Good morning, ladies and gentlemen, and welcome to the Amalgamated Bank Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Drew LaBenne, Chief Financial Officer. Please go ahead, sir..

Thank you, operator, and good morning, everyone. We appreciate your participation in our second quarter 2020 earnings call. With me today is Keith Mestrich, President and Chief Executive Officer. As a reminder, a telephonic replay of this call will be available on the Investors section of our website for an extended period of time.

Additionally, a slide deck to complement today's discussion is also available on the Investors section of our website. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

We caution investors that a number of factors, some of which are beyond our control, could cause actual results to differ from the expectations indicated or implied by any such forward-looking information or statements.

Investors should refer to Slide 2 of our earnings deck as well as our 2019 10-K filed on March 13, 2020, and our other periodic reports that we file from time to time with the FDIC typically under cautionary note regarding forward-looking statements and risk factors for further description or explanation of those items that could cause actual results to differ materially from those indicated or implied by any forward-looking statements that we may make.

Additionally, during today's call, we may discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP.

A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release as well as on our website. At this point, I'll turn the call over to Keith..

first, we grew our balance sheet 50% on an annualized basis in the second quarter and now have $6.5 billion in assets; second, we delivered pretax pre-provision income of $22 million, which compares to $21.5 million in the 2020 1st quarter; third, our net interest margin declined by 36 basis points to 3.1% as compared to the first quarter.

As we will discuss further, this decline was largely due to the rapid expansion of our balance sheet and resulted in opportunistic investments; fourth, our cost of deposits was 20 basis points, down from 33 basis points in Q1, and noninterest-bearing deposits were 53% of ending deposits; fifth, we grew our PACE portfolio by adding $68.1 million in securities during the quarter; and lastly, we continue to main our expense discipline and closed 6 of our branches, which will ultimately result in approximately $1 million in quarterly expense saves in 2021.

As we exit the second quarter, the bank has a strong capital base and a conservatively underwritten loan portfolio as a result of our disciplined credit culture.

As Drew will discuss in more detail, we recorded a provision expense of $8.2 million, primarily driven by $3.2 million of allowance related to payment deferrals and approximately $2.7 million in our CRE portfolio for a hotel that was impacted by COVID-19.

We continue to diligently watch our loan portfolio and remain committed to working with our borrowers in the more challenged industries on payment deferrals during this time period.

Importantly, we have seen a stabilization in the amount of loan balances with payment deferrals as well as a meaningful number of residential customers start to remake payments after their initial 90-day deferral.

As part of our efforts to mitigate the effects of the pandemic while further streamlining our operations, we continue to aggressively reduce our expenses, as we reported noninterest expense of $31.1 million during the quarter compared to $32.3 million during the first quarter.

This was accomplished through taking actions to mitigate the impact of lower net interest income given the lower rate environment. We have reduced spending on noncritical projects and slowed down hiring during this uncertain time, as well as closing unprofitable branches, which I mentioned previously.

Importantly, our team will continue to explore opportunities to reduce expenses without sacrificing the operational integrity of our competitive position of the bank. To this extent, it is important to draw your attention to the successful migration within our client base to our online banking platform.

This began at the beginning of the pandemic and carried on through much of the second quarter, in which our team effectively assisted our clients with the move towards our digital platform. During this time, we experienced high level of adoption and customer satisfaction with no significant client losses.

This successful transition enabled us to opportunistically expedite branch closures, as the branches were not functional due to the pandemic, and our clients' banking needs were not addressed through our online platform. Turning to our growth initiatives.

I would like to take a minute to touch on PACE as we successfully added $68.1 million of PACE securities during the second quarter. PACE continues to be an opportunity for us, as home improvement is doing very well, given that people are spending more time at home and are utilizing PACE to fund home improvements.

We expect to continue adding new assessments to our portfolio through 2020 through our agreement with the PACE funding Group. Another growth initiative that we move forward with beginning in the first quarter and have continued to execute on is the opening of our commercial banking office in Boston.

Given the pandemic and the shelter-in-place orders that existed at the time of the opening, we anticipated a more gradual ramp. I would like to highlight that Mark Walsh and his team are off to a terrific start, having opened 8 new deposit accounts in the second quarter under less-than-ideal circumstances.

This is a real success, and we look forward to what's to come in a more normalized environment, as the reopening of our economy progresses. Looking forward, our Los Angeles office remains on hold for the foreseeable future, and we're hopeful to have some additional clarity on this market as we move into 2021. Turning to capital allocation.

Our priorities remain consistent. Our share buyback program remains under suspension given the continued economic environment, and we will evaluate our dividend with our Board of Directors each quarter. To conclude, I'm very pleased with the growth we have achieved during the second quarter despite the continued pandemic.

Our deposit base continues to grow and is key to our growth strategy. We remain steadfast in our ability to drive value for all constituents of the bank. Our people, clients and customers come first, and we stand with them through this incredible period of uncertainty and through an important movement in our country's history.

I would like to thank all of our employees who continue to work tirelessly to deliver seamless operations to our customers and who make the fruits of their efforts our mission. Together, we will make it through this pandemic and be at the epicenter of change for our country.

I would now like to turn the call over to Drew for a more detailed review of our financial results..

Thank you, Keith. I'll begin by reviewing our second quarter results before turning the line back to the operator to open for questions. Turning to Slide 6.

In the second quarter, ending deposits increased $793.8 million or 62.5% annualized to $5.9 billion for the first quarter of 2020, while average deposits grew $606 million for the quarter to $5.4 billion.

Average noninterest-bearing deposits increased $445.5 million from the prior quarter, primarily due to seasonality related to the election cycle, and now represent 50.6% of average deposits at quarter end. Our cost of deposits decreased to 20 basis points, down 13 basis points compared to 33 basis points at the end of the first quarter.

There is still some opportunity to reduce deposit costs in reaction to the Fed rate cuts that we are getting near the end of these moves.

Deposits from politically active customers, such as campaigns, packs, advocacy-based organizations and state and national party committees increased $325.9 million from $774.8 million at March 31, 2020, ending the second quarter at $1.1 billion, as outlined on Slide 7.

The election environment continues to be a source of growth for our deposit franchise. The focus for this year will be the presidential race, and we continue to be a partner to a majority of democratic candidates as we support their business needs.

As seen on Slide 10, we delivered loan growth of $123.0 million or 14.1% annualized as compared to March 31, 2020 and ended the quarter with $3.6 billion of total loans.

Loan growth was primarily driven by an increase in C&I loans from the purchase of government-guaranteed and PPP loans as well as residential first lien and consumer residential solar loans.

As a reminder, our balance of PACE assessments is now reported in the held-to-maturity securities portfolio, which is inclusive of approximately $323.4 million in purchased PACE assessments.

Our new investment in the PACE funding group will allow the bank to continue adding pace assessments in future quarters until we complete the $150 million purchase agreement. As part of the CARES Act, the bank has implemented a payment deferral program for consumer and commercial customers.

The standard agreement allows for 3 months of deferrals of principal and interest, with the potential to defer another 3 months if needed. The majority of these loans are not reported as delinquent on our financial statements and are not downgraded solely due to the payment deferral program.

In total, we currently have $428 million or 12% of our loans on a deferral program, which is shown on Slide 12. This is down approximately $84 million from the highest number we reported about a month ago. The number of new loans asking for a deferral has pretty much ceased.

We are seeing a number of residential loans asked for a second 90-day deferral, which we have been granting but we have also seen $33 million in residential loans begin to make payments after the first deferral, which is encouraging. For those residential customers that reach the end of their first 90-day deferral, 58% began to make full payments.

Commercial loan deferrals began later in the second quarter, so we have not had a meaningful number complete the 90-day process, but we do expect several of these loans to ask for a second deferral. We are generally asking the commercial clients to pay interest on the second deferral, if at all possible.

In the first quarter of 2020, the available for sale investment portfolio had a sizable negative mark through other comprehensive income of $17.9 million, due primarily to the volatility in the fixed income markets. In the second quarter, the markets largely recovered, and we had a positive mark of $21.9 million through other comprehensive income.

It is worth noting that we have had no downgrades of securities in our portfolio, and we are pleased with the performance thus far.

Net interest income for the second quarter of 2020 was $44.4 million, which compares to $44.7 million in the linked quarter, and an approximately $2.6 million increase as compared to $41.9 million in the same quarter of 2019.

The year-over-year increase is primarily attributable to a decrease in interest expense due to a decrease in borrowings and deposit rate paid and an increase in average securities and loans of $509.5 million and $383.9 million, respectively with lower yields.

These impacts are partially offset by an increase in average interest-bearing deposits of $340.4 million. As shown on Slide 16, our net interest margin was 3.10% for the quarter, a decrease of 36 basis points from the first quarter and a year-over-year decrease of 56 basis points.

The accretion of the loan mark from the loans we acquired in our New Resource Bank acquisition contributes 3 basis points to our net interest margin in the second quarter of 2020 compared to 4 and 6 basis points in the first quarter of 2020 and the second quarter of 2019, respectively.

Prepayment penalties earned through loan income contributes $0.2 million or 2 basis points to our net interest margin in the second quarter of 2020 compared to 6 and 3 basis points in the first quarter of 2020 and the second quarter of 2019, respectively.

As Keith discussed, the decline in NIM was largely due to the rapid expansion of our balance sheet from deposit growth. These deposits were either held in cash or invested in floating rate agency securities.

On a go-forward basis, we expect NIM to stay low in the third quarter as we hold cash and liquid securities in preparation for the outflow of political deposits in conjunction with the election cycle. We expect to use a combination of cash on hand and short-term borrowings to fund the political deposit outflow.

The overall impact of this move should be just over a $1 million decrease in annualized net interest income. Now on to noninterest income. Noninterest income for the second quarter of 2020 was $8.7 million, declining from $9.1 million in the first quarter of 2020 and a $2.3 million increase compared with the second quarter of 2019.

The increase in the second quarter of 2020 compared to the like period in 2019 was primarily due to a $1.3 million tax credit on an equity investment in the solar project, a $0.5 million gain on the sale of securities compared to a loss of $0.4 million in the comparable quarter of 2019, and a $0.7 million increase in bank-owned life insurance income due to the receipt of a death benefit payout.

These increases were partially offset by a $0.5 million decrease in Trust Department fees, primarily related to the decrease in revenue from the real estate fund, which is liquidating assets. Keith mentioned the initiatives to reduce noninterest expense on a go-forward basis.

As seen on Slide 17, our noninterest expense for the second quarter of 2020 decreased to $31.1 million which compares to $32.3 million in the first quarter and $31.0 million in the second quarter of 2019. On a core basis, our expenses were $30.4 million, which reflects our ongoing expense discipline.

We are pleased with the prudent expense management and expect to run core expenses at or below $32 million per quarter for the remainder of the year. As we head into 2021, we will also see the $4 million annual benefit of the cost reduction from branch closures. Skipping ahead to Slide 19.

Nonperforming assets totaled $74.3 million or 1.15% of period-end total assets at June 30, 2020, which was an increase of $7.6 million from the end of December 2019. The change was as a result of a $14.7 million increase in nonaccruing loans, driven primarily by a legacy $10.2 million hotel loan in Ohio, which has been in our portfolio since 2005.

The amount of criticized and classified loans increased by approximately $35 million, primarily due to CRE and construction loans. The provision for loan losses in the second quarter of 2020 was $8.2 million, which compares to $8.6 million of provision in the linked quarter.

The provision expense in the second quarter was primarily driven by a $3.2 million increase in allowance related to payment deferrals in the loan portfolio, an increase in specific reserves of $2.7 million related to the previously mentioned hotel, and additional downgrades to risk ratings of construction loans. Moving along to Slide 20.

Our GAAP and core return on tangible average common equity were 8.6% and 9.1% for the second quarter of 2020, respectively. The core return compares to 7.7% for the first quarter of 2020 and 10.5% for the comparable period in 2019. Lastly, we remain well capitalized to support future growth.

To conclude, we are pleased with our second quarter 2020 results. We've been able to grow our business, support our customers and generate strong returns, all while dealing with the pandemic and building strong reserves to protect against any credit issues that may materialize. Thank you again for your time today.

We look forward to updating everyone on our third quarter results in October. With that, I'd like to ask the operator to open up the line for any questions.

Operator?.

[Operator Instructions]. Our first question comes from Steven Alexopoulos with JPMorgan..

This is Janet Lee on for Steve. My first question is on credit. So I think last quarter, you disclosed $120 million of loans or 3% of total in COVID-19 impacted industry.

How has the exposure changed over the past quarter? And can you provide more color around the stress on the one hotel credit you called out and whether that's a systemic issue you're seeing on your broader hotel exposure? And any other stress you're seeing on the overall CRE book?.

Yes. Okay. Janet, this is Drew. I'll take that. So -- and then let Keith feel free to jump in. So on our impacted industries, nothing has really changed there. We're certainly not originating more into impacted industries. And as you can imagine, a lot of the impacted industries aren't paying off their loans right now.

With regard to the hotel, this is -- as I was saying in the comments, this is a hotel loan that was originated in 2005, well before any of us were here. And it had gone through a -- it had been on our workout list.

I think actually when I joined the company in 2015, we subsequently worked out an arrangement with that loan and then obviously, COVID has caused some issues with it. That loan is in Ohio. I would say that hotel is very unique to our portfolio. And I would not extrapolate what's happening with that loan to any other part of our portfolio at this point.

So we took a pretty strong reserve on that. I think there's a reasonably high likelihood that we end up taking that property into OREO and having to dispose of it ourselves for the -- in 2020, most likely or maybe 2021. But again, I wouldn't extrapolate that out to the rest of our hotels.

The rest of the hotel portfolio, which is a little under $20 million, is -- they're definitely on loan deferrals, and they've definitely seen loss of revenue. But I think they're in pretty strong locations and assuming the economy comes back in Colorado and California where those two are located, we think and hope that they'll be okay..

The only thing I would add, Janet, is just to emphasize is Amalgamated has never made a business of doing loans in the hospitality industry, whether it's hotels and motels or restaurants. We have just a handful of them, and I would just give a lot of credit to our lending and credit teams. They are on each of these names.

I think, as the economy has begun to reopen a little bit of course, we'll see what happens, but I think that, that story there has gotten a little bit better or stabilized at least. And this is a tiny portion of our portfolio, and I agree with Drew, there's no sort of systemic issue because of the one hotel in Ohio..

Yes, makes sense.

So following up on credits included in your 2Q provision build was $3 million in reserves for loan deferrals, which -- is it overall reserves for low deferrals or which category of the loan deferral was the primary driver of the reserve build this quarter? And should we expect more reserves build due to deferral to continue in the coming quarters?.

Yes. So I think it was $3.2 million in Q2. It's the same category as the $3 million we took in Q1, which is in the qualitative reserves. So we've increased our qualitative factors related to COVID now, $6.2 million over the 2 quarters.

I would say that as far as the qualitative reserves, those are pretty big numbers, and I don't think we'll see those size numbers again in Q3. There might be some qualitative reserve, but we've moved up the main factors to their highest level at this point.

So -- and then what we would maybe see happening as we go through future quarters is as the loans come off the loan deferral, and if they are not making their normally scheduled P&I payments at that point, we would downgrade those loans, and then they would start to get reserves related to their risk rating or specific reserves if they become a TDR.

So we could see that playing out in Q3 or Q4, depending on how the numbers evolve..

Okay. Got you. Shifting to the tax credit. So the $1.3 million tax credit on an equity investment in the solar project, and there was this new fee item line added this quarter.

Can you give more color around this? And is this going to be a recurring fee item going forward?.

Yes. So it's an equity investment in a tax solar project, as we said. So these are pretty common in the industry. And I'm familiar with them from previous companies that I worked at as well. It does create some lumpy income trends over various quarters for these investments, as you take the tax credit and you write them down.

So the $1.3 million we took this quarter over the next 2 quarters. The timing of when it will hit is always a little variable, but I think we'll see $1.4 million more in gains over the next 2 quarters. But it's quite likely we'll see a larger gain in Q3 and actually maybe a little bit of a reversal in Q4.

But the net of those should be $1.4 million positive. And then there's a smaller stream of noninterest income that we'll receive over time from the projects, but it will be rather small compared to the numbers that we're talking about right now..

I would just add that, though, having now done a tax equity deal and having the regulators sign off on or having done that deal does sort of increase our access to potential opportunities in an industry.

We feel like regardless of the pandemic, which is renewable energy and the solar industry in particular and this just gives us a few more tools in our toolbox and gets us a little bit more exposure to better deals by having the equity tools available to us..

Okay. That's helpful.

And on -- just to clarify on your third quarter NIM guidance of staying low, is it fair to assume that net interest income and margin is going down, in fact, third quarter versus second quarter?.

Well, NIM is increasingly difficult to forecast just given the volatility in cash and floating rate securities on our balance sheet with the deposit inflow. So I'm really not going to say if it's going up or down.

This quarter, just from the inflows, that was about 19 basis point impact based on the cash we held and the floating rate securities we added. So deposits continue to increase, which, so far, this quarter, they have done, that could put more downward pressure on NIM.

Conversely and maybe a bit ironically as political deposits flow out, that will actually help NIM in terms of going up. As far as net interest income, I think the pressure is downward. I think from Q1 to Q2, we basically held flat with the exception of a decline in prepayment penalties.

I think we'll be down a little bit from where we were in Q2 in terms of net interest income. But it will depend on what we do with the balance sheet over the course of the quarter..

Got it. That's helpful. And finally, my last one is on political deposits. I want to make sure that I understand this right. So political deposits, it's going to go down to $300 million range at the end of 4Q.

How should I think about political deposit balances through the third quarter? Is it staying elevated at this level or running off versus second quarter?.

It's always a little hard to predict, but we know as we get towards the end of the cycle and get towards the election, we start to see more runoff than flow in, if you will, as people spend more money at the end of the cycle on television and final electoral prep and stuff. Our model has us going down to around $300-odd million.

Now I would say we've peaked higher than we thought we had when that model was originally put together, but we're kind of holding to our model at that point.

And that should be the trend around sort of end of September than through October and into November, if past this prologue here, that should be the kind of thing that we would actually see in the political deposit environment..

Yes. I would just -- the only thing I was going to add was that I think the end of Q3 number is probably a pretty difficult one to predict because it's right in the heart of when everything is happening with regard to the election spending..

Our next question comes from Christ O'Connell with KBW..

So I wanted to start off on the expense front. I may have not caught some of the guidance there as to the back half of the year, where we're going from here.

But that is also -- so if you could maybe just go over that again? And then also as we're going into '21, what the net impact -- I guess, as the 6 closure branches being the $4.4 million, but is the Boston expansion kind of offsetting that a little bit?.

Yes. So what we've said on the guidance is that we expect to be below $32 million for the remaining two quarters of 2020. That's a core number. So it excludes the $6 million estimate that we have in Q3 for branch closure expense, the onetime cost which is -- we've closed the branches already or they've gone dark.

We're negotiating lease exits with landlords, sometimes that happens, sometimes you just end up continuing to make the lease payments, but you take the charge upfront until the lease expires. So there's a little bit of variability in terms of what may happen there.

The $4.4 million in 2021 is the annual run rate we expect to get when everything is completed with the branches. Now the one nuance there is we are moving a lot of staff into open positions in the company right now. So that kind of expense of the branch may not just fully go away.

It may take time as we continue to experience vacancy and other positions and fill with those branch employees..

And then in terms of Boston, I wouldn't equate our effort in Boston to replacing any of the kind of expensive brick-and-mortar operation that one of our branches in New York has. So we have a small commercial team of 3 people that are operating in Boston. Right now, we're in sublet space.

We're looking for an opportunity to have a more permanent office, but that's really a commercial banking office, although it's officially a branch, it's not the kind of typical branch that will have a full complement of staff and the kind of footprint that you would have.

So while there's some expense associated with Boston, I think a very hopeful kind of start that we've had there should quickly justify that expense. And I wouldn't call it much of an offset at all to the expense savings that we get from the closure of the branches in the New York area..

Okay. Great. That's helpful. And then in particular, on the data processing line, was there anything one-time or unusual this quarter? Because I know -- I think there is suppose -- there's vendor cost saves, which brought it down for the first quarter of this year.

But then it kind of popped back up to -- at the level or even a little bit above the pre vendor cost saves..

Yes. We had a onetime impact in there. So I think that number is probably more like 2.6-ish. That data processing should be running at. 2.6, 2.7..

Great. And then in terms of -- could you just walk us through the $51 million of PPP loans? I know you're kind of partnering with another institution for those and not originating yourselves.

So just maybe how that's going to run through income and if that's any different than if you had originated it yourselves?.

Yes. So basically for us, what it looks like is almost like a government-guaranteed loan that we purchased with the 1% yield. We purchased pretty much at par. These were almost entirely from the first round of PPP. So I think the forgiveness rules on that are much easier to process through than the second round.

So we would expect that a high level of forgiveness to happen, and so they won't be on the balance sheet for all that long. And the only -- the difference for us versus other banks is we didn't originate.

So we're not capturing any of the fee income related to that or any of the kind of operational hassle, shouldn't say hassle, the operational activity related to the PPP loans and the forgiveness as well..

Okay. Great. All right. Great. And then just finally, on the PACE loan origin -- PACE investment origination front, I noticed that you kind of had a -- or you noted in the deck a little bit of a delay on the expansion to the New York market.

Does that change your outlook or the demand that you're seeing, putting those kind of on the books going forward?.

No. I mean, we really have never included any New York production in our estimates because it's unproven, unapproved program right now, which means it can be subject to delays and COVID is certainly not helping with that..

[Operator Instructions]. Our next question comes from Brian Morton with Barclays Bank..

Thanks for the kind of additional guidance on the NIM in the third quarter.

But I was just curious, once you kind of get past the decline in political deposits going into average balances in the fourth quarter, do you think you could recapture any of that 19 basis point impact on the NIM from higher cash levels?.

Yes. I think we would recapture most of the 19 basis points.

The question is, which I won't provide an answer right now is, what's going to happen everything else in terms of NIM, right? So that you might have that 19 basis point increase, but you're still going to have continued pressure downward from just lower yields coming on the books from everything that's being originated at this point, given the interest rate environment..

Okay. Great. And then maybe a little bit more on capital.

Just kind of what are you looking at? And under what kind of scenarios do you think you'd be willing to restart the share repurchase program? What kind of levels do you think you're going to end the year kind of on CET1?.

Keith, do you want to take the repurchase one? And then I'll talk about capital..

Yes.

Brian, I think that most important factor on the share repurchase right now really just is the external environment and, I think, the dour sentiment that policymakers and the public at large have around share repurchases at this point and the Fed's guidance even on sort of uses of capital, I think before we would even consider that program, again, we would need to see an overall change.

And again, I don't think we're very different than the rest of the industry here. I think we need to see a very different change in the external environment and the viewpoint on share repurchases before we would restart that program..

Okay. And then on capital. So leverage capital has come down as the balance sheet has grown. And I think in Q3 just given where we see our deposits today and probably political, not really coming off that much in Q3, but more in Q4. I think leverage ratio will probably decrease again next quarter a little bit and then rebound in Q4.

CET1, given most of the assets we've been putting in cash and floating rate securities, I don't see CET1 making any big moves. Probably a little bit down as we grow the balance sheet, but I don't see major moves in CET1..

Yes. Yes, given that flow in the cash line, right, I think we all feel very comfortable with our capital position at this point..

Yes. Absolutely..

Our next question comes from Christ O'Connell with KBW..

Just wanted to hop back on for a quick one. For the $10.2 million Ohio hotel loan, you guys put a $2.7 million specific reserve on that this quarter.

What's the total specific reserve against that?.

So actually, I'm glad you asked that, Chris, because we probably didn't totally clarify that. So it's $10.2 million, but we have a $2 million standby letter of credit on it, which brings it to $8.2 million, and then -- which we fully expect to be paid out on. And then the $8.2 million takes -- has the $2.7 million specific reserve. So that's your net..

Okay, great.

And I mean, as things stand, given just the lack of activity likely across the board for the hotel space, but for this one in particular, as you move through the back half of the year, if there's not significant improvement in overall kind of travel and activity levels, do you think that, that specific reserve is going to have to go higher? Or do you see yourselves getting paid out on the collateral there?.

So it's maybe on the first one. I mean, we had a third-party appraisal done, and we marked it, I think, pretty well as deeply as we could based on the appraisal. But I think it's a very volatile market right now and price discovery is happening. So it's possible we might need more reserve on that.

I don't think you're looking at another $2.7 million, that would shock me, but I guess anything is possible nowadays. But it's a pretty heavy mark from where the last appraisal was at this point. So I think we've put pretty good discount on it.

I think we'll look at the economic case to carry at an OREO and rehabilitate versus sell it to -- sell it in auction or other method..

Ladies and gentlemen, we reached the end of the question-and-answer session. At this time, I'd like to turn the call over to Keith Mestrich for closing comments..

Thank you, operator. I just want to thank everybody for taking a little bit of time today. I know it's a busy season in the earnings world and a couple of conferences going on that's got everybody very busy. I think we'll be seeing many of you at the KBW conference over the next couple of days and look forward to continuing on those conversations.

And I just want to thank everybody for taking some time to join us today..

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation..