Great Western Bancorp, Inc.
Q1 2015 Earnings Call Transcript

Published: 28 Jan 2015

[Operator:]

Good morning, and welcome to the Great Western First Quarter Fiscal Year 2015 Earnings Announcement Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. Now, I’d like to turn the conference over to Cheryl Olson. Ms. Olson, please go ahead.

[Cheryl Olson:]

Thank you, Keith and good morning everyone. Joining us today on Great Western Bancorp’s first quarter fiscal year 2015 earnings announcement conference call, are Ken Karels, President and Chief Executive Officer, Peter Chapman, Chief Financial Officer, Stephen Ulenberg, Chief Risk Officer, and David Hinderaker, Head of Business Performance and Strategy. Before we begin, please note that some comments today may contain forward-looking statements that are subject to certain risks and uncertainties that could cause the company’s actual future results to materially differ from those discussed. Please refer to the forward-looking statement disclosures contained in the presentation, we have made available on our website, as well as our SEC filings for a full discussion of the company’s risk factors. Additionally, today we’ll be discussing certain non-GAAP financial measures on this conference call. References to non-GAPP measures are only provided to assist you in understanding Great Western’s results and performance trends and should not be relied upon as a financial measure of actual results. Reconciliations for such non-GAAP measures are appropriately referenced and included within the presentation. Now, I'll turn the call over to our Chief Executive Officer, Ken Karels.

[Kenneth Karels:]

Okay. Thank you, Cheryl, and welcome to our first earnings conference call for fiscal year 2015. Results for the first quarter are encouraging. The results reflect our ability to deliver strong net income, driven by a continued focus on efficiency and containing cost. We continue to grow our balance sheet consistent with our strategy. On the agribusiness side, we’ve seen good results from a balanced portfolio. Beef and dairy had a phenomenal year driven by high prices for the products and lower input cost. Grain farmers offset lower prices with higher yields. We had good growth in commercial real estate and both the C&I and commercial real estate pipelines are healthy. We would like to note in-light of recent economic conditions that we have limited exposure to the energy sector and believe our customers will benefit from reduced energy cost. We continue to rationalize our footprint to reduce cost, while still serving our customers. We opened a new branch in Greeley, Colorado in December and recently announced plans to relocate her business banking hub in Omaha. We also announced that we will close five branches in Nebraska and South Dakota in March that we no longer believe are consistent with our strategy. These changes will position us for further revenue growth and deliver cost savings without major customer or employee impact. Before we look at our financial results, I’m pleased to announce effective today, we declared a dividend of $0.12 per common share payable on February 23, 2015 to owners of record as of February 12, 2015. Now let’s take a look at our results. Our first quarter net income was $26.7 million or $0.46 per share. Both deposits and loans saw good growth. Total loans were up a $199.3 million or 2.9% and deposits increased to $187 million or 2.7% since September 30, 2014. Now if you recall, last quarter we had flagged that we’re looking at flatter slightly higher loan growth, we had expected a number of plan pay downs which had not yet occurred. We also benefited from seasonal advances to support our Ag customer’s tax planning strategy at year end. It is likely we may see higher pay downs next quarter related to both of these items. Loan growth was balanced across our entire footprint. Colorado and Arizona continue to deliver strong numbers, which were matched by nice growth in our mid-west markets of South Dakota and Nebraska and Iowa. We generated a return on average assets of 1.1% and a return on tangible common equity of 15.8% for the quarter. Noninterest expense management drove an efficiency ratio of 48.5% for the quarter compared to 49% last quarter and 50% for last fiscal year. Asset quality remained solid. Nonperforming loans now stand at just under 1% of total loans, net charge-offs were a negative, and our provision increased to 0.74% of total loans. We feel confident that these results showcase our continued ability to operate efficiently, reserve high asset quality and maintain a strong capital position. For the first quarter, we delivered solid deposit and loan growth, further rationalized our footprint and continue to reduce our cost of deposits. Now, I'll turn it over to Pete, who will go into more detail on our financials. Pete?

[Peter Chapman:]

Thanks very much Ken and thank you for everyone for dialing in today. You will see that we have made some changes in disclosures to the accounting for our fair value loans and derivatives. This reflects feedback to help these – to make these easy to understand when analyzing our results. Unfortunately, GAAP doesn’t submit the netting of all amounts in relation to these items, but hopefully our disclosures are now more clear for you. While GAAP measures are important, management focused on our adjusted NIM for internal management reporting purposes, and it’s important to note these changes do not change the underlying profitability of Great Western Bank. We are very pleased with our performance for the quarter. On a fully-tax equivalent basis net interest income of $81.2 million was up $3.2 million or 4% from the first quarter of last year. Higher interest income on loans and lower deposit interest expense were partially offset by lower interest income from the investment portfolio, which now comprises a smaller proportion of interest earning assets than it did in the prior year. Adjusted net interest margin was 3.67% compared to 3.86% last quarter. There were coupled unusual items driving our NIM in this quarter though. 8 basis points of the decline is driven by the marginal interest earned on the proceeds from our initial public offering, which is kept on deposit with us for the majority of the quarter. Excluding this nonrecurring item adjusted net interest margin for the quarter would have been approximately 3.76% compared with the 3.86% last quarter, and 3.77% for the same quarter in the fiscal year 2014. On a sequential basis the remaining decline in NIM was driven by higher cash holdings through the quarter, with deposit growth coming early in the quarter, and loan volume coming in the last few weeks of the quarter, a decline – and a decline in loan margin, which was offset by lower cost of deposits and also a smaller investment portfolio. Deposits grew by $187 million or 2.7% from the last quarter. In addition to a strong business deposit growth we’re on a marketing campaign to acquire both business and consumer deposits in the form of money market accounts. These new deposits reflect a continued focus on our strategy of funding our loan growth through the acquisition of low-cost core deposits. An additional benefit of the strategic decision to change our mix of deposits is that we reduced our average cost of deposits for the quarter to 33 basis points. This continues the downward trend in the cost of deposits since 2011. While there is some potential for small decreases in the cost of deposits as interest rates remained low, they're not expected to be a significant decline in the cost deposits from current levels. Noninterest income was $7.9 million down from the prior comparable period in 2014. We recorded the net charge of $2.2 million due to a decrease in the fair value of one loan relationship that since being charged off and exited. Notwithstanding the fair value adjustments, noninterest income remains strong, with recoveries on acquired loans and increased trust services for the December 14 quarter. Also, income from the sale of originated mortgage loans remained consistent with both prior comparable periods and it was well up on the margin in June quarters as well. Moving to noninterest expenses were down slightly on a period-to-period basis coming in at $47.1 million or 2% less than the same period last year. On the plus side, we benefited from lower amortization of intangible assets offset by increased OREO costs and higher audit and consulting fees as a result of being a public company. Cost related to the management long-term incentives issued as part of the IPO were largely offset by lapses of incentives related to historical incentive plans during the quarter of approximately $500,000. We continued our strong track record of managing expenses as reflected in our efficiency ratio for the quarter of 48.5%, well below peers. Just also a few points to note on capital, Tier 1 and total capital was 11.8% and 12.9% respectively as of December 31, 2014 and also as of September 30, 2014. Retained earnings increased during this quarter offset by the impact of higher risk weighted assets primarily as a result of loan growth. This strong capital position enabled us to clear our first quarterly dividend which Ken has previously noted. I will now pass to Steve who’ll go through some trends on loan and asset quality through the quarter.

[Stephen Ulenberg:]

Thanks very much, Pete. From a loan perspective, loan growth for the quarter ending December 31, 2014 was $199.3 million, or 2.9% compared to last quarter. The majority of this growth was in commercial real estate and agribusiness which is very consistent with our strategy. As typical in our December quarter, a portion of the growth in agribusiness loans was driven by our customer tax planning strategies, so there may be some partial reversal of this sector in the next quarter. The growth in commercial real estate reflected lending opportunities principally in non-owner-occupied investments and in multifamily real estate. It’s important to also note that we have a relatively small portion of our commercial real estate portfolio in the construction and development segments. Based on our experience and long-term commitment of the agri-sector, we do understand that there will be ups and downs. We look at long-term economics and we lend to borrowers who can withstand the fluctuations in commodity prices. Our overall portfolio diversification remains a key strength for GWB and in our Ag book. We continue to be in effect from a well-balanced portfolio. Particularly balanced between grains and proteins and geographically spread across seven states. Some highlights for the Ag sector, in Western Nebraska, ranches in the protein sector have had a great year. Our dairy produces particularly in Arizona, have had strong results over the last two years. Off course, prices are cyclical and there has been some recent reduction in dairy prices, but this is being assisted by some lowering of input costs, particularly in feed. Grain farmers naturally are under more pressure at the movement with lower commodity prices, but generally our customers are managing this prudently, including both expenses and yields. In deed for a number of our customers, higher 2014 yields some ways offsetting price reduction. We do continue to focus on those famers demonstrating equity and liquidity. And we’re also being proactive if there’s any signs of undue stress seen. Nonperforming loans were $68.5 million, compared to $78.9 million for the September quarter, a 13% reduction. $29.5 million of that was covered by FDIC loss-sharing arrangements. OREO balances improved approximately 12%, a drop of $6.1 million for the quarter, with $10.6 million of that covered by FDIC loss-sharing arrangements. Provision for loan losses was $3.3 million for the quarter, compared to $2.7 million for the previous quarter. And this is consistent with the comment we made at last quarter’s earnings call and common with most banks, provisioning labels with the last one to two years were at cyclical low points and saw some increases is to be expected. This quarter’s provision was predominantly driven by relatively small number of loan relationships where we determine that additional specific allowance was required. Overall credit quality continues to improve and we naturally expect that there will be some losses requiring continued provisioning levels and this maybe lumpy as we work through any problem loans as they arise. Charge-offs for the first quarter remain low, reflecting the time lag inherent in those cyclical low provisioning levels of the last two years working their way through to charge-offs. Net charge-offs for the quarter were a credit of 1 million or minus 0.06% of total loans on an annualized basis. Our provisioning coverage has strengthened with the ratio of allowance from loan losses to total loans, increasing from 0.70% at September 30 to 0.74% at December 31, 2014. Before I wrap up, just a few brief comments on the energy sector, as Ken noted earlier we have minimal exposure to the sector. We have no material exposure to energy or oil and negligible exposure to North Dakota and negligible exposure also to ethanol production. Overall, we would see lower oil cost, as a net positive to many of our customers, such as transport and our farmers with a decrease in this important cost of production may soften the blow of reduced commodity prices this year. Now, I will turn the call back to Ken for some closing remarks.

[Kenneth Karels:]

Okay, thank you Steve. As we continue to work our way through fiscal year ’15, we’re off to a good start and remain positive on the progress of our top priorities. We’ve seen continued expense control leading to a great efficiency ratio. We’ve had strong earnings for the quarter and a strong underlying NIM. We got better than expected loan growth aligned to our strategy and have seen successful deposit growth in both business and retail. Noninterest income outside the fair value adjustment was good. Following the branch closures scheduled for March, we are comfortable with our branch network for the near term. Pipelines are healthy for continued growth and commercial real estate and C&I in all regions. We will experience some seasonality, yet are still projecting mid-to-high single digit loan growth for the year. We have in place a strong and efficient platform, which we believe will deliver long-term shareholder value. We’ve taken steps to position ourselves to have a successful year. Now, I like to open up the call to questions.

[Operator:]

Yes, thank you. We will now begin the questions-and-answer session. [Operator Instructions] And the first question comes from John Astrom from RBC Capital Markets.

[John Astrom:]

Yes, thanks good morning guys.

[Kenneth Karels:]

Good morning John.

[Stephen Ulenberg:]

Hi, John.

[John Astrom:]

Couple of questions on lending the commercial real estate growth, you talked about it a bit. But would you say, is there anything new or different there? Was it broad demand? Is there anything new or different happening there?

[Kenneth Karels:]

Yes John. I would say no and nothing new or different, I’ll have Steve kind of talk on this too here, but we’re – I think – the only thing we definitely are seeing it throughout the, all of our states, couple of quarters ago we were seeing more growth in Colorado and Arizona. The Midwest is picking up nicely too and we’re definitely seeing great economic connectivity throughout the Midwest too. Steve anything else to comment on?

[Stephen Ulenberg:]

No. Exactly Ken it’s very consistent with our strategy. And I think just reiterating the point I made we not – we’ve got a low exposure in the construction development area and that’s intentional, so it really is just growth in that core area of focus.

[John Astrom:]

Okay. In terms of the Ag year-end purchases, I am assuming that’s just tax deductibility issue equipment purchases before year-end. Is that right?

[Kenneth Karels:]

Yes, exactly John. Especially in the dairy sector which made a ton of money last year, there was a lot of prepayment of expenses. So we saw a lot of delay of income and payment of expenses in December, which was – which we – since obviously saw some pay down here in January from that.

[John Astrom:]

Okay. So the diary piece is the part that’s – that’s may be new or different than the typical year?

[Kenneth Karels:]

Yes, I would say the dairy made us a lot of money, so we were seeing them shelter some of that income into 2015.

[John Astrom:]

Okay, good. And then maybe one last one – Pete can you help us understand the margin outlook a bit. I’m assuming the IPO proceeds are gone, and maybe we’ve just got a little bit of pressure on the margin going forward just from regular business, activity and loan pricing is that right?

[Peter Chapman:]

Yes, absolutely John, so if you sort of – we’re looking at that slide when we sort of went along that NIM analysis on the IPO proceeds, that was just over $300 million that was out before the end of the quarter, so that’s why if you are looking at average balances that maybe a little higher than our spot balances, but that was really the only driver there. As I mentioned, we had some good deposit growth early in the quarter. And the loan growth came a little later in the quarter, so that caused a little bit of a drag on margins that we wouldn’t expect in the next quarter. And then on the loan side, yes, there was a little bit of pressure through the quarter, so at the moment I don’t think anything we’re seeing that’s a significant difference to sort of what we’ve flagged is a trend in the prior call – competition still there and as long as right to flag, we would expect the modest decline in loan margin sort of through the course of the year, but we’re not seeing a substantial drop off at this stage, I would say.

[John Astrom:]

Okay. All right. Thanks for the help guys.

[Peter Chapman:]

No problem.

[Operator:]

Thank you. And the next question comes from David Bradshaw with Deutsche Bank.

[David Bradshaw:]

Hi, good morning guys.

[Peter Chapman:]

Hey, good morning Dave.

[David Bradshaw:]

On expenses you mentioned the branch consolidation coming, I was just wondering if you think you can hold the expense run rate at the current level or potentially better given the savings you are expecting from those closings. Maybe as a part of that – If you can just talk about what your thoughts are on hiring this year.

[Peter Chapman:]

I can cover off and then I will I can turn to Ken on some hiring comments Dave. Branch closures the five we're closing, four of those properties are leased. So we expect sort of a few hundred thousand dollars in cost a day, but I wouldn’t thought anything significant from a expense, up in next quarter you will see a little bit, and by the same token, you will see a bit of saving going forward, which is a positive for us. That will help offset, code out that – we’ve had some increased cost due to being a public company on the audit side of things and also the incentive plans for management. We got that $500,000 of this in this quarter that I wouldn’t expect going forward, but definitely the branch closures have been, we are now thinking have been factored into help keep the efficiency ratio around were it is and also help with the expense run rate. So – and nothing was seeing there from a lumpiness perspective Dave that would cause a material move in sort of the outlook there.

[Kenneth Karels:]

Yes, I think in the hiring, we’ve been not surprised, but we’ve been happy that as we flagged in the roadshow in the IPO that we thought going public would help us hire people and we have seen that, especially out into the markets, we’ve been attracting some good relationship bankers throughout all the states that we’re in and support staff that we need here too. So, job market is definitely tightening up, so we're happy that we’re able to attract even in a tight market.

[David Bradshaw:]

Great, thanks. And then just switching to credits, saw the reserve ratio upticked a little bit for the quarter. Can you just talk about what loan bucket most of those adjustments were in that you’d mentioned? And if they were primarily driven by the Ag book and if you’re expecting further build in the reserve ratio there?

[Kenneth Karels:]

Steve you want to take that one.

[Peter Chapman:]

Yes, thanks Dave. Yes, look there was a - probably a little bit more focus on the Ag books just given where things are in the cycle here. Not much moving on the rest and so, I said before we're just keeping on it, but I think the price we're taking is with that coverage ratio, you will see on the slide that we’ve got our coverage of receives to nonaccrual loans now at a 133% that’s excluding the loss share. We just want to make sure we got adequate coverage there to take us through the part of the cycle we’re in.

[Kenneth Karels:]

With that too, I see this on the Ag book, especially on the grain, and corn and soybeans. We were surprised – pleasantly surprised that the yields were substantially above for many of our producers that offset this lower price and they would the one off some of those that had some lower yields and we are going to have some more struggle, but in all definitely had a good year, better year that we were anticipating last fall with the higher production on it. So, lot of those now as we look into ’15 are starting to make some adjustments. We are looking hard at those that rent a substantial part of their farm land and what adjustments can they make even into cash front to make sure they can survive through the next number of years. So, we’re very proactive as we manage that portion of the book through this lower cycle.

[Stephen Ulenberg:]

Okay. I might just add to that coverage Dave, also has improved because the nonaccrual loans are going down to faster rate. Loan receiving is going up, so again we’ve been cautious with nonaccrual loans, you’ll see they were down 42% over the last 12 months, so that’s helping as well.

[David Bradshaw:]

Yes. Great thanks and just one last one, you guys had some solid deposit growth this quarter. I was just wondering if you would talk about your outlook for growth for the year, given the branch closures, as may be a little bit of a negative and then some of the other programs you are running that would be of a positive.

[Stephen Ulenberg:]

Sure. Yes, first on the branch closures, we don’t see any really negative run-off on that, these are markets that were closing with branches nearby, within the mile or two with many of them. So it really just makes sense with the way retail banking has changed for us to have less facilities in markets like Omaha and Sioux Falls. So no deposit run-off anticipated, you are not much from those branch closures. As we’ve seen in others that we’ve done over the last three or four years on it too. So our focus has been in two areas, one has been on business deposits, we’ve done a great job over the last three or four or five years growing business loans and we are really focusing in more balanced scorecard for a business bankers to grow business deposits, and we’ve seen some good success last quarter in that. And then also focusing on money market accounts for our retail customers and had some really good growth this last quarter on that. So our focus will be on lower cost more stable core deposits in both businesses in retail.

[Peter Chapman:]

And also Dave as well with the deposits we are running off we’ve got, within the CD portfolio there are some, that was sort of the historical sort of three year specials that are rolling off and they were at a pretty reasonable rate as well. So we are adding a business deposit or a money market deposit that’s probably coming in it sort of a net positive from a cost perspective as well.

[David Bradshaw:]

Great, all right. Thanks guys.

[Stephen Ulenberg:]

Thanks Dave.

[Operator:]

Thank you. And the next question comes from Tim O'Brien with Sandler O'Neil

[Tim OBrien:]

Good morning.

[Stephen Ulenberg:]

Good morning, Tim.

[Tim OBrien:]

The first question dividend $0.12 that’s a regular dividend I am assuming?

[Stephen Ulenberg:]

That’s correct that would be regular dividend.

[Tim OBrien:]

Great. And then I know Peter touched on this, as far as there was a nice improvement on the overhead cost side, coming into the first quarters, there is going to be some seasonality payroll taxes and that sorts of things, that elevates comp cost and may be overall expenses a little bit relative to 4Q with that be a…

[Stephen Ulenberg:]

Look probably couple of moving comps in there Tim, we ever mentioned we sort of have that 500,000 recovery and sort of some older incentive plans elapsing at Q1, so we don’t expect there is another recovery of that night to come through in Q2 so that’s modest stop tick there, outside of that not anything significant, I’ve to say that we can say at this moment Tim has a little bit of movement that we’re talking sort of hundreds of thousands, we are not talking sort of millions as a dawn move up. The obvious caveat there is obviously the OREO pace. We had some charges in there for Q1, and that could be a little bit lumpy or a recovery quarter-on-quarter, but sort of outside of the OREO Tim. Now we are not saying a significant uptick we know the flag would start.

[Tim OBrien:]

And then my last question, the fair value adjustment $2.2 million on a loan relationship, you mentioned that rolled through the fee income piece?

[Peter Chapman:]

That is right, yeah.

[Tim OBrien:]

Did that hit the $17.1 million, would that have been $2.2 million higher that number?

[Peter Chapman:]

$17.1 million incentives

[Tim OBrien:]

19 Pete?

[Peter Chapman:]

That is correct. That is right.

[Tim OBrien:]

Thanks.

[Peter Chapman:]

That would have been, Tim.

[Tim OBrien:]

Thanks for answering my questions.

[Peter Chapman:]

Thank you, Tim.

[Operator:]

Okay, thank you. And the next question comes from Russell Gunther with Macquarie.

[Russell Gunther:]

Hey, good morning guys.

[Kenneth Karels:]

Hi, good morning, Russell.

[Russell Gunther:]

I appreciate the color you mentioned – the potential for some pay downs in the Ag portfolio, next quarter. But maybe looking out a little further Ken, you mentioned in last quarter’s call, you had witnessed some underinvestment or deferred asset purchases within your Ag lending base, whether it be Barnes or machinery, equipment or et cetera. Have you witnessed any increased appetite to pull the trigger on that kind of CapEx and if not what do you think borrowers need to see to get off the fence here?

[Kenneth Karels:]

I think in the Ag, definitely on the business sector we have. On the Ag sector, I think it’s more cautious, definitely the beef is still having a phenomenal year, dairy we’ve seen a retrench in some of the price or a little bit more caution on them. But obviously had a great year last year, I think we will see some spending there, but I don’t think it will be higher spending be just because of the caution on lower prices. Definitely on the grain side of it, a lot of caution there as far as capital expenditures. So I think we still say as we felt for that we will see long-term or in the short-term higher growth in C&I and commercial real estate and then somewhat of a slowdown in the whole Ag sector for us from a growth standpoint.

[Russell Gunther:]

Okay, great. That is helpful. And then you mentioned the loan growth this quarter, we’ve spent some time talking about Arizona and Colorado. Could you guys quantify, sort of what percent of the incremental growth this quarter was from those two states?

[Kenneth Karels:]

Look, I can – let us see look, look – be probably about a third of our growth came through, Arizona, Colorado.

[Russell Gunther:]

Okay, great. All right guys. That is all I have. Thanks so much.

[Kenneth Karels:]

Thanks Russell.

[Operator:]

Thank you. And the next question comes from Damon DelMonte with KBW.

[Damon DelMonte:]

Hey, good morning guys, how are you? Most of my questions have been answered, just Peter, just wondering if you could give a little bit of color on – kind of circling back on the margin, what your expectations are for the interest rate environment. I think you talked about probably seeing some modest pressure from this quarter’s level and I’m just kind of wondering how you guys are viewing the interest rate scenario.

[Kenneth Karels:]

Yes. Look with our statement, as you guys appreciate, we’re at September fiscal year end, rather than December anyway, so sort of internal budgeting and forecasting where the rights would play a little part in sort of helping us from a margin perspective from this fiscal year anyway. So, since that was a sort of looking and thinking that trend may continue in terms of that slide, you know that compression continuing somewhat modestly through the rest of the year Dave, that’s really on that flat rate environment. So if rights do move a little earlier than sort of – end of the fiscal – our fiscal year, we may see some easing in that, but we are certainly not banking on a rate increase to help us from a margin perspective or about that outlook, so really that’s just from a current environment perspective is that for you.

[Damon DelMonte:]

Got it. Okay, that’s helpful, thanks and then I guess just kind of, just more of a tactical question on the operating fee income, was there anything that they want to consider reoccurring, anything that we would from a modeling perspective look to take out?

[Kenneth Karels:]

No, I don’t think so. You’ll see that, mortgage has been pretty flat to prior quarter and PCP up on March and June, so really that’s a modest result of the refi phase. So you guys will obviously track sort of refi activity based on where rates are, so there is always a bit of variability there and then just that charge-off we spoke too as well, Damon, on one of those fair value loans that was one relationship pretty much – was one relationship through the quarter that we would hope obviously doesn’t react to the next quarter as well. So they are probably the two biggest moving parts there.

[Damon DelMonte:]

Okay, thank you very much.

[Kenneth Karels:]

Thank you and welcome.

[Operator:]

And the next question comes from Erik Zwick with Sterne Agee.

[Erik Zwick:]

Good morning, guys.

[Kenneth Karels:]

Hi, good morning.

[Erik Zwick:]

First is another question on the deposit growth in the quarter, you mentioned that the growth was in part due to advertising campaigns and if I look at the expense line there, looks like it was down about half on the previous quarter, so just curious if you took a different strategy in the quarter or maybe some of the growth was related to previous quarter campaigns, just want to kind of square that up?

[Kenneth Karels:]

Yes, actually we didn’t spend any money advertising this promotion. We believe a lot in shoe leather marketing here as we say it. So it was really a lot of bank recalls that was done to customers and new customers to attracted was virtually in no dollar spent for outside marketing or advertising with it. And that has worked pretty well for us, as we move forward, we don’t see us spending a lot especially in our retail marketing just not a part of our strategy and it hasn’t produced benefits for us.

[Erik Zwick:]

Okay. So, it sounds like that expense that we saw in the December end quarter, might be better to use going forward than what we’ve been previously?

[Peter Chapman:]

Yes, there’s probably a little lot, but we’re talking few hundred thousand dollars there, we are not talking like a huge amount, so - pretty representative, so there may be a small uptick but not a significant one. Yeah.

[Erik Zwick:]

Sure. And then lastly, the tax rate came in a little bit lower in my models and I’ve been expecting any guidance there for what we should look for maybe the rest of the year?

[Peter Chapman:]

Not so much from a full year perspective, but I think there's anything significant turning the quarter one off so or not – not really I think that will normalize that over the course of the years, nothing worth saying it should move that sort of what you have – we’ve had previously…

[Erik Zwick:]

Great, thanks guys.

[Peter Chapman:]

Thanks, Erik.

[Operator:]

Thank you. And as there are no more questions at the present time, I’d like to turn call back over to management for any closing comments.

[Stephen Ulenberg:]

I just want to thank everybody for joining us on the call today. As I mentioned, we are off to a good start and really remain very positive on the progress as we move forward for the rest of the year. So, thank you for joining us this morning.

[Operator:]

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect. Have a nice day.