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Edited Transcript of EQBK earnings conference call or presentation 23-Apr-19 2:00pm GMT

Q1 2019 Equity Bancshares Inc Earnings Call

WICHITA May 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Equity Bancshares Inc earnings conference call or presentation Tuesday, April 23, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brad S. Elliott

Equity Bancshares, Inc. - Founder, Chairman, CEO & President

* Craig P. Mayo

Equity Bancshares, Inc. - Executive VP & Chief Credit Officer

* Gregory H. Kossover

Equity Bancshares, Inc. - Executive VP, CFO & Director

* Jacob Willis

Equity Bancshares, Inc. - IR Officer

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Conference Call Participants

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* Andrew Brian Liesch

Sandler O'Neill + Partners, L.P., Research Division - MD

* Jeffrey Allen Rulis

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Michael Perito

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Terence James McEvoy

Stephens Inc., Research Division - MD and Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the 2019 Q1 Earnings Conference Call for Equity Bancshares, Inc. (Operator Instructions) As a reminder, this conference call may be recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. Jacob Willis, Investor Relations. Sir, you may begin.

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Jacob Willis, Equity Bancshares, Inc. - IR Officer [2]

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Good morning and thank you for joining our Equity Bancshares' presentation and conference call, which will include discussion and presentation of our first quarter 2019 results. Joining me today are Equity Bancshares' Chairman and CEO, Brad Elliott; Equity Bancshares' Executive Vice President and Chief Financial Officer, Greg Kossover; and Equity Bank Executive Vice President and Chief Credit Officer, Craig Mayo.

Presentation slides to accompany our call are available for download at investor.equitybank.com. The presentation accompanies discussion of our first quarter results and is available by clicking the presentation tab to download the PDF. You may also click the event icon for today's call posted at investor.equitybank.com.

If you're viewing this call on our webcast player, please note that slides will not automatically advance. Please note Slide 2, 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 differ. 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 Brad Elliott.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [3]

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Good morning. Thank you for joining the Equity Bancshares' First Quarter 2019 Earnings Call. Greg and I will be discussing our first quarter 2019 results in a moment. Craig Mayo, our Chief Credit Officer, is also joining us today. As noted in our 8-K earnings release, you know we will be discussing a credit relationship that we have taken a provision against as of March 31, 2019.

Greg will walk through the impact of this credit on our financial performance as well as the operating performance of the company with and without this provision for credit loss.

In 2011, we entered a relationship with a strong borrower who specialized in increasing revenues and profitability of underperforming companies. We had a significant banking relationship with this borrower for several years and they performed well, and ultimately sold 2 of their portfolio companies for substantial profits. They bought a franchisor with approximately 80 operating licenses and grew it during the course of their ownership.

We also financed the purchase of a second franchisor company that was underperforming, but with good name recognition. We anticipated they could continue to manage as they had in the earlier concepts and turn them substantially profitable and generate terminal value.

We were comfortable the new relationship remained adequately secured with personal guarantees, cross-collateralization with a profitable company and based on the extent of the pledged personal assets. Unfortunately, as they continued to borrow funds on personal assets from Equity and other financial institutions for capital injections, the ability to service debt on the overall structure began to deteriorate.

Craig, would you please take us through the recent events?

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Craig P. Mayo, Equity Bancshares, Inc. - Executive VP & Chief Credit Officer [4]

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In the fourth quarter of 2018, these borrowers came to Equity and they asked us to advance funds, which we declined. Under the premise, it was time for the companies to cash flow their obligations or to execute on the sale of the businesses, which they had committed to complete in previous quarters.

The approximate balance of the loans were $19.2 million for the larger company and $9 million for the smaller company. There were at least 2 letters of intent to purchase the larger company for amounts sufficient to pay off our credits on both companies.

All the credits are cross-collateralized and secured by personal guarantees from the borrowers. As of December 31, 2018, the loans were current.

In January, the borrowers filed for Chapter 11 bankruptcy for both companies: 1 with a positive cash flow and 1 without a positive cash flow. We presume this was not strictly because of Equity Bank's debt, but also because of the obligations to other institutions.

We prepared an impairment analysis in the first quarter for December 31, 2018, using the data points available at the time for the larger credit, including the most recent LOI from December 2018 and the early indications of a stalking-horse bidder for the smaller company mentioned above. The calculation did not show an impairment and therefore, no specific loan loss was provided on these credits or warranted at that time. We did place the credits on nonaccrual late in the first quarter.

In late March, the smaller company was auctioned in bankruptcy to a stalking-horse bidder for an amount that was acceptable to us and in the range of values we had used in determining that the overall valuation for the relationship was adequate. For various reasons, the bidder did not close and a second bidder was found in early April, but for an amount substantially less than the first bidder. As of today, the second bidder has not closed, but we believe it will complete the transaction in the next few weeks.

In early April, we received the most current trailing 13 periods of operating performance from the larger company and our analysis shows that although profitable, this company may not sell in the future at the level indicated in the previous valuations. This is due in part to a lower level of EBITDA than was performed and in part to our belief that the multiples of EBITDA used in the previous periods would be unlikely given our recent sales experience in bankruptcy. Greg?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [5]

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Given the change in circumstances occurring in early April, a new impairment analysis was performed utilizing the lower bid for the smaller company and applying the lower EBITDA number and lower estimated multiple on the larger company. This analysis determines the need for a $14.5 million total specific provision on these 2 credits and the other assets pledged by the borrowers. Brad?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [6]

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As CEO of our company, I own this credit decision. Our team extended credit to these borrowers based on a long history of success in their businesses and with us as their bank. Unfortunately, circumstances changed and we did not discontinue advancing funds early enough. Fortunately, this is an isolated credit of its type and is not related to any other industry or collateral type in our portfolio.

Our net charge-offs for the first quarter were approximately $200,000 or less than 1 basis point without the interest charge-off from this relationship. We will take questions on these credits and our overall portfolio at the end of our call. Greg will take us through the rest of the first quarter performance.

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [7]

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Thanks, Brad. We begin with our earnings performance and reconciliation of earnings per share back to core EPS. Stated diluted earnings per share is a loss of $0.26. Adding back merger expenses of $0.03 per share leaves a loss of $0.23 per share. Adding back the specific provision with associated interest write-off is approximately $0.73 per share and leaves core EPS of about $0.50 per share.

We incurred approximately $0.03 per share in onetime platform expenses to convert to our new online digital banking, to initiate a new debit and credit card platform and legal expense for the above-mentioned credits. This takes EPS to approximately $0.53 per share. We also had accelerated bond premium amortization stemming from the new accounting pronouncement of about $0.03 per share, leaving EPS reconciled to $0.56 per share compared to Street consensus of $0.65 per share.

The miss to Street of $0.09 is further explained by: misses in loan origination fees and interest on loans of about $0.04 per share from a slower origination quarter than expected; interest expense estimated at about $0.02 per share; about $0.01 per share in noninterest income from slower mortgage banking activities, which we believe will recover in the balance of 2019 based on our pipeline; and about $0.02 per share in other noninterest expense, mostly attributable to miscellaneous overhead for the support of the new platforms and for the early onboarding of the MidFirst locations.

I'd also like to recap our net interest margin for the quarter. Our stated margin was 3.49%. Adding back lighter origination fees of about $500,000, plus about $500,000 of hurt from our identified problem credit relationship, would leave a margin of 3.60%.

Finally, historical normalized bond premium amortization would have left us at 3.66%, exactly in line with Street expectations.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [8]

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As we have stated before, some quarters are slower than others for loan originations. Our first quarter was slower than expected, but our pipeline remains strong. We are not relaxing our underwriting standards or reducing the expectations of our teams. We expect solid growth in the next few quarters to get back on plan for our loan growth. Our loan coupons continue to be strong, improving another 5 basis points from the 12/31 quarter.

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [9]

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We continued to grow core deposits at an annualized rate of about 5% in Q1, not including the nearly $100 million in growth from our MidFirst 3-location merger in February. The deposit rate environment remains competitive, especially in the area of public funds. We continue to work hard at managing the balance of cost of funds with our desire to grow core deposits and reduce our other borrowed money.

The average balance of our Federal Home Loan Bank advances reduced by over $200 million quarter-over-quarter. This not only gives us more control over our cost of funds, but also converts borrowings into bank customers.

Overall, net interest earnings were $30.6 million, up from $27.8 million a year ago. The $30.6 million is against consensus of $32.7 million, the difference being accounted for primarily in the items previously discussed: approximately $500,000 in lost interest on the bad credit, $700,000 in loan origination fees and over $550,000 in bond premium amortization.

Moving on, noninterest income was $5.3 million for the quarter, below consensus by about $300,000 accounted for in lower mortgage banking fees, which we believe will recover in the last 3 quarters of 2019. Indications are the slow quarter was primarily weather-related.

Noninterest expense was $24.9 million without merger expense and $1.1 million above consensus, principally attributed to the expenses noted previously on the call: platform expenses of over $600,000, legal fees of about $125,000 and the cost with bringing the MidFirst locations on earlier than anticipated.

Income taxes were modestly lower in the first quarter at about 22% and generally in line with expectations.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [10]

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Our overall balance sheet remains healthy and our teams continue to press on to achieve our goals for 2019. As we said earlier, with the exception of this single credit relationship, our credit quality is improving and funding continues to shift to core deposits, away from other borrowed money.

Our capital remains healthy. And as you may have read, we have announced a buyback of up to 1.1 million of our shares or about 7% of the outstanding shares over the next 18 months, beginning next Monday. This is subject to no objection from the Federal Reserve Bank.

As previously mentioned, our teams closed and converted 3 MidFirst locations in Oklahoma for the merger we announced last fall. We also converted our entire customer base onto a new digital platform known as Q2.

In addition, we continue to entertain merger possibilities with interested banks in our geography. Our new trust and wealth management platform and soon-to-be additional card services should enhance our noninterest income part of our bank's revenue stream in the future. We understand this is not a typical quarter for Equity Bank, and the entire team and I will be working to responsibly protect shareholder value the way we always have.

At this time, we will entertain questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Michael Perito with KBW.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [2]

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I had -- I want to start on the credit side. So I guess, can you just give us a little bit more color on where you kind of expect this to go over the next quarter or 2? And what we can expect to see on the financial side as that plays out?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [3]

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Yes, I'll answer the question on where we should go and I'll turn it over to Greg on how it flows through the financials. So, Michael, they are currently in bankruptcy, we've currently got 1 company, we think, that will be liquidated this month. We will be hopefully liquidating the other company in the next quarter or 2. They have -- we marketed the company that was not profitable first.

The second company is actually cash flowing quite well and so we didn't focus our energies on that. But now that that -- the first company is liquidated, we will be able to focus our energies on getting that company marketed and moving it through the sales process.

They've currently got their 2 or their 3 vacation -- they have 2 second homes and 1 primary residence. They have those all 3 listed for sale, and we've been getting updates on showings. So we -- hopefully, we'll get those under contract this quarter and get them sold within a reasonable time frame.

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [4]

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And, Michael, the financial impact really is in 3 potential areas. The first one is opportunity cost. On these loans, in the aggregate, our quarterly lack of interest from nonaccrual is about $600,000. So the sooner we take care of the resolution, the faster we can put those assets back to work.

The second is in the direct cost of dealing with the issue. I think a lot of that is in the rear-view mirror because we now have the plan put in place, but there will continue to be a small amount of legal and administrative expense that goes with it.

And then, of course, the third one is the possibility, although we don't think this will happen, the possibility of continued provision against these assets. We think we put the mark on appropriately given the data points that we had, so we do not believe that we will continue to have more provision, but that remains a possibility.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [5]

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Can we spend a minute on that? So you provided $14.5 million against this $28 million total relationship. Is that the right way to think about it?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [6]

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The total relationship is $28 million on commercial credits. There is roughly a little over $12 million on personal relationships as well.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [7]

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So it's closer to $40 million all in?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [8]

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Correct.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [9]

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And right now, that $40 million just has a $14.5 million allowance against it?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [10]

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Correct.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [11]

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The primary residents are well secured and we have taken this to a place, Michael, where we don't think we'll have to talk about this in previous -- in future quarters from a resolution standpoint.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [12]

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So the expectation will be, if you exit both companies and the 3 properties at a price point that you guys have triangulated through whatever recent market activity, that there should be no further provision or charge-off required around this total relationship?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [13]

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That is correct.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [14]

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Okay. And this $40 million, how does that rate amongst some of the larger overall borrowing relationships on your balance sheet?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [15]

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Well, so we don't -- I mean, these are separate credits in that single-family residences aren't aggregated. I mean, we do aggregate them when we look at credit relationship. But from an individual risk standpoint, one of these credits is currently current, one of these credits is currently not past due enough to make it a nonaccrual loan.

So the personal residences, the primary residences, I would separate from that. These were 2 separate individual operating companies. And the reason we aggregate them now is we, 1 year ago, got them to cross-collateralize those relationships along with their personal residence. So we aggregated them together at that point.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [16]

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So maybe asking the question differently. I mean, what are the largest commercial relationships all-in on your books today and how does the $28 million value compare?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [17]

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It would be the largest relationship we have.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [18]

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Okay. And just to give us a sense, I mean, where does it go to after that in terms of on average? In the top 5? I mean does it go from $28 million to $20 million or there's several on the $20-plus million range? Any color there would be helpful.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [19]

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Yes. So the large company had $20 million -- less than $20 million -- it had $19.5 million loaned against it. We don't have relationships over $20 million.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [20]

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Okay.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [21]

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We do have several relationships that are $20 million. I think our legal lending limit is $78 million, and so we're about 25% of our legal lending limit. That's our internal hold limit.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [22]

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And the -- both these companies, the $19.2 million and the $9 million company, were both in the franchise business, correct? Is that -- if you can give a little bit more broader color? I'm sure you don't want to provide specific names, but is this quick service fast food type stuff or can you give us any more detail there?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [23]

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Sure. They were in the franchisor business, not the franchisee business. And one of them is in the entertainment business and one of them is in the bakery business.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [24]

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Okay. And can you remind us what the -- whether it's franchisee or franchisor, what the total exposure on franchise lending is today on your balance sheet?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [25]

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We don't currently have any franchisor relationships outside of these 2.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [26]

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Okay. And franchise -- just broader, just total franchise lending?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [27]

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Total franchise -- franchisee lending, in 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 -- 13 different concepts, we have $94 million.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [28]

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Okay. I appreciate that color. And then just 1 last one from me. I mean, if you think about -- obviously, the first quarter was a little disappointing for you guys. And if we go back in the early part of '18 post-tax reform, you guys were doing about a 1.20% ROA. It stepped down a little over the last 3 quarters, even if we kind of normalize provision here.

And I'm just curious, as you kind of look forward, what can get that moving again in the right direction? Is it just simply normalizing NIM and growth? Is there more that could be done on the efficiency side and in terms of managing expenses as you kind of have some purchase accounting run-off? I mean, how are you guys thinking about that dynamic as we move forward?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [29]

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That's a great question, Michael. The first thing that we've done, which I think has the potential to be very impactful, is we have reduced our other borrowed money from a high of $600 million a year ago to less than $200 million today, and typically about $150 million on balance sheet at any given point in time right now.

What that does is it converted that debt that we were paying to Federal Home Loan Bank to customers that we get to cross sell, number 1; and number 2, it puts us back in control of those dollars from a rate standpoint. We can influence rates, where before we were paying whatever Federal Home Loan Bank dictated. So that's a big change for us and a big opportunity as we think about moving down the road on both retail and public funds deposits.

The second thing that we've done in 2019 is we have begun to look hard at revenue generation from sources that we did not have before. We've talked in the past about trust and wealth management. That platform has been developed in the last 90 days. We have very talented people and very talented support staff in place to begin selling trust and wealth management in the second quarter. So we have expectations of growing that platform and increasing noninterest income.

The other thing that we've done, Michael -- there is no question that M&A activity has slowed down. So we've taken the resources that we have in-house, that perhaps might have been more focused on M&A, and we've begun to look at how we now can take the bank that Brad and the team have built in the last -- since we went public in the last 3 years, we'll say, and make it run better.

So we're looking at all different expense categories and all different revenue categories for improvement and putting those parts and pieces into action. And it includes all things, large and small. And so the way we get our ROA back up is to continue to work hard at controlling the parts of margin that we can, and we've done that on the loan side. We've increased coupon from our loan customers substantially in the last 6 quarters. We continue to look at ways to reduce our funding costs and tear apart the noninterest income and noninterest expense.

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Operator [30]

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(Operator Instructions) And your next question will come from the line of Terry McEvoy with Stephens.

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Terence James McEvoy, Stephens Inc., Research Division - MD and Research Analyst [31]

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Just looking at some press reports from January, in one of the publications, it said a payment hadn't been made on one of these loans for 6 months, and I'm guessing it's the smaller commercial loan. I guess I'm just curious why, if that was the case, we didn't hear about this relationship until today.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [32]

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I think you're referencing an article that was written by an attorney who doesn't -- who does not have the facts. I mean, we did not provide any of that information. None of the loans were -- all the loans were current as of December 31, Terry.

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Terence James McEvoy, Stephens Inc., Research Division - MD and Research Analyst [33]

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Thanks for clearing that up. And the franchise portfolio, the 13 concepts and the $94 million, would these 2 credits be included in that or had you included them in that portfolio in the past?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [34]

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We did not include them in that portfolio because they're not a franchise concept, they're a franchisor. And they don't own any or operate any stores, so they're not included in that aggregation. And our -- a franchisor operates a lot differently than a franchisee.

A franchisee is operating a business and a franchisor is dictating how business is operated, and so they are completely separate. And the large company in this situation is actually cash flowing rather well and has always cash flowed rather well. It's actually the debt of the smaller company that has dragged the relationship down.

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Terence James McEvoy, Stephens Inc., Research Division - MD and Research Analyst [35]

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And if we took this total relationship and just put it in a box, it would appear that the underlying credit trends on the rest of the portfolio were stable to improving. I wonder if you could just confirm that, maybe put some data behind that.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [36]

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Craig, you want to take that question?

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Craig P. Mayo, Equity Bancshares, Inc. - Executive VP & Chief Credit Officer [37]

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Sure. We had a comparison and did exactly that. We pulled this relationship out of the 3/31 numbers and 12/31 numbers, and all the major credit metrics improved slightly in the first quarter. So delinquency was a little better, nonaccruals were better, NPAs were better and our classified assets were better. So there is continued improvement in the underlying portfolio.

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Terence James McEvoy, Stephens Inc., Research Division - MD and Research Analyst [38]

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Great. And then I guess, Greg, just one last question for you. Thanks for running through the margin dynamics. That additional callable bond premium amortization, it sounded like that was unexpected, and 3 months ago, maybe not built into your forecast, if you could confirm that. And then what are your thoughts now going forward on the margin? I don't think you ran through that in your prepared remarks.

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [39]

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Yes. You are correct on the first comment. And we expect that to taper off over time, but probably not in 2019, the bond premium amortization I'm talking about. And then that gives -- that leaves guidance on a normalized basis of 3.60% on the margin, but with the opportunity cost of this particular credit we're talking about, I think a new normalized margin for us until that credit is resolved is somewhere between 3.50% and 3.55%.

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Operator [40]

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And our next question will come from the line of Jeff Rulis with D.A. Davidson.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [41]

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Regarding the expense run rate, you talked about these platform investments and some other kind of legal and other, I guess, at $25.5 million this quarter. Where could we assume that that -- and maybe there is a tail on some of the legal front, but could you kind of range bound what you think noninterest expense could look like in coming quarters?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [42]

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Yes, you bet, Jeff. We'd -- like we said, we made some investment in platform. Depending upon the tail of the administrative cost of this credit, the guidance that we give for noninterest expense would be somewhere between $24.0 million and $24.3 million for Q2. And I would expect that given what we know today, that number to be fairly constant in Q3 and Q4.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [43]

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Okay. So we step anywhere from a little over $1 million down from this quarter and hope to kind of carry that through the balance of the year?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [44]

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Correct.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [45]

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Got it. And then the -- you have loan growth outlook for the full year, you've mentioned starting the year off slower than you had expected, but have you put a number out there on 2019 full year growth?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [46]

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We have not put a number out there for full year growth. We always anticipate somewhere between -- recently, between 8% and 10%. I don't know that we'll get fully back to that 8% or 10%, but guidance today, I think, can still be in the 6% to 8% range.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [47]

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Okay. And then on the, I guess, the provisioning level, I suppose we revert back to -- maybe 2018 average is about $1 million a quarter. Is that -- would that be reasonable to assume?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [48]

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That is correct. I actually think, Jeff, that we're forecasting $1.1 million.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [49]

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And then, I guess, just a question back to the credit. I guess, would you hazard a guess -- and it may be a little too early, but any possibilities for recoveries here? Do you think that the marks are conservative based on maybe somewhat moving some of these businesses? Do you hold a potential out there for also possible recoveries?

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [50]

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So what we did, Jeff, was we had to look at it at a point in time. If we sell this as fast as we can sell it, we think we have it marked appropriately. If we are able to get them to use an investment banker and liquidate this in a fashion that we think is more reasonable, we could do better than this. But at this point in time, we do not have that agreement with them.

And so we think we have it appropriately marked. We -- this relationship was sold for substantially more -- enough to clear out both of our relationships in December. The buyer would not close on that -- or the seller would not close on that. And so if we can get them to reasonably look at this and how to market this company, there is a potential to do better than the loss that we currently have reserved against it.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [51]

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Okay. And then just the last one I have is just to clarify that the total credit relationship with this borrower is $42 million. Is that correct? Both their business credits and their personal real estate.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [52]

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Right. And it's not actually -- and it's actually separate -- there is actually separate guarantors and separate individual borrowers on the individual houses as well. So it's not one single owner of the business. It was actually multiple owners of the business and multiple loans to individuals on their residences.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [53]

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So the -- I'm just trying to parse out the, I guess, the $33 million that was placed on nonaccrual. Could you break out what is the piece that is currently accruing? Is that, what, the $9 million business? Is that what's still...

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [54]

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No.

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [55]

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No.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [56]

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None of the businesses are accruing. It's their personal residences.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [57]

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The personal residence is the piece that's not on nonaccrual.

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Brad S. Elliott, Equity Bancshares, Inc. - Founder, Chairman, CEO & President [58]

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Correct.

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Operator [59]

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And our next question will come from the line of Andrew Liesch with Sandler O'Neill.

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Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [60]

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Guys, you've covered most of my questions. On the buyback though, on capital, I mean, your TCE ratio is 7.5% right now, and buying back 7% of the stock on a pro forma basis would bring it below 7%. I was just curious, how did you arrive at this 1.1 million share number? And how active do you intend to be with this? It seems like it's -- it would have been larger than I would have expected of any buyback.

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [61]

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Yes. So, Andrew, we think that acceptable ranges for stock buybacks are in the 3% to 7% range. And we had been working on our stock buyback, by the way, before this credit issue had arisen. So they really are separate and distinct from each other and -- to be clear.

So when we pro forma the analysis for the stock repurchase, we look at that over an 18-month period. And we show on our pro formas, by example, that we would be stand-alone at the end of the 18 months at 8.67% without the stock buyback on normal earnings and a little -- right at 8% on a pro forma basis. So when you look at it over a period of time with the accumulation of retained earnings from earnings, it does not put stress on capital.

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Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [62]

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Got you. And then what, right now, have you guys done to prepare for CECL coming in next year? And how would that affect your preliminary expectations for capital levels and provisioning? What can you provide there?

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Gregory H. Kossover, Equity Bancshares, Inc. - Executive VP, CFO & Director [63]

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Yes. So we've -- we're still in the modeling phase. We're getting ready to wrap up the modeling phase. And we're not prepared at this point to give guidance on its impact, but we are working diligently to finish up our internal modeling, and there'll be more to come on that.

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Operator [64]

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And I'm showing no further questions at this time. So now I'll hand the conference back over to Jacob Willis for any closing comments or remarks.

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Jacob Willis, Equity Bancshares, Inc. - IR Officer [65]

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Thank you for joining our Equity Bancshares' First Quarter 2019 Earnings Call. Have a great day.

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Operator [66]

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Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody, have a wonderful day.