HFWA - NASDAQ

Hello, and welcome to Heritage Financial Corporation First Quarter 2024 Earnings Call. My name is Lydia, and I will be your operator today. [Operator Instructions] I'll now hand you over to Jeff Deuel to begin. Please go ahead.

Thank you, Lydia. Welcome and good morning to everyone who called in and those who may listen later. This is Jeff Deuel, CEO of Heritage Financial. Attending with me are Bryan McDonald, President and Chief Operating Officer; Don Hinson, Chief Financial Officer; and Tony Chalfant, Chief Credit Officer. Our first quarter earnings release went out this morning premarket, and hopefully, you have had the opportunity to review it prior to the call. We have also posted an updated first quarter investor presentation on the Investor Relations portion of our corporate website, which includes more detail on deposits, loan portfolio, liquidity and credit quality. We will reference this presentation during the call. Please refer to the forward-looking statements in the press release. Although there was some noise in the quarter, we're pleased to report a solid core performance, including active balance sheet management and expense management activities to reduce noninterest expense. We continue to see pressure on deposit pricing in Q1, and we expect to see that continue for the near term. Deposit balances declined modestly in Q1, and the mix of deposits continues to partially shift to higher rate products. Loan growth was strong in Q1, running at an 8.4% annualized rate. Credit quality remains strong, resulting from our long-term practice of actively managing the loan portfolio. We have ample liquidity, a low loan-to-deposit ratio and a solid capital base. Going forward, we will keep a sharp eye on expenses while we focus on growing loans and deposits. We'll now move to Don Hinson, who will take a few minutes to cover our financial results.

Thank you, Jeff. I will be reviewing some of the main drivers of our performance for Q1. As I walk through our financial results, unless otherwise noted, all of the prior period comparisons will be with the fourth quarter of 2023. I want to start by covering some actions that significantly impacted earnings for Q1, and are expected to help protect future earnings. First, we repositioned a portion of our investment portfolio, which resulted in a pretax loss of $10 million during Q1, which is similar to the loss recognized in Q4. We sold $144 million of securities with a weighted average yield of 2.37% and purchased $33 million of securities yielding 6.05%. Including the yield on cash not reinvested at quarter end, we are expecting an annualized net interest income pickup of about $4.6 million from these transactions, resulting in an earn-back period of approximately 2.5 years. Unlike the trade in Q4, where we reinvested substantially all of the proceeds, we intend to use a portion of this quarter's proceeds for other cash needs, such as the BTFP debt that matures in early May. Second, we incurred certain costs related to expense management measures in order to lower expenses in future periods. For Q1, these primarily included severance costs of $1.1 million due to reduction in staffing levels, which we mentioned during our previous earnings call in January. These costs, in aggregate with expense management costs occurred in Q4, are expected to improve the annualized expense run rate by $5.3 million. Please see Page 6 of the investor presentation for more information on these actions. Moving on to the balance sheet. Loan growth was strong in Q1, as mentioned by Jeff, increasing $92.5 million for the quarter. Most of this growth occurred in the latter portion of the quarter, and the benefits won't be fully realized until Q2. Yields in the loan portfolio were 5.41% for the quarter, which was 6 basis points higher than Q4. Bryan McDonald will have an update on loan production and yields in a few minutes. Total deposits decreased $67.5 million during the quarter. This was due to a decrease of $154 million in nonmaturity deposits, approximately half of which was due to declines in noninterest-bearing deposits, partially offset by an increase of $87 million in CD balances. Customers continue to take advantage of the higher rate environment by lowering their excess balances and lower paying nonmaturity deposit accounts. These factors contributed to an increase of 22 basis points in our cost of interest-bearing deposits to 1.70% for Q1. Due to the market -- current market pressure related deposit rates, we expect to continue to experience an increase in the cost of our core deposits. This is illustrated by the cost of interest-bearing deposits being 1.78% for the month of March, with a spot rate of 1.80% as of March 31. Investment balances decreased $143 million during Q1, mostly due to the loss trade previously discussed. The security trades occurred in March, therefore, the benefits of the loss trade was not fully realized in Q1. Even without full realization of the loss trade benefit, the yield on the securities portfolio increased 15 basis points from the prior quarter to 3.30% for Q1. Moving on to the income statement. Net interest income decreased $2.3 million from the prior quarter, due to a decrease in both the net interest margin and average earning assets. The net interest margin decreased to 3.32% for Q1 from 3.41% in the prior quarter. This decrease was primarily due to the cost of interest-bearing deposits increasing more rapidly than yields on earning assets. Although the impact of the loss trade will partially mitigate other factors, the pace and duration of our decrease in margin will be highly dependent on continued increases in our cost of interest-bearing deposits as well as maintaining deposit balances. As our cost of deposits as well as the deposit balances level off, we expect to experience margin stabilization due to the repricing of adjustable rate loans in addition to higher origination rates on new loans. We recognized a provision for credit losses in the amount of $1.4 million during Q1, which is similar to the provision expense in Q4. The provision expense was due substantially to loan growth experienced during the quarter. Noninterest expense decreased from the prior quarter due to lower FTE levels and lower costs related to contract renegotiations, partially offset by higher severance costs. Average FTE was 765 in Q1 compared to 803 in Q4, a reduction of 38 FTE. As was communicated in the last earnings call, we expect the expense run rate to be between $40 million and $41 million for the remainder of the year. All of our regulatory capital ratios remain comfortably above well-capitalized thresholds, and our TCE ratio remained at 8.8%. Our strong capital ratios have allowed us to be active in loss trades, on investments and in stock buybacks. During Q1, we repurchased approximately 330,000 shares at a weighted average cost of $18.56 or 107% of March 31 tangible book value per share. As we announced in the earnings release, the Board has approved a new share repurchase plan in the amount of 5% of outstanding stock, which equates to 1.7 million shares. As we have done in the past, we will use the share repurchase plan to manage our capital levels. I will now pass the call to Tony, who will have an update on our credit quality metrics.

Thank you, Don. I'm pleased to report that credit quality at quarter end remained strong and stable. As of quarter end, nonaccrual loans totaled just under $4.8 million, and we do not hold any OREO. This represents 0.11% of total loans and compares to 0.10% at the end of 2023. Nonaccrual loans increased by $324,000 during the quarter. Increases of just under $600,000 in the quarter came primarily from moving one C&I loan to nonaccrual status. Partially offsetting this increase was $269,000 in loans that were either upgraded to accruing status or were paid off during the quarter. Page 18 of the investor presentation reflects the consistently low level of nonaccrual loans we've experienced over the past 2 years. Loans that are delinquent more than 30 days and still accruing stood at 0.21% of total loans at year-end, up from 0.11% at year-end 2023. Most of the increase is attributed to one classified relationship that is being actively managed by our special assets team. The loans remain on accrual status, as they are well secured and in the process of collection. Criticized loans totaled just over $172 million at the end of the quarter. This is an increase of $22 million over year-end 2023, almost entirely in the special mention category. The largest driver of this increase was the downgrade of one multifamily commercial real estate loan that represented just over $15 million of the total. Overall, criticized loans have trended modestly higher over the last 12 months. However, remain in line with our historical performance with good economic conditions. Criticized loans at quarter end were 3.9% of total loans as compared to 3.5% at year-end '23 and 3.3% at the end of 2022. The credit quality of our office loan portfolio remained stable in the quarter. This loan segment currently represents $551 million or 12.4% of total loans, and is split evenly between owner and nonowner occupied properties. The loans continue to be granular in size and diversified by geographic location, with little exposure in the core downtown markets. Criticized office loans are limited to just over $18 million, which is down modestly from the $19.2 million reported at the end of 2023. We recently completed the targeted review of all significant office loans that have either a maturity or a repricing event over the next 2 years. The review focused on the adequacy of debt service coverage using current operating income and note rates, along with an estimated loan-to-value ratio using current cap rates. The review included 41 loans with $93 million in total outstanding balances. I'm pleased to report that we did not downgrade any loans to special mention or worse during this review. Page 17 of the investor presentation provides a more detailed information about our office loan portfolio. During the quarter, we experienced total charge-offs of $200,000. The losses were offset by $233,000 in recoveries, leading to a net recovery position of $33,000 at quarter end. We continue to experience lower loan losses than historical norms. While we saw some modest deterioration in the first quarter, the credit quality of our loan portfolio remains strong. As we have discussed in prior quarters, we continue to see a slow move back to a more normalized credit environment, following a period of exceptionally high credit quality. We remain consistent in our disciplined approach to credit underwriting, and we believe this is reflected in the solid level of credit performance we have maintained over a wide range of business cycles. I'll now turn the call over to Bryan for an update on loan production.

Thanks, Tony. I'm going to provide detail on our first quarter loan production results, starting with our commercial lending group. For the quarter, our commercial teams closed $133 million in new loan commitments, down from $187 million last quarter and down from $228 million closed in the first quarter of 2023. Please refer to Page 13 in the investor presentation for additional detail on new originated loans over the past 5 quarters. The commercial loan pipeline ended the first quarter at $409 million, up from $329 million last quarter and down from $587 million at the end of the first quarter of 2023. Loan demand showed improvement in the first quarter, and new opportunities have continued to present themselves at the same level during April. Competition remains very high for quality commercial business, but we anticipate the pipeline will continue its upward trajectory in the second quarter. Loan growth for the first quarter was $92.5 million, up from $69 million last quarter, due to higher loan balances relative to commitments on loans closed during the quarter, lower prepayments and payoffs and higher net advances on construction loans. Please see Slides 14 and 16 of the investor presentation for further detail on the change in loans during the quarter. Based on a higher projected level of construction loan payoffs in the second quarter and our building loan pipeline, we anticipate loan growth rate -- our loan growth rate will be mid-single digits near term and move back up to the first quarter levels in the second half of 2024. The deposit pipeline ended the quarter at $191 million compared to $207 million last quarter, and estimated average balances on new deposit accounts opened during the quarter are $40 million compared to $55 million last quarter. Moving to interest rates. Our average first quarter interest rate for new commercial loans was 7.05%, which is 12 basis points higher than the 6.93% average for last quarter. In addition, the first quarter rate for all new loans was 7.15%, up 11 basis points from the 7.04% last quarter. The market continues to be competitive, particularly for C&I relationships. I will now turn the call back to Jeff.

Thank you, Bryan. As I mentioned earlier, we're pleased with our accomplishments for the first quarter of 2024. While we continue to experience the challenges of the rate environment on our deposit franchise, we're confident that the strength of the franchise will continue to benefit us over the long term. Our relatively low loan-to-deposit ratio positions us well to continue to support our existing customers as well as pursuing new high-quality relationships. We will continue to benefit from our solid risk management practices and our strong capital position, and we will continue to focus on expense management, improving efficiencies within the organization. Overall, we believe we are well positioned to navigate the challenges ahead and to take advantage of any potential dislocation in our markets that may occur. That's the conclusion of our prepared comments. So Lydia, we are ready to open the call up to any questions callers may have for us.

[Operator Instructions] Our first question today comes from Jeff Rulis of D.A. Davidson.

A question on the margin. Don, do you have the March average margin?

Yes. The margin for March was 3.30%.

Okay. And your thoughts on -- or commentary about margin stabilization? Could you kind of refine the timing there? I know a lot of moving pieces, but I wanted to get a sense for -- is that for the balance of the year? Or do you feel like we're in a kind of a bottoming out here in the second quarter and the impact of the positioning you have done?

Well, I think previously, I thought that we're probably leveling out by probably the midyear, but the rates have changed somewhat. The expectations of rate cuts impacting continued deposit pricing which is going up -- continue to go up higher than originally thought. I think it's probably delayed to later in the year now as far as before margin bottoms out. Obviously, we have some things in our favor as far as what we've done on the investment portfolio and new loan rates. But the [ deposits ], the impact of having to refinance the BTFP at higher rates is I think going to push it out later in the year.

Any thoughts on further repositioning or restructure that you've done in the last couple of quarters?

We don't have any plans right now to do any more. Obviously, it's always in the cards that we feel we have opportunities to take advantage of. Again, we have a strong capital position. But at this point, we do not use our capital for other purposes at this point.

Just wanted to touch on the loan growth side. Pretty encouraging commentary, and I wanted to try to get the minds of the customer, I guess, is -- I think the idea that maybe rates were coming down, kind of held some people off, but higher for longer, maybe some rationalization that we need to move on projects. Are you getting the sense that that's the case in terms of the new climate is that businesses are moving forward. Is that fair? Or what are you seeing?

Jeff, I think that is fair. That is pretty much what we're seeing happen if they -- customers maybe have been waiting to do things. Now they're taking action and moving forward. The climate here is pretty good. And employment is fairly strong. And I think that they've -- some of them have waited a long time to take action and they're just moving forward now. I think loan production don't miss the fact that we made the comment that part of that loan production increase is tied to construction loans that we've had waiting to fund. But overall, we were pretty pleased with that level of production. It feels like if you get into the numbers a little bit more, you can see there's a pretty good focus on growth on the C&I side. That's a result of Bryan and team working hard to kind of retinker with the focus of the production side of the bank, and we're happy to see the response on the results. We have -- we mentioned earlier, people focused on growth on loans and deposits. Obviously, deposits are very valuable right now. We've got a pretty significant focus in that area, too. But on the deposit side, it's a longer game, if I can put it that way. Our team needs to stay focused and just keep plotting to get those -- plotting and plotting to get those deposits to come across. And I think we continue to benefit from disruption in the market related to a variety of things that happened last year, and I think we'll continue to do so for the balance of the year, at least.

Okay. And Don, the tax rate, is it a kind of a range bound in that 15% to 17% range? Is that fair?

We had some discrete items occur in Q1 related to the vesting of stock awards. I think going forward, we're probably looking more in the 14% range for the remainder of the year.

Our next question today comes from Matthew Clark of Piper Sandler.

Maybe, Don, just first on the timing of the loss trade. Was that late in the quarter? Just trying to get a sense for whether or not that 3.30% NIM in March reflected that benefit fully or not?

Matthew, it did not, it occurred all in March. So it occurred during March. So partway through the month. Obviously, Q1, it did not impact it nearly as much as...

Okay. And then the size of the BTFP that you have out there, it sounded like you might refinance it, but I also thought you had proceeds here you can use to pay it off. I just can't remember the [ size ].

It's $400 million that's maturing in early May. We -- again, we didn't reinvest about $100 million from the loss trades. We have that to use to -- for those type of cash needs going forward to potentially lower that balance. We're obviously, we can't use the BTFP any further. That sunsetted in March, but we'll use other means for borrowings when that matures.

Okay. And then just on deposits, what does the pipeline look like there relative to last quarter? And then what are your latest thoughts on when and where noninterest-bearing might be able to stabilize?

Bryan, do you want to talk about the deposit pipeline?

Yes, sure. Matt, the pipeline ended the quarter -- deposit pipeline ended the quarter at $191 million. That's down a little bit from $207 million, which is where we ended the year. And then the new balances on new business that we closed during the quarter is estimated at about $40 million. And then on the noninterest-bearing migration, I would pass it to Don, but it's just -- it's a difficult one to predict. We're seeing just more judicious usage of the operating accounts customers keeping a little less balances than what they have when rates were lower. But Don, I'll pass it to you for that.

I don't have too much to add on that. Obviously, we see that continue to decline. And I don't -- it's hard to predict when that's going to bottom out. Obviously, we're already below levels that we were when we -- at the end of 2019. But so -- but there probably was a lot of excess funds at that point. So obviously, we're down below 30%. I would probably expect us to start leveling off and probably stay in the high 20% range, but that's really just an estimate at this point. But hard to predict exactly where we're going to end up there.

And Matt, it's still is pretty -- I was just going to add, it's still pretty focused on access funds that customers have in their operating accounts, the traditional operating account balances are pretty consistent. And what we are seeing is, to Jeff's earlier question about what kind of activity are we seeing, we're just seeing really pretty basic activity with our customers, with funds moving in and out of accounts. They're buying buildings, they're investing, they're doing all kinds of things. So it's pretty traditional flows right now.

Okay. And then can you quantify how much you had in brokered CDs this quarter versus last?

We had $115 million at the end of the quarter. And I believe it's about the same as we had last quarter.

Okay. Okay. And then just the step up in special mention, what drove that increase by kind of customer type and kind of the situation there?

Yes, Matthew, this is Tony. It was primarily one commercial real estate loan. It's a construction loan, but the property is completed, just having some lease-up issues, and we felt like we needed to move that to special mention. The other -- there was one other smaller C&I loan that was part of that. But between those two, that was the majority of what moved. If you see, substandards stayed stable quarter-to-quarter. It was mostly just in the special mention category.

Okay. And then last one for me, just around kind of capital return. Is it fair to assume M&A is unlikely just given your currency, the marks, the approval process being extended? And should we just all then assume that you're going to be more active with the buyback than you were this quarter throughout the year?

On the first part, Matt, M&A for us and generally in the region with the banks of the site that we'd be interested in is just pretty quiet. I think it's hard for them to face into where our currency is now and it's complicated, as you pointed out, for all those reasons. Buybacks, I think I'll leave that for Don to respond to.

We're -- I think we're going to be somewhat active depending on the stock price, of course, and other needs for capital, probably somewhat in the range of what we did in Q1. I don't think we're to kind of go through this repurchase plan all in 1 or 2 quarters. But we do feel that our stock price has been very attractive for buybacks currently. So we will probably be active.

Our next question comes from David Feaster of Raymond James.

Maybe just -- I'm glad to hear the pipeline has improved. I mean we touched on loan growth a bit. But I'm maybe -- just curious, how is the complexion of the pipeline shaping up? How is pricing in there? What do you think is driving it? Is it improving demand or an increased appetite for credit from your standpoint? And just maybe more broadly, what's the pulse of your clients?

Bryan, that's probably a good one for you to respond to.

Yes, happy to, Jeff. So David, the big shift in the pipeline has happened over the last year. This time last year, we had a larger component of the pipeline that was investor real estate. And then when the liquidity crisis hit, we saw those requests just really increase. We made a shift with our sales team and said, we really want to migrate the portfolio primarily to commercial business. And so what we've seen over the last 12 months is closing those deals that we had in the pipeline that actually continued through to closing, but the sales teams for a year now have been primarily focused on C&I. It's something the banks obviously focused on for a long time. We just had a higher segment of the pipeline last year at this time that was an investor. So when you look at the pipeline today, it's close to 70% in C&I and owner-occupied real estate, and that's kind of across the footprint. And that's really the changes. And we've seen this building through the first quarter and even into April, the number of new opportunities in that commercial space have just continued to add on versus the last 12 months where we've been deducting out the CRE loans that we weren't going to continue through to closing for a variety of reasons. So it's that transition in the pipeline in terms of the mix. And then yes, we're seeing broad-based demand a bit higher than what we had in the fourth quarter. Net-net, it's really the result of our sales force, making more dedicated calling efforts and some improvement in the demand side from the customer here in 2024.

Okay. Terrific. That's helpful. And then maybe, I'm curious your thoughts on credit more broadly. You've got a reputation as a conservative credit manager, quick to downgrade, slowed upgrades. So I'm just kind of curious, what you're seeing, maybe what you're watching more closely? And how you're thinking about managing credit? And just, you alluded to a more competitive landscape, curious maybe if you could elaborate that on what you're seeing from the competition standpoint as well.

Well, that's probably a good question for you, Tony, but I'd kick it off by saying, Tony did mention, David, that we continue to underwrite loans as we always have done. So conditions changing, doesn't necessarily mean we change the way we approach credit. So Tony, maybe you want to add to that with what you're seeing out there?

Yes, David, we're -- I would just kind of add on to that. I think what we're seeing, as I've mentioned at the last couple of calls, just a more normalized move back to what we experienced before we were in this credit bubble over the last couple of years. I mean we would normally look at 9 or 10 basis points of the portfolio as a good year of net charge-offs. And of course, we came off -- we're coming off 2 years in a row of net recoveries. So what I'm seeing kind of from a broad base is some operating companies that have -- that are struggling a little bit more than we've seen over the last couple of years. From time to time, we'll see commercial real estate projects that really aren't hitting the net operating income, the rental rates for the most part that they expected. A few things like that where it's becoming a little harder to convert from construction to perm once you get into the stabilization phase. But most of these are one-off type things, nothing really jumping out at me that seems broad-based or sort of systemic at this point.

Okay. Okay. Perfect. And then last one for me, and we touched on this a bit with Matt's question, but I just kind of wanted to get a sense for -- how do you think about managing the balance sheet going forward? It doesn't sound like there's any plans for additional restructuring. We got the BTFP pay down. I'm just curious, you alluded to maybe preserving some capital for other options. I'm just curious, what else are you considering or looking at? And how might that change given the prospects of a higher-for-longer environment?

Well, for a for higher for longer, I think that we're looking at, again, or even things like the high-cost funding that we might have expected to come down, and maybe it's not going to at this point. So it is a challenge to manage the balance sheet in the current environment when you actually don't know which way the rates are going, right? Obviously, everybody thinks they are coming down, but there's always a chance that could go up. So that's why in the last loss trade, we held on to some cash, going to pay down some debt. We'll be looking to probably pay down debt, which means that our probably overall asset levels will probably not increase over the near term. But we're looking to hopefully improve profitability. Again, it might allow for stock buybacks without actually impacting capital if we reduce assets. And so I guess those are the type of things where we'll take advantage of what's in front of us, such as potential buybacks at this point and other restructuring of the balance sheet that we feel makes sense for both short term and long term in various rate environments. And of course, balance sheet management is both looking at your kind of sustainable profitability and risk. So we'll be kind of balancing those 2 things as we look forward.

Maybe to that point, I mean, your crystal ball is as clear as mine. But it's -- a lot of this is just time, right, just repricing the book. When do you think we get back to normalized levels of profitability?

I think if we -- if the yield curve remains in burden, it's going to -- it's probably going to take a while. It's just not -- commercial banks aren't meant long term to be very profitable in an inverted yield curve. So -- but I think if we can get the yield curve at least flat, if not upward sloping, I think it's going to be difficult to get back to historical profitability levels.

Our next question comes from Andrew Terrell of Stephens.

Most of mine were addressed already. I just had one quick follow-up on some of the securities restructuring. Just Don, do you have the spot yield on the securities book as of 3/31?

Andrew, I do not have that. I'm sorry. I think it's not much different than probably a little higher than it was for the quarter. But if I can find that quickly, I'll look that up, but I don't have that on me.

Okay. No worries. That was my only question. I can follow up afterwards.

[Operator Instructions] We have a question from Timothy Coffey of Janney Montgomery Scott.

Don, just a couple of check-the-box questions for you. The balance sheet restructuring benefits, that is embedded in kind of your NIM outlook. Is that correct?

That is correct, Tim.

Okay. And then you also said repurchases in the quarter were 130,000 shares?

It's 330,000. I think it was.

Yes. Okay. Great. Okay. And then, Tony, a question for you. I appreciate all the discussion on the special mention loan, the loan that increased special mentions and where some of the stress is. I'm wondering, do you have a sense of how much is in your portfolio of those type of CRE loans where there's been a rehab, and then leasing -- in the leasing phase it struggled or is currently struggling?

Yes, Tim, just off the top of my head. I think that's really the only one I can think of that we've had a significant issue. I mean we have had situations where we've put something on a watch status because we recognized that there were some issues, but those have tended to resolve themselves. We had one a while ago that was in that position. The borrowers chose to sell the property actually at a nice profit rather than reinject more equity into the deal. So we try to catch them early and recognize that and more often than not, because so many of our deals have guarantors behind an individual guarantors with some financial strength, we're able to sort of rightsize it or fix it before it becomes an issue.

Okay. The breakout that you gave on the criticized loans, which I really appreciate, and I fully understand they are criticized loans. The construction and developments team is about 18% of that. What type of construction loans would they be?

What are you -- I mean what are you referring to in the -- for the -- with the 18%?

Page 19 is the pie chart of criticized loans by loan segment.

Yes, yes. Okay.

Yes, yes. So I was trying to figure out what kind of loans would those be?

I think what they're going to be primarily are a lot of the -- I'm not 100% sure of that.

Okay. We can follow-up.

Yes, we can -- maybe we can follow-up on that offline.

Yes, that works. And then Jeff and Bryan, the loan pay downs that you've seen in the last 2 quarters, how much of that is a result of competition pricing?

Bryan, that's probably a better question for you since you're closer to it.

Yes. There really isn't -- I can't think of any specific examples. It's usually construction projects where there's a takeout planned somewhere else or the loan just comes up to maturity, and the customer decides to pay it off with cash or sell the collateral. Those are the 3 most common. I did mention we expected higher construction loan payoffs in the second quarter and that, that was going to impact our overall growth rate. Those are predominantly our low-income housing projects that are being paid off through tax credit equity at the end of the construction period. So that's the big driver behind the payoffs we expect in Q2.

Okay. Okay. That's a great color.

We have no further questions in the queue. So I'll turn the call back over to Jeff Deuel for any closing comments.

Thank you, Lydia. Happy to wrap up the quarter's earnings calls. We thank you for your time and support and interest in our ongoing performance, and we look forward to talking with many of you in the weeks ahead. Thank you, and goodbye.