OceanFirst Financial Corp (OCFC) 2016 Q4 法說會逐字稿

Good morning and welcome to the OceanFirst Financial Corp. earnings conference call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would like to turn the conference over to Jill Hewitt. Please go ahead.

Thank you, Gary. Good morning and thank you all for joining us. I'm Jill Hewitt, Senior Vice President and Investor Relations Officer at OceanFirst Financial Corp. We will begin this morning's call with our forward-looking statement disclosure.

Please remember that many of our remarks today contain forward-looking statements based on current expectations. Refer to our press release and other public filings, including the risk factors in our 10-K, where you will find factors that could cause actual results to differ materially from these forward-looking statements.

Thank you. And now I will turn the call over to our host this morning, Chief Executive Officer Christopher Maher.

Thank you, Jill. Good morning to all who have been able to join our fourth-quarter 2016 earnings conference call today. This morning, I'm joined by our Chief Financial Officer Mike Fitzpatrick; Chief Administrative Officer Joe Iantosca; and Chief Banking Officer Joe Lebel.

As always, we appreciate your interest in our performance and are pleased to be able to discuss our operating results with you. As been our practice, we will highlight a few key items and add some color to the results posted for the quarter. And then we look forward to taking your questions.

As part of our discussion this morning, I will ask Joe Iantosca to comment regarding the systems integration and branch consolidations we are executing in relation to our recent acquisitions. Joe Lebel will be available to discuss any questions regarding our organic growth activities during the Q&A portion of the call.

In terms of financial results for the third quarter, diluted earnings per share were $0.22. Quarterly reported earnings were impacted by merger-related expenses of $0.16 or $4.5 million after-tax, resulting in core earnings per share of $0.38. Core earnings per share increased 15% versus the prior year, largely driven by the Cape and Ocean Shore acquisitions.

During the quarter, the final systems integration and rebranding were completed for the Cape acquisition, putting the Bank in a position to fully realize the efficiencies of the Cape acquisition in the first quarter of 2017. In addition, the Ocean Shore acquisition was completed on November 30 and is tracking towards a May 2017 systems integration and branch consolidation, putting the Bank in a position to fully realize the efficiencies of the Ocean Shore acquisition in the third quarter of 2017.

Regarding capital management for the quarter, the Board declared a cash dividend of $0.15, the Company's 80th consecutive quarterly cash dividend, reflecting a consistent focus on total shareholder returns over our now 20-year history as a public company. The bank's tangible leverage ratio following the Ocean Shore closing totaled 8.30%, remaining within our targeted range.

The Bank's capital level remained within our targeted range even after the impact of the Ocean Shore acquisition. This enabled the Company to repurchased 90,000 shares at an average price of $20.86 during the fourth quarter. Share repurchases are always subject to tangible book value dilution limits and rational earnback horizons.

Given what appears to be a more favorable environment for economic growth and the Company's evaluation criteria, additional share repurchases are not anticipated at the present time. As of September 30, the Company had 154,804 shares available for repurchase. At year-end, tangible book value per share totaled $12.95, a modest 5% decrease as compared to the prior year, evidencing the price discipline employed in the two whole-bank acquisitions completed in the past year.

The acquisitions, while modestly dilutive to tangible book value, drove a 15% increase in core earnings per share when comparing the fourth quarter of 2017 to the fourth quarter of 2016 -- I'm sorry, the fourth quarter of 2016 to the fourth quarter of 2015.

As the Bank has grown quickly, a few comments regarding shifting responsibility among the senior officer team are appropriate. Those of you that have tuned into these calls for some time are acquainted with both Joe Lebel and Joe Iantosca.

Given the growth of the Bank, we have shifted responsibilities to allow us to effectively manage a materially larger and more geographically diverse back. Joe Lebel has assumed the newly created role of Chief Banking Officer effective January 1.

In this role, he will manage our now two regions, Central and Southern New Jersey, each of which have their own regional president. In addition, he continues to be responsible for marketing and all lending functions, including commercial, residential, and consumer.

Joe Iantosca's role has also been expanded to include not only information technology and operations, but now also real estate management, a dynamic and strategically important function over the next few years.

We have also expanded our risk management and compliance functions, all of which now report to General Counsel Steven Tsimbinos. In this role, Steve reports directly to the Board of Directors and will manage all legal, enterprise risk, audit, and compliance functions throughout the Bank.

Turning to organic growth and the overall operating environment, indications are positive for conditions in 2017. First, and perhaps most importantly, core deposit funding remains strong, evidencing both measurable organic growth and efficient pricing.

Organic growth of core deposits totaled $170 million for the year, while the cost of deposits remained just 26 basis points. This organic growth, coupled with the stellar retention of acquired deposits, evidences a franchise capable of funding organic loan growth. Our focus on commercial banking is driving deposit growth and should produce relationships less sensitive to price pressure in a rising interest rate environment.

In addition to core deposit growth, the fourth quarter was a strong quarter for lending. Excluding the Ocean Shore transaction, the total loan portfolio was flat, as strong loan originations were offset by the credit risk mitigation efforts related to the Cape portfolio, which included both loan sales and a re-risk rating of the commercial book.

However, loan origination improved, with quarterly loan originations of $179 million, a 55% increase over the prior quarter and a 41% increase over the fourth quarter of 2015. In addition, the year-end total loan pipeline stood at $144 million, our highest on record.

One important note about interest rates and our pipeline reporting. Commercial loans in our pipeline are attributed and average yield is linked to the Treasury curve until final terms are set, typically a few weeks prior to closing. As a result, the weighted average yield of the $99 million commercial loan pipeline is stated at 4.82%.

While yields have certainly improved, Treasury rates have decreased slightly since the year-end reporting date. And in a period of rising interest rates, we expect to fix loan terms at a more competitive level prior to closing. So in this interest rate environment, the actual yields to be expected from the commercial loan pipeline may be somewhat lower than the pipeline weighted average yield.

The discussion of market rates raises another important point. Many experts are calling for monetary policy to tighten further in 2017. The consensus appears to indicate 3 25-basis-point increases over the course of 2017.

Considering this outlook, our strategy will be to methodically deploy our excess cash position and continuing cash flows over a period of several quarters, depending upon market conditions. The excess liquidity position certainly depresses current earnings, but we believe this approach will balance current-period profitability with the opportunity to strengthen core margins over time.

Lending conditions became more favorable in the second half of 2016 and we are not in a rush to fill the loan portfolio in any one quarter. Our strategy calls for organic core deposit growth, building the loan portfolio, and a sharp focus on operating expense management.

On the expense management side, it is imperative that we react to changing customer preferences. This requires that we continue to invest in our relationship banking model, which is critical to both commercial and retail clients.

This means more commercial bankers and more retail bankers. Our commercial bankers will increasingly find themselves out on the road at client sites, and our retail bankers will increasingly find themselves at the end of a telephone line, chat window, video link, or remote teller machine rather than across a desk or through a drive-up window.

In response to this, we will be consolidating retail branches to fund an expansion in commercial banking, continued hiring and technological investments in direct banking, and of course, improvements to profitability and efficiency for our shareholders.

Joe Iantosca will walk you through the details of our plans in this area.

Thanks, Chris. The systems conversion and branch rebranding of Cape occurred as planned on October 17, 2016. As expected, the successful completion of this project resulted in our ability to recognize the next phase of expense reductions from Cape as of the end of the fourth quarter and with minimal disruption to our customers. Along with us introducing the OceanFirst brand throughout southern New Jersey, we invested in the rolling out of the refreshed brand image throughout the entire Bank.

Looking at the Ocean Shore transaction, the initial round of cost savings was realized in the fourth quarter with the closing of the transaction. Additional cost savings will be realized when the systems and branch integrations are completed. In this case, that's planned for the weekend of May 20.

As you likely recall, there are several branches of Ocean City Home Bank that are very close to legacy Cape branches of the Bank. The merger model for the transaction assumed that some of these branches would be consolidated.

The team of senior officers from the Bank, including legacy Cape and Ocean City Home Bank officers, have extensively analyzed the branches in the southern region. This resulted in the Board approving the elimination of 10 branches in the southern region, effective with the systems integration in May.

Of these 10 branches, 4 are less than 1 mile apart, 8 are less than 3 miles apart, and the furthest distance between consolidated branches is in 1 case approximately 5 miles. The decision to implement these consolidations considered many factors in addition to simple branch proximity, including the Bank's ability to continue to serve our customers in the affected markets and the industrywide as well as our own observation of the significant reduction in branch teller transactions in favor of self-service options.

This is evidenced by the fact that in the month of December, our customers performed 21,000 deposits totaling some $180 million through our self-service channels. That's 11% of the transaction volume and 23% of the transaction value of customer-presented deposits for the entire Bank. The financial impact of these branch consolidations is in line with the Ocean Shore merger assumptions and will reduce retail branch expenses by $3.6 million per annum while not increasing the anticipated attrition from the merger.

Our expectation of customer retention is high, given our experience with similar consolidations in December of 2013. At that time, we ensured the receiving branch was appropriately staffed, including familiar faces from the branch being closed.

We employed very high-touch communication methods and provided incentives so the customers could come into their new branch location. This not only prevented attrition, it resulted in an increase in the deposits associated with the closed branch.

With those same considerations in mind, the Bank is evaluating branches in the central region, the legacy OceanFirst footprint, and expects to be in a position to consolidate at least five additional branches later in 2017. The Bank plans to reinvest a significant portion of the expense savings from these additional branch consolidations and to staff in our commercial lending business and our customer care groups as well as investments to further enhance our digital banking services.

Another area of focus for efficiency is our back-office operations. As a result of the Cape and Ocean Shore acquisitions, the Bank currently has back-office staff housed in 13 different locations across Central and Southern New Jersey. This situation is costly, not only in the real estate associated expenses, but, more importantly, in the added effort and expense it takes to ensure our vision is executed every day by every employee and in a consistent manner.

To address this situation, the Bank anticipates consolidating all functions that do not have in-person customer contact responsibility primarily in two facilities. The locations for these sites is not yet finalized, but the locations will be optimized to be convenient for a large portion of our existing staff while offering a competitive work environment and in a highly efficient manner.

As we evaluate our options, the Bank expects to submit a nonbinding application under the Grow NJ program, which offers companies incentives to locate in several targeted redevelopment areas in the state. Depending upon the outcome of that process and the other sites being considered, we would target a back-office consolidation to be completed at some point over the next 18 to 36 months, leading to additional efficiencies.

Recognizing how critical the management of bank-owned-and-operated premises will be to the future profitability of our Company and to retail banks as a whole, we recruited a seasoned real estate professional who is an attorney and has managed a real estate portfolio of 25 million square feet. Noel is working closely with me to focus on maximizing efficiency in our real estate activities.

We realize that the impact and the timing of these acquisitions and resulting conversions, branch consolidations, and back-office changes make the expense line much more challenging to evaluate. But we are well on the way to achieving the [mild] acquisition efficiencies in 2017 and expect that we can even see additional efficiency gains in 2018 and beyond.

With that, I'll turn the call back over to Chris.

Thanks, Joe. At this point, Joe, Mike, Joe, and I would be pleased to take questions this morning.

(Operator Instructions) David Bishop, FIG Partners.

Chris, excess liquidity, as you all define it, where would you peg that now versus maybe the end of last quarter? Just curious as you measure that, how you view it, the relative change quarter to quarter.

It was relatively consistent quarter to quarter, because while the loan originations were fine, we were completing the end of the re-risk rating and the last portfolio sale, the Cape portfolio. So while those activities have now been completed and we think they are not going to be a drag going forward, but the net of that was very little loan growth once you shook everything out, excluding, of course, Ocean Shore.

At the end of the period, we had about $300 million in cash; we'll call it cash and short-term investments. And I would think a significant portion of that, certainly north of $200 million, would be available to be moved into the loan portfolio.

And then the other thing I would point to is that absent that, we are still growing core deposits. So depending on the core deposit growth rate, you're going to want to deploy all the new core deposits you can generate plus hook up the extra, call it, $200 million or a little more in excess liquidity.

Okay, got it. Then you mentioned you are through the re-risk rating process. How should we think about your provisioning from here? It came down a little bit here. You noted NPLs are at a 10-year low here. Things are looking very good from credit quality; growth is going to resume here. As we move forward, any sort of guidance you can give there in terms of just how should we think about the loan-loss division?

Sure. I would categorize -- provisioning was appropriate for the quarter because we really didn't have net loan growth. And the credit metrics got a lot better. So we really just provided for our ordinary course net charge-offs. So accepting the charge-offs related to the loan sale.

As we go forward, obviously we are looking towards more loan growth. So two things are going to happen. We are going to have the loan growth we have to cover in terms of allowance and then we've got a large acquired loan portfolio. So we have credit marks that will burn off from that.

But as that happens, those loans tend to get renewed and repapered under OceanFirst paper and they will be subject to a provision at that time. So the combination of those two factors means provisioning is certainly going to be a little bit more of headwind going into 2017. And we'd like it to be, because if it's a headwind, that means we are growing the loan portfolio.

Got it, makes sense. One more for me and I will jump out. Any inter-quarter change in terms of the commercial real estate market, risk appetite, pricing? Just maybe get an update in terms of what you're seeing within the marketplace there.

Joe Lebel here. I think we continue to see what we started to see late in the fourth quarter, which is improved pricing and improved credit structure, especially the credit structure piece. I think a lot of that is driven by the regulatory environment and the focus on CRE. And for folks like us that have some room, we've had the opportunity to pick and choose what's amenable to us.

Got it, thank you.

Brody Preston, Piper Jaffray.

There's a few moving parts here with regards to your margin trajectory. You have the $200 million of excess cash, and then you mentioned the market baking in three Fed rate hikes. So given the excess liquidity and the Fed rate hike trajectory, what do you think is an appropriate margin trajectory from here?

That's a really hard question, more because of the environment than because of -- the external environment than the internal environment. All else equal, if the things are predictable -- and there's no reason to believe they will be. But in today's case, I would say you should expect our margins to strengthen slowly over time, meaning improve, so they move in a positive direction.

But I would be very hesitant to say what degree until we see the shape of the yield curve and we see what happens. Deposit pricing appears to be benign right now. That may not stay the case. So there's a lot of factors going on and we are very early into this -- if it is a turn in the rate cycle. So I'd say modestly positive, but I'd hesitate to give any more guidance than that. So I hope that's helpful.

Yes, that is. With the excess liquidity, you mentioned that you are going to deploy it over time. Would it be fair to say that by the end of 2017, you think that that would be fully deployed?

That's certainly possible. I think if we have a nice, smooth year with 25 bps going up 3 times during the year, we would evenly space the growth out and wanting to have a little bit over the course of all four quarters. But I would leave the caveat: if the market gets better, we might choose to move faster. And if the market is not quite as favorable, we might slow down a little. But I think that's a fair middle-of-the-road estimate.

Brody, just on that, it's Mike Fitzpatrick. It looks like we ended -- during the quarter, we went from $300 million to $300 million. It looks like there was no change in that, and there wasn't.

But behind that number, during the quarter, we purchased $73 million of investments. In the third quarter, we bought zero. We also bought $24 million in loans. So we had $100 million go out in loan and securities purchases.

We also paid off Cape -- or Ocean City had about $150 million in excess liquidity as of November 30. We used $105 million of that to pay off some high-cost home loan bank borrowings on their books, which was about a 3% cost. So we had some favorable trend there with respect to their excess liquidity by paying off the borrowing. So $[50] million came over to our book.

So even though it looks like we are standing in place, there was a lot going on in between the quarter. So our expectation in the first quarter that we will continue to vast in the securities book, we will build the loan book, and that excess liquidity that's now earning about 75 basis points will rotate into securities and loans over the next couple quarters.

Okay, great. I appreciate the color there. So moving on from that, I guess with the branch consolidation, I was hoping you might be able to update us in terms of your broader goals. Are you targeting a specific average deposits per branch or a specific branch count?

That depends a little bit on the pace at which customers continue to change their transaction patterns, which appears to be pretty brisk. So in very broad strokes, I'd say for a company our size, we should be able to cover our market over the longer term with maybe 40 branches.

But it's going to take a little while and a little tuning. First, we want to do this in phases to make sure we get it right. We've done branch consolidations in the past, but you want to be careful. You don't want to do everything all at once.

We've got a number of new markets. We want to make sure that we continue to serve every market. We may serve it in a little different way. In some cases, we are considering leaving some automated facilities back where we may leave a branch location. So we are feeling our way through this.

But you asked if there are any kind of benchmarks. On an interim basis, we are kind of trending toward like a $90 million average branch. And I think that's a pretty healthy branch size in the industry.

I think on an industry basis, you're going to see people heading in that direction. I think the days of being able to support a full-service branch that has $20 million or $30 million in the long run is probably not practical. You may have one or two in your portfolio that serve a certain purpose and support another branch or a couple key customers. But generally speaking, I think those are the guidelines I'd give you.

And we see this is a process that happens over the course of a few years, not something that just happens at a light switch. It's complicated to pick the right facilities; it's complicated to exit them. You've got to either -- you got real estate to liquidate or leases to mitigate. So we are working through it, but I think you're going to see the branch count continue to come down at least for the next 18 months.

Okay. And then with the two deals closed now, I was hoping you could remind me of what your profitability targets are for 2017 and 2018?

Sure. So we had said that we had thought that this Company is structured to be able to achieve greater than a 105 ROA. We've got no reason to be concerned about that, we think we are on track with that. And then on return on tangible common, we think between 12% and 13% is sustainable.

To put it in perspective, our view on core performance ratios for last quarter, if you take merger-related charges out, was the ROA came down a little bit to 92 basis points. It had been about 100 basis points in the prior quarter. And the return on tangible common -- core return on tangible common we calculate was 11.33 for the fourth quarter.

But there were a lot of moving pieces and parts. We did exclude merger-related charges when we talk about core, but there's other expenses that are not pure merger-related charges that happened as you put these banks together. A good example would be, we mentioned the rebranding effort, but as long as we were -- as long as we needed to brand 22 sites with OceanFirst brands in October, it was a unique opportunity to rebrand the entire network.

So we rebranded the entire Bank, which has its own -- there's a whole bunch of expense as you go through with that that are not merger-related and not in that number. But they're ordinary business expenses, so they are expensed in the fourth quarter. I think as we go into the first quarter, we are confident that in 2017, our target is of a 105 ROA and north of a 12% return on tangible common seem achievable for the year.

All right. And then last one for me -- as you've gotten -- circling back to the deposit deployment and the excess liquidity deployment and I think your securities, the total assets right now are sitting around 12%. Is that going to hold pat moving forward or would we see that going down?

Well, as we rotate from cash into securities and loans, so we will see the loan -- 12% is pretty modest, actually, I think, as compared to our peers. So there will probably be a little bit of increase in securities, but that will come out of the excess cash. And then we will see the rest of that cash, excess cash, being deployed into loan growth.

All right, great. Thank you very much, guys.

Collyn Gilbert, KBW.

This is Chris O'Connell filling in for Collyn. Given the rebranding effort and the branch consolidation and then the acquisition closings, if you guys could provide a little bit more detail on the trajectory of the all-in core operating expenses through 2017?

Sure. I think probably the most important thing is when the dust settles what's the ongoing expense rate that we expect to see on a quarterly basis. And I'm being a little conservative because depending on what month things happen, you may see things move in one quarter versus the other.

But we're pretty confident that by the fourth quarter, our operating expense run rate would be under $27 million, so less than $27 million a quarter, to be achieved by the fourth quarter. So we may get there a little faster or a little slower, but at that point, the branch consolidations should have been completed and there will be no more merger-related charges related to Ocean Shore or Cape and they will be pretty clean. So under $27 million for the fourth quarter would be a good benchmark.

Great, thank you. And then also, just in terms of the organic loan growth outlook, I know you guys had pulled back a little bit from CRE earlier this year and are now seeing better pricing and a better environment nowadays. And the pipeline sounds great. But what's the normalized organic loan growth rate going forward, pending a change in the environment?

Joe Lebel. I would imagine -- obviously, we've grown the size of the Company, so I would tell you that mid-single digit growth rates are the target for us, in line with peers.

Great. And then just finally, any change in the overall tax rate going forward from that 34.5% level or so?

Yes, it's going to be probably a little bit less than that: 33%, maybe.

Great, that's it. Thanks, guys.

Frank Schiraldi, Sandler O'Neill.

Just a couple of questions on expenses, follow-up. Joe, I thought you had -- maybe I heard this wrong. But when do you guys expect to extract full cost saves for the Ocean Shore deal?

It's Chris. The consolidations happen in May. So what happens at that point is you go through a systems conversion, the branch consolidations. And in the, call it, the 30 days afterwards, you make sure that you've got all the right staff in all the right places.

So for the second quarter, we will have expenses to consolidate the branches and we will have all the folks that are involved operating those branches and all the systems in place for that quarter. But that will be resolved by the end of the quarter. So third quarter is a clean quarter where all the Ocean Shore and all the Cape expense has been extracted.

Beyond the second quarter, there will be a little bit of extra opportunity as we look at branch consolidations in the central region, and, as Joe mentioned, the back-office project, which is a little bit about real estate expenses, but it's also more about the efficiency of an operation where you have all the -- or you have a lot more people under a smaller number of roofs. Having people in 13 places is not efficient.

So Joe, anything to add to that question or--?

No. It's [perfect] on timing.

Okay. I had thought initially that there was going to be a certain percentage of the cost saves in 2017 and then the remainder to be extracted in 2018 when you first announced. But I don't know; are those branch closings being moved up, or was that just never the case?

No, you recall correctly, Frank. At the case when we announced Ocean Shore, which was in July, you always have to be very careful about your approval process, both with shareholders and in the regulatory process. The market is well aware of a couple examples recently where they just underscored it's not so easy to get a transaction approved.

So we are usually pretty conservative. Getting that transaction approved in November to be able to close in November was frankly earlier than we thought we could achieve. So we are happy that that happened. We worked towards it, but it's very possible we might not have gotten an approval until the first quarter or may not have been even closing until later into 2017. That would've pushed our expensed saves into 2018 in some cases, or could have. So we were being conservative.

Got you. And then the other question on Ocean Shore was I thought, Joe, you had noted that the $3.6 million in cost saves -- in annualized cost saves from the branch closings should already be baked into those Ocean Shore cost save expectations.

But I feel like this is a bigger -- well, I had 5 to 7 branches, possibly. This is 10. Just wondering if, when trying to reconcile that, is it just reinvesting some of that savings? Or if you could just help me with that.

Well, some of it is the mix of what the branches are and some of it is reinvesting some of the savings back in. So by and large, it's in line with the original assumptions in dollars.

There are -- when you model these things out, for example, I think -- is it all 10 are owned?

Nine are owned, one is leased.

9 of the 10 are owned facilities. So you will get some expense save in disposing of an extra facility, but you're not escaping a lease payment. So if we had chosen different branches, you might have a different outcome. So all in all, it's in line, although the number of branch is certainly higher.

The other thing is we were being conservative on branch staffing levels. We want to make sure customers have the ability to see the folks they have seen for many years, so you are keeping -- in every case, we're keeping employees from both branches in the newly consolidated branches. Not all of them and not forever. But -- so in the process, we are being pretty conservative on. If it turns out that things continue to work well, we might be a little bit better than that.

Okay. And then just finally on expense, I believe that in the past you've talked about goals on the efficiency ratio of sort of 50% to 55%. I'm wondering with Ocean Shore cost saves extracted in 3Q, is that a good timing to assume you can get to that range?

Yes, I think that's good timing for that. You would certainly see it in the fourth quarter. At this point, I don't think there would be that much trailing into the third quarter.

Okay. All right, great. Thank you.

(Operator Instructions) David Bishop, FIG Partners.

Chris, with the expected rebuild in capital following the acquisitions, not that you don't have enough on the plate, but there has been some merger fallouts in the market. Maybe an opportunity in the western central part of the state could become available.

How are you guys thinking or how are you thinking these days in terms of addressing any potential additional acquisition opportunities? Or are you sort of on the sidelines, you think, for the next several quarters?

I think, first of all, job one is to make sure that we do what we are doing well. So we have been pretty focused on making sure, having taken the opportunity to do both Cape and Ocean Shore last year, it's a lot of work, a lot of care. We want to make sure we get that right.

We are coming through the -- certainly, the Cape integration is complete and a lot of the major tasks in the Ocean Shore integration are certainly behind us, although obviously conversion is a big one coming up.

At this point, I think we have -- our options are wide open. There is been an interesting change in just market dynamics and valuations, which has created new opportunities that might not have been around last fall.

But we are going to be careful. I would classify us as trying to be thoughtful and careful. We don't feel restrained from being able to do something if the right deal came up, but we are not going to do a deal just to do a deal. So it's got to be right for our shareholders and it has to make sense.

So we are going to be disciplined, as we were last year, to balance out book value dilution against earnings accretion. And we are also going to be disciplined to make sure that we've got the operation in a position where it can take those additional projects if necessary. So I guess I'd classify it as open, but it would have to be compelling.

Okay, great. Thank you.

(Operator Instructions) Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Chris Maher for any closing remarks.

Thanks very much. Thank you, everyone, for the time you spent with us this morning. We look forward to updating you as the year progresses. Thanks.

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