Equity Bancshares Inc (EQBK) 2021 Q1 法說會逐字稿

Good day, and thank you for standing by, and welcome to the Q1 2021 Equity Bancshares Earnings Call. (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 1, 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 discussion.

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 remain focused, as always, on driving value for our customers, employees and communities to enhance shareholder value.

We've been able to do this through prudent capital management. We are maintaining high credit quality standards while swimming upstream against less prudent competition. We're in the position of being a trusted adviser and experts to our customers. And I believe when 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 banks 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 that 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 adviser 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 metro 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. To date, our process has worked as the number of credits and dollars coming into our nonperforming 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 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 earn back, cultural fit and geographic strategic fit. I recently traveled to all the markets, and I'm 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 at $0.65 per diluted share, beating Street consensus. Results of 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 in 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 million. We have 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 shareholders' equity of $12.4 million and transferred $12 million of purchased 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, an 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 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 associated classification of purchase 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 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 due 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 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 yield and net interest margin in the quarter ending March 31 is 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.

Craig, 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've 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 and 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'm 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 noninterest income goal for 2021. Brad?

I wanted to touch base on our digital strategy. We had some detail on our digital strategy acceptance experience in our investor deck. 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 will allow us to differentiate between end market and outside of market strategies 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 leveraged 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 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 brands and talk to someone when they need us. Eric?

Thanks, Brad. We continue to show growth in our noninterest-bearing deposits, which grew $180 million in the most recent quarter and had 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 an impact 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 contributed 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 noninterest-bearing deposits are benefiting the overall cost of funding. The total cost of deposits, inclusive of noninterest-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 noninterest-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 repricing. 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 of 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 yields declined to 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 were 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 nonaccrual 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 6 assets without any appreciable losses. OREO is now just $3.5 million when excluding income-producing CRE assets that regulations required to be classified as OREO and former bank branch assets. There were no material additions to OREO in the quarter. Upon the adoption of CECL, purchased credit deteriorated assets, which have 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 nonaccrual 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 uncertainties surrounding it have been previously discussed.

During the second half of 2020, the entity principal 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 used the extension provided to us under the appropriations bill signed in late December to provide some relief to customers that continue 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 totals $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 to 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 and 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 in our credit and special assets teams to address in a proactive way, any perceived or actual issues as they arise. Eric?

Thanks, Craig. 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 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've also taken steps to hopefully see some modest additional benefits in 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 commend our Equity Bank teams in our markets for their focus 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. While we never closed our doors 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're happy to take your questions now.

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

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 in sort of second half and how that 3.15% to 3.35% range sounds like more like near-term contraction than some relief as the year goes on.

Yes, Jeff, this is Eric. I actually -- if you look at the midpoint there, which is where I've been focusing at the 3.25%, which is exclusive of any effects of 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're thinking that we're going show probably 3% to 5% growth of NII dollars in the second quarter is due to some of the coupons that we've been putting on in terms of originations in our first quarter and our core loan products, CRE, C&I and Ag being about 20 basis points higher in the first quarter than in the fourth quarter.

So we're seeing some benefit there in the second quarter. Thematically in the back half of the year, I think that I wouldn't necessarily say we're going to continue to see contraction, I will say a lot of it has to do with 2 things. First off, continuing to see our originations have a four-handle on that. It will be quite helpful in defending them. And to date, we've been seeing that. And then second, our cost of funding which we've been getting some tailwinds from the repricing of the CD portfolio, 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 repricing will slow. So its contribution to reduced funding costs will fall in the back half of the year, but we have then taking steps to reprice some of our money market and other products as well. So that will be important in defending them in the back half of the year.

Okay. And maybe, Eric, while I have you, the -- and this is more of a housekeeping. Your -- the Main Street income of servicing. What -- just trying to map that within the noninterest income line. Is that -- do you put that in other? Or where is -- what do you account for that?

Yes. So the -- we originated $282 million of Main Street loans in the fourth quarter. As a reminder, we're 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.

Great. And last one for maybe Brad. I appreciate the 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 chatters going off late.

Sure. So we've had lots of conversations of late, Jeff. We're in some really good deep conversations with people that I think can come together. And so it's really picked up the last 3 or 4 months. And I'm very positive and hopeful that those things will happen this year or could happen this year. As you -- 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 even given the kind of lift in equity prices over the last 6 months?

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

Our next question comes from Terry McEvoy with Stephens

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?

Yes, I think we have actually some really good teams. We've got a really good team now down in Arkansas. We're seeing a good pipeline build from them down there. We've had some -- we've made some changes to that team in a positive way, and they're really catching some traction down there. We have a really great team in Tulsa. We had to reset that team about 1.5 years ago. And the new team, there is one of the best commercial lending teams that we have in our group and their pipeline is really, really strong.

And so we got great -- so the metro markets are kicking in well, but the community markets are also doing a really good job. Levi Getz out in Western Kansas, has got a really good team out there.

We've added a couple of people, then we had a couple of people retire. And so we're 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 the 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've built or Craig has built.

And next question, just on the ACL ratio. Others adopted CECL a year earlier and have kind of guided us towards a day 1 level as a "normalized" reserve ratio. I'm not sure what are your thoughts on in a normal environment what should the appropriate ratio be relative to loans?

It's whatever the model says, Terry. That's what I've been coached to say.

No, 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 Brad just said, it's driven by the model. Some of the things that have been -- 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 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's definitely having an influence on the overall level that we reported at March 31. And also some of the trending that we're 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 2 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.

I appreciate all those comments, and I understand it's a tough question. And then lastly, maybe just expand on [Brilliant Bank]. I'm downloading the app now. And I guess my question is, is this a strategy that if I'm in the 67207 ZIP code, I get a different rate, kind of a different product set versus somebody who's completely out of market. And longer term, how does that impact maybe your deposit costs relative to the industry and peers?

Yes. 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 2 years ago, Terry, as a way. So when 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're 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, put 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 advertise outside our zip codes. And it's really to keep those deposit rates completely different.

Makes sense.

(Operator Instructions) Our next question comes from Andrew Liesch with Piper Sandler.

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've had a lot of that on our books from several vendors that sell us those over time. And then we've also, with the mortgage volume, being able to put some of that on our books as well, not in the long-term extension risk, though.

Got it. So that sounds like some of the mortgages were your own originated though. What drove the strategy to retain these versus others? And I mean do they offer better credit, better rates. What was the -- are there different terms on structure? What was the decision to retain some of these?

Well, we've 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, have those all 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've got part of the relationship over, and we're 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 securities that you purchased. Just curious what was the -- what were the rates that you were adding those at?

Yes. I would say that we're probably adding securities at 125 to 150 basis points.

Okay. That's helpful. Not going too far out on the yield curve for that so I'll just put some money to work. Good to hear. That covers all my questions.

Our next question comes from [Andrew DeFranco] with KBW.

I'm filling in for Mike today. 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?

Andrew, if you look at our core loan products, CRE, C&I, Ag in this quarter, the coupon of origination there was 4.61% and that compares to 4.42% in the prior quarter. So we had some benefit originating higher yields. So that's certainly a challenge, and we've been able to defend originating 4 handle credits, and that will definitely be something that we'll continue to look at and monitor when we're looking at our expectations of NIM for the remainder of the year. But we've been doing it so far so I don't expect that we'll 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're willing to share?

Yes. The answer is yes. That is definitely a focal point of us. We look at our peers and our aspirational peers and we'll look at their composition of fee income to total revenue and there's certainly a gap between us and them. And that's definitely a focal point for us.

We've been focused on and have demonstrated that we can improve debit card interchange income. We are now putting commercial credit cards into the hands of our commercial customers. And we're 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 and Wealth Management, our AUM in that unit at the end of the quarter was around $265 million, which was 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 and 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 in the back half of this year because of the wins that, that sales team has experienced. Treasury management income is also a big focal point for us, and there's a lot of sales initiatives around that. And as Brad was talking about with Main Street loans and those deposits coming over, all of those are treasury management customers. And so there's a lot of opportunity there as well.

Did I miss anything, Brad? So when you put all that together and we're 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 intermediate goal of getting up to 20%. And then frankly, we'd like to get up to where some of our peers are, which is higher than that but as a longer-term goal.

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

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

Eric, I appreciate you providing your thoughts on the NIM ex PPP. Just given the amount of kind of fee revenue expected in round 1, you're about halfway there and then another call it, 13 plus of fee is for round 2. 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 the 2020 PPP program with about $4 million of fees yet to be recognized. I think we recognized 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 up from the 2020 PPP loan program yet to be recognized. And I suspect because our teams have been maniacally focused on forgiveness, and we've done an excellent job getting the -- our customers to make the application to the FDA and get forgiven.

So I suspect that most of that will be recognized in the second quarter and it might stray into the third quarter. So that takes us to the $12 million to $13 million of net fee recognition that we have on the 2021 program.

And I suspect that 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 surprised me and sometimes get that done a little more quickly. But -- so that's my conservative view on that.

We're modeling it. We've actually that 75% in 2021, we've been a little more biased in the back -- 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 build-out application to the customer to just execute and sign taking the work away from them. And so you might be able to recognize more in the second quarter than what we're modeling. Probably a little bit more than you want to know, but?

No, I appreciate that.

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