Amalgamated Financial Corp. Q2 FY2020 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Amalgamated Bank Second Quarter 2020 Earnings Conference Call. 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 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.

Thank you, Drew, and good morning, everyone. We appreciate your time and attention today. On today's call, I will start by providing an overview of our current operations and how we have diligently managed our business amid the ongoing COVID-19 pandemic. I will then turn the call over to Drew to discuss our second quarter results in more detail. First, I would like to begin by thanking our employees who are the center of our organization. They continue to work tirelessly to ensure that our operations run smoothly without sacrificing our banking standards and high level of service during this unprecedented time. The safety of our employees and customers remains our top priority, and I am pleased that we have been able to maintain our operations, while keeping more than 95% of our employees in a work-from-home environment. The second quarter has also been marked by social tension across our country. At Amalgamated, we have always believed that a financial institution's mission should include using its resources, money, and influence to help society move forward. We are selected to be the banking partner for individuals and companies who share our mission allowing us to support their financial goals. Now more than ever, consumers, investors, and workforces are holding companies to even higher levels of social responsibility and requiring them to focus on contributions over and above simply delivering profits and value for shareholders. We consider ourselves industry leaders in this regard and work hard every day to continue to build upon our reputation as America's socially responsible bank. Our second quarter does not only validate this view but further emphasize the value and partnership that we provide to our core customer base, as can be seen in our average deposit growth of $606 million during the quarter, or 50.5% on an annualized basis as compared to the 2020 first quarter. This deposit growth was strong in both political and non-political sectors and demonstrates the brand recognition and competitive position that Amalgamated holds in this significant market segment. Additionally, we have nearly doubled our deposit base in our western region since we acquired New Resource Bank 2 years ago. The Amalgamated approach to gathering deposits that drove success in New York City and Washington, D.C. is gaining traction and demonstrates that we can utilize this approach as we further expand our geographic footprint. As we look forward, we continue to estimate that our deposit market opportunity is $90 billion, where we hold only a small share today. In our current markets, there are thousands of values-driven and socially responsible businesses and individuals who are aligned well with Amalgamated's core values, providing a long runway for growth. The strength of our business model and competitive positioning in our niche of the market can further be seen in our results, which we delivered despite a challenging economic backdrop driven by the pandemic, the highlights of which were: 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 maintain our expense discipline and closed 6 of our branches, which will ultimately result in approximately $1 million in quarterly expense savings 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 make 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 a 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 nearing the end of these moves. Deposits from politically active customers, such as campaigns, PACs, 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. 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 asking 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 rates 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.

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, this is Drew. I'll address that. Keith can chime in as well. Regarding the industries affected, there hasn't been any significant change. We're not increasing our lending to these industries, as many of them are currently unable to repay their loans. Specifically regarding the hotel, it's a loan that originated in 2005, long before any of us joined the company. It was previously on our workout list when I started in 2015, and we reached an agreement on it, but COVID has created additional challenges. This particular loan is in Ohio, and I believe it's quite distinct from the rest of our portfolio. Therefore, I wouldn't extend the issues related to this loan to other areas of our portfolio at this time. We have set aside a considerable reserve for this loan, and there's a significant chance we may need to take ownership of the property in OREO and sell it, likely in 2020 or possibly 2021. However, I wouldn't apply this situation to our other hotels. The remainder of our hotel portfolio, totaling just under $20 million, is currently under loan deferrals and has experienced a decrease in revenue. Nonetheless, I think these properties are in strong locations, and if the economy recovers in Colorado and California, where they are situated, we are optimistic that they will perform well.

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, that makes sense. Following up on the credits included in your second-quarter provision, there was $3 million in reserves for loan deferrals. Can you clarify whether this amount represents the overall reserves for loan deferrals or if a specific category of loan deferral was the main factor driving the reserve increase this quarter? Should we anticipate additional reserve builds due to deferrals in the upcoming quarters?

In Q2, we recorded $3.2 million, which is similar to the $3 million from Q1, both classified under qualitative reserves. This brings our total qualitative reserves related to COVID to $6.2 million over the two quarters. I believe these qualitative reserves are substantial figures, and I don’t expect to see similar amounts in Q3. There may be some qualitative reserves, but we have already raised the main factors to their highest levels. Going forward, as loans exit the deferral phase, if they fail to make their scheduled principal and interest payments, we would downgrade those loans. At that point, they would begin to accumulate reserves based on their risk ratings or specific reserves if they turn into troubled debt restructurings. This situation may develop in Q3 or Q4, depending on how the circumstances unfold.

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. Just to clarify your guidance for net interest margin in the third quarter being low, can I assume that net interest income and margin will decrease in the third quarter compared to the 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 a 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. The only thing I wanted to add is that predicting the end of Q3 number is likely quite challenging because it coincides with the peak of election spending activities.

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

I wanted to start by discussing expenses. I may have missed some of the guidance regarding the second half of the year and our direction from here. Could you please review that again? Additionally, as we look ahead to 2021, what is the net impact of the six branches closing, which is estimated at $4.4 million? Is the Boston expansion helping to offset that somewhat?

Yes. We expect to be below $32 million for the remaining two quarters of 2020, which is a core number that excludes the $6 million estimate for branch closure expenses in Q3. This one-time cost is related to branches we have already closed. We are currently negotiating lease exits with landlords; sometimes we are able to reach an agreement, while other times, we may have to continue making lease payments and take the charge upfront until the lease expires. There is some variability in what may happen in this regard. The $4.4 million in 2021 represents the annual run rate we anticipate once all branch-related matters are settled. However, we are currently relocating a lot of staff into open positions within the company, so the expenses associated with the branches may not disappear completely and may take some time to adjust as we fill those vacancies.

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. Regarding the data processing line, was there anything one-time or unusual this quarter? I understand there were vendor cost savings that lowered expenses in the first quarter of this year, but it seems like expenses have risen back to or slightly above the levels prior to those vendor cost savings.

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

Great. Could you walk us through the $51 million of PPP loans? I understand you're partnering with another institution for those and not originating them yourselves. How will that reflect in income, and is it any different than if you had originated them yourselves?

Yes. Essentially, for us, it resembles a government-backed loan that we acquired with a 1% yield, purchased at par. These loans are mostly from the initial round of PPP, and we anticipate that the forgiveness process will be simpler compared to the second round. Therefore, we expect a significant level of forgiveness, meaning they won't remain on our balance sheet for long. The key difference for us compared to other banks is that we did not originate these loans, so we are not receiving any related fee income or dealing with the operational activities concerning the PPP loans and their forgiveness.

Okay. Great. And then finally, regarding the PACE investment origination, I noticed you mentioned a slight delay in expanding to the New York market. Does this affect your outlook or the demand you're observing for these investments going forward?

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

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.

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

Our next question comes from Christopher 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?

I'm glad you asked that, Chris, because we probably didn't totally clarify that. 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 we fully expect to be paid out on that. The $8.2 million includes the $2.7 million specific reserve, so that's your net amount.

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, regarding the first point, we conducted a third-party appraisal and adjusted the valuation as accurately as possible based on that appraisal. However, the market is very volatile, and price discovery is ongoing. It's possible that we may need to increase our reserves for this. While I wouldn't expect to see another $2.7 million added, anything is possible these days. The current mark is significantly lower than the last appraisal, and we believe we've applied a substantial discount. We will evaluate the economic implications of holding onto the asset for rehabilitation versus selling it through an auction or another 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.