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Operator: Hello, and welcome, everyone, joining today's Bank of America earnings announcement. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Lee McEntire with Bank of America. Lee McEntire: Good morning. Thank you. Thanks for joining us to talk through our first quarter results. As always, the earnings release and presentation are posted on the Investor Relations section of bankofamerica.com and we'll reference those materials during the call. Brian will start us off with a few opening thoughts, and then Alastair will walk through the quarter and provide more detail on the results. Before we begin, a quick reminder that during the call, we may make forward-looking statements and refer to non-GAAP financial measures. Those reflect management's current views and are subject to risks and uncertainties, which are outlined along with the relevant GAAP reconciliations in our earnings material and the SEC filings on our website. With that, Brian, over to you. Brian Moynihan: Good morning, and thank you for joining us all of us. It's the our earnings report for the first quarter of 2026. I'm going to begin on Slide 2. Bank of America delivered strong first quarter 2026 results. Revenue grew 7% year-over-year to $30.3 billion. Earnings per share were up 25% year-over-year to $1.11 per share. This performance was driven by balanced results across our businesses, continued operating leverage, solid client activity and stable to modestly improved asset quality. We also saw solid year-over-year growth in both loans and deposits. Our capital and liquidity positions remain strong and well above current regulatory requirements. Along the bottom of Slide 2, you can see the progress against some of our most important operating metrics. We delivered operating leverage of 290 basis points this quarter. The efficiency ratio for our company improved 170 basis points year-over-year to 61%. And importantly, we generated return on tangible common equity, ROTCE of 16%. The biggest highlight I can provide you is you flip to Slide 3, there you can see that every segment of the company contributed to our year-over-year growth. Every segment grew revenue. Every segment grew earnings. Every segment grew average deposits and every segment grew loans and every segment drove strong returns. Now moving to Slide 4. Let me talk about some of the primary drivers of results before Alastair takes you through additional details. First, net interest income performed better than expected. On an FTE basis, net interest income was $15.9 billion, up 9% year-over-year. Second, our fee-based market-facing businesses performed well, markets, wealth and investment banking, all show good momentum. Client activity remained healthy and revenues in each of these areas grew at double-digit rates compared to the first quarter of 2025. Third, our team continued to manage expenses well. Reported noninterest expense of $18.5 million in the first quarter, which was in line with roughly 4% year-over-year increase we discussed in our last quarterly earnings call. Let me just spend a few moments on expense and how we think about them in the context of delivering growth and returns for our shareholders. Having said consistently, our focus is on delivering durable earnings and returns. Expense discipline is embedded in how we run our company. And it's also one of the reasons we're able to convert scale, productivity and macro tailwinds and operating leverage over time. In the quarter -- the first quarter, our expenses reflect the deliberate choices we made. First, we continue to invest in our revenue-producing capabilities, whether it's relationship managers in all the businesses, new branches, technology of all types delivered throughout the platform and product enhancements of all types, all those support the client activity, market share gains and long-term earnings power of this company. These investments are return on investment driven. They're tied to businesses where you see clear demand and attractive returns. The second thing we do is we continue to offset those investments through productivity and simplification. The continued digitization of activities by our clients and inside our company, the application of artificial intelligence that detailed process reengineering all help reduce manual work, lowered unit costs, limited increase in our base cost structure. That's why even as we've invested, we continue to deliver positive operating leverage. It's simply put that our revenue growth rate is faster than our expense growth rate. Third, we remain highly disciplined in nonstrategic spend. We are conscious not to add complexity, layers or fixed costs that don't support the clients and what they need from us. That discipline is part of our responsible growth culture has been going on for many years. If you think about that in terms of headcount, we are down about 1,070 people from year-end 2025 through attrition, and we'll continue to drive that. We continue to heavily extend the franchise, deepen the client relations and deliver attractive terms. And we're doing -- while reducing the FTEs and absorbing cost and inflationary cost out in the market. Turning briefly to asset quality. We saw improvement from last year. Net charge-offs, card delinquencies, reservable criticized assets and nonperforming loans all declined versus the first quarter '25. Provision expense was $1.3 billion, compared to $1.5 billion last year, reflecting continued benign credit results. Finally, capital generation remains strong. We continue to deploy excess capital to support RWA growth across all the businesses, while returning capital to shareholders through dividends and share repurchases. We ended the quarter with a strong capital position, including $200 billion plus CET1 capital. We also continue to benefit from the many quarters of organic growth across our businesses. We include our standard organic growth view, beginning on Slide 19 and following in the appendix. I commend you to look at those across all the different business lines, all the activity and all the digital activity are there. All that activity remains a key differentiator for us, driving continued growth in deposits, investment assets, lending balances and trade counter party. This combines with that strong engagement across our digital platforms, and we believe driving ongoing share gains in targeted markets and products. Overall results again demonstrate the value of our diversified earnings stream. The growth in [indiscernible] of all our businesses across different environments. In the end this is a strong performance by our team here at Bank of America, and I thank him for another great quarter. Before I turn to Alastair to go through a few observations -- go through the quarter. I'm going to give you a few observations we see about the economy beginning on Slide 5. So we have 2 things that Bank of America to help us view the economy. First is our very strong research team and they provide great data to us based on their view of the world. And you can see that on the left-hand side of Slide 5, but we also couple that with our internal data, what our customers really do both on the consumer side, corporate side, small business side, et cetera, and you can see that on the consumer expressed on the right-hand side of the slide. [indiscernible] team continues to see the economy that is resilient, that the core activities economy continue to push along even with all the uncertainty that you've all written about out there. We see the forward look of GDP growth rates in the U.S. in the 2% range, and we see a faster growth rate around the world. When you look at the inflation, you can see on the lower left, you can see that the projections for it to be -- remain elevated in '26 and into '27 and we -- both at the U.S. basis and the global basis. But when you look on the right, you can see where the resilience comes from in the U.S. The U.S. consumer continues to spend through all these different platforms here, Bank of America. To put that in context of total spending by consumers across all the ways they move money into the U.S. economy Bank of America is $4.5 trillion a year. For 2025, you can see that was up 5% from 2024. And at 5% growth has been consistent in the first quarter of '26 compared to the first quarter '25. And during that quarter, customers moved $1 trillion plus in the economy. As you look on the lower right, you can see the debit and credit card spending was up 6% year-over-year. This total is about 25% of the way consumers spend money at Bank of America. If you look within the categories, you can see it's up in entertainment and services and travel and retail. And yes, it's up in gas prices, and we note that in March, it was up 16% year-over-year. At the same time, we look at this data and see what it tells us. We're also mindful of all the risks out there, the ongoing conflicts in the Middle East, including implications for the energy market inflation and growth. We look at global trade flows and broader financial conditions. To date, these impacts have been measured and absorbed by the economies here and around the world, and we continue to watch them carefully. Looking ahead, our research team expects moderate U.S. and global growth over the next several years, and our data supports that view. In this environment, I'm asked at the capital markets activity has really inflected or is this just the volatility producing the results that our markets team produced or our investment banking team. What we're seeing is improved breadth in our global businesses, not just episodic activity. Trading has been in for volatility. In fact, this is the 15th quarter we have year-over-year revenue growth. But more importantly, investment banking pipelines are building and engagement is up across all products. One of our corporate clients is strong. Like wonder about all the things I spoke about, they continue to conduct strong activity. That activity is healthier than a year ago and supports a continued constructive fee environment. In our view, while those risks are out there, the macro backdrop remains constructive and a diversified business model position us well to continue to deliver for you across a range of economic scenarios. With that context, I'll turn it over to Alastair for more details. Alastair Borthwick: Thanks, Brian. I'm going to begin with the balance sheet, starting on Slide 6. You can see total assets ended the quarter at approximately $3.5 trillion, up 2% linked quarter, reflecting loan growth, deposit growth and balance sheet to support our clients' increased activity in global markets. Deposits increased to more than $2 trillion, driven by continued strength in both commercial and consumer client engagement. Common shareholders' equity was approximately $276 billion and relatively stable quarter-over-quarter as earnings generation was more than offset by the capital we returned to shareholders through dividends and share repurchases. This quarter, we paid $2 billion in common dividends and we bought back $7.2 billion of common shares. From a regulatory perspective, the CET1 capital ratio declined 14 basis points to 11.2%, and that decline primarily reflects the capital return to shareholders above earnings generation as well as balance sheet growth and mix change in support of our clients, and our ratio remains well above regulatory requirements. Looking ahead, we don't have any meaningful updates to report on the recently proposed Basel III Endgame or G-SIB capital changes. As proposed, Basel III would result in modestly higher capital requirements. However, the proposed changes to the G-SIB surcharge are expected to more than offset the Basel III end game impact for U.S. G-SIBs. Taken together, if Basel III Endgame and G-SIB frameworks are adopted as proposed, we believe Bank of America is likely to see some reduction in overall capital requirements relative to the current regime in future periods, and the public comment period concludes in mid-June, and we look forward to the finalization of the rules. Liquidity remains strong with global liquidity sources of more than $960 billion, well above regulatory requirements. And now as we go a little deeper on the balance sheet, we'll focus on loans and deposits. So I start with deposits on Slide 7, where our franchise continues to demonstrate strength, stability and discipline. Average deposits remained solid during the quarter, increasing approximately $59 billion year-over-year or 3%, reflecting the depth of our client relationships and the value customers place safety, liquidity and convenience, particularly in an environment where rates and market conditions remain dynamic. It's notable that both interest-bearing and noninterest-bearing deposits grew 3%. Growth was led by commercial clients, while Consumer Banking grew more modestly, marking its fourth consecutive quarter now of year-over-year growth. Composition of our deposits remains a key differentiator. We benefit from a high-quality mix with a meaningful portion in low-cost operational balances and strong engagement across consumer, wealth and commercial clients. That mix has continued to benefit our funding costs even as pricing competition persists across the industry. The total rate paid on our deposits declined 16 basis points to 1.47%, and this allows us to maintain one of the lowest cost funding profiles among the large U.S. banks. Turning to loans on Slide 8. Average balances grew nearly 9% year-over-year driven primarily by client demand in our commercial portfolios. That growth was broad-based, and it reflects good core operating client activity. And as always, we remain disciplined in how we deploy our capital, prioritizing returns, credit quality and relationship depth over volume. Consumer loan balances were up about 4% year-over-year, including 3% credit card growth. Wealth Management contributed nicely to consumer loan growth through strong securities-based lending. And across both consumer and commercial folios, the credit performance remained consistent with our expectations, and we've not changed our risk posture. We remain highly liquid. We're focused on protecting our margin and preserving flexibility while continuing to support our clients. Let's turn to net interest income on Slide 9. In the first quarter, net interest income on a fully taxable equivalent basis was $15.9 billion. On a year-over-year, NII increased by $1.3 billion or 9% driven by growth in average loans and deposits, the ongoing benefit of fixed rate asset repricing and higher global markets client-related activity, and those tailwinds were partially offset by the impact of lower average rates in the quarter. Compared to Q4, NII was materially flat and reflected similar underlying benefits that were nearly enough to offset the negative impact of 2 fewer days of interest accrual in Q1. Net interest yield for the quarter was 2.07%, up 8 basis points year-over-year, reflecting disciplined balance sheet management, funding optimization and the continued benefit of repricing dynamics even as rates declined across the curve. Regarding interest rate sensitivity, we continue to provide a 12-month dynamic deposit-based sensitivity relative to the forward curve. And on that basis, an additional 100 basis point decline in rates beyond the forward curve, would reduce NII over the next 12 months by $2 billion, while a 100 basis point increase would benefit NII by a little less than $500 million. Looking ahead, while the rate environment remains dynamic, continue to see multiple levers supporting NII, including balanced growth, funding optimization and ongoing roll-off of lower-yielding assets. Given our outperformance against expectations of NII in Q1 and based on the most recent interest rate curve, which has now shifted from 2 rate cuts expected to having none currently, we're raising our full year NII growth guidance range for 2026 versus 2025 to be up 6% to 8%, and that outlook continues to assume moderate deposit and loan growth. Turning to expenses on Slide 10. In the first quarter, noninterest expense was $18.5 billion. That was up 4% and consistent with the guidance we provided on our Q4 earnings call. We generated 290 basis points of operating leverage, and that translated into measurable improvement in both our efficiency ratio from 63% to 61% and an increase in the ROTCE to 16%. We continue to manage our cost base with discipline while investing selectively to support client activity and long-term growth. The year-over-year increase in expense largely reflects double-digit revenue growth in Investment Banking, asset management fees and sales and trading and the associated higher revenue-related incentives and transaction expenses. Stepping back, our approach here remains unchanged. And we're [ testing ] where returns are clear. We tightly manage the discretionary spend, and we maintain our sharp focus on operating leverage, including expanding our use of technology and AI to improve operational efficiency and sales effectiveness. Looking ahead, we continue to expect more than 200 basis points of positive operating leverage for the year, consistent with our prior guidance. And we also have levers that preserve our flexibility to help navigate changing market conditions as required. Let's turn to Slide 11 for a discussion of asset quality. Credit performance remained stable and consistent with our expectations. Net charge-offs were approximately $1.4 billion with a net loss rate of 48 basis points. Both of those were down from Q1 '25 and modestly up from Q4, primarily reflecting the normal seasonality in our card portfolio with continued stability across the commercial portfolio and improved results in CRE office loans. Provision expense was approximately $1.3 billion, including a modest net reserve release driven by improvements in card and commercial real estate and partially offset by growth-related and targeted build supporting corporate and commercial lending portfolios. Overall, as you can see, our credit results remain benign, and we continue to feel good about the quality of our portfolio. Turning to Slide 12 for some other credit metrics and a couple of comments here. Commercial reservable criticized exposure declined to roughly $24 billion, while nonperforming loans were flat quarter-over-quarter. It's also worth noting that this was the first quarter in more than 3 years with no new inflows of nonperforming assets into office exposures, which is another sign improvement in that portfolio. For perspective, we've now been in a benign credit environment for some time, and our performance reflects the benefit of decades long underwriting practices and responsible growth culture. We expect that approach to serve us well across a range of potential economic cycles. And we've updated the more detailed credit disclosures in the appendix beginning on Slide 19. In addition, on Slides 24 and 25, we've chosen to include updated disclosure around our Global Markets loan portfolio. Let me start by saying we've not experienced any material losses in Global Markets loans, and we feel good about the underwriting and the secured positions that we have here. We acknowledge the potential for underwriting dispersion in the portion that's considered the private credit market, particularly in the faster growth vintages and we know that, that risk sits first with sponsor equity and fund investors. Bank of America's exposure has structural insulation from those first loss positions. For losses to reach us, we believe operating company equity and a substantial portion of fund investor capital would need to be impaired before we would experience losses. We don't rely on sponsor marks. We reunderwrite collateral continuously for borrowing base purposes. And our exposure is governed by independently determined borrowing basis with ongoing performance tests. So that means where credits deteriorate, the borrowing base contracts before the losses migrate. We see the market activity is largely a repricing of liquidity. And growth expectations for alternative asset managers, not evidence of systemic credit impairment. We continue to monitor the market closely. We're comfortable with our positioning. And we're also glad to see the return of more traditional C&I loan growth in the first quarter. Turning to Slide 13. Let's shift our focus to the lines of business, and we'll start with consumer, where you can see Consumer Banking delivered a strong first quarter as customers continue to place their trust in Bank of America for their personal finances. Net income was $3.1 billion, up 21% year-over-year, driven by higher net interest income that led to 5% revenue growth, and we managed expense well. That resulted in over 500 basis points of operating leverage and a 53% efficiency ratio. We saw our fourth consecutive quarter of year-over-year deposit growth, with average deposits of $951 billion, while maintaining a high-quality mix with over half of balances in low and no interest checking. Client engagement remained a clear strength. We ended the quarter with a record 38.5 million consumer checking accounts, adding over 100,000 net new checking accounts this quarter. More than 90% of these relationships remain primary. Digital adoption remains strong with 79% of households digitally active and 71% of sales coming through the digital channels compared to 65% a year ago. Finally, credit performance in consumer remains solid and in line with expectations. On Slide 14, we turn to Global Wealth and Investment Management who also delivered a strong first quarter, benefiting from solid flows over the past 4 quarters, favorable market conditions and disciplined expense management, which together drove margin improvement and valuable operating leverage. Net income was $1.3 billion, up 32% year-over-year on record first quarter revenue of $6.7 billion, driven by higher asset management fees and solid client flows. Pretax margin was 26%, reflecting the operating leverage achieved through disciplined expense management. Client balances increased to $4.6 trillion, up 10% year-over-year supported by favorable market conditions and net client flows during the quarter. Asset Management flows remained solid at $20 billion and lending momentum continued with average loans up 13% year-over-year led by custom letting and securities-based lending. We remain focused on pricing discipline, adviser productivity and long-term client relationships. We're driving productivity higher on both newer and existing members of our financial advisers team, and we continue to attract talent across both new and experienced advisers. Now we move to commercial and corporate client-facing businesses and Global Banking on Slide 15, where Global Banking delivered solid results in the first quarter, reflecting strong client activity and continued balance sheet growth. Revenues were $6.3 billion, up 5% year-over-year, driven by higher net interest income and improved noninterest income. When combined with well-controlled expense, which rose only 1%, the business generated more than 350 basis points of operating leverage. Net income was $2.1 billion, up 8% from last year as the higher revenue was partially offset by continued investment in the business and a higher provision for credit losses through builds of reserves that were primarily for loan growth. Investment banking fees of $1.8 billion were up 21% year-over-year, and we're a clear positive in the quarter. Investment Banking fees, strong momentum was led by M&A with equity capital markets also up very nicely in the quarter. The year-over-year investment banking performance is particularly notable given our prior year first quarter included gains related to leveraged finance positions that didn't repeat this year. Balance sheet growth remained a strength. And you can see average loans increased 5% year-over-year with all lines of business contributing. Deposits increased 13% year-over-year, reflecting continued client engagement across the franchise, and rates paid was down linked quarter and year-over-year. Returns remained strong with a return on capital of 16%, which was higher year-over-year. Turning to Global Markets on Slide 16. I'll focus my remarks as usual ex DVA. And Global Markets strong first quarter was driven by robust client activity and disciplined risk management in a volatile trading environment heightened by geopolitical uncertainty. Revenues ex DVA were $7 billion, up 7% year-over-year, where Sales & Trading had its strongest performance in a decade increasing 12% to $6.3 billion, led primarily by equities performance. And despite the noted volatility, we had no trading loss days during the quarter. Equities had their best quarter ever with revenues up 30% year-over-year, reflecting increased client activity and capital extended to the business for growth. The increase was driven by client financing activity, particularly in Asia, as well as strong trading performance in derivatives. FICC results remained strong and were modestly higher with strength in commodities, partially offset by lower revenue in FX and interest rate products. Net income was $2 billion, which was up modestly from strong results in Q1 '25 that also included roughly $230 million in gains related to leveraged finance positions. Higher revenues were offset by increased expenses on higher activity levels, increased people costs and our continued investment in this business. Average assets grew 14% year-over-year to $1.1 trillion, reflecting higher inventory levels and strong client balances. Returns remain solid with a 15% return on capital. Overall, Global Markets continues to deliver for our clients producing consistent profitability, continued revenue momentum and it reinforces the durability of the franchise across different and challenging market environments. On Slide 17, all other shows a modest profit of roughly $100 million in Q1 with very little to cover here. So as I wrap up, I'll just note the Q1 effective tax rate was 17.5%, that was seasonally lower, reflecting the annual vesting of employee share-based awards. And as a reminder, for the full year 2026, we expect an effective tax rate of just a little more than 20%. So in closing, first quarter of '26 reflected continued revenue momentum, disciplined execution and improved efficiency and returns. Our diversified business model, strong balance sheet and prudent risk management position us well for the remainder of the year. And with that, we'll open up the line for questions, please, Leo. Operator: [Operator Instructions] Our first question comes from Manan Gosalia with Morgan Stanley. Manan Gosalia: First up, just on the expense side, the stronger NII guide was great to see, and you're keeping expense guide, but you're also keeping the operating leverage guide. I know there's some level of rounding in here, but how do you think about dropping the benefit of the better NII to the bottom line? Brian Moynihan: Manan, thanks for the question. We did this quarter, and we expect that the NII will drop to bottom line. And that -- and so if it goes up, you'd expect us to see a higher end of the operating leverage range like we did this quarter. Manan Gosalia: Got it. Perfect. And then maybe on the ROTCE side. So I guess you've already delivered on a 16% within the 16% to 18% target. How do you think about staying within that range in the near term as you deliver on the operating leverage? And are there any one-timers or anything else we should be considering for this quarter? Alastair Borthwick: So Manan, I don't think there's any one-timers to consider here. We provided that guidance of a medium-term range for ROTCE over the course of the medium term. And look, every quarter is going to be different. We're obviously gratified with 16% based on the strong operating leverage performance. But the key for us as a management team is just keep moving up the ladder. A couple of years ago, it was 13%, then 14%, every quarter will be different. We just got to keep making progress towards our goal, and that remains our focus as a management team. . Operator: We'll now move on to Glenn Schorr with Evercore. Glenn Schorr: Maybe an easy high of one on the consumer. I think your spending is so good. Employment and wages have been strong. So the easy question is why do you think loan and deposit growth in the consumer side is slow, sluggish. It's not like you're not opening new checking accounts, new credit card accounts. Just curious on the high level there. Alastair Borthwick: Well, Glenn, I think if we look back over time, on the deposit side, what's been interesting, we talked about 3 or 4 years ago, at some point after the deposits were seeking higher yield, consumer would begin to find its floor. When you look at what's happening right now, you can see now 4 quarters in a row of year-over-year deposit growth. So it looks like we're finding that floor and beginning to grow out of it. You can also see, if you look at our numbers, growth in noninterest-bearing, and a little bit more this quarter than we've seen in the prior quarter. So there -- the elements that are sort of saying it's beginning to pick up. Now obviously, there's an interest rate environment. There's a spend environment that go against deposits. But it feels to us like the consumer part, which is so powerful, is beginning to turn and grow at the beginnings of accelerating that's kind of where we are in the longer arc. On the lending side, we're in a period right now where unemployment is good. Home prices are good. Asset prices are good, savings remain elevated. So the lending is pretty broad-based within consumer, but you're getting 3% or 4% growth there. Can we see more over time? Yes. But at this point, I think relative to how the consumer is performing, we're in a good place. One final thing I'll just say is, we've talked about the fact that we've got to focus on our own balance sheet efficiency. We've talked about the fact that we've got the ability over time, just to allow some of the retail and the institutional CDs to pay off. And we've sort of done that. So we don't have to chase CDs at this point, that in turn has meant that we've been very disciplined on rate paid. So we could put up more deposit growth if we wanted to, but we're really choosing at this point to just maximize the core operating client account activity. That's what we're focused on. Glenn Schorr: Well, I think it's working. That's cool. I appreciate that. I was interested, you guys mentioned that headcount is down over 1,000 this year. If I look over the last 5 years, it's kind of flattish, but there's a lot underneath the covers, right? You're adding in growth areas, you're subtracting some other areas. And I think your attrition rate is more like 7%. So maybe can you talk about some of the puts and takes where you're adding, where you're shrinking and obviously, the question of how AI might -- where are you in the AI journey in terms of how that might bring a little bit larger headcount reduction or not replacing all the attrition going forward? Brian Moynihan: Well, in the long arc, if you look in 2007 before we bought Merrill and Countrywide to give you a sense, we had more employees at Bank of America than we have today. And so the application of technology, the process and the customer utilization of our technology has led us basically run the company 19 years later on less people. And so this is not a new trend. What you're seeing now is the continuation of those trends, and you're right. So if you -- as we showed you at Investor Day, we showed a shorter term, we showed headcount down to 8,000. We showed at 50,000 out the consumer set of businesses at 25,000 out of ops. What we're seeing now -- and during that time, we made massive investments in technologists and cybersecurity from a few hundred people or 3,000 people, et cetera, et cetera, new branches. So we continue to shift investment that went on again this quarter, where you saw headcount drift down out of operational process and managers and things like that. And that investment goes into developing more headcount in the relationship manager businesses across the board, and so we'll continue to do that to support the growth of the business. So we're doing it through attrition. Each month, we have to hire 1,300 people round numbers to stay neutral in the company. And so you can adjust the headcount by just being careful on hiring and let attrition be your friend as we call it, and that's how we got down 1,000 people, but it comes from eliminating work and applying technology and consumer and commercial customers using those technologies and AI gives us pieces to go, we haven't gone. And we've got 90 installations working, all 200,000 teammates have access to AI or can use it every day. Erica is more understood out there, but it's been brought across lots of platforms that the models. And so -- we're still in the early stages of what all this will do, but we're seeing real benefits out of it today. Operator: We'll now move on to John McDonald with Truist Securities. John McDonald: In terms of capital, with the peak at the new proposals, how are you thinking about a capital target as you strive towards your ROTCE goals? Just kind of wondering now that you have some -- do you have some more incremental comfort in narrowing that management buffer that you have today, which is over 100 basis points to the reg minimums? Alastair Borthwick: Thanks, John. Well, I think as we're getting more and more clarity, you've seen us take advantage of that by just allowing the capital ratios to drift down. So we'll wait ultimately to see what the final rules all look like, but it's pretty clear to us at the point that, yes, Basel III Endgame RWAs will be a little higher. Yes, it appears G-SIB inflation indexing is going to give us some relief, particularly as you move forward into future periods. So that's allowed us to do a little bit more buyback, it's allowed us to put out a little bit more balance sheet. So we're gaining a little more confidence. But at the end of the day, we're in a good place right now. We have plenty of capital, plenty of flexibility. We're earning well. Now we just got to wait for the fine rules. Brian Moynihan: John, I think your point about operating closer to the minimum [indiscernible] side, everything else have talked about and the shifts across time, the new rules, the old rules and the transition. The reality is as the -- as we have studied this, the volatility in our earnings stream under all the stress scenarios that we run every quarter is how we start to think about the cushion we have to maintain, and that's -- that cushion could be tighter to the reg minimum without having the same threats because of stability in the earnings streams and the capabilities of the company. So -- so we brought it from a broader range to a narrow range, expect us to keep it in the 50 basis points that we said. And so if the underlying requirement goes down, the whole number goes down , et cetera, so let it play out a little bit. But there's no philosophical change in maintaining a decent cushion but not an overly big cushion, but our fine-tuning of that across the last 3 or 4 years really is based on the earnings -- capabilities of this company to earn through. different things like the COVID and the regional bank crisis, et cetera, you can see that the volatility is just not there. John McDonald: Right. So what you're saying, Brian, is the 50 basis point kind of management buffer is over time, what you'd expect to gravitate to? Brian Moynihan: Yes. And we were moving there. But we're taking all earned capital out, right, to dividends and buybacks. That then leaves the nominal amount the same, and we're growing the company into it. And then we got all these rules and how they'll be implemented. Remember, there's step-ups and steps down and that kind of sort of see play out here. But you've got it right. I just think of the long term, 50 basis points over the minimum is more of what we're shooting for. John McDonald: Okay. And then, Alastair, could you give a little more color on the drivers of the change, the tweak in the NII outlook? And more specifically, what you're assuming within the modest loan and deposit growth inside of that guide? Alastair Borthwick: Yes. So we're not really changing anything in terms of the loan and deposit growth. We've been pretty encouraged with the way that started out the year. So it's more a continuation of what we've seen. But we've seen pretty good organic growth, so that's been good. The rotation is slowing from noninterest-bearing into interest-bearing. And in fact, noninterest-bearing picked up a little bit this quarter, so we're happy to see that. So for as long as the loan growth stays there, deposit growth looks good, last a couple of rate cuts. Those might have hurt us at the back end of the year. They're not going to hurt us in the same way. So all those things, you add them up, it's a little bit of all of them, but a little bit more balance sheet into global markets. So added up that all feels good. And final thing, John, is if you take a look at the loan growth disclosure that we put out, I think it's on Page 8 of our release, you'll see pretty broad-based now from each of the lines of business. Pretty broad-based by each of the products. So we're not reliant on any one thing, and that gives us a little more confidence around durability. Operator: We'll now move on to Jim Mitchell with Seaport Global. James Mitchell: Alastair, can you expand on the funding optimization point a little bit? It seems like you had a significant drop in rates paid on non-U.S. deposits. So overall, how much can you do on that fund opposition point? And how do we think about balance sheet growth in that context? Alastair Borthwick: Yes. So this is something we've talked about in prior earnings calls, Jim. So no change to what we've been thinking about over the course of the past couple of years. We had I'll call it, balance sheet puffiness around some of the longer-dated CDs and some of the repo activity. And as we go through the course of time, what we believe we can continue to do is just allow those to drift lower, which in turn is good for NIY, probably doesn't impact NII, particularly but it just -- we can fund the core growth of the clients while allowing some of that balance sheet tough to go out. So that's what we're doing. We're just sticking to that. You can see the CDs coming down quietly slowly over time, taken some of the repo down quietly slowly over time, while still giving more balance sheet to the business for clients. James Mitchell: And can you quantify how much you think is left of that? Alastair Borthwick: I think last time we got together, we said probably somewhere around $100 billion or so a little more, it could be a little less, but it's in that kind of a number. Brian Moynihan: And Jim, be careful about nominal. In other words, within your -- we grow core loans within the balance sheet and let other stuff go off. But the total footings at one point, but it's the -- what you're holding within those footings that's the key point and what your -- what liabilities you have within those footings. So I think it was pointing out one of your colleagues earlier, if you think about deposits in our company and you look at Slide 7 and look at the rate drop across the board, we are clearly at the core of core deposits in all the businesses. They have different aspects. Obviously, wealth management business. So core deposit is different than the mass market consumer business or even the small business versus a large corporation -- so a large corporation. So look at that page, just think about we're sitting with $2 trillion of positive [ trillion 2-ish ] of loans. And we're only going to take the deposits we need -- we take the deposits from the customers in line with their core operating capabilities in the core business. That's what we're focused on. James Mitchell: Yes. No, absolutely. And on the C&I side, Alastair, you mentioned that more traditional C&I growth has picked up. Is that an early read on taking some share from private credit, given disruptions there? Is it simply just broadly improving demand and an improvement in credit line utilization? Alastair Borthwick: It's mostly credit line utilization this quarter. So at the end of Q4, we saw a little bit of revolver pay down, which probably took our loan balances down, we still grew loans in Q4, but the growth wasn't quite as high because the revolver utilization came down. It just came back in a little bit more in Q1. So we probably picked up $5 billion to $10 billion of loan growth just for revolver draws. So it's sort of core middle market activity, building working capital across corporate America and internationally. That's where we saw the growth. Operator: We'll now move on to Mike Mayo with Wells Fargo Securities. Michael Mayo: What a difference a quarter makes. I think what I hear you saying is that you feel better about the short term and you can correct that. But you got the 16% ROTCE. You're guiding NII higher. You have 29 basis points of year-over-year operating leverage. So I think you're saying the short-term better, but since the last earnings report, there have been concerns about the long term, right, that AI agents will come and take your deposits. The AI bad actors will commit cybercrime against you, the AI spend will not bear fruit. So I know you guys have Erica and CashPro and GenAI and over 4,000 patents. And as you brought up less employees since 2007 and also some other advantages there. But as you think about that debate, the long-term debate AI, you being a victim or are you being a beneficiary, why is Bank of America and AI beneficiary? And if you could just frame it, somewhere I know that the question was asked already, but revenues per employee, how much would you expect that to increase or something around that? Brian Moynihan: Like Mike, I think in your question, you gave the answer, which is we are a beneficiary of the impacts of all technology, including AI. We've applied it and we'll continue to apply our team's job, and we've got catalyst efforts going on, on a corporate wide basis to bring all the ideas to bear. Our team's job is to benefit from the technology. It creates issues about cybersecurity and things like that that you're reading about in the paper and we take those extremely seriously and invest heavily to do it, and we work with our industry colleagues and colleagues and other industries to ensure the safety and security of our architecture. But there's -- there will always be positive pressure on the earnings due to the application technology and AI gives us a lot of efforts there. There's nothing new and different about the ability to move deposits that we can move them in our company instantaneously to other off balance sheet, on balance sheet, right? So the question is, what are deposits for. And I think like it's lost in all the discussions a little bit the reflection of the earlier discussion on deposit rate paid is we have the deposits because people buy their transaction accounts with us here moving money. The CD and at the market deposit practice in our company is a small part of what we do to drive the economic value. And our job and our -- is to stay with our customers to be the core depository institution and transactional banks with them as well as our lending bank. And we feel very strongly that we will not only take advantage of AI will help us drive greater market share and capabilities in the future. Michael Mayo: I guess as a follow-up to, I guess, you remind me like the primary checking account, I think, is what you're saying is very sticky. How to use AI to improve the trust of customers, whether it's with a cyber risk. I'm not sure if you were of the CEOs went down to DC or just trust with data and identity and the relationships? Brian Moynihan: Sure. I think the trust in our -- the customers go to our institution at all-time highs and the trust they see and in the way we use data and the way we use information, frankly, the -- some of the gates on our adoption of some of these technologies are, we're protecting customer data where other people are not. And that's been a constant struggle from cloud computing into the -- so we keep our data out of the models, we keep -- so that our customer data, et cetera, and take advantage of the models coming into us, but not feeding them. And that's what we owe our customers. We feel we're in a great trusted position. We spent a lot of time, effort and money over years, making sure we get to what we call never down and continue to deploy hot-hot hot backups and systems that will step in for each other. We work with the industry to ensure that, that goes throughout the other platforms, the FMUs and things like that. So we -- if you ask our customers, our digital capabilities, our technology capabilities and the trust in us is as high as it's ever been, matters higher than it's ever been, and it's growing literally month after month after month. So we feel good about that. Michael Mayo: And then last follow-up, just in 5 years from now, when we look back, say, okay, AI, tech, where should we see the benefits? Is it just the stickiness of the relationship? Or is it efficiency or where should that show up? Brian Moynihan: So if you think about the just on the consumer side, Mike, because 2 things. One, you said the core deposit account. There's a core deposit account is a core investment account. It's a core corporate transactional account. It's a core borrowing home. So each of these core is what you're seeking, not just growth overall. So I just want to make sure it's broader. But if you say 5 years from now and think about it, I think you'll see the same elements, we should continue to see more and more digital or AI generated interface to the client. But I think AI really helps us internally just to make it straightforward. 99% round numbers of all the interactions we have with our consumers are digital already. So there's no person involved. So as you start to think about that, you go the inverse, the cost of that 1% is a pretty high number, and we're working on that with all this technology, and we're working on the efficiency even of the 99% in house delivered. The example of that is Erica versus Alerts. Alerts are basically instead of doing prompts and asking questions, we're using the same technology delivered to a constant flow of information. That saves the interface on the prompts and things and also allows it to be more interactive with the customers. So in the AI intelligence technology intelligence is not different. So it will be more of it. I think at the end of the day, if you think about from [ '07 ] until now the same number of people, we'll be plowing into the front end, where relationship managers matter, the high-touch piece, which is critically important delivery. You'll see us keep adding there, and you'll see us keep taking out of the activities that are not directly facing the customer. But even on the customer facing with 90,000 sales force moving to agent force and AI and we'll get more efficient on that, too. So I'm not going to give you exactly because you know that's [indiscernible] because it never quite works out that way, but the trends will be more technology, more intimacy with the customers more agentic versus prompt more built into the process rather than have it be delivered by teammates doing something, it's part of the process, more customers doing more with us and expense will be -- and the operating leverage will be there. Operator: We'll now move on to Erika Najarian with UBS. L. Erika Penala: Just 2 quick follow-up questions from me. First, on the net interest income outlook. As we think about the possibility of no rate cuts. How should we think about how BofA is going to handle deposit costs in that scenario? Could deposit costs be contained particularly given sort of the loan growth in the market's balance sheet if the Fed doesn't cut? Alastair Borthwick: I think -- Erika, I think so. I mean if the rates aren't moving, I don't see a great deal of impetus for us to be changing what we're paying in the interest-bearing side. And then it will just be a question of which of the 2 categories grows faster, interest-bearing and noninterest-bearing pointed out right now, we've got a little bit of growth in both. So that's helpful. We'll have to watch that over the course of the year. But even with 2 rate cuts, no longer in the period in the second half, doesn't make a great deal of difference because you're really talking about 1 cut for 6 months, 1 for 3 months in the old version. So we'll be a slight beneficiary of that, but the main thing going on is just organic growth of the company. L. Erika Penala: Got it. And just a very technical question on some of the capital reform proposals. And this sort of came to everyone's attention when one of your peers reported yesterday, I fully appreciate that the regulators are trying to address retrospective inflation with the coefficient changes. But companies like Bank of America in theory, based on your 2025 G-SIB score are set to go up by January 1, 2028. Now clearly, a lot of that growth was related to the economy and your risk density continues to go down. As you think about the comment period, is that something you would address because obviously, there's 90 days, and there's a lot of dialogue, I'm sure, going on between the industry. But I thought that was particularly notable in terms of that 2025 score potentially bringing your G-SIB up by January 2028, despite the positive revision on the surcharge. Alastair Borthwick: Yes. So there are 2 worlds right now, Erika, there's the current rule and there's proposed rules. We don't have the proposed rules finalized yet. I'd just say the main thing you're talking about, which is G-SIB numbers going higher over time, the new proposal addresses that because there's inflation indexing. So what might look like a raise in the future may not be a rise in the G-SIB. So that's why we believe in the course of this. That's one of the most important things done here. We expect to be a beneficiary of that because we're an organic growth company as well all the large G-SIBs, one would think. Brian Moynihan: Erika, one thing to think about is in the words of the old song, you can't always get what you want, but can get what you need. The end of the day, we needed a concept of indexing because it was just -- it was in the original rule that after '12 data -- 2012 data that it was supposed to be indexed. So we needed that in there. What we would have wanted was a longer-term perspective than we are getting on it, but at least in the concept and we baked in a rule and we can go to work on how that impact because it was just -- we and the industry are not going to get everything who we want these proposals because at the end of the day, there's -- it's hard there's some negotiation going on. But on the other hand, we're getting what we need. We just a concept of indexing because it's meant to be an original rule, it wasn't put in and then with gross growth in the economy from '19 and now, we all had an increase in capital, 15%, 20% with no major risk. So we got the concept in, let them finalize the rules. We're never going to get everything in the industry should get or desires to get actually we believe we should get. But at the end of the day, we got to get moving along here so we can get this implemented and then fine-tune the models around. L. Erika Penala: Got it. And Brian, a fantastic job on addressing the efficiency questions very clearly earlier in the call. Operator: We'll now move on to Ken Usdin with Autonomous Research. Kenneth Usdin: Just one follow-up with a great start on the 9% growth in NII, and you took up the range to 6% to 8% in I'm just wondering, Alastair, just as you look through the year, like why couldn't the first year growth rate stay there? And are there any either comp things or shifts in kind of the expectations around markets-related NII from NII to fees given the higher for longer? Or any other points that we should just be mindful of? Or is it just -- we'll see because it's early in the year, there's a lot that could still play out. Alastair Borthwick: Well, it's a little bit of that. It's early in the year, we'll see how it plays out, but it's also a little bit of recognition that last year, we had a bigger second half just because of the shape of the fixed rate asset rebasing that took place. And we just got a little bit less of fixed rate asset repricing taking place in the second half of this year. So it's really a year-over-year comp thing that we're looking at. Now, by the way, the organic growth continues to pick up. Can we do better? Of course, but that's why we give give you as much guidance as we can in each quarter based on what we actually see. Kenneth Usdin: That's fair. And then on Brian's point about the great start to operating leverage, 290, same kind of question, like you did great in holding the line on cost, and I know you're trying to not focus is on a cost side per se, but is the demonstration of that flexibility going to be the ultimate driver of the incremental to get you from one side of the 200 to potentially the higher side. I mean I just kind of wonder just can you keep this range reasonably tight on the expense growth trajectory? Alastair Borthwick: Yes. So we provided a guidance on operating leverage looking forward over a 3- to 5-year period and said we're aiming for 200 to 300 basis points. If we can do more, we will. Every quarter is going to look different because you're comparable versus last year will look different. The growth will look different. And so we just -- we recognize we have to have a range because it's not going to be the same every single quarter. That's one point. Second. The main thing that we have to do on the expense side is just to be really disciplined on headcount because that remains 60% to 70% of the cost base when you really think about it. So you're going to look at the headcount, that's going to give you a pretty good idea as to whether or not we're really focused on the core operating expense being disciplined there. And then you've got revenue-related expense, many of those are good expenses. We don't want to have to apologize for that. That's why we focus people on the operating leverage because when assets under management fees are going up 15%, with investment banking is going up 20%, when the sales and trading is going up 12%, those are good things and with them come good costs. So -- that's what we're managing on the operating leverage. We had a good quarter this quarter. We run to the next. We're figuring out how we can do 200 and higher this next quarter. Operator: We'll now move on to Chris McGratty with KBW. . Christopher McGratty: I'm interested on the wealth strategy relative to the M&A targets laid out in November. Any recruiting or retention commentary would be great. Brian Moynihan: So I think we -- so 2 things. We'll update those targets not every quarter just because they're longer-term targets, medium-term, long-term targets on net new growth. The -- on recruiting, I think the team is doing a very good job and we're getting in, I think, doubled the amount of advisers this year first quarter as we did last year, something like that. But importantly, the attrition of the advisers is down to a low level, and it's a net benefit of that. So we feel that Lindsay and Eric and Katy and the [indiscernible] are well on the way to driving those metrics to where they should go. And the business had nice operating profit, which it will do when markets year-over-year up. It's a nice pickup and the margin continues to improve year-over-year, up a couple of hundred basis points. So they've done a good job. Importantly, you can look on the -- you get growth pages, you'll see some pieces in there about account, checking accounts and rounding out the relationship and the loan growth in Wealth Management was very strong for the last year or so. So we feel very good about it. We'll update you on those when we do more of a general update for the company, and we feel good. Glenn Schorr: Great. And then the popular question this quarter has been durability of trading revenues. I'm interested in how you see the potential of the firm to grow trading revenues and the mix within trading over the next near to medium term? Alastair Borthwick: Well, we still feel good about it. I mean, this is another quarter where we allocated a little bit more in the way of resources to the team. They delivered with another 15% return on allocated capital. And at the end of the day, we've got a big global diversified set of businesses in global markets. Equities did very well this quarter. Commodities did well this quarter. Our international businesses came through this quarter. So this is what you have when you've got a nice portfolio of businesses, activity can move from one to another, still end up with 12%, sales and trading increases year-over-year. So we've obviously invested a lot we'll continue to invest in this business. The client activity remains robust. There's a lot going on in the world and people have to think about them, their financing and their risk management and repositioning. So we've clearly been beneficiary of our client activity as well, but we feel good about the business, and we'll keep investing. Operator: We'll move next to Gerard Cassidy with RBC Capital Markets. Gerard Cassidy: Alastair, you talked about the loan growth and how the utilization rates have come up a bit, also mentioned about the consumer growth in the quarter or maybe Brian, at about 4%. The question I have is, we're starting to hear from a few banks that the underwriting standards might be getting stretched. And I know you guys emphasized you're sticking to your discipline on underwriting standards. But are you guys seeing that in any areas, particularly in the global markets lending area. Are people pushing it and you guys are just walking away from stuff maybe more often today than maybe 12 months ago? Alastair Borthwick: Well, we've not seen any of that here, and we haven't detected that elsewhere at this stage. Gerard Cassidy: Very good. And then as a follow-up, Brian, you talked about the growth of the consumer. You talked about the debit card growth and credit growth. I think it was Slide 5. We often hear about this cash recovery the lower end, struggling with inflation, the higher end, better off because of the affluence. Are there any -- what are the risks that may prop up or crop up for the higher end 6 or 12 months from now? Everybody is always focused on that lower end concern. Are there any -- should there be some concerns at the higher end? Or what could they be? Brian Moynihan: I think at the end of the day, whether you're talking about credit quality or the ability to spend money, it's always going to come back to -- for the broad base of American population that's critical the economy, they're working. And so unemployment level staying in the 4.5 range and et cetera? And then is wage growth there. And I think wage growth has been solid among all the different parts of the earnings spectrum. And the question will be, will wage growth continue. And both of those things have up to the quarter, you're saying spending grow among all those parts economy just at a faster rate in the -- if we look at 1/3, 1/3, 1/3, 1/3 in the lower-income strata, middle income high. And you look at it, it's growing everywhere at a faster rate in the middle and high but the wage growth has been solid across all those populations. And so the spending ought to be there. So I would just keep watching the unemployment, new claims are up around 200,000 change, continuing claims 1.8, they're levels that they were on a bigger workforce than they were in prepandemic. And so until those move, I don't see anything that interrupts the actual spending capability of all the consumers. And I know often people say you're optimistic. I'm giving what we see today in the spending even in early April here. And that's the critical thing what they do, not what they say they're going to do, and that's going to be dictated more am I employed, I have a job, my way just growing, and I feel that my money is being well spent. And that's where inflation can make them shift money around but not necessarily stop it. Gerard Cassidy: Very good. And I assume you guys are watching the tax refunds, which are coming in better than expected, which obviously will bolster consumer spending as well. Appreciate Brian and Alastair. . Operator: We'll now move on to David Chiaverini with Jefferies. David Chiaverini: Follow-up on loan pipelines and borrower sentient on the commercial side. Are you observing any change in borrower behavior given the Middle East tensions were the line utilization drawdowns defensive or normal course of business type of drawdowns. Alastair Borthwick: These were not panic draws. This has generally been BAU working capital type of activity at this stage. Brian Moynihan: David, I think when you talk to commercial customers and you think about where they were last year with Liberation Day in the middle of that, you come a year forward and a lot of things have been figured out with trade tariff policy immigration policy. Tax reform was in and deregulation was coming, the major principles of the new -- of the Trump administration were flowing through some -- obviously, the Middle East and the trade tariff and all that stuff, it's got them thinking but they're still seeing solid demand. So I'll trying to figure out what happens next. And so the borrowings right now are because they see opportunities, and we'll see what happens with the resolution of the Middle East conflict and other things and what the terms are, what the duration of the inflation is, and that could impact them, but you're not seeing it now. David Chiaverini: Great to hear. And then shift over to extense repricing. That's been a nice tailwind for you guys. At what point does the repricing tailwind begin to moderate? And if you happen to have at your fingertips, the dollar volume of fixed assets that are expected to reprice in coming quarters? Alastair Borthwick: So when we got together at Investor Day, we laid out, number one, the magnitude. Number two, the time period. You can think about it, David, is 5 years. So it's not going to be 1 quarter. It's going to be every quarter for the course of the next 5 years, assuming rates stay where they are. So we laid out pretty good disclosure there. I would encourage you just to take a look at that. One see is we put it in 3 different buckets. One was the residential mortgage, the auto loans that come our balance sheet with clients every quarter and new ones that come on. We laid it out in terms of treasuries and mortgage-backed securities in our securities portfolio that will mature and we reprice every quarter, and then we laid it out in terms of the cash flow swaps and the hedging activities we do. So there's pretty good disclosure there. It's a 5-year thing. It's a little bit longer than that, but the majority is -- the vast majority is in the next 5 years. We laid out the numbers, it might be helpful. Okay. Operator: We'll move on now to Saul Martinez with HSBC. Saul Martinez: I want to ask about reserving. I was a little bit surprised that you saw the slight reserve release this quarter given the macro uncertainties. And -- so I guess how are you factoring in macro volatility, downside case scenarios into reserving? Because it does seem like you take a different approach to reserving some of your peers. I fully agree that your track record on credit is comparatively strong. Loss content has been lower than your peers. You see that in the stress test that you guys have highlighted a number of times. But if I look at your reserve ratios by segment, but also things like reserve coverage of charge-offs, reserve coverage of delinquent loans, it tends to be lower than your peers. So I guess, why not be a little bit more conservative in your reserving? And I'm curious if you agree or disagree with my assessment that maybe you're -- I don't want to call it more aggressive in reserving, but maybe more realistic in your reserving than some of your peers. But I'm curious just philosophically, your approach here on reserving? And why not be a little bit more conservative in terms of your reserving? Alastair Borthwick: Okay. So first, I don't think we have any difference in the way we think about reserving relative to anyone else. We all will be under the same CECL methodology. We all operate in the same way. Second, I'd say, in terms of whether we have lower reserves or allowance tends for most banks to be reflective of the quality of their lending portfolio, the risk they take and their client selection. So when we show you on slides 20, 21 and 22, how we have transformed the company over the course of the past 15 years, we have a very different risk profile of our lending than many of our peers. So when you look at, for example, on Page 20 of the earnings, you'll see we've got a lot less of consumer unsecured. So a lot less of credit card, a lot less of home equity lines. We have a lot more of wealth loans. And when you look at the Federal Reserve stress test loss rate, we've been the lowest 13 of the last 14 years, which would tell you we probably should have a lower reserve because we have a more conservative approach to our client selection and the type of risk that we take. So we don't think we're any different than other people. We just think we've got a higher quality client base and a higher quality loan portfolio. And the final thing to say is in the course of any given quarter, you might take, like, for example, this quarter, we took 5% out of the upside case. We've put it in the baseline. So we're pretty heavily skewed at this point towards a downside case plus baseline. And the only thing that happened to offset that was we had some release from the continued improvement in CRE office where we had built reserve pretty significantly. And as that portfolio has gotten smaller, as we've got less and less in the way of NPLs and [indiscernible] there, we've been able to take some of the reserve back out. So that's all that's going on in this particular quarter. Saul Martinez: Okay. No, that's helpful. Maybe just a follow-up then on NII, obviously, encouraging to see the guidance increase. NII ex markets up about 5% year-on-year, which is a good number, obviously, lower than 9%, but a good number. How should we think about what the 6% to 8% means for growth in NII ex markets? And should we be thinking that global markets NII kind of stabilizes at current levels given that it's benefited from lower rates and if we see the Fed on hold here, maybe it kind of sticks around these levels? And also just remind us what proportion of Global Markets NII is revenue earnings neutral? Because my understanding is that some part of it is not, but it does flow to the bottom line. But is it predominantly offset by higher Global Markets NII offset by lower global markets noninterest revenue. So just any color you can give there, that would be helpful. Alastair Borthwick: Yes. So the Global Markets business NII has benefited over the course of the past couple of years from, number one, rates coming lower. And number two, continued balance sheet growth. If rates don't go lower, that engine for global markets NII growth wouldn't be there. So you can almost think that go forward, more and more of the NII growth is going to come from global banking, consumer and global wealth and less of it is probably coming from global markets. And then in terms of the NII, there will be quarters where a little bit of the NII is offset in MSA. Last quarter happened to be one where I noted we got about $100 million or so of NII benefit that was offset in MSA. But I don't anticipate that being a big story for us going forward. We've talked about the fact that the NII that we're generating is going to drop to the bottom line, that continues to be our position. Saul Martinez: Okay. And that's true in markets as well. Alastair Borthwick: Yes. Generally speaking, it just depends on the client activity in markets because sometimes they can change from on balance sheet to off balance sheet at sometimes is the NII composition. But if it ever came up where it was a large impact, I would share that. Saul Martinez: Okay. Got it. That's really helpful. . Operator: There are no further questions at this time. I'm happy to return the call to Brian Moynihan for closing comments. . Brian Moynihan: So thank you for joining us. It was a good quarter at Bank of America, the first quarter 2026, strong NII growth, strong overall revenue growth, great operating leverage and good returns. We look forward to delivering for that in the future. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Evolution Mining Limited March 2026 quarter results. [Operator Instructions] I would now like to hand the conference over to Mr. Lawrie Conway, Managing Director and Chief Executive Officer. Please go ahead. Lawrie Conway: Thank you, Ashley, and good morning, everyone. I'm joined on the call today by Matt O'Neill, our Chief Operating Officer; Glenton Masterman, LVP Discovery; Fran Summerhayes, our CFO; and Peter Rocky O'Connor, our GM Investor. Today, we released our March Quarterly Report and an Exploration Update which will be the reference points for the call. A key milestone and highlight for the quarter was the transition to a net cash position on the back of another very good quarter. After generating $406 million in group cash flow at just under $2,500 per ounce, we are now in a net cash position of over $40 million. Our cash balance at the end of the quarter was $1.37 billion, and we have no debt repayments until FY '29. The rapid de-leveraging, where we have moved from over 30% gearing to net cash in just over two years, is a reflection of Evolution's high-margin portfolio consistently delivering to ensure the benefits of the high metal price environment are banked. To put this into perspective, we have removed around $1.7 billion of net at average achieved gold and copper prices that were $2,100 per ounce and $3,200 per tonne below current spot prices while still investing in high-grade projects and paying dividends to our shareholders. We are on track to generate approximately $3.6 billion of operating mine cash flow in FY '26, where the June quarter is planned to further improve our net cash position. The charts on page one of the quarterly report are a great graphical representation of our cash-generating capability and the momentum being built, while at the same time investing in high-return projects that either grow production or extend mine life. This outcome is a credit to everyone involved at Evolution who continue to safely deliver the plan with the right level of cost and capital discipline. In the March quarter, we produced 170,000 ounces of gold and 11,000 tonnes of copper at an all-in sustaining cost of $2,220 per ounce for continuing operations. The high all-in sustaining cost for the quarter was driven by the lower production and especially the lower copper by-product credits at Ernest Henry. We delivered the quarter safely with our TRIF remaining low at 5.9. The March quarter was expected to be a lower production quarter due to the impact of the weather event at Ernest Henry in December and the planned semi-annual maintenance work at Cowal. Ernest Henry is now back to normal operations. The outcomes of the weather impact at Ernest Henry will mean that we are expected to be around the low end of the group copper guidance. We remain on track to deliver our FY '26 group production at the all-in sustaining cost guidance of $1,640 to $1,760 per ounce. This all-in sustaining cost guidance is 6% lower or better than our original guidance. The group cash flow was on the back of $769 million and $486 million of operating and net mine cash flows respectively. It should be noted that these were achieved despite Ernest Henry being cash flow negative for the quarter. Mine cash flows are on track to lift significantly in the June quarter. All our projects remain on plan and budget. The recently approved E22 coarse particle flotation and expansion study projects have progressed well in the first six weeks, while the preparation to commence development of the Bert deposit at Ernest Henry is underway. I want to make a couple of comments about the current global fuel supply situation. To date, we've had no material operational impacts, not just from fuel, but our overall consumables. Matt and Fran are actively managing our supply chain logistics and have appropriate response action plans in place. The greater focus of the team is ensuring continuity of supply of all goods and services. Specifically on fuel, supplies are contracted with major oil distribution companies who continue to fulfill their obligations. Fuel represents 2% of our total costs, and while there is a current elevated pricing, it is not having a material impact on our cost base. On the exploration results released today, Glenton and I are very excited at what they offer in terms of adding low-cost ounces to the portfolio. They show that Mungari and Cowal, there is a lot more gold to be discovered at what are already long-life operations. Some key highlights include the very encouraging results in the underground areas of Genesis and Arctic at Mungari, which supports our aim of extending the high-grade underground mine life at current production rates. While at Cowal, significant high-grade results were received at the Oban underground target. Meanwhile, significant new results in multiple locations across the planned E41 open pit will provide useful insights into the full scale of the deposit ahead of its development. Regional exploration around Ernest Henry will be accelerated over the next six months following our consolidation of large tenement holdings surrounding the mine. We've also started work on the two most recent projects in British Columbia. With that, I'll now hand over to Matt to take us through the operational performance. Matthew O'Neill: Thanks, Lawrie. As Lawrie has already mentioned, the operational performance for the March quarter was in line with our plan on the back of the renovated Ernest Henry in and the normal plant maintenance schedules. Our safety performance remains in a very healthy position with the continued strong performance in this area, thanks to the tireless work occurring across all parts of our business. I'd like to take this opportunity to say a big thank you to all our employees who contribute to this every day. On the production front, we are on track to meet full year guidance for gold and to land at the lower end of guidance for copper. The most significant operational milestone through the March quarter was the resumption of normal operation. For me, the highlight of the work conducted by this team was the fact that it was completed without any significant injuries or incidents. Throughout the March quarter, the Cloncurry region continued to experience higher than average rainfall, which did slow our recovery activities, resulting in additional impacts to the full-year production for Ernest Henry, which are now estimated to be between 9,000 ounces to 11,000 ounces of gold and 6,000 tonnes to 8,000 tonnes of copper. At Cowal, we also saw wet weather have an impact on the completion of mining stage H in the E42 pit. Pleasingly, the processing plant operated uninterrupted, with additional feed sourced from surface stockpiles throughout these weather events. We also completed the regular plant maintenance program on schedule at Cowal. As we move into the June quarter, we will be mining the final ore from stage H, and as previously advised, we will then move to the stage I cutback and be processing stockpile ore in FY '27. This will see Cowal producing around 10% lower ounces next year. However, importantly, we'll not see a material change in cash flows from the processing of the already mined ore. Northparkes, Red Lake and Mount Rawdon all performed in line with expectations, with the quarter's highlights at these operations being the approval by the Board of the growth projects at Northparkes, the cash flow generated at both Red Lake, which was a record $104 million for the quarter and nearly $225 million year-to-date, and at Mount Rawdon, which was $13 million in the quarter and over $30 million year-to-date from processing very low stock material. Mount Rawdon is planned to complete processing at the end of this financial year. Mungari delivered a raft of new records over the quarter, with the fully commissioned mill operating at nameplate capacity throughout the quarter. Most notable of these records are the quarterly net mine cash flow of $175 million and gold production of 51,000 ounces. Mungari has generated over $320 million of net cash flow so far this year, confirming the decision to invest in the planned expansion and the establishment of the Castle Hill mining hub. Looking forward, we are well set for a strong final quarter with the return of Ernest Henry to normal operations, the continued strong performance at Mungari, and Cowal having completed its annual maintenance program and mining back in stage H. I'll now hand over to Glenn to talk through the exploration announcements made. Glenton Masterman: Thank you, Matt, and good morning, everyone. I'd like to turn your attention to our exploration announcement, which was also released this morning, to give a brief update on where we've seen some momentum over the last six months. Starting with Mungari, I want to briefly revisit some of the commentary I made the last time we updated our drilling results. What the team has achieved recently has fundamentally changed the view on historical geological thinking around Kundana, which had largely written off the potential for meaningful new discoveries, particularly beyond the well-known high-grade tram track positions. By challenging that old geological dogma, we've intersected high-grade veins in new structural positions outside where the traditional models were looking. That's significant because it effectively broken the old paradigm and opened up entirely new search spaces around Kundana. In practical terms, that gives us a much bigger opportunity to continue growing high-grade underground resources and reserves. The best example of this occurs at Genesis, where drilling has targeted extensions of a known system we discovered, which is shown in figure one of the update. Infill drilling across a 300-meter gap northwards towards the Barkers mine that previously had no drilling whatsoever, recently returned narrow intervals, but at very high grades, including numerous short intervals grading about 10 ounces to the tonne, yielding intercepts better than 90-gram meters and confirming mineralization occurs continuously across this zone. The results I am describing all occur outside the mineral resource footprint and are importantly located near existing underground infrastructure, so it has real implications for extending mine life. At the nearby Arctic deposit, surface drilling beneath the open pit has also yielded high-grade results. These build on previously reported work and continue to demonstrate the potential to expand underground resources, particularly at depth, where historical drilling has been limited. The objective of ongoing follow-up drilling is to delineate the scale, continuity, and geometry of these mineralized systems with the clear ambition of converting into a long-term underground reserve, securing high-grade production over a longer mine life, capable of maintaining at or above the currently achieved annualized rate of 200,000 ounces per annum. Turning now to Cowal, where step-out drilling highlighted in Figure 2 of the release has been equally encouraging. We recently received results from the surface drilling at E41, which as a reminder, is located a few hundred meters south of E42 and will be mined as part of the Open Pit Continuation project. Results released this morning returned broad, consistent intercepts beyond the outline of the planned E41 pit. What's notable is that drilling perpendicular to the mineralized veins rather than parallel as much of the historic drilling was, is opening up areas that were previously considered well-tested. This highlights clear potential to grow the E41 footprint, particularly to the north towards E42 and the underground mine. I should also add that the E41 pit shape referenced in Figure 2 was optimized at a very conservative gold price of $1,760 per ounce. Underground at Oban, results continue to build confidence. Drilling is targeting major mine-scale structures and a favorable geological contact that elsewhere at Cowal is known to host high-grade mineralization. Importantly, the recognition of this key contact, illustrated in Figure three on page four, has unlocked an entirely new search space to the north and south between the E41 pit and the Glenfiddich Fault, which has hardly ever been drilled. We received multiple high-grade intercepts that support the potential for Oban to evolve into a new independent mining front over time, and a geological position where I'm confident further work will lead to the delineation of future resource iteration in the mine plan in the years ahead. This will be a major focus going forward. Looking beyond the operations, we're also continuing to build our longer-term pipeline. In North Queensland, around Ernest Henry, we've expanded our landholding and identified several drill-ready copper-gold projects with an aggressive drilling program planned over the June and September quarters. In Canada, permitting and community engagement are progressing at Two Times Fred and Clisbako in British Columbia with drilling planned across the summer field season. Meanwhile, drilling is underway at the October Gold Project joint venture in Ontario, with assay results expected later in the June quarter. Overall, these results reflect our discovery strategy in action, continuing to unlock value in the short to medium term at our operating assets while building a strong pipeline of drill ready and more advanced exploration plays with the potential to deliver new greenfields production opportunities in the medium to long term. With that, I'll turn the call back to Ashley to open the line for questions. Operator: [Operator Instructions] Your first question today comes from Hugo Nicolaci with Goldman Sachs. Hugo Nicolaci: First one just on Mungari, you got above nameplate through the quarter. I just wanted to get a sense of how much of that is running softer, or are you already finding opportunities to start to push that nameplate a little bit? Lawrie Conway: Thanks, Hugo. I hand that to Matt asked in the same question while going at the higher rates, but it is all. Matthew O'Neill: No, it is. It's an obvious one when you look at those numbers. It is some of the transitional or easy-to-have ore from Castle Hill that's causing the increase there. That said, it's obviously something that we're going to target. At this stage, it's running at nameplate, but we put what we designed through it. Hugo Nicolaci: That's helpful. Second one, maybe a two-parter on exploration. I mean, obviously some exciting drilling results that you put out today. I guess just firstly, when should we start to see those flow into resource updates? Is that something for the update this year? Secondly, at Cowal, I think the resource and asset life upside tends to be firming up at both the open pit and underground there. I think I asked you this last time, but at what point do we start to consider mill expansion studies at Cowal? Lawrie Conway: Glen will talk to the first two parts. The last bit about the plant expansion is, I think as we get more information, we'll look at it. It's going to be predicated on once we get into E46 and E41, as to what we do with the plant. We're probably at least 12, 18 months off worrying about that one. Glenton Masterman: Yes, the results that we put out this morning for Mungari and for Cowal won't be captured in the next MRR update. They've just come in a little too late for us to write those. We have already delivered a resource and reserve at Genesis, so that is a growing kind of ongoing concern. It would be the best way to describe it, and what we're excited about is that we can see the opportunity unfolding along that trend between the Pope John Pit. So it's a hanging wall structure that sits outboard of it, and it looks like it's going to link into Barkers. We believe that we're going to fill in that gap between Genesis and Barkers. What we're looking to do, particularly in the next 12 months, is drill that really aggressively so that we can capture it in the 2026 MRR statement. That's the plan there. I would say turning to Cowal with the particularly what we're doing at Oban, there's a lot of space there and on Figure 3. One of the things that we really like at Oban is the contact that I described earlier appears to be very similar, if not a repeat, we haven't confirmed that, of the contact which controls all of the underground mineralization in the underground mine at the moment. We've got another one of these. What we're showing in that image is all of the drilling, and there's hardly anything along it. There's a long way to go there to explore, but we have the target at open, and we'll continue basically to expand the story as we know it along strike, north and south, and look to get more drilling into that space over the coming 12 to 18 months. Hugo Nicolaci: Fantastic. Just the last one. I know you're 100,000 to 200,000 away at Northparkes and Cowal. Any impacts to safety or mine disruption from the earthquake overnight? Lawrie Conway: No, none from the Northparkes or Cowal side. Operator: Your next question comes from Kate McCutcheon, Bank of America. Kate McCutcheon: Thank you for the '27 Cowal, remind you that. So for this year, still on track for the guidance. Help me think about the four key step up here to get you to that circa 190-ounce level that you did a couple of quarters back. I assume it's Cowal plus stage H grade with Ernest Henry normalizing. Can you just talk through that? Lawrie Conway: Yes. I'll get Matt to add to it. I think he's got too much to add, but the two biggest drivers are assets. Matthew O'Neill: Yes, I think the two big ones that people are well aware of, finishing the scheduled maintenance at Cowal, Ernest Henry coming back online are the two primary. Outside of that, the Mungari operation continuing to run at a pretty good rate, Northparkes doing what it's done. You will see a little dip with Northparkes with the old stockpiles from E31 coming towards the end. Outside of that, business as usual with the uplift from the two ones that you identified. Kate McCutcheon: Okay, got it. Cowal, the underground opportunity there, I like it, returning hits of 1 to 2 grams under E41 and the underground system is extending. Obviously, the prize is getting out more high-grade underground tonnes. Glenn spoke to this a little before, but I guess what do you need to get confidence to say another exploration decline there? How do we think about timing or stage gates for a larger underground operation? Glenton Masterman: Kate, I was hoping someone would ask that. Look, I think if we go back to the discovery in 2018 of the underground mine, particularly the Dalwhinnie Lode, which really made the difference there, the first drill hole results into commencing production in the underground. That is the timeframe that we would be thinking. A minimum of 3 years. This is going to require a lot of drilling. We actually also have to get new positions in to improve the angle of attack on the ore body, I should say. That would be something that we need to be doing and I'll be leaning on Matt very heavily to help drive that for us so that we can get the rigs in position to do that. I'd see that being a 3-year opportunity. I think, reflecting on the results at E41, the historical drilling has been largely oriented in an east-west direction, and that, as we have learned in the Cowal underground, has been a suboptimal drilling orientation. We've pivoted the rigs around now to hit those veins at a much better angle. What we have seen historically in the underground is when we've done that, we do see in some areas improvement in grades. We're hoping that as we start to fill that in at a much better angle, we'll see similar behavior at E41. Obviously, as I mentioned, the pit shell that we're showing there is a fairly conservative shell. We do expect as we get resource space drilling into E41, that we can improve the way that pit optimizes. Kate McCutcheon: Okay, got it. If I can sneak one last quick one in, the operating cash flow projected this year, you've noted no intent before to sit on a cash stockpile or do deals at record prices. Is it fair to assume the Board revisits the capital management policy at the FY, or how do we think about capital returns? Lawrie Conway: Yes, Kate. We previously said, as we get to the end of the financial year, once we've got our life of mine plans in, Fran and the team will put together an updated capital management plan, looking at what we do with dividend policies and capital returns. That will come out with the full-year financial results. Operator: Next question comes from Levi Spry with UBS. Levi Spry: Maybe another question for Fran then. Just on the costs, markets obviously focused on it across all sectors. Diesel's only a very small portion of your cost base, and you're probably relatively a much better set up than some of your peers. What about the rest of the pie chart? What are you seeing there? How do we think about what happens into FY '27? Lawrie Conway: Yes. Levi, just in regards to the costs, when you look at our cost structure, nearly 50% of our costs are labor. I would have said six months ago as inflation was sort of trending in that sort of 3.5%-3.8% range and trending down. That's certainly changed now. We would expect you're probably going to be seeing somewhere between 4% and 5% in terms of labor cost movement going into FY '27. When you then look at our other costs, power, fairly well set up there with Cowal and Northparkes pricing fixed. Ernest Henry and Mungari are through FY '27 as well in terms of pricing. Some slight escalation there. When you look at our consumables, it is going to be dependent upon how long the current situation lasts in terms of temporary pricing that we'd be requested to cover for additional logistics costs and the like. Given that that's sort of 50% of our cost base, you're probably going to see a few % increase in that bucket as well. Overall, I think, it's still being well managed, but it does depend on what happens over the next 3 to 6 months, Clyde. Operator: Your next question comes from Daniel Morgan with Barrenjoey. Daniel Morgan: My question is on Mungari, just on costs. For this question, can we just put diesel to one side for a moment about what we're experiencing in a live session? Just on cost, was this a representative quarter for Mungari, i.e., $2,150 AISC? In previous quarters on the cost side, we had obviously some capitalization of different spend, and obviously the project wasn't fully ramped up. Just wondering if you feel this is a representative quarter. Lawrie Conway: Yes, Dan, it's getting close. I mean, we said around a 16% reduction in all-in sustaining costs once they're running and depending then on the mix of the ore. We would see it's probably somewhere in the $2,250 to $2,350 range is what you would see, $2,400 at sort of the upper end, which would be in line with what we had projected. It was a good quarter, really predicated, I'd say, on the campaign of the EKJV. Higher grade material, therefore, helping us in terms of both mining and processing costs there. What you'd see in Q4 is slightly higher, but then you're getting close to the reflection of what Mungari will operate at. Daniel Morgan: Just on Cowal, it's quite clear that you're moving from stage H and that high-grade ore next quarter towards stage I, where you're going to be pushing back. Just wondering how long is it before you start to get material access to stage I ore? Is this FY '27? Obviously a lot of hard work through there, but do we start to see better grades in '28? Lawrie Conway: Yes, it'll be first half of FY '28 is when we'll start to get back into stage I ore, and also be getting into good material coming out of E46 as well. There'll be nothing really of substance in 2027, and a little bit coming through in the first half and the second half of 2028 is when you'll see it start to ramp up in stage I. It's about 18 months. Daniel Morgan: And last question just on Red Lake. It has been a period of better stability, delivery. I think one of the comments you say set up for a good end to the year. Can we just expand on the latest live view of ops through to the end of this year and anything beyond? Matthew O'Neill: Yes. It's Matthew, Dan. Essentially the final quarter, we're going into a couple of higher grade areas, driving an expected little bit of an uplift in grade. The development, if you have a look through that's been really quite consistent. Same thing, you get a little bit of a drop with some ore in terms of throughput in the quarter. We had a few interruptions with power and with the winter side of things. Outside of that's really where it's headed. Pretty consistent, pretty well set up for both grade and volume for the next quarter. Daniel Morgan: And is that sustainable or are the benefits sustainable? Lawrie Conway: So Dan, I mean, the position on Red Lake still hasn't changed. We're focused on getting 30,000 to 40,000 ounces out quarter-in, quarter-out, be positive cash, and what Matt's been working well with John and the team is making sure they've got contingency in the system, given you'd know the difficulties you have at Red Lake with those, make sure that when some things don't work out, they've got other areas to get to..... Daniel Morgan: Okay. Sorry. You just cut off. Operator: Our next question comes from Jon Sharp with JPMorgan. Jonathon Sharp: First question just on Ernest Henry. You've said you've returned to normal operations. Can you just explain what exactly back to normal is, and is there any improvements there to go in this quarter? Probably more importantly, has anything changed with dewatering or water management to prevent this happening again or even just decreasing the consequences? Just trying to understand if it remains an operational constraint in the future. Glenton Masterman: Yes. I'll address the first one. Normal operations basically back to running out of the cave as we were prior to the event. That's essentially what we've done, so running our truck loops and the crushers and everything back operating there. There's some minor work still to go. We're still dewatering the bottom section of the mine. It's not an operational area, it's where we're doing our development. There is still some dewatering activities occurring through there, but they don't impact the day-to-day operations at the moment. In terms of going forward, we've done the investigations and we're working through that process as we talk now. There will be some learnings from it, but I think it's important to remember that event was sort of three times what we'd seen previously in 2023. Whilst it's easy to sit here and say it's a one-off event, it's something that we need to learn from and the key for us will be preventing the water from getting there in the first place and then being able to work with it once it does. We are learning from it, and we will take steps to make sure we minimize the chance that it happens again. Jonathon Sharp: Yes. Okay. That's clear. And just second question, Lawrie, you've reiterated this morning that you're tracking below the original all-in sustaining cost guidance. With three quarters now complete, Ernest Henry back to normal, do you have enough visibility to indicate whether this year's all-in sustaining cost is likely to land below the midpoint of the updated range? Lawrie Conway: I won't put Matt into a difficult spot or Fran by saying where. Our view is we're going to get in that range. There's a number of things that will determine it. You've got the gold price, copper tonnes, copper price. One thing I will say, and it's mentioned on the call, the cost and capital discipline in the business, we're running very well in terms of our sustaining capital and our operating costs against budget. We'll be in the range. That's the political answer that you needed to give Matt some room. Operator: Next question comes from Matthew Frydman with MST Financial. Matthew Frydman: Sure. Can I firstly extend on Levi's question on diesel? Obviously, pretty modest in isolation on the pie chart at 2%. Just so I'm clear, how does that play through in terms of the various kind of rises and falls across some of your mining contracts and other contracts you might have in place across the business that are sort of sensitive to diesel? Are there any other exposures outside of that sort of 2% in isolation that we should be thinking of? In particular, I suppose your sort of CapEx plan, the major projects you've got in your pipeline, presumably a lot of that is waste movement or underground development, so should we be thinking about, I guess, diesel or explosives or sort of other cost sensitivities there also? Is it fair to kind of assume that sort of low single-digit number is a representative sensitivity in those areas of CapEx also? Lawrie Conway: Yes, Matt. If you look at it, the rise and fall for any of the contracts that require use of diesel, be that haulage or mining contractors, you will see that diesel cost flow through. As we've said, though, it's still captured in terms of the cost of our business. It's not the major part of it. Labor is still half, and then you've got power at around 9%, 10% and the like. We're not seeing a material impact, but those rise and falls do come through. In terms of then the capital, Yes, you look at the biggest mine development we've got going over the next couple of years is at Cowal with E46 stage I and the like. In terms of the mining cost, the material movement isn't going to be significantly higher or nothing that's of consequence for us in terms of our cost there. We just have to monitor it over the next few months to see where it all lands, Matt. Matthew Frydman: Understand. And maybe secondly, just quickly, it's not a particularly material one, but obviously noting that in Ernest Henry during the quarter, you kind of highlighted non-operating costs of $26 million related to recovery from the December quarter. Presumably with the ongoing impacts in the March quarter in terms of whether there'll be some ongoing, I guess, non-operational recovery costs in future quarters, can you give us a sort of indication of what we should expect there, whether that's going to be a bigger quantum in the June quarter or onwards? Yes, I expect there's some sort of tail costs there. Lawrie Conway: Yes, Matt. It looks similar to what we had in March '23. You'll start out as a large amount of costs of recovery and getting equipment out and getting all the infrastructure back to normal, and then it tails off. I would say through the June quarter you'll see some more. As Matt said, we've still got water at the bottom of the mine that we need to get out and the like. We've still got some equipment. It will trend out. I don't think you're going to see multiple quarters at $25 million, $26 million, but I think most of it is being captured in this first quarter. Operator: Your next question comes from Adam Baker with Macquarie. Adam Baker: Congrats on achieving your net cash position. Appreciate a new capital management plan will be provided with the financial results. I'm just keen to hear your initial thinking surrounding capital management moving forward. Do you think the current dividend policy fits the purpose or could we see a change to this current dividend policy or could we potentially see an implementation of a buyback like some of your peers have done? Lawrie Conway: Yes, Adam, thanks for the acknowledgement of net cash. It's actually really pleasing to see the business get to that point with what we've been able to do over the last couple of years. It does give us a good problem. I think it's fair to say over the last two quarters, Fran and I have received the most amount of feedback from shareholders as to what to do with the cash versus increased dividends, reinvestments, specials, buybacks. We'll take all of that into consideration into the June year-end and discuss it with the Board. As I said, it's a good problem to have. It's come earlier than we probably would have expected. I think the interim dividend that we paid, which was a material lift based on the cash that we've generated, and we paid forward some of the second-half cash. I think that's a good reflection of what shareholders should expect going forward. Adam Baker: That's a positive signal. Thank you. Just a clarifying remark with Cowal. You mentioned 10% lower ounces for FY '27. Just wondering, is that 10% lower versus the midpoint of current guidance or is that 10% lower versus the lower point of guidance? Just trying to get an understanding here. It could be anywhere between 275,000 and 286,000 ounces. Lawrie Conway: I'll try and help you out here, Adam. I'd say if you work out your estimate for the June quarter and take 10% off the full year, that's going to give you a pretty good estimate of how it would be for next year. Matt's explained we've finished the shutdown. You'll see an uplift in production in the fourth quarter. Work that one through and then that'll give you the number for next year. Matt and Joe won't like it. Operator: Your next question comes from Baden Moore with CLSA. Baden Moore: Thanks for your comments on your fuel supply situation. I was just wondering if you could talk a little bit more to the duration of your contract position, what sort of time frames that you have in place, and then maybe whether you've had any conversations with government about how all your suppliers on how you might be prioritized for fuel in the event there is any level of rationing in the country. I guess the third layer might be just how do you think about just resilience and planning around if there is any disruption to supply. How do you plan around that? What are the safeguards for you? Lawrie Conway: Yes, I'll answer the second question first in terms of government. Our position has always been that we're responsible for our operations and making sure that we've got continuity of supply. And that's what Matt and Fran and the site teams are working through. We don't put our reliance on in terms of that government support. In terms of if they make a decision on rationing, we would address what the impact is on our operations at that point in time. I think, the one thing I'd say is our open pits are the largest diesel consumers, and at both Mungari and Cowal, we do have stockpiled material that we'd be able to put through the plant. It would mean you would slow some of your mine development down to preserve that use of diesel. When we then look at the other consumables and everything like that is the work that Matt and Fran have got in place around what are our response actions that we need to take as we see any issues with consumables. The good news is that through March, we had no interruptions on anything in terms of supply of consumables into the business, and the outlook into the June quarter is very similar. In the first part, the contracts are multi-year contracts. We've got very good relationships with the oil companies that are the distributors for us. We would see them, as I said on the call earlier, they're fulfilling their obligations. We're not trying to do anything outside of the contract, and that's maintaining the really good relationship to guarantee our supply. Baden Moore: And just a quick follow-up. Can you talk to how many months inventory you'd have at hand? With the stockpiles you mentioned, what's the duration that, that would run for before you'd have any sort of impact to your cash flow? Lawrie Conway: Yes. Look, in terms of volumes on-site, as we've said, we've got adequate volumes on-site and continual delivery to our orders. That's not seen as an issue. Much relevance to say what the percentages are because they'll change today and they'll be different again next week as we either consume or get deliveries. We've got adequate coverage. If you look at it, the biggest one is at Cowal. We've got over 47 million tons of stockpiled ore. We run at 8.8 million tons per annum. I think it gives you enough understanding of the impact on our largest operating asset should we not be able to have fuel on-site. Operator: Your next question comes from Belinda Humphries with iQ Industry Queensland. Belinda Humphries: I just wanted to talk about the exploration efforts near Ernest Henry. Are you able to go into a bit more detail about what's going to happen in the June and September quarters of meters drilled, budget, that sort of thing? Lawrie Conway: I'll hand that over to Glenn. I don't think he's going to talk through the meters. I think he'll talk more to the programs are more important for us. Glenton Masterman: Yes. So look, the real objective of the program, on not just the recent tenements, but the sort of overall package that we've been sort of building up over the last several years, is to identify new production opportunities that can support filling the mill at Ernest Henry. We have latent capacity there, and so we're not looking for huge deposits, but if we find one, we absolutely take it. We're looking for probably more modest-style deposits that can help achieve that goal, essentially. The drilling programs, they'll commence in the next month or two. We've been basically waiting. There's been a lot of weather up there. We need to wait until everything is completely dry. Very difficult to get any access, particularly equipment, until it is dry. As soon as it is, we'll be drilling. We gave some examples of the types of targets that we're looking at this morning in our update. That gives you a bit of a sense, 10 km from Ernest Henry, previous drilling, identifying anomalies. The consolidation of the tenements up there is the really exciting thing that's happening because bringing those together means that we can explore the full opportunity rather than piecemeal it on tenement to tenement. That's actually really helped how we're going to prioritize the drilling program over the dry season. I just advise to stay tuned. We would look to be talking more about what we're getting at the end of the December quarter by the time we have some results from that drilling program. Operator: [Operator Instructions] Thank you. There are no further questions at this time. I'll now hand back to Mr. Conway for closing remarks. Lawrie Conway: Thanks, Ashley. It's pleasing to have delivered another very good quarter, and we're on track to deliver our group guidance and taking full advantage of the current high metal prices. Having moved to net cash and no debt repayments till FY '29, we're certainly building the flexibility and Upcoming, we'll release our 2025 MROR report in the next month. And then we also have an investor briefing and visits to Cowal and Northparkes. Thank you for your time on the call today. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Samuel Skott: A warm welcome to the presentation of our second quarter results. My name is Samuel Skott. I'm the group CEO here at Dustin. And with me today, I have our CFO, Julia Lagerqvist. And if we get into the Q2 report, I'm glad to report yet another quarter with organic growth, strong cash flow and reduced leverage, while we continue to streamline and improve the efficiency of our operations. Net sales development was positive in the quarter with organic growth of 4.4%. Growth was driven by strong performance in the public sector and should partly be seen in the light of a strong comparable quarter. The gross margin decreased to 13.2% compared with 13.9% last year, but indicated a sequential improvement compared to the first quarter's margin of 13.1%. The lower margin is mainly explained by mix effects arising from strong public sector growth and continued price pressure in the Netherlands, also a weak performance within nonstandard services that had a negative impact. Adjusted EBITDA was relatively stable at SEK 103 million compared to SEK 110 million a year earlier, where implemented efficiency measures nearly compensated for a lower gross profit. Cash flow from operating activities increased to SEK 258 million compared to SEK 180 million last year, and this is primarily driven by improved net working capital. Leverage measured as net debt to EBITDA, dropped to 2.7x compared to 5.7x last year and is now within our target range of 2 to 3x. And if we then turn into some operational highlights for the quarter, we have taken important steps to further sharpen our business. And the discontinuation of the consumer offering is now completed in all markets, which means that we are now fully focused on our business customers. We have also initiated a new sales organization dividing relation sales between the Nordics and Benelux. By appointing a responsible for relation sales in Benelux, we get more attention and come closer to the customers in the Netherlands, the country where we've had the biggest challenge during the past years. This new organization will also create a stronger local focus in both our regions with better ability to capture local opportunities. To support our continued transformation within services and in the company in general, we have appointed a CTO with a clear mandate to drive both the transformation and efficiency improvements. We have also been reawarded EcoVadis Platinum rating, which further strengthens our position with our customers that have high demands on sustainability. Following weak performance and to accelerate our transformation, we have executed cost-saving initiatives within nonstandard services to better align the cost base with lower volumes, with savings materializing from the third quarter. And with this, I hand over to our CFO, Julia Lagerqvist, to give you some more details on our financials. Julia Lagerqvist: Moving then to Page 4, we look at our top line development. And as Samuel just presented, we saw 4% organic growth in the quarter, and I will now break this down somewhat. If you remember, we talked last time about how we, in the last year, shifted sales from Q1 to Q2 is related to the implementation of the new ERP system in Benelux will lead to delayed invoicing. This effect corresponds to around 6 percentage points in growth headwind in Q2. As we have said, we have fully exited our B2C business this quarter, and that drove roughly 2% decline in total sales. and that explains most of the negative impact coming from the decline in the SMB segment. On the opposite, we saw strong underlying growth in LCP, mainly related to the public sector and driven by two factors: One, the continued upgrade in the wake of the Windows 11 shift; and two, we saw some customer orders that were brought forward to mitigate expected price increases or more limited availability related to the global components outage. All in all, this explains the 4% organic growth in the quarter. We now move to Page 5 to look more closely at the LCP segment. And the sales in LCP was SEK 4.1 billion in the quarter or 5% higher than last year. The organic growth was 10%. So we continue to see a large negative ForEx impact from the strengthened SEC in the quarter. This growth was then on top of a strong Q last year, as just explained. And the growth was mainly driven then by the demand in public sector and related mainly to continued PC upgrades and customer orders brought forward. From a geographic perspective, we saw strong growth in Sweden, Norway and Belgium. We also saw positive development in our life cycle services, where a strong offering have contributed to a new contract as Sykehuspartner in Norway and the Swedish municipality region in Kalmar. I said before, we can see large volatility in sales between quarters in LCP. The gross margin decreased versus previous year but did improve a little bit versus previous quarter. The growing public business contributed to a negative customer mix effect with a large share of public customers that normally has lower average margins. In addition, the continued price pressure in Netherlands was a key driver for lower margins. Increase in take-back had a positive impact on both margin and EBITDA, and we also saw some positive development in our private label business versus last year. We also saw continued improvement in our cost structure, mainly thanks to the restructuring programs. This had a positive effect on the bottom line. And overall, this led to a segment result of SEK 105 million versus SEK 99 million last year and also improvement versus Q1 results. The segment margin ended at 2.5%, in line with last year. Then we move to the review of the SMB segment on Page 6. where our sales landed at SEK 1.3 billion or 14% below last year. Also here, we saw a negative ForEx effect. And excluding this, the decline was 11%. We see some signs of stabilization, but customers remain cautious due to the ongoing economic uncertainty. And we, in the quarter, exited the B2C business in all our markets, which explains more than half of the decline for the SMB segment. Excluding this effect, the organic sales decline was just above 4%. As explained earlier, this is a strategic move to a better focus on our core business, but we always expected some sales headwind coming from this. Looking at the product mix, we saw that the share of software and services sales increased to 13.3% versus 11.6% last year, which was more than effectively declining overall sales than an uptick in software and services. We saw continued decline in our nonstandard services as in previous quarters. The gross margin was stable versus previous year. We saw positive improvement in our base hardware business in both Nordic and Benelux, thanks to continued price discipline. But this was offset by lower margins on services driven by the lower volumes on nonstandard services with fixed costs. We have implemented cost-saving actions to mitigate these lower margins that will have effect in Q3. The improved cost base and previous cost-saving programs partly protected the segment result, but could not offset the lower volumes and the lower margins in nonstandard services. And the segment results landed at SEK 31 million versus SEK 46 million last year. This corresponds to a segment margin of 2.3% versus last year at 3%. Moving then to Page 7, you have an overview of the FTE development over time. we have constantly worked with our operational efficiency and optimizing of our stores a bit by bit. In the last year, in Q2, we did a major reorganization with a focus to improve our go-to-market capabilities, but also to cut costs to match our current market situation, and we removed over 200 of those. Since then, we have continued to reduce our workforce. And as you can see in Q2, we have reduced our total workforce with 226 FTEs or 10% versus the last quarter -- last year. If we prolong the period and look over 2 years, we have taken up more than 300 FTEs or a total of 14% of the total FTEs. Looking ahead, we have, as we have said, done additional costs in our nonstandard services to offset the declining sales, which was executed at the end of Q2. And we have also initiated further reductions with the aim of saving SEK 80 million yearly, with full effect from Q4. So our cost optimization journey continues in line with our strategic focus. On Page 8, we look at our leverage development. Leverage landed at 2.7x compared to 5.7x last year and 3.1 in Q1. So we've seen a continuous improvement, driven both by improved results and improved cash purchase as well as a positive ForEx effect. In addition, we also apply an updated definition of net debt, as described in the previous report, which drives 0.2x a positive effect versus last year. Overall, we are, of course, happy to see this improvement in leverage after a period of higher levels and that we are now in line with our target range to be between 2 to 3x. Moving then to cash flow and CapEx on Page 9, we see that the cash flow for the period was plus SEK 172 million versus SEK 89 million last year. So a good improvement, also on top of the improvement we saw in the first quarter. Looking at the details, we see that the cash flow from operativities before the change in capital was flat versus last year, and the cash flow from change in net capital was positive SEK 169 million despite an increase in inventory. We will look more at the net working capital on the next slide. But in total, the operating cash flow was plus SEK 258 million in the quarter. Cash flow from financing activities is mainly repayment of leasing debt and at a similar level as previous quarters. Looking at CapEx, we see that the total investment was SEK 92 million, of which SEK 39 million affected the cash flow. This is mainly linked to IT development investment and slightly lower than last year. Coming then to Page 9 and looking looking at the net working capital development, we see that net working capital landed at minus SEK 46 million. This is an improvement versus last year SEK 60 million and also an improvement versus the previous quarter at SEK [ 139 ] million. Accounts receivables declined supported by active actions to settle receivables, and this was the main driver of the improvement in net working capital. Inventory increased versus the previous quarter as expected, partly due to that the previous quarter was quite low due to timing effects, but also as a result of the shortage in memory components, putting pressure on inventory levels to secure delivery. But compared to last year, the inventory levels were actually declining. We do expect inventory levels to vary in the coming quarters, depending on opportunities to drive sales and margin as well as the need to secure deliveries in the current market environment with the impact from component shortage. As said before, we always have some timing effects between individual quarters, but our long-term target for net working capital remains to be around minus SEK 100 million. And with that, I would hand back over to Samuel. Samuel Skott: Thank you, Julia. To summarize the quarter, we report continued organic growth, supported by strong development within the public sector and despite meeting a strong comparable quarter and the discontinued consumer business. Gross margin decreased mainly due to the mix effect from strong public sector growth and continued price pressure in the Netherlands. The adjusted EBITDA margin was stable since executed efficiency measures compensated for lower gross profit. Cash flow from operations was strong, and our leverage decreased and is now within our target range. Moving on to the market outlook. During this quarter, we have seen stabilization in the market. But looking ahead, uncertainty definitely continues due to the current geopolitical and economical climate and also the expected continuation of volatility driven by component shortages, where we expect prices to continue to increase and a potential limited availability on lower- and mid-end products. But building on this and looking forward, our focus going forward is very clear. we are driving a set of initiatives aimed at delivering a stronger Dustin and profitable growth. We are accelerating the execution of our strategy with a full emphasis on our position as the preferred IT partner for B2B customers. This means working closer with our customers and leverage on our full service offering. At the same time, we're strengthening our local go-to-market execution and performance through the new sales organization. It will increase our ability to capture local market opportunities and being faster at meeting local customer demands. We also continued to accelerate the transformation towards our standardized and scalable service offering, which is key to improving both efficiency and margins over time. In parallel to this, we are taking decisive actions on costs. We're implementing efficiency measures to deliver an annual savings of around SEK 80 million with full effect from the fourth quarter. And in addition, we are now conducting a full review of our indirect spend to further optimize our cost base. And finally, in this current market environment, we remain focused on managing risks but also capturing opportunities and do that supported with our strong customer relations strong and wide supplier base and relationship as well as our high delivery capabilities. And with that, we open up for Q&A. Operator: [Operator Instructions] The next question comes from Jesper Stugemo from Handelsbanken. Jesper Stugemo: Yes. Okay. Great. So I have a follow-up on the memory prices topic, supply shares et cetera. How has that impacted the volumes here in Q2, LCP versus SMB? I guess, LCP customers a bit more less price sensitive. But what do you see here? Samuel Skott: If we look to the quarter, I think we clearly see an impact in the market of this shortage definitely affecting price levels. It has meant a lot of work for our organization, both in terms of working with our vendors, supply chain with our customers. But I think in the end, the net financial result, the impact of that has been very, very limited. What we have seen is that we have seen some volumes being brought forward into this quarter by some of our largest customers, who wants to safeguard availability for the rest of the year. So that has been, in some cases, in LCP. In SMB, we haven't seen that much impact at all, to be honest. We do see that kind of demand has flattened out but on a low level, of course, but at least flattened out, but no major impact from the component shortage yet. Jesper Stugemo: All right. And do you see any risk as a vendor for your being squeezed when prices increases, i.e., that you have pieces in your inventory already sold, not yet delivered, but then we have this retro price increases from Dell or HP or how are these contracts settled? Samuel Skott: I think we have both risks and opportunities, which we are managing on a daily basis. Risk lies with some of the larger contracts where we have a limited possibility to change prices on a frequent basis. But that's a risk we're managing by close collaboration with our customers, and of course, close revelation with the vendors and the partners. But we also have an opportunity in our transactional business towards the SMB market where we buy in put, especially, PCs on stock which increase in value over time and where we can add -- get some more margin when we sell it later on. And if we look into how this played out during this quarter, I would say that the effect has been neutral. We've seen some additional volumes in LCP, but other than that, I think the net has been neutral. But that's the way our business is positioned in this. And it's a lot of work, but we're doing it and we're doing it daily. And in the quarter, the net effect of it was limited. Jesper Stugemo: Okay. Perfect. And one last question from me on Netherlands. If you could provide us with an update around the competitive market. Do you see any signs of stabilization or anything? And if it's possible to answer how much better would the gross margin have been if you exclude Netherlands and these price-pressured contracts? Samuel Skott: Well, I can start -- if we start with the last question, that's not a number we're going to disclose. And if I go to the first question, I think, and I said it already in the Q1 call, I think the level we are at now is, from a market and price pressure point of view, the level we will have to learn to live with. I don't expect it to get worse, but I think this is the level it will continue to be, given the change in market dynamics, we're going from a larger share of single-supplier frame agreements to more a multi-supplier frame agreements, and that adds price pressure. But I think the level of that will probably stay as it is now. So I don't expect it to get worse. And the way for us over time to work with this is, one, the thing we're doing now with a stronger local management and local-focused sales organization. But then it's also about growing in the private sector and growing with our services, such as take back and life cycle services. But that's a journey that will take some time, but that's a journey we have started. Operator: The next question comes from Mikael Laseen from DNB Carnegie. Mikael Laséen: Okay. Thanks. I have a question on the cost savings that you have initiated, SEK 80 million. Could you break down how much of this is headcount versus procurement and other efficiencies? And how much is already realized versus still to come? Samuel Skott: So the SEK 80 million we announced, that is headcount, 100% coming from headcount, and we expected to be materializing during the fourth quarter. And on top of that, we have also now are performing a review of indirect costs but that is something for the future. The SEK 80 million now is headcount. Mikael Laséen: Okay. And should we expect any reinvestment of these savings into sales capacity or services or other things? Or will we see this flow through to margins? Samuel Skott: I would expect some reinvestment of this into initiatives that we need to do to especially strengthen our go-to-market capabilities. but it will be done always with an eye keeping a balance of the bottom line result, of course. But I would expect a small part of this to be reinvested. Mikael Laséen: Okay. Got it. And you were talking about the nonstandard services here a bit at -- that part is weak or underperforming. Could you explain -- so how much of your services revenue with nonstandardized and standardized and the different profitability levels maybe on the revenue trajectory and what you're doing in these different areas? Samuel Skott: No, I think we can say it like this. From a revenue point of view, the nonstandard part is the minority of our full managed services portfolio. But the area in itself is weak and an area where we're not making money in this quarter. And therefore, we need to take actions. Over time, as we've said, this is an area where we're transforming our customers and the portfolio into the standard portfolio which we have and where we have the majority of our business, and that's where our future lies. So what we're doing now is step-by-step, taking down cost, but in parallel, also looking if we can accelerate that transformation journey to eventually completely get out of the nonstandard business. Julia Lagerqvist: If I can add. I mean, we're also seeing that some of these customers are churning, right? So there is also going to be a continued loss of sales that we basically mitigated them with cost cuts. Mikael Laséen: Okay. Got it. And the final one on the LCP side. Just wondering if you can comment on the maturity profile of your current LCP contract portfolio? So are we seeing more renewals ahead or extensions or new wins that could impact top line or margins that we should be aware of? Samuel Skott: This is not something that we disclose. But we always have a mix of incoming and outgoing and rewins of contracts. So this is something that -- this is a reality we live with every quarter Mikael Laséen: Okay. But if it's overall in an early stage, then you usually have impacting margins. I mean you typically have a bit lower margins in the early stages of a contract, and then it improves and gets better over time. So just in general terms, is if you would normalize over the past 5 years maybe... Samuel Skott: Yes, sorry. But if we look back a couple of quarters, we have talked about that as part of the explanation, and that has been true, especially in Belgium, for instance. But I wouldn't say that, that is something that has a material additional impact now. I think more -- now it's more in the balance as it usually is. So nothing exceptional. Mikael Laséen: Okay. Great. to know. And then maybe a final one, if I may. You mentioned also that there was some sort of pull-forward effect here from potential price increases from your customers in the LCP side. Can you sort of indicate anything how much that potentially was in the quarter? Julia Lagerqvist: I mean it's hard to give an exact estimate of how much orders were actually pulled forward. We always have a bit of movement between the quarters. But if I will give a number, roughly, I would say it can account for up to 4% actually of orders being moved forward, around SEK 200 million in sales. Operator: The next question comes from Daniel Thorsson from ABG Sundal Collier. Daniel Thorsson: Yes. A question on the public sector prebuying and LCP. Did you see any differences between markets like Nordics versus Benelux, larger effects or smaller effects? Samuel Skott: No. I think it was across the board, actually. We have this -- we're in active dialogue in all our markets with all our customers. I think we can clearly see the larger ones being the earliest to act and realize the market situation. So that's where it started, of course. But it's been -- it's a dialogue that is happening across all markets. Daniel Thorsson: Okay. I see. And then linked to that, I guess, that the higher PC prices will affect low-price PC volumes most negatively, given price sensitivity. But how is your margin between high and low end PCs? Any meaningful difference? Samuel Skott: In percentage points, I wouldn't say it's any meaningful difference. Of course, when the price go up, the actual margin can go up also, but -- in exactly the profit. But in percentage point, I wouldn't say that it's any big difference. Daniel Thorsson: Okay. Okay. I see that's clear. And then on SMB growth, when will the B2C discontinuation fade on like comparable numbers? Julia Lagerqvist: Since we exited it now in this quarter, you will have this impact until the first quarter of next fiscal year, basically. Daniel Thorsson: Okay. So it's kind of started in this quarter. So we have it for the next 3 quarters? Julia Lagerqvist: We basically exited everything in December in mid-December. Daniel Thorsson: Will it be similar magnitude of the impact? Or like on a year-on-year basis here, you say around like 4 or 5 percentage points or even 6? Is that what we should expect within SMB? Julia Lagerqvist: I mean the SMB business doesn't have a large cyclicality. So you can assume that it's sort of -- it has been similar size over the year, I would say, without not having -- not having the numbers in front of me, to be very honest. But that will be my estimate at this point. Daniel Thorsson: Yes. I see. That's clear. But then also linked to the question regarding reinvesting this annual savings, I mean, it's a balance between margins and bottom line and reinvesting in growth. But when should we kind of expect to get more margin targets, new financial targets? Like what level you would like to come back to? Because the old financial targets are not relevant at all today, I guess. So for us to understand like what kind of level of margin you would like to approach? Julia Lagerqvist: I mean, the targets that we have set now is the one that we have and the targets are set by the Board. Until then, we are the taste we are living with and we are trying to obviously get closer to as much as we can, but it's a long journey. I don't know if you want to add anything, Samuel. Samuel Skott: No, as said. It's a discussion and a decision for the Board eventually. And if we get -- if and when we get to that point, we will come back to it. Daniel Thorsson: Yes, because I assume that you are far away from the margins, which means that you shouldn't reinvest anything in growth. You should rather drive the margin upwards with the headcount reductions, cost reductions. But I also think that given what you said around the Netherlands that we will have to live with this new type of market development going forward, maybe a lower margin sustainably should be a better target to -- so just to get a comment on that over a time frame when we could expect it, like later in this year? Or what do you think is a fair time? Samuel Skott: Let me put it like this. I think it's a very valid point, a valid question. We are not yet in a position to fully answer that. As soon as we are, we will. Operator: [Operator Instructions] The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson: It's encouraging to see your balance sheet is much stronger with leverage in your stated financial target range. What is your thinking on capital allocation, given the stronger balance sheet with regards to dividends or potential share buybacks, M&A opportunities? Julia Lagerqvist: Our current policy obviously stands. So the 70% dividend payout out of net income. But at the moment, I would say we are not looking into any major acquisitions, obviously, but the focus is on the growth and the margin journey ahead of us. Thomas Nilsson: Okay. And the second final question for my point. You saw a negative mix effect on the gross margin in Q2. What kind of mix effect on the gross margins are you expecting in the coming quarters? Samuel Skott: I think that's very hard to estimate. It's very dependent on how the demand will fluctuate across our different segments. There is always a fluctuation quarter-to-quarter. So I think that's hard to estimate. We had it in this quarter. If we would see the same trend, we would have it next quarter as well. But I think that's too early to tell and hard to estimate. Julia Lagerqvist: As we said, the main mix effect is to move have increased sales to public where we have lower margins and sales declining in the SMB segment where we normally have higher margins. We've seen that trend in the previous quarter as well. But let's see where we -- and obviously, we don't guide for the future. So depends on how the future will develop for us. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments. Samuel Skott: Thank you very much. Well then, I'd just like to thank everyone for listening in and asking relevant questions to our Q2 report. And with that, we'll close the call. Thank you very much.
Samuel Skott: A warm welcome to the presentation of our second quarter results. My name is Samuel Skott. I'm the group CEO here at Dustin. And with me today, I have our CFO, Julia Lagerqvist. And if we get into the Q2 report, I'm glad to report yet another quarter with organic growth, strong cash flow and reduced leverage, while we continue to streamline and improve the efficiency of our operations. Net sales development was positive in the quarter with organic growth of 4.4%. Growth was driven by strong performance in the public sector and should partly be seen in the light of a strong comparable quarter. The gross margin decreased to 13.2% compared with 13.9% last year, but indicated a sequential improvement compared to the first quarter's margin of 13.1%. The lower margin is mainly explained by mix effects arising from strong public sector growth and continued price pressure in the Netherlands, also a weak performance within nonstandard services that had a negative impact. Adjusted EBITDA was relatively stable at SEK 103 million compared to SEK 110 million a year earlier, where implemented efficiency measures nearly compensated for a lower gross profit. Cash flow from operating activities increased to SEK 258 million compared to SEK 180 million last year, and this is primarily driven by improved net working capital. Leverage measured as net debt to EBITDA, dropped to 2.7x compared to 5.7x last year and is now within our target range of 2 to 3x. And if we then turn into some operational highlights for the quarter, we have taken important steps to further sharpen our business. And the discontinuation of the consumer offering is now completed in all markets, which means that we are now fully focused on our business customers. We have also initiated a new sales organization dividing relation sales between the Nordics and Benelux. By appointing a responsible for relation sales in Benelux, we get more attention and come closer to the customers in the Netherlands, the country where we've had the biggest challenge during the past years. This new organization will also create a stronger local focus in both our regions with better ability to capture local opportunities. To support our continued transformation within services and in the company in general, we have appointed a CTO with a clear mandate to drive both the transformation and efficiency improvements. We have also been reawarded EcoVadis Platinum rating, which further strengthens our position with our customers that have high demands on sustainability. Following weak performance and to accelerate our transformation, we have executed cost-saving initiatives within nonstandard services to better align the cost base with lower volumes, with savings materializing from the third quarter. And with this, I hand over to our CFO, Julia Lagerqvist, to give you some more details on our financials. Julia Lagerqvist: Moving then to Page 4, we look at our top line development. And as Samuel just presented, we saw 4% organic growth in the quarter, and I will now break this down somewhat. If you remember, we talked last time about how we, in the last year, shifted sales from Q1 to Q2 is related to the implementation of the new ERP system in Benelux will lead to delayed invoicing. This effect corresponds to around 6 percentage points in growth headwind in Q2. As we have said, we have fully exited our B2C business this quarter, and that drove roughly 2% decline in total sales. and that explains most of the negative impact coming from the decline in the SMB segment. On the opposite, we saw strong underlying growth in LCP, mainly related to the public sector and driven by two factors: One, the continued upgrade in the wake of the Windows 11 shift; and two, we saw some customer orders that were brought forward to mitigate expected price increases or more limited availability related to the global components outage. All in all, this explains the 4% organic growth in the quarter. We now move to Page 5 to look more closely at the LCP segment. And the sales in LCP was SEK 4.1 billion in the quarter or 5% higher than last year. The organic growth was 10%. So we continue to see a large negative ForEx impact from the strengthened SEC in the quarter. This growth was then on top of a strong Q last year, as just explained. And the growth was mainly driven then by the demand in public sector and related mainly to continued PC upgrades and customer orders brought forward. From a geographic perspective, we saw strong growth in Sweden, Norway and Belgium. We also saw positive development in our life cycle services, where a strong offering have contributed to a new contract as Sykehuspartner in Norway and the Swedish municipality region in Kalmar. I said before, we can see large volatility in sales between quarters in LCP. The gross margin decreased versus previous year but did improve a little bit versus previous quarter. The growing public business contributed to a negative customer mix effect with a large share of public customers that normally has lower average margins. In addition, the continued price pressure in Netherlands was a key driver for lower margins. Increase in take-back had a positive impact on both margin and EBITDA, and we also saw some positive development in our private label business versus last year. We also saw continued improvement in our cost structure, mainly thanks to the restructuring programs. This had a positive effect on the bottom line. And overall, this led to a segment result of SEK 105 million versus SEK 99 million last year and also improvement versus Q1 results. The segment margin ended at 2.5%, in line with last year. Then we move to the review of the SMB segment on Page 6. where our sales landed at SEK 1.3 billion or 14% below last year. Also here, we saw a negative ForEx effect. And excluding this, the decline was 11%. We see some signs of stabilization, but customers remain cautious due to the ongoing economic uncertainty. And we, in the quarter, exited the B2C business in all our markets, which explains more than half of the decline for the SMB segment. Excluding this effect, the organic sales decline was just above 4%. As explained earlier, this is a strategic move to a better focus on our core business, but we always expected some sales headwind coming from this. Looking at the product mix, we saw that the share of software and services sales increased to 13.3% versus 11.6% last year, which was more than effectively declining overall sales than an uptick in software and services. We saw continued decline in our nonstandard services as in previous quarters. The gross margin was stable versus previous year. We saw positive improvement in our base hardware business in both Nordic and Benelux, thanks to continued price discipline. But this was offset by lower margins on services driven by the lower volumes on nonstandard services with fixed costs. We have implemented cost-saving actions to mitigate these lower margins that will have effect in Q3. The improved cost base and previous cost-saving programs partly protected the segment result, but could not offset the lower volumes and the lower margins in nonstandard services. And the segment results landed at SEK 31 million versus SEK 46 million last year. This corresponds to a segment margin of 2.3% versus last year at 3%. Moving then to Page 7, you have an overview of the FTE development over time. we have constantly worked with our operational efficiency and optimizing of our stores a bit by bit. In the last year, in Q2, we did a major reorganization with a focus to improve our go-to-market capabilities, but also to cut costs to match our current market situation, and we removed over 200 of those. Since then, we have continued to reduce our workforce. And as you can see in Q2, we have reduced our total workforce with 226 FTEs or 10% versus the last quarter -- last year. If we prolong the period and look over 2 years, we have taken up more than 300 FTEs or a total of 14% of the total FTEs. Looking ahead, we have, as we have said, done additional costs in our nonstandard services to offset the declining sales, which was executed at the end of Q2. And we have also initiated further reductions with the aim of saving SEK 80 million yearly, with full effect from Q4. So our cost optimization journey continues in line with our strategic focus. On Page 8, we look at our leverage development. Leverage landed at 2.7x compared to 5.7x last year and 3.1 in Q1. So we've seen a continuous improvement, driven both by improved results and improved cash purchase as well as a positive ForEx effect. In addition, we also apply an updated definition of net debt, as described in the previous report, which drives 0.2x a positive effect versus last year. Overall, we are, of course, happy to see this improvement in leverage after a period of higher levels and that we are now in line with our target range to be between 2 to 3x. Moving then to cash flow and CapEx on Page 9, we see that the cash flow for the period was plus SEK 172 million versus SEK 89 million last year. So a good improvement, also on top of the improvement we saw in the first quarter. Looking at the details, we see that the cash flow from operativities before the change in capital was flat versus last year, and the cash flow from change in net capital was positive SEK 169 million despite an increase in inventory. We will look more at the net working capital on the next slide. But in total, the operating cash flow was plus SEK 258 million in the quarter. Cash flow from financing activities is mainly repayment of leasing debt and at a similar level as previous quarters. Looking at CapEx, we see that the total investment was SEK 92 million, of which SEK 39 million affected the cash flow. This is mainly linked to IT development investment and slightly lower than last year. Coming then to Page 9 and looking looking at the net working capital development, we see that net working capital landed at minus SEK 46 million. This is an improvement versus last year SEK 60 million and also an improvement versus the previous quarter at SEK [ 139 ] million. Accounts receivables declined supported by active actions to settle receivables, and this was the main driver of the improvement in net working capital. Inventory increased versus the previous quarter as expected, partly due to that the previous quarter was quite low due to timing effects, but also as a result of the shortage in memory components, putting pressure on inventory levels to secure delivery. But compared to last year, the inventory levels were actually declining. We do expect inventory levels to vary in the coming quarters, depending on opportunities to drive sales and margin as well as the need to secure deliveries in the current market environment with the impact from component shortage. As said before, we always have some timing effects between individual quarters, but our long-term target for net working capital remains to be around minus SEK 100 million. And with that, I would hand back over to Samuel. Samuel Skott: Thank you, Julia. To summarize the quarter, we report continued organic growth, supported by strong development within the public sector and despite meeting a strong comparable quarter and the discontinued consumer business. Gross margin decreased mainly due to the mix effect from strong public sector growth and continued price pressure in the Netherlands. The adjusted EBITDA margin was stable since executed efficiency measures compensated for lower gross profit. Cash flow from operations was strong, and our leverage decreased and is now within our target range. Moving on to the market outlook. During this quarter, we have seen stabilization in the market. But looking ahead, uncertainty definitely continues due to the current geopolitical and economical climate and also the expected continuation of volatility driven by component shortages, where we expect prices to continue to increase and a potential limited availability on lower- and mid-end products. But building on this and looking forward, our focus going forward is very clear. we are driving a set of initiatives aimed at delivering a stronger Dustin and profitable growth. We are accelerating the execution of our strategy with a full emphasis on our position as the preferred IT partner for B2B customers. This means working closer with our customers and leverage on our full service offering. At the same time, we're strengthening our local go-to-market execution and performance through the new sales organization. It will increase our ability to capture local market opportunities and being faster at meeting local customer demands. We also continued to accelerate the transformation towards our standardized and scalable service offering, which is key to improving both efficiency and margins over time. In parallel to this, we are taking decisive actions on costs. We're implementing efficiency measures to deliver an annual savings of around SEK 80 million with full effect from the fourth quarter. And in addition, we are now conducting a full review of our indirect spend to further optimize our cost base. And finally, in this current market environment, we remain focused on managing risks but also capturing opportunities and do that supported with our strong customer relations strong and wide supplier base and relationship as well as our high delivery capabilities. And with that, we open up for Q&A. Operator: [Operator Instructions] The next question comes from Jesper Stugemo from Handelsbanken. Jesper Stugemo: Yes. Okay. Great. So I have a follow-up on the memory prices topic, supply shares et cetera. How has that impacted the volumes here in Q2, LCP versus SMB? I guess, LCP customers a bit more less price sensitive. But what do you see here? Samuel Skott: If we look to the quarter, I think we clearly see an impact in the market of this shortage definitely affecting price levels. It has meant a lot of work for our organization, both in terms of working with our vendors, supply chain with our customers. But I think in the end, the net financial result, the impact of that has been very, very limited. What we have seen is that we have seen some volumes being brought forward into this quarter by some of our largest customers, who wants to safeguard availability for the rest of the year. So that has been, in some cases, in LCP. In SMB, we haven't seen that much impact at all, to be honest. We do see that kind of demand has flattened out but on a low level, of course, but at least flattened out, but no major impact from the component shortage yet. Jesper Stugemo: All right. And do you see any risk as a vendor for your being squeezed when prices increases, i.e., that you have pieces in your inventory already sold, not yet delivered, but then we have this retro price increases from Dell or HP or how are these contracts settled? Samuel Skott: I think we have both risks and opportunities, which we are managing on a daily basis. Risk lies with some of the larger contracts where we have a limited possibility to change prices on a frequent basis. But that's a risk we're managing by close collaboration with our customers, and of course, close revelation with the vendors and the partners. But we also have an opportunity in our transactional business towards the SMB market where we buy in put, especially, PCs on stock which increase in value over time and where we can add -- get some more margin when we sell it later on. And if we look into how this played out during this quarter, I would say that the effect has been neutral. We've seen some additional volumes in LCP, but other than that, I think the net has been neutral. But that's the way our business is positioned in this. And it's a lot of work, but we're doing it and we're doing it daily. And in the quarter, the net effect of it was limited. Jesper Stugemo: Okay. Perfect. And one last question from me on Netherlands. If you could provide us with an update around the competitive market. Do you see any signs of stabilization or anything? And if it's possible to answer how much better would the gross margin have been if you exclude Netherlands and these price-pressured contracts? Samuel Skott: Well, I can start -- if we start with the last question, that's not a number we're going to disclose. And if I go to the first question, I think, and I said it already in the Q1 call, I think the level we are at now is, from a market and price pressure point of view, the level we will have to learn to live with. I don't expect it to get worse, but I think this is the level it will continue to be, given the change in market dynamics, we're going from a larger share of single-supplier frame agreements to more a multi-supplier frame agreements, and that adds price pressure. But I think the level of that will probably stay as it is now. So I don't expect it to get worse. And the way for us over time to work with this is, one, the thing we're doing now with a stronger local management and local-focused sales organization. But then it's also about growing in the private sector and growing with our services, such as take back and life cycle services. But that's a journey that will take some time, but that's a journey we have started. Operator: The next question comes from Mikael Laseen from DNB Carnegie. Mikael Laséen: Okay. Thanks. I have a question on the cost savings that you have initiated, SEK 80 million. Could you break down how much of this is headcount versus procurement and other efficiencies? And how much is already realized versus still to come? Samuel Skott: So the SEK 80 million we announced, that is headcount, 100% coming from headcount, and we expected to be materializing during the fourth quarter. And on top of that, we have also now are performing a review of indirect costs but that is something for the future. The SEK 80 million now is headcount. Mikael Laséen: Okay. And should we expect any reinvestment of these savings into sales capacity or services or other things? Or will we see this flow through to margins? Samuel Skott: I would expect some reinvestment of this into initiatives that we need to do to especially strengthen our go-to-market capabilities. but it will be done always with an eye keeping a balance of the bottom line result, of course. But I would expect a small part of this to be reinvested. Mikael Laséen: Okay. Got it. And you were talking about the nonstandard services here a bit at -- that part is weak or underperforming. Could you explain -- so how much of your services revenue with nonstandardized and standardized and the different profitability levels maybe on the revenue trajectory and what you're doing in these different areas? Samuel Skott: No, I think we can say it like this. From a revenue point of view, the nonstandard part is the minority of our full managed services portfolio. But the area in itself is weak and an area where we're not making money in this quarter. And therefore, we need to take actions. Over time, as we've said, this is an area where we're transforming our customers and the portfolio into the standard portfolio which we have and where we have the majority of our business, and that's where our future lies. So what we're doing now is step-by-step, taking down cost, but in parallel, also looking if we can accelerate that transformation journey to eventually completely get out of the nonstandard business. Julia Lagerqvist: If I can add. I mean, we're also seeing that some of these customers are churning, right? So there is also going to be a continued loss of sales that we basically mitigated them with cost cuts. Mikael Laséen: Okay. Got it. And the final one on the LCP side. Just wondering if you can comment on the maturity profile of your current LCP contract portfolio? So are we seeing more renewals ahead or extensions or new wins that could impact top line or margins that we should be aware of? Samuel Skott: This is not something that we disclose. But we always have a mix of incoming and outgoing and rewins of contracts. So this is something that -- this is a reality we live with every quarter Mikael Laséen: Okay. But if it's overall in an early stage, then you usually have impacting margins. I mean you typically have a bit lower margins in the early stages of a contract, and then it improves and gets better over time. So just in general terms, is if you would normalize over the past 5 years maybe... Samuel Skott: Yes, sorry. But if we look back a couple of quarters, we have talked about that as part of the explanation, and that has been true, especially in Belgium, for instance. But I wouldn't say that, that is something that has a material additional impact now. I think more -- now it's more in the balance as it usually is. So nothing exceptional. Mikael Laséen: Okay. Great. to know. And then maybe a final one, if I may. You mentioned also that there was some sort of pull-forward effect here from potential price increases from your customers in the LCP side. Can you sort of indicate anything how much that potentially was in the quarter? Julia Lagerqvist: I mean it's hard to give an exact estimate of how much orders were actually pulled forward. We always have a bit of movement between the quarters. But if I will give a number, roughly, I would say it can account for up to 4% actually of orders being moved forward, around SEK 200 million in sales. Operator: The next question comes from Daniel Thorsson from ABG Sundal Collier. Daniel Thorsson: Yes. A question on the public sector prebuying and LCP. Did you see any differences between markets like Nordics versus Benelux, larger effects or smaller effects? Samuel Skott: No. I think it was across the board, actually. We have this -- we're in active dialogue in all our markets with all our customers. I think we can clearly see the larger ones being the earliest to act and realize the market situation. So that's where it started, of course. But it's been -- it's a dialogue that is happening across all markets. Daniel Thorsson: Okay. I see. And then linked to that, I guess, that the higher PC prices will affect low-price PC volumes most negatively, given price sensitivity. But how is your margin between high and low end PCs? Any meaningful difference? Samuel Skott: In percentage points, I wouldn't say it's any meaningful difference. Of course, when the price go up, the actual margin can go up also, but -- in exactly the profit. But in percentage point, I wouldn't say that it's any big difference. Daniel Thorsson: Okay. Okay. I see that's clear. And then on SMB growth, when will the B2C discontinuation fade on like comparable numbers? Julia Lagerqvist: Since we exited it now in this quarter, you will have this impact until the first quarter of next fiscal year, basically. Daniel Thorsson: Okay. So it's kind of started in this quarter. So we have it for the next 3 quarters? Julia Lagerqvist: We basically exited everything in December in mid-December. Daniel Thorsson: Will it be similar magnitude of the impact? Or like on a year-on-year basis here, you say around like 4 or 5 percentage points or even 6? Is that what we should expect within SMB? Julia Lagerqvist: I mean the SMB business doesn't have a large cyclicality. So you can assume that it's sort of -- it has been similar size over the year, I would say, without not having -- not having the numbers in front of me, to be very honest. But that will be my estimate at this point. Daniel Thorsson: Yes. I see. That's clear. But then also linked to the question regarding reinvesting this annual savings, I mean, it's a balance between margins and bottom line and reinvesting in growth. But when should we kind of expect to get more margin targets, new financial targets? Like what level you would like to come back to? Because the old financial targets are not relevant at all today, I guess. So for us to understand like what kind of level of margin you would like to approach? Julia Lagerqvist: I mean, the targets that we have set now is the one that we have and the targets are set by the Board. Until then, we are the taste we are living with and we are trying to obviously get closer to as much as we can, but it's a long journey. I don't know if you want to add anything, Samuel. Samuel Skott: No, as said. It's a discussion and a decision for the Board eventually. And if we get -- if and when we get to that point, we will come back to it. Daniel Thorsson: Yes, because I assume that you are far away from the margins, which means that you shouldn't reinvest anything in growth. You should rather drive the margin upwards with the headcount reductions, cost reductions. But I also think that given what you said around the Netherlands that we will have to live with this new type of market development going forward, maybe a lower margin sustainably should be a better target to -- so just to get a comment on that over a time frame when we could expect it, like later in this year? Or what do you think is a fair time? Samuel Skott: Let me put it like this. I think it's a very valid point, a valid question. We are not yet in a position to fully answer that. As soon as we are, we will. Operator: [Operator Instructions] The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson: It's encouraging to see your balance sheet is much stronger with leverage in your stated financial target range. What is your thinking on capital allocation, given the stronger balance sheet with regards to dividends or potential share buybacks, M&A opportunities? Julia Lagerqvist: Our current policy obviously stands. So the 70% dividend payout out of net income. But at the moment, I would say we are not looking into any major acquisitions, obviously, but the focus is on the growth and the margin journey ahead of us. Thomas Nilsson: Okay. And the second final question for my point. You saw a negative mix effect on the gross margin in Q2. What kind of mix effect on the gross margins are you expecting in the coming quarters? Samuel Skott: I think that's very hard to estimate. It's very dependent on how the demand will fluctuate across our different segments. There is always a fluctuation quarter-to-quarter. So I think that's hard to estimate. We had it in this quarter. If we would see the same trend, we would have it next quarter as well. But I think that's too early to tell and hard to estimate. Julia Lagerqvist: As we said, the main mix effect is to move have increased sales to public where we have lower margins and sales declining in the SMB segment where we normally have higher margins. We've seen that trend in the previous quarter as well. But let's see where we -- and obviously, we don't guide for the future. So depends on how the future will develop for us. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments. Samuel Skott: Thank you very much. Well then, I'd just like to thank everyone for listening in and asking relevant questions to our Q2 report. And with that, we'll close the call. Thank you very much.
Jim Kavanagh: Hello, and welcome to ASML's Q1 2026 results video. Welcome, Christophe and Roger. Jim Kavanagh: Roger, if I could start with you and ask you to give us a summary of our Q1 2026 results. R.J.M. Dassen: For the quarter, total net sales came in at EUR 8.8 billion. That was within guidance. Included in the EUR 8.8 billion was EUR 2.5 billion for Installed Base revenue. That was a little bit above the guidance. If you look at the gross margin for Q1, 53%. That was at the high end of the gross margin that we guided. If you look at the Installed Base business, as I just mentioned, the Installed Base business was higher than we anticipated. But also if you look at the components in the Installed Base business, there were components in there that actually come in at quite some strong gross margins. So as a result of that, a pretty high gross margin at 53%. Net income for the quarter, EUR 2.8 billion. Jim Kavanagh: Can you also provide us with a guide for Q2 '26 results, please? R.J.M. Dassen: For Q2, we expect EUR 8.4 billion to EUR 9 billion of total net sales. Included in there, again, EUR 2.5 billion of Installed Base business. We expect the gross margin to be between 51% and 52%. Jim Kavanagh: Christophe, if I can switch to you. And can I ask you to give us an outlook on the market and how you're seeing things at the moment? Christophe Fouquet: Well, I think we see that the semiconductor industry growth continued to solidify. This is still very much driven by investment in AI infrastructure. So this translates into a lot of demand for advanced memory, for advanced logic. And we expect, in fact, that the supply will not meet the demand for the foreseeable future. So this is creating a strong constraint in the end market from AI to mobile and PC. And as a result, our customers are strongly invited to create more capacity. So if we look at memory, what our customers tell us is that they are sold out for 2026 and their supply constraint will last beyond 2026. For advanced logic, we see our customer building capacity for several nodes, while they also continue to ramp 2-nanometer in order to address the AI products. Jim Kavanagh: So then I guess it's fair to say, a lot of those capacity additions are adding positively to our own outlook? Christophe Fouquet: Well, absolutely, we see our memory and logic customers increasing their capital expenditure and trying to accelerate basically their capacity ramp in 2026 and beyond. What's also very interesting is that a lot of this demand is supported by long-term commitment at their customer. On top of that, we see both memory customers, DRAM customers and advanced logic customers continuing to increase their adoption of EUV but also immersion. So this translates basically into higher litho intensity and a higher litho demand for ASML. So we're going to continue to work very closely with our customers to increase our capacity. We are doing that in 2026. We'll continue to do that in 2027. Jim Kavanagh: And then maybe Roger, just adding on to that, can you provide a little bit more color or details on what we are actually going to do in terms of adding capacity to support market demand? R.J.M. Dassen: So I think Christophe said it right. We're very clearly working with our customers, fully aligned with customers to give them what they need, and that is in a combination of capacity in terms of new shipments, making sure that systems, that the performance of systems is upgraded as best as we can and also provide Installed Base products. So in that combination, we try to give customers what they need, specifically when it comes to our own capacity. What we're looking at for this year for 2026, we believe we can drive an output for this year of at least 60 systems for EUV Low NA. That's what we currently have. That's what we're currently driving. And added to that, we're looking at deep UV for 2026. As I mentioned a couple of months ago, when it comes to immersion deep UV, we actually had a bit of a slow start because in the course of last year, we decided to actually -- we were looking at a significantly lower demand for immersion. That has now reversed itself. And I would say in spite of that slow start, we're still for this year expecting to get pretty close to the immersion sales that we had last year in terms of unit numbers. So that's for 2026. When it comes to 2027, in terms of capability, we're increasing our move rate really quarter-on-quarter. And then when you look specifically at EUV Low NA, we expect that we're able to get to an output for 2027. Again, if customer demand really underpins that, we think that we can get to at least 80 Low NA EUV units. And we're also looking at having the non-EUV business being in line with what customers are asking for, for all of their nodes. Jim Kavanagh: And then specifically on 2026. Can you give us an update then on our own business then for the full year? R.J.M. Dassen: Yes. So clearly, 2026 is panning out very nicely. It's a very strong year. We're looking at a strong growth year. And based on all the customer dynamics that Christophe was talking about, we are actually narrowing the window and also increasing the window of our expectation to EUR 36 billion to EUR 40 billion for this year. If you look at the different moving parts as we already expected, EUV is strong this year. So EUV in combination of Low NA and High NA, strong year there. On the non-EUV business, previously, we were expecting that to be flat in comparison to last year. Right now, what we're looking at is, in fact, an increase of demand there as well. So increased revenue on the non-EUV business is what we're expecting. I already mentioned what we're doing on immersion, but also the dry business is doing quite nicely and also the application business. So we believe in contrast to where we were a couple of months ago, we're looking at an increase for the non-EUV business. When it comes to the Installed Base business, strong growth there because obviously, it is a very fast way for our customers to increase their capacity to cater to the demand that Christophe was talking about. And I would say that within the guidance that we provided, the EUR 36 billion to EUR 40 billion, we believe we can accommodate potential outcomes of the export control discussions that are currently ongoing. Jim Kavanagh: And how about the gross margin then for 2026? R.J.M. Dassen: For the gross margin, we maintain our expectation of 51% to 53%. Jim Kavanagh: Switching gears a bit to technology. Christophe, can you give us some insights and latest updates on how we're progressing with the technology and our road map? Christophe Fouquet: Yes, I think we continue to execute very nicely on our technology road map. I think every year, we use the SPIE conference to give a bit of an update to the entire world about what we have achieved. A few, I think, important news this year. The first one was our demonstration of the 1,000-watt source. And this is very important because it means that we can secure the extendibility of Low NA EUV for many, many years. It means, in fact, that in 2031, we'll be able to run this tool at 330 wafers per hour, which is a major step-up from what we have today. Now the progress on EUV also has a good impact on the short term. We have been able to increase the throughput of our NXE:3800E from 220 to 230 wafers per hour, which is also helping on the short term with capacity. Our customers are very happy to be able to get more wafers out on any tool. And we are also increasing the specs of our next system, the NXE:3800F to 260 wafers per hour. It used to be 250 wafers per hour, and this will help us also with capacity around 2028. Jim Kavanagh: And I think also at SPIE, there were some updates on our High NA platform progress. Can you share a little there? Christophe Fouquet: Yes. And I think what was good about SPIE is that our customers start to talk about High NA. And they reported a few things. The first thing is, of course, the fact that High NA can allow them to reduce the number of masks significantly. DRAM and logic customers were talking about going from 3 to 1 mask for EUV using High NA. And they also mentioned that this can reduce the number of process steps from 100 to 10, which is, of course, significant. That's, of course, the reason why we have High NA. I think we have seen also great progress on the ecosystem, some good presentation with some of our resist partners, pointing to the fact that High NA can be extended when it comes to logic to 18-nanometer line and space pitch. And when it comes to memory to 28-nanometer hole size. So it means basically that not only High NA is getting ready for prime time, but we already know that High NA can be extended mostly for 3, 4 nodes, which is, of course, very important for our customers. And finally, maturity of the tool is important. We continue to see better availability data, more wafers per day, more wafers out. And this is just, of course, becoming more and more important as we see our customers starting to test High NA on real products. Jim Kavanagh: So I'd like to thank you both for joining us today. And yes, thanks very much. R.J.M. Dassen: Pleasure.
Operator: To all sites on hold, we appreciate your patience and ask that you please continue to stand by. Your program will begin in six minutes. To all sites on hold, we appreciate your patience and ask that you please continue to stand by. Your program will begin in four minutes. To all sites on hold, we appreciate your patience and ask that you please continue to stand by. The program will begin in just a moment. Please stand by. Your meeting is about to begin. Welcome to the M&T Bank Corporation First Quarter 2026 Earnings Conference Call. All lines have been placed on listen-only mode, and the floor will be open for your questions. Lastly, if you require operator assistance, please press 0. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Rajeev Ranjan, Head of Investor Relations and Corporate Development. Please go ahead. Rajeev Ranjan: Thank you, Angela, and good morning. I would like to thank everyone for participating in M&T Bank Corporation’s First Quarter 2026 Earnings Conference Call. If you have not read the earnings release we issued this morning, you may access it, along with the financial tables and schedules, by going to our investor relations website at ir.mtv.com. Also, before we start, I would like to mention that today’s presentation may contain forward-looking information. Cautionary statements about this information are included in today’s earnings release materials and in the investor presentation, as well as our SEC filings and other investor materials. The presentation also includes non-GAAP financial measures, as identified in the earnings release and investor presentation. The appropriate reconciliations to GAAP are included in the appendix. Joining me on the call this morning is M&T Bank Corporation’s Senior Executive Vice President and CFO, Daryl Bible. I will now turn the call over to Daryl. Daryl Bible: Thank you, Rajeev, and good morning, everybody. Our purpose continues to define M&T Bank Corporation: to make a difference in people’s lives. We do this by helping our customers grow, enabling commerce, and supporting our communities. We value building long-term relationships and being a source of strength and stability to our stakeholders through various economic cycles. We are committed to investing in the places we serve. In this quarter alone, we launched a new Baltimore Ravens College Track Center, a state-of-the-art learning support space for local high school scholars. In New York City, we opened a new full-service branch in the Bronx. And just this week, we announced our work with the Boston Foundation on a multimillion-dollar program with the City of Boston to accelerate the city’s innovation ecosystem. Looking ahead to 2026, our priorities remain clear: operational excellence—building simpler, more consistent, and resilient operations—and teaming for growth, which is about working more seamlessly to deepen relationships and expand opportunity in our markets. We enter this season with the same relentless commitment to disciplined execution and long-term performance. To that end, before we get into the results this quarter, let me underscore some long-standing qualities that have come to characterize M&T Bank Corporation’s performance. We have always maintained a strong balance sheet, starting with a very high-quality loan portfolio, proven asset quality performance over the long term, strong levels and quality of capital, and ample liquidity. Regardless of the business environment, we remain steadfast in our disciplined approach to underwriting, pricing, and risk management. At times, that results in focused growth in some loan categories while remaining vigilant in others, as was the case last year and this quarter. I would rather say no to a transaction than compromise on structure and pricing. We chose to be selective to preserve the high quality and low volatility of our revenue and earnings stream. Those tenets serve us well. I am confident that we will see growth across all loan categories this year, but in a manner that delivers progress while protecting all of our constituents, including customers, communities, and investors. As the industry navigates some new uncertainties from current events, we have chosen to be cautious with our NIM expectations, but we remain confident in delivering the performance we expected when we started the year. Our pipelines remain strong, but we chose not to chase growth or yield if a transaction does not fit our underwriting and return standards. We have one of the highest-quality risk-adjusted NIMs in the peer group, and we will maintain that while delivering strong results driven by a well-diversified revenue stream. We are starting with strong year-over-year fee income momentum, and those fee income growth contributors are of high quality and low volatility. Asset quality has been improving notably. Our strong capital levels, as well as our consistent capital generation, give us flexibility for share repurchases. In combination, these factors will allow us to produce strong pre-tax pre-provision revenue and earnings, in line with and with a possibility of exceeding expectations. As we go through the presentation today, I will highlight the strength and diversification of M&T Bank Corporation’s balance sheet, capital, asset quality, and revenue, which enable us to outperform consistently across cycles. We continue to receive recognition for our performance, including the impact of our charitable team and our engagement with investors, reflecting the dedication of our teams across M&T Bank Corporation. Now let us turn to the results for the first quarter. Our results represent a strong start to the year with several successes to highlight. Net interest margin expanded 2 basis points, reflecting continued fixed-rate asset repricing and deposit cost discipline. C&I growth was strong, with average C&I loans growing $1.5 billion from the fourth quarter, including a pickup in middle market growth. Fee income remains a bright spot, growing 13% from 2025, with solid year-over-year growth in each of our fee categories. Credit continues to perform well, with more than $700 million reduction in criticized balances and net charge-offs of 31 basis points. We brought our capital levels within our operating range and executed $1.25 billion in share repurchases, representing over 3.5% of shares outstanding as of 2025. Diluted GAAP earnings per share were $4.13, down from $4.67 in the prior quarter. Net income was $664 million compared to $759 million in the linked quarter. M&T Bank Corporation’s first quarter results produced an ROA and ROCE of [inaudible], respectively. Supplemental reporting of our results on a net operating or tangible basis shows net operating income of $671 million compared to $767 million in the linked quarter. Diluted net operating earnings per share were $4.18, down from $4.72 in the prior quarter. Net operating income yielded an ROTA and an ROTCE of [inaudible] for the recent quarter. Next, we will look a little deeper into the underlying trends that generated our first quarter results. Taxable-equivalent net interest income was $1.76 billion, a decrease of $27 million, or 2%, from the linked quarter. Net interest margin was 3.71%, an increase of 2 basis points from the prior quarter. This improvement was driven by a positive 8 basis points from the higher spread driven by fixed asset repricing, remixing of cash to securities, deposit pricing discipline, and a favorable impact on our swap portfolio. That was partially offset by a negative 6 basis points from a lower contribution of free funds driven by share repurchases and the impact of lower rates on the value of free funds. Average loans and leases increased $800 million to $138.4 billion. Higher commercial loans were partially offset by lower CRE and consumer balances. Commercial loans increased $1.5 billion to $63.8 billion, aided by growth in middle market, business banking, and several of our specialty businesses. Higher middle market loans reflect an uptick in utilization in the first quarter. CRE loans declined 3% to $23.5 billion, reflecting somewhat moderating paydowns but softer volume, particularly in January and February. However, we saw strong CRE origination activity in March. Residential mortgage loans were largely unchanged at $24.8 billion. Consumer loans declined 1% to $26.3 billion from lower recreational finance and auto loans due to poor weather early in the year. Loan yields decreased 14 basis points to 5.86%, reflecting lower rates on variable-rate loans, partially offset by fixed-rate loan repricing and eliminating the negative carry on our swaps. Our liquidity remains strong. At the end of the first quarter, securities and cash held at the Fed totaled $53.1 billion, representing 25% of total assets. Average investment securities increased $1.1 billion to $37.8 billion. The yield on investment securities increased 9 basis points to 4.26%. The duration of the investment portfolio at the end of the quarter was 3.8 years, and the unrealized pre-tax gain on the available-for-sale portfolio was $9 million. While subject to the LCR requirements, M&T Bank Corporation estimates that its LCR at quarter end was 107%, exceeding the regulatory minimum standards that would be applicable if we were a Category 3 institution. Average total deposits declined $800 million to $164.3 billion. Noninterest-bearing deposits increased $400 million to $44.6 billion, aided by institutional services. Interest-bearing deposits declined $1.2 billion to $119.7 billion, driven by lower brokered deposits. Interest-bearing deposit costs decreased 21 basis points to 1.96%, with lower deposit costs across each of our segments. We have been able to grow customer deposits and maintain deposit cost discipline. Since 2025, we have more than funded our loan growth, with average customer deposits outpacing loan growth by more than $1 billion. We grew customer deposits while maintaining deposit cost discipline, reflected in a 56% interest-bearing deposit beta since the start of the cutting cycle in 2024. Noninterest income was $689 million compared to $696 million in the linked quarter. Mortgage banking revenues were $127 million, down from $155 million in the fourth quarter. Residential mortgage revenues decreased $16 million to $89 million, mostly related to the MSR time decay now being recognized as a contra-fee item rather than an expense. Commercial mortgage banking decreased $12 million to $38 million, driven by lower volumes compared to the fourth quarter. Other revenues from operations increased $24 million to $187 million from a $33 million Bayview distribution, partially offset by lower merchant discount. Noninterest expense for the quarter was $1.44 billion, an increase of $59 million from the prior quarter. Salary and benefits increased $105 million to $914 million, reflecting approximately $115 million in seasonal compensation. Professional services decreased $12 million to $93 million, reflecting lower legal and review costs. FDIC expense increased $31 million, primarily related to a $29 million reduction of estimated special assessment expense in the fourth quarter. Other costs of operations decreased $50 million to $101 million from the previously mentioned changes related to the accounting for the MSR portfolio and a $50 million charitable contribution in the prior quarter. The efficiency ratio was 58.3% compared to 55.1% in the linked quarter. Turning to credit, asset quality was strong, with lower net charge-offs and continued improvement in nonaccruals and criticized loans. The level of criticized loans was $6.6 billion compared to $7.3 billion at December. The improvement from the linked quarter was driven by a $400 million decline in CRE and a $300 million-plus decline in C&I criticized. Nonaccrual loans decreased slightly to $1.2 billion; the nonaccrual ratio decreased 1 basis point to 89 basis points. Net charge-offs for the quarter totaled $105 million, or 31 basis points, decreasing from 54 basis points in the linked quarter. Net charge-offs were granular, with no single net charge-off greater than $10 million. In the first quarter, we reported a provision for credit losses of $140 million compared to charge-offs of $105 million. The allowance for loan losses as a percent of total loans was unchanged at 1.53%. Our NDFI portfolio remains a smaller percentage of total loans compared to our peer group. Three portfolios—fund banking (subscription lines), residential mortgage warehouse lending, and institutional CRE (primarily lending to REITs)—comprise over two-thirds of the NDFI loans and are long-standing and relatively well understood by the market. Business credit intermediaries consist of approximately $700 million of wholesale lender finance, $600 million of business leasing, and $400 million of loans to BDCs. Across the NDFI portfolio, advance rates vary but are calibrated to asset quality, historical recovery data, and collateral performance. Visibility into collateral is strong, with frequent reporting, borrowing bases, independent valuations, and field exams. Diversification is a key mitigant both within structures and across the broader NDFI portfolio. For example, software exposure within our BDC portfolio is less than 15%. Turning to capital, M&T Bank Corporation’s CET1 ratio was an estimated 10.33%, a decline of 51 basis points from the fourth quarter. The lower CET1 ratio reflects $1.25 billion of share repurchases and increased risk-weighted assets, partially offset by continued strong capital generation. In March, the Federal Reserve issued regulatory capital framework proposals. Based on our initial estimate, we see an approximate 90 basis point benefit to our CET1 related to lower risk-weighted assets under the standardized approach. If we were to opt in to the expanded risk-based approach, we estimate an incremental 10 to 20 basis point benefit. The proposal also has a phase-in and inclusion of AFS securities and pension-related AOCI in regulatory capital. At the end of the year, this would be a 4 basis point benefit to the CET1 ratio on a fully phased-in basis. We are well positioned for these proposals given our current capital levels, AOCI, loan mix, disciplined credit underwriting, and relatively straightforward business model. Now turning to the outlook. First, the economic backdrop: the economy continues to hold up well despite ongoing concerns and uncertainty regarding tariffs and other policies. The situation in Iran poses new risks to the U.S. and global economies through energy prices and uncertainty. Consumer spending has slowed but continues to grow in aggregate; however, there is a growing divide between higher- and lower-income households—the “K-shaped” economy. The higher-end consumer continues to be stronger in spending, while the lower-end consumer has maintained but is vulnerable to risks in the environment. U.S. GDP growth has slowed, reflecting slower consumer spending among the impacts. Encouragingly, underlying details for the first quarter show continued strength in equipment investment by firms. The weak labor market in 2025 is showing possible signs of bottoming out, but we remain attuned to risks from geopolitical conflict. We remain well positioned for a dynamic economic environment. Our full-year expectations are unchanged from the ranges we discussed in January’s earnings call, but I will discuss some current trends. We expect NII of approximately $7.2 billion to $7.35 billion, which translates into a NIM in the high 3.60s. We started the year with slower CRE and consumer growth than our initial expectations, though this has been partially offset by strength in C&I. We saw stronger CRE origination volume in March. NII will continue to be dependent on the shape of the curve and loan and deposit balances. We expect both fee income and expenses to trend toward the top of their respective ranges. This reflects strength in both fee income categories and additional subservicing balances, which I expect to bring in during the second half of the year. We will continue to manage PPNR well within the range implied by our January guidance. Our taxable-equivalent tax rate is expected to be approximately 24%, compared to the prior outlook of 24% to 24.5%. We are also moving to the bottom end of the CET1 ratio range of 10%, given continued asset quality improvement and our strong performance. Overall performance remains on track with our initial expectations. To conclude, our results underscore an optimistic investment thesis. M&T Bank Corporation has always been a purpose-driven organization with a successful business model that benefits all stakeholders, including shareholders. We have a long track record of credit outperformance through all economic cycles, while growing within the markets we serve. We remain focused on shareholder returns and consistent dividend growth. And finally, we are a disciplined acquirer and prudent steward of shareholder capital. As we close, I want to thank my M&T Bank Corporation colleagues who work tirelessly each day to make a difference in people’s lives. Because of you, M&T Bank Corporation is able to support all of our communities. Thank you. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, press 1 on your keypad. To leave the queue at any time, press 2. Once again, that is 1 to ask a question. Operator: Our first question today comes from Manan Gosalia with Morgan Stanley. Your line is open. Please go ahead. Manan Gosalia: Good morning. I really appreciate all the detail on the capital side, so maybe I will start there. First, you are saying ERBA is a positive. I just wanted to clarify that you were saying that you will be adopting that, or is it still something you are deciding on? And is there a higher expense impact from opting in or anything else that we might not be considering? And second, on the ERBA, what is driving that benefit? How are you thinking about credit risk and op risk? Daryl Bible: Thank you for the question. The proposal just came out. It has to go through the comment process and then the approval process. I cannot commit that we will adopt the ERBA, but what I can tell you is, if there is an advantage that we see today that does not change, it is up to us to make good decisions for our shareholders. That would mean we would probably opt in. We will see how things play out, but if you are going to get that much of an advantage, we can put processes in place that should more than pay for it. Manan Gosalia: Got it. And then you did a pretty significant buyback this quarter, and you are bringing down the CET1 guide. Now that we have the new capital proposals, assuming they go through as written, what would the right normalized CET1 level be for M&T Bank Corporation over the longer term after the RWA benefit? And what will determine how quickly you get there? Daryl Bible: It is a proposal, so let us use round numbers. If we adopt it and CET1 goes up roughly 100 basis points, we would need to see what other constituencies—primarily the rating agencies—think about that, because there is actually capital coming out of the system, but they also use RWA in many of their calculations. We need more measurement there. My guess is, whether you get the full benefit or not, you probably will trend down lower, and you will probably see that easily in the tangible equity ratio. Analyst: Got it. Thank you. Operator: Thank you. Our next question comes from Scott Siefers with Piper Sandler. Your line is now open. Scott Siefers: Thanks for taking the question. Daryl, I was hoping you could expand on what caused the margin to come in a little below your prior expectations. I think you mentioned in your prepared remarks that you are choosing to be a little cautious on the guide. Has anything changed, or are you just approaching with an abundance of caution? Daryl Bible: It is a combination of two things. We did not come out of the blocks really strong in consumer indirect. That is an important portfolio to us because it has higher yields, and it was more of a weather event. We believe we are going to catch that up and make progress, but until that happens, we are being cautious. From a CRE perspective, seasonally it always drops off in the first quarter, but we had over $1 billion in originations in March. We are off to a great start in the second quarter, so we should have a lot of confidence that CRE is going to get on track and grow this year and do really well. It is just a matter of when that happens, and that would be a benefit. The only other thing I would weigh in is, with higher rates it is harder to get growth in our DDA accounts. We were hoping to grow those a little more. We will see if rates stay flat or go down. We are just being cautious based on what we are seeing; we do not want to overcommit. Scott Siefers: Perfect. Thank you. And one tick-tock one: maybe discuss the overall level of borrowings. As I look at end-of-period short-term borrowings, it is about as high as I can remember for some time, and it did not look seasonality related. Anything going on there we should be aware of? Daryl Bible: We were managing to our short-term ratios, and we also have a lot of volatility in deposits within our ICS business. We have it for a while, then it goes away, and it replaces it. We are good at keeping our lines open in multiple places so we always have access. I am a big believer in leaving lines in place, and if we need to draw upon them and increase them, we can do it immediately, same day. It is how we manage our balance sheet to minimize size. We do not want it too large. We want to operate at an optimal balance sheet size. Scott Siefers: Got it. Perfect. Thank you very much. Daryl Bible: You are welcome. Operator: Thank you. Our next question comes from Gerard Cassidy with RBC Capital Markets. Your line is now open. Gerard Cassidy: Hi, Daryl. Daryl Bible: Hey, Gerard. Gerard Cassidy: Circling back to the NDFI portfolio, which you give us very good detail on. Based upon M&T Bank Corporation’s history as being one of the better credit underwriters, your institution—similar to your peers—has grown these portfolios quite rapidly over the last five years. What has driven such material growth in this category versus other categories? Are there one or two reasons, whether better capital treatment or something else, that drove the growth? Daryl Bible: The bulk of our NDFI portfolio is three primary businesses. Mortgage warehouse lending is a core business for us. It is a really safe credit business if you run strong operations and perfection of collateral. We run it efficiently and profitably. Lending to REITs is something we have done for a long period; it is another sound way of growing, and that portfolio has been growing nicely. Fund banking and capital call lines is a business we acquired from Webster. We like the business from a credit perspective and believe it is a good fit. We have been growing it to right-size for M&T Bank Corporation rather than the size it was when we acquired it. Those three are really our core ones; everything else is relatively small. We feel very comfortable growing what we have. Gerard Cassidy: Speaking of growth, you touched on CRE mortgages picking up in March. Can you expand on what you are seeing in CRE lending versus C&I? What is the outlook? Daryl Bible: Our CRE business platform is one of the best in the industry. We have five distinct business lines. First is our regional portfolio—core to us—which had been shrinking, but we are now very active in those regions and generating more production. We believe our regional businesses will continue to grow. Several years ago, we got into the originate-and-sell business with RCC. RCC is another way of serving clients. We do business on and off balance sheet. Last year, RCC originations were about the same as on-balance-sheet originations; we get paid fee income even when it is off balance sheet. That business had record performance last year and continues to perform very well. We also have the institutional CRE business with REITs, which has been growing nicely and will continue to grow. We formed a dedicated affordable housing business line—more complicated underwriting, but by pulling it together we will generate more consistent volume and build relationships. Lastly, we have the warehouse business, which is also attractive. Net, we feel really positive that CRE will continue to grow and you will see loan growth and fee income; it is bigger than just the balance sheet. Gerard Cassidy: You have done a very good job bringing down criticized loans in CRE from a year ago. What were the drivers—paydowns, improved cash flows? Daryl Bible: It is broad-based. We have seen improvement in operating performance, and some borrowers are paying off and going elsewhere. It is a combination. The improvement in credit quality gives us confidence to continue bringing down capital levels, and you see that in our share repurchases. Operator: Thank you. Our next question comes from Analyst with Deutsche Bank. Analyst: Hey, everyone. This is Nate Stein on behalf of Matt O'Connor. I wanted to drill down on the CRE comments. You said originations picked up in March, but is it fair to say that CRE loan balances can grow in 2Q and beyond? Daryl Bible: I have been saying that for a couple of quarters, so you probably do not believe me anymore. I will not commit to that. What I will tell you is we have a lot of momentum. We are growing and getting more customers. Whether we grow average or point-to-point in the second quarter, I am not concerned. I know it is going to grow this year. Our teams are working hard and having fun working with customers and projects. We will have a very successful business with positive revenue from both fees and balances. Analyst: Thank you. And then a quick question on the use of excess capital. First-quarter buybacks were really strong—more than double the quarterly pace. How do you think about the CET1 range 10.5% to 10% and pacing, given the backdrop? Daryl Bible: The reason we widened the range is continued improvement in asset quality. We feel comfortable that our long-term CET1 ratio, approved by the Board, is 10%. We feel comfortable going there. We left 10.5% out there because there is a lot of geopolitical risk. If we see signs of stress, we will stop buybacks and accrete capital. In any quarter without share repurchases, net of dividend, we accrete about 25 basis points, so we can accrete back quickly. Right now, we feel very good and will continue to move ratios down, but if we see something we do not like, we will pause and accrete capital. Operator: Thank you. We will go next to Chris McGratty with KBW. Your line is now open. Chris McGratty: Good morning. Interested in your comments on deposit competition. Any specific geographies or markets given the industry is putting up a little better loan growth? Daryl Bible: We have a lot of ability to grow customer deposits and have been doing so consistently for many years. We pay competitive rates; we are not the highest or the lowest, but we get our fair share. Competition is always present, but I would not view it as worse than other environments. We had nice growth this past quarter, and I think that continues through the year. Net-net, as in my prepared remarks, we have grown customer deposits more than loans the last couple of years and will continue, shrinking non-core funding if needed. Importantly, across M&T Bank Corporation our businesses are incented to get the operating account first. Once we get that, it opens the door and increases wallet share. In business banking, we have a ratio of three times more deposits than loans, and 80% of deposits are operating—really strong. They are growing deposits and have huge loan pipelines. Business banking is performing as well as I have ever seen it. Chris McGratty: Thank you. And on credit spreads across asset classes—any comments about incremental spreads, whether CRE with increased originations or C&I? Daryl Bible: Spreads have moved around a bit; with the conflict in Iran, they probably widened a touch. It is also very competitive, so sometimes a little wider, sometimes narrower—net about the same. We try to be competitive and make sure we get paid for the risk we take. Operator: Our next question comes from Ken Usdin with Autonomous Research. Your line is now open. Ken Usdin: Thanks. Hey, Daryl. As you talk about fee growth and the high end for the year—I know the first quarter had the Bayview distribution benefit—can you flesh out more about the magnitude of the mortgage subservicing books you think you can bring on and how big of an opportunity that is? And more color on where you expect fees to grow? Daryl Bible: We have tremendous momentum in our fee businesses. We have a specialized subservicing business focused more on FHA; it pays a little more because it is higher-touch to service. We think additional subservicing will start to come on at a run rate in the second half of the year—annual revenue run rate in the $30 million to $40 million range, operating at about a 50% margin. We are also seeing really good growth in our trust businesses—both wealth and corporate trust. Corporate trust also brings in nice deposits. Treasury management in commercial is performing really well—high single-digit growth. Capital markets fees, from a low base, are continuing to increase. Now that we have our general ledger converted over this past weekend, our accounting and finance teams will work on breaking that out so you will see it in the next quarter or two. I feel our fees will continue to outperform; we may actually exceed our range. Ken Usdin: Got it. And given your avenues for deposit growth, your decision tree between leaving money in cash versus putting it into the securities book—looks like you are biased toward securities. Where do you want that to live and how do you expect it to go? Daryl Bible: It was fine-tuning. We thought we could hold a little less cash at the Fed and put a bit more into the securities portfolio. It means we will do a little less hedging because we have more fixed-rate assets, but we remain roughly neutral on interest-rate risk. We are positioned well for rates moving in either direction and will continue to manage accordingly. Operator: Our next question comes from John Pancari with Evercore ISI. Your line is now open. John Pancari: Morning, Daryl. Daryl Bible: Morning. John Pancari: You indicated some selectivity in underwriting. What are you seeing that is making you say that? Is it pricing, terms? What areas are seeing returns pressured where you decided to be more selective? Daryl Bible: It is really competitive in lending—commercial, consumer, CRE. As we talk to leaders and teams, I probably lean a little more to structure than pricing—maybe a 60/40 tilt to structure. Structure is not something you want to give on. For good customers, you might stretch a bit on pricing. We are not in a hurry to put a lot of loans on; we will do it the right way and make sure we get paid back and have good earnings streams. We are performing well, generating a lot of capital, and returning a lot to investors. We are not under pressure; we are doing the right things for the long term, which is what you would expect from M&T Bank Corporation. John Pancari: Got it. Thank you. And on M&A, can you update thoughts—both bank and nonbank—given the backdrop? Daryl Bible: M&T Bank Corporation is very consistent with a long history and track record on M&A and shareholder returns. We have always been very selective. Anything we consider must meet both our strategic criteria—primarily in-footprint—as well as our financial criteria. We will continue to focus on running the company well. If something fits, we will consider it, but we are not going to stretch. Operator: We will go next to Ebrahim Poonawala with Bank of America Securities. Your line is now open. Ebrahim Poonawala: Good morning, Daryl. You talked about the GL update—I think it gets completed this year. Give us a sense of tech spend and what projects are upcoming over the next year or two as we think about infrastructure upgrades? Daryl Bible: We went live on our general ledger this past weekend. It is performing really well, and that is behind us. Hats off to the team—hundreds of people across technology, business, and finance—and our partner EY over three years. As for tech spend, it gets reallocated to other priority projects. Priorities now: teaming for growth—deeper wallet from customers and in regions—and operational excellence—simplify and automate operations using AI and other tools. We are off to a good start. This will be a multiyear effort. As projects like the GL roll off, others fill in. We have a strong planning process to allocate spend, balancing strong investor returns with getting a lot done across the company. Ebrahim Poonawala: On capital, the roughly 100 bps benefit you could get from the proposals—if rules go effective in January 2027 or January 2028—how do you think about deploying that if your CET1 target remains the same? Do you get more active on buybacks? Daryl Bible: We have to wait to see final rules after the comment period and what gets passed. It is directionally right. With LTVs, we are a conservative lender and have a huge lift because of our LTVs; that will continue to be core. It is too early to say how we will deploy the capital. We want to serve all constituencies and will decide as we know more. Ebrahim Poonawala: Anything you would advocate for in the comment period—technical items that may not reflect your balance sheet’s risk? Daryl Bible: I think it is a fair, data-driven assessment. Standardized RWAs are directionally right. Under the enhanced approach, there is a good advantage for us because of our LTVs. Also, if fee businesses remain favored, our Wilmington Trust businesses benefit. Our business mix appears well positioned under what we are seeing. Operator: We will go next to Analyst with Jefferies. Your line is now open. Analyst: Hey, guys. This is Brooks Dutton on for Dave today. On deposit betas going forward, you reported a 56% beta through the cycle so far. How much additional beta do you expect if rates stay higher for longer? And if you could touch on a modest curve steepening or lower short-term rates and how that would translate through NIM and NII given your current balance sheet positioning? Daryl Bible: Simplifying it: rates were going up—our deposit beta was in the low-to-mid 50s. Rates are coming down—right now we are in the mid-50s coming down, and we will probably stay low-to-mid 50s coming down. At some point—maybe 50 to 100 basis points more—the consumer portfolio hits floors and then that beta starts to shrink, but we are still a ways away. It is not rocket science; it should go up as much as it goes down if you are disciplined on deposit pricing. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks. Rajeev Ranjan: Again, thank you all for participating today. As always, if any clarification is needed, please contact our Investor Relations department at 716-842-2518. Thank you all. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, and welcome to the Vince Holding Corp. Fourth Quarter and Full Year Fiscal 2025 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Akiko Okuma, Chief Administrative Officer and General Counsel. You may begin. Akiko Okuma: Thank you, and good morning, everyone. Welcome to Vince Holding Corp Fourth Quarter and Full Year Fiscal 2025 Results Conference Call. Hosting the call today is Brendan Hoffman, Chief Executive Officer; and Yuji Okumura, Chief Financial Officer. Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that the company expects. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that statements made during the call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on the call. In addition, in today's discussion, the company is presenting its financial results in conformity with GAAP and on an adjusted basis. The adjusted results that the company presents today are non-GAAP measures. Discussions of these non-GAAP measures and information on reconciliations [ of them ] to their most comparable GAAP measures are included in today's press release and related schedules, which are available in the Investors section of the company's website at investors.vince.com. Now I'll turn the call over to Brendan. Brendan Hoffman: Thank you, and good morning, everyone. I'm incredibly proud of the strong operating results we are announcing today, highlighting the exceptional momentum we delivered at the end of the year that has continued into the start of fiscal 2026. As we announced earlier this year, we saw incredible strength in our direct-to-consumer business over the holiday period, and that remained the case throughout the full quarter. For the fourth quarter, sales in our direct-to-consumer business increased about 10% compared to last year, supported by our ongoing efforts in improving the customer experience and by the strategic pricing actions taken earlier in the fall. For the overall quarter, sales were up nearly 5% compared to last year and profitability outpacing the high end of our prior guidance raise. We are especially proud of this performance, given the disruption we experienced with developments from Saks Global, which presented a headwind to sales of approximately $2 million in the quarter. With the recent reorganization of Saks Global, we now have more clarity into the situation and are working with our partners there as they move forward in their plans. As a reminder, Saks Global recently represented less than 7% of our total sales. We remain supportive and confident in the new leadership team's ability to stabilize the business. We believe any change in penetration from this one partner going forward will be offset by strength elsewhere in the channel given our diversified base and strong relationships across our wholesale business. This is a credit to not only our strong partnerships, but to a great product that is resonating across both men's and women's. We're also really pleased as we continue to elevate the product offering appealing to our broad customer base. This strong performance supported by our fiscal 2025 results, which delivered sales growth of over 2% and adjusted EBITDA growth of about 8% despite contending with approximately $8 million of incremental tariff costs. As we have discussed, our teams have done a tremendous job in mitigating the tariff pressures we face. We acted swiftly, diversifying our sourcing across Asia and globally while working closely with manufacturing partners to maintain the quality standard for the [ fine ] Vince. We also implemented strategic pricing increases while maintaining unit sales validating the strength and quality of our product. As we enter fiscal 2026, I am encouraged by the growth we are continuing to drive, and I'm more confident than ever in the trajectory ahead for Vince Holding Corp. Given this, we are exploring opportunities to continue to invest in the customer experience within our full-price direct-to-consumer business. We are looking at areas like special events, people and store operations, including remodels and new store openings, while also continuing to leverage our digital platform and expand dropship to additional categories. In spring 2026, these categories will include handbags, tailor clothing, belts and accessories, creating revenue opportunity with minimal inventory risk for the business. In addition, we are continuing to scale our men's business. We ended the year with men's representing approximately 24% of total sales and continue to see opportunity to expand this 30% penetration, driven by growth in wholesale partnerships and expanded assortments in our own stores and online. And with respect to our international business, our second London store in Marylebone exceeded expectations this year and validated our thoughts on further international expansion. This success gives us confidence to explore additional flagship opportunities in gateway cities like Paris in the next 2 years. Finally, the strategy, I believe, will really help to accelerate our growth as our focus on maximizing [ Vince Holding Corp ] as a platform. While we do not have anything yet to report, we are continuing to look for opportunities to leverage our platform our world-class team and capabilities to support additional brands. This will create a new revenue stream for Vince Holding Corp. We could not be more enthused by our partnership with ABG, which not only opens channels for us, but also provides great opportunities with respect to marketing and engaging customers. We are thrilled to partner with the ABG team with a recent event of the [ Masters ] last week, and we're looking forward to doing similar types of interactive activations with the team for future high-profile events. This is in addition to the elevated outreach that we were also doing in partnership with our wholesale partners. Following the successful brand events at the end of last year with Nordstorm and celebrating our holiday campaign at our Madison Avenue, New York City flagship, we have continued the storytelling around the Vince brand. We recently celebrated an exclusive capsule collection for Spring 2026 as part of Bloomingdale's California Love campaign and hosted an influencer and editor event to showcase the capsule and preview of our Spring 2026 collection with over 100 editors and influencers in attendance. As part of the event, we also [ hosted ] a private VIC dinner with Bloomingdale VICs complete with a fashion show and model presentation to great success. Fiscal '26 is off to a strong start on all accounts. As Yuji will review and have seen in our outlook in today's press release, the momentum we ended fiscal '25 with has continued across all channels. Our full-price business has never been stronger, reflecting the customers' continued [ look ] for the product and value they see for the brand. We believe macro events aside, we are positioned well to continue to deliver healthy profitable growth. A little over a year ago, I returned to Vince as CEO. I cannot emphasize enough the pride that I have in our team, our business and the results we have delivered to date. I want to thank our incredible associates for their dedication and execution throughout fiscal '25. Their ability to evolve the product, maintain quality and execute against our strategic priorities gives me tremendous confidence in the future. We are operating from a position of strength with disciplined execution and a clear road map for growth. I look forward to updating you on our progress as we move through the year. Now I'll turn it over to Yuji to discuss our financial results and outlook in more detail. Yuji Okumura: Thank you, Brendan, and good morning, everyone. As Brendan reviewed, our fourth quarter performance reflected ongoing strong momentum in our direct-to-consumer segment that we are pleased to see continue into the start of the new year. Before I discuss our first quarter and fiscal 2026 outlook. Let me review our fourth quarter results in more detail. Total company net sales for the fourth quarter increased 4.7% to $83.7 million compared to $80 million in the fourth quarter of fiscal 2024. With respect to channel performance, our direct-to-consumer segment increased 10.4%, driven by strong performances across both our e-commerce business and stores. This performance offset the 1.2% decline in our wholesale channel, largely driven by the decision to pause shipments to Saks Global. Gross profit in the fourth quarter was $41.1 million or 49.1% of net sales. This compares to $40.1 million or 50.1% of net sales in the fourth quarter of last year. The decrease in gross margin rate was primarily driven by approximately 300 basis points due to the unfavorable impact of higher tariffs, 160 basis points due to the success of our promotional Black Friday and Cyber Monday events and approximately 125 basis points due to increased freight costs. These factors were partially offset by a favorable impact of approximately 380 basis points, primarily due to higher pricing. Selling, general and administrative expenses in the quarter were $44 million or 52.6% of net sales as compared to $37.8 million or 47.2% of net sales for the fourth quarter of last year. The increase in SG&A dollars was primarily driven by $6 million of bad debt expense related to Saks reorganization. Loss from operations for the fourth quarter was $2.9 million comes from operations of $29.7 million in the same period last year. Adjusted operating income, which excludes the $6 million related to the Saks reorganization was $3.1 million. This is compared to adjusted operating income of $2.5 million in the same period last year, excluding the impact of goodwill impairment charges and P180 transaction expenses incurred in the period. Net interest expense for the quarter decreased to $0.7 million compared to $1.6 million in the prior year. The decrease was primarily due to paydown of the third lien facility which occurred during January 2025. At the end of the fourth quarter of fiscal 2025, our long-term debt balance was $19.5 million. Income tax expense was $0.5 million compared to $2 million income tax benefit in the same period last year. The year-over-year change is primarily driven by tax benefits taken in the prior comparative quarter due to the reversal of the noncash deferred tax liability associated with the goodwill impairment, which previously could not be used as a source of income to support the realization of certain deferred tax assets related to company's net operating losses. Net loss for the fourth quarter was $3.6 million or a loss per share of $0.28 compared to a net loss of $28.3 million or loss per share of $2.24 in the fourth quarter of last year. Adjusted net income for the fourth quarter of fiscal 2025, which excludes the bad debt expense previously reviewed was $2.4 million or $0.18 per share. This is compared to the prior year period adjusted net income of $0.8 million or $0.06 per share, which excludes the impact of the goodwill impairment charge and its associated tax impact and the transaction expenses incurred during that period. Adjusted EBITDA was $4.5 million for the fourth quarter compared to $5.4 million in the prior year. This performance capped off a solid year overall despite navigating a highly dynamic environment, resulting in a net sales growth of 2.2%, reported net income of $6.4 million and adjusted EBITDA of $15.1 million. Please refer to our press release for more details on our full year performance and reconciliation of non-GAAP measures. Moving to the balance sheet. Net inventory was $66.2 million at the end of fourth quarter as compared to $59.1 million at the end of fourth quarter last year. The year-over-year increase was primarily driven by approximately $4.8 million higher inventory carrying value due to tariffs. Turning to our outlook. As discussed, we have seen the momentum experienced in the fourth quarter continue into the start of fiscal 2026. In addition, our outlook assumes a reduced reciprocal tariff rate of 15% and which we expect any benefit to be largely offset by the increase in supply chain costs driven by the rise in fuel and shipping costs. We are also not assuming any benefit with respect to potential tariff refunds. For the first quarter, we expect total net sales growth of approximately 8.5% to 10.5%, adjusted operating loss as a percentage of net sales of approximately negative 3.5% to negative 4.5% and adjusted EBITDA as a percentage of net sales to be approximately negative 1.5% to negative 2.5%, reflecting year-over-year expansion compared to negative 5.2% in the prior year period. For the full year fiscal 2026, we expect net sales growth to be approximately 3% to 6%. Adjusted operating income as a percentage of net sales to be approximately 3.5% to 4%. And for adjusted EBITDA as a percentage of net sales to be approximately 5% to 5.5%, compared to the 5% in the prior year. In summary, we are very pleased with our strong end of fiscal 2025 and the momentum we are driving to start fiscal 2026 underscoring our team's disciplined approach and our commitment to executing on our objectives. This concludes our remarks, and I will now turn it over to the operator to open the call for questions. Operator: [Operator Instructions] Your first question comes from Eric Beder with SCC Research. Eric Beder: Congratulations on a great year. Let's talk a little bit about some of the changes you're doing in terms of the stores. So talk to me about -- so in our services, we saw continued emphasis kind of on showing more color and are growing emphasis on some of the newer categories like [ drop ] shipping and suiting and handbags. So what should we be seeing as we move through 2026 in terms of how the stores are going to tweak for kind of these changes to maximize, kind of, further growth? Brendan Hoffman: Yes. I think we're continuing to experiment with some of our store setup, especially as we do some renovations. We pull out some legacy cash wraps, which opens up the stores, allows us to better showcase the way Caroline and the team envisioned kind of the way people are outfitting, mixing and matching and some doing group sets with our product. I think in terms of the other categories you mentioned, drop ship is a tool we are able to use online to take advantage of our license partners inventory. We started with shoes, with Caleres and we'll add in handbags, suiting accessories in Q2. But to your point about being able to showcase some of these categories in the stores, I've always felt and was taught by our founders that it's important to have some more texture in the store that can only be given by having additional categories beyond just apparel. And so I think we are strategically utilizing those categories like handbags and accessories and [ cold ] weather and some others to provide more interest when the consumer is shopping. To the extent they become real revenue drivers, I mean that's a bonus. And I think we have that potential, but more so online because of the drop ship. But it also allows us to storytell better, both in-store and with some of our social media and digital marketing. So we're really pleased with the way we've been able to expand categories and the partnership with authentic brands to drive that. Eric Beder: Great. And when we look at that, I know that there was some of a -- what's the word here. There were some of the tariffs kind of was kind of a little bit shock in terms of this, how should we be thinking about for this year and going forward in terms of the potential for both domestic and international stores? I know you mentioned Paris and London stores have done really well. How should we be thinking about the potential here in the U.S. now that we're, I guess, [ free somewhat ] more normalized than we were last year. Brendan Hoffman: Yes. I think in terms of domestic stores, we're going to open some we're going to close some. We obviously are very enthusiastic about the performance we had in Q4 with our stores. And as we mentioned in our remarks, that's continued in Q1. Probably the best performance I've seen over the course of 6 months in our stores in my 6 years here on and off. So I'm more bullish than ever on our ability to really drive productivity in our stores. And that gives me more confidence and the team more confidence to go out there and look for new locations. I don't think at the end of the day, you will see a huge increase in our store count. I think it will be -- hopefully, incrementally, we'll be able to add a few, but I think in large part, we're in most of the markets we want to be in, and it's more about rationalizing some of the stores and driving more productivity through the existing boxes. I think internationally, as you mentioned, Paris would be probably first on our wish list in terms of the next international gateway. We've had such great success with our Marylebone store in London, and I visited in about 6 weeks ago. And truly, it's as good as stores we have in our fleet in terms of representing the Vince brand, where it's located amongst our peers. And I think if anything, it's just raised the bar for us in Paris because to the extent we are able to find something in Paris, it really needs to be a flagship store. We don't really have much representation in Paris. So we want to put our best foot forward, which just makes it a little bit more difficult to find the right location as opposed to finding a secondary store, but I think it's all for the right reasons. And so we'll continue to assess and update you as we have more information. Eric Beder: And last question on wholesale. So Nordstorm, you've expanded down to all [ Nordstorm stores ] of men and women. When you look -- and they are a narrow significant part of your business, when you look at the whole wholesale piece, is it adding a new partners becoming deeper into the partners you have? How should we be thinking about how wholesale can continue to evolve? Brendan Hoffman: Thanks, Eric. Yes. I think it's becoming more -- continuing to become more important with the partners we have only because we're in most of the partners that are appropriate remains, whether it be department stores or specialty stores. We clearly have a lot more growth in Bloomingdale's based on the fact that we've only been back with them for about 4 or 5 years, just going men's all doors. And you see their results, and we have a great relationship with [ Olivier ] and [ Denise ] and the team there. We just did an event with them out in LA. That was terrific. We just did an event with the Nordstrom team, [ Jamie ] Nordstrom in Dallas. So continuing to push that relationship. And then cautiously optimistic that Saks Global, Saks and Neiman and [ Berger ] will are moving in the right direction. We obviously went through the trials and tribulations last year and took a hit in Q4. But with the new -- the old team, new team back with [ Jeff ] and [indiscernible] and then of course, Tracy at [ Bergdorf ]. We know all them well and [ Darcy ]. And so we're hopeful that we can get that business back on track. But currently, clearly, Nordstrom and Bloomingdale's are what's driving our wholesale business. Operator: Your next question comes from Michael Kupinski with Noble Capital. Michael Kupinski: And I offer my congratulations on a great quarter and a great year as well. I'm just wondering, there's been some reports that there has been renewed amount of traffic in malls and stores as well. And I was just wondering overall, are we -- are you seeing that trend? Or is that just some headline news that it's just not really translating into what is actual out there. Brendan Hoffman: Yes, I can't speak to the macro environment. But certainly, as an example, is consistent with that. Again, we've had a great 6-month run with our store business, driven by traffic, driven by conversion, driven by the increased prices that have been so well absorbed. And we have some malls, but then we have a lot of lifestyle and street front centers. And just going to be more pleased with some of the outsized performance we're seeing. And I think some of it has to do with the centers themselves and how they've kind of expanded and reinvented themselves. We have a great lifestyle store in [ Chestnut ] Hill I hadn't been there in 5, 6 years since I've been going from Vince. I went and visited and the center is double what it once was. So that just brings more traffic and we're advantaged there. So some of these malls are investing in themselves and adding in new tenants are expanding. And that's all really positive for bringing qualified traffic that then we could take advantage of. Michael Kupinski: Great. And have you seen more -- where have you seen more of the pressure from competitors recently. I was just wondering if you can just kind of give us a lay of land on the competition in your lane. Brendan Hoffman: Again, I think we're taking market share in our way. So we certainly respect the peer brands we sit with and a lot of them are -- they're all navigating the same issues with [ your ] and some doing it well and some struggling. But I don't think our peer group has shifted all that much in the last few years. And as I just kind of implied with the retail locations, the centers, we actually do better when we're surrounded by our peer group and some luxury players to provide some context in because I think we show up so well, especially with the product doing so well right now when people can compare and contrast us to some of the others that we're neighbors with. Michael Kupinski: And I know that you tapped on this with a couple of Eric's good questions. I was just wondering -- where do you see the most operating leverage that you have on tap right now? And what are some of the more internal bottlenecks that you might be actively working on to remove? Brendan Hoffman: Yes. Well, I think prior to me returning, the team did a great job with their transformation process and really improved margin through IMU. And some of that. Thankfully, we did that because obviously, there were our challenges now with some of the input costs with -- depending on what happens with tariffs. And as Yuji mentioned, with some of the disruption around fuel, but as those things start to play out and hopefully normalize, I think we'll have an opportunity longer term to recapture gross margin accretion. I think also as we start to grow the business and you saw our forecast for this year, that would really be a breakout for us to get out of that $300 million [ toller ] we've been in. We should start to get some SG&A leverage and be able to make some investments back in the business to sustain this growth or be more of a catalyst for this growth. And then as I've mentioned in the past, we're actively looking at other ways we can utilize our platform in partnerships. So we think we have a lot of different levers to pull, and we're hoping that some of the macro issues start to subside, but really proud of the way we got through the last 12 months and couldn't be more confident with how we're situated for success. Operator: This concludes the question-and-answer session. I'll turn the call to Brendan for closing remarks. Brendan Hoffman: Great. Thank you, everyone. We appreciate your continued interest in Vince, and we look forward to updating you on our Q1 results in June. Have a good day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Jim Kavanagh: Hello, and welcome to ASML's Q1 2026 results video. Welcome, Christophe and Roger. Jim Kavanagh: Roger, if I could start with you and ask you to give us a summary of our Q1 2026 results. R.J.M. Dassen: For the quarter, total net sales came in at EUR 8.8 billion. That was within guidance. Included in the EUR 8.8 billion was EUR 2.5 billion for Installed Base revenue. That was a little bit above the guidance. If you look at the gross margin for Q1, 53%. That was at the high end of the gross margin that we guided. If you look at the Installed Base business, as I just mentioned, the Installed Base business was higher than we anticipated. But also if you look at the components in the Installed Base business, there were components in there that actually come in at quite some strong gross margins. So as a result of that, a pretty high gross margin at 53%. Net income for the quarter, EUR 2.8 billion. Jim Kavanagh: Can you also provide us with a guide for Q2 '26 results, please? R.J.M. Dassen: For Q2, we expect EUR 8.4 billion to EUR 9 billion of total net sales. Included in there, again, EUR 2.5 billion of Installed Base business. We expect the gross margin to be between 51% and 52%. Jim Kavanagh: Christophe, if I can switch to you. And can I ask you to give us an outlook on the market and how you're seeing things at the moment? Christophe Fouquet: Well, I think we see that the semiconductor industry growth continued to solidify. This is still very much driven by investment in AI infrastructure. So this translates into a lot of demand for advanced memory, for advanced logic. And we expect, in fact, that the supply will not meet the demand for the foreseeable future. So this is creating a strong constraint in the end market from AI to mobile and PC. And as a result, our customers are strongly invited to create more capacity. So if we look at memory, what our customers tell us is that they are sold out for 2026 and their supply constraint will last beyond 2026. For advanced logic, we see our customer building capacity for several nodes, while they also continue to ramp 2-nanometer in order to address the AI products. Jim Kavanagh: So then I guess it's fair to say, a lot of those capacity additions are adding positively to our own outlook? Christophe Fouquet: Well, absolutely, we see our memory and logic customers increasing their capital expenditure and trying to accelerate basically their capacity ramp in 2026 and beyond. What's also very interesting is that a lot of this demand is supported by long-term commitment at their customer. On top of that, we see both memory customers, DRAM customers and advanced logic customers continuing to increase their adoption of EUV but also immersion. So this translates basically into higher litho intensity and a higher litho demand for ASML. So we're going to continue to work very closely with our customers to increase our capacity. We are doing that in 2026. We'll continue to do that in 2027. Jim Kavanagh: And then maybe Roger, just adding on to that, can you provide a little bit more color or details on what we are actually going to do in terms of adding capacity to support market demand? R.J.M. Dassen: So I think Christophe said it right. We're very clearly working with our customers, fully aligned with customers to give them what they need, and that is in a combination of capacity in terms of new shipments, making sure that systems, that the performance of systems is upgraded as best as we can and also provide Installed Base products. So in that combination, we try to give customers what they need, specifically when it comes to our own capacity. What we're looking at for this year for 2026, we believe we can drive an output for this year of at least 60 systems for EUV Low NA. That's what we currently have. That's what we're currently driving. And added to that, we're looking at deep UV for 2026. As I mentioned a couple of months ago, when it comes to immersion deep UV, we actually had a bit of a slow start because in the course of last year, we decided to actually -- we were looking at a significantly lower demand for immersion. That has now reversed itself. And I would say in spite of that slow start, we're still for this year expecting to get pretty close to the immersion sales that we had last year in terms of unit numbers. So that's for 2026. When it comes to 2027, in terms of capability, we're increasing our move rate really quarter-on-quarter. And then when you look specifically at EUV Low NA, we expect that we're able to get to an output for 2027. Again, if customer demand really underpins that, we think that we can get to at least 80 Low NA EUV units. And we're also looking at having the non-EUV business being in line with what customers are asking for, for all of their nodes. Jim Kavanagh: And then specifically on 2026. Can you give us an update then on our own business then for the full year? R.J.M. Dassen: Yes. So clearly, 2026 is panning out very nicely. It's a very strong year. We're looking at a strong growth year. And based on all the customer dynamics that Christophe was talking about, we are actually narrowing the window and also increasing the window of our expectation to EUR 36 billion to EUR 40 billion for this year. If you look at the different moving parts as we already expected, EUV is strong this year. So EUV in combination of Low NA and High NA, strong year there. On the non-EUV business, previously, we were expecting that to be flat in comparison to last year. Right now, what we're looking at is, in fact, an increase of demand there as well. So increased revenue on the non-EUV business is what we're expecting. I already mentioned what we're doing on immersion, but also the dry business is doing quite nicely and also the application business. So we believe in contrast to where we were a couple of months ago, we're looking at an increase for the non-EUV business. When it comes to the Installed Base business, strong growth there because obviously, it is a very fast way for our customers to increase their capacity to cater to the demand that Christophe was talking about. And I would say that within the guidance that we provided, the EUR 36 billion to EUR 40 billion, we believe we can accommodate potential outcomes of the export control discussions that are currently ongoing. Jim Kavanagh: And how about the gross margin then for 2026? R.J.M. Dassen: For the gross margin, we maintain our expectation of 51% to 53%. Jim Kavanagh: Switching gears a bit to technology. Christophe, can you give us some insights and latest updates on how we're progressing with the technology and our road map? Christophe Fouquet: Yes, I think we continue to execute very nicely on our technology road map. I think every year, we use the SPIE conference to give a bit of an update to the entire world about what we have achieved. A few, I think, important news this year. The first one was our demonstration of the 1,000-watt source. And this is very important because it means that we can secure the extendibility of Low NA EUV for many, many years. It means, in fact, that in 2031, we'll be able to run this tool at 330 wafers per hour, which is a major step-up from what we have today. Now the progress on EUV also has a good impact on the short term. We have been able to increase the throughput of our NXE:3800E from 220 to 230 wafers per hour, which is also helping on the short term with capacity. Our customers are very happy to be able to get more wafers out on any tool. And we are also increasing the specs of our next system, the NXE:3800F to 260 wafers per hour. It used to be 250 wafers per hour, and this will help us also with capacity around 2028. Jim Kavanagh: And I think also at SPIE, there were some updates on our High NA platform progress. Can you share a little there? Christophe Fouquet: Yes. And I think what was good about SPIE is that our customers start to talk about High NA. And they reported a few things. The first thing is, of course, the fact that High NA can allow them to reduce the number of masks significantly. DRAM and logic customers were talking about going from 3 to 1 mask for EUV using High NA. And they also mentioned that this can reduce the number of process steps from 100 to 10, which is, of course, significant. That's, of course, the reason why we have High NA. I think we have seen also great progress on the ecosystem, some good presentation with some of our resist partners, pointing to the fact that High NA can be extended when it comes to logic to 18-nanometer line and space pitch. And when it comes to memory to 28-nanometer hole size. So it means basically that not only High NA is getting ready for prime time, but we already know that High NA can be extended mostly for 3, 4 nodes, which is, of course, very important for our customers. And finally, maturity of the tool is important. We continue to see better availability data, more wafers per day, more wafers out. And this is just, of course, becoming more and more important as we see our customers starting to test High NA on real products. Jim Kavanagh: So I'd like to thank you both for joining us today. And yes, thanks very much. R.J.M. Dassen: Pleasure.
Operator: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Equity Bancshares, Inc. 2026 First Quarter Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1. If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Brian Katzfey, Vice President, Corporate Development and Investor Relations. Please go ahead. Brian Katzfey: Good morning. Welcome, everyone, and thank you for joining Equity Bancshares, Inc.'s first quarter earnings call. A quick note before we dive in. Today's call is being recorded and is available via webcast at investor.equitybank.com with our earnings release and presentation materials. Today's presentation contains forward-looking statements, which are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. After the presentation, we will open the floor for questions and further discussion. Thank you for being here with us today. We have a lot of exciting news to share. Joining me are Rick Sems, our bank CEO, and Chris Navratil, our CFO. With that, let me turn the call over to our Chairman and CEO, Brad Elliott. Brad Elliott: We hit the ground running in 2026, welcoming new customers and team members in Nebraska on January 1. Entering the Nebraska market has been a strategic priority for us, and I could not be more excited about what we will accomplish for the communities we now have the privilege to serve. The Frontier acquisition drove a 20% increase in assets and contributed to record quarterly revenue. It will be a great organic driver setting us up for an exceptional 2026 and beyond. As we grow the teams in Nebraska, as we have been growing the teams throughout our entire footprint, this is going to be a great strategic platform for us to grow organically. In February, we completed the Frontier core system conversion on time and on plan. The ability of our team to align vendors, allocate resources, and execute complex integrations is a genuine competitive advantage. Julie Huber, David Pass, and every team member who worked with them and made this possible, I want to say thank you. As reflected in the year-over-year changes, we have accomplished a great deal over the past twelve months. Compared to March 2025, our asset base has grown by more than 40%. While driving that level of growth through strategic acquisitions, we have grown tangible book value per share by 5% and just posted a quarter with core EPS of $1.32 and a core return on average tangible equity of 16.1%, exceeding the same period of 2025 by 324 and 6%, respectively. Core net income for the quarter grew faster than model expectations for the combined company. When you put this with less tangible book value dilution than we expected, the result is an exceptional start to 2026. Having added Oklahoma City, Omaha, Lincoln, Des Moines, and many other exceptional community markets to our legacy markets, we are positioned to continue to provide exceptional shareholder returns. Beyond merger-driven momentum, our bankers entered 2026 with purpose and energy, focused on our mission: creating opportunities for growth, rolling out new products and processes to better serve our communities, staying laser focused on delivering outstanding returns, and driving a more efficient company. Serving our customers is the core of what we do, and we never lose sight of it. We are leveraging technology and continuously monitoring performance to ensure we are meeting the needs of every customer who relies on us. In the first quarter, we opened a record number of DDA accounts as a result of our retail teams, led by Jonathan Root, prioritizing customer needs and delivering differentiated, exceptional service. We began 2026 with a larger, stronger balance sheet and earnings that meet even our own expectations. We are deploying capital with conviction, driving toward our mission of being a premier community bank in our market while delivering exceptional returns for our shareholders. The market is competitive, but our value proposition is intact, and our balance sheet gives us the runway to execute. Capital is strong, capital generation capacity is at an all-time high, and we remain confident in our $5 per share target for 2026. Our board, leadership, and team are aligned for continued growth. We are operating at a high level as the additional opportunities on the horizon come into view, and I am very excited about what lies ahead. Now let me hand it over to Chris to walk you through the numbers. Chris Navratil: Last night, we reported net income of $17 million, or $0.80 per diluted share. Adjusting for noncore items in the quarter, including merger expense of $5.7 million and Frontier-related provisioning of $6.1 million, adjusted earnings were $26.2 million, or $1.23 per diluted share, up from adjusted earnings of $23.3 million, or $1.21 per diluted share, in the prior quarter. Purchase accounting accretion on the loan portfolio was $3.3 million in the current period, compared to $2.3 million in Q4 2025. Excluding the after-tax impact of core deposit intangible amortization of $1.5 million and $1.0 million, respectively, adjusted earnings on tangible common equity were $27.7 million versus $24.3 million. Adjusted return on average tangible common equity was a strong 16.1% for the quarter. Net interest income was $73.7 million, up $10.2 million linked quarter. Margin came in at 4.33% versus 4.47% last quarter. That dynamic—higher earnings, slightly lower margin—reflects the expected impact of integrating Frontier's balance sheet. Purchase accounting accretion came in $800 thousand ahead of forecast. Normalizing for that, margin would have been 4.29%, right in line with expectations. Noninterest income held steady at $9.5 million. Expanding fee lines, including debit card, credit card, mortgage, insurance, and trust and wealth, offset declines in securities transaction losses and swap fee revenue for the period. Noninterest expenses for the quarter were $55 million. Adjusting for M&A charges in both periods and the prior period's litigation settlement accrual, noninterest expenses were $49.2 million versus $44.1 million, an 11.5% increase linked quarter driven by the Frontier integration. On a normalized basis, adjusted noninterest expense as a percentage of average assets improved 25 basis points to 2.57%. Pretax pre-provision net revenue, excluding M&A costs and $748 thousand in provisioning for unfunded commitments, was $34.7 million, or $1.63 per share, up from $28.8 million, or $1.56 per share, in the prior quarter. Comparing to the same period in 2025, the ratio has improved from $1.23 per share, or 33.1%. The effective tax rate for the quarter was 23.7%, impacted by periodic items not expected to recur; we continue to forecast a full-year effective rate of 22% to 23%. Our GAAP net income included a $6 million provision for loan losses attributable to loan balances added through the Frontier acquisition. Ending ACL coverage was 1.18%. The ending reserve ratio, inclusive of merger-related discounts, closed at 1.77%, up from 1.67%. During the quarter, we were active under our repurchase authorization, buying back 500 thousand shares at a weighted average cost of $44.74. A total of 327 thousand 662 shares remain under the board's September 2025 authorization. TCE closed the quarter at 9%, while CET1 and total capital were 11.5% and 14.4%, respectively. At the bank level, the TCE ratio closed at 9.8%. Now let me hand it to Rick to walk through asset quality. Rick Sems: Q1 delivered strong underlying credit. Nonperforming assets closed at $58.3 million, up $11.6 million, primarily attributed to the addition of Frontier. As a percentage of total assets, they moved just three basis points higher to 0.8%. Nonaccrual loans rose similarly to $52.4 million from $40.3 million, again primarily driven by the addition of Frontier assets. Our nonaccrual exposure is granular, with only four relationships exceeding $1.5 million. Charge-offs reflect continued resolution activity on credits we previously flagged. Loans past due and nonaccrual as a percentage of end-of-period loans increased to 1.86% from 1.53% linked quarter. The move is primarily in the 30- to 59-day bucket, concentrated in one acquired market. It is a merger process issue, not a credit issue. These bankers are simply navigating a new renewal process post-conversion. We anticipate full resolution in Q2. We see nothing systematic that would suggest that this becomes the new normal for our portfolio. Net charge-offs annualized were 10 basis points for the quarter as a percentage of average loans, up three basis points linked quarter. Looking ahead, we remain confident in our credit trajectory. Despite macro uncertainty, credit quality trends across our portfolio are stable and running below historic norms. The Frontier portfolio is granular and well underwritten, as evidenced by their track record, and we do not expect a meaningful impact on our credit quality going forward. Chris Navratil: As I mentioned, margin closed the quarter at 4.33%, ahead of expectations. Loan purchase accounting contributed $3.3 million, or 19 basis points, in the period. Absent near-term payoffs on acquired loans, we anticipate purchase accounting normalizing to approximately $2.5 million in future quarters. Adjusting March results for anticipated accretion yields a normalized margin of 4.29%. Frontier contributed a funding portfolio with a higher cost of funds as compared to legacy Equity Bancshares, Inc., improving future liability sensitivity while creating the anticipated near-term margin tightening. The addition of Frontier balances drove average interest-earning asset growth of 22.2%, average interest-bearing liability growth of 25.6%, and the ending interest-bearing liabilities to interest-earning assets ratio of 76.4%. Our loan-to-deposit ratio closed the quarter at 86%. We continue to expect full-year results consistent with our outlook in the slide deck, including margin in the 4.20% to 4.35% range, with periodic variability tied to purchase accounting. Rick Sems: Before I get into loan production, I wanted to take a moment to recognize the extraordinary effort of the Equity Bank team over the last 180 days. This has been a truly transformational period for our company, and it would not have been possible without the best community bankers in the business showing up every single day. As we enter 2026, we operate in six states, including seven major metros and a deep network of strong communities. We have the tools, the products, and the motivated teams to deliver outstanding performance. During Q1, our production teams continued to fire on all cylinders across the footprint. Loan production was $267 million, up 21.7% linked quarter. Originations came on at an average rate of 6.87%, continuing to drive accretion to current coupon yield, with a 10 basis point increase versus the prior period. Both our metro and community legacy markets contributed positively to the production outcome and were net positive for loans in the quarter. As we discussed, the first nine to twelve months following a merger involves intentional portfolio optimization and planned integration-related attrition, a dynamic we have managed proactively. We have recruited and hired new bankers in Wichita, Oklahoma City, Lincoln, and Omaha, and we will keep adding talent across the footprint. The opportunity to deepen commercial relationships—both loans and deposits—across these new markets is significant, and our teams are locked in on growing our organic engine. Our pipelines continue to build throughout the banker network. At quarter end, our 75% pipeline stands at $517 million. Line utilization was up slightly for the quarter at approximately 56%, with unfunded positions rising alongside production growth, and the addition of Frontier creating meaningful opportunity going forward. Total deposits increased approximately $1.2 billion during the quarter. In addition to the contribution of Frontier, the majority of our legacy markets saw growth, as our retail teams continue to gain traction and execute on our aggressive goals. Outside of our administrative and Nebraska cost centers, balances increased $191 million, including more than 5% growth in five of our community markets. I want to specifically call out our North Central Missouri market, including Kirksville, which saw a 7% increase in balances in the quarter. Acquired in 2024, I am excited to see Norman Baylis and his team finding success to kick off the year. Frontier carried brokered funding positions that are now part of our balance sheet. We have a clear, disciplined plan to reprice and replace those with core relationship deposits over time. Noninterest-bearing accounts are 20.2% of total deposits. Our retail teams are off to a terrific start in 2026, opening record levels of DDAs and executing on the company's goal of deepening wallet share and delivering exceptional service. Heading into 2026, we are well positioned to deploy available liquidity and drive growth across our markets. We continue to anticipate mid-single-digit organic loan growth. The addition of NBC and Frontier adds asset generation depth to our footprint while our community markets continue to provide strong funding opportunities. Management and team members are aligned and bought in. I am genuinely excited about what we will deliver in 2026. Brad? Brad Elliott: I take enormous pride in everything this team continues to accomplish. Growing our asset base by more than 40% across two transactions, both fully converted and integrated, is a remarkable achievement that speaks directly to the caliber of our people. I have never been more confident in what we will build together in 2026. We are committed to empowering our people, serving our customers and communities with excellence, and delivering strong, consistent returns for our shareholders. Our board and leadership team are fully aligned, and we are ready to keep executing on our mission. Sourcing, negotiating, and integrating franchise-accretive M&A transactions is a core competency of Equity Bancshares, Inc. Our team has significant experience in this area given the number of transactions we have completed, and I am proud to announce that we are consistently achieving results better than what was expected at the time of announcement. This is a testament to the team's hard work and prudent and realistic modeling assumptions. This outperformance allows us to drive enhanced earnings and shorter tangible book value earnbacks. We fully appreciate the importance of tangible book value growth over time as a key metric for shareholders' performance and are committed to executing M&A transactions that align with our goals. We are putting the right tools, strategies, and people in place to drive both organic and acquisitive growth, and I genuinely believe we are setting ourselves up for sustained long-term success across the entire footprint. Thank you for joining us today. We are happy to take your questions. Operator: Thank you. We will now open the call for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We will go first to Jeff Rulis at D.A. Davidson. Jeff Rulis: Thanks. Good morning. Just a question on the acquired loan balance. Do you have the Frontier loan balance at acquisition in millions? I know you said $1.3 billion, but also at acquisition and at quarter end, trying to get back into sounds like some decent organic growth. But if you had those Frontier balances, that would be great. Chris Navratil: Yeah, Jeff. It was about $1.28 billion in terms of acquired assets pre-purchase accounting mark. The decline period over period, excluding that—about $40 million we talked about yesterday, and Rick can expand on here—is effectively what we saw in some short-term optimization decline in the Frontier footprint, offset by what is positive production everywhere else in the footprint. So really a good outcome for us in our minds in terms of periodic production, but some of those headwinds exist at the beginning of the integration of that Frontier footprint. Jeff Rulis: But maybe put another way, do you have—it is a combined company as of January 1—but do you have, like, a legacy organic growth that you could also identify, or is that difficult to carve out? Rick Sems: On the loan side specifically, we grew just under 1% in our nonacquired markets—so if you take out Oklahoma and you take out Nebraska—on a point-to-point basis. So just under that, call it roughly 3% to 4% annualized, in those legacy markets on the loan side. Jeff Rulis: Okay. Appreciate it. And then maybe a similar question on the nonaccrual increase. I think roughly $8 million added from Frontier, $4 million from sort of the legacy unit. And maybe if you could put any color on the type of loans that were brought on? And then second piece to that—I think, Rick, you mentioned, sorry, I missed the piece about the—sounded like there was a past due. If you could just outline the balance of that one that was brought on that sounds like it has a quick resolution ahead. Rick Sems: It really was not a single loan. We have one specific market from Nebraska that did not understand how to get renewals done and manage those during that time. Those are all correcting themselves or already have been corrected at this point, Jeff. Brad, what was the balance of those loans? Brad Elliott: It is a little over $30 million. But it is not one loan. It is about 30 or 40 different relationships. Jeff Rulis: Okay. And then maybe last one, if I could. The margin—maybe, Chris, you kind of talked about a 4.29% core. Do you know what that core NIM was for the month of March? It sounds like you have an opportunity to kind of alter Frontier's funding mix a bit, and it sounded more leaning upward than not. But do you have a March figure that would compare to the 4.29% core for the quarter? Chris Navratil: Yeah, Jeff, March actually compares pretty consistently with that 4.29% figure. There are still some potential tailwinds as we look into Q2 and beyond as we are working to reprice some of those Frontier deposits. But that was happening throughout the quarter and really accelerating towards the end of the quarter, so we are not seeing that benefit in March. We will see more of it in April and beyond. The range that is provided in the outlook—I have some optimism that we can hit the high end of that range based on some of those dynamics. But I think because of the periodicity of accretion and the challenges of continuing to work through a balance sheet, there is a risk there as well. So somewhere in that range is fully accomplishable. I think the high end is also accomplishable based on some of those dynamics, but we have to execute on it. Jeff Rulis: Great. Makes sense. Thanks. Operator: We will move next to Adam Kroll at Piper Sandler. Analyst: Hi. I am on for Nathan Race. Good morning, and thanks for taking my question. Maybe starting on funding costs—you know, with deposit costs rising this quarter with the Frontier acquisition, and I know they had a piece of brokered deposits—so I guess I am curious if you could provide some additional color into repricing opportunities you have on the deposit side from both DDA and nonmaturity. Chris Navratil: I think there is an ample amount of repricing capacity. For some color, they had about $100 million that did get repriced in Q1. That was at a weighted average cost of 4.50%. So that is an aspect of their cost of funds that, again, accelerated towards the end of the quarter, that we have been able to reposition into what is comparatively cheaper. Even the newly issued brokered in the period is about 3.75%, so you are picking up 75 basis points on $100 million. They brought in a relatively higher overall cost of funding base, so we will continue to see opportunities to reprice. Some of that did have some duration on it—there is some lockout—so we will continue to have some heavier cost over time, but we are going to continue to see opportunities to bring some of those things down and anticipate being able to do so. Analyst: Got it. I appreciate the color there. Maybe moving to capital management. It is nice to see the step up in the buyback during the quarter, and you have obviously been active on the M&A front with the two deals over the past year. Do you expect to continue to be active on the buyback, and are you seeing opportunities on the M&A front as well? Brad Elliott: We look at capital utilization all the time. Yes, we continue to look opportunistically at buybacks, and we also think we have plenty of capital for continued M&A. We have good capital ratios. We are building capital at a little over $25 million of capital generation a quarter, so we have good capital generation from the operating company. We have different prospects and lots of different opportunities we are talking to on the M&A front, and we will remain active on the buyback side if it works. Analyst: Got it. Thanks for taking my question. Operator: We will go next to Matt Olney at Stephens. Analyst: Wanted to ask more about the expense outlook from here and get some updated thoughts around deal cost savings from Frontier with that conversion now behind us. I am curious how the cost savings are looking compared to the original expectations, and would just love to get some thoughts on when you expect to get the fully loaded cost savings this year. Chris Navratil: A couple of things on that, Matt. On the technology side—the integration as well as some of the people that we maintained through that conversion date—all of those items have been fully taken out of run rate at this point. The cost savings on technology and people are in line with what we expected, and we will start to realize that. We started to realize it at the back end of the first quarter, and we will fully realize it in the second quarter. Generally speaking, as it relates to the cost saves around this transaction, they were relatively conservative—something around 23% on expected cost savings—and I think our execution will realize that or better as we think into Q2 and beyond. So we anticipate being in line to a little bit ahead of where we originally anticipated as we contemplated the transaction. Analyst: And I guess the other part of that is there was a mention about reinvestments, new producer hires—just maybe an update on what you are seeing thus far, new producer hires, and what is in the pipeline? Rick Sems: We have hired probably about 10 additional new bankers between Oklahoma City, Omaha, and Lincoln. Some are replacements and others are adds. All real positive there. The pipeline remains kind of consistent with where it was at the end of the year, and that number really bodes well for second and third quarter. Production numbers look really good. We are seeing a number of additional projects and things that both Brad and I are getting out to see customers and prospects on. It looks like fairly robust opportunities for us. As we have mentioned before, pricing always comes into play on this, and you never count it until it is in. We do have a couple of competitors pricing aggressively on things, but for the most part people are coming back to a little bit more in line with where we are on pricing. So that is positive. That bodes well. Operator: We will take our next question from Damon Del Monte at KBW. Damon Del Monte: Good morning, guys. Hope everybody is doing well. Thanks for taking my questions. Probably for Chris on the reserve and the provision outlook. The reserve came down six basis points quarter over quarter even though there were purchase marks against the acquired loans. Just trying to get a feel for where you are comfortable with where the loan loss reserve can trend over the coming quarters? Chris Navratil: Yeah, Damon, I would look at it as being consistent with where it is on a relative-to-asset basis. As we start to see depletion of those purchase accounting marks and look at the total position relative to the portfolio, there may be opportunity or need to build back up to, call it, a 1.23% type of reserve. But I think in the near term, thinking about it as 1.18% from here plus whatever production is makes sense. My anticipation for need to provide—absent any significant specific reserve items or specific deterioration in credits—is that it is going to account for the production in the portfolio. As we grow the portfolio, so too will we grow the reserve. Damon Del Monte: Okay. So the $6 million to $8 million guidance for 2026 for the total provision—if you back out the one-time CECL impact in the first quarter—we kind of just extrapolate the remaining three quarters to fall in between that range? Chris Navratil: Maybe a little bit less, Damon. I think thinking about it as kind of a $1.5 million to $2 million run rate depending on growth is a good way to continue to think about it. Damon Del Monte: Got it. Okay. That is helpful. And then lastly, on the fee income side of things, can you talk about some of the opportunities to tap into the Frontier franchise and what products and services you think have the best opportunity to ramp up revenues for you? Rick Sems: First and foremost, treasury management. We have brought in a new head of treasury management, and we see that as a real opportunity. That was not something that was really at the forefront of what they were doing. Second, they had a decent-sized mortgage business, and we are continuing to see some potential for mortgage fees going forward. We see that across the footprint—continuing to get the team built out—and we use that as a product for our core customers and for bringing in core customers. We are not really a mortgage shop just to bring in mortgages. Third is wealth management. We are already seeing some real positive results there and being able to grow wealth management. We are looking to add a couple of additional people in our markets. We do really well in the community markets, so in Nebraska—Falls City, Pender, Norfolk, and Madison, where we are—we see those as real opportunities for growth in the future as well. Operator: As a reminder, if you would like to ask a question, press star 1. At this time, we have no further questions. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, everyone, and thank you for joining the First Horizon Corporation First Quarter 2026 Earnings Conference Call. My name is Lucy, and I will be coordinating the call today. It is now my pleasure to hand over to your host, Tyler Craft, Head of Investor Relations, to begin. Please go ahead. Tyler Craft: Welcome to our first quarter 2026 results conference call. Thank you for joining. Today, our Chairman, President and CEO, D. Bryan Jordan, and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, after which we will be happy to take your questions. We are also pleased to have our Chief Credit Officer, Thomas Hung, here to assist with questions as well. Our remarks today will reference our earnings presentation which is available on our website at ir.firsthorizon.com. As always, I need to remind you that we will make forward-looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings. Additionally, please be aware that our comments will refer to adjusted results, which exclude the impact of notable items, and to other non-GAAP measures. Therefore, it is important for you to review the GAAP information in our earnings release, pages two and three of our presentation, and the non-GAAP reconciliations at the end of our presentation. And last but not least, our comments reflect our current views, and you should understand that we are not obligated to update them. I will now turn the call over to D. Bryan Jordan. D. Bryan Jordan: Good morning, everyone. We started 2026 with strong momentum. In the first quarter, we delivered our third straight quarter of 15% or greater adjusted ROTCE, in line with our expectations, fueled by strong C&I client growth and relationship-focused client activity across our markets. Through our differentiated business model, we continue to successfully execute by providing tailored solutions to meet client needs and turning insights into profitable outcomes. We are focused on building true client relationships, staying disciplined on price and structure, and supporting our clients with the full capabilities of our franchise. Our diversified business model with countercyclical businesses positions us well as the operating environment evolves. I will now turn the call over to Hope to walk through our first quarter results. I will provide some closing comments at the end of the call. Hope? Hope Dmuchowski: Thank you, D. Bryan Jordan. Good morning, everyone, and thank you for joining us today. Over the last year, we have talked a lot about our efforts to improve the profitability of the balance sheet and how we laid out our strategy for the entire organization. That work is evidenced in our results this quarter, which include a return on average assets of 1.3%, up 19 basis points from the first quarter last year. Amidst rate decreases over the last year, we have grown net interest income 6% year over year, which outpaced our loan portfolio growth of 3% in that same time, demonstrating our continued focus on profitable growth. We started 2026 with great momentum, including earnings per share of $0.53, which is an increase of $0.11 over 2025. Excluding loans to mortgage companies, our C&I portfolio grew $624 million in the quarter compared to approximately flat growth in 2025. Our performance also includes an 8% improvement in adjusted pre-provision net revenue compared to 2025. Our adjusted ROTCE of 15.1% increased over 200 basis points year over year. Starting on slide seven, we walk through our net interest income and margin performance in the first quarter, which saw NII consistent with the fourth quarter absent day count impact. Our margin expanded by 1 basis point on continued strong performance in managing deposit costs following the Fed’s last rate cut in December 2025. While our variable loan portfolio experienced yield declines in the quarter, our deposit pricing discipline offset this impact. On slide eight, we cover details around our deposit performance in the quarter. Period-end balances decreased by $1 billion compared to the prior quarter, driven primarily by reductions in brokered deposits. The average rate paid on interest-bearing deposits decreased to 2.28%, coming down from the fourth quarter average of 2.53%. We maintain a cumulative deposit beta of 69% since rates started to fall in September 2024. Our interest-bearing spot rate ended the quarter at 2.27%. On slide nine, we cover our quarterly loan growth. Period-end loans increased slightly by $21 million from the prior quarter. This quarter’s results include an impressive start to the year for our core C&I business, which saw $624 million in loan balance growth. This builds on momentum we saw in 2025 and is supported by continued strong pipelines in 2026. Loans to mortgage companies experienced typical seasonality in the first quarter and ended down $62 million versus year-end. This business continues to have momentum as a source of strength for our company. Commercial real estate continues to be a headwind for loan balance growth as stabilized loans move to permanent markets and non-pass loan resolutions reduce balances. Encouragingly, our CRE pipelines are strong and present notable opportunities to stabilize CRE balances in the future. I will also note that our consumer loan portfolio declined $198 million in the quarter, which is in line with normal fluctuations. Our goal for consumer lending is to focus on relationship expansion and profitability. While competition in the market is strong, commercial loan spreads remain generally in the mid-100 to upper-200 basis points. Turning to slide 10, we detail our fee income performance for the quarter, which decreased $12 million from the prior quarter excluding deferred compensation, and is up $13 million year over year. The largest decreases for fee income come from our service charges and fee lines, which were driven by the impact of day count and normal seasonality in other service charges like treasury management fees, interchange income, and NSF fees, and by quarter-over-quarter fluctuations in our equipment finance business. We saw a slight quarter-over-quarter decline in fixed income revenues due to the decrease in ADR to 742 thousand, though this is still a 27% increase year over year. We saw slightly lower ADRs at quarter-end as market volatility increased. On slide 11, we cover our adjusted expenses that, excluding deferred compensation, decreased $32 million from the prior quarter. Personnel expenses, excluding deferred comp, decreased by $10 million from last quarter, driven by an $8 million decline in incentives and commissions, which followed higher incentive accruals last quarter. Outside services decreased by $26 million, which includes reduced expenses related to technology initiatives from last quarter and decreased marketing expenses in the quarter. Turning to credit on slide 12, net charge-offs decreased by $1 million to $29 million. Our net charge-off ratio of 18 basis points remains in line with our expectations. We recorded a provision for credit losses of $15 million in the quarter and our ACL-to-loans ratio declined slightly to 1.28%. This was driven by mix change in the portfolio. On slide 13, we ended the quarter with a CET1 of 10.53%, driven by buyback activity and loan growth in the quarter. During the quarter, we bought back approximately $230 million of common shares. We have approximately $765 million in our current board authorization remaining. During the quarter, we successfully issued $400 million of Series H preferred stock, which drove the 44 basis point increase to our Tier 1 capital ratio of 11.95%. Our tangible book value per share is $14.34, which is up 9% year over year. This includes buybacks of $766 million during that period and an increase to our dividend. I will wrap up on slide 15. I am proud of the momentum we have to start 2026. We continue to maintain our full-year outlook and updated our near-term CET1 target to 10.5% during the first quarter. For the third consecutive quarter, we achieved 15% plus adjusted ROTCE, reflecting our focused execution on our business priorities. We continue focusing on deepening our client relationships, fully delivering our products and services across our excellent footprint, and enhancing our capabilities to create value for clients and shareholders. All of this moves us towards achieving the $100 million plus PPNR we noted last year as our opportunity in the next couple of years. We made initial progress on this objective last year and continued doing so in 2026. Our revenue expectations reflect continued capture of this profitability throughout the year. Expense discipline and underwriting consistency continue to be central to our company, and disciplined capital deployment continues moving us towards our intermediate-term CET1 targets. I will now turn it back over to D. Bryan Jordan. D. Bryan Jordan: Thank you, Hope. On the whole, we feel very good about how we started the year. We are seeing strong client activity in our commercial pipelines as well as business owners planning for growth. Relationship banking remains our priority, focusing on primary relationships, deepening treasury and wealth management, and making sure our solutions match client needs. In the first quarter, we saw strong production essentially evenly balanced between our regional banking and specialty verticals. C&I loan commitments reflected both deepening of existing relationships and new client acquisitions. And our CRE pipelines are as strong as they have been in years. We manage our business with three priorities: safety and soundness, profitability, and growth, which is evident in our results again this quarter. Competition is active, but our associates are protecting our base and winning with exceptional service and value. We expect that discipline, along with healthy C&I demand and the strength of our markets, to drive revenue growth as the year progresses. Our diversified model gives us a balance as the macro and geopolitical backdrop evolves. If the rate path is choppy or sentiment shifts, our countercyclical businesses are positioned to contribute. If confidence builds, our core banking engine benefits from client growth. Credit remains in line with our expectations, and we continue to approach opportunities selectively on price and structure. Our footprint is a real advantage. The Southeast and Texas remain growth corridors. We deliver big bank capabilities with the personalized touch of a community bank across our entire footprint. That combination allows us to serve clients locally while bringing the resources of the entire bank when they need them. We remain focused on expense discipline while strategically investing in talent, technology, and tools that make our associates more effective for their clients. We will stay thoughtful on capital management and we will be opportunistic with share repurchases. While the macroeconomic environment changes and creates new headwinds and uncertainties, I remain optimistic about our outlook for the year. Our job is to stack one good quarter on top of the next by effectively serving our clients and communities. Thank you to our associates for their hard work, and to our clients and shareholders for their continued confidence in First Horizon Corporation. Operator, with that, we can now open it up for questions. Operator: We will now open the call for questions. Thank you. The first question today is from Jon Glenn Arfstrom of RBC Capital Markets. Your line is now open. Please go ahead. Jon Glenn Arfstrom: Good morning. D. Bryan Jordan, you touched on some of this, but you seem a little more optimistic on the lending environment. If you could touch a little bit more on the pipelines in C&I and whether or not you have seen any impact on pipelines from the macro uncertainty? D. Bryan Jordan: Yes, happy to, Jon Glenn Arfstrom. The pipelines in C&I continue to be very, very good. And while the short-term effects of the disturbance or the trouble in the Middle East has people asking questions, it really has not had a significant downward impact on C&I pipelines at this point. In fact, we still see a continuation of what we saw building in 2025, which is business owners and leaders looking to grow, invest, and build. That has been positive. In addition, I mentioned, and I think Hope did as well, that CRE pipelines have continued to build. As you know, that is a business for us where loans originate and fund up over about a three-, four-, five-year period and then pay off all at once. We have not seen pipelines this strong since the 2021–2022 time frame when rates were essentially zero, so those pipelines are building. We are very optimistic about the outlook for lending growth over the course of this year. You will see in our results, and it is somewhat evident in the way that we have transformed our balance sheet over the last 18 months, we have continued to focus on profitable growth. We have repositioned the business to align around our consolidated strategy, and with that, we are seeing an improvement in the profitability of the lending that we are doing. We are focused very much on relationship lending; for things that are not relationship-oriented, we are being very disciplined. So we look at the year and are very optimistic. I said in my closing comments that the market is still very competitive, and without a doubt, the markets are still very competitive. Very good loan transactions have a lot of competition, and our bankers are doing a very nice job of not only getting our fair share, but maybe a little bit more. Jon Glenn Arfstrom: That is helpful. And then maybe one more on lending. I think, Hope, usually you handle this one. But on the loans to mortgage companies, despite the fact it has been maybe a choppy environment, you are still up like 35% year over year. Do you expect a typical seasonal bounce in warehouse balances? And since it is a bigger category for you, maybe you can size it for us and give us an idea of what we could see in Q2 and Q3. Hope Dmuchowski: Thanks, Jon Glenn Arfstrom. I will say we do expect to see a seasonal increase in Q2. We are already starting to see some of that fund up at the end of March and beginning of April. Now whether it is typical, I cannot say what typical is anymore. The last two years have been some of the lowest mortgage origination years in the last 20 years. I think the way rates have been going the first part of the year, we are probably going to see low mortgage origination and a low refinance rate. But we do expect that it will trend consistently with Q1 to Q2 and Q3 of the last two years. We have picked up market share, and that has shown and continued to show in our strong loans to mortgage company balances even at the end of Q4 and Q1. I have said before, I think one of the biggest upsides to our guidance would be if we saw a refi wave. I think it gets less likely the further that the 30-year rate goes up, but in the back half of the year that is still a possibility, although that is not built into our outlook today. Jon Glenn Arfstrom: Okay. Fair enough. Thank you very much. Appreciate it. Operator: Thank you. The next question comes from Michael Edward Rose of Raymond James. Your line is now open. Please go ahead. Michael Edward Rose: Good morning. Thanks for taking my questions. Maybe I will take the other side of the balance sheet from Jon Glenn Arfstrom. On deposit competition, I noticed that the interest-bearing spot rate was 2.27% versus the full-quarter average of 2.28%. Can you talk to us about deposit competition? It seems like anecdotally over the past month, it has definitely increased. What can we expect in terms of what you have modeled for rate scenarios for the year, and what is a more optimal environment for deposit pricing at this point? Hope Dmuchowski: Thanks for the question. I think this year is shaping up to look a lot like last year in the seasonality of deposit rates. As we expected more rate cuts, competitors brought in their terms and their rate guarantees. We are starting to see that shift to longer guarantees and higher rates for longer in competition. As you saw, our spot rate is still below our average, and we are generally there. I do think that deposit costs will slightly trend up in Q2 and Q3 if we do not see a rate cut. Additionally, I mentioned in my expense comments that marketing was down in Q1. We tend to do a lot more new-to-bank acquisitions in Q2. It is the time that consumers start thinking about moving their checking account, savings account. They have gotten tax refunds. With that new-to-bank promotion out there, we will see a little bit of uptake, and then we will walk it back just like we have the last two years. And that is in our guidance. Michael Edward Rose: Perfect. Really appreciate that. Then, there is a lot of focus separately on private credit and things like that. I appreciate some of the color that was in the deck. Looks like generally credit appears to be good. Maybe for Thomas Hung, anything you are seeing on the credit front? I noticed that you did not put any commentary on criticized/classified this quarter. Any updates there? Thomas Hung: Good morning, Michael Edward Rose. Happy to address those. Overall, I remain pleased with our very consistent credit performance, headlined by the 18 basis points net charge-off rate, which is slightly below the median of the range. That said, there are always things that we want to watch carefully. For me in particular, I am still carefully watching anything that is most closely tied to consumer discretionary spending, especially with recent increases in energy prices. That certainly affects discretionary spending. Sectors like trucking, auto, and restaurants are things that I want to watch more closely. On private credit, that is something that we are certainly monitoring as well, but I would point out we have very minimal exposure to that segment. In terms of direct exposure to private credit, it is less than 1% of our loan book, and substantially all of that is backed by tangible assets like real estate, inventory, equipment, or accounts receivable. There is very, very little enterprise value lending exposure. Michael Edward Rose: Very helpful. Thanks for taking my questions. I will step back. Operator: Thank you. The next question comes from Jared David Shaw of Barclays. Your line is now open. Please go ahead. Jared David Shaw: Good morning. On the $100 million of incremental PPNR, what are any of the assumptions behind that for cost savings and/or potentially slower hiring driven by AI implementation? If there is nothing included in there, is AI a positive or a negative to that $100 million? Hope Dmuchowski: Jared David Shaw, there is nothing in there about expenses. That is all deepening relationships and about revenue. In my prepared remarks, we talked about 6% more NII year over year with 3% balance growth in a decreasing rate environment. You can see the profitability of the existing relationships at renewal or new-to-bank additionally creating more value for us. There are no expense assumptions embedded. As far as AI, we do have a flat expense outlook excluding countercyclical commissions. We have said that is coming from the technology investments we have made over the years and continue to make so that we can scale revenue without having to scale the back office. It is less about cost savings right now in our outlook and more about being able to scale, invest in new hires, and grow our market share without having to add all of that support infrastructure. Jared David Shaw: Great. Thank you. And then on capital, what would cause you to lower that 10.5% target? You did some work on the capital stack this quarter. Could you feel comfortable with lower than 10.5%? D. Bryan Jordan: I will take that. Right now, we are comfortable with the 10.5%. As I have said in the past, this is something that we talk with our board continuously about, and we will continue to do that. Given the near-term uncertainty about what is happening with respect to oil prices and what that means to inflation in the economy, it is probably not a bad idea to see a few more cards here. Overall, we are very optimistic that the economy is still in a pretty good place and that over the next several weeks to months, we will start to see some of this uncertainty settle down. At that point, we will continue to evaluate whether we bring those ratios down. As we have said, we believe that we can operate the organization at a lower CET1 ratio than 10.5%, and over time, we will get there. Operator: Thank you. The next question comes from Casey Haire of Autonomous. Your line is now open. Please go ahead. Casey Haire: Yes, great. Good morning, guys. Wanted to revisit the NII outlook. Hope, you mentioned that deposit costs were going to feel some pressure going forward. Can you shed some light on loan yields and bond yields given the fixed-rate asset repricing benefits and, overall, what does that do for NIM? Hope Dmuchowski: Thanks for the question, Casey Haire. On the deposit side, what I said was slight pickup. I do not expect that to put a ton of pressure on NIM or NII. It is really the mix that you bring new-to-bank. I see that in the low to mid-single digits, and that is manageable for us in our current outlook. As far as bond prices and the outlook there, it is really hard to predict what is going to happen, as D. Bryan Jordan mentioned earlier. We saw a lot of volatility that impacted FHN Financial at the end of March, and April has started off slow. We have a slide in the back of our deck about where the market is for FHN Financial today, and we have it in red and green, and all but one factor is in red for them as of today. That does not mean it could not change going into the back half of the year, but we do see some risk there. We do not see any risk to our outlook of our guidance on total revenue. So NII would have come down with rate cuts, so we saw some stability. We could see FHN Financial pick up, maybe some additional refi. We feel that we are really balanced in the back half of the year to hit that revenue guide. D. Bryan Jordan: Casey Haire, you asked about fixed asset repricing. We have something like a little more than $1 billion of investment securities that reprice over the course of this year. And then on the fixed-rate loan side, whether it is a long-term ARM, etc., it is a little over $5 billion that reprices in 2026. In total, we have about $6 to $7 billion of assets that will reprice, principally at higher rates. Casey Haire: Thanks. I was wondering if the asset yields could offset some of the modest deposit pressure that you are feeling to keep the NIM stable? D. Bryan Jordan: The fixed-rate asset repricing will have some impact, clearly. But as Hope has alluded to in a couple of different ways, we are working to improve the profitability of the balance sheet, and so there is some offset there as well. We have talked in the past, for example, in our market investor CRE we have improved the yield significantly in that business on a year-over-year basis. We think we have lots of levers that allow us to continue to navigate through the deposit trends that are occurring in the market in the near term. Over the long term, we feel very good about the balance and the balance sheet and that we can navigate changing interest rate environments with as much or more stability than most. Casey Haire: Great. Just one more on the credit side. The ACL ratio has come down nicely. We got some mix shift and some credit resolution. I know it is difficult with the CECL modeling, but all else equal, what is a good landing spot for the ACL ratio versus that 1.28% level? Thomas Hung: It is hard to say because things evolve on a quarter-to-quarter basis. Depending on what happens with loan growth, grade migration, and classified resolutions, all of that can change the result quarter to quarter. But we feel like we are very adequately reserved at this current time. At our current ACL, that is approximately seven times our average net charge-offs over the last two years. I believe where we are currently is a very well-reserved position relative to our very steady net charge-off performance. Hope Dmuchowski: To add to that, I have said this in prior quarters: two or three basis points in the CECL model is not material. If you look at the last six quarters, we have gone down three one quarter, up two another. That is essentially flat in coverage with a portfolio that moves as much as ours does. Operator: The next question comes from Bernard Von Gazzicchi of Deutsche Bank. Your line is now open. Please go ahead. Bernard Von Gazzicchi: Hi, good morning. On the $100 million plus PPNR opportunity, you highlighted some progress made since mid-2025 on slide 15 of the deck. Could you walk us through these examples on the CRE pricing, the deeper ties between regional and specialty, and the treasury management and wealth management initiatives? Hope Dmuchowski: Absolutely. I will start with the note that this is in no way a holistic list of all the things. As we keep getting asked for points that we can show, we put a couple on slide 15. CRE pricing is one that D. Bryan Jordan has talked a lot about as we have been speaking with investors, which is the benefit of having a specialty model and a market-centric model. We have a strong CRE business with long-tenured bankers who are focused on exactly what is happening in the CRE industry across the country by sector and subsector. About a year and a half ago, we brought that specialty to every deal with a market banker who is doing a CRE deal. We have been able to see additional fee income come out of that partnership—origination fees, unused line fees—as well as increased margins as the appetite for CRE in our industry really shrunk over the last three years. Those spreads increased. It is really the benefit of a market-centric model with a specialty partnership. You are bringing the best of both to the client, and in addition to the financial benefits, we continue to hear from our clients how much they appreciate having somebody who can talk to exactly what is happening in the industry alongside a banker that knows exactly what is happening in the market. It has been a great enhancement for us. We have that in a lot of places—we have highlighted CRE—but we also have it in franchise finance, ABL, equipment finance. That partnership is paying additional dividends for us and is a big part of our $100 million PPNR opportunity that we are already realizing. D. Bryan Jordan: This is something that we have built into our expectations for 2026. It is really hard to highlight how much work goes into this. We have hundreds, thousands of bankers working on aspects of this every day. It really comes from the ability that our teams have created to see with a lot of granularity relationships and understand the interconnectedness of deposit or fee-based service and lending relationships. Those tools have helped us navigate opportunities for bringing new products and capabilities to customer relationships, making sure where we have underpriced a spread here or there that we are asking for appropriate spread—on the credit, the treasury service, the wealth, or whatever it happens to be. It is a work in progress. It is not completed in 2025 or 2026. It will continue, but it is part of the discipline that the organization is oriented around: building deep, broad, long-term relationships and creating win-win solutions for our customers that essentially create partnerships that are win-win for both sides. Bernard Von Gazzicchi: Great. Thanks for that color. Just a follow-up on loan growth. You reiterated expectations for mid-single-digit growth, but are contributors changing? Maybe stronger C&I than originally expected? Maybe a bit less CRE? You noted the headwinds, but pipelines remain strong. Do you think CRE will still be a positive contributor for loan growth this year? Thomas Hung: I am happy to tackle that one. I will start on the C&I side where you saw very strong continued momentum in Q1. What I am most pleased about in those results is how evenly spread that is between both our regional bank regions and our specialty lines of business. We saw momentum on both sides. On the CRE side, we have talked about the headwinds in terms of project starts over the last several years going into the perm market. We have started to really see the pace of our payoffs decelerate, and with a very, very strong pipeline, especially now compared to a year ago, we should start to see some very good net growth on the CRE side later this year as well. Overall, there is very good momentum up and down the balance sheet. Operator: The next question comes from Andrew Steven Leischner of KBW, on for Christopher McGratty. Your line is now open. Please go ahead. Andrew Steven Leischner: Thanks. On the 3% to 7% revenue guide, can you walk through the scenarios or assumptions that would get us to the higher end or lower end of that range? Hope Dmuchowski: Thanks. As I said, we are pretty balanced. The question is not how do we get to the higher or lower end of the range; it is whether it comes from fee income and countercyclical businesses or from NII and higher loan growth. One item not built into our outlook is a pickup in mortgage refi. As I said earlier, I do not expect it in the near term as 30-year rates keep moving up and there is uncertainty for the consumer, but that is the one item not built here. We are starting the year with 3% loan growth year over year and roughly 6.5% revenue growth year over year, so we have a strong start to that momentum. D. Bryan Jordan: I think the other driver is likely to be an acceleration of economic growth. The economy today is growing pretty steadily, probably in that 2.5% to 3% area. Given what we know today, there is probably greater downside risk than upside opportunity. If that gets resolved and the pace of growth in the economy picks up, loan growth will naturally pick up, and we could get to the higher end of that range. So it will be a combination of how interest rates play out and, more importantly, what that means in terms of economic growth overall. Andrew Steven Leischner: Great. Thank you. On the expense outlook, annualizing this quarter gets you a little lower than flat expenses. Outside of the lower marketing in the quarter, is this a good run rate from here, or were there some other items that were lower than usual? Hope Dmuchowski: There will be some movement throughout the quarters as it relates to marketing spend. We always have an issue with the way we do our income statement where marketing spend hits first and then the cash offer hits in other, so you will see some volatility there. Technology projects can also vary quarter to quarter. At the end of the year, we had a lot of projects complete, and they went from the expense part of their project to capitalization, which is more stable. But to your point, it is a good glide path on average. We do expect to be flat year over year with some variability quarter to quarter. D. Bryan Jordan: One thing I am excited about on the expense side is we have had very good success in hiring new revenue producers. If you look at the stream of press releases over the last several weeks, you will see we are having very good success recruiting bankers across our franchise. The point is that not only are we bringing good people into the organization, we are controlling cost while still continuing to invest in growth and driving the business forward. That combination is very positive for the long term. Operator: Thank you. The next question comes from Ben Gurlinger of Citi. Your line is now open. Please go ahead. Ben Gurlinger: Hi. Good morning. Hope Dmuchowski: Morning. Ben Gurlinger: You talked through CET1 and the appetite to potentially go lower, but as of now it is 10.5%. With the outlook for loan pipelines sounding robust, and considering seasonality where your balance sheet balloons a little bit with mortgage, how should we think about buybacks for the next couple of quarters given you are fairly close to 10.5%? Is it more opportunistic, or does capital need to go to growth? D. Bryan Jordan: We will be opportunistic as we always are. We have said that to the extent mortgage warehouse lending pushes down on a temporary basis our CET1 ratio, we are not uncomfortable with that. Our mortgage warehouse lending business has low credit losses historically. We see it as more of an operational risk, and our team does a very good job of controlling risk in that business. To the extent that that pushed us down a little bit here and there, that does not cause us concern in the near term. Against that backdrop, we will continue to be opportunistic to take the excess capital that we believe we have and that we generate and use that in share repurchases or repatriation of capital to our shareholders. Hope Dmuchowski: And just to add on to D. Bryan Jordan’s comments, as noted in our presentation, over the last 10 years our mortgage warehouse business has averaged about 1 basis point annual net charge-offs. Ben Gurlinger: That is great. I was not worried about the credit, more so the usage of capital over the next couple of quarters, but that is a great answer. Appreciate the time. That is all I had. Operator: The next question comes from Timur Braziler of UBS. Your line is now open. Please go ahead. Timur Braziler: Hi, good morning. D. Bryan Jordan: Morning. Timur Braziler: Looking at the expense guide relative to revenue, the revenue guide is still pretty wide versus a pretty tight expectation on expenses. How agnostic is the expense base toward the different ranges of the revenue guide, and what is embedded on the baseline for the flat year-on-year expense? Hope Dmuchowski: It is agnostic to the revenue guide with the exception of the countercyclical businesses. If we hit the higher end of the range and more of it comes year over year from the countercyclical businesses, you can assume a 60% commission on that delta. What is built in is flat countercyclical year over year to that flat guidance. New hires were built into our expense guide. Branches were built into our guide. The consolidation into a new hub in Charlotte is in our expense guide. All of the investments are already in there, and we believe expenses are flat. On the range of the revenue guide, every CFO will tell you it is easier to control expenses than revenue. The range for the guide is really the uncertainty of the economy right now. As D. Bryan Jordan mentioned earlier, could we see the economy start to rebound with consumer confidence, more spending, and loan growth? That is what is driving our larger range—not our internal understanding of where we think our businesses are going. It is just really hard right now to figure out what type of economy we are going to be lending into and what is going to happen in the wealth business over the next three quarters. Timur Braziler: Great. Thanks. As a follow-up, there is some increased conjecture this week surrounding M&A given all the volatility in the market. Can you give a reminder on both sides of M&A—your updated stance? D. Bryan Jordan: Nothing has changed with respect to M&A. Our number one priority is continuing to focus on the profitability of our business and driving the benefits that we can realize by investing in our core franchise. We have said that opportunistically, if we have the opportunity to do fill-ins in our existing footprint, we will evaluate them. As always, we will take an approach that we are going to maximize return on capital for our shareholders, and we are going to evaluate any opportunity that presents itself, but nothing has changed in our stance around M&A. Operator: Thank you. The next question comes from Anthony Albert Elian of JPMorgan. Your line is now open. Please go ahead. Anthony Albert Elian: Hi, everyone. Hope, to put a finer point on NIM, last quarter you pointed to a range in the mid-3.40s, but you have clearly outperformed that for a couple of quarters now. Given the earlier comments on loan yields and deposit costs picking up slightly, how are you thinking about NIM here? Thank you. Hope Dmuchowski: The mid-3.40s comment was about stabilization when we saw a flat rate environment and more consistent spreads. Near term, we do expect to be in the high 3.40s, within a few basis points of where we are right now. Anthony Albert Elian: Thank you. And then on capital, given the recent proposals, have you quantified any of the estimated impact or benefits you would see from the recent proposals? Hope Dmuchowski: Thanks, Anthony Albert Elian. We have calculated, and every consultant out there has sent us a deck and wants to meet with us on how to optimize it. It is clear that it is positive for everybody. It will definitely be a pickup for us, especially in some of the proposals for mortgage and some of the proposals for our fixed income business inventory. But we have not put a fine pen to say exactly what it is. There are still a lot of uncertainties out there in the model, as well as how we might react to some of those—how you change term of a loan, for example, gives you different capital treatment. But net positive for sure. Operator: Thank you. The next question comes from Christopher William Marinac of Brean Capital Research. Your line is now open. Please go ahead. Christopher William Marinac: Thanks. Good morning. Thomas Hung, I wanted to ask about the reserve as it pertains to both mortgage warehouse and any other NDFI. Should we see that grow over time, or how do you think about that? Thomas Hung: Mortgage warehouse and NDFI are all part of our ACL for the C&I business. I do not have it broken out in front of me in terms of specific lines of business. Overall, as you saw, we did add a little bit to our C&I reserves this quarter. That is more a reflection of some overall economic uncertainty around the conflict in the Middle East as well as how that is impacting discretionary consumer spend. Overall, I would say, as I mentioned earlier, we are well reserved from both a C&I basis as well as an overall ACL basis. Specific to NDFI, it may be helpful to break down the components a bit. From the call report, you will see we have a total of $8.6 billion of total NDFI. However, about 55% is the mortgage warehouse business that we have talked about, with very low charge-offs and very short tenure with an average dwell of under 20 days. Of the remaining $3.9 billion of non-mortgage-warehouse NDFI, about a third of that is categories that are NDFI in the call report but are really more akin to traditional C&I structuring and risk. Therefore, what is left—the remaining two-thirds—is really only about 4% of our overall loan book. The performance in that business has some pockets with elevated C&Cs we have to watch, as you would expect, but the overall performance of that remaining book is actually not too dissimilar from our overall C&I book. NPLs are slightly lower relative to our overall book; net charge-offs are slightly higher, but all very close to being in line. From my position, I do not think there is any specific reason to have outsized results tied to our NDFI book. Hope Dmuchowski: On your comment about mortgage warehouse and NDFI, I want to point out that for us, the way we do mortgage warehouse, we do not really consider it NDFI, although the call report does. We hold the underlying collateral. We take each note at closing. We have discussed that we had 1 basis point of charge-offs in the last 10-plus years on average annually. That comes down to operational risk. Should the company that we are lending to have an issue and can no longer be in business, we have the notes. We have worked through that and then pledge them and sell them or put them on our balance sheet. For us, NDFI is an operational risk. On the fraud piece of it, we have seen collateral double pledged elsewhere. We do not have that situation. We actually maintain the notes until they are sold. That is something that is different than how some others do mortgage warehouse in the industry. Thomas Hung: And just to make sure we are clear, the 1 basis point is the average annual charge-offs in that business. Christopher William Marinac: Great. Thanks, Hope, and thank you, Thomas Hung, for that additional detail—that is very helpful. Just to clarify, you mentioned there are some charge-offs in the other NDFI, that smaller component. Are these normal charge-offs, or have these changed at all in recent quarters? Thomas Hung: I would say it is relatively normal. I mentioned it is slightly higher than our overall net charge-off rate, but it is not anything alarming. Operator: The next question comes from David Chiaverini of Jefferies. Your line is now open. Please go ahead. Max Astaris: Hi. Good morning. Max Astaris on for David Chiaverini. A quick question around capital markets. Given recent yield curve volatility, I wanted your thoughts specifically around fixed income. How sensitive is the fixed income trading desk to the current shifting expectations around Fed easing? D. Bryan Jordan: The business has had its ups and downs, and volatility in interest rates over the longer term is good for the business. In the short term, it can be difficult. The uncertainty and the way rates have been moving have created some volatility from week to week. On the whole, we are pretty encouraged by the positioning of the business. Our ADR for the quarter was down slightly from the fourth quarter but up significantly from a year ago. All in all, we look at the business as a very strong contributor and our outlook is optimistic for the foreseeable future, recognizing that there are going to be potential events that can push rates up or bring rates down rapidly. We think we are well positioned and in a good place to benefit from that volatility over time. Max Astaris: Great. Thank you. Operator: The next question comes from John Pancari of Evercore. Your line is now open. Please go ahead. Gerard Sweeney: Hi. This is Gerard Sweeney on for John Pancari. You highlighted that this is the third straight quarter of 15% plus ROTCE. How should we think about ROTCE trajectory going forward? Do you see a path closer to high teens, or is maintaining the current level more your priority? If you were to get to a high teens level, what are the few steps that will get you there? D. Bryan Jordan: We are making progress, and Hope pointed out our ROTCE is up a couple hundred basis points from a year ago. We set 15% plus as a target; we did not set it as a destination. We will continue to build ROTCE. To the extent that you combine a few things—the improved profitability that we are driving with our existing balance sheet; the ability to leverage our balance sheet either through capital return or growth in the balance sheet and the combination thereof; and the regulatory guidance of bringing CET1 ratios down—we think we have the ability to push ROTCE higher over time. I am not going to try to put a fine point on it today. We are confident with the progress that we are making. We are focused on driving those returns higher, and I feel good about the work the organization is achieving every single day in that regard. Gerard Sweeney: Great. Thank you. And maybe going back to the prior question on the fixed income business, is there an ADR range embedded in your revenue guidance? I know there is a countercyclical side of it, but just how to size up from a modeling standpoint the rest of the year? Hope Dmuchowski: There are multiple ranges embedded in our guidance because, as I have said before, we trade NII for fee income or mortgage warehouse balances in a decreasing rate environment. We do not have a single outlook to hit our guidance regardless of whether rates increase, stay flat, or decrease. You will just see the revenue come from different places. Operator: We have no further questions at this time. I would like to hand it back to D. Bryan Jordan for closing remarks. D. Bryan Jordan: Thank you, Operator. Thank you all for joining our call this morning. Please reach out if you have any further questions. We appreciate your interest. Hope everyone has a wonderful day. Operator: This concludes today’s call. Thank you all for joining. You may now disconnect your line.
Operator: Greetings, and welcome to The PNC Financial Services Group, Inc. Q1 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to Bryan Gill, Executive VP and Director of Investor Relations. Thank you, Bryan. You may begin. Bryan Gill: Good morning. Welcome to today's conference call for The PNC Financial Services Group, Inc. I am Bryan Gill, the Director of Investor Relations for The PNC Financial Services Group, Inc. Participating on this call are The PNC Financial Services Group, Inc.’s chairman and CEO, Bill Demchak, and Rob Reilly, executive vice president and CFO. Today's presentation contains forward-looking information. Cautionary statements about this information, as well as reconciliations of non-GAAP measures, are included in today's earnings release materials as well as our SEC filings and other investor materials, and are all available on our corporate website pnc.com under Investor Relations. These statements speak only as of 04/15/2026, and The PNC Financial Services Group, Inc. undertakes no obligation to update them. I would like to turn the call over to Bill. Bill Demchak: Thank you, and good morning, everyone. As you have seen, we are off to a really strong start this year. We achieved a great deal this quarter and we continue to build upon the strength of our franchise. We completed the acquisition of FirstBank early in the quarter and we are well on our way to a mid-June conversion. Our financial performance was solid. Organic loan growth hit a three-year high, net interest margin expanded meaningfully, and we had 13% year-over-year fee income growth. Credit quality remains strong, and we returned significant capital to shareholders. Importantly, beyond the financial results, we continue to see strong momentum across our businesses with notably increased client activities. We continue to make meaningful investments in our technology and our branch network. While we recognize that there are many market concerns out there—from energy prices to AI to private credit—we are not seeing anything that suggests these issues are broadly impacting our customers or our credit quality in the near term. Specifically regarding the increased attention on banks’ exposure to nondepository financial institutions, Rob is going to walk through some of the details as it relates to our exposure, but the sound bite you ought to walk away with here is that we do not see any loss content in this book and certainly do not see any exposure to a systemic event, which, by the way, we do not expect. But were there to be one, a systemic event in private credit, I cannot speak to what other banks have in this category as the definition seems to capture random things. We are very outsized in our corporate receivables financing relative to others, which is a low-spread business with negligible risk. Importantly, the bulk of our loans actually have nothing to do with private credit despite the regulatory category in which they reside. Overall, our focus remains on disciplined execution of our strategy, which is clearly reflected in our results this quarter. Looking ahead, we are entering into the second quarter with a lot of momentum, and we continue to be excited about the opportunities in front of us. Finally, as always, I want to thank our employees for everything they do for our company and our customers. With that, I will turn it over to Rob to take you through the numbers. Rob? Rob Reilly: Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 4 and is presented on an average basis. As Bill mentioned, during the first quarter, we successfully completed our acquisition of FirstBank, and as a result, our overall balance sheet growth includes the impact of the acquisition, which represented $15 billion in loans and $22 billion in deposits. For the linked quarter, loans of $351 billion grew by $23 billion, or 7%. Investment securities of $145 billion increased $2 billion, or 2%. Deposit balances were up $19 billion, or 4%, and averaged $458 billion. Borrowings increased by $3 billion, or 4%, to $63 billion. Our tangible book value was $109.42 per common share, down 3% linked quarter due to the acquisition, but up 9% compared with the same period a year ago. We continue to be well positioned with capital flexibility. During the quarter, we returned $1.4 billion of capital to shareholders. Common dividends and share repurchases were approximately $700 million each, and we continue to expect quarterly repurchases to be in the range of $600 million to $700 million going forward. We remain well capitalized with an estimated CET1 of 10.1%, down 50 basis points from year-end 2025. The decline was primarily driven by the FirstBank acquisition, accounting for roughly 40 basis points, with the remainder attributable to strong loan growth. Regarding the recent Basel III proposal, we expect the changes to be a net positive for our CET1 ratio relative to the current framework. Our initial assessment reflects a reduction of approximately 10% of our RWAs, or $45 billion to $50 billion. The reduction amount is the same under both the revised standardized and the expanded methodologies, in line with our previous expectations. Slide 5 shows our loans in more detail. Loan balances averaged $351 billion in the first quarter, an increase of $23 billion, or 7% linked quarter. The growth reflected both higher commercial and consumer balances. Compared to the same period a year ago, average loans increased $34 billion, or 11%. The total average loan yield of 5.5% decreased 10 basis points linked quarter. On a spot basis, loans increased $29 billion, or 9% from year-end, including $15 billion from the FirstBank acquisition and $14 billion of growth in legacy The PNC Financial Services Group, Inc. loans. Specific to our legacy business, C&I loans increased $15 billion, driven by broad-based growth across businesses, reflecting strong new production and higher utilization rates. CRE balances reached an inflection point and increased approximately $100 million; we expect moderate growth through the remainder of the year. Consumer loans declined $1 billion due to lower residential mortgage balances. Slide 6 covers our deposit balances in more detail. Average deposits were $458 billion, up $19 billion, or 4%, driven by the addition of FirstBank balances partially offset by a reduction in brokered CDs. Excluding those items, deposit trends were consistent with typical seasonality as growth in consumer balances more than offset a seasonal decline in commercial deposits. DDAs continue to represent 22% of total deposits. Our total rate paid on interest-bearing deposits decreased 18 basis points to 1.96% in the first quarter, reflecting lower rates. Turning to Slide 7, we highlight our income statement trends comparing the first quarter to the most recent fourth quarter, and again including the impact of the FirstBank acquisition. Total revenue was $6.2 billion and grew $94 million, or 2%. Noninterest expense of $3.8 billion increased $165 million, or 5%, of which $97 million was integration expense. Excluding integration costs, noninterest expense increased 2% and PPNR grew 1%. Provision was $210 million and our effective tax rate was 19%. As a result, our first quarter net income was $1.8 billion, or $4.13 per common share, and $4.32 when adjusted for integration costs. Turning to Slide 8, we detail our revenue trends. First-quarter revenue increased $94 million, or 2%, compared to the prior quarter. Net interest income of $4.0 billion increased $230 million, or 6%. The growth was driven by the addition of FirstBank as well as lower funding costs and commercial loan growth. Our net interest margin was 2.95%, an increase of 11 basis points. Noninterest income of $2.2 billion decreased $136 million, or 6%. Inside of that, fee income decreased $44 million, or 2% linked quarter. Looking at the details, asset management and brokerage increased $9 million, or 2%, due to higher average equity markets and client activity. Capital markets and advisory revenue declined $26 million, or 5%, reflecting lower M&A advisory activity off elevated fourth-quarter levels, partially offset by higher underwriting and trading revenue. Card and cash management increased $5 million, or 1%, as higher treasury management revenue was partially offset by seasonally lower credit card activity. Lending and deposit services decreased by $2 million, or 1%. Mortgage revenue decreased $30 million, or 20%, largely attributable to a $31 million decline in MSR valuations given the heightened rate volatility during the quarter. Other noninterest income of $125 million included $32 million of Visa derivative costs, as well as negative private equity valuations, partially offset by $28 million of net securities gains. Compared to the same period a year ago, we demonstrated strong momentum across our franchise. Importantly, fee income grew $240 million, or 13%, driven by broad-based growth in our businesses. Turning to Slide 9, first-quarter expenses increased $165 million, or 5% linked quarter, which included $97 million of integration costs. Noninterest expense excluding the impact of integration expense increased $68 million, or 2%, as the addition of FirstBank’s operating expenses more than offset lower legacy The PNC Financial Services Group, Inc. expenses. We remain focused on expense management, and as we have previously stated, we have a goal to reduce costs by $350 million in 2026 through our continuous improvement program, which is independent of the FirstBank acquisition. This program will continue to fund a significant portion of our ongoing business and technology investments. Our credit metrics are presented on Slide 10. Overall credit quality remains strong. Our NPL and delinquency ratios each improved on both a linked-quarter and year-over-year basis, reflecting the strong credit quality we continue to see across our portfolio, and the linked-quarter growth in balances was entirely attributable to the addition of FirstBank. Nonperforming loans increased $25 million, or 1%, and represented 0.62% of total loans, down from 0.67% last quarter. Total delinquencies increased $115 million to $1.6 billion, and our accruing loans past due declined to 0.43%, down from 0.44% last quarter. Total net loan charge-offs of $253 million included $45 million of purchase accounting related to the acquisition. Excluding these acquired charge-offs, our NCO ratio was 24 basis points. At the end of the first quarter, our allowance for credit losses totaled $5.5 billion, or 1.52% of total loans. I want to take a moment to cover the details of our NDFI loans, which are highlighted on Slide 11. We have discussed this topic at recent investor conferences, and importantly, nothing has changed in terms of the composition of the book or the underlying risk. NDFI loans continue to represent our lowest risk loans. Approximately 90% of our NDFI loans are investment grade or investment grade equivalent, and all have robust collateral monitoring requirements. Because there has been a lot of focus on the regulatory reporting category of business credit intermediaries, we have further broken out the components in detail on the slide. This category for The PNC Financial Services Group, Inc. includes asset securitizations, primarily trade receivable securitizations, of which The PNC Financial Services Group, Inc. is an industry-leading provider. These are loans to bankruptcy-remote subsidiaries of corporate borrowers secured by diversified pools of receivables. These loans represent approximately 80% of the business credit intermediaries category for The PNC Financial Services Group, Inc. The remaining 20% of our business credit intermediaries category—approximately $7 billion—is mostly comprised of CLOs secured by private credit provider assets. These are well-structured assets all supported by senior positions with substantial excess collateral. We have been in these businesses for a long time and have experienced virtually no losses going back 25-plus years. We feel very good about the risk content of our NDFI loans and, based on the composition of these low-risk assets, expect zero losses going forward. To summarize, The PNC Financial Services Group, Inc. reported a strong first quarter and we are well positioned for the remainder of 2026. Regarding our view of the overall economy, our base case assumes GDP growth to be approximately 1.9% in 2026 and the unemployment rate to drift slightly higher to 4.6% by year-end. We do not expect the Federal Reserve to cut rates during 2026. Our outlook for 2Q 2026 compared to 1Q 2026 is as follows: We expect average loans to be up 2% to 3%, net interest income to be up approximately 3%, fee income to be up 2.5%, and other noninterest income to be in the range of $150 million to $200 million. Taking the component pieces of revenue together, we expect total revenue to be up approximately 3.5%. We expect noninterest expense, excluding integration expenses, to be up approximately 2%. We expect second-quarter net charge-offs to be approximately $225 million. Considering our first-quarter operating results, second-quarter expectations, and current economic forecast, our outlook for the full year 2026 compared to 2025 results is as follows: We expect full-year average loan growth to be up approximately 11%. We expect full-year net interest income to be up approximately 14.5%. We expect noninterest income to be up approximately 6%. Taking the component pieces of revenue together, we expect total revenue to be up approximately 11%. Noninterest expense, excluding integration expenses, to be up approximately 7%, and we expect our effective tax rate to be approximately 19.5%. As a reminder, our expectation for nonrecurring merger and integration costs is approximately $325 million. We recognized $98 million in the first quarter and anticipate approximately $150 million in the second quarter, with the remaining balance to be recognized in the second half of the year. With that, Bill and I are ready to take your questions. Operator: Thank you. We will now open the call for questions. Our first questions come from the line of Ebrahim Poonawala with Bank of America. Please proceed with your questions. Ebrahim Poonawala: Hey, good morning. I guess maybe Rob, Bill, just if you could talk about deposit growth as we think about a period—we have not been here in the better part of the last 15 years—where rates are higher for longer. I think, as you mentioned in the forward curve, we may not get any rate cuts. Just give us a sense of the algorithm to grow core deposits in this environment. How do you think about it? What is the approach? And how difficult do you think it is going to be for The PNC Financial Services Group, Inc. and the industry to actually grow low-cost core deposits? Bill Demchak: I would frame it a bit differently and talk about growth in DDA accounts and retail clients broadly, which in turn causes deposits to grow. Think about the average balance somebody holds as a function of how high rates are and how competitive outside alternatives are. Think about total shots on goal as the number of retail clients we have. Our focus has been on growing retail clients, which is the key to growing deposits long term. In a period where rates are steady for a time and people are fighting to expand, you see at the margin—and you have heard competitors talk about this—that in certain price categories, people are paying up to maintain balances and/or attract new clients. But look, we are opening branches. We have opened eight so far this year. We are going to—what is our total for the year—another 50 or something? 55. Our digital acquisition has been really strong, and we just need to continue that. That ultimately will lead to deposit growth. Rob Reilly: And we do, Ebrahim. Just as a reminder, we do have deposit growth expectations for the year. Sort of staying at these levels—we had a good first quarter—with some incremental growth in 2026. Ebrahim Poonawala: Understood. Got it. And I guess separately, around customer sentiment—think all sorts of risks over the last month including speculation on what higher oil prices and energy prices would mean for the consumer. Did we see some decline in sentiment over the course of the last month, or are you as constructive when you think about the growth outlook? Obviously, the guidance suggests nothing has dramatically changed, but we came in with a lot of excitement around the tax incentives for businesses and consumers. Is all of that more or less mostly intact? Bill Demchak: I do not know that we can square for you the headline surveys on consumer confidence or small business confidence, which are all not great, with what we actually see. When you look through spending patterns, growth in savings, activity levels, loan growth—what we see day to day in our business is almost at complete odds with the surveys you see on confidence. Rob Reilly: I would just add to that. In terms of sentiment, obviously there has to be a higher level of concern, but to Bill's point, the activity has not changed. Bill Demchak: Spending has accelerated. Ebrahim Poonawala: That is actually good color. Thank you. Operator: Sure. Thank you. Our next questions come from the line of Scott Siefers with Piper Sandler. Please proceed with your questions. Scott Siefers: Good morning, guys. Thanks for taking the question. I wanted to follow up on that sentiment question and also about what it suggests for loan growth. You had pretty good performance in the first quarter, and when I look at the guide, it does not necessarily imply much growth in future quarters off the first-quarter base. But I inferred at least that your commentary on utilization rates sounded good. It sounds like they are increasing. Do you see anything specifically that would cause you to be conservative, or you are sort of approaching with an abundance of caution? Rob Reilly: Sure, Scott. Clearly, we saw more than what we expected in terms of loan growth in the first quarter, and on an average basis that is going to pull into the second quarter. On a spot basis going into the second quarter, we actually see it staying flattish because we do have some paydowns that are coming that will offset continued new production. That gets you through the second quarter. When you look at the back half of the year, we are pointing to growth, but not at the rate that we have seen in the first quarter nor that we expect in the second quarter. To your point, that is related to concerns that ultimately end up reducing the visibility of what can happen in the second half. Bill Demchak: Long story short, you have followed us long enough—we are never going to go out there and say loan growth is going to be this big number. We cannot predict it, but we banked some in the first quarter, so we put that in the authority base and go forward, and if we are pleasantly surprised, that will be great. Rob Reilly: And that will be accretive. Scott Siefers: Perfect. Okay. Thank you. And then, Rob, maybe just some expanded thoughts on how capital management might change, should these Fed proposals or NPRs indeed come through. How much more aggressively might you think about things, or what are the governing factors you think about? You get this big relief, but then it is unclear the ratings agencies are necessarily on board. What are the puts and takes you see, or the factors as you walk through that? Rob Reilly: Sure, Scott. Under both methodologies, we see a reduction in RWA of about 10% as I mentioned in the opening comments, which is good. We are still in the proposal or comment stage, so we have to work through the nuances. But at first blush, because AOCI is blended in under both methodologies over the five years upfront, there is no AOCI; that is close to a full point of capital for us. Bill Demchak: The other issue—you mentioned the rating agencies—and inside of their rating methodologies, they look at risk-weighted assets. I have not actually thought through the notion of, “Hey, we have less, so does this actually just pull through to how they are going to look at us as well?” But I think it will. Rob Reilly: We have not had that discussion point with the rating agencies, but they had adjusted their expectations with the change of these proposals, so they have worked the numbers down under the current framework. It is logical to expect that it would extend into the new methodology. Scott Siefers: Okay. Perfect. Thank you very much. Operator: Sure, Scott. Thank you. Our next questions come from the line of Manav Ghisalya with Morgan Stanley. Please proceed with your questions. Manav Ghisalya: Hey, good morning. Thanks for taking my questions. On the capital question, you noted that ERBA adoption benefit is similar to adopting the revised standardized approach. Would it still make sense to adopt the ERBA as it relates to maybe the flexibility that it could give you in managing the business going forward—maybe if you wanted to lean in on the investment grade credit side or lower LTV CRE? Just wanted to know how to think about this going forward. Rob Reilly: I think you are right. On the surface, the ERBA—because of the benefit coming through investment grade equivalent loans, which are our wheelhouse—makes that methodology appealing. But we are still in the analysis stage here. There are still a lot of nuances to figure out, and obviously potential changes after the comment period. But you are on the right track. Manav Ghisalya: Got it. And maybe if I can ask the loan growth question and compare it to the NII guide. You are pretty close to the 3% NIM number you had indicated, and you are taking the loan growth guide up by three percentage points. The NII guide is going up, but maybe to a lesser extent. Is there anything that we should be thinking about on loan spreads or deposit rates that you are baking in now that is different to where we were at the start of the year? Rob Reilly: The short answer is loan mix on the new production piece. If you go back to January when we called for 8% average loan growth, we used average spreads on the new production through 2026. Where we find ourselves today after the first quarter is we have generated, on a relative basis, much higher volume of higher credit quality deals, which by definition carry relatively lower spreads. Still attractive spreads, still attractive returns, particularly given the non-credit portion of those relationships. It is just a mix change that, when we look out for the full year, will have higher volume on relatively lower spreads, and as you point out, that results in higher NII than we thought in January. Manav Ghisalya: Which is a good thing. Rob Reilly: As far as NIM, we might as well cover NIM because someone will ask the question. We saw a nice increase in the first quarter relative to our expectations. We still expect to go above 3% in the second half. As you pointed out, we are at 2.95%, so if we are going to be above 3% in the second half, you can do the math in between. Most of the expansion is still coming from the fixed-rate asset repricing. That continues to be very strong. Manav Ghisalya: That is great color. Thank you. Operator: Thank you. Our next questions come from the line of John Pancari with Evercore. Please proceed with your questions. John Pancari: Good morning. Bill Demchak: Morning, John. John Pancari: On the fee side, I know your capital markets revenues decreased a bit off the particularly solid fourth quarter, particularly on the M&A front. Can you update us on the outlook here in terms of pipelines and how you will be thinking about M&A and your other capital markets revenue, given the current backdrop? Thanks. Rob Reilly: Sure. Harris Williams had a strong quarter in the first quarter. It was off the elevated levels of the fourth quarter but higher than what we expected. The good news is their pipelines are strong. Going into the second quarter, we expect them to be at the levels they were at in the first quarter, which again is more than what we thought. Strong activity there, and that is leading to the guide. In the second quarter, we have capital markets essentially being at the same level, and more importantly, for the full year still up double digits. John Pancari: Got it. Okay, great. And then on the capital front, appreciate the buyback color in terms of the plans for the second quarter. Maybe more broadly, can you talk about capital allocation priorities, and Bill, give us an update on where you stand on M&A interest given the backdrop and regulatory posture to deals? Bill Demchak: Real simply, we like to use our capital on clients and our business. We have increased our buyback given capacity to do so. We have—and you should expect that we will continue to have—healthy dividends. In the ordinary course, we will otherwise be giving back more capital to shareholders than perhaps we have in the last handful of years. The M&A side—the noise and activity levels, forgetting about us, just what I see going on around us—seems to have died down. We are focused on growing our company organically. We have great momentum on that. We keep our eyes open, but I do not think there is going to be a lot of M&A activity, particularly with us. People are happy to do what they want to do, and we are not going to push on a string, nor do we need to. John Pancari: Got it. Thanks, Bill. Appreciate it. Operator: Thank you. Our next questions come from the line of Ken Usdin with Autonomous Research. Please proceed with your questions. Ken Usdin: I was wondering—obviously we see the outlook for costs still intact for the year, and then higher first to second. Can you remind us of the expected conversion of FirstBank and then the magnitude of saves you are expecting and how that cascades to a run rate as you get through the rest of the year? Rob Reilly: Sure, Ken. Our full-year guide holds in terms of expenses up 7%, which includes the operating expenses of FirstBank. Relative to the first quarter, we spent a little less than we expected; that will fall into the second quarter, largely around technology investments and the timing of those investments. On FirstBank itself, everything is going well. We are still planning to convert mid-June. We expect approximately $325 million of integration charges. We will see the decline of their run rate in 2026. There will be some residual integration charges in the second half, but the majority will be completed in the second quarter, which will be about $150 million. That is all in our guidance, on track, and we feel good about it. Ken Usdin: Got it. So then we would assume that the cost saves would run rate by the fourth quarter and then that gives you a good starting point to think about next year? Rob Reilly: That is a good place to start. Ken Usdin: Cool. Great. And Rob, can you dig on that point a little bit? There is a push-off of some spending from first to second. Does that demonstrate the flexibility that you have? Rob Reilly: We of course have flexibility, but that was not what drove it. It was just timing. Some items slipped into the second quarter versus what was planned for the last couple weeks of the first quarter. Nothing major. Ken Usdin: Okay. Got it. Thanks a lot. Operator: Thank you. Our next questions come from the line of David Schieterini with Jefferies. Please proceed with your questions. David Schieterini: Hi, thanks for taking the question. On deposit pricing competition, are there any differences in competitiveness by geography in your footprint? Rob Reilly: Not really. Bill Demchak: In a retail memo, there were comments on the Midwest being tight with high promo offers by a few competitors. But it depends—some parts of the country people are doing big promo CDs, in other parts, they are focused on money market funds. People are fighting for deposits, and people are fighting for clients. Rob Reilly: Not particularly harder in any geography. David Schieterini: That is fair. It sounds like it is mostly stable, so that is good. Shifting to the loan side, can you talk about borrower sentiment, pipelines, and competitiveness on the loan pricing front? Rob Reilly: The quarter was really strong. It is always competitive. As I said, our new production was skewed toward higher credit quality, lower spread, and the pipelines look strong—a continuation of that into the second quarter. Bill Demchak: The only thing we have really seen on spread widening is in leveraged lending. We do not do much of that. In business credit, we have seen spreads move. Our partnership with TCW on cash flow lending—those spreads have gapped 50 basis points on new production because of the scare around what is going on in the process. Rob Reilly: The other thing to mention around loans is that we reached the inflection point on our commercial real estate balances, which we called for in 2026. As you know, that has been a headwind for a number of quarters, and we have reached that inflection point as we expected. David Schieterini: Great. Thank you. Operator: Thank you. Our next questions come from the line of Chris McGratty with KBW. Please proceed with your questions. Chris McGratty: Great. Good morning. Rob, you talked a lot about your confidence in the credit of the private credit portfolio and NDFI lending. Where would that rank in the wall of worry within the company? It seems like the market is, to your point, overestimating the loss content. Where in the risk curve does that live? Bill Demchak: It is not even on the curve. If you go through that whole bucket, the riskiest piece in the whole thing is that little $5 billion slice that is to REITs, leasing, and this and that. A AAA CLO senior tranche—static maturity—to my memory, there has never been a loss in the history of the product. The BDC exposure is really small. Even if that whole market blows up, which I do not think it is going to, that just causes that product to early amortize. You would have to have massive corporate defaults at low recovery rates to ever get hit on that. Remember when we highlighted our real estate book—we said we were worried about office, we are through it, we reserved a lot of it. This NDFI stuff is not even on the page of what we are looking at. It is nothing. It is a great business. It does not worry me. I worry about trucking companies, and I worry about people who are dependent on fuel and what is going to happen to discretionary spending. This is not in that list. Rob Reilly: Just as a follow-up, that real estate piece that you pointed to—that is the most risk—is still very little risk. That is on a relative basis. I think we had one loss back in 2014 in that category, and we are still talking about it. Bill Demchak: I get that the end of the market has seen liquidity events in a small slice of what is private credit, and it has scared everybody. Rob Reilly: Because a lot of people focus on that category of business credit intermediaries. The vast majority of ours are trade securitizations, so people sometimes mistakenly call that whole category private credit, and for us it is quite the opposite. Bill Demchak: To hammer on this point—way back in the financial crisis when corporate receivable securitizations used to be done through CP, it all stopped with the reversal at money funds. A handful of us started doing it on balance sheet. Really high credit quality, not a great spread, great return on economic risk, kind of lousy return on liquidity, decent return on regulatory capital. We are by far the market leader in it, and that is what is blowing up that category for us when you look at comparisons of how much we have in the book. But it is not risky. It is a great business and we are going to keep doing it, and we are going to have some conversations with the regulators on the uselessness of what they have defined as NDFIs. Chris McGratty: Great color. Thank you. Just my follow-up: the $350 million you talked about as the savings. I am interested beyond this year—you have the cost savings from this program and also the FirstBank deal. Is there more potential to cut costs as you couple of years go by, as the narrative around AI and technology investments evolves? Is there another benefit that yields? Bill Demchak: Yes is the short answer. I do not know that it is a standout structural change in the efficiency of banks in the sense that we have been automating for years and have largely kept our headcount flat as we doubled or tripled the size of the company. That continues. AI allows that to continue. Maybe it accelerates through time. Maybe you can establish a competitive advantage early on and be a leader in it, but everybody is eventually going to catch up and get to a place where banking follows the same trend we have been on forever and ever. The winner is going to be the low-cost provider of really good products with trust behind it. We are going to squeeze costs out of the production of what we offer to customers. You are going to need to do that to win in a consolidated industry. Rob Reilly: But that is likely over multiple years. For 2026, our continuous improvement $350 million of savings is part of our guide, which is up 7%. Operator: Thank you. Our next questions come from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question. Matt O'Connor: Good morning. Can you talk about your interest rate position right now and how you are thinking about hedging? I feel like the best hedges are put on when the market does not really know where rates might go, which is kind of where we are right now. Where are you right now, and what are you more concerned about protecting—downside or upside? Bill Demchak: Sort of technical answer: we are basically economic value of capital flat—duration is zero in our equity. We are flat to overall rate movement inside of our balance sheet. Having said that, we have continued the process, as you have seen us do last year and this year, of locking in forward curve rates, particularly when we see some volatility to the upside in the belly of the curve. We have done that and it gives us greater certainty around some of our comments for 2026, but even 2027 and into 2028 as we lock down some of these rates. So neutral in 2026 and looking to lock in some in 2027 and 2028 similar to what we did last year. Rob Reilly: Yes. Bill Demchak: Part of this discussion, of course, is do not confuse that—we are going to have really good NII trajectory for the next couple of years. We are going to do that despite being flat total rate exposure, which means we are not trading our future five years out for the ability to produce really strong NII in the first couple of years. Matt O'Connor: That is helpful. Specifically within some of these MSR hedges, residential and commercial—I understand this is not the broader interest rate risk management—but anything to read through there? You have had pretty strong net gains the last several quarters, and this time it was more offsetting. Anything interesting to point out there? Bill Demchak: We got chopped up. That is a massively negative convexity book and you are short options every which way you try to hedge it, and realized vol was way higher than implied. As we tried to hedge out that risk, we got chopped up. It happens, and you are exposed to it anytime you have rate swings as aggressively as we saw in the first quarter around some of the news. Through time, that tends to be an income-producing line item for us—usually we are plus, I do not know, $10 million. It is not a driver, to your point. We just got chopped this quarter. Rob Reilly: This quarter, the heightened rate volatility was the driver of an unusually large negative for us. Bill Demchak: But it was not like anybody screwed up. It was not a trading thing. Literally, realized volatility was higher than what was implied. Anything that has optionality in it gets hurt in that environment. Matt O'Connor: Okay. I realize the residential and commercial essentially offset each other, so that is not too bad getting chopped up. Operator: Thank you. Our next questions come from the line of Mike Mayo with Wells Fargo. Please proceed with your questions. Mike Mayo: To the extent that RWA with Basel III might be 10% less, how would you plan to use that extra capital, and when might you start leaning into using more capital—or maybe you are doing so already? Clearly, you are leaning into using capital with the loan growth that you had and expect. But maybe more buybacks, a deal—how do you think about using that excess capital and when? Thanks. Bill Demchak: It is down the road. We have increased our buyback. We have seen good deployment to our growth in the franchise. We will see when this gets approved and done after comments, and then it will be a whole new environment and we will figure out what we do at that point in time. It is a nice problem to have. We are going to drop a point of capital into our pocket. We will figure it out when it shows up. Mike Mayo: How do you see competition? It seems like the industry is all playing offense. You have been growing unused commitments, and that is playing out to a certain degree. You have already been competing, but others are coming back more in force. How do you see competition generally, especially with regard to loan growth? How are you getting so much more loan growth than the industry? To what degree are you competing on price? It just seems like everyone has excess capital and in those situations historically you have seen competition swing a little too far. Bill Demchak: That is not our story. We are bringing all these new markets online. We have more shots on goal. We are seeing more opportunities as opposed to trying to rebid the same deal I have been in for 22 years in our local market. That is a big part of it, and that is why when we went through the Southeast, now it is accelerating—BBVA and FirstBank markets. The other issue is we have much more specialty lending—do not read that as high risk—but we are in a lot of lending products that are not commodity capital. Whether it is our corporate receivables business or asset-based lending or equipment finance, we are in a lot of things that are not simply throwing money out as a generic good. At the margin, that always helps us outperform. Rob Reilly: The other piece is the expansion of the new markets—what we call our expansion markets—for our market-based corporate loans. Our national businesses aside, they are now more than half our loans and growing at twice the pace. That is a big driver. Mike Mayo: I missed what you said there. What is half your loans? Rob Reilly: More than 51% of our market-based loans. We have national businesses that are not market-based, but in all the markets that we have entered within the last 12 years, half of our corporate loans are in those markets. Mike Mayo: That is interesting. And what was that percentage a few years ago? Rob Reilly: I do not have it, but it probably started in the 30s, depending on where you are. Mike Mayo: And it is growing at two times the rate. Generally speaking, do you want to call out any of the expansion markets as being stronger than others? Rob Reilly: We have done very well in the Southeast, where we have been the longest. With the Southwest—Texas and California, Colorado now—we are online there. California has been, in some ways, shockingly strong. Bill Demchak: It is a target-rich environment. The amount of commercial middle market clients within the ZIP codes of California—great clients, great fee. And we have not done this by just doing loans. Our fee income percentage in these new markets is actually equal to or higher than our legacy markets. It is not like we are running out throwing money at people. It is an integrated relationship. We are really good at it, and we are growing. Mike Mayo: That is helpful. Thank you. Operator: Thank you. Our next questions come from the line of Gerard Cassidy with RBC Capital Markets. Please proceed with your questions. Gerard Cassidy: Hi, Bill. Hi, Rob. Bill, on your comments about the focus on organic growth, can you share an update? I think at the BAP Conference in November, Robin Gunner gave details about the retail expansion you are undertaking. How is that going? What are you learning from the process? Are you pleased with the pace? Bill Demchak: I am chuckling because Alex is going to be amused that his older brother gave the presentation. First of all, it is working. What have we learned? It is actually hard to build 60 or 100 branches a year. The site location, the teams that you need in each market to pull this off—we have created a production factory around it. We have learned a lot about how to create a massive buzz around a new branch opening, particularly when we are trying to get our fair share in a newer market where we are building a lot of branches. We have not leaned into pricing to attract new customers necessarily, which is an accelerant if we want to use it. But they are working really well. Gerard Cassidy: On the metrics, have you crystallized what you need in deposits or the type of deposits to bring a branch up to breakeven, and how long does it take to reach that point? Rob Reilly: Everything is on track, Gerard, and as Alex pointed out back in November, we pencil in three years to get to breakeven. We are running a little better than that right now. Everything is on plan and we are excited about it. Gerard Cassidy: Pivoting away from this growth, there has been a change in the leveraged lending guidelines by the FDIC and OCC. Have you been able to optimize any of your lending now that these restrictions went away in December? Are you seeing benefits where you are winning new business because you have more flexibility? Bill Demchak: Most of our struggle with that was that it was capturing business we were going to do anyway because it was really good business and they just had the definition wrong. Maybe at the margin we have seen some acceleration, but mostly it opened the window for banks to do good, smart business and not try to write a four-paragraph description of what is a good or a bad loan, which you just cannot do today. Gerard Cassidy: Very good. Operator: Thank you. Our next questions come from the line of Erika Najarian with UBS. Please proceed with your questions. Erika Najarian: Hi, good morning. A few quick follow-ups. Bill and Rob, I know you were asked a lot about the deposit opportunity. Just pulling up—if the Fed does not cut this year, how do you think deposit costs behave? Do you think that you could hold the line on deposit costs if the Fed does not cut? Rob Reilly: Yes. If the Fed does not cut, which is our expectation, deposit costs are fairly steady through the second quarter and then, by our estimates, maybe go up 1 or 2 basis points. Generally speaking, the pressure up is not from competition but rather repricing back book as things roll—back book customers to a closer-to-market level—which at the margin will cause our deposit cost to go up over the next period if the Fed does not move. It is all in our guidance, it is not material, and we will still hit the 3% NIM. That back book repricing is a dynamic that has been in place for a while; that is not new. There is obviously a risk if loan growth continues to exceed and there is pressure on those deposits, but that would be a good thing. Erika Najarian: Got it. Finally, one of your peers, David Solomon, talked about widening spreads in certain pockets of NDFI lending. Are you observing similar spread expansion in certain NDFI-type credits? Bill Demchak: Inside of NDFIs, the spot everybody is focused on is private credit. Inside of our bucket, the $7 billion is 90% CLOs. AAA tranches I imagine have widened. Facilities to BDCs are going to widen as the fear factor steps in. We have like $500 million—even less—of BDC exposure. The odds of me figuring out that there is a spread movement in there is unlikely because we are huge in the trade receivables flow business. Erika Najarian: Got it. Perfect. Thank you. Operator: Thank you. Our next questions come from the line of John McDonald with Truist. Please proceed with your questions. John McDonald: Hi, thanks. Good morning. Rob, as loan growth is picking up here, your reserve ratios look solid, but any need to start to provide a little for loan growth as we look ahead? Rob Reilly: That will be part of it. If you take a look at our provision increase quarter over quarter, that was largely driven by the loan growth we saw. That comes along with loan growth. These tend to be higher credit quality, so it is not as much, but I would expect provision expense to go up with the growth amount. John McDonald: On ROTCE, any updated thoughts? I think you talked earlier about exiting the year at kind of an 18% ROTCE heading higher next year. Any updates there? Rob Reilly: Same as what we said back in January. We finished 2025 at approximately 18% ROTCE—that was elevated a little by the tax reserve release in the quarter. We said, and still believe, we are going to go down during 2026 because of the FirstBank acquisition and the impact on that. Then when we deliver everything that we intend to deliver in 2026 along our guidance, we will be back to approximately 18% in the fourth quarter of 2026. The important part is we would expect to drift higher as we go into 2027. That is still the plan. John McDonald: Got it. And that is a function of operating leverage and growth next year in terms of moving higher? Rob Reilly: That is right. You bet. Operator: Thank you. We have reached the end of our question and answer session. With that, I would like to turn the floor back over to Bryan Gill for closing comments. Bryan Gill: Thank you all for joining our call today and for your interest in The PNC Financial Services Group, Inc. Please feel free to reach out to the IR team if you have any additional questions. Operator: Ladies and gentlemen, thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time and enjoy the rest of your day.
Operator: Hello, and welcome to the Vince Holding Corp. Fourth Quarter and Full Year Fiscal 2025 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Akiko Okuma, Chief Administrative Officer and General Counsel. You may begin. Akiko Okuma: Thank you, and good morning, everyone. Welcome to Vince Holding Corp. Fourth Quarter and Full Year Fiscal 2025 Results Conference Call. Hosting the call today is Brendan Hoffman, Chief Executive Officer; and Yuji Okumura, Chief Financial Officer. Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that the company expects. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that statements made during the call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on the call. In addition, in today's discussion, the company is presenting its financial results in conformity with GAAP and on an adjusted basis. The adjusted results that the company presents today are non-GAAP measures. Discussions of these non-GAAP measures and information on reconciliations of them to their most comparable GAAP measures are included in today's press release and related schedules, which are available in the Investors section of the company's website at investors.vince.com. Now I'll turn the call over to Brendan. Brendan Hoffman: Thank you, and good morning, everyone. I'm incredibly proud of the strong operating results we are announcing today, highlighting the exceptional momentum we delivered at the end of the year that has continued into the start of fiscal 2026. As we announced earlier this year, we saw incredible strength in our direct-to-consumer business over the holiday period, and that remained the case throughout the full quarter. For the fourth quarter, sales in our direct-to-consumer business increased about 10% compared to last year, supported by our ongoing efforts in improving the customer experience and by the strategic pricing actions taken earlier in the fall. For the overall quarter, sales were up nearly 5% compared to last year and profitability outpacing the high end of our prior guidance range. We are especially proud of this performance given the disruption we experienced with developments from Saks Global, which presented a headwind to sales of approximately $2 million in the quarter. With the recent reorganization of Saks Global, we now have more clarity into the situation and are working with our partners there as they move forward in their plans. As a reminder, Saks Global recently represented less than 7% of our total sales. We remain supportive and confident in the new leadership team's ability to stabilize the business. We believe any change in penetration from this one partner going forward will be offset by strength elsewhere in the channel, given our diversified base and strong relationships across our wholesale business. This is a credit to not only our strong partnerships, but to the great product that is resonating across both men's and women's. We were also really pleased as we continue to elevate the product offering appealing to our broad customer base. This strong performance supported by our fiscal 2025 results, which delivered sales growth of over 2% and adjusted EBITDA growth of about 8% despite contending with approximately $8 million of incremental tariff costs. As we have discussed, our teams have done a tremendous job in mitigating the tariff pressures we faced. We acted swiftly, diversifying our sourcing across Asia and globally while working closely with manufacturing partners to maintain the quality standards that define Vince. We also implemented strategic pricing increases while maintaining unit sales validating the strength and quality of our product. As we enter fiscal 2026, I am encouraged by the growth we are continuing to drive, and I'm more confident than ever in the trajectory ahead for Vince Holding Corp. Given this, we are exploring opportunities to continue to invest in the customer experience within our full-price direct-to-consumer business. We are looking at areas like special events, people and store operations, including remodels and new store openings, while also continuing to leverage our digital platform and expand drop ship to additional categories. In spring 2026, these categories will include handbags, tailored clothing, belts and accessories, creating revenue opportunity with minimal inventory risk for the business. In addition, we are continuing to scale our men's business. We ended the year with men's representing approximately 24% of total sales and continue to see opportunity to expand this to 30% penetration, driven by growth in wholesale partnerships and expanded assortments in our own stores and online. And with respect to our international business, our second London store in Marylebone exceeded expectations this year and validated our thoughts on further international expansion. This success gives us confidence to explore additional flagship opportunities in gateway cities like Paris in the next 2 years. Finally, the strategy, I believe, will really help to accelerate our growth is our focus on maximizing Vince Holding Corp as a platform. While we do not have anything yet to report, we are continuing to look for opportunities to leverage our platform our world-class team and capabilities to support additional brands. This will create a new revenue stream for Vince Holding Corp. We could not be more enthused by our partnership with ABG, which not only opens channels for us, but also provides great opportunities with respect to marketing and engaging customers. We are thrilled to partner with the ABG team with a recent event at the Masters last week, and we are looking forward to doing similar types of interactive activations with the team for future high-profile events. This is in addition to the elevated outreach that we are also doing in partnership with our wholesale partners. Following the successful brand events at the end of last year with Nordstrom and celebrating our holiday campaign at our Madison Avenue, New York City flagship, we have continued the storytelling around the Vince brand. We recently celebrated an exclusive capsule collection for Spring 2026 as part of Bloomingdale's California Love campaign and hosted an influencer and editor event to showcase the capsule and preview of our Spring 2026 collection with over 100 editors and influencers in attendance. As part of the event, we also co-hosted a private VIC dinner with Bloomingdale VICs complete with a fashion show and model presentation to great success. Fiscal '26 is off to a strong start in all accounts. As Yuji will review and as seen in our outlook in today's press release, the momentum we ended fiscal '25 with has continued across all channels. Our full-price business has never been stronger, reflecting the customers' continued love for the product and value they see for the brand. We believe macro events aside, we are positioned well to continue to deliver healthy profitable growth. A little over a year ago, I returned to Vince as CEO. I cannot emphasize enough the pride that I have in our team, our business and the results we have delivered to date. I want to thank our incredible associates for their dedication and execution throughout fiscal '25. Their ability to evolve the product, maintain quality and execute against our strategic priorities gives me tremendous confidence in the future. We are operating from a position of strength with disciplined execution and a clear road map for growth. I look forward to updating you on our progress as we move through the year. Now I'll turn it over to Yuji to discuss our financial results and outlook in more detail. Yuji Okumura: Thank you, Brendan, and good morning, everyone. As Brendan reviewed, our fourth quarter performance reflected ongoing strong momentum in our direct-to-consumer segment that we are pleased to see continue into the start of the new year. Before I discuss our first quarter and fiscal 2026 outlook, let me review our fourth quarter results in more detail. Total company net sales for the fourth quarter increased 4.7% to $83.7 million compared to $80 million in the fourth quarter of fiscal 2024. With respect to channel performance, our direct-to-consumer segment increased 10.4%, driven by strong performances across both our e-commerce business and stores. This performance offset the 1.2% decline in our wholesale channel, largely driven by the decision to pause shipments to Saks Global. Gross profit in the fourth quarter was $41.1 million or 49.1% of net sales. This compares to $40.1 million or 50.1% of net sales in the fourth quarter of last year. The decrease in gross margin rate was primarily driven by approximately 300 basis points due to the unfavorable impact of higher tariffs, 160 basis points due to the success of our promotional Black Friday and Cyber Monday events and approximately 125 basis points due to increased freight costs. These factors were partially offset by a favorable impact of approximately 380 basis points, primarily due to higher pricing. Selling, general and administrative expenses in the quarter were $44 million or 52.6% of net sales as compared to $37.8 million or 47.2% of net sales for the fourth quarter of last year. The increase in SG&A dollars was primarily driven by $6 million of bad debt expense related to Saks reorganization. Loss from operations for the fourth quarter was $2.9 million compared to loss from operations of $29.7 million in the same period last year. Adjusted operating income, which excludes the $6 million related to the Saks reorganization, was $3.1 million. This is compared to adjusted operating income of $2.5 million in the same period last year, excluding the impact of goodwill impairment charges and P180 transaction expenses incurred in the period. Net interest expense for the quarter decreased to $0.7 million compared to $1.6 million in the prior year. The decrease was primarily due to paydown of the third lien facility which occurred during January 2025. At the end of the fourth quarter of fiscal 2025, our long-term debt balance was $19.5 million. Income tax expense was $0.5 million compared to $2 million income tax benefit in the same period last year. The year-over-year change is primarily driven by tax benefit taken in the prior comparative quarter due to the reversal of the noncash deferred tax liability associated with the goodwill impairment, which previously could not be used as a source of income to support the realization of certain deferred tax assets related to company's net operating losses. Net loss for the fourth quarter was $3.6 million or a loss per share of $0.28 compared to a net loss of $28.3 million or a loss per share of $2.24 in the fourth quarter of last year. Adjusted net income for the fourth quarter of fiscal 2025, which excludes the bad debt expense previously reviewed, was $2.4 million or $0.18 per share. This is compared to the prior year period adjusted net income of $0.8 million or $0.06 per share, which excludes the impact of the goodwill impairment charge and its associated tax impact and the transaction expenses incurred during that period. Adjusted EBITDA was $4.5 million for the fourth quarter compared to $5.4 million in the prior year. This performance capped off a solid year overall despite navigating a highly dynamic environment, resulting in a net sales growth of 2.2% reported net income of $6.4 million and adjusted EBITDA of $15.1 million. Please refer to our press release for more details on our full year performance and reconciliation of non-GAAP measures. Moving to the balance sheet. Net inventory was $66.2 million at the end of fourth quarter as compared to $59.1 million at the end of fourth quarter last year. The year-over-year increase was primarily driven by approximately $4.8 million higher inventory carrying value due to tariffs. Turning to our outlook. As discussed, we have seen the momentum experienced in the fourth quarter continue into the start of fiscal 2026. In addition, our outlook assumes a reduced reciprocal tariff rate of 15% which we expect any benefit to be largely offset by the increase in supply chain costs driven by the rise in fuel and shipping costs. We are also not assuming any benefit with respect to potential tariff refunds. For the first quarter, we expect total net sales growth of approximately 8.5% to 10.5%, adjusted operating loss as a percentage of net sales of approximately negative 3.5% to negative 4.5% and adjusted EBITDA as a percentage of net sales to be approximately negative 1.5% to negative 2.5%, reflecting year-over-year expansion compared to negative 5.2% in the prior year period. For the full year fiscal 2026, we expect net sales growth to be approximately 3% to 6%, adjusted operating income as a percentage of net sales to be approximately 3.5% to 4% and for adjusted EBITDA as a percentage of net sales to be approximately 5% to 5.5%, compared to the 5% in the prior year. In summary, we are very pleased with our strong end of fiscal 2025 and the momentum we are driving to start fiscal 2026, underscoring our team's disciplined approach and our commitment to executing on our objectives. This concludes our remarks, and I'll now turn it over to the operator to open the call for questions. Operator: [Operator Instructions] Your first question comes from Eric Beder with SCC Research. Eric Beder: Congratulations on a great year. I want to talk a little bit about some of the changes you're doing in terms of the stores. So talk to me about -- so in our store business, we saw continued emphasis kind of on showing more color and a growing emphasis on some of the newer categories like drop shipping and suiting and handbags. So what should we be seeing as we move through 2026 in terms of how the stores are going to tweak for kind of these changes to maximize kind of further growth? Brendan Hoffman: Yes. I think we're continuing to experiment with some of our store setups, especially as we do some renovations. We pull out some legacy cash wraps, which opens up the stores, allows us to better showcase the way Caroline and the team envisioned kind of the way people are outfitting, mixing and matching and some doing group sets with our product. I think in terms of the other categories you mentioned, drop ship is a tool we are able to use online to take advantage of our licensed partners inventory. We started with shoes, with Caleres and we'll add in handbags, suitings, accessories in Q2. But to your point about being able to showcase some of these categories in the stores, I've always felt that was taught by our founders that it's important to have some more texture in the store that can only be given by having additional categories beyond just apparel. And so I think we are strategically utilizing those categories like handbags and accessories and cold weather and some others to provide more interest when the consumer is shopping. To the extent they become real revenue drivers, I mean, that's a bonus. And I think we have that potential, but more so online because of the drop ship. But it also allows us to storytell better, both in-store and with some of our social media and digital marketing. So we're really pleased with the way we've been able to expand categories and the partnership with Authentic Brands to drive that. Eric Beder: Great. And when we look at -- I know that there was some of a -- what's the word here. There were some of -- the tariffs kind of was kind of a little bit of shock in terms of this. But how should we be thinking about for this year and going forward in terms of the potential for both domestic and international stores? I know you mentioned Paris and London stores have done really well. How should we be thinking about the potential here in the U.S. now that we're, for you to say it's somewhat more normalized than we were last year. Brendan Hoffman: Yes. I think in terms of domestic stores. We're going to open some, we're going to close some. We obviously are very enthusiastic about the performance we had in Q4 with our stores. And as we mentioned in our remarks, that's continued in Q1. Probably the best performance I've seen over the course of 6 months in our stores in my 6 years here on and off. So I'm more bullish than ever on our ability to really drive productivity in our stores. And that gives me more confidence and the team more confidence to go out there and look for new locations. I don't think at the end of the day, you will see a huge increase in our store count. I think it will be -- hopefully, incrementally, we'll be able to add a few. But I think in large part, we're in most of the markets we want to be in, and it's more about rationalizing some of the stores and driving more productivity through the existing boxes. I think internationally, as you mentioned, Paris would be probably first on our wish list in terms of the next international gateway. We've had such great success with our Marylebone store in London, and I visited it in about 6 weeks ago. And truly, it's as good as stores we have in our fleet in terms of representing the Vince brand, where it's located amongst our peers. And I think if anything, it's just raised the bar for us in Paris because to the extent we are able to find something in Paris, it really needs to be a flagship store. We don't really have much representation in Paris. So we want to put our best foot forward, which just makes it a little bit more difficult to find the right location as opposed to finding a secondary store, but I think it's all for the right reasons. And so we'll continue to assess and update you as we have more information. Eric Beder: And last question on wholesale. So Nordstrom, you've expanded now to all Nordstrom stores, both men and women. When you look -- and they are a significant part of your business. When you look at the whole wholesale piece, is it adding new partners becoming deeper into the partners you have? How should we be thinking about how wholesale can continue to evolve? Brendan Hoffman: Yes. Thanks, Eric. Yes. I think it's becoming more -- continuing to become more important with the partners we have only because we're in most of the partners that are appropriate for men's, whether it be department stores or specialty stores. We clearly have a lot more growth in Bloomingdale's based on the fact that we've only been back with them for about 4 or 5 years, just gone men's all doors. And you see their results, and we have a great relationship with Olivier and Denise and the team there. We just did an event with them out in L.A. that was terrific. We just did an event with the Nordstrom team, Jamie Nordstrom in Dallas. So continuing to push that relationship. And then cautiously optimistic that Saks Global, Saks and Neiman and Bergdorf will -- are moving in the right direction. We obviously went through the trials and tribulations last year and took a hit in Q4. But with the new -- the old team, new team back with Geoffrey and Lana and then, of course, Tracy at Bergdorf. We know all of them well, and Darcy. And so we're hopeful that we can get that business back on track. But currently, clearly, Nordstrom's and Bloomingdale's are what's driving our wholesale business. Operator: Your next question comes from Michael Kupinski with Noble Capital. Michael Kupinski: I offer my congratulations on a great quarter and a great year as well. I was just wondering, there's been some reports that there has been renewed amount of traffic in malls and stores as well. And I was just wondering overall, are we -- are you seeing that trend? Or is that just some headline news that it's just not really translating into what is actual out there? Brendan Hoffman: Yes. I can't speak to the macro environment. But certainly, us, as an example, is consistent with that. Again, we've had a great 6-month run with our store business, driven by traffic, driven by conversion, driven by the increased prices that have been so well absorbed. And we have some malls, but then we have a lot of lifestyle and street front centers. And just couldn't be more pleased with some of the outsized performance we're seeing. And I think some of it has to do with the centers themselves and how they've kind of expanded and reinvented themselves. We have a great lifestyle store in Chestnut Hill. I hadn't been there in 5, 6 years since I've been going from Vince. I went and visited and the center is double what it once was. So that just brings more traffic and we're advantaged there. So some of these malls are investing in themselves and adding in new tenants are expanding, and that's all really positive for bringing qualified traffic that then we could take advantage of. Michael Kupinski: Great. And have you seen more -- where have you seen more of the pressure from competitors recently? I was just wondering if you can just kind of give us the lay of the land on the competition in your lane. Brendan Hoffman: Again, I think we're taking market share in our lane. So we certainly respect the peer brands we sit with and a lot of them are -- they're all navigating the same issues we are and some doing it well and some struggling. But I don't think our peer group has shifted all that much in the last few years. And as I just kind of implied with the retail locations, the centers, we actually do better when we're surrounded by our peer group and some luxury players to provide some context in, because I think we show up so well, especially with the product doing so well right now when people can compare and contrast us to some of the others that we're neighbors with. Michael Kupinski: And I know that you tapped on this with a couple of Eric's good questions. I was just wondering, where do you see the most operating leverage that you have untapped right now? And what are some of the more internal bottlenecks that you might be actively working on to remove? Brendan Hoffman: Yes. Well, I think prior to me returning, the team did a great job with their transformation process and really improved margin through IMU. And some of that. Thankfully, we did that because obviously, there were in our challenges now with some of the input costs with -- depending on what happens with tariffs. And as Yuji mentioned, with some of the disruption around fuel. But as those things start to play out and hopefully normalize, I think we'll have an opportunity longer term to recapture gross margin accretion. I think also as we start to grow the business and you saw our forecast for this year, that would really be a breakout for us to get out of that $300 million collar we've been in, we should start to get some SG&A leverage and be able to make some investments back in the business to sustain this growth or be more of a catalyst for this growth. And then as I've mentioned in the past, we're actively looking at other ways we can utilize our platform in partnerships. So we think we have a lot of different levers to pull, and we're hoping that some of the macro issues start to subside, but really proud of the way we got through the last 12 months and couldn't be more confident with how we're situated for success. Operator: This concludes the question-and-answer session. I'll turn the call to Brendan for closing remarks. Brendan Hoffman: Great. Thank you, everyone. We appreciate your continued interest in Vince, and we look forward to updating you on our Q1 results in June. Have a good day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.