Washington Trust Bancorp, Inc. (WASH) Q2 2019 Earnings Report, Transcript and Summary

Good morning, everyone. And welcome to Washington Trust Bancorp, Inc.'s Conference Call. My name is Jamie and I will be your operator today [Operator Instructions]. Today's conference call is being recorded. And now, I would like to turn the conference call over to Elizabeth B. Eckel, Senior Vice President, Chief Marketing and Corporate Communications Officer. Ms. Eckel?

Thank you, Jamie. Good morning. And welcome to Washington Trust Bancorp, Inc. second quarter 2019 conference call. This morning's call will be hosted by Ned Handy, Chairman and Chief Executive Officer; Mark Gim, President and Chief Operating Officer; and Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer. Before we begin, I'd like to take note of today's presentation may contain forward-looking statements and actual results could differ materially from those. Our company's Safe Harbor statement appears in our earnings press release and in other documents that file with the SEC. We encourage you to visit our Investor Relations Web site at ir.washtrust.com. to review these materials and our complete Safe Harbor statements. Washington Trust trades on NASDAQ under the symbol WASH. And now, I'm now pleased to introduce Washington Trust's Chairman and CEO, Ned Handy.

Thank you, Beth. And good morning and thank you, for joining us on today's conference call. Yesterday afternoon, we released our second quarter results. This morning, Ron and I will review the quarter's highlights and financial performance. And after our prepared remarks, Mark will join us and we'll answer any questions you may have about the quarter and our outlook for the remainder of 2019. Washington Trust reported second quarter earnings of $17.3 million, or $0.99 per diluted share compared to $17.5 million or $1 per diluted share in the prior quarter. Our profitability measures capital ratios and asset quality all remain strong at quarter's end. Washington Trust's second quarter earnings reflect the benefits from our diversified business model. We continue to see positive results from several of our key business lines, mostly offsetting declines due to the competitive and challenging rate and economic environment. Let me take a moment to share some of the quarter's highlights. Total deposits were $3.5 billion, which was consistent with first quarter levels and up 6% from a year ago. Competition for deposits remain strong in the second quarter as we saw aggressive rate offers from both large and small banks, as well as local credit unions. We successfully attracted and retained deposits through special CD promotions, which help to offset seasonal run-off in our municipal deposits, but contributed to an increase in our cost of funds during the quarter. In anticipation of the expected interested rate reduction to be announced by the fed at the end of July, we reduced our CD rates and decreased promotional efforts. Many of our competitors continue to offer high rate deposit specials, which might lengthen our deposit price recovery. As we've mentioned on previous calls, our second quarter deposit numbers typically reflect seasonal outflows from large educational and government customers, and that was the case again this quarter. We expect those deposits will return to the bank in the third quarter. Our North Providence branch, which opened in the first quarter, is meeting our performance expectations. We continue to seek attractive branch locations within Rhode Island, which would offer opportunities for continued deposits and loan growth. Total loans were down from the previous quarter, but were up by 7% from a year ago. Our residential mortgage area had another strong quarter as mortgage banking revenues reached their highest level since the fourth quarter of 2016. Residential mortgage activity was robust throughout our market area with particularly strong productions in the Massachusetts lending offices. More than 60% of residential mortgage originations in the second quarter were from Massachusetts. As we head into the third quarter, mortgage applications are at a year-to-date high, so the residential pipeline is healthy. Federal Reserve rate reduction later this month could spur additional home purchase and refinance activities. So we're bullish on the mortgage business at the moment. On the commercial side, total commercial loans were down overall due to an increased level of payoffs during the quarter. Our commercial real estate area had a good quarter, and we had a solid level of credit originations with new business and construction advances. Competition from both large and small banks has been extremely challenging, especially around the pricing and structure. Business expansions seems to have moderated, while CRE still remains healthy. We recently hired two new lenders in the Connecticut market as seasoned commercial real estate lenders who will focus on the greater New Heaven market area and a commercial and industrial C&I lender who has more than 30 years of experience in Connecticut. We're excited to have those lenders on board and believe they will help us further expand the Washington Trust brand and build our commercial portfolio and category. Wealth management revenues were $9.5 million for the second quarter of 2019, up 3% from the previous quarter. Wealth management assets under administration were $6.5 billion at June 30, 2019, up 2% from March 31, 2019. Both the increase in asset based revenues and wealth management assets under administration were attributable to financial market appreciation. In late June, just before the end of the second quarter, two senior counselors in our Weston Financial Group subsidiary left the firm to join a large wirehouse. We have non-compete and non-solicit agreements in place, which could help reduce the outflow of fine assets but does not necessarily ensure that the clients will remain with Weston. While we are disappointed with this development, we are committed to Weston and the clients. We have an experienced team of Weston counselors and employees who are working hard to continue the excellent service to which our Weston clients have long been accustomed. From a financial standpoint, our wealth management division has been and continues to be a key contributor to corporate revenues. While it's too early to determine the potential financial impact of this event the counselors who left managed or were associated with assets totaling approximately $1 billion. We realized some clients may choose to follow the counselor with whom they've had a long term relationship and therefore anticipate there will be some future client asset outflows. Our clients come first and we will always ensure they receive the best possible service and attention. Washington Trust is highly committed to Weston, our client from the entire wealth management division. We've been operating wealth services since 1902. So it's an important part of who we are as it differentiates us from other banks, both big and small. I'll now turn the discussion over to Ron Ohsberg who will provide more detail on the second quarter's financial performance. Ron?

Thank you, Ned. Good morning everyone. Thank you for joining us on the call today. I'll review our second quarter 2019 operating results and financial position as described in our prepared release issued yesterday. As Ned mentioned, net income was $17.3 million or $0.99 per diluted share for the second quarter. This compared to $17.5 million and $1 per share for the first quarter. We also reported return on equity of 14.58% to return on assets of 1.34%. Net interest income for the second quarter declined by 726,000 or 2%. The net interest margin was 2.81%, down 12 basis points. Income and margin were affected by the reversal in market interest rates during Q2 as mortgage prepayments resulted in accelerated amortization of mortgage backed security premiums, as well as in deferred costs on residential mortgages. There was a slight impact from lower LIBOR rates in Q2 as well. Liability rates increased quarter-over-quarter as CD's and wholesale funding mature and re-priced upward in the quarter and money market rates continue to rise. The average balance in interest earning assets rose by $56 million or 1% on a linked quarter basis. Average commercial loans were up by $32 million and average investment securities were down by $4 million. The yield on average interest earning assets decreased by 6 basis points from the preceding quarter to 4.18% due to lower market interest rates. On the funding side, average end market deposits declined $12 million and the average balance of wholesale funding sources was up $57 million from the first quarter. The cost of in-market deposits was 88 basis points, up 6 basis points in the quarter and the cost of wholesale funding was is 2.54%, up 6 basis points. Net interest income comprised 33% of total revenues in the second quarter and amounted to $16.8 million, up $1.4 million or 9% from Q1. Wealth management revenues were $9.5 million, up $297,000 or 3%. Asset based wealth management revenues totaled $9.1 million, up $220,000 or 2% on a linked quarter basis. This increase reflected an increase in the average balance of wealth management assets under administration. Transaction based wealth management revenues totaled $408,000, up by $77,000 on a linked quarter basis and was due to tax reporting and preparation fees, which are generally concentrated in the first half of the year. The June 30 end of the period balance of wealth management assets under administration stood at $6.5 billion, an increase of $129 million or 2%. The average balance increased 3%. The increase in spot and average balances reflects financial market appreciation. As Ned mentioned, two of our investments counselors left the company in June. They managed or co-managed just over $1 billion in assets, which have estimated annual revenues of approximately $5.5 million. It is too early to estimate how much of this business will be lost. As of yesterday, we have been informed by clients that they are withdrawing approximately $75 million in assets, which have estimated annual revenues of $435,000. Our mortgage banking revenues totaled $3.6 million in the second quarter, up by $994,000 or 38%. These results reflect a higher volume of mortgages sold in the secondary market. Our origination pipeline at June 30 was $223 million, an increase of $83 million or 60% since March 31st. This reflected the recent sharp decline in the 30 year mortgage rates. Now, let me turn to non-interest expenses. Total expenses increased by $1.2 million or 4% from the previous quarter; significant items include an increase of $817,000 in salaries and benefit expense, which reflected the increased commission expense due to an increase in mortgage banking activities; an increase of $286,000 in advertising and promotion costs is largely due to timing of our marketing activities. Income tax expenses totaled $4.7 million. The effective tax rate was $21.3 million compared to $21.7 million in the first quarter. We expect the full year 2019 effective tax rate to be approximately $21.6 million. Turning to the balance sheet. Total loans were by $8 million compared to March 31st, but up $240 million or 7% from a year ago. Commercial real estate portfolio increased by $90 million with new loans and advances of $85 million offset by pay-downs of $64 million. Recall that our Q1 balances were elevated by delayed payoffs, which occurred in the second quarter. The C&I portfolio declined by $27 million with new loans of $11 million offset by pay downs of $39 million. Included in the $39 million were $8 million of TDR and [indiscernible] loan payoffs. Investment securities decreased by $26 million, primarily due to repeat principle pay downs and mortgage back securities, partially offset by an increase in the fare value of available for sales securities. We are not seeing attractive reinvestment opportunities at this time. Total deposits were $3.5 billion, up $362,000 from the end of Q1 and up $183 million or 6% from a year ago. In market deposits were up $1 million and wholesale brokerage CDs were down by $1 million. We have had our typical seasonal outflows in municipal and higher education customers, but these have been offset by some new larger depositor transactions. FHLB borrowings increased by $5 million. Asset quality remains very strong. Non-accruing loans were 0.34% of total loans compared to 0.33% at the end of the first quarter. Loans pass-due by 30 days or more were 0.48% of total loans compared to 0.39% at the end of Q1. There was one commercial real estate loan with a carrying value of $2.7 million that was pass-due at 30, but returned to current status in early July. Net charge-offs were $771,000 versus $78,000 in the previous quarter. This increase was largely due to charge-offs on one residential real estate relationship. The allowance for loan losses was 0.73% of total loans and provided MPL coverage of 213%, and the loan loss provision of $525,000 compared to $650,000 in the first quarter. Total shareholders' equity was $484 million, up $14.4 million from the end of the first quarter. We remain well capitalized. The total risk based capital ratio was 12.8% at June 30 compared to 12.59% at the end of March. Tangible equity to tangible asset ratio improved to 8.06% compared to 7.83% at the end of Q1. And finally, our second quarter dividend declaration of $0.51 per share, an increase of $0.04 or 9%, was paid on July 12th. And at this time, I will turn the call back over to Ned.

Thank you, Ron. In my opening comments, I mentioned the important role our diversified business model plays in generating a consistent stream of earnings for the company, especially during challenging economic times. I'd like to close by noting another key contributor to Washington Trust's success, our people. In today's technology driven world of automated systems and artificial intelligence taking over customer service, Washington Trust believes that human interaction and expert guidance are more important than ever. While we embrace and employ technology, we also recognize that technology can only take us so far and that the most important connections are often the personal ones. We believe we are both an employer and the bank of choice, because what we offer is genuine. And in the second quarter, this was validated with third party endorsements. In May, we were recognized by Providence Business News for the ninth consecutive years of one of Rhode Island's best places to work. In June, we remained the Best Bank in Rhode Island by two separate research studies. The first, the nationwide study conducted by Forbes selected the top bank in each state, and Washington Trust received exclusive top honors. The second with survey of New England Bank conducted by American Business Media and Customer Experience Solutions, Bank of Washington Trust first in Rhode Island for both overall quality and community contributions. We're honored to receive this recognition as it reinforces our commitment to our core values. And that concludes my prepared remarks. And now Mark, Ron and I will be happy to answer any questions you might have.

Ladies and gentlemen, at this time, we'll begin the question-and-answer session [Operator Instructions]. And our first question today comes from Mark Fitzgibbon from Sandler O'Neill and Partners. Please go ahead with your question.

A couple of quick questions around Weston. First, could you remind us what the total AUM at Weston is today with the billion dollars in there?

Yes, it's $1.9 billion.

And so the two relationship people that are leaving had relationships with about $1 billion of that $1.9 billion?

Yes, that's correct.

So how many people are left at Weston?

So there're currently 18 employees at Weston Financial. Mark, this is Mark Gim.

And could you talk a little bit about the non-compete non-solicits they have? How long are those? And what the action plan is to retain as much of that…

Two things, we're sealing all legal remedies associated with those agreements that were in place. In terms of outreach, the Weston team has been proactively reaching out to clients, and has been reporting that those conversations have been open and honest. Our job is to try to find, of course, the best fit for the client. And we are in the process of continue, we're going to execute those retention efforts. Ned, I don't know if you have anything to add?

Yes. And Mark, you asked specially the duration that -- they're one year non-competes.

And does this change your thinking on the retention agreements you have with other folks in either Halsey, or at Wash Trust or Weston?

We structured the non-solicit non-compete agreements that we have in place for better client facing professional in what we think is the best optimal way, and if that is also in accordance with current law. And have looked at and have been looking at those for the last year or so.

And then Ron, I wondered if you could help us think about the net interest margin given some of those CD promotions and the competitive environment. Are we likely to see the margin continue to be under a little bit of pressure?

Yes, absolutely. We're, as you know, pretty asset sensitive. I can give you just rundown of what we're thinking and just maybe the composition of our balance sheet. So, listen, I would expect that the NIM for the rest of the year will likely be in the low 2.7s. This factors in the expected 25 basis point cut in the fed funds rate and it assumes that the residential prepayments that we saw in Q2 continue at the same pace going into Q3. So we have a LIBOR book of $1.4 billion and that re-prices at the first of each month. But half of the expected 25 basis point reset is already reflected in our July month-to-date numbers, so some of it's already been leaking in. We also have a prime book of $270 million that will reset on August 1st. So, in total, about the $1.7 billion of variable rate loans 25 basis point annually on that book is $4.3 million per year. We do not expect much deposit rate relief before the end of the year, but we do have $950 million of wholesale funding that will mature between July and December 31st that has a weighted average rate of 2.41%. So, if we got 25 basis points pick up on that that would be worth $1.9 million annually. But as I said, that will face in on a monthly basis between now and the end of the year. We will not see any material maturities of our promotional CDs until sometime in 2020. So, all of this is going to put pressure on the margin as we saw in the second quarter. I think that there are limited opportunities for us to reduce our end market deposit costs at this time.

And so you're only assuming one cut in July…

We're assuming the one cut at this point, yes.

And then secondly, given some of the margin headwinds and perhaps some headwinds on the wealth management side. Is there an opportunity to take some costs out reduce your overhead a bit?

Yes. I mean, our efficiency ratio is pretty well to begin with. So no, so some of our expense base is variable. So on the Weston side, our variable costs against that revenue probably runs 20%, 25% of assets, so that they are been offset there. You seeing our -- on the mortgage side go out of variable costs and commissions. Overall, I think, our expense outlook for the year -- the guidance we gave you at the beginning of the year was 3% to 4% increase year-over-year, and it's probably trending more towards the 4% on the core fixed rate -- core fixed expense side of things, would have been higher legal with that higher FDIC.

And our next question comes from Damon DelMonte from KBW. Please go ahead with your question.

Just a quick follow up on the margin. Ron, I think you said low 270s. Are you saying for the full year of 2019, or are you saying by end of the fourth quarter the low 270?

I'm saying for the second half of the year.

For the second half of the year, okay all right, great. And then with regards to loan growth, I think for the first two quarters here, you're somewhere around 6% in the first quarter, flattish or so here in second quarter. Could you give a little perspective on what you're thinking for the back half of the year?

I think we'll stick with the low single-digit or mid single-digit growth that we've talked about before that we had a lot of payoff in the second quarter that some of those were delayed from the first quarter. So if you exclude those out, I think we've had about that growth. We sold a lot on the resi-mortgage side. So there hasn't been the portfolio growth in the resi in the first half that we might expect.

Right. And Damon, this is Mark. Just to give you a little more color on what Ned said with regards to residential mortgage portfolio. The downward shift in long term interest rates has changed the mix of loans versus -- where it's favorable to refinance than is in percentage terms that is portfolio. So we would expect to see less net loan growth going into the second half of 2019 than we talked at the beginning of the year since refinancing does effect some loans within our own portfolio, as well as being a robust source of gain generation for loans that are not held with us.

And then in light of what's happened at Weston, I think this is the second time in the last couple of years that a couple key investment managers have left. Has this changed your perspective on maybe trying to be more acquisitive in this space to try to keep this a key component of your overall fee income?

Damon, that's a good question. Yes, we are committed to the wealth business. It is a core competency of the company. We are committed to the differentiation that gives the revenue stream. We continue to look at wealth M&A opportunities. This does not change that. And we would expect to continue to be active in considering prospects in that space.

And then just last question on expenses. Ron, can you give a little color on how you see the trajectory in the back half of the year?

As I mentioned, we're probably at the higher end of that 3% to 4% range that I gave at the last call. So, 4% year-over-year is how we're thinking of other.

[Operator Instructions] Our next question comes from Erik Zwick from Boenning and Scattergood. Please go ahead with your question.

One more question on I guess the two individuals that left from Weston. I’m curious did you have any prior indication that they were thinking about leaving, and any discussions to work with them? Or did it come as a surprise to you?

We would much have preferred for them to stay, Erik. They've been with us for a long time. They are very good counselors. We're sorry to see them go. Yes, we would have preferred to keep them. And I think I'll leave at that given the circumstances. But, yes, they've been with the company for a long time, served customers very well as we do at Weston. I would say we're still very committed to the business. We're very committed to Weston itself and we have great counselors remaining there who will do all they can to take care of the entire the customer base. And we will help us customer make the business decisions for themselves and their families. And that's the way we operate. But we are dedicated to that market and to that particular business unit. And we'd certainly preferred that all the counselors stay in place and continue to help us manage and create customer relationships. So, I'll just leave it at that.

And then next just thinking about loan growth and the outlook for gross, specifically on the commercial side, I know Connecticut is a focus. You've added some new lenders there. Can you just talk a little bit about the competition in that market today? Are you able to be successful gaining wins, just competing on price? Or how much is structure? Is that getting soft in the market at all?

We've been active in the Connecticut marketplace for the years, and had a lot of success in the greater New Haven, down in the Fairfield County, somewhat up in Hartford County. So we've got a good track record there and again, have a great customer base. I think the commercial real estate lender that we've added who has long history in the greater New Haven marketplace will be very helpful. And the competition is strong. People's Webster, KeyBank, there are lot of providers in that marketplace. And I think you know from our history, we're pretty careful on the credit side. And so we probably won't be the most when structure comes into play -- price where the market deals us price and we have to decide whether we want to play at those rates or not. And so in some cases based on overall relationship of deposits and cash management, we decided to go ahead. The C&I lender that we added was someone that I personally known for 25 years, has been in that marketplace with 30 years. He has a long track record of success in the Connecticut marketplace. And these are first on the ground C&I lender in Connecticut. So I have great hopes for us to grow around him. It will be -- there'll be a ramp up period. This always takes time to win C&I relationships. But he's well known in the marketplace and I'm particularly excited about having them both on the ground, it's also our first pre-lender who is permanently on the ground in Connecticut. So to have someone in the fabric in the marketplace both the C&I increase side is exciting and I think a good development for us.

And one last one from me with regard to M&A. How would you describe that the pace of market chatter in the second quarter relative to, say six months ago? And then can you remind us of your preferred target size and characteristics of any potential acquisitions you'd consider?

Erik, this is Mark Gim. You mean with regard to bank M&A?

Yes, specifically bank M&A.

So generally, I think, we would be thinking in the $0.5 billion to $1.5 billion range. It seems like the pace of M&A interest has picked up to some extent over the last six months in terms of institutions looking for partners. We're not necessarily any more or less aggressive in this environment. We think relative currency differentiation matters even though all bank stocks have declined in value since the beginning of the year. I think our objectives would primarily be to see market expansion reach and deposit funding. So in addition to size, mix has a lot to do with our level of interest.

Erik, it's Ned. I mean, times change a little bit and pricing is impacted. But our rationale around M&A hasn't really changed. We got to be able to buy things right. We have to convince ourselves that we can grow it once we own it. And to the extent that it can solve for a problem that we can't otherwise solve for organically, that's a factor as well. So our gating factors haven't changed and nor has our interest in M&A as a possible way to increase our deposit gathering base changed. So we're interested. I don't think our rational has changed a lot. We've seen a lot of trades happen in our footprint over the last couple of years, and we followed them. And so, I think we have a sense for pricing and a sense for what's going on in the market. So yes, we're tied in. We're interested. I don't think our -- again, our gating factors haven't changed.

And our next question comes from Laurie Hunsicker from Compass Point. Please go ahead with your question.

I appreciate all the color around the AUA and the departure -- and I appreciate the transparency. I just wonder if you can help us think about just rewinding to the first quarter of '18 when you had three senior client facing people leave, and you have client asset outflows just in that first quarter of $371 million. What were the AUA tied to those people? Or even cumulative, I guess, cumulative first and second quarter was $628 million. What was the total AUA tied to those people? And I think if I remember correctly at that point there were no non-competes on them? It's just sort of a two part question.

The answer to the second part of the question, Laurie, is correct, there were no non-solicit non-compete agreements in place. We have two out of those three individuals in the first quarter of 2018.

And then specifically what were the AUA that those three people were responsible? In other words we're sitting here trying to extrapolate, trying to figure out what non-interest income is going to look like? If you could just provide…

Laurie, this is Ron. So I don't recall exactly the level of AUA that they had, but they took with them $565 million, which was pretty close to their full book of business. They did not have non-compete non-solicit agreements. I mean that there was -- in that respect, it was a different situation than what we're seeing now. So I don't think that it is necessarily valid to extrapolate our experience from a year ago with what's happening now. We are pursuing all legal remedies available to us at the moment. And you can see that the pace of client exit is slower this time around than it was last time, and we've lost 8% in the first month. It's way too early to know exactly where that's going to land.

And Laurie, I appreciate your question and I also appreciate your comments about transparency. And I will tell you that we will be as transparent as we can given the circumstance and update as facts become available. We're obviously very involved in this and watching it closely and doing everything we can to protect ourselves, but also care for the customers in the next year. And the one thing we do know for certain is that we will do the best thing by the customers that we can do. And if that's help them transition, we'll do that too. But again, we've got a great team left on the ground there. We are not giving us by any stretch on Weston, we have appear people there and we have a great customer base there. And we will come through this. But I think it’s too early to get direction on asset one-offs and given the circumstances, I think I'd just want to leave at that.

And then can you just remind us what are the total number of counselors, senior counselors that you have supporting the $6.5 billion?

Well, the business models are somewhat different, Laurie. They're probably across the division between 35 and 40 client facing professionals between counselors and investment portfolio managers, trust officers. That would have include Washington Trust Wealth Management in Rhode Island, the bank trust company, Halsey and Weston Financial Group. There are about 110 wealth management employees in total but between 30 and 40, I think is a good estimate for clients facing.

And then just wonder, Ron, if you could give a little bit more color just specifically two categories, and the jump on non-interest expense, looking at the salary and benefits. I know the first quarter is typically elevated because of the payroll tax and removal, and so if the jump up this quarter. And I thought that you have the North Providence Rohde Island branch expenses fully baked in last quarter, maybe I got that wrong. But just wondered was there anything somewhat non-recurring in that $18.4 million? And then also within expenses, if you could just comment the advertising and promotion really jumped. Is that because the new branch and we see that come back down, or how should we think about that line item?

So, our guidance earlier this year was 3% to 4% increase. And so, we're on budget for the year for marketing and advertising. So really, it's just the timing of when it hits in the quarter. So there is nothing new within the marketing line, there is no non-recurring expense items. Our FDIC expense is going to run higher, because our asset size is larger than what we had budgeted. So that's going to push things up a bit. And we're going to incur some legal bills related to Weston.

Okay, that makes sense. And so that line item that already up ticked a little bit this quarter that keeps going higher. So where does that run $800 million to $1 million a quarter or…

The legal?

Yes.

Yes, we're probably thinking one-time expense of another $400,000 to $500,000 before this is all done.

And then just last question here. Obviously, we saw the North Providence Rhode Island branch open. How are you thinking de novo about going forward at this point?

So, we still think there's a market opportunity for us in Rhode Island. So we are always looking for new locations. We don't have anything specifically right at the moment. But we are -- yes, we are looking to expand further into primarily Northern Rhode Island, Greater Providence. So we're always looking and we think increasing our presence in the Rhode Island marketplace is an important part of our strategy. Mark, I don't know if you wanted to add to that?

No, we're pleased with our pace of de novo, the progress of de novo growth. And we’d continue to look for opportunities in this market to expand.

And ladies and gentlemen, I'm showing no additional questions. I'd like to conclude today's question and answer session. I'll turn the conference call back over to Ned Handy for any closing remarks.

Well, thank you very much and thanks for joining us everybody. We appreciate your time and your effort and your energy around our company. And we look forward to talking to you again soon. Thanks everyone.

Ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.