Central Pacific Financial Corp Q1 FY2022 Earnings Call

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Central Pacific Financial Corp First Quarter 2022 Conference Call. During today’s presentation, all parties will be in listen-only mode. Following the presentation, the conference will be opened for questions. This call is being recorded and will be available for replay shortly after its completion on the company's website at www.cpb.bank. I'd like to turn the call over to Mr. David Morimoto, Executive Vice President, Chief Financial Officer. Please go ahead.

Thank you, Lydia. And thank you all for joining us as we review the financial results of the first quarter of 2022 for Central Pacific Financial Corp. With me this morning are Paul Yonamine, Chairman and Chief Executive Officer; Catherine Ngo, Executive Vice Chairman; Arnold Martines, President and Chief Operating Officer; and Anna Hu, Executive Vice President and Chief Credit Officer. We have prepared a supplemental slide presentation that provides additional details on our release and is available in the Investor Relations section of our website at cpf.bank. During the course of today's call, management may make forward-looking statements; while we believe these statements are based on reasonable assumptions, they involve risks that may cause actual results to differ materially from those projected. For a complete discussion of the risks related to our forward-looking statements, please refer to Slide two of our presentation. And now, I'll turn the call over to our Chairman and CEO, Paul Yonamine.

Thank you, David, and good morning everyone. As always, we appreciate your interest in Central Pacific Financial Corp. We are pleased today to share our strong first quarter financial results, as well as provide updates on our market and our digital transformation strategy. Our Shaka checking digital product launched in Hawaii last November continues to grow in account holders and customer engagement. Over 60% of our Shaka customers are now checking account holders at the bank, giving us a great opportunity to further build banking relationships and engagement. Building upon our successful rebrand in 2021, earlier this month, we launched a new brand campaign called Digital Banking the CPB Way that focuses on our high-tech, high-touch business approach in Hawaii, which offers best-in-class digital technology while providing the exceptional customer service that we are known for. We continue to advance our recently announced Banking-as-a-Service mainland expansion strategy and remain very optimistic about the opportunity. The new fintech entity, Swell Financial, which we incubated last year, was formed at the beginning of this year. In February, Swell successfully completed a $10 million Series A preferred funding round, which CPF also participated in. The Swell money app, an integrated checking and line of credit product, is on track to publicly launch in the summer with CPB serving as the bank sponsor utilizing our banking-as-a-service technology platform. We believe Swell's product is unique in the market and addresses a large underserved group in the US that we call strivers. At the same time, we continue discussions with several other potential fintech partners for future Banking-as-a-Service expansion. We are seeing growing interest in this area, but we are being selective about whom we collaborate with, as we are focused on profitable and sustainable business models for both parties involved. Finally, our digital transformation encompasses all areas of our business, and we continue to make progress on other digital enhancements such as a new trust management system that went live at the beginning of this year, a new consolidated loan and deposit origination system initiative that will be developed throughout this year, and other back-office efficiency and automation initiatives. Next here to talk about the Hawaii economy and our strong position here is Catherine Ngo, our Executive Vice-Chair.

Thank you, Paul. I'll start by giving you an update on the Hawaii environment. Along with most of the nation, Hawaii removed nearly all COVID-related restrictions during the first quarter and is pleased to be returning to a sense of normalcy. Our Safe Travels program, which required people entering the state to be fully vaccinated or have a negative COVID test to avoid quarantine, ended in March. With that positive development, we are seeing a continued increase in visitors to the island. Month-to-date April 2022 average air arrivals surpassed pre-pandemic levels of April 2019, despite limited international visitors. International visitors to Hawaii have not yet returned in a meaningful way. Historically, pre-pandemic visitors from Japan made up a significant portion of Hawaii's tourism economy, with about 1.6 million Japanese visitors each year, accounting for about 16% of all visitors to the state. Recently, Japan has started to ease quarantine requirements, and with its Golden Week coming up in a couple of weeks, we anticipate an increase in Japanese visitors. Our company is also starting to resume business travel to Japan, and we believe this is an opportunity for us to differentiate the Bank, given our strong strategic relationships. Our statewide unemployment rate continued to decline and went to 4.1% in March 2022. Our housing market in Hawaii remains very strong, with our median single-family home price soaring to a new record high of $1.15 million in March 2022, which is up 21% from the previous year. Overall, Hawaii remains on track for recovery. Our asset quality continues to be very strong, with non-performing assets of just 7 basis points of total assets as of March 31. Additionally, total criticized loans were only 1.5% of total loans. Finally, during the quarter, we had net charge-offs of just $400,000. I'd like to now turn the call over to Arnold Martines, our President and Chief Operating Officer.

Thank you, Catherine. In the first quarter, our core loan portfolio increased by $120 million or 2.4% sequentially, which was partially offset by PPP forgiveness paydowns of $47 million. The core loan growth was broad-based across almost all loan categories. As expected, residential mortgage loan growth slowed during the first quarter due to seasonality and rising interest rates. This was offset by strong home equity outstanding balances of $39 million. PPP forgiveness continues to progress well with only $44 million remaining on our balance sheet as of March 31. Central Pacific Bank is proud to be recognized as Hawaii's leader in small business loans, having been named by the SBA Hawaii office as Lender of the Year Category 2 for the 2021 fiscal year. CPB originated more SBA 7a loans in 2021 than the other major Hawaii banks combined. We are pleased to support Hawaii small businesses, a strategic pillar for CPB, and continue our mission to empower the people of Hawaii. During the first quarter, we continued consumer unsecured and auto purchases with our established vendors who strategically complement and diversify our portfolio. The purchases during the quarter were all within our established credit limit and had a weighted average FICO score of 73. Our net growth in mainland consumer purchase loans was $42 million in the first quarter. As of March 31, total mainland consumer unsecured and auto purchase loans were approximately 6% of total loans, and both our mainland and Hawaii consumer portfolios continue to perform well. We anticipate maintaining our total mainland loan portfolio, including commercial and consumer, at around its current level in the near term. With Hawaii's steady economic recovery, we have a healthy loan pipeline in all loan product categories and we expect our loan growth trends to pick up further throughout the remainder of 2022. Finally, after experiencing significant card deposit inflows since 2021, during the first quarter, we had a slight write-off with core deposits decreasing by $37 million or 0.6% from the prior quarter. Additionally, our average cost of total deposits during the first quarter remained steady at just 6 basis points. I'll now turn the call over to David Morimoto, our Chief Financial Officer.

Thank you, Arnold. Net income for the first quarter was $19.4 million or $0.70 per diluted share, an increase of $1.4 million or $0.06 per diluted share from the same quarter a year ago. Return on average assets in the first quarter was 1.06% and return on average equity was 14.44%. Net interest income for the first quarter was $50.9 million, which decreased by $2.2 million from the prior quarter due to less PPP fee income as the forgiveness process winds down. Net interest income included $1.9 million in PPP net interest income and net loan fees compared to $4.7 million in the prior quarter. As of March 31, unearned net PPP fees were $1.7 million. Net interest income during the first quarter also included $0.5 million in non-recurring interest recoveries. The net interest margin decreased to 2.97% in the first quarter compared to 3.08% in the prior quarter. The NIM normalized for PPP and interest recovery was 2.85% compared to 2.87% in the prior quarter. Our balance sheet remained slightly asset sensitive, therefore, we anticipate our margin will trend up with further Fed interest rate hikes. First quarter other operating income was $9.6 million compared to $11.6 million in the previous quarter. The decrease was driven by lower mortgage banking and bank-owned life insurance income. Other operating expense for the first quarter was $38.2 million, which was a decrease from the prior quarter that included several large one-time expenses. Additionally, in the first quarter total salaries and benefits trended down due to seasonal and market-related adjustments, including lower commissions and incentive compensation accruals, as well as less deferred compensation expense. Going forward, we expect that quarterly recurring other operating expenses will be in the $40 million to $42 million range. We are executing on our plan to consolidate three additional branches this year, with two scheduled in the second quarter and another in the third quarter. The total go-forward annual expense savings from the three branch consolidations is estimated at $0.9 million. The efficiency ratio decreased to 63.2% in the first quarter due to lower other operating expenses. We remain focused on driving positive operating leverage with our strategic initiatives to continue to improve efficiency. As of March 31, our allowance for credit losses was $64.8 million or 1.26% of outstanding loans, excluding PPP loans. In the first quarter, we reported a $3.2 million credit to the provision for credit losses due to continued improvements in the economic forecast and our loan portfolio. The effective tax rate decreased slightly to 23.7% in the first quarter. Going forward, we expect the effective tax rate to be in the 24% to 26% range. As a result of market interest rates rising, our available-for-sale investment securities portfolio moved into a larger unrealized loss position, which is reflected in accumulated other comprehensive income in total shareholders' equity on our balance sheet. To mitigate further portfolio net valuation impact, we transferred $330 million in securities to held-to-maturity during the first quarter. Additionally, we executed on a pay-fixed receive-floating two-year forward-starting interest rate swap on an additional $115 million of investment securities. Our capital position remained strong and during the first quarter we repurchased roughly 235,000 shares at a total cost of $6.7 million or an average cost per share of $28.65. Additionally, our Board of Directors declared a quarterly cash dividend of $0.26 per share, which will be payable on June 15 to shareholders of record on May 31.

Thanks, David. Central Pacific had a solid first quarter and continues to be well-positioned with strong liquidity, capital, and asset quality. We continue to execute on our strategic initiatives and believe that 2022 will be another pivotal year for the company supported by a good economic environment. With much optimism, we are pushing boldly forward on our parallel strategy to continue to grow and expand market share in Hawaii and through our mainland expansion starting with the introduction of Swell. On behalf of our management team and employees, I would like to personally thank you for your continued support and confidence in our organization. At this time, we will be happy to address any questions you may have. Thank you. Back to you, Lydia.

Thank you. Our first question today comes from David Feaster of Raymond James. Your line is now open.

Hi, good morning, everybody.

Hey, David, good morning.

I wanted to discuss the growth outlook. Could you walk us through some of the drivers you anticipate for the accelerating loan growth mentioned in the prepared remarks? Which segments are showing the most strength? How much do you expect to come from Hawaii compared to the US Mainland? Also, are you planning any additional loan purchases to complement organic growth?

Sure, I’d be happy to do that, David. And as you can see, we had a pretty respectable first quarter on growth, but let me have Arnold Martines take that question. Arnold?

Yeah. Thanks, Paul and good morning, David. So, we are pretty optimistic about our loan growth for the year. I think the drivers right now for us are going to be construction, commercial mortgages, as well as the consumer book, where we're seeing nice growth on the Hawaii side, but also continuing our purchases on the Mainland with our strategic partners. So, I think those areas are going to drive growth for us this year. With regard to residential, I think we all know that the interest rates have increased, which has certainly impacted the refi market, that's basically drying up. I think we saw a tail of that refi market in the first quarter, but we expect as we move forward that's going to dry up. And so, for refi, we're looking at probably in the near-term normalized levels of production in the $150 million to $160 million range, and we are optimistic about that just because of our purchase market strength. As you know, David, we have our joint ventures with developers, as well as a pretty strong position with the realtor market here in Hawaii. So all in all, I think we are still affirming mid to high single-digit growth for loans this year.

Okay. That's helpful. And does that include any additional purchases in that?

Yes, we are definitely planning to make more purchases. While we refer to it as purchases, it has truly become a core part of our business model. We will continue to evaluate our partnerships strategically, and we aim to make purchases for auto loans and unsecured loans moving forward, as long as we believe it will help enhance our loan portfolio diversification and yield.

Absolutely. And maybe just switching gears to deposits, could you maybe talk a little bit about your outlook for deposit growth going forward? And maybe some thoughts into what drove the sequential decline? Was it just seasonal tax payments, PPP usage, and again just overall expectation for deposits? And then just a little bit on the Shaka digital account. It's great to see the continued growth there, but any commentary about how balances are trending in cross-selling initiatives thus far would be helpful?

Yes, David. Regarding deposits, we observed several larger deposits from a few customers in the fourth quarter. We anticipated these to be finalized in the fourth quarter, but they actually extended into the first quarter. This was the primary reason for the slight decrease in deposits. Overall, we continue to see strong activity in deposits. We expect market dynamics to play out this year and remain optimistic about mid-single-digit growth in deposits. Concerning Shaka, it's still early to discuss balances because we onboarded nearly 4,000 new customers. About 60% of them are new to the bank, as Paul mentioned. As we help them activate their accounts, including debit card usage, direct deposits, and mobile deposits, we expect balances to rise over time. I'm pleased with our progress; currently, 70% of the accounts are active, which we define by multiple transaction types such as debit card usage and direct deposits. We are making good strides and look forward to more developments in upcoming quarters.

That's terrific. And then maybe just touching on the banking as a service initiative, could you just walk through maybe the timeline and where we are? We've got the funding that was just completed, just curious where we are in the launch? What the next steps are? And then just any expectations that you might have for that program and when we might start seeing some contribution?

We are very pleased with the progress we are making in our Banking-as-a-Service initiative, particularly regarding our investment in our partnership with Swell in Colorado. The mobile app and its architecture are being developed on schedule, and we expect to launch this summer. Over the past several months, we've taken a close look at credit risk. As we mentioned in our last call, we believe we have a competitive advantage due to our relationships with the management teams at Swell, Elevate, and our new investor, Pearl City Management. This interaction enables us to remain agile while adopting a risk-adjusted strategy. I would like David to elaborate on some of the risk-adjusted features we have implemented for our Swell offering, as this is an important aspect of how CPB will be able to iterate, learn, and test as we begin to scale.

Thanks, Paul. David, what Paul is mentioning is that we believe we have created something truly distinctive with Swell Financial and Elevate. The Swell program will include unsecured lines of credit, referred to as Swell Credit, with Elevate responsible for underwriting these lines. What sets this apart is that Elevate will provide Central Pacific with a credit guarantee, meaning they will take on 100% of the credit losses associated with the Swell lines of credit. We have also collaborated with our accountants to determine the net accounting implications for these credit lines. While these lines will appear on Central Pacific's balance sheet, there will be no net charge-offs recorded, and we will not need to set aside an allowance for credit losses on these Swell loans. We believe we have negotiated a unique structure; Elevate is offering a full credit guarantee and a cash deposit that will be held at Central Pacific Bank. Overall, we feel confident that we have developed something unique that will prove very beneficial for Central Pacific in the future.

And David, this is Paul again. I just wanted to also add that as we again touched on last quarter, we invested a total of $2 million into the Swell. It is treated under the cost method of accounting on our books. We have been able to demonstrate that we don't have control of that entity. I'm happy to also report that Swell is beating their expense control; they are coming in less than what we had originally projected. So there is absolutely no issue on the investment amount that we carry on our balance sheet. So again, the net is we're very pleased with that progress and that was the Swell component, David, and naturally, we also have a number of new fintech partnerships, where we are affiliated with them and we will be working with these fintechs to launch certain services, and we can touch on that later if you're interested. Thank you.

That's helpful. Thank you.

Our next question comes from Andrew Liesch of Piper Sandler. Your line is open, Andrew.

Good morning everyone. I wanted to discuss the margin; you mentioned being somewhat asset sensitive, so I'd like more details on that in light of the expectation that the Fed will raise rates by 50 basis points next month. Will there be an immediate benefit from this? What do you anticipate regarding deposit beta? Is there a possibility of loan pricing adjustments if we see another 50 basis points soon after?

Yeah. I think, Andrew. So as we've stated, the balance sheet is slightly asset sensitive; a 100 basis point shock would net interest income increases by roughly 5%. Obviously, there are a lot of assumptions embedded in there, the largest being the modeling of the in-determinant, but too early deposits. We think we may be a little bit conservative on the modeling there; we're modeling a weighted average of 20% deposit data, and we're hopeful that we don't need to reprice that quickly, especially in the early goings of the rate increases.

Got it. That's helpful. It seems like the increase in mortgage rates has limited production, but you still have some other positive factors. How are you balancing the decision to keep some of these mortgages on the balance sheet against selling them? Is the approximately $1.2 million you reported in the first quarter for gain on sale a figure you expect to maintain going forward?

Yeah, Andrew, historically, the company has retained roughly 50% of originations and sold the remaining. We're trying to stay on that path; it will result in a gain on sale probably coming down a bit, maybe to a $100,000 to $1 million per quarter level, but we're trying to stay that balance. We've discussed retaining more now, with mortgage rates getting above 5%, should we retain more on the balance sheet, but we're trying to stay the course, as we all know, residential mortgages is one of the assets that we define it prepays rather quickly. So one of the most negative assets on our balance sheet. So while you may enjoy a 5% yield for a period of time, it can be taken away from you rather quickly. So we are trying to stay the course, 50-50.

Right. Okay. That's it from me. I'll step back in the queue. Thanks.

Thank you. Our next question today comes from Laurie Hunsicker of Compass Point. Please go ahead.

Hi, thanks, good morning. I was hoping we could just go back to the loan book here. Can you refresh us in terms of where you are with your Hawaii-based and Mainland based and how you're thinking about growing that?

Hi, Laurie. This is Arnold. Good morning.

Hi, Arnold.

Good morning, Laurie. I would say that we do have some transactions in the pipeline for 2022. We're looking selectively with regard to how we can grow this portfolio over the year while balancing other product categories, other loan categories. As of the end of the first quarter, we were about $156 million, that's a combination of Hawaii and the Mainland. So, I would say, it's not going to be a large driver for growth, but we would look selectively based on risk and yields.

Got it, okay. I just wanted to make sure I heard that right; you said you were $166 million total, is that correct?

$156 million.

$156 million. Okay, that's helpful. Okay, so, wow, so that grows pretty sharply. Okay, and then on the consumer side, and obviously you've got a lot going and I do want to follow up on Swell, but can you help us think about it. I mean your credit is remarkably clean; the only area really that we're seeing charge-offs is on the consumer side, which bucket of the consumer are those charge-offs coming from? And how are you thinking about that specific bucket or buckets?

Hi, Laurie, this is Anna.

Hi, Anna.

The bucket for the consumer is primarily in our unsecured consumer, actually coming from the Mainland purchase portfolio. And for the first quarter, Mainland comprised about 41% of that charge-off amount, fairly small, and about 59% coming from the Hawaii consumer book.

Okay. Your unsecured consumer portfolio has a very high FICO compared to what you plan to do with Swell and Elevate, can you provide an update on that? I have a couple of questions regarding this. I heard your initial equity investment in Swell and Elevate is $1.5 million, but Paul mentioned $2 million. Was the $2 million just rounded, or did you decide to invest an additional $0.5 million? Do you have any details on that?

This is Paul. It includes $1.5 million in what we call Swell equity, covering the costs we incurred during the incubation of Swell, plus an additional $0.5 million in cash for incorporating the entity, bringing the total to $2 million.

Got it. Got it. Okay, and is there any refresh in terms of how much you plan to put on the book this year? How you're thinking about it next year in terms of consumer loans? And then also in terms of where the FICO bucket are going to break, how you're thinking about that?

Sure. Yeah, so we had an extensive discussion with our Board. We want to take a very risk-adjusted approach on how we launched Swell. Our projections are something south of $8 million in terms of loan originations by Swell in this current fiscal year. That represents a cap for us at this time, where we will be able to again iterate, learn, and make adjustments. We will have a weekly dashboard to review their origination, payment, and defaults. I think it's being structured quite well to ensure we manage credit risk. That's the game plan for the current year. Going forward, we'll see how things play out this current year. As you know, it's a very dynamic environment today with rates, the war in Ukraine, and so forth, and we have to go slow and iterate and learn.

Yeah, no, I love hearing you're going so, and are you still targeting FICO scores in the range of 650 or do you have a refresh on that for the $8 million?

Yeah. So, Laurie, we are not going subprime at all. We're focusing on growing near-prime and above, but I hesitate to discuss FICO scores because Elevate employs a comprehensive credit analysis that uses 16 different credit factors. Additionally, they have nearly a decade of experience in naturally handling subprime, but our current strategy is to target more near-prime and above, which we refer to as the strivers group. We believe there is a significant market opportunity in the Mainland US. Therefore, I don’t want to limit ourselves to just one specific FICO score.

Okay. I mean, I guess I would just say that people obviously break differently in their definition of subprime; I tend to be very, very conservative. I think anything south of 660 is subprime, but I understand where you're coming from with your near-prime. I guess some of my concern is that Elevate is all of $90 million of market cap with all of $100 million in tangible common equity, right? So a credit guarantee if you all are putting on a substantial amount of Swell Elevate loan, I mean there is potential risk there, so I guess maybe Paul if you can help us understand a little bit, if $8 million performs as you expect it to, then what is the projection for what you potentially would do in 2023? I mean, right now our number drops to 2023 and so I'm just trying to understand that a little bit.

Sure. So, Laurie, first off, on the credit default swap that David explained earlier. The arrangement we have with Elevate is that they literally put in a deposit with our bank where we have a priority interest in, a preferred interest in. So regardless of their valuation or their financial condition under the terms of that agreement, we actually secure a 6% credit-default deposit from them with the preferred interest on it. So it's the perfect scenario for this current year as we again iterate and learn on how we do this. Now, this is an area where, as we go after the strivers market, this has not really been widely done by any fintech or financial institution in this manner. Given the existence of weekly dashboards where I will personally be taking a close look, we will make course corrections and pivot as necessary. I feel that it is a very prudent and risk-adjusted approach that we have in mind today. I also want to just mention that I think for most community banks today you have to get into the field on how we collaborate with fintechs. I think we're fooling ourselves because this is the direction the world is going to, even here in Hawaii. We've been very fortunate again with the relationship with Swell and Elevate that we can work together and be very transparent with each other, coming up with a really good risk-calculated approach. As far as 2023 is concerned, I really don't want to go there yet, Laurie. I believe that we need to have more time as we go live with the Swell platform this summer, and as we iterate and learn, we'll have a better view on how we want to scale it up in 2023, and we'll be happy to talk about that in subsequent quarters.

Okay, that's great; I appreciate all the color. And just one more question, David, over to you, non-interest income. Can you just refresh us a little bit on your NSF fees? How you're thinking about that going forward? Is that, obviously, is a little bit of an industry hot button?

Sure, Laurie. NSF fees for CPF, we're not overly dependent on NSF fee income; last year it totaled $3.7 million, and in the first quarter, it was $1.1 million. It is ramping up as activity returns to normalcy, but I think relative to some of our peers, we're less reliant on NSF income. Our strategy going forward is to stay the course for now; we're obviously watching what's happening with the CFPB, but what we've heard with regard to the CFPB is that their focus on NSF may be misplaced. It's a feature that consumers like and want, and the amount of complaints going into the CFPB are really low relative to other types of complaints. So anyway, we're staying the course for the time being, but we're watching what's happening with the CFPB and our industry peers.

Great. Thanks for taking my question.

Thanks, Laurie.

We have a follow-up question from Andrew Liesch. Please go ahead.

Hey, thanks for taking the follow-up here. Just on the share repurchases and capital right now, obviously, the AOCI had hit the TCE ratio but the regulatory capital ratios are all pretty strong. So what should we be thinking about for the buyback here; similar pace to what we have seen in the last couple of quarters or how do you think we should adjust our outlook there?

Hey, Andrew, it's David. We are definitely committed to maintaining the quarterly cash dividend. The share repurchase plan will be a bit more variable. It will always be at management's discretion and depend on the stock price as well as our other capital options. Therefore, I would say that the repurchase plan will be more flexible than it has been in the past.

Okay, very helpful. Thanks for taking the follow-up.

Thanks, Andrew.

And finally, we have a follow-up from David Feaster. Your line is open.

Hey, thanks. Just wanted to follow up on Laurie's question, just kind of getting the full picture on the fee income front, taking that kind of $800,000 to $1 million on the mortgage side, some of the NSF impacts like you talked about. Just curious, I know you guys have some fee initiatives in place. Just curious how you think about that fee income line as a whole? And how you'd expect the progression over the course of the year?

Yeah, David, it's David here. So the first quarter was a down quarter. We talked about mortgage banking income and also the BOLI. We have some BOLI policies that are on the graph that are impacted by what's happening in the equity and fixed income markets. Going forward, we're thinking we want to be roughly in the $10 million per quarter range, and we do have some key initiatives in the wealth management area. That's an area that's been a little difficult with the volatility, but we have some new business development initiatives in the wealth management area that hopefully can offset the market volatility and actually grow fee income in that area. The other thing that's going on, as Paul mentioned, is that we are working on some other Banking-as-a-Service fintech opportunities. Some of those will be fee opportunities versus net interest income opportunities, and we look forward to sharing more on that at the appropriate time in the future.

All right, that's helpful. Thanks, everybody.

Thank you. We have no further questions in the queue, so I'd like to turn the call back to Paul Yonamine for closing remarks.

Thank you very much for participating in our earnings call for the first quarter of 2022. We look forward to future opportunities to update you on our progress. Thank you.

This concludes today's call. Thank you very much for joining. You may now disconnect your lines.