Cullen/Frost Bankers Inc (CFR) 2007 Q4 法說會逐字稿

Good morning. My name is Bobbie Joe and I will be your conference operator today. At this time, I would like to welcome everyone to the Cullen/Frost Bankers fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session.

I will now like to turn the conference over to Mr. Greg Parker, Executive Vice President and Director of Investor Relations. Sir, you may begin.

Thank you. This morning's conference call will be led by Dick Evans, Chairman and CEO; and Phil Green, Group Executive Vice President and CFO.

Before I turn the call over to Dick and Phil, I need to take a moment to address the safe harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of the text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available at our website or by calling Investor Relations department at 210-220-5632.

At this time, I would turn the call over to Dick Evans.

Thank you, Greg. It is a pleasure to report earnings for our company of $0.93 per diluted common share, a 10.7% increase over the fourth quarter of last year. Return on average assets was 1.65%, return on equity 15.18%. Annual earnings for 2007 were $212.1 million or $3.55 per diluted common share or 9.5% increase over '06. We are particularly pleased with these results considering Texas aggressive competition during 2007 and loan pricing and structure. Cullen/Frost worked hard to stay true to our standards. We have learned through experiences of over 140-year history.

Today, we have the same management team we had in the 1980s. As we navigate in this current banking environment, our performance affirms, the benefits of several strategic decisions that we have had positioned, as well. In 2000, we decided to exit the residential mortgage business. It was our opinion that the industry had lost its relationship focus and become a commoditized business with insufficient profitability. For the same reasons, in the past we also exited the indirect lending and credit card businesses. Additionally, last quarter we moved our company to a more interest rate neutral position entering into a seven-year $1.2 billion interest rate swap.

One strategic focus that remains constant is our commitment to the Frost philosophy, that our outstanding staff practices and who made these strong results for 2007 possible. I thank them for their dedication to taking good care of our customers and by working as a team across all lines of businesses.

There are many positive accomplishments in 2007, and I bring your attention to the following: average loans reached $7.5 billion in all-time high, and on a linked quarter period end basis, loans increased $309 million from September of '07 after a period of flat loan growth. Average deposits reached $10.2 billion, also an all-time high. Net interest margin for the year increased to 4.69% with the Fed cutting rates 100 basis points during the second half of the year. For the fourth quarter '07 the net interest margin was 4.70%, up 1 basis points from the third quarter of '07.

Non interest income looking at the fourth quarter of '07 versus '06 increased to $66.4 million or up $8 million. Trust income increased 12.5% to $18 million. Service charges on deposits $21 million, up 1.9 million. Other charges, commissions and fees, 7.9 million, up almost $2 million, and investment banking fees earned during the quarter of $700,000 accounted for the single largest part of this increase. Other Non interest income was 13.4 million, an 18.1% increase over last year with the largest factor coming from our higher income from Visa check card usage. While our insurance commissions and fees were up only slightly for the fourth fourth quarter of last year, for the year they increased 9.3% versus '06 to $30.8 million.

Non interest expenses increased 8.1% versus the fourth quarter of last year, a result of normal annual merit and market increases along with an increase in the number of employees as well as the acquisitions. Asset quality metrics remained favorable. Our net charge-offs, 18 basis points or $3.5 million for the quarter, and for the year, 25 basis points allows for possible loan losses was 1.19 percent at year end. Non-accrual loans and for closed assets ended the year under $30 million.

We are pleased with our asset quality and believe we're well-positioned for slower economic growth in 2008. Texas job growth in '07 was over 3%, and we expect Texas will continue job growth at twice the rate of the nation but closer to 1% in '08.

As stated earlier, we have been fortunate to avoid the major problem areas in the current banking environment. But we still look to see what other areas could be affected as we have always tried to identify problems early. Our focus is on two areas, home construction primarily, even though 2008 is projected to be in the top five best years we have ever experienced in home construction in Texas, and we're watching retail strip centers. Some facts about Cullen/Frost home construction portfolio. We have $510 million committed, approximately 50% outstanding. 75% are to home builders, and 25% to individuals constructing their homes. 39% is in our fort worth market, 27% Houston, 11% Dallas, 9% San Antonio. We have no financing outside of Texas and no home builders shared national credits. Price points of our builders is balanced across the spectrum with no concentration in starter homes or higher end.

Secondly, we are also closely watching retail strip centers and feel our exposure is very manageable at $185 million in commitments and $115 million outstanding. Free leasing and guarantees are required on these loans. Overall our asset quality metrics are favorable today and even with some soft softening primarily in the homebuilding we feel builder's inventories will be adjusted to the slower growth. The Texas economy should perform better than the U.S. with positives coming from continued job growth, high energy prices, and high tech doing well.

Our sixth strategic priorities are clearly defined and understood across our company. First, we will quickly address and approve any under performing markets. Secondly is to expand our financial center network. We added a new office in Austin in the fourth quarter, and we moved into a new building in the NASA area of Houston. Third is to provide and communicate attractive value propositions to our customers and prospects. For example, five years ago we simplified our checking account products introduced free checking, lowered the prices on other checking accounts. Again, last year, we improved the features and lowered fees again. We address our value proposition across all lines of businesses.

Fourth is the focus on growing new customer relationships by effective prospecting. I reported to you before that we began a process of identifying high quality business prospects for our relationship managers and they are working through a list of 25,000 plus prospects that are more likely to appreciate cross relationship style of banking.

Fifth, team selling across product lines gives us the ability to broaden and deepen the relationships with our customers. We are approaching the customers by bringing together combined capabilities of our team to study our customer first. Only then do we bring these resources to improvements for our customers, focusing our products and services that make a difference to the customer's future. I have asked my entire management team to participate in this process.

Finally, we are always working to improve our ability to attract, develop, and retain the right people. I believe Cullen/Frost is well-positioned for these uncertain times that we are experiencing in our industry, and we look forward to 2008. Now, I will ask Phil Green our CFO to make some comments.

Thanks, Dick. I want to comment on some additional aspects of our operations and talk some about our earnings outlook for the year and then open it up for questions. It was definitely good to be able to post another record earnings this year in this challenging environment. I would say, admittedly, it was not exactly what we hoped for in that loans outstanding held flat for most of the year, but we did finally see some loan balance follow through to the growth we saw in the period end numbers last quarter. As Dick mentioned, fourth quarter loans on a period end basis increased an annualized 16.5%.

In addition, since the end of the year through January 21st loans have increased another $87 million to $7.856 billion. Dick also mentioned the net interest margin which increased 1 basis points during the quarter to 4.70%. One basis points may not sound like a lot, but given the fact that the Fed cut interest rates 100 basis points for the last four months of the year, we were very pleased with the stability of the margin. We were able to offset the decline in rates through a combination of things including $300 million in securities purchased at the end of last quarter, the emergence of loan growth that we just talked about, and then the implementation of the $1.2 billion seven-year interest rate swap we implemented in October of last year.

Related specifically to the swap position, it paid us positive cash flow of $241,000 in the fourth quarter and added about 1 basis points to margin. However, at current rates and taken into account Fed cuts of yesterday, the position is currently paying at a rate of about $3.2 million per quarter but it is now doing a lot more heavy lifting to help us offset the impact of lower rates on our margin. It is obviously a very valuable tool for us in our management of the Non interest income and providing stability. It was valued this morning at a quoted value of about $100 million.

A few comments related to Non interest income and expenses. We did see a reduction in Non interest income due largely to the seasonality of insurance commissions which declined $1.8 million from the third quarter. The fourth quarter is our slowest quarter during the year for insurance commissions on a seasonal basis, and also we saw a drop in charges and fees, other charges and fees that were down 2.8 million from the third quarter due to a $3 million reduction in investment banking fees from our very strong third quarter performance. As you're aware, those revenues are fairly lumpy.

In the area of Non interest expense, we saw a reduction in benefits expense in the fourth quarter due mainly to lower costs resulting from better medical and workman's compensation experience for the year. Concerning our deposit mix, there was a reduction in average demand deposits in the fourth quarter of about $84 million which is somewhat atypical for us. However, during the quarter we implemented a redesign of some of our consumer checking accounts that Dick just mentioned, and as a part of that we migrated an estimated $250 million in Non interest-bearing consumer account types into interest-only checking account types. While this ostensibly lowered demand deposits and increased time deposits, the rate paid on the rate checking account is currently only 5 basis points, so that part of the restructuring is not really a significant event.

I now want to comment on a few issues that have been impacting banks recently and describe our situation with regard to these issues. First, we are not in the residential mortgage business, as Dick mentioned. We stopped making residential mortgages eight years ago. Secondly, it relates to, or I wanted to relate the costs associated with the Visa settlements that you have seen. Our fourth quarter did contain some costs associated with those settlements. It contained about $550,000 in costs representing our portion of recently announced Visa settlements. This is admittedly a fairly small number and represents our Visa interest at only 0.02%. We have a smaller percentage, because as Dick mentioned earlier, we sold our credit card portfolio in the mid-1980s and only reinstated a direct Visa relationship when we offered a Visa check card a few years ago. Thirdly, the bank did not utilize credit default swaps any of its loans. Fourth, the bank does employ BOLI investments, the vast majority of which is a $100 million position purchased by Frost bank seven years ago. That BOLI is separate account structure with the investment criteria consistent with investments made in the bank's own investment portfolio which includes no subprime paper.

Our most recent review of that separate account portfolio showed no subprime investments and a portfolio consistent with bank holdings. Regarding our investment portfolio it includes no subprime investments, no CMOs or I should say I think we have $92,000 in CMOs, no CDOs, no IOs, no POs. Of the $3.415 billion portfolio, 83% represents mortgage-backed securities issued by Fannie Mae, Ginnie Mae, and Freddie Mac. Fifteen percent represent municipal securities, 1% represents short-term discount notes, notes of federal agencies, with terms of approximately six months, and 1% represents stock held in the Federal Reserve and Federal Home Loan Bank.

I want to focus for a moment on our $526 million municipal portfolio because of the recent problems of certain private bond insurance companies. First, none of our municipalling were purchased strictly because of the presence of any private insurance rating. The bank's municipal portfolio consists of general obligation bonds with unlimited taxing authority. We do have bonds which happen to carry private insurance in the amount of $62 million or about 12% of the investment portfolio or municipal portfolio. But looking at the underlying ratings of these bonds, 43% are double A, 55% are single A, and 2% are triple B.

Finally, 75% of our municipal portfolio is backed by the permanent school fund of Texas known as TSF which has $1 of investment assets for every $1.50 insured. Obviously, vastly different from the structure of the private insurance. To sum up, we feel extremely good about our investment portfolio.

Before I turn it back over to Dick for questions, let me just add that as we look at the range of earning estimates for our company, we would currently see ourselves as most likely toward the middle section of that range. With that, I will turn it back over to Dick.

Thank you, Phil. We're now happy to entertain any questions you may have.

(Operator Instructions) Your first question comes from the line of John Pancari.

Hello, John. John, we can't hear you. Maybe you don't have your button on or something.

Operator, are you there?

Sir, your line is open.

Hi. Can you hear me now?

I can hear you now.

Okay, great. Wanted to see if you can give us a little bit more color on loan growth, specifically by product. Certainly we're seeing this rebound this quarter off of the sluggishness over the past couple of quarters, so just give us an idea of where you saw that growth and then how your pipeline looks.

It is a great question. Let me give you just some feel for it. About $50 million was to municipal utilities. There was - - just to give you a whole random 7 million to leasing company. There was 2 million, 10 million to an old grocery operation that we have been financing for years, 10 million to a blood bank, 6 million to a hospital. We had about 10 million increase to insurance companies which we have a specialty in financing. We had another couple of about $15 million in two municipalities. The municipalities are in our public finance area. We had about 8 million fuel additive company.

We also had $91 million to permanent mortgage increase which we're pleased with. Again, remember this is an owner-occupied part of the portfolio. We had about 11 million to 100-year-old company, an agricultural business, 6 million to a technology company, and we did have those tech companies and that ag were in our shared national credits. They did increase $50 million, and the balance, the majority of it is in the energy oil and gas production credits. Our share national credits did go up to $411 million. We still are running about 63% of those credits are in energy credits. We have found as you would expect with these high energy prices it takes a lot more dollars to just finance the same kind of borrowers.

What was that share national credit balance last quarter?

We're up about -- let me see here. Last quarter it was period end $363 million.

Okay. So that is between 363 to 411?

Yes.

Okay.

Let me just make one other comment and let Phil comment on that. For the year, I think one of the things that our construction loans, this is for the year, decreased $89 million. We did see a good increase of a little over 200 million in permanent mortgages which has been a focus of our company, again we think that is the best place to be. It is to finance the working capital for a company as well as their building. And we have worked diligently on land loans throughout the year and in fact had about a 10 million decrease in that overall portfolio. Phil, do you have some?

Yes. John, I might just give a little bit of a summary and then maybe a little more granularity in terms of location of the loans. On a linked quarter basis period end commercial industrial loans were up $221 million, so that's where the [lion] share of it came. Real estate loans were up by $86 million, but included in that commercial real estate mortgages were up by $91 million, so I think you get a feel for where the growth was in the portfolio construction loans were actually down $32 million in that quarter. If you look at where the growth came from by market, we had a couple of markets that were flat for the quarter, our value reason was flat, fort worth market was flat, but if you look at the other markets, Austin was up 5%, Corpus Christi up 6, Dallas up 7.5%, Houston was up 8%, San Antonio up 7%. I think you can see we had pretty good growth across the board in terms of our markets and our loan portfolio.

John, just to add one other comment on shared national credits, of the $49 million increase, 37 million were energy and 5 million was in the spirits business which is typical that that increases at year end around the holiday season, so that will come back down.

Okay. All right. Great. And just a little bit on the pipeline?

Overall our pipeline really looks good. For the year our calls were up 14%. Our pipeline is up 22% for the year. We booked new loan commitments. They were up 29% or 814 million compared to the previous year, and in the fourth quarter our new commitments were over a billion dollars. It is a new record for us in that regard, and that is in this competitive market as I have shared with you before. For the year we lost 661 million due to pricing. We lost 477 million due to structure. That's over a billion dollars that we stayed strong about keeping our standards related to pricing and structure, and I will tell you that it is harder to take prospects away from competition.

For those companies that we were trying to take, we lost $332 million stayed with the income, and so while we're out hustling, it is still harder. That's one of the reasons why I think it is so important that the processes that I talked about and the 25,000 plus prospects focusing on customers that again appreciate Frost relationship style banking. That is the way that we have addressed this very competitive market, and again staying by our standards of keeping quality strong in the structure of loans.

And then just around the loan growth, just given that you compete directly with some of the larger money center players that have exposure outside of this state, are you seeing an opportunity to add to your lending share as some of these larger players kind of turn off this [inaudible] as credits because they really hit their income statements across the U.S.?

I hope that happens as of 2008. As of recently it is still competitive, but certainly, logically we should have opportunities which is typical as you properly said, the larger banks have a tendency to open the [SPIGOT] wide open or shut it off, whereas our focus is always on quality relationships and is built around the people rather than that particular area.

Okay. All right. Thank you very much.

Thanks, John.

Your next question comes from the line of Brent Christ.

Good morning, guys.

Good morning.

A couple of questions. I appreciate the color on the home construction and retail strip center portfolios. Could you give us a little bit of a sense of kind of some of the underlying trends you're seeing, whether it be vacancy or rental rates in the strip center portfolio or just new home starts or absorption rates in the construction portfolio in terms of kind of early indicators from a credit perspective?

Let me take the last part. I think the keyword in regarding strip centers is what I said about watching. We really haven't seen the deterioration there. We are focused to be sure they have anchor tenants, and as you drive around the country and as I drive around the state and look, it is these centers that don't have a big anchor that we've stayed away from, and that's where I think the biggest risk is going to be. As far as any specifics, we haven't seen, thank goodness, any problems in that regard, and as I told you, we do require pre-leasing and guarantee, so I just think it is an area that you've got to watch.

Now, moving to home builders, we have really scrubbed our portfolio from one end to the other and just to give you some specifics, our total nonperformers were up from $26.3 million in the third quarter to $29.8 million in the fourth quarter. $4.4million of that was to home builders, the increase nonperformers were home builders. That's less than 1% of our exposure, so we're slicing the cheese pretty thin, but it I think it is important to watch that. And as we look at our potential problems, they increased from 14 million to 30 million, and there were $7 million to builders in that group, and $1.4 million to developers, but over 50%, 51% was to C&I. So, I think we're early in the cycle to start trying to identify a trend, but we want to be early in the cycle of identifying these problems and working them early.

We did foreclose I think on $2 million of a builder on January the 1st. That happened to be the first Tuesday, and we sold a couple of lots on the courthouse steps that day, and so I think when you look at these numbers, you're talking about very, very small percentage of our exposure, and we've scrubbed them all and to this date. I have told you all the facts I know, so I feel good about where we are, and as I mentioned, the job growth is still happening in Texas, and we still have good growth and we've been fortunate in Texas that we also have not seen increases in pricing.

As of the third quarter, we had not seen pricing decreases -- I am sorry. We had not seen decreases in the prices of housing, and we're coming off a period of time where -- because as I have said in other conference calls, this state is a flat state. There is lots of land. Very different than where we're seeing some of the problems, so I think we're in certainly the best market and -- but I also just by our nature we're going to really focus on it.

Our builders are builders that have built in Texas. They know the market. They typically have experience of over seven years, so it is not new to them. And there are some pockets foreclosure that I mentioned that we did on the first day of the year was really a small pocket, so don't come to any conclusion of big trends. And I think the key to it that I am most pleased, when you look at the total market is that the builders are focusing just like I am, and as we go into the spring, I think you will see less building. We're already seeing permits coming down, and so they'll be able to absorb this inventory. The latest numbers that I saw, I think the nation is running about 10 months in inventories, and Texas is about eight months. And so, I think we're in pretty good shape in that regard.

Got you.. And kind of -- in light of that backdrop, I mean certainly it sounds better than what we're hearing from banks and other markets, and you guys have kind of been matching your provision with charge-offs for the past couple of quarters I think, excluding the student lending relationship last quarter, and I have seen your role model--

We already had it in there.

Right. And I have seen --

We already provided to use the dormitory deal [inaudible]

And have seen the reserve come down a little bit. How are you guys kind of thinking about the provisioning relative to charge-offs going forward with still kind of a relatively positive outlook for credit quality?

Well, as you know, that's driven by formula, and we feel good about where our reserve is today, our allowance, and as you watched our history of providing. If we got a problem, we're going to address it, and so I think you have to just look at it each quarter and see where you are.

Let me make one correction on the inventories of existing home sales. Texas is six months, not eight months, and the U.S. is a little over ten months.

Okay.

From the latest statistics I have.

Well, thanks a lot. I will let some others hop on.

Thank you.

Your next question comes from the line of Andrea Jao.

Good morning, everyone.

Good morning, Andrea.

I was hoping to talk a bit more of the margin drivers, so I imagine the portion of loan book that isn't hedged, the yields are coming down, and are they coming down faster than let's say market funding? What does it imply for 2008? I imagine low cost deposits are still migrating to higher cost deposits. Do you see that going into 2008 again? What does it imply and do you have the ability to reinvest cash flows from your securities book at higher yields?

Andrea, this is Phil. You kind of laid a broad spectrum out there. I would just say that -- how do I do this? I think that you asked at one point in your question about other things equal not considering the interest rate swap position.

Yes.

And without that swap we would be in the same position we would be in which would be we'll fight reductions in interest rates really with four different weapons, and those weapons are, will loan growth continue to be there or would it not be there in the economy because higher loan growth could help your margin, too. Is there any pricing power in your deposit portfolio? Are you such compared to the different competitors in the marketplace that you'll be more able to recognize reductions that happen in the general market through the Fed in your deposit pricing portfolio?

The third thing is, are you able to add duration to your balance sheet because of any liquidity that you have got built up in there and drive powder that you have. And then, the fourth thing would be sort of a Non interest related item which is what kind of service charge revenue growth you might have that's above the norm because the earnings credit rate is now less than the commercial depositors. you have got to pay more because their balances don't pay for as much services. I think all of those things are in place for us still today. As you heard me say, we did invest at the end of last quarter $300 million in the Ginnie Mae portfolio, so I feel like we did take and use a lot of that drive powder, so it will be a little while before that builds up. I would say probably another six months at least before we see the liquidity position building up to that level again, and as you're seeing the loan growth is there, so that's a good thing. That's an alternate use of that liquidity.

So, the loan growth in fact has been there even though rates are declining. So, that's a positive for us as we look at the margin mix. I would say on the pricing power issue that is a tougher one. I would say we have definitely less pricing power than we had in the past, and that's partly because other banks I think are, if I could be honest, probably more concerned about funding given their balance sheet positioning and given what's been going on in the marketplace, and so we've seen some of those rates being particularly sticky with some competitors whereas with others we've seen them go down.

So, we are not so much on the highest rate in the market for the largest banks as we had been a lot of the time over the last few years. I would say I put us more in the middle of the pack now. And so, I would say we have got somewhat less pricing power than we used to have. I would say with regard to the interest rates that have recently come down, we certainly have not been able to recognize all of the reduction in general market rates in our deposit portfolio. I would say probably, we're able to cut about an around number of 70% of the general market declining rates. We are able to bring that to our investment portfolio -- excuse me, deposit portfolio at least in many of the broad categories of deposits. So that would be -- that would tend to imply a squeeze off the things equal, and then I think you're going to see some good deposit service charge growth because earnings credit rate is going down.

I know that is a little bit rambling, but that's where we stand on all of those four weapons that we use. We're employing all of them. We've employed them at various degrees already, and we're just very pleased to have in place the interest rates swap position because it does give us a fair amount of stability in our margin, and we're expecting stability in the margin in this year.

Andrea, just to add one intangible, through our history we have been fortunate to be applied to quality, and people that understand the weakness and the financial organizations and understand why they have to pay a higher price, appreciate the quality of our organization, and that is a benefit to us. Obviously, an intangible and hard to measure.

Great. And then, If I may follow up with the questions on seasonality in terms of the income and expenses, so insurance should be seasonably strong the first quarter and service charges pull in? Is that something we can expect?

I would say definitely insurance should be seasonably strong. That is our strongest quarter as I recall. On the service charges, I think you should see some growth there as earnings credit rates go down. If there was a negative in that, I think you typically see over drafts reduced a little bit after the end of the year, so that might be a little bit of -- put a little pressure on it, but that's a seasonal factor.

Okay. And how much of the seasonal must be expected on the expense side?

I would say that the thing that you typically see is a big jump up in the benefits costs area for us because we've got to meet that FICO level for payroll taxes, and those typically bump up. We had such great experience this year with the medical costs and workman's compensation. It is hard to predict that would still be there to the same level next year, and so I think you will see some increase there as well, maybe over and above what you typically might see. I am just -- I'm on the top of my head there, but I think you could probably see that trend. I think another thing to keep in mind next year is the FDIC assessment is kicking in for banks, and our credit will last through the first two quarters of next year. I think we estimate, and then we'll see that cost on FDIC kick in, so that's not going to be transparent in the third and fourth quarters. So that would be a factor that you would need to be aware of.

Okay. But that's not until the first half of '09?

No. That's in the second half of '08.

Okay. Perfect. Thank you so much.

You're welcome.

(Operator Instructions) Your next question is from the line of Martin [Jay] . Martin, your line

Hello.

Hello.

Hello.

Hi. Sorry about that. My question is on the swap. I just wonder because we have this cut, 75 basis points coming up maybe a little more, maybe a little less. I just wonder what's the swap structure where the structure, I mean the swap itself will accommodate this kind of a shock in terms of the movement of the rates?

Well, it is fairly straight forward math really. Under the swap structure we pay floating rate prime, and we receive 7.559%, and so that's the fixed side of it. So, any time rates go down -- and the swap is 1.2 billion, so any time you see prime go down, you can look at the -- that difference. You can basically compute that difference on a $1.2 billion position.

I see. So the size of each cut doesn't really matter?

No. It is very linear.

I see. Okay. Thanks.

Your next question comes from the line of Jefferson Harralson.

Hi. Thanks, guys. When does the swap expire?

It is a seven-year position. It started in October 23rd, so I think it is three months old today.

Okay. Thanks a lot.

(Operator Instructions) And at this time there are no further questions.

Okay. Thank you for your continued support. And we will continue to work hard to produce good results and continue to grow this company. We stand adjourned.

This does conclude today's Cullen/Frost Bankers fourth quarter earnings call. You may now disconnect.