Eagle Bancorp, Inc. (EGBN) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by and welcome to the Eagle Bancorp Inc. Fourth Quarter and Year-End 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Charles Levingston, Chief Financial Officer. Thank you. Please go ahead sir.

Thank you, Rebecca. Good morning. This is Charles Levingston, Chief Financial Officer of Eagle Bancorp. Before we begin the presentation, I would like to remind everyone that some of the comments made during this call may be considered forward-looking statements. Our Form 10-K for the 2019 fiscal year, our quarterly reports on Form 10-Q, and current reports on Form 8-K identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made this morning. Eagle Bancorp does not undertake to update any forward-looking statements as a result of new information or future events or developments unless required by law. This morning's commentary will include non-GAAP financial information. The earnings release which is posted in the Investor Relations section of our website and filed with the SEC contains reconciliations of this information to the most directly comparable GAAP information. Our periodic reports are available from Eagle or online at our website or the SEC's website. I would like to remind you that while we think that our prospects for continued growth and performance are good, it is our policy not to establish with the markets any earnings margin or balance sheet guidance. Now, I would like to introduce Susan Riel, the President and CEO of Eagle Bancorp.

Thank you, Charles. Good morning and welcome to our earnings call for the fourth quarter of 2020. This morning I'd like to start off with a high-level overview of the quarter and the year and also make a few comments on 2021. Then Jan Williams, our Chief Credit Officer will discuss her thoughts on loans and credit quality matters. And Charles, who kicked off the call, will discuss our financials in more detail. The three of us will be available later in the call for questions. Looking back at 2020, it is impossible to overstate the commitment and resiliency of our Eagle team to adapt to a totally new environment. It is through their efforts that Eagle's assets reached $11.1 billion and finished the back half of 2020 with renewed strength. In the second half of 2020, our fourth quarter earnings were $38.9 million or $1.21 per diluted share. And our third quarter earnings were $41.3 million or $1.28 per share. At $80.2 million for the two quarters combined; these were our highest ever level of earnings in linked quarters just above our earnings in the second half of 2018. For the fourth quarter, our return on average tangible common equity was 13.69%. This return continues to outperform others in the industry and is notable as our tangible common equity to tangible assets was a relatively high 10.31% at year-end. Similar to the third quarter our residential mortgage division continued to remain very active. The fourth quarter loans locked of $427 million and gain on sale of $5.9 million for the year -- I'm sorry $5.9 million, for the year locked loans were $1.9 billion with a gain on sale of $21.8 million. With market interest rates expected to remain low in 2021, we anticipate that the residential mortgage division will continue to contribute meaningfully to the bottom-line. We also saw some gains from our FHA group in 2020. FHA trade premiums, origination fees, and related servicing revenues was slightly less than $4 million during the year, while our traditionally strong loan growth has been impacted in 2020 with the COVID-19 pandemic. It was also impacted by our efforts to reduce the overall mix of construction lending in the first half of 2020. In the latter half of the year, lower rates sometimes forced us to say, no, rather than match the pricing of others. Heading into 2021, we expect that the Washington D.C. market will continue to improve as the vaccine rollout continues and that our loan teams will continue to get its share of loans as the pace of economic recovery accelerates. Jan will be speaking to both the improvement of the local economy as well as highlight our continued focus on loan quality. In terms of deposits, corporate deposits continue to flow into the bank. As we said in the past, we will continue to support our clients by holding their deposits. While we have historically operated at an average loan-to-deposit ratio closer to 100%, we averaged just 86% in the fourth quarter of 2020. Carrying this much liquidity contributed to net interest margin falling to 2.98%. However, the additional earning assets offset some of the margin compression and contributed additional net interest income and earnings to the company. Charles will have some comments on the NIM later in the call. Expense control has been an important financial metric for us. Our efficiency ratio at 38.3% for the quarter remains among the best in the industry. Underlying this is our focus on commercial lending with a streamlined branch network, which has been our trademark since the bank launched in 1998. Over the past decade, we have seen other banks slowly begin to reduce their expensive branch footprint. More recently the pace has increased. Early on we saw the value of being less reliant on branches and putting more emphasis on commercial relationships and technology. We see this as a validation of our banking model. With deposits averaging $9.2 billion in the fourth quarter and just 20 branch offices, our deposits per branch of $460 million is much higher than our peers. On the lending side, in addition to our 20 banking offices, we also have one loan production office. Our on-the-ground philosophy has always been and -- to remain light and adaptable. All of our locations are leased. That includes our headquarters, all branches, the loan production office and back office locations. This may change if we see property that warrants purchasing, but that has not been our normal practice. In February and March as leases expire, we plan to relocate the best in gallery place branches to newer, better locations and combine our two back office locations into one newer location. As we move through 2021, we expect to continue to focus on ways to maintain our efficiency. In sum, we believe we'll take a share -- our share of the loans as the market improves continue to be laser-focused on credit quality and continue our long-standing practice of strong expense control. Before handing it over to Jan, I'd like to address our efforts to increase shareholder value, the recently announced stipulation of settlement and our efforts on diversity and inclusion. For our shareholders, our earnings combined with stock repurchases and dividends are three ways we seek to increase shareholder value. At the end of September, we reinstituted our 2019 stock repurchase plan. And by mid-December, we completed share repurchases under that plan. In late December, the Board authorized a new stock repurchase plan for 2021 for up to 5% of outstanding shares, or approximately 1.6 million shares. One of the factors behind authorizing a new stock repurchase plan is our strong capital position. For the, year we repurchased stock valued at $61.4 million and declared dividends of $28.3 million, returning almost $90 million directly to our shareholders. Also during the year, tangible book value grew 9.4%, rising to $35.74 per share. Shares outstanding were reduced by 4.4% and we paid out 21.4% of earnings in cash dividends. On Monday, we filed an 8-K announcing that we had entered into a stipulation of settlement subject to court approval in connection with the previously disclosed shareholder demand letter. We are glad to put this particular matter behind us and look forward to implementing the agreed upon governance and control enhancements, many of which as you know are already underway. We are not going to address any of the specifics of the stipulation of settlement and will let the publicly filed stipulation paper speak for themselves. As disclosed in our earnings release, the payment of attorney's fees is in connection with the stipulation of settlement was accrued for in the fourth quarter of 2020 and is expected to be fully recovered from our insurance carriers. The previously disclosed securities class action against the company and several of its current and former officers and directors remains outstanding. Lastly in 2021, we will continue our focus on diversity and inclusion. We have a diverse Board with four women including myself. We've recently added two new Board members one of whom identifies as a minority. Last year we formed a diversity and inclusion council, comprised of 16 employees and conducted an employee engagement survey. The council will be working on identifying areas of opportunity to focus on and programs to support those areas of opportunity. This is an initiative that is very important to the continued success of the bank and has the full support of the senior staff and the Board. With that I would like to turn the speaking duties over to Jan Williams, our Chief Credit Officer.

Thank you, Susan. Good morning, everyone. I begin by reiterating Susan's comments as we continue to focus on credit quality over loan growth in today's environment. Asset quality closed out the year strong and steady, which enabled the bank to lower its loss provision in the fourth quarter and maintain reserve levels. Comparing linked quarters, NPAs to assets were at 59 basis points, down slightly from 62 basis points. Annualized net charge-offs to average loans were 28 basis points, up slightly from 26 basis points in the prior quarter. Charge-offs in the fourth quarter were primarily attributable to a single restaurant relationship amounting to $4.1 million. The provision to the allowance was $4.9 million, down from $6.6 million. And the allowance for credit losses to total loans was 1.41%, up one basis point from 1.40% in the prior quarter. The allowance was determined in accordance with CECL methodology adopted at the beginning of the year. While we noted that several banks reporting fourth quarter results have reduced or reversed the allowance for credit losses, we believe it's prudent to be cautious in this area. Our coverage of problem loans remained strong at 180% as of year-end. Considering all risk factors and our conservatively underwritten loan-to-value and loan-to-cost policies, we believe our reserves are adequate, including qualitative factors associated with the hospitality and food service industries and a qualitative overlay for loans that has second deferral. For quantitative measures, the unemployment forecast is still the driving factor. During the fourth quarter, our COVID-19 deferrals dropped significantly as the second 90-day deferral period expired prior to year-end for most customers. As of the year-end, deferrals consisted of nine customer relationships, totaling $72.4 million or 1% of gross loans. The table in our press release shows the migration of the third quarter's deferrals of $851 million. Approximately $60 million were paid down or paid off during the fourth quarter. Of the remaining $791 million, 88% or $698 million were classified as current. Of this amount, all loans that had a second deferral were automatically placed on the watch list. This was done to raise the visibility of these loans within our portfolio and monitor their progress post deferral. Another $73 million were 30 to 89 days past due and $20 million were nonperforming. The NPAs were a mixed bag that included several owner-occupied restaurant properties. Our largest exposure continues to be -- our largest vulnerable exposure, continues to be in the hospitality industry. As a percent of our portfolio, the accommodation in foodservice industries comprise of 9.9% of our portfolio, down from 10.2% last quarter. Outstanding PPP balances at the end of the year were $455 million, down only $1 million from the end of the third quarter. In total, only about a dozen loans were forgiven prior to year-end, as borrowers and the bank were waiting for more guidance from SBA. With additional guidance received from the SBA earlier this month, the process has begun to accelerate. In regard to the current round of PPP, we begin taking applications this week. We are primarily focusing last week sorry. We are primarily focusing on current clients and will assist them with both, first or second draws. Our loan team continues to originate loans and loan closings in the fourth quarter were higher than they were in the third quarter. As our focus has always been on CRE, it's not surprising that CRE accounted for the bulk of the loan closings. The C&I closings were also strong in the fourth quarter. The small decline of loan balances period-to-period in the fourth quarter was attributable to more -- more to higher loan payoffs than a lack of originations, including a $78 million payoff of one loan on December 30. While we have talked a lot about our focus on credit quality, we're also focused on maintaining loan yields. As Susan said earlier, we sometimes pass on credits, sometimes because of risk, sometimes because of rate. In the fourth quarter, our yield on loans were -- was 4.5%, up four basis points from 4.46% in the third quarter. Absent PPP loans, yielding 2.55%, the yield on loans would have been 12 basis points higher. Looking at our market, while D.C. Maryland and Virginia have stepped up COVID-related restrictions, the local economy has been recovering. Unemployment in the Washington MSA fell to 5.7% in November, down from 6.9% in September. Loan demand for government contracting and professional services sectors continue to show strength. Construction contractors continue to move forward with projects throughout the region, with both commercial projects and residential construction. We expect to continue to remain cautious on new construction projects, as we have for the past 18 months. With a new administration in place, there tends to be more loan activity with new government contracts being awarded, and a rise in a variety of professional services. We anticipate that our C&I team will pick up some of that activity and that the overall increase in activity will benefit the region. Based on the strength of the local economy, in December the District of Columbia reversed its budget predictions -- projections for the current year and the coming year upward and project revenue in 2022 to exceed revenue in 2019. The basis of the upward revision was in part because individual and business tax income revenue was stronger-than-expected and in part because of the vaccine rollout. As the vaccine continues to be distributed, it is expected to have an outsized positive impact on the restaurant and hospitality businesses in our market area. Later in the year we see that Washington D.C. return to being a major tourist destination as well as a major hub for government and private enterprise. With that I'd like to turn it over to Charles Levingston, our Chief Financial Officer.

Thank you, Jan. Comparing our performance over linked quarters, net interest income was up $2.4 million on a much larger asset base. The provision for credit losses was down $1.7 million, while the provision for unfunded commitments was up about $2.5 million. The largest change was in non-interest income, which was lower by almost $8 million, primarily from lower gains on sale from residential mortgage division – from the residential mortgage division. As you may recall, third quarter locked loans were at record levels and are typically higher than in the fourth quarter. The other notable changes were lower non-interest expenses with premises and equipment lowered by $1.8 million but the prior quarter had a non-recurring expense of $1.7 million to properly value the lease extension. And legal fees were lower by $755,000 net of estimated insurance receivables under our D&O policies. Bottom line on a linked-quarter basis earnings were lowered by $2.5 million. I would like to point out that – I would like to point out though that our third quarter was the bank's highest level of quarterly reported earnings. At year-end 2020 assets were $11.1 billion, up $2.1 billion for the year and up $1 billion for the quarter. Balance sheet growth in the fourth quarter and the third quarter were primarily driven by corporate deposit influence. Overall, as a result of the deposit inflows, average assets for the fourth quarter were up $668 million from the prior quarter. These inflows continue to put pressure on the NIM, which was 2.98%, down from 3.08% the prior quarter. While the NIM was down, the increase in assets kept net interest income from falling. Net interest income was $81.4 million for the fourth quarter, up from $79 million the prior quarter. A large portion of deposit inflows were non-interest-bearing, which keeps the deposit mix very favorable. In the fourth quarter 33% of average deposits were non-interest-bearing, and the cost of interest-bearing deposits declined to 61 basis points, down from 75 basis points the prior quarter. And the cost of funds was 48 basis points, down from 58 basis points the prior quarter. The bulk of this new funding went into overnight funds – overnight Fed funds. As a result, interest-bearing deposits with other banks increased to an average of $1.75 billion, up $476 million from the prior quarter. The average yield on this line item was just 11 basis points. The balance sheet of the deposit – the balance of the deposit inflows was invested in securities, which averaged $1.1 billion, up $215 million from the prior quarter. The average yield of the investment portfolio was 1.52%. Looking at items that impacted NIM, on December 15, we lowered deposit rates across the Board by five basis points. Going forward, we expect to continue to see higher cost time deposits roll off. At year-end, we had loans of $2.9 billion of floors, of which $2.8 billion are already at the floor. In terms of the deployment of excess liquidity, we will continue to judiciously deploy the funds into securities and loans but remain cognizant of the need to remain flexible to serve our client deposit needs and not overcommit in such a low rate environment. With that I'll hand it back to Susan for a short wrap up.

Thanks, Charles. As we move into 2021, I'm confident that Eagle is well positioned to continue to deliver industry-leading results. Our earnings, credit quality and capitalization remain strong. Our employees are committed and resilient. The Washington market remains a premier business center and the hospitality and food accommodation industries, which are an area of focus for the bank, are the most visible economic beneficiary of the vaccine rollout. Thanks again for joining us this quarter. We will now open up the call for questions.

[Operator Instructions] And your first question comes from Casey Whitman from Piper Sandler.

Hey, good morning.

Hi, Casey.

Hey. So maybe I'd start off with just some questions for Jan, and congrats to you on navigating through 2020. So just looking at the disclosures, it seems like a lot of the remaining deferrals are in the transportation and warehousing industry. So can you maybe tell us a little bit about the makeup of that book and the types of collateral support et cetera? Thanks.

Yeah. You're speaking about the $72 million, still in the deferral phase?

That's right. Yes.

Yeah. I can tell you that, yes, although, technically, I would say as opposed to transportation that, the largest segment is really associated with tourism. We do have a plan in place for these folks. What's deferred here is really some equipment leases predominantly. We do have real estate collateral that covers most of the debt that's involved. I think we're in good shape based on the cash flow provisions that have been provided to us and the liquidity on the books for this company. So I'm feeling pretty good about that. I think assuming the vaccine rollout happens and tourism ramps backup again, late in the summer, I think we're going to be in fine shape on this. I don't count loss concerns. The non-performing concern would come up if there wasn't a new strain of virus that hit that vaccines weren't effective against and prolonged the downturn in really what I'll call, part of the travel and entertainment area. I think, other than that, we've got a property that is, owner-occupied real estate that is a facility for adult care. It is one that has had an outbreak of COVID that temporarily reduce the census level. We are working with them. And I do expect that they will continue to perform during the deferral period, which is an interest-only deferral not a complete payment deferral. And that is true also of the customer I spoke about earlier, that is in the travel tourism entertainment business. We do also have a hotel that is still involved in a deferral -- I'm sorry an office building that is still involved in a deferral that will wrap, within the next 30 days. We are monitoring all of these. Other than that, there's nothing of significant size on this list that would really have a material impact on the balance sheet or on our income statement. We are staying close to every one of these credits. And our COVID task force has worked hard to develop remediation plans that will put us into a better position and put the companies into a better position to continue to perform. Does that cover…

Thank you.

… that you're looking?

It does. Thank you for all that detail. I guess, another question for you would be, well thank you for the additional color on the watch list this quarter. I was wondering first, it looks like you've got about $632 million within those, sort of at-risk segments. Is that going to comprise like the majority of what's on watch or just a portion of it? So then maybe we can assume there wasn't much...

Yes.

Okay, got it. So there wasn't much movement in the watch list this quarter. And then, I guess, was there any migration that we should know about into the substandard or special mention this quarter? Are those pretty stable from last quarter?

Pretty stable, although, I would tell you that there are occasional moves into special mention, there may be one or two credits that will be migrating there. Or they have half migrated. I think, we're doing a good job of staying on top of these and making sure that things come out. But, for example, as a result of changes in the way that various jurisdictions have enforced indoor dining, and prohibitions on bars and limited hours that would put folks perhaps migrating from watch to special mention. We expect to see those changes roll back as the vaccine is distributed. And we're all hopeful that distributions happen with Amazon-like precision, but that remains to be seen at this point.

Got it. Very helpful. I’ll let someone else hop on. Thanks.

Your next question comes from the line of Steve Comery with G. Research.

Hey, good morning.

Good morning, Steve.

Wonder if we could start with the loan yields. Appreciated the 4.62% during the quarter ex PPP, I was wondering if you have the number for Q3?

I don't have that offhand, but that's something I can certainly give back to you on Steve. But yeah, it would likely be somewhat of a similar shift given the static balance of the PPP loans, as well as a fairly flat average loan balance quarter-to-quarter.

I think in third quarter, we were looking at $446 million without the PPP impact since PPP loans didn't move significantly. It's probably pretty close to the same level of impact. So I think you could in general carryover the up four basis point number?

I think that's a fair guess.

Okay, okay. Fair enough. Maybe moving on to the construction projects and the payoffs. Is that something that at this point it looks like it's probably behind the bank and you'd expect lower payoff levels going forward, or is this kind of an ongoing thing and they kind of happen when they happen?

Well, I think in construction in general you would expect similar projects are completed that – in the instance of a commercial property they're going to be looking for permanent financing to the extent that we can do that. We certainly try to get the first shot of that keeping a performing property in the portfolio, to the extent that we don't want to dip down to the rates that are being offered on some properties long-term now. We would expect to see that roll off. For the sale projects in the residential area you're naturally going to see those drop down as units are sold. We are booking some new carefully selected construction projects. So overall it's going to be a timing issue not necessarily an abatement of the level of construction overall.

And I would just add, that's been part of the Eagle story for some time and we do see some large – quarters of larger payoffs than others. And we see that as successful and that these construction projects are being – are complete – are being completed and they're clearing the market in terms of permanent financing. So it is something that I would expect that we would see continue given the nature of our business.

Okay. And then maybe one more on the construction topic. So, construction balances on a period end basis, it looks like the mix was more owner-occupied versus commercial and residential versus last quarter. Is that part of an active risk related strategy, or is that just reflecting the demand that was out there?

I think it's a combination of banks. I do think on the owner-occupied side, the fact that they're not supposed to be included in concentrations is certainly a factor. I think the underlying business that supports those particular properties is a factor. But I also think some of it is just the demand and where things are going at this point in time.

Okay. Thanks. Appreciate it.

Your next question comes from the line of Stuart Lotz from KBW.

Hey, guys. Good morning.

Good morning.

Good morning, Stuart.

Charles, if we could just dive in the buyback real quick, it was nice to see when you guys kind of reinstated that in the fourth quarter. What is your expectation for the cadence of buybacks this year? And do you currently anticipate utilizing that full $1.6 million share authorization?

Yes. We are going to continue to evaluate that on an essentially a regular basis. But to the extent that the share price runs up to a point where we don't feel it's prudent to continue to purchase at certain levels we won't be active. But, it's really going to depend on the volatility in the share price throughout the year as to whether or not we see all those shares repurchased over the course of the year. Can't give you a specific number unfortunately.

Okay. No, that's helpful. And maybe turning to the balance sheet, I think this quarter's deposit growth was pretty astounding. What is your anticipation for some of those deposits as we look at -- how has that trended so forth in the first quarter as we kind of taken the dynamics of PPP round two as well as some of the round one loans running off? Do you anticipate your deposit book kind of holding this $11 billion – sorry, the $10 billion level, or do you see that trending back lower?

Yes, Stuart, the expectation is that liquidities will remain strong all things equal this year. I mean, we'll need to see some kind of a catalyst for change, which obviously is the vaccine rollout giving to that herd immunity returning to normal and having the FOMC make a change in their policy posture and to stop buying bonds, and for other firms to see opportunities for investment elsewhere so that their funds aren't sitting idle, which seems to be the nature of things these days. So, I think there's a lot that goes into that. But our expectation now appears to be status quo for the majority of the year.

So you think at -- is your current anticipation is for the kind of that core margin to stay around 3%, or do you see any near-term lifts, given PPP fees and some of the excess liquidity being deployed?

Yes. Again, all things equal and within some reasonable standard deviation my expectation, we would see a relatively stable margin throughout the year.

Okay, got it, great. Well, thanks for taking my question.

Your next question comes from the line of Dave Bishop with Seaport Global.

Hi, Dave.

Hey, good morning, guys. How are you?

Good. Dave, how are you?

Hey, quick sort of staying on that topic Charles, obviously with the sort of influx of liquidity even despite a little bit build here in this the fourth quarter. Investment securities obviously have trended down as a percent of assets to below sub-10%. Do you see that maybe tipping up over the course of 2021 was, maybe some opportunity to sort of improve the yields read between that sort of surge funding and short-term liquidity and investments?

Yes. So, good point. I mean again, we mentioned in the comments, we do want to be judicious about how we deploy those funds. Don't want to over-commit to a single point in the market. If I were a betting person, I would say that a couple of years from now we might not like the securities we're buying today and that's provided everything starts to improve. But then again at that point in time, hopefully there is a better opportunity to deploy funds into a more active loan market. So, we want to be cautious in that. The tide can go out as quickly as it came in, so -- but at the same time, we're going to be looking to be -- again be careful about how we're deploying those funds. But make sure that we're making some money today to the extent we can and still manage the risk associated with all that excess liquidity. So yes, I would anticipate continued growth in the investment portfolio again to put higher earning assets on the book.

Got it. And I think the narrative mentions in terms of the deposit flows this quarter maybe some a flight to I guess liquidity from certain fiduciary clients. Anyway to ring-fence the dollar amount that was related to that inflow?

Yes. I mean that was a healthy balance or portion of the balance of funds brought in. I would say it's around $550 million or so.

Got it. And then in terms -- I think Charles you mentioned, sort of the opportunity from the repricing of the time deposit CDs. Just curious maybe what the current onboarding rate for your CDs are? And what the sort of the roll-off calendar looks like or the maturity calendar looks like over the first half of the year?

Yes. Our current rate sheet has one-year CDs at 12 basis points. Looking at five-year CDs at 40 basis points and you can interpolate -- what's between that. There's not a lot of appetite at those levels obviously and certainly not a lot of appetite out further than that. But yes, we expect to continue to see those higher rate CDs roll-off here and hopefully continue to help support our lowering funding costs over the course of the year. And some of that is a little bit front loaded, but it's -- there's still some of those time deposits to roll-off, yes.

Got it. Appreciate the color. And then maybe one final one, maybe for Jan. Appreciate the continued color and the disclosure in terms of the loan deferral migration. Just curious the improvement from the third quarter, the decline in the loans on deferral, the loans that are off deferral those are -- are they now making full P&I payments, or there's still some sort of modification, or is there sense or form like IO or PO in there? Just curious maybe some color in terms of the improvement in terms of the deferrals how they're paying?

Yes. If they were on interest-only before the pandemic they're still going to be on interest-only. So there will be a fair sized chunk within their interest-only. If they were amortizing pre-pandemic then they return to amortization.

Return to amortization. Great. Thank you.

Your next question comes from the line of Feddie Strickland with Janney Montgomery.

Hi. Good morning.

Good morning.

Good morning.

I'm just wondering what you're seeing so far this month on PPP forgiveness? I know the balances didn't really change that much in the fourth quarter. And just kind of how you see that playing out over the next couple of quarters?

I think the SBA has not been expeditious in bringing out final rules and regs on this. So I think that's impacted the process and delayed it considerably. I do think we're going to see more progress going forward and it probably will be at an accelerating rate. Personally, I think a big driver of that is for those folks that are looking at second draw situations. They're more motivated to get through that forgiveness process especially the larger customers. So I do think that that's going to accelerate. But then you also have to consider whether the SBA has adequate staffing to handle that. And that's sort of the big unknown right now. So other than things that will be "automatically" forgiven, I would imagine there are definite human resources challenges at SBA.

And I would add I mean, my expectation just one-man opinion is sometime in the second or third quarter that you see the lion's share of those come in. I mean the way that the SBA is handling those PPP forgiveness loan -- PPP forgiveness process for those loans that are under $150,000 given the recently passed stimulus should expedite a good number of the volume of our loans, although it's not the largest dollar amount of those loans. So -- but I do think that at that point hopefully the process will be a little bit better oiled and we'll be able to get some more of those through. But it's been modest so far at best.

Got you. And kind of along that same line I know it's only been like a week or so. But how has demand looked for the second round? I know it just started but I'm just curious what the interest level is relative to round one.

It's definitely not at the level that it was the first round. We've seen significant decreases in that level. I would estimate and I don't have clear number on that but maybe 600 of them have been applied for now in the first round or in the second part of the first round. We did 1,400 -- over 1,400 loans. So it definitely is at a slower pace and from what I understand that's true with what other banks are feeling too.

And again that's relevant to our customer base which limits the population obviously.

Got it. Awesome. Thanks, guys. Appreciate the additional color.

Sure.

Thank you.

And at this time there are no further questions. I would now like to turn the conference over to Susan Riel for closing remarks.

Okay. I want to thank you for being with us today. And we look forward to speaking with you again at the end of the first quarter of 2021.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.