Good day, ladies and gentlemen and welcome to the Equity Bancshares' First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Jacob Willis, Investor Relations Officer. Sir, please go ahead.

Good morning and thank you for joining our Equity Bancshares presentation and conference call, which will include discussion and presentation of our first quarter 2018 results. Joining me today are Equity Bancshares' Chairman and CEO, Brad Elliott; and Equity Bancshares' Executive Vice President and Chief Financial Officer, Greg Kossover. Presentation slides to accompany our call are available for download at investor.equitybank.com, as is our press release detailing first quarter results. You may also click the event icon for today's call posted at investor.equitybank.com. If you are viewing this call on our webcast player please note the slides will not automatically advance. Please note Slide two 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. Slide three also details important additional information for investors and shareholders. 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.

Good morning. I'm Brad Elliott, Chairman and CEO of Equity Bancshares, and here with me today is our CFO, Greg Kossover. Thank you for joining our first quarter 2018 Equity Bancshares' earnings call. As you can see from headline on our earnings release last night Equity Bancshares' posted record earnings for the first quarter 2018. We have worked hard to integrate five institutions since our November 2015 IPO and these mergers, as well as organic growth over this same timeframe have led to these record results. We are also excited to tell you our two most recent merger announcements, First National Bank Liberal and Adams Dairy Bank in Kansas City are scheduled to close on May 4th. As announced for these transactions this past December these two mergers expand equity Bank to 48 branches in four states we operate in; Kansas, Missouri, Oklahoma and Arkansas. As we have continued to grow our balance sheet and expand geographically, we have also continued to add talent to the Equity Bank team. This past quarter we added Craig Anderson our Chief Operating Officer. Craig come to us from a long and successful career at UMB and he will head our metro markets as well as help us increase our fee income business lines like treasury management, swap products and grower card service business. I'm especially excited about this edition to the team as Craig brings not only experienced in our market, but also add significantly to our leadership base. He will work side-by-side with Wendell Bontrager to continue to lead our community markets. We have also added Craig Mayo at our new Chief Credit Officer. Craig also comes to Equity with over 30 years experience in credit and we're excited about his fit into our credit culture. Craig comes to us from Community…

We will begin with a reconciliation of earnings per share for the quarter. As Brad said at the top of the call, stated diluted earnings per share for the first quarter is a record $0.58 per share on a record $8.7 million in net income allocable to common stockholders. Mergers and acquisition expense adjusted for income taxes hurts earnings and EPS by $412,000 in the quarter or $0.03 per share. Additionally, we have a one-time executive compensation adjustment as disclosed in our 8-K of March 5th of $339,000 after tax or about $0.02 per share. First quarter earnings and EPS reconciled for these items are $9.5 million and $0.64 per share, both records for our company and in line with our expectations. Looking at the components of net income we start with net interest margin which for the quarter was 3.91% as compared to net interest margin for the fourth quarter in 2017 of 3.79%. Yield on asset is up in the quarter 20 basis points led by loans with the yield of approximately 5.55% on a weighted average loan coupon at the end of March of about 5.04%, compared to about 4.98% at year end and 4.88% at March 31, 2017. Securities which yielded about 2.67% in Q1 2018 were about 2.50% at December 31st and 2.45% one year ago. Partially offsetting the improvement in asset yields is a rising cost of funds in total of 10 basis points in the first quarter. Cost of interest-bearing deposits was 94 basis points in the first quarter of 2018 compared to 87 basis points in the fourth quarter. Helping to offset these increases our non-interest-bearing checking accounts have increased more than $28 million since year-end reducing the overall current cost of deposits 14 basis points to 80 basis points versus 74 basis points at year-end. The cost of Federal Home Loan Bank overnight advances has risen about 24 basis points in the same timeframe. Brad?

We have a campaign running right now at Equity Bank to increase core deposits called one more day whereby each bank in our franchise is encouraged to increase checking accounts one per day. As Greg stated non-interest bearing checking accounts are up in the quarter and this is no doubt is in part of our efforts of the team who opened over 3600 checking accounts during the quarter. Greg?

Provision for loan losses was $1,170,000 in the quarter essentially where we planned. Net charge-offs for the quarter were only $352,000 and nothing large was in that number. ALLL as a percentage of total loans was 44 basis points at quarter end and total reserves with purchase accounting discounts was 1.19%.

As we continually monitor our portfolio and markets for macro trends, we continue to see muted credit weakness. However, and as I have stated before, we are also not loosening our credit criteria. Wendell in the production teams and now with Craig Anderson and Craig Mayo adding even more strength are continuing to push hard at quality production.

Non-interest income for the quarter was in line with our expectations. After scrubbing our merger related expenses and the executive comp mentioned earlier non-interest expense in the quarter was also in line with our expectations. Our efficiency ratio continues to trend downward ending the quarter at 59.6% and non-interest expense to average assets was 2.51%, both measures at their lowest since the company went public. Our effective income tax rate for the first quarter was 22.5% in line with our previous guidance. This leads Equity Bancshares with a return on average assets as stated at 1.11% and performed for the non-core adjustments of 1.21%. Return on average tangible common equity as stated is 14.1% and adjusted for non-core items is 15.3%.

As we look at our balance sheet next I once again thank the teams for all their efforts. Everyone at Equity Bank is pulling hard to deliver shareholder returns. In the first quarter we had our largest ever all employee meeting, attended by all our associates and totally over 625 people. In this meeting we set our goals for the year and discuss the vital initiatives for each team at equity. We have held this meeting every year since we founded the bank and we believe it makes us different and more employee-friendly particularly to get a key everyone on the same page, which helps us to be more shareholder friendly.

Loans grew 23 million or about 1%which is not unusual for a first quarter. This does not take into account approximately $35 million of construction facilities originated but to be funded in future quarters. The allowance for loan losses increased $818,000 and with purchase accounting discounts stands at $25.3 million. Securities were essentially flat and OREO plus nonperforming assets were down $5.8 million in the quarter. On the liability side deposits were relatively flat down approximately $9 million, however time deposits greater than $100,000 were reduced by design as brokered CDs from recent mergers were allowed to roll off in the amount of $48 million and were offset by growth in transaction accounts of approximately $42 million. This in turn grew core deposits to total deposits from 78% to 80% this quarter. Total stockholders equity grew $7.3 million, the net of income allocable to common shareholders and the change in AOCI of about $2.1 million. Brad?

I'm really excited to report the contribution being made by all our markets both from recent mergers and from our legacy Equity Banc locations. Both Tulsa primarily in loan production and Ponca City in both loans and deposits have performed to expectation. Also Hoxie at our Western Kansas locations have been steady the past 12 months in both loan and deposit production. The teams in all these markets have made the transition into the Equity Banc system and we are expecting the same from the teams at Liberal and Adams Dairy. I am also excited about our Legacy Equity Bank locations. Mark Parman and his team in Kansas City and Jeremy Machain heading up Wichita have led these two metro markets in strong fashion. I've not been more excited about the two markets and the leadership in each of them in the history of the bank. We added new strength to the leadership team in Western Missouri and our Ozark region continues to progress and a contributor to the equity franchise.

Our capital ratios continue to be competitive and allow us to safely execute our mergers and growth strategies. Tangible common equity entered the quarter at 8.70%, Tier 1 was 9.45% and total risk-based was 12.81%, tangible common book value per share is $18.22 at 3.30/1.18 [ph]. Basic share count at the end of March was 14,621,258 shares and diluted was 14,923,798 shares.

As we think about 2018 we want you to know that we are continuing on with our two strategies for growth; grow organically and grow through mergers. We have been busy cultivating our merger pipeline, as we always do. And our current teams have been busy diligently to grow our existing markets with great customers and great products. I once again want to thank all of our stakeholders for their support. Please note that each Equity Banc employee understand our goal is to deliver the most shareholder value we are capable of. Although these are some of the best of times, we are not resting on our laurels. We are also stakeholders and we know if we grow our customer base, book value and EPS each shareholder wins. With these common goals in mind we are working responsibly to grow loans while maintaining our very high credit quality, we are focus on growing core deposits one account at a time if necessary. And we are protecting capital each step of the way. We will continue to do mergers we believe we'll grow shareholder value and with merger partners we believe fit into the Equity Banc culture. At time we are happy to entertain questions.

[Operator Instructions] Our first question comes from the line at Michael Perito with KBW. Your line is now open.

Hey, good morning guys.

Good morning!

Hi.

Couple of questions for me. I want to start maybe on kind of the high level and outlook here, Brad. I mean, your fourth and first quarter here, there’s been a couple merger items in the expense line, but other than that there have been two somewhat clean quarters showing some good profitability trends, decent growth and I am curious as you guys talk internally, how do you keep that momentum going, while also having the M&A piece of the strategy and we’ve got two more deals coming on in May. Obviously there will be some noise around that, but what do you think you guys can do or what you are doing currently to kind a keep the fundamental momentum of the franchise going, as you kind a have to integrate these new franchises?

That’s good question, Michael. So, it’s really helped us with adding Julie Huber, moving her out of the Chief Credit Officer role last year. About this time or actually it was May or June timeframe. It allows her to focus on the integration of M&A and she’s uniquely suited in my opinion to be able to see the whole company, because she’s been in so many different parts of the company and so her focus on that really allows the rest of the team to focus on what they do. So, as we get bigger and they have done more and more M&A transactions, there is less and less distraction in the core organic team and so I would tell you that we really try to keep that group separated from the M&A strategy until the time we close the transaction. So, I would tell you that there is more focused on organic today than there ever has been. Wendell has done a really, really good job of getting that group focused and oriented towards organic growth, adding Craig Anderson into that mix on leadership will really help both of them. Stayed focus on organic growth while we are out working on M&A transactions. We’ve also implemented and started strategic at beginning of this year to really solidify the origination process and pick that to the next level and so I think if that gets implemented throughout this year, I think our organic machine honestly, Michael, just gets better and better and I think we will see much better results quarters from now from that organic origination than we ever have before.

Helpful Brad! Thanks! And then, second question on the deposit side – can you remind us kind of the mix geographically of deposits between your three more metro markets and then the rest of your franchise and also maybe just talk to some of the pricing disparities you are seeing in those markets, I mean, you mentioned that you rolled off some non-core funding, I think it was in Tulsa in the prepared remarks. Is that the plan to try to replace that with core funding in market or is it so competitive where the plan is to kind of replace it with core funding in your ruled markets and go that direction?

So, it’s two-fold. One is the Tulsa folks are really focused on growing deposits in that market. They had to fund their balance sheet because they couldn’t fund the loan growth fast enough with that core deposit growth. So, what I would tell you is it’s a really good deposit market and it will grow. We’ve really good bank location there in the right part of the town and so the number of checking accounts open today I think are as high as they are probably ever been in the quarter for that group, and I think they are going to continue to grow their core deposits. It’s not going to make up the funding needed to be honest with you in that market. So, that market funding or that deposit funding then comes from our other markets that are not as asset rich, then so if you remember it’s about 60-65% funded from community markets and about 35 to 40% funded from metro markets.

And there is a pricing pressure in those community markets been notably less or you really seeing it across the franchise?

So, it’s less – there is pressure everywhere on betas, but it’s less. There is not as much pressure as there is in the market like Tulsa, Kansas City or Wichita and so there is less pressure, but there is still pressure. Am I saying that correctly Greg?

Yes.

Great! And then, just one last one for me – on the loan growth side, Greg, you mentioned in my question that there is more focused ever internally on the organic side. We’ve heard a lot of the larger midcap banks talk about competition on commercial real estate multifamily C&I, auto and consumers stuff. It really seems to be all over. Just curious as you’ve kind of bump up the organic growth here, can you talk a little bit about where incremental pricing is on the asset yield side, and are you still seeing decent yield pickup as you put new loans on or is the competition really kind of competing that way?

Well, Michael our coupons have been up essentially every quarter for the last five quarters. This quarter our coupon was 504 and the entire portfolio versus about 499 in Q4 2017. So, even with the competition I think the universe of banks in our space continues to understand that as Brad alluded to cost of deposits is increasing, betas are increasing, and I think we are seeing across the board more responsible loan pricing to offset that. So, our teams have done a really nice job of educating our customers and getting our loan yields and coupons to go up. So, even though there is pressure out there, I think the fact that we are all living in a rising rate environment is in fact manifesting itself in better asset yields.

Okay, cool. Thanks for taking my questions guys. I appreciate it.

Thanks Mike.

Our next question comes from the line of Terry McEvoy with Stephens. Your line is now open.

Good morning guys.

Hi Terry.

Brad, it maybe question for you. Could you just talk about loan the pipeline and the outlook for the second quarter as it relates to loan growth? Do any geographies or industries stand out and then maybe I know it’s early in the quarter but any comments on what you have seen over the last three, four weeks?

Yes. So, I would tell you Terry that the dollar amount in the pipeline is to close in the next 90 days is significant – honestly May is as big as we’ve had it ever for a month. So we are hoping that all that comes through until it closed, it’s never closed, but we are looking for a good pipeline there. I think it will be – we'll have to help you guys pull that out, because next quarter end we're going to have the two mergers that come together. So, we're going to have to separate out what was growth from the mergers and what was actually organic growth, but I think you are going to see good organic growth there and it’s kind of across the board, Terry. I am actually looking at the pipeline report. We booked a really good C&I deal out of our Tulsa market at the beginning of this quarter and in April and so a big one for us. I mean it’s $20 million credit relationship that they had a small piece of that we were able to pull the rest of it away from a large financial institution, because they want it in the local bank and so it’s everything from C&I to construction loan. So, it’s kind of across the board on what we're looking at and it’s all market; Kansas City, Wichita, Tulsa and even the community markets are doing a really good job of adding new opportunities. So, the teams of -- I will give Wendell and Patrick Harbert a lot of credit. They've really worked hard with their teams over the last year to get them focused on organic origination, not that they weren’t always focused, but Mark Parman and Jeremy have added some really good new officers in Kansas City and Wichita and so all of that’s kind of hitting in, and so I am pretty bullish honestly, Terry, about where we’re headed from an organic origination standpoint.

And then a question for Greg, this 391 margin, could you just kind of run through some of the upside versus the prior quarter? And then maybe the sustainability and what your thoughts are on the second quarter on a core basis and then taking into consideration the pending deals?

Yes. So, Terry I think what – let me give you the punch line first. I think that we should expect second quarter to be 375 to 380 on net interest margin post mergers, but that will be offset relative to the first quarter by higher average balances of earning assets too. So, I don’t expect the dollars of net interest margin to be negatively impact, but I think the rate will be -- we had a – its difficult to tell purchase accounting always what's going to happen with accretable yield? I estimate that in the first quarter we might have had a couple hundred thousand dollars, maybe $150,00 to $200,000 of accretable yield in addition to what we had budgeted. We also had a nice fee quarter. We look at our loan fees, loan origination fees and they were up several hundred thousand dollars from where we had budgeted. Is a very nice problem to have. We did originate about $35 million of construction loans that remain unfunded through Q1, but we took the fees on. So if you put all in the blender, I would back off the 391 somewhere closer to 380 to 383, and I would expect second quarter to be more like 375 to 380, but again dollars should not be negatively impacted as will be carrying higher average balances.

That's great. And then just a last question, Brad, when you ran through Craig Anderson and his new role with the company, you talked about growing loans, growing deposits, growing fees, sounds like a big task. How do you maybe rank some of the -- maybe near-term priorities and where you'd expect to see success within those three areas of potential growth?

So, what I would tell you is the team underneath him is built. It's not like he has to come in here and build that. We feel very fortunate to have him join our team. We get a really experience person from an institution that's much larger than us, so he brings a lot of experience to us that will help us. But the team is built underneath him, so and is working. He doesn't have to fix things there. And so I think he'll be additive to that loan origination fees and the deposit treasure management origination fees. And I think the fee income piece, Terry will be longer out, but we already have some initiatives underway. He's going to help to be the catalyst in moving those to completion. So we already had an initiative underway. We have a small card business today that we've had that doesn't produce a lot of income honestly, but the platform's there. And so I think Craig will help us to be able to take that platform and be able to expand it into actual revenue.

Great. Thank you both.

Thank you, Terry.

[Operator Instructions] Our next question comes from the line of Andrew Liesch with Sandler O'Neill. Your line is now open.

Hey, guys. Just one follow-up. You've covered most of my questions. The pipeline, this $35 million or so of construction that you took the fees on, are those expected to fund up this quarter or slowly throughout this year?

I would say, slowly throughout the rest of the year.

Okay. And then were there any outsized pay downs here in the first quarter that affected loan growth?

No.

Okay. That's covers my questions. Thanks.

Thanks, Andrew.

I'm not showing any further questions at this time. I'd like to turn the call back to Mr. Willis for any closing remarks.

Ladies and gentlemen, this concludes our Equity Bancshares' presentation and conference call. Thank you for joining and have a great day.