Earnings Call Transcript - EQBK Q1 2021

Operator, Operator

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. I would now like to turn the call over to your host, Chris Navratil. You may begin.

Chris Navratil, Host

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.

Brad Elliott, Chairman and CEO

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 strong earnings quarter. Eric will go into more specifics, including how the results were positively influenced by many operating factors, increased fee income, and the reversal 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 our core businesses. Our leaders are focused on growing customer relationships. Our Western Missouri market has excelled in 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 arise 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 a lot 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 to put strong regional teams in each of our metro and community regions that set 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.

Eric Newell, CFO

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 and 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. 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 recognized 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 at 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 by 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%, up 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 the 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. 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 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 for 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 interest income from net interest income in both the first and fourth quarters 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?

Greg Kossover, COO

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 opportunities 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 of our overall non-interest income goal for 2021. Brad?

Brad Elliott, Chairman and CEO

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 due to the high level of deposits we were gathering. We are now going forward with opening that channel up in the next few months. We have branded the online deposit platform, Brilliant Bank, which allows 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 utilize the online account opening capabilities. This might sound like a basic requirement, 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?

Eric Newell, CFO

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 our deposit balances. Last year, we originated $282 million of Main Street lending loans and 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 from 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 to 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?

Greg Kossover, COO

Thanks, Eric. As we start 2021, we remain optimistic about our relationships with many customers. The Equity Bank team is diligently working to support both our customers and the Bank for favorable results. This includes helping with PPP loans when necessary, proactively communicating with borrowers to understand their situations and needs, and promptly addressing any issues that arise. In the first quarter, non-accrual loans, excluding the effects of CECL adoption and adjustments to purchase accounting, and including the Almena merged assets, were mostly unchanged from year-end 2020. OREO decreased by $1.2 million during the quarter, with six assets sold without significant losses. Currently, OREO stands at $3.5 million when excluding income-generating CRE assets that are required to be classified as OREO rather than former Bank branch assets. There were no significant additions to OREO in this quarter. Following CECL adoption, assets previously reported net of purchase accounting are now reported gross for problem asset disclosures, contributing to the increase in reported problem assets. Additionally, during this quarter, we updated the valuation of certain assets acquired from Almena State Bank, classifying $2.2 million in purchase discounts as potential repurchase obligations related to government-backed debt. These changes led to an increase in the ending balance of non-accrual loans without affecting the Bank’s economic position in these assets. At the end of 2020, we classified one of our significant relationships in our Aerospace segment as special mention, which involved uncertainty that we had previously noted. In the latter half of 2020, the principal entity invested $50 million in capital into the borrower, significantly enhancing the credit situation. Our borrower is currently up to date on its loans. We believe we are well-collateralized, and positive discussions are ongoing with the borrower. Management will continue to monitor this relationship and the overall portfolio closely, working proactively with our borrowers to ensure favorable outcomes for both the businesses and the Bank. We also utilized the extension from the appropriations bill passed in late December to provide relief to customers adversely affected by COVID, allowing for the deferral of some payments for varying terms as allowed under the CARES Act. As of March 31, total loan balances under some form of relief, mostly as deferrals, reached $73.4 million. As we mentioned last quarter, these deferrals were structured carefully so that if borrowers met certain financial performance metrics, the deferrals would conclude and normal payments would resume. We believe we have properly assessed the risk of these loans and evaluated them for accrual status according to GAAP and regulatory standards. Additionally, we believe most borrowers have alternative sources of capital to repay if their main source becomes inadequate. About 45% of this balance is to very capable operators in the entertainment industry, who possess significant external assets, and around 22% is to strong hoteliers. We are in communication with our major hotel operators, and the environment for this industry is improving quickly. We believe that alongside our cautious underwriting practices for these assets and the proactive measures taken by owners in response to the COVID situation, we can minimize any potential issues. The overall loan portfolio continues to perform well, particularly in agribusiness, which has been a bright spot, representing 9% of our loan book. Grain and protein prices have risen, and land values remain solid. Our Ag lenders, led by Levi Getz, are knowledgeable and well-versed in their industry and markets. As I mentioned in our last call, the possibility of future issues stemming from COVID-19 still exists. However, we are confident we have the resources within our credit and special assets teams to effectively manage any perceived or actual issues as they occur. Eric?

Eric Newell, CFO

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?

Brad Elliott, Chairman and CEO

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 commend 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, Operator

Our first question comes from Jeff Rulis with D.A. Davidson.

Jeff Rulis, Analyst

Thanks. Good morning.

Brad Elliott, Chairman and CEO

Good morning, Jeff.

Jeff Rulis, Analyst

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?

Eric Newell, CFO

Yeah. Jeff, this is Eric. If you look at the midpoint, which I have been focusing on at 3.25%, this is excluding any effects of PPP interest and fee income. This figure is actually a bit higher than the 3.19% we reported in the first quarter, which also excluded PPP income. We anticipate showing approximately 3% to 5% growth in NII dollars for the second quarter due to some of the coupons we've implemented during our first-quarter originations. Our core loan products—securities, C&I, and Ag—were about 20 basis points higher in the first quarter compared to the fourth quarter, which provides some benefit in the second quarter. Looking ahead to the latter half of the year, I wouldn't necessarily expect continued contraction. This is largely tied to two factors: first, if our originations maintain a four-handle on that, it will be quite beneficial in defending NIM, and we've been seeing that trend thus far. Second, we're experiencing some advantages from re-pricing our CD portfolio and time deposits in our cost of funding, which remains relatively high. I believe we have probably one more quarter of benefit from this, but expect that re-pricing will decelerate, so its impact on reducing funding costs will decrease in the latter half of the year. We are also taking steps to re-price some of our money market and other products, which will be important in defending NIM during that time.

Jeff Rulis, Analyst

Thank you. Eric, I have a housekeeping question. Regarding the Main Street income or servicing, where do you categorize that within the noninterest income line? Is it included in other, or is there a specific account for it?

Eric Newell, CFO

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

Jeff Rulis, Analyst

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?

Brad Elliott, Chairman and CEO

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.

Jeff Rulis, Analyst

It sounds like seller expectations are still pretty rational. You have been given a lift in equity prices over the last six months?

Brad Elliott, Chairman and CEO

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

Jeff Rulis, Analyst

Great. Okay. I will step back. Thanks.

Operator, Operator

Our next question comes from Terry McEvoy with Stephens.

Terry McEvoy, Analyst

Good morning.

Eric Newell, CFO

Good morning.

Brad Elliott, Chairman and CEO

Good morning, Terry.

Terry McEvoy, Analyst

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?

Greg Kossover, COO

I think we have some really strong teams in place. Our team in Arkansas is building a solid pipeline, and we've made positive changes that are helping them gain traction. The team in Tulsa, which we restructured about a year and a half ago, has become one of our best commercial teams with a very strong pipeline. The metro markets are performing well, and the community markets are also doing a great job. In Western Kansas, Levi has a good team, and although we had a few retirements, we've added new members. We're optimistic about their potential to generate new loan volume. Overall, we're seeing this success across our entire footprint. However, utilization on agriculture lines is significantly down, as is utilization on commercial and industrial lines. If inflation encourages more activity, I believe those utilizations will rise naturally. We can expect loan growth from the existing loans on our books and from the teams we've developed.

Terry McEvoy, Analyst

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 as 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?

Brad Elliott, Chairman and CEO

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 when we implemented and March 31 was favorable as well. And so those are the two things that were 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.

Terry McEvoy, Analyst

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 the longer term, how does that impact maybe your deposit costs relative to the industry and peers?

Brad Elliott, Chairman and CEO

This approach is similar to what other banks do. For example, Home Bank uses Giant Bank as their online banking option. We focused on this strategy two years ago as a means of raising deposits. Our primary source for increasing deposits was our retail customer base, and raising deposit rates leads to an increase in all deposit rates, which can quickly raise the cost of funds when trying to gather deposits. Therefore, our strategy is that if we need to raise funding by $100 million or $200 million, we can utilize this product at a specified yield rate. This would attract money from national accounts rather than local ones, and we typically don't advertise beyond our own zip codes.

Terry McEvoy, Analyst

Okay. Thanks, everyone.

Operator, Operator

Our next question comes from Andrew Liesch with Piper Sandler.

Andrew Liesch, Analyst

Good morning, everyone.

Brad Elliott, Chairman and CEO

Good morning.

Andrew Liesch, Analyst

A question for you guys on the loan growth in the quarter. Was any of it purchased or was it all originated in-house?

Brad Elliott, Chairman and CEO

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.

Andrew Liesch, Analyst

Got it. So, that does sound like some of the mortgages were 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?

Brad Elliott, Chairman and CEO

We have always maintained a significant portfolio, so this isn't a new strategy for us. We are simply experiencing a higher volume in the marketplace than in the past.

Andrew Liesch, Analyst

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?

Brad Elliott, Chairman and CEO

There’s still some more growth that we have got part of the relationship, 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.

Andrew Liesch, Analyst

Got it. That’s good to hear. And just one last question on the security that you purchased. I'm curious about the rates at which you were adding those.

Brad Elliott, Chairman and CEO

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

Andrew Liesch, Analyst

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

Brad Elliott, Chairman and CEO

Thank you.

Operator, Operator

Our next question comes from Andrew Detrenco with KBW.

Unidentified Analyst, Analyst

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

Brad Elliott, Chairman and CEO

Good morning.

Eric Newell, CFO

Good morning.

Unidentified Analyst, Analyst

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?

Brad Elliott, Chairman and CEO

Yeah. Andrew, 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 originate 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 the 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.

Unidentified Analyst, Analyst

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?

Eric Newell, CFO

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 our 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, we believe that will help us achieve that shorter-term 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.

Brad Elliott, Chairman and CEO

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 were kicked off more than 18 months ago, and so we are actually seeing some of this pull-through and traction on them already.

Unidentified Analyst, Analyst

Great. Thank you so much.

Operator, Operator

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

Terry McEvoy, Analyst

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 million of fees for Round Two. Could you help us maybe think about the timing so we can incorporate that into our models?

Eric Newell, CFO

Sure. Coming into 2021, we had approximately $4 million in fees from the 2020 PPP program that had yet to be recognized. We recognized around $2.5 million of that in the first quarter. So, there is likely another $1.5 million to $2 million remaining from that 2020 PPP loans program that still needs to be recognized. Our teams have been very focused on forgiveness, and we have successfully assisted our customers in submitting applications for SBA forgiveness. Therefore, I expect that most of the remaining amount will be recognized in the second quarter, possibly extending into the third. This brings us to the expected fee recognition of $12 million to $13 million for the 2021 program, and I believe that about 75% of that will be recognized by the end of this year, with the remaining 25% in the first quarter of 2022. However, our teams often exceed expectations and may achieve this more quickly. We are projecting 75% recognition in 2021, with a slight bias toward the second half of the year. We might see a small decline in fee recognition in the second quarter. Our teams are also developing an automated process for many smaller loans, providing customers with a pre-filled application to streamline the signing process, which could allow for accelerated recognition in the second quarter than currently anticipated.

Terry McEvoy, Analyst

No. I appreciate that. Thanks, Eric.

Operator, Operator

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