Equity Bancshares Inc. is bolstering its growth with a bank merger and securities book repositioning.
The Wichita, Kan.-based company announced its acquisition of Kirksville, Mo.-based Rockhold Bancorp., the parent company of Bank of Kirksville, and a securities book repositioning on Dec. 6, both of which will provide meaningful growth opportunities, executives said during a call with investors
"Both transactions will fuel Equity Bank's earnings and stay core to our disciplined approach, emphasizing low-risk transactions," CEO Brad Elliot said.
Equity's stock price jumped on the two announcements, up 9.59% at 1:32 p.m. ET.
Equity was drawn to Rockhold's deposit franchise, executives said on the call. Non-interest-bearing deposits made up 29.45% of Bank of Kirksville's total deposits at Sept. 30, compared to Equity Bank's 23.66% ratio, according to S&P Global Market Intelligence data.
"It's mainly about the deposit franchise. That's what we're really excited about here," Equity Bank President Richard Sems said during the call.
Sems said Rockhold's low level of unrealized losses also made the deal attractive, particularly at a time when the prospect of having to mark bond books to market at close is hindering US bank deal activity. Bank of Kirksville had negative $9.1 million in accumulated other comprehensive income at Sept. 30, according to Market Intelligence data.
"While seeking to partner, Bank of Kirksville's management primarily invested in bonds with limited duration resulting in short-lived [accumulated other comprehensive income] marks and near-term cash flow," Sems said.
Equity was also comfortable with Rockhold's credit quality after the target had worked to bring down its nonperforming loans, mainly in the agriculture space, over the past year, Elliott said.
On the deal call, analysts were curious about the 18% projected cost savings, which Keefe, Bruyette & Woods analyst Damon DelMonte said is "kind of on the lower end of what we usually see."
"They've run a very efficient organization from an employee standpoint. And so there's just not a lot of employees that need to be taken out as part of the transaction, which is a positive from one aspect because we don't have to have those tough conversations," Elliott said. "And they've done a good job with their data processing contracts and other things. So there just isn't a lot of expense to cut out of this."
This merger was not the first time Equity tried to court Rockhold. About 2.5 years ago, Equity was involved in a bidding process for Rockhold, but the target eventually announced a merger with Fidelity Federal Bancorp in September 2022. That deal ultimately ended in termination due to a lack of regulatory approval.
"It came back to market, so we started working with them and negotiating with them to get to this point," Elliott said.
In addition to the merger, Equity also announced it repositioned $442 million of its available-for-sale bond portfolio, resulting in realized losses of $38 million. The company's plans for the cash are currently "in limbo," CFO Chris Navratil said.
The company plans to redeploy some of it back into bonds and then hold onto the rest, unless loan growth picks up.
"It's really where loan demand goes from here. If we have the demand and can reposition in the loans, obviously, the yield could be meaningful, but meaningfully better and we can continue to facilitate customer growth and balance sheet growth, that we're looking for organizationally," Navratil said.
