Good day and thank you for standing by. And welcome to the Q1 2021 Equity Bancshares Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to your host, Chris Navratil. You may begin..

Good morning. And thank you for joining Equity Bancshares conference call, which will include discussion and presentation of our first quarter 2021 results. Presentation slides to accompany our call are available via PDF for download at investor.equitybank.com by clicking the Presentation tab.

You may also click the Event icon for today’s call posted at investor.equitybank.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 discussions. 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 Kossover, our Chief Operating Officer; and our President, Craig Anderson.

Coming into the New Year, we remained focused as always on driving value for our customers, employees and communities to enhance shareholder value. We have been able to do this through prudent capital management. We are maintaining high credit quality standards, while swimming upstream against less prudent competition.

We are in the position of being a trusted adviser and experts to our customers. And I believe we have anchored that status even more so this year. We used our internal resources to improve and automate the PPP program, which was previously manual and have dovetailed this into our processes today. This is what entrepreneurship is all about.

We created positive operating leverage, allowing us to accept a larger number of applications without adding burden to our staff. Through last Friday, we have added 3,815 applications approved by the SBA, totaling $261 million of loans. When the National Bank said, they were done accepting applications.

We announced through our social media distribution channels that we remained open and accepting applications. This has been a windfall of applications, but also has allowed us to now attract a greater number of these customers to our banking franchise. I am proud of the team’s efforts in making this yet another successful product offering.

Through our work as an advisor and expert to our existing and new customers, we have deepened our relationships with them, building value for our customers and in turn for our shareholders. Last night we reported a big earnings quarter.

Eric will go into more specifics including how the results were positively influenced by many operating factors, increased fee income and reversing of reserves for anticipated credit losses. We have focused the last year as an operating team on increasing efficiencies, growing our customer base and attracting fee-based customers.

We have done this through treasury management products, our commercial credit card and our wealth management line, along with all of our core businesses. Julie Huber, Gaylyn McGregor and Glen Malan have done a great job with these initiatives. Our leaders are focused on growing customer relationships.

Our Western Missouri market has excelled on growing all aspects of their business under Josh Means and Mark Parman has done a great job of leading our major markets.

We remain diligent through our credit management to quickly identify any issues that may pop up in our portfolio and work with our customers to resolve rather than wait until we are forced into difficult workout situations. Today, our process has worked, as the number of credits and dollars coming into our non-performing assets remains very low.

We understand there is lots of stimulus in the economy now and it may be masking credit issues. But our teams are looking for those situations and working to get ahead of them with our customers. Our tangible book value per share was modestly impacted by the CECL adoption this quarter, as we signaled earlier.

We expect to continue growing book value as always. We remain committed to our organic and acquisitive growth efforts. This quarter we experienced non-PPP growth and our pipeline remained robust.

Craig Anderson has worked at putting in place strong regional teams in each of our metro and community regions that sets us up nicely for continued organic growth. Merger activity in our footprint has picked up and we have had several conversations with companies over the last several months.

Equity is ready and willing to act as a partner to Banks that fit and complement our organization. We have a set of specific financial requirements for potential merger transactions and we will not stray away from those to ensure that our excellent merger track record continues.

We will stay true to our requirements on earned back, cultural fit and geographic strategic fit. I recently traveled to all the markets and I am excited about what we have already achieved in 2021 and believe we are going to have a very robust year.

While the operating environment is not easy, this is where our team can shine and show our customers our value proposition. Eric, let’s take everyone through the quarter..

Thank you, Brad, and good morning. Last night we reported net income of $15.1 million or $1.02 per diluted share. We calculate core earnings of $0.65 per diluted share, meeting street consensus.

Results this quarter were driven by recognition of origination fee income from PPP loan forgiveness, improvement in fee-based drivers such as Mortgage Banking, Trust & Wealth Management, debit card and building momentum on commercial card interchange income.

Expense management continued to be a focus as well with expenses down linked-quarter and year-over-year. Our GAAP net income was impacted by a release of reserves from the allowance for credit losses totaling $5.8 billion.

We had budgeted 20 basis points of average loans for provisioning this year exclusive of credit losses, which would have resulted in a pro forma provision to the ACL of $1.35 million and we provided to the ACL as we budgeted and maintaining the same effective tax rate, pro forma net income would have been $9.5 million or $0.65 per diluted share.

We adopted CECL on January 1 as anticipated. Upon implementation, we recognize an after-tax reduction to stockholders’ equity of $12.4 million and transferred $12 million of purchase credit impaired marks to the ACL, which are predominantly related to loans acquired from the transaction associated with Almena State Bank.

The ACL upon implementation was $61.3 million from the year end allowance for loan losses of $33.7 million. During the quarter, the attributes that drove the release were predominantly related to the economic inputs used in the model and to a lesser extent improvement in historical loss experience and its impact on the ACL.

The March 31 coverage of ACL to non-PPP loans is 2.33%, a significant improvement from the 48 basis points coverage we reported that year end 2019. Net interest income totaled $31.8 million in the first quarter, declining from $35.6 million in the December 31 quarter, representing a $3.8 million reduction.

In the fourth quarter, we recognized $1.1 million of interest income on the return of assets to accrual which did not repeat. Next, during the current quarter, the weighted coupon in the portfolio declined approximately 10 basis points.

However, when looking at our core loan products, commercial, commercial real estate and agriculture, the weighted origination coupons in the first quarter were 4.61% from 4.42% in the prior quarter. Furthermore, we experienced a decline in the recognized level of loan fees due to an elevated level of origination fees recognized in the fourth quarter.

We had a reduction of purchase accounting accretion due to the implementation of CECL and associate classification of the purchased accounting marks. Finally, in the fourth quarter, we recognized $3.75 million of fee income and $777,000 of interest income related to PPP loans.

And in the first quarter, total PPP fee income recognized and interest income totaled $3.1 million and $896,000, respectively. This contributed to a $532,000 decline in the net interest income in the first quarter.

Of the $3.1 million of fee income recognized in the first quarter, $2.3 million was related to the acceleration of fees to our customers PPP loans being forgiven by the SBA during the quarter, which totaled $99.6 million. At March 31, 2021, we had $12.7 million of unrecognized fee income associated with PPP loans, which totaled $414 million.

Removing PPP fee income and interesting income from net interest income in both the first and fourth quarter’s results in pro forma net interest income of $27.8 million and $31 million, respectively. Loan yields, earning asset yields and net interest margin in the quarter ending March 31 was 4.61%, 3.65% and 3.19%, respectively.

This compares to the quarter ending December 31 of 5.15%, 4.23% and 3.7%, respectively.

Greg, do you want to touch upon our origination activity this quarter?.

Thanks, Eric. Total loans grew $204 million in the quarter and when excluding PPP, loans increased $43.7 million, representing a 7.6% annualized growth. We originated $233.6 million of PPP loans in the quarter to 3,300 customers. We have had a nice pull-through to closure from the pipeline this quarter.

Our total pipeline is approximately $450 million, which is similar to what we have been reporting over the last several quarters. Our sales efforts have been keeping our pipeline constant, but I anticipate the pipeline growing in the near future with the opportunities we are seeing.

I wanted to mention our Trust & Wealth Management business for a moment.

While we are thrilled about where we stood at year end in terms of assets under management, we have had an exciting quarter and have successfully closed a significant amount of business with our AUM increasing to $265 million, a level that we had budgeted for the end of the year in 2021, not by the end of the first quarter.

Our sales team has gained a lot of traction and we are optimistic about our organic growth strategy for the remainder of 2021. As this new business starts to invest away from cash, the contribution of fees from the higher level of AUM will become more meaningful to total fee income yet this year.

I am also enthusiastic about other fundamentals in our businesses that contribute to fee income. Deposit account growth over the last year has contributed to more opportunity for deposit fees. While the average balance of accounts has also increased, our net checking growth has improved dramatically from just 12 months ago.

The opportunity for fee income should be elevated with a higher number of deposit accounts. Our sales teams have also made successful efforts with selling treasury management products and commercial credit cards.

With a commitment to putting these cards in the hands of our commercial customers and selling them treasury management products to help them facilitate their business needs, it increases our opportunity for fee income. The trend of commercial card interchange is quite positive and will be supportive to our overall non-interest income goal for 2021.

Brad?.

I want to touch base on our digital strategy. We added some detail on our digital strategy acceptance experience in our Investor Day. Over the last year, we had an increase of 27% in online banking adoption and a 67% increase in active users of mobile deposits. Starting in 2019, we began working on an online deposit gathering channel.

While we were ready to open that channel last year, we delayed it with the high level of deposits we were gathering. We are going forward with opening that channel up in the next few months.

We have branded the online deposit platform, Brilliant Bank, which allow us to differentiate between end markets and outside of market strategy when it is more relevant in terms of pricing. Customers will initially have the ability to open a DDA, savings and a money market account in our Brilliant Bank platform.

It is completely paperless and customers can immediately fund their account upon opening. We leverage our work on Brilliant Bank and now have the capability for traditional customers to open accounts online at Equity Bank. This will permit our sales teams to leverage the online account opening capabilities. This might sound like a table stakes.

But with the 750 Banks in our target markets, we are on the leading edge with this technology and strategy. These platforms are a critical part of our overall deposit strategy in its contribution to our franchise value.

It allows us to incrementally reduce the cost of deposit acquisition, in response to changing industry dynamics regarding how our customers interact with us. With that said, presence in our markets continues to be important and we will remain committed to having our customers call us or walk into our branch, and talk to someone when they need us.

Eric?.

Thanks, Brad. We continue to show growth in our non-interest-bearing deposits, which grew $180 million in the most recent quarter and has about doubled from what we reported in March of last year. A couple of factors are at play here which are systematic.

We understand that some of these funds may be a temporary phenomenon, and we are studying scenarios on how this might have impacted on our deposit balances. Last year, we originated $282 million of main street lending loans and we required those customers to bring their operating accounts to Equity.

Between late fourth quarter and early first quarter, we can identify over $100 million of deposit growth attributed to these customers, and we believe these deposits to be long-term and expect that will benefit our treasury management income.

Along with other actions we have taken to reduce our cost of funds, these non-interest-bearing deposits are benefiting the overall cost for funding. The total cost of deposits inclusive of non-interest-bearing deposits for the quarter ended March 31 was 27 basis points, declining from 33 basis points from the prior quarter.

The total cost of all funding defined as interest-bearing funding and non-interest-bearing deposits for the quarter was 44 basis points, down from 51 basis points in the fourth quarter. As I mentioned on earlier conference calls, time deposit costs continue to benefit from re-pricing.

I believe we have another quarter of benefit before its contribution to lowering interest-bearing deposit costs slows meaningfully. We took steps in January and again in April to reduce the cost of money market deposits which should have some benefits in the second quarter.

As I mentioned earlier, when excluding the effects of PPP, our NIM in the first quarter was 3.19%. Impacting this was a higher contribution on the securities portfolio. The composition of earning assets was impacted in the March 31 quarter by a higher contribution from the lower yielding securities portfolio and interest-bearing cash.

The ratio of average securities to average earning assets increased 24.3% in the March 31 quarter from 22.3% in the preceding quarter and the yield declined 17 basis points. The ratio of average Fed funds sold to average earning assets increased to 5.3% in the March 31 quarter from 3.9% in the preceding quarter and the yield declined 24 basis points.

Greg, why don’t you take everyone through your thoughts on credit?.

Thanks, Eric. As 2021 begins, we continue to be optimistic about where we stand with many of our customers.

The Equity Bank team continues to work hard to position both our customers and the Bank for successful outcomes, including the facilitation of PPP loans where needed, proactive communication with borrowers to understand their operating environments and needs, and timely resolution of any problems that do arise.

In the first quarter, total non-accrual loans exclusive of the impact of CECL adoption and modifications to purchase accounting and including the Almena merged assets were essentially flat to year end 2020. OREO was down $1.2 million during the quarter on sales of six assets without any appreciable losses.

OREO is now just $3.5 million when excluding income producing CRE assets that regulations require to be classified as OREO than former Bank branch assets. There were no material additions to OREO in the quarter.

Upon the adoption of CECL, purchase credit deteriorated assets, which had been previously reported net of purchase accounting, are now gross for problem asset disclosures driving the reported increase in problem assets.

Also during the quarter, we updated the valuation of certain assets from our purchase of Almena State Bank, which resulted in the classification of $2.2 million in purchase discounts to potential repurchase obligations associated with government guaranteed debt.

Each of these changes drove up the ending balance of non-accrual loans without impacting the Bank’s economic position in the assets. At year end 2020, we moved one of our large relationships into special mention in our Aerospace segment and associated uncertainty surrounding it had been previously discussed.

During the second half of 2020, the entity principle injected $50 million of capital into the borrower, dramatically improving the credit picture. Our borrower remains current on its loans at this time. We believe we are adequately collateralized and amicable discussions continue with the borrower.

Management will continue to closely monitor this relationship and overall portfolio, and proactively work with our borrowers to ensure the best result for both the businesses and the Bank.

We also use the extension provided to us under the appropriations bill signed in late December to provide some relief to customers that continued to be directly impacted by COVID by deferring a portion of their payments for varying terms as permitted under the CARES Act.

The total loan balances under some form of relief, generally in the form of deferral, at March 31, totaled $73.4 million. As we stated last quarter, we prudently structured the deferrals so that in the event the borrower met certain financial performance metrics, the deferral would end and contractual payments would resume.

We believe we have appropriately risk-rated these loans and assess them for accrual status as required by GAAP and regulatory standards. We also believe the majority of these borrowers have secondary sources of capital to repay should the primary source become insufficient.

About 45% of the balance is the very strong operators in the entertainment sector and who have outside -- and who have significant outside assets and about 22% is to very strong hoteliers. We have been in communications with our large hotel operators and the environment is rapidly improving in this industry.

We believe this in tandem with our conservative underwriting standards for these assets and combined with the owner’s quick and prudent actions to the COVID environment continue to lead our belief that any upset would be minimized.

The balance of our loan portfolio also continues to perform well in Ag related credits especially have been a bright spot. Ag represents 9% of our loan book. Grain and protein prices have both been up and land values continue to be strong. Our Ag lenders led by Levi Getz are experienced and have firsthand knowledge of the industry and their markets.

As I said on our last call, the prospect of future issues due to COVID-19 are still possible. We are confident we have the resources and our credit and special assets teams to address in a proactive way any perceived or actual issues as they arise.

Eric?.

Thanks, Greg. Before turning the call over to Brad, I wanted to again highlight our forecast slide. Here, you can see our thoughts on the forecast for the second quarter and how our first quarter outlook compared to actual results. Thematically, we undershot NIM in the quarter due to the earlier reasons discussed.

Later in the quarter, we had more loan funding which reduced excess liquidity on our balance sheet. As such, I believe that our downside on NIM is more limited in the second quarter. We have also taken steps to hopefully see some modest additional benefit from the funding costs as well.

However, the success in defending NIM will be dependent on loan growth and origination coupons. The second quarter and full year outlook does not have any significant departure or adjustments from what we expected and reported on in our January conference call.

Brad?.

Thanks, Eric. We continue to prudently manage capital. In October last year, the Board of Directors approved a second stock repurchase plan totaling 800,000 shares. Through last Friday, we have repurchased 570,000 shares in that plan.

Management and the Board continually discuss capital management strategy, while considering credit quality and organic and acquisitive growth opportunities. Under consideration is the initiation of a common stock dividend.

In the event that the Board were to approve a common stock dividend, it would likely be in the fourth quarter of this year and would represent a payout ratio that supports our overall growth strategy.

Before we open it up for questions, I want to once again command our Equity Bank teams in our markets where they are focused, on our customers and demonstrating that we are dependable and responsive to their needs. Even during a pandemic, many of our competitors have not been able or willing to serve their customers. But we never closed our door.

That decision to be a steadfast partner to our customers is a differentiating factor between Equity and others. It provides value to our customers and allows us to build deeper and longer lasting relationships with them. And with that, we are happy to take your questions now..

[Operator Instructions] Our first question comes from Jeff Rulis with D.A. Davidson..

Thanks. Good morning..

Good morning, Jeff..

Just a quick question on the margin and really the, I guess, slide 25 and sort of the outlook. If you could sort of walk us through the balance of the year with those expectations on continued securities investment, management of margin in the short-term and sort of second half, and how that 3.15% to 3.35% range.

It sounds like more like near-term contraction than some relief as the year goes on?.

Yeah. Jeff, this is Eric. I actually -- if you look at the midpoint there, which is where I have been focusing at the 3.25% which is exclusive of any effects of PPP interest, as well as fee income. That’s showing actually a little higher than the 3.19% that we reported in the first quarter, which is also exclusive of PPP income.

And the reason that we are thinking that we are going to show probably 3% to 5% growth of NII dollars in the second quarter is due to some of the coupon -- coupons that we have been putting on in terms of originations in our first quarter and our core loan product, securities, C&I and Ag being about 20 basis points higher in the first quarter than in the fourth quarter.

So we are seeing some benefit there in the second quarter. Thematically, in the back half the year, I think that, I wouldn’t necessarily say we are going to continue to see contraction. I will say a lot of it has to do with two things, first off, continuing to see our originations have a four handle on that.

It will be quite helpful in defending NIM and to-date we have been seeing that. And then second our cost of funding which we have been getting some tailwinds from the re-pricing of the CD portfolio and time deposits. It’s still fairly elevated.

But I do think that that -- we have probably another quarter of benefit there and then it might -- I think that re-pricing will slow. So its contribution to reduced funding costs will fall in the back half of the year. But we have been taking steps to re-price some of our money market and other products as well.

So that will be important in defending NIM in the back half of the year..

Okay. Thank you. And maybe, Eric, while I have you the -- this more of a housekeeping. Your -- the Main Street income or servicing, what -- just trying to map that within the noninterest income line.

Is that -- you put that in other or whereas -- where do you account for that?.

Yes. So the -- we originated $282 million of Main Street loans in the fourth quarter. As a reminder, we are receiving 25 basis points of servicing on those loans as long as they remain on our balance sheet and that income is showing up in other on fee income..

Thank you. And last one for maybe Brad. I appreciate your comments on the buyback and the dividend discussion to come.

But maybe just an update on the M&A front and how kind of how that chatter is going of late?.

Sure. So we have had lots of conversations of late, Jeff. We are in some really good deep conversations with people that I think can come together. And so it’s really picked up the last three or four months and I am very positive and hopeful that those things will happen this year or could happen this year.

As we always say, institutions decide when they want to merge. We don’t decide when they want to merge. And so, but those conversations are very, very positive and look very positive to us, all within our deal metrics, so nothing outside the box for us and all within our footprint..

It sounds like seller expectations are still pretty rational.

You have been given a kind of lift in equity prices over the last six months?.

Yeah. I think all conversations we have solid expectations all -- are all in line with where the industry is today..

Great. Okay. I will step back. Thanks..

Our next question comes from Terry McEvoy with Stephens..

Good morning..

Good morning..

Good morning, Terry..

It was nice to see the loan growth ex-PPP. I guess my question is when you think about the full year 3% to 8% average loan outlook that’s in the investor deck.

Could you just talk about areas of the portfolio specific markets that could create growth on the high end of that range?.

Yeah. I think we have actually some really good teams. We have got a really good team now down in Arkansas. We are seeing a good pipeline build from them down there. We have had some -- we have made some changes to that team in a positive way and they are really catching some traction down there. We have a really great team in Tulsa.

We had to reset that team about a year-and-a-half ago. And the new team, there’s one of the best commercial teams that we have in our group and their pipeline is really, really strong and so we have got great. So the metro markets are kicking in well, but the community markets are also doing a really good job. Levi gets out in Western Kansas.

It has -- we have got a really good team out there. We have added a couple of people that we had a couple people retire and so we are pretty excited about that team and being able to generate some new loan volume for us. So it’s kind of all over our footprint, Terry. And then utilization on Ag lines is way down and utilization on C&I lines are down.

So, if we have some inflation. We have some people to start doing some work. Again, I think that those utilizations will go up naturally. So I think we can get loan growth that’s already on our books and then we could get loan growth from some of the teams that we have built or Craig has built..

Thanks. And next question just on the ACL ratio. Others adopted CECL a year earlier and have kind of guided us towards the day one level is a quote-unquote normalized reserve ratio. I am not sure what are your thoughts on in a normal environment.

What should the appropriate ratio be relative to loans?.

Whatever the model says, Terry. That’s what I have been coached to say. I appreciate the question, Terry. I chuckle a little just because I don’t have an answer for you, because a lot of it has to do with what perhaps you said, it’s driven by the model. Some of the things that happened that drove that release, first off, historical loss experience.

When you look at the history of Equity, we really haven’t shown a lot of losses and so really then, yeah, we have to look at management qualitative factors in the economy.

And obviously, the economic situation is definitely different today than it was last year when most of our peers were adopting CECL, so that that’s definitely having an influence on the overall level that we reported at March 31.

Also, some of that trending that we are seeing there from the beginning of the year at 1/1 when we implemented and 3/31 was favorable as well. And so that’s -- those are the two things that was really driving that release. But I wouldn’t necessarily say that that high watermark of the $61 million on January 1 was a target for us..

Thanks. I appreciate all those comments and understand it’s a tough question. And then lastly maybe just expand on Brilliant Bank.

I am downloading the app now and I guess my question is, is this a strategy that if I am in the 67207 zip code, I get a different rate, kind of a different product set versus somebody who is completely out of market? And in longer term, how does that impact maybe your deposit costs relative to the industry and peers?.

Yeah. So, this is similar to what other Banks have, let’s say, we can use Home Bank that has Giant Bank as their online Bank. And so, we were really focused on this two years ago, Terry, as a way. So we were needing to raise deposits.

Our really only avenue is to go to our retail customer base and it kind of -- when you raise deposit rates it raises all your deposit rates and so your cost of funds grow very rapidly when you are in a deposit gathering mode.

And so our strategy on this is that if we need to, let’s say, we need to raise $100 million or $200 million in funding, we could go to this product, but at a stated yield rate out there and money would flow in from national accounts. They would not be local account attractions.

We wouldn’t advertise in our zip codes honestly, we never advertise outside our zip codes..

Okay.. Thanks, everyone..

It’s really to keep those deposit rates completely different..

Makes sense. Thanks, Brad..

[Operator Instructions] Our next question comes from Andrew Liesch with Piper Sandler..

Good morning, everyone..

Good morning..

A question for you guys on the loan growth in the quarter.

Was any of it purchased or was it all originated in-house?.

There’s a combination of both in that. We look for some mortgage products that we can put on our books that would augment. We have had a lot of that on our books from several vendors that sell us those over time and then we have also with the mortgage volume been able to put some of that on our books as well. Not in long-term extension rates though..

Got it. So, that does sound like some of the mortgages where your own originated though.

What drove the strategy to retain these versus others and did they offer better credit or better rates, what was the different terms and structure, what was the decision to retain some of these?.

Well, we have always had a big portfolio, I would say. So it’s not a new strategy. We just have -- There’s just more volume in the marketplace today than there has been..

Got it.

And then on the Main Street lending program, the related deposits, those are flown onto the balance sheet or do you think there could still be some more growth coming from those customers?.

There’s still some more growth that we have got part of the relationship over and we are still working to have them unwind the relationship with the other institution and get the rest of it over. So there’s still some stragglers out there..

Got it. That’s good to hear.

And then just one last question on the security that you purchased, just curious what was the -- what were the rates that you were adding those at?.

Yeah. I would say that we are probably adding securities at 125 basis points to 150 basis points..

Okay. That’s helpful. Yeah. Not going too far out on the yield curve for that. So I will just putting some money to work. Good to hear. That covers all my questions. Thanks so much..

Thank you..

Our next question comes from Andrew Detrenco [ph] with KBW..

Hi. Good morning, everyone. I am filling in for Mike today..

Good morning..

Good morning..

So, I just had a question about loan pricing.

If you could provide any incremental loan pricing and whether you expect loan yields to stabilize if loan growth continues in the back half of the year?.

Yeah. Andrew, yeah, if you looked at our core loan products, CRE, C&I, Ag, this quarter, the coupon of origination there was 4.61%. That compares to 4.2% in the prior quarter. So we had some benefit on originating higher yield.

So, that’s certainly a challenge and has enabled us to then originating or handle credit and that will definitely be something that we will continue to look at and monitor when we are looking at our expectation of NIM for remainder of the year.

So we have been doing it so far, so I don’t expect that we will have a significant departure from our experience there..

Awesome. And just a second question on fee initiatives.

Are you working on getting fee contribution up towards 20% of total revenues over the next few years or is there another target that you have in mind that you are willing to share?.

Yeah. The answer is, yes. That is definitely a focal point of us. We look at our peers and our aspirational peers, and we look at their composition of fee income by total revenue and there’s certainly a gap between us and them and that’s definitely a focal point for us.

We have been focused on and have demonstrated that we can improve debit card interchange income. We are now putting our commercial credit cards into the hands of our commercial customers and we are starting to see a more meaningful contribution of that interchange income to fee income. The trend there is quite positive.

It’s coming off a low base, but it’s actually very interesting to see how much it’s improved in just the last quarter. Trust & Wealth Management, our AUM in that unit at the end of the quarter was around $265 million, which is a big increase from year end. And frankly, that was a goal of ours for the end of this year, not the end of the first quarter.

So, while Trust & Wealth Management fee income was flat in the first quarter, there’s a lot of fee opportunity for us to be -- yet to be recognized back half of this year, because of the wins that sales team has experienced. Treasury management income is also a big focal point for us and there’s a lot of sales initials around that.

And as Brad was talking about with Main Street loans and those deposits coming over, all those are treasury management customers and so there’s a lot of opportunity there as well on the same trend.

So, when you put all that together and we are obviously looking at other initiatives as well in our pipeline, we believe that that will help us achieve that shorter term goal or kind of more of an immediate goal of getting up to 20%.

And then, frankly, we would like to get up to where some of our peers are, which is higher than that but that’s our longer term goal..

Yeah. The only thing I would state is, these aren’t things that we are just now thinking about. These are, I mean, almost every one of these initiatives being kicked off more than 18 months ago and so we are actually seeing some of this pull-through and traction on them already..

Great. Thank you so much..

Our next question is a follow-up question from Terry McEvoy with Stephens..

Thanks. Eric, I appreciate you providing your thoughts on the NIM ex-PPP. Just given the amount of kind of fee revenue expected in Round One, you are about halfway there and then another call it 13-plus of fees for Round Two.

Could you help us maybe think about the timing so we can incorporate that into our models?.

Sure. So we originally coming into 2021 we had about -- from 2020 PPP program we had about $4 million of fees yet to be recognized. I think we recognize around $2.5 million of that or between $2 million and $2.5 million of that in the first quarter.

So there’s probably another $1.5 million to $2 million from that 2020 PPP loans program yet to be recognized. And I suspect because our teams have been maniacally focused on forgiveness and we have done an excellent job of getting our customers to make the application the SBA have forgiven.

So I suspect that most of that will be recognized in the second quarter and it might stray into the third. So that take us to the $12 million to $13 million of that fee recognition that we have on the 2021 program and I suspect that by 75% of that will probably be recognized by year end this year with the remaining 25% in the first quarter of 2022.

But again our teams generally surprise me and sometimes get that done real more quickly, but that’s my conservative view on that. And we modeling it, we have actually got 75% in 2021. We have been a little more biased to come back in the second half of the year. So we might see a small dip in fee recognition in the second quarter.

But our teams are actually working on an automated approach for many of our smaller loans that actually provide a filled out application to the customers to just execute and signs and taking the work away from them and so you might be able to start recognized more in the second quarter than what we are modeling.

Probably a little bit more than you want to know, but….

No. I appreciate that. Thanks, Eric..

Ladies and gentlemen, there are no further questions at this time. And since there are no further questions, this does conclude the conference for today. You may now disconnect and have a wonderful day..