Q3 2021 Equity Bancshares Inc Earnings Call
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Keith.
Thank you for standing by.
Looking to the equity Bancshares Q3, 2021 earnings call.
Carl.
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Later, we will conduct a question and answer session.
Instructions will follow at that time.
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I would now like to have the conference over to your host Mr. Christian Alberto with equity Bancshares Mr.
Mr. <unk> you may now begin.
Good morning, and thank you for joining equity Bancshares conference call, which.
Discussion and presentation of our third quarter 2021 results.
Presentation slides to accompany our call are available via PDF for download at Investor Day equity Bank Dot com by clicking the presentation tab. You may also could be event icon for today's call posted at Investor Dot equity Bank Dot com to view the webcast player. If you are.
It will include call on our webcast player. Please note that slides will not automatically advance.
Please reference slide one including important information regarding forward looking statements from time to time, we may make forward looking statements within today's call and actual results may vary following the presentation. We will allow time for questions and further discussion. Thank you all for joining.
With that I'd like to turn it over to our chairman and CEO Brad Elliott.
Thank you, Chris and good morning.
Thank you for joining our call and your interest in equity Bancshares.
Joining me is Eric Newell our CFO.
Greg costs over our Chief operating officer at.
Viewing this event Craig Anderson.
We've had a busy quarter working on many different objectives, and staying focused on attracting new customers and retaining our current customers.
This effort has translated into our financial performance.
We closed the American State Bank.
Our <unk> merger on October one.
As we anticipated.
Not only that we also successfully completed our data conversion on the same weekend.
I view, our ability to announce a merger at close and convert a core competency.
Bank and trust equity Bank.
We cannot do it without the dedication of countless members on our team.
While most of our shared service teams worked throughout the weekend to ensure customers had.
Limited interruptions.
I wanted to especially recognize the efforts of Jesse Mickey and Jim Brown Zelle.
Both are at our technology and system teams throughout the entire summer and the closing weekend with a dedication and commitment to excellence.
They have been involved in most of the M&A transactions.
We have completed to date.
And our highly competent.
Obviously.
They could not have done it without their entire teams.
And the leadership of Julie Huber, Jeremy Allen, Mary Potter and 20, plus other leaders who met constantly throughout the planning process.
<unk> if this transaction goes smoothly.
With a data conversion behind us.
We can quickly start to realize the savings we modeled.
And expect most of it to be achieved this quarter.
We continued to experience.
Non PPP loan growth in the quarter growing seven 3% on an annualized basis.
Thanks in part to the leadership of Mark garments Metro market group.
And Brookdale and is Ozark Mountain region teams.
I anticipate the new <unk>.
T market will present us opportunities for organic loan growth. In addition to our legacy markets growth.
Eric take everyone through the numbers for the quarter. Please.
Thank you Brad and good morning.
We reported net income of 11 8 million or <unk> 80 per diluted share.
We calculate.
Turning to <unk> 96 per diluted share beating street consensus.
Quarter results. This quarter were driven by the recognition of origination fee income from PPP loan forgiveness and improvement in fee based drivers across many of our categories.
Non merger related expenses slightly increased linked quarter salaries and benefits.
Core impacted by lower deferred expenses in the period.
There are several items to call out that will help reconcile our GAAP number to core earnings.
We had $10 million of previously nonaccrual loans from our <unk> Bank transaction with the FDIC that moved to accrual during the quarter, resulting in 135 million of interest.
That's where income recognition.
We recognized a 486000 fully death benefit.
Reduced other income due to our adding of 772 repurchase obligations related to our Mena SBA loans.
Recognize the 381000 gain on security.
Interest and fees transaction and an associated 372000 loss on extinguishment of debt.
And finally merger expenses of 4 million associated with the October one closing of the American State Bank and trust merger.
Our GAAP net income includes a provision to the allowance for credit losses totaling 1 million.
Security there are many factors influencing our provision this quarter.
First another successful quarter of mitigating losses led to a reduction in the historical loss ratio within our calculation.
Next as we continue to move away from the peak of the pandemic without noted loss experience, the economic and qualitative components of the.
Relation have improved.
That said with the Delta variance supply chain concerns and the as of yet unknown long term impact from stimulus efforts management has maintained a reserve of approximately 120 basis points on generally reserved for loans.
Finally specific reserves increased.
<unk> 8 million in the quarter, which Greg will discuss more in a moment.
The September 30th coverage of ACL to non PPP loans is 2.4% unchanged from the previous quarter.
Net interest income totaled $39 million in the third quarter, increasing from $34 6 million.
For this quarter, representing a $4 $3 million increase.
During the third quarter, the weighted coupon in the portfolio, excluding PPP increased approximately 13 basis points.
Origination fees recognized from forgiven PPP loans increased notably again in the third quarter.
We recognized $7 7 million of fee income and 456000 of interest income related to PPP loans in the third quarter comparing to the second quarter total PPP fee income and interest income totaled $5 8 million and 984000, respectively.
September 30.
We had $3 million of net unrecognized fee income associated with PPP loans, which totaled $95 7 million.
Removing TTP fees and interest income from net interest income in both the third and second quarters results in a pro forma net interest income of $30 8 million.
Seven 9 million respectively.
Loan yield, earning asset yield and net interest margin in the quarter ending September 30 is $4, three 3%, 355% and $3 one 9% respectively. This.
This compares to the quarter ending June 34.
And 201%, 355% and three 3% respectively.
I would note that the one.
<unk> three 5 million of interest income recognized from the previously nonaccrual loans during the quarter is having a beneficial impact on NIM. This excluded NIM during the third quarter was <unk>.
Oh, 5%, which was within the range of our outlook.
Craig.
Thanks, Eric organic loan growth totaled $46 5 million, representing an annualized 7% growth during the quarter.
PPP loans declined $176 million through the forgiveness our customer.
<unk> three point are experiencing from the SBA.
Year to date, we've recognized $16 6 million of fee income from this forgiveness activity and have had $546 million forgiven.
At the end of the quarter, we had only 320 loans remaining to submit to the SBA.
<unk> and all of our 2020 PPP loans have been submitted and forgiven.
Organic originated loans totaled $217 6 million in the third quarter down slightly from the $261 million originated in the second quarter.
Of the total originations in.
This quarter, 80% were in commercial.
CRE and agricultural loans.
Our pipeline remains strong.
And is consistent with what we've been reporting over the last several quarters.
With the addition of <unk> and their seasoned banker.
Third I expect that we will continue to show a growing pipeline.
Our sales teams continue to successfully grow our fee based businesses.
Our service charges are benefiting from the product realignment put in place in the first quarter of this year, better, allowing us to charge fees for services.
Bankers offered to customers in those account types.
We also continue to experience increases in fee income for merchant services commercial credit card and Treasury management products offered to our commercial customers Eric.
Before I turn it over to Greg I want to highlight the continued pressure excess.
<unk> liquidity is placing on our NIM securities and cash totaled 31% of average earning assets in our third quarter up from 28% in the second quarter.
We continue to be a Washington deposits, we're seeing customers do some of their excess liquidity and looking at our most popular consumer account, which makes up 60% of the total number of transact.
Accessing accounts the average balance continues to be $1240 higher than pre COVID-19 levels.
Peak average balance occurred around March 31 of this year.
When compared to that peak average balances have declined $678. We don't expect average balances to go down to pre COVID-19 levels anytime soon.
But for context, and 125% of pre Covid levels, we anticipate another $45 million decline in overall balances in this account type.
Positively with grown our number of checking accounts and this time by over 17% through the pandemic a testament of our operational approach during this time.
Soon by always being open for our customers financial needs, Greg why don't you take everyone through your thoughts on credit.
Thanks, Eric during the third quarter, we continued our work to successfully position our customers and the bank for successful outcomes first we had some movement of our <unk> assets out of.
Rule during the quarter, which Eric briefly mentioned last.
Last year, we took a conservative approach on certain elmina loans due to the pandemic as we close in on the first year of watching the performance of these loans and gathering information that was not readily available to us when we closed on the transaction we've been able to develop.
Non of cash flow expectations and assess performance against those expectations. The result was moving 37 loans totaling $9 $7 million back to accrual. In addition, our hotel portfolio has continued to show improved operating performance as has our AG credits.
Develop either of these portfolios has emerged with the weakness the industry fear one year ago.
Loans with deferred payments in 2020 has performed well in 2021 as the environments. We operate in have stabilized and returned to a degree of normalcy net charge offs were again at just 129.
10000, okay.
During the quarter and Paydowns on legacy non accruals were approximately $4 million during the quarter.
Oreo continues to trend flat to down and without any significant net losses as asset values remained stable.
We were notified in the last week.
Border as shared national credits going through the review process was moved to substandard.
<unk> of this credit remain positive, including a positive EBITDA no missed payments adequate collateral coverage as well as being in a recovering industry.
We have discussed in recent quarters.
The core craft parts manufacturer, we have been banking for over 10 years and a credit we originated with them in 2017 and have carried in our special mentioned category for several quarters. This borrower has struggled to keep its customer base intact. Following the 737 Max issues and continued on through Covid.
And we are in discussions with all parties to determine the best course of action and.
In early October the borrower missed its payment for the first time and as such we have moved their relationship to substandard non accrual status and a place to credit Mark on it the collateral.
Which is highly desirable machines designed.
But for the aircraft industry remains in high demand and we are in discussions with several interested potential buyers. We look to resolve this credit in the next two quarters.
We are also closely monitoring and in discussions with leadership of a credit in the magazine and health monitoring subscription businesses that ownership.
<unk> for the management team continues to be very cooperative and pay down principle through normal course debt redemptions and with the sale of other assets. We are discussing with their management team are planned to continue retiring principal as they adjust the operations of their business that credit remains on non accrual status has a credit mark.
Our ship on it and we will continue to work to a resolution in the next few quarters Eric.
Thanks, Greg before turning the call over to Brad I wanted to turn your attention to the forecast slide on the earnings deck.
Here you can see our thoughts on the forecast for the fourth quarter and preliminary 2022.
Mark on the middle of our budgeting process for next year as well as integrating the American State Bank and trust balance sheet into that process.
Our long term goals remain unchanged improving our revenue mix.
Increasing fee contribution to that mix.
Drive positive operational leverage off of our expense base.
We are building our loan to deposit ratio to levels, we saw pre COVID-19.
This last goal is dependent in part for economic factors in the markets we serve.
Supply chain labor market and inflation, each add a level of uncertainty to our customers and in turn to loan demand.
So.
Please shifting excess liquidity can alone to the loan portfolio from cash and investments as critical to improving our pre tax pre provision return on assets.
Barring any new stimulus programs, we do not expect PPP income to influence our 2022 results Brad.
Thanks.
We continue to anticipate a December close with security bank on their sale of branches in St. Joe Missouri.
And our teams are working diligently on another successful integration into equity bank products and services.
We expect the branches to add.
At $78 million of deposits in a market that we believe we can grow under Josh means and Greg <unk> leadership.
Last week.
Equity Bancshares paid its first common stock dividend to shareholders.
As I've said previously.
Thanks, Eric and will broaden our institutional and retail investor base and be a tool for capital management when the stock repurchase program does not meet our earn back needs.
The equity Bank team continues to work every day to help our customers achieve their goals and dreams by helping them access.
The <unk> products and services.
Our shared service teams continue to find ways to make it easier for our customers to engage with equity bank.
Being a trusted and valued partner to our customers is our value proposition.
In turn we built.
Our older value.
And with that we're happy to take your questions.
As a reminder to ask a question you will need the star one on your telephone to withdraw your question Chris <unk>. Please standby will compile the Q&A.
Sure sure.
Our next question comes from the line of Jeff <unk>.
D. A Davidson your line is now open.
Yeah.
Thanks, Good morning.
Good morning, Jeff question on the.
I just wanted to clarify on slide 26.
With me those for Q.
Full year 'twenty two projections those include.
The American state.
He is very branch acquisition is that correct.
The numbers.
Yes to Americans.
C.
No two security Greg.
Okay, well I guess, the only real impact could be.
The deposits and maybe some moderate expense is that is that how you'd adjust if you were to roll that in.
Correct.
It would have.
Six.
Very de Minimis impact to Q4.
Got it okay.
So, yes, I guess.
Based on those assumptions looking at the sort of the fee income growth I mean strong.
In the third quarter and your expectations for 10% to 20% growth.
Me too I guess.
So kind of a high <unk>.
$30 million for the full year.
Fee income was the biggest source of that growth is that going to be sort of balanced on the service charges and.
Debit card is there some other areas.
Thank.
And what about the product realignment on service charges, but just wanted to get into the meat of.
Of that growth for <unk>.
Those expectations.
Yes to me I think service charges is certainly one factor.
And that we're going to have a higher level of DTA number.
Doc counts.
When you bring in the American state.
Balance sheet, so that will give us some opportunity to earn servicing income awesome awesome.
Of those accounts.
Inclusive of.
<unk>.
Overdraft charges.
There is an expectation that we'll probably have a more normal.
Number of end of the year on overdraft.
Narrative this year, so that's a factor of growth.
We continue as.
As well as on the debit card interchange, Jeff as you mentioned youre going to have.
At a higher level of.
Interchange from the Americas today customers as well.
Your line is definitely a focus point of ours is to increase our share.
Share of customers using an equity debit card.
There's going to be some marketing campaigns behind that.
And then just the other initiatives that we've previously talked about.
<unk> focus on trust and wealth management.
That's on our Treasury management products for our commercial customers, including commercial credit cards and purchasing cards.
Yes.
Those things.
Our products and services.
Trending positively throughout this year and we can take that momentum will continue into next year.
Thanks.
Maybe one for Brad.
You mentioned late.
Sort of the dividends.
Impact and I assume thats.
Sort of more of our flexibility capital tool.
The question is more on the buyback and your appetite given the.
So Eric but then sort of.
Initiated here and looking at post.
The American state transaction, just trying to get a sense for the buyback.
Appetite and or what what you remain on that authorization.
Yes, so as you know we put out.
The debate on the we re up the authorization 900000 shares with $1 1 million shares.
Last quarter in September the board authorized an additional million shares.
I would tell you Jeff.
As active as we are.
As we've always been as long as it meets our criteria.
K buyback, we'll continue to buy back shares.
As actively as we can.
And the dividend will have no.
Effect on that.
Got it.
Brian I guess just related.
The last thing is on the.
Additionally, while we're talking about capital just additional I guess deal appetite.
You've closed this transaction you've got the branch deal coming but.
Our conversations and thoughts on 'twenty two of getting at.
Additional deal done.
Yes, we've got we've got several active conversations.
On today.
With companies of size, not meaning mergers of equal but similar.
Similar to what we.
We have just completed with American state and so I think we've got really good possibility of getting something across the finish line in 2022 for sure.
So.
<unk>.
Still very active in the deal space and we still have lots of partners.
That are talking with us about the opportunity of partnering up.
And I think they are good franchises that fit well with what we do we fit well with what they do.
And so I think we've got good opex.
Okay.
Continue to move forward with those opportunities.
Got it thank you.
Thank you. Our next question comes from the line of Terry Mcevoy with Stephens. Your line is now open.
Hey, guys.
Good morning.
Good morning, Jerry.
Maybe a question for Eric when you when you look at your margin guidance for the fourth quarter are really into 2022.
Of assumptions are you, making in terms of the.
Allocation from cash and securities into loans and maybe more importantly are you assume.
Assuming any higher short term interest rates or a steeper yield curve to help the margin maintain that level.
Okay.
Sure.
The second part of that question I'll answer first we do not.
Our model any change in the shape of the yield curve or the level of interest rates.
Guys. Good morning, the way our balance sheet is positioned at the moment.
A higher level of interest rates would be.
Moderately beneficial to us.
Do.
Try to attempt to have.
Kind of no significant asset or liability sensitive and we like the kind of I.
I would like to make up that with the balance sheet in terms of that but the shape of the curve steepness would absolutely help us.
But that is not modeled in.
The first part of that question Terry.
We do have I mean, if you look at our cash.
Our securities as a percentage of earning assets right now or.
We're over 30%, which is probably almost more than double where we'd like to be.
I would say that.
There is a very small transition out of the investment portfolio into alone.
But we did want to add.
Okay.
Too much of a about there.
And so.
I would love it because that's an area of opportunity for us in terms of margin in 2022.
Get more.
Portfolio into loans.
And just reposition that next level.
Not a material.
After what.
What we consider.
For 2022.
Thanks, Thanks for that Eric and then I guess any comments on the inflow of special mentioned credits last quarter I asked because a couple of the loans Greg talked about earlier.
Out of that category.
The only special mentioned.
Credit that came on Terry of any size in Q3 was a shared national credit.
That.
Yes.
The governing bodies.
Classified as special mention was it special or sub standards, we had one in special mention and one in sub standard okay.
Thanks, Thanks for that and then maybe just last question you mentioned the pipeline on the lending side it was strong.
Over the next couple of quarters, where do you see the best growth opportunities in terms of markets or specific areas across the bank.
Terry I'll take that one this is Craig we continue to see very strong.
Client activity and sales deals in our metro markets of Tulsa, Wichita in Kansas City. Those economies are all doing really well and we're starting to see some some deals.
That we have not seen in over the last couple of three years.
We build a new regional headquarters in Kansas City, and I think Thats really elevated our presence there and seeing more more deal opportunities in that space, then I would say in our community markets Western Missouri kind of leads our growth there, but we're also seeing due to some transition in leadership, some very nice opportunities in our.
We all market.
Thanks, Greg Thanks, everyone.
Hey, Terry Terry before we get off of your questions.
I want to point out that the movement of the <unk> assets.
They were sub standard they moved to special mention which might be more to your question.
Question, the shared national credits actually pretty small, but we'll park the meda assets in special mentioned until we gain some more experience about improving them even further.
We are actually moving up not downturn right.
Perfect. Thanks again.
Okay.
Arkansas. Thank you as a reminder to ask a question you will need to press star one on your telephone withdraw your question press the pound key.
Our next question comes from the line of Andrew Liesch with Piper Sandler Your line is now open.
Hey, good morning, everyone. How are you.
Good morning.
Alright.
So just kind of wanted to stick with the margin here.
I guess I would've expected a little bit more optimism.
Next year is.
There.
This include any.
This kind of accretion that might flow through.
In this forecast.
No.
Okay.
No.
Yes, but keep in mind that will flow through a lot of it will.
It will flow through ACO.
Alright, Okay got it.
Alright.
There.
I guess I'm just curious are there is a room on the funding side to get the margin.
Andrew back above this level it was kind of curious what.
What would be.
Okay.
Thats, a little surprised to see it at this level.
What are you guys going to dig it up further.
Yes, so on the funding side I do think there is some opportunity there.
We're looking at.
<unk> 930 <unk>.
Cost savings and now you see at 16 basis points.
We do have a fairly sizable public funds portfolio in that number and is that cost is higher.
I think at this point, so we've been taking actions while we can cause.
Corn driven.
Driven by.
Contractual period. So every single time, we see some income into our pricing committee, we'd take the opportunity to reprice that down I think that will continue.
Okay.
We do take actions.
Two kind of piecemeal into reducing debt.
Cost.
A lot of runs on our money market accounts as well and we've done that throughout the year. There is probably a little bit more room, there, but I do think that there are some opportunities on the funding side Andrew on the on the asset side I think a lot of it comes down to the mix.
30% of earning assets.
Cost of food and cash.
The investment portfolio.
We don't need to grow that denominator at all but if we can move some of those funds out of those two categories into loans.
That is just.
Very significant improvement.
In Q R. R.
Yes.
Got it.
And I'm, sorry, if I missed it earlier.
New loan coupon.
What was being at what was added in the third quarter.
So if you take our loan yield without PPP, which is $4 30.
So im just picking out the effects of PPP, we're about looking at the originations in the quarter were about 25% to 30% are odd basis points below that.
Got it okay.
A little more context, though the biggest categories that we originate.
<unk>.
Kind of our core categories C&I.
Cree.
Those both had a four handle.
In terms of originations in the quarter and also year to date and then AG.
We're we're probably.
Again at a high four handle.
And 3% year to date on our originations there.
Close to 5%.
So.
In terms of in terms of origination trend on yield.
Actually.
A little bit better now than we were earlier this year.
So I think.
To answer your question it really comes down to it.
Mix of earning assets.
Gotcha.
Makes sense, great. Thanks, guys I will step back.
Yes.
Thank you. Our next question comes from the line of Damon Delmonte from Covid.
<unk> Your line is now open hey.
Good morning, guys hope everybody is doing well today.
A lot of my questions have been asked and answered, but just wanted to follow up on the credit side of things with your outlook for the provision.
I think Eric you noted you had 120 basis points of kind of Covid related reserve, that's still embedded in there.
This quarter.
Take a one.
$1 million provision kind of tied to that credit that moved into nonperforming. So how do we think about provision in the fourth quarter and as we look into 2022 do you do you think it's a near term event to release some of that Covid related allocation or do you think you need to keep providing for this loan growth youre, having any color.
You did great.
Yes.
I think it doesn't feel right to me just yet.
<unk> releases on our Covid.
Provision or ACL, just given some of that was one of the things I really look at where the management team is focused on.
Not just.
It would be.
As the stimulus.
That is in the economy.
Impacting our customers' positively and that's great.
But I think we want to kind of see how our customers perform without that stimulus.
And the economy. So that's one thing that we're very focused on.
So it just doesn't feel right to release.
I in terms of providing for loan growth.
I don't think youre going to see a meaningful provision in the fourth quarter.
<unk>.
Going into 2021.
Hi.
Holds everyone on these calls that we were budgeting about 20 basis points of provision on average loans.
Looking at what we know today for 2022.
I don't think that Thats, the right number it's going to be lower than that.
And Thats one of the reasons why.
Hi.
Actually I don't know if we provide specific we don't provide specifics on our key business drivers but.
We're not thinking that.
Provision for 2022 is 20 basis points at all right.
Okay.
Got it that's all.
Good color.
Yes, that's all that I.
As I said a lot of other good question. So thanks, a lot I appreciate it.
Ladies and gentlemen, im showing no further questions. Thank you for joining our equity Bancshares' conference call and have a great day.
[music].
[music].
[music].
Yeah.
[music].
Keith. Thank you. Thank you for standing by welcome to the equity Bancshares Q suites.
'twenty one earnings 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.
If anyone should require assistance during the conference. Please press Star then zero on.
It's one notch tone telephones.
As a reminder, this conference call is being recorded.
I would now like child the conference over to your host Mr. Christian Alberto but equity Bancshares.
Mr. Alberto you May now begin.
Good morning, and thank you for.
On your third equity Bancshares conference call, which will include discussion and presentation of our third quarter 2021 results presentation slides to accompany our call are available via PDF for download at Investor equity Bank Dot com by clicking the presentation tab you may also click the event icon for today's call posted at Investor Dot equity Bank Dot com.
To view the webcast player. If you are viewing this call on our webcast player. Please note that slides will not automatically advance.
Please reference slide one including important information regarding forward looking statements from time to time, we may make forward looking statements within today's call and actual results may vary following the presentation, we will allow time for questions.
And further discussion. Thank you all for joining us with that I'd like to turn it over to our chairman and CEO Brad Elliott.
Thank you, Chris and good morning.
Thank you for joining our call and your interest in equity Bancshares.
Joining me is Eric Newell our CFO.
Greg costs over.
Our chief operating officer, and our President Craig Anderson.
We've had a busy quarter working on many different objectives, and staying focused on attracting new customers and retaining our current customers.
This effort has translated into our financial performance.
We closed the American State Bank and trust merger on October one.
As we anticipated.
Not only that we also successfully completed our data conversion on the same weekend.
I view, our ability to announce a merger close.
<unk> and convert a core competency of equity bank.
We cannot do it without the dedication of countless members on our team.
While most of our shared service teams worked throughout the weekend to ensure our customers had.
Ltd.
Interruptions.
I wanted to especially recognize the efforts of Jesse Mickey and Jim Brown Zelle.
Both let our technology and system teams throughout the entire summer and the closing weekend with the dedication and commitment to excellence.
They have been involved in most of the M&A transactions, we have completed to date.
And our highly competent.
Obviously.
They could not have done it without their entire teams.
And the leadership of Julie Huber, Jeremy Allen, Mary Potter and 20, plus other leaders who met constant.
Emitted throughout the planning process to make this transaction goes smoothly.
With a data conversion behind us.
We can quickly start to realize the savings we modeled.
And expect most of it to be achieved this quarter.
Constantly we continued to experience non PPP loan growth in the quarter growing seven 3% on an annualized basis.
Thanks in part to the leadership of Mark Parman Metro market group and.
And Brad Daniel and his Ozark Mountain region teams.
I am.
The new <unk> market will present us opportunities for organic loan growth. In addition to our legacy markets growth.
Eric take everyone through the numbers for the quarter. Please.
Thank you Brad and good morning.
Last night, we reported net income of $11 8 million or <unk> 80 per diluted share.
Anticipate we calculate core earnings at <unk> 96 per diluted share beating street consensus.
Core results this quarter were driven by the recognition of origination fee income from PPP loan forgiveness and improvement in fee based drivers across many of our categories.
Non merger related expenses slightly increased linked quarter.
Salaries and benefits were impacted by lower deferred expenses in the period.
There are several items to call out that will help reconcile our GAAP number to core earnings.
First we had $10 million of previously nonaccrual loans from our <unk> Big Bank transaction with the FDIC that moved to accrual during the quarter, resulting in one.
<unk> 5 million of interest income recognition.
We recognized a 486000 fully death benefit.
Reduced other income due to our adding of 772 repurchase obligations related to our Mena SBA loans.
Recognized for 380.
1000 gain on securities transaction and associated 372000 loss on extinguishment of debt.
And finally merger expenses of $4 million associated with the October one closing of the American State Bank and trust merger.
Our GAAP net income includes a provision to the allowance for credit losses.
Totaling $1 million.
There are many factors influencing our provision this quarter first another successful quarter of mitigating losses led to a reduction in the historical loss ratio within our calculation.
Next as we continue to move away from the peak of the pandemic without noted loss experience the economics.
Qualitative components of the calculation have improved.
That said with the Delta variance supply chain concerns and the as of yet unknown long term impact of stimulus effort management has maintained a reserve of approximately 120 basis points on generally a reserve for loans.
Finally.
Specific reserves increased $4 8 million in the quarter, which Greg will discuss more in a moment.
The September 30 coverage of ACL to non PPP loans is two 4% unchanged from the previous quarter.
Net interest income totaled $39 million in the third quarter increasing.
<unk> from $34 $6 million in the linked quarter, representing a $4 3 million increase.
During the third quarter, the weighted coupon in the portfolio, excluding PPP increased approximately 13 basis points.
Nation fees recognized from forgiven PPP loans increased.
Notably again in the third quarter.
We recognized $7 7 million of fee income and 456000 of interest income related to PPP loans in the third quarter comparing to the second quarter total PPP fee income and interest income totaled $5 8 million and 984000, respectively.
<unk>.
At September 30, we had $3 million of net unrecognized fee income associated with PPP loans, which totaled $95 7 million.
Removing PPP fees and interest income from net interest income in both the third and second quarters results in a pro forma net interest.
Income of $30 8 million and $27 9 million respectively.
Loan yield, earning asset yield and net interest margin in the quarter ending September 30th is for.
433%, 355% and $3, one 9% respectively.
This.
First for the quarter, ending June 30 of $4, 41%, 355% and 313% respectively.
I would note that the.
<unk> three 5 million of interest income recognized from the previously nonaccrual loans during the quarter is having a beneficial impact on NIM. This exclude.
<unk> NIM during the third quarter was three point <unk>, 5%, which was within the range of our outlook.
Craig.
Thanks, Eric organic loan growth totaled $46 5 million, representing an annualized 7% growth during the quarter.
PPP loans declined 176.
Through the forgiveness, our customers are experiencing from the SBA.
Year to date, we've recognized $16 6 million of fee income from this forgiveness activity and have had 546 million forgiven.
At the end of the quarter, we had only 320 loans remain.
Remaining to submit to the SBA and all of our 2020 PPP loans have been submitted and forgiven.
Organic originated loans totaled $217 6 million in the third quarter down slightly from the $261 million originated in the second quarter.
Millions of the total originations in the third quarter, 80% were in commercial.
CRE and agricultural loans.
Our pipeline remains strong.
And is consistent with what we've been reporting over the last several quarters.
With the addition of.
<unk> and their seasoned bankers I expect that we will continue to show a growing pipeline.
Our sales teams continue to successfully grow our fee based businesses are.
Our service charges are benefiting from the product realignment put in place in the first quarter of this year better allowing.
US to charge fees for services offered to customers in those account types.
We also continue to experience increases in fee income for merchant services commercial credit card and Treasury management products offered to our commercial customers Eric.
Before I turn it over to Greg I.
I want to highlight the continued pressure excess liquidity is placing on our securities and cash totaled 31% of average earning assets in our third quarter up from 28% in the second quarter.
While we continue to be a Washington deposits, we're seeing customers do some of their excess liquidity.
Looking at our most popular consumer account, which <unk>.
60% of the total number of transaction accounts. The average balance continues to be $1240 higher than pre COVID-19 levels. The peak average balance occurred around March 31 of this year.
When compared to that peak average balances have declined $678, we don't expect average balances to.
Go down to pre Covid levels anytime soon but for context, 125% of pre COVID-19 levels, we anticipate another $45 million decline in overall balances in this account type.
Positively we've grown our number of checking accounts and this time by over 17% through the pandemic are.
<unk> of our operational approach during this time by always being open for our customers financial needs. Greg Why don't you take everyone through your thoughts on credit.
Thanks, Eric.
The third quarter, we continued our work to successfully position our customers and the bank for successful outcomes.
We had some.
Movement of our Mena asset out of non accrual during the quarter, which Eric briefly mentioned <unk>.
Last year, we took a conservative approach on certain elmina loans due to the pandemic as we close in on the first year of watching the performance of these loans and gathering information that was not readily available to us when we closed.
On the transaction, we have been able to develop cash flow expectations and assess performance against those expectations. The result was moving 37 loans totaling $9 $7 million back to accrual.
In addition, our hotel portfolio has continued to show improved operating performance.
As has our AG credits neither of these portfolios has emerged with the weakness the industry fear one year ago.
Loans with deferred payments in 2020 has performed well in 2021 as the environments. We operate in have stabilized and returned to a degree of normalcy net charge offs.
We're getting good at just 129000 <unk>.
During the quarter and Paydowns on legacy non accruals or approximately $4 million during the quarter.
Oreo continues to trend flat to down and without any significant net losses as asset values remained stable.
We were notified in the last week of the quarter as shared national credits going through the review process was move to substandard.
The tenants of this credit remain positive, including a positive EBITDA no missed payments adequate collateral coverage as well as being in a recovering industry.
We have discussed in recent quarters and aircraft parts manufacturer, we have been banking for over 10 years and a credit we originated with them in 2017 and have carried in our special mentioned category for several quarters. This borrower has struggled to keep its customer base intact. Following the 737 Max.
Issues and continued on through Covid and we are in discussions with all parties to determine the best course of action.
In early October the borrower missed its payment for the first time and as such we have moved the relationship to substandard non accrual status and a place to credit Mark on it.
<unk>.
Which is highly desirable machines designed for the aircraft industry remains in high demand and we are in discussions with several interested potential buyers.
Look to resolve this credit in the next two quarters.
We are also closely monitoring and in discussions with leadership of a credit in the magazine and health monitoring.
Subscription businesses that ownership and management team continues to be very cooperative and pay down principle through normal course debt reductions and with the sale of other assets. We are discussing with their management team. Our plan to continue retiring principal as they adjust the operations of their business that credit remains.
<unk> on non accrual status has a credit mark on it and we will continue to work to a resolution in the next few quarters Eric.
Thanks, Greg before turning the call over to Brad I wanted to turn your attention to the forecast slide on the earnings deck.
Here, you can see our thoughts on the forecast for the fourth quarter and preliminary.
Luminary 2022.
We are in the middle of our budgeting process for next year as well as integrating the American State Bank and trust balance sheet into that process.
Our long term goals remain unchanged improving our revenue mix.
Increasing fee contribution to that mix.
Drive positive operations.
<unk> leverage off of our expense base and building our loan to deposit ratio to levels, we saw pre COVID-19.
This last goal is dependent in part to economic factors in the markets we serve supply.
Supply chain labor market and inflation, each add a level of uncertainty to our customers.
<unk> turned to loan demand.
Successfully shifting excess liquidity to the low to the loan portfolio from cash and investments as critical to improving our pre tax pre provision return on assets.
Barring any new stimulus programs, we do not expect PPP income to influence our 2022 results.
And then Brad.
Thanks, Eric.
We continue to anticipate a December close with security bank on their sale of branches in St. Joe Missouri.
And our teams are working diligently on another successful integration into equity bank products and services.
<unk>.
We expect the branches to add $78 million of deposits in a market that we believe we can grow under Josh means and Greg <unk> leadership.
Last week.
Equity Bancshares paid its first common stock dividend to shareholders.
I've said previously the dividend will broaden our institutional and retail investor base and be a tool for capital management when the stock repurchase program does not meet our earn back needs.
The equity Bank team continues to work every day to help our customers achieve their goals and dreams.
As I, helping them access our products and services.
Our shared service teams continue to find ways to make it easier for our customers to engage with equity bank.
Being a trusted and valued partner to our customers is our value proposition.
And in turn will build shareholder value.
And with that we're happy to take your questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question Chris.
Please.
Standby will compile the Q&A roster.
Our next question comes from the line of Jeff <unk> with D. A.
Sir Your line is now open.
Thanks, Good morning.
Good morning, Jeff question on the.
Well I just wanted.
And to clarify on slide 26 does for Q.
Full year 'twenty two projections those include both.
<unk> state.
Missouri Branch acquisition is that correct and the four key numbers.
Yes to Americans.
No two security Greg.
Okay.
I guess, the only real impact would be.
The deposits and maybe some moderate expense is that is that how you adjust if you were to roll that in.
Correct.
<unk>.
Okay It would happen.
Very de Minimis impact to Q4.
Got it okay.
So, yes, I guess.
Based on those assumptions looking at the sort of the fee income growth I mean strong.
In the third quarter and your expectations.
<unk> for 10% to 20% growth in 'twenty, two I guess.
Lisa.
Hi.
$30 million for the full year on fee income.
The biggest source of that growth is that going to be sort of balanced on the service charges.
In debit card is there some other areas.
Areas.
I think you talked about the product realignment on service charges, but just wanted to get into the meat.
Of that growth for for those expectations.
Yes to me I think service charges is certainly one factor.
Given that we're going to have.
<unk> level of DTA number of accounts when.
When you bring in the American state.
Balance sheet, so that will give us some opportunity to earn service fee income awesome awesome.
Those accounts.
Inclusive of.
Overdraft charges.
There is an expectation.
Or a higher amount will probably have a more normalized year on overdraft compared to this year.
That's a factor of growth.
We continue.
As well as on the debit card interchange, Jeff as you mentioned.
With us on a higher level of.
Interchange from the American customers as well.
Well.
That's definitely a focus point of ours is to <unk>.
Kris our.
Share of customers using an equity debit card.
These marketing campaigns behind that.
And then just the other initiatives that we've previously talked about.
And your focus on trust and.
Wealth management.
Treasury management products for our commercial customers, including commercial credit cards and purchasing cards.
Yes.
Thanks.
Products and services.
Trending positively throughout this year and we can take that momentum will continue into next year.
Thanks, Eric maybe one for Brad.
You mentioned late.
Sort of the dividends.
Impact and I assume that's sort of more of our flexibility capital tool and I guess the question is more on the buyback and your appetite given the.
The dividend sort of.
Initiated here and looking at post.
The American state transaction, just trying to get a sense for the buyback appetite and <unk>, what you remain on that authorization.
Yes, so as you know we put.
Okay on the.
We re up the authorization 900000 shares.
One 1 million shares last quarter in September the board authorized an additional million shares.
I'd tell you Jeff.
Active as we are.
As we've always been as long as it meets our criteria.
Rytary for the buyback we will continue to.
Buy back shares.
As actively as we can.
And the dividend will have no.
Effect on that.
Got it.
Bryan I guess it's related.
The last thing is on the.
Additionally, while we're talking about capital just additional I guess deal appetite.
You've closed this transaction you've got the branch deal upcoming but.
More conversations and thoughts on 'twenty two of getting.
Additional deal done.
Yes, we've got we've got several active conversations.
On today.
With companies of size, not meaning mergers of equal but.
Similar to what we are.
We have just completed with American state and so I think we've got really good possibility of getting something across the finish line in 2022 for sure.
So.
<unk>.
Still very active in the deal space and we still have lots of partners that are talking with us about the opportunity of partnering up.
I think they are good franchises that fit well with what we do.
Fit well with what they do.
And so I think we've got a good opportunity.
Okay.
Continue to move forward with those opportunities.
Got it thank you.
Thank you. Our next question comes from the line of Terry Mcevoy with Stephens. Your line is now open.
Hey.
Guys good morning.
Good morning, Jerry.
Maybe a question for Eric when you when you look at your margin guidance for the fourth quarter are really into 2022.
Of assumptions are you, making in terms of.
Allocation from cash and securities into loans and maybe more importantly are you assuming.
Any higher short term interest rates or a steeper yield curve.
To help the margin maintain that level.
Yes.
Sure.
The second part of that question I'll answer first we do not.
Our model of any change in the shape of the yield curve or the level of interest.
Assuming the way our balance sheet is positioned at the moment.
A higher level of interest rates would be.
Moderately beneficial to us.
Do.
Try to attempt to have.
No significant asset or liability sensitive and we like the right time.
Think of that with the balance sheet in terms of that but the shape of the curve steepness would absolutely help us.
That is not modeled in.
And then on the first part of that question Terry.
We do have I mean, if you looked at our cash and our securities as a percentage of earning assets right now.
I don't think it was 30%, which is probably almost more than double where we'd like to be.
I would say that.
There is very small.
Transition out of the investment portfolio into loans.
But we didn't want to add.
Okay.
We are about there.
And so.
I'd love it and that's an area of opportunity for us in terms of margin in 2022.
Again more.
Portfolio into loans.
And just reposition that next leg.
Not a material.
After what.
What we considered.
Too much in 'twenty two.
Okay. Thanks, Thanks for that Eric and then I guess any comments on the inflow of special mentioned credits last quarter I asked because a couple of the loans Greg talked about earlier.
Came out of that category.
Okay.
The only special mentioned.
For 2000 credit that came on Terry of any size in Q3 was a shared national credit.
That.
The governing bodies.
Classified as special mention was special or sub standards, we had one in special mention and one in sub standard okay.
Thanks, Thanks for that and then maybe just last question you mentioned the pipeline on the lending side was strong.
Over the next couple of quarters, where do you see the best growth opportunities in terms of markets or specific areas across the bank.
Terry I'll take that one this is Craig we continue to see very strong.
Line activity in sales deals in our metro markets of Tulsa, Wichita, Kansas City. Those economies are all doing really well and we're starting to see some some deals that we have not seen in over the last couple of three years.
And we built a new regional headquarters in Kansas City, and I think Thats really elevated our presence there and seeing more more deal opportunities in that space, then I would say in our community markets Western Missouri kind of leads our growth there, but we're also seeing due to some transition in leadership, some very nice opportunities in our.
We don't market.
Thanks, Greg Thanks, everyone.
Hey, Terry Terry before we get off of your questions.
I want to point out that the movement of the <unk> assets and they were sub standard they moved to special mention which might be more to your question.
<unk>.
Shared national credits actually pretty small, but we'll park the Mena assets in special mentioned until we gain some more experience about improving them even further.
So you are actually moving up not downturn right.
Yes.
Perfect. Thanks again.
Okay.
Questions. Thank.
Thank you as a reminder to ask a question you will need to press star one on your telephone please.
Sure Your question press the pound key.
Our next question comes from the line of Andrew Liesch with Piper Sandler Your line is now open.
Hey, good morning, everyone. How are you.
Good morning.
Okay.
Hi.
So just kind of want to stick with the margin here.
I guess I would've expected a little bit more optimism for next year.
There.
Does this include any discount accretion that might flow through.
In this forecast.
No.
Andrew.
No.
Yes.
Keeping in mind that will flow through a lot of that will flow through ACO.
Alright, Okay got it.
Yes.
Alright.
Is there.
I guess I'm just curious are there is a room on the funding side to get the <unk>.
Back above this level it was kind of curious what.
What would be.
Okay.
That was a little surprised to see it at this level.
What can you guys dig.
It up further.
Yes, so on the funding side I do think there is some opportunity there.
We're looking at that.
Denver to the 930 <unk>.
Cost savings and now you see at 16 basis points.
We do have a fairly sizable public funds portfolio in that number and is that cost is higher.
I think at this point, so we've been taking actions while we can cause.
Corn driven.
Driven by.
Contractual period. So every single time, we see some income into our pricing committee, we'd take the opportunity to reprice that down I think that will continue.
Okay.
We do take actions.
Two kind of piecemeal into reducing.
Cost.
Cost of funds on our money market accounts as well and we've done that throughout the year, there's probably a little bit more room, there, but I do think that there are some opportunities on the funding side Andrew on the on the.
Asset side, I think a lot of it comes down to the mix.
30% of earning assets.
It's in cash.
The investment portfolio.
We don't need to grow that denominator at all but if we can move some of those funds out of those two categories into loans.
That is just.
Very significant improvement.
And two are our NIM.
Yes.
Got it.
Yes.
I'm sorry, if I missed this earlier, but new loan coupons, what were what was being at what was added in the third quarter.
So if you take our loan yield without PPP, which is $4 30.
So im just picking out the effects of TTP, where about looking at the originations in the quarter were about 25% to 30% are odd basis points below that.
Got it okay.
Just from a little more context, though the biggest categories that we originate.
<unk>.
Kind of our core categories C&I.
<unk>.
Those both had a four handle in terms of.
Originations in the quarter and also year to date and then AG.
We're we're probably.
Again at a high four handle.
And 3% year to date on originations there.
Hello.
Yes.
So.
In terms of origination trends on yield.
Actually.
A little bit better now than we were earlier this year.
So I think.
To answer your question it really comes down to it.
Mix of earning assets.
Gotcha.
Makes sense, great. Thanks, guys I will step back.
Yes.
Thank you. Our next question comes from the line of Damon Delmonte from Covid.
Your line is now open.
Hey, Good morning, guys hope everybody is doing well today.
A lot of my questions have been asked and answered, but just wanted to follow up on the credit side of things with your outlook for the provision.
I think Eric you noted you had 120 basis points of kind of Covid related reserve, that's still embedded in there.
This quarter.
We will take a one.
$1 million provision kind of tied to that credit that moved into nonperforming. So how do we think about provision in the fourth quarter and as we look into 2022 do you do you think it's a near term event to release some of that Covid related allocation or do you think you need to keep providing for this loan growth youre having any.
You did great.
Yes.
I think it doesn't feel right to me just yet.
<unk> releases on our Covid.
Provision or ACL, just given some of that one of the things I really look at where the management team is focused on.
Not just.
Me.
As the stimulus.
And the economy.
Impacting our customers' positively and that's great.
I think we want to kind of see how our customers perform without that stimulus.
And the economy. So that's one thing that we're very focused on.
So it just doesn't feel right to release.
But in terms of providing for loan growth.
I don't think youre going to see a meaningful provision in the fourth quarter.
Going into 2021.
Hi.
Everyone. On these calls that we were budgeting about 20 basis points of provision on average loans looking.
Looking at what we know today for 2022.
I don't think that Thats, the right number it's going to be lower than that.
And that's one of the reasons why.
Hi.
Actually I don't know if we provide specific we don't provide specifics on our key business drivers but.
We're not thinking that.
Provision for 2022 is 20 basis points at all.
Okay.
Got it.
That's helpful color.
Yes, that's all that I had.
Just to add a lot of other good question. So thanks, a lot I appreciate it.
Ladies and gentlemen, I'm showing no further questions. Thank you for joining our equity Bancshares' conference call and have a great day.