Mechanics Bank (MCHB) Q2 2015 Earnings Report, Transcript and Summary

Good day, and welcome to the HomeStreet Inc., second quarter 2015 earnings conference call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Mark Mason, President and CEO. Please go ahead.

Hello and thank you for joining us for our second quarter 2015 earnings call. Before we begin, I’d like to remind you that our earnings release was furnished this morning to the SEC on Form 8-K and is available on our website at ir.homestreet.com. In addition, a recording of this call will be available today at the same address. On today's call, we will make some forward-looking statements. Any statement that isn't a description of historical fact is probably forward-looking and is subject to many risks and uncertainties. Our actual performance may fall short of our expectations or we may take actions different from those we currently anticipate. Those factors include conditions affecting the mortgage markets such as changes in interest rates that affect the demand for our mortgages, our ability to meet our internal operating targets and forecasts, and economic conditions that affect our net interest margins. Other factors that may cause actual results to differ from our expectations or that may cause us to deviate from our current plans are detailed in our SEC filings, including our quarterly reports on Form 10-Q and our Annual Report on Form 10-K for 2014, as well as our various other SEC reports. Additionally, information of any non-GAAP financial measures referenced in today's call, including a reconciliation of those measures to GAAP measures, may be found on our SEC filings and in the earnings release available on our website. Today, I'll give you a brief update on recent events; review our progress in executing our business strategy and highlight key financial results. Please refer to our earnings release for a more detailed discussion of our financial condition and results of operations. In the second quarter, we made significant progress on our strategy to grow and diversify earnings. We expanded our commercial and consumer banking business organically and through our recent bank acquisition, and we build mortgage banking market share by continuing to opportunistically hire teams of strong originators in new and existing markets in the Western United States. On March 1, 2015, the Company completed its merger with Simplicity Bancorp, Inc. and Simplicity Bank located in Southern California. The merger represents a significant expansion of HomeStreet's banking activities in California. The results of operations of Simplicity are included in the consolidated results of operations from the date of the merger on March 1. So second quarter was the first full quarter of combined operations. The merger is providing us with a platform for building a strong commercial and consumer banking franchise in Southern California to complement our growing mortgage banking business in the region. I'd now like to share some key metrics from our consolidated results for the quarter. Second quarter net income was $12.4 million or $0.56 per diluted share compared to $10.3 million or $0.59 per diluted share for the first quarter of 2015. The increase in net income for the quarter was primarily due to the increased revenue resulting from the first full quarter of combined operations from the Simplicity merger and lower net merger-related expenses partially offset by higher salaries and related costs. Excluding after-tax merger-related revenue and expenses, core net income for the second quarter was $14.5 million or $0.65 per diluted share compared to $11.6 million or $0.67 per diluted share in the first quarter. We realized pre-tax merger-related expenses of $3.2 million for the second quarter of 2015, $5.6 million for the first quarter of 2015, net of the bargain purchase gain and $606,000 for the fourth quarter of 2014. Net interest income increased $7.5 million or 24% in the second quarter compared to the prior period. This was a result of 23% growth in average interest-earning assets, in part due to higher average balances of loans held for investment from the addition of loans from Simplicity and organic loan growth. Our net interest margin was 3.63%, an increase of 3 basis points over the first quarter, primarily due to higher average asset yields from the addition of interest-earning assets from Simplicity and to ongoing changes in the composition of the loan portfolio through organic origination of commercial loans. Non-interest income decreased $2.4 million or 3% from the first quarter. Results in the first quarter included $6.6 million bargain purchase gain from the Simplicity merger. Excluding the first quarter bargain purchase gain, non-interest income increased in the second quarter by $4.3 million, due primarily to higher net gain on loan origination and sale activities. Net gain on mortgage loan origination and sale activities increased $8.1 million from the prior quarter due to higher composite margin and the correction of a prior period mortgage loan pipeline valuation error of $2.4 million. Non-interest expense was $92.3 million in the second quarter compared to $89.5 million in the first quarter. Excluding merger-related expenses, noninterest expense was $89.1 million compared with $77.3 million for the first quarter. The increase was primarily due to higher salaries and related costs from increased headcount, increased operating expenses related to the Simplicity acquisition and from higher commissions as a result of the 26% increase in closed mortgage volume. We realized substantially all of the anticipated operating cost savings from the Simplicity merger and going forward our expense run rate will reflect these savings. Additionally, actual total Simplicity merger related expenses will be $15.5 million versus our original estimate of $19.1 million. At June 30, the Bank’s tier-1 leverage ratio was 9.46% and total risk-based capital was 13.97%. These ratios reflect the implementation of Basel III requirements on January 1, as well as the capital that was added through our merger with Simplicity. I’d now like to share some key points from our commercial and consumer banking business segment results. As we noted last quarter, through our merger with Simplicity, HomeStreet gained seven retail deposit branches in Southern California. Related to the merger, we entered into an agreement with Kaiser Permanente to continue providing a network of 37 ATMs at certain of its California locations. Going forward we plan on opening several more retail deposit branches near Kaiser Permanente locations. Building upon our Southern California platform, in the first quarter we launched HomeStreet Commercial Capital, a commercial real estate lending group located in Orange County, California and we added a highly experienced nine-person SBA lending team. During the second quarter, these groups funded over $25 million in loans and their pipelines exceeded $85 million at quarter end. The commercial and consumer banking segment net income was $2.9 million in the second quarter compared to a net loss of $14,000 in the first quarter. Net income in the segment was higher due to lower net merger-related expenses, lower provision for credit losses and higher interest income on higher average loan balances in the second quarter, partially offset by lower noninterest income. Excluding net merger-related expenses, the segment recognized core net income of $5 million in the second quarter compared to $1.2 million in the first quarter. We recorded $500,000 of provision for credit losses in the second quarter compared to a provision of $3 million recorded in the first quarter of this year. The first quarter provision was higher in part due to the impact of extending the modeled loan loss emergence period for commercial loans and increasing the qualitative reserves for construction loans. Second quarter loan loss provision also benefited from the favorable impact of net loan loss recoveries during the quarter. The portfolio of loans held for investment increased 2.6% to $2.9 billion from $2.83 billion at March 31, an increase of $72.5 million. New commitments totaled $313 million compared to $222 million in the first quarter. We achieved this net growth in the loan portfolio despite continuing high portfolio runoff of approximately 26% annualized in the quarter. Credit quality remained strong with nonperforming assets at 0.67% of total assets at June 30 and non-accrual loans of 0.73% of total loans. Nonperforming assets were $32.7 million at quarter end compared to nonperforming assets of $32.8 million at the end of March. Deposit balances were $3.32 billion at June 30, down slightly from $3.34 billion at March 31. Total commercial and consumer transaction savings accounts increased $63.9 million or 2.9% and noninterest-bearing commercial and consumer transaction savings deposits increased $82.2 million or 27% in the quarter. Segment noninterest expense was $29.3 million, a decrease of $6.4 million from the first quarter including noninterest expense for the second and first quarters of 2015 were merger-related expenses of $3.2 million and $12.2 million, respectively. Excluding merger-related expenses, the additional increase in expense is due to the continued growth of our commercial real estate and commercial business lending units and the expansion of our branch banking network. Now, I’d like to talk about Mortgage Banking as well as give some insight on the local economy. Most recent Mortgage Bankers Association monthly forecast projects total loan originations nationally to increase 20% in 2015 over the past year; an upward revision from its prior forecast of 11%. Mortgage rates continue near historic lows. And nationally, purchases are expected to comprise 59% of loan volume this year. Housing starts for 2015 are expected to be up 11% from 2014 levels. MBA currently forecasts an additional 13% growth in housing starts next year. During the second quarter, purchases comprised 57% originations nationally and in the Pacific Northwest. HomeStreet, however, continues to perform at levels above the national and regional averages, with purchases accounting for 69% of our closed loans and 73% of our interest rate lock commitments in the quarter. In recent quarters, job creation in Washington, Oregon, and California has been approximately 3% annualized. Since 2009, unemployment rates in the northwest states of California have been cut by one-third to one half. The cutback in housing activity has also been protracted though not as uniform as the job recovery. The path of housing permits, for example, has diverged in the recent quarters. Permit levels are approaching their respective long run averages only in Washington. In the other states, they range from 8% below average in Idaho to 30% below average in Oregon. Home price appreciation rates are more consistent across the states. Prices are continuing to rise that the pace in all areas has leveled out to the 6% to 7.5% range. In Washington, multifamily permits are expected to average 63% of total permits this year, the Portland and Vancouver at 52%. In Seattle, the apartment market is on track to see the highest number of units delivered in a year since tracking began in 2005. There is four times as much office space at our construction today compared to two years ago and more office space under construction than any time in the last ten years. Seattle is ranked in 2015 by the Urban Land Institute in the Top 10 regions in overall real estate market prospects for investment, development and home building. Seattle ranked sixth in technology and energy employment concentrations and overall job creation in the last two years. Now, we’ll look out our Mortgage Banking segment results. In the second quarter, we added production offices in Fresno, Bakersfield, and Temecula, California and grew Mortgage Banking personnel by over 14%. Closed loans per loan officer rose in the quarter to 5.3 loans compared to 4.3 loans in the first quarter and we maintained our position as the Number 1 loan originator by volume of purchase mortgages in the Pacific Northwest and in the Puget Sound region. Purchase demand continues to remain strong in many of our markets. However, limited inventory continues to be a significant constrain issue. Second quarter Mortgage Banking segment net income was $9.5 million compared to net income of $10.3 million in the first quarter. The decrease was primarily due to lower mortgage servicing income related to increased current prepayments and long-term prepayment speed expectations increasing. Interest rate lock commitments in the second quarter were consistent with the first quarter, totaling approximately $1.9 billion. Single family closed loan volume designated for sales set a record for our Company in the second quarter, totaling $2 billion. This compares to $1.6 billion in the first quarter, an increase of 26%. The combined pipeline of locks and closed loans held-for-sale was $1.6 billion at quarter end compared to $1.5 billion at the end of the first quarter. The volume of interest rate lock commitments was lower than closed loans designated for sale by 7% this quarter, which negatively affects accounting earnings because a majority of mortgage revenue is recognized in interest rate lock by majority of origination costs, including commissions recognized upon closing. If rate lock commitments during the second quarter would have equaled closed loan volume, it would have resulted in approximately $4.4 million higher loan origination and sale revenue. Conversely, the closed loan volume had been the same as interest rate lock commitments, pretax income would have been approximately $1.7 million higher as a result of lower variable costs, primarily commissions. Non-interest expense was almost $10 million higher quarter-over-quarter, primarily due to the $416 million increase in closed loans in the second quarter. Net gain on single family mortgage loan origination and sale activities in the second quarter was $67.5 million compared to $60.7 million in the first quarter of this year, primarily due to an 11 basis point increase in our Composite profit margin and $2.4 million of additional gain related to the correction of a prior period pipeline valuation error. As mentioned earlier, in the second quarter, single family mortgage servicing income decreased $2.7 million from the first quarter, primarily due to higher current and estimated future prepayments. Mitigating the impact of higher prepayments, single family mortgage servicing fees collected increased $745,000 or 9.1% from the first quarter, while the portfolio of single family loans serviced for others grew to $13 billion at the end of the quarter, up from $11.9 billion at March 31st. Segment non-interest expense was $63.1 million, an increase of 17% from the first quarter. Again, this is primarily due to higher commissions and incentives related to the 26% increase in closed loans in the quarter and additions to staff. We continued to make progress in improving production efficiency in the quarter and as a result, our direct cost to originated loan decreased by 10 basis points. Since the first quarter of 2014, our direct cost to originated loan has declined by 119 basis points. I’m proud of the ongoing progress that our mortgage -- operations group has made in improving their efficiency and growing our productive capacity. It is gratifying that our investments in growth are showing consistent returns in both operating segments. Core return on shareholder equity, excluding merger related items, has exceeded 12%, each of the last two quarters. Looking forward to the next three quarters in our mortgage banking segment, we currently anticipate mortgage loan lock volumes of approximately $1.8 billion, $1.4 billion and $1.7 billion in the third and fourth quarters and the first quarter of next year respectively. We anticipate mortgage closing volumes of $1.9 billion, $1.6 billion and $1.4 billion in the third and fourth quarters and first quarter of next year. This seasonality is expected to produce greater variation and accounting results, due to the timing of recognition of related revenues and expenses and the expected imbalance between locks and closings. This imbalance is expected to negatively impact the quarters where closings exceed locks and vice versa. Additionally, we expect our Composite margin to range between 325 and 315 basis points over that period. In our commercial and consumer banking segment, over the next three quarters, we continue to expect net loan portfolio growth to approximate 5% quarterly and our net interest margin to remain at roughly the same level, absent changes in market rates. I’m sharing this extended guidance with you this morning to assist investors and to emphasize the seasonal changes in mortgage origination activity. Of course, this guidance is dependent upon many factors, including but not limited to those I mentioned earlier, in particular changes to market and mortgage interest rates. This concludes my prepared comments. I appreciate your patience. Thank you for your attention today and I’d be happy to answer any questions you have at this time.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Jeff Rulis from D.A. Davidson. Please go ahead.

Thanks. Good morning.

Good morning, Jeff.

Question on the expense line item, excluding merger costs, Mark, is it possible to sort of break out what the percent increase was due to simplicity on board for a full quarter versus additional mortgage production. Does the ballpark figure of, call it, the $11 million or so that increased on a core basis?

Quickest way to answer I think is, looking at the separate segment results for Mortgage Banking and you will see that non-interest expense there went from $53.8 million to $63 million, right. So that’s the Mortgage Banking delta. Again, much of that is commissions on closed loans and 26% increase in that activity. And then of course, we – in the consumer commercial banking segment, if you back out from each of the two periods, the merger related expenses of $3.2 million current quarter and $12.2 million the prior quarter, you get a good idea of the run rate difference related to Simplicity, plus we added a branch during quarter.

That’s helpful, thanks. And then Mark, today here you’re right that -- I guess, if you look at the close to $90 million base this quarter, did you say that not anticipating any further synergies from Simplicity of that base?

That’s correct. Again, correcting for merger-related expenses, I think we have roughly $60,000 to $100,000 of expense to take in the third quarter. It really relates to closing down the last month of lease and other cost of corporate headquarters, but that did.

Got it. Okay. Just a couple sort of housekeeping, the tax rate is -- any expectation there? I know you’ve got some merger costs that impacts that tax line, but on a normalized run rate, is there a number you’re expecting on the tax rate?

There is, it’s gone down a little. Moving into higher tax jurisdictions states, it’s going to be a continuing adjustment and so we know exactly where that’s going to even out. But I think we are around 33% right now for the remainder of the year we’re expecting roughly – I am sorry 33% to 34%.

Okay. And then lastly just – you mentioned something on the expectation for margins going forward, net interest margin?

Yeah, we are expecting about flat – hey, just to correct my prior statement, 34% to 35% actually, I think is closer to what we think the effective tax rate is going to be. So net interest margin, we think it’s going to stabilize kind of where it’s at right here. It can move 1 basis point kind of in either direction, but it’s largely going to be dependent on the market from here.

Okay. That’s it from me, thanks.

Our next question comes from Paul Miller from FBR Capital Markets. Please go ahead.

Hey, Mark, how are you doing? Can you talk a little bit about the opportunities that come on the commercial side? As you explained, your footprint was Simplicity down in LA. And can you a little bit about because we are getting some questions this morning on the gain on sale in the commercial loans and what loans are you selling and what can we expect off of that line item going forward?

Sure, second question first. In the commercial segment, those gain on sale numbers relate to our Fannie Mae multifamily business and that business has picked up in the first two quarters of this year. Not sure, if it’s going to continue at the same pace because Fannie has made some pretty substantial changes to their program to limit production over the remainder of the year. The originations run a little faster than they had expected earlier in the year. So we are having to refocus on parts of their business that aren’t subject to limitation, which is the small balance and low income origination section. So that’s what relates to that business. Opportunities in Southern California, we think for us are substantial. I mean, when you think of the size of our business relative to that market, which is the largest in the Western United States, we think we have a pretty long ramp there. We intend to initially grow organically and then acquire as opportunities present themselves. We think the opportunities for organic growth in that market in particular are extremely good because of the substantial consolidation that's already occurred in that market, there are lots of great lenders available and a fair number of customers we think that have been marginalized somewhat. And so, we're very excited about that market, we are still shopping for teams of general commercial lenders, as we noted we've hired commercial real estate folks and SBA folks but we need to fill that out with general purpose commercial lenders and cash management people and we're working on that now.

Okay, thank you very much Mark.

Our next question comes from Jackie Chimera from KBW. Please go ahead. Jackie please go ahead.

Sorry, I was on mute, can you hear me now?

Hi Jackie.

Okay, hi sorry, I'm working from a different office today. In light of the recent staffing increase that you had and just the ongoing growth, and you mentioned the three LPOs that were opened and then you want to add some more branches near the Kaiser [ph], how should we think about your shopping needs as we look through the end of the year?

I would expect that our mortgage staffing will rise, serve consistent with the year-to-date run rate over the remainder of the year and we sort of caught up in the second quarter, we didn't add as many lenders, net as we had hoped on the mortgage side in the first quarter, we caught up in the second quarter. So you look at that six month change in personnel that should be a good run rate for growth, not just for the rest of this year, but sort of going forward on a per head basis. In terms of the growth in deposit branches, we expect to open two more by the end of this year and perhaps three, depending on the construction structure. And going forward next year, I expect we will open somewhere between three and six branches.

Okay. And generally how many people per branch inclusive of perhaps any back-office individuals you might need to add, how many would that do for your commercial TEs?

Roughly 4.5 per branch.

Okay. And then if I look at the change in your consumer and commercial employees this quarter, I'm assuming that obviously Simplicity drove the decline with cost savings and everything. Absent that part of it, was there a net increase?

Yes, because we opened a new branch and we added a couple of back-office personnel, yes.

Okay. And then just lastly, looking at your loan growth, I know that you've got the target of 5% and you more than hit that in commercial this quarter but the single-family was down a little bit, was that driven by just a desire to sell more rather than retain anything or was it just purely a lot of the pay-offs you were talking about?

Well, our prepayments have been pretty high but we are consciously constraining the additions of single-family to the portfolio. Long term, we'd like to get the single-family concentration down to around 33% and it's about 40% right now I think.

Okay. Great, thank you very much for the color.

Thank you.

Our next question comes from Russell Gunther from Macquarie. Please go ahead.

Hey Mark, good morning.

Good morning Russell.

I just want to follow-up on some of the loan growth comments; I appreciate the color you guys provided on the new commercial team out in California with their production this quarter. They’re still in the early innings it seems like, do you have a sense for what their capacity could be once their kind of at full stride?

I do, I hesitate giving you the upper ends of it. We expect the SBA team to originate somewhere between $75 million and $100 million a year reasonably that's the Southern California team but doesn't include the Northern team. The small balance commercial group, we have near term target of them to reach about $200 million a year in the near term and hoping to get that number somewhere around double that over the longer term. That's a pretty competitive market and those are hoped for in numbers right now, but it's a type of operation that we are building to do those kind of numbers and it will remain to be seen how much of that we realize.

I appreciate that color. And then just turning to this quarter's growth, but nice job on the commercial side, double-digit organic growth. Could you just give us a little color on what drove sort of the production on the construction and development side this quarter? That was pretty strong and then maybe just your thoughts on how large you would consider growing that portfolio from a mix perspective?

Sure. It's a little lumpy. We carried over from the first quarter a fair amount of business that was almost ready to close and just couldn't for one reason or another. The other thing with our construction group, or the two groups really, right, there is both commercial construction and residential construction. On the residential side, we are really just now starting to get traction in the new markets that we entered when we hired origination groups in Salt Lake City, Utah and in Southern California and in particular I would expect the Southern California group to develop a substantially larger pipeline when you consider the difference and sizes of the market. Additionally, that industry as a whole has been constrained because of the entitlement process and the availability of buildable lands. So we expect that to improve as more land gets entitled as well. So that's a little lumpy. They had a great quarter this quarter. I think we are expecting another great quarter in the third quarter, the residential group in particular. On the commercial side, we've slowed intentionally. The amount of commercial construction in the first part of the year to focus a little more on the Fannie Mae business and on permanent lending. Since then we have begun doing a little more commercial construction, primarily apartments and mixed use projects, but we also have several other big office and retail projects. In terms of the total size, that total will not ever be a large part of the balance sheet. We target totals really in relation to tier-2 capital that we expect to not grow more than around 350 or so basis points in total commercial real estate. 350 basis points of risk-based capital and on construction somewhere in the 120 to 140 basis points on risk-based and tier-2 capital. So we think of it in relation to capital itself. As portfolio composition, I wouldn't expect to see those numbers greater than about 15% to 20% of the portfolio ever.

Alright. No, that's very helpful. Thank you. And then just if you happen to have the sort of dollar purchase accounting accretion impact this quarter with the full quarter of Simplicity in the numbers?

Can I get back to you on that number? I'm sorry, I didn't --

Yeah. No, absolutely we can follow-up on that. Then that's it from me. Just want to thank you guys for the increased color on the mortgage outlook going forward.

You are welcome.

Alright, take care. Thanks.

[Operator Instructions] Our next question comes from Tim O'Brien from Sandler and Partners. Please go ahead.

Good morning, Mark.

Hey, Tim.

So you talked about previous hires, commercial hires in SoCal in particular, SBA and such, I didn't catch, were there any hires this quarter done down there or is that kind of in process and you are in the hunt for those teams now or did you have any bank adds this quarter?

We did.

Non-mortgage.

Yes, we did. One, we hired the initial group in the small balance commercial business last quarter. That group, when it started, was only about six or seven people. I think we’re up to 12 or 14 people now. It’s going to grow to the low-20s in the near-term, right. So, we have some growth there to build out their origination and processing closing servicing capability. So, there is real growth there in the quarter. And I think that we added I think 1% of SBA growth maybe. So, there has been some.

And as far as -- it looks like there were some noise last week on the SBA front as far as government support or I don’t know the fiscal year funding that set aside for that bipartisan support this everybody loves SBA, but there is a -- historically there has been a stall a lot of the time at the end of a fiscal year and we’re kind of at that point or back to that kind of a dynamic due to what’s happening in the congress. Is that have an impact on your revenue outlook at all? Could that affect that?

It may. So, since referring to is the fact that nationally, we now hit the budgeted origination cap for SBA for the year pretty quickly here just finishing seven months of the year, there is a proposed bill to increase the cap. I’m sure it will have bipartisan support. This is not a political issue really and it shouldn’t be a problem. I mean this is a self-funding program that has done historically well and I can’t believe that would be delayed. So, we’re expecting an increase in the cap if not the new year starts in October, not December. And so, worst case, we may have to delay some loans or fund some bridge type loans in cases where businesses just can’t wait for the money, but we’ll have to see. We don’t think it’s going to be a material to your business, but it’s a great question, Tim.

And then last question, as far as what you’re working on in the Bay area, do you have anything planned for that market as far as commercial expansion is concerned or maybe construction, I don’t know, up in the Francisco Bay area?

We do. It’s a very good market. I mean it’s a very hot real estate market right now. Just as we continue looking Southern California for bank acquisitions, we look in the Bay area as well. They’re not as many opportunities as we’d like in both areas, but we continue to look at opportunities in both areas. It’s also very good home building market and we’ve looked at some business there. We haven’t done much yet but we’d like to. So, we’re interested and still working on it.

Thanks for answering my questions.

Thank you, Tim.

We have a follow-up question from Jackie Chimera from KBW. Please go ahead.

Hi, Mark, just one last quick one if I could and there was $1.5 million swing in the other income line in the quarter and I just wanted to be what the driver of that was?

Negative swing I’m sure you’re referring to. We had to write down some mortgage loans that we had moved from the held-for-sale portfolio to the held-for-investment portfolio. As held-for-sale mortgage loans, we were carrying them at fair value, which is required for the remainder of their lives. And while we are now hedging those loans, in the interim, those are slight moving rates and we had to write them down and that was $1.7 million in that line item.

Okay. And so, you moved them from held-for-investment into held-for-sale?

Vice versa.

Vice versa. Okay. And what was the total on those loans?

It was at the end of the prior quarter, it was about $40 million.

With last quarter, okay.

Yeah. Since then we’ve sold some of those loans. So, I think the total of that is now at around $24 million.

Okay. But the actual transport took place in 1Q?

Exactly, yeah.

Okay, great. Thank you. That’s very helpful.

So again, that should not be recurring.

Okay. Thank you.

Thanks, Jackie.

Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Mason for any closing remarks.

Again, we appreciate your time on the call this morning. Look forward to talking to you next quarter. Thank you, operator.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.