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Operator: Good morning, and welcome to Otis' First Quarter 2026 Earnings Conference Call. This call is being carried live over the Internet and recorded for replay. Presentation materials are available for download from Otis' website at www.otis.com. I'll now turn it over to Rob Quartaro, Vice President of Investor Relations. Please go ahead. Robert Quartaro: Thank you, Krista. Welcome to Otis' First Quarter 2026 Earnings Conference Call. On the call with me today are Judy Marks, Chair, CEO and President; and Christina Mendez, Executive Vice President and CFO. Please note, except where otherwise noted, the company will speak to results from continuing operations excluding restructuring and significant nonrecurring items. A reconciliation of these measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements, which are subject to risks and uncertainties. Otis' SEC filings, including our Form 10-K and quarterly reports on Form 10-Q provide details on important factors that could cause actual results to differ materially. Now I'd like to turn it over to Judy. Judith Marks: Thank you, Rob. Good morning, afternoon and evening, everyone. Thank you for joining us. We hope everyone listening is safe and well. Starting on Slide 3. Otis delivered a solid start to the year in orders and sales with continued demand momentum that provides visibility for future growth, especially in our Service segment. Total organic sales increased 1% in the quarter driven by organic service growth of 5%, with broad-based strength across all service lines of business. Maintenance and repair sales increased 4% driven by an acceleration of organic repair sales, which increased approximately 10%. In modernization, we continue to see strong demand with orders up 11% in the quarter and the backlog up 30% at constant currency. This backlog provides improved visibility into the future and supports our view of modernization as a durable multiyear opportunity as the global installed base continues to age. In new equipment, market conditions remain mixed, but we see encouraging signs of stabilization. Orders increased 1% at constant currency and 5% excluding China. Backlog increased 3% year-over-year at constant currency and was up 11%, excluding China, giving us good momentum for the remainder of 2026 and beyond. While China continues to weigh on results, demand across the rest of the world remains positive, especially in the Americas, where orders grew more than 20% in the quarter for the seventh straight quarter of orders growth. Otis delivered another quarter of strong cash flow performance with adjusted free cash flow of approximately $272 million, up 46% versus the prior year. This reflects a ramp-up in orders, improved working capital management and continued focus on cash conversion. Yesterday, we announced a 5% increase to our quarterly dividend. Since spin, our dividend has increased by approximately 120% consistent with our disciplined approach to capital allocation and our commitment to returning cash to shareholders. During the quarter, we opportunistically completed approximately $400 million of share repurchases reflecting our ongoing approach to capital deployment while maintaining flexibility to invest in the business and support long-term value creation. We recently announced the majority investment and we maintain a digital and AI-enabled elevator service provider. We anticipate this transaction to contribute incremental growth as we maintain offers a compelling connected solution with a complement to Otis ONE for a multi-branded portfolio base. We're excited to welcome and support the -- we maintain team and integrated ecosystem and look forward to the long-term value creation opportunity. We're continuing to build our services capability to drive growth and margin. We will continue to invest in field and sales resources to support the service business. Lastly, we recently announced 2 new innovation offerings. The first is Otis robust, a range of heavy-duty elevators designed for data centers and other mission-critical environments. I'll share more in a moment. Secondly, we also introduced Otis Veeva solutions which supports safer and more accessible mobility for aging populations. Otis Veeva solutions focused on improving everyday usability and accessibility and elevators across both existing buildings via modernization and new installations. Turning to our orders performance on Slide 4. Combined new equipment and modernization orders increased 4% in the quarter, reflecting continued strength in the modernization business and new equipment orders returning to growth. The combined new equipment and modernization backlog increased 9% year-over-year, and our total backlog remains at historically high levels, approaching $20 billion, setting a solid foundation for future earnings visibility. New equipment orders increased 1% at constant currency in the quarter. We saw a strong performance in North America with orders up more than 20% and low single-digit growth in EMEA driven by the U.K., Central Europe and Western Europe. These gains were largely offset by a greater than 20% decline in Asia Pacific due to a tough prior year comparison as well as continued softness in China where orders were down low teens. Modernization continued to perform well with orders up 11% at constant currency, driven by North America and China each up greater than 20%. This was partially offset by EMEA down high single digits and Asia Pacific down mid-teens as both regions faced difficult comparisons for major projects in the prior year. Before moving to financial results, I'd like to mention several highlights from the first quarter. In France, Otis has been selected by Marseille Metropolitan Transport Authority to fully replace and maintain 51 escalators across 10 metro stations. The scope includes the installation of 35 escalators designed for standard heavy-duty metro use and 16 additional escalators engineered for the most demanding environments, featuring greater vertical rise and very high passenger volumes across one of France's busiest metro networks. In the Americas, Otis has been selected to supply 46 units to the Austin Convention Center redevelopment in Texas, including SkyRise and Gen 3 elevators as well as public escalators. We view the expansion of the Austin Convention Center as part of a broader modernization opportunity across the U.S. Convention Center segment, where many facilities built 20 to 30 years ago are now being upgraded to meet today's capacity accessibility and performance requirements. In China, Otis will upgrade 46 elevators at the Run win community in Harbin City as part of a bond-funded residential renewal project replacing all units with Gen 3 comfort elevators. This represents the first nationwide implementation of the Gen 3 Comfort model since we launched it at the eighth China International Import Expo, aligning with the country's good housing standards. Built for residential modernization and elderly friendly living Gen 3 comfort elevators feature full-height mirrors to enhance spatial awareness, bright LED lighting to improve visibility and comfort, increased cab height for a more spacious and comfortable ride and smart recognition cameras to detect and prevent safety hazards. The elevators are also equipped with a regen energy regeneration system and Otis ONE IoT platform, delivering a safer, more comfortable, energy-efficient and connected travel experience for residents. And lastly, as I previously mentioned, we recently launched our Otis robust range of elevators to serve data centers and other mission-critical environments, including hospitals and industrial buildings. Otis Robust is built for high-capacity, high-traffic applications that require durable, reliable around-the-clock operation, reflecting growing demand across infrastructure-driven markets. Engineered for heavy-duty performance and accelerated project time lines, our robust solution demonstrates our commitment to product innovations that serve our customers' unique needs, including movement of high-value freight and passengers. Turning to our first quarter results on Slide 5. Otis delivered net sales of $3.6 billion with organic sales up 1%. Adjusted operating profit, excluding a $28 million foreign exchange tailwind decreased by $38 million in the quarter. Adjusted operating profit margin declined 130 basis points to 15.4%. Adjusted EPS declined 3% or $0.03 in the quarter driven by operational performance partially offset by favorable foreign exchange rates. With that, I'll turn it over to Kristina to walk through our results in more detail. Cristina Mendez: Thank you, Judy. Starting with service on Slide 6. Service organic sales grew 5% in the quarter, with growth across all lines of business. Maintenance and repair organic sales increased 4% with organic maintenance sales of 2% and driven by 3% portfolio growth and approximately 3% positive pricing, partially offset by mix and churn. Repair organic sales were in line with our expectations, up 10% and reflecting solid orders momentum and healthy customer demand across all regions. Modernization organic sales grew 6%, supported by a strong backlog conversion in the Americas China and Asia Pacific, partially offset by a decline in EMEA. We experienced modernization project delays in EMEA due to the conflict in the Middle East during the quarter. However, we remain convinced of the underlying demand for modernization as evidenced through the progress we continue to make on orders. As Judy mentioned earlier, our modernization backlog is up approximately 30% at constant currency, which give us confidence in our outlook for the remainder of the year. Service operating profit was $556 million in the quarter, down $10 million at constant currency. Higher volume and favorable pricing provided a benefit that these were more than offset by continued investments to support long-term growth, higher labor and material costs and unfavorable mix, particularly in our maintenance business. As a result, Service operating margin contracted 160 basis points to 23%, reflecting investments in service capacity and quality as well as ongoing cost inflation. As the growth in lower-value maintenance units has driven negative mix in our portfolio growth in recent quarters. As we are focusing on shifting these dynamics to capture higher value units, we are investing significant resources in service excellence. We are also continuing to hire to support our long-term growth ambitions. In a moment, Judy will provide some additional insights on these dynamics and the actions we are continuing to take to address these headwinds. Turning to new equipment on Slide 7. New Equipment organic sales declined 5% in the quarter. Growth in EMEA was more than offset by declines in Asia, particularly China and slightly lower volumes in the Americas. EMEA sales increased approximately 1% driven by growth in Southern Europe, partially offset by weaker performance in Western and Central Europe. Asia declined 13%, reflecting China's lower backlog with sales down more than 20%, alongside lower sales in Asia Pacific with a strong growth in India, more than offset by softness in other parts of the region. New equipment sales in the Americas declined approximately 1%, a sequential improvement from last quarter as we begin to execute on the strong order growth that began in the second half of 2024. Looking ahead, we expect the Americas to return to positive new equipment sales growth for the full year in 2026. New Equipment operating profit of $38 million declined $27 million at constant currency, with operating margin declining 240 basis points to 3.3%, in line with our expectations. The decline in profitability was primarily driven by lower volumes and favorable price and mix, partially offset by productivity. Looking ahead, we remain focused on disciplined execution, productivity and cost management as we navigate the current new equipment market environment. I will now hand it over to Judy to discuss our [indiscernible] margins and the actions we have taken to return them to past levels. Judy, back to you. Judith Marks: Thank you, Christina. Turning to Slide 8. We realize we have seen some volatility in our service results in recent quarters, which is unusual given the nature of our stable and predictable service flywheel. 2025 was a year of uplift implementation in our frontline operations, which caused some disruption in repair and modernization execution in the first half. At the same time, we redefined our service strategy with the goal to maximize lifetime value by investing in service excellence and driving growth in our highest value markets. We're pleased with the progress we've made in strong repair and modernization orders in the first quarter and we're also encouraged to see our retention rates excluding China stabilizing. However, we experienced short-term profit pressure in the first quarter in our service business, driven by 3 factors we're working to address. The first factor is our investments for growth. Since the second quarter of last year, we've been adding field colleagues to drive our service excellence initiatives as well as adding sales resources to support our growth. Overall, in Q1, we have $5 million of additional field costs in the baseline devoted to service quality. In addition, in Q1, we invested approximately $10 million in sales capabilities in high-value markets, including tools and our AI pricing algorithm, sales representatives and training of the sales force. For the full year, we expect $50 million of incremental investments in 2026, inclusive of what we've executed in the first quarter. The second item is portfolio mix. While we've grown our maintenance portfolio 4% for 4 consecutive years through 2025, in the first quarter, our portfolio grew 3%. Importantly, more of the recent growth has come from lower value markets. This negative mix has been a drag, causing maintenance organic revenue growth to decelerate to approximately 2%. While we recognize this headwind last year, we anticipated a faster recovery in higher-value markets. Third, we have seen revenue delays and timing of cost recovery driven by inflationary effects in our base, partly related to the Middle East conflict. As we look ahead, we're taking decisive actions to address the headwinds to service margin and drive sequential improvement in the coming quarters. As I mentioned, the portfolio mix headwinds have been higher than anticipated and we've decided to scale up investments encouraged by the positive results from the pilots in place. We're confident that the improvement in retention rate will pay off, and we will return to margin expansion by the end of the year. Additionally, we're investing in micro pricing capabilities. And as we roll out the pricing initiatives that started last year across multiple high-value markets, we anticipate accelerating maintenance organic sales growth back to 3% in 2026. In addition, we remain extremely bullish on the outlook for both modernization and repair demand due to the aging of the global installed base. Going forward, we expect repair organic sales to grow approximately 10%, while modernization orders are expected to grow in the low teens or above on a sustained basis. Within repair, we're replicating the industrialized and proactive approach that has delivered such strong results in modernization. By leveraging insights from Otis ONE connectivity together with our unique capabilities from factory to the front line, we are proactively driving repair volumes and reducing customer downtime. First quarter repair results were very solid. We expect this trend to continue throughout the year. Regarding cost management to address cost headwinds experienced in the first quarter, we are implementing fuel and logistics surcharges, though there is a time lag versus cost incurred as we implement these pricing actions, we expect to fully offset these higher costs as we pass them on via pricing throughout the year. Finally, we're executing a targeted cost reduction program in nonfrontline related activities. After finalizing uplift in 2025, we're refining our global functions to be business-centric and removing discretionary spending that's not business-critical. We expect this to result in up to $20 million of run rate savings and indirect expenses. Please note of the $20 million targeted run rate, we expect to achieve approximately $10 million in 2026. Overall, while recognizing a setback in our service profit in the first quarter, we are addressing the root causes while sustaining our investments to return to our post-spin margin levels. With the actions in place we expect service margins to sequentially improve in the coming quarters and return to year-over-year margin expansion towards the end of the year as we capture the benefits from retention, pricing, execution of our growing orders in repair and modernization and optimization of our costs. Moving to Slide 9 with the market outlook. Our 2026 market expectations have not changed. We continue to expect the global new equipment market to move towards stabilization in 2026 with industry units down 2% for the year. This expectation includes growth across all regions except China. In Americas, first quarter demand in North America was robust, and we continue to anticipate solid growth for the full year, driven by strength in residential, health care and data centers. Latin America market volume is expected to stabilize, supported by public investment in Brazil. Growth in EMEA is expected to accelerate this year, driven by broad-based strength in Europe, and continued expansion as the Middle East continues to build its future economically despite the current conflict. At this time, we have not adjusted our beginning of year forecast for the Middle East. However, should the conflict continue for a prolonged period, there is a risk that new equipment demand could be negatively impacted. In Asia Pacific, we're anticipating last year's expansion trend to continue driven by robust demand in India and Southeast Asia, while Korea is expected to stabilize this year after a challenging past several years. Lastly, in China, we believe the worst of the market decline is behind us. While units are expected to decline in 2026, demand is continuing to trend towards stabilization. Taken together, we expect Asia to decline in 2026, the global outlook for modernization remains robust with the market continue to grow double digits on a dollar basis, with growth across all regions. This is due to past construction cycles and the demographics of the aging installed base. We continue to believe we're in the early innings of a multiyear growth cycle for modernization that we're just beginning to capture in both phased and full modernizations. Turning to our financial outlook. We now expect net sales of $15.1 billion to $15.3 billion, with organic sales growth up low to mid-single digits. While we've experienced limited project execution delays due to the conflict in the Middle East, we believe these delays are recoverable through the remainder of the year. We now expect adjusted operating profit to be approximately $2.5 billion up $20 million to $60 million at constant currency and up $60 million to $100 million of actual currency. Given the new profit outlook, adjusted EPS is now expected to be $4.20 to $4.24, still in the original range of our guide, representing a mid-single-digit increase compared to 2025. Adjusted free cash flow is anticipated to be between $1.6 million to $1.65 billion. We opportunistically completed $400 million of share repurchases in the first quarter, and we continue to target $800 million for the full year front loaded in the first half of the year. I'll now pass it back to Christina to review the 2026 outlook in more detail. Cristina Mendez: Thank you, Judy. Turning to our organic sales outlook on Slide 10. We continue to expect low to mid-single-digit organic sales growth driven by accelerating growth in service and moderating declines in new equipment. Our outlook for service organic sales remains unchanged. We are anticipating mid- to high single-digit organic sales growth within service representing 1 to 2 points of acceleration compared to 2025. Repair should benefit from robust orders demand as well as flow-through from our pricing initiatives. And within modernization, our strong backlog should enable us to deliver another year with solid organic sales growth. Our expectations for new equipment organic sales growth is also unchanged. We continue to expect to be down low single digits to flat with growth across all regions except China. In the Americas, we should continue to see improvement through the year as strong orders growth that began in the second half of 2024 flows through revenue. We expect total net sales of $15.1 billion to $15.3 billion for the full year. Turning to our financial outlook on Slide 11. We now expect adjusted operating profit to grow $20 million to $60 million on a constant currency basis. This represents similar operating profit growth compared to 2025 despite $50 million of incremental investments as well as the cost and mix headwinds we are currently experiencing. Regarding the conflict in the Middle East, we expect neutral impact for the full year profit. As we anticipate, we will be able to pass on higher cost for fuel commodities, electronic components and logistics. Our guidance also assumes a modest year-over-year benefit from tariffs based on the current tariff regulation in place without assuming any tariff reforms in year. Lastly, adjusted free cash flow is expected to be between $1.6 billion to $1.65 billion. Moving to the 2026 EPS brief on Slide 12. We are reducing the high end and narrowing the range of our previous adjusted EPS guidance to $4.20 to $4.24, primarily reflecting our softer-than-anticipated first half due to operational headwinds and investments in surveys described earlier. Note that our current guidance assumes the Middle East conflict ends in the second quarter, However, studies continue, we expect it to have a negative impact to profit of $5 million to $10 million per quarter due to project delays, logistic interruptions and increased cost. Providing now some color on the second quarter. Our expectations are aligned with what we said on our webcast on March 18. Total organic sales are expected to accelerate mainly driven by repair and modernization that will grow sequentially on the back of the strong orders momentum. The decline in new equipment organic sales is expected to moderate sequentially. Total adjusted operating profit dollars on a constant currency basis are expected to decline in the second quarter at a similar level as the first quarter resulting in adjusted EPS decline of minus 3% to minus 5% compared to the prior year. Looking at full year, we believe that the results will accelerate in the second half as we execute the operational actions Judy described. We expect service profit to sequentially expand driven by the impact from pricing, repeated modernization execution retention improvement and cost takeout. Together with recovery in new equipment volumes, we expect to drive profit growth in the second half. The investments we are making today are creating a strong foundation for the second half of the year and beyond. We are well positioned to capture the significant service opportunities ahead with our industry-leading margins that we believe and resume expanding in the future. With that, I will kindly ask Krista to open the line for questions. Operator: [Operator Instructions] Your first question comes from Joe O'day with Wells Fargo. Joseph O'Dea: Can we just focus on the cadence of service margin expansion? I'm not sure if kind of thinking about this correctly, but is it something that goes from like 23% in the first quarter to maybe 24.5% in the second quarter and then the back half of the year, you're looking at year-over-year margin expansion -- and if that's reasonable, just any color on kind of those building blocks from 1Q to 2Q because it would be a decent margin step-up. Cristina Mendez: Joe, this is Christine, and thank you for your questions. So let me guide you through the sequential evolution of the service margins throughout 2026. So we started Q1 with 160 basis points decline, 23% [indiscernible], and we are expecting this to sequentially improve along the coming quarters. You rightly said, Q2 will be probably negative EPB margin will be around 24% to stabilize in Q3 and to come back to margin expansion in Q4. That means that full year, we should be in the high 4 which is a patch below 2025. The reason for this calendarization is because of all of the actions we are implementing in the first half of the year. In terms of pricing, we also are facing these temporary headwinds for the Middle East that will be full year neutral because we are pricing the inflation in our contracts, but it takes time to recover the price versus inflation that comes upfront. We are also very positive about the strong momentum in every sales expansion. We have a very strong backlog in modernization and repair and we expect execution to ramp up as early as in Q2. So with all of this in mind, together with the payback of the investments we are already placing -- also on the portfolio mix, we expect maintenance sales growing 3% at the end of the year. As Unit has said, we are very confident that service margins are going to be back to normal by the end of the year. Joseph O'Dea: That's helpful. And then on the maintenance growth trajectory, so something like 2% in Q1, just to be clear, is it 3% for the full year? Or you would be exiting the year at that pace? And then what you see in terms of that path from kind of Q1 to better growth as you go through the year? The degree to which that's price related or kind of strategy around what you're doing on retention at capture? Judith Marks: Thanks, Joe. It's Judy. So yes, it's 3% full year and the exit rate -- so let me just take care of that one head on. Listen, we have been very focused. While we were disappointed in the first quarter that we didn't see the acceleration from this strategy shift we made last year to higher value parts of our portfolio, that is where the focus is. That's why we're making the investments in our people, making sure we have service excellence. So we're adding maintainers where in the past few quarters, and now we haven't billed them, again, to drive that service excellence. So the key metric I look at for that is retention. And I am pleased to share without sharing numbers, which we only do once a year our retention rate at the end of the first quarter was at the same place it was for full year '25. So it has stabilized. But if you look first quarter '26 to first quarter '25, we're up about 50 basis points in retention, which is why we have this confidence is the investments paying off. Again, at that we ended last year with a 94.5% ex China retention rate. So as we continue to add units in the higher value, countries. It obviously drives a higher value of margin contribution and profit dollar contribution, and that's what we'll be seeing as we go. Secondly, we are very focused on what we've been doing with micro pricing -- we're encouraged by what we saw with the pilots in the fourth quarter of last year. We're rolling that out in our higher-value countries as we speak and that is in both maintenance and repair. So our maintenance contracts as we renew them, separate from the pricing action we're taking to handle the inflationary impacts of the Middle East with fuel and everything else, they're sticking. And so that will going through, and you'll see that coming through the revenue. Operator: Your next question comes from the line of Rob Wertheimer with Melius Research. Robert Wertheimer: And Jay, just a follow-up on what you just touched on retention getting better, but you were sort of disappointed in the high-value markets in 1Q. So maybe square that circle, just what didn't come through as you expected in 1Q on that service portfolio? Judith Marks: I'd say the biggest challenge we had geographically was in our Europe base full transparency. That's where we didn't see significant gain there in terms of portfolio gain, and that is half our portfolio. So the good news is under TiVo's leadership, that team is laser-focused on ensuring portfolio gain in countries where our revenue per unit is significant as well as our contribution per unit. He has his team together, I spoke to them earlier this week as well directly. Those top leaders. This is their top metric, and they understand that. And over 55% of our portfolio is in EMEA. So that's why this is just so important to us. Robert Wertheimer: And do you think the war and disruption had any impact on that particular metric? Or is decision-making or anything else? Or is that more just [indiscernible] Judith Marks: I would not put this one on the war in terms of portfolio retention. This is about us executing the commitments we've made with service excellence. Again, we're starting to see the improvements, Rob. I really -- I can tell you that based on the deep dives and retention that we're seeing at every one of our operating territories. And I believe you'll see that come through as the year goes on. Operator: Your next question comes from the line of Jeff Sprague with Vertical Research. Jeffrey Sprague: Judy, maybe a pivot to we maintain that sort of winds a little bit with kind of the nagging concern many of us have about ISPs being technically capable of competing effectively against the big OEMs. Maybe just sort of address that and what you see them bringing to the table specifically for Otis. Judith Marks: Yes. No, thanks, Jeff. Great question. So we're really excited to have Ben and Jade and we maintain team join us here at Otis. And we will be operating them independently. What sets we maintain off from a lot of the ISPs across the globe is they're not just a service provider. This is a digitally native ecosystem that was started in late 2017 that operates in at least 4 other countries right now that integrates a digitally native mechanic with an ecosystem that uses machine learning and AI to really drive more customer centricity and to learn with every repair they make, every maintenance visit they make. What I like about it is it -- it complements what we do on Otis ONE, which has significant depth for Otis units and in a 23 million unit installed base gives us even more access to non-Otis units, of which a little under 20 million units out there are non-Otis units. So we're excited. We're excited to be the majority investor Again, we're going to operate as separate entities because we think that gives us more access to the market. But there's a really strong alignment with the technology platform that we maintain, and we believe in the growth potential that's going to, we believe, drive long-term value for customers and the culture. Jeffrey Sprague: Is there something that they have done or are doing, though that would suggest it's not I guess easy or likely that someone else replicates us using AI tools. Judith Marks: Well, they've been doing it for almost 9 years now, 8 or 9 years, which is different than just putting a piece of a genic AI out for repair technicians and maintenance technicians. It's truly integrated in terms of the knowledge learning and the immediate sharing across their entire mechanic base. So this was born this way. if you join, we maintain as a mechanic, is -- these are the tools you use and you use them 24/7 and when we look at incredible retention rates that they have and their ability to continue to grow, we think this is very unique. Jeffrey Sprague: Great. And just a quick follow-up on margins. You had that 60 bps gain in the Q4 service margin. You're -- on an as-reported basis, you're comfortable with Q4 2026 exceeding Q4 2025 even with that gain? Judith Marks: Yes, we are -- and let me remind you that Q4 '25 was also driven by sale of assets. We have $50 million benefit from that. from a few transactions. But yes, we are confident based on what I have described before because we see the backlog is there we have the resources to execute. We are very positive about the first impact we see from the pricing initiatives we started last year, and this is going to compound over the year. We will put on top the additional price through -- that will cover the inflation we have seen in Q1 and we will see in Q2 coming from the Middle East. And in addition to that, maintenance sales will recover in the second half of the year. So with all of these components, we are positive about the service margin expansion in Q4. Operator: Your next question comes from the line of Nigel Coe with Wolfe Research. Nigel Coe: I just wanted to follow up on that, Cristine. Maybe if you just give us a little bit more help on that bridge and 23% in 1Q. I think you're pointing to a 26% plus in 4Q. So just wondering if you could maybe decompose that between pricing surcharging some of the cost reductions, that would be helpful. Judith Marks: So thank you, Nigel, starting with Q1. In Q1, originally, we were assuming 30 basis points margin contraction initially in our guide that was essentially the result of the investments we initiated last year sometime in Q2, Q3. The reason for those investments is that we wanted to accelerate growth in high-value markets and was primarily via retention. And as you know, stickiness in our business is very high. If we do the right things, if customers are satisfied, there are digital reason for them to leave. So those investments in the first pilot are rendering good results. Having said that, as we started the year, we realized that the headwinds we see in the portfolio mix were higher than expected. And that's why we decided we are going to invest more because we are happy about the results, you mentioned the retention rate has stabilized, so we are going to scale up those investments. So the reason for the incremental margin deterioration in Q1, we have seen 160 basis points versus 30 basis points originally expected is essentially 50 basis points coming from these mix headwinds -- another 50 basis points coming from the incremental investments we placed in Q1 and approximately 30 basis points coming from a variety of topics, primarily the Middle East headwinds. We had shipment delays in modernization and additionally, the cost inflation that we start seeing in our base. Now when you go through the year, you will see that service sales will accelerate. We are expecting approximately 7% organic services in the second half of the year, this is thanks to repair and modernization ramping up, repair will be around 10% growth per quarter. And look, we see the orders, repair orders in Q1 were above 10%. So this is coming, in addition, modernization will be above 10%. Our organization backlog is growing 30% and then in addition, we see the pricing effects. Pricing, we said at the beginning of the year, we expect $50 million FIFO incremental to what we have done before. Last in addition to that, we are going to price the inflation we see from fuel and logistics. This comes on top. And last but not least, that this is not related to service, but you did also mention because this will contribute to operating profit improvement in the second half cost take out. We are conducting a very selective approach in order to remove all kinds of costs that are not related to the front line. Let me also highlight that. We are going to protect frontline sales and field execution. This is going to come from non-frontline activities. Nigel Coe: Okay. Christina, that's really helpful. And then just on the pricing, it sounds like you're quite bullish on some of the pricing you put through. I'm just curious, is there a risk with higher price and some surcharges that could derail the attrition improvement strategy to some degree. Judith Marks: Nigel, listen, we -- the reason we are doing micro pricing is to not have just across the board and across-the-board push, which obviously, with certain customers who might be right on that precipice -- we don't want them to attrit. We want to keep them. So we're looking at where we drive value. So when you're looking at a repair, as it's urgent and imminent, how much elasticity is there in that price. And we're looking at it real time in the markets it's part of, whether it's hospitality, hospitals. So we're really micro-segmenting the segments and micro segmenting what the value and the elasticity is. So I'm not worried about that. The the fuel, I think you're going to see that across the board you already have with so many logistics companies already doing that I think you're going to see that everywhere. We've got 22,000 vehicles. As you can imagine, we're moving parts across the globe to be able to respond to our customers real time. And so we will -- we've done this before. when fuel went up, we were successful with it, and we anticipate a similar success, and I'm not worried about any compounding there that would cause attrition. Operator: Your next question comes from the line of Lewis Merrick with BNP Paribas. Lewis Merrick: Just one from my side. Just coming back to the service margin, you pointed out the negative mix impacts you've been having from growth in Asia and China. It's understood that those are lower-margin regions or the negative mix impact you get from growing there. but have that underlying margins ex the investments you've made in the EMEA and the Americas also coming under pressure? Or is that not the case? Judith Marks: Yes, they are not coming under pressure. We have not seen that at all. Again, we've been balancing retention price and that ability to make sure that those margins drop through. We do that through cost controls, Louis and including not just the ones we talked about where we're going to handle discretionary costs and other other resources that are noncustomer facing nonfield nonsales. But even in our field organization, our cost of sales and where and how we buy parts, all of that is being carefully managed and controlled now. So that's, again, what gives us the confidence, especially in the Americas and EMEA. Operator: Your next question comes from the line of Alexander Virgo with Evercore ISI. Alexander Virgo: Judy and Christina. Sorry, sitting in London. I wonder if you could talk a little bit about the repair business. If you could just sort of size it for us in the broader context. And then maybe give us a sense on the the visibility and the sort of the lead times that are entailed in it because I'm guessing that the dynamics are going to be somewhat different from the broader service business. So just wondering how you can underpin that 10% for the rest of the year and then how we might think about that in the longer term? Judith Marks: Sure. Let me start, and then I'll hand it over to Christine, let me just set the stage. The repair business is not discretionary. As the modernization business tends to be. And with 9 million or 10 million units now over 20 years old, we are seeing the frequency of repair increasing that we call reactive repair. That's something Otis has always done. It is, as I've shared many times on this call, our highest margin product offering -- it's higher margin than maintenance, it's higher margin than modernization and new equipment. As units age, they break down more. So this reactive repair demand we're seeing is healthy and growing by itself. Now we're layering on what we call proactive repair, which deals with obsolescence of parts, which deals with our ability because we have 1.1 million -- over 1 million units connected via Otis ONE. The ability to predictively understand when an elevator is going to shut down or have an issue, and we have the ability to get to a customer before that and repair it so that they don't have a shutdown. They don't have time lost. So when you add the reactive and the proactive, we believe that's somewhere in the teens, that growth rate. Again, it compounds and grows as people defer modernization decisions, which is absolutely every customer is right, whether it's a phased or full modernization. Christine, I'll let you take us through some numbers. Cristina Mendez: Yes. And Alex, I can complement with the financial size of this segment as you were asking of this activity. Within the Service segment, this is probably the second biggest activity after maintenance in terms of revenue size. But let me also note that we don't separate maintenance from repair because depending on where you are in the world, the nature of the contract can be all included in which case, repair is included in the maintenance revenue or can be basic and then all activities in repair or charge on top. That's why we put them together because it depends on the typology of contracts. From a margin standpoint, you said it, it's the highest margin activity. So you can imagine that repair growing at an ongoing run rate of 10% is very accretive from a profit standpoint. Operator: Your next question comes from the line of Julian Mitchell with Barclays. Julian Mitchell: Just wanted to circle back, apologies on service margins again. So just trying to understand kind of what's -- anything changing in the market versus sort of self-inflicted things. Judy, I wondered if there was any shift I mean our understanding is that maybe China service pricing very difficult U.S. service pricing, maybe a little bit more pressure in the industry. I just wondered if you sort of disagreed with that. And then secondly, the price sort of cost headwinds or price net of labor, materials, fuel and so on in service, is that a big lever sort of turning around as we move through the year or not really? I think, Christina, you didn't mention that as a big headwind in first quarter, but it sort of come up through the call. So I just wondered if that's something price net of material and other costs in service, does that also help the margins year-on-year through the rest of the year? Judith Marks: Well, let me take the first question, Julian, and really thanks for asking. You're the first person who's asked me about China so far this morning. So I almost had a clock on that. But listen, we -- our service business in China, just like everywhere else, consists of maintenance, repair and modernization. And this is the first quarter in China where since spin, and I would argue, you can go back a lot more years where our service revenue has outpaced our new equipment revenue. So it's now 52% of our revenue for the quarter, while China is down to 9% of the total revenue for Otis. So our service business has continued there in terms of being able to add more units to our portfolio, albeit at a lower revenue value and a lower margin than in the more higher value markets. the mod market in China, though, is what's really added some nice contribution in the first quarter. We've been talking to you now, this is now year 3, we've entered with the bond stimulus. It started earlier this year, and there's approximately 180,000 units this year for bond in mod in China versus 120,000 last year and our mid first quarter orders were up well over 50% in China. The revenue was up close to that and their mod backlog is up over -- well in the double digits. In the Americas, we're not seeing a different maintenance structure. Yes, there are a lot of ISPs who have been amalgamated and brought together by other private equity -- but they're the same ISPs we competed with before. They're just some different brands, some different names. So we're not seeing that pressure drive really anything on the price side in the Americas. There's always unique customers, some key accounts across the globe where we make special considerations as you can imagine, because of the long-term relationship we have with them. Cristina Mendez: And Julian, I can complement what Judy has said on pricing. So first, we don't see additional challenges in the marketplace from a competitive standpoint. But secondly, price for us is a tremendous tailwind this year. And there are 2 different initiatives. One is the micro pricing that we started last year and this is essentially thanks to our AI algorithm, thanks to a much more value-add approach to pricing, we are able to adapt our price to customer perception to customer SMAs. So we don't follow the same approach for all and this is the $50 million improvement sequentially that I mentioned before, 1 year versus the other because this comes on top of the regular inflationary clauses we have in our contracts. The second set of initiatives related to the particular situation of the geopolitical Middle East conflict. And you mentioned Q1 is true that the Q1 effect from inflation was not big. It was part of the 30 basis point margin deterioration. I mentioned before, together with the volume today. But then in Q2, it will get a little bit bigger. This is part of what we guided of EPS being 3% to 5% down in the second quarter. It includes the inflationary effects -- but for the full year, we are going to be able to recover because we are currently already pricing that is just the time lag from when we start the initiatives until we see the flow through. So in the second half of the year, in a nutshell, pricing is going to be a tremendous tailwind both from macro pricing and from the Middle East inflation pass-through. Julian Mitchell: That's very helpful. And just 1 follow-up question, not so much on this year, but a broader 1 maybe for Judy, around the service business, and you had that strategy sort of pivot over the last 12 months. So for service, generally, as we're thinking about the medium term, is the expectation now it's maybe kind of 2% or 3% maintenance portfolio growth, and then you're trying to kind of squeeze out more -- just a sort of higher ARPU from adding technicians and all the rest of it. How long do you think it takes for us to see that higher ARPU kind of flowing through on that lower maintenance volume growth? Judith Marks: Well, it's lower maintenance unit volumes growth, and that's why we're talking about value versus volume. And you will start seeing that next year beyond what we've already now guided and outlooked for the rest of '26. That's where it comes through at the revenue per unit. We don't report on revenue per unit, but you will see it in our maintenance revenues. And we were up 5% organically this year -- this quarter. As Christina said, you're going to see that continue to ramp. And that's due to the backlog we have. I mean we have line of sight on repair and modernization to be able to convert that this year and that's what's part of our EPS guide for the second half. Operator: Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Nicole DeBlase: If we could start with the service business. I also have a bit of a medium-term question. With the goals of improving attrition over time, which we understand will nice that attrition is bottoming, but it will take time for it to move in the other direction. How should we think about the need for service investments beyond 2026? And I guess your confidence in being able to return to year-on-year margin expansion within service in 2027. Judith Marks: Yes. Thanks, Nicole. That's an absolutely fair question to ask. I would say that certainly retention has stabilized ex China again, different structural thing system in China for every year, competition every year renewals, no auto renewals -- so we are -- the investment we've made, we see as very, very important. The most important part to that is it does drive the retention. And simultaneously, it gives us more skilled mechanics. So when I look at medium term, when I look beyond this year, it's not just about the retention rate in the maintenance portfolio because once we get that, we also get the additional repair that comes with that work and eventually the relationship for modernization downstream. So it really does have a knock-on effect again, of driving all parts of our business because some of the maintenance portfolio, we get through recapturing units. So they're not all just coming off warranty from new equipment. They're also entering our portfolio from recapture. So they enter at all different service life. And so we understand where they are in those service lives, what it takes to maintain them and what it takes to retain them in our portfolio. So I think the investment, certainly, we're not going to guide for medium term on that. But I think the investment slows down or more importantly, those people convert to billable. So there's actually could be a double benefit where they're now trained. They're now working. They have customer relationships. They can work on maintenance, they can work on repair. They can work on mode. We have a better skilled workforce and now we can do better resource allocation and make them billable. So we're actually kind of turning and reversing an investment into a revenue and profit-generating opportunity. Nicole DeBlase: That's very helpful. And then I just wanted to circle back on what you're seeing in the Middle East. It sounds like you're not assuming that the condensate continues. But what's happening on the ground right now with the ceasefire, are there still project delays? Have you seen kind of a return to business as usual, which means if the current status prevails, there shouldn't be a real impact in the second quarter? Judith Marks: Yes. So we have colleagues -- and first of all, I'm just -- I'm thrilled and we watch it every day. They're all safe. We have colleagues everywhere in the Middle East. As you can imagine, UAE, Qatar, Kuwait, Bahrain, Saudi Arabia, and they are performing. Our Middle East revenue is low single digit of Otis' revenue. So this -- that's not as much the impact in the region. Obviously, we're back on construction sites where our customers want us on the new equipment side. And the Middle East is more of a new equipment business, as you can imagine, than a service business. Just because of all the building that's going on and the investments that all of the governments are making and the commercial entities are making. So we see it as a delay in projects. It's recoverable -- our folks are at construction sites, they're modernizing buildings, and we never stopped our essential services just like during COVID. So we feel comfortable that we won't have a lot of impact. As Christina said, though, if if some of those new equipment projects or potentially demand disruption happens that's what we said. Think about that third quarter and fourth quarter, each of maybe $5 million to $10 million of EBIT impact. We don't expect that to happen, but we wanted to be clear as to what we saw. Operator: Your next question comes from the line of Patrick Baumann with JPMorgan. Patrick Baumann: A lot of questions on service. I'm going to go back to new equipment. Just wanted to get some more clarity on the margin you expect there in the second quarter and then for the year, what was the tariff benefit to the guidance versus prior expectations and then below the line, the corporate expenses for second quarter and the year, if you could give some more color on that. Judith Marks: Patrick, thanks for the question. So on the new equipment side, we are at 3% margins in Q1, and we expect the situation to continue at this level for the balance of the year. We will -- the reason for that is, as we see the recovery from volumes, which is going to be a tailwind, we have the mix and the price in the backlog, primarily from the price reduction we saw in China in 2025 Commodities are a small headwind. In a broader scheme of things, very small. We are talking about $10 million negative. But last year, they were $10 million positive. On the other side, you got it right. Tariffs are a tailwind for us. The new situation regarding IPA, Section 122 and the new tariffs are favorable by $10 million versus our original guide expectation that was to be flat versus prior year. So it's going to be better versus prior year. And in addition, we are getting some productivity on the field. So with all of this, we expect newcomer margins to stabilize. And as we start in positive new equipment sales, margins should go up in the future. On your second question regarding corporate, corporate is going to be around $50 million per quarter going forward. and it's going to be full year approximately $50 million down or worse BPY. Operator: Thank you, that's all the time we had for questions. Judy Marks. I'd like to turn it back to you for closing comments. Judith Marks: Thank you, Cristina. In 2026, we are investing in capabilities to accelerate our top line growth and our profitability, together with fundamental tailwinds of the aging installed base, Otis is well positioned to deliver attractive, sustainable long-term shareholder value through our service business. Thank you for joining us today, everyone. Stay safe and well. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you all for joining, and you may now disconnect.
Operator: Good day, and welcome to the TrustCo Bank Corp Earnings Call and Webcast. [Operator Instructions] Before proceeding, we would like to mention that this presentation may contain forward-looking information about the TrustCo Bank Corp New York that is intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Actual results, performance or achievements could differ materially from those expressed or implied by such statements due to various risks, uncertainties and other factors. More detailed information about these and other factors can be found in our press release that preceded this call and in the Risk Factors and Forward-Looking Statements section of our annual report on Form 10-K as updated by our quarterly reports on Form 10-Q. The forward-looking statements made on this call are valid only as date hereof, and the company disclaims any obligation to update this information to reflect events or developments after the date of this call, except as may be required by applicable law. During today's call, we will discuss certain financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP. A reconciliation of such non-GAAP financial measures to the most comparable GAAP figures are included in our earnings press release, which is available under the Investor Relations tab of our website at trustcobank.com. Please also note that today's event is being recorded. A replay of this call will be available for 30 days, and an audio webcast will be available for 1 year as described in our earnings press release. At this time, I would like to turn the conference call over to Mr. Robert J. McCormick, Chairman, President, CEO. Please go ahead. Robert McCormick: Good morning, everyone, and thank you for joining the call. I'm Rob McCormick, the President of TrustCo Bank Corp. I'm joined today, as usual, by Mike Ozimek, our CFO, who will go through the numbers; and Kevin Curley, our Chief Banking Officer, who will talk about lending. We're pleased to report that 2026 is off to a great start with net income of over $16 million, improving margin, positive return metrics and building momentum in our share buyback program. Net income improved in part because of strategic pricing of our time deposit products, which had the effect of reducing our cost of funds. Also, contributing to this growth was noninterest income generated by our wealth management department, which increased 9% quarter-over-quarter. The most meaningful part of the story and a matter of significant shareholder interest is that the loan portfolio is, as expected, repricing as loans booked at lower rates over the past few years are replaced by higher earning loans. As the loan portfolio reaches another all-time high this quarter, the positive effect of repricing is becoming more pronounced and is having a meaningful impact on our financials. The great results announced yesterday are further bolstered by our stock buyback program. As investors will recall, we repurchased 1 million shares during 2025 and have received authorization to buy another 2 million shares this year. In the first quarter of 2026, we purchased over 500,000 shares, putting us on pace to fully execute. We continue to believe that the best acquisition we can make is TrustCo Bank, and we expect that share repurchase will remain the centerpiece of our capital deployment strategy. Each of these pieces of our company strategy over the quarter generated significant improvement in our return metrics, highlighting our profitability, efficiency and capital leverage. Year-over-year, we saw return on average assets increased 10% to 1.02%. Return on average equity grew 14% to 9.66%. Our efficiency ratio was lower by 6% to 54%. Now Mike will get into the details. Mike? Michael Ozimek: Thank you, Rob, and good morning, everyone. I'll now review TrustCo's financial results for the first quarter '26. As we noted in the press release, the company continued to see strong financial results for the first quarter of 2026, marked by increases in both net income and net interest income of the bank during the first quarter compared to the first quarter of 2025. This performance is underscored by rising net interest income, continued margin expansion and sustained loan and deposit growth across key portfolios. This resulted in first quarter net income of $16.3 million, an increase of 14.1% over the prior year quarter, which yielded a return on average assets and average equity of 1.02% and 9.66%, respectively. Capital remains strong. Consolidated equity to assets ratio was 10.31% for the first quarter of '26 compared to 10.85% in the first quarter of '25. Book value per share at March 31, '26 was $38.32, up 6% compared to $36.16 a year earlier. During the first quarter of 2026, TrustCo repurchased 522,000 shares of common stock or 2.9% of TrustCo's outstanding common stock under its previously announced repurchase program that allows the company to repurchase up to 2 million shares or 11.1% of TrustCo common stock in 2026. We remain committed to returning value to shareholders through a disciplined share repurchase program, which reflects our confidence in the long-term strength of the franchise and our focus on capital optimization. Credit quality continues to be consistent as we saw nonperforming loans modestly increased to $21.5 million in the first quarter of '26 from $18.8 million in the first quarter of '25. Nonperforming loans to total loans increased to 41 basis points in the first quarter of '26 from 37 basis points in the first quarter of '25. Nonperforming assets to total assets was 35 basis points, up from 33 basis points in the first quarter of '25. Our continued focus on solid underwriting within our loan portfolio and conservative lending standards positions us to manage credit risk effectively in the current environment. Average loans for the first quarter of '26 grew 3.1% or $158.9 million to $5.3 billion from the first quarter of '25, an all-time high. Consequently, overall loan growth has continued to increase and leading the charge was the home equity lines of credit portfolio, which increased $50.8 million or 12.3% in the first quarter of '26 over the same period in '25 and the residential real estate portfolio, which increased $93.2 million or 2.1%. Average commercial loans also increased $17.1 million or 5.8%. This uptick continues to reflect our local -- very strong local economy and increased demand for debt. For the first quarter of '26, the provision for credit losses was $950,000. Retaining deposits has also been a key focus as we begin '26. Total deposits ended the quarter at $5.7 billion and was up $156 million compared to the prior year quarter. We believe the increase in these deposits compared to the same period in '25 continues to indicate strong customer confidence in the bank's competitive deposit offerings. The bank's continued emphasis on relationship banking, combined with competitive product offerings and digital capabilities has contributed to a stable deposit base that supports ongoing loan growth and expansion. Net interest income was $44.7 million for the first quarter of '26, an increase of $4.3 million or 10.7% compared to the prior year quarter. The net interest margin for the first quarter of '25 was 2.84%, up 20 basis points from the prior year quarter. Yield on interest-earning assets increased to 4.23%, up 10 basis points from the prior year quarter, and the cost of interest-bearing liabilities decreased to 1.79% in the first quarter of '26 from 1.92% in the first quarter of '25. The bank is well positioned to continue delivering strong net interest income performance even as the Federal Reserve contemplates whether or not to make rate changes in the months ahead. The bank remains committed to maintaining competitive deposit offerings while ensuring financial stability and continued support for our community banking needs. Our Wealth Management division continues to be a significant recurring source of noninterest income. It had approximately about $1.26 billion of assets under management as of March 31, 2026. Noninterest income attributable to wealth management and financial services fees represent 44.1% of noninterest income. The majority of this fee income is recurring, supported by long-term advisory relationships and a growing base of managed assets. Now on to noninterest expense. Total noninterest expense net of ORE expense came in at $26.9 million, up $631,000 from the prior year quarter. ORE expense net came in at an expense of $50,000 for the quarter as compared to $28,000 in the prior year quarter. We're going to continue to hold the anticipated level of expense not to exceed $250,000 per quarter. All the other categories of noninterest expense were in line with our expectations for the first quarter. We would expect 2026 total recurring noninterest expense net of ORE expense to be in the range of $26.7 million to $27.3 million. Now Kevin will review the loan portfolio and nonperforming loans. Kevin Curley: Thanks, Mike, and good morning to everyone. Our average loans grew by $158.9 million or 3.1% year-over-year. This is an improvement over last quarter's report of year-over-year growth of $126.8 million. The growth was centered in our residential loan portfolio with our first mortgage segment growing by $93.2 million or 2.1% and our home equity loans growing $50.8 million or 12.3% over last year. In addition, our commercial loans grew by $17.1 million or 5.8% over last year. For the first quarter, actual loans increased by $37.7 million compared to the fourth quarter. Purchased mortgage loans, including refinances and home equity loans grew by $35.3 million and commercial loans were up by $3.3 million for the quarter. Our mortgage origination activity showed solid improvement during the quarter and year-over-year. Purchase loan volume was steady throughout the quarter. Refinance activity picked up earlier in the period with lower rates, then eased as market rates moved higher during the second half of the quarter. In all of our markets, rates were lower in the beginning of the quarter, decreased closer to 6.75% and have recently receded to 6% to 6.25% range. We continue to offer highly competitive mortgage rates with our 30-year fixed rate at 5.99%. In addition, our home equity products continue to offer customers lower cost alternatives to other forms of credit. Overall, we are positive about our loan growth in the quarter and remain focused on driving stronger results moving forward. Now on to asset quality. As a portfolio lender, we originate loans to hold for the full term, reinforcing our disciplined underwriting standards. Asset quality at the bank remains very strong. Our early-stage delinquencies for our portfolio continue to remain stable. Charge-offs for the quarter amounted to a net recovery of $39,000, which follows a net recovery of $14,000 in the fourth quarter and a total of $238,000 in recoveries over the past year. Nonperforming loans were $21.5 million at this quarter end, $20.7 million last quarter and $18.8 million a year ago. Nonperforming loans to total loans was 0.41% at this quarter end compared to 0.39% last quarter and 0.37% a year ago. Nonperforming assets were $22.8 million at quarter end versus $22.1 million last quarter and $20.9 million a year ago. At quarter end, our allowance for credit losses remained solid at $53 million with a coverage ratio of 247% compared to $52.2 million with a coverage ratio of 253% at year-end and $50.6 million with a coverage ratio of 270% a year ago. Rob, that's our story. We're happy to answer any questions you may have. Operator: [Operator Instructions] And our first question comes from the line of Ian Lapey with Gabelli Funds. John Lapey: Congratulations. Just a couple. So the provision more than tripled compared to a year ago despite really solid metrics in terms of your portfolio, and you mentioned stable early-stage delinquencies. So are you still -- you mentioned in the release a more cautious economic outlook. Are you still using the baseline Moody's forecast or are you doing something else? Michael Ozimek: Yes. So we are still using the baseline Moody's forecast. And I mean, what's really driving that increase in the provision, I mean, about half of it is loan growth and about half of it is that forward-looking component of the Moody's forecast that does have some of the economic factors looking slightly negative on the go forward. So that's what drives that calculation. John Lapey: Okay. And then the release mentions competitive pressure on deposit pricing. Can you just talk about is anything new, any new entrants or anything changing there? And what's your -- it seems like you're doing quite well in... Robert McCormick: I don't think there's anything new, Ian, but it's the same old, same old. A lot of the consumers are pushing for obviously higher CD rates. I think more than I've ever never seen before in my career anyway. Consumers have a magic number in their mind that they're pushing for. And you also have the natural competitors from the credit unions that we compete against. So they're tough competitors from a rate perspective. They don't have the same motivation and same issues that we have. So nothing really new, just those 2 popping up. John Lapey: Okay. And then lastly, on capital, what was the Tier 1 common equity ratio? And as you continue to repurchase shares, -- where -- what's your comfort level in terms of where you'd like to see -- where you'd be comfortable with that settling out? I know it was 18.4% at year-end. Robert McCormick: Yes. The share repurchase, we're taking it kind of one bite at a time and slower. Mike can comment on this if he wants. But we're taking it as we possibly can. We are fully committed and believe in the share repurchase, but we're certainly not going to jeopardize our capital position or our liquidity position to repurchase shares. We've always been known, you know, you've seen the way we run the place. We've always been known as well capitalized and very liquid by all measures, and we certainly wouldn't want to do anything to disrupt that. John Lapey: Okay. Good. And then do you have the CET1 ratio? I know it will be in the queue. Michael Ozimek: We haven't disclosed it yet, but I mean it's trending down the same way that the leverage ratio is trending. So we're putting that capital to work. John Lapey: Okay, great and congrats again. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Robert McCormick for any closing remarks. Robert McCormick: Thank you for your interest in our company, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the WesBanco First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President of Investor Relations. Please go ahead. John H. Iannone: Thank you. Good morning, and welcome to WesBanco, Inc.'s First Quarter 2026 Earnings Conference Call. Leading the call today are Jeff Jackson, President and Chief Executive Officer; and Dan Weiss, Senior Executive Vice President and Chief Financial Officer. Today's call, an archive of which will be available on our website for 1 year, contains forward-looking information. Cautionary statements about this information and reconciliations of non-GAAP measures are included in our earnings-related materials issued yesterday afternoon as well as our other SEC filings and investor materials. These materials are available on the Investor Relations section of our website, wesbanco.com. All statements speak only as of April 22, 2026, and WesBanco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeffrey Jackson: Thanks, John, and good morning, everyone. Today, we'll walk you through our first quarter performance and share our current outlook for the rest of 2026. There are 3 key takeaways from the quarter. We delivered solid year-over-year financial results. We exceeded our year 1 financial targets for the Premier acquisition. And we stay disciplined in executing our strategy to position WesBanco for long-term success. Overall, it was a solid start to the year. Turning to our financials. For the quarter ended March 31, 2026, we reported net income available to common shareholders of $87 million, excluding merger and restructuring charges. That translated to diluted earnings per share of $0.91, up 38% from a year ago. On a similar basis, we reported pretax pre-provision earnings of $114 [ million ] an increase of 44% year-over-year. The strength of our first quarter financial performance was reflected in our returns on average assets and tangible common equity of 1.3% and 17.4%, respectively. Our capital position also remained solid with a CET1 ratio of 10.7%. That gives us flexibility to support growth and navigate the operating environment ahead. As we mentioned last quarter, developers continue to seek permanent financing or the sale of properties. During the first quarter, that drove elevated commercial real estate project payoffs which totaled $340 million during the first quarter and created a 1.4% headwind to our year-over-year loan growth. In fact, we have incurred a significant CRE payoff headwind of $1 billion during the last 9 months. Despite that headwind, our teams continue to execute at a high level. Loan growth was largely funded by deposit growth and our commercial pipeline has reached all-time record levels. Adjusting for the payoff activity, total loans grew 3.6% year-over-year. The commercial pipeline has increased 35% since year-end to a record $1.6 billion. And in the few weeks since quarter end, the pipeline has grown another $200 million to $1.8 billion. About 45% of that pipeline is coming from existing loan production offices and the former Premier footprint. Impressively, this pipeline does not yet reflect the benefit of our recently announced South Florida expansion. That team has hit the ground running and built an initial $400 million pipeline just in a few weeks. They are on pace to grow that pipeline by a significant amount as the year progresses. Even with elevated CRE payoffs during the first half of the year, and the potential of influence of geopolitical events, we continue to expect mid-single-digit year-over-year loan growth for 2026. Supported by our record pipeline and early momentum from our South Florida markets. A little over a year ago, we completed our transformative acquisition of Premier Financial. An acquisition that placed WesBanco among the 50 largest publicly traded banks in the U.S. When we announced the Premier acquisition in July 2024, we laid out clear financial targets for the first year including 40% earnings per share growth, a 1.3% return on average assets and a CET1 ratio of 9.6%, along with a tangible book value earn back in under 3 years. I'm pleased to say we delivered and, in many cases, exceeded our targets. Over the last 12 months, core EPS growth reached 49%. And [ ROAA ] was 1.3%. We also exceeded the pro forma CET1 ratio by more than a percentage point and shave more than a year off the dilution [ earn ] back, as our first quarter tangible book value per share of $22.45 is well above the June 2024 figure and nearly at the year-end 2024 level. In addition, we have been making other strategic investments that demonstrate our commitment to long-term sustainable growth. We continuously invest in digital capabilities and products like WesBanco One account and treasury management services to ensure we serve our customers how, when and where they want. At the same time, we continue to optimize our physical branch network. Over the past 4 years, we've closed 64 locations with limited customer traffic, including 10 of them in Northern Ohio that will close next month. We're selectively opening new financial centers in key markets and consolidating others into more central and higher-demand locations. Our loan production office strategy continues to perform well. We've opened LPOs in high-growth markets, including Chattanooga, Indianapolis, Knoxville, Nashville and Northern Virginia. We're seeing strong results as these teams deepen relationships and bring on new commercial clients. As these offices achieve scale, we add product capabilities locally as well as financial centers to better serve our growing client base. Chattanooga is a great example. We opened that LPO less than 3 years ago, and it has generated strong relationship-driven growth. That momentum supports the opening of our first Tennessee Financial Center this week. We anticipate that several other of our LPOs will follow this pattern within the next couple of years. I'm very excited about our recent expansion into Florida, which is a thoughtful extension of our long stated southeastern expansion strategy. Last month, we announced the launch of our commercial banking business across key high-growth South Florida markets, starting with Palm Beach and [ Broward ] counties. We brought on a seasoned team of nearly 20 professionals, including market leaders, commercial makers, credit underwriting and a client relationship support as well as a treasury management leader. These are attractive high-growth markets and ones I have come to know well during my banking career. I've worked with many of these bankers before and they consistently delivered top performance while maintaining strong credit discipline. Just as importantly, their client focus aligns well with our relationship-led approach, our Florida expansion also provides meaningful organic growth opportunities for our strong health care banking vertical. As the regional business, which is primarily focused on C&I lending develops, we will evaluate additional services and solutions, including retail financial centers, treasury, wealth management and mortgage offerings to deliver even a greater value to our clients. I would now like to turn the call over to Dan to walk through the financials and outlook in more detail. Dan? Daniel Weiss: Thanks, Jeff, and good morning. For the first quarter, we reported GAAP net income [ available ] common shareholders of $84 million or $0.88 per share. And when excluding restructuring and merger-related expenses, first quarter net income was $87 million or $0.91 per share. To highlight a few of the first quarter's year-over-year accomplishments, we generated strong pretax pre-provision core earnings growth of 44% grew core earnings per share by 38% and improved the net interest margin by 22 basis points and reduced the efficiency ratio by nearly 4 percentage points to 52.5%. Total assets of $27.5 billion include total portfolio loans of $19.1 billion in securities of $4.4 billion, Total portfolio loans increased 2.2% year-over-year, driven by commercial real estate and home equity lending and declined slightly on a sequential quarter basis due to elevated payoffs. We expect CRE payoffs to remain slightly elevated during the second quarter, but at a lower level than the first quarter before returning to a more normal historical level during the back half of the year, totaling $700 million to $900 million for the year. While very small, we ended our indirect auto program, [ as ] it's not core to our organic growth strategy, and at quarter end, it represented about half of the $325 million of consumer loan portfolio and anticipate that, that portfolio will run off over the next 3 to 5 years. Deposits increased 2% year-over-year to $21.7 billion in organic growth. We continue to be successful in remixing higher-cost certificates deposits into interest-bearing demand and [ of our ] remaining $2.7 billion CD portfolio approximately [ 1 billion ] matures in each of the next 2 quarters with an average rate of 3.48% and 3.2%, respectively. Our current 7-month CD rollover rate is 3.25%. Further, we started the year with $100 million in broker deposits, $50 million paid off early in the quarter, while the last of our broker deposits paid off on April 1. Credit quality continues to remain stable as key metrics have remained low from a historical perspective and favorable to all banks with assets between $20 billion and $50 billion over the last 5 quarters. [ Criticized ] and classified loans as a percentage of total portfolio loans decreased $49 million or 24 basis points from the sequential quarter to 2.9%, and while nonperforming loans increased $53 million sequentially, primarily due to 3 CRE loans across different markets and property types, none of which were office. The allowance for credit losses, the total portfolio loans at the end of the first quarter was 1.1% of total loans or $210 million. The decrease from the fourth quarter was primarily due to lower loan balances faster prepayment speeds and macroeconomic factors. The first quarter margin of 3.57% improved 22 basis points year-over-year through a combination of lower funding costs and higher security yields but declined 4 basis points sequentially. This decrease resulted primarily from lower net loan growth as well as modestly higher seasonal deposit contraction in the first 2 months of the quarter, which fully recovered by the end of March. Total deposit funding costs, including noninterest-bearing deposits declined 11 basis points year-over-year and 7 basis points quarter-over-quarter to 177 basis points. The first quarter noninterest income of $41.8 million increased $7.2 million or 21% year-over-year due primarily to the acquisition of Premier combined with organic growth. Service charges on deposit and digital banking fees improved due to increased general spending and higher transaction volumes from our larger customer base as well as organic growth from treasury management, which generated revenue of $2.5 million in the first quarter, representing an 82% increase year-over-year, reflecting record asset levels, which totaled $10.4 billion combined trust fees and net securities brokerage revenue increased due to the addition of Premier Wealth clients market value appreciation and organic growth. Noninterest expense, excluding restructuring and merger-related costs for the first quarter of 2026 was $143 million, a 25% increase year-over-year due to the addition of the Premier expense base which was only in the WesBanco expense base for 1 month in the prior year period. Higher core deposit intangible asset amortization from the acquisition and higher FDIC insurance expense due to our larger asset size. On a similar basis, operating expenses were down slightly from the sequential quarter, reflecting our focus on managing discretionary expenses and some onetime credits approximating $2 million. Please note that the first quarter does not fully reflect our strategic expansion into South Florida as the hiring occurred late in the quarter. If we turn to capital, all of our key ratios improved quarter-over-quarter. Our CET1 ratio, as of March 31, was 10.7%, which increased more than anticipated due to lower risk-weighted assets during the quarter. Based on the strategic investment that we're making in the Southeast Florida and other markets, we anticipate CET1 to [ now ] build 5 to 10 basis points per quarter for the remainder of the year, putting us on pace for 11% and CET1 target by year-end. Turning to the outlook. Our current outlook for 2026 includes our Southeast Florida expansion, which currently totals nearly 20 individuals and is expected to achieve positive operating leverage within 12 to 15 months and be additive to our long-term financial outlook. We've removed our previous rate cuts from our modeling and currently do not anticipate any cuts or increases during the remainder of 2026. We anticipate our second quarter net interest margin to rebound into the low 360s and then continue to improve into the mid- to high 360s during the second half of the year. This assumes, among other things, that the competition for loans and deposits remain stable, loan growth is fully funded by deposits and an upward sloping yield curve. Generally speaking, there are no meaningful changes to our fee income outlook for the last -- from the last quarter. [ Trust fees ] and securities brokerage revenue should benefit modestly from organic growth and be influenced by equity and fixed income markets. And as a reminder, first quarter trust fees are seasonally higher due to tax preparation fees. Mortgage banking should grow modestly over 2025 beginning in the spring, driven by recent hiring initiatives Total treasury management revenue should see increases from 2025 as the compounding effect of our services continue to expand and gross commercial swap fee income, excluding market adjustments, should be in the $8 million to $10 million range. Overall, we currently anticipate our quarterly fee income to grow in the 3% to 5% range year-over-year during the remainder of 2026. While we remain focused on delivering disciplined expense management, we are making strategic investments to drive long-term value for our shareholders. We're closing 10 financial centers during May and anticipate the annual savings of approximately $2 million to begin to be realized midway through the second quarter. Salaries and wages will increase, reflecting the South Florida expansion and the annual midyear merit increases, which take effect midway through the second quarter. Occupancy expense should be flat to slightly down compared to 2025 due to our branch optimization efforts slightly offset by our branch expansion initiatives in our new and existing markets, while equipment and software expenses are expected to increase somewhat as compared to 2025 as we continue to invest in products services and technology to improve the customer experience and drive revenue growth. In support of our organic loan and deposit growth model and our commercial lending expansion efforts, marketing is expected to increase to approximately $4 million per quarter. And based on what we know today, we expect our expense run rate during the second quarter to approach $150 million and then to increase a couple of percentage points in the third quarter from a full quarter of midyear merit increases. The provision for credit losses will depend on changes to the macroeconomic forecast and qualitative factors as well as various credit quality metrics, including potential charge-offs, criticized and classified loan balances, delinquencies, changes in prepayment speeds and future loan growth. And finally, we anticipate our full year effective tax rate to be between 20% and 21%. This concludes my remarks. Operator, we're now [ ready ] to take questions. Operator: [Operator Instructions] And your first question today comes from Manuel Navas with Piper Sandler. Manuel Navas: I appreciate having us [ off for ] the comments. What are the funding expectations around the South Florida commercial lending team? And can you dive a little bit more into your ties to the area and the potential to add to that team? Jeffrey Jackson: Yes, sure. My -- I'll start with the [ tide ] in South Florida. As you may or may not know, I worked as a regional president in South Florida, when First Horizon bought Capital Bank, and really built out that team. And so work down there back in 2018 through essentially 2020, 2021. They're a very top-performing team, and so when the opportunity came around to bring them over to WesBanco, it just seemed like a perfect partnership. As I mentioned before, I kind of put together that team back at my previous employer. And so when you when you look at what they can do and where they're headed, I think it's going to be one of our big growth drivers for this year and future years. We are opening up 2 offices, as mentioned, Palm Beach and Broward. We would also follow up with 2 branches as well. So when you look at the funding piece, we are expecting them to provide a significant piece of funding their own loan growth and that will be followed up with 2 branch locations, which would -- we'd hopefully have opened by the end of the year. And -- but overall, we feel like it's a great growth market. And I think your other piece of that question was more expansion. We are looking at other markets there in Florida, as my previous history, I had the whole state of Florida. So we will be looking to add additional people when the right people come along, but I do believe, and as I mentioned in my prepared remarks, they have a current pipeline of about $400 million, and I feel like the loan growth and the revenue opportunities there will help propel us into the future. Manuel Navas: I appreciate that. Diving a little bit back into more deeply into the NIM outlook. Can you speak to more of the components there that should drive kind of the improvement across the -- from here? Can you have deposit declines beyond CDs what kind of current pricing levels on the loan book? Just kind of if you could walk through some of the wildcards there [ on the name ]. Daniel Weiss: Yes, sure, Manuel, I'll take that one. So we talked about kind of 3 to 5 basis points of NIM improvement here in the second quarter. A lot of that is really the repricing of the back book for both loans as well as securities and then kind of an assumption that we're going to fund the majority of the deposit or the loan growth with deposits in the second quarter. As you know and as you heard in my prepared remarks, we did see a little bit of outflow here in the first quarter in deposits, which is seasonally expected. It was just a little heavier than anticipated. And we also saw about $150 million of noninterest-bearing migrate into interest-bearing. So those 2 things kind of combined with the loan growth. You've kind of provided that headwind to first quarter margin. But if we think towards that 3 to 5 basis points when I talk to repricing, we do have about $400 million of fixed rate commercial loans, weighted average rate of about 4.25% that will mature in the next 12 months. Those will be repricing up almost 200 basis points into the low 6s, we've also got another $400 million of variable rate loans. These are those that would be repricing 48 to 60 months, roughly, that would be coming due in the next 12 months weighted average rate there is about 3.75. So that's going to provide some nice tailwind as well. And if we just think about other sources, securities cash flow that's beginning to tick up a little. We're kind of projecting around $275 million in security cash flows per quarter. And so that's going to reprice upward from kind of, call it, 3.3% up to about 4.75% to 5% depending on where rates are. So that's another nice pickup of about 150 basis points or so. And then, of course, as I mentioned in the prepared commentary, we do have a continued downward repricing of the CD book. So particularly that $1 billion of first quarter CDs that repriced down about 40 to 50 basis points, that's going to benefit the second quarter quite a bit. Similarly, the $1 billion in the second quarter of CDs that are maturing, those are going to reprice down about 25 basis points. That will begin to benefit second quarter and really kind of fully benefit third quarter. But I think those are probably the major items that I mentioned again in the prepared commentary that we did pay down the remainder of our broker deposits. So we had $100 million in brokered on the books at the beginning of the year, $50 million of those paid down kind of early in the first quarter, the other $50 million on April 1. So that also would provide I believe, some nice tailwind towards that 3 to 5 basis points of margin expansion here in the second quarter. Manuel Navas: I appreciate that commentary. If there is rate cuts, what would that impact this progression, if at all? Daniel Weiss: Yes. So we're pretty neutral. So I would say there's not a whole lot of movement one way or the other with rate cuts. Certainly, our commercial loan portfolio is 50% of that is variable rate, reprices within 3 months. But we'd also be able to reprice downward our deposits. Our FHLB borrowings are all mostly 1 month advances. And so we think that in a rate cut scenario or a rate hike scenario, which is now potentially on the table, we would be in a great spot. Operator: Your next question comes from Jake Civiello with D.A. Davidson. Jacob Civiello: Wanted to touch on the uptick in NPAs. So obviously, you mentioned that the 3 non-office credits were the driver? Can you provide a little bit more details in terms of what actually those credits were? Jeffrey Jackson: Yes, I can. They were -- as I mentioned, legacy Premier credits, they are all in 3 different markets, 2 are multifamily, and I would tell you that we feel like we're very well collateralized there and well reserved for those 3 and feel like that we will be working out of those. Once again, there were 3 credits. I think the other piece I would highlight is the [ C&C ] did tick down back to our kind of our normal range, sub-3%, which is top in our peer group. But we are looking at those NPAs. And do you still feel very good about working through those 3 credits. Daniel Weiss: It's also worth like kind of recognizing that those NPAs are nonaccrual loans are included in the [ C&C ] total. So that 24 basis point reduction in [ C&C ], that includes these as well. So continue to see positive momentum on the credit front. Operator: And your next question comes from Karl Shepard with RBC Capital Markets. Karl Shepard: Congrats on getting the Florida team in place. I wanted to start there. You highlighted the pipeline, I think, around $400 million. Can you help us understand maybe your expectations for how much of that you would think can close? And is that over the rest of the year? Or is there a little bit longer time line? Jeffrey Jackson: Yes. We -- I think that they will close their first deal this month. I would hope that by the end of the quarter, they would have anywhere from, this is a guess, but $100 million closed this quarter. And I would hope by the end of the year, anywhere from $300 million to $500 million closed could be more depending on the number of bankers we continue to add there. And that's just not loans. I mean, we're bringing -- we will be bringing over full relationships. Once again, we hope to have a couple of depository branches open soon. And this would also include fees and treasury management services and all those other things. I think it's going to be a heavy driver for us this year. And just while we're talking about it, just to bring up I think our overall pipeline, if I look back and compare it to last year this time, I think our pipeline last year was about $1.2 billion. Today, we said it nearly [ $2.3 billion, $2.4 billion ]. So if I look at that and then I also look at pay off is what we see today for the quarter. Today, we see about $100 million plus less payoffs than we saw in first quarter. So when I combined a much higher pipeline less payoffs that we see today, I feel very good about where we stand from a loan growth perspective for the rest of the year. Karl Shepard: Okay. That's helpful. And then I guess just on the payoff piece, I think you just said it, but I just want to clear it up too because I know the scenario is concerned. But I think last quarter, you thought [ $600 million to $800 million ] for the full year. I think you said $700 million to $900 million today. So the first quarter was maybe just a little bit of pull forward of stuff you thought was going to pay off. Is that a fair way to see it? There's really not much of a change in your expectation? And obviously, the pipelines are strong and the production looks solid as well. Jeffrey Jackson: Yes, 100%. Some of the payoffs moved to first quarter. As I mentioned, we see this current quarter less payoffs in the first quarter of over $100 million. And no, I think that's a perfect way to see it. The other thing I would add, just the first quarter is we had a couple of [ DFI ] loans that we decided we were not going to be in that business. And just to point out that we have a very, very, very small exposure, I think, less than $50 million to [ DFIs ]. And so we chose not to do a couple of those deals in the first quarter that could have given us some more loan growth. And then we did have a couple of deals really slide from first quarter to second quarter. So some of this is really just a timing issue with the loan growth. Operator: Next question comes from Russell Gunther with Stephens. Russell Elliott Gunther: Just following up on the pipeline discussion here. It would be helpful to get a sense of the mix and the yield, and then just in general, how you guys are thinking about pull-through rates relative to historical levels. Jeffrey Jackson: Yes, I think the mix, if I was to look at it, I would say it's probably 60-40 CRE to C&I would be my guess. And then the yields, I'm going to guess, the low to mid-6s from a loan yield perspective. Once again, I would also highlight that everything we do is a full relationship that has some level of deposits and treasury management services. As far as the pull-through, I don't see it being any different than what we've seen in the past from adding and closing business. Obviously, the new markets will have to measure that with Florida coming on. But once again, we feel very good about where we're at. And some of this loan growth is a timing thing, and I do believe we will see strong loan growth for the rest of the year. Russell Elliott Gunther: That's helpful, Jeff. And then switching gears from my second question here would be to capital. So CET1, roughly 10.7% today. You guys have a preliminary sense for the impact of the Basel III proposal on RWAs and CET1? And then would there be any shift in your appetite to consider repurchases? Daniel Weiss: Yes. Russell, I'll take that one. And great question. I think we're still obviously evaluating the impact there. But preliminary estimates kind of indicate that we would see a benefit to CET1 of about 5% to 6%. And so on a 10.7% ratio today, that's worth about 55 to 65 basis points. So that frees up about, call it, around $120 million or so in capital. And that certainly would provide opportunity to deploy whether that be through buyback or additional growth. But I think that certainly would accelerate the buyback view. So like I said in my prepared commentary, we are building -- we've built capital back very quickly here in the first quarter up to 10.7%. We were kind of projecting that to be closer to 10.5%. And of course, lower risk-weighted assets is what drove that extra kind of 20 basis points of CET1 here in the first quarter. But with the growth that we're anticipating from all of the things that Jeff has discussed, we expect that to slow down a little, the growth in CET1. But like I said, all of that being said, we do have today, 900,000 shares available for repurchase. I think that we're -- now that we're above 10.5%, that's kind of our target. I think that it offers us more flexibility to evaluate how we can deploy that capital. But as Jeff said, with the growth opportunity we have organically we're going to continue to evaluate there. Operator: [Operator Instructions] Your next question comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Yes. Maybe just a clarification, Dan, for you on the expense guide. So I think you said approaching $150 million in the second quarter, and then a couple of percent growth, just so we were clear on that. So we should be looking for roughly $153 million or so or just below that in the third quarter. And then how -- is that kind of the normal run rate, including all the new hires at that point? I know it's an ongoing thing, but just trying to get a sense for maybe where we're going to end the year? Daniel Weiss: Yes. I'd say that $152 million to $153 million is probably a pretty good estimate for third quarter, as you said. But it is going to be dependent on the commercial hiring and the investments that we're making here throughout -- the market expansion. So today, that's where we're at. But if we end up taking any higher, that would be certainly very accretive to long-term earnings per share in that, we'd be hiring revenue producers to be putting on loans and fee income [ trader million service ], et cetera, into '26 through and begin to benefit us in '27. Daniel Tamayo: Okay. And I'm sorry if you guys talked about this, but are there any noncompetes that we need to be aware of for the new hires? Jeffrey Jackson: Yes. It's kind of they all have standard nonsolicitation agreements that we work through, that's pretty standard in our industry, and we are 100% behind working through that, making sure they comply with all those different nonsolicitation. There is no -- as far as the more noncompetes. Daniel Tamayo: Got it. Is there a time frame that we can think about that maybe starts to ramp after a certain period? Jeffrey Jackson: I would think that we would have significant progress from a ramping of business towards the end of the year for the Southeast Florida team. I would -- once again, we think that they would close anywhere from $300 million to $500 million in new loans between now and the end of the year, and it could be higher than that based on some deals we're looking at. So I think by third quarter, we'll have a very good feel in the third quarter where this team stands, but I have very, very high expectations of this team because I have worked with most of them in the past. And feel like they will be delivering a really great return for our bank. Daniel Tamayo: Great. And then maybe 1 more clarification for you, Dan. On the 3 loans that drove the increase in the NPLs. Were there reserve -- I guess overall reserves came down in the quarter or at least as a percentage of loans. Were there reserves -- incremental reserves taken on those 3 loans that were moved into NPL. And I know you said they're you're comfortable with where they stand now? I'm just trying to get a sense for coverage of those loans as we look forward. Daniel Weiss: Yes. No, there were not incremental reserves taken on them. As I said, they're as Jeff said, rather, they were generally well secured, well collateralized and certainly evaluated discussed, but nothing additional. Daniel Tamayo: Okay. Appreciate it. Jeffrey Jackson: Yes. Thanks, Dan. And the one other thing I'll mention is we have started hiring another team in Nashville, and they have just started as well. So there'll be more to come on that in future calls. Operator: And your next question comes from [ Hannah Wynn ] with KBW. Unknown Analyst: [ Hannah Wynn ] stepping in for Catherine Mealor. I just had a quick question on deposits. I know you mentioned your deposits were going to fund your loan growth. and deposits were flat for this quarter. So wondering where you see those trending for the rest of the year? Jeffrey Jackson: Yes. Typically, they're pretty seasonal in the first quarter where they drop and they come back to kind of flat in the second quarter, we start trying to build the deposit piece with most of our deposits historically been coming in the third and fourth quarters. So we do continue to see them. We are opening up a branch this week in Chattanooga, Tennessee, First Tennessee branch that goes along with our LPO strategy but that is really critical. We have also increased incentives on driving deposits and feel like we expect to fund our loan growth, the majority of it with deposit growth and as we have done in the last 2 years. Dan, I don't know if you want to comment any more on deposit growth. Daniel Weiss: No, I think you nailed it. I think one of the keys to is just you're getting those branches in the Southeast Florida market up and [ running ] take deposits. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Jackson for any closing remarks. Jeffrey Jackson: Thank you. And to wrap up, we remain focused on appropriate investments and disciplined execution of our long-term organic growth strategy. The successful integration of Premier, our continued expansion through loan production offices and targeted investments in high-growth markets have positioned the company well to continue delivering value for our customers and our stakeholders. Thank you for joining us today. We appreciate your continued interest in WesBanco and look forward to speaking with you at one of our upcoming investor events. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Agree Realty First Quarter 2026 Conference Call. [Operator Instructions] Note this event is being recorded. At this time, I would like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead. Reuben Treatman: Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's First Quarter 2026 Earnings Call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities laws, including statements related to our updated 2026 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-K for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures, including core funds from operations or core FFO, adjusted funds from operations or AFFO and pro forma net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings. I'll now turn the call over to Joey. Joey Agree: Thank you, Reuben, and thank you all for joining us this morning. I'm extremely pleased with our performance to start the year as we have continued to execute on all fronts. During the quarter, we invested nearly $425 million across our 3 external growth platforms, while further strengthening our market-leading portfolio. The $403 million of acquisitions completed during the period represents our largest quarterly acquisition volume since 2022 as we continue to source superior risk-adjusted opportunities. While the macro backdrop remains highly unpredictable, we have never been better positioned. During the quarter, we raised approximately $660 million of forward equity through our ATM. We now enjoy $2.3 billion of total liquidity and more than $1.6 billion of hedged capital, including a company record $1.4 billion of outstanding forward equity. At quarter end, pro forma net debt to recurring EBITDA was just 3.2x, giving us meaningful flexibility to execute regardless of capital markets volatility. As a reminder, we have no material debt maturities until 2028. We have married this fortress balance sheet with the highest quality retail portfolio in the country that only continues to improve. In a K-shaped economy, our industry-leading tenants stay poised to leverage their scale and value propositions to drive further share gains. We are consistently seeing leading retailers with the balance sheet and operating discipline winning across cycles and expanding their brick-and-mortar footprints. Our pipeline across all 3 external growth platforms is robust, yet our approach remains unchanged. We will stay consistent within our established investment parameters without compromising our underwriting standards. While our investment in earnings guidance remain unchanged, I would note that we have increased our treasury stock method dilution in anticipation of an elevated stock price and as well as the additional forward equity raise during the quarter. We'll continue to provide updates as the year progresses, and Peter will provide additional details on our guidance and input shortly. Turning to our external growth activity. We had an active start to the year, leveraging our unique market positioning and deep relationships with retail partners to uncover opportunities across all 3 platforms. During the first quarter, we invested nearly $425 million in 100 properties across these 3 platforms. Of note, during the quarter, we executed a sale leaseback with Hobby Lobby on their corporately owned stores. As we've discussed on prior earnings calls, Hobby Lobby is privately owned, has a balance sheet and stands as a clear market leader in the craft and hobby space. They are a terrific operator and partner. As a reminder, we do not impute investment-grade or shadow investment-grade ratings in our IG percentage. Additional acquisitions during the quarter included a Home Depot, 5 bound leases in Pennsylvania and Maryland, a portfolio of 11 Sherwin-Williams stores, several Aldis and 3 Walmarts located in Georgia and South Carolina. The acquired properties at a weighted average cap rate of 7.1% and a weighted average lease term of 11.3 years. Nearly 60% of base rents acquired was derived from investment-grade retailers, and we continue to add to our portfolio during the quarter. As previously discussed, we continue to see increased activity across our development and developer funding platform. During the first quarter, we convinced 2 new development or DFP projects with total anticipated cost of approximately $18 million. Construction continued on 9 projects during the quarter with aggregate and anticipated cost of approximately $71 million. We completed 4 projects during the quarter, representing a total investment of approximately $23 million. Our development in DFP pipelines continue to grow significantly, and we expect development in DFP activity to meaningfully ramp in the second and third quarters, including several additional projects that commenced subsequent to quarter end. Moving on to dispositions. We sold 7 properties during the quarter for total gross proceeds of approximately $11 million at a weighted average cap rate of 6.8%. This activity included both the Jiffy Lube and Dutch Brothers that were loaded in the grocery portfolio acquisition last year. We sold these assets approximately 300 basis points inside of where we acquired them less than 1 year ago, highlighting our ability to opportunistically recycle capital and harvest value across our portfolio. Our asset management team continues to do an excellent job proactively addressing upcoming lease maturities. We executed new leases, extensions or options on over 876,000 square feet of gross leasable area during the first quarter with a recapture rate of over 104%. This included a Walmart Supercenter in Whitewater, Wisconsin and a Home Depot in Orange, Connecticut. We remain well positioned for the remainder of the year with just 29 leases or 90 basis points of annualized base rent maturing, which is down 60 basis points quarter-over-quarter and 260 basis points year-over-year. We ended the quarter with pharmacy exposure at 3.5% of annualized base rent, and it now falls outside of our top 10 sectors, a meaningful milestone given that pharmacy once exceeded 40% of our portfolio. Anchored by assets, which is our Walgreens on the corner of the Diag and the University of Michigan campus and our CVS on Granite avenue, we are confident in the real estate and performance of our remaining pharmacy assets. As of quarter end, our best-in-class portfolio comprised 2,756 properties spanning all 50 states. The portfolio included 261 ground leases, comprising over 10% of annualized base rent. Our investment-grade exposure stood at over 65% and occupancy is strong at 99.7%, up 50 basis points year-over-year. Before I hand the call over to Peter, I'd like to thank and complement the tremendous work he and his team did on the creation of our inaugural supplement. We have taken feedback from a number of constituents and created a first-class document that provides investors and analysts with a thorough picture of our portfolio and financials. Peter, thank you, and take it away. Peter Coughenour: Thank you, Joey. Starting with the balance sheet. We were very active in the capital markets during the first quarter, selling 8.7 million shares of forward equity via our ATM program for anticipated net proceeds of approximately $658 million. This represents yet another company record for equity raised in the quarter and underscores our ability to raise equity at scale via our ATM and in a cost-efficient manner. At quarter end, we had approximately 18.4 million shares of outstanding forward equity, which are anticipated to raise net proceeds of approximately $1.4 billion upon settlement. Additionally, during the period, we drew $250 million on our previously announced $350 million delayed draw term loan. As a reminder, we entered into forward starting swaps to fix SOFR through maturity in 2031 and inclusive of those swaps, the term loan bears interest at a fixed rate of 4.02%. We also took further steps to hedge against interest rate volatility, entering into $50 million of forward starting swaps during the quarter. In total, we now have $250 million of forward starting swaps, effectively fixing the base rate for a contemplated 10-year unsecured debt issuance at roughly 4.1%, combined with the approximately $1.4 billion of outstanding forward equity. We have over $1.6 billion of hedge capital, which provides critical visibility into our intermediate cost of capital, particularly amidst recent geopolitical and macro uncertainty. At quarter end, we had liquidity of approximately $2.3 billion, including the aforementioned forward equity availability on our revolving credit facility, term loan and cash on hand. Pro forma for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.2x. Our total debt to enterprise value is under 29%, and our fixed charge coverage ratio, which includes the preferred dividend remains very healthy at 4.2x. Our sole short-term or floating rate exposure was comprised of outstanding commercial paper borrowings at quarter end. And as Joey mentioned, we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to execute on our robust investment activity across all 3 external growth platforms. Moving to earnings. Core FFO per share was $1.13 for the first quarter which represents an 8.1% increase compared to the first quarter of last year. AFFO per share was $1.14 for the quarter, representing a 7.9% year-over-year increase, which is the highest quarterly AFFO per share growth achieved since the second quarter of 2022. As Joey noted, we are reiterating our full year 2026 AFFO per share guidance of $4.54 to $4.58, which implies approximately 5.4% year-over-year growth at the midpoint. We provide parameters on several other inputs in our earnings release, including investment and disposition volume, general and administrative expenses, non-reimbursable real estate expenses as well as income tax and other tax expenses. Our current guidance also includes anticipated treasury stock method dilution related to our outstanding forward equity. Provided that our stock continues to trade around current levels, we anticipate that treasury stock method dilution will have an impact of $0.02 to $0.04 on full year 2026 AFFO per share. This is up from approximately $0.01 in our prior guidance due to both the higher share price and more forward equity outstanding. As always, the impact could be higher or lower if our stock price moved significantly above or below current levels. During the quarter, we recorded approximately $2.4 million of percentage rent, up from $1.6 million in the first quarter of last year. Roughly 1/3 of the increase was driven by strong same-store sales performance across this group of leases as we have actively targeted leases with potential percentage rent upside. The remainder reflects a timing shift as certain tenants that have historically paid percentage rent in Q2 contributed in Q1 of this year. Our growing and well-covered dividend continues to be supported by our consistent and durable earnings growth. During the first quarter, we declared monthly cash dividends of $0.262 per common share for January, February and March. The monthly dividend equates to an annualized dividend of over $3.14 per share and represents a 3.6% year-over-year increase. Our dividend is very well covered with a payout ratio of 69% of AFFO per share for the first quarter. We anticipate having over $140 million in free cash flow after the dividend this year, an increase of over 10% from last year. This provides us another source of cost-efficient capital while maintaining a healthy and growing dividend. Subsequent to quarter end, we announced an increased monthly cash dividend of $0.267 per common share for April. This represents a 4.3% year-over-year increase and equates to an annualized dividend of over $3.20 per share. Our inaugural financial supplement this quarter includes several non-GAAP financial metrics and key performance indicators, including our recapture rate, credit and occupancy loss and same-store rent growth. The enhanced disclosures are intended to provide better visibility into our operations and highlight the high-quality nature of our tenancy and portfolio, reflecting our best-in-class execution. We also hope the supplement serves as a one-stop resource that centralizes the key information needed to understand the performance and drivers of our business. With that, I'd like to turn the call back over to Joey. Joey Agree: Thank you, Peter. Operator, at this time, let's open it up for questions. Operator: [Operator Instructions] We'll take our first question from Jana Galan at Bank of America. Jana Galan: Joey, if you could just follow up on the investment guidance. I know it's already been raised once this year, but with $1.6 billion of hedged capital already raised, just curious if you could kind of expand on the pace or the size of the different pipelines for the platform? Joey Agree: Sure. So our pipeline, as I mentioned in the prepared remarks, across all 3 platforms is very strong. There are 2 things that will determine frankly, our pace into Q2. Number one is just the macro environment here. Obviously, we have a significant amount of uncertainty that seems to change by the hour. And then two, at our election, which transactions we decide to pursue. So we have a number of transactions across all 3 platforms that are under contract or under a letter of intent going through the diligence period but all 3 pipelines are extremely strong. Jana Galan: And maybe just following up on the kind of macro uncertainty, rates moving around, does this cause any kind of delay in your partner's decision-making or wanting to kind of pause on any type of big plans. Joey Agree: No. This is totally unilateral on our side here. We have pipelines that are extensive across all 3 platforms. I just didn't think it was appropriate to raise investment guidance at this time in the midst of a war with JD Vance sitting on the runway. Operator: We'll go next to Michael Goldsmith at UBS Financial. Michael Goldsmith: You now have a record $1.4 billion of forward equity outstanding. Can you walk us through a bit about the timing of physical settlement relative to acquisition funding and how you're thinking about using the forward versus term loans or other forces? Peter Coughenour: Sure. Michael, this is Peter. To your point, we still have $100 million of capacity on our delayed draw term loan. That's at a fixed rate of roughly 4% given the swaps that we entered into. So given the attractive rate there, I think that's likely the first option we look to when we decide to term out some of our short-term variable rate debt. Beyond that, to your point, we have roughly [ 4 million ] shares of outstanding forward equity. As disclosed in our new supplemental, the contract for about 8 million of those shares matures at some point this year. And while we can always extend the contract, if needed, I think there's a good chance that we settle those shares at or prior to maturity given our anticipated uses. So I would expect that those 8 million shares are likely settled at some point in 2026. And then lastly, we have the $250 million of forward starting swaps in place that have effectively fixed the base rate for us on a future 10-year issuance at 4.1%. And so with those swaps in place, we'll evaluate the appropriateness of an issuance later this year. But we're not in a rush to do anything given the term loan we have the capacity there, plus the forward equity. And I think, most importantly, with $2.3 billion of liquidity from multiple sources. We have plenty of flexibility, optionality here. Michael Goldsmith: And then Joey, you talked in the prepared remarks about Hobby Lobby and how you've been partnering with them. Can you just talk a little bit more about what makes this particular tenant attractive? And just how you view the outlook for the craft base going forward? Joey Agree: Sure. Hobby Lobby is clearly the far and away leader in the craft and hobby space out of respect for the Green family and our confidentiality, I won't go into their financials, but they are an extremely strong company here. The Green family as well as Hobby Lobby as an entity literally 0 or no debt -- net debt to EBITDA, net debt basis here. So we're talking about a leading operator here if they pursued a rating would be a high investment-grade operator. They effectively put Joanne out of business. They're a market leader here. They had limited stores on their balance sheet. Most of their assets are leased. They wanted to eliminate the real estate from the balance sheet and the management responsibilities that is entitled and had with owning those assets. And so this was a unique transaction for us. They're a tremendous operator, a tremendous partner. They're extremely methodical in their growth plans, and we are thrilled to complete this transaction with them. Operator: We'll take our next question from Smedes Rose at Citi. Bennett Rose: I guess I wanted to ask you a little bit more. I mean I think the answer is probably no here because you mentioned that you're meaningfully ramping up your development pipeline in the second and third quarters. But I just don't have the knowledge of construction enough, I guess, to know, but you're not seeing any increases in kind of pricing or due to what's going on in the Middle East or any kind of hesitancy on the part of tenants maybe to kind of pause interest at this point given sort of a more fluid macro backdrop? Or I mean it sounds like the answer is no, but I'm just curious as to maybe why. Joey Agree: Yes. No, it's a great question, Smedes. We're seeing absolutely no hesitancy on the part of tenants as world events unfold here. Could that be possible? Sure. But what we're seeing is the exact opposite in the middle of the conflict in the Middle East has not changed the perspective of brick-and-mortar retailers. And as we mentioned on prior calls, if you look at just the announced store openings for the biggest and best retailers in this country, they have all come to the recognition that the store is the hub of an omnichannel world. It is not a spoke and so they are all opening new stores, some at voracious paces here to reduce last mile delivery costs and be efficient. And so we have not seen any slowdown from any of the tenants that we're working with. In fact, we've seen some acceleration. As I mentioned in the prepared remarks, we have commenced several projects subsequent to quarter close, and we will be closing on additional projects later this week and next week. In terms of costs, the projects that we close on have guaranteed maximum price bids. They have GMP contracts in place from general contractors. I'll remind everybody, we're not speculating on land. We're mobilizing and commencing right after close. We aren't speculating on small tenant space here. These are build-to-suit projects or ground lease projects for the leading operators in the country that are signed, stealed and delivered at the time we close. And so we have not seen any material cost creep yet. The team here, the construction team, led by Jeff does a tremendous job budgeting these projects in advance, and then we work with general contractors to the bid process prior to close. Bennett Rose: Okay. And then I wanted to ask you, obviously, we all saw a 7-Eleven announcement to close a bunch of stores, I mean first of all, do you think any of your stores might be impacted? And given some of your leaning into convenience stores in a way, some of the reasons that they're closing some of those stores seems like it's going to support some of your white papers that you guys have written around this space. So just curious, any just near-term concerns around your portfolio specifically and anything it might tell you about kind of where convenience stores are going. Joey Agree: Absolutely 0 concerns. We have no stores closing in our portfolio, and I appreciate you referencing the white paper. I ask everyone to take a look at it on our home page. 7-Eleven is closing the stores that have roller hotdogs and Slurpees. That's the bottom line. The -- and they're constructing and we are developing on their behalf, large-format convenience stores that have food and beverage offerings that are extensive, aligned with where the convenience store space. And so 7-Eleven is just a proxy here for the broader gas station convenience store space. The days of the 1,800 square foot get cigarettes and gum and a couple of coolers and gas are gone. That was the gas station. If you think back 10, 15 years ago, they also had an auto bay. They probably blocked that up to add a little bit more square footage to sell in-store products. Today, the gas station is moving to the convenience store model, whether it's 7-Eleven or Sheets or Wawa, we acquired a number of assets this quarter and led their development entry into the state of Florida over a decade ago. These operators are taking meaningful share across sectors and the evolution of the business is happening before our eyes. And so again, the pump, while it produces significant revenue doesn't produce the EBITDA that the inside source sale does. That is F&B, food and beverage, primarily breakfast and lunch, liquid gold, coffee, and affordable meals and convenience items that also take from the front end of the pharmacy for consumers. And so this is going to be a multiyear evolution, and we're going to continue to see the 2,000 square foot -- 1,200 to 2,000 square foot "gas stations" go away. Michigan, we're at the heart of this right now with Sheets and Quick Trip and 7-Eleven Speedway and operators expanding across the state while the legacy gas stations are frankly put out of business. Now this takes time, like any transition of any retail sector. But effectively, it's sweeping the country. And so it's a tremendous opportunity for us. You see us our activity here through all 3 platforms. But it's truly the evolution of a business model into a highly successful operator that has significant margin in food, beverage and in-store components. Operator: We'll go next to John Kilichowski at Wells Fargo. William John Kilichowski: Joey, that was very helpful on the 7-Eleven breakdown. I guess, if you wouldn't mind, maybe just talking about the rest of the portfolio, what's in guide from a credit loss perspective. And if there's anything else in there that you're looking at that may be has forecasted that you have some expected closures or if all of that is just precautionary? Joey Agree: No, no anticipated closures, all precautionary. We give our guide. We try to narrow it down during the year. The supplement does a great job of bucketing what we call credit loss, whether it's expirations or actual or credit loss at tenant defaulting falling out of -- entering vacancy, rejecting a lease shows that historical trend. We don't anticipate anything material in the portfolio this year. We're watching 1 to 2 -- a couple of assets, but really, that's about it. Peter, anything to add? Peter Coughenour: No, I think you hit it, just to hit on the numbers quickly, John. In the supplement, we disclosed 14 basis points of both credit and occupancy loss during the first quarter. Our AFFO per share guidance for the year still assumes 25 to 50 basis points of credit and occupancy loss. So there is an implied acceleration in Q2 through Q4 there. At this point in the year, we thought it was prudent to leave that range as is. But as Joey said, the portfolio is continuing to perform well. William John Kilichowski: Got it. And then the second one for me is just yields and deployment time line on development DFP, Lider 1Q, I know in opening remarks, you mentioned some scale in 2Q and 3Q. I guess my question is, we've highlighted $250 million as sort of a medium-term target. Is that still a realistic target for this year? And then maybe above and beyond that. Is there the opportunity to scale above that? Like would it be surprising for us to see a number well north of $250 million a year or is there a reason from a risk perspective why your initial remarks sort of capped that target is like a 250 number? Joey Agree: So we said about -- I said about 18 months ago, our intermediate target that was approximately 3 years, was to put $250 million in commencements in the ground per year. There's a chance we hit it this year. Again, Q1 is generally light just because if you get into the northern half of the country, you get weather related, you're not going to commence a project with frost in the ground. Q1 is generally light will be significantly larger and Q3 is shaping up to be along the same lines of Q2. Now these projects are generally subject to entitlements and municipal the government authorities approving approvals there. But we are on track to hit that intermediate goal of $250 million in the ground. The team is doing a tremendous job working with the biggest retailers in the country and the best developers in the country on the DFP side. And we're very excited about our pipeline there. Operator: We'll move next to Upal Rana at KeyBanc Capital Markets. Upal Rana: On the competition and seller behavior side, you mentioned people are not pulling back due to the macro volatility, but are you seeing any change in behavior due to the volatility in the 10-year, just wondering if you're seeing any increased deal flow in the past month or so that could positively impact 2Q investment volumes. Joey Agree: Upal, nothing that I could say is causal. We've said with the 10-year between 4 and 5, it seems like the world has been accustomed to the base rate purportedly for the entire world, the 10-year UST vacillating by 10%, 15%, up and down. We haven't seen anything causal. I'll tell you, we see more and more opportunities. Our funnel is bigger than it's ever been across all 3 platforms. We don't see increased competition. I wouldn't tell you we haven't seen a notable decrease in competition. Really, nothing's changed since coming out of 2024 and our do-nothing scenario. And so the only thing that I can point to is the performance, the size, the scope, the depth and the experience of this team and then our relationships within the market, highlighted in the supplemental just the retailer relationship-driven transaction. Upal Rana: Okay. Great. That was helpful. And then acquisitions of investment-grade-rated tenants has come down again this quarter. I'm just curious, outside of IG credit ratings, is there something else in the lease economics that we should -- that you're acquiring that is a sign of higher quality that we should be considering? Joey Agree: No, let's clarify why investment grade came down this quarter. We don't impute a credit rating to Hobby Lobby, privately held company by the Green family. So that's the biggest piece of this year. We're talking about, again, the largest craft and hobbies retailers, a multibillion dollar revenue operator that is far and away the leader in the crafts and hobby space that is privately owned by one family. So that is the driver. And I'll reiterate, investment grade is an output for us. We have tremendous operators in our portfolio that we don't impute shadow investment-grade ratings, too, but publics Chick-fil-A, ALDI, Wegmans, Hobby Lobby, again, so that is an output. In order for us to call an operator, an investment-grade operator, they have to be rated by a major agency and therefore, have the outstanding debt. Alta is not an investment-grade company, but I believe they don't have any debt, correct, Peter? Peter Coughenour: Correct. Joey Agree: They don't have any outstanding debt. So we have debt free, multibillion-dollar public and private operators in our portfolio. If you want to impute shadow investment-grade ratings, to our portfolio, we'd be at 80%. Then add on the ground lease exposure, which doesn't have any sub-investment grade. And I would tell you the safety of those assets is even greater than investment-grade assets, and we'd probably be at 85%, 87%. So it's an output to what we do. Our focus is on the biggest and best operators, the best real estate opportunities across the country, leveraging all 3 platforms, whether or not they have an investment-grade rated balance sheet or carry any debt is really, again, just a secondary here. Operator: We'll take our next question from Rich Hightower at Barclays. Richard Hightower: Joey, I want to go back to a comment you made in the prepared comments, you sold some grocery store assets with a pretty quick turnaround versus where you bought the assets at a lower cap rate versus the purchase price, so is there any movement specifically in grocery assets versus nongrocery, any sort of bifurcation in cap rate trends? Because obviously, we all saw sort of the headline number didn't really change in terms of what you bought quarter-on-quarter. Just help us understand any movement there. Joey Agree: Yes. Just to clarify, Rich, we did not sell the grocery assets. The grocery portfolio that we bought had outlets that were leased to Jiffy Lube as well as Dutch Brothers that we disposed approximately 300 basis points inside of where we bought the grocery-anchored portfolio, inclusive of those assets. We have no interest in owning 1,000 square foot Dutch brothers that trades in the low 5s or a quick lube that the 1,200 square feet that has no residual value in the [indiscernible] either. So we quickly moved, we closed those in a TRS and then quickly move to recycle those assets, accretive to the overall transaction, and we'll redeploy those proceeds accretively into better real estate and we think better credit. Richard Hightower: Okay. Appreciate the clarification there. I guess, secondly, maybe there's nothing to read into this, but you did mention better percentage rents in the first quarter, part of which, not all of which, but part of which was due to obviously better sales at those particular properties. Is there anything to read into that in terms of strength of the consumer, a particular type of consumer relative to the aggregate just as we see sort of other indicators maybe softening given everything else going on in the world. Joey Agree: It's such a small handful of assets. It's the biggest retailers in the country. We're talking about 5 or 6 properties that contributed -- 2 that contributed the vast majority of that percent rent. I think it's aligned with our thesis and what we're seeing in terms of the K-shaped economy, but I would be hesitant to draw broader conclusions from it, just because of this year of limited number of properties. But we are seeing through non-percentage rent but through anecdotal conversations and also through other data here, and look, you're seeing it as well through the public reporters, the Walmarts and the TJXs of the world are thriving, right? The trade-down effect is real. In the middle-income consumer, the $125,000 median household income, plus/minus is trading down. And we're seeing that through multiple data points, both public and private. I think the percent rent falls in line with it. That's the only conclusion I would rather. Operator: Our next question comes from Linda Tsai at Jefferies. Linda Yu Tsai: Two questions. In your investor deck, you highlight avoiding private equity ownership, do you have a sense of what percentage of your tenants are owned by private equity and how it's trended over time in your portfolio? Peter Coughenour: So Linda, we added some new disclosure to our supplemental that highlights ownership type and I would just call out in that disclosure, 77% based on ABR of our portfolio today is publicly traded. There's -- the remainder of that is private companies, but that is broken down into a few buckets. Those could be privately held companies. We talked about Hobby Lobby owned by David Green, they could be nonprofit companies, ESOPs or some other form of private ownership. So there is a small component of private equity within that private bucket, but it isn't a significant component of the portfolio today for us. Linda Yu Tsai: And then just one for Joey, you always have a clear idea of the state of retail. I guess you said the consumer is trading down and that's been happening for quite some time. But are you seeing sectors where the consumer really is pulling back completely? And then any tenant sectors where you'd be more concerned, just broadly speaking, not necessarily in your portfolio? Joey Agree: Yes, not within our portfolio, but I think if we watch the casual dining space, we're seeing with the some of the quick service restaurants, all the guys that sell bowls for $18, $22, I don't know, I don't get to them very often. It's the discretionary options where people have the ability to trade out and that goes across really all sectors. So whether it's basic goods and services here, basic things like grocery. I mean, I drove by the Costco gas station 2 days ago and the line was about 25 cars deep for fuel. And so we are continuously seeing that trade-down effect now pinched by gasoline prices as well and exacerbated by gasoline prices and prices at the pump. So I think it's across all luxury experience discretionary sectors and then also trading down in the necessity-based stuff for things like groceries. Operator: Next, we'll go to Eric Borden at BMO Capital Markets. Eric Borden: Joey, just curious how cap rates are trending to start the year between investment grade and non-investment grade tenants. Are you seeing any meaningful changes in the spread between the 2, just given the macro uncertainty here? Joey Agree: We haven't seen any change in cap rates in, I would tell you, the past 18 to 20 months. Again, the volatility even with the 10-year treasury really hasn't driven it. We're still nowhere near peak transactional activity coming out of COVID or before COVID. There's still limited 1031 or private buyer competition out there on a relative basis. So we really haven't seen any real material moves in cap rates here. The low price point stuff, the Jiffy Lubes and the Dutch bothers, those trade extremely aggressively. Those are to the 1031 buyers. But if you look at just the inventory out there even for Starbucks and things like that, there's a significant amount of inventory that's stale out there because of the lack of a bid the buyer pool. But we really haven't seen any material change here almost to 2 years. Eric Borden: That's helpful. And then just on the forward equity, just given the increasing dilutive impact in the TSM as your share price rises, would you consider a more balanced approach to equity issuance between forward equity and traditional or do you believe it's more prudent to keep the forward equity book falls given the current macro side or some of that going off? Joey Agree: We'll continue to look at all alternatives. Obviously, our balance sheet is in a fortress position. But I think when we first issued forward equity and came up within the net new space, the goal was to get an intermediate perspective on our cost of capital. So volatility could give us the decision-making real-time basis, whether we do something or not because we liked it in relative to the environment, not because we had to fund it just in time, right? And so inherently, we think the forward equity construct, and I think has adopted now by all or the vast majority of our peers takes a just-in-time financing business and then gives you that intermediate cost of capital to truly operate looking forward months and quarters in advance. Now we'll look at all opportunities to raise and source capital that are efficient and fit within context of our balance sheet and so why wouldn't rule anything out on a go-forward basis. But sitting here with $1.4 billion of forward equity and $2.3 billion of liquidity, it's not something that's top of mind for us. Operator: And we'll move next to Ronald Kamdem at Morgan Stanley. Ronald Kamdem: Great. Two quick ones. Thanks for the disclosure on the supplemental. Just comparing the acquisitions versus the DFP -- developer in the DFP platform, just remind us what the spread on yields are that you're getting on the DFP side developer and the DFP side. And also, I think you mentioned earlier that competition is actually easing on the acquisition front. Maybe can you just talk a little bit more about like which of those platforms is more competitive and you're better positioned? Joey Agree: Ron, so we've always talked about development subject to the timing and scope of the project, whether it's a retrofit or a ground-up development, right, that's going to range anywhere from 9 to 18 months. Those projects being significantly wide 75 to 150 basis points where we can buy a like-kind asset. Developer funding platform is generally ranging from 6 to 12 months. That will be tighter just given the time horizon. Again, we're targeting the same tenant through all 3 external growth platforms. The only difference here is time. And so it is just time and pricing that duration risk. And so that's where we drive that spread from. But we're not targeting different types of assets or credits here. It's all within our sandbox. We're not doing anything on a speculative basis across all 3 platforms. So we're seeing significant activity across all 3 platforms at appropriate spreads, and we're going to continue to build that pipeline and we'll demonstrate it in Q2. Ronald Kamdem: Helpful. And then just a quick one on the -- so I'm looking at the recapture rates and same-store rent growth on the supplement. Is that -- is the $1.6 billion is some of that sort of volatility from quarter-to-quarter. Is that all the percentage rents? Or is there something else going on? There seems to be some seasonality to the same-store rent growth. Peter Coughenour: Yes. In terms of some of the seasonality you see in same-store rent growth, Ron, you're right, that percentage rent is included in Q1. And so that's driving a portion of the seasonality. But if you look at that over a longer time series as well, that seasonality is going to be driven by the underlying lease structure of our portfolio. And we disclosed in the supplemental about 91% of our leases have fixed rental escalators. Those are typically rental escalators taking place every 5 years, ranging from 5% to 10%. And so when those escalators hit, it's going to drive some variability in same-store rent growth. But what we've seen over the trailing 8 quarters, and it's consistent with what we've seen historically is same-store rent growth just north of 1%, with very little falling out, as you can see from our credit loss and occupancy loss disclosure. Operator: And that concludes our Q&A session. I will now turn the conference back over to Joey Agree for closing remarks. Joey Agree: Well, thank you all for joining us this morning, and we look forward to seeing everyone at the upcoming conferences and appreciate your time. Thanks, again. Spenser Allaway: And this concludes today's conference call. Thank you for your participation. You may now disconnect.