Equity Bancshares (NYSE:EQBK) Q3 2020 Earnings Call

0:01 Ladies and gentlemen, thank you for standing by. And welcome to the third quarter 2020 Equity Bancshares, Inc. earnings conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host, Chris Navratil, please go ahead.

0:34 Good morning, and thank you for joining Equity Bank Shares conference call, which will include discussion and presentation of our third quarter 2020 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 discussion. Thank you all for joining us. With that, I'd like to turn it over to Brad Elliott.

1:20 Thank you, Chris, and good morning. Thank you for joining our call and your interest in equity bank shares. Joining me is Eric Newell, our CFO, Greg Kossover, our Chief Operating Officer, and our President, Craig Anderson. Despite the disruption and uncertainty of COVID-19, I'm excited with how the equity bank team has been able to achieve. Our company has accomplished many of our 2020 objectives while dealing with the disruption of the weird operating world we currently face. We continue to protect and support our team members on the front lines as they serve our customers and their communities.

2:11 I can't remember a time that our capital has been better positioned To take advantage of opportunities that might come our way. We are poised for organic growth and will keep looking for opportunistic banks that need merger partners. We intend to responsibly continue our share repurchase program and remain focused on key strategic initiatives that we must accomplish to become high-performing banks. Thank you for joining us today. In our third quarter, we finished raising offensive capital totaling $75 million, which will allow us to take advantage of opportunities I previously mentioned.

3:28 We successfully completed our joint regulatory exam with the Federal Reserve and the state of Kansas in the third quarter. Our tangible book value has grown 14% since the end of 2019, are $2.97 per share. We completed our 2019 stock repurchase program in September, repurchasing 383,000 shares, all of which were accreted to tangible book value and earnings. In addition, the board approved a second repurchase program totaling $16 million to start in the fourth quarter of 2020, subject to customary regulatory review.

4:20 At the start of the pandemic, our equity teams took a trusted advisor approach with our customers to preserve cash. We did this very early in the process. It did result in 26% of our loans being on deferral at June 30th. But it helped our customers set aside much needed cash reserves for the current period, but also for the re-ramping period of this pandemic. As the 90-day deferrals expired in the third quarter, we remained focused to assure our customers had what they needed to operate.

5:06 And when looking at the deferral, We ensured that those that needed an additional deferral were still showing the impact from the pandemic. On September 15th, we reported our progress, with only 11% of our loans still on deferral at that date. As expected, at the end of the third quarter, we had approximately 1% of our loans still remaining on deferral. Through this period, our customers' cash position has increased, and in some cases, the amount of the cash on hand is the highest they have ever experienced. By taking the approach we did early in the process, we feel our customers are now positioned to be able to survive and possibly thrive in the recovery from this pandemic.

6:05 Over the last several months, Craig Anderson and I visited our region regularly and met with local customers. I'm excited to see our customers adapting to the change environment and how many are operating at levels superior to the start of the COVID-19 disruption. I am pleased the equity team continues to be steadfast partners to our customers and communities. I thank our bankers, for their commitment and approach to helping our local communities. As a community bank, we do what it takes to help each community succeed. Eric, why don't you take us through the details of the quarter?

6:53 Thank you, Brad, and good morning. During the quarter, we identified a non-cash goodwill impairment totaling $104.8 million. which resulted in a gap loss of $6.00 in the penny for the quarter ending September 30th. Driving this impairment is the drop in bank stocks overall including the company's common stock price resulting in a lower fair value of our capital versus book value prior to the impairment, the reduction in market multiples of peers used in our valuation analysis, our cash flow forecast in light of uncertainty related to the pandemic, and higher discount rates given the environment. The impairment does not affect cash balances, liquidity, tangible book value or regulatory capital ratios.

7:42 As some of the goodwill was created from taxable events, the effect on capital totals 99.5 million with 5.3 million of deferred tax assets being created due to timing differences in expense recognition for book and tax purposes. Let me peel back the gap number to assist in understanding core operating performance. Without the goodwill impairment, pre-tax earnings would have been $11.4 million. Using a pro forma tax rate of 22.5%, the resulting pro forma net income would have been $9.1 million, or $0.60 per diluted share. This includes the effect of PPP loans on our balance sheet. During the quarter, we recognized 1.3 million of SBA fees related to PPP loans compared to 1.03 million in the second quarter.

8:33 Both of these numbers are net of costs associated with originating PPP loans. As a reminder, we will recognize a total net 11 million of fees associated with a PPP program, for which we have already recorded 2.3 million, leaving 8.7 million left to recognize. At September 30th, we had submitted approximately 26% of our PPP dollars for forgiveness and have started to see the SBA forgiving loan balances. We believe that anything that had been submitted by the end of the quarter will be recognized in the fourth quarter this year and the remainder will be recognized in 2021. PPP loans totaled $376 million at September 30th and the average balance in the quarter totaled $375 million.

9:24 Interest earned from the PPP loan portfolio was $960,000 during the quarter. Pre-tax pre-provision revenue in the quarter ending September 30th totaled a pro forma $12.6 million when excluding the impairment. This compares to the second quarter pre-tax pre-provision revenue of $14.7 million, which included a non-recurring benefit, of $932,000 deferring the expenses associated with a PPP loan origination. The trend in the third quarter run rate of pre-tax pre-provision is primarily due to the timing of FAS 91 salary deferral in the second quarter that is not expected in future quarters. Our net interest margin held up well given the headwinds.

10:12 We've enhanced our margin disclosure in our press release tables by adding granularity to the table in the loan section. NIMS declined two basis points linked quarter showing stability and total earning assets and cost of interest-bearing liabilities. We were particularly happy about the progress made in our interest-bearing deposits with the cost declining 13 basis points linked quarter. Late in the third quarter, we paid off a relatively higher cost FHLV borrowing that had a notional value of $250 million. We expect to see some modest improvement in the cost of FHLB advances in the fourth quarter, offset by a modest increase in cost of other borrowings, as we only have two months of the $75 million subordinated debt in the third quarter.

11:00 As Greg and I mentioned in the second quarter earnings call, the expectation for future declines in interest-bearing deposits will largely be driven by continued repricing of the CD portfolio. The average life of that portfolio is about 14 months, and we are nine months into the repricing, so we expect to see another quarter of benefit before we level out. On the interest-earning assets, we have taken a measured approach to new origination yields, generally originating loans with a four-handle versus a three-handle. This has allowed us to maintain relative stability in the yield earned on our loans, declining six basis points linked quarter. The total securities portfolio is expected to continue to decline in yield, and over time, as we see loan demand, we will remix the composition of our earning assets into loans. If we exclude PPP loans from the NIM analysis for the quarter ending September 30th, the yield on CNI, total loans, and total earning assets would be 5.16%, 5.01%, and 4.19% respectively.

12:12 This compares to 5.23%, 5.07% and 4.24% respectively for the quarter ending June 30th. Excluding PPP loans again, pro forma NIM for the quarters ending September 30th and June 30th would be 3.59% and 3.65% respectively. You will note that our provision for loan loss was $815,000, materially lower than what we reported in the first half of 2020. As a reminder, we continue to be under the incurred loss methodology for the allowance for loan losses, and we used qualitative factors in the first half of 2020 to add $22.4 million to the allowance for loan losses.

12:59 Qualitative factors included the rise in unemployment and the incidence of deferred loans. While these factors have both eased, the uncertainty remains. Facts and circumstances have not materially changed which drove the minimal provision in the quarter. If circumstances remain unchanged, we do not believe a material provision under the incurred loss method will result in the fourth quarter. At September 30th, we had $5.7 million of credit marks on acquired loans. When included in the ALLL, the pro forma coverage ratio rises to 1.69% when excluding the ending balance of PPP loans from the denominator. Under the CARES Act, we're required to adopt CECL at December 31, 2020 and are ready to do so. When adopting CECL, the effect of the adoption will run through capital and not current period earnings. We are expecting that at December 31 after adopting CECL, our ACL coverage of non-PTV loans is expected to be north of 2% positioning us well for 2021.

14:00 Greg?

14:02 Thanks, Eric. I want to echo Brad's comments about working with our customers through this period of uncertainty. Thank you for joining us today. Of the total deferred loans at June 30th, we did provide a second deferral on commercial loans totaling $158 million. That deferral was typically not for another 90 days, though.

14:49 As a result, we now report a small level of deferrals at the end of the quarter, about 1%. There will be one-off concerns that may show up in our non-performers in future periods, but for the most part, I share in the optimism Brad indicated. Our customers have responded to the changing environment by adjusting their business plans and approaches, and in some cases, our customers are operating at the highest level of performance and profit they have experienced. While we are pleased at the success of transitioning the majority of our customers out of deferral programs during the quarter, there is continued uncertainty in the operating environment, and I would like to spend a little time on two specific portfolios, hotel and aviation. Our hotel portfolios continue to comprise approximately 10% of the overall portfolio.

15:39 As discussed on slide 25, our book is comprised of experienced hoteliers with a proven capacity to weather changing economic cycles, and they have proactively managed their businesses to shrink costs and conserve cash, positioning themselves to continue to perform in an uncertain environment. As of today, in our hotel portfolio, we have seen one loan which was purchased in a merger at less than $4 million transitioned to non-performing assets. Management will continue to work closely with these borrowers to position their businesses and the bank for continued success. Manufacturing directly tied to aerospace comprised approximately 2% of the overall portfolio at September 30th. The relationships consist of proven operators with diversified capacity to serve various components of the airline manufacturing industry. The management teams of each of the underlying businesses have proactively managed their operations to best position themselves for continued performance.

16:43 However, as the airline industry remains in flux due to the impact of the pandemic risk remains. Management will continue to closely monitor this portfolio and proactively work with our borrowers to ensure the best result for both the businesses and the bank. While we show a minor uptick in total non-performing assets from $55.8 to $59.4 million, it can be attributed to one shared national credit. This credit totaled $6.2 million and has currently been contracted to sell and should settle in the next few weeks with a slight loss, but already reserved for in the third quarter. Excluding this relationship, total non-performing assets were $53.3 million at quarter end and trending positively as compared to June 30th.

17:33 Other real estate owned is down linked quarter as we continue to responsibly sell assets when excluding our closed branches that were added to OREO in the third quarter. There possibly will be other issues in credit that arise as various borrowers face different COVID-19 related issues. However, we believe our resources are adequate and our teams are focused. As we move forward, the management team will continue to closely monitor performance within our portfolio and proactively work through issues as they arise. The Credit and Special Assets teams, led by Craig Mayo, are seasoned and prepared to continue to support the bank and our customers. Brad?

18:16 One of our strategic goals has been to grow the quality of our deposit base by having industry-leading technology for our customers. In 2019, we implemented a new online and mobile banking platform. We knew this would elevate our customers' experience. and the upgrade proved critical for our company in 2020. We've seen engagement with our mobile and online channels continue to grow throughout the year. Usage grew during our branch light period in the second quarter and enrollments, payments and logins have continued to grow throughout the third quarter.

19:03 I frequently get asked by investors We did close three branches permanently in May of this year from previously evaluating the efficiencies of our branch network. We will perform a continual review of our branches to understand performance and profitability and have always done this We have seen our branch utilization hold steady in our community markets. This is reassuring and critical to our strategic goal of defending and growing the quality of our deposits and key to our multi-channel customer experience.

19:58 We do not anticipate that there will be a meaningful change in our branch strategy in the markets we serve. I'm also delighted at the progress we've made in 2020 with consumer DDA deposits, which are not affected by PPP funds. At the end of the third quarter, we had opened a net 3,400 new consumer DDA accounts year-to-date, compared to a net 1,200 through the same period in 2019. The average consumer DBA balance increased by 20% in 2020 from 2019.

20:41 Expanding on Brad's theme, service charges and fees improved to $1.7 million from $1.4 million in the linked period, entirely from a higher level of overdraft fees. NSF fees have continued to normalize from earlier periods, totaling $1.1 million in the third quarter, from $807,000 in the second quarter. Also noteworthy is the increase in debit card income linked quarter. We experienced an increase in 12% in transaction count in the third quarter from the second quarter, corresponding to a 13% increase in debit card income we experienced in the third quarter.

21:24 Another strategic goal we continue to work on is improving the mix of revenue by increasing fee income to total revenue. We continue to emphasize areas of opportunity, such as trust and wealth management, led by Galen McGregor and Glenn Malin, and treasury income from our commercial clients. We've made progress in our trust and wealth management area, as we have doubled assets under management since 2019. The pipeline of new clients is encouraging, and I expect the contribution to fee income from the unit to become more meaningful as we grow AUM in future periods.

22:10 I would ask our President Craig Anderson to discuss our pipeline. Craig?

22:17 Thanks, Brad. I want to update you on loan growth and pipelines. While we experienced a decline in loan balances in the third quarter of approximately 80 million, we have seen our pipelines build throughout the summer More so in August and September. We are hopeful that pull-through improves and translates into loan growth in the fourth quarter and early 2021. In the third quarter, we originated 154 million of new loans with a weighted yield of 4.44% compared to non-PPP loan originated of 92 million in the second quarter with a yield of 4.47%.

23:04 We are an approved Main Street lender with the Federal Reserve of Boston and have closed several loans and we have been active in looking at new deals. We had the opportunity of looking at 90 borrowers over the last several months. To date, we have internally approved approximately $300 million and are working with the prospective borrowers and the Federal Reserve. As a reminder, 95% of any Main Street lending originations are sold to the Federal Reserve. These loans also bring substantial Treasury fee income and large non-interest-bearing deposits. Brad? Thanks, Craig.

23:47 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. Craig Anderson has done a great job leading our commercial banking and sales teams. Craig Mayle has led our credit administration team with a focus on our high asset quality and process improvements. Brad Daniel has helped us maintain competitive products and be a key choice for deposit customers throughout our regions. Julie Huber and Jeremy Allen have continued to lead the charge for improvements to our processes and technology implementation.

24:36 And most of all, our bankers from tellers to personal bankers to treasury and trust have embodied the entrepreneurial spirit that's been key for our company's growth. With that, I'd be happy to open it up to take questions now. Thank you. Ladies and gentlemen, as a reminder to ask the question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Rulis.

25:30 Your line is open. He's with DA Davidson.

25:35 Hi. Thank you. Can you hear me?

25:38 Again, good morning, Jeff.

25:39 Okay. Hi. Good morning. Yeah, just a credit question or two. Eric, I think you outlined just one of the kind of – that figure of north of 2% ACL, would that imply a day one adjustment in the $20 million range? Yes.

26:02 That's probably a little north of what we're thinking, although not all of that would flow through capital, but you're pretty close.

26:11 There's two parts of that, Jeff. Both the marked loans will flow back in and the other part of that. So let's say you did the day one adjustment.

26:24 Okay. And just, Greg, I think you outlined the... The expectation on the SNCC credit that was added, I guess as we go into 21 or the next couple quarters, what's expected to be a heavier loss year for the industry? Any of those chunkier credits that reside in non-accrual expected to come current or pay off, giving you a hold of a little higher balance than peers?

26:54 Well, it's an interesting question, Jeff. First, at 9.30, I think that we're pleasantly surprised that credit quality has held up in the industry the way that it has and certainly for us. We aren't seeing huge negative trends right now. The particular SNCC that you're talking about really was not COVID related. They had some litigation concerns and we didn't want to take the risk of are all sitting on that, so we chose to get rid of it. It will come off. It's already been negotiated for sale. It will come off here in the next week or so. We don't see any of our other chunkier credits that are causing us immediate concern today.

27:46 Obviously, we're watching several of the industries like we mentioned in lodging and some in aviation very closely. But I got to tell you, we've been working with our borrowers. They've had access to capital. Some have gone out and procured that capital, which makes us feel really good and speaks positively of they and their organizations. and so some of the credits and assets are not performing nationwide the way all of us bankers want them to but as we've mentioned on past calls, Brad and the credit team, several years ago, anybody that wasn't a strong credit, we tried to get out of the bank and we tried to get out of the bank in earlier quarters and we were successful with that which left us with strong borrowers I don't know that we'll see a heavy migration one way or the other in fourth quarter from the classifications that we have today, and I can't predict, obviously, what's going to happen in Q1 and Q2.

28:52 Right now, things are pretty level and pretty consistent. Okay.

28:58 It doesn't sound like imminent fall-off while you're seeking resolution of the Call it a $55 million base if you knock out the SNCC credit. This sounds like you're comfortable with no concerns with that balance, and fair enough. Okay. Jumping to the margin, Eric, you outlined some puts and takes of the borrowings, both on the FHLB and kind of the subdebt, but balance that with your securities comments. On the core margin... What's the expectation there as you manage it? And I guess I couched that ex-PPP impact, but just the core level. Thanks.

29:45 Yeah, Jeff, looking at our expectation for the next quarter, we're thinking when you exclude the effect of PPP from the income as well as the average balance, We're thinking we're probably going to see another compression of probably six to eight basis points. Some of that is due to the increase or the effect of having a sub-debt in the full $75 million for the full three months. That will have an effect of increasing our total interest-bearing liabilities. We'll still see a benefit from the time deposits coming down a little bit But, you know, the cost of that sub-debt is going to offset the benefits we're seeing and the time deposits in FHLB.

30:39 And then in terms of on the earning asset side, again, non-PPP, you know, we're seeing a similar decline in earning asset yields like we saw, say, on PPP this quarter.

30:56 That's great color for the fourth quarter. And so I guess if we roll into 21, sounds as if the sub-debt impact sort of normalizes, then it's sort of more of a settling sort of outlook on the margin. Granted, a lot of puts and takes to still occur, but the margin in 21... The thought there is that that normalizes some.

31:28 Yeah, you know, big picture, again, excluding the effects of PPP because we'll be dealing with some noise in the fourth quarter as well as the first couple quarters in 2021 as those loans get forgiven. The Acceleration of Fees will cause our gap to look a little wonky, but excluding the effect of that, I think, Jeff, you're right. We're going to see some stability in our cost of interest-bearing liabilities. We continue to see an improvement in the composition of non-interest-bearing deposits. That will be helpful. And on the earning asset side, we're hopeful that as we see loan growth, we'll be able to mix our earning asset, mix into or increase the mix of loans of our total earning assets.

32:20 And we've been pretty selective to date. on originating loans that have yields that are pretty close to where the portfolio yield is. We might see that give a little, but I think we're pretty hopeful that we can continue to defend our yield on the loan side. Expectation would be on the investment securities. We just have not been seeing attractive yields there. So you've seen that portfolio decline, and I think you'll continue to see that decline. But we're hopeful that by moving into the loans, we'll be able to offset the adverse or unfavorable impact of that.

33:10 Great. Thanks for walking through that. That's it for me.

33:13 Thank you. Hey, Jeff. So one thing I want to circle back on, Craig Mayo and Greg are working hard on moving non-performing assets out. We actually have several that could move out in the fourth quarter, but we sure can't commit to that because there's a lot that can happen between now and then. So there's a lot of moving parts in there that they're working really hard on making some things happen, but as you know with those, they twist and turn. Thanks, Brad. Thank you. Our next question comes from the line of Michael Perrytoe with KBW. The line is open.

33:59 Hey, good morning, guys.

34:00 Good morning, Michael.

34:04 A couple questions for me. One, you know, transitioning off the margin conversation we just had, I mean, obviously you guys have some levers, but there is some core pressure as well. I mean, Brad, as you think about kind of the cost structure of the franchise today, you commented on branches in your prepared remarks, but it would seem like there needs to be some pretty strong cost discipline to protect profitability here with margins still kind of being a bit of a challenge. Can you expand maybe on what you guys are thinking there today, if it's not branches, or what levers or thoughts you have around trying to protect or limit expense growth moving forward?

34:39 Yeah, I mean, we've got to stay vigilant on it, Michael. And the other is, you know, there's two prongs of that. The other is we're working really hard on increasing non-interest income to continue to focus on our expense ratio. But, yeah, we've been laser focused on expense control, salary control, you know, number of FTEs. So we're continuing to look at that from every department that we have.

35:10 and any specific thoughts on kind of the near-term expense run rate here? I mean, you had a little bit of the drop last quarter, which I think was more accounting related, but are you hopefully trying to hold in on this $26 million run rate that you had in the first and third quarter on a core basis?

35:28 Yeah, I actually think that we're probably going to see a little benefit in the fourth quarter. I wouldn't go back to the second quarter as a run rate, though, because there were Some things happening in that quarter where it was a benefit to us, but I would look towards the first quarter, maybe even a little bit better than that, but I wouldn't expect that we would have a run rate like the third quarter on NIE sands that have good well impairment.

36:02 Okay. And then, Brad, more on the fee side, I mean, you guys were kind of in that $6.5 million range for the last three quarters of 2019. It's all over the drop-off in the first half of the year, which I think, you know, I imagine was at least partly environmental, but, you know, a nice pickup in the third quarter. Any expanded thoughts on the outlook there and what maybe the one or two areas of growth you think are most critical to try and see some expansion there that's sustainable?

36:26 Yeah, so our retail deposit fees are coming back. So, you know, those really dropped off. But we see those increasing month over month. and so I think those are coming back. Our wealth management team is doing a great job. You know, it's never fast enough for the people who are running the department but from an expectation standpoint, I think they've done a great job in developing relationships and bringing assets under management and so they continue to do that and that will continue to increase fee income We also rolled out corporate credit cards. And so we're just getting those implemented in lots of customers' hands. We had been referring those to one of our competitors, honestly, U.S. Bank.

37:12 and so we're now pulling those back in. So as that fee income continues to increase, which will be incremental month over month, I think you'll see nice fee income growth from that as well. So we've got some good initiatives that we started the year with. We've been able to implement on those and then and then the interchange income continues to grow as well as people continue to use cards more than they use cash. So we can see continued growth in that area as well. Did I miss anything, Eric? No.

37:46 Good. Great. Thanks, Andrew. Just one last one off the back. Just any additional expectations you can give us as we try to think about kind of the liquidity position of the bank and the size of the investment portfolio over the next several quarters here? I mean, it would... From an industry perspective, we're hearing that lots of commercial and retail customers are heavier in cash, and that's obviously had a positive impact on deposit balances. But I've also heard from other banks this quarter that there's not a lot of spending appetite yet for some of these customers. Just curious if you could maybe give us a quick liquidity comment and any thoughts about how the size of the investment portfolio might trend near term here.

38:25 Yeah, in terms of liquidity, I think you're seeing that our on-balance sheet liquidity is probably stronger now than it's been in a long time, given the fact that we've seen some nice-to-private growth, particularly in the consumer side. As Brad's comments indicated, we've seen about 20% growth year-over-year on the consumer VDA side, and we've been opening more accounts there. So we're happy about that. In terms of the investment portfolio, you're right in terms of the redeployment of cash flow into the portfolio hasn't been attractive in yields. That portfolio is a source of liquidity. It does provide us.

39:10 Some pledging capabilities for some of our public deposits. So, you know, there is a level where we would not want that to fall below. But I think, you know, we're well ahead of that at this point. So we're hopeful that as cash comes back to us, you know, we're able to redeploy it on the wrong side of the balance sheet.

39:38 Thanks for taking my questions. Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. Our next question comes from the line of Terry McEvoy with Stevens. Your line is open.

39:54 Good morning, everyone. Maybe a question for you, Brad. I'm just curious, are there any, call it restrictions or limitations, just from the goodwill impact and write-down and the related EPS loss? You don't pay a dividend, but in the past you've been buying back stock, and clearly M&A has been an important and key part of your growth story.

40:18 Yeah, we don't foresee any impact from that. We earned back into that retained earnings within four quarters. And so we just don't see any real impact coming from that from our being able to execute on our strategy. As we said in our prepared comments, the board approved to reimplement the buyback program. So we will, you know, assuming customer approval from the regulators, we'll be able to continue to do that. We have plenty of liquidity at the holding company to do that. And so, you know, I think we're in a really good position to be able to take advantage of opportunities, Terry. And, you know, so we continue to look at opportunities.

41:04 And so I think we've got... I think we're in a really great position. I actually feel as good today about the company as I've felt in the last couple of years. We had some growing pains the last couple of years. We've got all that stuff behind us. Our team has worked incredibly hard from our accounting team to our risk management team. Tina Call has done a great job. We've hired a new internal auditor that's done a great job. And so we've got all of our processes working really well. and so I think we're better positioned today than we were two years ago and our capital position is stronger than it's been in a long time. So I feel really bullish, honestly, Terry, about being able to go execute on all the different organic and M&A strategies that we have.

41:54 That's great to hear. And then just for my follow-up, Greg, I think you mentioned more, One-off concerns as it relates to just NPAs or maybe specifically charge-offs. What segment of the portfolio stands out? Is it the two that you kind of talked about in the prepared remarks? And I noticed this quarter you didn't disclose retail, and I think it was restaurants as well. Maybe some updated comments on those kind of $100-plus million portfolios.

42:23 Yeah, retail, restaurants, we didn't put in that. Deck this time, Terry, because by and large, they're doing well. You clearly are up to speed on the dynamics of what COVID has done to dining and all that stuff. Most of our restaurants is in fast food and takeout with really strong companies, and so it's doing fine. We highlighted aviation because we expect that that's on people's mind. We don't have a large portfolio there, and what we have is really well positioned going into this. Lots of capital, fantastic operators. One of our largest credits just had a very large equity infusion into their company, recognizing that they're going to continue to make parts for the major aircraft manufacturers.

43:18 So we feel very good about that. We've been working closely with them. The hotel portfolio is holding up really well, Terry. We've got great borrowers. We've got great product. We do have one, as I mentioned, hotel that we acquired in a merger that has moved to non-accrual. We have not recognized a loss on that because the asset's in pretty good shape. It's just been impacted by cash flow, and frankly, it wasn't well run going into COVID. We did not originate that loan. We are working closely with our borrowers on a weekly basis, making sure that we understand that portfolio. And some product, the more budget roadside products are doing very well as fewer people fly and more drive. But the product that we have that is more urban, east coast, west coast, those borrowers and sponsors, as we've said before, are the best around.

44:20 And so myself and others are working closely with them. I don't have any in those portfolio that I look at and say, man, that's going to be a problem as we sit here today. We do have a couple of other credits that we're also paying attention to that are outside of those industries, but still far between adjusting the operations and the guarantor-sponsor support They're holding up quite well.

44:51 That's good to hear.

44:52 Thanks, guys.

44:54 Yeah, aerospace. The credit that we were most worried about in aerospace is here. Great. We got it, Terry. Thank you. Our next question comes from the line of Andrew Lish with Piper Sandler. Your line is open.

45:11 Morning, guys. Just a couple follow-up questions to previous remarks. The buyback, just curious timing on when that could be approved by the regulators and your appetite to use it and how quickly you'd want to go through

45:32 it. Yeah, we would anticipate that to happen in the fourth quarter and be able to be used in the fourth quarter.

45:41 Okay, gotcha. You referenced capital being strong as it has been in some time and expecting long breaks to come back, ex-PBP. But from an acquisition standpoint, I mean, obviously the stock has got the greatest valuation right now, the greatest currency to do deals. But is there any chatter of potential transactions in the markets that you guys are looking at?

46:06 Yeah, there is chatter, Andrew. And so there are conversations going on. The driver on most of these has been age of ownership or age of management. And those things haven't changed. And so as some things have to happen, you'll see those things happen. So they need a merger partner. And so I think we'll be in a good position to be able to help them with those opportunities.

46:37 Okay, great. You've covered all my other questions. I'll step back. Thank you. Thank you. Ladies and gentlemen, I'm showing no further questions. Thank you for joining the Equity Bankshare's third quarter conference call. Have a great day.