Q4 2021 Equity Bancshares Inc Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, thank you for calling please remain on your lines. Your conference call will begin momentarily. Thank you for your patience.
[music].
Good day, ladies and gentlemen, and thank you for standing by welcome to the fourth quarter 2021 equity Bancshares incorporated earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
On key pad.
Require any further assistance. Please press Star then zero as a reminder, this conference call is being recorded.
At this time I would like to turn the conference over to your host Mr. Chris <unk>, Sir you may begin.
Good morning, and thank you for joining equity Bancshares conference call, which will include a discussion and presentation of our fourth quarter 2021 results.
<unk> slides to accompany our call are available via PDF for download at Investor Day at equity Bank Dot com by clicking the presentation tab. You may also cause the event icon for today's call posted at Investor Day at equity Bank Dot Com to view the webcast player.
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 Greg Anderson.
And reflecting back on 2021.
It is rewarding to review all the things we have accomplished in light of all the obstacles that we had to navigate.
I can't tell you how proud I am of our team for what we've accomplished this year.
Let me run through a few of the highlights.
We negotiated and closed on the merger of American State Bank and Trust.
The largest merger in the history of equity Bancshares as well as the state of Kansas.
We completed the conversion of Armenia State Bank in January of 2021.
And finished the year by purchasing and converting three branches in the St Joseph Missouri market.
From security Bank.
We successfully executed our second round of PPP program for our customers, adding $28 million of fee and interest income in 2021.
We saw the benefits of our approach to remain open.
For our customers throughout the pandemic.
And our DDA account growth, while some of our competitors took an approach of closing their branches to customers throughout portions of 2021.
Notably we have continued to open three times the amount of DDA accounts we.
We did pre pandemic.
We hired a new leader and expanded our ability to offer SBA loans to customers.
For most of 2021, we were the number one lender in Kansas for SBA loans and in the top of all of our regions. This is an area we will continue to grow.
Our fee based businesses have accelerated after several years of focus on improving and introducing new products and services.
We will continue to keep an eye on our expenses and find ways to accelerate positive operating leverage.
Our commercial credit card program has continued to expand as expected and brings new income to us each month.
We've added a new division to.
To offer HSA cards and hired seasoned team to lead. This initiative. We think this business will start generating revenues in 2022 and accelerate dramatically in 2023.
We are committed to our capital management measures.
We have maintained our share repurchase program and initiated a common stock dividend in the third quarter.
With so many other items, we could hit on as well.
But I will leave some of those four Greg and Eric to talk about later.
What an exciting year were ready for 2022.
I'll, let Eric take you through the numbers and then we'll walk through some of our areas of focus for 2022.
Thank you Brad and good morning.
Last night, we reported net income of $10 5 million or <unk> 61 per diluted share.
Speaker 1: million or 61 cents per diluted share.
Speaker 1: Our average dilute share count includes the consideration paid to American State Bank shareholders when we closed the merger on October 1.
Our average diluted share count includes the consideration paid to American State Bank shareholders. When we closed the merger on October one.
Core results. This quarter include a full quarter contribution of American State Bank and were driven by continued albeit at a lower rate recognition of origination fee income from PPP loan forgiveness.
Contribution to non interest income by activity from American State Bank customers will pick up in the first quarter of 2022.
Our standard practices to provide a fee grace period to customers for mergers to help them fully understand equity bank products.
Non merger related expenses increased linked quarter, driven by salaries and benefits from a full quarter of American State Bank team members coming on our payroll.
Well as $1 4 million partnership expense related to tax credit activity from assets placed into service.
Reconciling GAAP earnings to core earnings this quarter is simply removing the $4 6 million of merger expenses from the quarter.
Our GAAP net income includes a net release of ACL through the provision to the allowance for credit losses totaling $2 1 million.
Factors influencing the provision this quarter related to a 2 million recovery of a specific reserve for an asset that we discussed in the third quarter, which Greg will expand on in a moment.
The uncertainty of the economic environment and continued impact on the economy of previous stimulus measures are reflected in our qualitative and economic components of the calculation.
Our December 31 coverage of ACL to non PPP loans is 155% down from two 4% from the previous quarter.
The decline of the coverage is entirely driven by ACL that was being held against specifically analyzed loans.
Stop here for a moment and let Greg talk through our asset quality for the quarter Greg.
Thanks, Eric we had an outstanding quarter and an outstanding year in the management and reduction of nonperforming assets.
Specifically in the quarter, Brent Rieber, let our special assets team and the resolution of the restaurant credit and we had been carrying on non accrual.
And it was paid off completely and resulted in a reduction of $12 $3 million in nonaccrual loans, a recovery of $2 million in.
In a carry back of preferred equity on the borrowers company, which May result in further future recoveries.
We also spoke of in aviation related credit in prior quarters and as of two weeks ago. The largest portion of this credit representing 95% of our relationship with the borrower has paid off and although there was a charge off it was much less than the specific reserve we had been carrying on it as the asset.
<unk> at a price higher than we anticipated.
Other foreclosed property will declined $13 $7 million in the first quarter of 'twenty two because of this credit.
Did a fantastic job shepherding these credits to resolution.
Overall, nonaccrual loans declined $35 6 million quarter over quarter and now stand at just 93 basis points to total loans the lowest level since 2016.
Our special assets teams led by June press now once again did excellent work, reducing special assets across all categories.
Specifically Oreo declined another one $6 million in the quarter and without bank owned property that was not we're closed on such as previous branch closures, which are carrying is no oreo our Oreo balance stands at just $1 $9 million, our lowest level since we went public.
In 2015, and the majority of the remaining assets are smaller and more primarily acquired a mergers for.
For the year 2021, Oreo is down over 30%.
Overall during 2021, we worked out and moved a significant amount of the <unk> merger non performers to accrual while minimizing losses on the entire portfolio, we reduced Oreo as just discussed.
We reduced our non accruals significantly by $35 6 million.
The ACL was 155% of non PPP loans as Eric has discussed net charge offs notwithstanding the specific reserves, we were carrying on aforementioned assets are muted and we entered 2022 in very good shape relative to non performers classifieds and the teams reducing them.
We also take a moment to introduce John <unk>, our new Chief credit officer to begin working with US in late December John comes to the equity team from Synovus, where he was a senior credit officer and he brings decades of credit experience to equity Bank. We are excited to have John and his leadership and credit and as a member of the executive team.
Eric.
Net interest income totaled $37 2 million in the fourth quarter decreasing from $39 million in the linked quarter, representing a $1 8 million increase.
During the fourth quarter, the weighted coupon in our loan portfolio, excluding PPP decreased approximately 33 basis points. As a reminder, we had a 135 billion benefit to interest income in the third quarter for loans previously non accrual being moved to accrual.
Excluding the onetime benefit and PPP impacts in both comparable periods NIM in the fourth quarter declined four basis points to three 1%.
Origination fees recognized from forgiven PPP loans decreased notably in the fourth quarter.
We recognized $1 $7 million of fee income and 171000 of interest income related to PPP loans in the fourth quarter down.
Down $6 3 million from the third quarter.
At yearend, we had $1 3 million of net unrecognized fee income associated with PPP loans, which totaled $44 8 million.
Removing PPP fees and interest income from net interest income in both the fourth and third quarters results on a pro forma net interest income of $35 3 million and $38 million respectively.
Loan yield, earning asset yield and net interest margin in the quarter ending December 31 was $4, two 1%, 332% or three 1% respectively.
This compares to the quarter ending September 30 of 454%, 355% and 319% respectively.
Linked quarter loan growth at December 31 was $470 million.
Of that total growth $400 million was related to <unk> and our year end balances when excluding the change in our PPP loan balances loan growth in the quarter was $121 million or 18, 6% annualized.
Organic originated loans totaled $221 million in the fourth quarter of the total originations in the quarter, 85% were commercial Cree and agricultural loans Brad.
I'd like to talk about our strategic goals for 2022.
We are focused on continued improvement of operating performance. Our goal is to make continued progress to return on tangible equity in the mid teens to do that we will reduce excess liquidity on our balance sheet by driving loan growth.
Increasing fee income in our revenue mix and remaining focused on operational efficiency.
As I mentioned earlier, we've made great strides in our fee income categories in 2021.
And we will build on increasing fee income.
Contribution to our revenue mix in 2022.
Our trust and wealth management group.
<unk> made significant progress since it started in 2019, and we expect it to grow that business organically and through acquisition.
Expense management remains a high priority, we always look for ways to utilize technology to drive positive operating leverage for example, this year, we will start to rollout interactive teller machines or Atms.
Select markets.
<unk> achieved several objectives.
It will permit us to increase hours, where necessary to better serve our customers.
We can also leverage staffing in our centralized customer care team to two.
To assist our customers throughout the ITM footprint.
This will reduce our need to augment our branches with additional teller staff a group of employees that has experienced a lot of disruption and workload over the last 18 months.
I wanted to turn your attention to the forecast slide on the earnings deck, which will put some specifics on our expectations for 2022 and supports what Brad was just discussing we previously disclosed our thoughts for 2022, and we introduced a forecast for the first quarter.
As Brad mentioned, our long term goals remain unchanged.
Proving our revenue mix, increasing fee contribution to that mix driving positive operational leverage off of our expense base and driving our loan to deposit ratios to levels that we saw pre COVID-19 .
This last goal is dependent in part on economic factors in the markets, we serve supply chain labor market and inflation each got a level of uncertainty for our customers and in turn to loan demand.
<unk> successfully shifting excess liquidity to the loan portfolio from cash and investments as critical to improving our pre tax pre provision return on assets.
Barring any need stimulus programs, we do not expect PPP income to influence our 2022 results Brad.
Thanks, Eric.
We're in active conversations with several different companies about partnering.
Equity continues to be ready and willing to act as a partner to banks that fit and complement our organization. If they can assist equity and making progress to our stated financial profitability goals.
As I regularly emphasize we will stay true to our requirements on earn back cultural fit and geographic strategic fit.
We will maintain our focus on organic growth efforts, Craig Anderson has made a lot of progress with our regional teams in 2021, and we will continue to leverage those success.
In 2022 to develop and deepen relationships with customers and drive organic growth.
We have great teams on our newly expanded footprint that gives us all the pieces needed to dominate our community markets.
With the improvement the Greg and Brad have made to our NPA and focusing on our customers with the best and brightest team to service those customers equity will continue to be a trusted and valued partner to our communities. This is our value proposition.
And in turn will build shareholder value.
We are excited to start the year with a lot of momentum and enthusiasm and with that we're happy to take your questions.
Ladies and.
If you have a question or comment at this time. Please press Star then one on your telephone keypad et cetera. If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
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Our first question or comment comes from the line of Terry Mcevoy from Stephens. Your line is open.
Yes.
Good morning, everyone.
Good morning, Terry.
Maybe just start with a question on your fee outlook.
And Brad I think you talked about some of the kind of business as you feel optimistic about but maybe just talk about that 10% to 20% loan growth, where where do you see the kind of the upside coming from and maybe where some of the strategic investments you've made can show up in that revenue line. This year.
I don't think we talked about 10% to 20% loan growth did we Terry.
Sorry, noninterest income growth my apologies.
<unk> growth.
You are scaring me there.
Alright.
You want to take some of it in terms of.
This is Eric.
In terms of the fee income growth for the year first off we haven't had much contribution from the American state customers, yet on our deposit fees.
We give a grace period for 90 days.
Customers that come in through merger to better understand our products and services. So.
That will start to contribute here in 2022.
And then I think it's just a continued focus on.
Business lines that we.
Made some <unk>.
Progress on over the last couple of years Treasury management services.
Wealth and Trust management.
Credit card.
Debit card.
Utilization I think all of those will continue to be significant contributors to growth organic growth year in 2016.
Yes, I think with the addition of <unk> Terry Youll see interchange income grow you'll see service charge income grow just because of the size of that acquisition for us, but then on top of that are.
We're growing.
Our credit card income and credit card interchange income nicely and I think we'll continue to see growth in our.
Wealth management business as well.
Great. Thank you and then as a follow up Greg kind of talked about all the success last quarter in lowering non accrual loans. So I guess my question is do you have any thoughts on a longer term or through the cycle net charge off target for the company.
Yes.
We will help.
We did get a lot of stuff in the rearview mirror.
Dairy, which is very nice and so.
What are we budgeting next year for net charge offs 10 basis points, yes, So I'm going to tell you I think we're going to be between annualized between five and 10 basis points of net charge offs.
Terry.
We don't see anything on the horizon.
That should disrupt that based on what we know today.
Perfect. Thanks again guys.
Thank you Terry.
Okay.
Thank you. Our next question or comment comes from the line of Andrew <unk> from D. A Davidson your line is open.
Hi.
Andrew I'm not sure. We can hear you are you on mute.
Mr. Gordon.
<unk> dropped from the queue could you. Please re queue up for star one again please.
Your line is open Sir.
Awesome. Thank you sorry about that.
I'm on for Jeff <unk> D a.
Davidson, Eric maybe a question for you to see that.
Average, earning assets seem a bit high this period I was wondering what the balances for earning assets.
Yes, I don't have the ending average earning assets Andrew I can follow up with you on that.
Okay.
Go ahead.
For Ya.
And then just.
A follow up.
With PPP running off should we expect to see growth in spread income on a quarter over quarter basis.
Yes, I think.
And looking at 2022.
We.
Or expect.
When we budget, we do much at flat rate I don't want to put that out there and I know there is expectation of the market of rate movement.
Putting that aside for a moment.
We do have some spread improvement expected more in the back half of the year and a lot of that driven by some of where we expect to be originating loans.
AG for example.
Higher yield.
We're hoping to see a little bit better utilization of lines there.
It is somewhat mix.
Average, earning asset growth throughout the year.
Within the loans and then within the earning average, earning or the earning assets themselves. So looking at our average earning assets right now.
We're well over a week, where we want to be on cash in the investment portfolio facility IV.
With loan demand moving a portion of those lower yielding.
Earning assets into the loan portfolio, which will.
Help with spread as you as you asked Andrew and will also help us with our loan to deposit ratio one of our goals is to make some progress getting to where we were pre COVID-19 .
On the loan to deposit ratio, which was in the low eighties.
Right now we're close to 70%.
That will help not only with the spread because we estimate that the excess liquidity on our balance sheet is probably depressing them by almost 20 basis points. So it will be helpful. There, but it will also help us with our pre tax pre provision ROA and getting us closer to our goal of exceeding 150 basis points.
Okay, that's very helpful.
Step away. Thank you.
Thank you.
Thank you. Our next question or comment comes from the line of Damon Delmonte from K B W. Your line is open.
Hey, Good morning, guys hope everybody is doing well today.
First question probably for Eric.
Could you help us think about the asset sensitivity on the balance sheet.
How the margin would react with a 25 basis point move.
And then future 25 basis point move.
Yes.
Yes, we're at the moment, we're pretty well balanced.
We're not we're not sensitive.
Either way to rates going up or down obviously yield.
Yield curve shape.
Steepening will help us.
Parallel shifts right now with about 25 basis points or even 50 basis points.
Not significant.
Jim.
Detriment or benefit to NII.
Okay. So on the margin will probably be more dictated through like earning asset rotation.
Yes.
Now the team is seeing that steps obviously, the market's priced in some of these these rate moves at the moment, but.
Given.
My experience expectations always shift and change.
So the team is looking at ways, where we can offer to opportunistically look to extend.
The duration on the liability side, when it makes sense, where theres some relative value to get some modest exposure to rising rates, but I'd love your opinion on that.
We don't really get paid.
Not to make a bet.
So I'd, rather us get paid.
Move, earning assets out of the investment portfolio into loans.
Got it okay. Thank you and then could you just remind us on the outlook for M&A.
Did your geographic focus in some of the areas, where you think you have the best opportunity.
Yes.
So we are focused in.
Oklahoma, Kansas.
Western Missouri and Central Arkansas.
We've got opportunities I would tell you in Oklahoma, Kansas.
And western Missouri.
That that we've been looking at are talking to.
And so those conversations are still happening.
And it just depends on whether they work into what happens with our ability to do them within an earn back that makes sense for us.
And so we will stay true to that.
A discipline that we have Damon.
And so and we also are looking at a couple of fee income businesses that could fit into our current platform pretty easily and so.
We're also looking at those types of acquisitions as well.
Great. That's all that I had appreciate the color. Thank you.
Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. Our next question or comment comes from the line of Andrew Liesch from Piper Sandler Your line is open.
Hey, good morning, guys.
Morning, Andrew.
A clarification question on the charge offs in the quarter were those just from that aerospace relationship more was there anything else in there worth noting.
There were some smaller credits in there too Andrew that were <unk>.
<unk> during the quarter primarily those.
The aviation related credit.
Got you okay.
Dan.
What is the appetite for share repurchases here with the stock around 130 years. So tangible then.
Wanted to.
Deploy some capital into M&A, but what what are you thinking about the buyback.
Yes, Andrew we have an analysis that we looked at periodically at least quarterly.
Sure.
We look at buying our shares back similarly to M&A.
We need to have a three year earn back on that.
That's the recommendation that we've made to the board.
When talking about where we will buy our shares back.
So.
I really would love to know what that exact number is but.
That's the logic, we use is that we are currently constrained.
<unk> shares back where it's lower than a three year earn back.
Got it got it.
And then lastly, organic loan growth pretty solid in the quarter.
Your line standard this pulp through a lot of the pipeline so you're working off a lower base here to start the year just curious on.
Where that stands right now.
Yes, Craig Anderson take that yes. Good morning pipeline is very very strong currently were up over $700 million in regards to our pipeline, it's really kind of across the board in all of our various markets I think it's being led primarily by Wichita, Kansas City, but we're also seeing.
Some some nice opportunities in our community markets. We've had a strong start to 2022 in January with some very nice fundings of some new relationships and we expect that to continue in February we know a couple of large deals that we will be booking them in.
Our teams are very focused on small business markets and then also in the middle market space in C&I.
Very optimistic about our pipeline through the first quarter.
Got it.
Obviously, some pretty strong loan growth here in the fourth quarter.
Slower pace.
Embedded in the guidance, we just some conservatism because that sounded pretty optimistic.
Yes.
I think we want to make sure that we can hit those numbers Andrew.
Don't get out over our skis.
We.
We don't see any big payoffs coming but you always have.
Those things could loom I think rates rising actually help us protect that because you don't look at guys refinancing then so.
I think we have a chance to have a really good organic loan growth year really the last two years. Our teams have been mostly focused on government programs and main street lending in PPP.
We actually have some opportunity to refinance some main street lending deals that we did back on to normal terms and the balance sheet.
So I think those are going to be great opportunities for us.
As well, but we want to make sure we can hit the numbers and accomplish the things that we've got out there.
Got it.
Alright, thanks for taking the questions I'll step back.
Andrew This is Eric one last thing I think is worth.
Yes.
On the share repurchase question, we have we were active in the fourth quarter and we have been buying shares back selectively here in January as well.
Okay helpful. Thank you.
Great. Thank you, ladies and gentlemen at this time Im showing no further questions. This concludes our equity Bancshares results call and presentation. Thank you for joining and please have a great day.
Okay.
Okay.
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Good day, ladies and gentlemen, and thank you for standing by welcome to the fourth quarter 2021 equity Bancshares incorporated earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press Star then one.
Your telephone keypad, if you require any further assistance. Please press Star then zero as a reminder, this conference call is being recorded at this time I would like to turn the conference over to your host Mr. Chris <unk>, Sir you may begin.
Good morning, and thank you for joining equity Bancshares conference call, which will include a discussion and presentation of our fourth quarter 2021 results presentation slides to accompany our call are available via PDF.
For download at Investor Day at equity Bank Dot com by clicking the presentation tab you may also cause the events icon for today's call posted at Investor not 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 Greg Anderson.
And reflecting back on 2021.
It is rewarding to review all of the things we have accomplished in light of all the obstacles that we had to navigate.
I can't tell you how proud I am of our team for what we've accomplished this year.
Let me run through a few of the highlights.
We negotiated and closed on the merger of American State Bank and Trust.
The largest merger in the history of equity Bancshares as well as the state of Kansas.
We completed the conversion of Aminah State Bank in January of 2021.
<unk> finished the year by purchasing and converting three branches and the St Joseph Missouri market.
From security Bank.
We successfully executed our second round of PPP program for our customers, adding $28 million of fee and interest income in 2021.
We saw the benefits of our approach to remain open for.
For our customers throughout the pandemic.
In our DDA account growth, while some of our competitors took an approach of closing our branches to customers throughout portions of 2021.
Notably we have continued to open three times the amount of DDA accounts.
We did pre pandemic.
We hired a new leader and expanded our ability to offer SBA loans to customers.
For most of 2021, we were the number one lender in Kansas for SBA loans and in the top of all of our regions. This is an area we will continue to grow.
Our fee based businesses have accelerated after several years of focus on improving and introducing new products and services.
We will continue to keep an eye on our expenses and find ways to accelerate positive operating leverage.
Our commercial credit card program has continued to expand as expected and brings new income to us each month.
We've added a new division to.
To offer HSA cards and hired seasoned team to lead this initiative.
We think this business will start generating revenues in 2022 and accelerate dramatically in 2023.
We're committed to our capital management measures.
We have maintained our share repurchase program and initiated a common stock dividend in the third quarter.
With so many other items, we could hit on as well.
But I will leave some of those four Greg and Eric to talk about later.
What an exciting year were ready for 2022.
I'll, let Eric take you through the numbers and then we will walk through some of our areas of focus for 2022.
Thank you Brad and good morning.
To date, we reported net income of $10 5 million or <unk> 61 per diluted share. Our average diluted share count includes the consideration paid to American state Bank shareholders. When we closed the merger on October one.
Core results. This quarter include a full quarter contribution of American State Bank and were driven by continued albeit at a lower rate recognition of origination fee income from PPP loan forgiveness.
Contribution to non interest income by activity from American State Bank customers will pick up as our first quarter of 2022.
Our standard practices to provide a fee grace period to customers for mergers to help them fully understand equity bank products.
Non merger related expenses increased linked quarter, driven by salaries and benefits from a full quarter of American State Bank team members coming on our payroll as.
As well as $1 4 million partnership expense related to tax credit activity from assets placed into service.
Reconciling GAAP earnings to core earnings this quarter is simply removing a $4 6 million of merger expenses from the quarter.
Our GAAP net income includes a net release of ACL through the provision to the allowance for credit losses totaling $2 1 million.
Factors influencing the provision this quarter related to a 2 million recovery of a specific reserve for an asset that we discussed in the third quarter, which Greg will expand on in a moment.
The uncertainty of the economic environment and continued impact on the economy of previous stimulus measures are reflected in our qualitative and economic components of the calculation.
Our December 31 coverage of ACL to non PTT loans is 155% down from two 4% from the previous quarter.
The decline of the coverage is entirely driven by ACL that was being held against specifically analyzed loans.
I'll stop here for a moment and let Greg talk through our asset quality for the quarter Greg.
Thanks, Eric we had an outstanding quarter and an outstanding year in the management and reductions in nonperforming assets specifically.
Specifically in the quarter, Brett River, let our special assets team and the resolution of the restaurant credits and we had been carrying on non accrual. This asset was paid off completely and resulted in a reduction of $12 $3 million in nonaccrual loans, a recovery of $2 million and a carry back of preferred equity.
On the borrowers company, which May result in further future recoveries.
We also spoke of in aviation related credit in prior quarters and as of two weeks ago. The largest portion of this credit representing 95% of our relationship with the borrower has paid off and although there was a charge off it was much less than the specific reserve we had been carrying on it as the asset.
Old at a price higher than we anticipated.
Other foreclosed property will declined $13 $7 million in the first quarter of 'twenty two because of this credit.
Did a fantastic job shepherding these credits to resolution.
Overall, nonaccrual loans declined $35 6 million quarter over quarter and now stand at just 93 basis points to total loans the lowest level since 2016.
Our special assets teams led by June press now once again did excellent work, reducing special assets across all categories.
Specifically Oreo declined another one $6 million in the quarter and without bank owned property that was not foreclosed on such as previous branch closures, which are carrying is or.
Our Oreo balance stands at just $1 $9 million, our lowest level. Since we went public in 2015 and the majority of the remaining assets are smaller and more primarily acquired a mergers for the year 2021, Oreo is down over 30%.
Overall during 2021, we worked out and moved a significant amount of the <unk> merger non performers to accrual while minimizing losses on the entire <unk> portfolio.
We reduced Oreo as just discussed.
We reduced our non accruals are significantly by $35 6 million.
The ACL was 155% of non PPP loans as Eric has discussed net charge offs notwithstanding the specific reserves, we were carrying on aforementioned assets are muted and we entered 2022 in very good shape relative to non performers classifieds and the teams reducing them.
We also take a moment to introduce John <unk>, our new Chief credit officer to begin working with US in late December John comes to the equity team from Synovus, where he was a senior credit officer and he brings decades of credit experience to equity Bank. We are excited to have John and his leadership and credit and as a member of the executive team.
Eric.
Net interest income totaled $37 2 million in the fourth quarter decreasing from $39 million in the linked quarter, representing a $1 8 million increase.
During the fourth quarter, the weighted coupon in our loan portfolio, excluding <unk> decreased approximately 33 basis points. As a reminder, we had a 135 billion benefit to interest income in the third quarter for loans previously non accrual being moved to accrual.
When excluding the onetime benefit and PPP impacts in both comparable periods NIM in the fourth quarter declined four basis points to three 1%.
Origination fees recognized from forgiven PPP loans decreased notably in the fourth quarter.
We recognized $1 7 million of fee income and 171000 of interest income related to PPP loans in the fourth quarter down.
Down $6 3 million from the third quarter.
At yearend, we had $1 3 million of net unrecognized fee income associated with PPP loans, which totaled $44 8 million.
Removing PPP fees and interest income from net interest income in both the fourth and third quarters results on a pro forma net interest income of $35 3 million and $30 8 million respectively.
Loan yield, earning asset yield and net interest margin in the quarter ending December 31 was $4, two 1%, 332% or three 1% respectively.
This compares to the quarter ending September 30 of 454%, 355% and 319% respectively.
Linked quarter loan growth at December 31 was $470 million.
Of that total growth 400 million was related to <unk> and our year end balances when excluding the change in our PPP loan balances loan growth in the quarter was $121 million or 18, 6% annualized.
Organic originated loans totaled $221 million in the fourth quarter of the total originations in the quarter, 85% were commercial Cree and agricultural loans Brad.
I'd like to talk about our strategic goals for 2022.
We are focused on continued improvement of operating performance. Our goal is to make continued progress to return on tangible equity in the mid teens to do that we will reduce excess liquidity on our balance sheet by driving loan growth.
Increasing fee income in our revenue mix and remaining focused on operational efficiency.
As I mentioned earlier, we've made great strides in our fee income categories in 2021.
And we will build on increasing fee income.
Contribution to our revenue mix in 2022.
Our trust and wealth management group.
<unk> made significant progress since it started in 2019, and we expect it to grow that business organically and through acquisition.
Expense management remains a high priority, we always look for ways to utilize technology to drive positive operating leverage for example, this year, we will start to rollout interactive teller machines or Atms.
Through select markets.
This achieved several objectives.
It will permit us to increase hours, where necessary to better serve our customers. We can also leverage staffing in our centralized customer care team.
To assist our customers throughout the ITM footprint.
This will reduce our need to augment our branches with additional teller staff a group of employees that has experienced a lot of disruption and workload over the last 18 months.
I wanted to turn your attention to the forecast slide on the earnings deck, which will put some specifics on our expectations for 2022 and supports what Brad was just discussing we previously disclosed our thoughts for 2022, and we introduced a forecast for the first quarter.
As Brad mentioned, our long term goals remain unchanged.
Proving our revenue mix, increasing fee contribution to that mix driving positive operational leverage off of our expense base and driving our loan to deposit ratios to levels that we saw pre COVID-19 .
This last goal is dependent in part on economic factors in the markets, we serve supply chain labor market and inflation each guide at a level of uncertainty for our customers and in turn to loan demand.
Successfully shifting excess liquidity to the loan portfolio from cash and investments as critical to improving our pre tax pre provision return on assets.
Barring any needs stimulus programs, we do not expect PPP income to influence our 2022 results Brad.
Thanks, Eric.
We're in active conversations with several different companies about partnering.
Equity continues to be ready and willing to act as a partner to banks that fit and complement our organization. If they can assist equity and making progress to our stated financial profitability goals.
As I regularly emphasize we will stay true to our requirement on earn back cultural fit and geographic strategic fit.
We will maintain our focus on organic growth efforts, Craig Anderson has made a lot of progress with our regional teams in 2021 and will continue to leverage those success.
In 2022 to develop and deepen relationships with customers and drive organic growth.
We have great teams on our newly expanded footprint that gives us all the pieces needed to dominate our community markets.
With the improvement that Greg and Brad have made to our npa's and focusing on our customers with the best and brightest team to service those customers equity will continue to be a trusted and valued partner to our communities. This is our value proposition.
And in turn will build shareholder value.
We are excited to start the year with a lot of momentum and enthusiasm and with that we're happy to take your questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad et cetera. If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
If you have a question or comment at this time. Please press Star then one on your telephone keypad.
Our first question or comment comes from the line of Terry Mcevoy from Stephens. Your line is open.
Good morning, everyone.
Good morning, Terry.
Maybe just start with a question on your fee outlook.
And Brad I think you talked about some of the kind of business as you feel.
Optimistic about but maybe just talk about that 10% to 20% loan growth.
Where do you see the kind of the upside coming from and maybe where some of the strategic investments you've made can show up in that revenue line. This year.
I don't think we talked about 10% to 20% loan growth did we Terry.
I'm, sorry, noninterest income growth my apologies fee growth.
Jeremy there.
Alright.
You want to take some of it.
In terms of.
This is Eric.
In terms of the fee income growth for the year first off we haven't had much contribution from the American state customers, yet on our deposit fees.
We give a grace period for 90 days.
Customers that come in through merger to better understand our products and services. So.
That will start to contribute here in 2022.
And then I think it's just a continued focus on.
Business lines that we have made some <unk>.
Progress on over the last couple of years Treasury management services wealth and Trust management credit card.
Debit card.
Utilization I think all of those will continue to be significant contributors to growth.
<unk> growth year in 2016.
Yes, I think with the addition of <unk> Terry Youll see interchange income grow you'll see service charge income grow just because of the size of that acquisition for us, but then on top of that are.
We're growing.
Our credit card income and credit card interchange income nicely and I think we'll continue to see growth in our.
Wealth management business as well.
Great. Thank you and then as a follow up Greg kind of talked about all the success last quarter in lowering non accrual loans. So I guess my question is do you have any thoughts on a longer term or through the cycle net charge off target for the company.
We will help.
We did get a lot of stuff in the rearview mirror.
Gary which is very nice and so.
What are we budgeting next year for net charge offs 10 basis points. So I'm going to tell you I think we're going to be between annualized between five and 10 basis points of net charge offs.
Gary.
We don't see anything on the horizon.
That should disrupt that based on what we know today.
Yes.
Perfect. Thanks again guys.
Thank you Terry.
Okay.
Thank you. Our next question or comment comes from the line of Andrew <unk> from D. A Davidson your line is open.
Hi.
Andrew I'm not sure. We can hear you are you on mute.
Mr. Gordon.
You have dropped from the queue could you. Please re queue up for star one again please.
Sure.
Okay. Your line is open Sir.
Awesome. Thank you sorry about that.
I'm on for Jeff Ruth at Da Davidson, Eric maybe a question for you to see that.
Average, earning assets seem a bit high this period I was wondering what the balances for earning assets.
Sure.
Yes, I don't have that ending average, earning assets Andrew I can follow up with you on that.
Okay.
Thank you guys.
Are you.
And then just a follow up.
With PPP running off should we expect to see growth in spread income on a quarter over quarter basis.
Yes, I think.
And looking at 2022.
We.
Or expect.
We when we budget, we do much at flat rate I don't want to put that out there and I know theres expectation of the market of rate movement, so putting that aside for a moment.
We do have.
Some spread improvement expected more in the back half of the year and a lot of that driven by some of where we expect to be originating loans.
AG for example.
<unk> had higher yield.
We're hoping to see a little bit better utilization of lines there.
Mix.
<unk>.
Average, earning.
Asset growth throughout the year.
In the loans, and then within earning average, earning or the earning assets themselves. So looking at our average earning assets right now.
We're well over a week, where we want to be on cash in the investment portfolio facility IV.
With loan demand moving a portion of those lower yielding.
Earning assets into the loan portfolio, which will.
Help with spread as you as you asked Andrew and will also help us with our loan to deposit ratio one of our goals is to make some progress getting to where we were pre COVID-19 .
On the loan to deposit ratio, which was in the low eighties.
Right now we're close to 70%.
That will help not only with spread because we estimate that the excess liquidity on our balance sheet is probably depressing them by almost 20 basis points. So it will be helpful. There, but it will also help us with our pre tax pre provision ROA and getting us closer to our goal of exceeding 150 basis points.
Okay, that's very helpful.
Step away. Thank you.
Thank you.
Thank you. Our next question or comment comes from the line of Damon Delmonte from <unk>. Your line is open.
Hey, Good morning, guys hope everybody is doing well today.
First question probably for Eric.
Could you help us think about the asset sensitivity on the balance sheet.
How the margin would react with a 25 basis point move.
And then future 25 basis point move.
Yes, we're at the moment, we're pretty well balanced.
We're not we're not sensitive.
Either way to rates going up or down obviously yields.
Yield curve shape.
Steepening will help us.
Parallel shifts right now with about 25 basis points or even 50 basis points.
Not significant.
Detriment or benefit too.
Hi.
Okay. So on the margin will probably be more dictated through like earning asset rotation.
Yes.
Now the team is seeing that steps obviously, the market's priced in some of these these rate moves at the moment, but I think.
Given.
My experience expectations always shift and change.
The team is looking at ways, where we can offer to opportunistically look to extend.
The duration on the liability side, when it makes sense, where theres some relative value to get some modest exposure to rising rates, but I'm of the opinion.
We don't really get paid.
Not to make a bet.
So I'd, rather us get paid.
Move, earning assets out of the investment portfolio into loans.
Got it okay. Thank you and then could you just remind us on the outlook for M&A.
Geographic focus.
Some of the areas, where you think you have the best opportunity.
Yes, so we are focused in.
Oklahoma, Kansas.
Western Missouri and Central Arkansas.
We've got opportunities I would tell you in Oklahoma, Kansas.
And western Missouri.
That that we've been looking at are talking to.
And so.
Conversations are still happening.
And it just depends on whether they work into what happens with our ability to do them within an earn back that makes sense for us.
And so we will stay true to that.
Discipline that we have Damon.
And so and we also are looking at a couple of fee income businesses that could fit into our current platform pretty easily and so.
We're also looking at those types of acquisitions as well.
Great. That's all that I had appreciate the color. Thank you.
Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. Our next question or comment comes from the line of Andrew Liesch from Piper Sandler Your line is open.
Hey, good morning, guys.
Good morning, Andrew.
A clarification question on the charge offs in the quarter were those just from that aerospace relationship more was there anything else in there worth noting.
There were some smaller credits in there too Andrew that were.
Resolved during the quarter primarily those.
The aviation related credit.
Gotcha Okay.
Dan.
What is the appetite for share repurchases here with the stock Rose 130 years. So tangible then.
Wanted to deploy some capital into M&A, but what what are you thinking about the buyback.
Yes, Andrew.
We have an analysis that we've looked at periodically at least quarterly.
Where.
We look at buying our shares back similarly for M&A.
Need to have a three year earn back on that.
The recommendation that we've made to the board when talking about where we will buy our shares back.
So.
I would love to know what that exact number is but.
That's the logic. We use is that we are currently constrained at buying shares back where it's lower than a three year earn back.
Got it got it.
And then lastly, organic loan growth pretty solid in the quarter were.
Pipeline stand at this pull through a lot of the <unk>.
Pipelines say working off a lower base here to start the year just curious on.
Where that stands right now.
Yes, Craig Anderson take that yes. Good morning pipeline is very very strong currently we're up.
Over $700 million in regards to our pipeline, it's really kind of across the board in all of our various markets I think it's being led primarily by Wichita, Kansas City, but we're also seeing some nice opportunities in our community markets. We've had a strong start to 2022 in January with some <unk>.
Nice fundings of some new relationships and we expect that to continue in February we know a couple of large deals that we will be booking them in.
Our teams are very focused on small business markets and then also in the middle market space.
Hi.
We're.
Very optimistic about our pipeline through the first quarter.
Got it.
Obviously, some pretty strong loan growth here in the fourth quarter.
Slower pace.
Embedded in the guidance, we just some conservatism because it sounded pretty optimistic to me.
Yes.
I think we want to make sure that we can hit those numbers Andrew.
Get out over our skis.
We.
We don't see any big payoffs coming but you always have.
Those things could loom I think rates rising actually help us protect that because you don't look at guys refinancing then so.
I think we have a chance to have a really good organic loan growth year really the last two years. Our teams have been mostly focused on government programs and main street lending in PPP.
We actually have some opportunity to refinance some main street lending deals that we did back on to normal terms and the balance sheet.
So I think those are going to be great opportunities for us.
As well, but we want to make sure we can hit the numbers and accomplish the things that we've got out there.
Got it.
Alright, thanks for taking the questions I'll step back.
Andrew This is Eric one last thing I think is worth.
On the share repurchase question, we have we were active in the fourth quarter and we have been buying shares back selectively here in January as well.
Okay helpful. Thank you.
Thank you, ladies and gentlemen at this time Im showing no further questions. This concludes our equity Bancshares results call and presentation. Thank you for joining and please have a great day.