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Eagle Bancorp Inc (NASDAQ:EGBN)
Q1 2021 Earnings Call
Apr 22, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Eagle Bancorp Incorporated First Quarter 2021 Earnings Call. [Operator Instructions]

It is now my pleasure to turn today's meeting over to Chief Financial Officer, Charles Levingston. Please go ahead.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Thank you, Sean. 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. While our growth and performance over this past quarter has been positive, we cannot make any promises about future performance, and it is our policy not to establish with the markets any formal guidance with respect to our earnings.

None of the forward-looking statements made during this call should be interpreted as [Technical Issues]. Our Form 10-K for the 2020 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 online at our website or the SEC's website.

This morning, Susan Riel, the President and CEO of Eagle Bancorp will start us off with a high-level overview, then Jan Williams, our Chief Credit Officer will discuss our -- her thoughts on loans and credit quality matters. Then I'll return to discuss our financials in more detail. At the end, all three of us will be available to take questions.

I would now like to turn it over to our President and CEO, Susan Riel.

Susan G. Riel -- President and Chief Executive Officer of Eagle Bancorp, Inc. and President and Chief Executive Offic

Thank you, Charles. Good morning and welcome to our earnings call for the first quarter of 2021. It is hard to imagine that when the COVID-19 pandemic began a little more than a year ago, Eagle would go on to post two of our highest-earning quarters. Earnings are at record levels; equity has risen to an all-time high; asset quality continues to strengthen; efficiency remains a strength, and we believe our market area is making progress toward reopening. In these ways, we believe we are stronger now and in a better position than we were a year ago. We have also got some good news on the litigation front that I'll share with you later on.

Focusing on earnings first. Earnings in our most recent quarter were $43.5 million or $1.36 per share. This was a 1.53% return on average assets and a 15.33% return on average tangible common equity. Earnings over the last four quarters, which includes the second quarter of 2020, when the nation was locked down totaled $152.6 million or $4.75 per diluted share. These earnings are positively accretive to our equity. Common equity at the end of the quarter was $1.3 billion or 11.34% of assets.

Turning to asset quality. At the end of the quarter, NPAs were 0.51% of assets. And for the quarter, annualized net charge-offs were 0.27% of average loans. These asset quality ratios combined with an improved economic outlook nationally and locally, as well as a decrease in total loans, informed our decision to make a $2.4 million reversal from our allowance for credit losses. Even with this reversal, our reserves are 1.47% of loans, excluding PPP loans.

In terms of operating efficiency. We continue to be a leader with an efficiency ratio of 40.7% for the quarter. We just completed and mailed out our proxy. And compared to the 19 peers listed in our proxy, we reported the lowest efficiency ratio. This efficiency is achieved through strong revenue growth and expense control. Total revenue for this quarter was $93.2 million, up 9.4% from a year ago. Non-interest expenses were $38 million, up just 1.7% from a year ago. We are always prudent in our approach to expense management. As a small example, last quarter I mentioned, we were relocating two branches with expiring leases to improved locations and combining two back-office locations, also with expiring leases into a single new facility. These moves have been completed and are projected to save us $460,000 annually in rental expenses.

Before moving on, I would like to once again mention the contributions our lending team and our residential mortgage division have made. During the quarter, our lending team worked with our clients on the latest ground of PPP and assisted them with the forgiveness process. And our residential mortgage division had another great quarter with locked loans of $303 million and a gain on sale of mortgage loans of $5 million. Even with interest rates increasing slightly, we expect our residential mortgage division will continue to contribute meaningfully to the bottom line.

In regards to our market. A lot has changed in three months. On our last call, we noted that DC, Maryland, and Virginia were stepping up COVID-related restrictions. Since then, all three jurisdictions appear to be loosening restrictions on businesses, as the vaccine rollout continues and expanded its scope. The District is now allowing restaurants and gyms to open indoors at 25% capacity, and both the Nationals and D.C. United stadiums are opened at limited capacity. Maryland also loosened restrictions by removing capacity limits for indoor and outdoor dining and allowing larger venues, including convention and wedding venues to operate at 50% capacity. In Montgomery County, where our headquarters is located, some stricter restrictions still apply. And in Virginia, restaurants may open but must maintain physical distancing guidelines. Indoor events at convention centers and concert venues may open at 30% occupancy.

Publicly available industry data shows that nationwide hotel occupancy was approximately 55% in March. And restaurants, many with expanded outdoor capacity approached 2019 revenue levels in the month of March. It follows that unemployment has also improved with more people going back to work. In the Washington MSA, the preliminary unemployment rate was 5.8% in February. This is down from 6.5% in December and down from 6.9% in September. These improving dynamics are giving a lift to the local economy through increased consumer retail spending, which we believe typically proceeds a ramp-up in business spending and investment. Moreover, our market areas should disproportionately benefit from any existing or proposed government stimulus.

This past quarter we faced headwinds in the form of low loan demand and a competitively low interest rate environment. We were also experiencing elevated payoffs and prepays, due in part to successful project completions and low nominal interest rates. We are excited about our strong pipeline and long-standing relationships in the community, where we continue to get looks on most available commercial projects. EagleBank intends to assertively pursue loan opportunities throughout the rest of 2021. We have the capacity to finance large commercial projects and we believe, we are extremely well-positioned to take advantage of any economic recovery, with common equity of almost $1.3 billion and risk-based capital of 17.86%. Obviously, the timing for increases in loan demand will ultimately depend on market development, the competitive marketplace, and economic conditions. Those uncertainties aside, we remain hopeful that loan demand will pick up once the pandemic subsides and society resumes its normal pace of economic activity and social interactions.

For our shareholders, we remain focused on building value. Book value rose to $39.45 [Phonetic] per share, up 9.2% from a year ago, and tangible book was $36.16 per share, up 10% from a year ago. We also increased the quarterly dividend to $0.25 per share and authorized a new stock repurchase program. Although, with the run-up in bank equities, we were not as active in the stock repurchase market as we expected to be at the start of the year.

I would also like to welcome our two new independent Board members, who joined in January, Steve Freidkin and Ernie Jarvis. Steve, as the Founder and CEO of his own full-service technology firm, brings technological expertise to the Board and serve on our Risk Committee. Ernie, as Managing Principal of his own real estate brokerage company, adds his expertise in commercial real estate to the Board and serves on the Banks Directors Loan Committee. As I have said repeatedly, EagleBank is committed to have a diverse Board in terms of gender and ethnicity, as we understand the value of different perspectives. Notably, of our 10 directors; four are female and two of our male Directors identify as minorities. In regards to other diversity measures, last month, the Washington Business Journal ranked us 8th in terms of Corporate Diversity for mid-sized companies in the market. This was based on us having 61% of our staff being people of color. While we have a diverse workforce, we must also help out our people thrive. And this year, we created and launched a Diversity and Inclusion Council, tasked with developing additional initiatives to support diversity, inclusion, and equity throughout our organization.

Now onto the good news, I mentioned on the legal front. In the days following our non-binding mediation, which occurred on April 13, we reached an agreement to settle a previously disclosed putative class action lawsuit for a total payment of $7.5 million by the Company in exchange for the release of all alleged claims in the suit, without any admission or concession of wrongdoing by the Company or any defendant. The class action settlement agreement is subject to court approval and the payment amount is expected to be fully covered by our insurance carriers. In addition, the previously disclosed stipulation of settlement in connection with the shareholder derivative litigation still remains subject to court approval, with the preliminary hearing set for May 12, 2021. We are pleased to settle both our major commercial litigation matters and look forward to securing court approval and putting these matters behind us. In anticipation of some likely questions, there is nothing material to report on the previously disclosed government investigations. We continue to cooperate with the government and believe progress is being made toward the resolution of these matters.

Before turning it over to Jan, I would like to thank all of our employees for all their hard work and their commitment to support our clients.

With that, I would like to turn the speaking duties over to Jan Williams, our Chief Credit Officer.

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Thank you, Susan. Good morning, everyone. With regard to the reversal of $2.4 million from the allowance for credit losses, the improved outlook for the economy, primarily the improved unemployment numbers. The improvement in the credit metrics of the loan portfolio and the reduction in total loans, all contributed to the reduction in the allowance. With the reversal of the allowance for credit losses to total loans, excluding PPP loans was 1.47%, down 3 basis points from the prior quarter-end. Comparing metrics for linked quarters even with our lower allowance for credit losses, our coverage of non-performing loans increased to 195%, up from a 180% at year-end, as we saw a reduction in non-performing loans over the same period.

NPAs to total assets were 51 basis points, down 8 basis points from the prior quarter-end. In dollars, NPAs were down $8.6 million. The decline was primarily from payoffs on non-performing loans, a return to accrual status for some loans, and charge-offs, which primarily consisted of hotel, restaurant, and SBA credits.

Before I hand it off to Charles, a quick update on the PPP program. In the first quarter, we once again jumped in to help our clients with the latest round of PPP. For the quarter, we originated PPP loans of $193 million and assisted clients in the forgiveness process with loans forgiven of $83 million. Outstanding PPP loans at quarter-end were $565 million.

With that, I'd like to turn it over to Charles Levingston, our Chief Financial Officer.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Thank you, Jan. Comparisons for the first quarter of 2021 to the first quarter of 2020 are difficult, as the current quarter contains a reversal from the allowance for credit losses and a substantial contribution from our residential mortgage team, whereas in the first quarter of 2020 we were building reserves and the impact of the COVID-19 pandemic was just coming into focus, and we also had a mark-to-market loss on a hedge position. For these reasons, and to help compare apples-to-apples for the first quarters of 2021 versus 2020, we added a pre-provision net revenue table to our earnings release. It shows our PPNR at $55.3 million for the first quarter of 2021, up from $47.9 million in the first quarter of 2020. As a percentage of assets, annualized PPNR in the first quarter of 2021 was 1.95%, this is down 9 basis points from the first quarter of 2020, but the decrease is more from the 21.9% increase in average assets outpacing the increase in PPNR of 15.4%.

Comparing our performance over linked quarters, net interest income was up $1.2 million [Phonetic]. With the reversals on the provisions to the allowance for credit losses and for unfunded commitments, we had a positive swing of $8.1 million on the two provisions. Noninterest income was up $700,000. Contributing to this was the cancellation of a $50 million [Phonetic] in the money FHLB borrowing, resulting in a $911,000 gain. Offsetting these improvements, noninterest expenses were up $3 million, mostly due to annual incentive cost captured in the first quarter, and legal and professional fees were up $657,000, mostly attributable to non-legal advisory fees. These linked quarter changes led to an increase in pre-tax earnings of $7.1 million. Bottom line, on a linked quarter basis, earnings were higher by $4.6 million, and the earnings of $43.5 million for the first quarter of 2021 was a record for the Company.

When the quarter started, deposit inflows continued as they had in the prior two quarters. Both assets and deposits were running a bit higher during the quarter by about $400 million. But these deposits float out by the end of the quarter. As a result, at quarter-end assets were flat at $11.1 billion and deposits were also flat at $9.2 billion. As deposits ended flat, we made some progress, putting a little over $200 million of excess liquidity to work and investments. Investments were primarily 20 years, 2% agency mortgage backed securities and callable agency bonds. We will continually look to invest our excess liquidity to seek out higher-yielding alternatives to cash.

Also, higher-cost CDs continue to run off and costs on money market and savings accounts moved lower. In the first quarter of 2021 CDs with a total balance of $230.9 million, with a weighted average rate of 1.69% matured. These CDs had a weighted average term of 18 months at issuance. We added about half of that $230.9 million back in the form of -- in the form or lower cost -- of lower-cost CDs and the balance was --the balance within other deposits. Average CD balances for the quarter were 9.6% of average deposits, down from 10.8% in the prior quarter.

The average cost of our money market savings [Phonetic] is now 33 basis points, down from 42 basis points in the prior quarter. Overall, our cost of funds in the first quarter of 2021 decreased to 42 basis points, down from 48 basis points in the prior quarter. Putting some excess liquidity to work and keeping funding costs low, helped us keep the NIM steady at 2.98% for the first quarter of 2021, which was unchanged from the fourth quarter of 2020.

With that, I'll hand it back to Susan for a short wrap-up.

Susan G. Riel -- President and Chief Executive Officer of Eagle Bancorp, Inc. and President and Chief Executive Offic

Thanks, Charles. As we move further into 2021, we will continue our efforts to deliver positive operating and performance results, and we will continue to strive to serve both our investors and our community to the best of our ability. Our earnings, credit quality, and capitalization remained strong. Deal flow on development projects and income-producing credits continue at a decent pace. And the Washington market remains a premier business center and tourist destination.

Thanks again for joining us this quarter. We will now open up the call for questions.

Questions and Answers:

Operator

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

Casey Whitman -- Piper Sandler -- Analyst

Hey, good morning.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Good morning, Casey.

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Good morning, Casey.

Casey Whitman -- Piper Sandler -- Analyst

I think, I -- I'll just ask first bigger picture. As we think about, sort of, the balance sheet transition and the emphasis away from certain products, what kind of inning are we in that process? I think, maybe what I'm trying to go my head around is, as the economy reopens, perhaps we see growth across the industry, how confident are we -- that we -- are you -- that you'll participate in that fully or should we consider that there is still going to be some offset just from some of the strategic mix shift going on specifically at Eagle?

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

In terms of the mix of our assets going forward?

Casey Whitman -- Piper Sandler -- Analyst

Yeah. I mean, maybe just in terms of the emphasis on construction and where that, sort of, is right now. And, do you think or...

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Yeah. And I think that we are fully prepared and are doing construction lending. I think that the economic forecast certainly adds a lift to the desirability of those loans, and I would expect we'll have opportunities to see them. We are now just below the regulatory threshold for concentration on the construction side. We've got room to lend there and I think there are going to be continuing opportunities.

Casey Whitman -- Piper Sandler -- Analyst

Got it. Great. Thank you. I'll just ask a few expense questions. Just to clarify, the savings from the branch relocation consolidation is, some of that, the number is already or will that be realized, you think, in the first or the second quarter?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Yeah, I think that's going to be utilized more going forward. Again, are kind of just -- our calculation is about $460,000 annually in savings on specifically rent expenses. Yeah.

Casey Whitman -- Piper Sandler -- Analyst

Got it. One more expense one. Congrats on the class action settlement. Just wondering, can you give us the outlook for where the legal, professional fees expense line might run versus, I think it was at $3 million this quarter, and I appreciate that's already down materially from a year ago, but can we expect a little bit more relief to come on that line given the settlements you have or do you think it's a pretty stable level from here?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Yeah. Obviously, the cost that we're going to be dealing with, as it relates to those private litigation matters are going to be related to the settlement of these --of the administration associated with these cases. But there is still the expectation that there'll be continued expenses associated with the investigations. Although -- again, as we've mentioned previously, a lot of that production expense has tapered off, right, in terms of providing information, which is the bulk of the costs. So, I wouldn't expect significantly greater, but it's, as my counselor advised me, it's certainly an unknown. But yeah, so take that for what it's worth.

Casey Whitman -- Piper Sandler -- Analyst

Okay. So it sounds like this is a pretty good expense run rate minus whatever payroll taxes and whatnot, would have driven some of the salaries this quarter, for expenses?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Yeah.

Casey Whitman -- Piper Sandler -- Analyst

Great. Thank you for the call.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Great.

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Thanks, Casey.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Thanks, Casey.

Operator

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

Steve Comery -- G. Research -- Analyst

Hey, good morning.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Good morning, Steve.

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Hi.

Steve Comery -- G. Research -- Analyst

Wanted to ask about the securities book. Charles, I appreciated your comments there on continuing to look for opportunities. Maybe any thoughts on the pace of deployment of liquidity into the securities book if this liquidity stays on your balance sheet and loan demand remains a bit tepid?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Yeah, that. So to your point, Steve, I would say our first choice is to deploy this excess liquidity into loans and that's what we have to do. But with the significant amount of liquidity that we have on the balance sheet, the next best option seems to be in the investment portfolio. Our clip [Phonetic] has been, call it between $50 million and $80 million a month deployed. And it is a bit of a balancing act between, like picking the right points and finding that healthy return and not going too far on the curve and exposing ourselves to additional price risk. But again, that is the next best alternative to loans. Hopefully, that gives you a little bit of insight.

Steve Comery -- G. Research -- Analyst

Yeah. Yeah. That's helpful. Maybe moving on to loans. So, I noticed that in the disclosure of Accommodation & Food Services the exposure actually increased quarter-over-quarter. Was that due to line draws or is the bank seeing opportunities in that area to make new loans?

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

There were certainly line draws. We had recently approved and increased to align from one of our very strong restaurant chain customers that's continuing to expand and grow. They had a very successful equity raise, at the same time, and quite large deposits with the bank right now. But we are seeing more usage of lines and we are selectively working with our existing customers. I would not say we're actively soliciting new restaurants, as customers at this point.

Steve Comery -- G. Research -- Analyst

Okay. Okay. Thank you. And then maybe one more for me on low yields, which were up pretty solidly quarter-over-quarter. I wonder if maybe could have a discussion about the dynamics there and how much of the rise on loan yields was changing mix versus, like, what rates you're seeing in the market?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Sure. So, I would say, you know, that coupons that are being put on these days are, you know, call around 4%, but the pricing pressure continues. We did see some pre-pays in this past quarter that also made a positive contribution to the yield that we're seeing there. So to the extent that those continue will get some positive lift. But in terms of mix, it was, I guess in terms of C&I versus CRE. It was a little lighter quarter on the CRE front. Then we -- we've typically had in the past. And It was definitely again seeing pricing pressures, particularly on the C&I side.

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Yeah. I think there is an awful lot of liquidity out there right now, which is contributing to the pricing pressure and all banks are looking to move into higher-yielding asset types. So we do see that, but we're also not making significant changes in the overall CRE versus C&I composition of our books. I will say, we'll probably be shifting a bit more back into the construction side as I discussed with Casey earlier.

Steve Comery -- G. Research -- Analyst

Okay. Thanks for that. And Charles, I don't know if you want to put this number out. But anyway to, kind of, quantify how big of an impact the prepayments were on yields?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Let's see here. I have that number. I'll have to get back with you on that. But we did run that.

Stuart Lotz -- KBW -- Analyst

Okay. Okay. No worries. Thank you very much.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Yeah.

Operator

Okay. Your next question comes from the line of Steven, sorry, Stuart Lotz from KBW.

Stuart Lotz -- KBW -- Analyst

Hey, guys, good morning.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Hey, good morning, Stuart.

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Good morning.

Stuart Lotz -- KBW -- Analyst

Charles, maybe if we can start on the reserve and maybe the outlook for provision, following some of the reserve release this quarter. Do you expect that to continue in the next couple of quarters? Could we continue to see, I mean, further negative provisions assuming you continue to let the -- your ACL run down and charge-offs maybe come in line with where they've been in the last couple of quarters?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Yeah. It's going to be -- there is a lot of, I guess, it will be dependent on where we are really at next quarter-end, what the economic forecast looks like at that point in time. Certainly, we are seeing some success with the deployment of vaccines out there. We saw a pretty good unemployment print. This morning we saw the consumer spending prints. Last week, so the signs are seemed to be positive on those forecasts, but it will be dependent on that in addition to loan growth and how much loan, how many loans we can put on quarter-over-quarter, which will obviously also need additional provision.

Jan, anything else you want to add?

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Yeah. I would say that it's also going to be dependent on the continued improvement in credit metrics within our portfolio, so certainly a possibility. But there is a lot of unknown out there in terms of when or if that actually is going to happen.

Stuart Lotz -- KBW -- Analyst

And Jan maybe -- I'm sorry if I missed this in the prepared comments. But can you just give any detail on where watch list or classifieds trended this quarter?

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Sure.

Stuart Lotz -- KBW -- Analyst

I mean, I didn't see anything in the release. Thanks.

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Yeah. The classified portion of the portfolio is down about $300,000, nothing significant, very stable there. The overall watch list is down about $41 million, so all signs are really positive on the credit metrics side. I think, we have continued to maintain a significant number of loans that received second deferrals in the watch category, as we wait for our period post PPP of sustained performance under regular payment plan. So it's -- assuming that, that goes well, I would think you would see further reduction in the future.

Stuart Lotz -- KBW -- Analyst

Got it. And maybe on loan modifications too. I think you guys were under 1% at year-end. And you kind of take back up closer to the two. What was driving that this quarter and [Speech Overlap] providing any color on this growth?

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Yeah. There's one hotel that is in that category that's on interest-only terms. And there are a couple of restaurants that are also on interest-only terms. We don't have -- there was nothing with a full deferral contributing to that number. And I don't expect to see anyone getting a third deferral, so these are essentially new to the second deferral class.

Stuart Lotz -- KBW -- Analyst

Yeah, it's very -- yeah, very helpful. And so, maybe just one more for Charles. You guys announced the buyback in December and I think we were a little less active than we expected this quarter. And with TCE back at 10.5% and if your currency has recovered a little bit. But how are you guys thinking about the buyback this year? And do you still plan on utilizing the full 1.6 million [Phonetic] share authorization?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Yeah. I think it's something we continue to evaluate on an ongoing basis. We're certainly aware of our very strong capital position, which puts us in a great position for a rebound in the economy, obviously, to deploy into additional loans. But certainly and also as you know, we'll note that we did slightly increase our dividend and we're thinking about that as well in relation, so that's going to be evaluated also on a regular basis. But it is a tool in our toolbox that again, as as we see fluctuations in the marketplace we'll have an opportunity to deploy capital where we think the price is right to do that.

Stuart Lotz -- KBW -- Analyst

Great. Thanks for taking my questions guys.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Sure.

Operator

Okay. Your next question comes from Samuel Varga from Stephens Incorporated.

Samuel Varga -- Stephens, Inc. -- Analyst

Good morning.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Good morning.

Samuel Varga -- Stephens, Inc. -- Analyst

I'm on for Brody [Phonetic] this morning. And I just wanted to ask another question going back a little bit to credit conversation. I wanted to ask a little bit about your office portfolio with regards to loan to values and coverage ratios, could you give us a sense of that? And maybe if I -- if you do have any insight to it? And what the portfolio items look like in terms of the work-from-home trend?

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Yes. The office portfolio has held up really remarkably well, despite the work-from-home atmosphere of COVID. I think a lot of that has to do with the types of tenants that are in place. And we do have roughly $1 billion of office property in the portfolio. We would anticipate that if there is a permanent change to more remote working status. The impact of these are most significant in the central business district and it will occur over a period of time, you know, five years or so as existing leases mature and perhaps smaller footprints are desired in the future. So, we are looking at that and monitoring it carefully. I think at this point, we haven't seen any significant drop in average rents because we don't have properties that are right now on the income producing side, suffering a 100% roll in leases out of the blocks. But we have to stress test that portion of the portfolio every quarter as we do all income-producing product. And we've been making very severe incremental drops in revenues and to try to model out what that might -- what might happen in the future. I think we're feeling like this is a longer-term dilution [Phonetic] strategy, but we feel pretty good about where we are in terms of the loan to values that we have currently in our office properties.

Samuel Varga -- Stephens, Inc. -- Analyst

Great. Thank you, guys. That's very helpful. And then, switching back to cover a more big-picture perspective on the loan portfolio. We noticed that they were 5% quarter-over-quarter, quarter [Phonetic] drops in CRE and construction. And so, we just wanted to get a sense for what might have been driving that?

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

I think it's really a timing factor. It's very difficult to pick up [Technical Issues] time and make an assessment as to an overall philosophy about the loan portfolio. I think we're seeing lots of opportunities, including in the office area, by the way, but we are looking at a property with 15-year GSA lease, so it's not really as vulnerable as you might think. Office properties would be, they're all very individual and evaluated individually. So we don't intend to be less assertive in our CRE philosophy. And I expect that we'll continue to see that segment of the portfolio grow.

Samuel Varga -- Stephens, Inc. -- Analyst

All right. Great. Thank you. And then, I guess one more question around PPP. I just want to get a sense for what your round three involvement, kind of, looks like big-picture and you've noted some items on that. And then the -- maybe the change in expectations around the forgiveness schedule? If you could give some color on that, please?

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

In terms of the forgiveness piece on the PPP portfolio, I think it's a much more arduous process than anyone would have thought it was [Technical Issues] at the beginning of the program. We are still getting, you know, almost daily flash information from the Small Business Association in order to tell us how and when and what's needed in order to process forgiveness. So, it's difficult to say with any level of certainty, the rate at which we might expect to see forgiveness go forward.

Charles, I think you've also been looking at that?

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Yeah. I mean, gears are moving albeit slowly on the forgiveness process. And we continue to work with our borrowers to submit those applications for forgiveness to the SBA. But as Jan noted, there is -- it's a difficult process. So, but we're moving in along.

Samuel Varga -- Stephens, Inc. -- Analyst

Great. Thank you very much. And thank you very much. That will be for me.

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Great.

Operator

I will now turn the call back over to President and CEO, Susan Riel for closing remarks.

Susan G. Riel -- President and Chief Executive Officer of Eagle Bancorp, Inc. and President and Chief Executive Offic

Thanks again for joining us today and we look forward to seeing you at the end of next quarter. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Charles D. Levingston -- Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc. and Eaglebank

Susan G. Riel -- President and Chief Executive Officer of Eagle Bancorp, Inc. and President and Chief Executive Offic

Janice L. Williams -- Executive Vice President of Eagle Bancorp, Inc. and Senior Executive Vice President & Chief Credit O

Casey Whitman -- Piper Sandler -- Analyst

Steve Comery -- G. Research -- Analyst

Stuart Lotz -- KBW -- Analyst

Samuel Varga -- Stephens, Inc. -- Analyst

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