Q4 2024 Equity Bancshares Inc Earnings Call
Hello, everyone and thank you very much for your patience today's call will begin an approximate 18 minutes time.
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Speaker Change: Hello, everyone and welcome to equity Bancshares' fourth quarter 2024 earnings call.
After prepared remarks, there will be an opportunity to ask question.
Speaker Change: In order to participate in the Q&A. Please go to the link.
Speaker Change: On December 26 press release.
Speaker Change: Could you Bancshares' website.
Speaker Change: If you'd like to ask a question during Q&A you can do so by pressing star followed by one on your telephone keypad.
Speaker Change: I'll now hand, you over to Brian Kathy Kim. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Thank you for joining us today for equity Bancshares fourth quarter earnings call before we begin let me remind you that today's call is being recorded and is available via webcast Investor got equity Bank Dot com, along with our earnings release and presentation materials. Today's presentation contains forward looking statements, which are subject to risks and other factors that could.
Speaker Change: Cause actual results to differ materially from those discussed following the presentation. We will allow time for questions and further discussion. Thank you all for joining us with that I'd like to turn the call over to our chairman and CEO Brad Elliott.
Rich: Good morning, Thank you for joining equity Bancshares earnings call joining me today is rich.
Speaker Change: And our bank CEO.
Chris: Chris <unk>, our CFO increased Oxford, Cascade, our Chief Credit Officer.
Speaker Change: We're pleased to take you through our fourth quarter results.
Speaker Change: <unk> net interest margin expansion strong earnings and a successful capital raise of <unk>.
Speaker Change: Common stock.
Speaker Change: The close of the quarter ends an exceptional year for our company, we closed the year with record earnings per share of $4 <unk>, France.
Speaker Change: Franchise growth.
Speaker Change: We should have two M&A transactions tangible book value per share growth of $4 70.
Speaker Change: Or 18, 5%.
Speaker Change: The continued execution of our mission to be the Premier community Bank in our footprint.
Speaker Change: In 2020 for Rick and his team reset our organic growth engine through a realignment of incentives.
Speaker Change: On process and efficiency and identification of potential expansion areas within our footprint.
Speaker Change: I look forward to the success from all of this effort in 2025 and beyond.
Speaker Change: Julie Huber, a hurricane and successfully completed two whole bank acquisitions, which were each announced a close within 75 days.
Speaker Change: As you know all acquisitions require a significant effort in completing these within those timeline is an achievement that highlights our core competency of our organization.
Speaker Change: Brent River.
Speaker Change: The credit team successfully oversaw the resolution of multiple legacy credit benefiting the bottom line by more than $10 million.
Speaker Change: Our entire team operated in a historically challenging interest rate environment.
Speaker Change: Emphasizing value with our customers and potential partners, which allow for margin expansion balance sheet growth.
Speaker Change: Excellent balance sheet positioning.
Speaker Change: During the fourth quarter, we saw an opportunity to bring in optics of capital in the form of common equity.
Speaker Change: Thanks to investors that believe in our story and mission, we were able to bring in $87 million.
Speaker Change: Which will be used for the funding of M&A growth.
Speaker Change: And other organic growth.
Speaker Change: The market continues to be active and we continue to engage in more meaningful conversations and I've had at any point in my banking career.
Speaker Change: I couldnt be more excited about what is ahead for our company.
Speaker Change: We entered the year with a strong balance sheet.
Speaker Change: <unk> bankers.
Speaker Change: Strong capital stack.
Speaker Change: Execute on our dual pronged strategy of organic growth and strategic M&A.
Speaker Change: I'll, let Chris walk us through the financial results.
Chris: Thank you Brett.
Chris: Last night, we reported net income of $17 million or one four per diluted share net.
Chris: Net interest income improved from $46 million of $49 5 million in the quarter driving net interest margin to four 7% from 387% linked quarter, while they were a tailwind for the quarter pushing up margin. We continue to be optimistic about our opportunities to maintain spread and improve earnings through repositioning of earning assets into 2025 more to come on.
Chris: Margin dynamics later in this call or not.
Noninterest income came in in line with our outlook for the quarter, excluding the gain on acquisition from prior quarter results noninterest income improved 331000 during the period.
Chris: Noninterest expenses adjusted for onetime M&A charges and the benefit associated with disposition of a credit in the prior quarter, respectively flat linked quarter at $77 7 million modestly above our outlook.
Chris: Our GAAP net income included a provision for credit loss of $98000, reflecting charge offs for the quarter offset by declining loan balances.
Chris: We continue to hold reserves for potential economic challenges. However to date, we have not seen specific concerns in our operating markets ending coverage of ACL to loan is $1 two 4%.
Chris: Capital during the quarter increased $88 9 million to $593 million, while our tangible equity ratio improved to 995%.
Chris: As Brad mentioned the funds from the capital raised in Q4 are being maintained at the holding company with no current intention to pushing into the bank capital at the bank was up $4 million in the quarter with the tangible common equity ratio of closing at $9, 69% I'll.
Chris: I'll stop here for a moment and let Christophe talked through our asset quality for the quarter.
Christophe: Thanks, Chris during the quarter nonaccrual loans decreased by 13, 5% to $27 million to close the year, while nonperforming assets increased to $2 3 million the.
Speaker Change: The increase in problem assets as a result of the main street lending loan, which is reflected in repossessed assets and its Ross balance netting out the participated percentage would result in a decline in nonperforming assets of $1 4 million during the quarter.
Speaker Change: Total classified loans increased to $73 5 million or 12, 1% of total bank regulatory capital.
Speaker Change: The increase in classified assets was primarily due to <unk> related customer, which we have discussed in previous calls.
Speaker Change: We do not currently expect any losses on this credit, but consider the downgrade appropriate based on recent trends and the borrowers operating results.
Speaker Change: Delinquency in excess of 30 days remained relatively flat year over year and quarter over quarter as a percentage of the portfolio.
Speaker Change: Net charge offs annualized were four basis points for the quarter.
Speaker Change: Full year net charge offs were 11 basis points as a percentage of average loans.
Speaker Change: Recognize charge offs continued to reflect specific circumstances on individual credits and does not indicate broader concerns across our footprint.
Speaker Change: Our credit outlook for 2025 remains positive problem trends remain at levels below historic norms.
Speaker Change: <unk> trending up during the quarter.
Chris: We continue to leverage our portfolio monitoring tools to identify potential risk and remain prudent in our credit underwriting while maintaining healthy levels of capital and reserves sites can you future economic challenges Chris.
Speaker Change: Yes.
Chris: Thanks Christoph.
Chris: The final four months of the year, the epilepsy reduced their target rate 100 basis points, the impact of which was predominantly realized in the fourth quarter.
Chris: Following the reduction in cost of funds declined to 25 basis points that outpaced the decline in coupon yield on interest, earning assets of 13 basis points, driving 12 basis points of margin improvement in the quarter.
Chris: In addition to realized liability sensitivity following the cuts we also realized onetime non accrual benefit and expansion of loan fees due to early pay offs totaling $1 5 million, which added 11 basis points to the current quarter's margin.
Chris: Normalized for these items margin would have been 406.
Chris: Average loans increased during the quarter at an annualized rate of five 7%, reflecting the strong production to close quarter three.
Chris: Loan originations in the fourth quarter totaled $120 million with a weighted average coupon of 736%.
Chris: Originations normalized in the quarter, while payoffs accelerated as we look to 2025, we expect to see both average and period over period balance growth as Rick will discuss in greater detail.
Chris: Yes.
Chris: Average loan growth was offset by declines in cash and investment balances and cash flow were used to redeem debt in maturing broker deposits during the period.
Chris: The increase in margin, partially offset by a declining earning asset base led to net interest income growth of $3 4 million.
Chris: Our seven 4% during the quarter as.
Chris: As we look to 2025, we are optimistic about margin maintenance as we see loan balance growth and continued lagged repricing on our asset portfolio.
Chris: Our outlook slide includes the forecast for the first quarter as well as full year 2025.
Chris: As indicated we anticipate margin between 395% at 4.0% to 5% in the first quarter on average, earning assets between $4 75, and $4 85 billion.
Chris: We do not include future rate changes the more forecast continues to include the effects of lagging repricing in both our loan and deposit portfolios.
Chris: Our provision is forecasted to be approximately 12 basis points to average loans Greg.
Chris: We closed the year with a loan portfolio of $3 5 billion and a deposit portfolio of $4 4 billion each up 5% year over year. Our teams have been working hard to grow and maintain relationships that are corridor organizations purpose, while adding new markets and producers through strategic M&A, allowing for continued.
Chris: <unk> of our mission to return value to our shareholders.
And a year that included a 100 basis points of market reference rate change.
Chris: Discipline of our bankers has led to no decline in coupon interest rates within our loan portfolio. Our team remains focused on realizing value in managing the challenging rate environment, which has led to passing on opportunities that didn't align with our requirements remaining disciplined provides both balance sheet flexibility as well as an opportunity for greater return.
Chris: Overtime during the fourth quarter, we realized a trend reversal in loan production a significant payoffs outpaced an average production period, we realized $125 million in paydowns in excess of our average quarterly run rate, primarily driven by credit and rate decisions for our borrowers these lots of balancing.
Chris: <unk> are generally that relationships that are lost and we anticipate opportunities to provide financing to these clients on their future adventures.
Chris: As we look to 2025, we anticipate a return to growth and are optimistic our organic engine can add mid to high single digit expansion during the year is.
Speaker Change: As a jumpstart to that goal I am excited to announce the return of a familiar face to equity bank great cost over will re rejoining the executive team beginning in Q1, and a role overseeing our capital market strategy focused on both the sourcing and distributing large credits amongst our preferred banking partners.
Speaker Change: From his office in Tulsa. He will also be integral to our continued expansionary goals within the Oklahoma market, either via M&A or entry through loan production facilities.
Speaker Change: Greg has been a significant part of the equity Bank story, both through his previous role on the management team and his service as a director.
Speaker Change: We're happy to welcome him back to.
Deposit balances, excluding broker funding increased by $200 million as we realize the benefit of seasonal inflows from a municipality customers.
Speaker Change: While we will see fund outflow during the fourth quarter as these customers deploy their seasonal funding under Jonathan roofs leadership, our retail teams are preparing to deepen relationships and drive household expansion through 2025. In addition to our retail focus we continue to emphasize full service relationships with our commercial customers.
Speaker Change: <unk>, which we anticipate fueling growth.
Speaker Change: There is meaningful opportunity to both maintain and grow our loan and deposit base in our current markets, allowing for further balance sheet and earnings growth in 2025 and beyond we have rolled out a comprehensive sales training program fostered organizational buy in and alignment of incentives with expanding our customer base and driving franchise.
Speaker Change: Coupled with our capacity to facilitate strategic M&A Im excited about our position to operate over the coming quarters.
Speaker Change: Our company is exceedingly well capitalized asset quality remains strong our balance sheet structure is solid and our team is experienced and we have a granular deposit base.
Speaker Change: We see momentum in the M&A front as opportunities and conversations continue at an extraordinary pace equity we will remain disciplined in our approach of accessing these opportunities emphasizing value, while controlling dilution and earn back timeline as always.
Speaker Change: For joining the call we are happy to take questions at this time.
Speaker Change: Okay.
Speaker Change: Thank you. Please press star followed by the number one if you'd like to ask a question I'm not sure you devices, Amit you'd likely when it's your turn to speak.
Speaker Change: Our first question today comes from Ryan <unk> with D. A Davidson.
Speaker Change: Please go ahead your line is open.
Good morning, it's Ryan <unk> on for Geoff Realists.
Speaker Change: Looking at the margin going forward is the preference is going to be for more or less rate cuts or any changes in rate sensitivity there.
Speaker Change: No changes in terms of sensitivity if you compare back to kind of recent performance I think what you've realized through the most recent cuts the liability sensitivity on the front end.
Speaker Change: But I think we continue to be positioned.
Speaker Change: A status that we consider neutral regardless of kind of up or down world. We think we're positioned to be.
Speaker Change: Okay.
Speaker Change: Got it Okay and then.
Speaker Change: On the credit front.
Speaker Change: Do you have the total percent of loans to quick service restaurants.
Speaker Change: Yes, so our <unk> bucket is less than 3% of our loan portfolio.
Speaker Change: Thanks to.
Speaker Change: Kind of point out is that it's fairly granular.
Speaker Change: We don't hold large positions.
Speaker Change: To a single borrower.
Speaker Change: The classified credit was actually our largest position.
Speaker Change: We have into buckets, so theres granularity between.
Speaker Change: Borrowers.
Speaker Change: And that.
Speaker Change: Diversification between brand so we're not concentrated in.
Okay.
Speaker Change: Any brand.
Speaker Change: And the classic.
Thank you.
Speaker Change: Okay.
Speaker Change: Yes from what we have on that credit the classification is proper although they have a really good plan to be able to move that credit back into.
Speaker Change: Non sub standard category by divesting of a few of the restaurants that are dragging the cash flow down on that so there is actually.
Speaker Change: This operator actually has a pretty good path to actually putting themselves back on track.
Speaker Change: Got it thank you I'll step back.
Speaker Change: The next question comes from Terry Mcevoy with Stephens. Please go ahead.
Hi, Thanks, Good morning, everyone maybe start.
Speaker Change: Question for Chris could you just discuss what was behind the change in the 2025 expense and fee income outlook.
Speaker Change: Relative to the initial outlook that you talked about in October.
Speaker Change: Yes.
Speaker Change: Fee income perspective, we've seen some expansion in cost through data processing and people initiatives somewhere.
Speaker Change: That's being reflected in the current outlook I think there's some opportunity there to continue to drive down certain costs that are upfront that we're focused on but.
Speaker Change: Generally speaking, we're continuing to see that kind of inflationary aspect of certain aspects of the expense line item and thats whats driving up that particular number.
The fee income side, we continue to think it's an $8 million to $9 million per quarter run rate today.
Speaker Change: Based on our relative position, which is where that full year number is coming from opportunities there as Rick alluded to in terms of Treasury in trust and wealth management and continuing to see more accretion from those particular lines of business into that line.
Speaker Change: The high end and attainable.
Speaker Change: But that's just the general run rate on where we are today.
Speaker Change: I appreciate that thanks, and then as a follow up Brad.
Brad Elliott: We all know a lot of optimism that bank M&A is going to heat up here in 2025.
Could you just expand on kind of where you are with your discussions number of parties and then ultimately how when and where do you see equity participating in this upcoming M&A wave.
Brad Elliott: Yes, I think we're positioned well first of all.
Brad Elliott: And I don't want to go into tons of details on the specific transactions, but we've got between six and eight conversations we have going on several of them are in the modeling stage.
Brad Elliott: Trying to evaluate what's the best structure pricing for those transactions.
Brad Elliott: So I mean, we're down the path on several of these opportunities.
Brad Elliott: No.
Brad Elliott: I think that 2025 is going to be a very busy year for M&A.
Speaker Change: Our region at least.
Speaker Change: And I don't think we've hit the peak process of that I think would be process of that asset is after everybody gets their year end numbers done and you can kind of finalized.
Speaker Change: What those run rates are and what the budgets for next year or so that you can do the exact modeling to get to a good pricing on the transaction. So we're very bullish on on what 2025 will look like from an M&A standpoint, we're actually very bullish from what.
Speaker Change: <unk> will look like from an organic standpoint as well so.
Speaker Change: I think the M&A front is.
Speaker Change: <unk> got a lot of upside.
Speaker Change: As we go through this cycle.
Okay.
Speaker Change: I appreciate all the color. Thank you.
Speaker Change: Thank you. Our next question in the queue comes from Andrew Liesch with Piper Sandler.
Speaker Change: Your line is open.
Andrew Liesch: Good morning, guys.
Speaker Change: I just wanted to follow up on the margin guide does it seems like with the benefit from funding costs. You had this quarter and then the full quarter benefit of the last two rate cuts.
Speaker Change: Bias could even be above this range or is there some conservatism baked in there.
Speaker Change: What might be a headwind to the margin.
Speaker Change: Yes, so there's always Andrew a couple of things that are margin that are a bit unique in terms of purchase accounting and fee recognition. So I think theres always a little bit of volatility there and I have a.
Speaker Change: Yes.
Speaker Change: I tend to go conservative in terms of forward estimate based on those moving pieces I do think there's opportunity on margin as you mentioned in the comments.
Speaker Change: And theres going to be some lagged repricing down in the asset portfolio based on the.
Speaker Change: Changes in <unk> as many but we also have a continuing opportunity to reprice up based on changes that had not yet been realized over the last rate cycle. If certain assets that are reaching maturities are going to reprice into what is now a higher interest rate environment.
Speaker Change: And then as we've talked about previously continuing opportunity to reposition cash flows out of securities and cash balances and into your customer relationships and loans create a tailwind opportunity for us in terms of driving.
Speaker Change: Additive margin NII, so I think the opportunities there in terms of forward outlook based on where we stand today, a little bit of conservatism.
Speaker Change: But yes generally speaking the reason for that is more just the periodic potential variability that we've realized historically.
Speaker Change: Got it makes sense.
Speaker Change: And then the capital market strategy that Greg is going to be overseeing.
I guess, how large are you guys willing to go on the ball.
Speaker Change: I'll spend what percentage of the would you be looking to retain versus the partner out.
Speaker Change: Assuming youre going to be the lead bank on these is that right.
Speaker Change: Yes, yes, most most of these would be the lead bank. I mean, these are just situations, where with our existing client base and as we go into other climate, we're not looking to do 200 $300 million deals or these or is it really for our core customers. So that we can grow with them that we can position.
Speaker Change: Multiple deals that we can position different pieces with other with other banks that we consider core partners. So I don't think you'd take this and think we are.
Speaker Change: Going to start.
Speaker Change: You are competing in a totally different class there will of course continue to keep.
Speaker Change: A good portion of this going forward.
Speaker Change: We have we have very helpful 100 million.
Speaker Change: Andrew we have about $5 million to $600 million.
Speaker Change: Participated loans sold today.
Speaker Change: So.
Speaker Change: It's a pretty big job from a standpoint of what we have to continue.
Speaker Change: We continue to place because we keep our internal limit between 15 and $25 million depending on risk rating.
Speaker Change: We do.
Speaker Change: Our project with somebody that's $40 million, we've got to find a home for that other 15 and so.
Speaker Change: We've we've always built the organization this way that we don't want to not do business with those relationships, but we also aren't we haven't moved up our internal hold limit.
Speaker Change: Several years, because we just feel like it's better to keep it kind of where it is and keep it create granular relationship with us so.
Speaker Change: There's a lot to manage on the.
Speaker Change: Opportunity, we currently already have on the books today.
Speaker Change: Yes, yes, it sounds like it.
Speaker Change: Great. Thanks for taking my questions here I'll step back.
Speaker Change: We have a question from Damon Delmonte with <unk>. Your line is open.
Damon Delmonte: Hey, good morning, guys. Thanks for taking my question.
Speaker Change: Wanted to circle back on the margin Chris do you have a spot margin for the month of December.
Speaker Change: Yeah. So we closed December on an adjusted basis, when you take out the non accrual and other items at 406.
Speaker Change: Okay.
Speaker Change: And then could you just kind of walk through some of the commentary you gave to Andrew.
Speaker Change: The range is $3 95 to 405, and you're kind of at the top end of that range already so.
Speaker Change: Is the would there maybe be some near term margin pressure because of.
Speaker Change: The shift in loan balances this quarter and then as you start to.
Speaker Change: Real positive and start growing balances youll kind of recapture some of the maybe near term compression, how we should think about margin.
Speaker Change: Yes, that's how I'm thinking about the risk margin Damon as you look into the first quarter a couple of dynamics right. So as you think through the the point that Rick had in terms of some of the payoffs and Paydowns you realized in the fourth quarter part of that was seeing some interest rates out there that were.
Speaker Change: Somewhat anti competitive relative to what we're willing to do so.
Is that now market sentiment a little bit that has me hedging a little bit towards conservatism as it relates to the margin.
Speaker Change: And then there is contractual repricing on our loan portfolio that has created some short term headwind.
Speaker Change: Again, theres still repricing that can be fully realized on the deposit side. So it's not a meaningful move down but I think there is the potential for headwind there in that.
Speaker Change: That's where I think conservatism lids.
Speaker Change: Coupled with the purchase accounting and fee income it tends to have a little bit of volatility in our in our run rate.
Speaker Change: Got it okay I appreciate that color.
Speaker Change: Actually all that I had everything else was asked and answered. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you we have no further questions. This concludes our Q&A session and our conference call. Thank you everybody for joining you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Sure.
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