Columbia Banking System, Inc.
Q1 2018 Earnings Call Transcript

Published: 28 Apr 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Banking System's First Quarter 2018 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Hadley Robbins, President and Chief Executive Officer of Columbia Banking System.

[Hadley Robbins:]

Thank you, Emily. Good afternoon, everyone, and thank you for joining us on today's call as we review our first quarter 2018 results. To supplement our discussion, the slide presentation as well as our earnings release are available on our website at columbiabank.com. Earlier today, we reported net income of $40 million and earnings per share of $0.55. As expected, it was a noisy quarter with the implementation of tax reform, core system conversion, and first full quarter with Pacific Continental's inclusion in our results. Reported earnings were impacted by acquisition-related expenses and higher provision for loan losses. Net of taxes, these 2 items reduced earnings per share by $0.07. The Pacific Continental integration is nearing conclusion, and I wanted to take a moment to thank all of our bankers for their continued hard work and their tireless commitment to our customers as we brought these 2 organizations together. I'm pleased to report that we're tracking to achieve our targeted cost saves by the end of the second quarter. With the systems conversion behind us, we look forward to moving towards normalized operations and focusing on high quality earnings growth. One of the many attributes that made Pacific Continental an appealing merger for us is the quality of their people. In the short amount of time since our companies came together, we have already had some of our new team members move into broader leadership roles across the combined organization. Along with the merger of Pacific Continental, we continue to make progress against a number of our strategic initiatives. Over the past year, we put in place new technology aimed at improving our clients' banking experience. We launched a new platform for relationship management. The platform will help us gain deeper insights into how we can better serve our clients. We implemented a new mobile and online banking system that enhances our digital consumer product set. We also launched a new application for marketing automation, which gives us the capacity for digital sales campaigns and outbound digital communications across all of our customer segments. These are just a handful of the important initiatives that exemplify our commitment to exploring and implementing technology that removes complexity, makes life easier for our clients and our people. In the coming year, we will launch projects that improve our digital banking product set for businesses, broaden our P2P payment capabilities, improve our clients' onboarding experience and expand our training and development programs for employees. On the call with me today are Clint Stein, our Chief Financial Officer and Chief Operating Officer, who will provide details about our earnings performance; and Andy McDonald, our Chief Credit Officer, who will review our loan activity and credit quality information. I'll conclude by providing a brief update on business conditions. Following our prepared comments, we'll be happy to answer your questions. It's important that I remind you that we'll be making forward-looking statements today, which are subject to economic and other factors. For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our securities filings, and in particular, our 2017 SEC Form 10-K. At this point, I'd like to return the call to Clint.

[Clint Stein:]

Good afternoon, everyone. As Hadley mentioned, we reported first quarter earnings of $40 million or $0.55 per diluted common share. Linked quarter comparisons are very difficult this quarter due to our November 1 close of the Pacific Continental acquisition. This quarter's reported performance is much improved from the prior quarter, which included higher acquisition costs and the deferred tax asset remeasurement charge following the passage of tax reform legislation. Again, the significant items that impacted our reported earnings for the quarter were acquisition-related expenses of $4.3 million and provision expense of $5.9 million, which was up from $3.3 million in the prior quarter. Net of tax, acquisition-related expense reduced reported EPS by $0.04 and the additional provision expense over the prior quarter had an impact of nearly $0.03. Given the noise in the fourth quarter, a better benchmark for assessing our improved performance is the third quarter of 2017, the last full quarter prior to Pacific Continental's inclusion in our results. Our first quarter 2018 pre-tax pre-provision operating results of $56.9 million is an increase of $11.3 million, or roughly 25%, from the $45.6 million we achieved in the third quarter of 2017. Reported noninterest income of $23.1 million in the current quarter was a decrease from the prior quarter of $438,000. As we stated in the earnings release, the decline stems from the implementation of the new revenue recognition standard, which required us to net $1.3 million of expense through the card revenue line item. Meanwhile, we saw nice increases in deposit account, in treasury management fees and loan revenue, which were up $727,000 and $523,000, respectively for the quarter. It's encouraging to see noninterest income continue to grow, it will help reduce the sting of the reduced interchange income we will receive as a result of the Durbin amendment. As a reminder, the lower interchange rates become effective for us on July 1. We estimate the pre-tax impact to be roughly $2.5 million per quarter or $10 million annually. Reported noninterest expense was $86 million for the current quarter, an increase of $360,000 from the prior quarter. However, for the reasons that I previously stated, comparing the current quarter to the fourth quarter of 2017 can be misleading. I will attempt to provide some details to give you meaningful comparisons. After removing the effects of acquisition-related expense, compensation and benefit expenses were higher by $6.6 million. Salary expense represented $2.6 million of the increase due primarily to a combination of an extra month of Pacific Continental expenses, our February increase in minimum hourly wages to $15, and a substantial number of employees are evaluated for merit increases during the first quarter. An increase of $2.2 million in employee benefits was comprised of $1.6 million in additional 401(k) expense related to annual bonus pay-outs, and a $543,000 increase in group insurance expense. Federal taxes accounted for $1.4 million of the $6.6 million increase due to the reset of annual limits and the payment of incentives. Other noninterest expense is higher by $1.6 million, mainly due to a provision for off-balance sheet liabilities of $1.2 million, and an increase of $590,000 in sponsorships and shareholder contributions. Last, amortization of intangibles was up $641,000 from the prior quarter due to the extra month of amortization expense associated with Pacific Continental's core deposit intangibles. The $4.3 million in acquisition-related expenses in the quarter were in the following line items

[Andy McDonald:]

Thanks, Clint. As we start the year, our seasonal pattern of loan activity is evident. Loan production in the first quarter was $264 million, which is a $12 million increase from the first quarter of 2017. First quarter is typically the low point for new production. We expect the seasonal pattern of loan activity to unfold throughout the rest of the year and should see stronger levels of activity in the second and third quarters. The weather has finally turned, so our ag line utilization will begin increasing consistent with the seasonal pattern we have experienced in the past. We also look forward to production synergies from our new team members from Pacific Continental going forward. New production in the quarter was predominantly cantered in C&I and commercial real estate and construction loans. Term loans accounted for roughly $192 million of total new production, while new lines represented about $78 million. The mix of new production was more granular in terms of size; 9% of new production was over $5 million, 27% was in the range of $1 million to $5 million, and 64% was under $1 million. In terms of geography, 43% of new production was generated in Washington, 44% in Oregon and 4% in Idaho. Loan balances decreased by $19 million during the first quarter, the decline was in commercial real estate and was principally related to our owner-occupied commercial real estate portfolio. C&I loans ended the quarter at $3.4 billion, up about $25 million or 0.7% from the previous quarter. New production was $129 million compared to $151 million last quarter. Line utilization was essentially unchanged from the last quarter at around 44.4% versus 44.9%. Industry segments with the highest net C&I loan growth in the first quarter included the dental book, wholesalers, telecommunications and media, manufacturing and municipal. Ag, forest and fish contracted $37 million representing the seasonal nature of the portfolio. We generally see the ag portfolio contract between 7% to 10% during the first quarter, and this year, it contracted 8%. Similarly, line utilization typically picks up, and it bounces back 12% to 15% in the second quarter. Commercial real estate loans ended the quarter at $3.8 billion, down about $49 million during the quarter or 1.3%. As I mentioned before, owner-occupied drove the decline as this category declined $53 million. Property types where we saw the most growth was acquisition and development loans, along with residential, office and manufacturing. Much of our owner-occupied balances that were paid off during the quarter were the results of businesses being sold and the associated real estate being sold along with them. We have also seen an uptick in institutional and credit union activity, as many of them offer nonrecourse long-term mortgages, which from both a credit and ALCO perspective, we are not willing to offer. Commercial and multifamily construction loans ended the quarter at $385 million, up $13 million or 3.6% from the prior quarter. The highest growth in this category was multifamily followed by warehouses and healthcare. On the credit side, we recorded a provision for the allowance for loan lease losses of $5.9 million as compared to $3.3 million in the prior quarter. This included a provision of $7 million for the originated portfolio and $375,000 for the Pacific Continental portfolio. Offsetting these provisions were releases from the West Coast and Intermountain portfolios, which combined were $400,000, and a release of $1.1 million from the PCI portfolios. The provision for the originated allowances is primarily driven by 2 factors. Migration out of the Pacific Continental portfolio and into the originated portfolio, and an impairment on one of our agricultural credits. The migration from one portfolio to another accounted for about $2 million of the originated portfolio provision and the impairment accounted for about $3.7 million of the originated provision. As of March 31, 2018, our allowance to total loans was 0.96% as compared to 0.91% last quarter, and it was 1.14% as of March 31, 2017. This ratio is impacted by our acquisitions of West Coast, Intermountain and Pacific Continental as those loans were acquired at fair value. Embedded in those valuations is approximately $33 million of discount, and there is approximately $23 million associated with the Pacific Continental portfolio. For the quarter, nonperforming assets increased $10.5 million; the increase were largely in the commercial portfolio and partially offset by a decrease in other real estate owned. The non-performing assets to total asset ratio increased to 72 basis points, up from 63 basis points. Again, the increase in nonperforming assets was primarily due to additional stress in our agricultural portfolio. As a reference point, NPAs to assets without the ag loans drops to 55 basis points. I'd like to give you a little more colour concerning our ag portfolio. As of March 31, we had $422 million in ag-related commercial business loans, and $261 million in ag related commercial real estate loans for a total ag portfolio of about $683 million. The areas where we see the most stress is in cattle and potatoes. Our cattle portfolio is approximately $107 million, with 15% of it criticized or classified. Our potato portfolio is down to $20 million, and almost all of it is currently criticized or classified. The rest of the ag portfolio is performing quite nicely with only 4% criticized or classified. So, while our credit metrics have moved off their historical lows, outside of a few pockets in the ag portfolio, we remain pleased with how our portfolio is performing. So, I will now turn the call over to Hadley.

[Hadley Robbins:]

Thanks, Andy. Northwest is continuing to grow faster than the national economy, steady in migration. We do not expect that this will change during 2018. However, there are a few clouds gathering on the horizon; availability of labour continues to tighten and is putting upward pressure on wage rates. New steel and aluminium tariffs will increase cost to businesses that make and distribute products that rely on these 2 important metals. Yet the overall impact for the regional economy is relatively small; the Northwest accounts for just 2.6% of the national imports. More worrisome are tariffs put in place in retaliation by our trading partners, especially China, who buys 28% of all exports from the Northwest. If a trade war were to develop, it would have serious economic implications for the Northwest. At this point, it appears unlikely, but it is something we're following closely. Our first quarter dividend of $0.26 per common share is an 18% increase over the prior quarter. Consistent with our prior commitments around tax reform, and our utilization of the capital generated by lower tax burdens, we increased our dividend to reflect an appropriate pay-out on the amount that previously would have been remitted in taxes. It will be paid on May 23, 2018, to shareholders of record as of the close of business on May 9, 2018. This dividend constitutes a pay-out ratio of 47% for the quarter and a dividend yield of 2.32% based on the closing price of our stock on April 25, 2018. This concludes our prepared comments this afternoon. As a reminder, Clint and Andy are here with me to answer your questions. And now Emily will open the call for questions.

[Operator:]

[Operator Instructions] And your first question comes from the line of Jeff Rulis.

[Jeffrey Rulis:]

Clint, you mentioned that a $90 million in deposits I didn't catch that detail of how it left I missed that piece.

[Clint Stein:]

Yes, there were two large relationships that Pacific Continental had, and just as their business needs changed and grew, they had outgrown Pacific Continental. And even with the combined organizations, we couldn't satisfy their needs either. And so, it was I guess, an amicable departure; it wasn't anything that was related to attrition from that you can see from an acquisition or conversion difficulties or anything like that. They just had some international needs that were beyond what we could provide, and they needed to be with a much larger national institution. So, if you take that out of that $137 million, then it pulls us back into line with what we've typically seen in terms of some of the seasonality in our deposit base as partner distributions are made and tax payments are made and cash reserves are drawn down and then build as we move through the year.

[Jeffrey Rulis:]

All right. And then on the expenses. Look, I know there is a lot of moving pieces. You say, sort of, low 80s, I guess if we just take 86 less the merger cost maybe not that simple. But timing wise, for the balance of the year, I guess is there a reference that, that's maybe a sub-80 on a quarterly basis over the balance of the year or just I guess, I'm interested in the hesitation to provide some detail there.

[Clint Stein:]

There are a lot of moving pieces. And I can think about several different variables. So, if you just take out the acquisition expense and think about that number, in my prepared remarks I mentioned, we had the seasonal increase in payroll tax. We had fairly sizable 401(k) expense because most of our folks they go ahead and have 401(k) withholdings taken out of their incentive payments, and so that creates a bit of an elevated expense for us in the first quarter. And then there is the strategic things that Hadley talked about at the start of the call, and a lot of those things like the marketing automation and the customer relationship systems are all cloud-based, and a significant part of that gets expensed upfront. And so, as we continue to make investments in our digital capabilities and our customer delivery channels, that can have some lumpiness from quarter-to-quarter so that's the hesitation that you are sensing. If we just look at everything steady state and didn't think about some of that variability, what I would expect is that you would see it starting to drift back down and that's what I was trying to get at with that long-term target of the mid-240s for an expense ratio. The absolute number gets a little difficult to provide, and of course, the difficulty with the expense ratio there is an implied rate of growth on the balance sheet, so you have to figure out where that is versus what might actually occur. So that's the hesitation you are sensing, is just all those moving pieces. And then we had the $6 million of additional cost savings implemented, literally, the last 2 weeks of the quarter or in some cases, the last couple of days of the quarter because of the timing of the conversion was mid-March, and the branch consolidations that we did occurred right at the time of the conversion or within a week of the conversion. And so, we didn't really get a lot of that into our run rate. And so, you think about there is $1.5 million of potential reduction per quarter going forward. We had the off-balance sheet liability reserve provision this quarter that was higher than what we would typically have and that hit noninterest expense; that was the $1.2 million. So, there is a lot of things that could create that were headwinds for us from an expense standpoint this quarter that could dissipate, but then there is other things that always pop up, that could move the number $1 million or $2 million pretty easily when we're looking at just cut off of quarter end.

[Jeffrey Rulis:]

Okay. That sounds positive, sounds like a lot in the rear-view; the trend is lower, but like you said, [indiscernible].

[Operator:]

Your next question comes from the line of Matthew Clark.

[Matthew Clark:]

On credit, maybe Andy, I guess what's really driving the issues in the potato portfolio? The piece of the cattle portfolio. Do you feel like the 85% of the cattle portfolio that's not criticized, classified is better or do you think there is some risk of that deteriorating, could you just talk about the ins and outs of what's going on in ag?

[Andy McDonald:]

Sure. Things are actually looking more positive for our potato guys. Inventories are down, prices are up and the amount of production forecasted for 2018 has moderated. And similar to the cattle portfolio, you had multiple years of cases where prices were poor and production cost did not decline, and so for a number of these individuals, they lost ground such that the amount of equity that they were investing into each succeeding year became less and less. And as the market became less favourable, that margin continued to erode. We can't really expect the potato portfolio to get any worse, since pretty much the whole thing is criticized, classified. So that pretty much takes care of it. When we look at the cattle portfolio, we do believe that, that has also bottomed out based on just what we're seeing in cattle prices and herd counts and what the production expectations for 2018 are. Within that number, it's not all folks that own cow, calf operations, there are also feedlots and that exposure is not as volatile as the cow, calf guys. So, we do sense that this is getting to the low point. I would say that the issues that we have within the portfolio though will not be quickly resolved, and so from a nonperforming asset standpoint, I don't expect quick resolution of those assets. I think those will trail into 2019.

[Matthew Clark:]

Okay. And I guess the reserve that you have set aside for the ag portfolio in total unless you want to isolate it.

[Andy McDonald:]

We don't isolate the ag portfolio with a specific reserve. So, it would be part of our commercial business reserve.

[Matthew Clark:]

Got it, okay. And then Clint, maybe just again on the expense-to-asset ratio I just want to make sure I heard you correctly, [indiscernible] is that what you were calling for here in the short term before getting to the mid-24s longer-term?

[Clint Stein:]

I think that's reasonable and just to expand on my response to Jeff is that there is all the noise and just timing that come into play, but the long-term trend we still expect that it's going to trend down just as it has for the past 4 or 5 years. And when we get into the third quarter, we'll have all the acquisition noise behind us. We'll settle [indiscernible] run rate; we'll know where we are at; we can start working on bringing that down in the ensuing quarters. But yes, that's kind of what we're thinking.

[Matthew Clark:]

Okay, and then in terms of the run rate. I mean you say low-80s. But you had $1.2 million for the off-balance sheet liability, I don't think we should assume that is recurring. You had the $1.4 million in seasonal payroll increase and then you had $1.6 million for 401(k), which is, again, somewhat seasonal. So, I mean, that gets it down below 80 in the upcoming quarters. But also understanding there is some stuff going the other way. Is that not the right way to think about it?

[Clint Stein:]

If I interpret your question correctly, yes, it's possible that we could come in sub-80. I mean that certainly is a possibility. But I'll go back to a lot of the things that we're working on, and that's what Hadley alluded to at the start of the call, and that's what will create some short-term noise just depending on when we roll these different projects out, go live with them. And they are significant. They can be $750,000 to $1 million when you get it completed and ready to go. And then there is just the normal stuff that comes up from quarter-to-quarter that is either favourable 1 quarter and unfavourable the next. It's subject to timing and those are typically legal and professional expenses and data processing expenses and our marketing campaigns. And so that's what I'm thinking about is, just historically where those timing things can come in. And if everything works in our favour, quite possibly, yes, we could be below that 80 number. But we have a couple of them that come in and sneak into 1 quarter versus the other, and it might pop up to low-80s. And I know I'm giving you a squishy answer, but it is just very difficult to dial it in, because a couple of different things, one way or the other, can move it up or down a couple of million dollars pretty easily.

[Matthew Clark:]

Got it, okay. And just on the accretion in the quarter. I think it came in around $3.7 million. Any accelerated payoffs in that number? Or is that a good run rate to run lower from?

[Clint Stein:]

No, actually nothing that stood out in terms of acceleration or that surprised us about the absolute level of that. So, I think that's a pretty good number that you could work from.

[Operator:]

Your next question comes from the line of Aaron Deer.

[Aaron Deer:]

Just curious, obviously, there is some more favourable seasonal trends that should be helping on the growth fronts, in terms of loans, as we head into the summer months. As you look out to the full year and kind of knowing where the pipeline stands today, are you still thinking in terms of the mid-single-digit growth rate for the full year, or might we see that accelerate or come in a little lighter? What are your thoughts at this point?

[Clint Stein:]

Yes, I think that mid-single digits are achievable. Some of the things that we've talked about in the prior quarters, and Andy had in his prepared comments in terms of competition and structure. We didn't see some of the credit union competition as fierce in the first quarter here. There are a few headwinds. First just that mid-single-digit number or higher than where we've been it's a larger balance sheet. So that means it's a bigger number of production just to stand still. The headwinds that we see, and they're not necessarily bad things, but they're a reality for us, are the attractiveness of the market combined with the demographics of our customers. We have a lot of businesses, and this isn't anything that's new, we've talked about it over the years is that a lot of our customers in our midsized businesses are getting to a point where they're ready to sell, and there is a lot of interest from national companies that have come in and acquire them. That impacts our loan totals when we have that happen. But on a positive note, we typically pick up some in the wealth management space when that occurs. So, there is that and then just the composition of our balance sheet anyway, where we have some seasonality. We see that in the first quarter; the timing of when ag line utilization picks up can impact the timing between the first quarter and the second quarter. And then just other components of it like our warehouse lines, some of those things that were tailwinds for us as those commitments were full. Those have declined in the past couple of quarters with the increase in rates. So, it's a lot of variables, but we still think that where we have achieved, in terms of organic growth the last couple of years, is definitely possible, and it's just that if we look at 1 quarter to the next, there could be some lumpiness in that.

[Aaron Deer:]

Okay, that's helpful. And then Clint, I know that you've said you are kind of expecting some I guess margin stability at this point. But just kind of looking at some underlying trends there, particularly, on the deposit side just because you guys have such a great deposit base but obviously there was some unusual drivers in that this quarter. When you look out at the marketplace, what are you seeing in terms of deposit pressures on where your existing deposits are priced?

[Clint Stein:]

We saw just leading up to the March Fed meeting, we saw some pockets across our footprint of competitors increasing certain tiers in money markets. So, we did start to see a little bit of movement, and the Northwest hasn't had that same pressure that other parts of the country had felt previously. And I think we talked in the last quarter that we felt like we were getting close to where we would see that, and we did start to see some of that develop. We made a few minor changes in some of our rates as well, around the time of the fed's movement. And then since then it has just been pretty quiet, and we haven't really seen much activity there. We have seen a little bit of a pickup in terms of requests for exception pricing. And we look at those on a case-by-case basis and depending on the entire relationship. But I'd say that it was really busy with that type of activity through the second half of March and that right after the fed movement, it's been pretty quiet since then.

[Operator:]

Your next question comes from the line of Jackie Bohlen.

[Jackie Bohlen:]

Clint, was there an expense line item that was impacted by what was netted in the card revenue up in noninterest income?

[Clint Stein:]

Yes, it was just simply geography in terms of where that came from, and I'm just trying to look at my report here to see because I haven't committed that line item to memory. But yes, it wasn't an additional expense it was just simply moving it from expense up to income to net it for presentation purposes.

[Jackie Bohlen:]

Okay. I figured, I just wanted to double check. And the $1.2 million in unvetted commitment reserve expense. I know that, that was unusually high. Was there any sort of a driver to that? Or was it just purely production related from the quarter?

[Andy McDonald:]

Yes. So, there was a slight uptick in some of the pool loss rates. So, there is a little bit of complexity in terms of the overall model in terms of the areas that we had expansion, and unfunded commitments were areas that had higher loss rates than others. Now a lot of those losses go back to 2008, 2009, 2010. So, they're not what we're experiencing today. But there, nevertheless, baked into the model and so that was really the driver behind it. It's almost as much the model math as it is the fact that we did produce a lot of line of credit but we didn't get a lot of line of credit usage.

[Jackie Bohlen:]

Okay. And Andy, what you were seeing [that about the pools, does that have any prospective impact on that expense going forward?

[Andy McDonald:]

No, I don't think so. We're going to see an uptick in utilization in the second and third quarters. And so that essentially will transfer provision from one area to the other. So, I guess from a modelling standpoint, what you gain in one area, you might lose in another.

[Jackie Bohlen:]

No, understood. And the behaviour in the cattle and potato portfolio in the quarter. And understanding that there really haven't been any net charge-offs associated with what happened. Does that impact your forward provisioning requirements in terms of just your view on the economy and look backs and all of that?

[Andy McDonald:]

Well, certainly, we took an impairment, a rather significant one. That, if you will, game is still afoot. If that does not work out in our favour, then we would have obviously a rather large charge-off but there wouldn't be any allowance implications because it's already baked in. So, we feel fairly comfortable in terms of where we're sitting today and the exposures that we have on the balance sheet.

[Jackie Bohlen:]

Okay. So how you are thinking about the agricultural portfolio that's impacted today, and any change that may have to your view of the economic impact into your reserve methodology, that's not likely to impact reserve requirements in say 2Q, 3Q?

[Andy McDonald:]

That's correct.

[Operator:]

[Operator Instructions] And your next question comes from the line of Jon Arfstrom.

[Jon Arfstrom:]

It's Jon Arfstrom. Just one short follow-up on credit. The nonperforming asset totals that you have. How granular would you say the credits are in there? Are there any bigger ones that have the potential to cure or would you say these are a number of smaller credits?

[Andy McDonald:]

Well, we've got about $31 million in 3 credits. After that, it gets pretty granular.

[Jon Arfstrom:]

Okay, got it. And those 3 credits are, are they ag or are they real estate or what are they?

[Andy McDonald:]

They are all commercial business loans. The majority, about 2/3, is ag.

[Jon Arfstrom:]

Okay, got it. That helps me. And then you made the disclosure on the deposit loss from the acquisition. I'm just curious aside from that how do you feel like you've done on the Pacific Continental retention of loans and deposits? And Hadley, you talked about some of the potential production synergies and maybe give us an update on how you are doing there?

[Hadley Robbins:]

Yes, I can respond to that, Jeff. I think the conversion overall, I think has gone well with respect to data and combining GLs and consolidating branches. There is always friction that occurs in areas during conversions, and we had some friction, but yet, I think that that's behind us at this point. And we are pointed the right way in stabilizing the base of clients that we have. I think that we've been very active in reaching out and talking to people at our Pacific Continental clients and spending time with employees. And very impressed with the employees and the clients both. And so, I feel like we're headed the right way there. The attrition that we've had, I think that we've accounted for that in our model and it's aligned well with where we thought we were going. We've done a good job in I think retaining to date the key employees and also the key clients. So, I feel very comfortable with where we're going.

[Operator:]

And there are no further audio questions. And I'm showing no questions over the web.

[Hadley Robbins:]

Okay. Well thank you, everyone. That concludes our call for today. Bye-bye.

[Operator:]

Thank you to all of our participants for joining us today. We hope you found this webcast presentation informative. This concludes our webcast. You may now disconnect. Have a great day.