Donegal Group Inc (DGICB) 2008 Q3 法說會逐字稿

Good morning. My name is Dawn and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2008 Donegal Group 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. (Operator Instructions). Mr. Miller, you may begin your call.

Good morning and welcome to the Donegal Group earnings release conference call for the third quarter ended September 30, 2008. I am Jeff Miller, Senior Vice President and Chief Financial Officer, and I will begin the conference call by discussing the financial highlights and providing commentary on the quarterly financial results. I will then turn the call over to Don Nikolaus, President and Chief Executive Officer, for his comments on our quarterly results and perspective on current trends and development.

Certain statements made in our earnings release and in this conference call are forward-looking in nature and involve a number of risk and uncertainties. Please refer to our earnings release for more information about forward-looking statements.

Our press release issued this morning reported that net income for the third quarter of 2008 was $7.2 million, or $0.29 per share of Class A common stock on a diluted basis compared to $11.2 million or $0.45 per share of Class A common stock on a diluted basis for the third quarter of 2007.

Our third-quarter 2008 net income included $2.8 million of net realized investment losses, which accounted for $0.07 per share of Class A stock after tax so that our earnings per share exclusive of the realized losses were commonly referred to as operating earnings were $0.36 per share of our Class A stock.

While we're always disappointed about events that negatively impact earnings, the relatively limited impact of investment losses to our current quarterly results is a testament to our conservative investment philosophy. I will discuss the investment losses and our current investment strategy in more detail in a few minutes.

Our total revenues for the third quarter of 2008 increased 8.5% to $92.7 million, driven primarily by 13.6% growth in net premiums earned to $88.2 million. Our net premium writings increased 15.3% for the third quarter of 2008 with personal lines writings increasing 15.2% and commercial lines writings increasing 15.6%. The increases were primarily the result of a pooling change effective March 1, 2008 and as we discussed in the first two quarters of 2008, we also benefited from lower reinsurance rates, largely due to an increase in our per loss retention from $400,000 to $600,000. Removing the impact of the pooling increase and reinsurance savings, our direct writings for the quarter increased 3.8%, split fairly evenly between personal lines and commercial lines writings.

Our investment income for the quarter was virtually unchanged from the prior year quarter at $5.8 million. There were a number of factors that explain the slowdown in the growth of our investment income. One factor was the use of short-term investments to pay off $15.5 million of trust preferred subordinated debentures in August with the related decrease in investment income more than offset by interest expense savings.

Another factor was our decision to increase our short-term investment holdings and ship them into U.S. Treasury securities during the quarter, investing in a combination of U.S. Treasury money market funds and T-bills. We have chosen to follow a very conservative path until the market stabilizes. We reduced our preferred stock holdings from $8 million to $2.5 million and significantly reduced our common stock holdings as of September 30. As of the end of September, we had less than 2% of our investment portfolio in equity securities.

I will spend just a few minutes discussing our realized investment losses during the quarter. Before I do that, let me say that we believe $0.07 of realized losses, representing only about half a percentage point of our book value, appears quite modest in comparison to the adverse market impact announced by many of our peers.

Having said that, we did incur $2.8 million in pretax realized losses during the quarter and I will give you some details of where those losses were generated. The sale of a large portion of our equity securities during the quarter, including all of our holdings in Fannie Mae and Freddie Mac preferred stocks in late July and early August, resulted in realized gains of $1.1 million. We sold a portion of our agency debt as a defensive move prior to the government takeover of Fannie and Freddie, resulting in a realized loss of around $300,000.

We recorded losses of $1.1 million on equity securities held and managed in a limited investment partnership that we marked at fair value and we recorded other than temporary impairment charges of about $300,000 on a handful of equity securities that we continue to hold. So that gives you some additional information and detail on the investment portfolio and activity during the quarter.

Moving to underwriting results. Our third-quarter 2008 loss ratio was 60.4% compare to 52.8% that we reported for the third quarter of 2007. To put the current quarter in an appropriate context, I need to point out that we posted an exceptionally low loss ratio for the third quarter of 2007 when we enjoyed an absence of severe weather events and relatively low levels of claims severity. Also, our third-quarter 2008 loss ratio compares favorably to the ratios posted for the first two quarters of 2008 when severe weather events had a larger impact.

However, compared to the third quarter of 2007, we did experience an increase in weather-related losses, primarily as a result of the remnants of hurricane Ike that generated wind claims in Ohio and western Pennsylvania. Also contributing to the higher loss ratio year-over-year was slightly less favorable loss reserve development as compared to the third quarter of 2007.

As we analyzed the development data, we were pleased to see our prior accident year reserve development improve from the second quarter when our development was basically flat to approximately $1.1 million favorable development for the third quarter of 2008.

Our expense ratio was 33% for the third quarter of 2008 compared to 35% for the third quarter of 2007. This ratio was in line with the first half of the year and with the decrease, again, attributable to a higher premium base and lower underwriting-based incentive cost due to the less favorable underwriting results year-over-year.

Our combined ratio for the third quarter of 2008 was 93.8% compared to the very favorable 88.3% posted in the third quarter of 2007 with the increase directly reflecting the higher loss ratio in the current quarter. Our 93.8% combined ratio in the current quarter should compare very favorably to the industry composite combined ratio and represents a significant improvement over our results for the first half of the year.

Our net income for the nine months ended September 30, 2008 was $20.8 million, down from net income of $27.5 million for the first nine months of 2007. Earnings per share for the first nine months of 2008 were $0.83 per share of Class A common stock on a diluted basis compared to $1.10 for the first nine months of 2007 and our combined ratio for the nine-month period in 2008 was 95.9% compared to 91.5% for the year earlier period.

Our pre-FAS 115 book value per share as of September 30, 2008 was $14.24, reflecting a 6% increase over the $13.43 pre-FAS 115 book value one year earlier. Our Board of Directors declared dividends of $0.105 per share of our Class A common stock and $0.0925 per share of our Class B common stock, payable November 17 to stockholders of record as of the close of business on November 3.

As I conclude my comments, I am pleased to be able to say that Donegal Group continues to operate from a position of financial strength and we are continuing to manage both the investment and underwriting segments of our business in the conservative manner that you would expect of us based upon our historical reputation and results.

At this point, I will turn the call over to our President, Don Nikolaus, for his comments on the quarter. Don?

Thank you, Jeff and good morning, everyone. Welcome to our third-quarter earnings call. Jeff has given you a very detailed overview of our earnings, as well as details as it relates to our investment portfolio and I will not be repetitive as to that.

However, with regard to our earnings, we were quite pleased given all of what is going on in the financial markets and in our own industry that our operating earnings per share were $0.36 per share and that the impact of the investment write-downs and realized losses were contained to $0.07 per share.

We are also pleased that, in addition to the fact that because of the pooling agreement, we had a 15% increase in net premiums written that organic growth was actually 3.8% and we are pleased with that. We are necessarily not satisfied with it, but relative to the marketplace, we think that that is a relatively good number.

With regard to the Hurricane Ike event, certainly Jeff has told you the financial impact of it. It was certainly quite unusual for the remnants of a hurricane to find its way into the state of Ohio and Western PA. Needless to say, it did hit other states in which we do not do business. But what I think it points out is that, although that did occur and it is a substantial event for many carriers, I think that we were fortunate because of our book of business in those particular parts of those states, that it was contained and also that our reinsurance that is in place, both internally and externally, responded to that particular type of loss.

Just a few comments about the financial markets and the Donegal portfolio. I would like to also emphasize that we believe our portfolio is well-positioned. Needless to say, in the months of August, September and October, we have certainly been focused on making sure that we are well-positioned and it is appropriately being managed.

As you can see from the statistics that Jeff quoted, we elected to reduce our equity exposures and to have a very strong liquidity that we chose to invest in Treasury. If you may remember in the two prior quarterly calls, I have made reference to an emphasis on balance sheet strength and certainly in the third quarter with all that is going on in the financial marketplace that it certainly has been emphasized that strong capitalization and balance sheet strength are essential in these kind of times in which we are living.

I think we all recognize that the travail in the financial markets are reflecting the deleveraging by major financial institutions of their balance sheets and that risk and the tolerance for risk will, in our judgment, change materially. We think that this will impact the insurance cycle and the change in the tolerance for risk I think there will be far lower tolerance for risk in financial institutions and we are certainly a form of a financial institution, we think this could have an impact on the insurance cycle and potentially hasten the end of the soft cycle.

More income for companies will need to be generated from underwriting income and I think that this underscores what we have had for some time as our philosophy that underwriting income needs to be very much a focus because, at the end of the day, that is the primary source of how an insurance company generates its income and investment income is certainly a major element, but without underwriting income, investment income is not going to carry the day.

Having said all that about the cycle, we continue to see, at least at this point in time, that the marketplace continues to be quite competitive. Although we do see a significant number of carriers that have a presence in the personal lines space to be increasing rate as we had previously announced at the end of the second quarter when we had our call in July that we indicated at that point in time, we had made 10 personal lines rate filings for various products and in various states. We have made several since then and we are currently reviewing all states, all lines for potential additional rate action.

We are pleased to tell you that we have a continued focus on growing our distribution system. In the third quarter, we appointed 56 new agencies. That brings the total to 194 for the year. We continue -- as somewhat referred to earlier -- we continue to focus very much on premium and rate adequacy and discipline and underwriting, if anything. We are looking at our underwriting requirements and our underwriting discipline to see whether there is any further strengthening of what has already, we believe, is a disciplined approach.

Our thinking is that this is a time to be building for the future, both through building for the distribution system, but also positioning ourselves to be able to be opportunistic. We think that companies that are well-capitalized, that are not damaged by any of what is going on, are not damaged in any material way, that those companies, and we want Donegal to be among them, will have opportunities to grow their marketshare. And certainly we need to be in a position to respond to a potentially softening economy, including strict expense control, which we are in the process of doing a very thorough review.

In the acquisitions arena, we are pleased to report that we are making good progress on the Sheboygan Falls Mutual Insurance Company demutualization. At its completion, the public company would be acquiring that from Donegal Mutual Insurance Company. We continue to reach out and to participate in discussions of other acquisition opportunities and we continue to believe that those opportunities will expand going forward. At this point, I will turn it back to Jeff and we will do the usual Q&A.

All right, thank you, Don. Dawn, if you would open the lines for questions, please.

(Operator Instructions). Joseph DeMarino, Piper Jaffray.

Thank you and good morning. So it sounds like you had organic net premium growth of 3.8%.

Correct.

Excluding the reinsurance and pooling arrangements. What do you attribute the growth to? We thought it was pretty good relative to some of your peers who have reported. How have you been able to increase top line here?

Well, I think that -- this is Don Nikolaus. I think that it is nothing new that we did in the third quarter. I think that it is a combination of things. As we have said in prior earnings calls that we have had a significant focus on rolling out all of our technology to our various states. We have seen an enhanced use of that technology over time. We think that has been helpful.

We also took some rate increases in some personal lines in a few states. We have certainly stepped up our sales and marketing efforts and also as we have indicated, we have appointed 194 agencies and early in the year, the first two quarters, we appointed over 135 agencies. And we have seen that, over time, that new agencies can be a great source of new premiums. So I think it is a combination of things, Joe.

Okay. That's helpful. So of the $7.5 million, how does that break out between the pooling arrangement and the increased retention?

The $7.5 million is actually the pooling change itself. Then we would have saved another $2.4 million in reinsurance savings from the increased retention and lower rates and then the balance would be organic growth.

Got it. And then going forward, how should we think about future impacts from the changes in the pooling arrangement? What is the best way to incorporate that into our thoughts here?

We would expect a similar impact in the fourth quarter as what we have seen in the first -- well, actually the third quarter and the second quarter, which was between $7.5 million to $8 million. Generally, the writings are a little bit slower in the fourth quarter just because of the way the timing of our writing bids. So I would expect it to be somewhere in the $7 million to $7.5 million range as far as the fourth-quarter impact. And then in the first quarter of 2009, we will have two months of impact there as well.

Okay, thanks. And then for the favorable development, I think 1.1 you had, $1.1 million in the quarter.

That is correct.

Do you have a breakout of that by accident year or line or both?

I do have some details. The majority of that would have come from the 2006 to 2003 -- 2003 to 2006 accident years. 2007 has improved, although it is still not showing favorable development and that is typical that the most recent accident year would take some longer time to develop favorably. But it is fairly evenly split between the years 2003 through 2006.

As far as lines of business, it is workers' comp, it is commercial multi-peril, as well as the personal and auto liability. So generally, it is the casualty lines and where you would see the majority of the reserves and therefore, the majority of the favorable development.

Got it. Thanks. And one last question. On some of the rates, rate filing increases that you've seen, I guess most of those have been in the personal side. Any indication of firming or hardening of rates in commercial business?

I can't say that we have seen any firming of commercial rates at this point, but we also can say we don't think it has gotten anymore intense either, sort of plateaued.

Okay, well, that's good news. That's it. Thank you.

Michael Phillips, Stifel Nicolaus.

Thanks, good morning, everybody. First question is kind of a two-parter, just two line-specific questions. Can you talk about what you are seeing for workers' comp in terms of loss costs and rates there for workers' comp? And then secondly on homeowners, what you have done in terms of activity, specifically in homeowners?

All right, well, in workers' comp, we are seeing that the comp rating bureaus of some states have actually reduced loss costs. What we have tried to do, and this is regulatorily permissible, we have tried to soften that by raising our loss cost multipliers because every company has to establish its loss cost multipliers that you then apply to the loss costs developed by the rating bureaus. And we have, in most states, we have multiple work comp programs, one being -- having different underwriting criteria, different sized premiums and maybe a little more competitive than one of the other offerings that we have. So we have tried to deal with it in that way.

In the homeowners arena, we have -- referring back to my discussions about rate filings -- we have made a number of homeowner rate increase filings and would anticipate having a number of additional ones because if you look at the weather events that occurred in the first quarter, second quarter and now third quarter, they have their impact doing primarily property-type of coverages and homeowners is one of the big ones. So we think that -- within reason, we think that there will be the opportunity to take some rate.

I guess on homeowners, even if you back out the cats, if we look at industry data, even on a state-by-state basis, Pennsylvania, Maryland, Virginia, some of your larger states, we are seeing trends that are near double digits, 10%, '11%, 12% maybe around that area for homeowners loss costs, again, excluding cats. So there's kind of concern that rates -- yes, they need to tick up, but kind of the question is the magnitude of that. So hopefully you are keeping pace with that trend we are seeing. Maybe you're not seeing it in your book, but overall, that is kind of what we are seeing. Tell me if you have any different views on that.

Actually, in some of the states that you mentioned, we are not necessarily seeing that, but we are seeing it in states like that were more weather-impacted, states like Ohio, Georgia, Tennessee and a little bit in North Carolina. But we are reviewing all of the states because, needless to say, you have to have premium to be able to respond to even cat events. So we are reviewing them all and making sure that, going forward -- we want to retain it as a quite profitable line of business. It has been over the last three to four plus years and we want to keep it in that profitable category.

Okay, thanks. A question on your agency appointment. I know this comes up a lot. I am not going to ask about when you think you will see kind of a moving of the needle for your new agency appointments. I think that gets asked quite a bit. But what I am curious about is kind of just a nature of the agency you appoint in terms of location, size, producers they have, other carriers on their sheets. Are they small rural guys with one or two other carriers or are they more suburban with maybe three, four, five or six or that kind of thing, just overall kind of characteristics of the agencies?

Sure. Candidly, it would vary from state to state. There would certainly be, in some of the states, there would be rural agents. There would be small town and small city agencies, but in some of the markets, in Virginia, Pennsylvania, Georgia, some of those marketplaces, there would be larger agencies that both have a footprint in commercial and personal lines. They all would certainly have other carriers. It is certainly a time when -- because there is a soft market -- that you have to make sure in agency appointments that there is a good reason for you to make that appointment. And we require three-year loss ratios from all of the other carriers in an agency because we want to make sure that we are not making an agency appointment where there are loss ratio issues and that that is the reason an agency is willing to be appointed. So we have not let up on the vetting process of how we get agents and how they qualify. But depending upon the state, you could have a small mom-and-pop agency to appointing an agency that is a $10 million or $20 million agency.

Okay, thanks, Don, that was very helpful. Last one for me is a small one, but just curious. The deal you did a bit ago on the Conestoga title I thought was unique and just curious why and what your plans are with that.

Well, now, so that we are clear, that is owned by Donegal Mutual Insurance Company.

Yes, I understand.

And the public company has no involvement in it. Well, some years ago, going back eight, ten years ago, we had discussions with the owners of Conestoga. It is a part of the insurance arena that, as a company, we have had some interest over time and this opportunity presented itself and we think that we can make it a profitable part of our mix of business. But as I said, at this point in time, the public company doesn't have any involvement in it. As you know, the title industry is clearly affected by the housing market and has a downcycle. We felt that was an opportunistic time to enter into that business because it would be an opportunity to understand it and build on it and certainly at a time where the pricing as a buyer coming in would be rational.

Makes perfect sense. Thanks, guys. That's all I have for now.

Dan Schlemmer, FPK.

Hi, good morning. A couple of quick numbers questions. I just want to make sure I got a few of these squared away. The 3.8% organic growth, do you have any breakout on that exposure versus rate?

That I do not have at my fingertips, although the majority of that is going to be exposure-related. Some of the personal lines increase would be rate-related, but most of that hasn't really baked its way into the system yet.

Okay. And then on the loss ratio, another numbers question and it is my last numbers question, I promise. But it is -- the 52.8% versus 60.4%, the year-over-year change in loss ratio, a couple different pieces baked into there, right? Year-over-year, you had less favorable development I think you said and then also you had larger cat losses or I guess you just called it -- you just said wind losses. But do you have a -- if I'm basically trying to understand the year-over-year impact in loss trend and pricing trend -- in other words, basically an accident quarter non-cat loss ratio. Do you have that or can you at least give us a little bit of color around how you view the year-over -ear change just from loss trend and pricing trend?

I can give you some indications there as to where the difference in the loss is. I guess I looked at it a little bit differently. I was looking at it on a pure dollar basis as to how to take it. What was the cause of the increase in the losses from September -- the third quarter of 2007 versus the third quarter of 2008? There is a number of things that impact that. There is -- of course, we mentioned the development. In the third quarter of 2007, we had favorable development that exceeded the favorable development in the third quarter by about $1.7 million. Storm losses, of course, in the third quarter of 2008 were higher, somewhere in the $1.5 million range. The pooling change, of course, is adding to the dollars, not necessarily to the ratio. And then just non-weather-related losses, we did see some modest upticks in severity in some of the lines compared to the last third quarter when, as I said before, we had a very favorable quarter from a loss experience standpoint.

So we would have experienced some fires in some of our regions that caused some of the severity to go up, as well as some of the liability lines where we saw some modest severity upticks. But I think that would be the explanation that I could give you without going into a lot of detail as to the difference in the two quarters.

Very helpful. Thank you. Getting away from bogging down in numbers, A.M. Best affirmed the ratings this quarter and I am just curious -- other competitors have not been as fortunate, some well-publicized, very large carriers, but also some smaller carriers and just wondering if you are seeing that impact of the competitive landscape, either whether you have seen that or whether you anticipate that on a go-forward?

Well, I think that your question is a very timely one, that those companies that have been impacted by a number of circumstances that may have caused or will cause their ratings to have some deterioration. Needless to say, in the overall scope of things, that should provide opportunities for well-capitalized, well-rated, well-managed companies with a good strategy. And we certainly don't wish anyone else ill, but that certainly we think that there will be business opportunities. And one of the things that we are committed to do, just as we did with our portfolio, we want to make sure that we are well-positioned to take advantage of those opportunities, which we think will be forthcoming.

Great. And then last question and somewhat on the same note as we look at ratings, creating opportunities and of course, troubles on the balance sheet, which is pretty tied to ratings, but not always. You see a lot of companies that are running into trouble and what would be your appetite for doing some kind of transaction with a company that has run into those kinds of problems or how do you think about that?

We have never shied away from looking at an acquisition opportunity, even if it was a company that had some difficulty, because what we are looking for is whether the fundamentals of a book of business are sound or whether they can be shaped into consistency with what we would like to see. So we would be certainly open to looking at organizations that may have, unfortunately for them, have had some difficulties, whether it be on the investment side or whether it be on the underwriting side. And I believe that the way we have done acquisitions in the past, we have a seasoned team that know what to look for and also to come up with a plan as to how we are going to fix it.

Very helpful. Thank you.

Gerry Heffernan, Lord, Abbett & Co.

Good morning, Don. In regards to the personal lines, are you seeing any movement in policy changes, movement to increased deductibles to lower annual payments or the reverse because people don't want to be on the hook for deductibles of that size? Do you see the personal auto policyholder making any changes to the way they are doing business?

I can say, Gerry, that we have not seen any of those trends at this point. That isn't to say that they won't show up at some point in time, but there are no indications that we have seen of that kind of activity.

Okay. In regards to looking at possible rate increases in the personal lines then, what is enabling the -- what is enabling you to get this through the market? Why -- it is still a very competitive set. Are that many of your competitors looking to rate increases also?

Well, from what we have seen is that some of the major personal lines carriers have put through. Now, they are modest increases, they are not double digits, but they are increases and we would be looking to do the same and we are talking about increases anywhere between 4% and 7%. Now, that depends upon the line of business, depends upon the state. Needless to say, we would not want to be doing that if we were the only carrier out there attempting that.

And you also have to be selective. As you know, there are rating territories in each state and that if you have actuarial justification, you might leave one rating territory alone or a very modest increase in a certain rating territory where you have had some very sweet spots from a profitability standpoint and there can be other territories where you have not had the same experience.

You also have the opportunity of taking a look at your decision trees in the black box underwriting and seeing whether there are opportunities where your actuarial people are hopefully pointing out to you where there are some areas where you either can increase your amount of business in a certain very profitable class or profile of applicant or where you might need more premium on a certain particular profile of business. And that is all regulatorily permissible, provided that you comply with all the filing requirements.

So it is more than just a historic approach to saying, oh, we are going to have an across-the-board increase. Much of it you try to fine-tune so that you maximize your profitability where it is profitable and you increase your rate where you believe that it is appropriate, plus you add in some element for overall increases.

Okay. Correct me if I'm wrong, over the years, through cycles, the very large regional or large national players that you compete against on the commercial side, when things are bad, they tend to pull out of some of the smaller rural areas and when things are good and they have exhausted their ability to penetrate in their larger markets, they then start to push out into your area. Are you seeing any of this -- am I correct in that thought and are you seeing any of the retraction at this time?

You are correct that that historically is how it has played out, that when things get tougher, the larger companies sort of reel in their appetite for smaller geographic areas and also smaller lines of business. We hope that that materializes. I don't know that, at this point, that we have seen on a lot of that, but you are exactly right. That is what will happen with many of the large carriers because they don't have the same consistency, at least generally, that regional companies seem to try to have. So I think that could develop, but we, at this point, haven't seen that occurring.

Okay. Then on to the 800 pound gorilla here. What about AIG and any effects that it is having in the market and since the answer is probably don't see a whole lot at this point, if you would talk about what you could envision happening one, two years out.

Well, a couple of different aspects of the AIG. First of all, we did not compete in any of the AIG space, except where they were writing direct personal auto. Most of their other insurance operations are classes of business that we generally would not compete in. So we would not have a direct benefit in terms of being able to write business that might be looking for a new home that were AIG business.

But it is clear from those that we talked to in the reinsurance industry and just hearing feedback in various insurance publications that there will be, in some markets, there will be a constriction of the capacity because of some of the things that have occurred with regard to AIG. There are even those that believe -- I think one of the large reinsurers, I think Munich came out and said that all of this is going to immediately cause the end of the soft market.

So we would agree that all the AIG will have some collateral effect. It sort of goes back to my comment about the tolerance for risk and you can all make your own assessment of what went wrong at AIG, but you could certainly -- one of those assessments could be that there was not a full understanding of the risk that was being assumed. And we think that that will ricochet in our industry where enterprise risk management will be much more an area of focus. I think that rating agencies will want to be assured that there is a strenuous enterprise risk management process in place and the more focus there is on enterprise risk management in an insurance company, I think the more there will be a return to a focus on underwriting discipline and recognizing that you have to make strong profits in underwriting. And I think that will bode well for the cycle and I think it will bode well for regional carriers such as ourselves.

Okay, that's great. Thank you very much.

Joseph DeMarino, Piper Jaffray.

Thanks. Just two follow-ups, two housekeeping items. I apologize if you already covered them. What was your statutory surplus number in the quarter and then did you buy back any shares during the quarter?

Sure, Joe. The statutory surplus as of the end of the quarter was 326.1 million and we did purchase 4000 shares during the quarter. Obviously, that is a small number of shares, but our focus during the quarter was on preservation of capital. And we did pay off the trust preferreds. That was a usage of capital during the quarter. 4000 shares at $18 a share was the number that you are asking for.

Great. Thanks. That's it.

There are no further questions, sir.

Okay, we want to thank everyone for their participation in the call and for listening in on the webcast and wish everyone a good day.

Thank you for participating --

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