Beacon Financial Corp (BBT) 2015 Q2 法說會逐字稿

Good day and welcome to the Berkshire Hills Bancorp Q2 earnings release conference call and webcast. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Ali O'Rourke, Investor Relations Officer. Please go ahead.

Good morning and thank you for joining this discussion of second-quarter results. Our news release is available on the Investor Relations section of our website, berkshirebank.com, and will be furnished to the SEC. None of today's discussion is intended as a proxy solicitation.

Our discussion will include forward-looking statements, and actual results could differ materially from those statements. For a discussion of related factors, please see our earnings release and our most recent SEC reports on Forms 10-K and 10-Q. With that, I will turn the call over to Mike Daly, President and CEO. Mike?

Thank you, Ali. Good morning, everyone. Thanks for joining us this morning for our second-quarter call. I'll provide an overview of the quarter, and then I'll turn it over to Josephine Iannelli, our Chief Financial Officer. She will take you through some of the details in our financials, and then I'll wrap it up.

So we were very pleased with the outcome this quarter, as we continue to post better results and maintain ongoing momentum. Core EPS grew by 2% over the first quarter and 16% year over year. Second quarter was marked by solid organic loan and deposit growth, improving profitability, and an expanding net interest margin. Importantly, we achieved these results while managing through the integration of Hampden Bank and putting together an agreement for the acquisition of Firestone Financial.

I want to start by pointing out how proud I am of the team here for executing a seamless integration for Hampden. You know, there are several important components to M&A -- not the least of which are due diligence, understanding culture and chemistry, getting the marks right, and the ability to integrate with little customer disruption. And I think this last one oftentimes gets overlooked.

Having done a dozen transactions in recent years, integration has become a core competency for the Company. That was demonstrated by the successfully converting Hampden's customers and operations about as smoothly as any integration that we've seen. A good execution like that, I think, makes an enormous difference going forward in our ability to retain and grow the combined business. So I think we are off to a good start.

With regards to our organic operations, we grew the loan portfolio at a 5% annualized rate this quarter. That was led by strong mortgage originations and solid commercial loan production. The market was favorable to our mortgage business, and I'm expecting equally good portfolio growth in the third quarter.

On the commercial side we produced a net 8% annualized organic growth while executing on margin strategy. We saw good results across the entire geography, with particular strength in Eastern Mass and solid contributions from our newer team members in Connecticut and New York.

Pricing remains competitive, especially on the C&I side. I know we're asking our people to work harder to bring in the right deals, meaning solid credit with reasonable rates -- and, frankly, they've been successful in doing that.

Now, the commercial book reflects some timing factors, and I expect to see more robust CRE growth in the third quarter, while C&I production normalizes. But commercial pipeline remains steady for new production, and we continue to target double-digit annualized growth for the third quarter and the year.

Now, looking at the third-quarter total loan growth, we are expecting double-digit organic annualized growth even while we continue to manage down low-margin business in commercial and consumer. I think it's an important point.

Before we turn to deposits, I do want to comment on the success we are seeing in ramping up our SBA programs. In the second quarter we were named the top SBA lender in our Central New York region. And I'm proud of the focus these guys have put on building that piece of the business.

SBA production takes systems; it takes training and discipline to do well. And Peter Rice and his team -- they have achieved that. We now run every small business application through SBA channels, and the targeted growth here in the next couple of years should allow us to package and sell the SBA production, turning it into a solid fee-generating business -- very important point.

Turning to deposits, we posted double-digit organic deposit growth this quarter and, importantly, again we had double-digit organic DDA growth. NOW accounts saw some runoff, reflecting a flux between account types and some strategic repositioning efforts that we talked about that began last year.

We benefited from both seasonal impacts and some targeted promotions in our newer markets that proved pretty successful. We also rolled out Apple Pay and made enhancements to our debit cards and payroll services for customers. And so with that current momentum, we are expecting double-digit annualized deposit growth once again next quarter.

As you know, we've been focused on our branch footprint and optimizing that network. We tagged a total of eight branches in the last two quarters for consolidation or sale, which brings us to 26 branches over the last four years. Now that's nearly 30% of our current footprint. We will continue to evaluate our overall branch needs, as we've been doing and where it makes sense.

Let me spend a couple of minutes on fee income strategies. We continue to pursue strategic growth options for our wealth business. In addition to our private banking and wealth advisory staff adds in the first quarter, we further expanded our wealth team in the second quarter with a focus on our New York markets.

Our assets under management have grown to over $1.4 billion, and we expect to see some of that additional revenue impact in the back half of the year. We also expanded our insurance team this quarter, with an emphasis on the benefits business. So we're continuing to look at other fee revenue drivers, including expanding our SBA platform that I mentioned earlier; and our goal remains driving fee revenue to 30% of our operations.

Moving on from revenues, I'll just mention that our asset performance continues to be favorable and improving. We further whittled down our non-performers, which have been declining sequentially for many quarters. And as you know, under accounting rules the $500 million in Hampden loans came over as all performing and with no allowance. Our Hampden credit marks came in right where we expected, and I'm pleased with our overall credit profile and our expectations.

Before I turn it over to Josephine, I want to take a minute and talk about the Firestone acquisition. We are excited about this addition to our lending portfolio. As a specialty finance business, it complements both our ABL and our SBA platforms.

Hampden enables us to further diversify our assets while expanding our client offerings. The company will operate as a subsidiary under its own brand and continue to be run by the same experienced management team that helped it to grow successfully over the last 15 to 20 years. Located in-market, and it's an existing customer of ours; so we're familiar with their loans and their overall organization going in. From a strategic growth perspective, we think there will be opportunities for revenue synergies as we go along, including SBA loans and insurance cross-sales.

At a little under $200 million in assets, this acquisition isn't a game-changer, but it is a nice add-on that helps to grow our C&I book with higher-margin, relationship-based businesses. Their national business book provides, I think, attractive diversification for us. And their strong credit track record has demonstrated their expertise in maintaining profitable operations through several economic cycles.

With that, I'm going to turn it over to Jo. She will walk you through some more of the financials, and then she'll return it to me to sum it up. Jo?

Thanks, Mike, and good morning, everyone. We'll go ahead and jump right into the financials.

It was another strong quarter for us. We saw good improvement in core earnings, including our fee income along with core ROA, core ROE, and our efficiency ratio.

Core EPS came in at $0.51 for the second quarter compared to $0.44 for the same period in 2014. Our GAAP EPS was $0.35 per share, reflecting the non-core charges related to the Hampden acquisition and our restructuring.

The results of this quarter reflect a lot of the hard work the team has been putting in. I'll go ahead and walk through the balance sheet, income statement highlights, and outlook; and then I'll provide a financial update on both the Hampden and Firestone acquisition before returning it back over to Mike.

As Mike said, we had solid loan and deposit generation this quarter. We continued to benefit from the efforts to shift the balance sheet mix toward higher-yielding commercial loans and away from the lower-yielding assets, which has resulted in our improved profitability metrics. We do expect to increase our organic loan and deposit growth rates in the third quarter while we also onboard the Firestone loans.

Through this balance sheet management and Hampden's impact, our net interest margin expanded 1 basis point to 316 before purchase loan accretion. Our reported NIM, including the impacts of purchase loan accretion, rose to 330 from 318 in the first quarter. With the acquisition of Firestone expected to close next month, I do expect the net interest margin, excluding accretion, to expand by at least another 5 basis points in Q3.

Purchase loan accretion came in at an elevated $2.2 million for the second quarter, and this was primarily due to the recoveries, which will likely be bouncy for the next several quarters as a result of the Hampden acquisition and, soon, the Firestone acquisition. Scheduled accretion is expected to remain under $0.5 million next quarter, including Hampden and Firestone. We did have higher expenses to produce these recoveries, and I'll return to that shortly.

Turning to fee income, we grew these revenues 14% for the quarter, including the Hampden operations. We saw strong growth in loan-related fees, including interest rate swap and gains on loan sales. Our mortgage banking fees also remained elevated due to the favorable market conditions.

Customer service fees benefited from a seasonal pickup, and Hampden's impact was primarily in that category. We continue to target significant growth in fee income over the next couple of years. For Q3 we expect some pick-up in insurance and wealth revenue, but overall loan-related income should show some contraction. As a result our total fee income is expected to decline modestly while still showing solid gains on a year-over-year basis.

The provision increased to $4.2 million in the quarter and exceeded net charge-offs of $3.3 million as we built the allowance alongside our organic loan growth. We expect the provision to be in the area of $4 million in the third quarter.

Core expenses increased by 11% in the second quarter and were generally in line with our guidance. This is mostly due to the integration of Hamden, but we also saw increase costs related to the acquired loan recoveries and overall loan fee income. In addition, we had the reinvestment of tax-related revenue used to develop fee business lines and support our future growth.

We continue to focus on positive operating leverage, and I'm pleased to report our efficiency ratio improved to 61.5% for the quarter. Overall, organic expenses are targeted to be flat to slightly down next quarter as the cost of loan growth and franchise investment are all set by additional Hampden cost save, which will further improve our operating leverage.

Our core tax rate for the second quarter was 17%, in line with our guidance of 15% to 20% that we gave at last quarter. As with Q1, we got a tax credit benefit related to the commercial development projects, and this is detailed on the table on page F-9 of our earnings release.

We expect to continue to receive this tax benefit throughout 2015, and we anticipate the core tax rate of around 15% in Q3. We're actively working on identifying additional tax advantage strategies for future years, and we have already identified potential opportunities. Of note: we expect the Q3 GAAP tax rate to be below 10%, given the benefit of the non-core charges recorded in the first half of the year.

So having said all this, for Q3 we expect to deliver the same kind of core EPS as we did this quarter, with less expected purchase loan recoveries. Non-core charges for the quarter totaled $8.7 million and were tied to the Hampden acquisition and the branch restructurings we mentioned.

Most of the Hampden charges are behind us, but we will see some non-core charges in Q3 related to Firestone and the branch restructurings that have not yet been completed. These should be significantly less than what we've seen this quarter.

Turning to profitability, we saw sequential improvements in both our core return on equity and core return on assets. Core ROE improved to 7.3% for the quarter and core ROA rose to 81 basis points.

As you know, ROA has been a critical focus for us. We are committed to a target of 1% or better. And I do expect to end the year with further improvement toward this goal. Core return on tangible equity also rose to 12.3%, and our capital ratios improved modestly. Our tangible equity was 7% of tangible assets at quarter-end.

Tangible book value per share ended the quarter at $17.16 and was impacted by the Hampden dilution as well as the effect of rising interest rates on unrealized security gains in equity. We continue to remain asset sensitive under most of our planning scenarios. And we're keeping a close eye on this as we manage the 16% increase in our assets this year and support revenue growth without reaching for duration.

As Mike just said, the Hampden integration has gone very smoothly. We're on our way to meeting or exceeding the 35% cost save, and I expect $0.01 or $0.02 of EPS accretion before the end of the year.

Lastly, I'll wrap up by touching on the Firestone deal. We are excited about bringing this company on board. In addition to benefiting the margin, this deal is expected to be further accretive to capital, ROE and ROA, as well as EPS in 2016. There is minimal tangible book value dilution and an earnback of less than 2 1/2 years, all of which makes this deal a home run.

Their shareholder meeting is today, so there's not much more to add at this point. But we'll be able to provide more guidance about their contribution on our next call.

With that, Mike, I'll turn it back over to you.

Thanks, Jo. You did a great job.

So as Jo said, we think $0.51 is a good number for next quarter. And we'll work to do a little better than that if we can. I'm pleased to welcome our new shareholders from Hampden, and I look forward to being able to soon welcome new shareholders from Firestone.

We will have issued more than $150 million in new equity for those transactions. And we certainly appreciate this investment in our Company, which has further contributed to our growing profile and, of course, to the liquidity of the stock.

Our core strategies continue to produce a lift in earnings and profitability. We're posting solid organic loan and deposit growth while expanding our margin and improving our overall returns. Capital is being generated at a rate that supports our growth, and we remain focused on further enhancing our return on assets and capital as we deliver on our franchise investments.

Now, as Josephine noted, we continue to invest in team recruitment and other revenue-generating sources to support the market share opportunities we see. While we are growing our business, we are also deepening our infrastructure and our controls.

Importantly, we are maintaining our disciplines in these competitive markets -- and I think that's clear from our trends in our margin and our credit metrics. So our outlook remains positive, and we certainly look forward to further delivering on the power of this franchise to all of our constituents.

With that, I'm going to open it up to any questions.

(Operator Instructions). Mark Fitzgibbon, Sandler O'Neill.

Good morning. Josephine, just to clarify one quick question on the tax rate, did you say that the effective rate would be 15% normally, but there will be some adjustments in the third quarter that will get it to around 10%?

The core tax rate for Q3 is 15%. The effective GAAP tax rate will be just below 10%, Mark. Certainly, if you just look at non-core charges that came through in the first half of the year, with significantly less expected in Q3 and Q4, it's the same event we saw last year. You are going to have less GAAP income than core income.

Okay, great. And then secondly, I wondered if you could share with us what the annual approximate expenses are for Firestone; what their cost structure looks like.

Yes, give me one second. I want to say $1 million, $1.5 million, Mark.

Okay, great. And then lastly I wondered if you could -- I'm sorry.

I'll just a quick clarify it -- I'd say $1.5 million per quarter.

Okay, great.

Big difference.

Yes. And then I wondered if you could also share with us the size of the commercial and the mortgage pipelines today?

George, do you want to take commercial?

Hi, this is George. The commercial pipeline is pretty steady and solid as compared to the last several quarters. It's in excess of $150 million, which is a pretty solid number this early into the quarter.

The mortgage pipeline continues to grow. We're looking at about $120 million to $150 million, Mark.

Great. Thank you.

David Bishop, Drexel Hamilton.

My question, and circling back to the SBA effort there and the whole targeted 30% fee income range, I'm just curious in terms of -- as you build the critical mass there, securitized sales, how big a component of fee income do you think those gains potentially get to?

As big as we can get it, but to give you some type of a framework around that -- Sean, where would you see that?

Could you repeat the question?

What he's asking is, let's say you start doing -- we start to be able to really get SBA production going and we're selling that and it becomes a percentage of our total fee income; where do you think that can end up as far as --?

Sure. We'd look to do it really on a quarterly basis to really flatten the expectation and the portfolio bumpiness. You're getting 10% premiums in the market today. You could see that go to $0.5 million to $1 million on a quarterly basis once we get to scale. I do think we are probably another six months from scale.

Sure. Does that help, David?

Absolutely; six months to scale. Okay. That's helpful. And then, Josephine, maybe you can give us an update maybe in terms of the [outcome] positioning? Has there been a change quarter to quarter in terms of asset sensitivity relative to rising interest rates?

Yes, David, there hasn't been much change. In most cases we see ourselves as being asset sensitive years one, two and three. Certainly middle of year two -- well, 2016 -- the middle of 2016, our forward starting swaps start to kick in and our asset sensitivity goes up from there. And we see ourselves much more asset sensitive beginning year three.

Got it. And did I hear you on the beginning of the call that you are expecting 5 additional basis points of margin expansion next quarter?

Yes. I would expect 5 or better.

Is that just a function of some of the new loan categories coming on? Is that a loan yield from the new assets?

Yes. Certainly we are going to be on-boarding the Firestone loans. We continue to implement the margin strategy that you've seen here in the last couple of quarters, and we've had solid growth and success in doing that.

And just to be clear, that's on the core basis for our margin.

Correct. Core margin -- the margin excluding accretion. Correct.

Laurie Hunsicker, Compass Point.

Good morning. Just to follow-up on the margin here. So, Jo, I want to make sure I'm thinking about this the right way. Your core margin in June was 3.16%, your reported was 3.30%, and that included $2.2 million of accretion income, and you stated that accretion income in the third quarter would likely drop to $500,000?

The scheduled accretion -- Laurie, so again, there's two pieces of that. The scheduled accretion will likely drop to less than $0.5 million. The recoveries are lumpy and those are harder to predict and, again, the core margin is really what we guided to.

(Multiple speakers) Let me add to that, Laurie. Because that's the one we pay attention to, and somebody did asked me last night about the accretion -- that is derived from -- we have some loans. We mark them pretty well when we do deals and then there is lumpiness. So this quarter we pick up $2.2 million, let's say, in earnings accretion from getting rid of some loans. And again, that's probably $1.6 million or so higher than what we would normally get, but there is, what, $800,000 or $900,000 worth of additional loan costs that track to that.

And so, when you look at the reserve, the amount we put in the reserve to support the C&I growth, it's a few hundred thousand bucks. But it's important to note that because that doesn't drive a quarter for us when you look at it in totality, and it's really important I think that people look at that in totality. That's the reason that we concentrate so often on the core margin, not the gross margin.

Right. That make sense. And I guess to that point, 5 basis points of your core margin goes -- and obviously there's a lot of factors -- 3.16% to 3.21%. But your reported margin, just by the drop in accretion income, if we assume -- and I realize it's lumpy, but we assume it's round numbers, $500,000. The reported margin then is going from 3.30% down to 3.24%. Am I thinking about that the right way?

You're thinking about it the right way but again that's one of the reasons that the core margin is the --.

Is so important, sure.

That's the number we -- that dictates the long-term core momentum in the Company. And it's one of the things we have worked the hardest on in this company, which is to make sure that when we're looking loans that we're booking them in an economic basis so that the margin can grow at a time when there's margin compression. I think we've done a good job with that, so I want people to pay attention to that core margin because is growing at a time when, in some cases, the pressure causes it to move down.

Right. That make sense. And can you share with us what your accretion looks like potentially for 2016?

It's going to be early because we just finished putting together the Hampden deal, and we'll have Firestone marked. So I think it's pretty early to start making those kind of projections, Jo. If you disagree, go ahead.

Yes. Certainly there's going to be a bump-up in the scheduled accretion just as a component of the Hampden acquisition, or we'll have something there related to Firestone. At the end of the second quarter our scheduled accretion is up about $6.5 million, up from the $3.5 million where we were at, at the end of the first quarter.

Yes. Then that would be the scheduled accretion.

Right.

Okay. And then on Firestone -- and I apologize if you hit this with Mark; my line cut out for just a minute -- loan-loss provision. Can you share with us if -- obviously you guided to $4 million in September -- but can you share with us a little bit if, in theory, you had Firestone for the whole quarter, how you would be thinking about loan-loss provision there? Thanks.

I don't think that the -- go ahead, Richard.

Laurie, it is Richard Marotta. Again, because of purchase accounting, the first quarter that we bring them in the actual provisioning is going to be minimal. So we will mark the portfolio after our due diligence and we bring that over with minimal -- a provision through the third quarter. And as time goes on that will start to build as we see the performance of the portfolio.

It wouldn't be any different than any of the bank acquisition portfolios, Laurie. So again, we mark these as we bring them over and no provision follows.

Right, I'm aware of that. I'm saying, in other words, as we look going forward, if in theory you had it -- on a go forward basis, how do we think about this? In other words, there are charges -- I think you shared with me their charge-offs in 2009 were over 2%. So in other words, how do we think about loan-loss provisions surrounding this as we look going forward? As we think about -- even as these change to the expected loss model, is going to impact books where you have had more charges over time. How do we think about this? Or I guess a better way to think about it is -- can you give any color surrounding 2016 loan-loss provisioning, or is it too early?

We're not going to do that. But let's talk about that number.

I guess, Laurie, the way we should all look at this is that it's a couple hundred million dollar portfolio and their credit metrics, their underwriting, their knowledge is there; market is very, very good. So there's no true material difference between the process we provision now with our normal book versus Firestone. It's not going to be materially different than a normal $200 million portfolio.

Richard, just to add on to that, most of their years, if you look at their historical experience, their charge-offs have been under 1%.

Yes, where did the 2% come from? That's the question I asked.

Laurie, this is Ali. The 2% was in 2009, so that was -- at the height of the crisis, that was as bad as it got.

Again, Laurie, if you remember, looking at banks back in the height of the crisis, 2% is not materially away from the norm and I would probably argue that it's better than many banks posted.

Okay. Thanks. That's helpful.

Matthew Kelley, Piper Jaffray.

I was wondering if you could just talk about longer-term the expense management plans and what you see in terms of opportunities to maybe reduce the branch count further as we go through 2016 and just taking costs out of the platform more broadly and longer-term; talk about that.

So, Matt, you weren't impressed with my 30% reduction in the overall branch network? 26 branches closed or sold is a pretty good number. But, Sean, do you want to respond?

We look at every branch individually and we stack it to a profitability threshold of which we expect. So you've got to look at some of our rural branches a little bit differently than our metropolitan branches in what we do. I do think we'll continue to identify; I do think we've gotten through the bulk of it, Matt. Now, depending on any other changing factors, obviously as we brought on Hampden there was opportunity in that. We'll be opportunistic in those respects. So there should be a little more, but nothing hugely material at this point.

Okay. You guys have done a good job there. Just wondered about the longer-term view and have you seen any changes in the dynamics of branch-based transactions that would cause you to slow down the pace of branch closures, I think would be the follow-on question for that. The secular trends seem to be firmly in place here, pointing towards the need to reduce more broadly across the industry, and I assume you're in that camp still?

Yes. And Matt, it's interesting. I think it's a combination of two things. I think some of the environmental changes that occur would lead us to continue to take looks at the process and have a process that's similar to the one that we've been using. But I also think the better we get at using sources outside of the branches -- the MyBanker program that Sean runs, those kind of things. As those become more powerful then I think that could also have an impact on our ability to look at branch closings.

And when you look at opportunities to have more profitable branches in different areas, the more profitable, the higher portion of our branches are, the more opportunity there is to take a look at some of the branches that aren't as profitable. I've got two people raising their hands, so, Jo, you go first.

Matt, just to put it in perspective for you, from a Q3 perspective we do expect those core expenses to be flat to slightly down. We've already touched around the branches, but obviously a concentrated effort around the efficiency ratio and you're going to continue to see additional cost saves with Hampden.

And Matt, do agree; the leading indicator of transactions will drive profitability so we do look at that. And as we migrate to other channels, as Mike talked, about some of those metrics could change and we could see some pick up in it.

And to everyone's chagrin, we no longer have a branch in Tennessee. Is that true, Sean?

That is correct.

So as far as visiting Tennessee, I don't need to do that.

No. Tennessee is outside of the franchise.

No more Rocky Top. And then I apologize -- I did hop on a little bit late here, but when you're talking about the loan pipeline at the end of the quarter, how would it break down towards -- by marketplace in terms of how the pipelines are setting up for the back half of the year? And strengths, weakness by region?

George, if you had a specific -- but it's been generally the same all along. You did good growth out of New York. You get really good growth out of Eastern Mass. You are starting to see traction in Northern Connecticut.

Right. As I said, Matt, earlier, the pipeline is strong for really the beginning of the quarter. And as I look by region we are really seeing good growth coming out of New York, coming out of Hartford, coming out of Eastern Mass, Berkshire County. So, really we're seeing really contributions from all areas, so I really feel like we're making the most out of our franchise and our wide geography.

And wouldn't you also say that -- I mean, Luke Kettles in Pioneer Valley has got that heating up there, and I like what he's doing. I like the opportunities there. I think we're going to see real change and some significant growth there as well, wouldn't you?

Pioneer Valley is -- we're really looking to see one of our best performers. It's an interesting region. We've really doubled the size of our commercial book there. We have some really strong relationships there, and all indications early on are that we are really going to take advantage of the new folks.

It looks better than it's looked in a long time. I like the look of Pioneer Valley right now.

Got it. Then just the last question, across each of your geographies, where are using the most pressure on deposit pricing and the most promotional activity?

Sean, that should be a softball for you.

Sure. I'd say the Connecticut market as we move towards New York, that market I think you're seeing some robust loan growth out of that market. We don't have a huge franchise down there, so I'd say that market is driving the highest deposit costs to fund some of that loan growth that we do see down there. Any time you have large box banks they create a discipline in your markets, so those markets typically will have a more disciplined approach to rising rates.

Okay. Thank you.

Collyn Gilbert, KBW.

Mike, can you just talk a little bit about how you guys are thinking about cyber security? I think you were a bit ahead of the game in the way you were thinking about your branch network. And I'd just like to get your thoughts on that issue.

Yes, it's a great question. It's probably the one thing that I worry about more than anything else, and I think we are a bit ahead of the curve on that as well, only because I'm so afraid of it. I look out and I see the smartest people in our country allowing for hackers to get in. We doubled up our efforts in this regard. We're probably small enough and nimble enough to continue to have our hands around it. I believe that cyber security -- the best thing you can do for cyber security is put in all of the infrastructure bells and whistles that you can to protect, and be ready for and prepared for opportunities that do occur.

So, we've taken a twofold effort here. One is to utilize every bit of potential hardware and software that we can from a cyber security standpoint. Use the best consultants in the country that we can find. But in addition also be prepared to handle any cyber attack so that a small cyber attack doesn't become a large cyber attack. And I think that's the piece that, if there's a weakness in the industry, it's that one. Because people spend all their time trying to figure out how to prevent it, and I think you have to spend as much time figuring out how to react to it if you can't prevent it.

Okay. Have you fragmented or tied costs to this specific initiative?

Expensive, but it's worth every penny. I'm not prepared to get into the specific dollars spent, but we spend an enormous amount of money on cyber security because the ramifications are so huge.

Okay. That was it. Thanks.

This concludes our question and answer session. I would like to turn the conference back over to Mike Daly for any closing remarks.

Okay. Thank you very much, everyone, for joining us today. We appreciate it and we certainly look forward to speaking with you all again in October to discuss our third-quarter results.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.