First Interstate Bancsystem Inc (FIBK) 2016 Q2 法說會逐字稿

Good morning and welcome to the First Interstate BancSystem second-quarter 2016 earnings call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to [Kenzie Lawson]. Please go ahead.

Thanks, Bianca. Good morning. Thank you for joining us for our second-quarter earnings conference call. As we begin I would like to direct all listeners to the cautionary note regarding forward-looking statements and factors that could affect future results in our most recently filed Form 10-K.

Relevant factors that would cause actual results to differ materially from any forward-looking statements are listed in the earnings release and in our SEC filings. The Company does not intend to correct or update any of the forward-looking statements made today.

Joining us from management this morning are Kevin Riley, our Chief Executive Officer; Marcy Mutch, our Chief Financial Officer; and Steve Yose, our Chief Credit Officer, along with other members of our management team.

At this time I will turn the call over to Kevin Riley. Kevin?

Thanks, Kenzie. Good morning and thanks again to all of you for joining us on our call today.

We had a strong second quarter on both a GAAP and core earning basis. We reported earnings per share of $0.57 for the second quarter, which included a $3.8 million recovery due to a settlement on prior year's litigation. On a core earnings basis, excluding the impact of this recovery and other small nonrecurring items, we reported earnings per share of $0.52, which was an increase of 16% over the prior quarter and 6% over the prior year.

As we typically see, the second quarter is a seasonally strong period for the Company and we saw positive trends in loan production, fee income, and operating efficiencies. We generated 3.2% quarter-over-quarter loan growth with well-balanced contributions coming from nearly all of our lending areas. We saw particularly strong growth in our commercial real estate, construction, consumer, and agricultural portfolios.

The loan growth was fairly well dispersed across our Montana and South Dakota markets, while loan demand in our Wyoming markets remained more subdued due to the slowdown in the energy industry. Although there has been some broader concern in the banking industry related to auto lending, which makes up a significant portion of our consumer loan book, in agricultural lending we continue to see good performance in these portfolios. Through the first six months of the year our net charge-offs and our indirect auto loan lending portfolio has been 12 basis points of average outstanding loans.

We don't do any subprime auto lending, so we haven't seen the weaknesses that some of the newer, more aggressive entrants into the markets have seen due to their low underwriting criteria. Approximately 10% of our portfolio would fall into what we refer to as D paper or our lowest indirect credit tier. That being said, we continue to closely monitor new origination activity and the performance trends in the indirect portfolio to ensure that we maintain a strong credit quality that we have historically experienced.

With regard to agricultural lending, our ag portfolio has consistently been one of our better-performing commercial portfolios, averaging just 11 basis points of annual loss over the past three years. Our ag customers are very experienced and seasoned and have very solid balance sheets. They have ample cushion to absorb the decrease in cash flows caused by the decline in cattle and crop prices.

We've been through many cycles with our ag customers and they have proven to have a very low credit risk regardless of the strength in the broader commodity markets.

Turning to asset quality, we are going to have Steve Yose, our new Chief Credit Officer, talk a little later about our credit trends, but I want to take a minute and give you a quick update on oil and gas portfolios, as we have in the last few conference calls.

Energy continues to remain a headwind for a few of our markets. Quarterly we continue to actively manage down our exposure to energy market and our total outstanding loans to customers directly involved in the oil and gas industry declined again this quarter to $66 million as of June 30. That's down $3 million from the end of the prior quarter.

As a percentage of our total loan portfolio, oil and gas declined to just 1.2%, down from 1.4% at the end of 2015. The percentage of criticized loans in this portfolio increased to 62.9% of the portfolio, or $41 million, as of June 30. This is up a net $1 million from the prior quarter.

This is largely attributed to the conservative approach we have to managing this portfolio. Although oil prices have nearly doubled since the pricing deck we used in the first quarter, we have not yet made any upward adjustments in our collateral valuations. Until we develop a more confident -- more confidence in the sustainability of the recovery in oil prices, we will continue to use the more conservative valuations and remain appropriately reserved in this portfolio.

Outside of the energy space, other sectors in our economy continue to perform well, offsetting much of the decline in the energy sector and highlighting the economic diversity of our region. Strong growth has been seen in tourism industry as well as retail and professional services, namely consultants, lawyers, engineers, and architects. Tourism in our region remains strong thanks to the continued low fuel prices, with each of our national parks and monuments seeing record attendance this year. And for the first six months of this year, visitations at the Yellowstone Park alone are up 10% year-to-date.

Labor continues to also remain favorable in our region. In June, South Dakota had the nation's lowest unemployment rate of 2.7%, while Montana had the 17th lowest unemployment rate of 4.2%. Wyoming unemployment is 5.7% and continues to underperform to the national average.

The last thing I would like to mention is that we made a decision this quarter to sell our mortgage office in Sioux Falls. Many of you may recall that we went into this market on a trial basis in 2015 based on the availability of a talented residential mortgage team.

Over the past year and a half, the performance of this office hasn't warranted continued investment into this market. Fortunately, we had the opportunity to sell this office to another organization wanting to enter the Sioux Falls market. This transaction closed in mid-June.

So with those comments, I would like to turn the call over to Marci for a little more detail behind the numbers. Go ahead, Marci.

Thanks, Kevin, and good morning, everyone. As I walk through our financial results, unless otherwise noted, all of the prior-period comparisons will be with the first quarter of 2016.

I will begin with our income statement, but first I want to note a change in accounting treatment that took effect this quarter. Previously, we had recorded gross income attributable to deferred compensation plan assets in our non-interest income with a direct offset recorded in employee benefits. The offsetting entries had zero impact on our overall financial statements, but because swings in the market values of those assets could be so significant, it created a lot of noise, particularly when comparing prior-period performance.

In order to reduce the volatility within our non-interest income and benefits line items, beginning this quarter we are now recording income earned on deferred compensation plans in non-interest income, net of the employee benefits expense directly related to those earnings. While this change is really immaterial, it does take some of the noise out of the other income and employee benefit line item and allows a more consistent reflection of our efficiency ratio. We have revised all of the prior-period amounts and ratios to be consistent with the new accounting treatment.

Now let's look at our second-quarter financials. Net interest income decreased $270,000 on a linked-quarter basis. The decline was largely due a decrease in earning assets, which is attributable to the seasonal decline in deposits. We had a 1 basis point increase in our net interest margin on both a reported and core basis with the core net interest margin excluding accelerated discount accretion and recoveries of charged-off interest. The increase in our net interest margin was largely driven by the increase in our loan-to-deposit ratio.

Our non-interest income increased $8.9 million from last quarter, $3.8 million of which was due to a recovery related to prior litigation. We had a very strong quarter across all of our major fee-generating areas. On a year-over-year basis, we had 2.5% growth in payment services revenues, 6.9% growth in mortgage banking, 5.5% growth in wealth management, and 14.1% growth in deposit service charges.

Mortgage banking revenue was up $3.3 million, or 53%, from the prior quarter. Consistent with the increase we see in the second quarter, our overall mortgage production increased 41%. Most of the volume continues to come from new purchase activity, which accounted for approximately 67% of our mortgage production in the second quarter, up from 59% last quarter.

We also saw a 40 basis point increase from the prior quarter in the margin-on-loan sales into the secondary market. Despite the general decline in mortgage rates, we've been able to get relatively good pricing on our loan originations, which is helping us generate higher margins on our loan sales.

In aggregate, recurring non-interest income was up 6.1% year over year and 19% from the prior quarter. This reflects the continued progress of the initiatives we put into place last year to generate more non-interest income, as well as positive housing trends in our local markets, which is driving growth in our mortgage banking revenue. Our non-interest income is now up to more than 31% of our total recurring revenue and continues to increase the diversification of our revenue mix.

Our non-interest expense increased by $1.2 million from the prior quarter, primarily due to higher incentive compensation accruals. So on a core basis, our revenue growth exceeded our expense growth, resulting in an improvement in our efficiency ratio to 60.8% in the second quarter, down from 62.7% last quarter.

I also want to note that we recorded a provision for loan losses of $2.6 million in the second quarter, which Steve will discuss further with you in a few minutes. So let's move to the balance sheet.

As Kevin mentioned, total loans increased 3.2% from the end of the prior quarter. The increase was broad-based with all of our portfolios up during the quarter with the exception of the commercial portfolio, which was essentially flat.

While we typically see a seasonal increase in loans during the second quarter, we also see a seasonal outflow of deposits. This quarter our total deposits declined by 1.8%, compared to a 2.4% decline during the second quarter of last year. Year over year, however, deposits are up 2.6%. The decline this quarter was primarily in non-interest-bearing deposits.

Since we use our cash balances and proceeds from the investment portfolio to fund the deposit outflow, there was a decline in both asset categories during the second quarter. As seasonal deposit flow picks up in the second half of the year, we will redeploy some of the funds back into our more liquid assets. And then, finally, we had a small amount of activity in our stock repurchase program in the second quarter, repurchasing 28,000 shares of our common stock at a weighted average price of approximately $26.50.

With that, I will turn over to Steve Yose for a discussion of our credit trends.

Thanks, Marcy. Let me start off by saying that I am happy to be back home, so to speak. I grew up in Wyoming, although I never ventured very far from this area of the country.

I came to First Interstate from KeyBanc, where I was responsible for overseeing credit administration, credit approval, underwriting, portfolio management, and credit quality for the Rocky Mountain and Pacific regions. In that role, I covered rural markets and agribusiness, so to a large extent I was dealing with the same types of markets and customers that we see here at First Interstate.

My goal is to implement the best practices of a larger regional bank throughout all areas of credit administration in order to enhance our overall credit risk management while maintaining our community bank culture. With that in mind, I want to take a few minutes to walk through some enhancements we have begun making to our credit administration policies and procedures.

The first change relates to our credit approval process. Previously, we had characteristics of the type of credit approval guidelines that you see at a smaller community bank. The process had not been changed for several decades.

We have now implemented a new structure that provides joint accountability for both the line of business and credit administration and clearly outlines the first and second lines of defense. The new credit process better allows the front-line officers, as well as credit admin, to execute the risk management roles of the Board and our executive management. It will also make us more responsive and more efficient in credit decisions, as well as putting in place best practices relating to credit discipline. This process should serve us well as we continue to grow in the future.

The second change that we are implementing, which will occur over the next couple of quarters, is a refinement of our risk rating system. We will be expanding the number of risk ratings that we assign to non-criticized credits. This will provide us with greater granularity in our non-criticized credits and create better early warning indicators in our portfolio. Ultimately, this will enable us to identify and react more quickly to changing trends in the portfolio.

Finally, this quarter we did a deep dive into the subjective factors used in determining the allowance for loan loss. As a result, we made adjustments to the qualitative analysis portion of our allowance methodology.

Based on our post crisis loss history, our quantitative factors adequately provide for expected losses within the commercial and construction portfolios, allowing us to decrease objective factors attributable to these portfolios. At the same time, we have increased the qualitative allocation attributable to the energy sector so that we better captured the stress weaknesses that the energy sector could have on other portfolios besides those directly related to the energy sector.

There are number of other puts and takes in the changes across our subjective factors, which when combined with our assessment of specific loss allocations on loans, essentially netted out and the total allowance wasn't impacted in a material way. From an overall perspective, the changes we made to our policies and processes should strengthen our risk discipline and produce a more consistent approach to credit risk management.

Now taking a look at the trends in asset quality in the second quarter, both our non-performing assets and non-accrual loans increased by approximately $2 million from the end of the prior quarter. Most of the increase was driven by four commercial real estate loans to the hospitality sector that were placed on non-accrual status. The majority of these loans were recognized as classified loans in the prior quarters.

Our criticized loans increased by $12.5 million, primarily related to commercial and commercial real estate borrowers. Approximately 22% of the increase was related to loans in the energy sector.

Our net charge-offs this quarter were 16 basis points of total loans, or $2.1 million. There was no one portfolio that had an unusually high level of charge-offs this quarter compared with past history.

As Marcy mentioned, we recorded $2.6 million of provision expense, which brought our coverage of non-performing assets to 93% and our allowance to loan losses to 1.48% of total loans. This was a slight decrease from last quarter and, despite our quarterly loan growth and the increase in criticized loans, we feel confident that the long-term migration analysis considered in our quantitative factors, along with the appropriate increases on certain qualitative factors that I mentioned earlier, results in an adequate level of reserves for our portfolio and continues to put us in the top quartile of our peer group.

With that I will turn the call back over to Kevin.

Thanks, Steve and Marcy. Nice job. I'm going to wrap up with a few comments about our outlook.

So far, the year is pretty much tracking according to our expectations. We had a seasonally slow first quarter and a seasonally strong second quarter, as we typically see. If historical patterns hold, we will see a little softening in loan growth in the third quarter with additional growth between 1% and 2% for the remainder of the year. This puts us on pace for the mid-single-digit loan growth that we typically see.

We are scheduled to close our acquisition of Flathead Bank in mid-August, so this will provide an incremental source of loan growth. We expect to see a continuation of most of the positive trends we experienced in the second quarter, particularly with respect to revenue generation and operating efficiencies. With interest rates declining, we should continue to see strong production in our residential lending business.

We are executing well on our business development and efficiency initiatives and we think we are well-positioned for a good second half for 2016. Lastly, we continue to be on the lookout for acquisition opportunities, both within and adjacent to our current footprint.

We also believe we are doing a good job in focusing on the three priorities that we outlined at the beginning of the year: people, processes, and technology. The changes we are making in these areas across our organization will allow us to be scalable as we pursue growth opportunities, both organically and through acquisitions.

So with that we will open it up for questions.

(Operator Instructions) Jeff Rulis, D.A. Davidson.

Thanks, good morning. Do you have payoff activity balances for this quarter versus Q1? Or if you don't have the exact balances either the -- just kind of roughly did that soften quarter to quarter by any means?

Jeff, payoffs on what?

Loan payoff activity. Was that sort of equal quarter to quarter and then just had more production, therefore, a bigger net loan growth figure due to seasonality? Just trying to get that pay off; what was the kind of cannibalizing growth both Q1 and Q2?

We don't have that, but I don't think it was anything unusual this quarter. So it was mostly growth.

Safe to say it was flat?

Yes, it was flat to prior quarters.

All right. And then, Kevin, I think you mentioned last quarter on margin that you would expect -- this was on the Q1 call I guess -- in terms of margin levels to stay between 1 and 2 basis points of the Q1 level; that seemed to play out into Q2. Is that still your expectations as we get into the back half of the year here?

Yes. Quite frankly, it might come down a little bit in the third quarter as deposits come in and you deploy maybe a lower yielding asset. So I would still contend that we might have a 1 or 2 basis points up or down, depending on what happens in the quarter, but we don't see a real deterioration in asset yields right now.

All right. Then a last one on -- given the credit I guess analysis that you have -- with Steve's hiring that you've looked at things, does that change the provision levels? There's been some other events year to date that maybe have driven that a little higher. But I guess any expectations for the provision levels going forward? Is it within the range that we've seen in Q1 and Q2?

Probably more like we've seen in Q2 than Q1. The thing is -- [a little of] talk about maybe the increase in some of the criticized and classified as well as non-performing assets. When you bring a new -- I hope you all know we brought a new credit officer in and he is a little more discerning on the portfolio, so the slight increase that we saw are his chance to make his mark.

We don't anticipate this being a negative trend going forward. Steve has been through the whole portfolio, as well as our special assets group, so I think he is just putting his mark on the portfolio. I don't see that we have negative trends in our portfolio going forward.

Got you. Okay, thank you.

Jared Shaw, Wells Fargo Securities.

Good morning. Could you just give a little update on the hospitality exposure? We had the loans that moved in to non-performing this quarter. What's the total exposure to hospitality?

And then also, with the strong trends in tourism that you're talking about, what's your expectation for resolution of those loans? Should we expect to see any more negative migration from that category?

Again, those hospitality loans were criticized asset in the past. We just had a little bit of a heavier hand on looking at them this quarter. Again, I don't think there's a trend.

But what is the total of the hospitality portfolio? I'm looking at my team here. We don't have that number, but we can get back.

Again, let's talk about the trends of tourism. There's 10% growth that we've seen this year in tourism. It is on top of about a 20% growth that we saw last year, which was a record year, so tourism is quite strong in our markets.

So we don't anticipate hospitality really declining much. These are assets that have been kind of on the problem list for a while; we just moved them into non-accrual.

Okay, so those were definitely specific to those credits as opposed to the performance (multiple speakers)?

Overlying the trend. Yes, that's correct.

All right, thanks. And on the indirect auto, you continue to see growth in the balances and then just trying to back into what cash flow from that is, it seems like you're putting on maybe $80 million of production a quarter. Where you getting --? Are you continuing to expand the dealer network or are you going deeper at all into some of those maybe D credits?

How are you seeing the continued growth and where should we expect to see that cap out as a percentage of loans?

One, we're not going deeper into the credit. We are expanding maybe the dealer network a little bit, but mostly it's growth.

One thing that I'd like to mention before we get off indirect is that we have looked at indirect by the different markets and we've talked about in prior calls looking at indirect as kind of a sign that the economies might be weakening and some of our energy markets. What we actually have seen is that the delinquencies on indirect lending has actually come down since year-end. Year-end we kind of saw the higher level of delinquencies in those energy markets and all those energy markets that are impacted actually the delinquencies of indirect are actually decreasing.

Jared, we don't go outside of our footprint. Again, for those -- we go a little bit into Idaho, but for the most part we are in Montana, Wyoming, and South Dakota. And as far as the D paper, that's been a consistent -- the 10% Kevin quoted. It has been consistently there for the last five years.

Okay, I'm sorry; I didn't say D, I meant sort of B, like bravo, the second tier. Getting maybe just a broader base.

Actually, I think, what was it, 75% is in A paper and then it goes between B, C, and D, which are smaller percentages.

Okay, thanks. Then finally just as we look at the deposit inflows, where should we expect to see that going? Is that for the near term going into Fed funds or securities while you're waiting for loans or --? What does the cash flow picture look like on the new deposits coming in?

The new deposit will probably go into overnight and investment securities as we wait for loan growth.

Okay, thank you.

Matthew Forgotson, Sandler O'Neill.

Good morning, all. Wondering if you could give us a little color on your loan pipeline, the complexion, the rate, any particular geographies. Appreciate some color there.

Steve, do you want to do that?

At the moment, I think we see the most demand in our loan pipeline in Western Washington, both in Missoula and Bozeman markets.

Montana.

Western Montana.

Did I say Washington? Sorry. I relocated here from Washington, so I apologize. Western Montana markets.

A little bit less demand in Wyoming markets, as you would expect. We also see some increase in South Dakota. So some of our markets where the economy are all doing fairly well, we see pretty good growth and pipelines in those markets. And those related to energy sector are holding steady, I would say, from a pipeline standpoint.

Can you give us some color on the blended new origination yields relative to the portfolio yields?

The loans that we put on in the second quarter had a weighted average rate of about 4.76%.

Okay. So I guess, in light of the reclassification, Marcy, can you give us a sense -- is that $61 million to $62 million non-interest expense guidance still intact?

I think around $62 million is still intact, yes.

Okay. And then I guess just zooming out a little bit, would you mind giving us a sense of your take on Casper, Gillette, and Riverton; how those markets are holding in in light of the decline in the energy prices? And kind of what the balance of your footings are in those markets in the aggregate?

Hold on -- well, I will give you an overview. They are holding in there, like I said. We looked at our indirect portfolio and delinquencies there, so they are holding in there. I don't think there's much growth there, but we did -- as Steve mentioned earlier, we do -- we did add a more detailed qualitative factor on those markets. So do we have a total?

You know, it was 13% or 14% last quarter. I don't think it has changed significantly since then, but, Matt, I will follow-up with you on that.

Yes, 13% to 14% maybe and we will follow-up of the total portfolios in those markets.

The growth has been flat and, as Kevin mentioned, in indirect portfolio we are actually seeing delinquencies in those markets improve, as well as in our rest of our portfolio we are seeing it being stable. But with that we did take an increase in our allowance and our subjective factors. Probably an increase of $1.5 million looking at all portfolios, knowing that there could be an energy impact, but we've not seen significant impact yet [with that portfolio] outside of the energy sector.

I guess, lastly, can you just provide me with the balance for the unfunded direct oil and gas?

It's $26 million is the unfunded.

Thank you very much.

Matthew Clark, Piper Jaffray.

Good morning. Maybe first on expenses, just curious how much variable mortgage comp contributed to that $35 million this quarter. And as we think about the run rate going forward, your $62 million comment I assume excludes the pending acquisition, so I just also want to get an update on timing for that close.

First of all, the variable comp to mortgage origination actually gets netted against the mortgage revenue, so it really doesn't have much impact on compensation. Mostly the increase in compensation was an increase in incentive compensation accrual. Again, the mortgage business doesn't have much impact there.

What was the other part of the question?

Just thinking about the pending deal. It does sound like there is some expenses that are going to come out of that run rate, legacy (inaudible) going forward. But again obviously you have a pending acquisition, so I just wanted to make sure that we are all thinking about that.

Yes, the acquisition is going to close on August 12 and we should have most of the expenses out of that acquisition by the next time we talk, September 30. They should -- all the expenses associated that we are going to achieve will be done.

Okay. Then just in the margin, is there -- just thinking about the prepayment penalty income, curious if there was a significant amount of that at all relative to last quarter or not.

It's pretty much outlined right in the earnings release. It's pretty much balanced I think between quarter to quarter. Between the first and second quarter, pretty much we are close to being the same amount.

So it's 549 (inaudible).

Marcy is reading it. (multiple speakers)

Sorry, if it's in the release. You're not talking about accretion when you're talking about prepayment penalty income?

There's both. There's interest recovery as well as accretion and are both pretty much outlined right in the thing. And it's pretty flat when you take the two into account.

Sounds good. And can you update us on where the reserves stood on the energy portfolio, if it was 11.7% last quarter?

It's 11.3% this quarter.

Okay. And then in net charge-offs you mentioned that they were lumpy and related to kind of like a bucket of loans or pooled loans. Can you just provide some additional color there?

Just there was nothing unusual that was there. Last year we had more recoveries, so that's why it seemed a little bit higher this quarter.

It was pretty broad; there wasn't anyone big loan. It was pretty -- just you could say consistent with budget and other areas. There was nothing lumpy there.

Okay. And then just last one, the four commercial real estate properties, where are those located? And is that Wyoming-specific tied to coal? Just trying to get a better sense; it sounds like these loans have been troubled for a while.

Actually, one is in South Dakota -- it's across the border: one is in South Dakota, one is in Wyoming, in Cheyenne, and the other is in Montana. So it's kind of general in three -- we have one in each state of those four. And from an outstanding amount, it's about equal in each of the states.

And none of them are in the energy markets.

Great, thank you.

Jacque Chimera, KBW.

I know that you had mentioned that the gain-on-sale margin was up 40 basis points in the quarter. How much was it -- was the margin? Or what was the margin?

Hold on, I had that. It was 3.49%.

Okay. Is that something that you think could be sustainable, given where rates are today as we head into the quarter?

I think the thing is I think that it could be sustainable, because we have far more focus on our mortgage production and how we are managing our mortgage portfolio. So I believe that the enhanced focus, hopefully, will play out to keeping our margins better than they had been in the past.

Okay. And did MSR marks have a negative impact? I'm assuming the MSR marks are netted into that line item or are they captured somewhere else, in other income perhaps?

We did not have an MSR mark because we have -- go ahead, Marcy -- we would have a real excess in our MSR portfolio. So you want to go over those numbers, Marcy?

Yes, it's about $8 million. I think it's booked for around $15 million and the fair market value is $23 million.

Okay, so you haven't been hampered by that?

No.

No, not at all. We have a lot of cushion left.

Which is a good position to be in. Then just looking to wealth management, you had a nice quarter there as well. Maybe if you could just provide an update on -- I know this has been a strong focus in the past, just where you stand on it; kind of assets under management and how you see that going for the rest of the year.

Wealth management growth.

Wealth management growth, it will stay pretty steady. I think we are up about $155 million since the beginning of the year. We just continue to focus on growing assets under management and that would be pretty predictable kind of go-forward basis.

Okay. Do you have any other fee initiatives in play?

No, we just continue a lot of our -- we had great growth in our service charges. We focus -- we continue to focus as we talked about even last year and we continue to focus on -- part of it is just getting -- not that we are increasing our service charge revenue, but actually collecting some of the service charges that are actually due us.

We do -- are migrating more of our customers to opt in. We had an opt-in rate of about a little over 2% of our customers, which most banks more in the 50% level. We have increased the opt-in rate by 100%, we are up to now almost 5%, and we increased our revenue with regards to income over that by 100%. So we continue to talk to our customers about giving them the opportunity to opt in, so there's still some more room there.

We continue to focus on getting paid for the services that we provide. We're not out trying to increase our service charges, but just really to get paid by customers that in the past have enjoyed banking services for free.

How has reception been for that? I know it's been ongoing over the last several quarters, but I guess how are customers taking it?

Customers, I think once they are explained, understand it. There's some customers that believe that they should not pay anything, but overall we have not had a real concern about our customer base at all.

Again, as I mentioned before, our customers have been customers with us for a long, long time and they understand we are in the business of making money just like they are. So I think that overall they are understanding our position and we are not seeing any outflow of customers.

Okay, great. Thank you, that's helpful.

(Operator Instructions) We have no further questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Riley for any closing remarks.

As always, we welcome calls from our investors and analysts. Please reach out to us if you have any other further follow-up questions. Again, thanks for tuning in today and talk to you soon. Bye.

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