EQUITY BANCSHARES INC - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-37624

EQUITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Kansas		72-1532188
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7701 East Kellogg Drive, Suite 300 Wichita, KS		67207
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 316.612.6000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Class A, Common Stock, par value $0.01 per share

Trading Symbol

EQBK

Name of each exchange on which registered

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

As of April 30, 2021, the registrant had 14,334,627 shares of Class A common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS

Part I	Financial Information	5
Item 1.	Financial Statements	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Stockholders’ Equity	8
	Consolidated Statements of Cash Flows	9
	Condensed Notes to Interim Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
	Overview	44
	Critical Accounting Policies	46
	Results of Operations	47
	Financial Condition	53
	Liquidity and Capital Resources	63
	Non-GAAP Financial Measures	65
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	69
Part II	Other Information	71
Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	71

Important Notice about Information in this Quarterly Report

Unless we state otherwise or the context otherwise requires, references in this Quarterly Report to “we,” “our,” “us,” “the Company” and “Equity” refer to Equity Bancshares, Inc. and its consolidated subsidiaries, including Equity Bank, which we sometimes refer to as “Equity Bank,” “the Bank” or “our Bank.”

The information contained in this Quarterly Report is accurate only as of the date of this Quarterly Report on Form 10-Q and as of the dates specified herein.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control, particularly with regard to developments related to the COVID-19 pandemic. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Item 1A - Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2021, and in Item 1A – Risk Factors of this Quarterly Report.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

•

external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System, or the Federal Reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits which may have an adverse impact on our financial condition;

•

losses resulting from a decline in the credit quality of the assets that we hold;

•

the occurrence of various events that negatively impact the real estate market, since a significant portion of our loan portfolio is secured by real estate;

•

inaccuracies or changes in the appraised value of real estate securing the loans we originate that could lead to losses if the real estate collateral is later foreclosed upon and sold at a price lower than the appraised value;

•

the loss of our largest loan and depositor relationships;

•

limitations on our ability to lend and to mitigate the risks associated with our lending activities as a result of our size and capital position;

•

differences in our qualitative factors used in our calculation of the allowance for credit losses from actual results;

•

inadequacies in our allowance for loan losses which could require us to take a charge to earnings and thereby adversely affect our financial condition;

•

interest rate fluctuations which could have an adverse effect on our profitability;

•

the impact of the transition from London Interbank Offered Rate (“LIBOR”) and our ability to adequately manage such transition;

•

a continued economic downturn related to the COVID-19 pandemic, especially one affecting our core market areas;

•

inability of borrowers on deferral to make payments on their loans following the end of the deferral period;

•

potential fraud related to Small Business Administration (“SBA”) loan applications through the Paycheck Protection Program (“PPP”) as part of the U.S. Coronavirus Aid, Relief and Economic Security Act (“CARES Act”);

•

the effects of pandemic and widespread public health emergencies;

•

the costs of integrating the businesses we acquire, which may be greater than expected;

•

the departure of key members of our management personnel or our inability to hire qualified management personnel;

•

generally difficult or unfavorable conditions in the market for financial products and services;

•

challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services;

•

a lack of liquidity resulting from decreased loan repayment rates, lower deposit balances, or other factors;

•

inaccuracies in our assumptions about future events which could result in material differences between our financial projections and actual financial performance;

•

an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies;

•

disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems;

•

unauthorized access to nonpublic personal information of our customers, which could expose us to litigation or reputational harm;

•

disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions;

•

required implementation of new accounting standards that significantly change our existing recognition practices;

•

additional regulatory requirements and restrictions on our business, which could impose additional costs on us;

•

an increase in FDIC deposit insurance assessments, which could adversely affect our earnings;

•

increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;

•

restraints on the ability of Equity Bank to pay dividends to us, which could limit our liquidity;

•

a failure in the internal controls we have implemented to address the risks inherent to the banking industry;

•

continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;

•

costs arising from the environmental risks associated with making loans secured by real estate;

•

the occurrence of adverse weather or manmade events, which could negatively affect our core markets or disrupt our operations;

•

the effects of new federal tax laws, or changes to existing federal tax laws;

•

the obligation associated with being a public company requires significant resources and management attention; and

•

other factors that are discussed in “Item 1A - Risk Factors.”

The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this Quarterly Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or verbal forward-looking statements that we or persons acting on our behalf may issue.

PART I

Item 1: Financial Statements

EQUITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2021 and December 31, 2020

(Dollar amounts in thousands)

	(Unaudited) March 31,			December 31,
	2021			2020
ASSETS
Cash and due from banks	$	136,190		$	280,150
Federal funds sold		498			548
Cash and cash equivalents		136,688			280,698
Interest-bearing time deposits in other banks		249			249
Available-for-sale securities		998,100			871,827
Loans held for sale		8,609			12,394
Loans, net of allowance for credit losses of $55,525 and $33,709		2,740,215			2,557,987
Other real estate owned, net		10,559			11,733
Premises and equipment, net		90,322			89,412
Bank-owned life insurance		102,645			77,044
Federal Reserve Bank and Federal Home Loan Bank stock		15,174			16,415
Interest receivable		16,655			15,831
Goodwill		31,601			31,601
Core deposit intangibles, net		15,023			16,057
Other		30,344			32,108
Total assets	$	4,196,184		$	4,013,356
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand	$	972,364		$	791,639
Total non-interest-bearing deposits		972,364			791,639
Savings, NOW and money market		2,074,261			2,029,097
Time		587,905			626,854
Total interest-bearing deposits		2,662,166			2,655,951
Total deposits		3,634,530			3,447,590
Federal funds purchased and retail repurchase agreements		40,339			36,029
Federal Home Loan Bank advances		9,926			10,144
Subordinated debt		87,788			87,684
Contractual obligations		4,856			5,189
Interest payable and other liabilities		20,930			19,071
Total liabilities		3,798,369			3,605,707
Commitments and contingent liabilities, see Notes 11 and 12
Stockholders’ equity, see Note 7
Common stock		175			174
Additional paid-in capital		387,939			386,820
Retained earnings		53,459			50,787
Accumulated other comprehensive income, net of tax		12,019			19,781
Employee stock loans		—			(43	)
Treasury stock		(55,777	)		(49,870	)
Total stockholders’ equity		397,815			407,649
Total liabilities and stockholders’ equity	$	4,196,184		$	4,013,356

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months ended March 31, 2021 and 2020

(Dollar amounts in thousands, except per share data)

	(Unaudited) Three Months Ended March 31,
	2021			2020
Interest and dividend income
Loans, including fees	$	31,001		$	34,376
Securities, taxable		3,799			4,620
Securities, nontaxable		724			966
Federal funds sold and other		288			595
Total interest and dividend income		35,812			40,557
Interest expense
Deposits		2,410			6,864
Federal funds purchased and retail repurchase agreements		22			31
Federal Home Loan Bank advances		65			1,175
Bank stock loan		—			109
Subordinated debt		1,556			283
Total interest expense		4,053			8,462
Net interest income		31,759			32,095
Provision (reversal) for credit losses		(5,756	)		9,940
Net interest income after provision (reversal) for credit losses		37,515			22,155
Non-interest income
Service charges and fees		1,596			2,026
Debit card income		2,350			2,043
Mortgage banking		935			590
Increase in value of bank-owned life insurance		601			482
Net gain on acquisition		(78	)		—
Net gain from securities transactions		17			8
Other		1,291			157
Total non-interest income		6,712			5,306
Non-interest expense
Salaries and employee benefits		12,722			13,504
Net occupancy and equipment		2,368			2,235
Data processing		2,663			2,663
Professional fees		1,073			1,367
Advertising and business development		682			696
Telecommunications		580			487
FDIC insurance		415			517
Courier and postage		369			384
Free nationwide ATM cost		472			420
Amortization of core deposit intangibles		1,034			802
Loan expense		238			234
Other real estate owned		5			308
Merger expenses		152			—
Other		2,108			2,141
Total non-interest expense		24,881			25,758
Income before income taxes		19,346			1,703
Provision for income taxes		4,271			445
Net income and net income allocable to common stockholders	$	15,075		$	1,258
Basic earnings per share	$	1.04		$	0.08
Diluted earnings per share	$	1.02		$	0.08

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months ended March 31, 2021 and 2020

(Dollar amounts in thousands)

	(Unaudited) Three Months Ended March 31,
	2021			2020
Net income	$	15,075		$	1,258
Other comprehensive income (loss):
Unrealized holding gain (loss) arising during the period on available-for-sale securities		(10,369	)		4,862
Amortization of unrealized loss on held-to-maturity securities		—			177
Total other comprehensive income		(10,369	)		5,039
Tax effect		2,607			(1,267	)
Other comprehensive income (loss), net of tax		(7,762	)		3,772
Comprehensive income	$	7,313		$	5,030

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months ended March 31, 2021 and 2020

(Unaudited)

(Dollar amounts in thousands, except share data)

	Common Stock					Additional						Accumulated Other			Employee						Total
	Shares Outstanding			Amount		Paid-In Capital			Retained Earnings			Comprehensive Income (Loss)			Stock Loans			Treasury Stock			Stockholders’ Equity
Balance at January 1, 2020		15,444,434		$	174	$	382,731		$	125,757		$	(3	)	$	(77	)	$	(30,522	)	$	478,060
Net income		—			—		—			1,258			—			—			—			1,258
Other comprehensive income, net of tax effects		—			—		—			—			3,772			—			—			3,772
Stock-based compensation		—			—		756			—			—			—			—			756
Common stock issued upon exercise of stock options		400			—		9			—			—			—			—			9
Common stock issued under stock-based incentive plan		32,849			—		—			—			—			—			—			—
Common stock issued under employee stock purchase plan		16,764			—		354			—			—			—			—			354
Repayment on employee stock loans		—			—		—			—			—			34			—			34
Treasury stock purchases		(295,461	)		—		—			—			—			—			(6,892	)		(6,892	)
Balance at March 31, 2020		15,198,986		$	174	$	383,850		$	127,015		$	3,769		$	(43	)	$	(37,414	)	$	477,351

Balance at January 1, 2021		14,540,556		$	174	$	386,820		$	50,787		$	19,781		$	(43	)	$	(49,870	)	$	407,649
Net income		—			—		—			15,075			—			—			—			15,075
Other comprehensive income (loss), net of tax effects		—			—		—			—			(7,762	)		—			—			(7,762	)
Stock-based compensation		—			—		712			—			—			—			—			712
Common stock issued upon exercise of stock options		11,483			—		167			—			—			—			—			167
Common stock issued under stock-based incentive plan		47,265			1		(1	)		—			—			—			—			—
Common stock issued under employee stock purchase plan		17,621			—		241			—			—			—			—			241
Repayment on employee stock loans		—			—		—			—			—			43			—			43
Treasury stock purchases		(233,012	)		—		—			—			—			—			(5,907	)		(5,907	)
Implementation of ASU 2016-13, Current Expected Credit Losses		—			—		—			(12,403	)		—			—			—			(12,403	)
Balance at March 31, 2021		14,383,913		$	175	$	387,939		$	53,459		$	12,019		$	—		$	(55,777	)	$	397,815

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months ended March 31, 2021 and 2020

(Dollar amounts in thousands, except per share data)

	(Unaudited) March 31,
	2021			2020
Cash flows from operating activities
Net income	$	15,075		$	1,258
Adjustments to reconcile net income to net cash from operating activities:
Stock-based compensation		712			756
Depreciation		1,011			933
Amortization of operating lease right-of-use asset		100			153
Amortization of cloud computing implementation costs		30			27
Provision (reversal) for credit losses		(5,756	)		9,940
Net (accretion) amortization of purchase accounting adjustments		(361	)		(906	)
Amortization (accretion) of premiums and discounts on securities		2,261			1,471
Amortization of intangibles		1,045			814
Deferred income taxes		1,687			257
Federal Home Loan Bank stock dividends		(2	)		(265	)
Loss (gain) on sales and valuation adjustments on other real estate owned		(171	)		177
Change in unrealized loss (gain) on equity securities		(17	)		(8	)
Loss (gain) on disposal of premises and equipment		(8	)	—
Loss (gain) on sale of foreclosed assets		9			27
Loss (gain) on sales of loans		(793	)		(478	)
Originations of loans held for sale		(27,907	)		(23,381	)
Proceeds from the sale of loans held for sale		32,485			23,298
Increase in the value of bank-owned life insurance		(601	)		(482	)
Change in fair value of derivatives recognized in earnings		(350	)		495
Gain on acquisition		78		—
Payments on operating lease payable		(123	)		(178	)
Net change in:
Interest receivable		(824	)		189
Other assets		7,553			(4,448	)
Interest payable and other liabilities		(1,407	)		(1,100	)
Net cash provided by (used in) operating activities		23,726			8,549
Cash flows from (to) investing activities
Purchases of available-for-sale securities		(242,563	)		(50,368	)
Purchases of held-to-maturity securities		—			(2,754	)
Proceeds from sales, calls, pay-downs and maturities of available-for-sale securities		103,660			9,023
Proceeds from calls, pay-downs and maturities of held-to-maturity securities		—			48,989
Net change in loans		(100,306	)		51,251
Purchases of mortgage loans		(89,450	)		(751	)
Capitalized construction cost of other real estate owned		—			(52	)
Purchase of premises and equipment		(1,921	)		(1,204	)
Proceeds from sale of premises and equipment		8			17
Proceeds from sale of foreclosed assets		37			97
Net redemption (purchase) of Federal Home Loan Bank and Federal Reserve Bank stock		1,243			(260	)
Net redemption (purchase) of correspondent and miscellaneous other stock		(68	)	—
Proceeds from sale of other real estate owned		1,402			2,455
Purchase of bank-owned life insurance		(25,000	)	—
Net cash provided by (used in) investing activities		(352,958	)		56,443
Cash flows from (to) financing activities
Net increase (decrease) in deposits		186,931			(103,149	)
Net change in federal funds purchased and retail repurchase agreements		4,310			1,405
Net borrowings (payments) on Federal Home Loan Bank line of credit		—			(184,223	)

Proceeds from Federal Home Loan Bank term advances		—			250,000
Principal payments on Federal Home Loan Bank term advances		(214	)		(525	)
Proceeds from Federal Reserve Bank discount window		1,000			—
Principal payments on Federal Reserve Bank discount window		(1,000	)		—
Proceeds from bank stock loan		—			38,354
Principal payments on bank stock loan		—			(7,344	)
Principal payments on employee stock loans		43			34
Proceeds from the exercise of employee stock options		167			9
Proceeds from employee stock purchase plan		241			354
Debt issuance cost		(16	)		—
Purchase of treasury stock		(5,907	)		(6,892	)
Net change in contractual obligations		(333	)		(55	)
Net cash provided by (used in) financing activities		185,222			(12,032	)
Net change in cash and cash equivalents		(144,010	)		52,960
Cash and cash equivalents, beginning of period		280,698			89,291
Ending cash and cash equivalents	$	136,688		$	142,251
Supplemental cash flow information:
Interest paid	$	3,035		$	8,942
Income taxes paid, net of refunds		—			—
Supplemental noncash disclosures:
Other real estate owned acquired in settlement of loans	$	60		$	157
Other repossessed assets acquired in settlement of loans		59			21

See accompanying condensed notes to interim consolidated financial statements.

EQUITY BANCSHARES, INC.

CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

(Dollar amounts in thousands, except per share data)

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim consolidated financial statements include the accounts of Equity Bancshares, Inc., its wholly-owned subsidiaries, EBAC, LLC and Equity Bank and Equity Bank’s wholly-owned subsidiaries, EBHQ, LLC and SA Holdings, Inc. These entities are collectively referred to as the “Company”. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial information. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are of a normal recurring nature. These financial statements and the accompanying notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2021. Operating results for the three months ended March 31, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other period.

Reclassifications

Some items in prior financial statements were reclassified to conform to the current presentation. Management determined the items reclassified are immaterial to the consolidated financial statements taken as a whole and did not result in a change in equity or net income for the periods reported.

Risk and Uncertainties

The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities could be impacted, to varying degrees, with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates. While there has been no material impact to the Company’s employees to date, COVID-19 could also potentially create widespread business continuity issues for the Company. Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout from COVID-19.

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. It is not possible to know the full universe or extent of impact to the Company’s operations brought about from COVID-19 and resulting measures to curtail its spread.

Financial position and results of operations

The Company’s interest income and fees could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their payments, interest and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.

Asset valuation

Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

Credit

As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in frequent communication with borrowers to better understand their situation and the challenges faced, allowing the Company to respond proactively as needs and issues arise. Should economic conditions worsen, the Company could experience further increases in its required allowance for credit losses and record additional provision for credit losses. It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

Many industries have and will continue to experience adverse impacts as a result of COVID-19. Our exposure from outstanding loans and commitments to industries which we consider a higher risk totaled approximately $296,386 in hospitality and $39,399 in aircraft manufacturing at March 31, 2021.

Allowance for Credit Losses - Loans

As described below under Recently Adopted Accounting Pronouncements, the Company adopted the FASB ASU 2016-13 effective January 1, 2021, which requires the estimation of an allowance for credit losses in accordance with the current expected credit loss (“CECL”) methodology. Management assesses the adequacy of the allowance on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay a loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The level of the allowance for credit losses maintained by management is believed adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is adjusted through provision for credit losses and charge-offs, net of recoveries of amounts previously charged off. The Company adopted ASC Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting period beginning after January 1, 2021 are presented under ASC Topic 326, while prior amounts continue to be reported in accordance with previously applicable GAAP.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $12,020 to the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2021.

The allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics. The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

• Commercial real estate mortgage loans – Owner occupied commercial real estate mortgage loans are secured by commercial office buildings, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. For such loans, repayment is largely dependent upon the operation of the borrower's business.

• Commercial and industrial loans – Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.

• Residential real estate mortgage loans – Residential real estate mortgage consists primarily of loans secured by 1-4 family residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.

• Agricultural real estate loans – Agricultural real estate loans are secured by real estate related to farmland and are affected by the value of farmland. Generally, the borrower’s ability to repay is based on the value of farmland and cash flows from farming operations.

• Consumer – Consumer loans include all loans issued to individuals not included in the categories above. Examples of consumer and other loans are automobile loans, consumer credit cards and loans to finance education, among others. Many consumer loans are unsecured. Repayment is primarily dependent on the personal cash flow of the borrower.

• Agricultural production loans – Agricultural production loans are primarily operating lines subject to annual farming revenues, including productivity and yield of farm products and market pricing at the time of sale.

The Company primarily utilizes a probability of default (“PD”) and loss given default (“LGD”) modeling approach for historical loss coupled with a macroeconomic factor analysis derived from a statistical regression of loss experience correlated to changes in economic factors for all commercial banks operating within our geographical footprint. The macroeconomic regression is based on a multivariate approach and includes key indicators that provide the highest cumulative adjusted R-square figure. Economic factors include, but are not limited to, national unemployment, gross domestic product, market interest rates and property pricing indices. To arrive at the most predictive calculation, a lag factor was applied to these inputs, resulting in current and historic economic inputs driving the projection of loss over our reasonable, supportable forecast period which management has defined as 12 months for all portfolio segments. Following the reasonable, supportable forecast period loss experience immediately reverts to the longer run historical loss experience of the Company. The resultant loss rates are applied to the estimated future exposure at default (“EAD”), as determined based on contractual amortization terms through an average default month and estimated prepayment experience in arriving at the quantitative reserve within our allowance for credit losses.

The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon quarterly trend assessments in projective economic sentiment, portfolio concentrations, policy exceptions, personnel retention, independent loan review results, collateral considerations, risk ratings and competition. The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors. Due to the inclusion of a lag factor in our quantitative economic analysis discussed above, the allowance for credit losses, as of implementation and through the reporting date, is heavily influenced by the qualitative economic factor considered by management to be reflective of risk associated with the COVID-19 pandemic.

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, less selling costs. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral, the Company has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, with selling costs considered in the event sale of the collateral is expected. Loans for which terms have been modified in a troubled debt restructuring (“TDR”) are evaluated using these same individual evaluation methods. In the event the discounted cash flow method is used for a TDR, the original interest rate is used to discount expected cash flows.

In assessing the adequacy of the allowance for credit losses, the Company considers the results of the Company’s ongoing, independent loan review process. The Company undertakes this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Its loan review process includes the judgment of management, independent internal loan reviewers and reviews that may have been conducted by third-party reviewers including regulatory examiners. The Company incorporates relevant loan review results in the allowance.

In accordance with CECL, losses are estimated over the remaining contractual terms of loans, adjusted for prepayments. The contractual term excludes expected extensions, renewals and modifications unless management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed or such renewals, extensions or modifications are included in the original loan agreement and are not unconditionally cancellable by the Company. Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding, purchase discounts and premiums and deferred loan fees and costs. Accrued interest receivable, as allowed under ASU 2016-13, is excluded from the credit loss estimate, is presented separately on the balance sheets and is excluded from the tabular loan disclosures in Note 3.

While its policies and procedures used to estimate the allowance for credit losses, as well as the resultant provision for credit losses charged to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the allowance for credit losses and thus the resulting provision for credit losses.

Allowance for Credit Losses – Off-Balance-Sheet Credit Exposures

The Company estimates expected credit losses over the contractual term of obligations to extend credit, unless the obligation is unconditionally cancellable. The allowance for off-balance-sheet exposures is adjusted through other noninterest expense. The estimates are determined based on the likelihood of funding during the contractual term and an estimate of credit losses subsequent to funding. Estimated credit losses on subsequently funded balances are based on the same assumptions used to estimated credit losses on existing funded loans.

Allowance for Credit Losses – Securities Available-for-Sale

For any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, the Company assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis. If either criterion is met, the security's amortized cost basis is written down to fair value through net income. If neither criterion is met, the Company evaluates whether any portion of the decline in fair value is the result of credit deterioration. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. If the evaluation indicates that a credit loss exists, an allowance for credit losses is recorded for the amount by which the amortized cost basis of the security exceeds the present value of cash flows expected to be collected, limited by the amount by which the amortized cost exceeds fair value. Any impairment not recognized in the allowance for credit losses is recognized in other comprehensive income.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses, which changed how the Company measures credit losses for most of its financial assets. This guidance is applicable to loans held for investment, off-balance-sheet credit exposures, such as loan commitments and standby letters of credit, and held-to-maturity investment securities. The Company is required to use a new forward-looking current expected credit losses (CECL) model that will result in the earlier recognition of allowances for credit losses. For available-for-sale securities with unrealized losses, the Company will measure credit losses in a manner similar to current practice but will recognize those credit losses as allowances rather than reductions in the amortized cost of the securities. In addition, the ASU requires significantly more disclosure including information about credit quality by year of origination for most loans. Generally, the amendments will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The ASU was originally effective for the Company beginning in the first quarter of 2020; however, the CARES Act, issued in 2020, provided temporary relief related to the implementation of this accounting guidance until the earlier of the date on which the national emergency concerning the COVID-19 virus terminates or December 31, 2020. The Company elected to utilize this relief and has calculated the allowance for loan losses and the resulting provision for loan losses using the prior incurred loss method through December 31, 2020. Further implementation relief for this standard was provided on December 27, 2020, by section 540 of the Consolidated Appropriations Act (“CAA”) which allowed for an additional extension to the earlier of 60 days after the national emergency termination date or January 1, 2022. The Company has elected not to extend the implementation any further and has adopted effective January 1, 2021. The adoption of CECL resulted in an increase to our total allowance for credit losses (“ACL”) on loans held for investment of $15,732, an increase in allowance for credit losses on unfunded loan commitments of $838, a reclassification of purchased credit-impaired discount from loans to the ACL of $12,020, an increase in deferred tax asset of $4,167 and a decrease in retained earnings of $12,403. The increase in the ACL is largely attributable to moving to a life of loan allowance methodology and the transition of certain purchase discounts from an adjustment to amortized cost into the ACL.

In March 2020, various regulatory agencies, including the Federal Reserve and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modifications. This interagency statement was later revised in April 2020 to clarify the interaction between the original interagency statement and section 4013 of the CARES Act, as well as the agencies’ views on consumer protection considerations. Under Accounting Standards Codification 310-40, Receivables – Troubled Debt Restructurings by Creditors, (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term

modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. The CARES Act provisions were further extended to the earlier of 60 days after the national emergency termination date or January 1, 2022, by section 541 of the CAA. In addition, loan deferrals can be qualified under section 4013 of the CARES Act during the extended relief period if certain criteria are met. This interagency guidance and CARES Act provisions have had a material impact on the Company’s financial statements as shown in Note 3.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include contract modifications; hedging relationships; and sale or transfer of debt securities classified as held-to-maturity. The guidance was effective immediately for the Company and the amendments may be applied prospectively through December 31, 2022. The Company is in the process of evaluating the guidance, and its effect on the Company’s financial condition, results of operations and cash flows has not yet been determined.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). ASU 2021-01 clarify that certain optional expedients and exceptions that are noted in Topic 848 apply to derivatives that are affected by the discounting transition. Certain provisions, if elected by the Company, apply to derivative instruments that use an interest rate for managing, discounting or contract price alignment that is modified as a result of reference rate reform. The guidance was effective immediately for the Company and the amendments may be applied prospectively through December 31, 2022. The Company is in the process of evaluating the guidance, and its effect on the Company’s financial condition, results of operations and cash flows has not yet been determined.

NOTE 2 – SECURITIES

The amortized cost and fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) are listed below.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses		Fair Value
March 31, 2021
Available-for-sale securities
U.S. Government-sponsored entities	$	997	$	21	$	—		$	—	$	1,018
U.S. Treasury securities		12,637		1		(42	)		—		12,596
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		732,005		16,403		(4,770	)		—		743,638
Private label residential mortgage-backed securities		62,359		3		(244	)		—		62,118
Corporate		52,497		1,096		(11	)		—		53,582
Small Business Administration loan pools		11,440		35		(70	)		—		11,405
State and political subdivisions		110,108		3,665		(30	)		—		113,743
	$	982,043	$	21,224	$	(5,167	)	$	—	$	998,100

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2020
Available-for-sale securities
U.S. Government-sponsored entities	$	996	$	27	$	—		$	1,023
U.S. Treasury securities		4,024		1		—			4,025
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		630,485		21,049		(109	)		651,425
Private label residential mortgage-backed securities		44,302		5		(129	)		44,178
Corporate		52,503		1,153		(6	)		53,650
Small Business Administration loan pools		1,226		44		—			1,270
State and political subdivisions		111,865		4,391		—			116,256
	$	845,401	$	26,670	$	(244	)	$	871,827

The fair value and amortized cost of debt securities at March 31, 2021, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Available-for-Sale
	Amortized Cost		Fair Value
Within one year	$	12,143	$	12,198
One to five years		23,229		23,856
Five to ten years		95,274		97,304
After ten years		57,033		58,986
Mortgage-backed securities		794,364		805,756
Total debt securities	$	982,043	$	998,100

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was approximately $741,737 at March 31, 2021, and $713,001 at December 31, 2020.

The following tables show gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021, and December 31, 2020.

	Less Than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
March 31, 2021
Available-for-sale securities
U.S. Treasury securities	$	9,580	$	(42	)	$	—	$	—	$	9,580	$	(42	)
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		204,202		(4,770	)		—		—		204,202		(4,770	)
Private label residential mortgage-backed securities		39,570		(244	)		—		—		39,570		(244	)
Corporate		3,989		(11	)		—		—		3,989		(11	)
Small Business Administration loan pools		10,151		(70	)		—		—		10,151		(70	)
State and political subdivisions		4,903		(30	)		—		—		4,903		(30	)
Total temporarily impaired securities	$	272,395	$	(5,167	)	$	—	$	—	$	272,395	$	(5,167	)
December 31, 2020
Available-for-sale securities
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities	$	28,770	$	(109	)	$	—	$	—	$	28,770	$	(109	)
Private label residential mortgage-backed securities		28,367		(129	)		—		—		28,367		(129	)
Corporate		3,908		(6	)		—		—		3,908		(6	)
Total temporarily impaired securities	$	61,045	$	(244	)	$	—	$	—	$	61,045	$	(244	)

As of March 31, 2021, the Company held 40 available-for-sale securities in an unrealized loss position.

Unrealized losses on securities have not been recognized into income because the security issuers are of high credit quality, management does not intend to sell, it is more likely than not that the Company will not be required to sell the securities prior to their anticipated recovery and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach maturity.

There were no proceeds from sales of available-for-sale securities during the three months ended March 31, 2021 or 2020.

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Types of loans and normal collateral securing those loans are listed below.

Commercial and industrial: Commercial and industrial loans include loans used to purchase fixed assets, provide working capital or meet other financing needs of the business. Loans are normally secured by the assets being purchased or already owned by the borrower, inventory or accounts receivable. These may include SBA and other guaranteed or partially guaranteed types of loans.

Commercial real estate: Commercial real estate loans include all loans secured by nonfarm, nonresidential properties and by multifamily residential properties, as well as 1-4 family investment-purpose real estate loans.

Real estate construction: Real estate construction loans include loans made for the purpose of acquisition, development or construction of real property. These loans can be commercial or consumer and are typically secured by real estate.

Residential real estate: Residential real estate loans include loans secured by primary or secondary personal residences.

Agricultural real estate: Agricultural real estate loans are loans typically secured by farmland.

Consumer: Consumer loans may include installment loans, unsecured and secured personal lines of credit, overdraft protection and letters of credit. These loans are generally secured by consumer assets but may be unsecured.

Agricultural: Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield of the agricultural commodities produced. These loans may be secured by growing crops, stored crops, livestock, equipment and miscellaneous receivables.

The following table lists categories of loans at March 31, 2021, and December 31, 2020.

	March 31, 2021			December 31, 2020
Commercial real estate	$	1,218,537		$	1,188,696
Commercial and industrial		820,736			734,495
Residential real estate		438,503			381,958
Agricultural real estate		134,944			133,693
Consumer		89,256			58,532
Agricultural		93,764			94,322
Total loans		2,795,740			2,591,696
Allowance for credit losses		(55,525	)		(33,709	)
Net loans	$	2,740,215		$	2,557,987

Included in the commercial and industrial loan balances at March 31, 2021 and December 31, 2020, are $414,138 and $253,741 of loans that were originated under the SBA PPP program.

From time to time, the Company has purchased pools of residential real estate loans originated by other financial institutions to hold for investment with the intent to diversify the residential real estate portfolio. During the first three months of 2021, the Company purchased two pools of residential real estate loans totaling $89,450. As of March 31, 2021, and December 31, 2020, residential real estate loans include $163,885 and $86,093 of purchased residential real estate loans.

The unamortized discount of merger purchase accounting adjustments related to non-purchase credit impaired loans included in the loan totals above are $8,099 with related loans of $326,208 at March 31, 2021. At December 31, 2020, excluding purchased credit impaired loans, there were $380,058 of loans with a related discount of $5,510 that were purchased as part of a merger.

Overdraft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $704 at March 31, 2021, and $597 at December 31, 2020.

The Company adopted ASU 2016-13, also referred to as CECL, effective January 1, 2021, and with that adoption the Company’s method for estimating the allowance for credit losses has changed. The Company estimates the allowance for credit losses under CECL using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Internal historical loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels or loan terms, as well as, for changes in environmental conditions, such as changes in unemployment rates, property values, consumer price index, gross domestic product, housing starts or relevant index, US personal income, US housing price indexes, federal funds target and various US government interest rates.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified commercial real estate, commercial and industrial, residential real estate, agricultural real estate, consumer and agricultural production as portfolio segments and measures the allowance for credit losses using a historical loss rate method for each segment to estimate credit losses on a collective basis. The Company’s CECL calculation utilizes historical loss rates, average default month, average prepayment rates and exposure at default as assumptions to calculate an unadjusted historical loss estimate for the contractual term of the loans adjusted for prepayment. The historical loss estimate is then adjusted for the anticipated changes in the Company’s historical loss rate using a regression analysis and current economic variables over the next 12 months. The Company has selected 12 months as its reasonable and supportable forecast period and has selected an immediate reversion back to unadjusted historical loss rates for periods beyond the reasonable and supportable forecast period. The calculated historical loss estimate and the economic qualitative adjustment are further evaluated for change via a management qualitative adjustment factor. Management qualitative adjustments typically are anticipated changes in loss trends that are not reflected in the historical data to be used in forecasting.

The Company evaluates all loans that do not share risk characteristics on an individual basis for estimating the allowance for credit loss. Loans evaluated on an individual basis are not included in the collective basis. The Company currently reviews all loans that are classified as non-accrual on an individual basis. The Company typically elects the collateral-dependent practical expedient on all individual impairment assessments and expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs as appropriate.

The Company’s ACL is highly dependent on credit quality, macroeconomic forecasts and conditions, the composition of our loan portfolio and other management judgements. The current management adjustment represents a significant portion of the Company’s ACL and is comprised of the estimated impact to ACL from the COVID-19 pandemic and associated response.

The following tables present the activity in the allowance for loan losses by class for the three-month periods ended March 31, 2021 and 2020.

March 31, 2021	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Agricultural Real Estate			Consumer			Agricultural			Total
Allowance for credit losses:
Beginning balance, prior to adoption of ASC 326	$	9,012		$	12,456		$	4,559		$	904		$	6,020		$	758		$	33,709
Cumulative effect adjustment of adopting ASC 326		5,612			4,167			8,870			167			(2,877	)		(207	)		15,732
Impact of adopting ASC 326 - PCD loans		4,627			1,680			221			1,186			—			4,306			12,020
Provision for credit losses		(4,207	)		1,646			(2,131	)		(345	)		(323	)		(511	)		(5,871	)
Loans charged-off		(53	)		(7	)		(9	)		(12	)		(210	)		—			(291	)
Recoveries		127			23			1			—			72			3			226
Total ending allowance balance	$	15,118		$	19,965		$	11,511		$	1,900		$	2,682		$	4,349		$	55,525

March 31, 2020	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Agricultural Real Estate			Consumer			Agricultural		Total
Allowance for loan losses:
Beginning balance	$	3,919		$	3,061		$	2,676		$	608		$	1,422		$	546	$	12,232
Provision for loan losses		1,312			1,915			1,476			(135	)		5,327			45		9,940
Loans charged-off		(8	)		(29	)		(25	)		(17	)		(278	)		—		(357	)
Recoveries	—				32			1			—			66			1		100
Total ending allowance balance	$	5,223		$	4,979		$	4,128		$	456		$	6,537		$	592	$	21,915

The following tables present the recorded investment in loans and the balance in the allowance for credit losses by portfolio and class based on method to determine allowance for credit loss as of March 31, 2021, and December 31, 2020.

March 31, 2021	Commercial Real Estate		Commercial and Industrial		Residential Real Estate		Agricultural Real Estate		Consumer		Agricultural		Total
Allowance for credit losses:
Individually evaluated for impairment	$	3,967	$	10,911	$	715	$	1,477	$	69	$	4,119	$	21,258
Collectively evaluated for impairment		11,151		9,054		10,796		423		2,613		230		34,267
Total	$	15,118	$	19,965	$	11,511	$	1,900	$	2,682	$	4,349	$	55,525
Loan Balance:
Individually evaluated for impairment	$	7,978	$	28,559	$	2,879	$	7,458	$	276	$	10,356	$	57,506
Collectively evaluated for impairment		1,210,559		792,177		435,624		127,486		88,980		83,408		2,738,234
Total	$	1,218,537	$	820,736	$	438,503	$	134,944	$	89,256	$	93,764	$	2,795,740

December 31, 2020	Commercial Real Estate		Commercial and Industrial		Residential Real Estate		Agricultural Real Estate		Consumer		Agricultural		Total
Allowance for loan losses:
Individually evaluated for impairment	$	2,159	$	5,457	$	485	$	595	$	68	$	96	$	8,860
Collectively evaluated for impairment		6,472		5,985		3,949		266		5,952		586		23,210
Purchased credit impaired loans		381		1,014		125		43		—		76		1,639
Total	$	9,012	$	12,456	$	4,559	$	904	$	6,020	$	758	$	33,709
Loan Balance:
Individually evaluated for impairment	$	4,752	$	20,421	$	1,939	$	2,711	$	272	$	2,201	$	32,296
Collectively evaluated for impairment		1,176,403		710,038		377,331		126,256		58,242		87,158		2,535,428
Purchased credit impaired loans		7,541		4,036		2,688		4,726		18		4,963		23,972
Total	$	1,188,696	$	734,495	$	381,958	$	133,693	$	58,532	$	94,322	$	2,591,696

The following table presents information related to nonaccrual loans at March 31, 2021.

	March 31, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance for Credit Losses Allocated
With no related allowance recorded:
Commercial real estate	$	—	$	—	$	—
Commercial and industrial		24		—		—
Residential real estate		58		21		—
Agricultural real estate		2,097		2,097		—
Consumer		—		—		—
Agricultural		2,371		2,363		—
Subtotal		4,550		4,481		—
With an allowance recorded:
Commercial real estate		8,563		7,978		3,967
Commercial and industrial		35,354		28,559		10,911
Residential real estate		2,961		2,858		715
Agricultural real estate		5,866		5,361		1,477
Consumer		305		276		69
Agricultural		10,572		7,993		4,119
Subtotal		63,621		53,025		21,258
Total	$	68,171	$	57,506	$	21,258

The following table presents information related to impaired loans, excluding purchased credit impaired loans which have not deteriorated since acquisition, by class of loans as of December 31, 2020. The recorded investment in loans excludes accrued interest receivable due to immateriality.

	December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial real estate	$	6,279	$	1,683	$	—
Commercial and industrial		2,087		643		—
Residential real estate		270		180		—
Agricultural real estate		3,408		1,090		—
Consumer		—		—		—
Agricultural		11,326		4,492		—
Subtotal		23,370		8,088		—
With an allowance recorded:
Commercial real estate		7,134		5,899		2,540
Commercial and industrial		29,245		22,814		6,471
Residential real estate		3,023		2,775		610
Agricultural real estate		3,474		3,021		638
Consumer		294		272		68
Agricultural		1,330		820		172
Subtotal		44,500		35,601		10,499
Total	$	67,870	$	43,689	$	10,499

The table below presents average recorded investment and interest income related to nonaccrual loans for the three months ended March 31, 2021. Interest income recognized in the following table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest receivable due to immateriality.

	As of and for the three months ended
	March 31, 2021
	Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	842	$	1
Commercial and industrial		321		4
Residential real estate		101		—
Agricultural real estate		1,594		—
Consumer		—		—
Agricultural		3,428		—
Subtotal		6,286		5
With an allowance recorded:
Commercial real estate		6,938		15
Commercial and industrial		25,687		108
Residential real estate		2,816		—
Agricultural real estate		4,191		95
Consumer		274		—
Agricultural		4,406		34
Subtotal		44,312		252
Total	$	50,598	$	257

The table below presents average recorded investment and interest income related to impaired loans for the three months ended March 31, 2020. Interest income recognized in the following table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest receivable due to immateriality.

	As of and for the three months ended
	March 31, 2020
	Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	1,094	$	—
Commercial and industrial		14,601		23
Residential real estate		4,336		—
Agricultural real estate		1,131		5
Consumer		—		—
Agricultural		—		—
Subtotal		21,162		28
With an allowance recorded:
Commercial real estate		5,010		—
Commercial and industrial		3,531		—
Residential real estate		3,560		1
Agricultural real estate		1,713		—
Consumer		366		—
Agricultural		1,368		—
Subtotal		15,548		1
Total	$	36,710	$	29

The following tables present the aging of the recorded investment in past due loans as of March 31, 2021, and December 31, 2020, by portfolio and class of loans.

March 31, 2021	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due Still On Accrual		Nonaccrual		Loans Not Past Due		Total
Commercial real estate	$	797	$	489	$	—	$	7,978	$	1,209,273	$	1,218,537
Commercial and industrial		1,248		—		—		28,559		790,929		820,736
Residential real estate		730		—		—		2,879		434,894		438,503
Agricultural real estate		—		—		2,939		7,458		124,547		134,944
Consumer		165		35		45		276		88,735		89,256
Agricultural		220		—		—		10,356		83,188		93,764
Total	$	3,160	$	524	$	2,984	$	57,506	$	2,731,566	$	2,795,740

December 31, 2020	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due Still On Accrual		Nonaccrual		Loans Not Past Due		Total
Commercial real estate	$	1,374	$	172	$	—	$	7,582	$	1,179,568	$	1,188,696
Commercial and industrial		261		—		—		23,457		710,777		734,495
Residential real estate		377		4,712		—		2,955		373,914		381,958
Agricultural real estate		260		—		98		4,111		129,224		133,693
Consumer		336		60		45		272		57,819		58,532
Agricultural		196		—		—		5,312		88,814		94,322
Total	$	2,804	$	4,944	$	143	$	43,689	$	2,540,116	$	2,591,696

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Consumer loans are considered pass credits unless downgraded due to payment status or reviewed as part of a larger credit relationship. Loans that participated in the short-term deferral program are not automatically considered classified solely due to a deferral, are subject to ongoing monitoring and will be downgraded or placed on nonaccrual if a noted weakness exists. The Company uses the following definitions for risk ratings.

Pass: Loans classified as pass include all loans that do not fall under one of the three following categories. These loans are considered unclassified.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. These loans are considered classified.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. These loans are considered classified.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. These loans are considered classified.

Based on the most recent analysis performed, the risk category of loans, by type and year of origination, at March 31, 2021, is as follows.

March 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost		Revolving Loans Converted to Term		Total
Commercial real estate
Risk rating
Pass	$	40,212	$	247,056	$	175,801	$	132,829	$	96,722	$	176,330	$	332,536	$	75	$	1,201,561
Special mention		129		—		—		—		—		—		—		—		129
Substandard		1,634		449		249		312		1,170		9,784		3,249		—		16,847
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial real estate	$	41,975	$	247,505	$	176,050	$	133,141	$	97,892	$	186,114	$	335,785	$	75	$	1,218,537
Commercial and industrial
Risk rating
Pass	$	235,002	$	285,445	$	83,553	$	25,347	$	15,646	$	15,624	$	84,927	$	10,634	$	756,178
Special mention		—		—		1,806		4,376		10,807		—		2,722		2,844		22,555
Substandard		—		10,158		14,572		2,753		1,467		2,753		10,265		35		42,003
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial	$	235,002	$	295,603	$	99,931	$	32,476	$	27,920	$	18,377	$	97,914	$	13,513	$	820,736
Residential real estate
Risk rating
Pass	$	5,924	$	94,133	$	37,844	$	78,146	$	46,767	$	123,807	$	48,893	$	110	$	435,624
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		149		467		358		1,651		254		—		2,879
Doubtful		—		—		—		—		—		—		—		—		—
Total residential real estate	$	5,924	$	94,133	$	37,993	$	78,613	$	47,125	$	125,458	$	49,147	$	110	$	438,503
Agricultural real estate
Risk rating
Pass	$	3,820	$	32,286	$	15,733	$	15,084	$	8,205	$	16,142	$	35,862	$	51	$	127,183
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		65		1,538		1,888		3,214		926		130		—		7,761
Doubtful		—		—		—		—		—		—		—		—		—
Total agricultural real estate	$	3,820	$	32,351	$	17,271	$	16,972	$	11,419	$	17,068	$	35,992	$	51	$	134,944
Consumer
Risk rating
Pass	$	7,220	$	16,784	$	10,998	$	6,067	$	2,532	$	1,426	$	43,891	$	57	$	88,975
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		33		73		60		50		65		—		—		281
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer	$	7,220	$	16,817	$	11,071	$	6,127	$	2,582	$	1,491	$	43,891	$	57	$	89,256
Agricultural
Risk rating
Pass	$	3,854	$	17,095	$	4,312	$	2,395	$	4,185	$	2,029	$	49,288	$	40	$	83,198
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		197		3,297		3,243		1,079		2,385		365		—		10,566
Doubtful		—		—		—		—		—		—		—		—		—
Total agricultural	$	3,854	$	17,292	$	7,609	$	5,638	$	5,264	$	4,414	$	49,653	$	40	$	93,764
Total loans
Risk rating
Pass	$	296,032	$	692,799	$	328,241	$	259,868	$	174,057	$	335,358	$	595,397	$	10,967	$	2,692,719
Special mention		129		—		1,806		4,376		10,807		—		2,722		2,844		22,684
Substandard		1,634		10,902		19,878		8,723		7,338		17,564		14,263		35		80,337
Doubtful		—		—		—		—		—		—		—		—		—
Total loans	$	297,795	$	703,701	$	349,925	$	272,967	$	192,202	$	352,922	$	612,382	$	13,846	$	2,795,740

The risk category of loans by class of loans is as follows at December 31, 2020.

December 31, 2020	Unclassified		Classified		Total
Commercial real estate	$	1,171,961	$	16,735	$	1,188,696
Commercial and industrial		674,392		60,103		734,495
Residential real estate		378,868		3,090		381,958
Agricultural real estate		125,425		8,268		133,693
Consumer		58,253		279		58,532
Agricultural		86,629		7,693		94,322
Total	$	2,495,528	$	96,168	$	2,591,696

Purchased Credit Impaired Loans

The Company has acquired loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. Upon the Company’s adoption of ASU 2016-13, remaining credit-related discount on these assets was re-classified to the allowance for credit losses. The Company elected the prospective transition approach and all loans previously considered purchased credit impaired are now classified as purchased with credit deterioration. The remaining non-credit discount will continue to be accreted into income over the remaining lives of the assets. The table below lists recorded investments in purchased credit impaired loans as of December 31, 2020.

	December 31, 2020
Contractually required principal payments	$	41,658
Discount		(17,686	)
Recorded investment	$	23,972

The accretable yield associated with these loans was $2,630 as of December 31, 2020. The interest income recognized on these loans for the three-month period ended March 31, 2020, was $516. For the three-month period ended March 31, 2020, there was a provision for loan losses of $668 recorded for these loans.

Troubled Debt Restructurings

Consistent with accounting and regulatory guidance, the Company recognizes a TDR when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Company’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loans.

The following table summarizes the Company’s TDRs by accrual status at March 31, 2021.

March 31, 2021	Nonaccrual		Related Allowance for Credit Losses
Commercial real estate	$	1,825	$	826
Commercial and industrial		13,138		1,591
Total troubles debt restructurings	$	14,963	$	2,417

The following table summarizes the Company’s TDRs by accrual status at December 31, 2020.

December 31, 2020	Nonaccrual		Related Allowance for Loan Losses
Commercial real estate	$	1,167	$	342
Commercial and industrial		13,613		1,954
Total troubles debt restructurings	$	14,780	$	2,296

At March 31, 2021, and December 31, 2020, there were no commitments to lend additional amounts on these loans.

There were no loan modifications considered to be troubled debt restructurings that occurred during the three-month periods ended March 31, 2021 or 2020.

No restructured loans that were modified within the twelve months preceding March 31, 2020, have subsequently had a payment default. There were no troubled debt restructurings within the twelve months preceding March 31, 2021. Default is determined at 90 or more days past due, charge-off or foreclosure.

As of March 31, 2021, and December 31, 2020, we had 38 and 28 deferrals of either the full loan payment or the principal component of the loan payment on outstanding loan balances of $73,914 and $60,880 in connection with the COVID-19 relief provided by the CARES Act. These deferrals were not considered troubled debt restructurings based on interagency guidance issued in March 2020.

The following table lists loans included in the payment deferral program by deferment type and category at March 31, 2021.

	March 31, 2021
	Commercial Real Estate		Commercial and Industrial		Residential Real Estate		Agricultural Real Estate		Consumer		Total
12 months partial principal only	$	—	$	1,954	$	—	$	—	$	—	$	1,954
6 months principal only		2,567		4,175		—		—		—		6,742
9 months principal only		13,677		993		—		—		—		14,670
12 months principal only		10,100		3,788		—		113		—		14,001
3 months principal and interest		—		—		38		—		13		51
6 months principal and interest		243		—		—		—		—		243
3 months principal and interest, then 6 months principal only		—		2,825		—		—		—		2,825
6 months principal and interest, then 9 months principal only		30,815		2,613		—		—		—		33,428
Total loans	$	57,402	$	16,348	$	38	$	113	$	13	$	73,914

The credit risk classification of loans participating in the payment deferral program at March 31, 2021, and December 31, 2020, is listed below.

	March 31, 2021						December 31, 2020
	Unclassified		Classified		Total		Unclassified		Classified		Total
Commercial real estate	$	57,402	$	—	$	57,402	$	45,628	$	—	$	45,628
Commercial and industrial		5,227		11,121		16,348		5,095		10,157		15,252
Residential real estate		38		—		38		—		—		—
Agricultural real estate		—		113		113		—		—		—
Consumer		13		—		13		—		—		—
Total loans	$	62,680	$	11,234	$	73,914	$	50,723	$	10,157	$	60,880

While all industries have and will continue to experience adverse impacts as a result of COVID-19, the Company had exposures (on balance sheet loans and commitments to lend) in the following loan categories that are considered to be most at-risk of a significant impact as of March 31, 2021.

Hospitality Lending – The Company’s exposure to the hospitality sector at March 31, 2021, was $296.4 million, or 12.4%, of total loans excluding PPP loans. As of March 31, 2021, $26.3 million of these loans were actively participating in a deferral program.

The top 20 loans within this portfolio comprise $235.3 million, or 79.4%, of the total exposure. These loans are geographically diversified and well secured. The borrowers are well known to the Company and experienced hoteliers who have evidenced efforts to enhance profitability in the current economic environment by driving down costs and creatively occupying their properties, including arrangements with medical professionals and others on the front line of this pandemic. Historically, the portfolio has exhibited strong operational cash flows. The remainder of the portfolio is comprised of many smaller balance loans.

Aircraft Manufacturing – The Company’s exposure to the aircraft manufacturing category at March 31, 2021, was $39.4 million, or 1.7%, of total loans excluding PPP loans. As of March 31, 2021, none of these loans were actively participating in a deferral program. The portfolio is comprised of experienced industry operators who have historically performed without exception.

The Company has worked with customers directly affected by COVID-19 and is prepared to offer short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in frequent communication with borrowers to better understand their situation and the challenges faced, allowing us to respond proactively as needs and issues arise.

While management is optimistic about the performance of the above addressed portions of the portfolio as a whole, the Company acknowledges the risks associated with the current economic conditions and related unknowns. These risks are believed to have been addressed and reserved for through our allowance for credit losses and associated provision for credit losses as of and for the period ended March 31, 2021.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit loss expense recognized within other non-interest expense on the consolidated statements of income. The estimated credit loss includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate of expected credit loss is based on the historical loss rate for the class of loan the commitments would be classified as if funded.

The following table lists allowance for credit losses on off-balance sheet credit exposures as of March 31, 2021.

March 31, 2021	Allowance for Credit Losses
Commercial real estate	$	290
Commercial and industrial		117
Residential real estate		80
Agricultural real estate		—
Consumer		465
Agricultural		1
Total allowance for credit losses	$	953

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to interest-rate risk primarily from the effect of interest rate changes on its interest-earning assets and its sources of funding these assets. The Company will periodically enter into interest rate swaps or interest rate caps/floors to manage certain interest rate risk exposure.

Interest Rate Swaps Designated as Fair Value Hedges

The Company periodically enters into interest rate swaps to hedge the fair value of certain commercial real estate loans. These transactions are designated as fair value hedges. In this type of transaction, the Company typically receives from the counterparty a variable-rate cash flow based on the one-month London Interbank Offered Rate (“LIBOR”) plus a spread to this index and pays a fixed-rate cash flow equal to the customer loan rate. At March 31, 2021, the portfolio of interest rate swaps had a weighted average maturity of 6.0 years, a weighted average pay rate of 5.19% and a weighted average rate received of 3.17%. At December 31, 2020, the portfolio of interest rate swaps had a weighted average maturity of 6.3 years, a weighted average pay rate of 5.19% and a weighted average rate received of 3.21%.

Stand-Alone Derivatives

The Company periodically enters into interest rate swaps with our borrowers and simultaneously enters into swaps with a counterparty with offsetting terms for the purpose of providing our borrowers long-term fixed rate loans. Neither swap is designated as a hedge and both are marked to market through earnings. At March 31, 2021, this portfolio of interest rate swaps had a weighted average maturity of 7.6 years, weighted average pay rate of 4.32% and a weighted average rate received of 4.32%. At December 31, 2020, this portfolio of interest rate swaps had a weighted average maturity of 7.9 years, weighted average pay rate of 4.34% and weighted average rate received of 4.34%.

Reconciliation of Derivative Fair Values and Gains/(Losses)

The notional amount of a derivative contract is a factor in determining periodic interest payments or cash flows received or paid. The notional amount of derivatives serves as a level of involvement in various types of derivatives. The notional amount does not represent the Company’s overall exposure to credit or market risk, generally, the exposure is significantly smaller.

The following table shows the notional balances and fair values (including net accrued interest) of the derivatives outstanding by derivative type at March 31, 2021, and December 31, 2020.

	March 31, 2021							December 31, 2020
	Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	5,529	$	—	$	293		$	5,585	$	—	$	497
Total derivatives designated as hedging relationships		5,529		—		293			5,585		—		497
Derivatives not designated as hedging instruments:
Interest rate swaps		118,556		4,786		5,084			119,341		7,172		7,820
Total derivatives not designated as hedging instruments		118,556		4,786		5,084			119,341		7,172		7,820
Total	$	124,085		4,786		5,377		$	124,926		7,172		8,317
Cash collateral				—		(5,530	)				—		(8,440	)
Netting adjustments				153		153					123		123
Net amount presented in Balance Sheet			$	4,939	$	—				$	7,295	$	—

The table below lists designated and qualifying hedged items in fair value hedges at March 31, 2021.

	March 31, 2021
	Carrying Amount		Hedging Fair Value Adjustment		Fair Value Adjustments on Discontinued Hedges
Commercial real estate loans	$	5,527	$	287	$	—
Total	$	5,527	$	287	$	—

The Company reports hedging derivative gains (losses) as adjustments to loan interest income along with the related net interest settlements and the derivative gains (losses) and net interest settlements for economic derivatives are reported in other income. For the three-month periods ended March 31, 2021 and 2020, the Company recorded net gains (losses) on derivatives and hedging activities.

	Three Months Ended March 31,
	2021		2020
Derivatives designated as hedging instruments:
Interest rate swaps	$	—	$	—
Total net gain (loss) related to fair value hedges		—		—
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps		350		(492	)
Total net gains (losses) related to derivatives not designated as hedging instruments		350		(492	)
Net gains (losses) on derivatives and hedging activities	$	350	$	(492	)

The following table shows the recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Company’s net interest income for the three-month periods ended March 31, 2021 and 2020.

	March 31, 2021
	Gain/(Loss) on Derivatives			Gain/(Loss) on Hedged Items		Net Fair Value Hedge Gain/(Loss)		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	(204	)	$	204	$	—	$	(28	)
Total	$	(204	)	$	204	$	—	$	(28	)

	March 31, 2020
	Gain/(Loss) on Derivatives			Gain/(Loss) on Hedged Items		Net Fair Value Hedge Gain/(Loss)		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	(399	)	$	399	$	—	$	(9	)
Total	$	(399	)	$	399	$	—	$	(9	)

NOTE 5 – LEASE OBLIGATIONS

Right-of-use asset and lease obligations by type of property for the periods ended March 31, 2021, and December 31, 2020, are listed below.

	March 31, 2021
Operating Leases	Right-of-Use Asset		Lease Liability		Weighted Average Lease Term in Years		Weighted Average Discount Rate
Land and building leases	$	3,472	$	3,458		16.8		2.98	%
Total operating leases	$	3,472	$	3,458		16.8		2.98	%

	December 31, 2020
Operating Leases	Right-of-Use Asset		Lease Liability		Weighted Average Lease Term in Years		Weighted Average Discount Rate
Land and building leases	$	3,540	$	3,524		16.9		2.99	%
Total operating leases	$	3,540	$	3,524		16.9		2.99	%

Operating lease costs for the three-month periods ended March 31, 2021 and 2020, are listed below.

	Three Months Ended March 31,
	2021		2020
Operating lease cost	$	125	$	182
Short-term lease cost		—		—
Variable lease cost		10		11
Total operating lease cost	$	135	$	193

There were no sales and leaseback transactions, leverage leases, lease transactions with related parties or leases that had not yet commenced during the three-month period ended March 31, 2021.

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is listed below.

Lease Payments	March 31, 2021
Due in one year or less	$	468
Due after one year through two years		500
Due after two years through three years		334
Due after three years through four years		221
Due after four years through five years		223
Thereafter		2,776
Total undiscounted cash flows		4,522
Discount on cash flows		(1,064	)
Total operating lease liability	$	3,458

NOTE 6 – BORROWINGS

Federal funds purchased and retail repurchase agreements

Federal funds purchased and retail repurchase agreements as of March 31, 2021, and December 31, 2020, are listed below.

March 31,

2021

December 31,

2020

Federal funds purchased

—

Retail repurchase agreements

40,339

36,029

The Company has available federal funds lines of credit with its correspondent banks.

Securities sold under agreements to repurchase (retail repurchase agreements) consist of obligations of the Company to other parties. The obligations are secured by residential mortgage-backed securities held by the Company with a fair value of $42,569 and $47,113 at March 31, 2021, and December 31, 2020. The agreements are on a day-to-day basis and can be terminated on demand.

	March 31, 2021			December 31, 2020
Year-to-date average daily balance during the period	$	41,486		$	45,041
Maximum month-end balance year-to-date	$	42,022		$	53,543
Weighted average interest rate at period-end		0.21	%		0.22	%

Federal Home Loan Bank advances

Federal Home Loan Bank advances as of March 31, 2021, are listed below.

	March 31, 2021		Weighted Average Rate			Weighted Average Term in Years
Federal Home Loan Bank line of credit advances	$	—		—		—
Federal Home Loan Bank fixed-rate term advances		9,893		2.78	%		2.1
Total principal outstanding		9,893
Merger purchase accounting adjustment		33
Total Federal Home Loan Bank advances	$	9,926

Federal Home Loan Bank advances as of December 31, 2020, are listed below.

	December 31, 2020		Weighted Average Rate			Weighted Average Term in Years
Federal Home Loan Bank line of credit advances	$	—		—		—
Federal Home Loan Bank fixed-rate term advances		10,107		2.79	%		2.3
Total principal outstanding		10,107
Merger purchase accounting adjustment		37
Total Federal Home Loan Bank advances	$	10,144

The advances, Mortgage Partnership Finance credit enhancement obligations and letters of credit were collateralized by certain qualifying loans totaling $745,463 and $763,506 at March 31, 2021, and December 31, 2020. Based on this collateral and the Company’s holdings of Federal Home Loan Bank stock, the Company was eligible to borrow an additional $719,762 and $661,490 at March 31, 2021, and December 31, 2020.

Federal Reserve Bank discount window

At March 31, 2021, to support the $275,328 borrowing capacity from the Federal Reserve Bank, the Company has pledged loans with an outstanding balance of $292,646 and securities with a fair value of $58,650. No borrowings were secured from this facility at periods ended March 31, 2021 or 2020.

Bank stock loan

On March 13, 2017, the Company entered into an agreement with an unaffiliated financial institution that provided for a maximum borrowing facility of $30,000, secured by the Company’s stock in Equity Bank. The borrowing facility was amended on March 11, 2019, to provide a maximum borrowing facility of $40,000 and extend the maturity to May 15, 2020. The loan was extended to August 15, 2020, and subsequently renewed and amended on June 30, 2020, with a maturity date of August 15, 2021. Each draw of funds on the facility will create a separate note that is repayable over a term of five years. Each note will bear interest at the greater of a variable interest rate equal to the prime rate published in the “Money Rates” section of The Wall Street Journal (or any generally recognized successor), floating daily, or a floor of 3.50%. Accrued interest and principal payments will be due quarterly with one final payment of unpaid principal and interest due at the end of the five-year term of each separate note. The Company is also required to pay an unused commitment fee in an amount equal to 20 basis points per annum on the unused portion of the maximum borrowing facility.

There were no outstanding principal balances on the bank stock loan at March 31, 2021, or December 31, 2020.

The terms of the borrowing facility require the Company and Equity Bank to maintain minimum capital ratios, and other covenants. In the event of default, the lender has the option to declare all outstanding balances immediately due. The Company believes it is in compliance with the terms of the borrowing facility and has not been otherwise notified of noncompliance.

Subordinated debt

Subordinated debt as of March 31, 2021, and December 31, 2020, are listed below.

	March 31, 2021		December 31, 2020
Subordinated debentures	$	14,951	$	14,872
Subordinated notes		72,837		72,812
Total	$	87,788	$	87,684

Subordinated debentures

In conjunction with prior acquisitions, the Company assumed certain subordinated debentures owed to special purpose unconsolidated subsidiaries that are controlled by the Company. These subordinated debentures have the same terms as the trust preferred securities issued by the special purpose unconsolidated subsidiaries.

FCB Capital Trust II (“CTII”): The trust preferred securities issued by CTII accrue and pay distributions quarterly at three-month LIBOR plus 2.00% on the stated liquidation amount of the trust preferred securities. These trust preferred securities are mandatorily redeemable upon maturity on April 15, 2035, or upon earlier redemption.

FCB Capital Trust III (“CTIII”): The trust preferred securities issued by CTIII accrue and pay distributions quarterly at three-month LIBOR plus 1.89% on the stated liquidation amount of the trust preferred securities. These trust preferred securities are mandatorily redeemable upon maturity on June 15, 2037, or upon earlier redemption.

Community First (AR) Statutory Trust I (“CFSTI”): The trust preferred securities issued by CFSTI accrue and pay distributions quarterly at three-month LIBOR plus 3.25% on the stated liquidation amount of the trust preferred securities. These trust preferred securities are mandatorily redeemable upon maturity on December 26, 2032, or upon earlier redemption.

Subordinated debentures as of March 31, 2021, and December 31, 2020, are listed below.

	March 31, 2021			Weighted Average Rate			Weighted Average Term in Years
CTII subordinated debentures	$	10,310			2.24	%		14.0
CTIII subordinated debentures		5,155			2.11	%		16.2
CFSTI subordinated debentures		5,155			3.45	%		11.7
Total contractual balance		20,620
Fair market value adjustments		(5,669	)
Total subordinated debentures	$	14,951

	December 31, 2020			Weighted Average Rate			Weighted Average Term in Years
CTII subordinated debentures	$	10,310			2.24	%	14.3
CTIII subordinated debentures		5,155			2.11	%		16.5
CFSTI subordinated debentures		5,155			3.50	%		12.0
Total contractual balance		20,620
Fair market value adjustments		(5,748	)
Total subordinated debentures	$	14,872

Subordinated notes

On June 29, 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 $42,000 in aggregate principal amount of its 7.00% Fixed-to-Floating Rate Subordinated notes due 2030. The notes were issued under an Indenture, dated as of June 29, 2020 (the “Indenture”), by and between the Company and UMB Bank, N.A., as trustee. The notes will mature on June 30, 2030. From June 29, 2020, through June 29, 2025, the Company will pay interest on the notes semi-annually in arrears on June 30 and December 30 of each year, commencing on December 30, 2020, at a fixed interest rate of 7.00%. Beginning June 30, 2025, the notes convert to a floating interest rate, to be reset quarterly, equal to the then-current Three-Month Term SOFR, as defined in the Indenture, plus 688 basis points. Interest payments during the floating-rate period will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year, commencing on September 30, 2025. On July 23, 2020, the Company closed on an additional $33,000 of subordinated notes with the same terms as the June 29, 2020, issue.

Subordinated notes as of March 31, 2021, are listed below.

	March 31, 2021			Weighted Average Rate			Weighted Average Term in Years
Subordinated notes	$	75,000			7.00	%		9.3
Total principal outstanding		75,000
Debt issuance cost		(2,163	)
Total subordinated notes	$	72,837

Subordinated notes as of December 31, 2020, are listed below.

	December 31, 2020			Weighted Average Rate			Weighted Average Term in Years
Subordinated notes	$	75,000			7.00	%		9.5
Total principal outstanding		75,000
Debt issuance cost		(2,188	)
Total subordinated notes	$	72,812

Future principal repayments

Future principal repayments of the March 31, 2021, outstanding balances are as follows.

	Retail Repurchase Agreements		FHLB Advances		Subordinated Debentures		Subordinated Notes		Total
Due in one year or less	$	40,339	$	2,357	$	—	$	—	$	42,696
Due after one year through two years		—		2,357		—		—		2,357
Due after two years through three years		—		2,357		—		—		2,357
Due after three years through four years		—		1,857		—		—		1,857
Due after four years through five years		—		965		—		—		965
Thereafter		—		—		20,620		75,000		95,620
Total	$	40,339	$	9,893	$	20,620	$	75,000	$	145,852

NOTE 7 – STOCKHOLDERS’ EQUITY

Preferred stock

The Company’s articles of incorporation provide for the issuance of 10,000,000 shares of preferred stock. At March 31, 2021, and December 31, 2020, there was no preferred stock outstanding.

Common stock

The Company’s articles of incorporation provide for the issuance of 45,000,000 shares of Class A voting common stock (“Class A common stock”) and 5,000,000 shares of Class B non-voting common stock (“Class B common stock”), both of which have a par value of $0.01 per share.

The following table presents shares that were issued, held in treasury or were outstanding at March 31, 2021, and December 31, 2020.

	March 31, 2021			December 31, 2020
Class A common stock – issued		17,301,199			17,224,830
Class A common stock – held in treasury		(2,917,286	)		(2,684,274	)
Class A common stock – outstanding		14,383,913			14,540,556
Class B common stock – issued		234,903			234,903
Class B common stock – held in treasury		(234,903	)		(234,903	)
Class B common stock – outstanding		—			—

In 2019, the Company’s Board of Directors adopted the Equity Bancshares, Inc. 2019 Employee Stock Purchase Plan (“ESPP”). 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. ESPP compensation expense of $25 and $29 was recorded for the three-month periods ended March 31, 2021 and 2020. The following table presents the offering periods and costs associated with this program.

Offering Period	Shares Purchased		Cost Per Share		Compensation Expense
August 15, 2019 to February 14, 2020		16,764	$	21.11	$	63
February 15, 2020 to August 14, 2020		17,829		13.61		43
August 15, 2020 to February 14, 2021		17,621		13.68		42

Treasury stock is stated at cost, determined by the first-in first-out method.

On April 18, 2019, the Company’s Board of Directors authorized the repurchase of up to 1,100,000 shares of the Company’s outstanding common stock, from time to time, beginning April 29, 2019, and concluding October 30, 2020. The repurchase program did not obligate the Company to acquire a specific dollar amount or number of shares and it could be extended, modified or discontinued at any time without notice. Under this program, during 2020, the Company repurchased a total of 678,984 shares of the Company’s outstanding common stock at a weighted average price paid of $18.89 per share. The Company repurchased the total

authorized amount of 1,100,000 shares at a weighted average price paid of $21.54 under the repurchase program authorized in April 2019.

In September of 2020, the Company’s Board of Directors authorized an additional repurchase of up to 800,000 shares of the Company’s outstanding common stock, from time to time, beginning October 30, 2020, and concluding October 29, 2021. The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and it could be extended, modified or discontinued at any time without notice. Under this program, during the year ended December 31, 2020, the Company repurchased a total of 313,231 shares of the Company’s outstanding common stock at an average price paid of $20.82 per share. During the quarter ended March 31, 2021, the Company repurchased a total of 233,012 shares of the Company’s outstanding common stock at an average price paid of $25.35 per share, leaving 253,757 shares remaining available for repurchase under the program.

Accumulated other comprehensive income (loss)

At March 31, 2021, and December 31, 2020, accumulated other comprehensive income consisted of (i) the after-tax effect of unrealized gains on available-for-sale securities and (ii) the after-tax effect of unamortized unrealized gains (losses) on securities transferred from the available-for-sale designation to the held-to-maturity designation.

Components of accumulated other comprehensive income as of March 31, 2021, and December 31, 2020, are listed below.

	Available-for- Sale Securities			Accumulated Other Comprehensive Income (Loss)
March 31, 2021
Net unrealized or unamortized gains	$	16,057		$	16,057
Tax effect		(4,038	)		(4,038	)
	$	12,019		$	12,019
December 31, 2020
Net unrealized or unamortized gains	$	26,426		$	26,426
Tax effect		(6,645	)		(6,645	)
	$	19,781		$	19,781

NOTE 8 – REGULATORY MATTERS

Banks and bank holding companies (on a consolidated basis) are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 and became fully phased in January 1, 2019. The Basel III rules require banks to maintain a Common Equity Tier 1 capital ratio of 6.5%, a total Tier 1 capital ratio of 8%, a total capital ratio of 10% and a leverage ratio of 5% to be deemed “well capitalized” for purposes of certain rules and prompt corrective action requirements. The risk-based ratios include a “capital conservation buffer” of 2.5% which can limit certain activities of an institution, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below the buffer amount. Management believes as of March 31, 2021, the Company and 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. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as are asset growth and acquisitions, and capital restoration plans are required.

As of March 31, 2021, 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 risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed Equity Bank’s category.

The Company’s and Equity Bank’s capital amounts and ratios at March 31, 2021, and December 31, 2020, are presented in the table below. Ratios provided for Equity Bancshares, Inc. represent the ratios of the Company on a consolidated basis.

	Actual					Minimum Required for Capital Adequacy Under Basel III					To Be Well Capitalized Under Prompt Corrective Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2021
Total capital to risk weighted assets
Equity Bancshares, Inc.	$	462,324		17.02	%	$	285,193		10.50	%	$	N/A	N/A
Equity Bank		425,813		15.69	%		284,967		10.50	%		271,398		10.00	%
Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.		355,257		13.08	%		230,871		8.50	%	N/A		N/A
Equity Bank		391,610		14.43	%		230,688		8.50	%		217,118		8.00	%
Common equity Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.		340,306		12.53	%		190,129		7.00	%	N/A		N/A
Equity Bank		391,610		14.43	%		189,978		7.00	%		176,408		6.50	%
Tier 1 leverage to average assets
Equity Bancshares, Inc.		355,257		8.73	%		162,756		4.00	%	N/A		N/A
Equity Bank		391,610		9.63	%		162,606		4.00	%		203,257		5.00	%
December 31, 2020
Total capital to risk weighted assets
Equity Bancshares, Inc.	$	462,865		17.35	%	$	280,072		10.50	%	$	N/A	N/A
Equity Bank		418,992		15.73	%		279,646		10.50	%		266,329		10.00	%
Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.		356,707		13.37	%		226,725		8.50	%	N/A		N/A
Equity Bank		385,696		14.48	%		226,380		8.50	%		213,064		8.00	%
Common equity Tier 1 capital to risk weighted assets
Equity Bancshares, Inc.		341,835		12.82	%		186,714		7.00	%	N/A		N/A
Equity Bank		385,696		14.48	%		186,431		7.00	%		173,114		6.50	%
Tier 1 leverage to average assets
Equity Bancshares, Inc.		356,707		9.30	%		153,490		4.00	%	N/A		N/A
Equity Bank		385,696		10.07	%		153,276		4.00	%		191,595		5.00	%

Equity Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.

NOTE 9 – EARNINGS PER SHARE

The following table presents earnings per share for the three-month periods ended March 31, 2021 and 2020.

	Three months ended
	March 31, 2021		March 31, 2020
Basic:
Net income (loss) allocable to common stockholders	$	15,075	$	1,258
Weighted average common shares outstanding		14,455,986		15,384,667
Weighted average vested restricted stock units		8,305		3,030
Weighted average shares		14,464,291		15,387,697
Basic earnings (loss) per common share	$	1.04	$	0.08
Diluted:
Net income (loss) allocable to common stockholders	$	15,075	$	1,258
Weighted average common shares outstanding for:
Basic earnings per common share		14,464,291		15,387,697
Dilutive effects of the assumed exercise of stock options		168,846		168,195
Dilutive effects of the assumed vesting of restricted stock units		99,095		32,579
Dilutive effects of the assumed exercise of ESPP purchases		1,851		6,553
Average shares and dilutive potential common shares		14,734,083		15,595,024
Diluted earnings (loss) per common share	$	1.02	$	0.08

Average shares not included in the computation of diluted earnings per share because they were antidilutive are shown in the following table.

	Three months ended
	March 31, 2021		March 31, 2020
Stock options		305,493		320,521
Restricted stock units		34,446		134,139
Total antidilutive shares		339,939		454,660

NOTE 10 – FAIR VALUE

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For disclosure purposes, the Company groups its financial and non-financial assets and liabilities into three different levels based on the nature of the instrument and the availability and reliability of the information that is used to determine fair value. The three levels of inputs that may be used to measure fair values are defined as follows.

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Level 1 inputs are considered to be the most transparent and reliable. The Company assumes the use of the principal market to conduct a transaction of each particular asset or liability being measured and then considers the assumptions that market participants would use when pricing the asset or liability. Whenever possible, the Company first looks for quoted prices for identical assets or liabilities in active markets (Level 1 inputs) to value each asset or liability. However, when inputs from identical assets or liabilities on active markets are not available, the Company utilizes market observable data for similar assets and liabilities. The Company maximizes the use of observable inputs and limits the use of unobservable inputs to occasions when observable inputs are not available. The need to use unobservable inputs generally results from the lack of market liquidity of the actual financial instrument or of the underlying collateral. Although, in some instances, third party price indications may be available, limited trading activity can challenge the implied value of those quotations.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of each instrument under the hierarchy.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The fair values of securities available-for-sale and equity securities with readily determinable fair value are carried at fair value on a recurring basis. To the extent possible, observable quoted prices in an active market are used to determine fair value and, as such, these securities are classified as Level 1. For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities, generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Company’s available-for-sale securities, including U.S. Government sponsored entity securities, residential mortgage-backed securities (all of which are issued or guaranteed by government sponsored agencies), corporate securities, Small Business Administration securities, and State and Political Subdivision securities are classified as Level 2.

The fair values of derivatives are determined based on a valuation pricing model using readily available observable market parameters such as interest rate yield curves (Level 2 inputs) adjusted for credit risk attributable to the seller of the interest rate derivative. Cash collateral received from or delivered to a derivative counterparty is classified as Level 1.

Assets and liabilities measured at fair value on a recurring basis are summarized in the following table.

	March 31, 2021
	(Level 1)			(Level 2)		(Level 3)
Assets:
Available-for-sale securities:
U.S. Government-sponsored entities	$	—		$	1,018	$	—
U.S. Treasury securities		—			12,596		—
Mortgage backed securities
Government-sponsored residential mortgage backed securities		—			743,638		—
Private label residential mortgage backed securities		—			62,118		—
Corporate		—			53,582		—
Small Business Administration loan pools		—			11,405		—
State and political subdivisions		—			113,743		—
Derivative assets:
Derivative assets (included in other assets)		—			4,786		—
Cash collateral held by counterparty and netting adjustments		153			—		—
Total derivative assets		153			4,786		—
Other assets:
Equity securities with readily determinable fair value		591			—		—
Total other assets		591			—		—
Total assets	$	744		$	1,002,886	$	—
Liabilities:
Derivative liabilities:
Derivative liabilities (included in other liabilities)	$	—		$	5,377	$	—
Cash collateral held by counterparty and netting adjustments		(5,377	)		—		—
Total derivative liabilities		(5,377	)		5,377		—
Total liabilities	$	(5,377	)	$	5,377	$	—

	December 31, 2020
	(Level 1)			(Level 2)		(Level 3)
Assets:
Available-for-sale securities:
U.S. Government-sponsored entities	$	—		$	1,023	$	—
U.S. Treasury securities		—			4,025		—
Mortgage backed securities
Government-sponsored residential mortgage backed securities		—			651,425		—
Private label residential mortgage backed securities		—			44,178		—
Corporate		—			53,650		—
Small Business Administration loan pools		—			1,270		—
State and political subdivisions		—			116,256		—
Derivative assets:
Derivative assets (included in other assets)		—			7,172		—
Cash collateral held by counterparty and netting adjustments		123			—		—
Total derivative assets		123			7,172		—
Other assets:
Equity securities with readily determinable fair value		506			—		—
Total other assets		506			—		—
Total assets	$	629		$	878,999	$	—
Liabilities:
Derivative liabilities:
Derivative liabilities (included in other liabilities)	$	—		$	8,317	$	—
Cash collateral held by counterparty		(8,317	)		—		—
Total derivative liabilities		(8,317	)		8,317		—
Total liabilities	$	(8,317	)	$	8,317	$	—

There were no material transfers between levels during the three months ended March 31, 2021, or the year ended December 31, 2020. The Company’s policy is to recognize transfers into or out of a level as of the end of a reporting period.

Fair Value of Assets and Liabilities Measured on a Non-recurring Basis

Certain assets are measured at fair value on a non-recurring basis when there is evidence of impairment. The fair value of individually evaluated securities is determined as discussed previously for available-for-sale securities. The fair values of individually evaluated loans with specific allocations of the allowance for credit losses are generally based on recent real estate appraisals of the collateral less estimated cost to sell. Declines in the fair values of other real estate owned subsequent to their initial acquisitions are also based on recent real estate appraisals less estimated selling costs.

Real estate appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. We routinely value loans other than real estate as multiples of earnings or with the discounted cash flow approach and adjustments are made to observable market data to make the valuation consistent with the underlying credit. Such adjustments made to real estate appraisals and other loan valuations are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Assets measured at fair value on a non-recurring basis are summarized below.

	March 31, 2021
	(Level 1)		(Level 2)		(Level 3)
Individually evaluated loans:
Commercial real estate	$	—	$	—	$	4,011
Commercial and industrial		—		—		17,648
Residential real estate		—		—		2,143
Agricultural real estate		—		—		3,884
Other		—		—		4,081
Other real estate owned:
Commercial real estate		—		—		3,220
Residential real estate		—		—		479

	December 31, 2020
	(Level 1)		(Level 2)		(Level 3)
Individually evaluated loans:
Commercial real estate	$	—	$	—	$	3,359
Commercial and industrial		—		—		16,343
Residential real estate		—		—		2,165
Agricultural real estate		—		—		2,383
Other		—		—		852
Other real estate owned:
Commercial real estate		—		—		3,882
Residential real estate		—		—		469

The Company did not record any liabilities for which the fair value was measured on a non-recurring basis at March 31, 2021, or December 31, 2020.

Valuations of individually evaluated loans and other real estate owned utilize third party appraisals or broker price opinions and were classified as Level 3 due to the significant judgment involved. Appraisals may include the utilization of unobservable inputs, subjective factors and quantitative data to estimate fair market value.

The following table presents additional information about the unobservable inputs used in the fair value measurement of financial assets measured on a nonrecurring basis that were categorized with Level 3 of the fair value hierarchy.

	Fair Value		Valuation Technique	Unobservable Input	Range (weighted average) or Multiple of Earnings
March 31, 2021
Individually evaluated real estate loans	$	20,220	Sales Comparison Approach	Adjustments for differences between comparable sales	5% - 41% (23%)
Individually evaluted other loans	$	11,547	Multiple of Earnings	Multiples of earnings for comparable entities	4.5X - 5.5X (5X)
Individually evaluated other real estate owned	$	3,699	Sales Comparison Approach	Adjustments for differences between comparable sales	8% - 23% (15%)
December 31, 2020
Individually evaluated real estate loans	$	13,443	Sales Comparison Approach	Adjustments for differences between comparable sales	2% - 22% (12%)
Individually evaluated other loans	$	11,659	Multiple of Earnings	Multiples of earnings for comparable entities	4.5X - 5.5X (5X)
Individually evaluated other real estate owned	$	4,351	Sales Comparison Approach	Adjustments for differences between comparable sales	16% - 42% (29%)

Carrying amount and estimated fair values of financial instruments at period end were as follows.

	March 31, 2021
	Carrying Amount			Estimated Fair Value			(Level 1)			(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	136,688		$	136,688		$	136,688		$	—	$	—
Interest-bearing time deposits in other banks		249			249			—			249		—
Available-for-sale securities		998,100			998,100			—			998,100		—
Loans held for sale		8,609			8,609			—			8,609		—
Loans, net of allowance for credit losses		2,740,215			2,644,622			—			—		2,644,622
Federal Reserve Bank and Federal Home Loan Bank stock		15,174			15,174			—			15,174		—
Interest receivable		16,655			16,655			—			16,655		—
Derivative assets		4,786			4,786			—			4,786		—
Cash collateral held by derivative counterparty and netting adjustments		153			153			153			—		—
Total derivative assets		4,939			4,939			153			4,786		—
Equity securities with readily determinable fair value		591			591			591			—		—
Total assets	$	3,921,220		$	3,825,627		$	137,432		$	1,043,573	$	2,644,622
Financial liabilities:
Deposits	$	3,634,530		$	3,636,980		$	—		$	3,636,980	$	—
Federal funds purchased and retail repurchase agreements		40,339			40,339			—			40,339		—
Federal Home Loan Bank advances		9,926			10,319			—			10,319		—
Subordinated debentures		14,951			14,951			—			14,951		—
Subordinated notes		72,837			81,385			—			81,385		—
Contractual obligations		4,856			4,856			—			4,856		—
Interest payable		2,122			2,122			—			2,122		—
Derivative liabilities		5,377			5,377			—			5,377		—
Cash collateral held by derivative counterparty and netting adjustments		(5,377	)		(5,377	)		(5,377	)		—		—
Total derivative liabilities		—			—			(5,377	)		5,377		—
Total liabilities	$	3,779,561		$	3,790,952		$	(5,377	)	$	3,796,329	$	—

	December 31, 2020
	Carrying Amount			Estimated Fair Value			(Level 1)			(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	280,698		$	280,698		$	280,698		$	—	$	—
Interest-bearing time deposits in other banks		249			249			—			249		—
Available-for-sale securities		871,827			871,827			—			871,827		—
Loans held for sale		12,394			12,394			—			12,394		—
Loans, net of allowance for credit losses		2,557,987			2,430,325			—			—		2,430,325
Federal Reserve Bank and Federal Home Loan Bank stock		16,415			16,415			—			16,415		—
Interest receivable		15,831			15,831			—			15,831		—
Derivative assets		7,172			7,172			—			7,172		—
Cash collateral held by derivative counterparty and netting adjustments		123			123			123			—		—
Total derivative assets		7,295			7,295			123			7,172		—
Equity securities with readily determinable fair value		506			506			506			—		—
Total assets	$	3,763,202		$	3,635,540		$	281,327		$	923,888	$	2,430,325
Financial liabilities:
Deposits	$	3,447,590		$	3,451,366		$	—		$	3,451,366	$	—
Federal funds purchased and retail repurchase agreements		36,029			36,029			—			36,029		—
Federal Home Loan Bank advances		10,144			10,656			—			10,656		—
Subordinated debentures		14,872			14,872			—			14,872		—
Subordinated notes		72,812			80,448			—			80,448		—
Contractual obligations		5,189			5,189			—			5,189		—
Interest payable		1,231			1,231			—			1,231		—
Derivative liabilities		8,317			8,317			—			8,317		—
Cash collateral held by derivative counterparty and netting adjustments		(8,317	)		(8,317	)		(8,317	)		—		—
Total derivative liabilities		—			—			(8,317	)		8,317		—
Total liabilities	$	3,587,867		$	3,599,791		$	(8,317	)	$	3,608,108	$	—

The fair value of off-balance-sheet items is not considered material.

NOTE 11 – COMMITMENTS AND CREDIT RISK

The Company extends credit for commercial real estate mortgages, residential mortgages, working capital financing and loans to businesses and consumers.

Commitments to Originate Loans and Available Lines of Credit

Commitments to originate loans and available lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments and lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments and lines of credit may expire without being drawn upon, the total commitment and lines of credit amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Mortgage loans in the process of origination represent amounts that the Company plans to fund within a normal period of 60 to 90 days, and which are intended for sale to investors in the secondary market.

The contractual amounts of commitments to originate loans and available lines of credit as of March 31, 2021, and December 31, 2020, were as follows.

	March 31, 2021				December 31, 2020
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	47,969	$	161,960	$	50,123	$	129,860
Mortgage loans in the process of origination		10,891		6,301		13,826		1,713
Unused lines of credit		98,011		180,922		120,720		226,731

The fixed rate loan commitments have interest rates ranging from 2.36% to 7.51% and maturities ranging from 1 month to 183 months.

Standby Letters of Credit

Standby letters of credit are irrevocable commitments issued by the Company to guarantee the performance of a customer to a third party once specified pre-conditions are met. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers.

The contractual amounts of standby letters of credit as of March 31, 2021, and December 31, 2020, were as follows.

March 31, 2021

December 31, 2020

Fixed

Rate

Variable

Rate

Fixed

Rate

Variable

Rate

Standby letters of credit

9,172

2,939

9,020

3,314

NOTE 12 – LEGAL MATTERS

The Company is party to various matters of litigation in the ordinary course of business. The Company periodically reviews all outstanding pending or threatened legal proceedings and determines if such matters will have an adverse effect on the business, financial condition or results of operations or cash flows. A loss contingency is recorded when the outcome is probable and reasonably able to be estimated. The loss contingency described below has been identified by the Company as reasonably possible to result in an unfavorable outcome for the Company or the Bank.

Equity Bank is a party to a lawsuit filed on November 5, 2020, in Missouri federal court on behalf of one of our customers, alleging improperly collected overdraft fees. The plaintiff seeks to have the case certified as a class action. The Bank was served on February 2, 2021. The Company filed a motion to dismiss the claims on April 26, 2021. The Company believes that the lawsuit is without merit and it intends to vigorously defend against all claims asserted. At this time, the Company is unable to reasonably estimate the outcome of this litigation.

NOTE 13 – REVENUE RECOGNITION

The majority of the Company’s revenues come from interest income on financial instruments, including loans, leases, securities and derivatives, which are outside the scope of ASC 606. The Company’s services that fall within the scope of ASC 606 are presented with non-interest income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges and fees on deposits, debit card income, investment referral income, insurance sales commissions and other non-interest income related to loans and deposits.

Except for gains or losses from the sale of other real estate owned, all of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income. The following table presents the Company’s sources of non-interest income for the three-month periods ended March 31, 2021 and 2020.

	Three Months Ended March 31,
	2021			2020
Non-interest income
Service charges and fees	$	1,596		$	2,026
Debit card income		2,350			2,043
Mortgage banking^(a)		935			590
Increase in bank-owned life insurance^(a)		601			482
Net gain (loss) on acquisition^(a)		(78	)		—
Net gain (loss) from securities transactions^(a)		17			8
Other
Investment referral income		122			166
Trust income		160			71
Insurance sales commissions		60			18
Recovery on zero-basis purchased loans^(a)		34			14
Income (loss) from equity method investments^(a)		(55	)		(5	)
Other non-interest income related to loans and deposits		968			(128	)
Other non-interest income not related to loans and deposits^(a)		2			21
Total other non-interest income		1,291			157
Total	$	6,712		$	5,306
⁽^a) Not within the scope of ASC 606.

NOTE 14 – BUSINESS COMBINATIONS

At the close of business on October 23, 2020, the Company acquired the assets and assumed the deposit liabilities of Almena State Bank (“Almena”), based in Norton, Kansas, pursuant to a Purchase and Assumption Agreement facilitated by the Federal Deposit Insurance Corporation (“FDIC”). Acquisition costs related to this acquisition during the quarter ended March 31, 2021 were $152 ($114 on an after-tax basis).

During the quarter ended March 31, 2021, the Company completed the valuation for certain loans which at acquisition showed evidence of credit quality deterioration since origination. The net result of this valuation was a $78 reduction to the gain on acquisition recorded during the fourth quarter of 2020.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K filed with the SEC on March 9, 2021, and our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary Note Regarding Forward-Looking Statements.” Also, see the risk factors and other cautionary statements described under the heading “Item 1A: Risk Factors” included in the Annual Report on Form 10-K and in Item 1A of this Quarterly Report. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

This discussion and analysis of our financial condition and results of operation includes the following sections:

•

Overview – a general description of our business and financial highlights;

•

Critical Accounting Policies – a discussion of accounting policies that require critical estimates and assumptions;

•

Recent Developments – a discussion of COVID-19 and the CARES Act

•

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 – a reconciliation of non-GAAP measures.

Overview

We are a bank 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 51 full-service banking sites located in Arkansas, Kansas, Missouri and Oklahoma. As of March 31, 2021, we had consolidated total assets of $4.20 billion, total loans held for investment, net of allowance, of $2.74 billion, total deposits of $3.63 billion and total stockholders’ equity of $397.8 million. During the three-month period ended March 31, 2021, the Company had net income of $15.1 million as compared to net income of $1.3 million for the three-month period ended March 31, 2020.

Selected Financial Data for the periods indicated (dollars in thousands, except per share amounts).

	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
Statement of Income Data (for the quarterly period ended)
Interest and dividend income	$	35,812		$	39,989		$	37,082		$	37,933		$	40,557
Interest expense		4,053			4,430			4,975			5,042			8,462
Net interest income		31,759			35,559			32,107			32,891			32,095
Provision (reversal) for credit losses		(5,756	)		1,000			815			12,500			9,940
Net gain (loss) from securities transactions		17			(1	)		—			4			8
Other non-interest income		6,695			8,501			6,485			5,728			5,298
Goodwill impairment		—			—			104,831			—			—
Other non-interest expense		24,881			28,460			26,004			23,937			25,758
Income (loss) before income taxes		19,346			14,599			(93,058	)		2,186			1,703
Provision for income taxes		4,271			2,111			(2,653	)		497			445
Net income (loss)		15,075			12,488			(90,405	)		1,689			1,258
Net income (loss) allocable to common stockholders		15,075			12,488			(90,405	)		1,689			1,258
Basic earnings (loss) per share	$	1.04		$	0.85		$	(6.01	)	$	0.11		$	0.08
Diluted earnings (loss)per share	$	1.02		$	0.84		$	(6.01	)	$	0.11		$	0.08
Balance Sheet Data (at period end)
Cash and cash equivalents	$	136,688		$	280,698		$	65,839		$	178,290		$	142,252
Available-for-sale securities		998,100			871,827			798,576			177,228			187,812
Held-to-maturity securities		—			—			—			662,522			721,992
Loans held for sale		8,609			12,394			9,053			4,802			6,494
Gross loans held for investment		2,795,740			2,591,696			2,725,713			2,806,334			2,507,123
Allowance for credit losses		55,525			33,709			34,087			34,078			21,915
Loans held for investment, net of allowance for credit losses		2,740,215			2,557,987			2,691,626			2,772,256			2,485,208
Goodwill and core deposit intangibles, net		46,624			47,658			48,702			154,563			155,537
Other intangible assets, net		1,119			1,130			1,142			1,154			1,167
Total assets		4,196,184			4,013,356			3,865,571			4,205,269			3,943,832
Total deposits		3,634,530			3,447,590			3,133,618			3,247,267			2,960,397
Borrowings		138,053			133,857			301,694			452,032			481,371
Total liabilities		3,798,369			3,605,707			3,463,399			3,725,503			3,466,481
Total stockholders’ equity		397,815			407,649			402,172			479,766			477,351
Tangible common equity*		350,072			358,861			352,328			324,049			320,647
Performance ratios
Return on average assets (ROAA) annualized		1.48	%		1.27	%		(8.90	)%		0.16	%		0.13	%
Return on average equity (ROAE) annualized		15.45	%		12.13	%		(74.45	)%		1.40	%		1.05	%
Return on average tangible common equity (ROATCE) annualized*		18.57	%		14.93	%		(108.31	)%		3.03	%		2.35	%
Yield on loans annualized		4.59	%		5.23	%		4.65	%		4.68	%		5.47	%
Cost of interest-bearing deposits annualized		0.36	%		0.43	%		0.50	%		0.63	%		1.09	%
Net interest margin annualized		3.31	%		3.88	%		3.47	%		3.49	%		3.67	%
Efficiency ratio*		64.18	%		67.19	%		67.38	%		61.98	%		68.88	%
Non-interest income / average assets annualized		0.66	%		0.86	%		0.64	%		0.55	%		0.55	%
Non-interest expense / average assets annualized		2.44	%		2.90	%		12.88	%		2.31	%		2.66	%
Capital Ratios
Tier 1 Leverage Ratio		8.73	%		9.30	%		8.76	%		8.52	%		9.02	%
Common Equity Tier 1 Capital Ratio		12.53	%		12.82	%		12.76	%		12.02	%		11.67	%

Tier 1 Risk Based Capital Ratio		13.08	%		13.37	%		13.32	%		12.57	%		12.20	%
Total Risk Based Capital Ratio		17.02	%		17.35	%		17.35	%		15.33	%		13.00	%
Equity / Assets		9.48	%		10.16	%		10.40	%		11.41	%		12.10	%
Tangible common equity to tangible assets*		8.44	%		9.05	%		9.23	%		8.00	%		8.47	%
Book value per share	$	27.66		$	28.04		$	27.08		$	31.53		$	31.41
Tangible common book value per share*	$	24.34		$	24.68		$	23.72		$	21.29		$	21.10
Tangible common book value per diluted share*	$	23.87		$	24.32		$	23.57		$	21.13		$	20.96

* The value noted is considered a Non-GAAP financial measure. For a reconciliation of Non-GAAP financial measures see “Non-GAAP Financial Measures” in this Item 2.

Critical Accounting Policies

Our significant accounting policies are integral to understanding the results reported. Our accounting policies are described in detail in Note 1 to the December 31, 2020, audited financial statements included in our Annual Report on Form 10-K filed with the SEC on March 9, 2021. We adopted ASU 2016-13 effective January 1, 2021, prior to that we utilized the probable incurred method for determining the allowance for loan losses. Other than the adoption of ASU 2016-13 we have not had any changes in our critical accounting policies. We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of our financial statements to those judgments and assumptions, are critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are appropriate. For additional information, see “NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the Condensed Notes to Interim Consolidated Financial Statements.

Allowance for Credit Losses for Loans: 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. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. The actual realized facts and circumstances maybe different than those currently estimated by management and may result in significant changes in the allowance for credit losses in future periods. The allowance for credit losses for loans, as reported in our consolidated balance sheets, is adjusted by provision for credit losses, which is recognized in earnings, and is reduced by the charge-off of loan amounts, net of recoveries.

The Company utilizes primarily two methods for estimating the allowance for credit losses and the method used depends on the status of the underlying loans. Non-performing loans primarily utilize a collateral specific fair value impairment method and performing loans primarily utilize a historical loss method. The performing loan method utilizes a probability of default (PD) and loss given default (LGD) modeling approach for historical loss coupled with a macroeconomic factor analysis derived from a statistical regression of loss experience correlated to changes in economic factors for all commercial banks operating within our geographical footprint. The macroeconomic regression is based on a multivariate approach and includes key indicators that provide the highest cumulative adjusted R-square figure. Economic factors include, but are not limited to, national unemployment, gross domestic product, market interest rates and property pricing indices. The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by objective measurements period over period. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon quarterly trend assessments in projective economic sentiment, portfolio concentrations, policy exceptions, personnel retention, independent loan review results, collateral considerations, risk ratings and competition. The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors. To arrive at the most predictive calculation, a lag factor was applied to these inputs, resulting in current and historic economic inputs driving the projection of loss over our reasonable and supportable forecast period, which management has defined as 12 months for all portfolio segments. Following the reasonable and supportable forecast period, loss experience immediately reverts to the current historical loss experience of the Company. The resultant loss rates are applied to the estimated future exposure at default (EAD), as determined based on contractual amortization terms through an average default month and estimated prepayment experience in arriving at the quantitative reserve within our allowance for credit losses.

The allowance represents management’s best estimate, but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance. Likewise, an upturn in loan quality and improved economic conditions may allow a reduction in the required allowance. In either instance, unanticipated changes could have a significant impact on results of operations.

Goodwill Impairment: For business combination, we are required to record the assets acquired, including identified intangible assets, and the liabilities assumed at fair value. Estimating fair value often involves estimates based on third party valuations, such as appraisals, internal valuations based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, inflation, interest rates, asset growth rates or other relevant factors. Goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis, if triggering events indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over the fair value of the goodwill.

Significant downturns in economic or business conditions, could have a significant adverse impact on the carrying value of goodwill and could results in impairment losses affecting our financial statements.

Income Taxes: We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate. These laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. We review income tax expense and the carrying value of deferred tax assets quarterly, and as new information becomes available, the balances are adjusted as appropriate. The FASB ASC 740-10 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax potions taken or expect to be taken on a tax return, in order for those tax positions to be recognized in the financial statements.

In establishing a provision for income tax expense, we must make judgements and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the tax authority upon examination or audit.

Although management believes that the judgements and estimates used are reasonable, actual results could differ and we may be exposed to losses or gains that could be material.

Recent Developments

The Company has been, and may continue to be, impacted by the COVID-19 pandemic. In recent months, vaccination rates have been increasing and restrictive measures have eased in certain areas. However, uncertainty remains about the duration of the pandemic and the timing and strength of the global economy’s recovery. To address the economic impact of the pandemic in the U.S. multiple stimulus packages have been enacted to provide economic relief to individuals and businesses, including the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which established the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), and the American Rescue Plan Act of 2021, enacted in March 2021.

As the pandemic evolves, we continue to evaluate protocols and processes in place to execute our business continuity plans while promoting the health and safety of our employees and continuing to support our customers and communities.

We have been an active participant in all phases of the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), and have helped many of our customers obtain loans through the program. PPP loans have a two or five-year term and earn interest at 1.0%. As of March 31, 2021, the Company has 3,772 loans, with an outstanding balance of $414.1 million that were originated under this program. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government.

The Company also participates in the Main Street Lending Program (“MSL Program”), created by the Federal Reserve to support lending to small and medium-sized businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. There was a total of $14.2 million outstanding under the MSL Program for the period ended March 31, 2021.

Results of Operations

We generate the majority of 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 wealth management fees 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. On October 23, 2020, we completed our acquisition of the assets and assumption of the deposits and certain other liabilities for two branches in Almena and Norton, Kansas (“Almena acquisition”), pursuant to a Purchase and Assumption Agreement facilitated by the Federal Deposit Insurance Corporation (“FDIC”). Results of operations from our Almena acquisition were included in our financial results beginning October 24, 2020.

Changes in interest rates on interest-earning assets or on interest-bearing liabilities, as well as the volume and types of interest-earning assets and interest-bearing liabilities are 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 environments and conditions in 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 commercial, consumer and real estate sectors within these markets.

Net Income

Three months ended March 31, 2021, compared with three months ended March 31, 2020: Net income and net income allocable to common stockholders for the three months ended March 31, 2021, was $15.1 million as compared to $1.3 million for the three months ended March 31, 2020, an increase of $13.8 million. During the three-month period ended March 31, 2021, a decrease in provision for credit losses of $15.7 million, an increase in non-interest income of $1.4 million and a decrease in non-interest expense of $877 thousand were partially offset by an increase in provision for income taxes of $3.8 million and a decrease in net interest income of $336 thousand when compared with the three months ended March 31, 2020. The changes in the components of net income are discussed in more detail in the following “Results of Operations” sections.

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 March 31, 2021, compared with three months ended March 31, 2020: 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 March 31, 2021 and 2020. The yields and rates are calculated by dividing annualized income or annualized expense by the average daily balances of the associated assets or liabilities.

Average Balance Sheets and Net Interest Analysis

	For the Three Months Ended March 31,
	2021							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⁾
Interest-earning assets:
Loans⁽¹⁾
Commercial and industrial	$	803,012	$	9,234		4.66	%	$	555,927	$	7,881		5.70	%
Commercial real estate		971,825		11,441		4.77	%		913,065		12,942		5.70	%
Real estate construction		255,677		2,178		3.45	%		267,388		3,575		5.38	%
Residential real estate		394,329		4,452		4.58	%		496,186		5,302		4.30	%
Agricultural real estate		140,875		1,696		4.88	%		137,664		2,091		6.11	%
Consumer		76,413		963		5.11	%		67,160		1,275		7.64	%
Agricultural		94,787		1,037		4.44	%		87,954		1,310		5.99	%
Total loans		2,736,918		31,001		4.59	%		2,525,344		34,376		5.47	%
Taxable securities		839,349		3,799		1.84	%		774,653		4,620		2.40	%
Nontaxable securities		108,104		724		2.72	%		133,257		966		2.92	%
Federal funds sold and other		206,769		288		0.56	%		86,013		595		2.78	%
Total interest-earning assets		3,891,140		35,812		3.73	%		3,519,267		40,557		4.64	%
Non-interest-earning assets:
Other real estate owned, net		11,123							7,736
Premises and equipment, net		89,807							84,432
Bank-owned life insurance		85,839							75,271
Goodwill, core deposit and other intangibles, net		48,376							157,097
Other non-interest-earning assets		17,467							44,402
Total assets	$	4,143,752						$	3,888,205
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,029,353		582		0.23	%	$	708,318		1,624		0.92	%
Savings and money market		1,049,704		389		0.15	%		1,016,456		1,501		0.59	%
Savings, NOW and money market		2,079,057		971		0.19	%		1,724,774		3,125		0.73	%
Certificates of deposit		611,102		1,439		0.96	%		806,734		3,739		1.86	%
Total interest-bearing deposits		2,690,159		2,410		0.36	%		2,531,508		6,864		1.09	%
FHLB term and line of credit advances		10,013		65		2.63	%		295,677		1,175		1.60	%
Bank stock loan		—		—		0.00	%		9,164		109		4.78	%
Subordinated debt		87,715		1,556		7.19	%		14,595		283		7.80	%
Other borrowings		41,632		22		0.22	%		35,867		31		0.35	%
Total interest-bearing liabilities		2,829,519		4,053		0.58	%		2,886,811		8,462		1.18	%
Non-interest-bearing liabilities and stockholders’ equity:
Non-interest-bearing checking accounts		887,466							489,673
Non-interest-bearing liabilities		31,129							29,154
Stockholders’ equity		395,638							482,567
Total liabilities and stockholders’ equity	$	4,143,752						$	3,888,205
Net interest income			$	31,759						$	32,095
Interest rate spread						3.15	%						3.46	%
Net interest margin⁽²⁾						3.31	%						3.67	%
Total cost of deposits, including non-interest bearing deposits	$	3,577,625	$	2,410		0.27	%	$	3,021,181	$	6,864		0.91	%
Average interest-earning assets to interest-bearing liabilities						137.52	%						121.91	%

(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 unrounded 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 March 31, 2021 and 2020.

Analysis of Changes in Net Interest Income

For the Three Months Ended March 31, 2021, and 2020

	Increase (Decrease) Due to:						Total Increase /
(Dollars in thousands)	Volume⁽¹⁾			Yield/Rate⁽¹⁾			(Decrease)
Interest-earning assets:
Loans
Commercial and industrial	$	3,037		$	(1,684	)	$	1,353
Commercial real estate		794			(2,295	)		(1,501	)
Real estate construction		(150	)		(1,247	)		(1,397	)
Residential real estate		(1,137	)		287			(850	)
Agricultural real estate		48			(443	)		(395	)
Consumer		158			(470	)		(312	)
Agricultural		96			(369	)		(273	)
Total loans		2,846			(6,221	)		(3,375	)
Taxable securities		362			(1,183	)		(821	)
Nontaxable securities		(172	)		(70	)		(242	)
Federal funds sold and other		410			(717	)		(307	)
Total interest-earning assets	$	3,446		$	(8,191	)	$	(4,745	)
Interest-bearing liabilities:
Savings, NOW and money market	$	575		$	(2,729	)	$	(2,154	)
Certificates of deposit		(759	)		(1,541	)		(2,300	)
Total interest-bearing deposits		(184	)		(4,270	)		(4,454	)
FHLB term and line of credit advances		(1,570	)		460			(1,110	)
Bank stock loan		(109	)		—			(109	)
Subordinated debt		1,299			(26	)		1,273
Other borrowings		4			(13	)		(9	)
Total interest-bearing liabilities		(560	)		(3,849	)		(4,409	)
Net Interest Income	$	4,006		$	(4,342	)	$	(336	)

(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.

The decrease in loan interest income, including loan fees, was driven by a 88 basis point decrease in yield on the loan portfolio from 5.47% for the three months ended March 31, 2020, to 4.59% for the three months ended March 31, 2021, which was partially offset by an increase in average loan volume. This decrease in yield is largely due to general market conditions and to the 1.0% SBA PPP loans added to the portfolio during 2021. The impact to net interest income from loan fees for the three months ended March 31, 2021, was $3.5 million, compared to $970 thousand for the three months ended March 31, 2020.

The reduction in expense on interest-bearing deposits was due to a 73 basis point decrease in cost on these deposits from 1.09% for the three months ended March 31, 2020, to 0.36% for the three months ended March 31, 2021. Average borrowings from the FHLB decreased by $285.7 million from an average balance of $295.7 million for the three months ended March 31, 2020, to an average balance of $10.0 million for the three months ended March 31, 2021. The bank stock loan did not carry an outstanding balance during the first quarter of 2021 and therefore there was no interest expense on our bank stock loan for the three months ended March 31, 2021, as compared to $109 thousand for the same time period in 2020. Total cost of interest-bearing liabilities decreased 60 basis points to 0.58% for the three months ended March 31, 2021, from 1.18% for the three months ended March 31, 2020.

The decrease in net interest margin is largely due to yields on interest-earning assets decreasing at a faster rate than costs of interest-bearing liabilities. As mentioned earlier, most of the rate decrease in interest-earning assets can be attributed to the increase in SBA PPP loans that have been added to the portfolio.

Provision for Credit Losses and Provision for Loan Losses

The Company adopted the FASB ASU 326 effective January 1, 2021, which requires the estimation of an allowance for credit losses in accordance with the CECL methodology. The allowance for credit losses is increased by a provision for credit losses, 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 historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay a loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations, as described in “Part I – Item 2 – Financial Condition – Allowance for Credit Losses.” As these factors change, the amount of the credit loss provision changes. Prior to the adoption of CECL we maintained an allowance for loan losses for probable incurred credit losses.

Three months ended March 31, 2021, compared with three months ended March 31, 2020: The reversal of provision for credit losses for the three months ended March 31, 2021, was $5.8 million compared with a provision for loan losses of $9.4 million for the three months ended March 31, 2020. Subsequent to the January 1, 2021 adoption of CECL, the reversal of provision for credit losses in the first quarter of 2021 is attributed primarily to improved economic inputs into the CECL model and, to a lesser extent, an improvement in historical loss experience and associated impact on the allowance for credit losses. Net charge-offs for the three months ended March 31, 2021, were $65 thousand compared to net charge-offs of $257 thousand for the three months ended March 31, 2020. For the three months ended March 31, 2021, gross charge-offs were $291 thousand offset by gross recoveries of $226 thousand. In comparison, gross charge-offs were $330 thousand for the three months ended March 31, 2020, offset by gross recoveries of $73 thousand.

Non-Interest Income

The primary sources of non-interest income are service charges and fees, debit card income, mortgage banking 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 March 31, 2021, compared with three months ended March 31, 2020: The following table provides a comparison of the major components of non-interest income for the three months ended March 31, 2021, and 2020.

Non-Interest Income

For the Three Months Ended March 31,

							2021 vs. 2020
(Dollars in thousands)	2021			2020			Change			%
Service charges and fees	$	1,596		$	2,026		$	(430	)		(21.2	)%
Debit card income		2,350			2,043			307			15.0	%
Mortgage banking		935			590			345			58.5	%
Increase in value of bank-owned life insurance		601			482			119			24.7	%
Other
Investment referral income		122			166			(44	)		(26.5	)%
Trust income		160			71			89			125.4	%
Insurance sales commissions		60			18			42			233.3	%
Recovery on zero-basis purchased loans		34			14			20			142.9	%
Income (loss) from equity method investments		(55	)		(5	)		(50	)		1000.0	%
Other non-interest income		970			(107	)		1,077			(1006.5	)%
Total other		1,291			157			1,134			722.3	%
Subtotal		6,773			5,298			1,475			27.8	%
Net gain (loss) on acquisition		(78	)		—			(78	)		(100.0	)%
Net gain (loss) from securities transactions		17			8			9			112.5	%
Total non-interest income	$	6,712		$	5,306		$	1,406			26.5	%

Other non-interest income increased $1.1 million during the three months ended March 31, 2021, as compared to the same time period in 2020, primarily from derivative mark-to-market valuation changes. The remaining increase in non-interest income came principally from increases of $345 thousand in mortgage banking and $307 thousand in debit card income, partially offset by a decrease of $430 thousand in service charges and fees, mostly due to a decline in non-sufficient funds charges, during the quarter ended March 31, 2021, as compared to the quarter ended March 31, 2020.

Non-Interest Expense

Three months ended March 31, 2021, compared with three months ended March 31, 2020: For the three months ended March 31, 2021, non-interest expense totaled $24.9 million, a decrease of $877 thousand, when compared to the three months ended March 31, 2020. Changes in the various components of non-interest expense for the three months ended March 31, 2021 and 2020 are discussed in more detail in the following table.

Non-Interest Expense

For the Three Months Ended March 31,

					2021 vs. 2020
(Dollars in thousands)	2021		2020		Change			%
Salaries and employee benefits	$	12,722	$	13,504	$	(782	)		(5.8	)%
Net occupancy and equipment		2,368		2,235		133			6.0	%
Data processing		2,663		2,663		—			—	%
Professional fees		1,073		1,367		(294	)		(21.5	)%
Advertising and business development		682		696		(14	)		(2.0	)%
Telecommunications		580		487		93			19.1	%
FDIC insurance		415		517		(102	)		(19.7	)%
Courier and postage		369		384		(15	)		(3.9	)%
Free nationwide ATM cost		472		420		52			12.4	%
Amortization of core deposit intangible		1,034		802		232			28.9	%
Loan expense		238		234		4			1.7	%
Other real estate owned		5		308		(303	)		(98.4	)%
Other		2,108		2,141		(33	)		(1.5	)%
Subtotal		24,729		25,758		(1,029	)		(4.0	)%
Merger expenses		152		—		152			100.0	%
Total non-interest expense	$	24,881	$	25,758	$	(877	)		(3.4	)%

Salaries and employee benefits: There was a $782 thousand decrease in salaries and employee benefits for the current quarter, as compared to the same quarter in the prior year. This variance was primarily related to the deferral of costs realized in the origination of loans.

Net occupancy and equipment: Net occupancy and equipment includes expenses related to the use of premises and equipment, such as depreciation, operating leases, repairs and maintenance, insurance, property taxes and utilities and is net of incidental rental income of excess facilities.

Data processing: Data processing costs remained relatively the same for the period ended March 31, 2021, as compared to the same time period in 2020.

Professional fees: The variance of $294 thousand, or 21.5%, is principally due to a $211 thousand reduction in attorney fees and $80 thousand reduction in accounting fees.

Advertising and business development: Advertising and business development includes media advertising, community sponsorships, customer appreciation expenses and other forms of advertising.

Other real estate owned: Other real estate owned includes other real estate expenses, including provision for unrealized losses and gains or losses on the sales of other real estate owned and other repossessed property. For the three months ended March 31, 2021, there was $282 thousand in other real estate owned expense, partially offset by a $171 thousand gain on the sale of other real estate owned and a net $106 thousand gain from the sale of other repossessed assets. For the three months ended March 31, 2020, there was $177 thousand loss on the sale of other real estate owned and $137 thousand in other real estate owned expense, partially offset by a $6 thousand gain from the sale of other repossessed assets.

Other: Other non-interest expenses consist 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 and other operating expenses. Overall there was a net $33 thousand variance, or 1.5%, between quarters ending March 31, 2021 and 2020.

Merger expenses: There was $152 thousand of merger expenses for the three-month period ended March 31, 2021, which was related to the Almena acquisition.

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 merger expenses and goodwill impairment, by the sum of net interest income and non-interest income, excluding net gain or loss from securities transactions. 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 64.2% for the three months ended March 31, 2021, compared with 68.9% for the three months ended March 31, 2020. The increase was primarily due to a decrease in non-interest expense and an increase in non-interest income, partially offset by an decrease in net interest income, as discussed in “Results of Operations – Net Interest Income and Net Interest Margin Analysis.”

Income Taxes

The provision for income taxes is influenced by the amount of pre-tax income (loss), the amount of tax-exempt income, the amount of non-deductible expenses and available tax credits.

Three months ended March 31, 2021, compared with three months ended March 31, 2020: The effective income tax rate for the quarter ended March 31, 2021 was 22.1% as compared to 26.1% for the quarter ended March 31, 2020. For both comparable periods, the estimated annual effective rate at which income tax expense (benefits) have been provided reflect, in addition to statutory rates, the estimated tax-exempt interest income, non-taxable life insurance income, non-deductible executive compensation, valuation allowances on deferred tax assets, other non-deductible expense and federal income tax credits anticipated to be available in each annual period in proportion to anticipated annual income before taxes. In addition, discrete events or items were recorded in the current quarter. Examples of discrete items include excess tax benefit in respect of share-based compensation, finalizing audit examinations for open tax years, statute of limitations expiration or changes in tax law. Income tax expense for the quarter ended March 31, 2021, includes $84 thousand of additional expense attributable to the settlement in stock of restricted stock units and the exercise of options, $225 thousand of additional benefit related to adjustments to our deferred tax liabilities and $142 thousand of additional benefit related to the recognition of additional state tax credits.

Financial Condition

Total assets increased $182.8 million from December 31, 2020, to $4.20 billion at March 31, 2021. This variance was primarily due to increases of $182.2 million in loans, net of allowance for credit losses, and $126.3 million in total securities, partially offset by a decrease of $144.0 million in cash and cash equivalents. Our total liabilities increased $192.7 million to $3.80 billion at March 31, 2021. The change in total liabilities came primarily from an increase in total deposits of $186.9 million. Total stockholders’ equity decreased $9.8 million from $407.6 million at December 31, 2020, to $397.8 million at March 31, 2021.

Loan Portfolio

Loans are our largest category of earning assets and typically provide higher yields than other types of earning assets. At March 31, 2021, our gross loans held for investment totaled $2.80 billion, an increase of $204.0 million, or 7.9%, compared with December 31, 2020. The overall increase in loan volume consisted of $86.2 million from commercial and industrial, $56.5 million from residential real estate, $30.7 million from consumer, $18.5 million from commercial real estate, $11.3 million from real estate construction and $1.3 million from agricultural real estate, partially offset by a $558 thousand decrease in agricultural. We also had loans classified as held-for-sale totaling $8.6 million at March 31, 2021, as compared to $12.4 million at December 31, 2020.

Our commercial loan portfolio consists of various types of loans, most of which are generally made to borrowers located in the Wichita, Kansas City and Tulsa Metropolitan Statistical Areas (“MSAs”), as well as various community markets throughout Arkansas, Kansas, Missouri and Oklahoma. Most of our loan portfolio consists of commercial and industrial and commercial real estate loans and a substantial portion of our borrowers’ ability to honor their obligations is dependent on local economies in which they operate.

At March 31, 2021, gross total loans, including loans held-for-sale, were 77.2% of deposits and 66.8% of total assets. At December 31, 2020, gross total loans, including loans held-for-sale, were 75.5% of deposits and 64.9% of total assets.

We provide commercial lines of credit, working capital loans, commercial real estate-backed loans (including loans secured by owner-occupied commercial properties), term loans, equipment financing, aircraft financing, real property acquisition and development loans, borrowing base loans, real estate construction loans, homebuilder loans, SBA loans, agricultural and agricultural real estate loans, letters of credit and other loan products to national and regional companies, real estate developers, mortgage lenders, manufacturing and industrial companies and other businesses. The types of loans we make to consumers include residential real estate loans, home equity loans, home equity lines of credit, installment loans, unsecured and secured personal lines of credit, overdraft protection and letters of credit.

The following table summarizes our loan portfolio by type of loan as of the dates indicated.

Composition of Loan Portfolio

	March 31, 2021					December 31, 2020
	Amount		Percent			Amount		Percent			Change			%
	(Dollars in thousands)
Commercial and industrial	$	820,736		29.4	%	$	734,495		28.3	%	$	86,241			11.7	%
Real estate loans:
Commercial real estate		1,004,787		35.9	%		986,288		38.1	%		18,499			1.9	%
Real estate construction		213,750		7.6	%		202,408		7.8	%		11,342			5.6	%
Residential real estate		438,503		15.7	%		381,958		14.7	%		56,545			14.8	%
Agricultural real estate		134,944		4.8	%		133,693		5.2	%		1,251			0.9	%
Total real estate loans		1,791,984		64.0	%		1,704,347		65.8	%		87,637			5.1	%
Consumer		89,256		3.2	%		58,532		2.3	%		30,724			52.5	%
Agricultural		93,764		3.4	%		94,322		3.6	%		(558	)		(0.6	)%
Total loans held for investment	$	2,795,740		100.0	%	$	2,591,696		100.0	%	$	204,044			7.9	%
Total loans held for sale	$	8,609		100.0	%	$	12,394		100.0	%	$	(3,785	)		(30.5	)%
Total loans held for investment (net of allowances)	$	2,740,215		100.0	%	$	2,557,987		100.0	%	$	182,228			7.1	%

Commercial and industrial: Commercial and industrial loans include loans used to purchase fixed assets, provide working capital or meet other financing needs of the business.

Real estate construction: Real estate construction loans include loans made for the purpose of acquisition, development or construction of real property, both commercial and consumer.

Residential real estate: Residential real estate loans include loans secured by primary or secondary personal residences.

Agricultural real estate, Agricultural, Consumer and other: Agricultural real estate loans are loans related to farmland. Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield of the agricultural commodities produced. Consumer loans are generally secured by consumer assets but may be unsecured.

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 March 31, 2021, are summarized in the following table.

Loan Maturity and Sensitivity to Changes in Interest Rates

	As of March 31, 2021
	One year or less		After one year through five years		After five years		Total
	(Dollars in thousands)
Commercial and industrial	$	127,598	$	615,339	$	77,799	$	820,736
Real Estate:
Commercial real estate		144,710		597,037		263,040		1,004,787
Real estate construction		60,700		91,775		61,275		213,750
Residential real estate		4,205		9,604		424,694		438,503
Agricultural real estate		54,344		56,212		24,388		134,944
Total real estate		263,959		754,628		773,397		1,791,984
Consumer		46,270		35,373		7,613		89,256
Agricultural		62,249		24,333		7,182		93,764
Total	$	500,076	$	1,429,673	$	865,991	$	2,795,740
Loans with a predetermined fixed interest rate		234,377		1,050,226		336,305		1,620,908
Loans with an adjustable/floating interest rate		265,699		379,447		529,686		1,174,832
Total	$	500,076	$	1,429,673	$	865,991	$	2,795,740

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, 2020, are summarized in the following table.

Loan Maturity and Sensitivity to Changes in Interest Rates

	As of December 31, 2020
	One year or less		After one year through five years		After five years		Total
	(Dollars in thousands)
Commercial and industrial	$	157,313	$	487,729	$	89,453	$	734,495
Real Estate:
Commercial real estate		144,627		569,366		272,295		986,288
Real estate construction		75,659		76,295		50,454		202,408
Residential real estate		5,048		9,848		367,062		381,958
Agricultural real estate		50,527		56,514		26,652		133,693
Total real estate		275,861		712,023		716,463		1,704,347
Consumer		13,804		37,599		7,129		58,532
Agricultural		62,804		25,911		5,607		94,322
Total	$	509,782	$	1,263,262	$	818,652	$	2,591,696
Loans with a predetermined fixed interest rate		261,736		896,899		291,649		1,450,284
Loans with an adjustable/floating interest rate		248,046		366,363		527,003		1,141,412
Total	$	509,782	$	1,263,262	$	818,652	$	2,591,696

Credit Quality Indicators

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. Loans are analyzed individually and classified based on credit risk. Consumer loans are considered pass credits unless downgraded due to payment status or reviewed as part of a larger credit relationship. Loans that participated in the short-term deferral program are not automatically considered classified solely due to a deferral, are subject to ongoing monitoring and will be downgraded or placed on nonaccrual if a noted weakness exists. We use the following definitions for risk ratings.

Pass: Loans classified as pass include all loans that do not fall under one of the three following categories. These loans are considered unclassified.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of our credit position at some future date. These loans are considered classified.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. These loans are considered classified.

The risk category of loans by class of loans is as follows as of March 31, 2021.

Risk Category of Loans by Class

	As of March 31, 2021
	Unclassified		Classified		Total
	(Dollars in thousands)
Commercial and industrial	$	756,178	$	64,558	$	820,736
Real estate:
Commercial real estate		987,811		16,976		1,004,787
Real estate construction		213,750		—		213,750
Residential real estate		435,624		2,879		438,503
Agricultural real estate		127,183		7,761		134,944
Total real estate		1,764,368		27,616		1,791,984
Consumer		88,975		281		89,256
Agricultural		83,199		10,565		93,764
Total	$	2,692,720	$	103,020	$	2,795,740

The risk category of loans by class of loans is as follows as of December 31, 2020.

Risk Category of Loans by Class

	As of December 31, 2020
	Unclassified		Classified		Total
	(Dollars in thousands)
Commercial and industrial	$	674,392	$	60,103	$	734,495
Real estate:
Commercial real estate		969,560		16,728		986,288
Real estate construction		202,401		7		202,408
Residential real estate		378,868		3,090		381,958
Agricultural real estate		125,425		8,268		133,693
Total real estate		1,676,254		28,093		1,704,347
Consumer		58,253		279		58,532
Agricultural		86,629		7,693		94,322
Total	$	2,495,528	$	96,168	$	2,591,696

At March 31, 2021, loans considered unclassified held constant at 96.3% of total loans compared to December 31, 2020. Classified loans were $103.0 million at March 31, 2021, an increase of $6.9 million, or 7.1%, from $96.2 million at December 31, 2020. As part of our COVID-19 response, we have granted payment deferrals to our customers affected by the pandemic. If these loans do not return to normal payments after the deferral period, the loans would be at risk of being downgraded in future periods.

Nonperforming Assets

The following table presents information regarding nonperforming assets at the dates indicated.

Nonperforming Assets

	March 31, 2021			December 31, 2020
	(Dollars in thousands)
Nonaccrual loans	$	57,506		$	43,689
Accruing loans 90 or more days past due		2,984			143
Restructured loans-accruing		—			—
OREO acquired through foreclosure, net		9,524			10,698
Other repossessed assets		79			67
Total nonperforming assets	$	70,093		$	54,597
Ratios:
Nonperforming assets to total assets		1.67	%		1.36	%
Nonperforming assets to total loans plus OREO		2.50	%		2.10	%

Generally, loans are designated as nonaccrual when either principal or interest payments are 90 days or more past due based on contractual terms, unless the loan is well secured and in the process of collection. Consumer loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on nonaccrual status, unpaid interest credited to income earned in the current year is reversed against income and unpaid interest earned in prior years is charged off. Future interest income may be recorded on a cash basis after recovery of principal is reasonably assured. Nonaccrual loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans include purchased loans that were identified upon acquisition as having experienced credit deterioration since origination (“purchased credit impaired loans”). However, if the purchased credit impaired loan included in nonaccrual loans has not experienced further deterioration since acquisition the loan is not considered impaired for purposes of determining the allowance for credit losses.

The nonperforming loans at March 31, 2021, consisted of 238 separate credits and 159 separate borrowers. We had fifteen non-performing loan relationships, totaling $43.0 million, with an outstanding balance in excess of $1.0 million as of March 31, 2021.

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. 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. The value of real estate collateral provides additional support to the borrower’s credit capacity. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

Potential Problem Loans

Potential problem loans consist of loans that are performing in accordance with contractual terms, but for which management has concerns about the borrower’s ability to comply with repayment terms because of the borrower’s potential financial difficulties. Potential problem loans are assigned a grade of special mention or substandard. At March 31, 2021, the Company had $42.5 million in potential problem loans which were not included in either non-accrual or 90 days past due categories, compared to $52.3 million at December 31, 2020.

With respect to potential problem loans, all monitored and under-performing loans are reviewed and evaluated to determine if they are impaired. If we determine that a loan is impaired, 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.

The Company also monitors the aging of loans less than 90 days past due and the loans that have been deferred under the Company’s COVID-19 related payment deferral program as reported in “NOTE 1 – BASIS OF PRESENTATION” and “NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES” in the Condensed Notes to Interim Consolidated Financial Statements.

Allowance for Credit Losses

Please see “Critical Accounting Policies – Allowance for Credit Losses” for additional discussion of our allowance policy.

In connection with our review of the loan portfolio, risk elements attributable to particular loan types or categories are considered when assessing the quality of individual loans. Some of the risk elements include the following items.

•

Commercial and industrial loans are dependent on the strength of the industries of the related borrowers and the success of their businesses. Commercial and industrial loans are advanced for equipment purchases, to provide working capital or to meet other financing needs of the business. These loans may be secured by accounts receivable, inventory, equipment or other business assets. Financial information is obtained from the borrower to evaluate the debt service coverage and ability to repay the loans.

•

Commercial real estate loans are dependent on the industries tied to these loans as well as the local commercial real estate market. The loans are secured by the real estate and appraisals are obtained to support the loan amount. An evaluation of the project’s cash flows is performed to evaluate the borrower’s ability to repay the loan at the time of origination and periodically updated during the life of the loan.

•

Residential real estate loans are affected by the local residential real estate market, the local economy and movement in interest rates. We evaluate the borrower’s repayment ability through a review of credit reports and debt to income ratios. Appraisals are obtained to support the loan amount.

•

Agricultural real estate loans are real estate loans related to farmland and are affected by the value of farmland. We evaluate the borrower’s ability to repay based on cash flows from farming operations.

•

Consumer loans are dependent on the local economy. Consumer loans are generally secured by consumer assets but may be unsecured. We evaluate the borrower’s repayment ability through a review of credit scores and an evaluation of debt to income ratios.

•

Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield of the agricultural commodities produced and the market pricing at the time of sale.

Analysis of allowance for credit losses: At March 31, 2021, the allowance for credit losses totaled $55.5 million, or 1.99% of total loans. At December 31, 2020, the allowance for loan losses totaled $33.7 million, or 1.30% of total loans. The reversal of provision for credit losses in the first quarter of 2021 is attributed primarily to improved economic inputs into the CECL model and, to a lesser extent, an improvement in historical loss experience and associated impact on the allowance for credit losses.

The allowance for credit losses on loans measured on a collective basis totaled $34.3 million, or 1.26% of the $2.73 billion in loans measured on a collective basis at March 31, 2021, compared to an allowance for credit losses of $23.2 million, or 0.92% of the $2.54 billion in loans measured on a collective basis at December 31, 2020. Exclusive of PPP loan balances, the reserve percentage increased to 1.48% as of March 31, 2021, compared to 1.01% as of December 31, 2020. The increases in the allowance for credit losses and of loans measured on a collective basis principally reflect the adoption of CECL.

The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data.

Allowance for Credit Losses

	As of and for the Three Months Ended March 31,
	2021			2020
	(Dollars in thousands)
Average loans outstanding	$	2,736,918		$	2,525,344
Gross loans outstanding at end of period⁽¹⁾	$	2,795,740		$	2,507,123
Allowance for credit losses at beginning of the period	$	33,709		$	12,232
ASC 326 implementation:
Commercial and industrial		5,847			—
Real estate:
Commercial real estate		8,673			—
Real estate construction		1,566			—
Residential real estate		9,091			—
Agricultural real estate		1,353			—
Consumer		(2,877	)		—
Agricultural		4,099			—
Total ASC 326 implementation		27,752			—
Provision (reversal) for credit losses		(5,871	)		9,940
Charge-offs:
Commercial and industrial		(7	)		(29	)
Real estate:
Commercial real estate		(53	)		(8	)
Real estate construction		—			—
Residential real estate		(9	)		(25	)
Agricultural real estate		(12	)		(17	)
Consumer		(210	)		(278	)
Agricultural		—			—
Total charge-offs		(291	)		(357	)
Recoveries:
Commercial and industrial		23			32
Real estate:
Commercial real estate		127			—
Real estate construction		—			—
Residential real estate		1			1
Agricultural real estate		—			—
Consumer		72			66
Agricultural		3			1
Total recoveries		226			100
Net recoveries (charge-offs)		(65	)		(257	)
Allowance for credit losses at end of the period	$	55,525		$	21,915
Ratio of allowance to period-end loans		1.99	%		0.87	%
Annualized ratio of net charge-offs (recoveries) to average loans		0.01	%		0.04	%

(1)Excluding loans held for sale.

The following table shows the allocation of the allowance for credit losses among our loan categories and certain other information as of the dates indicated. The total allowance is available to absorb losses from any loan category.

Analysis of the Allowance for Credit Losses

	March 31, 2021					December 31, 2020
	Amount		% of Total Allowance			Amount		% of Total Allowance
	(Dollars in thousands)
Balance of allowance for credit losses applicable to:
Commercial and industrial	$	19,965		36.0	%	$	12,456		37.0	%
Real estate:
Commercial real estate		13,759		24.8	%		8,776		26.0	%
Real estate construction		1,359		2.5	%		236		0.7	%
Residential real estate		11,511		20.7	%		4,559		13.5	%
Agricultural real estate		1,900		3.4	%		904		2.7	%
Consumer		2,682		4.8	%		6,020		17.9	%
Agricultural		4,349		7.8	%		758		2.2	%
Total allowance for credit losses	$	55,525		100.0	%	$	33,709		100.0	%

Management believes that the allowance for credit losses at March 31, 2021, was adequate to cover current expected credit losses in the loan portfolio as of such date. There can be no assurance, however, that we will not sustain losses in future periods, which could be substantial in relation to the size of the allowance at March 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 March 31, 2021, the carrying amount of investment securities totaled $998.1 million, an increase of $126.3 million compared with December 31, 2020. At March 31, 2021, securities represented 23.8% of total assets compared with 21.7% at December 31, 2020.

At the date of purchase, debt securities are classified into one of two categories, held-to-maturity or available-for-sale. We do not purchase securities for trading purposes. At each reporting date, the appropriateness of the classification is reassessed. Investments in debt securities are classified as held-to-maturity and carried at cost, adjusted for the amortization of premiums and the accretion of discounts, only if management has the positive intent and ability to hold those securities to maturity. Debt securities not classified as held-to-maturity are classified as available-for-sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, as accumulated comprehensive income or loss until realized. Interest earned on securities is included in total interest and dividend income. 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.

Available-For-Sale Securities

	March 31, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
U.S. Government-sponsored entities	$	997	$	1,018	$	996	$	1,023
U.S. Treasury securities		12,637		12,596		4,024		4,025
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		732,005		743,638		630,485		651,425
Private label residential mortgage-backed securities		62,359		62,118		44,302		44,178
Corporate		52,497		53,582		52,503		53,650
Small Business Administration loan pools		11,440		11,405		1,226		1,270
State and political subdivisions		110,108		113,743		111,865		116,256
Total available-for-sale securities	$	982,043	$	998,100	$	845,401	$	871,827

At March 31, 2021, and December 31, 2020, we did not own any securities classified as held-to-maturity.

At March 31, 2021, and December 31, 2020, we did not own securities of any one issuer (other than the U.S. government and its agencies or sponsored entities) for which aggregate adjusted cost exceeded 10% of consolidated stockholders’ equity at the reporting dates noted.

The following tables summarize the contractual maturity of debt securities and their weighted average yields as of March 31, 2021, and December 31, 2020. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Available-for-sale securities are shown at fair value.

	March 31, 2021
	Due in one year or less					Due after one year through five years					Due after five years through 10 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	$	1,018		2.78	%	$	—	—%			$	—	—%			$	—	—%			$	1,018		2.78	%
U.S. Treasury securities		3,016		0.15	%		—	—%				9,580		1.33	%		—	—%				12,596		1.05	%
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		15		5.69	%		29,185		1.64	%		155,558		1.76	%		558,880		2.23	%		743,638		2.11	%
Private label residential mortgage-backed securities		—	—%				—	—%				—	—%				62,118		1.50	%		62,118		1.50	%
Corporate		5,005		2.17	%		—	—%				48,577		4.24	%		—	—%				53,582		4.05	%
Small Business Administration loan pools		—	—%				—	—%				10,274		0.76	%		1,131		2.39	%		11,405		0.92	%
State and political subdivisions⁽¹⁾		3,159		2.61	%		23,856		2.45	%		28,873		2.73	%		57,855		3.19	%		113,743		2.90	%
Total available-for-sale securities		12,213		1.84	%		53,041		2.00	%		252,862		2.29	%		679,984		2.24	%		998,100		2.24	%
Total debt securities	$	12,213		1.84	%	$	53,041		2.00	%	$	252,862		2.29	%	$	679,984		2.24	%	$	998,100		2.24	%

⁽¹⁾	The calculated yield is not presented on a tax equivalent basis.

	December 31, 2020
	Due in one year or less					Due after one year through five years					Due after five years through 10 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	$	—	—%			$	1,023		2.78	%	$	—	—%			$	—	—%			$	1,023		2.78	%
U.S. Treasury securities		4,025		0.14	%		—	—%				—	—%				—	—%				4,025		0.14	%
Mortgage-backed securities
Government-sponsored residential mortgage-backed securities		5		5.77	%		2,093		3.26	%		101,352		2.12	%		547,975		2.10	%		651,425		2.10	%
Private label residential mortgage-backed securities		—	—%				—	—%				—	—%				44,178		0.23	%		44,178		0.23	%
Corporate		5,050		2.17	%		—	—%				48,600		4.25	%		—	—%				53,650		4.05	%
Small Business Administration loan pools		—	—%				—	—%				—	—%				1,270		2.38	%		1,270		2.38	%
State and political subdivisions⁽¹⁾		3,765		2.41	%		26,679		2.45	%		24,212		2.93	%		61,600		3.17	%		116,256		2.93	%
Total available-for-sale securities		12,845		1.61	%		29,795		2.52	%		174,164		2.83	%		655,023		2.07	%		871,827		2.23	%
Total debt securities	$	12,845		1.61	%	$	29,795		2.52	%	$	174,164		2.83	%	$	655,023		2.07	%	$	871,827		2.23	%

⁽¹⁾	The calculated yield is not presented on a tax equivalent basis.

Mortgage-backed securities are securities that have been developed by pooling a number of real estate mortgages and which are principally issued by federal agencies such as Ginnie Mae, Fannie Mae and Freddie Mac. Unlike U.S. Treasury and U.S. government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide cash flows from regular principal and interest payments and principal prepayments throughout the lives of the securities. Premiums and discounts on mortgage-backed securities are amortized and accreted over the expected life of the security and may be impacted by prepayments. As such, mortgage-backed securities which are 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.

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. At March 31, 2021, and December 31, 2020, 75.2% and 84.1% of the government-sponsored residential mortgage-backed securities held by us had contractual final maturities of more than ten years with a weighted average life of 3.3 years and 2.5 years and a modified duration of 3.1 years and 2.5 years. At March 31, 2021, and December 31, 2020, 100.0% and 100.0% of the private label residential mortgage-backed securities held by us had contractual final maturities of more than ten years with a weighted average life of 2.2 years and 2.2 years and a modified duration of 2.1 years and 2.1 years.

Goodwill Impairment Assessment

At March 31, 2021, we performed an interim qualitative analysis and determined from this analysis that goodwill was not impaired.

Deposits

Our lending and investing activities are primarily funded by deposits. 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 March 31, 2021, and December 31, 2020.

Composition of Deposits

	March 31, 2021					December 31, 2020
	Amount		Percent of Total			Amount		Percent of Total
	(Dollars in thousands)
Non-interest-bearing demand	$	972,364		26.7	%	$	791,639		22.9	%
Interest-bearing demand		1,020,263		28.1	%		1,016,424		29.5	%
Savings and money market		1,053,998		29.0	%		1,012,673		29.4	%
Time		587,905		16.2	%		626,854		18.2	%
Total deposits	$	3,634,530		100.0	%	$	3,447,590		100.0	%

Total deposits at March 31, 2021, were $3.63 billion, an increase $186.91 million, or 5.4%, compared to total deposits of $3.45 billion at December 31, 2020.

Included in interest-bearing demand deposits are brokered deposit balances of $291.8 million at March 31, 2021, and $256.0 million at December 31, 2020. Also included in savings and money market deposits are brokered deposit balances of $19.4 million as of March 31, 2021, and $23.7 million as of December 31, 2020. These balances represent customer funds placed in the Insured Cash Sweep (“ICS”) service that allows Equity Bank to break large money market deposits into smaller amounts and place them in a network of other ICS banks to ensure FDIC insurance coverage on the entire deposit. These deposits are placed through ICS services, but are Equity Bank’s customer relationships that management views as core funding. Brokered certificates of deposit as of March 31, 2021, were $10.9 million and $14.9 million at December 31, 2020. Of these balances, $10.9 million at March 31, 2021, and $14.9 million at December 31, 2020, were reciprocal customer funds placed in the Certificate of Deposit Account Registry Service (“CDARS”) program. CDARS allows Equity Bank to break large time deposits into smaller amounts and place them in a network of other CDARS banks to ensure FDIC insurance coverage on the entire deposit. Reciprocal deposits are not considered brokered deposits as long as the aggregate balance is less than the lesser of 20% of total liabilities or $5.0 billion and Equity Bank is well

capitalized and well rated. All non-reciprocal deposits and reciprocal deposits in excess of regulatory limits are considered brokered deposits.

The following table provides information on the maturity distribution of time deposits of $100 thousand or more as of March 31, 2021, and December 31, 2020.

	March 31, 2021		December 31, 2020		Change			%
	(Dollars in thousands)
3 months or less	$	100,405	$	93,025	$	7,380			7.9	%
Over 3 through 6 months		64,612		70,737		(6,125	)		(8.7	)%
Over 6 through 12 months		141,387		120,006		21,381			17.8	%
Over 12 months		56,140		100,877		(44,737	)		(44.3	)%
Total Time Deposits	$	362,544	$	384,645	$	(22,101	)		(5.7	)%

Other Borrowed Funds

We utilize borrowings to supplement deposits to fund our lending and investing activities. Short-term borrowings and long-term borrowings include federal funds purchased and retail repurchase agreements, FHLB advances, Federal Reserve Bank discount window, a bank stock loan and subordinated debentures. For additional information see “NOTE 6 – BORROWINGS” in the Condensed Notes to Interim Consolidated Financial Statements for additional information.

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. This confidence is significantly dependent on our ability to maintain sound asset quality and appropriate levels of capital reserves.

Liquidity is defined as the ability to meet anticipated customer demands for future funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure our liquidity position by considering both on and off-balance sheet sources of and demands for funds on a daily, weekly and monthly basis.

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations in a cost-effective manner and to meet current and future potential obligations such as loan commitments, lease obligations and unexpected deposit outflows. In this process, we focus on both assets and liabilities and the way they combine to provide adequate liquidity to meet our needs.

During the three-month periods ended March 31, 2021 and 2020, our liquidity needs have primarily been met by core deposits, security and loan maturities and amortizing investment and loan portfolios. Other funding sources include federal funds purchased, brokered certificates of deposit, borrowings from the FHLB and the Federal Reserve discount window.

Our largest sources of funds are deposits and FHLB borrowings and largest uses of funds are loans and securities. Average loans were $2.74 billion for the three months ended March 31, 2021, an increase of 1.7% over the December 31, 2020, average balance. Excess deposits are primarily invested in our interest-bearing deposit account with the Federal Reserve Bank of Kansas City, investment securities, federal funds sold or other short-term liquid investments until the funds are needed to fund loan growth. Our securities portfolio has a weighted average life of 3.5 years and a modified duration of 3.2 years at March 31, 2021.

Cash and cash equivalents were $136.7 million at March 31, 2021, a decrease of $144.0 million from the $280.7 million cash and cash equivalents at December 31, 2020. The decrease in cash and cash equivalents is driven primarily by $353.0 million net cash used in investing activities, partially offset by $185.2 provided by financing activities and $23.7 million provided by operating activities. Cash and cash equivalents at January 1, 2021, plus liquidity provided by operating activities, pay downs, sales and maturities of investment securities and FHLB borrowings during the first three months of 2021 were used to originate or purchase loans and to purchase investment securities. We believe that our daily funding needs can be met through cash provided by operating activities, payments and maturities on loans and investment securities, core deposit base and FHLB advances and other borrowing relationships.

Off-Balance-Sheet Items

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. 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. The same credit policies and procedures are used in making these commitments as for on-balance sheet instruments.

Our commitments associated with outstanding standby and performance letters of credit and commitments to extend credit expiring by period as of March 31, 2021, are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.

Credit Extensions Commitments

As of March 31, 2021

	1 Year or Less		More Than 1 Year but Less Than 3 Years		3 Years or More but Less Than 5 Years		5 Years or More		Total
	(Dollars in thousands)
Standby and performance letters of credit	$	11,523	$	300	$	288	$	—	$	12,111
Commitments to extend credit		294,052		29,524		112,617		69,861		506,054
Total	$	305,575	$	29,824	$	112,905	$	69,861	$	518,165

Standby and Performance Letters of Credit: Standby letters of credit are irrevocable commitments issued by us to guarantee the performance of a customer to a third party once specified pre-conditions are met. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers.

Commitments to Extend Credit: Commitments to originate loans and available lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments and lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments and lines of credit may expire without being drawn upon, the total commitment and lines of credit amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Commitments to extend credit include mortgage loans in the process of origination that we plan to fund within a normal period of 60 to 90 days, and which are intended for sale to investors in the secondary market.

Capital Resources

Capital management consists of providing equity to support our current and future operations. The federal bank regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. As a bank holding company and a state-chartered-Fed-member bank, the Company and Equity Bank are subject to regulatory capital requirements.

Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of March 31, 2021, and December 31, 2020, 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. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as are asset growth and acquisitions, and capital restoration plans are required.

Failure to meet capital guidelines could subject the institution to a variety of enforcement remedies by federal bank regulatory agencies, including termination of deposit insurance by the FDIC, restrictions on certain business activities and appointment of the FDIC as conservator or receiver. As of March 31, 2021, 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 8 – REGULATORY MATTERS” in the Condensed Notes to Interim Consolidated Financial Statements. There are no conditions or events since that notification that management believes have changed Equity Bank’s category.

Non-GAAP Financial Measures

We identify certain financial measures discussed in this Quarterly Report as being “non-GAAP financial measures.” In accordance with 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 GAAP as in effect from time to time in the United States in our statements of income, balance sheet or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios, or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

The non-GAAP financial measures that we discuss in this Quarterly Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the way we calculate the non-GAAP financial measures that we discuss in this Quarterly Report may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names like the non-GAAP financial measures we have discussed in this Quarterly Report when comparing such non-GAAP financial measures.

Tangible Book Value Per Common Share and Tangible Book Value Per Diluted Common Share: Tangible book value is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders’ equity less preferred stock, goodwill, core deposit intangibles (net of accumulated amortization) and other intangible assets (net of amortization); (b) tangible book value per common share as tangible common equity (as described in clause (a)) divided by shares of common stock outstanding; and tangible book value per diluted common share as tangible common equity (as described in clause (a)) divided by diluted shares of common stock outstanding. 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. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity, tangible book value per common share and tangible book value per diluted common share and compares these values with book value per common share.

	For the three months ended
	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
	(Dollars in thousands, except per share data)
Total stockholders’ equity	$	397,815	$	407,649	$	402,172	$	479,766	$	477,351
Less: goodwill		31,601		31,601		31,601		136,432		136,432
Less: core deposit intangibles, net		15,023		16,057		17,101		18,131		19,105
Less: mortgage servicing asset, net		—		—		1		2		4
Less: naming rights, net		1,119		1,130		1,141		1,152		1,163
Tangible common equity	$	350,072	$	358,861	$	352,328	$	324,049	$	320,647
Common shares issued at period end		14,383,913		14,540,556		14,853,487		15,218,301		15,198,986
Diluted common shares outstanding at period end		14,668,287		14,756,378		14,853,487		15,334,144		15,297,319
Book value per common share	$	27.66	$	28.04	$	27.08	$	31.53	$	31.41
Tangible book value per common share	$	24.34	$	24.68	$	23.72	$	21.29	$	21.10
Tangible book value per diluted common share	$	23.87	$	24.32	$	23.57	$	21.13	$	20.96

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. We calculate (a) tangible common equity as total stockholders’ equity less preferred stock, goodwill, core deposit intangibles (net of accumulated amortization) and other intangible assets (net of accumulated amortization); (b) tangible assets as total assets less goodwill, core deposit intangibles (net of accumulated amortization) and other intangible assets (net of accumulated amortization); and (c) tangible common equity to tangible assets as tangible common equity (as described in clause (a)) divided by tangible assets (as described in clause (b)). For tangible common equity to tangible assets, the most directly comparable financial measure calculated in accordance with GAAP is total stockholders’ equity to total assets.

Management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible 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.

The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible assets.

	For the three months ended
	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
	(Dollars in thousands)
Total stockholders’ equity	$	397,815		$	407,649		$	402,172		$	479,766		$	477,351
Less: goodwill		31,601			31,601			31,601			136,432			136,432
Less: core deposit intangibles, net		15,023			16,057			17,101			18,131			19,105
Less: mortgage servicing asset, net		—			—			1			2			4
Less: naming rights, net		1,119			1,130			1,141			1,152			1,163
Tangible common equity	$	350,072		$	358,861		$	352,328		$	324,049		$	320,647
Total assets	$	4,196,184		$	4,013,356		$	3,865,571		$	4,205,269		$	3,943,832
Less: goodwill		31,601			31,601			31,601			136,432			136,432
Less: core deposit intangibles, net		15,023			16,057			17,101			18,131			19,105
Less: mortgage servicing asset, net		—			—			1			2			4
Less: naming rights, net		1,119			1,130			1,141			1,152			1,163
Tangible assets	$	4,148,441		$	3,964,568		$	3,815,727		$	4,049,552		$	3,787,128
Equity to assets		9.48	%		10.16	%		10.40	%		11.41	%		12.10	%
Tangible common equity to tangible assets		8.44	%		9.05	%		9.23	%		8.00	%		8.47	%

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. We calculate (a) average tangible common equity as total average stockholders’ equity less average goodwill, core deposit intangibles (net of accumulated amortization) and other intangible assets (net of accumulated amortization); (b) adjusted net income allocable to common stockholders as net income allocable to common stockholders plus intangible asset amortization less tax effect on intangible assets amortization; and (c) return on average tangible common equity as annualized adjusted net income allocable to common stockholders (as described in clause (b)) divided by average tangible common equity (as described in clause (a)). For return on average tangible common equity, the most directly comparable financial measure calculated in accordance with GAAP is return on average equity.

Management believes that this measure is important to many investors in the marketplace who are interested in earnings quality on tangible common equity. Goodwill and other intangible assets have the effect of increasing total stockholders’ equity while not increasing tangible common equity.

The following table reconciles, as of the dates set forth below, return on average stockholders’ equity and return on average tangible common equity.

	For the three months ended
	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
	(Dollars in thousands)
Total average stockholders’ equity	$	395,638		$	409,572		$	483,088		$	483,605		$	482,567
Less: average intangible assets		48,376			54,547			154,049			156,194			157,097
Average tangible common equity	$	347,262		$	355,025		$	329,039		$	327,411		$	325,470
Net income (loss) allocable to common stockholders	$	15,075		$	12,488		$	(90,405	)	$	1,689		$	1,258
Goodwill impairment		—			—			104,831			—			—
Amortization of intangible assets		1,045			1,055			1,043			986			814
Less: tax effect		219			222			5,539			207			171
Adjusted net income allocable to common stockholders	$	15,901		$	13,321		$	9,930		$	2,468		$	1,901
Return on total average stockholders’ equity (ROAE) annualized		15.45	%		12.13	%		(74.45	)%		1.40	%		1.05	%
Return on average tangible common equity (ROATCE) annualized		18.57	%		14.93	%		12.01	%		3.03	%		2.35	%

Efficiency Ratio: The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate the efficiency ratio by dividing non-interest expense, excluding merger expenses and goodwill impairment, by the sum of net interest income and non-interest income, excluding net gain (loss) from securities transactions. The GAAP-based efficiency ratio is non-interest expense divided by net interest income plus non-interest income.

In management’s judgment, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess operating expenses in relation to operating revenue by removing merger expenses and net gain (loss) from securities transactions.

The following table reconciles, as of the dates set forth below, the efficiency ratio to the GAAP-based efficiency ratio.

	For the three months ended
	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
	(Dollars in thousands)
Non-interest expense	$	24,881		$	28,460		$	130,835		$	23,937		$	25,758
Less: goodwill impairment		—			—			104,831			—			—
Less: merger expense		152			299			—			—			—
Non-interest expense, excluding goodwill impairment and merger expense	$	24,729		$	28,161		$	26,004		$	23,937		$	25,758
Net interest income	$	31,759		$	35,559		$	32,107		$	32,891		$	32,095
Non-interest income	$	6,712		$	8,500		$	6,485		$	5,732		$	5,306
Less: net gain on acquisition		(78	)		2,145			—			—			—
Less: net gain (loss) from securities transactions		17			(1	)		—			4			8
Non-interest income, excluding net gain (loss) from securities transactions and net gain on acquisition	$	6,773		$	6,356		$	6,485		$	5,728		$	5,298
Net interest income plus non-interest income, excluding net gain on acquisition and net gain (loss) from securities transactions	$	38,532		$	41,915		$	38,592		$	38,619		$	37,393
Non-interest expense to net interest income plus non-interest income		64.67	%		64.60	%		339.02	%		61.98	%		68.87	%
Efficiency Ratio		64.18	%		67.19	%		67.38	%		61.98	%		68.88	%

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Our asset-liability policy provides guidelines for effective funds management and management has established a measurement system for monitoring net interest rate sensitivity position within established guidelines.

As a financial institution, the primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short-term maturity. Interest rate risk is the potential of economic gains or losses due to future interest rate changes. These changes can be reflected in future net interest income and/or fair market values. The objective is to measure the effect on net interest income (“NII”) and economic value of equity (“EVE”) and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage interest rate exposure by structuring the balance sheet in the ordinary course of business. We have the ability to enter into instruments such as leveraged derivatives, interest rate swaps, financial options, financial futures contracts or forward delivery contracts for the purpose of reducing interest rate risk. Currently, we do not have a material exposure to these instruments. We also have the ability to enter into interest rate swaps as an accommodation to our customers in connection with an interest rate swap program. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Our exposure to interest rate risk is managed by the Asset Liability Committee (“ALCO”), which is composed of certain members of senior management, in accordance with policies approved by the Board of Directors. ALCO formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, ALCO considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. ALCO meets monthly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, securities purchase and sale activities, commitments to originate loans and the maturities of investment securities and borrowings. Additionally, 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. 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 assumptions used are inherently uncertain and, as a result, the model cannot precisely measure the future NII and EVE. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

The change in the impact of net interest income from the base case for March 31, 2021, and December 31, 2020, 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 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; advances; 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. 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. 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. Our mortgage backed security portfolio is primarily comprised of fixed rate investments and as rates decrease, the level of prepayments is assumed to increase and cause the current higher rate investments to prepay and the assumed reinvestment will be at lower interest rates. 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. Term deposits repricing will only decrease the average cost paid by a minimal amount due to the assumed repricing occurring at maturity. These factors result in the negative impact to net interest income in the down interest rate shock scenario.

The change in the EVE from the base case for March 31, 2021, and December 31, 2020, is due to being in a liability sensitive position and the level of convexity in pre-payable assets. Generally, with a liability sensitive position, as interest rates increase, the value of assets decrease faster than the value of liabilities and as interest rates decrease, the value of assets increase at a faster rate than liabilities. However, due to the level of convexity in 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. At March 31, 2021, non-interest-bearing deposits were approximately $972.4 million or 22.8% higher than that deposit type at December 31, 2020. Substantially all investments and approximately 58.0% of loans are pre-payable 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 EVE.

Management utilizes static balance sheet rate shocks to estimate the potential impact on various rate scenarios. This analysis estimates a percentage of change in the metric from the stable rate base scenario versus alternative scenarios of rising and falling market interest rates by instantaneously shocking a static balance sheet. The following table summarizes the simulated immediate change in net interest income for twelve months as of the dates indicated.

Market Risk

	Impact on Net Interest Income
Change in prevailing interest rates	March 31, 2021			December 31, 2020
+300 basis points		(6.6	)%		(1.2	)%
+200 basis points		(3.8	)%		0.4	%
+100 basis points		(1.7	)%		1.0	%
0 basis points		—			—
-100 basis points		(4.0	)%		(2.3	)%

The following table summarizes the simulated immediate impact on economic value of equity as of the dates indicated.

	Impact on Economic Value of Equity
Change in prevailing interest rates	March 31, 2021			December 31, 2020
+300 basis points		2.1	%		12.8	%
+200 basis points		6.1	%		14.4	%
+100 basis points		4.1	%		9.2	%
0 basis points		—			—
-100 basis points		(19.3	)%		(21.2	)%

Item 4: Controls and Procedures

Evaluation of disclosure controls and procedures

An evaluation of the effectiveness of the design and operation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management was required to apply judgement in evaluating its controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms.

Changes in internal control over financial reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1: Legal Proceedings

From time to time, we are a party to various litigation matters incidental to the conduct of our business. See “NOTE 12 – LEGAL MATTERS” of the Condensed Notes to Interim Consolidated Financial Statements under Item 1 to this Quarterly report for a complete discussion of litigation matters.

Item 1A: Risk Factors

There have been no material changes in the Company’s risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 9, 2021.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Repurchase of Common Stock

In September of 2020, the Company’s Board of Directors authorized the repurchase of up to 800,000 shares of the Company’s outstanding common stock, from time to time, beginning October 30, 2020, and concluding October 29, 2021. The repurchase program does not obligate us to acquire a specific dollar amount or number of shares and it may be extended, modified or discontinued at any time without notice.

The following table presents shares that have been repurchased under the program during the first quarter of 2021.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
January 1, 2021 through January 31, 2021		101,767	$	23.20		101,767		385,002
February 1, 2021 through February 28, 2021		42,422	$	24.29		42,422		342,580
March 1, 2021 through March 31, 2021		88,823	$	28.31		88,823		253,757
Total		233,012	$	25.35		233,012		253,757

Item 3: Defaults Upon Senior Securities

None

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None

Item 6: Exhibits

Exhibit No.		Description
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*	Filed herewith.

**	These exhibits are furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Equity Bancshares, Inc.

May 6, 2021	By:	/s/ Brad S. Elliott
Date		Brad S. Elliott
		Chairman and Chief Executive Officer

May 6, 2021	By:	/s/ Eric R. Newell
Date		Eric R. Newell
		Executive Vice President and Chief Financial Officer