Equity Bancshares, Inc. (EQBK) Q4 2025 Earnings Report, Transcript and Summary

Hello, and welcome to the Equity Bancshares, Inc. 2025 Q4 Earnings Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to hand you over to your host, Brian Katzfey, Vice President, Director of Corporate Development and Investor Relations, to begin. Please go ahead when you're ready.

Good morning. Thank you for joining us today for Equity Bancshares' Fourth Quarter Earnings Call. Before we begin, let me remind you that today's call is being recorded and is available via webcast at investor.equitybank.com, along with our earnings release and presentation materials. Today's presentation contains forward-looking statements, which are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed. Following the presentation, we will allow time for questions and further discussion. Thank you all for joining us. With that, I'd like to turn the call over to our Chairman and CEO, Brad Elliott.

Good morning, everyone. Thanks for being here today. Joining me are Rick Sems, our bank CEO; and Chris Navratil, our CFO. I'm really proud to wrap up what's been a big year for Equity Bank. We ended 2025 with a strong balance sheet and earnings that beat our expectations. We started the year with $5.3 billion in assets and finished with $6.4 billion in assets. We added an additional $1.4 billion when we closed the Frontier merger on January 1. That's nearly 50% growth. With that kind of scale, we're pushing to earn more than $5 per share in 2026. That's a huge milestone made possible by our team, our partners and the trust of our investors. I couldn't be more proud of what our team completed in 2025. While handling the 2 biggest transactions in our company's history, our folks stay focused on what matters most, our customers. Despite a tough environment with more competition and lower rates, we still grew loans and deepened relationships. Everything we do is about making the best decisions for our customers, our employees and our shareholders. In 2025 and into 2026, we stay true to our mission. We're creating opportunities for our people to grow, rolling out new products and processes to better serve our communities and staying laser-focused on delivering strong returns. Thanks to David Pass and our tech team, we're heading into 2026 with a big push on using technology to improve service and efficiency. We're focused on using data smarter and moving faster across the board. Even with the Frontier acquisition, our capital position and generation remains strong. We'll keep being thoughtful about how we deploy capital to benefit everyone, our shareholders, customers and employees. Our Board, leadership and team are all aligned and energized. I'm excited about what's ahead in 2026. I'll stop here and hand it over to Chris to walk through the numbers.

Thank you, Brad. Last night, we reported net income of $22.1 million or $1.15 per diluted share. Adjusting for noncore items in the quarter, including merger expense of $1.5 million, litigation settlement expense of $1 million to fund anticipated resolution of our ongoing overdraft suits, and nonaccrual benefit of $900,000, adjusted earnings were $23.3 million or $1.21 per diluted share compared to adjusted earnings of $22.4 million or $1.17 per diluted share in the previous quarter. Purchase accounting accretion on the loan portfolio was $2.3 million in each period. Net interest income for the quarter was $63.5 million, up $1 million linked quarter. Margin for the quarter was 4.47%, an improvement of 2 basis points when compared to margin of 4.45% linked quarter. Noninterest income for the quarter was $9.5 million, up $400,000 from adjusted Q3 and in line with expectations. Noninterest expenses for the quarter were $46.6 million. Adjusted to exclude M&A charges and the litigation settlement accrual in both periods, noninterest expenses were $44.1 million compared to $42.9 million, an increase of 2.7% linked quarter. The increase is attributable to provisioning for unfunded commitments, which was up $1.2 million in the quarter. Excluding these noncore items for each period, adjusted noninterest expense as a percentage of average assets improved 2 basis points to 2.80%. Our GAAP net income included an immaterial release of reserve through the provision as periodic loan balances were down and charge-offs were muted. The ending coverage of ACLO loans was 1.26%. The ending reserve ratio, inclusive of discounts related to NBC closed the quarter at 1.33%. During the quarter, we were active under our repurchase authorization, acquiring 172,338 shares at a weighted average cost of $41.69. 872,662 shares remained under the authorization approved by the Board in September. TCE closed the quarter at 9.9%, up 23 basis points quarter-over-quarter. CET1 and total capital closed the quarter at 13.1% and 16.3%, respectively. At the bank level, the TCE ratio closed at 10.3%, I'll stop here for a moment and let Rick talk through asset quality for the quarter.

Thanks, Chris. In the quarter, we saw a series of positive outcomes in our credit portfolio. Nonaccrual loans moved down to $40.3 million from $48.6 million linked quarter, a 17% decline. The improvement was driven by a relationship brought on through NBC, resolution of which also contributed positively to margin and provisioning. The remaining nonaccrual balance is comprised of a number of low dollar exposures with only 2 in excess of $1 million to $3 million, the largest QSR relationship we have discussed previously continues to move towards resolution. Loans past due and nonaccrual as a percentage of end-of-period loans declined to 1.53% in from 1.55% linked quarter. Net charge-offs annualized were 7 basis points for the quarter as a percent of average loans, down 4 basis points linked quarter. Year-to-date net charge-offs annualized were 6 basis points. Looking ahead, we remain cautiously optimistic on the credit environment and the outlook for 2026. Despite some uncertainty in the broader economy, credit quality trends across our portfolio remained stable and below historic levels. The addition of Frontier's portfolio is not expected to have a meaningful impact on credit quality trends as their portfolio is granular and well underwritten as indicated in their history of strong credit performance.

Thanks, Rick. As I previously mentioned, margin improved 2 basis points during the quarter to 4.47%. The combination of loan purchase accounting and nonaccrual benefits contributed 22 basis points in each period. The modest expansion is attributable to declines in the cost of funding, outpacing declines in the earning asset yield as the impact of our bond portfolio repositioning was fully realized in the quarter. Normalizing loan purchase accounting to 12 basis points of margin and excluding nonaccrual benefit, yields a core margin of 4.36%. As we continue to see the FOMC move down interest rates in the quarter, cost of deposits declined by 10 basis points and cost of funding declined by 12 basis points. As we look ahead to future FOMC decision, the balance sheet remains positioned to realize a neutral impact in a moderated decline scenario. During the quarter, average earning assets increased 1.21% to $5.64 billion. The combination of margin and asset expansion led to an increase in net interest income of $1 million, approximately $700,000 ahead at the midpoint of our forecast. Comparative outperformance was driven by better-than-expected purchase accounting and asset quality as well as the repositioning of the bond portfolio in the previous quarter. Loans as a percentage of average earning assets declined from 76.2% to 74.6%. As we previously mentioned, we closed on our merger with Frontier on the first day of the new year. Frontier contributes $1.3 billion in loan assets against $1.1 billion in deposits. As we look to Q1 2026, we anticipate loans as a percentage of average earning assets of approximately 80% and a loan-to-deposit ratio of 88%. While purchase accounting remains in process, using the modeled expectations from our announcement, the addition of Frontier's portfolio will be accretive to NII, but dilutive to margins. We anticipate margin for the quarter and throughout 2026 of 4.2% to 4.35%. In addition, the impact on margin, our merger with Frontier is expected to add noninterest expense of $23 million to $24 million and noninterest income of $2 million to $3 million. Refer to the outlook within our investor presentation for additional detail on expectations for 2026. The conversion of Frontier systems is scheduled to take place in the middle of February with anticipated cost saves realized by the end of Q1. Rick?

Thanks, Chris. I want to start by emphasizing the exceptional efforts of the Equity Bank team over the last 180 days. It has been a transformative year and it would not have been possible without the committed efforts of the best community bankers in the business. I want to thank all the operating teams that report to Julie Huber, David Pass, Chris Navratil and Krzysztof Slupkowski. The teams have done a great job executing on the integration of NBC and getting ready for Frontier. They have done a great job of making all this look routine. As we enter 2026, we have a presence in 6 states, including 5 major metros and many strong communities. We have the tools, products and motivated teams to drive excellent performance in the new year. During the quarter, throughout the footprint, our production teams continue to originate loans and relationships at a high level. Loan production in the quarter was $220 million, down linked quarter, but up $100 million compared to the same period last year. Originations came on at an average rate of 6.77%, representing continued accretion to current coupon loan yield on the portfolio. Production was offset by continued headwinds in the portfolio from payout activity. We were cognizant of the impact of Frontier on the pro forma balance sheet, and we're strategic in our approach to pricing new business in the quarter, resulting in a modest level of decline in ending balances. In addition to realized production, our pipelines continue to grow throughout our banker network, positioning the bank to execute on organic growth initiatives as we look to 2026. At the close of the quarter, our 75% pipeline is $452 million. Line utilization was flat for the quarter at approximately 54%, though unfunded positions rose with production in the quarter, providing opportunities for increases moving forward. Total deposits increased approximately $43.5 million during the quarter, including core deposit expansion of $123.5 million, offset by a decline in brokered deposits of $80 million. Noninterest-bearing accounts closed the quarter at 22.4% of total deposits. Our retail teams were busy in 2025 and results showed positive trends in gross and net production levels, including net positive DDA comp production, though we have a long way to go to meet the aggressive goals we have set. As we welcome Frontier, Mark Parman will join Doug Ayer to lead the team through the transition and into the future. We couldn't be more excited about the expansion in these markets. Greg Kossover, has done a great job leading the NBC Group through the transition into the Equity Bank platform and into our culture. Heading into 2026, we are well positioned to use available liquidity to grow throughout our markets as we look to deliver mid-single-digit loan organic growth. The additions of NPC and Frontier add asset-generation depth to our footprint, while complementary community markets continue to provide funding opportunities. As we close 2025 and look to 2026, management and the Board are aligned in the expectation for realized growth in the balance sheet and noninterest revenue lines. I look forward to assisting our excellent teams in executing on that plan. Brad?

I take a lot of pride in what our team accomplished this year. We came into 2025 ready to grow, and we did just that, growing our balance sheet by nearly 50% and positioning ourselves to drive towards $5 per share in 2026. It's an honor to lead this company. We're committed to empowering our people, serving our customers and communities and delivering strong returns for our shareholders. Our Board and leadership team are fully aligned, and we're ready to keep executing on our mission. I want to take a moment to thank Rick and Chris for their outstanding work this year. The amount of modeling, analysis and strategic planning that goes into evaluating M&A opportunities is immense. And while we only pursue a few, each one takes a tremendous amount of effort from the entire team to get across the finish line. Brett Reber also plays a critical role in these efforts, and I want to recognize his contribution as well. Beyond M&A, I'm just as excited about the organic growth we're working on. We're putting the right tools, strategies and people in place to drive that growth. And I believe we're setting ourselves up for long-term success across our footprint. Thanks again for joining us today, and we're happy to take your questions at this time.

[Operator Instructions] And our first question comes from Jeff Rulis with D.A. Davidson.

This is Ryan Payne on for Jeff Rulis today. Just on the margin guide, I want to confirm that, that includes expected accretion from Frontier if you have a read on that going into 2026, just trying to get at a consolidated core margin expectation?

Yes. Ryan, that does include the accretion for Frontier into 2026, yes.

Got it. And I appreciate the loan growth guide, but maybe on competition, are you seeing other stretch on pricing or underwriting standards? How do you see things shaking out there?

Yes. So this is Rick. So I think what we -- we're definitely seeing some of that on the competition front. So we just kind of strategically made that decision that we're continuing to hold our pricing higher. So again, we're -- we had about $1 billion of production. We had onetime payoffs this year of about $700,000 and when we get into that, there was about 40 -- actually, I want to break, about 3/4 of -- so that was about 30% of that. So roughly 200 and some are ones in which I would say it's really rate based where we saw people go really low. Going down into maybe a point lower than where we were and winning those. So we've strategically decided to let those ones go and keep our pricing up at that point. So again, our production continues at that high level. We continue to expect that to happen through the quarter. And as we get that benefit of lower paydowns this quarter, we'll start seeing that growth. So we're not that concerned about that level.

We've gone into these periods before where we just finished a merger that was very high loan-to-deposit ratio. We're adding Frontier who's very high at loan-to-deposit ratio that also has assets that are sold participations to other institutions that we can pull back. So we made a strategic look into that opportunity and said, we don't want to stretch down on rates on our portfolio, when we know we are getting rates that are at a higher number coming on our balance sheet in the very near future. So I think it was -- we've had really good originations, but in the same sense, it doesn't make sense to book things on our books at a point lower than where we think the market is just to keep loan volume.

And our next question comes from Damon DelMonte with KBW.

Just a follow-up on the commentary on the loans. Brad, you just mentioned about the opportunity to pull back some participations that left the Frontier bank. What types of loans are those? Are they traditional C&I loans? Or are they CRE? And kind of any color on the opportunity there?

Actually, this is Rick. It's a combination there -- it's probably $50-ish million in that range across the board of types. So it's not just one type of loan.

Got you. Okay. Great. And then when you look at your expense guide for next year, I think at the time of the merger, you guys have targeted around 23% cost saves. I guess now that the deal has closed and you've had a good look at the Frontier, how do you feel about those cost saves? And do you think there's opportunity to come in at the lower end of the expense range? .

Yes, Damon. I tell you, so the 23%, I think, is still a good number, can we do a little better than that? I think we'll find out as we progress through the first quarter and know better. But today, I think that's a good baseline for thinking about Frontier. That said, the lower end of the expense guide to me is still an accomplishable number. So we've been talking about over the last few quarters and really the last couple of years of initiatives to drive -- try and drive additional efficiency into the way we go about operations looking specifically at contracts and driving cost reductions across some of our partnerships that products and services we're providing to customer. So there's absolutely opportunity to hit it without, call it, outsized positives coming out of Frontier from a cost saves perspective. But that said, using 23% is still a good number today, and there may be upside to that as well.

Got it. Great. And then just lastly, from a capital management perspective, nice to see some buyback during the quarter. M&A has been a big topic of discussion with you guys, particularly in this last year with the 2 deals that you got done. But I guess how do you feel about things now that Frontier has done and you're going through the integration process. Should we think more about capital management falling into the buyback bucket in the near term? Or do you see more M&A opportunity in the near horizon?

Well, as you know, banks are sold and not bought. We say that all the time. But it's -- so it's going to depend on if there are opportunities for us to deploy that capital. And by the way, I think that would be midyear that we'd be doing that. We're making $25 million in the quarter, approximately. So we're building capital along the way. So we've got plenty of capital to do both, and we feel very confident that we are going to have opportunities to do both along the way. So we're going to look at buybacks when it makes sense, and we'll deploy capital that way as we have, even while we're doing the M&A. But I think M&A still has a -- we got a lot of really good conversations going on the M&A front.

And our next question comes from Nathan Race with Piper Sandler.

Chris, I was wondering if you could just help us on a good starting point for the margin? I know it's going to include some accretion in the first quarter. And what is that margin outlook for the first quarter contemplate in terms of the opportunities to reduce some of the higher cost funding that should be picking up from Frontier.

Yes. I would look at the low end to the midpoint for the first quarter. So let's call it, 4.25% for the first quarter. It does contemplate some repositioning of debt and high-cost liabilities on the Frontier balance sheet. So immediately post transaction, we paid off all of the holding companies debt they had. So there's some cost savings. There's some margin improvement there. They do have some higher cost FHLB borrowings and brokered funding that we'll continue to look at opportunistically reducing, which I'll comment the cost of cash. So it becomes something of a neutral trade in terms of NII, but will improve margin a little bit. But yes, I'd look at about 4.25% for the first quarter and the holding company debt immediately out and looking at some other opportunities to reduce cost through the first quarter as well.

Okay. Great. That's really helpful. Then maybe for Rick, curious if you have any visibility into kind of expected payoffs in the first quarter and just how you kind of see the guidance -- I'm sorry, the cadence of net loan growth progressing over the course of this year. Do you anticipate to be kind of more 2Q and 3Q and 4Q weighted? Just any thoughts on kind of just the pipeline and visibility in payoffs and just how you see the cadence of loan growth over the course of 2026.

Yes. So right now, the pipeline, again, as we talked about, is fairly strong, consistent with where it's been in the other quarter. So we expect to still have the same amount of production for the quarter -- from this quarter. So that would be the first point there. As far as payoffs go, I mean, they're actually -- they're unexpected, unscheduled payoffs. So there are times in where we have a lot less input and visibility into that. At this point in time, I mean, we're not seeing. I don't have a list from -- and the guys do a pretty good job of staying ahead of it. I don't have a list that's saying, well, we're going to have a super high unexpected payoffs this quarter. Normally, though, it is a situation where it's second -- the second and third quarter are really good growth opportunities for us, or are really good opportunities for us where we do grow the overall loan balances. So I don't know if that exactly helps. But again, payoffs just -- they can do a lot of times come out of the blue.

The borrower gets an offer, the borrower is marketing something doesn't know whether they want to sell it or not they aren't communicating with their lender on that strategy because it's not something that they want to spook the lender about, but -- so sometimes payoffs aren't scheduled. We've never had payoffs like we had last year, so I don't anticipate that repeating itself. Rick's got the team doing really great originations. We had 4 quarters in a row last year where we had our strongest origination. So I think we're well positioned to continue to grow the balance sheet and keep it where we want it to be and increase our margin.

Got you. That's really helpful. If I could just sneak one last one. Just on the buyback appetite going forward, obviously, like to see some share repurchases in the quarter and was wondering if you could just remind us in terms of kind of what your governors are in terms of how aggressive you want to be on buybacks going forward. Obviously, you're going to be building capital at really strong clips just given the profitability profile these days and the outlook for this year. And obviously, that includes some thoughts on kind of the expectations for acquisitions this year as well, which I appreciate your earlier comments, Brad, that there's still some active discussions going on.

Yes, we always look at -- we look at it similarly to acquisition opportunities. So we look at that 3-year earn-back-ish range on buybacks. And as we're deploying capital, we're making sure that we know we have a capital need coming up, we might be less aggressive on the buyback side or if we don't think we'll have any opportunities coming up, we might be more aggressive. But it kind of gives you a framework of how we think about it as an organization. We've been very active in the buyback market over the last 5 years, and consistently been in that market when it works for our company. And so on a return basis. So I might give you enough parameters there that you can come to some conclusion on, what kind of range we look at on buybacks and how we deploy capital.

[Operator Instructions] And our next question comes from Brett Rabatin with Hovde Group.

This is Anya Pelshaw speaking on behalf of Brett. Just hoping you guys could comment on what you're seeing competitively as far as deposits go and also some thoughts on deposit generation in newer markets.

Yes. So this is Rick. I'll take it. So first off, I'd actually say that deposit account gathering is really good. So we've made changes there. We've been -- we're opening accounts in a manner that we haven't historically. So that part is really positive. Balances continue to be challenging because there are a lot of people out there looking for balances. And so we continue to be disciplined from a pricing perspective. And so we look at it as we'd rather have the account, we'd rather have the transaction account later on, and that's going to come back to us. The team has done a really good job, though. And we definitely gathered deposits this year. And so the outlook for this year, again, it's going to be challenging, but I like the areas we're in. We're in some really good areas of adding in that give us opportunities in Oklahoma City and in Omaha now with both NBC and with Frontier. And then their market -- their community markets are -- there are some really strong community markets that we added. And with our product sets we're adding on there, we're starting to see additional account generation. So we can see some growth coming out of there. Again, it's a challenging environment. So it's hard to say what competition will do in that space, but we feel confident that we can grow deposits this year.

And the next question comes from Terry McEvoy with Stephens.

This is Brandon Rud on for Terry. My first one just on loan growth in 2026. Are there any markets or commercial segments, in particular, that you may anticipate outperform the portfolio as a whole?

Yes. Each year, we have a couple that seem to do well off of there. I like what's happening in Missouri. I think that's a market that can do really, really well for us. And then I think what we're doing down in Oklahoma, same type of thing. I think there's a lot of opportunity in Oklahoma City and in the surrounding communities. And as we're getting to know the team, up in Nebraska better, that's going to create a lot of opportunities for us as well. So those are the Tulsa down in Oklahoma has been a very strong generator for the last couple of years, and I expect that to continue to be the case as well.

Kansas City had a booming year.

Yes, Kansas City had a great year this year, and that's what same with Missouri. I think that whole -- both in Kansas City and then also throughout the community markets in there, give us a real good opportunity for growth.

Okay. Perfect. Maybe more of a modeling question, but I think I heard your comments on loan pricing earlier. Where are new loans coming on at? And how does that compare to those that are paying up and maturing, I'm just trying to get a sense of the incremental benefit that they're picking up.

Yes. So the new originations are accretive today to where a coupon has been heading. So the new originations that are coming out about 50 basis points ahead of our coupon yield that's included within the margin. So we're seeing, call it, accretive impact of each of the incremental dollars that are going out. So as we can grow that balance sheet, you should see comparative expansion of loan yield on a coupon basis, right? So backing out the purchase accounting nonaccrual that is up.

Okay. Perfect. And I guess the last one for me. Over the near term, I heard your comments that accretion is within the 4.20% to 4.35%. I guess, is there any -- do you have a near-term sense of where that may shake out? I think you said normalized to 12 basis points for the fourth quarter. I'm assuming that steps up a bit in 1Q.

Yes. The 12 basis points is -- that's the cost benefit of NBC as we layer in additional Frontier components, you're going to have additional accretion. I can shoot to you, Brandon, in the basis point attribution. I don't have it in front of me, but it's included or encapsulated within that 4.20% to 4.35%.

[Operator Instructions] We have a follow-up from Nathan Race.

September quarter and as compared to 3.34% reported for the year ago...

[Operator Instructions] And as we have no further questions in the queue, this does conclude today's call. Thank you, everyone, for joining. You may now disconnect.