EQUITY BANCSHARES INC

Results of Operations

We generate our revenue from interest income and fees on loans, interest and dividends on investment securities, and non-interest income, such as service charges and fees, debit card income, trust and mortgage banking income. We incur interest expense on deposits and other borrowed funds and non-interest expense, such as salaries and employee benefits and occupancy expenses.

Changes in interest rates earned on interest-earning assets or incurred on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities and stockholders’ equity, are usually the largest drivers of periodic change in net interest income. Fluctuations in interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international circumstances and domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Arkansas, Kansas, Missouri and Oklahoma, as well as developments affecting the consumer, commercial and real estate sectors within these markets.

Net Income

Three months ended June 30, 2025, compared with three months ended June 30, 2024: Net income allocable to common stockholders for the three months ended June 30, 2025, was $15.3 million, or $0.86 diluted earnings per share as compared to $11.7 million, or $0.76 diluted earnings per share for the three months ended June 30, 2024, an increase of $3.5 million. The increase was largely due to an increase in net interest income of $3.3 million, offset by an increase in other non-interest expense of $1.1 million net of a decrease in the provision for taxes of $1.5 million.

Six months ended June 30, 2025, compared with six months ended June 30, 2024: Net income allocable to common stockholders for the six months ended June 30, 2025, was $30.3 million, or $1.72 diluted earnings per share as compared to $25.8 million, or $1.67 diluted earnings per share for the six months ended June 30, 2024, an increase of $4.5 million. The increase was largely due to increases in net interest income of $9.4 million, provision for loan losses of $1.5 million, offset by an increase in non-interest expense of $3.0 million, and decreases in non-interest income of $1.7 million and provision for income taxes of $1.4 million.

Net Interest Income and Net Interest Margin Analysis

Net interest income is the difference between interest income on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. To evaluate net interest income, management measures and monitors (1) yields on loans and other interest-earning assets, (2) the costs of deposits and other funding sources, (3) the net interest spread, and (4) net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because non-interest-bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these non-interest-bearing sources of funds. Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change,” and is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “yield/rate change.”

Three months ended June 30, 2025, compared with three months ended June 30, 2024: The following table shows the average balance of each principal category of assets, liabilities, and stockholders’ equity and the average yields on interest-earning assets and average rates on interest-bearing liabilities for the three months ended June 30, 2025, and 2024. The yields and rates are calculated by dividing annualized income or annualized expense by the average daily balances of the associated assets or liabilities.

(1)

Average loan balances include non-accrual loans.

(2)

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

(3)

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

(4)

Actual un-rounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest yields/rates. The following table analyzes the change in volume variances and yield/rate variances for the three month periods ended June 30, 2025, and 2024.

Analysis of Changes in Net Interest Income

For the Three Months Ended June 30, 2025, and 2024

(1)

The effect of changes in volume is determined by multiplying the change in volume by the previous year’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the prior year’s volume. The changes attributable to both volume and rate, which cannot be segregated, have been allocated to the volume variance and the rate variance in proportion to the relationship of the absolute dollar amount of the change in each.

Interest income decreased $945 thousand for the quarter ended June 30, 2025, as compared to the quarter ended June 30, 2024. A $3.0 million decrease in interest from the rate/yield on interest earning assets, partially offset by a $2.1 million increases due to increased volume of average interest earning assets. Realized rate/yield decreases on loans were attributable to 17 basis point (bp) decrease from changes in coupon rates, a 5 bp decrease from non-accrual interest adjustment and a 5 bp increase from the accretion of merger purchase accounting adjustments, partially offset by a 3 bp increase from the amortization of loan origination fees, a 1 bp increase from hedge accounting net settlements and a 2 bp increase from other adjustments. The decrease in interest income on the remaining components of interest earning assets was primarily from an decrease in the rate/yield that was offset by an increase in earning asset volume.

The decrease in interest expense of $4.3 million was due to the deposit portfolio repricing downward and a decrease in volume of the FHLB borrowing line as well as a decrease in borrowing rates.

During the quarter ended June 30, 2025, when compared to the quarter ended June 30, 2024, net interest margin increased 23 bp and net interest spread increased by 22 bp to 3.50% from 3.28%. During the fourth quarter of 2024, the federal funds rate was dropped three times for a total of 100 bp. This decline is the primary driver of the downward trend in both yield on interest earning assets and cost on interest bearing liabilities. The expansion in margin and spread is attributable to the shifting composition of interest earning assets as well as realized sensitivity in liability pricing following the rate movements.

Six months ended June 30, 2025, compared with six months ended June 30, 2024: 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 six months ended June 30, 2025, and 2024. The yields and rates are calculated by dividing annualized income or annualized expense by the average daily balances of the associated assets or liabilities.

(1)

Average loan balances include nonaccrual loans.

(2)

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

(3)

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

(4)

Actual un-rounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest yields/rates. The following table analyzes the change in volume variances and yield/rate variances for the six month periods ended June 30, 2025, and 2024.

Analysis of Changes in Net Interest Income

For the Six Months Ended June 30, 2025, and 2024

Interest income on interest-earning assets increased $2.0 million for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024. Of this increase, $4.0 million is attributable to increases in volume of interest earning assets offset by declining rate/yield. Realized rate/yield decreases on loans were attributable to increases in hedge adjustments of 7 bp and purchased mortgage premiums of 2 bp, partially offset by a decrease in non-accrual interest adjustments of 5 bp. Interest Income on securities decreased primarily due to a decrease in volume due to maturities and calls and to a lesser extent a decrease in the rate/yield.

There was a decrease in interest expense on interest-bearing liabilities of $7.5 million due to the deposit portfolio repricing to market interest rates as well as decreased utilization of secured borrowing lines.

When compared to the six months ended June 30, 2024, net interest margin increased 38 bp during the six months ended June 30, 2025, while net interest spread increased by 38 bp to 3.57% from 3.19%. During the fourth quarter of 2024, the federal funds rate was dropped three times for a total of 100 bp. This decline is the primary driver of the downward trend in both yield on interest earning assets and cost on interest bearing liabilities. The expansion in margin and spread is attributable to the shifting composition of interest earning assets as well as realized sensitivity in liability pricing following the rate movements.

Provision for Credit Losses

We maintain an allowance for credit losses for estimated losses in our loan portfolio. The allowance for credit losses is increased by a provision for credit losses, which is a charge to earnings, and subsequent recoveries of amounts previously charged-off, but is decreased by charge-offs when the collectability of a loan balance is unlikely. Management estimates the allowance balance required using past loan loss experience within the Company’s portfolio. This historical loss calculation is then modified to reflect quantitative economic circumstances based on evidenced economic conditions and regression formulas, which incorporate lag factors in identifying a sufficiently predictive adjusted-R square, as well as qualitative factors not inherently reflected in our historical loss or quantitative economic inputs. Included in our qualitative assessment is the consideration of prospective economic conditions over the next 12 months, considered the Company’s reasonable and supportable forecast period. As these factors change, the amount of the credit loss provision changes.

Three months ended June 30, 2025, compared with three months ended June 30, 2024: During the three months ended June 30, 2025, there was a provision for credit losses of $19 thousand compared to a provision for credit losses of $265 thousand for the three months ended June 30, 2024. The comparatively lower provision for the three months ended June 30, 2025 is primarily attributable to the decrease in exposure used in the calculation of historical loss in the commercial and industrial and agricultural portfolios. The Company continues to estimate the allowance for credit losses with assumptions that anticipate slower prepayment rates and continued market disruption caused by trade policy, elevated inflation, supply chain issues and the impact of monetary policy on consumers and businesses. Net charge-offs for the three months ended June 30, 2025 and 2024, were $573 thousand and $1.2 million, respectively. For the three months ended June 30, 2025, gross charge-offs were $1.1 million, offset by gross recoveries of $545 thousand. In comparison, gross charge-offs were $1.4 million for the three months ended June 30, 2024, offset by gross recoveries of $153 thousand.

Six months ended June 30, 2025, compared with six months ended June 30, 2024: During the six months ended June 30, 2025, there was a provision for credit losses of $2.7 million compared to a provision for credit losses of $1.3 million during the six months ended June 30, 2024. The increase in the provision for the six months ended is primarily attributable to loan growth as well as a general decline in the economic outlook for the recent volatility and potential stress created by the continuing changes to the U.S. trade policy offset by a decrease in the projected annual loss rate as well as a decrease in the calculated exposure as a percentage of performing loans. Net charge-offs for the six months ended June 30, 2025, were $738 thousand compared to net charge-offs of $1.9 million for the six months ended June 30, 2024. For the six months ended June 30, 2025, gross charge-offs were $2.3 million, offset by gross recoveries of $1.5 million. In comparison, gross charge-offs were $2.3 million for the six months ended June 30, 2024, offset by gross recoveries of $368 thousand.

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

Three months ended June 30, 2025, compared with three months ended June 30, 2024: The following table provides a comparison of the major components of non-interest income for the three months ended June 30, 2025, and 2024.

For the Three Months Ended June 30,

Total non-interest income decreased $369 thousand during the three months ended June 30, 2025, as compared to the same period in 2024. The decrease is largely attributable to a reduction in the recovery on zero basis loans offset by an increase in the value of bank owned life insurance and debit card income. During the quarter, the Bank realized an increase in the value of the bank owned life insurance program due to increased earnings after the restructure of the policies during the second quarter of 2024.

Six months ended June 30, 2025, compared with six months ended June 30, 2024: The following table provides a comparison of the major components of non-interest income for the six months ended June 30, 2025, and 2024

For the Six Months Ended June 30,

Total non-interest income decreased $1.8 million during the six months ended June 30, 2025, as compared to the same period in 2024. The decrease is largely attributable to decreases in recovery on zero-basis purchased loans, a net decrease in gain on branch acquisition and sales offset by an increase in the value of bank owned life insurance. During the six month ended June 30, 2025, the Bank realized a death benefit on an insured, under its bank owned life insurance program as well as increased earnings as a result of the policy restructure. This benefit drove the comparative increase noted above.

Three months ended June 30, 2025, compared with three months ended June 30, 2024: For the three months ended June 30, 2025, non-interest expense totaled $40.0 million, an increase of $1.1 million, when compared to the three months ended June 30, 2024. Changes in the various components of non-interest expense for the three months ended June 30, 2025, and 2024, are discussed in more detail in the following table.

For the Three Months Ended June 30,

Salaries and employee benefits: There was an increase in salaries and employee benefits of $1.9 million for the period ended June 30, 2025, as compared to the same period in 2024. The increase in employee salaries and wages was primarily due to additional payroll costs as well as an increase in incentive compensation and stock related compensation expense, which is partially driven by the increase in staff from our 2024 KansasLand merger.

Loss on Debt Extinguishment: During the quarter ending June 30, 2025, the Company executed an early redemption on the subordinated notes. The Company realized a loss of $1.4 million from the write off of debt issue costs from the debt extinguishment.

Other: Other non-interest expenses consists of subscriptions, memberships and dues, employee expenses, including travel, meals, entertainment and education, supplies, printing, insurance, account related losses, correspondent bank fees, customer program expenses, losses net of gains on the sale of fixed assets, losses net of gains on the sale of repossessed assets other than real estate, other operating expenses, such as settlement of claims, losses from limited partnerships entered into for tax credits and provision for unfunded commitments. The overall increase is comprised of a number of insignificant changes by expense categories noted above.

Merger expenses: The decrease is primarily due to the completion of the Rockhold merger and the preliminary work on the KansasLand merger in the prior period. The majority of expense related to the NBC merger, which closed on July 2, 2025, is expected to be realized in period it closed.

Six months ended June 30, 2025, compared with six months ended June 30, 2024: For the six months ended June 30, 2025, non-interest expense totaled $79.0 million, an increase of $3.0 million, when compared to the six months ended June 30, 2024. Changes in the various components of non-interest expense for the six months ended June 30, 2025, and 2024, are discussed in more detail in the following table.

For the Six Months Ended June 30,

Salaries and employee benefits: There was an increase in salaries and employee benefits of $3.8 million for the period ended June 30, 2025, as compared to the same period in 2024. The increase is primarily due to increases in employee salaries, additional payroll costs from the KansasLand and Rockhold mergers, as well as an increase in incentive compensation and stock related compensation expense.

Courier and postage: There was an increase in courier and postage expense of $407 thousand for the period ended June 30, 2025, as compared to the same period in 2024. The increase is primarily due to armored car/courier services.

Loss on Debt Extinguishment: During the quarter ending June 30, 2025, the Company executed an early redemption on the subordinated notes. The Company realized a loss of $1.4 million from the write off of debt issue costs from the debt extinguishment.

Other: Other non-interest expenses consists of subscriptions, memberships and dues, employee expenses, including travel, meals, entertainment and education, supplies, printing, insurance, account related losses, correspondent bank fees, customer program expenses, losses net of gains on the sale of fixed assets, losses net of gains on the sale of repossessed assets other than real estate, other operating expenses, such as settlement of claims, losses from limited partnerships entered into for tax credits and provision for unfunded commitments. The primary driver of the decline from the comparative period is additional recognition of solar tax credits.

Merger expenses: The decrease is primarily due to the completion of the Rockhold merger and the preliminary work on the KansasLand merger in the prior period. The majority of expense related to the NBC merger, which closed on July 2, 2025, is expected to be realized in period it closed.

Efficiency Ratio

The efficiency ratio is a supplemental financial measure utilized in the internal evaluation of performance and is not defined under GAAP. For a reconciliation of non-GAAP financial measures see “Non-GAAP Financial Measures” in this Item 2. Our efficiency ratio is computed by dividing non-interest expense, excluding goodwill impairment, merger expenses and loss on debt extinguishment, by the sum of net interest income and non-interest income, excluding net gains on sales of and settlement of securities and gain on acquisition. Generally, an increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources.

The efficiency ratio was 63.62% for the three months ended June 30, 2025, compared with 63.77% for the three months ended June 30, 2024. The improvement was primarily due to the a greater percentage increase in interest and other income compared to the percentage increase in non-interest expenses, net of merger related and loss on debt extinguishment expenses.

The efficiency ratio was 63.01% for the six months ended June 30, 2025, compared with 63.61% for the six months ended June 30, 2024. The improvement was primarily due to an increase in net interest income and other income compared to the increase in non-interest expense, net of merger related and loss on debt extinguishment expenses.

Income Taxes

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

On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act, which changes existing U.S. tax laws, including extending or making permanent certain provisions of the Tax Cuts and Jobs Act, repealing certain clean energy initiatives, in addition to other changes. The Company anticipates an insignificant impact to deferred tax assets and liabilities and to income taxes payable in the period of enactment. The Company continues to evaluate the impact the new legislation will have on the consolidated financial statements.

Three months ended June 30, 2025, compared with three months ended June 30 2024: The effective income tax rate for the three month period ended June 30, 2025, was 16.9% as compared to 28.1% for the three month period ended June 30, 2024. The decrease in the rate for quarter ended June 30, 2025 is the result of interest income received related to federal carry back claims filed by the Company which reduced income tax expense as well as increased tax benefits related to entering a new solar tax investment which qualifies for the proportional amortization method, both of which occurred in the current quarter. Additionally, a prior year surrender of BOLI in the quarter ending June 30, 2024 resulted in an $11.5 million tax gain and related penalty which did not recur in the current quarter providing an additional reduction in quarter over quarter income tax expense which was offset by a non-recurring benefit in the quarter ending June 30, 2024 related to state apportionment impacts to the state tax rate applied to deferred tax assets.

Six months ended June 30, 2025, compared with six months ended June 30, 2024: The effective income tax rate for the six month period ended June 30, 2025, was 18.6% as compared to 24.3% for the six month period ended June 30, 2024. See drivers of change in the section above.