Community Financial System Inc (CBU) 2025 Q1 法說會逐字稿

Good day and welcome to the Community Financial System, Inc. first quarter 2025 earnings conference call. All participants will be in the listen-only mode. (Operator Instructions).

I would now like to turn the conference over to Dimitar Karaivanov, President and CEO. Please go ahead.

Thank you, Segar. Good morning, everyone, and thank you for joining our first quarter earnings call.

I would like to start this call by acknowledging Joseph Sutaris' upcoming retirement in July. Jo joined us through the acquisition of Wilber and cumulatively has been with our company for 30 years. That is quite the accomplishment, and we're very grateful for his contributions. Jo's integrity and humility have been a pillar for us over that period, and I also want to thank him personally for being a great partner for me in the past four years.

I'm also very happy that our company's performance allows people to have rewarding and productive careers and retire earlier than most. Jo, congratulations.

I would also like to welcome Marya Wlos as our new Chief Financial Officer. Marya joins us with a very dynamic background in finance and a very strong mind for driving business performance. Equally as importantly, she fully embodies our values of humility, integrity, teamwork, and excellence. Marya, welcome.

Now on to business, we had a productive quarter. Results were consistent with last quarter, even with a shorter calendar, seasonal slowdowns, lower asset values, and creeping uncertainty. Operating return on assets was 1.28%, and operating PPNR per share was up 18.6% on a year over year basis.

Looking at each one of the business units in more depth, our banking business is benefiting from continued repricing of assets, while funding costs are also moving lower, leading to margin expansion. Deposits benefited from seasonal municipal flows, while loans were essentially flat as growth in commercial and mortgage was more than offset by weakness in auto lending, which was mostly seasonal and pricing driven.

We continue to focus on appropriate risk reward in terms of both credit quality and rate and so some increased aggressiveness by competitors on both fronts. With that said, pipelines in commercial and mortgage, while a bit lower than last year, are still solid, and we believe that mid single digit growth for those portfolios is still on track for this year. It may just be at the lower end of the range depending on overall economic activity. Indirect auto lending remains more of a wildcard, given aggressive competition and impact of tariffs.

Our employee benefit services business also had a solid quarter, and business momentum is strong. Current asset values will likely have an impact in 2025, but we're also working hard on the underlying unit growth.

Our insurance services business at an excellent quarter with expenses flat and revenues up meaningfully, leading to sizable margin expansion. Some of the revenue growth was due to the timing of contingency payments, but we still remain on track to deliver meaningful operating leverage for the rest of the year as well. In fact, insurance was the main driver of strong performance this quarter for the overall company.

Our wealth management services business results in line with last quarter and up meaningful year over year. Similarly to our employee benefits business, we may experience revenue headwinds the rest of the year tied to asset values.

In summary, I feel good about the ability of our diversified company to grow revenues regardless of the economic and market generations. If you look at last year, for example, our market extensive businesses, employee benefit services and wealth management services, drove the majority of the overall improvement for the company.

This year so far, it's looking like the banking insurance will take the baton. That is how our company is designed, and it is times like these when we shine.

I also feel great about our continued ability to attract talent, and we have one of our best quarters and talent acquisition across all units, banking, benefits, insurance, and wealth.

I will also know that the current economic uncertainty is as high as it's been in many years, and it is the time to be extra prudent and make sure we're truly getting paid for taking on risk while strengthening reserves.

Our business is diversified and highly profitable. Our balance sheet is excellent, and we're ready to capitalize on the right opportunities.

I will now pass it on to Marya to deliver the detailed financial highlights. Marya?

Thank you, Dimitar. Good morning, everyone.

As Dimitar noted, the company's first quarter performance was solid. GAAP earnings per share of $0.93 were up $0.17 or 22% over the first quarter of the prior year and down $0.01 or 1% over linked fourth quarter results.

Operating earnings per share and operating pre-tax, pre-provision net revenue per share were also up significantly year over year, while remaining relatively consistent with last quarter.

The company recorded operating earnings per share of $0.98 in the first quarter as compared to $0.82 one year prior and $1 in the linked fourth quarter.

First quarter operating PPNR per share of $1.40 was up $0.22 or 18.6% from one year prior and was consistent on a linked quarter basis. Strong revenue growth and improvements in core operating performance of all four businesses underpin these year over year improvements.

The company recorded total operating revenues of 196 million in the first quarter. This was up 18.7 million or 10.6% from one year prior and was consistent with the record result established in the linked fourth quarter.

This quarter established new quarterly highs for net interest income and insurance services, revenues, as Dimitar also highlighted. The company's net interest income was 120.2 million in the first quarter. This represents a 0.2 million increase over the linked fourth quarter result and a 13.2 million or 12% improvement over the first quarter of 2024 and marks the fourth consecutive quarter of net interest income expansion.

Lower funding costs help drive increases in both net interest income and net interest margin in the quarter. During the quarter, the company's cost of deposits was 1.17%, a decrease of 6 basis points from the prior two quarters, and drove a decrease of 5 basis points in the total cost of funds from 1.38% in the linked fourth quarter to 1.33% in the first quarter.

The company's fully tax equivalent net interest margin increased 4 basis points from 3.20% in the late fourth quarter to 3.24% in the first quarter. The company has increased its net interest income for 18 consecutive years, and the outlook remains positive for continued net interest income expansion in 2025.

Operating non-interest revenues were up in all four businesses compared to the prior year's first quarter and represented 38.7% of total operating revenues. Banking-related operating non-interest revenues were up 0.9 million or 4.7% over the same quarter of the prior year driven by increases in mortgage banking revenues.

Employee benefit services revenues were up 0.9 million or 2.9% over the prior year's fourth quarter, reflective of an increase in the total participants under administration and growth and asset-based fees.

Insurance services revenues were up 3.1 million or 27.8% over the prior year's first quarter, driven by contingent commissions and recent acquisitions, while wealth management services were up 0.7 million or 7.1%, reflective of more favorable market conditions and growth and investment advisory accounts. On a linked quarter basis, operating non-interest revenues were down 0.3 million or 0.4%, due in part to two fewer days in the current quarter.

The company recorded a 6.7 million provision for credit losses during the first quarter, reflective of an increase for a specific reserve on one non-owner occupied CRE loan placed on non-accrual during the fourth quarter of 2023. This compares to 6.1 million in the prior year's first quarter and 6.2 million in the linked fourth quarter.

During the first quarter, the company recorded 125.3 million in total non-interest expenses. This compares to 118.1 million of total non-interest expenses in the prior year's first quarter. The 7.2 million or 6.1% increase between the periods was primarily driven by increases in salaries and employee benefits, including the impact of annual merit-based salary increases, data processing, and communication and occupancy and equipment expenses. The increase also included approximately 0.9 million associated with the bank's de novo branch expansions. Additional de novo-related expenses are expected to be incurred in the remaining three quarters of 2025.

The effective tax rate for the first quarter of 2025 was 22.8%, down slightly from 22.9% in the first quarter of 2024.

Ending loans decreased 11.2 million, or 0.1% during the first quarter, driven by a net decrease in the consumer indirect lending portfolio, which was partially offset by growth in the business lending and consumer mortgage portfolios.

Although this result ends the company's streak of 14 consecutive quarters of loan growth, the company continues to invest in its organic loan growth capabilities and expects continued expansion into the under-tapped markets within our Northeast footprint. Ending loans were up 537.6 million or 5.4% from one year prior, primarily due to growth in the business lending and consumer mortgage portfolios.

The company's ending total deposits increased 453.3 million or 3.4% during the first quarter and 540 million or 4% from one year prior, driven by an increase in municipal deposits. Public funds deposits increased to 2.341 billion at the end of the first quarter, up 408.5 million from one year prior, and up 354.8 million from the end of the linked fourth quarter.

Non-interest bearing and lower rate checking and savings accounts continue to represent almost 2/3 of the total deposits reflective of the core characteristics of the company's deposit base. The company did not hold any brokered or wholesale deposits on its balance sheet during the quarter.

The company's liquidity position remains strong. Readily available sources of liquidity, including unrestricted cash and cash equivalents, unpledged investment securities, funding availability at the Federal Reserve Bank's discount window, and unused borrowing capacity at the Federal Home Loan Bank of New York totaled 5.9 billion at the end of the first quarter.

These sources of immediately available liquidity represent over 250% of the company's estimated uninsured deposits, net of collateralized and inter-company deposits.

The company's loan to deposit ratio at the end of the first quarter was 75%, providing future opportunity to migrate lower yielding investment securities into higher yielding loans.

All the companies and the banks' regulatory capital ratios continue to significantly exceed well-capitalized standards. More specifically, at the end of the first quarter of the company's Tier I leverage ratio was 9.29%, which substantially exceeded the regulatory well-capitalized standard of 5%.

Non-performing loans totaled 75 million or 72 basis points of total loans outstanding. This represents a 1.6 million or two basis point increase from the end of the late fourth quarter. Comparatively, non-performing loans were 49.5 million or 50 basis points of total loans outstanding one year prior.

Loans 30 to 89 days delinquent were also up on a late quarter basis from 55.9 million or 54 basis points of total loans at the end of the fourth quarter to 59.2 million or 57 basis points of total loans at the end of the first quarter.

The company recorded net charge-offs of 3.2 million or 13 basis points of average loans annualized during the first quarter. This is up slightly from 2.8 million or 12 basis points in the same quarter of the prior year.

The company's allowance for credit losses was 82.8 million or 79 basis points of total loans outstanding at the end of the first quarter, up 3.7 million during the quarter, and up 12.7 million from one year prior. The allowance for credit losses at the end of the first quarter represented over seven times the company's trailing 12-month net charge-offs.

Looking forward, we believe the company's diversified revenue profile, strong liquidity, regulatory capital reserves, stable core deposit base, and historically good asset quality provide a solid foundation for continued earnings growth in the remaining three quarters of 2025.

That concludes my prepared earnings comments. I would like to take the opportunity now to introduce myself and thank Jo for his guidance through the transition period. Jo, you are exceptional at what you do, and you will be missed.

I would also like to thank Dimitar and the entire management team for their support over the last few weeks. It's an honor to join such a talented team, and I'm genuinely excited to help grow this portfolio.

It's been a whirlwind 30 days, and while I still have a lot to learn, I can tell you the future of this company is very bright. And with that, Dimitar, Jo, and I will now take questions. Sagar, I will now hand it back to you to open the line.

Thank you. We will now begin the question and answer session.

(Operator Instructions). Our first question comes from Frank Schiraldi from Piper Sandler. Please go ahead.

Morning and congrats on the new position, Marya.

I wanted to start. Dimitar, you mentioned, I think you mentioned pipelines a little bit lighter, maybe from the year ago period. I wonder if you could drill down into that a little bit, in terms of how significant the drop off, is on the commercial side in terms of pipelines and then also if you wouldn't mind, if you could provide any detail around blended new origination yields coming on currently.

Yeah thank you, Frank. I would kind of probably put it in a couple of buckets.

On the commercial side, pipelines are not that dramatically different from last year, it might be a couple percentage points lower. The difference is we're probably seeing a little bit more on the payoffs, than last year. So I think that's going to have some impact in the aggregate terms and I think we also have a little bit more uncertainty as to when some of the pipeline gets pulled through, just given everything that's happening with our clients and the micro environment.

On the residential side, pipelines are probably about 10% lower than last year, still pretty good. We're just getting into the busy season, so we're really going to have a much better sense of where things are, here in towards May and June. So again, that's also been a little bit impacted, I think, predominantly by availability in our markets, as opposed to demand. Demand is there, just the availability of housing units is not quite where it needs to be.

So that's kind of what we're seeing, and I think we touched on the indirect side in the prepared remarks. We still feel pretty good about our ability to grow that portfolio, but as we've said before, we don't change our credit box in that world. So for us, some years could be a lot more growth, some years could be a lot less growth, some years we might even shrink. So we'll see what kind of, what they give us in our box.

As it relates to loan originations in the first quarter, they were right around 7%. A little bit slower. I think we're going to continue to see some of that pressure through the year, so that's not unexpected given what's happened with trades and competitive dynamics.

Great. Okay. I appreciate the call. And then as my follow up, just wondered if you could provide any more color update on de novo expansion, timing for branches to come online and if you could maybe just further quantify Marya how that would impact or could impact the expense base through the year here?

Yeah, I'll take that, Frank. So we, last year we opened the first one, which was in Syracuse. We just opened the second one, which was Buffalo. The next one is going to be in Syracuse again and then we start in Albany, and then we kind of go around the footprint, including PA and all the other places register. So that's on track. We continue to expect that we're going to be opening virtually all of them, maybe say for one or two by the end of the year. As we have discussed, we're also going to be consolidating a very similar number of locations for the year, and the impact of all of those initiatives will come out, kind of on a clean run rate basis in Q4.

We've talked about the costs before. You're probably going to expect to see a little bit more marketing, and kind of startup costs if you want to put it that way and Q3 in particular. To the tune of 3 million to 4 million bucks in that quarter. Outside of that, nothing's really changed in terms of our expectations or in terms of how we're meeting our milestones.

Okay. Alright. Appreciate the call. Thanks.

Sure, welcome.

Thank you. The next question comes from Steve Moss from Raymond James. Please go ahead.

Good morning. Dimitar. Marya.

Morning, Steve.

Morning. Maybe just starting or following up on loans here, just curious to are like, how much tighter is loan pricing these days for auto, and just kind of how you're thinking about that market going forward in terms of balances and stuff?

Sure, so on the auto side, where pricing is today is pretty similar to the portfolio rates that we have. So we're kind of churning the portfolio at similar rates. You're not going to see a tremendous amount of pick up there. It probably shrunk by 50 basis points plus in this quarter. We've seen a lot of competitors that were a little bit more quiet over the past couple of years kind of get back and even go deeper on credit as well.

Again, for us, we don't really do that, so it's really just a matter of our credit box and some changes on pricing. So we've adjusted our pricing there, we're clearly seeing some more momentum. Some of it is seasonal as well, especially in the western part of our footprint. That's where we've seen most of the challenges in that portfolio.

I think more broadly on pricing for the aggregate business. I will tell you that we have a lot of competitors that were constricted over the past couple of years, large and small, and they kind of a little bit woke up, especially post the election and decided that it's time to grow and make up ground. So we have seen some, frankly, astounding rates on the commercial side, starting with a five. That's not the kind of business that we are going to do today. So we're probably going to continue to see some pressure on that side as well.

Okay great appreciate that color there. And then in in terms of the non-performing loan here that you guys disclosed last quarter and put the specific reserve on this quarter, just kind of curious about the timing around resolution. Kind of where how that may play out?

Yeah, hi Steve. It's Jo.

So we put the credit on accrual back in the fourth quarter of '23. We are basically, I think it's today we're looking at a potential foreclosure sale on the property. So we got an updated appraisal right at the end of the first quarter and hence the additional reserves about an additional 3.8 million or 3.9 million over and above what the reserves were prior.

I will just note that you know we apply a very conservative valuation, in terms of we not only do we take the praise value but we apply additional discounts to that, just to be conservative. And so ultimately we hope that the, you know that we could resolve the ultimate sale of the properties a little better than a call in the current reserve amounts.

But with that said, given that the property is expected to be foreclosed upon in the second quarter, we'd expect to take the majority of the charge off in the quarter and then hopefully recover that over time through the sale of the properties. All in there's about 18 properties in the business park and so we're still trying to collectively with the other participants figure out what the strategy is for ultimately, realizing the value of those properties. So I would expect that call it resolution or sale of those properties will take, will certainly take some time.

Okay great appreciate that color there and then in terms of the employee benefits services business here, then I hear you on the near term headwinds, but markets have kind of come back a bit, just kind of curious if you could kinda handicap some of the near term revenue. What puts and takes.

Yeah, it's a little bit hard to be honest with you, Steve. I think where we're running right now it's probably lower single digits, to mid single digits in that business, probably closer to the lower.

We do have, really good momentum in terms of plan acquisitions and units that are coming onto the platform, frankly, the plans and conversion. This year are highest that they've ever been. So we know we're going to get a decent amount of unit growth.

Again, it's very hard to predict, and it really depends on which day of the month you price these assets, as we've seen a lot of volatility. So, for all we know, we might be up 10%, next week and we might be down 10%. So it's really hard to pinpoint where things are going to set up.

Okay, great. And I guess just one last one for me here. On the municipal deposit, side where you had deposit growth there this quarter, you highlighted an expansion there just kind of curious, how you're looking to grow that business and kind of how rate sensitive we should think about it being in the future.

It's a business, for us that's now pushing about 2 billion in outstandings on the deposit side. It is a business that we've had a very long history in. These are not funds that really are have money, if you will. These are municipalities and government entities that have multiple accounts with us. So it's not just the money market or the CD that they're looking to just park money in. We've just done a better job over the past couple of years of being even more focused on the business line and making the calls and having the presence in the markets.

So I, to us, if you look at the blended rate on that portfolio, it's in the low twos today. So it's a very productive, funding source. And, well, that's kind of our business, it's not, it, it's just natural seasonal flows and just on the ground, blocking and tackling full relationship as opposed to bidding on, some large county cities that we don't do any other business with.

Got it. Appreciate all the call here today. Thank you very much.

Welcome.

Thank you. The next question comes from Matthew Breese from Stephens, Inc. Please go ahead.

Hey, good morning. Hey, man, Just wanted to get some sense for NII over the course of the year, you'd mentioned payoffs and competition. To me, the first one is just what are expected cash flows over the next, nine to 12 months from the securities and loan portfolio and what are the roll off fields there?

Man, this is Jo. I'll take that one. So with respect to the loan portfolio, what I can tell you is that on a trailing 12-month basis, so kind of looking backwards, we had call it between a 1.5 billion and 1.8 billion of roll off, obviously, that's dependent on pre-payments and prepayments speeds and the like and I think that's a fair expectation kind of looking forward.

And you know the current book yield is about it's just north of 550 and the new volume rate is around seven. So that's kind of how the back book is pricing on the securities portfolio. We have pretty minimal runoff in for the remainder of 2025, so less than $100 million which is coming off a little north of two around to call it. And so we're not going to see much opportunity there from a repricing standpoint, at least for the remainder of 2025.

However, when we hit late '26, '27, '28, and '29, we've got about $2 billion rolling off in in kind of the 2% range. So, from my perspective, it kind of builds a bridge to kind of work the loan yields for the balance of this year and into next year, and then we start to get into some securities cash flows in '26, '27, '28, 29, which you know you could pick your redeployment rate there, Matt, but if it's coming off at two, I would expect that the redeployment, whether it's in loans or even you know re upping on some securities will probably be a net higher book yield.

So you know we'll try to maximize effectively the rollover this year in them on the loan book in terms of just improving the yield and then get to those securities cash flows in those in those periods.

Very helpful. So I mean, all let's say sounds like earning half deals are going up into the rate for a while. Is it also safe to assume that it's going to be difficult to squeeze deposit costs much lower? Are there are any opportunities there?

Yeah, I think that's a fair sort of path, man. I, we might get a little bit better deposit pricing over time, but, given where we're starting from kind of at that, at 130-ish range, it's going to be hard to or it's going to be more difficult for us than it will be for some other of our some peers to bring down the cost of funds too significantly. So I think we're going to get most of our net interest margin and net interest income left really on the asset side is that reprices over the remainder of 25 and into the next four years or so.

Got it. Okay. And then Dimitar, just in in terms of your comments on competitive conditions and uncertainty and things kind of slowing down from a pipeline perspective. Does that change your, if it continues, does that change your thinking around bank M&A at all, might you re-engage in places you might not otherwise with a full pipeline?

I think as an aggregate comment, Matt, we don't really change our strategies depending on the environment. So in other words, M&A is an important piece of what we do. So we're always looking for quality adds to our company. When I say quality, that is the first and foremost screening factor. Numbers are basically relevant if we're going to dilute the quality of our balance sheet or our business by a meaningful amount.

So, I think that's the first and foremost hurdle. I will say it's also probably a little bit harder today to price somebody's assets, given that nobody knows what's going to happen with their clients, on the commercial side in particular.

So maybe that's a small of a headwind, so we probably just need to factor in a little bit more cushion on that side, but really, there's a quality franchise again to us quality balance sheet, liquidity, low concentrations and markets we care about always open for business.

Okay, understood. Just last one, expenses came in a touch lower than I was thinking. Maybe some thoughts on the outlook for the remainder of '25.

So I think Matt, do you want to take it, Marya?

Oh no, okay, yeah, I think with respect to the, kind of the core I'll call it increase in operating expenses, it's kind of mid single digits for us. We'd like it to be kind of in that 3% or 4% range, on a normal run rate basis we are continuing to invest in the franchise which includes some of the marketing expenses around de novo, which probably puts us more in the kind of the mid single digit range going forward. But as we've kind of proven, I think over the last couple of years, we our CapEx is a little bit up over where it was traditionally, but it's also beginning to to pay off pretty significantly on the revenue side of the business.

And so I think we're going to continue to kind of incur operating expenses kind of in that mid-signal digit range increases year over year. And you know the intent there is obviously to continue to grow the company across all lines of business.

Great. I'll leave it there. Thanks for taking my questions.

Welcome.

Thank you. Again, if you wish to register for a question, please press star, then one.

Our next question comes from Chris O'Connell from KBW. Please go ahead.

Hey, morning. Dimitar, Jo, Marya.

Was just hoping to start off on some of the fee businesses, in particular I guess if we, if the market stays where it is here, on the wealth side, and I know there's a little bit of seasonality into Q2 typically. Just, how you see that progressing throughout the year? And then, given the strong start to the insurance business, does that kind of change your outlook here for the revenue growth for 2025 there as well?

I think, Chris, on our last call, we spoke about mid single digit growth in the fee and businesses. I don't think we're changing that today. That is our expectation. I fully expect that all the businesses are going to grow this year over last year regardless of the market environment.

It may just be a little bit different in the aggregate. So to your point, insurance is up to a good start. That is not, 27% growth is not going to be the rate for the year. That's going to moderate down. So, but it's going to be probably higher than mid single digits. So that might pull kind of the aggregate up a little bit while some of the market sensitive businesses may be a little bit closer to low single to lower middle, mid digit rate. We'll see where it shakes out. I think in the aggregate, when you look at that 200 million plus in revenues, we think that's growing still in the digits for this year.

Okay, got it. So despite, the, market conditions, in the first quarter you still think, mid single digit aggregate for those businesses is kind of the right place.

Yeah, assuming where we stay today, I think we're going to get there.

Okay, great, that's helpful. And then, on the margin, I thought the deposit cost, control here this quarter, was really strong and with the asset yields, continuing to re-price up, any change in the overall, nim outlook of three to five basis points a quarter, give or take, absent, further rate cuts.

No, we see that, anywhere from two to seven basis points, but you're in the right range as we look at the portfolio and continue to just operate and take the health of the businesses which are very strong. We believe that that will continue.

Okay, great. Just want to circle back on the expense discussion.

If as far as the cadence throughout the year, to get to the mid single digit, is it more that, from the first quarter, which I think came in pretty solid, flat to the fourth quarter that we'll see, the balloon up with the de novo costs in 2Q to Q2 and then kind of end 4Q to 4Q closer to the mid single digits.

I think that's about right, Chris. That's how I would think about it. You're going to have, we're going to be above that rate most likely in the third quarter and kind of moderate back down in the fourth quarter.

Okay, great. And as far as we roll into next year is there any additional kind of related de novo cost, pretty much fully baked into 2025, or is there a little bit that'll trail into 2026 here?

I think to be negligible for 2026. I think we should exit 2024, 2025, fourth quarter of 2025 with a pretty decent run rate, with a reconfigured branch network.

Okay, got it. That's all I had. Thank you.

Thank you. The next question comes from Manuel Navas from D.A. Davidson. Please go ahead.

Hey, good morning. You're talking about the credit box I think more in the context of auto, are you actively seeing loans not kind of meet your credit box or you just anticipating that could be the case going forward just trying to think through what your customer base is seeing?

I think, Manuel, what we're seeing is just people being more aggressive on both rate and credit. So some of the things that we saw this quarter that kind of impacted some of our numbers were even assets that were also criticized for being refied away by larger and smaller competitors.

People willing to take on a little bit more risk to try to make up for multiple years of not being present. That's okay with us. We've got maybe some other criticized assets we want to share as well. So, that's kind of what I mean. Our credit box really hasn't changed. If we feel great about a particular credit, we're going to lean into it as much as we can, and if there's other things that don't fit our box, they don't fit our box, we don't need to stretch.

Okay. I appreciate that. Bigger picture, how much of the kind of this uncertainty that you're discussing could be tied to the regional concerns on the CHIS Act. Just there's been some pushback from the administration, just wondering what is your perspective on that.

I think very little. We don't really believe that much of the chacked activity has really come to our markets yet. So I think very little. It's really more about people literally not knowing what their cost of goods is, right? Well, most of our clients, a lot of them, import something of something, and they don't exactly know what it's going to cost when you don't know what your goods cost. You kinda have trouble pricing your product on the other end.

So people are working through inventories and doing the best they can, trying to plan ahead. It's hard to look in pricing for those that import a lot of their goods. So I think there's some of that, on the building side, it's also not clear what some of those projects it's really going to cost. You're going to start seeing some cost overruns. We're kind of starting to see some of that.

We have clients that also rely on foreign labor, so they're seeing some impact off of that where folks that were temporarily able to work for them are not able to work anymore. So there's a whole bunch of undercurrents, which is why when we say uncertainty, the moment the pipeline is pretty good, the dialogue is pretty good. It's just, we have to be a little bit extra cautious, and our clients are a little bit extra cautious as it relates to major CapEx.

I appreciate the commentary, thank you.

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Dimitar Karaivanov for closing remarks.

Thanks, Segar, and thank you everybody for joining our call and we look forward to speaking with you in July.r

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