge the company for the cost of such an examination.
We also seek to increase our most attractive deposit accounts, primarily by growing deposits in our community markets and cross selling our depository products to our loan customers. As a result of these strategic and organic growth efforts, we have expanded our team of full-time equivalent employees from 19 to 732 and our network of branches from two to 65.
We also seek to increase our most attractive deposit accounts, primarily by growing deposits in our community markets and cross selling our depository products to our loan customers.
As a result, the availability of funds for the repayment of agricultural operating loans may be substantially dependent on the success of the business itself and the general economic environment. A significant number of agricultural borrowers with these types of loans may qualify for relief under a chapter of the U.S.
We typically originate agricultural operating loans based on the borrower’s ability to make repayment from the cash flow of the borrower’s agricultural business. As a result, the availability of funds for the repayment of agricultural operating loans may be substantially dependent on the success of the business itself and the general economic environment.
Agricultural real estate loans generally carry higher interest rates and have shorter terms than 1-4 family residential real estate loans. Agricultural real estate loans, however, entail additional credit risks compared to one- to four-family residential real estate loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers.
Agricultural real estate loans, however, entail additional credit risks compared to one-to-four-family residential real estate loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. We generally require farmers to obtain multi-peril crop insurance coverage through a program partially subsidized by the Federal government to help mitigate the risk of crop failures.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSummary of Risk Factors Our risk factors can be broadly summarized by the following categories: • Economic Risks • Credit and Interest Rate Risks • Strategic Risks • Risks Relating to the Regulation of Our Industry • Risks Relating to the Company’s Common Stock • General Risks While not an exhaustive list, the principal risks that we believe could adversely affect our business, financial condition or results of operations include: • a change in economic conditions or a return to recessionary conditions could result in increases in our level of nonperforming loans and/or reduced demand for our products and services; • the value of real estate collateral may fluctuate significantly resulting in an under-collateralized loan portfolio; • external economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations; • inability to effectively manage or adequately measure credit risk; • we could suffer losses from a decline in the credit quality of the assets that we hold; • a significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could negatively impact our business; • a large portion of our loan portfolio is comprised of commercial loans that are secured by accounts receivable, inventory, equipment or other asset-based collateral, and deterioration in the value of such collateral could increase our exposure to future probable losses; • our largest lending relationships currently make up a material percentage of our total loan portfolio; • our profitability is vulnerable to interest rate fluctuations; • market interest rates for loans, investments and deposits are highly sensitive to many factors beyond our control; • our financial instruments expose us to certain market risks and may increase the volatility of earnings and AOCI; • we may be adversely impacted by the transition from LIBOR as a reference rate; • the outbreak of COVID-19, or other epidemic, pandemic or highly contagious disease occurring in the United States or in the geographies in which we conduct operations; • our financial performance will be negatively impacted if we are unable to execute our growth strategy; • our strategy of pursuing acquisitions exposes us to financial, execution, compliance and operational risks; • acquisitions may disrupt our business, dilute stockholder value and be costly to integrate; • we rely heavily on our management team and could be adversely affected by the unexpected loss of key officers; • our business is concentrated in, and largely dependent upon, the continued growth and welfare of the general geographic markets in which we operate; • our ability to grow our loan portfolio may be limited; • our future profitability levels are dependent on our ability to grow and maintain deposits at competitive costs; • our ability to retain bankers and recruit additional successful bankers is critical to the success of our business strategy; • a lack of liquidity could adversely affect our financial condition and results of operations; • our financial projections are based upon numerous assumptions about future events and our actual financial performance may differ materially from our projections if our assumptions are inaccurate; • we continually encounter technological change and may have fewer resources than our competitors; • our information systems may experience a failure or interruption; 23 • we use information technology in our operations and offer online banking services to our customers, and unauthorized access to our or our customers’ confidential or proprietary information as a result of a cyber-attack or otherwise; • we are dependent upon outside third parties for the processing and handling of our records and data; • if our enterprise risk management framework is not effective at mitigating risk and loss to us; • changes in accounting standards could materially impact our financial statements; • if the goodwill that we have recorded or may record in connection with a business acquisition becomes impaired, it could require charges to earnings, which would adversely affect our business, financial condition and results of operations; • we may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could harm liquidity, results of operations and financial condition; • increasing scrutiny and evolving expectations from customers, regulators, investors and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks; • we are subject to extensive regulations in the conduct of our business, which imposes additional costs on us; • changes in laws, government regulation and monetary policy may have a material effect on our results of operations; • our banking subsidiary may be required to pay higher FDIC insurance premiums or special assessments; • we are subject to certain capital requirements by regulators; • we are subject to stringent capital requirements, which may adversely impact our return on equity or constrain us from paying dividends or repurchasing shares; • we may need to raise additional capital in the future and the capital may not be available when it is needed or may be dilutive to stockholders; • we are subject to the Bank Secrecy Act and other anti-money laundering statutes and regulations, and any deemed deficiency by us with respect to these laws could result in significant liability; • the laws that regulate our operations are designed for the protection of depositors and the public, not our stockholders; • as a bank holding company, the sources of funds available to us are limited; • the market price of our Class A common stock may be subject to substantial fluctuations which may make it difficult for you to sell your shares at the volumes, prices and times desired; • the obligations associated with being a public company requires significant resources and management attention; • there is no guarantee that we will declare or pay cash dividends on our common stock; • securities analysts may not initiate or continue coverage on our Class A common stock, which could adversely affect the market for our Class A common stock; • use of our common stock for future acquisitions or to raise capital may be dilutive to existing stockholders; • a future issuance of stock could dilute the value of our Class A common stock; • we have significant institutional investors whose interests may differ from yours; • our directors and executive officers beneficially own a significant portion of our Class A common stock and have substantial influence over us; • shares of our Class A common stock are not insured deposits and may lose value; • we have the ability to incur debt and pledge our assets, including our stock in Equity Bank, to secure that debt, and holders of any such debt obligations will generally have priority over holders of our Class A common stock with respect to certain payment obligations; • if we fail to maintain an effective system of disclosure controls and procedures and internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud; • our board of directors may issue shares of preferred stock that would adversely affect the rights of our Class A common stockholders; • the return on your investment in our Class A common stock is uncertain; • we operate in a highly competitive industry and face significant competition from other banking organizations; • as a community bank, our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our performance; • we are subject to environmental risk in our lending activities; • we are subject to claims and litigation pertaining to intellectual property; • we have pledged all of the stock of Equity Bank as collateral for a loan, and if the lender forecloses, you could lose your investment; and • we have outstanding subordinated debt obligations, and if the Company defaults on those obligations, the debt holders could lose their investment.
Biggest changeSummary of Risk Factors Our risk factors can be broadly summarized by the following categories: • Economic Risks • Credit and Interest Rate Risks • Strategic Risks • Risks Relating to the Regulation of Our Industry • Risks Relating to the Company’s Common Stock • General Risks While not an exhaustive list, the principal risks that we believe could adversely affect our business, financial condition or results of operations include: • a change in economic conditions or a return to recessionary conditions could result in increases in our level of nonperforming loans and/or reduced demand for our products and services; • the value of real estate collateral may fluctuate significantly resulting in an under-collateralized loan portfolio; • external economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations; • inability to effectively manage or adequately measure credit risk; • we could suffer losses from a decline in the credit quality of the assets that we hold; • a significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could negatively impact our business; • a large portion of our loan portfolio is comprised of commercial loans that are secured by accounts receivable, inventory, equipment or other asset-based collateral, and deterioration in the value of such collateral could increase our exposure to future probable losses; • our largest lending relationships currently make up a material percentage of our total loan portfolio; • our profitability is vulnerable to interest rate fluctuations; • market interest rates for loans, investments and deposits are highly sensitive to many factors beyond our control; • our financial instruments expose us to certain market risks and may increase the volatility of earnings and AOCI; • the outbreak of an epidemic, pandemic or highly contagious disease occurring in the United States or in the geographies in which we conduct operations; • our financial performance will be negatively impacted if we are unable to execute our growth strategy; • our strategy of pursuing acquisitions exposes us to financial, execution, compliance and operational risks; • acquisitions may disrupt our business, dilute stockholder value and be costly to integrate; • we rely heavily on our management team and could be adversely affected by the unexpected loss of key officers; • our business is concentrated in, and largely dependent upon, the continued growth and welfare of the general geographic markets in which we operate; • our ability to grow our loan portfolio may be limited; • our future profitability levels are dependent on our ability to grow and maintain deposits at competitive costs; • our ability to retain bankers and recruit additional successful bankers is critical to the success of our business strategy; • a lack of liquidity could adversely affect our financial condition and results of operations; • our financial projections are based upon numerous assumptions about future events and our actual financial performance may differ materially from our projections if our assumptions are inaccurate; • we continually encounter technological change and may have fewer resources than our competitors; • our information systems may experience a failure or interruption; • we use information technology in our operations and offer online banking services to our customers, and unauthorized access to our or our customers’ confidential or proprietary information as a result of a cyber-attack or otherwise; • we are dependent upon outside third parties for the processing and handling of our records and data; 22 • if our enterprise risk management framework is not effective at mitigating risk and loss to us; • changes in accounting standards could materially impact our financial statements; • if the goodwill that we have recorded or may record in connection with a business acquisition becomes impaired, it could require charges to earnings, which would adversely affect our business, financial condition and results of operations; • we may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could harm liquidity, results of operations and financial condition; • increasing scrutiny and evolving expectations from customers, regulators, investors and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks; • we are subject to extensive regulations in the conduct of our business, which imposes additional costs on us; • changes in laws, government regulation and monetary policy may have a material effect on our results of operations; • our banking subsidiary may be required to pay higher FDIC insurance premiums or special assessments; • we are subject to certain capital requirements by regulators; • we are subject to stringent capital requirements, which may adversely impact our return on equity or constrain us from paying dividends or repurchasing shares; • we may need to raise additional capital in the future and the capital may not be available when it is needed or may be dilutive to stockholders; • we are subject to the Bank Secrecy Act and other anti-money laundering statutes and regulations, and any deemed deficiency by us with respect to these laws could result in significant liability; • the laws that regulate our operations are designed for the protection of depositors and the public, not our stockholders; • as a bank holding company, the sources of funds available to us are limited; • recent negative developments affecting the banking industry, and resulting media coverage, may 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 operation; • climate change related legislative and regulatory initiatives, have the potential to disrupt our business and adversely impact the operations and creditworthiness of our customers • the market price of our Class A common stock may be subject to substantial fluctuations which may make it difficult for you to sell your shares at the volumes, prices and times desired; • the obligations associated with being a public company requires significant resources and management attention; • there is no guarantee that we will declare or pay cash dividends on our common stock; • securities analysts may not initiate or continue coverage on our Class A common stock, which could adversely affect the market for our Class A common stock; • use of our common stock for future acquisitions or to raise capital may be dilutive to existing stockholders; • a future issuance of stock could dilute the value of our Class A common stock; • we have significant institutional investors whose interests may differ from yours; • our directors and executive officers beneficially own a significant portion of our Class A common stock and have substantial influence over us; • shares of our Class A common stock are not insured deposits and may lose value; • we have the ability to incur debt and pledge our assets, including our stock in Equity Bank, to secure that debt, and holders of any such debt obligations will generally have priority over holders of our Class A common stock with respect to certain payment obligations; • if we fail to maintain an effective system of disclosure controls and procedures and internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud; • our board of directors may issue shares of preferred stock that would adversely affect the rights of our Class A common stockholders; • the return on your investment in our Class A common stock is uncertain; • we operate in a highly competitive industry and face significant competition from other banking organizations; • as a community bank, our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our performance; • we are subject to environmental risk in our lending activities; • we are subject to claims and litigation pertaining to intellectual property; • we have pledged all of the stock of Equity Bank as collateral for a loan, and if the lender forecloses, you could lose your investment; and • we have outstanding subordinated debt obligations, and if the Company defaults on those obligations, the debt holders could lose their investment. 23 The foregoing factors should not be construed as exhaustive.
Cyber-security risks for banking organizations have significantly increased in recent years and have been difficult to detect before they occur because, among other reasons: • the proliferation of new technologies and the use of the internet and telecommunications technologies to conduct financial transactions; • these threats arise from numerous sources, not all of which are in our control, including among others, human error, fraud or malice on the part of employees or third parties, accidental technological failure, electrical or telecommunication outages, failures of computer servers or other damage to our property or assets, natural disasters or severe weather conditions, health emergencies or pandemics, or outbreaks of hostilities or terrorist acts; • the techniques used in cyber-attacks change frequently and may not be recognized until launched or until well after the breach has occurred; • the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage; • the vulnerability of systems to third parties seeking to gain access to such systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users of our systems; and • our frequent transmission of sensitive information to, and storage of such information by, third parties, including our vendors and regulators, and possible weaknesses that go undetected in our data systems notwithstanding the testing we conduct of those systems.
Cybersecurity risks for banking organizations have significantly increased in recent years and have been difficult to detect before they occur because, among other reasons: • the proliferation of new technologies and the use of the internet and telecommunications technologies to conduct financial transactions; 34 • these threats arise from numerous sources, not all of which are in our control, including among others, human error, fraud or malice on the part of employees or third parties, accidental technological failure, electrical or telecommunication outages, failures of computer servers or other damage to our property or assets, natural disasters or severe weather conditions, health emergencies or pandemics, or outbreaks of hostilities or terrorist acts; • the techniques used in cyber-attacks change frequently and may not be recognized until launched or until well after the breach has occurred; • the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage; • the vulnerability of systems to third parties seeking to gain access to such systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users of our systems; and • our frequent transmission of sensitive information to, and storage of such information by, third parties, including our vendors and regulators, and possible weaknesses that go undetected in our data systems notwithstanding the testing we conduct of those systems.
These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us, our officers, or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance.
These actions include the power to enjoin “unsafe or unsound” practices, to require 37 affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us, our officers, or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance.
These provisions and the corporate and banking laws and regulations applicable to us, among others: • empower our board of directors, without stockholder approval, to issue preferred stock, the terms of which, including voting power, are set by our board of directors; • only permit stockholder action to be taken at an annual or special meeting of stockholders and not by written consent in lieu of such a meeting; • provide for a classified board of directors, so that only approximately one-third of our directors are elected each year; • prohibit us from engaging in certain business combinations with “interested stockholders” (generally defined as a holder of 15% or more of the corporation’s outstanding voting stock); 45 • require at least 120 days’ advance notice of nominations for the election of directors and the presentation of stockholder proposals at meetings of stockholders; and • require prior regulatory application and approval of any transaction involving control of our organization.
These provisions and the corporate and banking laws and regulations applicable to us, among others: • empower our board of directors, without stockholder approval, to issue preferred stock, the terms of which, including voting power, are set by our board of directors; • only permit stockholder action to be taken at an annual or special meeting of stockholders and not by written consent in lieu of such a meeting; • provide for a classified board of directors, so that only approximately one-third of our directors are elected each year; • prohibit us from engaging in certain business combinations with “interested stockholders” (generally defined as a holder of 15% or more of the corporation’s outstanding voting stock); 44 • require at least 120 days’ advance notice of nominations for the election of directors and the presentation of stockholder proposals at meetings of stockholders; and • require prior regulatory application and approval of any transaction involving control of our organization.
In addition, (i) any bank holding company or foreign bank with a U.S. presence is required to obtain the approval of the Federal Reserve under the Bank Holding Company Act to acquire or retain 5% or more of a class of our outstanding shares of voting stock, and (ii) any person other than a bank holding company may be required to obtain prior regulatory approval under the Change in Bank Control Act to acquire or retain 10% or more of our outstanding shares of voting stock.
In addition, (i) any bank holding company or foreign bank with a U.S. presence is required to obtain the approval of the Federal Reserve under the Bank Holding Company Act to acquire or retain 5% or more of a class of our outstanding shares of voting stock, and (ii) any person other than a bank holding company may be required to obtain prior regulatory approval under the Change in Bank Control Act to acquire or retain 10% or more of our outstanding shares of 38 voting stock.
For additional information about the Company’s impairment assessment process and results see “NOTE 7 – GOODWILL AND CORE DEPOSIT INTANGIBLES” in Notes to Consolidated Financial Statements. 37 We may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could harm liquidity, results of operations and financial condition.
For additional information about the Company’s impairment assessment process and results see “NOTE 7 – GOODWILL AND CORE DEPOSIT INTANGIBLES” in Notes to Consolidated Financial Statements. We may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could harm liquidity, results of operations and financial condition.
There are substantial risks associated with such efforts, including risks that (i) revenues from such activities might not be sufficient to offset the development, compliance and other implementation costs, (ii) competing products and services and shifting market preferences might affect the profitability of such activities and (iii) our internal controls might be inadequate to manage the risks associated with new activities.
There are substantial risks associated with such efforts, including risks that (i) revenues from such activities might not be sufficient to offset the development, compliance and other implementation costs, (ii) competing 31 products and services and shifting market preferences might affect the profitability of such activities and (iii) our internal controls might be inadequate to manage the risks associated with new activities.
Many of our competitors have greater resources to invest in technological improvements and we may not be able to effectively implement new technology-driven products and services, which could reduce our ability to effectively compete. Our information systems may experience a failure or interruption. We rely heavily on communications and information systems to conduct our business.
Many of our competitors have greater resources to invest in technological improvements and we may not be able to effectively implement new technology-driven products and services, which could reduce our ability to effectively compete. 33 Our information systems may experience a failure or interruption. We rely heavily on communications and information systems to conduct our business.
Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of any note obligations. 41 The laws that regulate our operations are designed for the protection of depositors and the public, not our stockholders.
Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of any note obligations. The laws that regulate our operations are designed for the protection of depositors and the public, not our stockholders.
The occurrence of any cyber-attack or information security breach could result in financial losses or increased costs to us or our clients, disclosure or misuse of confidential information belonging to us or personal or confidential information belonging to our clients, misappropriation of assets, reputational damage, 35 damage to our competitive position and the disruption of our operations, all of which could adversely affect our financial condition or results of operations.
The occurrence of any cyber-attack or information security breach could result in financial losses or increased costs to us or our clients, disclosure or misuse of confidential information belonging to us or personal or confidential information belonging to our clients, misappropriation of assets, reputational damage, damage to our competitive position and the disruption of our operations, all of which could adversely affect our financial condition or results of operations.
Any such effect on customers or restrictions by our regulators could have a material adverse effect on our financial condition and results of operations. 39 We are subject to stringent capital requirements, which may adversely impact our return on equity or constrain us from paying dividends or repurchasing shares.
Any such effect on customers or restrictions by our regulators could have a material adverse effect on our financial condition and results of operations. We are subject to stringent capital requirements, which may adversely impact our return on equity or constrain us from paying dividends or repurchasing shares.
The COVID-19 pandemic caused changes in the behavior of customers, businesses, and their employees, including illness, quarantines, social distancing practices, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability.
The COVID-19 pandemic caused changes in the behavior of customers, businesses, and their employees, including illness, quarantines, social distancing practices, cancellation of events and travel, business and school shutdowns, reduction in commercial 27 activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability.
Although 31 our customers’ business and financial interests may extend well beyond these market areas, adverse conditions that affect these market areas could reduce our growth rate, affect the ability of our customers to repay their loans, affect the value of collateral underlying loans, impact our ability to attract deposits and generally affect our financial conditions and results of operations.
Although our customers’ business and financial interests may extend well beyond these market areas, adverse conditions that affect these market areas could reduce our growth rate, affect the ability of our customers to repay their loans, affect the value of collateral underlying loans, impact our ability to attract deposits and generally affect our financial conditions and results of operations.
Moreover, loan growth throughout the year can fluctuate due in part to seasonality of the businesses of our borrowers and potential borrowers and the timing on loan repayments, particularly those of our borrowers with significant relationships with us, resulting from, among other things, excess levels of liquidity.
Moreover, loan growth throughout the year can fluctuate due in part to 30 seasonality of the businesses of our borrowers and potential borrowers and the timing on loan repayments, particularly those of our borrowers with significant relationships with us, resulting from, among other things, excess levels of liquidity.
Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may also be required to sell branches as a condition to receiving regulatory approval, which may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.
Such regulatory approvals may not be granted on terms that are 39 acceptable to us, or at all. We may also be required to sell branches as a condition to receiving regulatory approval, which may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.
Pending or future securities class action suits against us could result in significant liabilities and, regardless of the outcome, could result in substantial costs and the diversion of our management’s attention and resources. 42 The obligations associated with being a public company require significant resources and management attention.
Pending or future securities class action suits against us could result in significant liabilities and, regardless of the outcome, could result in substantial costs and the diversion of our management’s attention and resources. The obligations associated with being a public company require significant resources and management attention.
This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our financial condition and results of operations. 38 Changes in laws, government regulation and monetary policy may have a material effect on our results of operations.
This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our financial condition and results of operations. Changes in laws, government regulation and monetary policy may have a material effect on our results of operations.
When we originate loans, we rely upon information supplied by loan applicants and third parties, including the information contained in the loan application, property appraisal and title information, if applicable, and employment and income documentation provided by third parties.
When we originate loans, we rely upon information supplied by loan applicants and third parties, including the information contained in the loan application, property appraisal and title information, if applicable, 35 and employment and income documentation provided by third parties.
Further, the concentration of real estate collateral in these four markets limits our ability to diversify the risk of such occurrences. 26 A large portion of our loan portfolio is comprised of commercial loans that are secured by accounts receivable, inventory, equipment or other asset-based collateral, and deterioration in the value of such collateral could increase our exposure to future probable losses.
Further, the concentration of real estate collateral in these four markets limits our ability to diversify the risk of such occurrences. 25 A large portion of our loan portfolio is comprised of commercial loans that are secured by accounts receivable, inventory, equipment or other asset-based collateral, and deterioration in the value of such collateral could increase our exposure to future probable losses.
Such risks could also impair the value of collateral securing loans and hurt our deposit base. 47 We are or may become involved from time to time in suits, legal proceedings, information-gathering requests, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences. Many aspects of our business involve substantial risk of legal liability.
Such risks could also impair the value of collateral securing loans and hurt our deposit base. 46 We are or may become involved from time to time in suits, legal proceedings, information-gathering requests, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences. Many aspects of our business involve substantial risk of legal liability.
Our most important source of funds is deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better 33 risk/return tradeoff.
Our most important source of funds is deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff.
We are subject to possible claims and litigation pertaining to fiduciary responsibility. 34 From time to time, customers could make claims and take legal action pertaining to our performance of our fiduciary responsibilities.
We are subject to possible claims and litigation pertaining to fiduciary responsibility. From time to time, customers could make claims and take legal action pertaining to our performance of our fiduciary responsibilities.
This influence may also have the effect of delaying or preventing changes of control, or changes in management or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our Company. 44 Shares of our Class A common stock are not insured deposits and may lose value.
This influence may also have the effect of delaying or preventing changes of control, or changes in management or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our Company. 43 Shares of our Class A common stock are not insured deposits and may lose value.
A decline in the price of shares of our Class A common stock might impede our ability to raise capital through the issuance of additional shares of our Class A common stock or other equity securities and could result in a decline in the value of the shares of our Class A common stock. 43 Securities analysts may not initiate or continue coverage on our Class A common stock, which could adversely affect the market for our Class A common stock.
A decline in the price of shares of our Class A common stock might impede our ability to raise capital through the issuance of additional shares of our Class A common stock or other equity securities and could result in a decline in the value of the shares of our Class A common stock. 42 Securities analysts may not initiate or continue coverage on our Class A common stock, which could adversely affect the market for our Class A common stock.
We have pledged all of the stock of Equity Bank as collateral for a loan, and if the lender forecloses, you could lose your investment. We have pledged all of the stock of Equity Bank as collateral for a third-party loan, which had no balance as of December 31, 2022. This loan has a maximum lending commitment of $25.0 million.
We have pledged all of the stock of Equity Bank as collateral for a loan, and if the lender forecloses, you could lose your investment. We have pledged all of the stock of Equity Bank as collateral for a third-party loan, which had no balance as of December 31, 2023. This loan has a maximum lending commitment of $25.0 million.
In the event of default, the Company’s senior debt holders will be entitled to receive payment in full prior to payment of subordinated debt holders. If the company’s distributable assets in the event of default can only repay the senior debt holders the subordinated debt holders could lose their investment. 48 Item 1B: Unresolve d Staff Comments None
In the event of default, the Company’s senior debt holders will be entitled to receive payment in full prior to payment of subordinated debt holders. If the company’s distributable assets in the event of default can only repay the senior debt holders the subordinated debt holders could lose their investment. 47 Item 1B: Unresolve d Staff Comments None
It is also difficult to project future commodity prices as they are dependent upon many different factors beyond our control. 25 Credit and Interest Rate Risks Inability to effectively manage credit risk.
It is also difficult to project future commodity prices as they are dependent upon many different factors beyond our control. 24 Credit and Interest Rate Risks Inability to effectively manage credit risk.
Banks, securities firms and insurance companies can merge under the umbrella of a financial 46 holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.
Banks, securities firms and insurance companies can merge under the umbrella of a financial 45 holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.
Any such losses could adversely affect our business, financial condition and results of operations. 27 Our profitability is vulnerable to interest rate fluctuations. Our profitability depends substantially upon our net interest income.
Any such losses could adversely affect our business, financial condition and results of operations. 26 Our profitability is vulnerable to interest rate fluctuations. Our profitability depends substantially upon our net interest income.
We anticipate that the integration of businesses that we may acquire in the future will be a time-consuming and expensive process, even if the integration process is effectively planned and implemented. 30 In addition, our acquisition activities could be material to our business and involve a number of significant risks, including the following: • incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; • using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target company or the assets and liabilities that we seek to acquire; • exposure to potential asset quality issues of the target company; • intense competition from other banking organizations and other potential acquirers, many of which have substantially greater resources than we do; • potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including, without limitation, liabilities for regulatory and compliance issues; • inability to realize the expected revenue increases, cost savings, increases in geographic or product presence and other projected benefits of the acquisition; • incurring time and expense required to integrate the operations and personnel of the combined businesses; • inconsistencies in standards, procedures and policies that would adversely affect our ability to maintain relationships with customers and employees; • experiencing higher operating expenses relative to operating income from the new operations; • creating an adverse short-term effect on our results of operations; • losing key employees and customers; • significant problems relating to the conversion of the financial and customer data of the entity; • integration of acquired customers into our financial and customer product systems; • potential changes in banking or tax laws or regulations that may affect the target company; or • risks of impairment to goodwill.
In addition, our acquisition activities could be material to our business and involve a number of significant risks, including the following: • incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; • using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target company or the assets and liabilities that we seek to acquire; • exposure to potential asset quality issues of the target company; • intense competition from other banking organizations and other potential acquirers, many of which have substantially greater resources than we do; • potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including, without limitation, liabilities for regulatory and compliance issues; • inability to realize the expected revenue increases, cost savings, increases in geographic or product presence and other projected benefits of the acquisition; • incurring time and expense required to integrate the operations and personnel of the combined businesses; • inconsistencies in standards, procedures and policies that would adversely affect our ability to maintain relationships with customers and employees; • experiencing higher operating expenses relative to operating income from the new operations; • creating an adverse short-term effect on our results of operations; • losing key employees and customers; • significant problems relating to the conversion of the financial and customer data of the entity; • integration of acquired customers into our financial and customer product systems; • potential changes in banking or tax laws or regulations that may affect the target company; or 29 • risks of impairment to goodwill.
As a public company, we are required to: • prepare and distribute periodic reports, proxy statements and other stockholder communications in compliance with the federal securities laws and rules; • expand the roles and duties of our board of directors and committees thereof; • maintain an enhanced internal audit function; • institute more comprehensive financial reporting and disclosure compliance procedures; • involve and retain to a greater degree outside counsel and accountants in the activities listed above; • enhance our investor relations function; • establish internal policies, including those relating to trading in our securities and disclosure controls and procedures; • retain additional personnel; • comply with the NASDAQ Global Select Market listing standards; and • comply with the Sarbanes-Oxley Act.
As a public company, we are required to: • prepare and distribute periodic reports, proxy statements and other stockholder communications in compliance with the federal securities laws and rules; • expand the roles and duties of our board of directors and committees thereof; • maintain an enhanced internal audit function; • institute more comprehensive financial reporting and disclosure compliance procedures; • involve and retain to a greater degree outside counsel and accountants in the activities listed above; • enhance our investor relations function; • establish internal policies, including those relating to trading in our securities and disclosure controls and procedures; • retain additional personnel; • comply with the New York Stock Exchange listing standards; and • comply with the Sarbanes-Oxley Act.
This loan was renewed subsequent to December 31, 2022, that set a new maturity date of February 10, 2024. If we were to default on this indebtedness, the lender of such loan could foreclose on Equity Bank’s stock and we would lose our principal asset.
This loan was renewed subsequent to December 31, 2023, that set a new maturity date of February 10, 2025. If we were to default on this indebtedness, the lender of such loan could foreclose on Equity Bank’s stock and we would lose our principal asset.
Our authorized capital stock includes 10,000,000 shares of preferred stock of which none were issued and outstanding as of March 9, 2023. Our board of directors, in its sole discretion, may designate and issue one or more series of preferred stock from the authorized and unissued shares of preferred stock.
Our authorized capital stock includes 10,000,000 shares of preferred stock of which none were issued and outstanding as of March 7, 2024. Our board of directors, in its sole discretion, may designate and issue one or more series of preferred stock from the authorized and unissued shares of preferred stock.
We subject to the reporting requirements of the Exchange Act, which requires that we file annual, quarterly and current reports with respect to our business and financial condition and proxy and other information statements, and the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act, the PCAOB and the NASDAQ Stock Market LLC, each of which imposes additional reporting and other obligations on public companies.
We subject to the reporting requirements of the Exchange Act, which requires that we file annual, quarterly and current reports with respect to our business and financial condition and proxy and other information statements, and the rules and 41 regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act, the PCAOB and the New York Stock Exchange, each of which imposes additional reporting and other obligations on public companies.
The foregoing factors should not be construed as exhaustive. This summary of risk factors should be read in conjunction with the more detailed risk factors below. 24 Economic Risks Recessionary conditions could result in increases in our level of nonperforming loans and/or reduced demand for our products and services, which could have an adverse effect on our results of operations.
This summary of risk factors should be read in conjunction with the more detailed risk factors below. Economic Risks Recessionary conditions could result in increases in our level of nonperforming loans and/or reduced demand for our products and services, which could have an adverse effect on our results of operations.
A successful penetration or circumvention of system security could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third parties’ computers or systems, and could expose us to additional regulatory scrutiny and result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition. 36 We are dependent upon outside third parties for the processing and handling of our records and data.
A successful penetration or circumvention of system security could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third parties’ computers or systems, and could expose us to additional regulatory scrutiny and result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition.
Risks Relating to the Company’s Common Stock The market price of our Class A common stock may be subject to substantial fluctuations which may make it difficult for you to sell your shares at the volumes, prices and times desired.
We may incur compliance, operating, maintenance and remediation costs. Risks Relating to the Company’s Common Stock The market price of our Class A common stock may be subject to substantial fluctuations which may make it difficult for you to sell your shares at the volumes, prices and times desired.
If we are able to identify attractive acquisition opportunities, we must generally satisfy a number of conditions prior to completing any such transaction, including certain bank regulatory approval, which has become substantially more difficult, time-consuming and unpredictable as a result of the recent financial crisis.
If we are able to identify attractive acquisition opportunities, we must generally satisfy a number of conditions prior to completing any such transaction, including certain bank regulatory approval, which has become substantially more difficult, time-consuming and unpredictable as a result of the recent financial crisis. Additionally, any future acquisitions may not produce the revenue, earnings or synergies that we anticipated.
Although our Class A common stock is listed for trading on the Nasdaq Global Select Market, the trading volume in our common stock is less than that of other, larger financial services companies.
Although our Class A common stock is listed for trading on the New York Stock Exchange, the trading volume in our common stock is less than that of other, larger financial services companies.
Accordingly, we are subject to mark-to-market risk and the application of fair value accounting may cause our earnings and AOCI to be more volatile than would be suggested by our underlying performance. We may be adversely impacted by the transition from LIBOR as a reference rate.
Accordingly, we are subject to mark-to-market risk and the application of fair value accounting may cause our earnings and AOCI to be more volatile than would be suggested by our underlying performance.
Our ability to fund our lending and investing activities at a reasonable cost depends on our ability to maintain adequate deposit levels at an economically competitive cost structure.
Our future profitability levels are dependent on our ability to grow and maintain deposits at competitive costs. Our ability to fund our lending and investing activities at a reasonable cost depends on our ability to maintain adequate deposit levels at an economically competitive cost structure.
Many factors can lead to a finding of acting in concert, including where: (i) the stockholders are commonly controlled or managed; (ii) the stockholders are parties to an oral or written agreement or understanding regarding the acquisition, voting or transfer of control of voting securities of a bank or bank holding company; (iii) the stockholders are immediate family members; or (iv) both a stockholder and a controlling stockholder, partner, trustee or management official of such stockholder own equity in the bank or bank holding company. 40 We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
Many factors can lead to a finding of acting in concert, including where: (i) the stockholders are commonly controlled or managed; (ii) the stockholders are parties to an oral or written agreement or understanding regarding the acquisition, voting or transfer of control of voting securities of a bank or bank holding company; (iii) the stockholders are immediate family members; or (iv) both a stockholder and a controlling stockholder, partner, trustee or management official of such stockholder own equity in the bank or bank holding company.
Additionally, any future acquisitions may not produce the revenue, earnings or synergies that we anticipated. 29 Our strategy of pursuing acquisitions exposes us to financial, execution, compliance and operational risks that could have a material adverse effect on our business, financial condition, results of operations and growth prospects. We intend to continue pursuing a strategy that includes acquisitions.
Our strategy of pursuing acquisitions exposes us to financial, execution, compliance and operational risks that could have a material adverse effect on our business, financial condition, results of operations and growth prospects. We intend to continue pursuing a strategy that includes acquisitions.
As a community banking institution, we have lower lending limits and different lending risks than certain of our larger, more diversified competitors. We are a community banking institution that provides banking services to the local communities in the market areas in which we operate. Our ability to diversify our economic risks is limited by our own local markets and economies.
We are a community banking institution that provides banking services to the local communities in the market areas in which we operate. Our ability to diversify our economic risks is limited by our own local markets and economies.
Acquisitions of financial institutions and branches also involve operational risks and uncertainties, such as unknown or contingent liabilities with no available manner of recourse, exposure to unexpected problems such as asset quality, the retention of key employees and customers and other issues that could negatively affect our business.
To the extent that we are unable to find suitable acquisition targets, an important component of our growth strategy may not be realized. 28 Acquisitions of financial institutions and branches also involve operational risks and uncertainties, such as unknown or contingent liabilities with no available manner of recourse, exposure to unexpected problems such as asset quality, the retention of key employees and customers and other issues that could negatively affect our business.
As of December 31, 2022, our ten largest non-brokered depositors accounted for $301.0 million in deposits, or approximately 7.1% of our total deposits. Further, our non-brokered deposit account balance was $4.0 billion, or approximately 92.9% of our total deposits, as of December 31, 2022.
As of December 31, 2023, our ten largest non-brokered depositors accounted for $270.6 million in deposits, or approximately 6.5% of our total deposits. Further, our non-brokered deposit account balance was $3.8 billion, or approximately 92.4% of our total deposits, as of December 31, 2023.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that enhance customer convenience and create additional efficiencies in operations.
In addition to enhancing the level of service provided to customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that enhance customer convenience and create additional efficiencies in operations.
As of December 31, 2022, our ten largest loan relationships totaled over $367.2 million in loan exposure, or 11.1% of the total loan portfolio.
As of December 31, 2023, our ten largest loan relationships totaled over $344.7 million in loan exposure, or 10.4% of the total loan portfolio.
In addition, increased competition may also drive up the acquisition consideration that we will be required to pay in order to successfully capitalize on attractive acquisition opportunities. To the extent that we are unable to find suitable acquisition targets, an important component of our growth strategy may not be realized.
In addition, increased competition may also drive up the acquisition consideration that we will be required to pay in order to successfully capitalize on attractive acquisition opportunities.
We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources.
We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources. Consequently, the occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition and future prospects.
Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations. We continually encounter technological change and may have fewer resources than our competitors to continue to invest in technological improvements.
Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations. We may be the subject of litigation, which would result in legal liability and damage to its business and reputation.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price.
Risks Relating to the Regulation of Our Industry We are subject to extensive regulation in the conduct of our business, which imposes additional costs on us and adversely affects our profitability. As a bank holding company, we are subject to federal regulation under the BHC Act, and the examination and reporting requirements of the Federal Reserve.
As a bank holding company, we are subject to federal regulation under the BHC Act, and the examination and reporting requirements of the Federal Reserve.
Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG related compliance costs could result in increases to our overall operational costs.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights.
We rely on software developed by third-party vendors to process various transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf. These systems include, but are not limited to, general ledger, payroll, employee benefits, loan and deposit processing and securities portfolio accounting.
We are dependent upon outside third parties for the processing and handling of our records and data. We rely on software developed by third-party vendors to process various transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf.
Our financial projections are based upon numerous assumptions about future events and our actual financial performance may differ materially from our projections if our assumptions are inaccurate.
We may try to serve such borrowers by selling loan participations to other financial institutions; however, this strategy may not succeed. 32 Our financial projections are based upon numerous assumptions about future events and our actual financial performance may differ materially from our projections if our assumptions are inaccurate.
If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for potential losses, our liquidity, results of operations and financial condition may be adversely affected.
If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for potential losses, our liquidity, results of operations and financial condition may be adversely affected. 36 Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
These lower lending limits may discourage borrowers with lending needs that exceed our limits from doing business with us. We may try to serve such borrowers by selling loan participations to other financial institutions; however, this strategy may not succeed.
These lower lending limits may discourage borrowers with lending needs that exceed our limits from doing business with us.
In addition, we may fail to realize some or all of the anticipated benefits of completed acquisitions.
In addition, we may fail to realize some or all of the anticipated benefits of completed acquisitions. We anticipate that the integration of businesses that we may acquire in the future will be a time-consuming and expensive process, even if the integration process is effectively planned and implemented.
The banking and financial services industries are undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to enhancing the level of service provided to customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs.
We continually encounter technological change and may have fewer resources than our competitors to continue to invest in technological improvements. The banking and financial services industries are undergoing rapid technological changes with frequent introductions of new technology-driven products and services.
Removed
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate LIBOR. The publishers of LIBOR have stated that the rates used by the Company will cease to be published as of June 30, 2023.
Added
Our financial flexibility would be severely constrained if we were unable to maintain our access to funding or if adequate financing were not available at acceptable interest rates. Further, if we were required to rely more heavily on more expensive funding sources to support liquidity, our revenues may not increase proportionately to cover our increased costs.
Removed
We occasionally have loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The language in our contracts and financial instruments that define and use LIBOR have developed over time and have various events that trigger when a successor rate to the designated rate would be selected.
Added
In this case, our operating margins and profitability would be adversely affected, If alternative funding sources were no longer available to us, we may need to sell a portion of our investment and/or loan portfolio to raise funds, which, depending upon market conditions, could result in us realizing a loss on the sale of such assets.
Removed
If a trigger is satisfied, contracts and financial instruments often give the calculation agent (which may be us) discretion over the successor rate or benchmark to be selected. 28 Per the Adjustable Interest Rate (LIBOR) Act ("LIBOR Act"), the Federal Reserve was given the discretion to address the implementation, administration and calculation of the selected benchmark replacement in LIBOR contracts and included certain safe harbor provision to prevent litigation and ensure the continuity of contracts post-transition.
Added
As of December 31, 2023, we had a net unrealized loss of $51.9 million on our available for-sale investment securities portfolio primarily as a result of the rising interest rate environment. As a community banking institution, we have lower lending limits and different lending risks than certain of our larger, more diversified competitors.
Removed
The Federal Reserve issued the final rule implementing the LIBOR Act on December 16, 2022, which provided the safe harbor SOFR-based benchmark replacement indexes. The transition from LIBOR could create additional costs and additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR.
Added
From time to time, we may be subject to claims or legal action from customers, employees or others. Financial institutions like the Company are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees.
Removed
The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
Added
Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. The Company is also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding its businesses. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief.
Removed
Consequently, the occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition and future prospects. 32 Our future profitability levels are dependent on our ability to grow and maintain deposits at competitive costs.
Added
Like other financial institutions, we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against us could materially adversely affect its business, financial condition or results of operations and/or cause significant reputational harm to its business.
Removed
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.
Added
These systems include, but are not limited to, general ledger, payroll, employee benefits, loan and deposit processing and securities portfolio accounting.
Added
New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Risks Relating to the Regulation of Our Industry We are subject to extensive regulation in the conduct of our business, which imposes additional costs on us and adversely affects our profitability.
Added
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
Added
Negative developments affecting the banking industry, and resulting media coverage in 2023 eroded customer confidence in the banking system. The high-profile bank failures in 2023 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.
Added
These market developments 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.
Added
While the Department of the Treasury, the Federal Reserve, and the FDIC made statements ensuring that depositors of these 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.
Added
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAddress Owned/Leased Principal Executive Office and Wichita Branch: 7701 East Kellogg Drive Wichita, Kansas 67207 Owned Branches as of December 31, 2022 Owned 56 Leased (1) 7 (1) Included in this category is one branch in which the building is owned but the land is on a long-term lease expiring in January 2030.
Biggest changeAddress Owned/Leased Principal Executive Office and Wichita Branch: 7701 East Kellogg Drive Wichita, Kansas 67207 Owned Branches as of December 31, 2023 Owned 57 Leased (1) 7 49 (1) Included in this category is one branch in which the building is owned but the land is on a long-term lease expiring in January 2030.
Including our principal executive offices, as of December 31, 2022, we operated a total of 64 branches, consisting of seven branches in the Wichita, Kansas metropolitan area, seven branches in the Kansas City metropolitan area, two branches in Topeka, Kansas, eleven branches in Western Missouri, seven branches in Western Kansas, four branches in Southeast Kansas, seven branches in Southwest Kansas, five branches in Central Kansas, two branches in North Central Kansas, five branches in Northern Arkansas, one branch in the Tulsa, Oklahoma metropolitan area, four branches in Northern Oklahoma and two branches in Western Oklahoma.
Including our principal executive offices, as of December 31, 2023, we operated a total of 64 branches, consisting of seven branches in the Wichita, Kansas metropolitan area, seven branches in the Kansas City metropolitan area, two branches in Topeka, Kansas, eleven branches in Western Missouri, seven branches in Western Kansas, four branches in Southeast Kansas, seven branches in Southwest Kansas, five branches in Central Kansas, two branches in North Central Kansas, five branches in Northern Arkansas, one branch in the Tulsa, Oklahoma metropolitan area, four branches in Northern Oklahoma and two branches in Western Oklahoma.
Most of Equity Bank’s branches are equipped with automated teller machines and drive-through facilities. We believe all of our facilities are suitable for our operational needs. The following table summarizes pertinent details of our principal executive offices and branches, as of December 31, 2022.
Most of Equity Bank’s branches are equipped with automated teller machines and drive-through facilities. We believe all of our facilities are suitable for our operational needs. The following table summarizes pertinent details of our principal executive offices and branches, as of December 31, 2023.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3: Legal Proceedings From time to time we are party to various litigation matters incidental to the conduct of our business. See “NOTE 23 – LEGAL MATTERS” of the Notes to Consolidated Financial Statements under Item 8 to this Annual Report on Form 10-K for a complete discussion of litigation matters.
Biggest changeItem 3: Legal Proceedings From time to time we are party to various litigation matters incidental to the conduct of our business. See “NOTE 21 – LEGAL MATTERS” of the Notes to Consolidated Financial Statements under Item 8 to this Annual Report on Form 10-K for a complete discussion of litigation matters.
Item 4: Mine Saf ety Disclosures Not applicable. 49 Part II
Item 4: Mine Saf ety Disclosures Not applicable. 50 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

36 edited+12 added−15 removed49 unchanged
Biggest changeAverage Balance Sheets and Net Interest Analysis December 31, 2022 December 31, 2021 December 31, 2020 (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) Average Outstanding Balance Interest Income/ Expense Average Yield/ Rate (3)(4) Interest-earning assets Loans (1) Commercial and industrial $ 583,295 $ 32,258 5.53 % $ 714,561 $ 41,580 5.82 % $ 763,971 $ 35,601 4.66 % Commercial real estate 1,259,257 65,122 5.17 % 1,040,443 48,676 4.68 % 952,082 50,667 5.32 % Real estate construction 363,902 18,269 5.02 % 277,307 10,256 3.70 % 238,015 10,947 4.60 % Residential real estate 597,196 22,004 3.68 % 498,164 19,341 3.88 % 449,789 19,894 4.42 % Agricultural real estate 201,295 11,399 5.66 % 153,607 8,122 5.29 % 133,813 8,008 5.98 % Agricultural 125,342 6,697 5.34 % 108,276 5,361 4.95 % 88,206 4,944 5.61 % Consumer 102,185 5,110 5.00 % 88,383 3,998 4.52 % 70,064 4,603 6.57 % Total loans 3,232,472 160,859 4.98 % 2,880,741 137,334 4.77 % 2,695,940 134,664 5.00 % Taxable securities 1,185,750 22,713 1.92 % 976,942 15,996 1.64 % 727,451 15,521 2.13 % Nontaxable securities 106,955 2,698 2.52 % 105,522 2,843 2.69 % 122,783 3,682 3.00 % Federal funds sold and other 107,278 1,978 1.84 % 182,443 1,195 0.65 % 112,053 1,694 1.51 % Total interest-earning assets 4,632,455 188,248 4.06 % 4,145,648 157,368 3.80 % 3,658,227 155,561 4.25 % Non-interest-earning assets Other real estate owned, net 10,144 10,510 7,578 Premises and equipment, net 102,165 93,539 86,487 Bank-owned life insurance 121,741 103,255 75,998 Goodwill and other intangibles, net 67,747 50,831 130,329 Other non-interest-earning assets 88,860 28,017 41,089 Total assets $ 5,023,112 $ 4,431,800 $ 3,999,708 Interest-bearing liabilities Interest-bearing demand deposits $ 1,124,828 7,248 0.64 % $ 1,032,938 2,165 0.21 % $ 805,651 3,157 0.39 % Savings and money market 1,308,536 3,549 0.27 % 1,129,869 1,540 0.14 % 989,457 2,736 0.28 % Savings, NOW and money market 2,433,364 10,797 0.44 % 2,162,807 3,705 0.17 % 1,795,108 5,893 0.33 % Certificates of deposit 663,790 5,524 0.83 % 625,562 4,550 0.73 % 704,921 10,689 1.52 % Total interest-bearing deposits 3,097,154 16,321 0.53 % 2,788,369 8,255 0.30 % 2,500,029 16,582 0.66 % FHLB term and line of credit advances 79,775 2,094 2.63 % 16,797 169 1.01 % 213,155 2,292 1.08 % Federal Reserve Bank discount window 3 — 0.25 % 3 — 0.25 % 2,462 6 0.24 % Bank stock loan — — — % — — — % 12,061 415 3.44 % Subordinated borrowings 96,133 6,771 7.04 % 89,785 6,261 6.97 % 49,500 3,509 7.09 % Other borrowings 55,036 232 0.42 % 45,819 104 0.23 % 45,041 105 0.23 % Total interest-bearing liabilities 3,328,101 25,418 0.76 % 2,940,773 14,789 0.50 % 2,822,248 22,909 0.81 % Non-interest-bearing liabilities and stockholders’ equity Non-interest-bearing checking accounts 1,203,167 1,021,261 678,713 Non-interest-bearing liabilities 50,962 22,971 34,139 Stockholders’ equity 440,882 446,795 464,608 Total liabilities and stockholders’ equity $ 5,023,112 $ 4,431,800 $ 3,999,708 Net interest income $ 162,830 $ 142,579 $ 132,652 Interest rate spread 3.30 % 3.30 % 3.44 % Net interest margin (2) 3.51 % 3.44 % 3.63 % Total cost of deposits, including non-interest bearing deposits $ 4,300,321 $ 16,321 0.38 % $ 3,809,630 $ 8,255 0.22 % $ 3,178,742 $ 16,582 0.52 % Average interest-earning assets to interest-bearing liabilities 139.19 % 140.97 % 129.62 % (1) Average loan balances include nonaccrual loans, hedge fair value adjustments and merger fair value adjustments.
Biggest changeAverage Balance Sheets and Net Interest Analysis December 31, 2023 December 31, 2022 December 31, 2021 (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) Average Outstanding Balance Interest Income/ Expense Average Yield/ Rate (3)(4) Interest-earning assets Loans (1) Commercial and industrial $ 580,451 $ 42,901 7.39 % $ 583,295 $ 32,258 5.53 % $ 714,561 $ 41,580 5.82 % Commercial real estate 1,302,568 83,441 6.41 % 1,259,257 65,122 5.17 % 1,040,443 48,676 4.68 % Real estate construction 447,516 33,764 7.54 % 363,902 18,269 5.02 % 277,307 10,256 3.70 % Residential real estate 565,711 23,799 4.21 % 597,196 22,004 3.68 % 498,164 19,341 3.88 % Agricultural real estate 201,326 13,820 6.86 % 201,295 11,399 5.66 % 153,607 8,122 5.29 % Agricultural 100,394 6,966 6.94 % 125,342 6,697 5.34 % 108,276 5,361 4.95 % Consumer 106,542 6,522 6.12 % 102,185 5,110 5.00 % 88,383 3,998 4.52 % Total loans 3,304,508 211,213 6.39 % 3,232,472 160,859 4.98 % 2,880,741 137,334 4.77 % Taxable securities 1,027,726 23,873 2.32 % 1,185,750 22,713 1.92 % 976,942 15,996 1.64 % Nontaxable securities 74,917 1,960 2.62 % 106,955 2,698 2.52 % 105,522 2,843 2.69 % Federal funds sold and other 193,941 9,666 4.98 % 107,298 1,978 1.84 % 182,443 1,195 0.65 % Total interest-earning assets 4,601,092 246,712 5.36 % 4,632,475 188,248 4.06 % 4,145,648 157,368 3.80 % Non-interest-earning assets Other real estate owned, net 3,991 10,144 10,510 Premises and equipment, net 107,297 102,165 93,539 Bank-owned life insurance 123,665 121,741 103,255 Goodwill and other intangibles, net 63,064 67,747 50,831 Other non-interest-earning assets 100,296 88,840 28,017 Total assets $ 4,999,405 $ 5,023,112 $ 4,431,800 Interest-bearing liabilities Interest-bearing demand deposits $ 1,002,543 22,681 2.26 % $ 1,124,828 7,248 0.64 % $ 1,032,938 2,165 0.21 % Savings and money market 1,359,822 23,525 1.73 % 1,308,536 3,549 0.27 % 1,129,869 1,540 0.14 % Demand savings and money market 2,362,365 46,206 1.96 % 2,433,364 10,797 0.44 % 2,162,807 3,705 0.17 % Certificates of deposit 827,652 24,267 2.93 % 663,790 5,524 0.83 % 625,562 4,550 0.73 % Total interest-bearing deposits 3,190,017 70,473 2.21 % 3,097,154 16,321 0.53 % 2,788,369 8,255 0.30 % FHLB term and line of credit advances 98,380 3,944 4.01 % 79,775 2,094 2.63 % 16,797 169 1.01 % Federal Reserve Bank discount window 108,551 4,755 4.38 % 3 — 0.25 % 3 — 0.25 % Subordinated borrowings 96,651 7,591 7.85 % 96,133 6,771 7.04 % 89,785 6,261 6.97 % Other borrowings 49,464 931 1.88 % 55,036 232 0.42 % 45,819 104 0.23 % Total interest-bearing liabilities 3,543,063 87,694 2.48 % 3,328,101 25,418 0.76 % 2,940,773 14,789 0.50 % Non-interest-bearing liabilities and stockholders’ equity Non-interest-bearing checking accounts 979,410 1,203,167 1,021,261 Non-interest-bearing liabilities 53,210 50,962 22,971 Stockholders’ equity 423,722 440,882 446,795 Total liabilities and stockholders’ equity $ 4,999,405 $ 5,023,112 $ 4,431,800 Net interest income $ 159,018 $ 162,830 $ 142,579 Interest rate spread 2.88 % 3.30 % 3.30 % Net interest margin (2) 3.46 % 3.51 % 3.44 % Total cost of deposits, including non-interest bearing deposits $ 4,169,427 $ 70,473 1.69 % $ 4,300,321 $ 16,321 0.38 % $ 3,809,630 $ 8,255 0.22 % Average interest-earning assets to interest-bearing liabilities 129.86 % 139.19 % 140.97 % (1) Average loan balances include nonaccrual loans, hedge fair value adjustments and merger fair value adjustments.
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 December 31, 2022. Likewise, an improvement in loan quality or economic conditions may allow for a further reduction in the required allowance.
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 December 31, 2023. Likewise, an improvement in loan quality or economic conditions may allow for a further reduction in the required allowance.
For information comparing our results of operations for the year ended December 31, 2021, to year ended December 31, 2020, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on March 9, 2022.
For information comparing our results of operations for the year ended December 31, 2022, to year ended December 31, 2021, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on March 9, 2023.
Please see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for reconciliation to the most directly comparable GAAP measure. 56 Overview We are a financial holding company headquartered in Wichita, Kansas.
Please see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for reconciliation to the most directly comparable GAAP measure. 57 Overview 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 branches located in Arkansas, Kansas, Missouri and Oklahoma.
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 64 full-service branches located in Arkansas, Kansas, Missouri and Oklahoma.
Dividend Policy Our future determination to pay dividends on our common stock will be made by our board of directors and will depend on a number of factors, including: • our historical and projected financial condition, liquidity and results of operations; • our capital levels and requirements; • statutory and regulatory prohibitions and other limitations; • any contractual restriction on our ability to pay cash dividends, including pursuant to the terms of any of our credit agreements or other borrowing arrangements; • our business strategy; • tax considerations; • any acquisitions or potential acquisitions that we may examine; • general economic conditions; and • other factors deemed relevant by our board of directors.
Dividend Policy Our future determination to pay dividends on our common stock will be made by our board of directors and will depend on a number of factors, including: • our historical and projected financial condition, liquidity and results of operations; • our capital levels and requirements; • statutory and regulatory prohibitions and other limitations; • any contractual restriction on our ability to pay cash dividends, including pursuant to the terms of any of our credit agreements or other borrowing arrangements; the Company expects to pay dividends at similar levels in the future; • our business strategy; • tax considerations; • any acquisitions or potential acquisitions that we may examine; • general economic conditions; and • other factors deemed relevant by our board of directors.
(2) Net interest margin is calculated by dividing net interest income by average interest-earning 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.
(2) Net interest margin is calculated by dividing net interest income by average interest-earning assets for the period. (3) Tax exempt income is not included in the above table on a tax equivalent basis. (4) Actual un-rounded values are used to calculate the reported yield or rate disclosed.
Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change,” and it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “yield/rate change.” The following table shows the average balance of each principal category of assets, liabilities, and stockholders’ equity and the average yields on interest-earning assets and average rates on interest-bearing liabilities for the years ended December 31, 2022, 2021, 59 and 2020.
Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume change,” and it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “yield/rate change.” The following table shows the average balance of each principal category of assets, liabilities, and stockholders’ equity and the average yields on interest-earning assets and average rates on interest-bearing liabilities for the years ended December 31, 2023, 2022, 60 and 2021.
Net income for the year ended December 31, 2022, was $57.7 million, compared to net income of $52.5 million for the year ended December 31, 2021. History and Background From 2003 through 2022, we completed a series of twenty acquisitions, two charter consolidations and two branch dispositions.
Net income for the year ended December 31, 2023, was $7.8 million, compared to net income of $57.7 million for the year ended December 31, 2022. History and Background From 2003 through 2023, we completed a series of twenty acquisitions, two charter consolidations and two branch dispositions.
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; • Critical Accounting Policies – a discussion of accounting policies that require critical estimates and assumptions; • Results of Operations – an analysis of our operating results, including disclosures about the sustainability of our earnings; • Financial Condition – an analysis of our financial position; • Liquidity and Capital Resources – an analysis of our cash flows and capital position; and • Non-GAAP Financial Measures – reconciliation of non-GAAP measures. 55 Years Ended December 31, (Dollars in thousands, except per share data) 2022 2021 2020 2019 2018 Statement of Income Data Interest and dividend income $ 188,248 $ 157,368 $ 155,561 $ 175,499 $ 161,556 Interest expense 25,418 14,789 22,909 49,641 36,758 Net interest income 162,830 142,579 132,652 125,858 124,798 Provision (reversal) for credit losses 125 (8,480 ) 24,255 18,354 3,961 Net gain on acquisition 962 585 2,145 — — Net gain (loss) from securities transactions 5 406 11 14 (9 ) Other non-interest income 34,990 31,851 23,867 24,974 19,734 Merger expense 594 9,189 299 915 7,462 Goodwill impairment — — 104,831 — — Loss on extinguishment of debt — 372 — — — Other non-interest expense 127,786 109,904 103,860 98,720 86,925 Income (loss) before income taxes 70,282 64,436 (74,570 ) 32,857 46,175 Provision for income taxes 12,594 11,956 400 7,278 10,350 Net income (loss) 57,688 52,480 (74,970 ) 25,579 35,825 Net income (loss) allocable to common stockholders 57,688 52,480 (74,970 ) 25,579 35,825 Basic earnings (loss) per share 3.56 3.49 (4.97 ) 1.64 2.33 Diluted earnings (loss) per share 3.51 3.43 (4.97 ) 1.61 2.28 Balance Sheet Data (at period end) Cash and cash equivalents $ 104,428 $ 259,954 $ 280,698 $ 89,291 $ 192,818 Securities available-for-sale 1,184,390 1,327,442 871,827 142,067 168,875 Securities held-to-maturity 1,948 — — 769,059 748,356 Loans held for sale 349 4,214 12,394 5,933 2,972 Gross loans held for investment 3,311,548 3,155,627 2,591,696 2,556,652 2,575,408 Allowance for credit losses 45,847 48,365 33,709 12,232 11,454 Loans held for investment, net of allowance for credit losses 3,265,701 3,107,262 2,557,987 2,544,420 2,563,954 Goodwill and core deposit intangibles, net 63,697 69,344 47,658 156,339 153,437 Mortgage servicing asset, net 176 276 — 5 11 Naming rights, net 1,044 1,087 1,130 1,174 1,217 Total assets 4,981,651 5,137,631 4,013,356 3,949,578 4,061,716 Total deposits 4,241,807 4,420,004 3,447,590 3,063,516 3,123,447 Borrowings 281,734 151,891 133,857 383,632 464,676 Total liabilities 4,571,593 4,637,000 3,605,707 3,471,518 3,605,775 Total stockholders’ equity 410,058 500,631 407,649 478,060 455,941 Tangible common equity * 345,141 429,924 358,861 320,542 301,276 Performance ratios Return on average assets (ROAA) 1.15 % 1.18 % (1.87 )% 0.64 % 1.00 % Return on average equity (ROAE) 13.08 % 11.75 % (16.14 )% 5.52 % 8.52 % Return on average tangible common equity (ROATCE) * 16.35 % 14.10 % 8.27 % 9.22 % 13.43 % Yield on loans 4.98 % 4.77 % 5.00 % 5.73 % 5.74 % Cost of interest-bearing deposits 0.53 % 0.30 % 0.66 % 1.53 % 1.15 % Net interest margin 3.51 % 3.44 % 3.63 % 3.48 % 3.81 % Efficiency ratio * 64.60 % 63.01 % 66.36 % 65.45 % 60.14 % Non-interest income / average assets 0.72 % 0.74 % 0.65 % 0.63 % 0.55 % Non-interest expense / average assets 2.56 % 2.70 % 5.23 % 2.50 % 2.62 % Dividend payout ratio 10.26 % 4.84 % 0.00 % 0.00 % 0.00 % Capital Ratios Tier 1 Leverage Ratio 9.61 % 9.09 % 9.30 % 9.02 % 8.60 % Common Equity Tier 1 Capital Ratio 12.26 % 12.03 % 12.82 % 11.63 % 10.95 % Tier 1 Risk Based Capital Ratio 12.88 % 12.67 % 13.37 % 12.15 % 11.45 % Total Risk Based Capital Ratio 16.08 % 15.96 % 17.35 % 12.59 % 11.86 % Equity / Assets 8.23 % 9.74 % 10.16 % 12.10 % 11.23 % Book value per share $ 25.74 $ 29.87 $ 28.04 $ 30.95 $ 28.87 Tangible book value per share * $ 21.67 $ 25.65 $ 24.68 $ 20.75 $ 19.08 Tangible common equity to tangible assets * 7.02 % 8.48 % 9.05 % 8.45 % 7.71 % * Indicates non-GAAP financial measure.
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; • Critical Accounting Policies – a discussion of accounting policies that require critical estimates and assumptions; • Results of Operations – an analysis of our operating results, including disclosures about the sustainability of our earnings; • Financial Condition – an analysis of our financial position; • Liquidity and Capital Resources – an analysis of our cash flows and capital position; and • Non-GAAP Financial Measures – reconciliation of non-GAAP measures. 56 Years Ended December 31, (Dollars in thousands, except per share data) 2023 2022 2021 2020 2019 Statement of Income Data Interest and dividend income $ 246,712 $ 188,248 $ 157,368 $ 155,561 $ 175,499 Interest expense 87,694 25,418 14,789 22,909 49,641 Net interest income 159,018 162,830 142,579 132,652 125,858 Provision (reversal) for credit losses 1,873 125 (8,480 ) 24,255 18,354 Net gain on acquisition - 962 585 2,145 — Net gain (loss) from securities transactions (51,909 ) 5 406 11 14 Other non-interest income 32,780 34,990 31,851 23,867 24,974 Merger expense 297 594 9,189 299 915 Goodwill impairment — — — 104,831 — Loss on extinguishment of debt — — 372 — — Other non-interest expense 135,304 127,786 109,904 103,860 98,720 Income (loss) before income taxes 2,415 70,282 64,436 (74,570 ) 32,857 Provision for income taxes (5,406 ) 12,594 11,956 400 7,278 Net income (loss) 7,821 57,688 52,480 (74,970 ) 25,579 Net income (loss) allocable to common stockholders 7,821 57,688 52,480 (74,970 ) 25,579 Basic earnings (loss) per share 0.50 3.56 3.49 (4.97 ) 1.64 Diluted earnings (loss) per share 0.50 3.51 3.43 (4.97 ) 1.61 Balance Sheet Data (at period end) Cash and cash equivalents $ 379,099 $ 104,428 $ 259,954 $ 280,698 $ 89,291 Securities available-for-sale 919,648 1,184,390 1,327,442 871,827 142,067 Securities held-to-maturity 2,209 1,948 — — 769,059 Loans held for sale 476 349 4,214 12,394 5,933 Gross loans held for investment 3,332,901 3,311,548 3,155,627 2,591,696 2,556,652 Allowance for credit losses 43,520 45,847 48,365 33,709 12,232 Loans held for investment, net of allowance for credit losses 3,289,381 3,265,701 3,107,262 2,557,987 2,544,420 Goodwill and core deposit intangibles, net 60,323 63,697 69,344 47,658 156,339 Mortgage servicing asset, net 75 176 276 — 5 Naming rights, net 1,000 1,044 1,087 1,130 1,174 Total assets 5,034,592 4,981,651 5,137,631 4,013,356 3,949,578 Total deposits 4,145,455 4,241,807 4,420,004 3,447,590 3,063,516 Borrowings 380,503 281,734 151,891 133,857 383,632 Total liabilities 4,581,732 4,571,593 4,637,000 3,605,707 3,471,518 Total stockholders’ equity 452,860 410,058 500,631 407,649 478,060 Tangible common equity * 391,462 345,141 429,924 358,861 320,542 Performance ratios Return on average assets (ROAA) 0.16 % 1.15 % 1.18 % (1.87 )% 0.64 % Return on average equity (ROAE) 1.85 % 13.08 % 11.75 % (16.14 )% 5.52 % Return on average tangible common equity (ROATCE) * 2.94 % 16.35 % 14.10 % 8.27 % 9.22 % Yield on loans 6.39 % 4.98 % 4.77 % 5.00 % 5.73 % Cost of interest-bearing deposits 2.21 % 0.53 % 0.30 % 0.66 % 1.53 % Net interest margin 3.46 % 3.51 % 3.44 % 3.63 % 3.48 % Efficiency ratio * 70.55 % 64.60 % 63.01 % 66.36 % 65.45 % Non-interest income / average assets -0.38 % 0.72 % 0.74 % 0.65 % 0.63 % Non-interest expense / average assets 2.71 % 2.56 % 2.70 % 5.23 % 2.50 % Dividend payout ratio 88.35 % 10.26 % 4.84 % 0.00 % 0.00 % Capital Ratios Tier 1 Leverage Ratio 9.46 % 9.61 % 9.09 % 9.30 % 9.02 % Common Equity Tier 1 Capital Ratio 11.74 % 12.26 % 12.03 % 12.82 % 11.63 % Tier 1 Risk Based Capital Ratio 12.36 % 12.88 % 12.67 % 13.37 % 12.15 % Total Risk Based Capital Ratio 15.48 % 16.08 % 15.96 % 17.35 % 12.59 % Equity / Assets 8.99 % 8.23 % 9.74 % 10.16 % 12.10 % Book value per share $ 29.35 $ 25.74 $ 29.87 $ 28.04 $ 30.95 Tangible book value per share * $ 25.37 $ 21.67 $ 25.65 $ 24.68 $ 20.75 Tangible common equity to tangible assets * 7.87 % 7.02 % 8.48 % 9.05 % 8.45 % * Indicates non-GAAP financial measure.
Item 5: Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Market Information and Common Equity Holders Our common stock is listed on the NASDAQ Global Select Markets under the symbol “EQBK”.
Item 5: Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Market Information and Common Equity Holders Our common stock is listed on the New York Stock Exchange under the symbol “EQBK”.
Recent Sales of Unregistered Equity Securities None Purchases of Equity Securities by the Issuer and Affiliated Purchasers Repurchase of Common Stock On September 16, 2022, the Federal Reserve Bank of Kansas City advised the Company that it had no objection to the Company’s authorization of its repurchase of up to an additional 1,000,000 shares of the Company’s Class A Voting common stock, par value $0.01 per share, from time to time, beginning October 1, 2022, and concluding September 30, 2023. 52 On October 20, 2021, the Federal Reserve Bank of Kansas City advised the Company that it had no objection to the Company’s authorization of its repurchase of up to an additional 1,000,000 shares of the Company’s Class A Voting common stock, par value $0.01 per share, from time to time, beginning October 30, 2021, and concluding October 29, 2022.
Recent Sales of Unregistered Equity Securities None Purchases of Equity Securities by the Issuer and Affiliated Purchasers Repurchase of Common Stock On September 27, 2023, the Federal Reserve Bank of Kansas City advised the Company that it had no objection to the Company’s authorization of its repurchase of up to an additional 1,000,000 shares of the Company’s Class A Voting common stock, par value $0.01 per share, from time to time, beginning October 1, 2023, and concluding September 30, 2024. 53 The following table presents shares that were repurchased under the repurchase program during the fourth quarter of 2023.
Year ended December 31, 2022, compared with year ended December 31, 2021 There was a $125 thousand provision for credit losses for the year ended December 31, 2022, compared to a reversal of provision for credit losses of $8.5 million for the year ended December 31, 2021.
Year ended December 31, 2023, compared with year ended December 31, 2022 There was a $1.9 million provision for credit losses for the year ended December 31, 2023, compared to a provision for credit losses of $125 thousand for the year ended December 31, 2022.
At February 28, 2023, there were 15,798,252 shares of our Class A common stock, outstanding and 265 stockholders of record for the Company’s Class A common stock. At February 28, 2023, no shares of our Class B common stock were outstanding.
At February 29, 2024, there were 15,437,891 shares of our Class A common stock, outstanding and 241 stockholders of record for the Company’s Class A common stock. At February 29, 2024, no shares of our Class B common stock were outstanding.
Year ended December 31, 2022, compared with year ended December 31, 2021 The increase in net interest income before the provision for credit losses is primarily due to the increase in the volume of interest-earnings assets and a 26 basis point increase in average rates of interest-earning assets, partially offset by a 26 basis point increase in yields on interest bearing liabilities.
Year ended December 31, 2023, compared with year ended December 31, 2022 The decrease in net interest income is primarily due to a 172 basis point increase in average rates of interest bearing liabilities offset by a 130 basis point increase in yields on interest-earning assets.
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.
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.
As of December 31, 2022, we had, on a consolidated basis, total assets of $4.98 billion, total deposits of $4.24 billion, total loans held for investment, net of allowances, of $3.27 billion and total stockholders’ equity of $410.1 million.
As of December 31, 2023, we had, on a consolidated basis, total assets of $5.03 billion, total deposits of $4.15 billion, total loans held for investment, net of allowances, of $3.29 billion and total stockholders’ equity of $452.9 million.
Net Income Year ended December 31, 2022, compared with year ended December 31, 2021 For the year ended December 31, 2022, there was net income allocable to common stockholders of $57.7 million, compared to a net income allocable to common stockholders of $52.5 million for the year ended December 31, 2021, an increase of $5.2 million.
Net Income Year ended December 31, 2023, compared with year ended December 31, 2022 For the year ended December 31, 2023, there was net income allocable to common stockholders of $7.8 million, compared to net income allocable to common stockholders of $57.7 million for the year ended December 31, 2022, a decrease of $49.9 million.
Goodwill is the only intangible asset with an indefinite useful life. For the year ended December 31, 2022, management performed a qualitative analysis and has determined that there was not evidence of a triggering event during the period then ended.
For the year ended December 59 31, 2023, management performed a qualitative analysis and has determined that there was not evidence of a triggering event during the period then ended.
Plan beginning October 1, 2022 to September 30, 2023 Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Repurchase Plan Maximum Number of Shares That May Yet Be Purchased Under the Plan (1) October 1, 2022 through October 31, 2022 110,064 $ 32.05 110,064 889,936 November 1, 2022 through November 30, 2022 17,558 35.99 17,558 872,378 December 1, 2022 through December 31, 2022 36,105 35.94 36,105 836,273 Total 163,727 $ 33.33 163,727 836,273 (1)Represents shares that may be repurchased under the 2022 repurchase plan 53 Item 6 : Reserved 54 Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations .
Plan beginning October 1, 2023, to September 30, 2024 Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Repurchase Plan Maximum Number of Shares That May Yet Be Purchased Under the Plan (1) October 1, 2023 through October 31, 2023 — $ — — 1,000,000 November 1, 2023 through November 30, 2023 — — — 1,000,000 December 1, 2023 through December 31, 2023 — — — 1,000,000 Total - $ - - 1,000,000 (1)Represents shares that may be repurchased under the 2023 repurchase plan 54 Item 6 : Reserved 55 Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations .
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. At December 31, 2022 there were 383,702 shares available under the employee stock purchase plan for future issuance .
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.
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 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.
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. 58 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.
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.
For the year ended December 31, 2022, there were pour over shares of 49,961 from our Amended and Restated 2013 Stock Incentive Plan, which are included in the available RSU balance at December 31, 2022.
There were pour over shares available in the new plan from the previous plan due to forfeiture, cancellation, and expiration after the effective date. For the year ended December 31, 2023, there were pour over shares of 420,318 from our Amended and Restated 2013 Stock Incentive Plan, which are included in the available RSU balance at December 31, 2023.
For more information, see “Item 7 – Supervision and Regulation – Banking Regulation – Standards for Safety and Soundness.” Securities Authorized for Issuance Under Equity Compensation Plans The following table presents shares of our common stock that may be issued with respect to compensation plans at December 31, 2022. 50 Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c) Equity compensation plans - stock options 379,096 $ 27.72 * Equity compensation plans - restricted stock units 337,250 — * Equity compensation plans - available 716,346 757,789 Equity compensation plans - employee stock purchase plan — — 383,702 Equity compensation plans 716,346 1,141,491 Equity compensation plans not approved by security holders — — — Total 716,346 $ 27.72 1,141,491 * All securities remaining available for future issuance were available under our 2022 Omnibus Equity Plan as of December 31, 2022. 51 On April 26, 2022, the Company's shareholders approved the Company’s 2022 Omnibus Equity Plan (the Plan) to reserve 760,000 shares for the grant of non-qualified stock options, restricted stock units, restricted stock and unrestricted stock to its employees and directors.
For more information, see “Item 7 – Supervision and Regulation – Banking Regulation – Standards for Safety and Soundness.” Securities Authorized for Issuance Under Equity Compensation Plans The following table presents shares of our common stock that may be issued with respect to compensation plans at December 31, 2023. 51 Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c) Equity compensation plans - stock options 376,446 $ 26.71 * Equity compensation plans - restricted stock awards and restricted stock units 283,375 * Equity compensation plans - available 659,821 543,912 Equity compensation plans - employee stock purchase plan — — 351,646 Equity compensation plans 659,821 895,558 Equity compensation plans not approved by security holders — — — Total 659,821 $ — 895,558 * All securities remaining available for future issuance were available under our 2022 Omnibus Equity Plan as of December 31, 2023.
Performance Graph The following performance graph compares total stockholders’ return on the Company’s common stock for the period beginning at the close of trading December 31, 2017 to December 31, 2022, with the cumulative total return of the NASDAQ Composite Index and the NASDAQ Bank Index for the same period.
At December 31, 2023, there were 351,646 shares available under the employee stock purchase plan for future issuance . 52 Performance Graph The following performance graph compares total stockholders’ return on the Company’s common stock for the period beginning at the close of trading December 31, 2018, to December 31, 2023, with the cumulative total return of the S&P 500 Index, NASDAQ Composite Index and the NASDAQ Bank Index for the same period.
The following table analyzes the change in volume variances and yield/rate variances for the year ended December 31, 2022, as compared to the year ended December 31, 2021, and the year ended December 31, 2021, as compared to the year ended December 31, 2020.
Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts. 61 The following table analyzes the change in volume variances and yield/rate variances for the year ended December 31, 2023, as compared to the year ended December 31, 2022, and the year ended December 31, 2022, as compared to the year ended December 31, 2021.
Net interest spread remained unchanged at 3.30% at December 31, 2022 and 2021 primarily due to the increase in the cost of interest-bearing liabilities keeping pace with the increase in the yield on interest-earning assets.
Net interest spread decreased from 3.30% at December 31, 2022 to 2.88% at December 31, 2023 primarily due to the increase in both the volume and cost of interest-bearing liabilities out-pacing the increase in the yield and change in volume in interest-earning assets.
Critical Accounting Policies 57 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.
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.
Analysis of Changes in Net Interest Income 2022 vs. 2021 2021 vs. 2020 Increase (Decrease) Due to: Increase (Decrease) Due to: (Dollars in thousands) Volume (1) Yield/Rate (1) Total Volume (1) Yield/Rate (1) Total Interest-earning assets Loans Commercial and industrial $ (7,340 ) $ (1,982 ) $ (9,322 ) $ (2,421 ) $ 8,400 $ 5,979 Commercial real estate 10,956 5,490 16,446 4,455 (6,446 ) (1,991 ) Real estate construction 3,736 4,277 8,013 1,645 (2,336 ) (691 ) Residential real estate 3,689 (1,026 ) 2,663 2,017 (2,570 ) (553 ) Agricultural real estate 2,667 610 3,277 1,107 (993 ) 114 Agricultural 889 447 1,336 1,038 (621 ) 417 Consumer 664 448 1,112 1,032 (1,637 ) (605 ) Total loans 15,261 8,264 23,525 8,873 (6,203 ) 2,670 Taxable securities 3,743 2,974 6,717 4,586 (4,111 ) 475 Nontaxable securities 38 (183 ) (145 ) (487 ) (352 ) (839 ) Federal funds sold and other (658 ) 1,441 783 748 (1,247 ) (499 ) Total interest-earning assets $ 18,384 $ 12,496 $ 30,880 $ 13,720 $ (11,913 ) $ 1,807 Interest-bearing liabilities Savings, NOW and money market $ 486 $ 6,606 $ 7,092 $ 1,079 $ (3,267 ) $ (2,188 ) Certificates of deposit 290 684 974 (1,092 ) (5,047 ) (6,139 ) Total interest-bearing deposits 776 7,290 8,066 (13 ) (8,314 ) (8,327 ) FHLB term and line of credit advances 1,348 577 1,925 (1,989 ) (134 ) (2,123 ) Federal Reserve Bank discount window — — — (6 ) — (6 ) Bank stock loan — — — (415 ) — (415 ) Subordinated borrowings 446 64 510 2,810 (58 ) 2,752 Other borrowings 25 103 128 1 (2 ) (1 ) Total interest-bearing liabilities 2,595 8,034 10,629 388 (8,508 ) (8,120 ) Net Interest Income $ 15,789 $ 4,462 $ 20,251 $ 13,332 $ (3,405 ) $ 9,927 (1) The effect of changes in volume is determined by multiplying the change in volume by the previous year’s average rate.
Analysis of Changes in Net Interest Income 2023 vs. 2022 2022 vs. 2021 Increase (Decrease) Due to: Increase (Decrease) Due to: (Dollars in thousands) Volume (1) Yield/Rate (1) Total Volume (1) Yield/Rate (1) Total Interest-earning assets Loans Commercial and industrial $ (158 ) $ 10,801 $ 10,643 $ (7,340 ) $ (1,982 ) $ (9,322 ) Commercial real estate 2,307 16,012 18,319 10,956 5,490 16,446 Real estate construction 4,860 10,635 15,495 3,736 4,277 8,013 Residential real estate (1,205 ) 3,000 1,795 3,689 (1,026 ) 2,663 Agricultural real estate 2 2,419 2,421 2,667 610 3,277 Agricultural (1,492 ) 1,761 269 889 447 1,336 Consumer 226 1,186 1,412 664 448 1,112 Total loans 4,540 45,814 50,354 15,261 8,264 23,525 Taxable securities (3,275 ) 4,435 1,160 3,743 2,974 6,717 Nontaxable securities (835 ) 97 (738 ) 38 (183 ) (145 ) Federal funds sold and other 2,473 5,215 7,688 (658 ) 1,441 783 Total interest-earning assets $ 2,903 $ 55,561 $ 58,464 $ 18,384 $ 12,496 $ 30,880 Interest-bearing liabilities Demand savings and money market $ (726 ) $ 36,135 $ 35,409 $ 486 $ 6,606 $ 7,092 Certificates of deposit 1,670 17,073 18,743 290 684 974 Total interest-bearing deposits 944 53,208 54,152 776 7,290 8,066 FHLB term and line of credit advances 567 1,283 1,850 1,348 577 1,925 Federal Reserve Bank discount window 4,753 2 4,755 — — — Subordinated borrowings 37 783 820 446 64 510 Other borrowings (26 ) 725 699 25 103 128 Total interest-bearing liabilities 6,275 56,001 62,276 2,595 8,034 10,629 Net Interest Income $ (3,372 ) $ (440 ) $ (3,812 ) $ 15,789 $ 4,462 $ 20,251 (1) The effect of changes in volume is determined by multiplying the change in volume by the previous year’s average rate.
This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance.
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 provision for credit losses recorded during the period ended December 31, 2022, is the result of overall portfolio loan growth, slowing prepayment rates, increases in management qualitative adjustments and net charge-offs during the period which were partially offset by decreases in historical loss rates and decreases in specific impairment.
The provision for credit losses recorded during the period ended December 31, 2023, is the result of overall portfolio loan growth, current realized loss rate, and net charge-offs during the period which were offset by decreases in projected future loss rates. The increase in impairments on specifically evaluated loans was primarily due to the charge-off of loans deemed uncollectible.
The performance graph assumes $100 is invested on December 31, 2017, in the Company’s common stock, the NASDAQ Composite Index and the NASDAQ Bank Index. Historical stock price performance is not necessarily indicative of future stock price performance.
The performance graph assumes $100 is invested on December 31, 2018, in the Company’s common stock, the NASDAQ Composite Index, the NASDAQ Bank Index and the S&P 500 Index. The NASDAQ Composite Index is shown for comparative purposes and will be replaced with the S&P 500 Index in future reporting periods.
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.
Our 58 accounting policies are described in “NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the Notes to 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.
The overall driver of market interest rate changes in 2022 was primarily due to the Federal Reserve raising the federal funds target rate seven times during the calendar year 2022 that totaled 425 basis points, with more increases expected in 2023.
The primary driver of market interest rate changes in 2023 was the Federal Reserve raising the federal funds target rate four times for a total of 100 basis points.
Highlights for the Year Ended December 31, 2022 • Net income of $57.7 million, or $3.51 diluted earnings per share, for the year ended December 31, 2022, compared to net income of $52.5 million, or $3.43 diluted earnings per share, for the year ended December 31, 2021, an increase of $5.2 million, or 9.9%. • Dividends declared of $5.8 million, or $0.36 per share, for the year ended December 31, 2022 representing a full year of dividends, compared to $2.5 million, or $0.16 per share, for the year ended December 31, 2021. • Net interest income of $162.8 million for the year ended December 31, 2022, compared to net interest income of $142.6 million for the year ended December 31, 2021, an increase of $20.2 million, or 14.2%. • Total loans held for investment of $3.31 billion at December 31, 2022, compared to $3.16 billion at December 31, 2021, an increase of $155.9 million, or 4.9%. • Total nonperforming assets of $18.2 million at December 31, 2022, compared to $66.0 million at December 31, 2021, a decrease of $47.8 million, or 72.4%. • Return on average equity of 13.08% at December 31, 2022, compared to 11.75% at December 31, 2021, an increase of 1.3%. • Return on average tangible common equity of 16.35 % at December 31, 2022, compared to 14.10% at December 31, 2021, an increase of 2.3%.
Adjusted to exclude the loss on re-positioning of the investment portfolio, net income was $48.9 million, or $3.13 diluted earnings per share. • Dividends declared of $6.9 million, or $0.44 per share, for the year ended December 31, 2023, compared to $5.4 million, or $0.36 per share, for the year ended December 31, 2022, an increase of 22.0% • Total loans held for investment increased to $3.33 billion at December 31, 2023, compared to $3.31 billion at December 31, 2022. • Announced the 10th whole-bank acquisition since the Company's initial public offering, with our merger with Rockhold BanCorp.
Removed
The Plan replaced the Amended and Restated 2013 Stock Incentive Plan (2013 Plan). There were pour over shares available in the new plan from the previous plan due to forfeiture, cancellation, and expiration after the effective date.
Added
On April 26, 2022, the Company's shareholders approved the Company’s 2022 Omnibus Equity Plan (the Plan) to reserve 760,000 shares for the grant of non-qualified stock options, restricted stock units, restricted stock and unrestricted stock to its employees and directors. The Plan replaced the Amended and Restated 2013 Stock Incentive Plan (2013 Plan).
Removed
The following table presents shares that were repurchased under the repurchase program during the fourth quarter of 2022.
Added
Historical stock price performance is not necessarily indicative of future stock price performance.
Removed
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 Consolidated Financial Statements.
Added
Highlights for the Year Ended December 31, 2023 • Net income of $7.8 million, or $0.50 diluted earnings per share, for the year ended December 31, 2023.
Removed
This change was primarily driven by increases in net interest income after provision for loan losses of $11.6 million and non-interest income of $3.1 million, partially offset by an increase in non-interest expense of $8.9 million.
Added
The transaction was announced on December 6, 2023, and closed on February 9, 2024, adding approximately $340 million in deposits, eight banking locations and a new territory to the Equity Bank footprint. • Successfully reduced classified assets as a percentage of regulatory capital from 9.98% at the end of 2022 to 7.09% at the end of 2023.
Removed
Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts. 60 Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest yields/rates.
Added
Current problem asset ratios are amongst the lowest the Company has seen in its history. Critical Accounting Policies 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.
Removed
The increase in average volume of interest-earning assets was primarily due to increases in loans. The increase in interest income was driven by the $351.7 million increase in average loan volume.
Added
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.
Removed
The average balance of commercial real estate increased by $218.8 million, or 21.0%, and the average yield increased by 49 basis points for the year ended December 31, 2022, the average balance of residential real estate increased by $99.0 million, or 19.9%, and the average yield decreased by 20 basis points, real estate construction increased by $86.6 million or 31.2% and the average yield increased by 132 basis points for the year ended December 31, 2022, offset by a decrease in the average balance of commercial and industrial of $131.3 million for the year ended December 31, 2022.
Added
Our qualitative analysis process consists of using recent bank merger transactions, for companies that are similar to the Company based on financial performance, to calculate the average change in control premium from the merger data.
Removed
The impact to net interest income from loan fees for the year ended December 31, 2022, was $2.5 million compared to $19.5 million for the year ended December 31, 2021.
Added
The average change in control premium, number of shares and our current trading price is used to estimate the market value of our equity, which is compared to our book value of equity. In addition to estimating equity market value, we evaluate the qualitative considerations contained in current accounting guidance to identify any evidence of goodwill impairment.
Removed
Additionally, the average balance of taxable securities increased by $208.8 million or 21.4% and an increase in the average yield of 28 basis points, for the year ended December 31, 2022. 61 Average balance of interest bearing deposits increased by $308.8 million, or 11.1%, and the average cost increased by 23 basis points for the year ended December 31, 2022.
Added
This change was primarily driven by the sale of $490.1 of investment securities at a loss of $52.0 million.
Removed
The average balances of borrowings from the FHLB increased by $63.0 million from an average balance of $16.8 million for the year ended December 31, 2021, to an average balance of $79.8 million for the year ended December 31, 2022, coupled with a 162 basis point increase in average borrowing cost resulted in a increase in interest expense of $1.9 million.
Added
The change in yields and costs were driven, primarily, by rate increases within the marketplace over the past 20 months and their lagged impact on our balance sheet. Total fed fund rate increases of 525 basis points have been realized ratably within the asset portfolio while associated increases to liability costs have lagged and were more pronounced in 2023.
Removed
The increase in FHLB borrowings was used to fund the increases in loan and investment securities volume. The interest expense on subordinated borrowings for the year ended December 31, 2022, was $6.8 million compared to $6.3 million for the year ended December 31, 2021, an increase of $510 thousand.
Added
Following the banking turmoil in March of 2023, the Bank increased our FHLB and Federal Reserve Bank borrowings to maintain a heightened liquidity position. The amounts were materially offset by cash balances for the majority of the year, resulting in a small positive impact on net interest income and a reduction in net interest margin.
Removed
Total cost of interest-bearing liabilities increased 26 basis points to 0.76% for the year ended December 31, 2022, from 0.50% for the year ended December 31, 2021.
Added
The decrease in net interest margin is driven by the lagging impact of interest rate changes on our interest-bearing liability balances coupled with the excess liquidity position maintained by the Company throughout 2023. 62 Provision for Credit Losses We maintain an allowance for credit losses for estimated losses in our loan portfolio.
Removed
The increase in net interest margin is largely due to increases in the volume and to a lesser extent, interest rates on interest-earning assets, including loans and taxable securities offset by the increases in interest rates and to a lesser extent volume, on interest-bearing liabilities, including deposits and FHLB advances.
Removed
Management estimates the allowance balance required using past loan loss experience within the Company’s portfolio.
Removed
The decrease in impairments on specifically evaluated loans was primarily due to loans returning to performing status and to a lesser extent, the charge-off of loans deemed uncollectible. For additional detail see “

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

2 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. Reserved 54 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 55 Item 7A. Quantitative and Qualitative Disclosure About Market Risk 81 Item 8.
Biggest changeItem 6. Reserved 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosure About Market Risk 82 Item 8.
Financial Statements and Supplementary Data 84 Report of Independent Registered Public Accounting Firm F- 1 Consolidated Balance Sheets F- 4 Consolidated Statements of Income F- 5 Consolidated Statements of Comprehensive Income F- 6 Consolidated Statements of Stockholders’ Equity F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 10
Financial Statements and Supplementary Data 85 Report of Independent Registered Public Accounting Firm F- 1 Consolidated Balance Sheets F- 4 Consolidated Statements of Income F- 5 Consolidated Statements of Comprehensive Income F- 6 Consolidated Statements of Stockholders’ Equity F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 10

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAllowance for Credit Losses (Dollars in thousands) December 31, 2022 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for credit losses $ 16,731 $ 14,951 $ 8,608 $ 819 $ 2,457 $ 2,281 $ 45,847 Total loans outstanding (1) 1,721,268 594,863 570,550 199,189 120,003 105,675 3,311,548 Net charge-offs 1,193 590 56 27 35 742 2,643 Average loan balance (1) 1,623,159 583,295 595,494 201,295 125,342 102,186 3,230,771 Non-accrual loan balance 2,689 5,838 3,206 2,052 3,468 348 17,601 Loans to total loans outstanding 52.0 % 18.0 % 17.2 % 6.0 % 3.6 % 3.2 % 100.0 % ACL to total loans 1.0 % 2.5 % 1.5 % 0.4 % 2.0 % 2.2 % 1.4 % Net charge-offs to average loans 0.1 % 0.1 % — % — % — % 0.7 % 0.1 % Non-accrual loans to total loans 0.2 % 1.0 % 0.6 % 1.0 % 2.9 % 0.3 % 0.5 % ACL to non-accrual loans 622.2 % 256.1 % 268.5 % 39.9 % 70.8 % 655.5 % 260.5 % December 31, 2021 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for credit losses $ 22,478 $ 12,248 $ 5,560 $ 2,235 $ 3,756 $ 2,088 $ 48,365 Total loans outstanding (1) 1,486,148 567,497 638,087 198,330 166,975 98,590 3,155,627 Net charge-offs (129 ) 7,870 (52 ) 473 (21 ) 504 8,645 Average loan balance (1) 1,317,750 714,561 491,747 153,607 108,276 88,383 2,874,324 Non-accrual loan balance 6,833 6,557 5,075 4,398 6,175 323 29,361 Loans to total loans outstanding 47.1 % 18.0 % 20.2 % 6.3 % 5.3 % 3.1 % 100.0 % ACL to total loans 1.5 % 2.2 % 0.9 % 1.1 % 2.2 % 2.1 % 1.5 % Net charge-offs to average loans — % 1.1 % — % 0.3 % — % 0.6 % 0.3 % Non-accrual loans to total loans 0.5 % 1.2 % 0.8 % 2.2 % 3.7 % 0.3 % 0.9 % ACL to non-accrual loans 329.0 % 186.8 % 109.6 % 50.8 % 60.8 % 646.4 % 164.7 % December 31, 2020 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for loan losses $ 9,012 $ 12,456 $ 4,559 $ 904 $ 758 $ 6,020 $ 33,709 Total loans outstanding (1) 1,188,696 734,495 381,958 133,693 94,322 58,532 2,591,696 Net charge-offs 219 1,248 401 173 3 734 2,778 Average loan balance (1) 1,190,097 763,971 443,312 133,813 88,206 70,064 2,689,463 Non-accrual loan balance 7,582 23,457 2,955 4,111 5,312 272 43,689 Loans to total loans outstanding 45.9 % 28.3 % 14.7 % 5.2 % 3.6 % 2.3 % 100.0 % ACL to total loans 0.8 % 1.7 % 1.2 % 0.7 % 0.8 % 10.3 % 1.3 % Net charge-offs to average loans — % 0.2 % 0.1 % 0.1 % — % 1.0 % 0.1 % Non-accrual loans to total loans 0.6 % 3.2 % 0.8 % 3.1 % 5.6 % 0.5 % 1.7 % ACL to non-accrual loans 118.9 % 53.1 % 154.3 % 22.0 % 14.3 % 2,213.2 % 77.2 % (1) Excluding loans held for sale. 71 Management believes that the allowance for credit losses at December 31, 2022, is adequate to cover current expected losses in the loan portfolio as of such date.
Biggest changeAllowance for Credit Losses (Dollars in thousands) December 31, 2023 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for credit losses $ 13,476 $ 17,954 $ 7,784 $ 1,718 $ 995 $ 1,593 $ 43,520 Total loans outstanding (1) 1,759,855 598,327 556,328 196,114 118,587 103,690 3,332,901 Net charge-offs (75 ) 3,700 18 46 (47 ) 558 4,200 Average loan balance (1) 1,750,084 580,451 564,728 201,326 100,394 106,542 3,303,525 Non-accrual loan balance 5,447 5,041 7,251 4,214 2,470 603 25,026 Loans to total loans outstanding 52.8 % 18.0 % 16.7 % 5.9 % 3.6 % 3.1 % 100.0 % ACL to total loans 0.8 % 3.0 % 1.4 % 0.9 % 0.8 % 1.5 % 1.3 % Net charge-offs to average loans — % 0.6 % — % — % — % 0.5 % 0.1 % Non-accrual loans to total loans 0.3 % 0.8 % 1.3 % 2.1 % 2.1 % 0.6 % 0.8 % ACL to non-accrual loans 247.4 % 356.2 % 107.4 % 40.8 % 40.3 % 264.2 % 173.9 % December 31, 2022 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for credit losses $ 16,731 $ 14,951 $ 8,608 $ 819 $ 2,457 $ 2,281 $ 45,847 Total loans outstanding (1) 1,721,268 594,863 570,550 199,189 120,003 105,675 3,311,548 Net charge-offs 1,193 590 56 27 35 742 2,643 Average loan balance (1) 1,623,159 583,295 595,494 201,295 125,342 102,186 3,230,771 Non-accrual loan balance 2,689 5,838 3,206 2,052 3,468 348 17,601 Loans to total loans outstanding 52.0 % 18.0 % 17.2 % 6.0 % 3.6 % 3.2 % 100.0 % ACL to total loans 1.0 % 2.5 % 1.5 % 0.4 % 2.0 % 2.2 % 1.4 % Net charge-offs to average loans 0.1 % 0.1 % — % — % — % 0.7 % 0.1 % Non-accrual loans to total loans 0.2 % 1.0 % 0.6 % 1.0 % 2.9 % 0.3 % 0.5 % ACL to non-accrual loans 622.2 % 256.1 % 268.5 % 39.9 % 70.8 % 655.5 % 260.5 % December 31, 2021 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for loan losses $ 22,478 $ 12,248 $ 5,560 $ 2,235 $ 3,756 $ 2,088 $ 48,365 Total loans outstanding (1) 1,486,148 567,497 638,087 198,330 166,975 98,590 3,155,627 Net charge-offs (129 ) 7,870 (52 ) 473 (21 ) 504 8,645 Average loan balance (1) 1,317,750 714,561 491,747 153,607 108,276 88,383 2,874,324 Non-accrual loan balance 6,833 6,557 5,075 4,398 6,175 323 29,361 Loans to total loans outstanding 47.1 % 18.0 % 20.2 % 6.3 % 5.3 % 3.1 % 100.0 % ACL to total loans 1.5 % 2.2 % 0.9 % 1.1 % 2.2 % 2.1 % 1.5 % Net charge-offs to average loans — % 1.1 % — % 0.3 % — % 0.6 % 0.3 % Non-accrual loans to total loans 0.5 % 1.2 % 0.8 % 2.2 % 3.7 % 0.3 % 0.9 % ACL to non-accrual loans 329.0 % 186.8 % 109.6 % 50.8 % 60.8 % 646.4 % 164.7 % (1) Excluding loans held for sale.
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.
Also included in total interest and 71 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.
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.
For tangible book value, the most directly comparable financial measure calculated in accordance with GAAP is book value. 79 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.
The cash usage in investing activities was driven mostly by purchases of securities of $182.0 million and the net increase in loans held for investment of $181.9 million, partially offset by proceeds from securities of $168.4 million and proceeds from sale of foreclosed assets of $29.9 million.
The cash usage in investing activities was driven mostly by purchases of securities of $182.0 million and the net increase in 77 loans held for investment of $181.9 million, partially offset by proceeds from securities of $168.4 million and proceeds from sale of foreclosed assets of $29.9 million.
These transactions 77 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.
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.
United Bank and Trust Branch Sale Amount Percent of Total (Dollars in thousands) Non-interest-bearing demand $ 15,817 30.0 % Interest-bearing demand and Now accounts 9,039 17.2 % Savings and money market 19,576 37.1 % Time 8,282 15.7 % Total deposits $ 52,714 100.0 % High Plains Bank Branch Sale Amount Percent of Total (Dollars in thousands) Non-interest-bearing demand $ 1,925 10.1 % Interest-bearing demand and Now accounts 3,664 19.2 % Savings and money market 7,300 38.3 % Time 6,168 32.4 % Total deposits $ 19,057 100.0 % 74 The following tables show deposits assumed in 2021 acquisitions, as of the time of such acquisitions.
United Bank and Trust Branch Sale Amount Percent of Total (Dollars in thousands) Non-interest-bearing demand $ 15,817 30.0 % Interest-bearing demand 9,039 17.2 % Savings and money market 19,576 37.1 % Time 8,282 15.7 % Total deposits $ 52,714 100.0 % High Plains Bank Branch Sale Amount Percent of Total (Dollars in thousands) Non-interest-bearing demand $ 1,925 10.1 % Interest-bearing demand 3,664 19.2 % Savings and money market 7,300 38.3 % Time 6,168 32.4 % Total deposits $ 19,057 100.0 % 74 The following tables show deposits assumed in 2021 acquisitions, as of the time of such acquisitions.
Moreover, the 78 manner in which we calculate the non-GAAP financial measures that we discuss in this Annual Report on Form 10-K may differ from that of other companies reporting measures with similar names.
Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Annual Report on Form 10-K may differ from that of other companies reporting measures with similar names.
We calculate: (a) average tangible common equity as total average stockholders’ equity less average intangible assets and preferred stock; (b) adjusted net income allocable to common stockholders as net income allocable to common stockholders plus goodwill impairment, net of actual tax effect, plus amortization of intangible assets less estimated tax effect on amortization of intangible assets (tax rates used in this calculation were 21% for 2022, 2021, 2020, 2019 and 2018) (c) return on average tangible common equity as adjusted net income allocable to common stockholders (as described in clause (b)) divided by average tangible common equity (as described in clause (a)).
We calculate: (a) average tangible common equity as total average stockholders’ equity less average intangible assets and preferred stock; (b) adjusted net income allocable to common stockholders as net income allocable to common stockholders plus goodwill impairment, net of actual tax effect, plus amortization of intangible assets less estimated tax effect on amortization of intangible assets (tax rates used in this calculation were 21% for 2023, 2022, 2021, 2020 and 2019) (c) return on average tangible common equity as adjusted net income allocable to common stockholders (as described in clause (b)) divided by average tangible common equity (as described in clause (a)).
In this process, we focus on both assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet our needs. During the years ended December 31, 2022, 2021, and 2020, our liquidity needs have primarily been met by core deposits, securities and loan maturities, as well as amortizing payment from investment securities and loans.
In this process, we focus on both assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet our needs. During the years ended December 31, 2023, 2022, and 2021, our liquidity needs have primarily been met by core deposits, securities and loan maturities, as well as amortizing payment from investment securities and loans.
Short-term borrowing and long-term borrowing consist of funds from the FHLB, federal funds purchased and retail repurchase agreements, a bank stock loan and subordinated debt.
Short-term borrowing and long-term borrowing consist of funds from the FHLB, Federal Reserve Bank, federal funds purchased and retail repurchase agreements, a bank stock loan and subordinated debt.
Management believes, as of December 31, 2022, and December 31, 2021, 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.
Management believes, as of December 31, 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.
The Company continually has short-term borrowings which are disclosed in “NOTE 11 – BORROWINGS” and “NOTE 12 – SUBORDINATED DEBT.” Federal funds purchased and retail repurchase agreements: We have available federal funds lines of credit with our correspondent banks. Retail repurchase agreements outstanding represent the purchase of interests in securities by banking customers.
The Company continually has short-term borrowings which are disclosed in “NOTE 10 – BORROWINGS” and “NOTE 11 – SUBORDINATED DEBT.” Federal funds purchased and retail repurchase agreements: We have available federal funds lines of credit with our correspondent banks. Retail repurchase agreements outstanding represent the purchase of interests in securities by banking customers.
See “NOTE 11 – BORROWINGS” in the Notes to Consolidated Financial Statements for additional information. FHLB advances: FHLB advances include both draws against our line of credit and fixed rate term advances. Each term advance is payable in full at its maturity date and contains a provision for prepayment penalties.
See “NOTE 10 – BORROWINGS” in the Notes to Consolidated Financial Statements for additional information. FHLB advances: FHLB advances include both draws against our line of credit and fixed rate term advances. Each term advance is payable in full at its maturity date and contains a provision for prepayment penalties.
As of December 31, 2022, the most recent notifications from the federal regulatory agencies categorized Equity Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Equity Bank must maintain minimum total capital, Tier 1 capital, Common Equity Tier 1 capital and Tier 1 leverage ratios.
As of December 31, 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 11 – BORROWINGS” and “NOTE 12 – SUBORDINATED DEBT.” Capital Resources Capital management consists of providing equity to support our current and future operations. The bank regulators view capital levels as important indicators of an institution’s financial soundness.
For additional information see “NOTE 10 – BORROWINGS” and “NOTE 11 – SUBORDINATED DEBT.” Capital Resources Capital management consists of providing equity to support our current and future operations. The bank regulators view capital levels as important indicators of an institution’s financial soundness.
Other funding sources include federal funds purchased, retail repurchase agreements, brokered certificates of deposit, subordinated notes and borrowings from the FHLB. Our largest sources of funds are deposits, fed funds sold, retail repurchase agreements and subordinated debt, and our largest uses of funds are the origination or purchases of loans and investment securities purchases.
Other funding sources include federal funds purchased, retail repurchase agreements, brokered certificates of deposit, subordinated notes, borrowings from the FHLB and from the Federal Reserve Bank. Our largest sources of funds are deposits, fed funds sold, retail repurchase agreements and subordinated debt, and our largest uses of funds are the origination of loans or purchases of loans or investment securities.
Excess deposits are primarily invested in our interest-bearing deposit account with the Kansas City Federal Reserve Bank, investment securities, federal funds sold or other short-term liquid investments until the funds are needed to fund loan growth. Our investment securities portfolio has a weighted average life of 5.1 years and a modified duration of 4.4 years at December 31, 2022.
Excess deposits are primarily invested in our interest-bearing deposit account with the Kansas City Federal Reserve Bank, investment securities, federal funds sold or other short-term liquid investments until the funds are needed to fund loan growth. Our investment securities portfolio has a weighted average life of 5.1 years and a modified duration of 4.3 years at December 31, 2023.
For information related to cash flow during 2020, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on March 9, 2021.
For information related to cash flow during 2021, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on March 9, 2022.
Commitments to Extend Credit: For additional information see “NOTE 22 – COMMITMENTS AND CREDIT RISK” in the Notes to Consolidated Financial Statements. Future Debt Repayments In the normal course of business, we enter into short-term and long-term debt obligations resulting in commitments to make future payments.
Commitments to Extend Credit: For additional information see “NOTE 20 – COMMITMENTS AND CREDIT RISK” in the Notes to Consolidated Financial Statements. Future Debt Repayments In the normal course of business, we enter into short-term and long-term debt obligations resulting in commitments to make future payments.
We calculate the efficiency ratio by dividing non-interest expense, excluding goodwill impairment, merger expenses and loss on debt extinguishment, by the sum of net interest income and non-interest income, excluding net gains on 80 the sale of available-for-sale securities and other securities transactions, and the net gain on acquisition.
We calculate the efficiency ratio by dividing non-interest expense, excluding goodwill impairment, merger expenses and loss on debt extinguishment, by the sum of net interest income and non-interest income, excluding net gains on 81 the sale of available-for-sale securities and other securities transactions, and the net gain on acquisition.
If we determine that a loan has individually assessed credit loss, 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.
If we determine that a loan has individually assessed credit loss, then we evaluate the borrower’s overall financial condition to determine the need, if any, for non-performing classification, 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.
For additional information, see “NOTE 12 – SUBORDINATED DEBT” in the Notes to Consolidated Financial Statements. Liquidity and Capital Resources Liquidity Market and public confidence in our financial strength and financial institutions, in general, will largely determine access to appropriate levels of liquidity.
For additional information, see “NOTE 11 – SUBORDINATED DEBT” in the Notes to Consolidated Financial Statements. Liquidity and Capital Resources Liquidity Market and public confidence in our financial strength and financial institutions, in general, will largely determine access to appropriate levels of liquidity.
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 22 – COMMITMENTS AND CREDIT RISK” in the Notes to Consolidated Financial Statements.
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 20 – COMMITMENTS AND CREDIT RISK” in the Notes to Consolidated Financial Statements.
For detailed information, see “NOTE 11 – BORROWINGS” in the Notes to Consolidated Financial Statements. Subordinated debentures: In conjunction with the 2012 acquisition of First Community, we assumed certain subordinated debentures owed to special purpose unconsolidated subsidiaries that are controlled by us, FCB Capital Trust II and FCB Capital Trust III, (“CTII” and “CTIII,” respectively).
For detailed information, see “NOTE 10 – BORROWINGS” in the Notes to Consolidated Financial Statements. 76 Subordinated debentures: In conjunction with the 2012 acquisition of First Community, we assumed certain subordinated debentures owed to special purpose unconsolidated subsidiaries that are controlled by us, FCB Capital Trust II and FCB Capital Trust III, (“CTII” and “CTIII,” respectively).
Cash Flow Overview During 2022, operating activities provided $74.1 million of liquidity, which was offset by financing activities use of $15.4 million and investing activities use of $214.2 million of cash assets, ultimately decreasing total cash and cash equivalents by $155.5 million.
During 2022, operating activities provided $74.1 million of liquidity, which was offset by investing activities use of $214.2 million of cash assets and financing activities use of $15.4 million, ultimately decreasing total cash and cash equivalents by $155.5 million.
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, and December 31, 2021, are summarized in the following tables.
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, 2023, and December 31, 2022, are summarized in the following tables.
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. 79 The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible 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. 80 The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible assets.
December 31, 2022 Due in one year or less Due after one year through five years Due after five years through ten 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.
December 31, 2023 Due in one year or less Due after one year through five years Due after five years through ten 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.
We had seven nonperforming loan relationships each with outstanding balances exceeding $1.0 million as of December 31, 2022. 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.
We had five nonperforming loan relationships each with outstanding balances exceeding $1.0 million as of December 31, 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.
For additional information about the risk category by class of loans see “NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES” in the Notes to Consolidated Financial Statements. At December 31, 2022, loans considered unclassified increased to 98.2% of total loans from 96.8% of total loans at December 31, 2021.
For additional information about the risk category by class of loans see “NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES” in the Notes to Consolidated Financial Statements. At December 31, 2023, loans considered unclassified increased to 98.8% of total loans from 98.2% of total loans at December 31, 2022.
Included in salaries and employee benefits is share-based compensation expense of $3.3 million for the year ended December 31, 2022, and $2.6 million for the year ended December 31, 2021.
Included in salaries and employee benefits is share-based compensation expense of $2.6 million for the year ended December 31, 2023, and $3.3 million for the year ended December 31, 2022.
At December 31, 2022, and December 31, 2021, 62.1% and 66.3% of the 73 mortgage-backed securities held by us had contractual final maturities of more than ten years with a weighted average life of 5.1 years and 4.4 years and a modified duration of 4.3 years and 4.1 years. Deposits Our lending and investing activities are primarily funded by deposits.
At December 31, 2023, and 2022, 73.2% and 62.1% of the mortgage-backed securities held by us had contractual final maturities of more than ten years with a weighted average life of 5.3 years and 5.1 years and a modified duration of 4.4 years and 4.3 years. Deposits Our lending and investing activities are primarily funded by deposits.
Included in time deposits are Certificate of Deposit Account Registry Service (“CDARS”) program balances of $11.8 million, $3.0 million, and $14.9 million at December 31, 2022 and 2021, and 2020. CDARS allows Equity Bank to break large deposits into smaller amounts and place them in a network of other CDARS banks to ensure FDIC insurance coverage on the entire deposit.
Included in time deposits are Certificate of Deposit Account Registry Service (“CDARS”) program balances of $21.8 million, $11.8 million, and $3.0 million at December 31, 2023, 2022, and 2021. CDARS allows Equity Bank to break large deposits into smaller amounts and place them in a network of other CDARS banks to ensure FDIC insurance coverage on the entire deposit.
Net losses as a percentage of average loans was 0.08% for the twelve months ended December 31, 2022, as compared to 0.30% for the twelve months ended December 31, 2021, and 0.10% for the twelve months ended December 31, 2020. 70 The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data.
Net losses as a percentage of average loans was 0.13% for the twelve months ended December 31, 2023, as compared to 0.08% for the twelve months ended December 31, 2022, and 0.30% for the twelve months ended December 31, 2021. 70 The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data.
The value of real estate collateral provides additional support to the borrower’s credit capacity. With respect to potential problem loans, all monitored and under-performing loans are reviewed and individually evaluated for credit loss.
The value of real estate collateral provides additional support to the borrower’s credit capacity. With respect to potential problem loans, all monitored and under-performing loans are individually reviewed.
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Allowance for Credit Losses.” Net charge-offs for the year ended December 31, 2022, were $2.6 million as compared to net charge-offs of $8.7 million for the year ended December 31, 2021.
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Allowance for Credit Losses.” Net charge-offs for the year ended December 31, 2023, were $4.2 million as compared to net charge-offs of $2.6 million for the year ended 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 December 31, 2022, securities represented 23.8% of total assets compared with 25.8% at December 31, 2021.
Securities We use our securities portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk, to meet pledging requirements and to meet regulatory capital requirements. At December 31, 2023, securities represented 18.3% of total assets compared with 23.8% at December 31, 2022.
These items and other changes in the various components of non-interest expense are discussed in more detail below. Salaries and employee benefits: There was a $7.8 million increase in salaries and benefits for the year ended December 31, 2022, as compared to the year ended December 31, 2021.
These items and other changes in the various components of non-interest expense are discussed in more detail below. Salaries and employee benefits: There was a $2.4 million increase in salaries and benefits for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
At December 31, 2022, the Company had $37.6 million in potential problem loans which were not included in either non-accrual or 90 days past due categories, compared to $32.6 million at December 31, 2021.
At December 31, 2023, the Company had $11.1 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.
At December 31, 2022, gross total loans were 78.1% of deposits and 66.5% of total assets. At December 31, 2021, gross total loans were 71.5% of deposits and 61.5% of total assets. The organic, or non-acquired, growth in our loan portfolio is attributable to our ability to attract new customers from other financial institutions and overall growth in our markets.
At December 31, 2023, gross total loans were 80.4% of deposits and 66.2% of total assets. At December 31, 2022, gross total loans were 78.1% of deposits and 66.5% of total assets. The organic, or non-acquired, growth in our loan portfolio is attributable to our ability to attract new customers from other financial institutions and overall growth in our markets.
Our FHLB borrowings are used for operational liquidity needs for originating and purchasing loans, purchasing investments and general operating cash requirements. See “NOTE 11 – BORROWINGS” in the Notes to Consolidated Financial Statements for additional information. Bank stock loan: The Company maintains a borrowing facility through an unaffiliated financial institution.
Our Federal Reserve Bank borrowings are used for operational liquidity needs for originating and purchasing loans, purchasing investments and general operating cash requirements. see “NOTE 10 – BORROWINGS” in the Notes to Consolidated Financial Statements. Bank stock loan: The Company maintains a borrowing facility through an unaffiliated financial institution.
Also included in savings and money market deposits at December 31, 2022, 2021, and 2020, are ICS reciprocal money-market deposit balances of $17.7 million, $52.2 million, and $23.7 million.
Also included in savings and money market deposits at December 31, 2023, 2022, and 2021, are ICS reciprocal money-market deposit balances of $230.8 million, $17.7 million, and $52.2 million.
Held-To-Maturity Securities December 31, 2022 2021 Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) Mortgage-backed securities Government-sponsored residential mortgage-backed securities $ 1,108 $ 1,108 $ — $ — State and local subdivisions 840 865 — — Total held-to-maturity securities $ 1,948 $ 1,973 $ — $ — 72 The following tables summarize the contractual maturity of debt securities and their weighted average yields as of December 31, 2022, and December 31, 2021.
Held-To-Maturity Securities December 31, 2023 2022 Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) Mortgage-backed securities Government-sponsored residential mortgage-backed securities $ 1,094 $ 1,097 $ 1,108 $ 1,108 State and local subdivisions 1,115 1,153 840 865 Total held-to-maturity securities $ 2,209 $ 2,250 $ 1,948 $ 1,973 72 The following tables summarize the contractual maturity of debt securities and their weighted average yields as of December 31, 2023, and December 31, 2022.
For additional information see “NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the Notes to Consolidated Financial Statements. Analysis of allowance for credit losses: At December 31, 2022, the allowance for credit losses totaled $45.8 million, or 1.38% of total loans.
For additional information see “NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the Notes to Consolidated Financial Statements. Analysis of allowance for credit losses: At December 31, 2023, the allowance for credit losses totaled $43.5 million, or 1.31% of total loans.
As such, mortgage-backed securities 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.
As such, mortgage-backed securities 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.
December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Total average stockholders’ equity $ 440,882 $ 446,795 $ 464,608 $ 463,445 $ 420,453 Less: average intangible assets 67,746 50,831 130,329 158,410 139,131 Average tangible common equity $ 373,136 $ 395,964 $ 334,279 $ 305,035 $ 281,322 Net income (loss) allocable to common stockholders $ 57,688 $ 52,480 $ (74,970 ) $ 25,579 $ 35,825 Plus: goodwill impairment, net of actual tax effect — — 99,526 — — Amortization of intangible assets 4,186 4,242 3,898 3,218 2,492 Less: estimated tax effect on intangible asset amortization 879 891 819 676 523 Adjusted net income allocable to common stockholders $ 60,995 $ 55,831 $ 27,635 $ 28,121 $ 37,794 Return on average equity (ROAE) 13.08 % 11.75 % (16.14 )% 5.52 % 8.52 % Return on average tangible common equity (ROATCE) 16.35 % 14.10 % 8.27 % 9.22 % 13.43 % Efficiency Ratio : The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions.
December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Total average stockholders’ equity $ 423,722 $ 440,882 $ 446,795 $ 464,608 $ 463,445 Less: average intangible assets 63,064 67,746 50,831 130,329 158,410 Average tangible common equity $ 360,658 $ 373,136 $ 395,964 $ 334,279 $ 305,035 Net income (loss) allocable to common stockholders $ 7,821 $ 57,688 $ 52,480 $ (74,970 ) $ 25,579 Plus: goodwill impairment, net of actual tax effect — — — 99,526 — Amortization of intangible assets 3,518 4,186 4,242 3,898 3,218 Less: estimated tax effect on intangible asset amortization 739 879 891 819 676 Adjusted net income allocable to common stockholders $ 10,600 $ 60,995 $ 55,831 $ 27,635 $ 28,121 Return on average equity (ROAE) 1.85 % 13.08 % 11.75 % (16.14 )% 5.52 % Return on average tangible common equity (ROATCE) 2.94 % 16.35 % 14.10 % 8.27 % 9.22 % Efficiency Ratio : The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions.
December 31, 2022 2021 2020 2019 2018 (Dollars in thousands, except share data) Total stockholders’ equity $ 410,058 $ 500,631 $ 407,649 $ 478,060 $ 455,941 Less: goodwill 53,101 54,465 31,601 136,432 131,712 Less: core deposit intangibles, net 10,596 14,879 16,057 19,907 21,725 Less: mortgage servicing asset, net 176 276 — 5 11 Less: naming rights, net 1,044 1,087 1,130 1,174 1,217 Tangible common equity $ 345,141 $ 429,924 $ 358,861 $ 320,542 $ 301,276 Common shares outstanding at period end 15,930,112 16,760,115 14,540,556 15,444,434 15,793,095 Diluted common shares outstanding at period end 16,163,253 17,050,115 14,540,556 15,719,810 16,085,729 Book value per common share $ 25.74 $ 29.87 $ 28.04 $ 30.95 $ 28.87 Tangible book value per common share $ 21.67 $ 25.65 $ 24.68 $ 20.75 $ 19.08 Tangible book value per diluted common share $ 21.35 $ 25.22 $ 24.68 $ 20.39 $ 18.73 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.
December 31, 2023 2022 2021 2020 2019 (Dollars in thousands, except share data) Total stockholders’ equity $ 452,860 $ 410,058 $ 500,631 $ 407,649 $ 478,060 Less: goodwill 53,101 53,101 54,465 31,601 136,432 Less: core deposit intangibles, net 7,222 10,596 14,879 16,057 19,907 Less: mortgage servicing asset, net 75 176 276 — 5 Less: naming rights, net 1,000 1,044 1,087 1,130 1,174 Tangible common equity $ 391,462 $ 345,141 $ 429,924 $ 358,861 $ 320,542 Common shares outstanding at period end 15,428,251 15,930,112 16,760,115 14,540,556 15,444,434 Diluted common shares outstanding at period end 15,629,185 16,163,253 17,050,115 14,540,556 15,719,810 Book value per common share $ 29.35 $ 25.74 $ 29.87 $ 28.04 $ 30.95 Tangible book value per common share $ 25.37 $ 21.67 $ 25.65 $ 24.68 $ 20.75 Tangible book value per diluted common share $ 25.05 $ 21.35 $ 25.22 $ 24.68 $ 20.39 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.
December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Non-interest expense $ 128,380 $ 119,465 $ 208,990 $ 99,635 $ 94,387 Less: goodwill impairment — — 104,831 — — Less: merger expenses 594 9,189 299 915 7,462 Less: loss on debt extinguishment — 372 — — — Non-interest expense, excluding merger expenses and loss on debt extinguishment $ 127,786 $ 109,904 $ 103,860 $ 98,720 $ 86,925 Net interest income $ 162,830 $ 142,579 $ 132,652 $ 125,858 $ 124,798 Non-interest income $ 35,957 $ 32,842 $ 26,023 $ 24,988 $ 19,725 Less: gain on acquisition and branch sales 962 585 2,145 — — Less: net gains (losses) from securities transactions 5 406 11 14 (9 ) Non-interest income, excluding net gains (losses) from security transactions and gain on acquisition $ 34,990 $ 31,851 $ 23,867 $ 24,974 $ 19,734 Non-interest expense, less goodwill impairment, to net interest income plus non-interest income 64.58 % 68.10 % 65.64 % 66.05 % 65.31 % Efficiency Ratio 64.60 % 63.01 % 66.36 % 65.45 % 60.14 %
December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Non-interest expense $ 135,601 $ 128,380 $ 119,465 $ 208,990 $ 99,635 Less: goodwill impairment — — — 104,831 — Less: merger expenses 297 594 9,189 299 915 Less: loss on debt extinguishment — — 372 — — Non-interest expense, excluding merger expenses and loss on debt extinguishment $ 135,304 $ 127,786 $ 109,904 $ 103,860 $ 98,720 Net interest income $ 159,018 $ 162,830 $ 142,579 $ 132,652 $ 125,858 Non-interest income $ (19,129 ) $ 35,957 $ 32,842 $ 26,023 $ 24,988 Less: gain on acquisition and branch sales — 962 585 2,145 — Less: net gains (losses) from securities transactions (51,909 ) 5 406 11 14 Non-interest income, excluding net gains (losses) from security transactions and gain on acquisition $ 32,780 $ 34,990 $ 31,851 $ 23,867 $ 24,974 Non-interest expense, less goodwill impairment, to net interest income plus non-interest income 96.93 % 64.58 % 68.10 % 65.64 % 66.05 % Efficiency Ratio 70.55 % 64.60 % 63.01 % 66.36 % 65.45 %
December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Total stockholders’ equity $ 410,058 $ 500,631 $ 407,649 $ 478,060 $ 455,941 Less: goodwill 53,101 54,465 31,601 136,432 131,712 Less: core deposit intangibles, net 10,596 14,879 16,057 19,907 21,725 Less: mortgage servicing asset, net 176 276 — 5 11 Less: naming rights, net 1,044 1,087 1,130 1,174 1,217 Tangible common equity $ 345,141 $ 429,924 $ 358,861 $ 320,542 $ 301,276 Total assets $ 4,981,651 $ 5,137,631 $ 4,013,356 $ 3,949,578 $ 4,061,716 Less: goodwill 53,101 54,465 31,601 136,432 131,712 Less: core deposit intangibles, net 10,596 14,879 16,057 19,907 21,725 Less: mortgage servicing asset, net 176 276 — 5 11 Less: naming rights, net 1,044 1,087 1,130 1,174 1,217 Tangible assets $ 4,916,734 $ 5,066,924 $ 3,964,568 $ 3,792,060 $ 3,907,051 Equity / assets 8.23 % 9.74 % 10.16 % 12.10 % 11.23 % Tangible common equity to tangible assets 7.02 % 8.48 % 9.05 % 8.45 % 7.71 % 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.
December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Total stockholders’ equity $ 452,860 $ 410,058 $ 500,631 $ 407,649 $ 478,060 Less: goodwill 53,101 53,101 54,465 31,601 136,432 Less: core deposit intangibles, net 7,222 10,596 14,879 16,057 19,907 Less: mortgage servicing asset, net 75 176 276 — 5 Less: naming rights, net 1,000 1,044 1,087 1,130 1,174 Tangible common equity $ 391,462 $ 345,141 $ 429,924 $ 358,861 $ 320,542 Total assets $ 5,034,592 $ 4,981,651 $ 5,137,631 $ 4,013,356 $ 3,949,578 Less: goodwill 53,101 53,101 54,465 31,601 136,432 Less: core deposit intangibles, net 7,222 10,596 14,879 16,057 19,907 Less: mortgage servicing asset, net 75 176 276 — 5 Less: naming rights, net 1,000 1,044 1,087 1,130 1,174 Tangible assets $ 4,973,194 $ 4,916,734 $ 5,066,924 $ 3,964,568 $ 3,792,060 Equity / assets 8.99 % 8.23 % 9.74 % 10.16 % 12.10 % Tangible common equity to tangible assets 7.87 % 7.02 % 8.48 % 9.05 % 8.45 % 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.
The ratio defined under GAAP that is most comparable to the efficiency ratio is non-interest expense to net interest income plus non-interest income which is discussed in “Results of Operations – Non-GAAP Financial Measures.” The Company’s non-interest expense, less goodwill impairment, to net interest income plus non-interest income decreased from the period ended December 31, 2021, to December 31, 2022, primarily due to net interest income plus non-interest income increasing at a higher rate than non-interest expense less goodwill impairment, as discussed in “Results of Operations – Non-GAAP Financial Measures.” The efficiency ratio increased during the same time period due to non-interest expense, excluding goodwill impairment and merger expenses, increasing at a higher proportional rate than net interest income and non-interest income, excluding net gains on security transactions and gain on acquisition, as discussed in “Results of Operations – Net Interest Income and Net Interest Margin Analysis” and “Results of Operations – Non-Interest Income.” Income Taxes The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, the amount of non-deductible expenses and available tax credits.
The ratio defined under GAAP that is most comparable to the efficiency ratio is non-interest expense to net interest income plus non-interest income which is discussed in “Results of Operations – Non-GAAP Financial Measures.” The Company’s efficiency ratio increased in 2023 as compared to 2022 due to non-interest expense, excluding goodwill impairment and merger expenses, increasing at a higher proportional rate than net interest income and non-interest income, excluding net loss on security transactions and gain on acquisition, as discussed in “Results of Operations – Net Interest Income and Net Interest Margin Analysis” and “Results of Operations – Non-Interest Income.” Income Taxes The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, the amount of non-deductible expenses and available tax credits.
For additional information, see “NOTE 12 – SUBORDINATED DEBT” in the Notes to Consolidated Financial Statements. 76 Subordinated notes: In 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 a total of $75.0 million in aggregate principal amounts of its 7.00% Fixed-to-Floating Rate Subordinated Notes due in 2030.
Subordinated notes: In 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 a total of $75.0 million in aggregate principal amounts of its 7.00% Fixed-to-Floating Rate Subordinated Notes due in 2030.
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 — 0.00 % — 0.00 % — 0.00 % 1,108 4.96 % 1,108 4.96 % State and political subdivisions (1) — 0.00 % — 0.00 % — 0.00 % 840 4.57 % 840 4.57 % Total held-to-maturity securities — 0.00 % — 0.00 % — 0.00 % 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 calculated 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 ten 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 calculated on a tax equivalent basis.
Average loans were $3.23 billion for the year ended December 31, 2022, an increase of 12.2% over average loans of $2.88 billion for the year ended December 31, 2021.
Average loans were $3.30 billion for the year ended December 31, 2023, an increase of 2.2% over average loans of $3.23 billion for the year ended December 31, 2022.
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. There were no held-to-maturity securities at December 31, 2021.
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.
A variety of deposit accounts are offered with a wide range of interest rates and terms including demand, savings, money market and time deposits. We rely primarily on competitive pricing policies, convenient locations, comprehensive marketing strategy and personalized service to attract and retain these deposits. The following table shows our composition of deposits at December 31, 2022, 2021, and 2020.
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.
Merger expenses: Merger expenses include legal, advisory and accounting fees associated with services to facilitate the acquisition of other banks. Merger expenses also include data processing conversion costs and costs associated with the integration of personnel, processes, facilities and employee bonuses.
Merger expenses: Merger expenses include legal, advisory and accounting fees associated with services to facilitate the acquisition of other banks. Merger expenses also include data processing conversion costs and costs associated with the integration of personnel, processes, facilities and employee bonuses. During 2023, the Company incurred merger expenses of $297 thousand related to the Bank of Kirksville acquisition.
Non-GAAP Financial Measures We identify certain financial measures discussed in this Annual Report on Form 10-K as being “non-GAAP financial measures.” In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows.
For additional information about the Company’s capital see "NOTE 12 – STOCKHOLDERS' EQUITY", “NOTE 14 – REGULATORY MATTERS” and "NOTE 17 – SHARE-BASED PAYMENTS" in Notes to Consolidated Financial Statements. 78 Non-GAAP Financial Measures We identify certain financial measures discussed in this Annual Report on Form 10-K as being “non-GAAP financial measures.” In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows.
The allowance for credit losses calculation on loans collectively evaluated at December 31, 2022, totaled $40.9 million, or 1.2%, of the $3.29 billion of the loans portfolio, compared to an allowance for credit losses of $34.3 million, or 1.14%, of the $3.06 billion in loans collectively evaluated at December 31, 2021.
The allowance for credit losses calculation on loans collectively evaluated at December 31, 2023, totaled $38.8 million, or 1.2%, of the $3.3 billion in loans collectively evaluated, compared to an allowance for credit losses of $40.9 million, or 1.2%, of the $3.3 billion in loans collectively evaluated at December 31, 2022.
Nonperforming Assets As of December 31, 2022 2021 2020 (Dollars in thousands) Nonaccrual loans $ 17,601 $ 29,361 $ 43,689 Accruing loans 90 or more days past due — 256 143 OREO acquired through foreclosure, net 600 7,582 10,698 Other repossessed assets 47 28,799 67 Total nonperforming assets $ 18,248 $ 65,998 $ 54,597 Ratios: Nonperforming assets to total assets 0.37 % 1.28 % 1.36 % Nonperforming assets to total loans plus OREO 0.55 % 2.09 % 2.10 % Nonperforming assets (“NPAs”) include loans on nonaccrual status, accruing loans 90 or more days past due, restructured loans, other real estate acquired through foreclosure and other repossessed assets.
Nonperforming Assets As of December 31, 2023 2022 2021 (Dollars in thousands) Nonaccrual loans $ 25,026 $ 17,601 $ 29,361 Accruing loans 90 or more days past due 279 — 256 OREO acquired through foreclosure, net 772 600 7,582 Other repossessed assets 380 47 28,799 Total nonperforming assets $ 26,457 $ 18,248 $ 65,998 Ratios: Nonperforming assets to total assets 0.53 % 0.37 % 1.28 % Nonperforming assets to total loans plus OREO 0.79 % 0.55 % 2.09 % Nonperforming assets (“NPAs”) include loans on nonaccrual status, accruing loans 90 or more days past due, restructured loans, other real estate acquired through foreclosure and other repossessed assets.
In conjunction with the 2021 acquisition of ASBI, we assumed certain subordinated debentures owed to a special purpose unconsolidated subsidiary that is controlled by us, American State Bank Statutory Trust I, (“ASBSTI”).
In conjunction with the 2021 acquisition of ASBI, we assumed certain subordinated debentures owed to a special purpose unconsolidated subsidiary that is controlled by us, American State Bank Statutory Trust I, (“ASBSTI”). For additional information, see “NOTE 11 – SUBORDINATED DEBT” in the Notes to Consolidated Financial Statements.
ASBI Acquisition Amount Percent of Total (Dollars in thousands) Non-interest-bearing demand $ 254,944 38.1 % Interest-bearing demand and NOW accounts 95,023 14.2 % Savings and money market 221,187 33.1 % Time 97,695 14.6 % Total deposits $ 668,849 100.0 % Security Acquisition Amount Percent of Total (Dollars in thousands) Non-interest-bearing demand $ 19,724 26.3 % Interest-bearing demand and NOW accounts 13,713 18.3 % Savings and money market 26,132 34.8 % Time 15,509 20.6 % Total deposits $ 75,078 100.0 % The following table shows deposits assumed in 2020 acquisitions, as of the time of such acquisitions.
ASBI Acquisition Amount Percent of Total (Dollars in thousands) Non-interest-bearing demand $ 254,944 38.1 % Interest-bearing demand 95,023 14.2 % Savings and money market 221,187 33.1 % Time 97,695 14.6 % Total deposits $ 668,849 100.0 % Security Acquisition Amount Percent of Total (Dollars in thousands) Non-interest-bearing demand $ 19,724 26.3 % Interest-bearing demand 13,713 18.3 % Savings and money market 26,132 34.8 % Time 15,509 20.6 % Total deposits $ 75,078 100.0 % The following table shows the average deposit balance and average rate paid on deposits for the year ended December 31, 2023, 2022, and 2021.
There are no conditions or events since that notification that management believes have changed Equity Bank’s category. The total decrease in stockholders’ equity of $90.6 million was principally attributable to decreases in accumulated other comprehensive income of $115.3 million and treasury stock of $33.2 million, partially offset by an increase in retained earnings of $51.8 million.
There are no conditions or events since that notification that management believes have changed Equity Bank’s category. The total increase in stockholders’ equity of $42.8 million was principally attributable to an increase in accumulated other comprehensive income of $55.6 million, partially offset by a decrease in treasury stock of $17.9 million.
Available-For-Sale Securities December 31, 2022 2021 Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) U.S. Government-sponsored entities $ 123,196 $ 106,406 $ 124,898 $ 123,407 U.S.
Available-For-Sale Securities December 31, 2023 2022 Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) U.S. Government-sponsored entities $ 39,103 $ 33,087 $ 123,196 $ 106,406 U.S.
Composition of Loan Portfolio December 31, 2022 2021 2020 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Commercial and industrial $ 594,863 18.0 % $ 567,497 18.0 % $ 734,495 28.3 % Real estate loans: Commercial real estate 1,721,268 52.0 % 1,486,148 47.1 % 1,188,696 45.9 % Residential real estate 570,550 17.2 % 638,087 20.2 % 381,958 14.7 % Agricultural real estate 199,189 6.0 % 198,330 6.3 % 133,693 5.2 % Total real estate loans 2,491,007 75.2 % 2,322,565 73.6 % 1,704,347 65.8 % Agricultural 120,003 3.6 % 166,975 5.3 % 94,322 3.6 % Consumer 105,675 3.2 % 98,590 3.1 % 58,532 2.3 % Total loans held for investment $ 3,311,548 100.0 % $ 3,155,627 100.0 % $ 2,591,696 100.0 % Total loans held for sale $ 349 100.0 % $ 4,214 100.0 % $ 12,394 100.0 % Total loans held for investment (net of allowances) $ 3,265,701 100.0 % $ 3,107,262 100.0 % $ 2,557,987 100.0 % Commercial and industrial: Commercial and industrial loans include loans used to purchase fixed assets, to provide working capital or meet other financing needs of the business.
Composition of Loan Portfolio December 31, 2023 2022 2021 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Commercial and industrial $ 598,327 17.9 % $ 594,863 18.0 % $ 567,497 18.0 % Real estate loans: Commercial real estate 1,759,855 52.8 % 1,721,268 52.0 % 1,486,148 47.1 % Residential real estate 556,328 16.7 % 570,550 17.2 % 638,087 20.2 % Agricultural real estate 196,114 5.9 % 199,189 6.0 % 198,330 6.3 % Total real estate loans 2,512,297 75.4 % 2,491,007 75.2 % 2,322,565 73.6 % Agricultural 118,587 3.6 % 120,003 3.6 % 166,975 5.3 % Consumer 103,690 3.1 % 105,675 3.2 % 98,590 3.1 % Total loans held for investment $ 3,332,901 100.0 % $ 3,311,548 100.0 % $ 3,155,627 100.0 % Total loans held for sale $ 476 100.0 % $ 349 100.0 % $ 4,214 100.0 % Total loans held for investment (net of allowances) $ 3,289,381 100.0 % $ 3,265,701 100.0 % $ 3,107,262 100.0 % Commercial and industrial: Commercial and industrial loans include loans used to purchase fixed assets, to provide working capital or meet other financing needs of the business.
For the year ended December 31, 2022, gross charge-offs were $3.3 million offset by gross recoveries of $700 thousand. In comparison, gross charge-offs were $11.4 million for the year ended December 31, 2021, offset by gross recoveries of $2.7 million.
For the year ended December 31, 2023, gross charge-offs were $5.0 million offset by gross recoveries of $800 thousand. In comparison, gross charge-offs were $3.3 million for the year ended December 31, 2022, offset by gross recoveries of $700 thousand.
Average Deposit Balances and Average Rate Paid December 31, 2022 2021 2020 Average Balance Average Rate Paid Average Balance Average Rate Paid Average Balance Average Rate Paid (Dollars in thousands) Non-interest-bearing demand $ 1,203,167 — % $ 1,021,261 — % $ 678,713 — % Interest-bearing demand and NOW accounts 1,124,828 0.64 % 1,032,938 0.21 % 805,651 0.39 % Savings and money market 1,308,536 0.27 % 1,129,869 0.14 % 989,457 0.28 % Time 663,790 0.83 % 625,562 0.73 % 704,921 1.52 % Total deposits $ 4,300,321 $ 3,809,630 $ 3,178,742 75 Included in interest-bearing demand deposits are Insured Cash Sweep (“ICS”) reciprocal demand deposit balances of $282.7 million at December 31, 2022, and $308.4 million at December 31, 2021, and $256.0 million at December 31, 2020.
Average Deposit Balances and Average Rate Paid December 31, 2023 2022 2021 Average Balance Average Rate Paid Average Balance Average Rate Paid Average Balance Average Rate Paid (Dollars in thousands) Non-interest-bearing demand $ 979,410 — % $ 1,203,167 — % $ 1,021,261 — % Interest-bearing demand 1,002,543 2.26 % 1,124,828 0.64 % 1,032,938 0.21 % Savings and money market 1,359,822 1.73 % 1,308,536 0.27 % 1,129,869 0.14 % Time 827,652 2.93 % 663,790 0.83 % 625,562 0.73 % Total deposits $ 4,169,427 $ 4,300,321 $ 3,809,630 75 Included in interest-bearing demand deposits are Insured Cash Sweep (“ICS”) reciprocal demand deposit balances of $382.6 million at December 31, 2023, and $282.7 million at December 31, 2022, and $308.4 million at December 31, 2021.
December 31, 2022 2021 (Dollars in thousands) 3 months or less $ 40,578 $ 88,969 Over 3 through 6 months 51,365 115,063 Over 6 through 12 months 19,191 14,047 Over 12 months 34,586 15,381 Total Time Deposits $ 145,720 $ 233,460 Other Borrowed Funds We utilize borrowings to supplement deposits to fund our lending and investing activities.
December 31, 2023 2022 (Dollars in thousands) 3 months or less $ 65,449 $ 40,578 Over 3 through 6 months 94,459 51,365 Over 6 through 12 months 18,082 19,191 Over 12 months 18,777 34,586 Total Time Deposits $ 196,767 $ 145,720 Other Borrowed Funds We utilize borrowings to supplement deposits to fund our lending and investing activities.
Non-Interest Expense For the Year Ended December 31, 2022 vs. 2021 2021 vs. 2020 (Dollars in thousands) 2022 2021 2020 Change % Change % Salaries and employee benefits $ 62,006 $ 54,198 $ 54,129 $ 7,808 14.4 % $ 69 0.1 % Net occupancy and equipment 12,223 10,137 8,784 2,086 20.6 % 1,353 15.4 % Data processing 15,883 13,261 10,991 2,622 19.8 % 2,270 20.7 % Professional fees 4,951 4,713 4,282 238 5.0 % 431 10.1 % Advertising and business development 5,042 3,370 2,498 1,672 49.6 % 872 34.9 % Telecommunications 1,916 1,966 1,873 (50 ) (2.5 )% 93 5.0 % FDIC insurance 1,140 1,665 2,088 (525 ) (31.5 )% (423 ) (20.3 )% Courier and postage 1,881 1,429 1,441 452 31.6 % (12 ) (0.8 )% Free nationwide ATM expense 2,103 2,019 1,609 84 4.2 % 410 25.5 % Amortization of core deposit intangibles 4,042 4,174 3,850 (132 ) (3.2 )% 324 8.4 % Loan expense 828 934 789 (106 ) (11.3 )% 145 18.4 % Other real estate owned 589 (188 ) 2,310 777 (413.3 )% (2,498 ) (108.1 )% Loss on debt extinguishment — 372 — (372 ) 100.0 % 372 — % Other 15,182 12,226 9,216 2,956 24.2 % 3,010 32.7 % Subtotal 127,786 110,276 103,860 17,510 15.9 % 6,416 6.2 % Merger expenses 594 9,189 299 (8,595 ) (93.5 )% 8,890 2,973.2 % Goodwill impairment — — 104,831 — — % (104,831 ) (100.0 )% Total non-interest expense $ 128,380 $ 119,465 $ 208,990 $ 8,915 7.5 % $ (89,525 ) (42.8 )% Year ended December 31, 2022, compared with year ended December 31, 2021 The increase in non-interest expense was primarily due to increases in salaries and employee benefits of $7.8 million, other non-interest expense of $3.0 million, data processing of $2.6 million and net occupancy and equipment of $2.1 million, offset by a decrease in merger expenses of $8.6 million.
Non-Interest Expense For the Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 (Dollars in thousands) 2023 2022 2021 Change % Change % Salaries and employee benefits $ 64,384 $ 62,006 $ 54,198 $ 2,378 3.8 % $ 7,808 14.4 % Net occupancy and equipment 12,325 12,223 10,137 102 0.8 % 2,086 20.6 % Data processing 17,433 15,883 13,261 1,550 9.8 % 2,622 19.8 % Professional fees 5,754 4,951 4,713 803 16.2 % 238 5.0 % Advertising and business development 5,425 5,042 3,370 383 7.6 % 1,672 49.6 % Telecommunications 1,963 1,916 1,966 47 2.5 % (50 ) (2.5 )% FDIC insurance 2,195 1,140 1,665 1,055 92.5 % (525 ) (31.5 )% Courier and postage 2,046 1,881 1,429 165 8.8 % 452 31.6 % Free nationwide ATM expense 2,073 2,103 2,019 (30 ) (1.4 )% 84 4.2 % Amortization of core deposit intangibles 3,374 4,042 4,174 (668 ) (16.5 )% (132 ) (3.2 )% Loan expense 540 828 934 (288 ) (34.8 )% (106 ) (11.3 )% Other real estate owned 542 589 (188 ) (47 ) (8.0 )% 777 (413.3 )% Loss on debt extinguishment — — 372 — 100.0 % (372 ) (100.0 )% Other 17,250 15,182 12,226 2,068 13.6 % 2,956 24.2 % Subtotal 135,304 127,786 110,276 7,518 5.9 % 17,510 15.9 % Merger expenses 297 594 9,189 (297 ) (50.0 )% (8,595 ) (93.5 )% Total non-interest expense $ 135,601 $ 128,380 $ 119,465 $ 7,221 5.6 % $ 8,915 7.5 % Year ended December 31, 2023, compared with year ended December 31, 2022 The increase in non-interest expense was primarily due to increases in salaries and employee benefits of $2.4 million, other non-interest expense of $2.1 million, data processing of $1.6 million and FDIC insurance of $1.1 million, offset by a decrease in the amortization of core deposits intangibles of $668 thousand.
As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
Unlike many industrial companies, substantially all our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services.
We believe that our daily funding needs can be met through cash provided by operating activities, payments and maturities on loans and investment securities, our core deposit base, FHLB advances and other borrowing relationships.
We believe that our daily funding needs can be met through cash provided by operating activities, payments and maturities on loans and investment securities, our core deposit base, FHLB advances, Federal Reserve Bank and other borrowing relationships. For additional information, see "NOTE 10 - BORROWINGS" in the Notes to Consolidated Financial Statements.
Composition of Deposits December 31, 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Amount Percent of Total Amount Percent of Total Amount Percent of Total Change % Change % (Dollars in thousands) Non-interest-bearing demand $ 1,097,899 25.9 % $ 1,244,117 28.1 % $ 791,639 22.9 % $ (146,218 ) (11.8 )% $ 452,478 57.2 % Interest-bearing demand and NOW accounts 1,061,264 25.0 % 1,202,408 27.2 % 1,016,424 29.5 % (141,144 ) (11.7 )% 185,984 18.3 % Savings and money market 1,268,320 29.9 % 1,319,881 29.9 % 1,012,673 29.4 % (51,561 ) (3.9 )% 307,208 30.3 % Time 814,324 19.2 % 653,598 14.8 % 626,854 18.2 % 160,726 24.6 % 26,744 4.3 % Total deposits $ 4,241,807 100.0 % $ 4,420,004 100.0 % $ 3,447,590 100.0 % $ (178,197 ) (4.0 )% $ 972,414 28.2 % The following tables show deposits sold in 2022 branch dispositions, as of the time of such dispositions.
Composition of Deposits December 31, 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Amount Percent of Total Amount Percent of Total Amount Percent of Total Change % Change % (Dollars in thousands) Non-interest-bearing demand $ 898,129 21.7 % $ 1,097,899 25.9 % $ 1,244,117 28.1 % $ (199,770 ) (18.2 )% $ (146,218 ) (11.8 )% Interest-bearing demand 998,822 24.1 % 1,061,264 25.0 % 1,202,408 27.2 % (62,442 ) (5.9 )% (141,144 ) (11.7 )% Savings and money market 1,484,985 35.8 % 1,268,320 29.9 % 1,319,881 29.9 % 216,665 17.1 % (51,561 ) (3.9 )% Time 763,519 18.4 % 814,324 19.2 % 653,598 14.8 % (50,805 ) (6.2 )% 160,726 24.6 % Total deposits $ 4,145,455 100.0 % $ 4,241,807 100.0 % $ 4,420,004 100.0 % $ (96,352 ) (2.3 )% $ (178,197 ) (4.0 )% The following tables show deposits sold in 2022 branch dispositions, as of the time of such dispositions.
We also had a decrease in loans classified as held for sale of $3.9 million, or 91.7%, from December 31, 2021. Our loan portfolio consists of various types of loans, most of which are made to borrowers located in the Wichita, Kansas City and Tulsa MSAs, as well as various community markets throughout Arkansas, Kansas, Missouri and Oklahoma.
Loan Portfolio Our loan portfolio consists of various types of loans, most of which are made to borrowers located in the Wichita, Kansas City and Tulsa MSAs, as well as various community markets throughout Arkansas, Kansas, Missouri and Oklahoma.
There can be no assurance, however, that we will not sustain losses in future periods that could be substantial in relation to the size of the allowance at December 31, 2022.
Management believes that the allowance for credit losses at December 31, 2023, is adequate to cover current expected losses in the loan portfolio as of such date. There can be no assurance, however, that we will not sustain losses in future periods that could be substantial in relation to the size of the allowance at December 31, 2023.
As detailed in “NOTE 15 – INCOME TAXES” in the Notes to Consolidated Financial Statements, the income tax rates differed from the U.S. statutory rates primarily due to non-taxable income, non-deductible expenses, and tax credits.
The effective income tax rate for the year ended December 31, 2022, was 17.9% as compared to the U.S. statutory rate of 21.0%. As detailed in “NOTE 13 – INCOME TAXES” in the Notes to Consolidated Financial Statements, the income tax rates differed from the U.S. statutory rates primarily due to non-taxable income, non-deductible expenses, and tax credits.
Risk Category of Loans by Class As of December 31, 2022 Unclassified Classified Total (Dollars in thousands) Commercial and industrial $ 566,549 $ 28,314 $ 594,863 Real estate: Commercial real estate 1,714,793 6,475 1,721,268 Residential real estate 567,179 3,371 570,550 Agricultural real estate 186,760 12,429 199,189 Total real estate 2,468,732 22,275 2,491,007 Agricultural 112,880 7,123 120,003 Consumer 105,328 347 105,675 Total $ 3,253,489 $ 58,059 $ 3,311,548 As of December 31, 2021 Unclassified Classified Total (Dollars in thousands) Commercial and industrial $ 530,783 $ 36,714 $ 567,497 Real estate: Commercial real estate 1,454,545 31,603 1,486,148 Residential real estate 632,973 5,114 638,087 Agricultural real estate 184,428 13,902 198,330 Total real estate 2,271,946 50,619 2,322,565 Agricultural 152,497 14,478 166,975 Consumer 98,268 322 98,590 Total $ 3,053,494 $ 102,133 $ 3,155,627 For additional information see “NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES” in the Notes to Consolidated Financial Statements. 69 In accordance with applicable regulation, appraisals or evaluations are required to independently value real estate and, as an important element, to consider when underwriting loans secured in part or in whole by real estate.
Risk Category of Loans by Class As of December 31, 2023 Unclassified Classified Total (Dollars in thousands) Commercial and industrial $ 586,629 $ 11,698 $ 598,327 Real estate: Commercial real estate 1,748,878 10,977 1,759,855 Residential real estate 549,014 7,314 556,328 Agricultural real estate 190,659 5,455 196,114 Total real estate 2,488,551 23,746 2,512,297 Agricultural 115,284 3,303 118,587 Consumer 103,066 624 103,690 Total $ 3,293,530 $ 39,371 $ 3,332,901 As of December 31, 2022 Unclassified Classified Total (Dollars in thousands) Commercial and industrial $ 566,549 $ 28,314 $ 594,863 Real estate: Commercial real estate 1,714,793 6,475 1,721,268 Residential real estate 567,179 3,371 570,550 Agricultural real estate 186,760 12,429 199,189 Total real estate 2,468,732 22,275 2,491,007 Agricultural 112,880 7,123 120,003 Consumer 105,328 347 105,675 Total $ 3,253,489 $ 58,059 $ 3,311,548 For additional information see “NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES” in the Notes to Consolidated Financial Statements. 69 In accordance with applicable regulation, appraisals or evaluations are required to independently value real estate and, as an important element, to consider when underwriting loans secured in part or in whole by real estate.
Treasury securities 257,690 232,158 157,289 155,602 Mortgage-backed securities Government-sponsored residential mortgage-backed securities 560,776 498,606 661,584 664,887 Private label residential mortgage-backed securities 190,889 163,560 173,717 171,688 Corporate 56,642 52,374 52,555 53,777 Small Business Administration loan pools 12,915 12,181 16,568 16,475 State and local subdivisions 130,311 119,105 138,404 141,606 Total available-for-sale securities $ 1,332,419 $ 1,184,390 $ 1,325,015 $ 1,327,442 The following table summarizes the amortized cost and fair value by classification of held-to-maturity securities as of the dates shown.
Treasury securities 89,999 89,256 257,690 232,158 Mortgage-backed securities Government-sponsored residential mortgage-backed securities 560,674 529,143 560,776 498,606 Private label residential mortgage-backed securities 161,174 137,841 190,889 163,560 Corporate 56,722 49,683 56,642 52,374 Small Business Administration loan pools 8,066 7,727 12,915 12,181 State and local subdivisions 81,458 72,911 130,311 119,105 Total available-for-sale securities $ 997,196 $ 919,648 $ 1,332,419 $ 1,184,390 The following table summarizes the amortized cost and fair value by classification of held-to-maturity securities as of the dates shown.
Non-Interest Income For the Years Ended December 31, 2022 vs. 2021 2021 vs. 2020 (Dollars in thousands) 2022 2021 2020 Change % Change % Service charges and fees $ 10,632 $ 8,596 $ 6,856 $ 2,036 23.7 % $ 1,740 25.4 % Debit card income 10,677 10,236 9,136 441 4.3 % 1,100 12.0 % Mortgage banking 1,416 3,306 3,153 (1,890 ) (57.2 )% 153 4.9 % Increase in value of bank-owned life insurance 3,113 3,506 1,941 (393 ) (11.2 )% 1,565 80.6 % Other Investment referral income 539 678 567 (139 ) (20.5 )% 111 19.6 % Trust income 1,036 1,140 433 (104 ) (9.1 )% 707 163.3 % Insurance sales commissions 566 545 275 21 3.9 % 270 98.2 % Recovery on zero-basis purchased loans 249 85 134 164 192.9 % (49 ) (36.6 )% Income (loss) from equity method investments (222 ) (222 ) (210 ) — — % (12 ) 5.7 % Other non-interest income 6,984 3,981 1,582 3,003 75.4 % 2,399 151.6 % Total other 9,152 6,207 2,781 2,945 47.4 % 3,426 123.2 % Subtotal 34,990 31,851 23,867 3,139 9.9 % 7,984 33.5 % Gain on acquisition 962 585 2,145 377 64.4 % (1,560 ) (72.7 )% Net gain (loss) from securities transactions 5 406 11 (401 ) (98.8 )% 395 3,590.9 % Total non-interest income $ 35,957 $ 32,842 $ 26,023 $ 3,115 9.5 % $ 6,819 26.2 % Year ended December 31, 2022, compared with year ended December 31, 2021 Non-interest income improved in 2022 by 9.5% driven by continued expansion of customer service charges and recovery on zero-basis purchased loans as well as loan repurchase obligation reversal fees, credit card fees and check commission which are included in ‘Other non-interest income’ and collectively improved by $2.0 million reflecting the Company’s continued emphasis on offering innovative products to our customer base. 63 Non-Interest Expense The following table provides a comparison of the major components of non-interest expense for the years ended December 31, 2022, 2021, and 2020.
Non-Interest Income For the Years Ended December 31, 2023 vs. 2022 2022 vs. 2021 (Dollars in thousands) 2023 2022 2021 Change % Change % Service charges and fees $ 10,187 $ 10,632 $ 8,596 $ (445 ) (4.2 )% $ 2,036 23.7 % Debit card income 10,322 10,677 10,236 (355 ) (3.3 )% 441 4.3 % Mortgage banking 652 1,416 3,306 (764 ) (54.0 )% (1,890 ) (57.2 )% Increase in value of bank-owned life insurance 4,059 3,113 3,506 946 30.4 % (393 ) (11.2 )% Other Investment referral income 424 539 678 (115 ) (21.3 )% (139 ) (20.5 )% Trust income 1,123 1,036 1,140 87 8.4 % (104 ) (9.1 )% Insurance sales commissions 582 566 545 16 2.8 % 21 3.9 % Recovery on zero-basis purchased loans 517 249 85 268 107.6 % 164 192.9 % Income (loss) from equity method investments (222 ) (222 ) (222 ) — — % — — % Other non-interest income 5,136 6,984 3,981 (1,848 ) (26.5 )% 3,003 75.4 % Total other 7,560 9,152 6,207 (1,592 ) (17.4 )% 2,945 47.4 % Subtotal 32,780 34,990 31,851 (2,210 ) (6.3 )% 3,139 9.9 % Gain on acquisition — 962 585 (962 ) (100.0 )% 377 64.4 % Net gain (loss) from securities transactions (51,909 ) 5 406 (51,914 ) (100.0 )% (401 ) (98.8 )% Total non-interest income $ (19,129 ) $ 35,957 $ 32,842 $ (55,086 ) (153.2 )% $ 3,115 9.5 % 63 Year ended December 31, 2023, compared with year ended December 31, 2022 Non-interest income, before gain on acquisition and gain (loss) on securities transactions decreased 6.3%.
The following table provides information on the maturity distribution of time deposits of $250,000 or more as of December 31, 2022, and December 31, 2021.
Also included in time deposits are brokered deposit balances totaling $200 million as of December 31, 2023, compared to $252 million as of December 31, 2022. The following table provides information on the maturity distribution of time deposits of $250,000 or more as of December 31, 2023, and December 31, 2022.
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.
Monthly pay downs on mortgage-backed securities cause the average lives of these securities to be much different than their stated lives.
At December 31, 2021, the allowance for credit losses totaled $48.4 million, or 1.53% of total loans. The $2.5 million reduction in the allowance for credit losses was the result of a $6.5 million increase in the allowance for credit losses on collectively evaluated loans offset by a $9.1 million decrease in specific reserves.
The $2.3 million decrease in the allowance for credit losses was the result of an increase in net charge offs of $1.5 million offset by the $2.1 million decrease in the allowance for credit losses on collectively evaluated loans and a $181 thousand decrease in specific reserves.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+3 added−6 removed18 unchanged
Biggest changeMarket Risk Impact on Net Interest Income December 31, Change in prevailing interest rates 2022 2021 +300 basis points 5.0 % (4.4 )% +200 basis points 3.3 % (2.4 )% +100 basis points 1.6 % (1.0 )% 0 basis points — % — % -100 basis points (2.3 )% (4.4 )% Impact on Economic Value of Equity December 31, Change in prevailing interest rates 2022 2021 +300 basis points (10.7 )% (2.8 )% +200 basis points (6.6 )% 0.7 % +100 basis points (3.3 )% 2.7 % 0 basis points — % — % -100 basis points 0.7 % (14.8 )% 83
Biggest changeMarket Risk Impact on Net Interest Income December 31, Change in prevailing interest rates 2023 2022 +300 basis points 10.3 % 5.0 % +200 basis points 6.8 % 3.3 % +100 basis points 3.3 % 1.6 % 0 basis points — % — % -100 basis points (2.1 )% (2.3 )% -200 basis points (4.3 )% (5.5 )% -300 basis points (7.3 )% (10.2 )% Impact on Economic Value of Equity December 31, Change in prevailing interest rates 2023 2022 +300 basis points (7.4 )% (10.7 )% +200 basis points (4.3 )% (6.6 )% +100 basis points (2.2 )% (3.3 )% 0 basis points — % — % -100 basis points 0.3 % 0.7 % -200 basis points (1.5 )% (0.5 )% -300 basis points (5.3 )% (4.0 )% 84
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.
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.
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.
Additionally, the ALCO reviews liquidity, projected cash flows, maturities of deposits, and consumer and commercial deposit activity. 82 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.
Substantially all investments and approximately 55.4% 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.
Substantially all investments and approximately 55.4% of loans are prepayable and fixed rate and as rates decrease the level of modeled prepayments 83 increase. The prepaid principal is assumed to reprice at the assumed current rates, resulting in a smaller positive impact to the economic value of equity.
The simulation tests the sensitivity of NII and EVE. Contractual maturities and repricing opportunities of loans are incorporated in the simulation model as are prepayment 81 assumptions, maturity data and call options within the investment securities portfolio. Assumptions based on past experience are incorporated into the model for non-maturity deposit accounts.
The simulation tests the sensitivity of NII and EVE. Contractual maturities and repricing opportunities of loans are incorporated in the simulation model as are prepayment assumptions, maturity data and call options within the investment securities portfolio. Assumptions based on past experience are incorporated into the model for non-maturity deposit accounts.
The change in the impact of net interest income from the base case for December 31, 2022 and 2021 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 change in the impact of net interest income from the base case for December 31, 2023, and 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.
These factors result in the negative impacts to net interest income in the up interest rate shock scenarios that are detailed in the table below.
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.
These factors result in the negative impact to net interest income in the down interest rate shock scenario. 82 The change in the economic value of equity from the base case for December 31, 2021, is due to us being in a liability sensitive position and the level of convexity in our pre-payable assets.
The change in the economic value of equity from the base case for December 31, 2023, is due to us being in a liability sensitive position and the level of convexity in our prepayable assets.
The prepaid principal is assumed to reprice at the assumed current rates, resulting in a smaller positive impact to the economic value of equity. The following table summarizes the simulated immediate change in net interest income for twelve months as of the dates indicated.
The following table summarizes the simulated immediate change in net interest income for twelve months as of the dates indicated.
In the down interest rate shock scenario, the main drivers of the negative impact on net interest income are the decrease in investment income due to the negative convexity features of the fixed rate mortgage-backed securities; assumed prepayment of existing fixed rate loans receivable; the downward pricing of variable rate loans receivable; the constraint of the shock on non-term deposits; and the level of term deposit repricing.
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, increase in interest-earning cash balances and the decrease in fixed rate investments. These factors result in the negative impact to net interest income in the down interest rate shock scenario.
However, due to the level of convexity in our fixed rate pre-payable assets, we do not experience a similar change in the value of assets in a down interest rate shock scenario. 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.
Due to the level of convexity in our fixed rate prepayable 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 prepayable 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.
Removed
December 31, 2021 Analysis The change in the impact of net interest income from the base case for December 31, 2021, 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.
Added
December 31, 2023, Analysis The increase in the level of positive impact to net interest income in the up interest rate shock scenarios is due to the decrease in fixed rate investments, increase in interest earning cash balances and overall increase in the level of adjustable rate loans, which were partially offset by the decreases in non-interest bearing deposits and savings accounts, which are low beta deposit products, and increases in money market and ICS deposits, which are high beta deposit produces.
Removed
The increase in the level of negative impact to net interest income in the up interest rate shock scenarios is due to the assumed migration of non-term deposit liabilities to higher rate term deposits; the level of fixed rate investments and loans receivable that will not reprice to higher rates; the variable rate subordinated debentures, and the non-term deposits that are assumed not to migrate to term deposits that are variable rate and will reprice to the higher rates; and a portion of our portfolio of variable rate loans contain restrictions on the amount of repricing and frequency of repricing that limit the amount of repricing to the current higher rates.
Added
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 December 31, 2023, non-interest-bearing deposits were approximately $898.1 million, or 18.2%, lower than that deposit type at December 31, 2022.
Removed
Our mortgage-backed security portfolio is primarily comprised of fixed rate investments and as rates decrease, the level of prepayments will increase and cause the current higher rate investments to prepay and the assumed reinvestment will be at lower interest rates.
Added
Substantially all investments and approximately 41.3% 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.
Removed
Similar to our mortgage-backed securities, the model assumes that our fixed rate loans receivable will prepay at a faster rate and reinvestment will occur at lower rates. The level of downward shock on the non-term deposits is constrained to limit the downward shock to a non-zero rate which results in a minimal reduction in the average rate paid.
Removed
Term deposits repricing will only decrease the average cost paid by a minimal amount due to the assumed repricing occurring at maturity.
Removed
At December 31, 2021, non-interest-bearing deposits were approximately $1.24 billion, or 57.2%, higher than that deposit type at December 31, 2020. Substantially all investments and approximately 54.0% of loans are pre-payable and fixed rate and as rates decrease the level of modeled prepayments increase.

Other EQBK 10-K year-over-year comparisons