Good day, ladies and gentlemen and welcome to the Q3 2017 Equity Bancshares, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. John Hanley, Senior Vice President of Investor Relations. Sir, you may begin.

Good morning. Thank you for joining our Equity Bancshares presentation and conference call, which will include discussion and presentation of our third quarter and nine month 2017 results. With me today are Equity Bancshares' Chairman and CEO, Brad Elliott; and Equity Bancshares' Executive Vice President and Chief Financial Officer, Greg Kossover. Presentation slides to accompany this call are available for download or review at investor.equitybank.com. The presentation accompanies the discussion of our Q3 results and is available by clicking either the presentation tab to download the PDF or the webcast link. You may also click the event icon for the call posted at investor.equitybank.com. Please note if you are viewing this call on our webcast player, the slides will not automatically advance. Please hit the forward button to follow along. Please note slide two including important information regarding forward-looking statements. From time-to-time, we may make forward-looking statements within today's call and actual results may differ. Please also note slide three with important additional information for investors and for shareholders. Following our presentation, we will allow time for questions and further discussion. Thank you all once again for joining us. And with that, I'd like to turn it over to Brad Elliott.

Good morning and thank you for joining our third quarter 2017 Equity Bancshares' earnings call. I'm Brad Elliott, Chairman and CEO and here with me this morning are CFO, Greg Kossover. It has been a very busy quarter for Equity franchise and we will remain -- and we remain excited about the two Oklahoma mergers. All the teams from Eastman, Patriot and Equity have been working very hard to make the merger and customer conversions as easy as possible. Nothing we have run across since the announcement in July makes me any less excited about Mike and his team in Tulsa and Mark and Jim and their teams in Ponca City and Newkirk. As both sets of their shareholders approved the mergers earlier this week. And as previously released, we have also -- we also have already all regulatory approvals in hand. The mergers will occur November 10th and the conversions and integrations will begin immediately following just as we have always done. I think it is also worth noting, the current performance and balance sheet at each bank coming into Equity is what we expected. Our merger pipeline continues to be -- to keep us busy and we will talk more about that later -- about those opportunities. At this point, Greg and I would like to take the discussion to the third quarter earnings. Our normalized EPS of $0.47 per share which is the stated EPS of $0.41 per share and then adding back after tax merger expenses of $0.06 per share did not meet our third quarter goal we set for ourselves of over $0.50 per share. There are several reasons for this, which we will discuss in detail in a moment. But first, I want to talk about our current loan production and our pipeline. We…

Thanks Brad. And keeping with Brad's comments, we have seen an overall increase of 14 basis points in the coupon on new loans in the second quarter, generally spread over loan categories. Our teams are working hard to stay the course on competitive terms and improve our margin at the same time. Likewise, our coupon portfolio loans year-over-year, which includes the Canary First and Prairie merger's impact, has grown 31 basis points and these numbers do not include the purchase accounting impact, which we will discuss in a moment. And our credit quality remains very high. Net charge-offs remain low and our special assets teams are working down classifying assets, most of which have been acquired through mergers. We did have a one-off credit of about $7 million moved to non-accrual in the quarter, but we do not believe it will have a loss and it is not systemic to our portfolio. Without this asset, our classifieds would have dropped about $6.5 million in the quarter. OREO did drop in the quarter over $3.5 million on a strong effort by our special assets team to reduce those assets. And the net sales prices were materially close to book value, giving us confidence our carrying values are in line. Loans past due less than 90 days as a percentage of total loans have declined every quarter this year. The loan mentioned above does spike our non-accrual loans, but as I said, we do not anticipate a loss on the asset. Classified assets to capital are 23% at September 30th, down from 25% at March 31st. The teams are demonstrating their ability to take these assets, many of which come from mergers and responsibly work the non-performers down. Our net interest margin for the quarter is reported at 3.68% and our goal for the quarter was about 3.85%. This is caused by four primary factors. Loan fees were lower than expected by about $175,000, as originations were lower, our cost of deposits increased about six basis points in the quarter, slightly more than we thought, reflecting the fed rate increases, which equates to about $150,000 in our NIM expectation through the quarter. Our purchase accounting accretion was lower than we anticipated by about $250,000, something that can be very hard to predict and we had more rapid premium amortization on our securities in the quarter by about $300,000. With these factors considered, our net interest margin would have been around 3.83%. And with our expected additional loan growth that did not materialize in this quarter, our net interest margin would have been somewhere between 3.85% and 3.90%. Brad?

Regarding deposits, there is no question as the fed has moved rates -- the deposit betas are moving away from their recent lows. In the first quarter this year, we implemented a new, more aggressively priced money market account primarily for the new money -- for new money coming into the bank. This was part of an overall balance sheet strategy to help raise consumer funds and core deposits to pay down Federal Home Loan Bank advances and it has worked well. We have raised over $85 million and our Federal Home Loan Bank advances have decreased about $67 million since March 31. In addition, this money market account costs much less than the Federal Home Loan Bank advances, which are now over 1.25%. And although our NIM declined in the quarter, the consumer elements of our balance sheet continue to improve. We have attracted more deposits at costs cheaper than our overall debt and our loan portfolio is yielding more coupon in recent quarters. I'm very proud of our loan and retail teams continue to perform at high levels. They are attracting new and excellent customers and doing so without significantly sacrifice -- sacrificing terms.

Our provision for loan losses was $727,000 for the third quarter and our ALLL to loans now stands at 52 basis points, up from 47 basis points at year end. Our total ALLL plus discounts on performing loans is about 64 basis points at September 30th. Non-interest income was slightly better than we had projected, aided a little by about $175,000 gain in securities, which we have previously stated we will take when the correct opportunities arise. Operating expenses were a little higher than we projected, even after excluding merger expenses, in part because we began building the human and infrastructure resources necessary to accommodate that growth ahead of time and not all of these end up categorized as merger expense. Also, we had more professional fees than anticipated, primarily from one large credit we mentioned earlier and OREO expense was slightly higher in the quarter as we continued to prepare the assets to work down the portfolio. The effective rate on income taxes was lower primarily because of the impact of accounting for a stock option exercise, to which the tax deduction to us, according to GAAP, runs through the provision for income taxes. So, a reconciliation of earnings per share for the third quarter looks like this. EPS as stated is $0.41. It is increased by $0.06 to arrive at $0.47 to account for the merger expenses. It has decreased by about $0.01 for the income tax benefit of the stock option exercise to arrive at a core EPS of about $0.46 per share. As stated earlier, we expected about $0.50 to $0.52 and that additional $0.04 to $0.06 is primarily explained previously in the net interest margin discussion. Brad?

I'd like to talk about our balance sheet for a few minutes and also talk about incorporating the two Oklahoma balance sheets. Our balance sheet continues to be very healthy as we head into the next phase of growth. With asset quality, as Greg alluded to, being high and also our core deposits are growing, up $161 million since the beginning of the year, $118 million through the merger of Prairie and $43 million through the -- through organic growth strategies. We all know the importance of these core deposits and it's nice to see our teams getting this done. Incorporating our new teams and customers from the two Oklahoma mergers will be priority one, along with blending their balance sheets into ours. We will be bringing our full suite of retail products to Tulsa, which has been historically a loan heavy, but core deposit light franchise and we will be incorporating the very strong balance sheet from Eastman with its very attractive core deposits and loan base. By offering our suite of retail products in Tulsa, we expect to be competitive from day one on the retail front. And of course, Tulsa's lending team will bolster our loan growth we are excited to achieve. We're also bringing a larger capital base to both these Oklahoma franchises and markets and as such we anticipate more loan growth and opportunities than those teams were able to accomplish on their own. Greg?

The deposit efforts, Brad has mentioned, have allowed us to decrease Federal Home Loan Bank advances $67 million in the quarter with balances ending at $190 million at September 30th. Our capital ratios all remain strong and it bears mentioning that we will have issued over 6,350,000 common shares in the last four quarters after the Tulsa and Ponca City mergers, and including the Arkansas and Prairie mergers and the pipe in the fourth quarter of 2016. This represents more than 75% growth in our share base. This type of shared growth is cost efficient, it adds float, and a dispersion of shares is healthy for our stock and its holders. Brad?

We have not spent much time today talking about future mergers. On top of everything else, we have continued to be active with other merger opportunities. Frankly, we have more inquiries than most any other time in recent memory. And from a very -- and from all very well run institutions, we will be proud to have in the equity family. Those discussions continue and Greg and I continue to work them under the same guidelines we've communicated in the past. Must be attractive and -- they must be attractive and be in our geographic footprint with responsible earn back periods indicative of appropriate book value dilution followed by nice EPS accretion. I am as excited as always to think of the organic growth coupled with these merger opportunities to continue to deliver shareholder value. At this time, we'll entertain questions.

Thank you. [Operator Instructions] And our first question comes from the line of Michael Perito from KBW. Your line is open.

Hey Brad, very good morning.

Good morning Michael.

Good morning.

A couple of questions for me. I appreciate all the color on the margin, few moving pieces in the quarter. I guess as we think about next quarter though, it doesn't really get much easier because as I recall both the transactions are additive to your legacy equity NIM, am I correct? So, I guess any near-term expectations about what next quarter's margin can look like with maybe a fluctuation back to some normal levels on some other items, but then also the two deals coming on in November?

Yes. So, Mike here's a way to approach that question. The -- when I -- in the discussion that we just had, the impact of the cost of deposits is probably about two basis points to the NIM. So, if in Q3 we could have normalized at 3.83% without -- with appropriate levels of loan fees and without the purchase accounting adjustments, that sort of thing, security premium amortization, which I'll get to in a minute, we probably would have been between 3.81% and 3.82% on a "normalized basis." We did expect the Ponca City and Tulsa deals to improve margin somewhere around five basis points out of the gate. So, that would indicate that we would be somewhere around 3.85% or 3.86%. It will very much depend on loan production and it will also depend on how much and how early the new accretion purchase accounting on the Oklahoma deals comes in. So, there's a lot of variables. As guidance, I would probably expect us to say, if we could quiet down from the merger, we should still be in that 3.85% range. While we're on that, Mike, I'm happy to give a quick reconciliation of the quarter for net interest margin. If you take non -- net interest income as stated at $2.318 million, add the components that I mentioned earlier, loan fees, cost of deposits, lighter purchase accounting amortization and we had a more rapid security premium amortization that takes our -- for the quarter performed [ph] net interest income to about $21.2 million, which would indicate the margin at 3.83%. So, those are the components. The cost of deposits very likely will continue to be there. The other elements will fluctuate and hopefully will be better next quarter. And then, of course, we'll have the impact of both the balance sheets in Oklahoma plus their purchase accounting. So, it's a little noisy right now, but I would come down at about 3.85%.

All right. Great. Thanks. That was helpful. And then in terms of the loan growth as we look out to next year, it does sound like production is pretty good and the team in place you guys feel good about. But I mean, it also sounds like you're certainly not structuring on anything. So, I mean, are we at a point in the cycle in your markets where maybe 7%, 8% is too strong and we should be thinking about more like a 5%, 6% number just with what you're seeing? Or how are you thinking about that dynamic?

So, I would say I would not change that. I think we have good opportunities. Our pipeline is good. There's opportunities not in the pipeline. That actually is only commercial loans. It doesn't have anything to do with mortgage loans and consumer loans, which we are -- we have a pretty good pipeline -- pretty good functioning process working there as well. And then with the addition of both Tulsa and Ponca City, Michael, we -- I think we have a good opportunity to hit that number next year if not exceed that. There're some things that we didn't talk about a minute ago. One of those is Ag lines this year, I think, are unfunded about $35 million. And so we had anticipated those funding up. They didn't fund up because the borrowers didn't want to put the expense into the crop because they didn't think they were going to get the revenue back from it. So, in a normalized year, we would add about $35 million more of Ag loans funded to-date. Now on the positive side of that, our customers are being prudent in managing their farm production. But in future years, I think those lines will also fund back up again. We didn't lose those customers, they just didn't fund the lines to the same degree they funded them in the past. So, I think our loan production could be much higher than it is today and I think that 7% range is very achievable for us and especially with bringing on Tulsa. The Tulsa team is really good. The integration between that team and our team have worked really well together and so I really see that -- well, we actually have some better opportunities out of Ponca City than we first anticipated. They have some really strong manufacturing customers in that market. And so with our larger limit, we can actually put more of that on our balance sheet than they could.

Great. Very helpful guys. Thank you for taking my questions.

Thank you. And our next question comes from the line of Andrew Liesch from Sandler O'Neill. Your line is open.

Good morning guys,

Hi Andrew.

Just following up on the loan growth side here. That $75 million to $85 million pipeline; is that just the Equity franchise -- your current pipeline or does that include the Tulsa deal as well?

I think that's all ours. Is it?

This is all ours.

Yes, it's all ours.

And how has their production been I guess since the deal was announced? And what -- do you know what their pipeline looks like? And what they're hoping to close before year end?

I don't have the numbers Andrew in front of me. I would describe it this way, the Tulsa market pipeline on the -- if you scale it to the same size as we are, I think it would be as robust as ours. They're a little smaller bank with a little fewer producers, so they can't be expected to have our size of a pipeline. But the amount of velocity that they're getting in that market is every bit as good as ours. So, I would describe their pipeline as robust and exciting. And pleasantly, we've also had good indications coming out of Ponca City and Newkirk. Remember, we classify some of these smaller markets as community markets and we have a little less expectation for loan generation and more expectation for deposit generation. Talking to Mark and Darin and Jim and the teams in Ponca and Newkirk, they've done a really good job of cultivating their lending relationships. And so we also expect them to have some loan production. I will go back and tell you that on the July call, when we announced those deals, we put both banks in at earnings growth of 5% in 2018. I would expect Tulsa to easily exceed that from where they are and I would expect Ponca City and Newkirk to exceed that.

Great, that's very helpful. And then on -- just more on the deposit cost. I would assume that the -- that this money market account that you've been offering -- that you're continuing to offer that, how fund flow has been so far this quarter and should we expect to see more deposit costs continue to increase?

Yes. Well, it's a great question. There's really two questions in there Andrew. The new market -- the new product that we offer came out in late first quarter and it's generated about $85 million. And it takes a little while to get traction.

You know what we did in the third quarter on that.

I'm going to guess that it's weighted more towards the third quarter than the second quarter. So, probably $50 million in the third quarter and probably $30 million in the second quarter on the new product. And what was second part of your question?

Just like how flows might have been so far this quarter. And if their -- if the pace is continuing, sounds like it's even accelerating, should we continue to see deposit costs rise? I realize there's some offsetting benefit with -- on the borrowing side. But I'm just thinking if more deposits are coming in at this rate than costs are going to be going higher?

Yes, this one account really is not driving much of the rate increase in deposits. It's driving a little bit. But the biggest driver of the increase in our deposit accounts in the third quarter is you'll remember that we have a substantial amount of community markets and we do a lot of banking for their municipalities, for their local governments. We like that business by the way. It's very, very good and loyal business. And all of those municipalities have lots of employees, many of which that bank with us. So, we take good care of them. It is also a competitive environment for those deposits. In the third quarter, we had a pretty substantial amount of those deposits either come up for rebid or inflow into the bank based on tax fundings in those townships and cities. And so a lot of what you saw in the third quarter was more public funds driven than it was consumer funds driven. So, to answer your question with that color, probably you'll see a flattening on the public fund side because those funds will continue to go out a little bit. And on the consumer side, I don't know that we're -- we have any anticipation to raise rates at this point. So, you might see a small increase in our cost of deposits, but I don't think it will be as high as where it was in the third quarter.

Yes. And I would actually tell you Andrew that the net effect of that money market account is actually a net positive because it's paying down the Federal Home Loan Bank advances, which are actually greater than what we're bringing to those funds in that.

Right. Got you. Thank you very much. I appreciate it. I will step back.

Thank you. [Operator Instructions] And our next question comes from the line of Terry McEvoy from Stephens. Your line is open.

Hi guys. Good morning.

Good morning Terry.

Good morning Terry.

Maybe a question just for you, Brad. Could you just talk about the timing and the plan around integrating two banks and your confidence around the timing of achieving the cost savings?

Yes, sure. Good question. So, Terry, we are -- our teams have worked extremely hard. It's one of the reasons why we've ramped up maybe a little earlier on bringing on the back office folks on to our staff to support them. But when we close that day, we're converting both banks at night. So on November 10th, we're converting both banks that evening. We've done mock conversions on both of them at this point. Everything is going extremely well. I would say one of the reasons why it's going extremely well is both of these teams are very professional and I mean they've got this nailed on their side as well as our side. So, -- and both of them wanted to do these at the same time, so they could be on our systems as quickly as possible. So, the cost saving is going to be achieved at the exact same timeframe. All the employees that will not be retained have already all been notified and so all those cost savings will come out and conversions will come out on November 10th.

Thanks. And then Brad I guess just to sticking with M&A, could just talk about the level of conversations -- number of conversations you're having with potential partners or banks that would look to partner up with Equity? How those discussions are going? And whether -- as we think about 2018, do you feel strongly that the M&A strategy will continue to be successful going forward?

Yes, I would tell you Terry that I'm not sure velocity has picked up. Some of the discussions are the exact same we've had in the past, meaning that age of ownership is the driver of that. But I would tell you that we are down the path on a couple of those discussions. And then we have several other discussions that could very easily get down the path on in the very near future. So, I'm really bullish in the first half of next year that we will have something that will close. And then the pipeline on those discussions is -- I mean, we've never had more deals in the pipeline than what we have today, so continues to build. And part of that is we've been a proven integrator now and so people know that we can execute on that process and are confident in that. And how we've handled their employees and customers after closing, I think, has been a positive. So, as we continue to be successful in that strategy, I think we've become a partner that people want to look at to partner with. The big part in our world is either a lot of these are community markets and how we take care of their customers, employees is very important to them post-closing. And it's very important to us because we want to operate in those markets diligently and be a really good community partner, which we've proven that we are.

Thanks. And just a question Greg for you, you mentioned purchase accounting accretion was $250,000 below budget in the third quarter. Within that 3.85% run rate for the fourth quarter, what are your thoughts around accretion? And then just looking at 2018, given two deals about to close, do you think accretion will be higher in 2018 than full year 2017?

Well, Terry, that's a tough question.

I know it is I'm sorry.

It's okay. No, it's okay. Because it really depends on -- a lot on prepayment speeds that are often difficult to predict. But the answer for the fourth quarter without the two mergers, I have to say, probably looks like the third quarter. I don't think we're going to get back to the first and second quarter levels. So, I think that our standalone number for the fourth quarter probably looks about like it did in the third quarter based on what we know today. Having said that, we know that on November 10th, we're going to bringing in about another $4 million purchase discount assuming that our original marks hold up and we have every reason to believe that they will. And so how fast is that $4 million accrete into income is the question. So, my sense is that fourth quarter will probably look a little better than third quarter because some of that will come in from the new mergers, and first quarter would look a little better than fourth quarter because we'll have those two mergers for the entire quarter. So, probably a little better than Q3, Terry, and maybe to the levels that we saw in Q1 and Q2, but we won't know till we experience the marks and the prepayments fees.

I appreciate that. Thanks. Thanks you guys.

This concludes today's Q&A session. And I would now like to turn the call back over to John Hanley, Senior Vice President of Investor Relations for closing remarks.

Thank you all for attending our Q3 results presentation and conference call. Please have a great day. Thank you.