Hello everyone and welcome to the Equity Bank Shares Inc. 2025 Q2 earnings call. My name is Carla and I will be coordinating your call today. During the presentation you can register to ask questions by pressing star followed by one on your telephone keypad. If you change your mind please press star followed by two. I would now like to hand you over to your host Brian Katzfey, Vice President, Director of Corporate Development and Investor Relations to begin. Please go ahead when you're ready.

Good morning. Thank you for joining us today for Equity Bank Share's second quarter earnings call. Before we begin, let me remind you that today's call is being recorded and is available via webcast at investor.equitybank.com, along with our earnings release and presentation materials. Today's presentation contains forward-looking statements which are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. Following the presentation, we will allow time for questions and further discussion. Thank you all for joining us with that.

And thank you for joining Equity Bank Shares Earnings Call. Joining me today, Chris Navratel, our Chief Credit Officer, our company's sustained strong beginning to 2025. In the second quarter, we achieved strong earnings, core margin expansion, and successfully closed our merger with NBC Bank on July 2nd. Limiting time between announcement and closure of our transaction has been a core competency of equity. Our work to receive all required approvals on this transaction within 60 days of announcements provides confidence to a seller and value to our shareholders. We are proud of our teams for putting us in a position to continue to excel in this space. We couldn't be more excited to welcome the leadership and team members of NBC Bank. H.K. Hatcher Floresca, Jeff Greenlee, Dennis Thiemur. That team coupled with Ken Ferguson joining our board are excellent additions to I look forward to continue to expand our presence, executing on our M&A strategy. Our team has also on serving the communities in which we operate. I am very proud of him. He has also made a lot of loan balances, $1 million. Seasonal public funds have held their ground. Our teams are motivated and armed of our communities, and we look forward to continued execution. We closed the quarter with 10.63 and a tangible book value per share compared to second quarter 2024, our TCE ratio is up 41% and our tangible book value per share is up 25%.

Instructional bankers continues to be our guiding principle. ... incurred on M&A and the interest income for the period was $49.8 million, up $1.8 million linked quarter when adjusting for $2.3 million and non-accrual benefits realized in the price of the quarter was 4.17%, an improvement of 10 basis points when compared to core margin of four. We continue to be optimistic about our opportunities to maintain spread and improve earnings through repositioning of earning assets throughout 2025. Margin dynamics. Non-interest income for the quarter was $8.6 million, up $500,000 from Q1 when excluding the $2.2 million dollars fully benefit, non-interest expenses for the quarter were $40 million. Adjusted to exclude loss of debt extinguishment and M&A charges, non-interest expenses were $38.3 million, down modestly in the quarter and in line with outlook. Debt extinguishment charges of $1.4 million were realized during the quarter, as the company chose to redeem our outstanding subordinated debt issue following its first capital and interest rate reset period. The The plan is to refinance within the month. As we have discussed in past calls, we are in an opportunity-rich environment and maintaining this source of capital provides continued flexibility while resetting allows for capital maintenance and a better coupon. Our gap net income included a provision for credit loss of $19,000. The provision is the result of realized charge offs partially offset by a moderate decline in ending loan balances. We continue to hold reserves for any economic challenges that could arise. To date, we have not seen concerns in our operating markets that would indicate these challenges are on the horizon. The ending coverage of ACL to loans is 1.26%. As Brad mentioned, our TCE ratio for the quarter remained above 10%, closing at 10.63%. The funds from the capillaries in Q4 continue to be maintained at the holding company with no current intention of pushing into the bank. At the bank level, the PCE ratio closed at 10.11%, benefited both by earnings and improvement in the unrealized loss position on the securities portfolio. I'll stop here for a moment and let Christoph talk through our asset quality for the quarter.

Thanks, Chris. During the quarter, non-accrual and non-performing loans moved up as we saw migration of the QSR relationship we have discussed on previous calls. Non-accrual loans closed the quarter at $42.6 million, up $18.3 million from the previous The increase is almost entirely driven by that same QSR relationship. The customer has a good path to exiting the underperforming locations over the next several quarters. We remain engaged with the borrower in a collaborative effort to pursue a full resolution through multiple avenues. Until resolution of the challenge stores is realized, classification as a non-accrual asset is an appropriate step. Total classified assets close the quarter at $71 million, or 11.4% of total bank regulatory capital. Importantly, classified assets levels remain well below our historical averages and continue to be actively monitored and managed. Delinquency in excess of 30 days moved down during the quarter to $16.8 million. Net charge-offs annualized were six basis points for the quarter, while year-to-date charge-offs annualized were four basis points. Recognized charge-offs continue to reflect specific circumstances on individual credits and do not signal systemic issues within our markets. Looking ahead, we remain positive on the credit environment and the outlook for the reminder of 2025. Despite some uncertainty in the broader economy, credit quality trends across our portfolio remain stable and below historic levels. Our discipline out of writing, strong capital and reserve levels position us well to navigate any potential headwinds. We believe this proactive and a measured approach will support continued sound credit performance while allowing us to respond quickly if conditions change.

Previously mentioned margin adjusted for one-time items in Q1 improved 10 basis points in the quarter. The improvement during the period was driven by remixing of balance sheets as loans comprised 76% of average earning assets as compared to 75% in the previous quarter. Yield expansion on the loan portfolio driven by increasing coupon results and a reduction in both the level and cost of interest-bearing liabilities. Average loans increased during the quarter at an annualized rate of 6.2%, while average interest-earning assets increased 1.7%. The increase in margin and earning assets, coupled with an additional day in the period, led to core net interest income growth of $1.8 million. As we look to the remainder of the year, we are optimistic about margin maintenance on the legacy portfolios as we see loan balance growth and continued lag repricing on our asset portfolios. In addition to our legacy portfolios, following the July 2nd closing of NBC, we will begin to realize the benefits of that transaction. While we are continuing to work through fair valuation estimates, we expect to realize margin improvement from the addition of the underlying assets and liabilities refer to our outlook slide for additional detail on second half earnings expectations reflecting current estimates of the impact of mbc as a reminder we do not include future rate changes though our forecast continues to include the effects of lagging repricing in both our loan and deposit portfolios our provision is forecasted to be 12 basis points to average loans on an annualized basis production teams have had an excellent start to the year, as we realized loan growth of more than $100 million

through the first two quarters, while also maintaining deposit balance exclusive of anticipated municipality outflows. As we look to layer in the NBC footprint and their exceptional leadership team, I'm excited to see what the equity team can accomplish in the second half of 2025. Production in the quarter totaled with $197 million, in line with prior period organic production and twice as much as Q2 2024. Rates on new production were 7.17% compared to 6.73% in Q1, continuing to provide accretive value compared to current yield. Increasing level of payoffs during the period, our retail teams entered the year with aligned direction and a front way to go to meet persisting this group and realizing success. Deposit balance were primarily in commercial accounts. The accounts remain open and with the closing of NBC the leverage of larger balance sheet and home communities. The great cost over NHK Hatcher and all of our market leaders driving our franchise forward.

We have a great position in our markets with our organic sales team. Our management team is ready for the challenge and relishes the opportunity ahead of us. Our board has done a great job navigating a strategic path both organically and through M&A. M&A conversations continue at a very high rate of opportunities, emphasizing forward to the rest of the year and beyond. Thank you for joining our call today and we're now happy to take any questions.

Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by TA. When preparing to ask you a question, please ensure your device is unmuted locally. We'll make a quick pause here for the questions to be registered. And our first question comes from Terry McVoy with Stevens.

Hi. Good morning, everybody. Maybe start with a question for Chris. Could you just bond portfolio at NBC Bank and just overall thoughts on managing the securities portfolio in the second half of the year?

Yeah, good question, Terry. So under the terms of the NBC agreement, the NBC management team actually affected sale of their bond portfolio prior to our acquisition of the bank. So coming over to our balance sheet, effectively those have been monetized into cash balances, and there's a very small level of securities being brought over that have just been retained for the purposes of managing pledging positions. So that cash will come into our environment with the opportunity to deploy both for securities portfolio needs as well as funding loan growth and funding other alternatives on the balance sheet. So no specific actions needing to be taken by us at this point as it relates to their bond portfolio just based on what's actually coming over to us. In terms of managing the rest of the way, You know, the bond portfolio for us is a mechanism by which to deploy cash with, you know, an improved return potentially. But really, the balances fluctuate dependent on need on both liquidity and pledging as well as, you know, cash balances relative to deposits. So we saw in the quarter some average balance decline. We had some purchases into the end of the quarter, which is going to grow. that balance for average balance purpose is going in as we begin Q3, but that it's a balancing function in that securities portfolio where we're maintaining to, you know, kind of best leverage our cash position while also having the liquidity and the pledging required for municipality deposits.

We constantly look at, yeah, we constantly are looking, Terry, at, you know, is there opportunistic time to uh rebalance that portfolio also so if there's a thought process that we'll we come up with to do a rebalance that portfolio we'll and a question for christoph um are you seeing any stress within that qsr portfolio outside of the one relationship that we've talked about for the past couple quarters yeah uh so and i've discussed this on previous calls

we do have we do see softer you know softer operating numbers from in that sector from our other borrowers when it comes to classified numbers that we have we have one small relationship in that space outside of this this large one that we that I mentioned but outside of that you know we have a lot of granularity in this in this portfolio we have diversification between the different QSR concepts different brands we have diversification when it comes to geography and borrowers so there's a lot of granularity over there and you know this is this is definitely the one we just downgraded is definitely the you know the largest concern thank you for that and maybe just one last quick one back to chris that step down in fourth in the fourth quarter as it relates to non-interest expenses relative to the third quarter is that all cost savings from the deal or is there anything else baked into that decline in 4q yeah

Yeah, it's predominantly the impact of NBC. I think we always have a little bit of a downward trend through the year in terms of NIE, primarily in the salaries and employee benefits line items, but most of that reduction is the NBC savings. Great.

Thanks for taking my questions.

Thank you. And the next question comes from Jeff Rowles with TA Davidson. Thanks.

Maybe a couple of questions on the larger QSR credit. The first is, you know, what triggered the move to nonaccrual? Is it just sort of a time, I suppose, is sort of the first part? And then the second piece is, Christoph, you mentioned the expectation for a path of exiting some of the better locations. And I guess if there's properties that are sold, would you anticipate that that can, I guess, reduce the non-accrual amount before you kind of fully resolve the whole relationship? In other words, can we see that balance trickle down as you have progress in some of those other locations?

Thanks. yeah so your first question on the non accrual treatment the we just got to a point of time where where it was appropriate step from accounting standpoint the loans were passed due from a payment perspective when it comes to exiting the stores I talked about exiting the unprofitable stores they have a market that is that is unprofitable for them all of the stores in the markets are underperforming dragging their cash flow down so we're working on a or we have a plan in place that they they're executing or we're we're going to execute to exit these stores and then and then the rest of the locations are performing very well they're they're able to carry the debt load that we have so we're not exactly sure how long this this process is going to take we we think it's going to be the next several quarters at least three three quarters to execute on this plan and then stabilize stabilize cash flow so uh the hope is that once that's executed and and we're in the uh we're in the uh in a better

cash flow situation um later in next year um you know we could potentially uh talk about upgrading this to accrual status i appreciate it um and brad sounds fairly positive on the on the m a front i I'm interested in, you know, sellers, the conversation there as they view, you know, seeing regulatory approval for deals accelerating. Is that changing the tone or bringing more folks at the table, or has it just been a pretty steady state of the folks that you talk to in terms of partnerships? I'm wondering if that reg approval speed is changing the tone with sellers at all.

Yeah, let me finish on the QSR restaurant. There's several paths to resolution there. One is that they closed down the eight restaurants that are underperforming, and then the other restaurants are currently cash flowing positive today. So they actually have a really good joke. They can't execute on getting things done fast and to sell the whole path. them into that liquidation here. The M&A front, I don't think it's driven by regulatory. I think it's driven by, you know, we're on the tail end of a four-year or five-year period where you couldn't sell your financial institution because four years ago you were in COVID. Two years ago we had a really low interest rate environment, which taking some time for people to realize what their new tangible book value really is. And so now that we have kind of passed those two windows, I think the age of ownership and age of management is driving those decisions. And so, you know, ownership teams have windows on when they want to have liquidity. A lot of them are past that window from two to five years and so that's really what's driving this or the management team is three to five years older than they wanted to be when they had talked to their owners about selling the institution and so it's really age of ownership and age of management that's driving every conversation that we have and that's uh you know hasn't changed and i don't think it will change i think there's the reason why there's so much activity is i think there's been so much uh put off of timing uh from the from the past several years i appreciate that

thanks brad thank you and just as a reminder is start one to ask you a question the next question comes from damon del monte with keith briot and woods hey good morning guys uh thanks for taking my questions um first one maybe maybe for rick on um the outlook here in the second half of the year for for loan growth it seems like um you know um clearly explained what led to the the uh end of period decline this quarter could just talk a little bit about kind of the optimism here in the back half of the year and kind of what um what's driving that both from a geographic

standpoint and asset class sure yeah we're definitely seeing continued uh pipelines building I mean, our pipelines are at the highest levels they've been at. So that's a lot of where the optimism comes. We're seeing more activity in the CNI side as well, and our series side remains strong as well. So we've had a lot of deals coming in, and you get these waves of payoffs. And the reality is, you know, you get typically one quarter a year, you get a lot of – it seems like you get a lot of payoffs. And so the reality is in the last year trailing four quarters, we've had two months with larger payoffs. So I think there's some aspects of that slowing down as well with the production engine that we have. And the last four quarters, the production has been really good. And so if we just continue on that path with a little bit less payoffs, you're going to see that growth. So that's really why we have the optimism for the second half of the year.

Got it. And the lower line utilization this quarter, was that something that was kind of seasonally driven? or is that maybe a shift in your customer operating approach?

No, I think there's actually a couple of specific things with a large – it's actually a situation where a couple of our wealthy customers have some lines. They received some money and had lines and paid them down. It's sort of a unique situation that happens. Those lines remain in place. we expect those to probably be drawn on again as we get later in the year as well. So that had a sort of a disproportional amount. I think also some of it's in some of the Ag lines as well, those come back. So again, we're optimistic that this was just sort of a one-time thing.

It actually affected our deposit balances and our loan balances because they were carrying them in different entities on the deposit side, then distributed those funds to several principals, and then those principals paid down their lines of credit. So we got hit twice from the same customer base. But that's actually a positive result from the standpoint customers doing extremely well, and they'll draw those lines back up again.

Appreciate that color. And then And just lastly, Chris, on the margin outlook, I think you mentioned that there's some repricing that's going to be occurring over the next few months for loans. Do you have some numbers around kind of what you expect in total loans to be repricing in the back half of the year?

Yeah, we continue to have kind of leg repricing in there, Damon, really on both sides. There's some up, there's some down. I would look at our core margin is kind of maintaining right where we realize that this quarter. so that lag reprice has the effect of maintaining around that 417 point as you consider both the liabilities and the loans and then as we look forward into 2026 there continues to be some runway there of additional repricing again on both sides of the balance sheet some time structured deposits and some longer dated loans that we'll continue to see move up okay great that's all that i had thank you very much thank you so just as another reminder is

i want to ask a question our next question comes from brett brotherton with hoofd group hey guys good morning wanted to um just just uh start on on wichita and just with the you know with the environment of more defense spending and you know wichita having a bit of an aviation and military um backdrop just wanted to hear you know what was going on in wichita and then i know you guys have have gotten away from aircraft lending and that kind of thing. But just wanted to see if that might be an opportunity for you and maybe get a little bit of a call on how Wichita is doing with the subtrend.

Yeah, so if you look at our portfolio, it's less than 10% of our company now is based in Wichita. So it's not a big factor for us on an overall basis, macro basis. But on a micro basis, we, you know, we have less than $5 million, I think, outstanding to suppliers in the aircraft industry from a direct exposure, you know, that's down from a hundred plus million five years ago. So we've really, we're not in that space any longer. It's not affecting our community, what's going on with Boeing in particular very much because Cessna, Beechcraft, and Learjet are doing so well that there's so much demand for the jobs. And Spirit isn't laying people off. Spirit Boeing are not laying people off yet and having them made any announcements that they're going to. So there's still a lot of demand for jobs here, and the workforce is very intact. You know, their biggest issue in that workforce is, I think Cessna has somewhere between 500 and 750 retirees annually out of their workforce so making sure that they can replace them with skilled workers is is important and I'm sure all the sub manufacturers are the same way so the demand for talent here is still very very high and we're not seeing any effects of the Boeing spirit relationship on the marketplace yet today i can look out my window and i can see 190 fuselages on the ground out there for spirit on delivery so okay um and then just a question for chris back on the margin you know and it would

it would seem like you're you're implying that you can't get much more out of the deposit betas or good deposit costs lower uh from here absent fed cuts any any thoughts on how you're modeling that and just what you guys think um deposit growth takes at this point yeah so a couple things on that in terms of the actual deposit betas as it applies to our face today so call it a no growth base position um there's a little bit of potential continued repricing as we have some time to find the maturities but you know as you saw over the past few quarters as rates started to come down we like the industry took work we're strategic in that we move forward quickly and we're able to get those costs out relatively quickly so the opportunity set for working decline went down that said we continue to have some that are what I'll call at market today I think depending on how competition behaves there's always gonna be a little bit of continued opportunity there. Now the offset to that is if competition stays irrational or moves to a more irrational position, it could go the other direction on us. So I think that's the risk. What I tell you is new deposits today, to the extent they're interest-bearing, you know, the market's competitive out there, so seeing numbers that are meaningfully accretive to where our current cost of deposit is on an interest-bearing basis is a challenge, right, now in a relative to cost of funds basis, there's still some value there. But where we can pursue commercial relationships, we grow the loan balances and with them drive commercial deposit relationships and where, you know, John Rupp and Rick Sims can find success in driving consumer relationships and DDA accounts. All those incrementally create value. So as we see traction there, there's opportunity for us. But on a cost-static basis, Brett, the majority of those costs have come out at this point.

Okay. Okay. And then maybe just one last one for me, you know, Brad, I think you're, you know, you're still optimistic about M&A and the possibilities. Is the size range for you guys from a target perspective increasing or any color on how you're thinking about, you know, the typical target from here?

Yeah. The opportunities have been increasing on size for us. But I think their size range, you know, the set that we have is one and a half billion and below. And so I think you could think we're going to spend our energy on $250 million institutions to one and a half billion and kind of anything in between there that fits our geographic footprints, kind of what we're focused on.

Okay. Great.

Appreciate all the color, guys. thank you so just as a final reminder if you would like to ask a question is there one on your telephone keypad and as we currently have no further questions in the queue this concludes today's equity bank shares earnings call thank you everyone for joining you may now disconnect please have a great rest of your day