Bank of N.T. Butterfield & Son Limited (The)

Good morning. My name is Dhawan and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2024 earnings call for the Bank of NT Butterfield and Sun Limited. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the call over to Noah Fields, Butterfield's Head of Investor Relations.

Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's first quarter of 2024 financial results. On the call, I'm joined by Michael Collins, Butterfield's chairman and chief executive officer, Craig Bridgewater, group chief financial officer, and Michael Scrum, president and group chief risk officer. Following their prepared remarks, we will open the call up for a question and answer session. Yesterday afternoon, we issued a press release announcing our first quarter of 2024 results. The press release and financial statements along with a slide presentation that we will refer to during our remarks on this call are available on the investor relations section of our website at www.butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures which we believe are important in evaluating the company's performance. For reconciliation of these measures to US GAAP, please refer to the earnings press release and slide presentation. Today's call and associated materials may also contain certain forward-looking statements which are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these risks can be found in our SEC filings. I will now turn the call over to Michael Collins.

Thank you, Noah, and thanks to everyone joining the call today. Butterfield's first quarter of 2024 results continue to benefit from our leading market positions in highly regarded international financial centers. As a reminder, we operate well-established banking wealth management franchises in Bermuda, the Cayman Islands, and the Channel Islands. We also offer specialized financial services in the Bahamas, Switzerland, Singapore, and the UK, where we provide mortgages to high net worth clients with properties in prime central London. I will now turn to the first quarter highlights on page four. Butterfield reported strong financial results in the first quarter with net income of $53.4 million and core net income of $55 million. We reported core earnings per share of $1.17 with a core return on average tangible common equity of 24.5% for the first quarter of 2024. The net interest margin was 2.68% in the first quarter, a decrease of five basis points from the prior quarter, with the cost of deposits rising to 178 basis points from 172 basis points in the prior quarter. The increase in deposit costs was primarily the result of continued mix shift from demand deposits to term products, as well as term deposit rollovers. The Board has again approved a quarterly cash dividend of 44 cents per share. We also continued to repurchase shares during the quarter, totaling 1.2 million shares at an average price of $30.40 per share. Before I turn the call over to Craig, I would like to welcome Barfield's new general counsel and group chief legal officer, Simon Desotage. Simon joined us following the planned retirement of Sean Morris. Simon has over 30 years of legal experience in London, New York, and Bermuda, with the majority of that time spent in the banking sector. I am confident Butterfield will benefit from its extensive experience advising banks on legal and regulatory matters. I will now turn the call over to Craig for details on the first quarter.

Thank you, Michael, and good morning. On slide six, we provide a summary of net interest income and net interest margin. In the first quarter, we reported net interest income before provision for credit losses of $87.1 million a small increase versus the prior quarter. The net interest income benefited from an increase in average interest earning assets, but was muted by lower NIM and one less day than the fourth quarter. Average interest earning assets in the first quarter of 2024 of $13 billion was 3.2% higher than the prior quarter, driven by an increase in average deposit levels. The yield on the interest-earning assets was flat at 4.39%. The yield on Treasury assets during the quarter was comparable to the prior quarter at 4.71%, and the investment portfolio yielded 2.23%, which was seven basis points higher than the prior quarter, reflecting the runoff of lower-yield securities and increased yields for more recent purchases. Throughout the first quarter, the bank reinvested maturities, paydowns, and some excess liquidity into a mix of U.S. agency MBS securities and medium-term U.S. treasuries. The yield on loan balances decreased by 10 basis points to 6.58%, principally attributed to net pay downs and higher yielding loans. Average investment balances decreased by $86.3 million, or 0.07%, to $5.2 billion compared to the prior quarter, mainly due to maturities and changes in the fair value of the securities held. Slide seven provides a summary of non-interest income, which totaled $55.1 million, down 8.1% versus the prior quarter, primarily due to seasonally higher car services fees included in banking revenue in the fourth quarter of the year. Trust fees declined as a result of lower activity-based fee income, while fees from asset management increased as a result of higher assets under management. Non-interest income continues to be a stable and capital-efficient source of revenue through the cycle with a fee income ratio of 38.6%. On slide eight, we present core non-interest expenses. Total core non-interest expenses were $86.9 million, a 3.8% decrease compared to $90.4 million in the prior quarter. The decline in core non-interest expenses is primarily attributable to lower salary and benefit costs as performance-based incentive accruals decrease from the prior quarter. Expenses in the first quarter also benefited from incurring less technology and communications costs. We continue to expect a quarterly run rate for expenses to total about $88 million per quarter in the second half of 2024. As discussed previously, this contemplates the increased expenses resulting from the amortization of our new cloud-based IT investments and core banking system and branch upgrades, as well as costs for our new team servicing the acquired Book of Trust clients. all while taking into consideration the expected benefit of the group-wide restructure announced in the third quarter of 2023. I will now turn the call over to Michael Schrum to review the balance sheet.

Michael Schrum Thank you, Craig. Slide 9 shows that Butterfield's balance sheet remains liquid and conservatively managed. Period end deposit balances increased to $12.1 billion from $12 billion at the prior quarter end. indicative of a stabilization in the deposit base. We continue to expect a medium-term deposit level range between $11.5 billion and $12 billion with the understanding that deposit flows can be cyclical due to the nature of some of the trusts and larger institutional depositors. Butterfield's low risk density of 34.4% continues to reflect the regulatory capital efficiency of the balance sheet with the lower risk-rated residential mortgages now representing 69% of our total loan assets. On slide 10, we show that Butterfield continues to have strong asset quality with low credit risk in the investment portfolio which is now 100% comprised of at least AA-rated U.S. government guaranteed agency securities. Loan asset quality also continues to be excellent with non-accrual loans remaining at 1.3% of gross loans, a net charge-off of one basis point, and our allowance for credit losses coverage ratio is consistent with prior quarter at 0.5%. In terms of credit trends, we have additional disclosures in Note 6 to the financial statements. I would just point out that our past due and accruing facilities are expected to continue to be somewhat elevated over the next few quarters due to a sizable legacy hospitality facility in Bermuda working through a receivership and sale process, which we expect to conclude later this year. We remain well secured and continue to expect full recovery on all past due and accruing loan assets. On slide 11, we present the average cash and securities balance sheet with a summary interest rate sensitivity. Asset sensitivity increased in the first quarter of 2024 due to a lower asset duration with higher levels of cash and cash equivalents, along with durations of investments and fixed rate loans trending lower. Unrealized losses in the FS portfolio included in OCI was $178.2 million at the end of the first quarter, an unfavorable movement of $14.3 million, or 9%, from $163.9 million at 31 December 2023 due to an increase in long-term market interest rates. At current forward rates, AFS OCI is expected to improve by $52 million, or 29%, in the next 12 months, and $83 million, or 47%, in the next 24 months, allowing for reinvestment in high-yielding assets and tangible book value growth. Slide 12 summarizes regulatory and leverage capital levels. Butterfield's capital levels continue to be conservatively above regulatory requirements. While not strictly a regulatory ratio, our TCE to TA ratio of 6.7% remains above our targeted range of 6 to 6.5%, and it is indicative of the health of our overall capital levels. I'll now turn the call back to Michael Collins.

Thank you, Michael. The outlook for tourism in Bermuda and Cayman is very positive, with improved airlift and a good pipeline of cruise ships scheduled to visit the island. Bermuda continues to maintain its status as a world-class jurisdiction to host high-profile international events. Early next month, SailGP, an offshoot of the America's Cup sailing race, will be hosting televised races in Bermuda. Butterfield is a proud supporter of the event, as we were with the America's Cup. In November, the PGA will once again hold the Butterfield Bermuda Championship in Bermuda at the Port Royal Golf Course, where the event has been held since 2019 and is televised internationally. In Cayman, the peak season for tourism is winding down as we head towards summer after a great season. Available visitor statistics show air arrivals heading back towards records with bed capacity continuing to increase. In addition to Bermuda and Cayman, the Channel Islands also benefit from strong economic contributions for international business. At the end of 2023, the Bermuda government tabled legislation on moving to a corporate income tax from 2025. The legislation will implement minimum corporate income tax of 15% on multinational enterprises with total global revenues in excess of 750 million euros in at least two of the previous four accounting periods and will fall within the scope of the pillar two global minimum tax rules. During the fourth quarter of 2023 reporting cycle, we saw a number of Bermuda reinsurers announce deferred tax assets in preparation for the expected implementation of a first ever corporate income tax in Bermuda. We do not expect the tax to impact Barfield directly in the near future, but we will be monitoring the progress closely. At this point, reinsurers are mostly planning to accept the changes and maintain their significant and economically important operations in Bermuda. In Cayman, the government has taken a less active approach legislatively with a wait-and-see position. Barfield continues to benefit from capital efficient and recurring non-interest income, disciplined expense management, and net interest earnings. The bank has consistently maintained top quartile returns relative to U.S. regional banks with operating returns of tangible equity in the range of 16 to 20% over the most recent economic cycle. Our strong returns require active capital management, which we deliver through regular quarterly cash dividends and share repurchases. Additionally, capital is utilized to support organic growth and contemplates potential M&A activity. We remain committed to exploring growth opportunities through acquisitions and are regularly in contact with targets to assess potential prospects. We continue to look for accretive deals, primarily in private trusts, while also building organically from previous acquisitions and will remain disciplined to ensure M&A is consistent with our strategic and financial objectives. Thank you, and with that, we would be happy to take your questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star and one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Tim Switzer with KBW. Please go ahead.

Hey, good morning. Thank you for my question. Good morning. Could you guys talk about the level of non-interest income in Q1, it was a little bit above the run rate you guys talked about last quarter. And a lot of it was the FX revenue, which there might be some one-timers in there. Could you talk about what drove the upside and what your expectations are going forward?

Yeah, this is Craig, and I can speak to that. So you're right. So we did have increases in FX revenues, And it's really due to just a handful of significant transactions that took place in our Channel Islands segment. The bulk of the FX revenue on a quarter-to-quarter basis is really kind of from the paid currencies in Cayman Islands versus US dollar, as well as Bermuda dollars versus US dollar. And that accounts for somewhere around 70% of that FX revenue on a quarter-to-quarter basis. And then just depending on client volumes and client transactions, the effects would tend to vary from quarter to quarter. So this quarter we had, again, a handful of large transactions in our channel items segment. The other piece is that we've also seen some positive results coming through on our asset management piece. We are seeing more inflows into our money market fund as an example. And I think as rates stay higher for longer, you know, obviously customers are going to continue to seek higher yields on their investments, any excess cash. So we have seen some favorable flows into our money market funds, as well as just increases in the fair value of those portfolios that are managed by asset management. So that's largely driving the first quarter fund interest income.

Okay. And what are your... going forward expectations with, you know, is some of that sustainable that can repeat in the coming quarters?

I think as long, again, as long as we see rates higher for longer, I think we'll still continue to see, you know, pretty good levels in our money market fund. So that connects with, so we're earning fees on those. So that's going to be positive. Depending how equity markets perform, again, that's going to basically support assets under management. So, you know, perhaps we'll see, you know, those levels continue to be where they are or increase slightly, again, depending on market conditions. And then, I guess, other than that, you'll probably see cyclical increases, as we have seen in the past. So, in Bermuda, as the tourism season comes in, you'll see more kind of credit card volumes, and that's going to drive banking fees. And then obviously in Q4, we have seasonally high fees going on the banking side as well.

Okay, that's helpful. And my other question is, I know you guys like to hold a lot of liquidity on the balance sheet, but the cash increased a little bit, around 24% of earning assets. Can you remind us what your target liquidity level is? And if there's any opportunity for you to deploy cash into either loan opportunities or you know, higher yielding securities.

Yeah, thanks, Tim. So it's Michael Scrum. I'll kick off and maybe Craig can pitch in as well. Yeah, you're absolutely right. As we see the maturities in the investment portfolio kind of coming back, you know, we've been sort of building the cash position a little bit here. You know, just one, it's not adding any OCI risk at the moment. You know, we've had some deposit stabilization and some volatility prior to that, obviously after the regional bank sort of volatility last year. And so we've just been kind of building the cash position a little bit. I think, you know, in a stable environment, 15 to 20% of a lot of deposits typically would be what we call working capital or cash positions, which is, again, because we don't have a central bank or lender last resort, we don't have a Fed window, so we have to manage our treasury effectively. And because we have pervasive multi-currency accounts across a number of different markets, you know, that ends up with liquidity flows kind of being sort of a little bit higher than you might otherwise normally see. So I think there are definitely opportunities for us to think about laddering out. Just as a reminder, you know, cash and short-term securities are up to one year. So there's a little bit of some repricing lag on that, but there's not substantial duration. that, again, you know, would just like to continue to see the investment portfolio run down a little bit. And then as that happens, then we're rolling it into higher yielding securities. I'll let Craig add anything.

The main thing I'll add is that, you know, what we did see during the quarter was, I guess, we saw an increase in the August. So, again, that was a contributor to the increased levels of liquidity that we have. So in addition to kind of managing, you know, the investment portfolio and the reinvestments there, the gear has deposits increased, and obviously we kind of have to see, you know, how those deposits are going to behave before the investors into long-term assets.

Okay, great. Thank you, guys.

Thank you. The next question comes from Alex Twodle with Piper Sandler. Please go ahead.

Good morning. Good morning, Alex. Michael, your comments about expected medium-term deposit range being $11.5 to $12 billion implies maybe a little bit of expected outflow over the next couple quarters, which I know is not atypical for sort of the middle of the year. But do you in fact have line of sight on some deposits that are flowing out or expected to flow out in the near term, and then would those deposits be non-interest bearing, or would they have some costs associated with them that we can take into consideration when our modeling?

Yeah, good question, Alex. So, yes is the answer. I think, you know, we do have a number of depositors that are, you know, sitting They're sitting on the balance sheet, but the company itself is in liquidation. It's going through the courts, and it's just very difficult to predict how they're going to flow out. And as you've seen, we also have some, but we're expecting some of that to be in the sort of near to medium term. It just depends on when exactly the court process is completed and the liquidation proceeds. And those would typically be non-interest bearing, so there's a couple of those. And then, you know, I think we're also sitting with some reasonably expensive deposits and we continue to see some makeshift, you know, and so I think the normalization period is probably still ongoing. We're seeing some inflows and we're seeing some money, you know, money fund inflows. at the moment, but I think there's still a little bit of a ways, you know, a couple, maybe three quarters to go just to kind of, you know, make sure that we feel that this is completely stabilized. You know, we came out of post-COVID and financial assistance, you know, monetary policy, you know, pretty ramped up and then going into, you know, a much higher interest rate environment. So I think it's a normal sort of stabilization period here. And yes, we do have you know, some line aside to some depositors and then there's a normal kind of volatility. Okay.

And then, you know, you guys have made a pretty considered effort to reduce the asset sensitivity in the loan portfolio over the last couple years. Is that process and that effort kind of done at this point? I mean, is the sort of the mix between the fixed and the variable, is that kind of what it's going to be at this point?

Yeah, I would say so. I think, you know, You never know what's happening with interest rates. One day it's two cuts, and the next day it's longer-term increases. But I think if we think that the Fed's done hiking here and most customers would be looking probably to come into floating rate, more sophisticated customers, I think, and so we'd probably not expect for people to go three to five-year fixed here at this point. You know, it's going to be obviously different for each market. You know, but I would suspect that we're probably sitting at the 50% for the medium term. You know, those are repricing from here to like 27, right? So there's not a particular lumpy tranches in those repricing. But as they come up, I think we should probably see that increase. you know, fixed percentage of total kind of either stable or declining.

Okay. And then, you know, in terms of the M&A, Michael, your comments on still looking for a private trust business or continue to be, you know, acquisitive. You know, just given, you know, the change in geographies and sort of the spread of that business over the last, you know, with the Credit Suisse transaction, are there any geographies that make more sense today than they did a couple years ago? And, you know, either from just sort of a synergistic standpoint or another standpoint. And then just remind us overall what the criteria is of, you know, if that's changed at all over the last couple of years in terms of the appetite for the revenues. They seek out the size of the businesses, et cetera.

Yeah, hi. It's Michael Collins. So geography-wise, that hasn't changed. So whether on the banking side in terms of Bermuda, Cayman, Guernsey, New Jersey, Or on the trust side, if you add in Geneva and Singapore and Bahamas, that hasn't changed. So the offshore world is very small, and there's some very good jurisdictions, and there's some jurisdictions that aren't quite as good. So we know what they are, and we're in the right places. Singapore, obviously, is a particular growth area. We're top five or six private trust companies in Singapore now. We would never... imagine that we could sort of compete in the banking world there so we know exactly where we want to be, which is fee income. So geographies are exactly the same. And when you look at private trust companies, the good ones are pretty much across those geographies. So that's going to stick. In terms of criteria, it's still going to be private trust. There's obviously other fee income businesses that private equity likes, company administration, fund administration. which is very technology intensive. We don't want to be in those businesses. We want to stay in private trusts, which we've been in for 70 years. So we're going to stick to that. The only thing I'd say is, you know, in terms of our price appetite, so basically eight times EBITDA, maybe a little bit more, 10 times EBITDA if it's a bigger acquisition opportunity. And the two ways we can do it is a small trust company or a larger trust company. If we acquire... larger trust company and it's from a reputable seller, then we can acquire the legal entity. If it's a little more difficult, we would just do sort of an asset purchase and choose each trust one by one. So essentially nothing's changed. I would say if it's the right opportunity, we might consider paying a bit more. But in terms of geography and what we would be buying, it's consistent.

Okay. Appreciate you taking my questions.

Thank you. Again, ladies and gentlemen, if you have a question, please press star, then one. The next question comes from Eric Spector with Raymond James. Please go ahead.

Hey, good morning. It's Eric on the line for Dave Feaster. Congrats on a good quarter, and I appreciate you taking the questions. Just wanted to start on NII and NIM. Kind of mentioned rate sensitivity is up a little bit, quarter over quarter. Just curious kind of how you think about NIM for a longer environment and if you're considering any actions to manage rate sensitivity here going forward.

Hi, Eric. It's Craig. I guess on NIM, we had previously kind of spoke about NIM troughing kind of in Q1, Q2. We think that that is the same. I think probably towards the end of Q2, we'll start to see some improvement in the overall NIM. This is obviously kind of dependent on really the cost of funds, so the deposit pricing. We are actively watching these deposit pricing and the average duration on term deposits is around three months. So those actually roll off and reprice, really taking a keen eye to what we are replacing those at. But in a higher for longer rate environment, we expect the real public still have continued pricing pressures on deposits. So we're thinking carefully about that. So that's going to probably kind of meet any increases in NIM at this point based on the current market environment. On the positive side, as you will see, we're starting to ladder back out into the portfolio. And you want to see an increase in the yield on our investment portfolio. We stood at 223 for Q1. And as we continue to ladder back into a portfolio and invest at higher rates, we're going to see some positive contribution to them from there. But, yeah, I think it's the cost of deposits and the cost of funding that's probably going to keep it more or less stable to trending up at this point.

Yeah, and Eric, sorry, it's Michael Scrum. I think, you know, if you look at our OCI, right, and the investment portfolio is pretty large compared to, you know, to the size of the balance sheet. And so, having gone through this sort of whole increase in rates and building relatively large negative positions in HDM and although totally unrealized. I think we're also just kind of fine seeing that OCI burn down and sort of being cautious about laddering in and just sitting on a bit of cash, right? Which I think we're not sort of a mark to market shop. We just kind of need to manage through the different parts of the cycle. And as you can see, earnings are coming through. So I think it's kind of steady. When we say higher for longer, I mean, some people are talking about increases in rates, right? I think we also want to be mindful of the risk positions that we have there and make sure that we're not adding to those risk positions as we go through.

Got it. Got it. That's helpful. And then just curious, I mean, we talked a little bit about M&A, but just kind of curious about capital return more broadly. We've obviously been pretty active repurchasing stock the last few quarters. And TCE is now above that 6% to 6.5% level. And regular capital is very strong. Just curious how you think about capital priorities and your appetite for repurchases. Do you expect a similar pace that we've seen in the last couple quarters? And just kind of any color of that would be helpful.

Yeah, thanks, Eric. Yeah, it's Michael Scrum. So, yeah, we're actually calling in from Cayman at the moment. We're down here just for our board meetings. And, you know, the board is very supportive at these levels, very attractive, you know, reasonably attractive valuations. Obviously, half an eye to what's the M&A pipeline, organic growth opportunities, and there's certainly quite a bit of opportunity here on the lending side in Cayman. The economy is booming. There's power cranes everywhere. So that's a positive in terms of obviously capital consumption and at least replacing the amortization that we're seeing in the loan book at the moment. But yeah, very supportive in terms of the current strategy, which is obviously first priority is the dividend. And we kept that at 44 cents a share. Secondly, obviously supporting our core markets in terms of organic growth and or any credit deterioration, which we're not really seeing. We've seen a little bit of migration. Again, a few lumpy loans there and some legacy positions. But, you know, very confident about the underpinning valuations there, so it shouldn't attract a lot more risk with assets. And then thirdly, obviously M&A and or buybacks. And I think we spoke about the pipeline for M&A, We are kind of sitting on a lot of capital, and so we want to return that capital to shareholders. And so we've been pretty active, and I would expect us, subject to market conditions, to continue. And if we need to re-up later in the year, we'll do that.

Got it. That's helpful. And then just one last one from me. I'm curious if you could provide just An update, I mean, given that the core banking system upgrade was completed this quarter, just curious how that went, and then maybe just some color on the credit suites acquisition this first full quarter since the final tranche closed. Just curious if you could provide some colors on just trends broadly there and how the team brought on has been doing.

Maybe I'll kick off and Craig can pitch in as well. Core banking system upgrades are always difficult. It's not something that's necessarily positive unless you're rolling out a bunch of new functionalities. What we did was a like-for-like conversion. It's a fairly major upgrade. It was a moving to a cloud infrastructure. As you can see, the expenses and the capital picture has changed slightly in terms of software as a service rather than the capital depreciation in those lines. I think, you know, generally speaking, it went well. There was no write-offs. There's obviously a few client-impacting things, and, you know, we apologize to clients, but they're all still with us. And I think what we're excited about is the opportunity to roll out additional functionality now. And we have a pretty good, steady platform. seems to be operating. It's a lot faster for clients. And so there's not a lot of noise. Our call centers broadly were able to deal with the elevated volumes. Most of the volumes from the implementation came from the OTP functionality. So one-time password functionality, inability to log in, new splash screens, et cetera. And so it was really kind of user walkthroughs on that side. Internally, it went very well. Like all our staff, the training program was very good, and we ended up, as I said, not having any real reconciliation issues at the back end or process issues. So, you know, I think at this point, I think everybody's feeling like that was probably, you know, more of the operational risk moment when we went live, and that's kind of in the rearview mirror, and now we can add add new functionality. And in terms of credit suites, Craig can just talk a little bit about that.

Yeah. Yeah, and just depending on the IT piece, like I said, it's kind of gone according to plan. It's working. We're starting to amortize the expenses related to that as well as the hosting fees. And really one of the important things in the IT upgrade was to kind of get on the current version and remain current. So I guess a positive thing is that we're now looking to apply, you know, we're planning for the application of kind of a new pet set. So kind of getting that into kind of the regular routine when it comes to maintaining that system. On the Credit Suisse side, again, that's going well. The assets came over, those client relationships have come over, the people have come over, and all settled into the teams. Our head of trust has been very active, kind of getting around to see those teams, having town halls, and just making sure everybody's settled in. So that's going well. And really, it's just a matter of making sure we serve with those clients well, get to know them, and then see how we can leverage those relationships.

Okay, that's helpful. Thanks for taking the questions. You're welcome.

Thank you. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Noah Fields for any closing remarks.

Thank you, Dorwin, and thanks to everyone for dialing in today. We look forward to speaking to you next quarter. Have a great day.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now.