Ladies and gentlemen, thank you for standing by and welcome to Cullen/Frost Q3 Earnings Results. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the call over to our speaker for today, Cullen/Frost's Director of Investor Relations, Mr. Avi Mendes. Please go ahead, sir.

Thanks, Jerome. This afternoon's conference call will be led by Phil Green, Chairman and CEO; and Jerry Salinas, Group Executive Vice President and CFO. Before I turn the call over to Phil and Jerry, I need to take a moment to address the safe harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available on our website or by calling the Investor Relations department at 210-2205-234. At this time, I will turn the call over to Phil.

Thank you, Avi. Good afternoon, everyone and thanks for joining us. Today I'll review third quarter results for Cullen/Frost and our Chief Financial Officer, Jerry Salinas will also provide additional comments before we open it up to your questions. In the third quarter, Cullen/Frost earned $95.1 million or $1.50 per share compared with earnings of $109.8 million or $1.73 per share reported in the same quarter of last year and $93.1 million or $1.47 per share in the second quarter of this year. Overall, average loans in the third quarter were $18.1 billion, up by 25% from $14.5 billion in the third quarter of last year, which included the impact from PPP loans. However, even excluding this impact, loans managed a 3.3% increase from a year earlier. Average deposits in the third quarter were $32.9 billion, also up by 25% from the $26.4 billion in the third quarter of last year and the highest quarterly average deposits in our history. We understand that the banking industry has seen broad increases in deposit levels as authorities implemented comprehensive fiscal and monetary responses to the pandemic. However, it's also been our experience that Frost has historically been a safe place in times of uncertainty, and I believe this will always be a part of our growth in challenging times. For the first time, our total assets have surpassed $40 billion, up 41% in the last year, and all of that representing organic growth. And speaking of organic growth, I'll discuss our Houston expansion in more detail later in the call, but I'd like to point out that we were pleased to see our deposit market share in Houston has now moved up to Number 6, up from 10th place a year ago. Even with the challenging environment, we and others in our industry have seen pressure on profitability. Our return on assets in the third quarter was just below 1% at 0.96 and we were pleased to announce yesterday the action of our board to increase our dividend for the 6th consecutive year. We saw a reduction in credit cost expense to $20.3 million in the third quarter down from $32 million in the second quarter of 2020. This compared with $8 million in the third quarter of last year. Net charge-offs for the third quarter were $10.2 million down sharply from the $41 million in the second quarter and included no energy charge-offs. Annualized net charge-offs for the third quarter were 22 basis points of average loans. Non-performing assets were $96.4 million at the end of the third quarter compared to $85.2 million at the end of the second quarter and $105 million at the end of the third quarter last year. The third-quarter increase resulted primarily from the addition of an energy service company. Overall delinquencies for accruing loans at the end of the third quarter were $133 million or 73 basis points of period-end loans. Those numbers remain within our standards and comparable to what we've experienced in the past several years. Regarding payment deferrals, in total we granted 90-day deferrals to more than 2,500 borrowers for loans totaling $2.2 billion. At the end of the third quarter, there were around 300 loans totaling $157 million in deferment or about 1%. Total problem loans, which we define as risk grade 10 and higher were $803 million at the end of the third quarter compared to $674 million at the end of the second quarter. Energy-related problem loans were $203.5 million at the end of the third quarter compared to $176.8 million for the previous quarter and $87.2 million for the third quarter last year. To put that in perspective, the year-end 2016 total problem energy loans totaled nearly $600 million. Energy loans continue to decline as a percentage of our portfolio falling to 9.1% of our non-PPP portfolio at the end of the third quarter. As a reminder, the peak was 16% back in 2015. Oil prices have stabilized from volatile levels that we saw earlier in the year and we continue to moderate our company's exposure to the energy segment. For the first nine months of this year, the pandemic's economic impacts on our portfolio have been negative but manageable. During our last two conference calls, we discussed the non-energy portfolio segments that have had an increased impact from the economic dislocations brought on by the pandemic namely: restaurants, hotels, entertainment and sports, and retail. The total of these portfolio segments excluding PPP loans represented $1.54 billion at the end of the third quarter, and our loan loss reserve for these segments was 3.37%. New relationships are up by 38% compared with this time last year, largely because of our strong efforts and reputation for success in helping small businesses get PPP loans. The dollar amount of new loan commitments booked through September is up by about 2% compared to the prior year. Regarding new loan commitments booked, the balance between these relationships has stayed steady at 53% large and 47% core so far in 2020. The market remains competitive, and in fact, seems to be getting more so. For instance, the percentage of deals lost to structure increased from 61% this time last year to 70% this year. It was good to see that in this environment our weighted current active loan pipeline in the third quarter was up 11% compared with the second quarter of this year. Consumer banking continues to see growth, although it slowed somewhat by the effect of the pandemic. Overall net new customer growth for the third quarter was down 13% compared to the third quarter of 2019 for consumers. Same-store sales as measured by account openings were down by 15.5% through the end of the third quarter when compared with the third quarter of 2019. In the third quarter, 52% of our account openings came from our online channel which includes our Frost Bank mobile app and online account openings were 73% higher compared to the third quarter of 2019. Our investments in enhancing our mobile and online experience proved timely during the quarantine. The consumer loan portfolio was $1.8 billion at the end of the third quarter, up by 6.7% compared to the third quarter of last year. Our growth is being driven primarily by consumer real estate loans. Our Houston expansion continues on pace with five new financial centers opened in the third quarter for a total of 20 of the 25 planned new financial centers. We expect to open two more in this quarter with the remaining three opening in early 2021. The fact that we've been able to continue our expansion plans through the pandemic and see very promising results is due to the dedication and skill of Frost Bankers. When they've done the miraculous, what merely seems extraordinary tends to be taken for granted, but I want to acknowledge their commitment to the Frost philosophy and culture that our people have maintained during what has been a very unusual year. Of course, we realize the pressures impacting the banking industry in light of the current and projected economic and interest rate environment and the importance of operating as efficiently as possible while providing the level of world-class customer service Frost is known for. I'm proud of our efforts over time, and in particular, what we've accomplished this year which Jerry Salinas has been reporting on as we've moved through 2020. Next year will be no different and we're committed to improving our operating efficiency further. In that regard, I'll note that our executive team is committed to reduce our own salaries by 10%, effective January 1 as well as reducing my team's bonus targets by 5% and mine by 10% for the coming year. We're taking these actions despite the recognized success Frost has had managing through the pandemic and supporting our customers and communities. They represent management's desire to contribute to the current and future long-term well-being of the company and reflect our commitment to our unique culture. Cullen/Frost and all our lines of business will face these challenges together and our company, as always, will emerge stronger than ever. Now, I'll turn the call over to our Chief Financial Officer, Jerry Salinas for some additional comments.

Thank you, Phil. Looking first at our net interest margin, our net interest margin percentage for the third quarter was 2.95%, down 18 basis points from the 3.13% reported last quarter. The decrease primarily resulted from lower yields on loans, which had a negative impact of approximately 11 basis points on the net interest margin and a lower yield on securities, which had a 3 basis point negative impact combined with an increase in the proportion of balances at the Fed as a percentage of earning assets, which had about a 7 basis point negative impact on the NIM compared to the previous quarter. Lower interest costs in the quarter reduced these negatives by about 2 basis points. The taxable equivalent loan yield for the third quarter was 3.73%, down 22 basis points from the previous quarter. The decrease in yield was impacted by decreases in LIBOR during the quarter, as about two-thirds of our loan portfolio, excluding PPP, is made up of floating-rate loans and about 60% of our floating rate loans are tied to LIBOR. The PPP loan portfolio also had a negative effect on our loan yield as compared to the second quarter. During the third quarter, we extended the expected term of the PPP portfolio somewhat, which resulted in a yield on the PPP portfolio of 3.65% during the third quarter as compared to 4.13% in the second quarter. This had a 9 basis point negative impact on the comparison between the second and third quarter reported total loan yields. Looking at our investment portfolio, the total investment portfolio averaged $12.7 billion during the third quarter, up about $180 million from the second-quarter average of $12.5 billion. The taxable equivalent yield on the investment portfolio was 3.44% in the third quarter, down 9 basis points from the second quarter. The decrease in the portfolio yield was driven by a decrease in the yield on our taxable portfolio. The yield on that portfolio, which averaged $4.2 billion during the quarter was down 19 basis points from the second quarter to 2.21% as a result of higher premium amortization associated with our agency mortgage-backed securities given faster prepayment speeds and lower yields associated with recent purchases. Our municipal portfolio averaged about $8.5 billion during the third quarter, flat with the second quarter with a taxable equivalent yield of 4.08%, up 1 basis point from the prior quarter. At the end of the third quarter, 78% of the municipal portfolio was pre-refunded or PSF insured. The duration of the investment portfolio at the end of the third quarter was 4.5 years, up slightly from 4.4 years last quarter. Regarding non-interest expense, for the third quarter, I'll point out that the salaries line item includes about $4.5 million in reductions in salary expense associated with truing up our incentive plans based on current expectations of projected payouts for the year. As Phil mentioned in this environment, we continue to focus on managing our discretionary spending and looking for ways to operate more efficiently. Looking at the full year 2020, our previous guidance on expenses was that, adding back the deferred expenses related to PPP loans, we expected an annual expense growth of something around 6%. Our current expectations would reduce that to something around the 3% range. With that, I'll now turn the call back over to Phil for questions.

Thank you, Jerry. We'll now open it up for questions.

Thank you. And your first question comes from Brady Gailey. Your line is now open.

It's Brady. Good afternoon, guys.

Hey, Brady.

Hey, Brady.

Yes, I wanted to start with the dynamics of the PPP loans. I know last quarter, I believe I remember you recognized about 20% of those PPP fees. It sounds like if you've extended the assumed duration of that portfolio maybe it was less than that in the third quarter, but how much was realized in the third quarter of the PPP loans?

I think the number was pretty comparable. We did put some additional loans on during the third quarter and we did extend the expected life there just a little bit more than we expected originally, but I think that the amount that we recognized in the second quarter associated with that fee was in the $21 million range. So really pretty comparable with the second quarter.

Okay. And I know you guys have been talking about the full-year NIM, ex-PPP coming in a little above 3%, you're three quarters of the way through, so we're getting close. Is that still the right way to think about the full year NIM for you guys?

Yes, I think at this point that's kind of where we're at based on what we're seeing so far. I think the third quarter probably gives you a pretty good feel for the projection for the rest of the year, and we've got one quarter left and that will get us, I think, kind of the range with the guidance we've given for the year.

Okay, then finally for me. We have seen some companies, especially some smaller banks here in Texas, re-engage in the buyback as deferrals come down and maybe they feel a little more comfortable. Is that something that you're thinking about doing — re-engaging in the share repurchase plan?

Yes, Brady, right now, it's not something that's on our radar screen immediately. As you know, it has been over time, and I suspect at some point we will re-engage. But right now in the environment, we're focused on protecting the dividend and providing capital for the growth that we're seeing, but at some point, yes, it will come back.

Okay, got it. Thanks, guys.

You're welcome.

Thank you. Your next question comes from the line of Dave Rochester. Your line is now open.

Hey, good afternoon guys.

How are you doing?

Hey.

Good, good. On the expense guide, that — the 3% growth, that's from the $35 million reported in 2019? Is that right, less the roughly $7.5 million in deferred expenses you mentioned?

Yes, it's from the reported 2019 number. And so, we're adding back the $7 million in deferrals that we talked about in the second quarter through our 2020 number, so yes, I think you're thinking about it right, Dave.

Got you. Okay, I just want to make sure there. And then on the NIM, is the thinking that effectively the NIM will probably continue to just drift lower from here ex the PPP amortization assuming the curve persists, maybe even through next year as loans and securities continue to reprice? And then, what does that ultimately mean for the NII trend over time? Do you guys think that you can grow NII with that kind of a NIM headwind?

I think as far as your view of the NIM, that's really kind of where we're at right now. Obviously, there are not a lot of opportunities to invest. We've got, I think, between $6 billion and $7 billion at the Fed on any given day and earning 10 basis points, and there's just not a lot of opportunities out on the yield curve right now. We continue to say we're going to be opportunistic and we pay attention, but we've got quite a bit of liquidity, and that's probably true for a lot of our competitors, but we're just not ready to stick our toes in the water as of yet. So there would be some potential there. Phil mentioned that loan pricing is still obviously competitive as to structure. So I think your view that it's going to be a tough road, especially in 2021 given this sort of a rate environment, I think I'd have to agree with you that there is some potential to grow the net interest income to the extent that we decide to invest some of that liquidity.

Where are you seeing reinvestment rates today? I know you mentioned they were lower and that makes perfect sense. Just curious where they are right now.

I'm almost embarrassed to grab my file, but on the mortgage-backed assets and agencies that we purchased during the quarter, we bought mortgage-backs in the range of about 1.53% and I don't think we could get that today to be quite honest with you. And as you heard me say, they're prepaying pretty quickly. On the muni side, we were looking at some 10-year stuff that's probably in the 1.39% to 1.35% taxable equivalent sort of range.

Noted. I mean is there a thought to just keep the securities book stable from here or maybe grow it a little bit over time just to support NII a little bit to the extent that maybe loan growth doesn't come roaring back?

Yes, I think that's kind of the view that we're taking. Again, we keep saying that we're going to be opportunistic. We wish that we had other opportunities. But you're right, we will do something. We'll kind of hold our nose, if you will, and decide to spend some of it, but we really don't feel like it's a place we want to be in right now, to be quite honest with you.

And maybe switching to the loan pipeline — that was positive to hear, that it was up 11% since last quarter. Where are you guys seeing the increase in activity there and then you mentioned the pickup in competition. In which areas are you seeing competitive pressures the most and are you actually seeing spreads compressing?

If you look at that 11% on a linked-quarter basis, it's spread pretty evenly. Commercial real estate activity is up 19% in terms of pipeline and commercial C&I is up by 8%; the dollar amount of both of those is pretty comparable and so that's really where we're seeing it. In terms of competition, you are seeing pricing pressure return; we're not losing a lot to pricing because when we get to a customer that we think meets all our criteria that we want to have a long-term relationship with, we don't want to lose it for a few basis points. One interesting area we've seen is the increase in deals that we've lost to structure. If you look at large C&I loans, which we define as over $10 million, 92% of the deals we've lost have been to structure. And if you look at commercial real estate deals to prospects, of the deals we're losing, we're losing 92% to structure there as well. So that's been a bit of a turnaround quarter for us from the second quarter, which was a really tough quarter, but to see the 11% growth in pipeline was good. Another thing we look at is our look-to-book ratio year-to-date compared to last year. We've looked at about 6% more deals — that is, we've had opportunities to look at a loan request — and we're up in terms of booking by 11%. So we're doing a pretty good job of booking the deals that we're seeing. It's a tough market. Any time you see that much loss to structure, it makes you worry a little bit; it's mainly guarantees, advance rates, amortization period, all those kinds of things. But even with all that, I'm pretty happy with our success rate that we're having.

Great. All right. Thanks for all the details, guys. Appreciate it.

Absolutely, thank you.

Thank you.

And your next question comes from the line of Ebrahim Poonawala. Your line is now open.

Hey, good afternoon. I just wanted to follow up on expenses and investments. So, Jerry, I think your guidance implies expense will go back around $225 million plus or minus in the fourth quarter. Just talk to us in terms of the investments that you have ongoing in terms of the financial centers, obviously the tightening on the commercial side, how should we think about expenses going into next year where you're going to continue to have the margin pressure. What's the best way to think about it internally? How is management thinking about that?

I think that Phil gave you a little bit of a view of how management is looking at it. I'll defer to him a little bit. Let him talk and I'll follow up after his comments.

We gave the example where our management team decided to cut our salaries back 10% and reduce bonus target levels as I mentioned. We recognize that we need to take a leadership position with regard to efficiencies. There is work the industry needs to do, and we certainly need to do more on top of what we've done already. That's just the beginning of the process. We're beginning our planning for next year for the budget, and this is one of the early decisions that we're making. I mentioned this to the Board yesterday at their meeting, and I was proud that they decided unilaterally to decrease their cash compensation by 10% as well, which I thought was a very Frost thing to do. So you're seeing leadership at the top, including our Board, and our commitment to see increased efficiencies.

That's commendable. I guess maybe ask differently: do you think the efficiency ratio can actually improve in this backdrop, or do you think that will be challenged?

I mean, I think, as Phil mentioned, we are starting our process and obviously we've had a lot of conversations. We know what we committed to the board. We've got a lot of work to do there. We don't have all the plans in place and I'd feel a little uncomfortable giving too much guidance right now. We'll give more color in January. What we want all of you to know is that we're taking it all very seriously and we understand the revenue pressure that we're under. We're looking for all the efficiencies that we can and some tough decisions will be made. We'll have to make them and we'll continue to move forward. As far as what we're doing in Houston, we are committed to doing that. Phil has said that all along and we're making significant progress there. They're performing better than expected. So we'll continue to move there, we won't slow that down at all. We may open a couple of locations here and there, but we're obviously going to be very prudent in what we do from that standpoint. There will be costs that we have to spend, whether that's from a technology standpoint, infrastructure, or security-related to technology. So we know we have some costs to spend there, but we also understand that in order to do that, we've got to do things more efficiently, and that's the sort of conversations that the executive team is in the middle of right now.

Got it. And I guess just shifting to Phil, you talked about loan pipelines and some things look encouraging. Give us a sense of the ground reality in terms of the economic outlook once we get through the elections next week. As you think about next year, are you more optimistic today in terms of what growth could look like relative to the headlines we see, or are you more cautious?

Two thoughts: first, getting the election behind everyone is going to be a real positive whichever way it goes — it's going to add clarity. In calls we've had with customers, there's been more uncertainty around the election than anything else. Once we get past that, I think attitudes will settle and we'll move forward. What makes me most optimistic is that new relationships are up by almost 39% compared to last year. We typically add about 450 commercial relationships a quarter; for the last two quarters they've been in the high 70s. Many of those relationships are not borrowing money yet because of uncertainty around politics, the election and COVID. Those relationships generate growth for us going forward and that's encouraging. Also, in Houston, our active loan pipeline is 50% higher than any of our other markets, and the other markets aren't doing badly. So we are seeing payoff from our investment in that market. We're on pace with the first 25 centers, with the plan mostly complete. We've hired great people and I'm excited about what's going on there. I'm optimistic about our prospects going forward. That said, rates are terrible and we have a big investment portfolio and lots of liquidity, so that's a headwind. The part we can control — our relationships, our pipeline, and our execution — make me optimistic. Ultimately, how we handle the virus is a big factor; if it gets worse or there are new shutdowns, demand will weaken again. But if we get past that and move forward, I'm optimistic for the coming year.

Got it. And Phil, did you mention who you are losing these loans to on structure? Are these other banks or are these non-bank financials stepping in?

I haven't heard that it's primarily non-banks. There are some non-bank lenders out there, and sometimes private equity shows up, but it's pretty broad-based — small banks, large banks, non-banks. People are starving for yield and it's not surprising that it's getting more competitive.

Got it. Thanks for taking my questions.

You're welcome.

Your next question comes from the line of Jennifer Demba. Your line is now open.

Thank you. Good afternoon. Performance improved very nicely from the second quarter. Do you think these lines have a good run rate going forward? Could you expect pretty healthy growth again in the fourth quarter or do you think that incremental improvement is pulling down?

We were glad to see the improvement. In the second-quarter call, we said that in July some of those accounts, especially as it related to service charges on deposits — OD/NSF and interchange fees and debit card fees — were trending up. We continued to see improvement in the third quarter. A lot of it, as Phil mentioned, will depend on what happens economically with the pandemic. The numbers we're seeing in October are a little softer than the growth we saw in the third quarter. So while the numbers are better, we're not seeing the same accelerated rate that we saw during the second quarter.

Thanks so much.

Your next question comes from the line of Peter Winter. Your line is now open.

Thanks, good afternoon.

Good afternoon.

You guys had just a small addition to reserves. I was wondering if you could talk about what drove the increase to reserves and do you think, at this point, you're done with building reserves?

I think the increase in reserves was largely related to the energy book. The models indicated we needed some additional dollars there, and some of the work we did in management overlays in the Oilfield Services side of the book showed some increases. Our specific reserves in energy, for example, were about $2.3 million in the second quarter, up to $8.4 million. That's where we saw the bulk of the increase and it was really related to specific work associated primarily with Oilfield Services.

And would you say you're done building reserves?

I think that depends on how things develop, but we feel comfortable with where we're at today. Our provisions are down from the second quarter, and charge-offs were down to $10 million — that's 22 basis points on average loans, much closer to normalized levels that we typically like to run. So we're feeling positive but still cautious. Anyone not being cautious in this environment would be misleading. We feel good about where we are but remain cautiously optimistic going forward.

I agree with Jerry. The weakness we're seeing in the energy sector is mostly around service because activity is low. The rate of weakness has slowed; equipment utilization is down but not nearly as much as earlier. Service companies are under pressure. By and large we've performed well in service, and it's not a huge part of our portfolio — under $200 million, probably under $170 million — but it's something we watch. Ultimately, demand and the virus will be important drivers. If we lock down again, demand will weaken, prices could reduce and problems could increase. We've been able to manage with fair stability recently and I'm confident in our people and the work they're doing with customers, but we have to see how it goes.

Okay, that's very helpful. And then if I could follow up on expenses: you guys have come in better on expenses two quarters in a row. The guidance you gave implies a jump in the fourth quarter. Can you talk about what's driving that increase? I know you mentioned the $4.5 million on incentive accruals, but what's driving it?

There are certain items that happen in the fourth quarter for some stock compensation awards that occur in October that vest immediately, so we deal with those expenses in the fourth quarter. We've also got decisions to make related to marketing expenses, advertising and how much we want to do. We want to be sensitive even while managing expenses. We've had success in Houston, and we want to make sure we do what we need to do there. We're looking at open positions that might be filled in the fourth quarter and whether they need to be filled. Some of that work will affect the fourth quarter, but at this point we don't have those commitments tied up. We'll continue to evaluate branch locations, potential closures or openings, and other organizational decisions. The projection is based on our best information, but we continue to spend time on this.

Okay, that's very helpful. Thanks.

Your next question comes from the line of Steven Alexopoulos. Your line is now open.

So, first, a big picture question. When I think about Cullen/Frost, I've always thought about you guys as a company that plays a long game — you invest in the franchise, take great care of employees and customers. I'm somewhat surprised by the expense initiative. Can you talk about what prompted that?

Which initiative are you referring to specifically, Steven? I want to make sure I'm answering your direct question.

I mean the reductions in management salaries and the push to improve efficiency for next year. We've been through periods before where you've had revenue pressure and I don't recall a message like this. It seems somewhat new and I'm curious what prompted it — management or the Board — is it a strategic shift?

It didn't come from the Board; this came from our management team. I talked to the Board about it and they agreed. The difference between now and 2008, for example, is that back then we had opportunities to invest at attractive yields for many years after the crisis. Those kinds of opportunities are not available now. We're facing a longer period of low short- and long-term rates plus the COVID environment and uncertainty. We're protecting our earnings stream and doing what we're asking customers to do, which is operate efficiently. This is part of our culture — integrity, caring and excellence. We need to apply lessons learned and be efficient without sacrificing our customer experience. Our approach is to make thoughtful, long-term decisions, not short-term fixes.

When you think about next year, what's the right measure you're after? Is it improving the efficiency ratio year-over-year? Show pre-tax growth? How will you measure success?

It's directional. Revenues are under pressure and if revenues are under pressure you need to rationalize expenses around those revenues. We're beginning that process, and it's something we're careful about culturally. We're conservative, but we need to align expenses with the revenue outlook and be strategic about it.

Are you bringing in outside consultants to help with this?

No. We've used consultants in the past, but my experience is they tend to be short-term, expensive and tell you what time it is. We're focused on deep-dive thinking, lasting long-term changes, and preserving the customer experience. We're not interested in actions that would devalue our value proposition.

Okay, thanks for taking my questions.

Absolutely.

Your next question comes from the line of Brady Gailey. Your line is now open.

Hey, thanks for taking the follow-up. Biden is leading in the polls right now and he's talking about increasing the corporate tax rate from 21% to 28%. If that pans out, do you have any idea what the impact would be to Cullen/Frost's tax rate at a 28% corporate tax rate?

Brady, of course it depends on what taxable income is. The simple way to model it is that a change from 21% to 28% is roughly a one-third increase in the statutory rate. So if you think the rate will be 28% you would increase the tax rate proportionally. The ultimate impact depends on pre-tax income.

Okay, great. Thanks, guys.

Sure.

There are no further questions at this time, you may continue.

Okay. Well, we want to thank everybody for your participation in the call today, and we'll be adjourned.

This concludes today's conference call, you may now disconnect. Presenters, please standby.