John Hanley – Senior Vice President-Investor Relations Brad Elliott – Chairman and Chief Executive Officer Greg Kossover – Executive Vice President and Chief Financial Officer.

Michael Perito – KBW Nate Tower – Stephens and Company De’Von Jones – FBR & Company.

Good day, ladies and gentlemen and welcome to the Equity Bancshares, Inc. Q1 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Mr. John Hanley, Senior Vice President, Investor Relations. You may begin..

Thank you. Good morning and thank you all for joining the Equity Bancshares presentation and conference call, which will include discussion and presentation of our Q1 first quarter 2017 results.

Joining me today are Equity Bancshares’ Chairman and CEO, Brad Elliott; and Equity Bancshares’ Executive Vice President and Chief Financial Officer, Greg Kossover. Presentation slides to accompany our call are available now at investor.equitybank.com.

The presentation accompanies a discussion of our Q1 results is available by clicking the Presentations tab or the Events icon for today’s call. Please note Slide 2 with important information regarding forward-looking statements. From time to time we may make forward-looking statements within today’s call and actual results may differ.

Following the presentation and discussion, we will allow time for questions. Thank you all for joining us. And with that I’d like to turn it over to Brad..

Good morning and thank you for joining our first quarter 2017 Equity Bancshares earnings call. I’m Brad Elliott, Chairman and CEO and here with me this morning is our CFO, Greg Kossover. Before we get into the details of the quarter, let’s take a moment and thank the hard work of our operating teams.

This is the second consecutive quarter of closing, converting and integrating a merger for these extremely hard-working teams. None of the shareholder value we delivered through mergers would happen without them.

Our operations and IT, accounting, marketing, human resource, credit administration and risk teams all contribute the necessary hard work to make the merger successful. I also want to continue to thank the Ozark Mountain region for their efforts as they fully integrated into the Equity family.

Finally, to our newest teammates and customers in Hoxie, Quinter and Grinnell, Kansas, thank you. You were instrumental in making the Prairie merger one of the most seamless we have experienced. We could not be more excited about the new teammates and customers in these markets.

Greg will go over our first quarter financial performance in a few moments, which, as the press release from last night says, incorporates the growth from the two recent mergers and also the hard work generated from our folks pushing organic growth. But, today, I want to lead with our strategic position regarding M&A.

As we have previously announced, Wendell Bontrager joined the Equity team in February as President. This not only bolsters our executive team with an experienced banking executive who fits our culture, it also expands our capacity to source, close and convert mergers.

With the creation of more time for Greg and I to discuss and negotiate with possible merger partners, we have been active in 2017 with multiple new and several previous high-quality merger partners in our geography.

We are always encouraged by how many high-quality institutions with outstanding leadership meet with us to discuss strategic opportunities. And also previously reported, we have completed two transactions on our balance sheet to prepare us for the future mergers.

The PIPE we closed in December and the renewal and increase of our bank stock loan with ServisFirst. We have the ingredients in place to continue our growth, capital, talent, capacity and sophisticated Board and advisory team in high-quality banks who believe Equity Bank, who may be their strategic fit for the future.

Organic growth is one of the top priorities for delivering shareholder value. Typically, the first quarter can be difficult to grow loans and deposits.

Even so, we achieved a small amount of organic loan growth in quarter one and about $40 million of deposit growth, of which approximately $16 million came in the form of signature accounts spread over several of our markets and not tied to one specific market or relationship. The first- quarter loan growth was modest.

As I have stated in previous calls, our pipeline continues to be as robust as ever and with the new markets of Northern Arkansas and increased presence in Western Kansas, those opportunities will continue to grow. We will now discuss our first quarter.

Greg?.

We will begin with our income statement. The first quarter once again included merger-related expenses. A recap of fully diluted earnings per share is estimated as follows. Stated EPS is $0.40 per share. The after-tax impact of the Prairie merger costs is approximately $0.05 per share.

However, we did also have approximately $790,000 in additional purchase accounting discount accretion on loans that renewed or repaid resulting in an after-tax benefit of about $0.04 per share.

Also, as these loans renew and move directly into our traditional loan loss allowance, a portion of the discount accretion is recorded into loan loss reserve explaining why our provision expense was higher than normal.

We estimate this impact to be $0.01 per share after tax creating a net $0.03 per share benefit to earnings when combined with the additional discount accretion. Our effective tax rate was slightly lower than anticipated because of the GAAP change in handling stock option exercises of which we had a few in the first quarter.

Moving to net interest margin, the above impact of the larger purchase accounting discount accretion is about 15 basis points on net interest margin. After backing this out, yield on loans is about 5.38% and net interest margin for the quarter approximates 3.80%, about where we projected it to be after Community First and Prairie.

Our cost of deposits has risen approximately 8 basis points year-over-year year at March 31, primarily driven by two things public money, which remains competitive and second, we have created a new money market account to attract core deposits we use to retire less favorable Federal Home Loan Bank overnight borrowings.

Provision for loan losses was slightly higher than anticipated simply because of the movement of loans acquired through mergers moving into our core ALLL modeling.

As these loans renew, the purchase accounting discount is recognized into interest income as stated earlier and then a portion of that discount is recognized as provision for loan losses as those same loans become part of the portfolio covered by the ALLL.

Our overall credit quality remains strong with net charge-offs in the quarter of an annualized 12 basis points. Our ALLL currently stands at 46 basis points and total reserves with purchase accounting are at 1.41% of total loans. Noninterest income was about where we anticipated it would be for the quarter.

Service fees were slightly below expectations and mortgage banking fees were slightly above. Noninterest expense was higher primarily due to M&A expense in the quarter related to Prairie of $926,000. After considering these expenses, we were still slightly higher than typical, which is normal for periods of acquisition and growth.

Our effective income tax rate was lower due to the benefit of stock option exercises. Before the new accounting pronouncement, the paid-in capital generated from stock option exercises ran through paid-in capital. Now it runs as a benefit to income taxes. Turning to the balance sheet, Brad will discuss loans and deposits.

Brad?.

Loans grew modestly in the first quarter and once again, I continue to be pleased with the size of our pipeline. Timing of loan closings is often driven by the customer, but the size of the pipeline is driven by the efforts of the loan production teams and our pipeline today has strong anticipated fundings.

Overall asset quality remains strong with nonperforming assets without the impact of Prairie, dropping $3.6 million in the quarter, a decline of over 10%. As I stated earlier, we were able to grow our deposits by approximately $40 million, of which $16 million was in signature deposits.

Now is a good time to recap the impact of the Community First and Prairie mergers on loan yields and deposit costs. In addition to adding excellent operating teams to our organization, both of their balance sheets have been beneficial as well.

The addition of Community First added approximately 17 basis points to our weighted average loan coupon and Prairie added about three basis points. In addition, Prairie’s deposits merged at a slightly lower cost than ours while Community had a similar cost of deposits to us. All these factors have contributed to a net interest margin expansion.

In addition, we estimated the December Fed rate hike increased our total loan yields about five basis points so far and we believe the same will be true for the March hike.

Greg, will you take us through a reconciliation of tangible book value per share?.

We had a strong quarter for the growth of tangible book value per share. Typically, in a merger, measurable dilution occurs.

We were fortunate in the Prairie transaction in that our balance sheet marks were slightly better than we pro formed, our one time transaction costs were less than expected and the team at Prairie delivered stronger earnings than we expected at the time the deal was announced.

Overall, the Prairie transaction was approximately $0.02 per share dilutive and this, coupled with our first-quarter earnings of $0.40 per share, are the primary reasons our tangible book value per share grew from $16.64 to $17 during the quarter. As Brad has indicated in the past, we make every effort to protect tangible book value per share.

An 8-Ka on the Prairie transaction will be forthcoming.

Brad?.

As we head into our next phase of growth, we remain well-capitalized and well-positioned geographically. Our asset quality remains strong and our core deposits continue to grow. Our overall franchise is very exciting for me to think about as your Chairman and CEO.

As always, we are out hustling and discussing with potential merger partners and we will adhere to our disciplined merger metrics and seek only those institutions which fit culturally into our organization. We remain very focused to grow organically in a responsible manner.

I would like to thank our teams, our Board of Directors and our shareholders for your continued support as we execute our business plan. At this time, we are happy to entertain questions..

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

Hey, Brad, Greg, good morning..

Good morning, Michael..

Thanks for taking the questions. Maybe one to start with Greg on the expense line. After ripping out the merger charges, still was a little heavy to what I was expecting.

Just any outlook commentary you can provide in terms of the pace of cost saves from the two transactions here and what could be a more reasonable run rate for – a quarterly run rate rather for the remainder of the year or at least a starting point for next quarter?.

You bet. So a couple of things. Our cost saves from the transactions are largely incorporated as of April 1. As you know, we try to incorporate cost saves on day one and we think that is the case in both Arkansas and in the Prairie transaction. So the higher-than-normal expense really is related to things that are not cost saves in the deal.

They are related to sort of merger activity that doesn’t get captured in M&A expense, additional buildup of staff to handle the acquisition, travel. It just ends up being a little more expensive than what we think.

I’ve done a projection for what I think our expense run rate can be going forward and it looks more in line with where your initial estimates were at, Michael, somewhere between $14 million a quarter and $14.150 million a quarter and that would incorporate all that we know today relative to the two transactions and the legacy operations of the bank..

Okay, that’s helpful. Thanks. Thanks, Greg. Then maybe switching over to the margins, so helpful commentary in the prepared remarks about some of the moving pieces this quarter.

As we kind of look forward, that 380 number – I mean is the right way to think about it, I guess just to put it simply first, is that, with the March raise next quarter, that the margin will probably shake out more in like the 380 to 385, somewhere in that like low 380 range, taking all those pieces you discussed together?.

Yes. As you know, our margin is also dependent upon origination fees during any particular quarter and assuming that we had what looks to us an ordinary quarter, I would expect that our margin would continue to be 380 and perhaps, if we have a very healthy quarter, maybe a little higher..

And what was the origination fee number – basis point impact rather in the first quarter?.

Our fee impact number for the first quarter, a typical quarter for us is somewhere between 20 and 30 basis points, usually about 25..

Was it in that range in the first quarter?.

Hang on. Yes, it was..

Okay.

And then on the tax rate, I guess how should we be – is there some type of – is part of this benefit likely going to hit – I guess does it depend – how should we think about it? Does it depend on when you guys are issuing stocks? Is every first quarter now the tax rate going to be a little lower under the new guidance or is there going to be some type of benefit that permeates throughout all the quarters or I guess any thoughts on how you are budgeting for the tax expense with this new guidance?.

Yes, we are still budgeting the same effective rate of about 32.7%. It’s purely dependent upon whether or not folks that we have granted options to exercise those options. We know we will have a handful more in 2017 because we have some options expiring that were issued in 2007, but hopefully after that, it will normalize back to about 32.4%.

We have not altered our budget because we don’t know the intentions of the option holders, but I would expect that they would get those 2007 options and I can’t remember the count, Michael, how many there are, but it could be as much as it was in the first quarter and then after those options that expire this year are exercised, I would have very little forecast for what would come after that.

We have got 800,000-ish options granted. Most of those don’t come due for quite some time. So the safe bet would be to continue to record our effective tax rate of 32.7% and then we have to file Form 4s for the option exercises. Maybe we can keep an eye on it that way..

Okay. Thank you. Appreciate it..

And our next question comes from the line of Terry McEvoy with Stephens and Company. Your line is now open..

Good morning, guys. This is actually Nate. Terry is stuck in some weather-related travel difficulties this morning..

Hi, Nate..

So nice quarter. I just wanted to dig in a little bit, follow-up on Michael’s question around the margin. So excluding that 790, the 380 makes sense.

How are you guys seeing deposits – what is deposit repricing action looking like in your markets right now?.

That’s a great question. We are not seeing yet significant upside pressure on our existing deposit base.

We did note in the quarter that we came up with a – we are heavily – we are $250 million borrowed overnight at Federal Home Loan Bank, Nate and one of the things that we have done strategically is we have created a new money market account that has a competitive rate to those borrowings, except we also get a customer in the process.

And we have raised about $50 million new dollars with that to begin retiring and paying down the Federal Home Loan Bank overnight advances. And the other pressure that we are seeing primarily is coming from the public funds sector. The private sector for us overall we are not seeing significant pressure yet.

And so it’s very difficult to wrap our head around deposit betas because we are not seeing it yet, but it does make one wonder how many more rate rises will we be able to take on before we start to feel that pressure. So far so good.

Would you agree with that, Brad?.

Yes, and Nate, in our competitive landscape, we don’t have a dominant competitor because we are geographically spread. And most of our competitors are still smaller financial institutions who I think had more margin compression than we did and so I think they are going to try to lag as many of the rate hike moves in their deposit base as they can.

At some point, we will see that pressure. We haven’t seen it, I haven’t felt it and I haven’t heard anybody who is trying to move that because everybody is still trying to get assets and the liabilities are still greater on their balance sheet than the assets.

So I don’t think until there is pressure to fund loans and assets, there won’t be pressure to grow deposit bases..

Got it, that’s very helpful. Thank you, guys. Maybe shifting gears a little bit.

What are you guys seeing in terms of your conversations with sellers? What’s the M&A market look like and how are expectations around seller pricing trending versus again what you guys are hoping for?.

Yes. So everything is relative. So if you are using stock and our stock has been trading well, it’s relative to what the earnback is. We have not seen an increased pressure on earnback. We have lots of conversations, multiple conversations going on now that still hit our metrics.

And so I think there are people who are interested in trying to figure out what they are going to do strategically and a lot of what they are looking for is do they have a cultural fit after they are done. We want a cultural fit, but they also want a cultural fit.

They are not looking at just exiting their institution from the standpoint of a lot of them are still wanting to remain on. They are not at a retirement age yet and so because of that, they are wanting to make sure they pick the right partner.

I think we have proven that we have done that integration well and so I think we are still able to have those opportunities available to us in the markets that we serve..

Got you. Thank you. And then maybe one more and then I will step back. Credit, looked like another good quarter, but do you guys see anything out there giving you any concerns? And then maybe an update on some of your ag borrowers would be helpful. Thanks..

Yes. So one of the reasons that we were attracted to the Western Kansas franchise is they are very good lenders and have been over the last 30 years. The principles of that organization are actually farmers themselves and so they have a very good insight into that industry and have managed their relationships well.

It’s really interesting, Nate, in that the good farmers in that area actually are still making money and we have been looking at all of those credits very closely. Since we closed on March 10, we’ve gotten through a significant amount of those credits on an annual review basis and those credits are holding in pretty well.

They are also – and that’s on a cash flow basis. They are also all well-secured on a collateral basis with low leverage ratios. The ag industry is actually at the lowest level of leverage it has ever been in the history and so I think the ag industry actually can weather quite a long storm if they get it.

This area of the world has very cheap lifting costs for water and irrigation and so the margins that they can make out there, because they have steady growing seasons because of the irrigation, we have a lot of blue sky in that part of the world, so they have good steady growing with good steady water and the price is what fluctuates for them and they are also very sophisticated on managing that.

So we have not seen deterioration out there and actually have seen some pickup. The guys that have bought feeder cattle or backgrounding cattle are actually going to have increased revenue this year because those have become more valuable this year as they’ve continued to gain weight. So positive overall in that sector.

Credit quality overall remains steady and we have not seen deterioration in any one sector at this point..

That’s really helpful, Brad. Thank you, guys..

[Operator Instructions] And our next question comes from the line of Steve Moss with FBR & Company. Your line is now open..

Good morning. This is actually De’Von Jones on for Steve Moss. Congratulations on the good quarter, guys..

Good morning.

How are you man?.

I’m doing well. I know you guys had mentioned you guys were positive on the loan pipeline.

How should we think about loan growth going forward for the second quarter and for a full-year basis in 2017?.

So loan growth going forward, we are – I’m doing a little math here in my head, which is always interesting. So loan growth for second quarter will be somewhere in that 2.5% to 3.5% range for the quarter. It’s not annualized..

Perfect. Then I know you guys were talking about the ag portfolio as far as any concerns you guys had.

Do you guys have any concerns about commercial real estate?.

We are not seeing deterioration at this time, so we don’t have any current concerns of that..

Okay. And I know you guys had mentioned you guys would expect the March rate hike to contribute 2 bps to NIM.

Would you guys expect possibly for if a June rate hike would happen to attribute the same 2 bps or would you expect something different?.

No, about the same..

Okay. And that covers it for me, guys. Thank you very much..

Thanks, De’Von..

And we do have a follow up question from Michael Perito with KBW. Your line is now open..

Hey, thanks, guys. I just had a quick question on liquidity in the investment book. The securities portfolio grew a bit from I think most likely from the liquidity bill from the deposit growth in the quarter, but just curious on how we should be thinking about the size of that portfolio.

I mean, it sounds like loan growth is going to pick up based on your comments, Brad. So I’m just – is that going to fall? Do you think you can hold it steady there? Just trying to get a better sense of the size of the balance sheet for the year..

Yes. That’s a great question, Michael. By the way, on your other question, I want to be clear on my answer. The loan fees contributed 24 basis points in the quarter to loan yield and about 16 basis points to margin. So 24 on the loan side and 16 to overall margins, so I wasn’t sure I was clear on that.

You can expect our investment portfolio to be about where it is today, maybe a little lower, but with the loan growth, probably not much higher. We are pretty comfortable with where we are at right now, so we are going to hold it steady and let loan growth take over. We might let a little bit of the securities portfolio run off, but probably not much.

I would forecast it to be stable..

Okay. And – that’s helpful. Then maybe just one follow-up.

The provision expense sounds like it was impacted by some purchase accounting in the quarter and there wasn’t a ton of net growth, but I guess as we look to the second quarter, I mean is the provision – are we still in the $700,000 to $900,000 range or do you think if the growth is stronger that we will be up in this $1 million, $1 million plus range now going forward?.

Yes, I would expect $900,000 to $1.1 million..

Okay. All right..

And part of that expense will be offset by accretion..

Right, yes. Okay. Great, thanks guys. I appreciate the color..

Yes. Thanks, Mike..

And I am showing no further questions at this time. I would now like to turn the call back over to Mr. John Hanley for closing remarks..

Thank you. And that concludes our Equity Bancshares Q1 2017 presentation and conference call. Thank you all for joining us on today’s call. You may now disconnect and please have a great day..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone, have a great day..