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DATE
Thursday, July 24, 2025 at 2 p.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — Tony Labozzetta
Senior Executive Vice President and Chief Financial Officer — Tom Lyons
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TAKEAWAYS
Net Income: $72 million, or $0.55 per share, reflecting improvement over Q2 2024 and Q1 2025 (GAAP).
Return on Average Assets (ROA): 1.19% annualized for Q2 2025.
Return on Average Tangible Equity: 16.79% annualized for Q2 2025, adjusted for intangible amortization.
Pretax Pre-provision Return on Average Assets: 1.64% annualized for Q2 2025.
Revenue: $214 million, a record for Q2 2025, driven by net interest income of $187 million and noninterest income of $27 million.
Net Interest Margin (NIM): 3.36% in Q2 2025, up two basis points versus the prior quarter; projected in the 3.35%-3.45% range for the remainder of 2025, assuming two 25-basis-point rate cuts.
Loans Held for Investment: $318 million increase, or 6.8% annualized, led by commercial, multifamily, and commercial real estate growth.
C&I Loans: Annualized growth rate of 21% in Q2 2025, reflecting increased origination and line usage.
Commercial Loan Portfolio Growth: 8% annualized commercial loan portfolio growth, with 20% of originations in commercial real estate and 80% in commercial and industrial loans.
Deposit Growth: $260 million increase, or 5.6% annualized. Average cost of total deposits decreased to 2.1%.
Allowance for Credit Losses (ACL) and Reserve Release: ACL coverage was 0.98% of loans, following a $2.9 million reserve release due to improved economic forecasts.
Asset Quality: Nonperforming assets declined to 44 basis points of total assets; net charge-offs were $1.2 million (three basis points of average loans); total delinquencies at 65 basis points of loans; Criticized and classified loans down to 2.97%.
Tangible Book Value per Share: Tangible book value per share increased $0.45 to $14.60, with tangible common equity ratio up to 8.03% from 7.9% last quarter.
Efficiency Ratio: Improved to 53.5%. with annualized noninterest expense to average assets at 1.89%.
Dividend: Quarterly cash dividend of $0.24 per share declared, payable August 29.
Commercial Loan Pipeline: Pull-through adjusted pipeline of $1.6 billion at a weighted average interest rate of 6.3%.
Fee-Based Businesses: Provident Protection Plus revenue up 11.3%, income was up 10.1% compared to Q2 2024; Beacon Trust revenue declined 5.2% due to lower average market value of AUM, with end-of-quarter AUM at $4.1 billion, flat sequentially.
Noninterest Expenses: $114.6 million, including approximately $750,000 to $1 million in nonrecurring severance charges; Full-year core operating expense guidance reaffirmed at $112 million to $115 million per quarter.
Tax Rate: Effective tax rate of 29.7%; projected at approximately 29.5% for the remainder of 2025.
CRE Ratio: Commercial real estate exposure was 444%. Merger-adjusted CRE ratio was 408%, improving from 475% a year ago.
SUMMARY
Management highlighted strategic loan mix diversification, with significant growth in commercial and industrial segments and reduced reliance on commercial real estate, following planned objectives. Executives noted robust commercial loan pipeline momentum and affirmed confidence in sustaining current loan growth trends for the remainder of 2025. Management stated that Beacon Trust hired a chief growth officer, targeting expansion and deeper integration with other business lines. Executives confirmed a neutral balance sheet position, with margin guidance for Q3 2025 and the full year factoring in two 25-basis-point rate cuts, and explained that upside in net interest margin depends on funding-side dynamics in a competitive deposit environment. Leaders stated business deposit funding remains stable and growing; approximately 30% of commercial loan production is funded by business deposits, with municipal deposit inflows expected in Q3 2025.
Tom Lyons said, "About 40% of the pull-through adjusted pipeline is in CRE. About 55% is in the commercial categories. And about 5% consumer."
President Tony Labozzetta noted, "our main focus is on organic growth, but we're not closing the door to M&A at all."
There was a discussion that nonrecurring expense impacts included $750,000 to $1 million in severance, with additional expense variation possible due to incentive accrual adjustments later in the year.
Executives clarified that net interest income (NII) growth is prioritized, and management may tolerate modest NIM fluctuation if NII continues to improve.
Competition for consumer deposits was described as elevated, with less stress seen in municipal and business deposit categories.
Asset repricing and accretive new loan production were cited as key drivers for NIM upside in Q3 2025 and the remainder of 2025, as roughly $6 billion of the back book is set to reprice within twelve months as of Q2 2025.
INDUSTRY GLOSSARY
CECL: Current Expected Credit Losses, a forward-looking reserve methodology for estimating future credit losses on financial assets.
CRE Ratio: The ratio of a bank’s commercial real estate loan exposure to its total risk-based capital, used to monitor CRE concentration risk.
Pull-Through Adjusted Pipeline: The loan pipeline figure adjusted for estimated deal closure rates, reflecting the realistic likelihood of loans being funded.
ABL: Asset-Based Lending; commercial loans secured by company assets.
AUM: Assets Under Management, the total market value of assets managed by a financial institution on behalf of clients.
NII: Net Interest Income, the difference between interest earned on assets and interest paid on liabilities.
NIM: Net Interest Margin, a measure of the difference between the interest income generated and the amount of interest paid out to lenders, relative to total earning assets.
ACL: Allowance for Credit Losses, the reserve set aside for estimated future loan losses.
CET1: Common Equity Tier 1 capital, a key measure of a bank's core equity capital compared to its risk-weighted assets.
Full Conference Call Transcript
Tony Labozzetta: Thank you, Adriano. Welcome everyone to the Provident Financial Services earnings call. The Provident team delivered an impressive performance this quarter. Our team gained momentum with solid earning asset growth, improved margins and asset quality, record earnings, and expansion of tangible book value. During the quarter, we reported net earnings of $72 million, or $0.55 per share. Our annualized return on average assets was 1.19% and our adjusted return on average tangible equity was 16.79%. For the second quarter, pretax pre-provision return on average assets was 1.64%. These core financial results improved from the trailing quarter and the same quarter last year, and we are confident in our ability to sustain this momentum throughout the remainder of 2025.
We continue to build our capital position, which comfortably exceeds levels deemed to be well-capitalized. For the quarter, our tangible book value per share grew $0.45 to $14.60, and our tangible common equity ratio expanded to 8.03%. As such, this morning, our board of directors approved a quarterly cash dividend of $0.24 per share, payable on August 29. During the quarter, our deposits increased $260 million, our annualized growth rate of 5.6%. We continue to improve our average cost of total deposits, which decreased to 2.1%. During the second quarter, our commercial lending team closed approximately $764 million in new loans, bringing our production to a record $1.4 billion for the first half of the year.
As a result, our commercial loan portfolio grew at an annualized rate of 8%. This quarter's production consisted of 20% commercial real estate and 80% commercial and industrial loans. Our strong capital formation combined with our production mix has reduced our CRE ratio to 444%. Adjusting for merger-related purchase accounting marks, the CRE ratio is actually 408%. Notwithstanding the high level of loan closings this quarter, our loan pipeline remains robust at approximately $2.6 billion, and the weighted average interest rate is stable at 6.3%. The pull-through adjusted pipeline, including loans pending closing, is approximately $1.6 billion.
We remain confident about the strength of our pipeline and our ability to achieve our commercial loan growth expectations for the rest of the year. Our credit quality is strong relative to our peer group, with a modest improvement in our nonperforming assets and a decline in delinquencies and classified loans. Our net charge-offs decreased this quarter to just $1.2 million or three basis points of average loans. These numbers demonstrate our commitment to prudent underwriting and portfolio management standards. Overall, Provident's fee-based businesses performed well this quarter. Provident Protection Plus maintained its strong performance with an 11.3% increase in revenue for the second quarter, and its income was up 10.1% compared to the same period in 2024.
Given market conditions early in the quarter, Beacon Trust revenue declined 5.2% due to a decrease in average market value of assets under management. However, asset valuations have recovered, and Beacon closed the quarter with $4.1 billion in AUM, which is consistent with the trailing quarter. The Beacon team is focused on building AUM, and I am pleased to report that Beacon has hired a new chief growth officer to further this objective, with a projected start date late in the third quarter. Overall, we are proud of our performance this quarter. We have a dynamic team and a solid foundation to grow our core businesses, expand profitability, and create even more value for our stockholders and customers.
Building on our strong results, we believe we will continue this momentum and achieve our desired goals for the remainder of 2025. Now I will turn the call over to Tom for his comments on our financial performance.
Tom Lyons: Thank you, Tony, and good afternoon, everyone. As Tony noted, we reported net income of $72 million or $0.55 per share for the quarter, with an ROA of 1.19%. Adjusting for the amortization of intangibles, our return on average tangible equity was 16.79% for the quarter. Pre-tax pre-provision earnings for the current quarter were $99.6 million or an annualized 1.64% of average assets. Revenue increased to a record $214 million for the quarter, driven by record net interest income of $187 million and noninterest income of $27 million. Average earning assets increased by $383 million or an annualized 7% versus the trailing quarter, with the average yield on assets increasing five basis points to 5.68%.
Our reported net interest margin increased two basis points versus the trailing quarter to 3.36% while our core net interest margin remained stable. We currently project a NIM in the 3.35% to 3.45% range for the remainder of 2025. Our projections include 25 basis point rate cuts in September and November. Period-end loans held for investment increased $318 million or an annualized 6.8% for the quarter, driven by growth in commercial, multifamily, and commercial real estate loans, partially offset by reductions in construction and residential mortgage loans. C&I loans grew at an annualized 21% pace while total commercial loans grew by an annualized 8% for the quarter. Our pull-through adjusted loan pipeline at quarter-end was $1.6 billion.
The pipeline rate of 6.3% is accretive relative to our current portfolio yield of 6.05%. Period-end deposits increased $260 million for the quarter, however, average deposits decreased $278 million versus the trailing quarter. The average cost of total deposits decreased to 2.1% this quarter. Asset quality remained strong with nonperforming assets declining to 44 basis points of total assets. Net charge-offs were just $1.2 million or an annualized three basis points of average loans this quarter. In addition, total delinquencies declined to 65 basis points of loans, criticized and classified loans fell to 2.97% of loans.
This strong and stable asset quality, coupled with an improved economic forecast used in our CECL model, drove a $2.9 million reserve release this quarter. This brought our allowance coverage ratio to 98 basis points of loans at June 30. Noninterest income was steady at $27 million this quarter, with solid performance realized from core banking fees, insurance, and wealth management, as well as gains on SBA loan sales. Noninterest expenses were $114.6 million with annualized expenses to average assets totaling 1.89%, and the efficiency ratio improving to 53.5% for the quarter. We reaffirm our previous guidance of quarterly core operating expenses of approximately $112 million to $115 million for 2025.
Our effective tax rate for the quarter was 29.7%, and we currently expect our effective tax rate to approximate 29.5% for the remainder of 2025. Our sound financial performance supported asset growth and drove strong capital formation. Tangible book value per share increased $0.45 or 3.2% to $14.60, and our tangible common equity ratio improved to 8.03% from 7.9% last quarter. That concludes our prepared remarks. We would be happy to respond to questions.
Operator: If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, hit 1 to join the queue. And our first question comes from the line of Mark Fitzgibbon with Piper Sandler. Your line is open.
Mark Fitzgibbon: Hey, guys. Good afternoon.
Tony Labozzetta: Hey, Mark. How are you?
Mark Fitzgibbon: Good. First question I had for you, Tony, is on the Beacon business. I heard your comments about, you know, growth starting to ramp with some new people. I guess I was curious, is there any change in strategy or is it just simply you brought in some new people that will go out and market and grow the business? Or are you trying to market to a different audience?
Tony Labozzetta: Great question. I really don't think that I would call it much of a strategy. I think our focus has been growing the AUM. Beacon is a really strong platform. I think one of the things that we're looking to enhance is the sales and service more the sales side. Right? I think we're trying to build a bigger force that could easily work with our business line partner on the other commercial, retail, treasury, insurance so that we can penetrate not only our existing business, but we can also get new to bank or new to Beacon clients as well. So it's a forward strategy with, and also a focus on retention.
And so integrating it better into our businesses is what we're trying to do, and I think the individual we hire for this role is going to be key to that initiative.
Mark Fitzgibbon: Okay. And then a couple questions around provisioning. You mentioned in the release that, you know, part of the reason for the reserve release was improved sort of the economic forecast. Assume is that Moody's? Their assumptions changed?
Tom Lyons: That's correct, Mark. Moody's baseline and primarily in our case, the main driver in terms of macroeconomic variables is the commercial property price index. That drove most of the release.
Mark Fitzgibbon: Okay. And then it's kinda related. I guess I was curious. Your bottom line ROA and ROE estimates kind of imply that provisioning will be pretty modest in the back half of the year. Am I thinking about it the right way? Because you've given really good guidance on most of the other items, and that's the one that kinda sticks out.
Tom Lyons: I think that's the case, Mark. If you look at asset quality, we saw some nice improvement in terms of criticized and classified and don't see it in the release, but the watch list credits have improved as well. And for good economic reasons, we saw improved lease-up in both the retail commercial real estate space as well as the multifamily space. So feeling pretty good about credit quality overall.
Tony Labozzetta: Barring any shift in market conditions or some global event, I think that's a good outlook.
Tom Lyons: Yeah. And I'll note, Mark, even though you saw a small increase in dollars of NPLs, there's no loss content in the driver of the increase. There was one loan in excess of $10 million that was really almost, I guess, a technical nonmaturity in the sense that there's some ownership concerns among the owners of that business as to the disposition of the property. But really strong valuation. So we're not concerned about losses there.
Mark Fitzgibbon: Okay. And then last question, Tony. Last quarter, I had asked you about sort of M&A, and you said you're focused on organic growth. But open to M&A. However, your stock price wasn't, you know, didn't fully reflect the strength of the company, etcetera. Your stock is up maybe 10, 12% since then. Do you feel like the currency gives you capacity to be able to seriously consider M&A at this point?
Tony Labozzetta: Well, you know, you just say, you know, always clear last time. I think we're always in a place where we have to evaluate all our strategic options. We continue to do that. I think right now, our main focus is on organic growth, but we're not closing the door to M&A at all. In fact, if there was the right opportunity to meet the strategic things that I talked about last quarter, came up. We would have to entertain, observe it, and evaluate it to what it means for our shareholders as we go forward.
But I think the price is starting to reflect a little bit more of what we think Provident is, and I think there's still some more room that we can move there.
Mark Fitzgibbon: Great. Thank you.
Tony Labozzetta: Yep.
Operator: And our next question comes from the line of Steve Moss with Raymond James. Your line is open.
Thomas M. Lyons: Hey, guys. This is Thomas on for Steve. Thanks for taking my question. Just wanna start it off with loans here. C&I growth was really strong. What's driving that right now? Is it more line utilization? Or is it, you know, new originations? And maybe what additional hiring opportunities are you seeing for C&I lenders these days? Thanks.
Tony Labozzetta: Well, I would characterize our organizational capacity as where we want it right now. And, you know, additional hirings will come from the standpoint of expansion and what we're thinking about. I think that growth is because of the book. I think that growth, not only the book, but also Phil Fink being here, the team's focus on C&I. You know, we have a very diverse set of products today that we have three years ago. We have the ABL, and healthcare lending, mortgage warehousing, SBA is ramping up. So we have all these businesses. They've all contributed nicely to our production this year, this quarter. And our pipeline shows that they'll continue to contribute nicely.
But our focus is not away from CRE. I just wanna be careful, and not to express that. We're growing our CRE book. We're doing it. It's just that those other lines are moving at a much faster pace. And so we're pleased with that. They're bringing in some great deposits with it. We do have the capacity, but we'll just keep going when we need to. And we have a good plan on expansion both from a capacity numbers and to your geography. So I think I'm pretty pleased with the general direction of where we are with the commercial bank.
Tom Lyons: And I would agree with Tony that it was primarily driven by a rich origination, but we did see increased line usage over the last number of months. We call it normalization. We were traveling in a low territory for a long time as I guess was much of the industry. We're back up around 45% line utilization.
Thomas M. Lyons: Okay. And I'd add also in terms of the pipeline, Tony talked a little bit about the mix going forward. About 40% of the pull-through adjusted pipeline is in CRE. About 55% is in the commercial categories. And about 5% consumer.
Tony Labozzetta: I just would like to round out that comment by saying it's not accidental. I think part of our strategic objective was to kind of diversify our commercial book so we're not CRE heavy. And as you can see by the reported number that if you adjust for the merger-related charge, we're at 408%. That's a pretty solid number. And it'll continue to improve as we continue to build our other lines of business.
Tom Lyons: Especially when you consider we were at 475% a year ago.
Tony Labozzetta: Correct.
Thomas M. Lyons: That's all great color. I really appreciate that. If I can get one more in, you know, wealth management fee did feel a little light at, you know, 68 basis points of EOP AUM. Was that driven by maybe lower average AUM from market volatility? Or maybe something else?
Tom Lyons: Yes. That is the case. For the quarter. Like, as Tony noted, I think, his opening comments, the average balance was down impacted revenue for the quarter, but we did see a market recovery, and we're back up actually a little bit ahead of where we were at the end of the period at the first quarter. So client count has remained constant. We're actually at plus three on the client count. The AUM per client has gone up a little bit. So nice recovery by the end of the period.
Thomas M. Lyons: Okay. Great. That makes sense. That's all for me. Thanks, guys.
Tony Labozzetta: Thanks, Eric.
Operator: And our next question comes from the line of Feddie Strickland with Hovde Group. Your line is open.
Feddie Strickland: Hey, good afternoon. Just wanted to start on the expense guide. Last quarter, I think you mentioned you might be able to come in potentially at the lower end of the range. Do you still feel like maybe that's achievable and we could see the quarterly expense line even come down a little bit in the back half of the year?
Tom Lyons: I do, Feddie. You know, so there was a little bit of unanticipated what I would consider nonrecurring costs in terms of some severance charges about $750,000 to a million dollars, let's say, in nonrecurring there. That said, the back half of the year is usually when we take a closer look at some of our incentive accruals for the current period as we get greater visibility into where we might end the year. So the various incentive programs throughout the different disciplines in the bank we try to get a finer point, a little more precise, and that can affect the accruals either positively or negatively. So that's why we're given a range of $112 million to $115 million.
Feddie Strickland: Got it. Appreciate that. And just wanted to talk through the municipal deposit flow seasonality, kind of what your expectations are there? And am I thinking about that correctly that maybe the increase in brokered deposits is really to replace some of that outflow and then we maybe see those broker deposits come back down as maybe have some seasonal inflows in municipal deposits?
Tony Labozzetta: Yeah. I think that's a fair statement. I would kind of expand on that to say, we also allowed some high-yielding CDs that we had, you know, on our books from pre-merger. During the liquidity times. And that was just a trade-off between the broker deposits or, you know, the consumer CDs, which were high yield. And we thought that a good trade. And it also made up the delta in funding needs because of the municipal outflow. So there was a combination of those two things.
If you look at our municipal pipeline now, not only do we expect the flows, which are strong in the third quarter, particularly this month, and we're starting to see that, but you also are now seeing the pipeline of municipal potential new municipal business is also there. So that should come along nicely as we achieve those wins.
Tom Lyons: You are correct, though, that the municipal deposits the trough is the deepest in the second quarter historically.
Feddie Strickland: Alright. Great. Thanks for the color.
Tom Lyons: Thanks. Welcome.
Operator: And our next question comes from the line of Tim Switzer with KBW. Your line is open.
Tim Switzer: Hey, Tim. Hey, good afternoon. For taking my questions. With you guys a little bit less interested in M&A right now, do you have, like, a target capital level you're trying to get to? And how does that play into your appetite for more share repurchases?
Tony Labozzetta: I don't think it's a significant strength. I kinda like around 11 and a quarter for the CET one.
Tim Switzer: Okay. Okay. And sorry if this has already been asked, but for the NIM trajectory, you guys took up the high end of the guide a little bit. Can you talk about what's helping drive that? And, you know, how would Fed rate cuts impact your margin?
Tom Lyons: The balance sheet's fairly neutral. So, I mean, the two cuts 25 basis points are built into that margin expectation. You know, there's we run a whole number of models and working on the most likely, though, but it looks like around a 3.40 in Q3. Maybe exiting as high as 3.45, 3.47 even at the end of the year. But, you know, again, to exercise a little caution in that, and, again, that's two rate cuts in September and November.
Tim Switzer: Great. Okay. That's good to hear. And the last one for me, the loan pipeline moved down just slightly lower, but you obviously had pretty good growth in Q2. Is there any, like, slowdown or uncertainty causing borrowers to be more cautious at all? Or, you know, everything still looks pretty good. People aren't too concerned about tariffs or anything like that.
Tony Labozzetta: Yeah. Actually, that's one of the real bright spots. You know, while the pipeline went down, it did go down because of some what I would call, very strong loan closings in the quarter. Right? And I think the key is we scrub our pipeline incredibly well. So the stuff that's in there, we feel pretty good about it. And so we also in all the conversations with our verticals, don't see any signs of anything slowing down immediately. The replenishment appears to be happening. We do expect to have a nice pull-through in the third quarter. And continue to replenish it. And so again, I don't see anything right now that I'm concerned.
I think it's a bright spot for us moving forward.
Tim Switzer: Okay. Great. Thank you, guys.
Operator: And our final question comes from the line of Manuel Navas with D.A. Davidson. Your line is open.
Manuel Navas: Hey, I appreciate that commentary on the NIM in the back half of the year. Is the main driver there, the accretive, new loan production? With deposits kind of being more flat, or could you see some deposit costs decline as well? I guess you do include two cuts, so that's part of it as well.
Tom Lyons: Yeah. I would put more emphasis on the asset repricing though. You got about $6 billion of the existing back book repricing over the next twelve months? You know, about $5.1 billion is floating. So you know, as the rates move, we should see that benefit. Then the new loan production coming on at accretive levels as well. I would be cautious about taking too much credit even with the rate cuts on the funding side just because the competitive environment, I think, is a little bit more challenged now. Deposits are a hot commodity.
Tony Labozzetta: I would add one dimension to that. I think certainly, there's a lot of accretive loan production. I think whether we're in the high end of the range or low end of the range, it's gonna be dictated by the funding side. But I also want to preface us that while we make managerial decisions, we're focusing a lot of our energy around the NII. So we'll be willing to give away one or two basis points if our NII can grow. So I just want you guys to remember that for the next earnings call. That'll be management decisions that we'll make to drive better earnings and that's part of the management game. Right?
Tom Lyons: That's a really good point. And you saw some of that even on the investment portfolio side. I think I mentioned last quarter, I'd be very comfortable taking the investments back up to about 15% of assets. Still a little bit under that now. But the leverage growth obviously gives you a little bit less spread, but good income with very little credit losses because we're buying high-quality treasuries and agency securities.
Tony Labozzetta: Right. But we're feeling pretty good because some of the funding growth that we're seeing, and if that manifests along with the loan production, it should be well in the range of what Tom is saying.
Manuel Navas: I definitely sense the optimism on NII growth. Could you speak a little bit more to that competition you're seeing? Just in some of that commentary? I mean, that's also because there's more demand out there, but just could you just speak to that for a moment?
Tony Labozzetta: Yeah. I think a lot of the competition we're seeing now Tom could jump in at any moment, we're on the consumer deposit side, we're seeing more of stress. Right? Whether they're the deposit accounts moving into money markets or other banks are starting to get a little bit more competitive for the space, particularly with CD products. Our business deposits are stable and growing. Just a fact point, for everybody on this call. We're probably funding about 30% of our commercial production commercial funding is being done with business deposits, and that's a pretty good ratio. And so if we can have the municipals come back, we're not seeing a lot of stress there in terms of competition.
We're seeing the competition more on the consumer side. Not that the municipals don't have it, but the biggest level of competition is happening on the consumer deposits. Tom, would you like to add on that?
Tom Lyons: I think you covered it just to accentuate that it's not just banks. The availability of viable investment alternatives for folks as well, and they can get a decent return.
Manuel Navas: I really appreciate the commentary. Thank you.
Tony Labozzetta: You're welcome.
Operator: And that concludes our question and answer session. I will now turn the conference back over to Mr. Tony Labozzetta for closing remarks.
Tony Labozzetta: Well, thank you, everyone, for your questions and joining the call. We hope everyone has an enjoyable summer, and a great rest of the year. We look forward to speaking with you soon. Thank you very much.
Operator: And, ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.