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Equity Bancshares, Inc. (NASDAQ:EQBK)
Q3 2020 Earnings Call
Oct 21, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 Equity Bancshares, Inc. Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your host, Chris Navratil. Please go ahead.

Chris Navratil -- Senior Vice President, Accounting and Finance

Good morning and thank you for joining Equity Bancshares 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 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 Brad Elliott.

Brad Elliott -- Chairman & Chief Executive Officer

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.

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. 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 we'll 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 bank. I believe it is beneficial to have the goodwill impairment we discussed in our earnings release in our rearview mirror. It is a non-economic issue for our stakeholders and improves our operating ratios with no impact to our continued growth in tangible book value per share. Eric will detail our balance sheet and goodwill adjustments more in a moment.

In our third quarter, we finished raising offensive capital totaling $75 million, which will allow us to take advantage of opportunities I previously mentioned. We successfully completed our joint regulatory exam with the Federal Reserve in the State of Kansas in the third quarter. Our tangible book value has grown 14% since the end of 2019 or $2.97 per share. We completed our 2019 stock repurchase program in September, repurchasing 383,000 shares, all of which were accretive 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.

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 30, but it helped our customers set aside much needed cash reserves for their current period, but also for the reramping 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. 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 15, 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 deferrals. 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. Over the last several months, Craig Anderson and I visited our regions regularly, and met with local customers. I'm excited to see our customers adapting to the change environment and how many are operating at level 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?

Eric Newell -- Executive Vice President, Chief Financial Officer

Thank you, Brad, and good morning. During the quarter we identified a non-cash goodwill impairment totaling a $104.8 million which resulted in a GAAP loss of $6.01 for the quarter ending September 30. 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. As some of the goodwill was created from taxable events, the effect on capital totaled $99.5 million with $5.3 million of deferred tax assets being created due to timing differences and expense recognition for book and tax purposes.

Let me peel back to GAAP 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 the PPP loans compared to $1.03 million in the second quarter. 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 the PPP program for which we have already recorded $2.3 million leaving $8.7 million left to recognize. At September 30, 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 had been submitted by the end of the quarter will be recognized in the fourth quarter of this year and the remainder will be recognized in 2021.

PPP loans totaled $376 million at September 30, and the average balance in the quarter totaled $375 million. Interest earned from the PPP loan portfolio was $960,000 during the quarter. Pre-tax pre-provision revenue in the quarter ending September 30 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 of the expenses associated with the 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. We've enhanced our margin disclosure in our press release tables by adding granularity to the table in the loan section. NIM declined 2 basis points linked-quarter showing stability and total earning assets and cost of interest-bearing liabilities. We are particularly happy about the progress made in our interest bearing deposits with a cost declining 13 basis points linked-quarter. Late in the third quarter, we paid off a relatively higher cost FHLB 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 subordinate debt in the third quarter. 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 6 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 30, the yield on C&I total loans and total earning assets would be 5.16%, 5.01% and 4.19% respectively. This compares to 5.23%, 5.07% and 4.24% respectively for the quarter ending June 30. Excluding PPP loans again, pro forma NIM for the quarters ending September 30 and June 30 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. 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 30, 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. We're 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-PPP loans is expected to be north of 2% positioning us well for 2021. Greg?

Greg Kossover -- Executive Vice President, Chief Operating Officer

Thanks, Eric. I want to echo Brad's comments about working with our customers through this period of uncertainty. We took early steps to work with our customers to preserve cash, which resulted in a higher level of deferred loans at June 30 then perhaps you saw at many of our peers. However, as these 90-day deferrals came up for review during the summer, Craig Mayo and myself took a close look at those customers that may have needed an additional deferral to ensure it was not due to inherent weakness in the credit and that it was specific to implications from COVID-19. Of the total deferred loans at June 30, we did provide a second deferral on commercial loans totaling $158 million. That deferral was typically not for another 90 days though. 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 shared 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 with 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. As discussed on Slide 25, our book is comprised of experienced hoteliers with a proven capacity to whether 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 nonperforming 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 30. 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. 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 nonperforming assets from $50.8 million to $59.4 million, it can be attributed to one shared national credit. This credit totaled $6.2 million and is 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 nonperforming assets were $53.3 million at quarter end and trending positively as compared to June 30. 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 faced 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?

Brad Elliott -- Chairman & Chief Executive Officer

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 opened 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 log-ins have continued to grow throughout the third quarter.

I frequently get asked by investors about branch utilization and hear from my peers that they are now closing branches for cost efficiencies. 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 will -- we have seen our branch utilization hold steady in our community market. 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. We do not anticipate that there will be a meaningful change in our brand 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 the PPP funds. At the end of the third quarter, we have opened a net 3,400 new consumer DDA accounts year-to-date, compared to net 1,200 through the same period in 2019. The average consumer DDA balance increased by 20% in 2020 from 2019.

Eric Newell -- Executive Vice President, Chief Financial Officer

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.

Brad Elliott -- Chairman & Chief Executive Officer

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 Gaylyn McGregor and Glenn Malan 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.

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

Craig Anderson -- Executive Vice President, President, Equity Bank

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 a $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%. 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, 90% 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?

Brad Elliott -- Chairman & Chief Executive Officer

Thanks, Craig. Before we open it up for questions, I want to once again comment 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 Mayo 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. 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.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Jeff Rulis. Your line is open. He is with D.A. Davidson.

Jeff Rulis -- D.A. Davidson -- Analyst

Hi. Thank you. Can you hear me?

Brad Elliott -- Chairman & Chief Executive Officer

We can. Good morning, Jeff.

Jeff Rulis -- D.A. Davidson -- Analyst

Okay. Hi, good morning. Yes just a credit question or two. Eric, I think you outlined, just wanted to kind of -- that figure of north of 2% ACL, would that imply a day one adjustment of -- in the $20 million range?

Eric Newell -- Executive Vice President, Chief Financial Officer

That's probably a little north of what we're thinking. Although...

Jeff Rulis -- D.A. Davidson -- Analyst

Got it.

Eric Newell -- Executive Vice President, Chief Financial Officer

Not all of that would flow through capital but you're pretty close.

Brad Elliott -- Chairman & Chief Executive Officer

There is two parts of that, Jeff. Both the marked loans will flow back in and the other part of that. So that's how you get to it.

Eric Newell -- Executive Vice President, Chief Financial Officer

Day one adjustment.

Brad Elliott -- Chairman & Chief Executive Officer

Yes, the day one adjustment.

Jeff Rulis -- D.A. Davidson -- Analyst

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

Greg Kossover -- Executive Vice President, Chief Operating Officer

Well, it's interesting question, Jeff. First, at September 30, I think that we're pleasantly surprised that the credit quality has held up in the industry, the way that it hasn't certainly for us. We aren't seeing huge negative trends right now. The particular SNC 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 the sitting on that. So we chose to get rid of it and 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.

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 back and we try to get out of the Bank in earlier quarters and we were successful of 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 don't -- I can't predict obviously what's going to happen in Q1 and Q2. Right now things are pretty level and pretty consistent.

Jeff Rulis -- D.A. Davidson -- Analyst

Okay. So it doesn't sound like imminent fall-off from while you're seeking resolution of the, call it $55 million base if you knock out the SNC credit. This sounds like you're comfortable with no concerns with that balance -- and fair enough, OK. Jumping into the margin, Eric, you outlined some puts and takes of the borrowings, both on the FHLB and kind of the sub debt. But balance that with your securities comments, on the core margin, what's the expectation there as you manage and I guess I couch that ex-PPP impact, but just the core level? Thanks.

Eric Newell -- Executive Vice President, Chief Financial Officer

Yes, Jeff. I mean, looking at our expectation for the next quarter, we're thinking when you exclude the effect of the PPP from income as well as the average balance, we're thinking about probably going to see another compression of probably 6 to 8 basis points. Some of that is due to the increase or the effects of the having the sub debt in the full quarter -- the full $75 million for the full three months. That will have an effect of increasing our total interest bearing liabilities. We will still see a benefit from the time deposits coming down a little bit, but the cost of that -- that's how that's going to offset the benefits we're seeing in the time deposits and FHLB. And then in terms of on the earning asset side, again non-PPP, we're seeing how a similar decline in earning asset yields like we saw at PPP this quarter.

Jeff Rulis -- D.A. Davidson -- Analyst

That's great color for the fourth quarter. And so I guess if we roll into '21, it 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.

Eric Newell -- Executive Vice President, Chief Financial Officer

So yes, big picture, again excluding the effects of PPP, guys will be dealing with some noise in the fourth quarter as well as in the first couple of quarters in 2021 as those loans get forgiven, the acceleration of fees will cause our GAAP NIM to look a little lumpy, 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. If we continue to see an improvement in the composition of non-interest bearing deposits that would be helpful. And on the earning asset side, we're hopeful that as we see loan growth will be able to mix. Our earning asset mix into or increase our -- the mix of loans of our total earning assets and we've been pretty selective to date on originating loans to have yields that are pretty close to where the portfolio yield is. We might see that -- we might have to -- you 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. And our expectation would be on the investment securities. We just have not been seeing attractive yields there. So you see in that portfolio decline and I think you'll still continue to see that decline. But we're hopeful that by moving into the loans we will be able to offset the adverse or unfavorable impact of that.

Jeff Rulis -- D.A. Davidson -- Analyst

Great. Thanks for walking through that. That's it from me. Thank you.

Brad Elliott -- Chairman & Chief Executive Officer

Hey, Jeff. So one thing I want to circle back on Craig and -- Craig Mayo and Greg are working hard on moving nonperforming assets out. We actually have several they 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.

Jeff Rulis -- D.A. Davidson -- Analyst

Thanks Brad.

Operator

Thank you. Our next question comes from the line of Michael Perito with KBW. Your line is open.

Michael Perito -- KBW -- Analyst

Hey. Good morning guys.

Brad Elliott -- Chairman & Chief Executive Officer

Good morning Michael.

Michael Perito -- KBW -- Analyst

Couple of questions for me. One, transitioning off the margin conversation we just had, I mean, obviously, you guys have some levers, but there is 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 just -- 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 to limit expense growth moving forward?

Brad Elliott -- Chairman & Chief Executive Officer

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

Michael Perito -- KBW -- Analyst

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 hopeful to kind of hold in on this $26 million run rate that you have in the first and third quarter on a core basis?

Brad Elliott -- Chairman & Chief Executive Officer

Yes. 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 toward the first quarter and 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 and the goodwill impairment.

Michael Perito -- KBW -- Analyst

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, saw a little bit of a drop-off in the first half of the year, which I think, I imagine was at least partly environmental, but nice pickup in the third quarter. Any expanded thoughts on the outlook there and maybe the one or two areas of growth you think are most critical to try and see some expansion there that's sustainable?

Brad Elliott -- Chairman & Chief Executive Officer

Yes. So our retail deposit fees are coming back. So 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. 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. 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, US Bank. 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 we'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 the interchange income continues to grow as well, as people continue to use cards more than they use cash. So we see -- we can see continued growth in that area as well. Did I miss anything, Eric?

Eric Newell -- Executive Vice President, Chief Financial Officer

No.

Michael Perito -- KBW -- Analyst

Good. Great. Thanks for that. And then just one last one. 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 a 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 can maybe give us a quick liquidity comment and any thoughts about how the size of the investment portfolio might trend near term here?

Eric Newell -- Executive Vice President, Chief Financial Officer

Yes. 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 deposit growth and particularly in the consumer side. As Brad's comments indicated, we've seen some -- about 20% growth year-over-year on the consumer DDA 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 some pledging capabilities for some of our public deposits. So there is a level where we would not want that to fall below. But I think we're well ahead of that at this point. So we're hopeful that as cash comes back to us, we're able to redeploy it on the loan side of the balance sheet.

Michael Perito -- KBW -- Analyst

Great. Helpful guys. Thanks for taking my questions.

Operator

[Operator Instructions] Our next question comes from the line of Terry McEvoy with Stephens. Your line is open.

Terry McEvoy -- Stephens Inc -- Analyst

Good morning everyone.

Eric Newell -- Executive Vice President, Chief Financial Officer

Good morning.

Terry McEvoy -- Stephens Inc -- Analyst

Maybe a question for you, Brad. I'm just curious, are there any, call it, restrictions or limitations just from the goodwill impact and writedown 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?

Brad Elliott -- Chairman & Chief Executive Officer

Yes. 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'll -- assuming customary 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 I think we're in a really good position to be able to take advantage of opportunities, Terry. And so we continue to look at opportunities. And so I think we've got -- I think we're in a really great position. I actually feel as good today about the companies that felt in the last couple of years. As 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. Team at 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 going to -- 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.

Terry McEvoy -- Stephens Inc -- Analyst

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 million plus portfolios?

Greg Kossover -- Executive Vice President, Chief Operating Officer

Yes. Retail restaurants, we didn't put in the deck this time, Terry, because, by and large, they're doing well. And 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. So we feel very good about that. We've been working closely with them.

And 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 is in pretty good shape. That'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 product is doing very well as fewer people fly and more drive. But the product that we have that is more urban, East Coast, West Coast to those borrowers and sponsors, as we said before, are the best around. 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 so far, between adjusting the operations and the guarantor-sponsor support, they're holding up quite well.

Terry McEvoy -- Stephens Inc -- Analyst

That's good to hear. Thanks, guys.

Brad Elliott -- Chairman & Chief Executive Officer

Yes, aerospace. The credit that we were most worried about in aerospace. Yes. We got it, Terry.

Operator

Thank you. Our next question comes from the line of Andrew Liesch with Piper Sandler. Your line is open.

Andrew Liesch -- Piper Sandler -- Analyst

Good morning guys. Just a couple of 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 want to go through it?

Brad Elliott -- Chairman & Chief Executive Officer

Yes. We would anticipate that to happen in the fourth quarter and be able to be used in the fourth quarter.

Andrew Liesch -- Piper Sandler -- Analyst

Okay. Got you. And then you referenced capital being strongest it's been in some time. And expecting loan growth to come back ex-PPP. But from an acquisition standpoint, I mean, obviously, the stock has the greatest valuation right now or the greatest currency to do deals. But is there any chatter of potential transaction in the markets you guys are looking at?

Brad Elliott -- Chairman & Chief Executive Officer

Yes, 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 we'll -- I think we'll be in a good position to be able to help them with those opportunities.

Andrew Liesch -- Piper Sandler -- Analyst

Okay. Great. You covered all my other questions. I'll step back. Thank you.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Chris Navratil -- Senior Vice President, Accounting and Finance

Brad Elliott -- Chairman & Chief Executive Officer

Eric Newell -- Executive Vice President, Chief Financial Officer

Greg Kossover -- Executive Vice President, Chief Operating Officer

Craig Anderson -- Executive Vice President, President, Equity Bank

Jeff Rulis -- D.A. Davidson -- Analyst

Michael Perito -- KBW -- Analyst

Terry McEvoy -- Stephens Inc -- Analyst

Andrew Liesch -- Piper Sandler -- Analyst

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