Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Equity Bancshares Inc (EQBK, Financial) reported a net income of $11.7 million or $0.76 per diluted share, with adjusted net income of $15.2 million or $0.99 per diluted share after accounting for merger expenses.
- The company achieved record high watermarks in operating performance, with significant improvements in net interest income and net interest margin.
- Successful integration of the Bank of Kirksville merger and the acquisition of Kansasland Bancshares, which closed on July 1, 2024.
- Strong capital ratios and significant liquidity, with a loan deposit ratio below 80%, positioning the company for continued earnings growth.
- Active shareholder return initiatives, including a quarterly dividend and share repurchase program, with 152,982 shares repurchased during the quarter.
Negative Points
- The effective tax rate for the quarter was driven up to 28.1% due to one-time BOLI surrender charges of $1.8 million.
- Non-interest expenses increased due to merger-related costs and the integration of Bank of Kirksville, totaling $37.0 million.
- Provision for credit loss was $265,000, with a continued need to hold reserves for potential economic challenges.
- Loan originations decreased from $116 million in Q1 to $99 million in Q2, indicating a slowdown in loan growth.
- The company faces ongoing competitive pressure on deposit rates, with some competitors offering rates in the fives for money market accounts.
Q & A Highlights
Q: The question on the margin, I think of kind of flat to down for the second half and wanted to I think there was a mention of the lagging effect of repricing deposits. Is that the genesis for the kind of the conservativeness on margin? Just wondering double check that?
A: I think it's two things, Jeff. One of it is just that continuing potential pressure on deposits that were recognizing in that number, but it's also the purchase accounting adjustments as it relates to Bank of Kirksville that particular transaction, we realized the level of purchase accounting accretion about 10 basis points alone, 7 basis points to margin during the quarter. That normalizes down to five or six not dropped down margin a little bit. So it's a little bit of both those things out. This leaves me a little bit of conservatism in that number. - Chris Navratil, Chief Financial Officer, Executive Vice President
Q: And the I just wanted to make sure you did not have rate cut expectations in that margin guide and if not, what would that net effect be from your perspective?
A: That's correct. We don't have any in the model itself or in those four and that outlook, what is our balance sheet sits today. We're in a modestly asset-sensitive position. So for small rate cuts, we expect a small adjustment down in terms of margin. But at the same time, we think we have ample opportunity on the liability side to be moving rates down to maintain or nearly maintain where we are from a margin perspective. So we think for small movements as we go forward, we won't see meaningful degradation in margin. If we start to see larger cuts, that's where there could be some challenge, but we're not forecasting or looking at that at the moment. - Chris Navratil, Chief Financial Officer, Executive Vice President
Q: Just a question on the swap that expired. Just curious what basis point benefit to the margin. How did that generate?
A: Yeah, I think, Andrew, the benefit for the quarter on that derivative transaction was [8] basis points. I mean it potentially slightly greater as you look forward. So 9 basis points on a go forward basis that expired at the middle of April. - Chris Navratil, Chief Financial Officer, Executive Vice President
Q: And then the excess liquidity that you mentioned 9 basis points last quarter. Does the guide include that excess liquidity on there on the balance sheet?
A: Yeah, the guide includes the cash and includes the margin in fact. - Chris Navratil, Chief Financial Officer, Executive Vice President
Q: Just on the M&A front, just curious if you could provide some more commentary on what's gone on maybe over the last six weeks or so, like how have your conversations been tracking with prospective targets?
A: Yeah, we've got there's actually several new conversations kicking up, Andrew. And so there's lots of conversations going on. As you know, that never means that anything is in concrete going to happen. But, you know, we take a lot of tires have a lot of conversations model a lot of deals and then see if we're the partner they want to pick. And so it's -- I'm encouraged by the standpoint of I think there's a lot of opportunities that we are able to talk with right now, I think people have realistic expectations. I think conversations are going well. So you have things stock price moving up, probably help some of those transactions, some of those transactions are all cash. So it's not doesn't influence them at all. But I think there's lots of positive momentum in the second half of the year for conversations. - Brad Elliott, President, Chief Executive Officer
Q: Chris, maybe a couple of questions for you when we were together last month you raised the outlook for the net interest margin. And I think you commented that there were some accretions behind the increase. Could you just maybe quantify the accretion last quarter and how are you thinking about the second half of this year from an accretion perspective?
A: Yeah. So through the second quarter, Terry, the accretion recognized through margin was 7 basis points. As I look forward, I think. So it will range between I expect for this year of five and eight. So the higher end would be a kind of more meaningful accretion from BLK plus some additional Kansasland, the lower end would just be slower accretion on the BLK side as well as Kansasland and maybe between 5 basis points and 8 basis points. I think the rest of the way. - Chris Navratil, Chief Financial Officer, Executive Vice President
Q: What are your thoughts on the tax rate in the fourth quarter and 2025?
A: Yeah. So for the rest of this year, the way the whole the transaction works is basically factored into the effective tax rate for the year. So without any additional tax planning, we would see the tax rate yield realized year to date, which is about 24% to 24.5%. That would be consistent the rest of the year. As you look at the outlook, we put 20% to 22% in there for a quarter and the year. And the reason for that is we do have some tax-planning strategies we're working on. We think we can lower that rate. So if we realize those benefits, we'll see a lower we'll see that tax rate somewhere closer to 20%. If we don't it'll be where it is today on a year-to-date basis is about 24.5%. - Chris Navratil, Chief Financial Officer, Executive Vice President
Q: What's the profile of a potential M&A partner today? What are the reasons for having a conversation with equity? And are there any similar characteristics among some of those potential partners?
A: There are similar characteristics. Some reasons are there the age of ownership is in their 70s management in their 70s. Some of the reasons are they're fighting the headwinds of margin compression and it's continuing to get worse. They don't look like it's going to get better, and others are some regulatory pressure from different things in. I'm not high risk areas, but just things that their board is tired of dealing with and so there's kind of a whole bag of stuff each one is kind of different. There's not a theme across the board that only one theme is several of them have are fighting the headwinds of margin compression. And even if the fed starts cutting rates, it's not going to improve their margin enough to make a difference in deposits have repriced on faster than the assets are and the assets are still two or three years out. - Brad Elliott, President, Chief Executive Officer
Q: Quick question on the outlook for
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
